Opinion ID: 768466
Heading Depth: 3
Heading Rank: 2

Heading: Acquisition of TheraTx and Transitional

Text: 35 Plaintiffs allege that the defendants made false and misleading statementsabout the effect that the acquisitions of TheraTx and Transitional would have on Vencor's earnings and revenues. In particular, plaintiffs allege that Vencor's statement on February 10, 1997, that the acquisition of TheraTx would be accretive to earnings was false and misleading. Plaintiffs state that defendants knew that TheraTx had $25 million in bad debt. Accepting that defendants knew of this debt, the plaintiffs' allegation does not state a claim. Plaintiffs do not allege how the existence of this bad debt makes Vencor's statement false and misleading. In addition, this statement is a prediction or opinion and constitutes soft information. As stated above, soft information statements are not actionable. 36 Plaintiffs also allege that defendants' statement on July 24, 1997, that Vencor had successfully integrated TheraTx's operations was false and misleading because TheraTx's computer system was not fully operational until March 1998. The plaintiffs' allegations state that the computer system was not implemented until all of the Vencor employees were trained to use it. Plaintiffs' allegations, however, fail to establish a strong inference that the defendants' statements were false and misleading when made. For this statement to constitute fraud, the plaintiffs would have to allege facts that demonstrate that the inability of Vencor to utilize TheraTx's computer system until all of its employees were trained in the new system prevented the integration of TheraTx's operations into Vencor, i.e. that this computer problem caused TheraTx's operations to be run separately from the rest of Vencor. The complaint lacks allegations connecting the computer system to the successful integration of the companies; thus, the plaintiffs have not established a strong inference that this statement was false or misleading. 37 Plaintiffs allege that defendants' statements about the acquisition of Transitional were false and misleading. Plaintiffs, however, do not allege any statements with regard to this transaction which cannot be classified as forward-looking statements about soft information. Plaintiffs allege that on or about the last week in June of 1997, defendant Barr gave Transitional employees notice that they would be laid off in sixty days and told these employees that they probably would have been laid off anyway due to the proposed Medicare regulations. The plaintiffs proffer this statement as evidence of defendant Barr's knowledge of the effect of the Balanced Budget Act on Vencor's operations. Plaintiffs, however, fail to connect this statement to any of their allegations concerning the defendants' false and misleading statements. Without alleging a link between this statement and defendants' allegedly false and misleading statements, the plaintiffs have failed to allege sufficient facts establishing a strong inference of scienter. On its own, this statement is not actionable because it constitutes defendant Barr's opinion and is soft information. In the plaintiffs' other allegations involving the Transitional acquisition, they contend that the defendants made false and misleading statements about the benefit of the Transitional acquisition because they knew that the Balanced Budget Act would have a negative effect on Vencor. As stated above, the defendants cannot be held liable for any statements about the Balanced Budget Act prior to its enactment. In addition, plaintiffs' allegations fail because they allege only motive and opportunity and do not establish a strong inference of recklessness. Because the plaintiffs have failed to establish that any of defendants' statement regarding either the acquisition of TheraTx or Transitional were false or misleading the plaintiffs have not stated a claim of fraud.