The Alabama Supreme Court agreed with a Jefferson County judge that a lawsuit against CVS Caremark Corp. can be treated as a class-action to represent about 70,000 investors who claim they lost $3.2 billion in a 1990s securities fraud. The class-action stems from 21 lawsuits filed by investors in 1998 against MedPartners, a health company founded by former HealthSouth CEO Richard Scrushy. Those lawsuits claimed MedPartners made false and misleading statements to the public about its financial condition and prospects.
The lawsuits were combined and settled for $56 million after MedPartners claimed it was teetering on the edge of bankruptcy and that $50 million was all its insurance would cover. In 2000, MedPartners changed its name to Caremark and in 2007 merged with CVS.
Investor John Lauriello, one of the original Plaintiffs, filed a new fraud lawsuit In 2003 claiming MedPartners lied about having limited insurance coverage during the settlement negotiations. The lawsuit claims that in October 1998, prior to the settlement being finalized, MedPartners paid for unlimited insurance coverage. If the unlimited insurance coverage had been known at the time, it’s alleged that investors could have negotiated a higher settlement amount. CVS Caremark has claimed that the added insurance was known, or should have been known, to the Plaintiffs prior to the settlement. The company claims the extra insurance was noted in press releases, in communications with Plaintiffs’ lawyers, and within a filing with the U.S. Securities and Exchange Commission (SEC). CVS also has argued the lawsuit was filed beyond the statute of limitations.
CVS Caremark, which took over MedPartners, also opposed efforts to treat the claims as a class action. But the Alabama Supreme Court in last month’s ruling affirmed Circuit Judge Tom King’s certification of the class, with an opt-out provision. If the Alabama Supreme Court had not affirmed the claims as a class action then investors would have been forced to file individual lawsuits. Bruce McKee, one of the lawyers representing investors, said under an opt-out action notices will have to be sent to the estimated 70,000 investors in the class to see if they want to opt out of being represented in the case. Because many of the addresses of investors from 16 years ago may no longer be valid, the opt-out provision will have to be advertised.
Plaintiff’s lawyers had tried to get a mandatory class certified, with no opt-out provision, but the Supreme Court disagreed. The case can proceed on the merits once the opt-out process is complete. Plaintiffs will have to prove there was fraud during the settlement. Hare Wynn Newell & Newton, along with North & Associates and John Somerville, a Birmingham lawyer, were appointed by Judge King as the lawyers to represent the class. This is a most interesting case and it will be watched closely.
Source: Birmingham News