Opinion
PC-2019-5658 PC-2019-6685
09-01-2020
IN RE: CVS HEALTH CORPORATION SECURITIES LITIGATION
For Plaintiff: Thomas W. Lyons, III, Esq., for City of Warren Police and Fire Retirement System Robert M. Duffy, Esq. and Stephanie F. Friedel, Esq., for David Freundlich For Defendant: Rachelle R. Green, Esq.; Robert Corrente, Esq.; Brenna A. Force, Esq.; Emily J. Migliaccio, Esq.; Geoffrey W. Millson, Esq.; Christopher N. Dawson, Esq.
For Plaintiff: Thomas W. Lyons, III, Esq., for City of Warren Police and Fire Retirement System Robert M. Duffy, Esq. and Stephanie F. Friedel, Esq., for David Freundlich
For Defendant: Rachelle R. Green, Esq.; Robert Corrente, Esq.; Brenna A. Force, Esq.; Emily J. Migliaccio, Esq.; Geoffrey W. Millson, Esq.; Christopher N. Dawson, Esq.
DECISION
STERN, J.
Before this Court are the following Motions to Dismiss the above-captioned Complaint: 1) Defendants CVS Health Corporation (CVS), Larry Merlo, David Denton, Eva Boratto, David Dorman, Richard Bracken, C. David Brown II, Alecia DeCoudreaux, Nancy-Ann DeParle, Anne Finucane, Jean-Pierre Millon, Mary Schapiro, Richard Swift, William Weldon, and Tony White's (the Individual CVS Defendants) (collectively, the CVS Defendants) Motion to Dismiss; 2) Defendants Lazard Frères & Co. LLC and Allen & Company LLC's (collectively, the Advisor Defendants) Motion to Dismiss; and 3) Defendants Fernando Aguirre, Mark T. Bertolini, Frank M. Clark, Molly J. Coye, Roger N. Farah, Jeffrey E. Garten, Shawn M. Guertin, Ellen M. Hancock, Richard J. Harrington, Edward J. Ludwig, and Olympia J. Snowe's (collectively, the Aetna Defendants) Motion to Dismiss. The CVS Defendants, Advisor Defendants, and Aetna Defendants move to dismiss the Consolidated Complaint filed by City of Warren Police & Fire Retirement System (City of Warren), individually and on behalf of all others similarly situated, and David Freundlich (Freundlich), individually and on behalf of all others similarly situated (collectively, Plaintiffs). Jurisdiction is pursuant to G.L. 1956 § 8-2-14 and Super. R. Civ. P. 12 (Rule 12).
I
Facts and Travel
A
Omnicare Acquisition
In or around May of 2015, CVS announced its acquisition of Omnicare, Inc. (Omnicare), a nationwide provider of pharmaceutical services in assisted living and long-term care (LTC) facilities. Consol. Compl. ¶ 43. The acquisition of Omnicare was complete on or about August 18, 2015, and Omnicare's operations-other than its specialty pharmacy business-were integrated into CVS's newly named Retail Long-Term Care Segment (Retail/LTC Unit). Id. ¶¶ 7, 45. In connection with the acquisition, CVS recognized "goodwill" of approximately $9.1 billion; $8.7 billion was allocated to the Retail/LTC Unit and $6.5 billion was specifically allocated to the LTC Unit (LTC Unit). Id. ¶ 45.
"Goodwill represents intangible assets acquired in a business combination (e.g., customer loyalty and brand reputation) that cannot be separately identified or directly measured." Id. ¶ 8.
In the following years, the "goodwill" attributable to the LTC Unit in connection with the Omnicare acquisition became impaired. Id. ¶ 60. Plaintiffs allege that CVS's poor customer service and negative trends impacting the LTC industry as a whole prevented the Omnicare business from growing as anticipated. Id. ¶¶ 53, 60; see also ¶¶ 54-59. CVS filed its Form 10-K for the year ending December 31, 2016 (2016 Form 10-K) and disclosed that in the third quarter of 2016 the required annual goodwill impairment test revealed that the fair value of the LTC Unit exceeded its carrying value of $6.4 billion by 7%. Id. ¶ 61. Nine months later, CVS filed its third-quarter form 10-Q for 2017 (2017 Q3 Form 10-Q), which disclosed that the LTC Unit exceeded its carrying value by 1% and explained "that it was 'reasonably possible that the operational performance of the LTC reporting unit could be below [CVS's] current expectation in the near term and the LTC reporting unit could be deemed to be impaired by a material amount.'" Id. ¶ 62. The same disclosures regarding the annual test for impairment of goodwill performed in the third-quarter of 2017 and discussed in the 2017 Q3 Form 10-Q were repeated in CVS's Form 10-K for the year ending December 31, 2017 (2017 Form 10-K), which was filed on February 14, 2018. Id.
B
Aetna Merger and Offering Documents
On January 4, 2018, CVS filed a draft Form S-4 (the Registration Statement) with the Securities and Exchange Commission (SEC), which registered shares to be issued and exchanged in connection with the Aetna Merger (the Merger). Id. ¶ 64. On February 9, 2018, CVS filed a final amendment to the Registration Statement and it became effective. Id. ¶ 65. The Registration Statement included, inter alia, a final prospectus for the CVS shares issued and exchanged in the Merger and incorporated by reference in the 2017 Q3 Form 10-Q and the 2017 Form 10-K (collectively, the Offering Documents). Id. In March of 2018, both CVS and Aetna's shareholders voted to approve the Merger and, on November 28, 2018, CVS issued approximately 274.4 million new shares of common stock to former Aetna Shareholders. Id. ¶¶ 4, 67.
1
Advisor Defendants
The Offering Documents also contained expert opinions prepared by the Advisor Defendants. Id. ¶ 129. Specifically, the Advisor Defendants "represented to Aetna shareholders that the merger consideration was fair, from a financial point of view, to Aetna shareholders." Id. The Advisor Defendants also opined in the Offering Documents that they had conducted adequate due diligence regarding the operations and financial condition of the companies. Id.
C
Instant Litigation
Now, Plaintiffs allege that the Offering Documents were negligently prepared and contained misstatements and omissions of material facts. Id. ¶ 68. Namely, the Plaintiffs allege that the statements concerning CVS's testing for goodwill impairment and the fair value of goodwill allocated to the LTC Unit were materially false and misleading. Id. ¶ 74. Plaintiffs assert that CVS should have performed an interim goodwill impairment test because the goodwill values reported in the Offering Documents was stale. Id. ¶ 12. Through the instant action, Plaintiffs represent a putative class of all persons who acquired CVS common stock pursuant to the Merger and traceable to the Offering Documents. Id. ¶ 111. Plaintiffs claim that the CVS Defendants violated § 11 of the Securities Act of 1933 (1933 Act) because the Offering Documents contained misstatements and omissions of material facts which made the Offering Documents misleading. Id. ¶ 119. Plaintiff Freundlich also asserts that the Advisor Defendants violated § 11 of the 1933 Act by providing expert opinions in the Offering Documents and representing that the Merger was fair and that the Advisor Defendants had conducted due diligence. Id. ¶ 129.
Plaintiffs also claim that the CVS Defendants violated § 12(a)(2) of the 1933 Act by promoting and selling CVS shares to Plaintiffs by means of the defective Offering Documents. Id. ¶ 136. Plaintiff Freundlich also asserts that the Aetna Defendants violated § 12(a)(2) of the 1933 Act by soliciting the putative class to vote in favor of the Merger and to sell their Aetna shares and purchase CVS common shares in connection with the Merger. Id. ¶ 142. Lastly, Plaintiffs claim that the Individual CVS Defendants violated § 15 of the 1933 Act by participating in the alleged violations of §§ 11 and 12(a)(2) of the 1933 Act by signing or authorizing the signing of the Offering Documents and participating in the Merger process. Id. ¶ 149.
On June 11, 2020, this Court heard from all parties. After considering the written and oral arguments, the Court now decides the instant motions to dismiss.
After the hearing on oral arguments, the Court received several communications from the parties regarding developments in a class action against CVS and several of its executives pending in the Supreme Court of the State of New York and docketed as Labourers' Pension Fund of Central and Eastern Canada v. CVS Health Corp., Index No. 651700/2019 (LPF). While the Court recognizes that these correspondences were intended to inform the Court about the status of the LPF case, the Court will not consider the substantive arguments made by counsel in the correspondences. After the June 11, 2020 hearing, the record was effectively closed, and this Decision is based on the extensive briefing and oral arguments, during which the parties were given ample opportunity to be heard.
II
Personal Jurisdiction
The Aetna Defendants move to dismiss Count IV, which is asserted by Plaintiff Freundlich and alleges that the Aetna Defendants are liable for the alleged misstatements and omissions in the Offering Documents pursuant to § 12(a)(2) of the 1933 Act. See Consol. Compl. ¶¶ 140-45. The Aetna Defendants argue, inter alia, that Count IV must be dismissed because this Court does not have personal jurisdiction over the Aetna Defendants.
The Aetna Defendants also move to dismiss Shawn Guertin (Guertin) from this case. Guertin is alleged to be Aetna's Executive Vice President, Chief Financial Officer, and Chief Enterprise Risk Officer during the relevant time period. Id. ¶ 40. Guertin is also alleged to have "reviewed, contributed to, and approved the Offering Documents." Id. However, there is no cause of action asserted against Guertin. Count IV is asserted against the "Aetna Director Defendants," a term defined in the Consolidated Complaint which does not include Guertin. See id. ¶ 41 (defining the "Aetna Director Defendants" as "Fernando Aguirre, Frank M. Clark, Molly J. Coye, Roger N. Farah, Jeffrey E. Garten, Ellen M. Hancock, Mark T. Bertolini, Richard J. Harrington, Edward J. Ludwig, and Olympia J. Snowe"). Freundlich has acknowledged that the Consolidated Complaint inadvertently named Guertin as a defendant. See Pl. Freundlich's Mem. Opp'n Mot. Dismiss n.3. Accordingly, the Court finds that Plaintiff Freundlich has failed to state a claim upon which relief can be granted against Guertin because no claim has been asserted against Guertin. Guertin is dismissed from this action.
A
Standard of Review
"It is well established that to withstand a defendant's Rule 12(b)(2) motion to dismiss a complaint for lack of in personam jurisdiction, a plaintiff must allege sufficient facts to make out a prima facie case of jurisdiction." Cerberus Partners, L.P. v. Gadsby & Hannah, LLP, 836 A.2d 1113, 1118 (R.I. 2003) (citing Ben's Marine Sales v. Sleek Craft Boats, 502 A.2d 808, 809 (R.I. 1985)). "A prima facie case of jurisdiction is established when the requirements of Rhode Island's long-arm statute are satisfied." Id. at 1118 (citation omitted). Section 9-5-33(a) of the Rhode Island General Laws provides the following:
"Every foreign corporation, every individual not a resident of this state . . . and every partnership or association, composed of any person or persons not such residents, that shall have the necessary minimum contacts with the state of Rhode Island, shall be subject to the jurisdiction of the state of Rhode Island . . . in every case not contrary to the provisions of the constitution or laws of the United States."
Our Supreme Court has interpreted § 9-5-33(a) as allowing Rhode Island courts to exercise jurisdiction "over nonresident defendants to the fullest extent allowed by the United States Constitution." Rose v. Firstar Bank, 819 A.2d 1247, 1250 (R.I. 2003) (citing McKenney v. Kenyon Piece Dye Works, Inc., 582 A.2d 107, 108 (R.I. 1990)).
B
Freundlich concedes that the Aetna Defendants are not subject to general jurisdiction in Rhode Island.
The Aetna Defendants argue that they are not subject to specific jurisdiction in Rhode Island because Freundlich's claim that the Aetna Defendants violated § 12(a)(2) of the 1933 Act does not arise from their purposeful contacts with Rhode Island. Specifically, the Aetna Defendants contend that Aetna is a Pennsylvania company with its principal place of business in Connecticut, and there are not particularized allegations in the Consolidated Complaint relative to the Aetna Defendants' connections to Rhode Island.
Freundlich objects, arguing that the Aetna Defendants are subject to specific jurisdiction in Rhode Island because the Aetna Defendants purposefully availed themselves of Rhode Island by negotiating and approving a merger with a Rhode Island company. Freundlich argues that pursuant to the Merger, Aetna became a wholly owned subsidiary of a Rhode Island company, four of the Aetna Defendants were added to the CVS Board of Directors, the Aetna Defendants prepared, reviewed, and/or approved the Offering Documents sent to Aetna Shareholders, and the Aetna Defendants encouraged Aetna Shareholders to approve the Merger. Freundlich contends that these activities, when viewed in the aggregate, show that the Aetna Defendants deliberately and purposefully availed themselves of the privilege of doing business in Rhode Island, and the Aetna Defendants could reasonably anticipate being hailed into court in Rhode Island.
"[A] party can make a prima facie showing of specific personal jurisdiction over a defendant 'if the claim sufficiently relates to or arises from any of a defendant's purposeful contacts with the forum.'" Cassidy v. Lonquist Management Co., LLC, 920 A.2d 228, 233 (R.I. 2007) (quoting Rose, 819 A.2d at 1251). "The United States Supreme Court has emphasized that '[i]n order for a state court to exercise specific jurisdiction, the suit must aris[e] out of or relat[e] to the defendant's contacts with the forum.'" Martins v. Bridgestone Americas Tires Operations, LLC, No. PC-2017-2420, 2018 WL 1341662, at *8 (R.I. Super. Mar. 8, 2018) (quoting Bristol-Myers Squibb Co. v. Superior Court of California, 137 S.Ct. 1773, 1780 (2017) (internal quotations omitted))). Accordingly, "[t]he defendant must have performed 'some act by which [it] purposefully [availed] itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws."' Cerberus Partners, 836 A.2d at 1119 (quoting Rose, 819 A.2d at 1251). Factors determining whether specific jurisdiction exists include "the relationship among the defendant, the forum, and the litigation." State of Maryland Central Collection Unit v. Board of Regents for Education of University of Rhode Island, 529 A.2d 144, 151 (R.I. 1987) (citing Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). Establishing "specific jurisdiction is a far less onerous burden for the plaintiff to carry than that of general jurisdiction." Cerberus Partners, 836 A.2d at 1119 (citing Ben's Marine Sales, 502 A.2d at 812).
Plaintiff Freundlich's claim against the Aetna Defendants arises out of § 12(a)(2) of the 1933 Act and, accordingly, the Court must examine whether the Aetna Defendants' contacts with Rhode Island have a sufficient relation to the alleged misstatements and omissions contained in the Offering Documents. See Cassidy, 920 A.2d at 233. Based on the allegations contained within the Consolidated Complaint, along with the affidavits proffered by the Aetna Defendants, the Court finds that Plaintiff Freundlich has failed to carry his burden in showing a prima facie showing of specific jurisdiction. First, none of the Advisor Defendants reside in Rhode Island or have resided in Rhode Island at any point in the last five years. See Aetna Defs.' Mot. Exs. C1-C10 ¶ 2. Second, the Advisor Defendants did not "draft, review, or approve the prospectus that was filed in connection with [the Merger] while in the State of Rhode Island." See id. at ¶ 4. Accordingly, the Court finds that Plaintiff Freundlich has failed to show that there was any affiliation between Rhode Island and the alleged violations of § 12(a)(2) of the 1933 Act because no activities or occurrences related to the alleged misstatements or omissions contained within the Offering Documents occurred in Rhode Island. See Bristol-Myers Squibb, 137 S.Ct. at 1780 (noting that for specific jurisdiction to exist there must be "'an affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum state . . . .'" (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011))).
In ruling on a 12(b)(2) motion to dismiss for lack of personal jurisdiction, the Court is not limited to the pleadings and may consider matters outside the Consolidated Complaint. See Rule 12(b) (providing that consideration of a motion to dismiss for failure to state a claim upon which relief can be granted is limited to the pleading).
In addition, the Court finds the fact that subsequent to the Merger, Aetna became a wholly owned subsidiary of a Rhode Island company and four of the Aetna Defendants were added to the CVS Board of Directors is not a relevant contact for purposes of specific jurisdiction. Any post-Merger events are not related to Plaintiff Freundlich's claim that the Offering Documents contained material misstatements or omissions. See Harlow v. Children's Hospital, 432 F.3d 50, 61 (1st Cir. 2005) (discussing the timing of contacts for specific jurisdiction and concluding that the "focus [should] be on those contacts leading up to and surrounding the claimed injury").
Moreover, to prove the Aetna Defendants are liable for a violation of § 12(a)(2) of the 1933 Act, Plaintiff Freundlich must establish that the Offering Documents contained untrue statements of material fact or material omissions about the goodwill allocated to the LTC Unit. Quite clearly, this claim is limited to the Registration Statement, prospectus, and Offering Documents, and does not implicate any post-Merger events.
Accordingly, the only remaining relevant alleged contacts the Aetna Defendants had with Rhode Island are detailed in the Registration Statement itself, and include discussions with CVS senior management, both in-person and telephonically, regularly scheduled and special board of directors' meetings during which the Aetna Defendants received updates on the Merger, and due diligence meetings. See CVS Defs.' Mot. Ex. 6 at 90-97. However, the Court cannot determine-based on the record before it-where the meetings or telephonic calls took place and/or were placed to and, therefore, these contacts are not purposeful contacts with Rhode Island. Cf. Regan v. Kidder Peabody & Co., No. 23273/90, 1991 WL 354937, at *4 (N.Y. Sup. Ct. July 3, 1991) (finding specific personal jurisdiction against a corporate executive for alleged violations of the 1993 Act where the executive attended board meetings in New York, executed the registration statement in New York, and made "several" calls to New York). Accordingly, the Court cannot determine whether the Aetna Defendants established sufficient minimum contacts with-and thereby purposefully availed themselves of-Rhode Island because it is unclear what relationship, if any, the Aetna Defendants had with Rhode Island relative to the alleged misstatements and omissions contained within the Offering Documents. See Walden v. Fiore, 134 S.Ct. 1115, 1122 (2014) (recognizing that the relationship between a nonresident defendant and the forum state "must arise out of contacts that the 'defendant himself' creates with the forum State.") (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985))).
Based on the foregoing, the Court finds that Plaintiff Freundlich has failed to make a prima facie showing of specific personal jurisdiction over the Aetna Defendants. Accordingly, the Aetna Defendants' motion to dismiss for lack of personal jurisdiction is granted.
III
Duplicative
The CVS Defendants, joined by the Aetna Defendants and the Advisor Defendants (collectively, the Defendants), move to dismiss the Consolidated Complaint, arguing that it is duplicative of class actions filed in other jurisdictions. Specifically, the Defendants contend that this Court should dismiss the Consolidated Complaint in favor of other earlier-filed class actions pending in Rhode Island federal court and New York state court. Plaintiffs object, arguing that the other pending class actions assert claims under different statutes and involve predominantly different parties, that the "first-to-file" rule is inapplicable in the context of parallel suits pending in two different state courts, and that the balance of convenience favors maintaining the instant action.
The Court notes that the "first-to-file" rule is not contemplated by the Rule 12 motions, but the First Circuit Court of Appeals has recently held that a first-to-file issue is non-jurisdictional and "is to be addressed under Federal Rule of Civil Procedure 12(b)(6), not Rule 12(b)(1) . . . ." United States v. Millenium Laboratories., Inc., 923 F.3d 240, 244 (1st Cir. 2019), cert. denied sub nom. Estate of Cunningham v. McGuire, 140 S.Ct. 851 (2020). Thus, the First Circuit confines its review of a first-to-file issue "to the pleadings and to facts subject to judicial notice." Id. This includes the facts alleged in the pending complaint and any other relevant first-filed complaints. Id. at 245. Consideration of other relevant first-filed complaints is in accordance with our Supreme Court's precedent that when addressing a motion to dismiss pursuant to Rule 12(b)(6), a trial justice may consider documents that fall within "the First Circuit Court of Appeals' 'narrow exception for documents the authenticity of which are not disputed by the parties [and] for official public records . . . ."' Mokwenyei v. Rhode Island Hospital, 198 A.3d 17, 22 (R.I. 2018) (quoting Chase v. Nationwide Mutual Fire Insurance Company, 160 A.3d 970, 973 (R.I. 2017)). Accordingly, in ruling on the Defendants' motion to dismiss based on the first-to-file rule, the Court may consider the allegations in the Consolidated Complaint and the allegations in any other relevant first-filed complaints.
A
Overview of the "First-to-File" Rule
1
"First-to-File" Rule - Federal Courts
The "first-to-file" rule has been applied by federal courts to remedy the problem of "wasted resources because of piecemeal litigation, the possibility of conflicting judgments, and a general concern that the courts may unduly interfere with each other's affairs." TPM Holdings, Inc. v. Intra-Gold Industries, Inc., 91 F.3d 1, 4 (1st Cir. 1996). Accordingly, where two cases are filed in separate federal courts and "the overlap between the two suits is nearly complete, the usual practice is for the court that first had jurisdiction to resolve the issues and the other court to defer." Id. (citing West Gulf Maritime Association v. ILA Deep Sea Local 24, 751 F.2d 721, 729 (5th Cir. 1985)). However, "'[t]he preference for the first-filed action is not a per se rule, but rather a policy governed by equitable considerations, "' Feinstein v. Brown, 304 F.Supp.2d 279, 283 (D.R.I. 2004) (quoting SW Industries, Inc. v. Aetna Casualty & Surety, Co., 653 F.Supp. 631, 634 (D.R.I. 1987)), and made at the discretion of the court. See Nortek, Inc. v. Molnar, 36 F.Supp.2d 63, 69 (D.R.I. 1999). A court may exercise its discretion to decline to defer to the first-filed action "where the balance of convenience weighs in favor of the second-filed action or where there are special circumstances." Berkshire Place Associates, LP v. MDG Real Estate Global Limited, No. 1:19-CV-432-MSM-LDA, 2020 WL 516727, at *2 (D.R.I. Jan. 31, 2020) (internal quotations omitted).
2
"First-to-File" Rule - Rhode Island Courts
While our Supreme Court has applied the "first-to-file" rule in situations where the same or similar plaintiffs have filed two parallel actions in two courts within this state, see Barone v. O'Connell, 785 A.2d 534, 535 (R.I. 2001) (holding that "'where the two courts' jurisdictions overlap, principles of comity shall control and the court whose jurisdiction is first invoked should resolve the issues presented to it'") (quoting Halliwell v. Lippitt Realty Co., 121 R.I. 927, 927, 394 A.2d 708, 709 (1978))); see also Lippman v. Kay, 415 A.2d 738, 741 (R.I. 1980) (recognizing that "when two courts of the same state have concurrent jurisdiction over a claim and the claim is asserted in both courts, the court in which the claim was first asserted has priority of jurisdiction and the second court must defer to it"), it has not had occasion to consider the application of the "first-to-file" rule between a case filed in a court in our state and another case filed in a court of a sister state, or between a case filed in a court in our state and another case filed in a federal court. However, our Supreme Court has recognized the doctrine of forum non conveniens, see Kedy v. A.W. Chesterton Co., 946 A.2d 1171, 1179 (R.I. 2008) (acknowledging that the doctrine is part of Rhode Island's jurisprudential landscape), is analogous to the "first-to-file" rule both in its purpose and analysis. See 32A Am. Jur. 2d Federal Courts § 1202 (explaining that the factors considered when applying the "first-to-file" rule "include many of the factors ordinarily determinative of whether to grant a change of venue for convenience, or in the interest of justice").
Notwithstanding that our Supreme Court has not addressed the application of the "first-to-file" rule in a context similar to the one before this Court, the "first-to-file" rule has been previously addressed in the Superior Court Business Calendar context. While not binding on this Court, it has been acknowledged that there is "a general rule of judicial discretion that a court may stay or dismiss proceedings when there is a prior case pending in another court of competent jurisdiction involving the same issues and the same parties." The Big East Conference v. West Virginia University, No. PB-2011-6391, 2011 WL 6933720, at *8 (R.I. Super. Dec. 27, 2011).
Additionally, many state courts have recognized that application of the "first-to-file" rule is appropriate to resolve whether a state court action should be deferred in favor of an earlier-filed action in another state court or a federal court. See, e.g., Wamsley v. Nodak Mutual Insurance Co., 178 P.3d 102, 110 (Mont. 2008) (affirming the district court's denial of a motion to stay proceedings in Montana pending the outcome of a previously filed declaratory judgment action in North Dakota); Sherry v. Sherry, 131 Nev. 1346, 1346 (2015) (affirming the application of the "first-to-file" rule where a first-filed Illinois action and a later-filed Nevada action involved the same parties and sought to resolve the shared issue of the termination of the parties' marriage); Wachtell, Lipton, Rosen & Katz v. CVR Energy, Inc., 143 A.D.3d 648, 648 (N.Y.App.Div. 2016) (finding that a party's choice of federal forum for an earlier-filed legal malpractice action was "entitled to comity" and warranted dismissal of state declaratory judgment action based on the same cause of action and involving the same parties); Darling v. American Graphics Institute, Inc., No. CIV.A. CV-02-602, 2003 WL 22019549, at *2 (Me. Super. Aug. 6, 2003) (staying a proceeding pursuant to the "first-to-file" rule where "identical issues [were] to be arbitrated pursuant to a proper federal court Order"). Based on our Supreme Court's recognition of the "first-to-file" rule as between two sister state court actions-along with its explicit recognition of the analogous doctrine of forum non conveniens-and the wide recognition of the rule across both federal and state courts, this Court finds that application of the "first-to-file" rule is appropriate in the instant matter.
B
Application of the "First-to-File" Rule
1
Chronology of the Actions
First, the Court must consider the chronology of the actions. See Alltrade, Inc. v. Uniweld Products, Inc., 946 F.2d 622, 625 (9th Cir. 1991). Here, the instant Complaint was filed on May 13, 2019, and there are two first-filed actions relevant to this analysis. See Ward v. Follett Corp., 158 F.R.D. 645, 648 (N.D. Cal. 1994) (explaining that for purposes of the "first-to-file" rule the chronology of the actions is measured from the date of filing the original complaint, not any amended complaints). First, on February 25, 2019, a shareholder filed a class action against CVS and several of its executives in the United States District Court for the Southern District of New York. The action was transferred to the United States District Court for the District of Rhode Island and docketed as Anarkat v. CVS Health Corp., No. 1:19-cv-00437 (Anarkat). Second, on March 22, 2019, a different shareholder filed a class action against CVS and several of its executives in the Supreme Court of the State of New York. The action was docketed as Labourers' Pension Fund of Central and Eastern Canada v. CVS Health Corp., Index No. 651700/2019 (LPF).
Defendants also reference the Waterford Township Police & Fire Retirement System v. CVS Health Corp., Inc. matter, which is presently pending in the United States District Court for the District of Rhode Island and docketed as No. 1:19-cv-00434 (Waterford). However, the Waterford complaint was filed on August 15, 2019, which is after the instant Complaint was filed on May 13, 2019. See Ward, 158 F.R.D. at 648 (explaining that for purposes of the "first-to-file" rule the chronology of the actions is measured from the date of filing the original complaint, not any amended complaints). Accordingly, the Waterford action is not relevant to this Court's analysis for purposes of the "first-to-file" rule. Also irrelevant is a case pending in the New York Supreme Court Commercial Division docketed as Cambria County Employees Retirement System v. CVS Health Corp., No. 653223/2019 (Cambria). Cambria was filed on May 31, 2019, which is after the instant Complaint was filed on May 13, 2019. See id.
2
Substantial Overlap
Next, the Court must determine whether there is "a substantial overlap of parties and issues" in the two actions. McGlynn v. Credit Store, Inc., 234 B.R. 576, 581 (Bankr. D.R.I. 1999). The Defendants argue that there is nearly complete overlap between the parties and issues in the prior-filed actions. Specifically, the Defendants argue that the Plaintiffs seek to represent a putative class that is identical to the putative classes in Anarkat and LPF, and there is a core group of defendants common to Anarkat, LPF, and this action. Defendants also contend that the issues presented and the relief requested in Anarkat and LPF are substantially similar to this action because each allege that CVS mispresented the performance and goodwill valuation of the LTC Unit in the Offering Documents and seek monetary damages for the decline in CVS's share prices.
Plaintiffs object, arguing that Anarkat and LPF involve substantially different parties and claims. Plaintiffs argue that the putative class in Anarkat is different than the putative class in this action, and that the defendants named across the three actions are different, including the eleven independent CVS Directors named in this action, along with the Aetna Defendants and Advisor Defendants named by Freundlich. Plaintiffs also contend that the claims advanced in Anarkat are different than the claims advanced in the instant action. Namely, Plaintiffs maintain that the Anarkat action asserts § 10(b) fraud claims under the 1934 Act, while the instant action asserts § 11 strict liability claims under the 1933 Act.
a
Anarkat
First, the Court finds that the putative class Plaintiffs seek to represent in this action are substantially similar to the putative class already being represented in Anarkat. In Anarkat, the putative class is "all investors who purchased or otherwise acquired . . . CVS . . . securities between February 9, 2016 and February 20, 2019." Anarkat Compl. ¶ 1. While the putative class in the instant action is narrower and only includes "all persons who acquired CVS common stock pursuant or traceable to the Offering Documents," Consol. Compl. ¶ 111, CVS issued the new shares of common stock to former Aetna Shareholders on November 28, 2018. Id. ¶¶ 4, 67. Accordingly, the putative class in this action is completely subsumed within the Anarkat putative class.
Next, the Court finds that there is substantial overlap between the defendants named in Anarkat and the defendants named in the instant action. For purposes of the first-to-file rule, the parties in the two actions need not be perfectly identical in order for there to be substantial overlap. See Baatz v. Columbia Gas Transmission, LLC, 814 F.3d 785, 790 (6th Cir. 2016). As such, the addition of eleven independent CVS Directors in this action is of no moment because these Directors are closely affiliated with CVS. See Foxfield Villa Associates, LLC v. Regnier, 918 F.Supp.2d 1192, 1197 (D. Kan. 2013) (holding that the defendants in a federal suit were substantially similar to the defendant in a state suit where the additional federal suit defendants were "closely affiliated with the defendant present in both cases" and included defendant's holding company and members of the boards of directors).
As the Aetna Defendants have been dismissed from this action on independent grounds, the Court finds that their addition to the instant action is not relevant to the "first-to-file" analysis. Moreover, the addition of the Advisor Defendants in the instant action does not render it substantially different from Anarkat and LPF. There are no individualized allegations advanced against the Advisor Defendants, and
"[w]here the issues are substantially similar, the absence of a single party from the first-filed suit will not necessarily defeat the first-to-file rule. Indeed, if parties were required to be identical, then the rule and its benefits could be easily avoided simply by adding a party or a claim to the later-filed action." Herer v. Ah Ha Publishing, LLC, 927 F.Supp.2d 1080, 1089 (D. Or. 2013).
Lastly, the Court finds that there is substantial overlap between the issues in the Anarkat action and the issues in the instant action. Anarkat advances claims under the 1934 Act and alleges that the Offering Documents contained false and misleading statements and omissions about the condition, performance, and value of the LTC Unit. Anarkat Compl. ¶¶ 1, 27. While the instant Consolidated Complaint advances claims under the 1933 Act-which the United States Supreme Court has recognized federal and state courts have concurrent jurisdiction over and which are not removable to federal court, see Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S.Ct. 1061, 1064-65 (2018)-the relevant focus for the "first-to-file" rule is not the specific claims advanced between the actions, but rather "overlapping subject matter is the key; exact identity of claims is not required." Catanese v. Unilever, 774 F.Supp.2d 684, 689 (D.N.J. 2011). Accordingly, the facts alleged in Anarkat are substantially similar to those advanced in the instant Consolidated Complaint, and the claims involve the same alleged misstatements and/or omissions in the Offering Documents. U.S. ex rel. Heineman-Guta v. Guidant Corp., 718 F.3d 28, 34 (1st Cir. 2013) (holding that the "first-to-file" rule bars a later-filed complaint under the False Claims Act where the later-filed complaint "'states all the essential facts of a previously-filed [complaint]' or 'the same elements of a fraud described in an earlier suit.'" (quoting U.S. ex rel. Duxbury v. Ortho Biotech Products, L.P., 579 F.3d 13, 32 (1st Cir. 2009))). "[T]he fact that this action involves claims under the 1933 Act and the [Anarkat] action involves claims under the 1934 Act is not a reason to deny a stay motion: 'it is inconsequential that different legal theories or claims [are] set forth in the two actions.'" Mahar v. General Electric Co., 65 Misc.3d 1121, 1132, 112 N.Y.S.3d 879, 888 (N.Y. Sup. Ct. 2019), reargument denied, (N.Y. Sup. Ct. 2020) (quoting Shah v. RBC Capital Markets, LLC, 115 A.D.3d 444, 445, 981 N.Y.S.2d 524, 525 (1st Dept. 2014)).
Based on the foregoing, the Court finds that there is substantial overlap of parties and issues between Anarkat and the Consolidated Complaint. Before turning to whether an exception to the "first-to-file" rule applies, the Court must also consider whether there is substantial overlap between LPF and the instant action.
b
LPF
First, the Court finds that the putative class in LPF and the putative class in the instant action substantially overlap. In LPF, the putative class is "all persons or entities who purchased or acquired CVS common stock pursuant and/or traceable to the Registration Statement, and who were damaged thereby." LPF Compl. ¶ 92. Similarly, the putative class in the instant action is "all persons who acquired CVS common stock pursuant or traceable to the Offering Documents." Consol. Compl. ¶ 111. Accordingly, the putative class in this action is identical to the LPF putative class.
Next, the Court finds that the defendants named in LPF and the Defendants in the instant action also substantially overlap. In LPF, CVS is named as a defendant along with three individual CVS executives. LPF Compl. ¶¶ 24-27. While the instant action also includes eleven other independent CVS Directors as Defendants, the Court has already concluded that this addition is of no moment because the eleven independent CVS Directors are closely affiliated with CVS. See Foxfield Villa, 918 F.Supp.2d at 1197.
Finally, the Court finds that there is substantial overlap of issues between LPF and the instant action. LPF alleges that "the Registration Statement contained materially false and misleading statements concerning [CVS's] goodwill," LPF Compl. ¶ 10; see also id. ¶ 62, and advances claims under §§ 11, 12, and 15 of the 1933 Act. See id. Counts I, II, and III. Similarly, the instant action alleges that the registration was "negligently prepared, contained untrue statements of material fact, and omitted material facts both required by governing regulations and necessary to make the statements made not misleading," see Consol. Compl. ¶ 68, and claims violations of §§ 11, 12, and 15 of the 1933 Act against the CVS Defendants. Id. at ¶¶ 117-125, 135-139, 146-149. As such, the Court finds that there is a substantial overlap of the parties and issues between LPF and the Consolidated Complaint.
3
Equitable Considerations
Even where a first-filed suit may be given priority due to substantial overlap, exceptions to the "first-to-file" rule may weigh against deferring to the first-filed action. See Employers Insurance of Wausau v. Fox Entertainment Group, Inc., 522 F.3d 271, 275 (2d Cir. 2008) (recognizing two exceptions to the "first-to-file" rule). The party attempting to overcome the first-filed presumption bears the burden of demonstrating that one or both of the exceptions applies. Veryfine Products, Inc. v. Phlo Corp., 124 F.Supp.2d 16, 21 (D. Ma. 2000) (citing Nowak v. Tak How Investments, Ltd., 94 F.3d 708, 719 (1st Cir. 1996)); see also Feinstein, 304 F.Supp.2d at 283.
Two exceptions to the "first-to-file" rule are recognized. "Generally, a 'special circumstances' exception to the first filed rule exists where 'forum shopping alone motivated the choice of the situs for the first suit.'" 800-Flowers, Inc. v. Intercontinental Florist, Inc., 860 F.Supp. 128, 132 (S.D.N.Y. 1994) (quoting William Gluckin & Co. v. International Playtex Corp., 407 F.2d 177, 178 (2d Cir. 1969)). The "special circumstances" exception is meant to forestall a party who "won the race to the courthouse by misleading his [or her] opponent . . . ." Transcanada Power Marketing, Ltd. v. Narragansett Electric Co., 402 F.Supp.2d 343, 348 (D. Mass. 2005). Here, the Plaintiffs have not argued that the special circumstances exception is applicable and therefore the Court will not address that exception. See Pollard v. Acer Group, 870 A.2d 429, 434 (R.I. 2005) (recognizing that arguments not raised before the trial court are deemed waived).
An "exception to the first-filed rule [applies] when the balance of convenience favors the second action." Learning Network, Inc. v. Discovery Communications, Inc., 11 Fed.Appx. 297, 302 (4th Cir. 2001). Consideration of the "balance of convenience" exception is akin to a forum non conveniens analysis. See Merola v. Cuomo, No. 1:19-cv-899 (GLS/TWD), 2019 WL 4857462, at *2 (N.D.N.Y. Oct. 2, 2019); see also Veryfine Products, Inc., 124 F.Supp.2d at 24 (recognizing that "[c]ourts essentially look to the forum non conveniens factors" when considering the balance of convenience exception). As our Supreme Court has recognized, "the forum non conveniens inquiry focuses on the inconvenience of continuing in the chosen forum by weighing private- and public-interest factors." Kedy, 946 A.2d at 1184. The private-interest factors include, but are not limited to, (1) the relative ease of access to proof; (2) availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; (3) possibility of view of premises, if view would be appropriate to the action; (4) and all other practical problems that make trial of a case easy, expeditious, and inexpensive. Id. The public-interest factors include protecting a court's dockets from cases which lack a significant connection to the forum; encouraging the trial of actions in the localities in which they arose; and consideration of the court's familiarity with governing law. See id. at 1185.
Plaintiffs maintain that the balance of convenience weighs in favor of proceeding with the instant action over the LPF action. In support, Plaintiffs rely heavily on a decision rendered in the Anarkat action, in which the United States District Court for the Southern District of New York conducted a change of venue analysis pursuant to 28 U.S.C. § 1404(a) and found that transfer to the United States District Court for the District of Rhode Island was warranted (the Transfer Decision). The Transfer Decision held that "in the interest of justice" the action would be transferred to Rhode Island "based on the convenience of witnesses, the location of relevant documents and relative ease of access to sources of proof, the locus of operative facts, and the availability of process to compel the attendance of unwilling witnesses." Transfer Dec. 2. Plaintiffs also assert that the Anarkat action is subject to the heightened federal pleading standard, which our Supreme Court has explicitly rejected.
Applying the balance of convenience exception here by looking to the forum non conveniens factors our Supreme Court has articulated, the Court finds that the balance of convenience does not favor this action proceeding over Anarkat and LPF. First, the private-interest factors do not weigh in favor of proceeding in this action. While CVS is headquartered in Rhode Island, which may lead to the availability of evidence, documents, and compulsory process for attendance of witnesses being more convenient in Rhode Island, the Anarkat action is currently pending in the District of Rhode Island. Furthermore, the Plaintiffs have not provided a persuasive argument to show that proceeding in the LPF action is substantially more inconvenient and would result in the unavailability of evidence or witnesses. The Plaintiffs also do not make a compelling argument that trial of this case is more easy, expeditious, or inexpensive in this Court rather than in federal court or New York state court. Rather, ease, expediency, and expense favor the first-filed presumption because requiring the Defendants "to defend materially identical suits in [multiple fora] would inevitably lead to duplication of voluminous discovery and documentary evidence. . . ." Panitch v. Quaker Oats Co., No. 16-4586, 2017 WL 1333285, at *7 (E.D. Pa. Apr. 5, 2017). As such, the Court finds that the private-interest factors do not weigh in favor of disregarding the first-filed presumption.
Both parties also address the plaintiff's choice of forum as a factor to be weighed in the balance of convenience analysis. While the plaintiff's choice of forum is not a factor our Supreme Court has identified in its forum non conveniens analysis, see Kedy, 946 A.2d at 1184, some courts have looked to "the original plaintiff's choice of forum" in conducting the balance of convenience analysis. See Quality One Wireless, LLC v. Goldie Group, LLC, 37 F.Supp.3d 536, 542 (D. Mass. 2014). "However, in the prior pending action inquiry, the plaintiff whose choice of forum is relevant is the original plaintiff-i.e., the plaintiff in the first-filed action." Id. at 542-43. Accordingly, the forums chosen by the plaintiffs in Anarkat and LPF-federal court and New York State court-are afforded deference and weigh in favor of staying this action.
The public-interest factors also do not weigh in favor of proceeding in this action. While Rhode Island clearly has a connection to the action because CVS is a Rhode Island company, the Consolidated Complaint does not allege that any of the Plaintiffs are Rhode Island residents, and the alleged misstated goodwill of the LTC Unit was observed "in different areas of the country" due "to the significant client losses resulting from CVS's poor customer service." Consol. Compl. ¶ 79(c). The Consolidated Complaint also compares the decrease in value of the CVS stock to the performance of the New York Stock Exchange. Id. ¶ 15. Accordingly, this Court does not have an overriding connection to the allegations advanced, such that the first-filed presumption in favor of the federal action and the New York state action should be disregarded. See Catanese, 774 F.Supp.2d at 690 (finding that a forum is not the appropriate venue for an action simply because a corporate defendant is headquartered there).
Moreover, the Consolidated Complaint is based entirely on federal law. While this Court certainly has adjudicated claims arising under federal laws, there is no particular familiarity with the governing law in this action which would overcome the first-filed presumption. While the Anarkat action is subject to the federal courts' heightened pleading standards, the LPF action is subject to New York's notice pleading standard. See N.Y. C.P.L.R. § 3013 (McKinney). Accordingly, the Court finds that staying this action, in favor of the first-filed actions, would be in the public interest because it will "promote judicial efficiency, economy and consistency of results." Catanese, 774 F.Supp.2d at 690.
Based on the foregoing, the Court finds that Anarkat and LPF are first-filed actions which substantially overlap with the instant action, and the Plaintiffs have not proven that an exception to the first-filed presumption applies. As such, this action is stayed in favor of the first-filed actions.
IV
Conclusion
Based on the foregoing, the Aetna Defendants' motion to dismiss for lack of personal jurisdiction is granted. The Defendants' motion to stay the instant proceeding in favor of the first-filed actions is also granted. Counsel shall prepare and submit the appropriate order for entry.