Manchin v. PACS Group, Inc.

Background

The case is a proposed securities class action against PACS Group, certain officers and directors, and several underwriters. The complaint alleges violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. It alleges that defendants made materially false or misleading statements in registration statements for PACS Group’s April 2024 initial public offering and September 2024 secondary public offering, as well as in other statements, and failed to disclose adverse information about the company’s business, operations, and prospects.

The complaint alleges that Hindenburg Research published a November 4, 2024 report accusing PACS Group of abusing a COVID-era waiver, submitting false Medicare claims, billing Medicare for unnecessary materials and therapies, and falsifying documents. After the report, PACS Group’s share price fell. On November 6, 2024, PACS Group announced that it would delay its third-quarter financial results and disclosed that it had received civil investigative demands from the federal government concerning reimbursement and referral practices. The share price fell further.

Procedural history

Christopher Manchin filed this action on November 13, 2024. A related action was filed on November 21, 2024. The court consolidated the two actions on January 7, 2025 and ordered that later filings be made in this docket. The court also ordered the related docket closed for further filings.

On January 13, 2025, Manchin, 1199SEIU Health Care Employees Pension Fund, and Yongfen Min moved for appointment as lead plaintiff. Min later filed a notice of non-opposition, so the court evaluated only the competing applications of Manchin and the Pension Fund.

Lead-plaintiff standard

The Private Securities Litigation Reform Act requires the court to presume that the most adequate plaintiff is the timely applicant with the largest financial interest who also satisfies the relevant requirements of Federal Rule of Civil Procedure 23. At this stage, the court considered whether the applicant made a preliminary showing of typicality and adequacy. Typicality asks whether the applicant’s claims and injuries arise from the same conduct as the other class members’ claims. Adequacy concerns whether the applicant can fairly represent the class, has sufficient interest in the case, has no conflict with other class members, and has selected qualified counsel.

Court’s analysis

Both Manchin and the Pension Fund filed timely motions. Using a last-in, first-out method to estimate losses, the court calculated the Pension Fund’s loss as $469,620 and Manchin’s loss as $2,100. The Pension Fund therefore received the statutory presumption in favor of appointment, provided that it also met the Rule 23 requirements.

The court found that the Pension Fund made the required preliminary showing. It stated that it purchased or acquired PACS securities in reliance on defendants’ alleged false and misleading statements or pursuant to, or traceable to, the public-offering documents. The court found that the Pension Fund’s alleged injury was the same kind of injury arising from the same facts as the other class members’ injuries. Its substantial loss supported adequacy, and the court found no indication that its interests were antagonistic to those of other class members. The court also found that the Pension Fund had selected counsel highly experienced in securities class actions.

Manchin argued that the Pension Fund lacked standing to bring claims relating to the April 2024 initial public offering because the Pension Fund purchased all of its shares in or after the September 2024 secondary offering. He asked the court to appoint him and the Pension Fund as co-lead plaintiffs so that he could represent the initial-offering claims.

The court rejected that argument as a basis for appointing Manchin as co-lead plaintiff. It explained that the PSLRA does not require the lead plaintiff to have standing to assert every possible claim against every defendant. The Pension Fund could add a named plaintiff with standing to represent a potential subclass of initial-offering purchasers without making that person a co-lead plaintiff. The Pension Fund stated that it had arranged for an institutional investor with direct initial-offering standing to be prepared to serve as an additional named plaintiff if necessary.

The court also rejected Manchin’s arguments that there might be conflicts between initial-offering and secondary-offering claimants, that the case might lack a lead plaintiff if certain claims were later dismissed, and that the Pension Fund’s opposition to co-leadership showed an intent to exclude initial-offering claimants. The court found no actual conflict, noted that future standing issues could be addressed if they arose, and stated that adding unrelated co-lead plaintiffs could increase fees, expenses, and diffuse decision-making.

Class counsel and disposition

The PSLRA allows the most adequate plaintiff to select counsel subject to court approval. The court found that the Pension Fund’s selection of Labaton Keller Sucharow LLP was supported by the firm’s experience in securities class actions and that the firm could adequately represent the class.

The court granted the motion of 1199SEIU Health Care Employees Pension Fund. It appointed the Pension Fund as lead plaintiff and Labaton Keller Sucharow LLP as class counsel. The court denied the motions of Christopher Manchin and Yongfen Min and directed the clerk to close those motions. The order addressed leadership and counsel for the proposed class; it did not resolve the underlying allegations or decide the merits of the securities claims.