Manchin v. PACS Group, Inc.

Background

Christopher Manchin filed this putative securities class action against PACS Group, Inc., its officers and directors, and financial firms that underwrote PACS’s public offerings. The complaints assert claims under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The actions were later consolidated, and the 1199SEIU Health Care Employees Pension Fund was appointed lead plaintiff.

The claims concern PACS’s initial public offering in April 2024 and secondary public offering in September 2024. The complaints allege that PACS made false or misleading statements about its business, compliance practices, and financial performance. After Hindenburg Research issued a report alleging improper Medicare billing, patient classification, treatment, staffing, and regulatory practices, PACS’s stock price fell. The opinion addressed only the defendants’ request to change the case’s location; it did not decide whether those allegations were true.

Motion to Transfer

PACS, individual defendants, and the underwriter defendants moved under 28 U.S.C. § 1404(a) to transfer the consolidated action to the United States District Court for the District of Utah. That statute permits transfer for the convenience of the parties and witnesses and in the interest of justice when the case could have been brought in the proposed district.

The court applied a two-step analysis. First, it held that the action could have been brought in Utah. PACS is headquartered there; most of its senior employees and relevant accounting, legal, communications, and investor-relations personnel work there; the challenged statements were prepared or issued there; and nearly all individual defendants reside there. The court rejected the lead plaintiff’s arguments that Utah could not have exercised jurisdiction over it or that the case necessarily would have had to be transferred back to New York for consolidation.

Second, the court balanced the relevant private and public interests. The defendants had the burden to make a strong showing, supported by clear and convincing evidence, that transfer was appropriate.

Factors Weighed by the Court

The court held that the lead plaintiff’s choice of New York weighed against transfer. Although a class representative’s choice generally receives less weight in a class action, the Pension Fund is headquartered in New York, received the allegedly misleading materials there, decided to purchase the securities there, and claimed to have suffered harm there. The court also found that the Pension Fund’s decision to join an existing New York action through the lead-plaintiff process did not make its choice of forum less legitimate.

The convenience-of-witnesses factor was neutral. The defendants identified PACS employees located in Utah but did not identify the witnesses by name, describe their expected testimony, or explain why appearing in New York would be inconvenient. The court also considered that most of the underwriter defendants were headquartered or had offices in New York.

The convenience-of-parties factor was neutral. Utah would likely be more convenient for PACS, while New York would be more convenient for the lead plaintiff and many underwriter defendants. The court also noted that the underwriting agreements contained provisions allowing disputes to be heard in New York courts.

The location of operative facts favored transfer only to a limited extent. Facts concerning PACS’s statements and alleged conduct were centered in Utah, but facts concerning the underwriters’ due diligence, underwriting, and sale of securities were connected to New York. The court therefore viewed the operative facts for the Securities Exchange Act claims as centered in Utah and the facts for the Securities Act claims as divided between Utah and New York.

The location of documents, the ability to compel unwilling witnesses, and the parties’ relative financial means were all neutral. The court found that electronic records reduced the importance of document location, no evidence showed that nonparty witnesses would refuse to testify, and no party demonstrated that litigating in either forum would create an undue financial burden.

The court found that familiarity with federal securities law was neutral because federal courts across the country are capable of applying those laws. Trial efficiency, however, favored keeping the case in New York because a related consolidated shareholder derivative action involving similar facts and issues was already pending before the same court.

Disposition

Judge Lewis J. Liman concluded that the operative-facts factor was the only factor that provided meaningful support for transfer. The lead plaintiff’s choice of forum and the benefits of handling related litigation together weighed against transfer, while the remaining factors were neutral. The court held that the defendants had not met their burden and denied the motion to transfer venue. The clerk was directed to close the motion docket entry.