Building Trades Pension Fund of Western Pennsylvania v. Insperity, Inc.

Background

Lead Plaintiff Oakland County Employees’ Retirement System and Oakland County Voluntary Employees’ Beneficiary Association Trust brought the proposed class action on behalf of people and entities that purchased Insperity common stock between February 11, 2019, and February 11, 2020. The complaint named Insperity, Inc., its Chief Executive Officer and Chairman Paul J. Sarvadi, and its Chief Financial Officer, Treasurer, and Senior Vice President of Finance Douglas S. Sharp.

The complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. It challenged statements made in earnings calls, press releases, and regulatory filings concerning five subjects: the number and effectiveness of Insperity’s Business Performance Advisors; the company’s access to health-care claims information; sales and growth; whether health-care costs and customer pricing were mismatched; and the company’s purchase of stop-loss protection.

Motion to Dismiss

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. For securities-fraud claims, the court applied heightened pleading requirements requiring the plaintiff to identify the allegedly fraudulent statements, their speakers, when and where they were made, why they were misleading, and particular facts supporting a strong inference that the defendants acted with the required fraudulent intent.

False or Misleading Statements

The court held that the complaint did not adequately allege a false or misleading statement. Regarding Business Performance Advisors, the court found that later failure to meet growth targets did not make earlier statements false when made. The complaint did not allege that Insperity misreported its number of advisors or intentionally misreported a metric. The court also found that several projections were protected forward-looking statements accompanied by meaningful warnings about risks, while other statements were opinions or general corporate optimism. The court concluded that Insperity regularly reported advisor numbers, sales, and revised targets, so the complaint did not establish a duty to provide earlier updates.

Regarding health-care claims information, the court found that describing the company’s evaluation of claims estimates on an “ongoing basis” was not inconsistent with receiving claims data quarterly and meeting with UnitedHealthcare monthly. Read in context, the challenged statements did not promise continuous access to current claims information or accurate prediction of future claims. Statements that Insperity was in “excellent shape” or “well-positioned” were also non-actionable corporate optimism.

The court rejected the challenge to statements about sales and growth because strong first-half sales could coexist with weaker later results, and the complaint did not show that the statement about Insperity having its “biggest pipeline” was false. The court also rejected the alleged cost-price mismatch theory because the complaint selectively emphasized some statements while ignoring statements explaining Insperity’s ongoing pricing process and its adjustments to financial targets. Finally, the court held that a statement in an analyst’s report about stop-loss protection was not attributable to the defendants: the complaint did not show that they intentionally caused the analyst’s mistaken belief or adopted the report as their own.

Required Fraudulent Intent

The court separately held that the complaint failed to plead the required fraudulent intent, often called scienter. The plaintiff relied primarily on stock sales by Sarvadi and Sharp, but did not allege that those sales were unusual or suspicious. The court also reasoned that Insperity’s repurchase of more than $200 million of its own stock undercut the theory that the company was inflating its stock price.

The court found no allegations that the defendants deliberately acted illegally, possessed contradictory information showing their statements were false, or failed to check information they had a duty to monitor. In the court’s view, the complaint relied on hindsight—that later results supposedly proved earlier predictions fraudulent—which was insufficient.

Section 20(a) Claim and Disposition

Section 20(a) provides potential control-person liability when a person controls someone who committed a primary securities violation and meaningfully participated in that violation. Because the plaintiff did not adequately plead a primary securities-law violation, the court held that the Section 20(a) claim also failed.

Judge Naomi Reice Buchwald granted the defendants’ motion to dismiss and dismissed the complaint with prejudice. The court denied the plaintiff’s brief request for permission to file another amended complaint because the request did not explain how the complaint could be amended, and the plaintiff had already had opportunities to amend. The Clerk was directed to close the case.