     Case: 13-30580   Document: 00512790599   Page: 1   Date Filed: 10/02/2014




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT   United States Court of Appeals
                                                                    Fifth Circuit

                                                                   FILED
                               No. 13-30580                     October 2, 2014
                                                                Lyle W. Cayce
                                                                     Clerk

PUBLIC EMPLOYEES’ RETIREMENT SYSTEM OF MISSISSIPPI,
PUERTO RICO TEACHERS’ RETIREMENT SYSTEM,

                                        Plaintiffs–Appellants
v.

AMEDISYS, INCORPORATED; WILLIAM F. BORNE; DALE E. REDMAN;
ALICE SCHWARTZ; LARRY GRAHAM; GREGORY H. BROWNE; JOHN F.
GIBLIN; JEFFREY D. JETER,

                                        Defendants–Appellees

______________________________________________________________________

DAVID ISMAN,

                                        Plaintiff

v.

AMEDISYS, INCORPORATED; WILLIAM F. BORNE; DALE E. REDMAN,

                                        Defendants-Appellees

_______________________________________________________________________

ARIK DVINSKY, etc.,

                                        Plaintiff

v.

AMEDISYS, INCORPORATED; WILLIAM. F. BORNE; DALE E. REDMAN;
     Case: 13-30580         Document: 00512790599          Page: 2     Date Filed: 10/02/2014



              No. 13-30580JOHN F. GIBLIN; GREGORY H. BROWNE,
JOHN F. GIBLIN; GREGORY H. BROWNE,

                                                     Defendants-Appellees

______________________________________________________________________

MELVIN W. BRINKLEY,

                                                     Plaintiff

v.

AMEDISYS, INCORPORATED; WILLIAM F. BORNE; DALE E. REDMAN,

                                                      Defendants-Appellees



                      Appeal from the United States District Court
                          for the Middle District of Louisiana


Before STEWART, Chief Judge, and DENNIS, Circuit Judge, and
GILSTRAP, District Judge 1.


JAMES RODNEY GILSTRAP, District Judge:
       Plaintiffs–Appellants          Public     Employees’       Retirement       System     of
Mississippi and Puerto Rico Teachers’ Retirement System (collectively,
“PERSM” or “Plaintiffs”) are the Lead Plaintiffs and, on behalf of the Class,
filed suit under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934       (“Exchange      Act”)   against     Defendants–Appellees          Amedisys,      Inc.
(“Amedisys”) and seven current or former board members of Amedisys
including the company’s chairman and CEO William Borne, and officers Dale



       1   District Judge for the Eastern District of Texas, sitting by designation.
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                                 No. 13-30580
E. Redman, Larry Graham, Gregory Browne, John F. Giblin, Alice Ann
Schwartz, and Jeffrey Jeter (collectively, “Defendants”) claiming that
Amedisys defrauded investors by concealing a Medicare fraud scheme.
PERSM alleges that despite knowledge or reckless disregard of Amedisys’s
unlawful billing practices, Defendants issued materially false and misleading
public statements to cause Amedisys securities to be traded at materially
inflated prices from August 2, 2005 through September 28, 2010 (the relevant
“Class Period”). As information concerning such fraudulent practices became
known, the value of Amedisys securities dropped precipitously, which caused
PERSM and the Class to suffer significant financial loss.
      The district court granted a motion to dismiss for failure to state a
claim under Federal Rule of Civil Procedure 12(b)(6) and dismissed the
lawsuit with prejudice. The Plaintiffs then filed a motion for reconsideration
of the order granting dismissal and a request for leave to file an amended
complaint, which the district court summarily denied. We reverse and
remand.
          I.   FACTUAL AND PROCEDURAL BACKGROUND
      Amedisys is a publicly traded corporation that provides home health
services to patients with chronic health problems. Amedisys is compensated
through Medicare’s Prospective Payment System (PPS) reimbursements
based on the number of in-home visits provided to a given patient within the
course of a sixty-day treatment period, called an “episode.” Medicare
payments represent roughly 90% of the company’s reimbursements for
services rendered from 2005-2009.
      During the first part of the Class Period through December 31, 2007,
the Medicare PPS provided a flat fee of approximately $2,200 for treatment of
a patient with at least five but fewer than ten therapy visits in an episode. If
the number of therapy visits within the episode increased to ten or more,
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                                No. 13-30580
Medicare paid approximately $2,200 more, essentially doubling the amount
of reimbursement for services rendered for that patient. Medicare eliminated
the ten-visit threshold on January 1, 2008 and revised the PPS to implement
thresholds for increased reimbursements upon the occurrence of six, fourteen,
and twenty therapy visits during an episode. This 2008 revision remained in
effect throughout the remainder of the Class Period.
      Under federal law, home health companies are entitled to Medicare
reimbursement only for providing medically necessary services. 42 U.S.C.A. §
1395n(a)(2)(A)-(B). PERSM alleges that Defendants committed fraud by
pressuring Amedisys employees into providing medically unnecessary
treatment visits to patients in order to hit the most lucrative Medicare
reimbursement thresholds. In the course of this fraudulent conduct, the
Complaint alleges that Defendants made a series of materially false and
misleading statements beginning on August 2, 2005, which artificially
inflated the price of Amedisys stock throughout the Class Period.
      The Complaint alleges the truth of Amedisys’s misrepresentations
became publicly known through a series of five partial disclosures. As the
truth gradually leaked into the market, the artificial inflation was removed
and the value of Amedisys securities significantly declined, causing economic
loss to the Lead Plaintiffs and other members of the Class.
      The first alleged partial disclosure is an online report published by
Citron Research on August 12, 2008 that raised questions about Amedisys’s
accounting and Medicare billing practices. On the same day, the price of
Amedisys’s stock dropped 17.86% or $11.80 per share to close at $54.27.
During a conference call with various investment firms on October 28, 2008
to discuss its third quarter earnings, Amedisys touted its billing-related
compliance programs and reassured investors that “compliance is central to


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                                 No. 13-30580
everything we do as a company . . . Amedisys is a leader in disclosing detailed
information.”
      The second alleged partial disclosure came about with the resignations
of Amedisys’s President and CEO, Larry Graham, and the Chief Information
Officer, Alice Ann Schwartz. This announcement was made on September 3,
2009 in a press release stating that the two executives were leaving “to
pursue other interests.” On that day, Amedisys’s stock dropped 21.68% or
$9.42 per share to close at $34.04.
      The third alleged partial disclosure is an article published by the Wall
Street Journal (WSJ) on April 26, 2010, reporting on Amedisys and including
a detailed analysis of Medicare data indicating that the company might be
“taking advantage of the Medicare reimbursement system.” The WSJ enlisted
Henry Dove, a Yale professor, to analyze Medicare records to determine how
often between 2005 and 2008 various home health companies sent therapists
to patients’ homes during a 60 day treatment period and whether such visits
coincided with Medicare financial incentives. Professor Dove’s results
revealed   a    questionable   pattern   of   home   visits   clustered   around
reimbursement targets. After the 2008 change in Medicare’s PPS threshold,
the percentage of Amedisys patients getting 10 visits (the prior threshold)
dropped by 50% while the percentage that got 14 visits (a new threshold) rose
33%, and the percentage getting 20 visits (another new threshold) increased
41%. Additionally, the article quoted a former Amedisys nurse as saying that
“I was told ‘we have ten visits to get paid,’” and “[t]he tenth visit was not
always medically necessary.” Within the WSJ Article was a statement from
an Amedisys spokesperson, Kevin LeBlanc, declaring any suggestion that the
company may have increased its number of therapy visits to receive higher
reimbursements is “both incendiary and inaccurate.” The next day,
Amedisys’s stock dropped 6.58% or $3.98 per share to close at $56.52.
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                                No. 13-30580
     The fourth alleged partial disclosure is a combination of three
government investigations into Amedisys’s billing practices that commenced
during the remainder of the Class Period. On May 12, 2010, the WSJ
reported that the Senate Finance Committee (SFC) had launched an
investigation to determine whether Amedisys deliberately boosted the
number of home therapy visits to trigger higher Medicare reimbursements.
Senator Charles Grassley was quoted as saying: “It appears that either the
home health care reimbursement policy is flawed, some companies are
gaming the system, or both. We’re working to figure out what’s going on.” The
next day, Amedisys issued a public statement attempting to downplay the
importance of the SFC investigation and to otherwise reassure its investors:
“The letter of inquiry received from Senators Grassley and Baucus references
an article published recently in The Wall Street Journal. The article told an
incomplete story about the value of home health to patients, their families,
and the overall healthcare system.” Despite these reassurances, however, the
company’s stock dropped 7.97% or $4.48 per share to close at $51.73. Next, on
June 30, 2010, Amedisys issued a press release announcing that it had
received a notice of formal investigation from the Securities and Exchange
Commission (SEC) and a subpoena for documents. On July 1, 2010,
Amedisys’s stock dropped 10.55% or $4.64 per share to close at $39.34.
Finally, on September 28, 2010, Amedisys issued yet another press release
disclosing that it had received a civil investigative demand from the
Department of Justice (DOJ) pursuant to the False Claims Act, which sought
a wide range of documents relating to its “clinical and business operations,
including reimbursement and billing claims submitted to Medicare.” That
day, Amedisys’s stock dropped 15.51% or $4.41 per share to close at $24.02.
     The fifth and final alleged partial disclosure occurred between the
commencement of the SEC and DOJ investigations. On July 12, 2010,
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                                 No. 13-30580
Amedisys announced disappointing second quarter operating results to its
shareholders. As a result, its stock price declined 24.13% or $8.45 per share
to close at $26.57 the next day. During an earnings call on July 13, the
company’s chairman and CEO, William Borne, stated that “the decline in our
volume of recertifications more than offset our growth in admissions for this
quarter . . . We are very disappointed with these results.”
      Following the poor second quarter operating results, various Amedisys
officers attributed the decline in the recertification rates to “distractions” or
“external factors” relating to the investigations, as well as “behavioral”
changes of the clinicians not seeking recertifications. In fact, Amedisys
admitted in the Form 10-Q that its “internal episodic-based recertification
growth has decreased from 10% in the second quarter of 2009 to a negative
9% for the second quarter of 2010.” The decline in recertifications continued
through the third quarter of 2010, with Amedisys reporting: “We have
continued to experience a decline in the number of recertifications over 2009
and expect the trend to continue into the fourth quarter.”
      In sum, Amedisys’s stock price declined from $66.07 per share on
August 11, 2008 (prior to the Citron report) to $24.02 per share on September
28, 2010. A series of class action lawsuits were filed against the Defendants
in June and July of 2010. The suits were consolidated and PERSM was
designated the Lead Plaintiff in October 2010. Defendants filed a motion to
dismiss under Federal Rule of Civil Procedure (FRCP) 12(b)(6), which was
granted by the district court. The district court held that PERSM failed to
adequately plead loss causation, an essential element of their claims under
Section 10(b) of the Exchange Act. In granting dismissal, the district court
reviewed each of the above five partial disclosures and found that none alone
was sufficient to constitute a corrective disclosure for purposes of pleading


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                                  No. 13-30580
loss causation. The Complaint was dismissed with prejudice on June 28,
2012.
        After the case was dismissed, PERSM sought reconsideration of the
order granting the motion to dismiss and also moved for leave to file a first
amended complaint. The district court denied reconsideration and leave to
amend citing the reasons provided in its original ruling.
        PERSM timely appealed the district court’s decision granting the
motion to dismiss. PERSM also appeals the denial of its motion for
reconsideration and for leave to file an amended complaint, as well as the
dismissal of this action with prejudice.
                            II.   JURISDICTION
        Appellants seek review of a final judgment of the district court.
Accordingly, this Court has jurisdiction pursuant to 28 U.S.C. § 1291.
                     III.   STANDARD OF REVIEW
        We review the district court’s grant of a motion to dismiss under FRCP
12(b)(6) de novo, “accepting all well-pleaded facts as true and viewing those
facts in the light most favorable to the plaintiff.” Toy v. Holder, 714 F.3d 881,
883 (5th Cir. 2013) (citing Bustos v. Martini Club Inc., 599 F.3d 458, 461 (5th
Cir. 2010)). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009))
(internal quotation marks and citation omitted); see also Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007).




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                                  No. 13-30580
                            IV.   DISCUSSION
      We address the district court’s grant of the motion to dismiss for failure
to plead loss causation.
A. The District Court’s Ruling On Failure To Plead Loss Causation
      In cases involving publicly traded securities and purchases or sales in
public securities markets, the action’s basic elements are “(1) a material
misrepresentation (or omission), (2) scienter, i.e., a wrongful state of mind, (3)
a connection with the purchase or sale of a security, (4) reliance, often
referred to in cases involving public securities markets (fraud-on-the-market
cases) as ‘transaction causation,’ (5) economic loss, and (6) ‘loss causation,’
i.e., a causal connection between the material misrepresentation and the
loss.” Lormand v. US Unwired, Inc., 565 F.3d 228, 238–39 (5th Cir. 2009)
(citing Dura Pharmaceuticals, Inc., et al. v. Broudo, et al., 544 U.S. 336, 341–
42 (2005)).
      The Supreme Court in Dura and Twombly identified the basic
principles of pleading loss causation under FRCP 8(a)(2) as setting forth a
standard of “plausibility,” or something beyond the mere possibility of loss
causation. Twombly, at 557–58; Dura, 544 U.S. at 346 (stating that the
plaintiff need only adequately allege and prove the traditional elements of
causation and loss for recovery in private securities fraud actions). For a
complaint to adequately plead this requirement, it need only set forth “a
short and plain statement of the claim showing that the pleader is entitled to
relief” and provide the defendant with “fair notice of what the plaintiff’s claim
is and the grounds upon which it rests.” Dura, 544 U.S. at 346 (citing Conley
v. Gibson, 355 U.S. 41, 47 (1957)). The loss causation element, as codified in
the Private Securities Litigation Reform Act (PSLRA), provides that “the
plaintiff shall have the burden of proving that the act or omission of the
defendant . . . caused the loss for which the plaintiff seeks to recover
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damages.” 15 U.S.C. § 78u-4(b)(4). Accordingly, the issue before us is whether
the Plaintiffs adequately alleged that the Defendants’ misrepresentations (or
omissions) proximately caused the Plaintiffs’ economic loss.
      To establish proximate causation, the plaintiff must allege that when
the “relevant truth” about the fraud began to leak out or otherwise make its
way into the marketplace, it caused the price of the stock to depreciate and,
thereby, proximately caused the plaintiff’s economic harm. Lormand, 565
F.3d at 255 (citing Dura 544 U.S. at 342). Loss causation in fraud-on-the-
market cases can be demonstrated circumstantially by “(1) identifying a
‘corrective disclosure’ (a release of information that reveals to the market the
pertinent truth that was previously concealed or obscured by the company’s
fraud); (2) showing that the stock price dropped soon after the corrective
disclosure; and (3) eliminating other possible explanations for this price drop,
so that the factfinder can infer that it is more probable than not that it was
the corrective disclosure—as opposed to other possible depressive factors—
that caused at least a ‘substantial’ amount of price drop.” FindWhat Investor
Group v. FindWhat.com, 658 F.3d 1282, 1311–12 (11th Cir. 2011) (emphasis
added).
      PERSM alleged in its Complaint that it suffered economic loss from
declines in Amedisys’s stock price in response to a series of five partial
disclosures gradually exposing the nature of Amedisys’s business practices
and the extent of the risks associated with such practices. The district court
evaluated each of the five alleged partial disclosures and concluded that none
of them amounted to a corrective disclosure for purposes of pleading loss
causation. We first discuss what constitutes a corrective disclosure. Then, we
will consider each of the alleged partial disclosures in turn.




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                                       No. 13-30580
   1. Corrective Disclosures
       There is little precedent directly addressing to what extent fraud must
become known by the market before it can constitute a corrective disclosure—
or revelation of the pertinent truth—for purposes of pleading loss causation
in a private securities action. There is, however, case law on the sufficiency of
pleading proximate causation that is instructive to our analysis.
       The Supreme Court in Dura set forth the controlling standard for
pleading proximate causation in a private securities fraud-on-the-market
case: “[O]rdinary pleading rules are not meant to impose a great burden upon
a plaintiff. But it should not prove burdensome for a plaintiff who has
suffered an economic loss to provide a defendant with some indication of the
loss and the causal connection that the plaintiff has in mind.” 544 U.S. at 347
(holding that an inflated purchase price alone cannot satisfy the proximate
causation element). Relying on Dura, this Circuit explained in Lormand that
to establish proximate causation, the plaintiff must prove that when the
“relevant truth” about the fraud began to leak out, it caused the price of stock
to depreciate and thereby proximately cause the plaintiff’s economic loss. 565
F.3d at 255. Thus, the plaintiffs are required to allege the truth that emerged
was “related to” or “relevant to” the defendants’ fraud and earlier
misstatements. 2 The answer, therefore, turns on the meaning of “relevance.”
       This Circuit has previously observed that the standard of “relevance” in
an evidentiary context is not a steep or difficult one to satisfy. Lormand, 565
F.3d at 256 n.20. The test for “relevant truth” simply means that the truth
disclosed must make the existence of the actionable fraud more probable than


       2 Lormand refers to Greenberg v. Crossroads Systems, Inc., 364 F.3d 657, 666 (5th
Cir. 2004), a case involving proof of loss causation at the summary judgment stage holding
that a plaintiff must prove on the merits that the negative “truthful” information causing
the decrease in price is related to an alleged earlier misrepresentation. 565 F.3d at 256. The
evidentiary burden at the initial pleadings stage is much less stringent.
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it would be without that alleged fact, taken as true. Id.; see also Spitzberg v.
Houston American Energy Corp., --- F.3d ---, No. 13-20519, 2014 WL 3442515
at *8 (5th Cir. Jul. 15, 2014) (concurring with Lormand on the applicable
standard for pleading corrective disclosure). We agree with the Lormand and
Spitzberg Courts and find this test to be the appropriate standard to measure
corrective disclosures as they pertain to the adequacy of alleging loss
causation at the initial pleadings stage.
      This test for “relevant truth” is consistent with similar opinions of our
sister courts. See In re Williams Sec. Litig.—WCC Subclass., 558 F.3d 1130,
1140 (10th Cir. 2009) (finding that to be corrective, a disclosure need only
relate back rather than precisely mirror the earlier misrepresentation);
FindWhat, 658 F.3d at 1311–12 (11th Cir. 2011) (holding that a “corrective
disclosure” can be demonstrated circumstantially); In re REMEC Inc. Sec.
Litig., 702 F. Supp. 2d 1202, 1266–67 (S.D. Cal. 2010) (“A ‘corrective
disclosure’ is a disclosure that reveals the fraud, or at least some aspect of the
fraud, to the market.”). A corrective disclosure can come from any source, and
can “take any form from which the market can absorb [the information] and
react,” Matthew L. Fry, Pleading and Proving Loss Causation in Fraud–on–
the–Market–Based Securities Suits Post–Dura Pharmaceuticals, 36 Sec. Reg.
L.J. 31, 64–71 (2008), so long as it “reveal[s] to the market the falsity” of the
prior misstatements. Lentell v. Merrill Lynch & Co., 396 F.3d 161, 175 n. 4
(2d Cir. 2005).
      Nor does the corrective disclosure have to be a single disclosure; rather,
the truth can be gradually perceived in the marketplace through a series of
partial disclosures. Lormand, 565 F.3d at 261. “Thus besides a formal
corrective disclosure by a defendant followed by a steep drop in the price of
stock, the market may learn of possible fraud from a number of sources: e.g.,
from whistleblowers, analysts’ questioning financial results, resignations of
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CFOs or auditors, announcements by the company of changes in accounting
treatment going forward, newspapers and journals, etc.” In re Enron Corp.
Sec., Derivative & “ERISA” Litig., No. MDL-1446, 2005 WL 3504860 at *16
(S.D. Tex. 2005) (citations omitted).
   2. The Five Partial Disclosures
      We now review each of the five partial disclosures plead in the
Complaint against the test for “relevant truth,” but we consider them
collectively in determining whether a corrective disclosure has occurred.
         a. 2008 Citron Report
      The Citron Report is admittedly inconclusive, ending with a statement
that “it is not yet concluding that Amedisys is committing Medicare fraud,
but there are many indications that this inquiry needs deeper scrutiny.”
Speculation of wrongdoing cannot by itself arise to a corrective disclosure.
Providing investors with what is in effect insurance against market losses
due to media speculation is outside the purview of federal securities laws.
While the information disclosed in the 2008 Citron Report does not alone
make the existence of the actionable fraud more probable than not, it must be
considered within the totality of all such partial disclosures.
         b. Schwartz and Graham Resignations
      We concur with the district court that the announcement of the
resignations of Amedisys’s Chief Operating Officer, Larry Graham, and Chief
Information Officer, Alice Ann Schwartz “to pursue other interests” also does
not in and of itself constitute a corrective disclosure. The market’s decline of
21.68% following the announcement, while not insignificant, could have
simply been a market reaction to sudden news that two key executives had
left the company. While nothing in the resignation announcement alone
reveals the truth behind earlier misstatements or provides notice to the
Defendants of what the causal connection might be between the relevant
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                                 No. 13-30580
economic loss and the misrepresentations regarding compliance with
Medicare billing practices, this too may constitute a portion of the totality
that we must consider. See Williams, 558 F.3d at 1140 (stating that the
leaked truth must relate back to the earlier misrepresentation rather than
come from some other plausibly depressive information about the company).
         c. April 26, 2010 WSJ Article
      The district court found that the WSJ Article does not, as a matter of
law, constitute a corrective disclosure because the article proclaims on its face
that its analysis was “based on publicly available Medicare records,” and as
such, does not reveal any new information to the marketplace. While it is
generally true that in an efficient market, any information released to the
public is presumed to be immediately digested and incorporated into the price
of a security, it is plausible that complex economic data understandable only
through expert analysis may not be readily digestible by the marketplace.
Under a Rule 12(b)(6) analysis, it is plausible that, as the Appellants allege,
the efficient market was not aware of the hidden meaning of the Medicare
data that required expert analysis, especially where the data itself is only
available to a narrow segment of the public and not the public at large. Thus,
although a disclosure of mere confirmatory information will not cause a
change in the stock price because the current price already reflects the
information available, we find it plausible that this information was not
merely confirmatory.
      Appellant’s point that various independent analysts have characterized
the WSJ Article as “new news” also plausibly counters the argument that the
sources used in the article have previously been made public. At the pleading
stage, this Court does not find the WSJ Article should be justifiably pushed
aside simply because the data it was based upon may have been technically


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                                     No. 13-30580
available to the public, given that the raw data itself had little to no
probative value in its native state. 3
          d. Investigations Initiated by the SFC, SEC, DOJ, and Amedisys’s
             Disappointing Second Quarter 2010 Earnings Report
      As an initial matter, Defendants assert that Plaintiffs’ argument
concerning the 2010 second quarter earnings report as a corrective disclosure
was waived by Plaintiffs’ failure to adequately brief it. Defendants’ argument
has some force; nonetheless, notice exists despite the marginal briefing. We
hold that the argument was not waived and we consider it in our analysis.
      We agree with the district court that generally, commencement of
government investigations on suspected fraud do not, standing alone, amount
to a corrective disclosure. Meyer v. Greene, 710 F.3d 1189, 1200–01 (11th Cir.
2013) (holding that the commencement of an SEC investigation was not a
corrective disclosure because the SEC never issued any finding of
wrongdoing); Loos v. Immersion Corp., --- F.3d ---, No. 12-15100, 2014 WL
3866084 (9th Cir. Aug. 7, 2014) (holding that a press release announcing an
internal investigation, without more, is insufficient to establish loss
causation); In re Dell Inc., Sec. Litig., 591 F. Supp. 2d 877, 909-10 (W.D. Tex.
2008) (holding that the disclosure of an SEC investigation absent a revelation
of prior misrepresentation does not constitute a corrective disclosure).
However, the investigations launched by the SFC (on May 12, 2010), the SEC
(on June 30, 2010), and the DOJ (on September 28, 2010) into Amedisys’s
suspected gaming of the Medicare reimbursement system must be viewed
together with the totality of the other alleged partial disclosures.



      3   Appellants use the Declaration of Rena Conti, Ph. D. (originally attached to the
motion for reconsideration) to show that the Medicare data used by Professor Dove was
difficult to obtain and that his analysis required significant professional expertise to
accomplish.
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                                   No. 13-30580
        Plaintiffs’ allegations began with media speculation into a possibility of
Medicare fraud and calling for deeper scrutiny into Amedisys’s practices.
Then, two executives departed the company and the WSJ published a front-
page article on the questionable statistical correlation between Amedisys’s in-
home health visits and Medicare’s financial incentives. Shortly thereafter,
both the SEC and SFC initiated investigations into Amedisys’s billing
practices, in response to the media’s call for scrutiny. Amedisys announced its
disappointing second quarter 2010 operating results and Amedisys’s stock
price    plummeted     24.13%.   Amedisys     executives     explained   the   poor
performance was due to a decline in the volume of patient recertifications
that they attribute to “behavioral” responses from their clinicians in light of
the     pending   governmental    investigations.   On     September     28,   2010,
Amedisys’s stock price dropped again by 15.51% when the DOJ investigation
was announced. Between the 2008 Citron Report and commencement of the
DOJ investigation, Amedisys stock declined a statistically significant 63.6%.
        According to the Complaint, Defendants made materially false and
misleading statements about their compliance to artificially inflate the price
of Amedisys securities throughout the Class Period. Once Amedisys was
placed under the spotlight of government scrutiny for Medicare fraud, its
earnings dropped significantly because its employees could no longer
continue exploiting Medicare reimbursements. After each negative partial
disclosure, Defendants attempted to mitigate the impact of those disclosures
by making contemporaneous misstatements to the market and prevented the
full truth from being revealed at once. As a result, PERSM and the other
Class members purchased Amedisys securities at artificially inflated prices
and suffered economic loss when the artificial inflation dissipated and the
price of these securities declined in response to the series of partial
disclosures revealing the true nature of Amedisys’s business practices.
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                                       No. 13-30580
       Taking the above facts as true, the 2008 Citron Report, the Swartz and
Graham resignations, the 2010 WSJ Article and the above governmental
investigations, coupled with Amedisys’s second quarter 2010 earnings report,
collectively constitute and culminate in a corrective disclosure that
adequately pleads loss causation for purposes of a Rule 12(b)(6) analysis. This
holding can best be understood by simply observing that the whole is greater
than the sum of its parts. The district court erred in imposing an overly rigid
rule that government investigations can never constitute a corrective
disclosure in the absence of a discovery of actual fraud. 4           5   “To require, in all
circumstances, a conclusive government finding of fraud merely to plead loss
causation would effectively reward defendants who are able to successfully
conceal their fraudulent activities by shielding them from civil suit.” In re
Questcor Sec. Litig., No. SA CV 12-01623 2013 WL 5486762 at *22 (C.D. Cal.


       4   The district court relies on In re Almost Family in much of its evaluation of the
partial disclosures. 2012 WL 443461 (W.D. Ky. Feb. 10, 2012) (holding that the April 26,
2010 WSJ Article and commencement of the SFC and SEC investigations do not constitute
corrective disclosures because neither event made a specific allegation of fraud or disclosed
any actual misconduct). However, of the four publicly traded home health companies under
investigation by the SFC, Almost Family alone was effectively exonerated by the Senate
Report released on October 3, 2011. Therefore, Almost Family is distinguishable from this
case as well as two related cases involving the companies found to be abusing the Medicare
system, LHC Group and Gentiva. See City of Omaha Police and Fire Retirement Sys. v.
LHC Group, Inc., et al., No. 6:12-1609, 2013 WL 1100819 (W.D. La. Mar. 15, 2013) (holding
that the amended complaint adequately alleged the investigations by the SFC and SEC as
corrective disclosures and properly pled loss causation); In re Gentiva Sec. Litig., 932 F.
Supp. 2d 352, 388 (E.D.N.Y. Mar. 25, 2013) (holding that an announcement of a
governmental investigation into the precise subject matter which forms the basis of the
fraudulent practices at issue can qualify as a partial corrective disclosure for purposes of
loss causation).
         5 During oral argument, Amedisys agreed that “actual fraud” is not the only

standard to evaluate a corrective disclosure; rather, Amedisys argued that a corrective
disclosure could also reveal the falsity in a prior statement. Semantics aside, we think there
is little difference between a showing of “actual fraud” and “actual falsity” for purposes of
pleading loss causation in a fraud-on-the-market case. Requiring allegations that establish
prior statements of compliance to be actually false is tantamount to a pleading threshold of
actual fraud by showing a failure to comply. Such a standard is inconsistent with our prior
precedent, including Lormand.
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                                      No. 13-30580
Oct. 1, 2013). Indeed, “there is no requirement that a corrective disclosure
take a particular form or be of a particular quality . . . It is the exposure of
the fraudulent representation that is the critical component of loss
causation.” In re Bristol Meyers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148,
165 (S.D.N.Y. 2008) (citations and internal quotation marks omitted).
Accordingly, when this series of events is viewed together and within the
context of Amedisys's poor second quarter 2010 earnings, it is plausible that
the market, which was once unaware of Amedisys's alleged Medicare fraud,
had become aware of the fraud and incorporated that information into the
price of Amedisys's stock. 6
       A motion to dismiss challenges the adequacy of the initial pleading. To
plead loss causation in a private securities action, the complaint need only
allege facts that support an inference that the Defendants’ misstatements
and omissions concealed the circumstances that bear upon the loss suffered
such that Plaintiffs would have been spared all or an ascertainable portion of
that loss absent the fraud. Lentell, 396 F.3d at 175. Whether the connection
between Amedisys’s misleading statements and the alleged corrective
disclosures may ultimately be found too attenuated at a later stage in
litigation is a highly fact intensive inquiry that need not be reached at this



       6 The SFC Report released on October 3, 2011 concluded that three of the four
companies under investigation have been taking advantage of the Medicare regulations:
“Amedisys, LHC Group, and Gentiva encouraged therapists to target the most profitable
number of therapy visits, even when patient need alone may not have justified such
patterns.” Additionally, the Senate Report focused its efforts on Amedisys, stating that “the
home health therapy practices identified at Amedisys . . . at best represent abuses of the
Medicare home health program. At worst, they may be examples of [Amedisys] defrauding
the Medicare home health program at the expense of taxpayers.”
       Appellants also mention for the first time in their Reply Brief that Amedisys has
settled the civil investigation with the DOJ on November 12, 2013 for $150 million.
Amedisys has also settled related derivative and ERISA claims that were consolidated as
part of this action. This evidence was not before the district court and could not have been
considered when the order of dismissal was entered.
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                                     No. 13-30580
point. The Complaint consists of over 200 pages of allegations regarding,
among other things, Defendants’ fraudulent Medicare billing practices.
Where the Complaint sets forth specific allegations of a series of partial
corrective disclosures, joined with the subsequent fall in Amedisys stock
value, and in the absence of any other contravening negative event, the
plaintiffs have complied with Dura’s analysis of loss causation. See also
Spitzberg, 2014 WL 3442515 at *9 (holding that the plaintiffs sufficiently
pled loss causation based on the drop in stock price that occurred after the
corrective disclosure).
       Accordingly, a de novo review of the Complaint leads us to conclude
that as to the element of loss causation, the motion to dismiss should be
denied. The district court’s application of the “actual fraud” standard to the
partial disclosures discussed above and when viewed against the stark
results of Amedisys’s second quarter of 2010 earnings report requires
reversal and vacating the prior dismissal with this case remanded so that the
district court can reevaluate these events in light of our holdings. 7
B. Leave To File An Amended Complaint
       Given our determination that the district court’s dismissal must be
vacated and the case remanded, we do not reach the issue of whether the
district court abused its discretion in denying PERSM leave to file an
amended complaint once judgment was entered. Such must now be viewed as
moot in light of our holding herein.
                               V.    CONCLUSION
       For the foregoing reasons, we REVERSE and VACATE the district
court’s grant of the motion to dismiss and REMAND this matter for further
proceedings consistent with this opinion.

      7   We do not reach in the first instance the Defendants’ argument that the Complaint
failed to plead scienter with sufficient particularity.
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