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Heed v. Miller

United States District Court, E.D. Pennsylvania

March 29, 2018

DAVID HEED, Derivatively and on Behalf of UNIVERSAL HEALTH SERVICES, INC., Plaintiff
v.
ALAN B. MILLER, et al. Defendants and UNIVERSAL HEALTH SVCS, INC., Nominal Defendant CENTRAL LABORER'S PENSION FUND, Derivatively on Behalf of UNIVERSAL HEALTH SVCS, INC., Plaintiff
v.
ALAN B. MILLER, et al., Defendants and UNIVERSAL HEALTH SVCS, INC., Nominal Defendant WATERFORD TOWNSHIP POLICE & FIRE RETIREMENT SYSTEM, Derivatively on Behalf of UNIVERSAL HEALTH SVCS, INC., Plaintiff
v.
ALAN B. MILLER, et al., Defendants and UNIVERSAL HEALTH SVCS, INC., Nominal Defendant AMALGAMATED BANK LONGVIEW FUNDS, Derivatively on Behalf of UNIVERSAL HEALTH SERVICES, INC., Plaintiff
v.
CHARLES F. BOYLE, et al., Defendants and UNIVERSAL HEALTH SVCS, INC., Nominal Defendant

          MEMORANDUM

          STENGEL, C. J.

         These four derivative actions arise out of an alleged scheme of the defendants to cause Nominal Defendant Universal Health Services (“Universal”) to over-admit patients and then keep them admitted for financial rather than medical reasons in order to over-bill Medicare and Medicaid for unwarranted “services.” Universal is a Delaware corporation headquartered in Pennsylvania which owns and operates hospitals and other medical facilities across the United States and in the United Kingdom. Among them are more than 230 behavioral health facilities through which Universal and its affiliates provide psychiatric and behavioral health care to more than 460, 000 individuals per year. The individual defendants are Universal's directors and senior officers.

         The four complaints allege that the defendants caused Universal to violate the False Claims Act and file false financial reports with the Securities and Exchange Commission, thus artificially inflating the price of Universal common stock by concealing the illicit source of a growing portion of Universal's reported revenues. The plaintiffs in two of these actions have filed a motion to consolidate pursuant to Rule 42(a) of the Federal Rules of Civil Procedure, and to appoint lead plaintiff and lead counsel. For the following reasons, I will grant the motions to consolidate, and appoint Amalgamated Bank LongView Funds as lead plaintiff, and the law firm of Scott & Scott as lead counsel. I will also appoint the Axelrod Firm as liaison counsel for the consolidated action.

         I. MOTIONS TO CONSOLIDATE

         The two motions before me seek the consolidation of four related shareholder derivative actions, i.e., Heed v. Miller, 17-cv-01476; Central Laborers' Pension Fund v. Miller, 17-cv-02187; Waterford Township Police & Fire Ret. Sys. v. Miller, 17-cv-02595; and Amalgamated Bank LongView Funds v. Boyle, 17-cv-3404. Each of these actions allege breaches of fiduciary duties owed to Universal by substantially the same defendants.

         Under Rule 42(a) of the Federal Rules of Civil Procedure:

When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all of the matters in issue in the action; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.

         Fed.R.Civ.P. 42(a). The power to consolidate related actions falls within the inherent authority of every court “to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.” Landis v. N. Am. Co., 299 U.S. 248, 254 (1936); In re Sterling Fin. Corp. Sec. Class Action, No. 07-1879, 2007 U.S. Dist. LEXIS 93708, at *7 (E.D. Pa. 2007) (“Rule 42(a) grants the court broad discretion to consolidate actions in order to ‘facilitate the administration of justice.'”) Consolidation of substantially identical shareholder derivative actions can help alleviate needless duplication of time, effort, and expense on the part of the parties and the court. In re TMI Litig., 193 F.3d 613, 724 (3d Cir. 1999) (“The purpose of consolidation is to ‘streamline and economize pretrial proceedings so as to avoid duplication of effort, and to prevent conflicting outcomes in cases involving similar legal and factual issues.'”) When consolidation is appropriate, the court has the discretion to order the consolidation of subsequently-filed or transferred cases that allege similar facts as those alleged in the current shareholder derivative suits. Horn v. Raines, 227 F.R.D. 1, 2 (D.D.C. 2005) (ordering consolidation of all related derivative actions).

         Here, in each of these actions, the plaintiffs assert, inter alia, breach of fiduciary duty claims arising out of the defendants': (1) illicit over-admittance of patients to its inpatient mental health facilities; (2) improper billing to government agencies in violation of the False Claims Act; (3) issuance of false and misleading financials to the U.S. Securities and Exchange Commission; (4) repurchase of tens of millions of dollars of Universal stock while it traded at artificially inflated prices; and (5) sale of millions of dollars of their own personally held Universal shares to the unsuspecting public, reaping tens of millions of dollars in illicit gains. Each of these actions arises from a common nucleus of operative facts and involves virtually identical questions of law. The nearly identical questions of law and fact that predominate support consolidating the four shareholder derivative actions for all purposes under Rule 42(a). See A.S. v. SmithKline Beecham Corp., 769 F.3d 204, 212 (3d Cir. 2014) (“district courts have ‘broad power' to consolidate cases that share ‘common question[s] of law or fact'”).

         Further, each of these actions allege claims for breach of loyalty and other violations of federal and state law against Universal's directors and top officers and arise out of the same allegedly unlawful scheme employed by the defendants to improperly admit patients to Universal psychiatric facilities, often involuntarily, without a proper basis to do so, to obtain unjustified reimbursement from Federal and State Medicare and Medicaid programs.

         Accordingly, because I find that the interests of all parties and the court are best served by the efficiency, consistency, and economy achieved through the requested consolidation, I will grant the motions to consolidate these four actions, as well as any subsequently filed similar actions.

         II. MOTIONS TO APPOINT LEAD PLAINTIFF

         When appointing a lead plaintiff, I must ensure that the plaintiff “fairly and adequately represents the interests of the shareholders or members who are similarly situated in enforcing the right of the corporation.” Fed.R.Civ.P. 23.1. Although no statutory authority exists for the appointment of a lead plaintiff in shareholder derivative actions, courts have the inherent “authority to appoint a lead plaintiff . . . in a derivative action in order to create an efficient case-management structure.” KBC Asset Mgmt. NV v. McNamara, 78 F.Supp.3d 599, 604 (D. Del. 2015). Factors courts have considered in analyzing a plaintiff's fitness to be lead plaintiff include: (i) quality of pleadings; (ii) size of financial stake; (iii) preference for institutional plaintiffs; (iv) vigorousness of prosecution; and (v) attorney's fees. Id. The appointment of a lead plaintiff will allow for Universal's shareholders to speak with one voice and advance the claims of Universal in the most efficient way possible.

         Here, Amalgamated and Central Laborers' Pension Fund both seek to be appointed lead plaintiff. This is a difficult choice to make because it appears that both of these plaintiffs would be more than fair and adequate in representing the interests of the shareholders in this consolidated action. ...


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