Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—M.D. Tenn.: Court grants partial summary judgment to plaintiffs on fraud claim against healthcare company, (Oct 21, 2025)

By Kristin J. Angelino, J.D.

Defendants failed to offer sufficient evidence to rebut the Affiliated Ute and Basic presumptions of reliance. The court also denied defendants’ separate motion for summary judgment.

Shareholders in a securities fraud action against Acadia Healthcare Co., Inc. and three of its officers were granted partial summary judgment for the reliance element of their fraud claims brought against defendants under Exchange Act Section 10(b), Rule 10b-5 thereunder, and Section 20(a). The Middle District of Tennessee held that partial summary judgment should be granted since: (1) defendants’ alleged violations involved omissions or failures to disclose, and (2) defendants failed to sufficiently rebut the Affiliated Ute or Basic presumptions of reliance. The court also denied defendants’ motion for summary judgment, holding that there were genuine issues of material fact as to (1) whether PSLRA’s safe harbor bars plaintiffs’ claims and (2) whether plaintiffs lacked evidence of loss causation. (St. Clair County Employees’ Retirement System v. Acadia Healthcare Co., Inc., No. 3:18-cv-00988 (M.D. Tenn. Oct. 16, 2025)).

Defendant Acadia Healthcare Company, Inc. is a for-profit healthcare company that operates inpatient psychiatric facilities, residential treatment centers, and other facilities providing outpatient behavioral healthcare services in the United States, the United Kingdom (the U.K.), and Puerto Rico.

Plaintiffs claim that Acadia engaged in a scheme to defraud investors, made false and misleading statements and omissions regarding patient care, staffing levels, and regulatory compliance at its U.S. facilities, and also misled investors about the financial performance of its U.K. facilities. Plaintiffs also claim that defendants’ fraud was revealed through a series of corrective disclosures, and that Acadia’s stock price dropped after each disclosure.

Rebutting the Affiliated Ute presumption. Plaintiffs argued that summary judgment is appropriate for the reliance element of their claims because there is no genuine issue of material fact as to: (1) any prerequisite required to invoke the Affiliated Ute and Basic presumptions of reliance, aside from materiality; and (2) defendants’ inability to rebut the presumptions.

Describing the first presumption of reliance, from the case of Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), the court stated that the Supreme Court dispensed with a requirement of positive proof of reliance, where a duty to disclose material information had been breached. Therefore, the court granted plaintiffs’ partial summary judgment motion since defendants’ alleged Section 10(b) and Rule 10b-5 violations in this case involved omissions/failures to disclose, and defendants failed to identify any evidence to rebut the Affiliated Ute presumption.

Rebutting the Basic presumption. The second presumption, from Basic Inc. v. Levinson, 485 U.S. 224, 243 (1988), presumes reliance on a statement, under the fraud-on-the-market doctrine, when the statement at issue becomes public. However, the Supreme Court in Basic recognized that a defendant may rebut the Basic presumption by showing either that: (1) the alleged misrepresentation did not actually affect the market price; or (2) a plaintiff would have bought or sold the stock even if they were aware that the stock's price was tainted by fraud.

Regarding the impact on the market price, the court held that the testimony of defendants’ expert witness regarding the lack of a statistically significant decline – as opposed to no decline – in Acadia’s stock price in reaction to the claimed corrective disclosures failed to rebut the Basic presumption or create a genuine issue of material fact as to defendants’ ability to do so.

Regarding the second showing, defendants claimed that they can rebut the Basic presumption by showing that an outside investment advisor for one of the lead plaintiffs was aware of certain risks before purchasing Acadia stock; did not think Acadia was engaged in fraud after review of the alleged corrective disclosures; and did not sell Acadia stock in the face of its financial guidance. The court disagreed, holding that defendants failed to show how this evidence would support an inference that the investment advisor would have bought or sold Acadia stock even if it had been aware that the stock’s price was tainted by fraud.

Additionally, the court noted that there was testimony in the record from the investment advisor establishing that it would not have bought or sold Acadia stock even if it had been aware that the stock’s price was tainted by fraud. Therefore, defendants failed to create a genuine issue of material fact as to their inability to rebut the Basic presumption of reliance.

PSLRA safe harbor. In defendants’ motion for summary judgment, they argued that: (1) the safe harbor of the Private Securities Litigation Reform Act (PSLRA) bars plaintiffs’ claims based on projected earnings at Acadia’s U.K. facilities in 2017; and (2) plaintiffs lack evidence of loss causation.

The court stated that plaintiffs may overcome the safe-harbor protections for forward-looking statements by proving that the statements lacked meaningful cautionary language and that the defendants had actual knowledge that the statements were false or misleading when made. The court agreed with plaintiff’s argument that the cautionary language here was not meaningful because, as the evidence identified by plaintiffs indicated, the risks identified as possibilities had already materialized.

The court disregarded the two Sixth Circuit cases cited by defendant in support of its argument for meaningful cautionary language, stating that neither case concerned the application of the safe harbor, but instead involved claims based on fraudulent misrepresentations.

Regarding whether the defendants had actual knowledge that the forward-looking statements were false or misleading when made, the court held that the circumstantial evidence provided by plaintiffs was sufficient to raise a genuine dispute of fact concerning whether the earnings guidance was knowingly false.

Loss causation. The court found defendants’ argument that plaintiffs lacked evidence of loss causation unpersuasive. Defendants attacked the opinions of plaintiffs’ expert witness, Scott Dalrymple, and argued that the corrective disclosures did not reveal new information and/or were not followed by statistically significant price declines. The court rejected defendants’ arguments since it had already ruled that Dalrymple’s opinions about loss causation and damages would be admissible at trial and that the absence of a statistically significant price decline following a corrective disclosure is not evidence of an absence of price impact.

Additionally, the court found unpersuasive the defendants’ argument that, because neither of the two claimed corrective disclosures contained information “that the market would not have already processed and reacted to,” the disclosures failed to support plaintiffs’ theory of causation. The court stated that defendants’ argument is premised on the view that publicly available information will be reflected in market price “within minutes” even though defendants are aware that the Supreme Court has specifically not adopted “any particular theory of how quickly and completely publicly available information is reflected in market price.” Additionally, the court held that defendants’ argument is also unpersuasive because it is premised on a view of the facts in the light most favorable to themselves.

The case is No. 3:18-cv-00988.

Judge: Campbell, W.

Attorneys: Christopher M. Wood (Robbins Geller Rudman & Dowd LLP) for St. Clair County Employees’ Retirement System. Brandon R. Keel (King & Spalding LLP) for Acadia Healthcare Co., Inc.

Companies: Acadia Healthcare Co., Inc.

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