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Mortimer v. Diplomat Pharmacy, Inc.

United States District Court, N.D. Illinois, Eastern Division

October 7, 2019

DIPLOMAT PHARMACY INC., et al., Defendants.


          Virginia M. Kendall United States District Judge

         This is a securities class action against Diplomat Pharmacy, Inc., (“Diplomat”), Brian T. Griffin, Jeffrey Park, Joel Saban, and Atul Kavthekar (collectively, “Defendants”). The Court previously appointed Iron Workers Local No. 25 Pension Fund (the “Fund”) as lead plaintiff under the PSLRA and appointed the Fund's chosen counsel, Robbins Geller, to be lead counsel. Mortimer v. Diplomat Pharmacy Inc., No. 19 C 1735, 2019 WL 3252221 (N.D. Ill. July 19, 2019). In doing so, the Court also denied movant Arsany Girgis's motion for the same appointment. Girgis now asks the Court to reconsider that decision and appoint him as co-lead plaintiff and appoint his counsel, Hagens Berman Sobol Shapiro LLP, as co-lead counsel. Girgis's motion for reconsideration [Dkt. 67] is denied.


         Defendant Diplomat provides specialty pharmacy services. In 2017, Diplomat entered the Pharmacy Benefit Management (“PBM”) business by acquiring National Pharmaceutical Services (“NPS”) and LDI Integrated Pharmacy Services (“LDI”). Three complaints were filed and eventually consolidated before this Court. (See Dkt. 42.) The complaints generally allege that Defendants violated federal securities laws by making false or misleading statements and failing to disclose key facts about the integration and growth of Diplomat's PBM business, the LDI and NPS acquisitions, impending impairment charges to its PBM business, and the nature of its preliminary 2019 full-year outlook. See Dkt. 1 ¶ 34; see also Dkt. 1, No. 19 C 2635 (Prentice Compl.) 26; Dkt. 1, No. 19 C 2631 (“Riehm Compl.”) 26. On November 6, 2018, Diplomat announced its financial results for the third quarter ending September 30, 2018 and Defendants attributed its “solid” results to its ability to “successfully execute on [its] growth plan” and “strong . . . PBM performance.” Dkt. 1 ¶ 24; Prentice Compl. ¶24; Riehm Compl. ¶24.

         There are three alleged disclosures at issue in this case. The first happened on November 6, 2018, when Defendants revealed that Diplomat expected to lose roughly $200 million in revenue, 4% of total enterprise revenue, in its PBM business due to client losses. (Dkt. 1 ¶ 26; see also Prentice Compl. 24; Riehm Compl. 24.) After this news, the price of Diplomat's common stock fell by 27%. (Dkt. 1 27.) The second disclosure happened on January 7, 2019, when Diplomat issued a press release announcing lower than expected revenue for 2018 and announcing the departure of two senior executives. (Dkt. 1 ¶¶ 28-31; see also Prentice Compl. 25; Riehm Compl 25.) Following this news, the price of Diplomat shares fell by 10.5%. (Dkt. 1 33.) The third happened on February 22, 2019, when Diplomat filed a Form 8-K postponing its Form 10-K filing for fiscal year 2018 because it needed to record a non-cash impairment charge of approximately $630 million relating to its 2017 PBM acquisitions. (Dkt. 1 35; Prentice Compl. 27; Riehm Compl. 27.) Following the 8-K filing and Diplomat's related press release, the share price fell by 56%. (Dkt. 1 36; Prentice Compl. 28; Riehm Compl. 28.)

         The Fund sold all its shares by December 19, 2018-i.e., after the first alleged disclosure but before the second and third. (See Dkt. 26-3); see also Mortimer, 2019 WL 3252221, at *3.


         I. Legal Standard

         District courts have discretionary authority to reconsider interlocutory orders at any time before final judgment is entered. Galvan v. Nordberg, 678 F.3d 581, 587 (7th Cir. 2012); see also Fed. R. Civ. P. 54(b) (non-final orders “may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities”). That said, issues appropriate for reconsideration “rarely arise” and motions to reconsider “should be equally rare.” Bank of Waunakee v. Rochester Cheese Sales, Inc., 906 F.2d 1185, 1191 (7th Cir. 1990). “Motions for reconsideration serve a limited function: to correct manifest errors of law or fact or to present newly discovered evidence.” Caisse Nationale de Credit Agricole v. CBI Industries, Inc., 90 F.3d 1264, 1269 (7th Cir. 1996). They are not an appropriate vehicle to advance arguments or legal theories that could and should have been made before the Court entered its order. Id. at 1270.

         II. Robbins Geller's Statements to the Court and the “Limited Fund Scenario”

          Girgis first argues that the Court should reconsider its decision in light of “new evidence” that became available after the Court appointed the Fund as lead plaintiff. The evidence Girgis cites is a series of statements made by the Fund's counsel, Robbins Geller, on behalf of different plaintiffs in a separate suit against Diplomat pending in the Eastern District of Michigan. In that suit, Robbins Geller represents a separate class of plaintiffs suing Diplomat for securities fraud based on separate conduct from a different time period than the one at issue here. See Zimmerman v. Diplomat, No. 16 C 14005 (E.D. Mich.); see also Dkt. 55 at 14. The Court previously ruled that Robbins Geller's representation of the lead plaintiffs in the Zimmerman suit and its representation of the Fund as lead plaintiff in this suit was not a disqualifying conflict of interest. Mortimer, 2019 WL 3252221, at *5-6.

         The Court based its holding in part on its finding that there did not appear to be a “limited fund scenario”-i.e., a situation where Diplomat might not have the ability to pay judgments in both Zimmerman and this case, which would require both classes to compete for the same limited pool of funds and which could create a conflict of interest for Robbins Geller, who is now representing both classes. Id. at *6. The Fund and Girgis urged the Court to look at different facts to determine whether this was a true limited fund scenario. Girgis argued that the Court should only consider Diplomat's “liquid assets” or “cash on hand, ” which were less than $3 million according to Diplomat's latest SEC filing. The Fund, on the other hand, argued that the Court should consider Diplomat's “total assets” (which were over $1.4 billion, according to the same SEC filing) and “total current assets” (over $517 million, according to the same), along with the high likelihood that any settlement would be funded by Diplomat's insurance policies. Because courts frequently look to factors other than cash or cash equivalents when determining a defendant's ability to pay at the class settlement approval stage, the Court sided with the Fund, considered Diplomat's total assets and probable insurance, and found that this did not appear to be a limited fund scenario. Id.

         Meanwhile, the Zimmerman case was moving toward settlement. On May 7, 2019, while Girgis and the Fund were in the midst of briefing the lead plaintiff issue in this case, the Zimmerman court entered an order preliminarily approving settlement. Zimmerman, No. 16 C 14005 (E.D. Mich.) at Dkt. 62. On July 16, the Zimmerman lead plaintiffs moved for final approval of the settlement and their attorneys from Robbins Geller submitted an affidavit in support. Id. at Dkt. 63, 65. In the affidavit urging the court to approve the settlement, the Robbins Geller attorneys cited “Diplomat's deteriorating financial condition, ” which “presented real ability-to-pay issues.” Id. at Dkt. 65 ¶ 10. In particular, the attorneys noted that Diplomat's “cash reserves have fallen to less than $3 million.” Id. They argued that settlement was in the class's best interest due to Diplomat's rapidly depleting cash reserves and “wasting director and officer insurance coverage, ” which they believed “would be the only source available to fund a settlement or judgment.” Id. ¶¶ 61-62.

         Three days later, on July 19, the Court appointed the Fund as lead plaintiff in this case and approved its selection of Robbins Geller as lead counsel. Mortimer, 2019 WL 3252221. On July 26, Girgis filed this motion asking the Court to reconsider its decision. (Dkt. 67.) On August 20, the Zimmerman court approved the settlement, entered ...

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