Schuh v. HCA Holdings, Inc.

Case Summary

Largest Securities Class Action Recovery Ever in Tennessee

The $215 million recovery is the largest securities class action recovery ever in Tennessee and represents more than 30% of the aggregate classwide damages suffered by investors who purchased shares of HCA Holdings, Inc. (“HCA”) in connection with the company’s March 9, 2011 initial public offering (“IPO”), far exceeding the typical recovery in a securities class action.

On April 14, 2016, the U.S. District Court for the Middle District of Tennessee granted approval of the settlement, which resolves claims arising out of the alleged failure of HCA to disclose material information to the public in connection with the company’s 2011 IPO.

The exceptional recovery was only achieved after the tremendous efforts of lead plaintiff New England Teamsters & Trucking Industry Pension Fund and Robbins Geller, who pursued the case through four years of hard-fought litigation, settling the case just prior to trial.

Founded in 1968, HCA operates hospitals, outpatient facilities, clinics and other patient-care delivery settings in the United States and the United Kingdom. The case was brought against HCA, HCA’s Board of Directors, the investment banks that underwrote the IPO, and Hercules Holding II, LLC, an investment vehicle owned by a private equity group that had invested in HCA and included affiliates of Bain Capital, Kohlberg Kravis Roberts & Co. L.P., and the then-private equity arm of Merrill Lynch. Lead plaintiff alleged that defendants were liable for failing to disclose in IPO offering documents that HCA was experiencing and would continue to experience declines in several important revenue streams.

In the quarters immediately preceding the IPO, defendants were alleged to have been aware that HCA’s high margin cardiology procedures (which accounted for approximately 25% of HCA’s Medicare inpatient revenue) were declining. These declines were allegedly caused in part by internal investigations which revealed that unnecessary cardiac procedures were occurring across several HCA hospitals. Investigations by the U.S. Department of Justice into HCA’s cardiac procedures further drove this decline. As a result, defendants were alleged to have been aware of but failed to disclose that the number of certain cardiac procedures performed at HCA hospitals (and the revenue generated by those high-profit procedures) would continue to decline significantly.

Months after the IPO, HCA announced disappointing second quarter 2011 financial results and further disclosed that those results were partially attributable to declines in HCA’s cardiovascular related service lines. Following these disclosures, HCA’s stock price dropped to a level 40% below the IPO offering price, causing investors substantial damages.

From its commencement on October 28, 2011, until the proposed settlement agreement was reached on November 3, 2015, Robbins Geller attorneys vigorously litigated the case. The record settlement was achieved only after an extensive investigation and a year and a half of discovery that included the review and analysis of the electronic equivalent of more than 13 million pages of documentary evidence produced by defendants and multiple third parties, more than 40 depositions, and the retention of experts in the fields of cardiology, finance, accounting and economics.

Robbins Geller successfully overcame defendants’ motion to dismiss and obtained class certification. Defendants’ efforts to petition the Sixth Circuit Court of Appeals for review of the district court’s grant of class certification were also defeated. At the time the settlement was reached, Robbins Geller had filed briefs in opposition to defendants’ motions for summary judgment that raised issues of first impression in the Sixth Circuit, completed extensive cross-briefing on the admissibility of the parties’ experts’ testimony at trial and commenced trial preparation.

“We are proud to have achieved this substantial premium recovery for investors in an extremely important case that involved not only an abuse of the securities markets but also the failure of a hospital company to put the well-being of its patients above profits,” said Robbins Geller partner Scott H. Saham.

At the final approval hearing, the Honorable Kevin H. Sharp described the Robbins Geller attorneys on the case as “gladiators” and approved the settlement after considering “the benefit obtained, the effort that you had to put into it, [and] the complexity in this case,” noting that “I appreciate the work that you all have done on this.”

The Robbins Geller attorneys that were responsible for this achievement include Darren J. Robbins, Scott H. Saham, James I. Jaconette, Debra J. Wyman, James E. Barz, Robert R. Henssler, Jr., Kevin A. Lavelle and J. Marco Janoski Gray, who led a team of additional dedicated Robbins Geller attorneys and support staff.

Schuh v. HCA Holdings, Inc., No. 3:11-cv-01033 (M.D. Tenn.).

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