Shareholders Obtain $65 Million Settlement in Psychiatric Solutions

January 17, 2015

On January 16, 2015, Robbins Geller obtained final approval of a $65 million settlement in the securities class action lawsuit Garden City Employees’ Retirement System v. Psychiatric Solutions, Inc. et al., filed in the United States District Court for the Middle District of Tennessee before Chief Judge William J. Haynes, Jr.  The settlement, which Judge Haynes described as a “highly favorable result achieved for the [c]lass” through Robbins Geller’s “diligent prosecution,” represents the third largest securities recovery ever in the Middle District of Tennessee and the largest in more than a decade.  The case was not settled until just days before trial and after Robbins Geller relocated a team of 19 attorneys and staff to Nashville, Tennessee to try the case.  “This is an excellent recovery for the class in a contentious and difficult case,” said Robbins Geller partner Dennis J. Herman.  “We were able to achieve this result only because we once again demonstrated that Robbins Geller is prepared to take these cases to a jury when necessary to obtain fair compensation to defrauded investors.”

The case was filed on September 21, 2009, on behalf of purchasers of Psychiatric Solutions, Inc. (“PSI”) stock during the February 21, 2008 through February 25, 2009 class period.  Investors were represented by Central States, Southeast and Southwest Areas Pension Fund.  The complaint names as defendants PSI, its former President and CEO Joey Jacobs, its former Executive Vice President and Chief Accounting Officer Jack Polson, and its former Executive Vice President, Finance and Administration, Brent Turner.

The complaint alleges that PSI, which operated more than 95 psychiatric facilities for at-risk children and teens, deceived investors about the strength, financial condition and sustainability of its business, the quality of care it delivered to patients, and manipulations of its malpractice reserves.  The complaint alleges that PSI failed to sufficiently staff its facilities, resulting in alarming incidents of abuse, neglect, and even the death of its patients, and downplayed the significance of these events when they became public.  After raising its earnings guidance throughout the class period, on February 25, 2009, PSI stunned investors by missing earnings guidance due to rising malpractice costs and regulatory expenses related to an investigation at its Riveredge Hospital in Chicago, Illinois.  On this news, PSI’s stock fell $9.79 per share (35%), causing damage to members of the class.  In April 2009, Illinois regulators issued a scathing report describing “egregious quality failures” at Riveredge Hospital and other PSI facilities, causing another 8% decline in the value of PSI stock and further harm to investors.

Central States and Robbins Geller aggressively litigated this action for more than four years – up to the eve of trial, which was scheduled to commence on September 16, 2014.  Central States overcame defendants’ motion to dismiss on March 31, 2011, and defeated defendants’ subsequent motion for reconsideration or certification to the Sixth Circuit Court of Appeals.  Central States then successfully obtained an order certifying this case as a class action on March 29, 2012, and overcame a petition to the Sixth Circuit for appellate review.  During this time, the attorneys from Robbins Geller were engaged in expansive discovery, spanning more than three years, developing evidence that would demonstrate fraud at trial.  Robbins Geller attorneys analyzed more than seven million pages of documents obtained from PSI’s corporate headquarters and from its facilities across the country and deposed more than 40 fact witnesses to develop the evidence needed to prove the class’s claims at trial.  “Defendants threw everything they could at us to prevent or limit discovery or dismiss the case short of trial,” recounted Robbins Geller partner Daniel J. Pfefferbaum.  “Our team responded at every turn with the strength and determination needed to demonstrate that we had both the facts and the law needed to take these claims to trial.”

Confronted with the extensive evidence of fraud that Robbins Geller developed in discovery, and facing a seasoned team of litigators primed to take this case to trial, PSI finally agreed to settle the action by making a substantial payment to investors harmed by the fraud perpetrated by defendants.  Robbins Geller attorneys Dennis J. Herman, Daniel J. Pfefferbaum, Tor Gronborg, Jonah H. Goldstein, James E. Barz, Jerry E. Martin, Christopher M. Wood and Brian E. Cochran obtained this settlement for the class.

Garden City Employees’ Retirement System v. Psychiatric Solutions, Inc. et al., No. 3:09-cv-00882 (M.D. Tenn.).

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