Robbins Geller Defeats Defendants’ Motion to Dismiss in Corrections Corporation of America Litigation
On December 18, 2017, the Honorable Aleta A. Trauger of the United States District Court for the Middle District of Tennessee, Nashville Division, denied defendants’ motion to dismiss in Grae v. Corrections Corporation of America. Amalgamated Bank, as Trustee for the LongView Collective Investment Fund (“Amalgamated”), is serving as lead plaintiff in this action on behalf of a proposed class of investors who purchased or otherwise acquired securities of Corrections Corporation of America (“CCA”) (now known as “CoreCivic”) during the February 27, 2012 through August 17, 2016 class period.
CCA is a publicly traded real estate investment trust (“REIT”) that owns and manages correctional, detention and residential reentry facilities. As of 2015, CCA was the largest private corrections company in the United States, managing more than 65 correction and detention facilities in 19 states and the District of Columbia. The case alleges that CCA and certain of its officers violated the Securities Exchange Act of 1934 (“Exchange Act”) by making materially false and misleading statements and omissions to investors regarding CCA’s business and operations.
Defendants’ motion to dismiss challenged whether plaintiff had sufficiently alleged material misrepresentations, loss causation and scienter, three of the elements that a plaintiff must demonstrate to prevail on a securities fraud claim under §10(b) of the Exchange Act and SEC Rule 10b-5(b). In upholding Amalgamated’s claims regarding materiality and falsity, Judge Trauger ruled: “[I]t is sufficient that Amalgamated has pled that CoreCivic and its executives repeatedly claimed or suggested that the company’s history of quality services had gained it the faith and esteem of its government partners, when, in fact, the perceived low quality of its services was leading one of its most important client relationships to the brink of collapse. The court will not dismiss Amalgamated’s claims for having insufficiently pled falsity or materiality.” Regarding the loss causation claims, Judge Trauger further stated that Amalgamated “amply alleges that CoreCivic gave a misleadingly incomplete picture of the issues that ultimately resulted in the DOJ’s shift, and CoreCivic concedes that it was that shift that caused the loss in value of its stock.” Finally, the court rejected defendants’ contentions relating to scienter, stating: “The PSLRA sets a high bar for a plaintiff attempting to plead scienter. Construing that high bar as an insurmountable one, however, would transform that Act into a sub rosa repeal of Section 10(b). CoreCivic has identified no evidence that Congress intended such a result.” In conclusion, the court found that Amalgamated adequately plead “enough to satisfy Rule 12(b)(6), Rule 9(b), and the PSLRA.”
Grae v. Corrections Corporation of America, No. 3:16-cv-2267, Memorandum (M.D. Tenn. Dec. 18, 2017).