18‐1850‐cv
In re Express Scripts Holdings Co. Sec. Litig.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE
OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A
SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE
FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A
PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED
BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 7th day of May, two thousand nineteen.
PRESENT: BARRINGTON D. PARKER,
DENNY CHIN,
SUSAN L. CARNEY,
Circuit Judges.
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IN RE EXPRESS SCRIPTS HOLDINGS COMPANY
SECURITIES LITIGATION
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TEACHERS INSURANCE & ANNUITY
ASSOCIATION OF AMERICA,
Lead Plaintiff‐Appellant,
MELBOURNE MUNICIPAL FIREFIGHTERS 18‐1850‐cv
PENSION TRUST FUND, individually and on behalf
of all others similarly situated,
Plaintiff,
v.
EXPRESS SCRIPTS HOLDING COMPANY, GEORGE
PAZ, TIMOTHY WENTWORTH, ERIC SLUSSER,
DAVID QUELLER, JAMES M. HAVEL,
Defendants‐Appellees.
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FOR LEAD PLAINTIFF‐APPELLANT: SALVATORE J. GRAZIANO (Adam D.
Hollander, Rebecca E. Boon, on the brief),
Bernstein Litowitz Berger & Grossmann LLP,
New York, New York.
FOR DEFENDANTS‐APPELLEES: SCOTT D. MUSOFF (Jay B. Kasner, on the brief),
Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
Appeal from the United States District Court for the Southern District of
New York (Ramos, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
Lead plaintiff‐appellant Teachers Insurance and Annuity Association
(ʺTIAAʺ) appeals from the May 22, 2018 judgment of the United States District Court for
the Southern District of New York (Ramos, J.), dismissing its Second Amended
Complaint (the ʺComplaintʺ). By opinion and order entered May 21, 2018, the district
court granted the motion of defendants‐appellees Express Scripts Holding Company
(ʺExpress Scriptsʺ), George Paz, Timothy Wentworth, Eric Slusser, David Queller, and
James M. Havel (collectively, ʺDefendantsʺ) to dismiss pursuant to Federal Rule of Civil
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Procedure 12(b)(6). TIAA sued on behalf of itself and a proposed class of purchasers of
Express Scripts common stock between February 24, 2015, and March 21, 2016 (the
ʺClass Periodʺ). The Complaint alleged that Defendants violated Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., by making materially
false or misleading statements in connection with the purchase or sale of securities. We
assume the partiesʹ familiarity with the underlying facts, procedural history, and issues
on appeal.
This action stems from Defendantsʹ statements during the Class Period
about Express Scriptsʹs relationship with Anthem, Inc. (ʺAnthemʺ). In April 2009,
Express Scripts and Anthem entered into a ten‐year agreement (the ʺAgreementʺ) for
Express Scripts to serve as Anthemʹs exclusive pharmacy benefits manager, making
Anthem its most important customer. Under generally accepted accounting procedures
(ʺGAAPʺ), the Agreement was an intangible asset and accounting for the Agreement
was ʺbased on its useful life to [Express Scripts],ʺ and, under GAAP, Express Scripts
was required to update any changes to the Agreementʹs useful life. Appʹx at 637
(alterations and internal quotation marks omitted). From 2009 to April 25, 2016,
Express Scripts amortized the Agreement over a 15‐year period in its filings with the
Securities and Exchange Commission (ʺSECʺ) because it anticipated renewing the
Agreement with Anthem.
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Under Section 5.6 of the Agreement, Anthem could engage in a periodic
pricing review every three years. Both parties agreed to negotiate any new pricing
terms under this section in good faith. The first periodic pricing review took place in
2011, lasted nearly a year, and ʺplaced a substantial strain on Express Scriptsʹs
relationship with Anthem.ʺ Appʹx at 644. Anthem initiated the second periodic pricing
review in October 2014 and took a ʺmore aggressiveʺ approach, initially demanding
nearly $15 billion in total pricing concessions. Appʹx at 646, 649.
The Complaint alleges that during the Class Period Defendants made
several positive statements, discussed further below, about Express Scriptsʹs
relationship and negotiations with Anthem. The Complaint further alleges that these
statements were false or misleading because in fact both parties had accused each other
privately of not proceeding in good faith; Anthem served Express Scripts with two
notices of breach; and Express Scripts rejected or failed to respond to Anthemʹs
proposals and refused on a number of occasions to meet with Anthem. On March 21,
2016 ‐‐ the last day of the Class Period ‐‐ Anthem sued Express Scripts for breaching the
Agreement. Express Scripts disclosed the litigation and adjusted its amortization of the
Agreement to reflect the assumption that the Agreement would not be renewed beyond
its ten‐year term.
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TIAAʹs initial complaint was dismissed by the district court without
prejudice. On August 30, 2017, TIAA filed the Complaint. The district court thereafter
dismissed the Complaint, and this appeal followed.
STANDARD OF REVIEW
We review de novo a district courtʹs grant of a motion to dismiss for failure
to state a claim pursuant to Rule 12(b)(6). City of Pontiac Policemenʹs & Firemenʹs Ret.
Sys. v. UBS AG, 752 F.3d 173, 179 (2d Cir. 2014). ʺTo survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.ʺ Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal
quotation marks omitted). In addition, when a complaint alleges securities fraud, the
heightened pleading standards of Rule 9(b) of the Federal Rules of Civil Procedure and
the Private Securities Litigation Reform Act of 1995 (the ʺPSLRAʺ), Pub. L. No. 104‐67,
109 Stat. 743 (1995), apply. See ECA & Local 134 IBEW Joint Pension Tr. of Chi. v. JP
Morgan Chase Co., 553 F.3d 187, 196 (2d Cir. 2009). Rule 9(b) requires that misstatements
or omissions be pleaded with particularity, but ʺplaintiffs need only plead
circumstances that provide at least a minimal factual basis for their conclusory
allegations of scienter.ʺ San Leandro Emergency Med. Grp. Profit Sharing Plan v. Philip
Morris Cos., 75 F.3d 801, 813 (2d Cir. 1996) (internal quotation marks omitted). The
complaint, however, must still ʺstate with particularity facts giving rise to a strong
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inference that the defendant acted with the required state of mind.ʺ ECA, 553 F.3d at
196 (quoting 15 U.S.C. § 78u‐4(b)(2)(A)).
DISCUSSION
On appeal, TIAA argues that the district court incorrectly held that the
Complaint failed to adequately allege that Defendants (1) made materially false and
misleading statements and omissions; and (2) acted with scienter.
I. Applicable Law
Section 10(b) of the Securities Exchange Act of 1934 prohibits ʺ(1) the ʹuse
or employment of any deceptive device,ʹ (2) ʹin connection with the purchase or sale of
any security,ʹ and (3) ʹin contravention ofʹ [SEC] ʹrules and regulations.ʹʺ Dura Pharm.,
Inc. v. Broudo, 544 U.S. 336, 341 (2005) (alterations omitted) (quoting 15 U.S.C. § 78j(b)).
In addition, Rule 10b‐5 ʺforbids, among other things, the making of any ʹuntrue
statement of a material factʹ or the omission of any material fact ʹnecessary in order to
make the statements made . . . not misleading.ʹʺ Id. (quoting 17 C.F.R. § 240.10b–5
(2004)). To state a claim under Section 10(b) and Rule 10b‐5, a plaintiff must plead,
among other things, ʺa material misrepresentation or omissionʺ and ʺscienter.ʺ Id.
(emphasis and internal quotation marks omitted).
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II. Application
A. Material Misstatements and Omissions
TIAA argues that Defendants (1) materially mispresented the state of
Express Scriptsʹs relationship and negotiations with Anthem; (2) failed to disclose the
true state of Express Scriptsʹs relationship and negotiations with Anthem; and (3)
misled investors by amortizing the Agreement over 15 years, rather than 10 years.
1. Statements About the Relationship with Anthem
Whether a statement is misleading is evaluated not only by the ʺliteral
truthʺ of the statement but also ʺby [the] context and manner of presentation.ʺ Singh v.
Cigna Corp., 918 F.3d 57, 63 (2d Cir. 2019) (internal quotation marks omitted). In
addition, a material misstatement must be false at the time it was made. See San Leandro
Emergency Med. Grp., 75 F.3d at 812. Statements are not false or misleading if they ʺare
too general to cause a reasonable investor to rely on themʺ and ʺlack the sort of definite
projections that might require later correction.ʺ In re Vivendi, S.A. Sec. Litig., 838 F.3d
223, 245 (2d Cir. 2016) (internal quotation marks omitted). Moreover, ʺ[d]isclosure of an
item of information is not required . . . simply because it may be relevant or of interest
to a reasonable investor.ʺ Resnik v. Swartz, 303 F.3d 147, 154 (2d Cir. 2002).
TIAA identifies four statements that it argues are materially false or
misleading: (1) on a February 25, 2015 conference call, Queller described the Express
Scripts‐Anthem relationship as ʺgreat,ʺ ʺvery, very solid,ʺ and ʺbusiness as usual,ʺ
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Appʹx at 654‐55; (2) on an April 29, 2015 conference call, Paz stated that Express Scripts
ʺreally enjoysʺ its relationship with Anthem and it is a ʺtwo‐way street,ʺ Appʹx at 658;
(3) on December 22, 2015, Paz stated that Express Scripts was ʺcurrently in discussions
with Anthem regarding the periodic pricing provisions of the [A]greement,ʺ and
ʺexcited to continue productive discussions,ʺ which were ʺvery early on,ʺ Appʹx at 674;
and (4) on February 16, 2016, Defendants stated in an SEC filing that it was ʺactively
engaged in good faith discussions with Anthemʺ regarding the periodic pricing review,
Appʹx at 686. TIAA argues that these statements were misleading because of the state
of the negotiations between Express Scripts and Anthem. We conclude that the district
court correctly held that no reasonable investor could have found the statements, in
light of the overall context, to be false, misleading, or incomplete.
First, the statements that the relationship was ʺgreatʺ and ʺvery, very
solidʺ and Express Scripts ʺreally enjoysʺ the relationship are expressions of puffery and
optimism, and are the opinions of Paz and Queller. ʺ[E]xpressions of puffery and
corporate optimism do not give rise to securities violations,ʺ Rombach v. Chang, 355 F.3d
164, 174 (2d Cir. 2004), and ʺ[a]n opinion statement . . . is not necessarily misleading
when an issuer knows, but fails to disclose, some fact cutting the other way,ʺ Omnicare,
Inc. v. Laborers Dist. Council Consts. Indus. Pension Fund, 135 S. Ct. 1318, 1329 (2015).
Second, it is clear from the Complaint and the documents it references that
Express Scripts was trying to negotiate a new agreement and maintain its relationship
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with Anthem throughout the Class Period. In fact, in January 2016, Anthemʹs CEO
stated that it had just ʺset the table now for conversations in and around the possibility
of recasting our pricing relationship with [Express Scripts].ʺ Appʹx at 553. Moreover,
Express Scripts met with Anthem on February 3, 2016, and submitted a proposal on
February 12, 2016, and Anthemʹs general counsel stated on January 12, 2016, that the
companies ʺremain[ed] in dialogue.ʺ Appʹx at 568. Hence, discussions were in fact
ongoing, and Defendants statements ʺsuggest only the hope . . . that the talks would go
wellʺ and ʺdid not become materially misleading when the talks did not proceed well.ʺ
In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 267 (2d Cir. 1993). Moreover, while Express
Scripts received notices of breach prior to these statements, the companies were also
continuing to engage in the Agreementʹs three‐step dispute resolution process
throughout the Class Period in an effort to resolve their differences. Finally, during the
Class Period, Express Scripts made a number of statements acknowledging the
possibility that negotiations could fail and the Agreement would not be renewed.
Accordingly, considering ʺnot only [the] literal truthʺ of the statements,
ʺbut [also the] context and manner of presentation,ʺ Singh, 918 F.3d at 62, the district
court correctly held that no reasonable investor would find these statements false,
misleading, or incomplete.
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2. Duty to Disclose
TIAA argues that Defendants had a duty to disclose Express Scriptsʹs
dispute with Anthem and the uncertainty as to the relationship between the two
companies. We are not persuaded. ʺ[A] pure omission is actionable under securities
laws only when the corporation is subject to a duty to disclose the omitted facts, [a]nd
in and of themselves, [Section] 10(b) and Rule 10b‐5 do not create an affirmative duty to
disclose any and all material information.ʺ In re Vivendi, 838 F.3d at 239 (internal
quotation marks and citations omitted). TIAA essentially argues that Defendants
should have anticipated the outcome of the negotiations sooner or that the negotiations
would deteriorate, but in the circumstances here, where the discussions were ongoing,
Defendants did not have a duty to disclose more about the uncertain state of the
negotiations. See Acito v. IMCERA Grp., Inc., 47 F.3d 47, 53 (2d Cir. 1995) (ʺ[D]efendantsʹ
lack of clairvoyance simply does not constitute securities fraud.ʺ)
3. Express Scriptsʹs Accounting Treatment of the Agreement
Express Scripts amortized the Agreement over a 15‐year period,
anticipating that the Agreement would be renewed, and therefore useful to Express
Scripts, for five years beyond the ten‐year contract period. TIAA argues that ʺrenewal
was increasingly unlikelyʺ throughout the Class Period because of the ʺcontentious,
unresolved disputes,ʺ and therefore Express Scripts was obligated under GAAP to
amortize the Agreement over its existing ten‐year life. Appellantʹs Br. at 33‐34. While
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Express Scriptsʹs expectation as to the Agreementʹs useful life was arguably ʺoverly
optimistic,ʺ TIAAʹs allegations, ʺeven viewed in combination, do not plausibly
demonstrate that defendants knew, nor even had reason to know, at any specific time
during [that] period that [the Agreement] was overvalued.ʺ City of Omaha, Neb. Civilian
Employeesʹ Ret. Sys. v. CBS Corp., 679 F.3d 64, 68 (2d Cir. 2012) (per curiam). Anthem
and Express Scripts continued to engage in discussions throughout the Class Period,
and Anthem did not inform Express Scripts until April 2017 ‐‐ after the Class Period ‐‐
that Anthem did not intend to renew the Agreement. Accordingly, this accounting
treatment was not materially misleading or false.
B. Scienter
Evening assuming that TIAA plausibly alleged that Defendants made
materially false or misleading statements or omissions, its Section 10(b) and Rule 10b‐5
claims fail because TIAA has failed to sufficiently allege scienter.
Scienter is a wrongful state of mind ‐‐ i.e., ʺan intent to deceive,
manipulate or defraud.ʺ Ganino v. Citizens Utils Co., 228 F.3d 154, 168 (2d Cir. 2000). ʺA
complaint will survive . . . only if a reasonable person would deem the inference of
scienter cogent and at least as compelling as any opposing inference one could draw
from the facts alleged.ʺ Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324
(2007). ʺThe requisite scienter can be established by alleging facts to show . . . strong
circumstantial evidence of conscious misbehavior or recklessness.ʺ ECA, 553 F.3d at
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198. Scienter based on conscious misbehavior or reckless conduct may be established
with circumstantial evidence that the defendants ʺknew facts or had access to
information suggesting that their public statements were not accurate.ʺ Employeesʹ Ret.
Sys. of Govʹt of the V.I. v. Blanford, 794 F.3d 297, 306 (2d Cir. 2015). This Court, however,
has limited the scope of securities fraud liability based on reckless conduct. Plaintiffs
cannot proceed with ʺallegations of fraud by hindsightʺ; allegations of GAAP violations
alone are not sufficient; and ʺas long as the public statements are consistent with
reasonably available data, corporate officials need not present an overly gloomy or
cautious picture of current performance and future prospects.ʺ Novak v. Kasaks, 216 F.3d
300, 309 (2d Cir. 2000) (internal quotation marks omitted).
TIAA identified eight categories of facts it alleges demonstrate a strong
inference of scienter. See Novak, 216 F.3d at 309.1 These facts do not, however, provide
strong circumstantial evidence of misbehavior or recklessness, because Defendantsʹ
statements were consistent with the facts and information available at the time. See id.
As the allegations of the Complaint and the content of the relevant documents make
clear, Defendants could not have known that the negotiations with Anthem would
1 TIAAʹs categories of facts include: (1) Defendantsʹ personal involvement in the Anthem
relationship; (2) the size and protracted nature of the dispute; (3) Defendants holding themselves out to
the public as being personally involved in the negotiations; (4) the Agreement being part of Express
Scriptsʹs core operations; (5) Anthemʹs statements about its $15 billion demand; (6) the irreparable
damage from the first round of pricing negotiations; (7) Anthemʹs accusation that Express Scripts
breached the Agreementʹs operational terms; and (8) Defendantsʹ own subsequent admissions.
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ultimately fail, especially considering the fact that the first periodic pricing review was
successful even though it took ʺapproximately a year,ʺ was ʺcombative,ʺ and led
Anthem to ʺraise[] the possibility of litigationʺ to resolve the contractual dispute. Appʹx
at 642‐44. The fact that Defendantsʹ optimism ʺturned out to be unwarranted is not
circumstantial evidence of conscious fraudulent behavior or recklessness.ʺ Rothman v.
Gregor, 220 F.3d 81, 90 (2d Cir. 2000). Much of what TIAA alleges is ʺfraud by
hindsight,ʺ but Defendants ʺneed not be clairvoyant.ʺ Novak, 216 F.3d at 309.
Allegations, like these, ʺthat defendants should have anticipated future events and
made certain disclosures earlier than they actually did do not suffice to make out a
claim of securities fraud.ʺ Id.
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We have considered TIAAʹs remaining arguments and conclude they are
without merit. Accordingly, we AFFIRM.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk
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