Pirani v. Medical Properties Trust, Inc. et al

Filing 49

MEMORANDUM OPINION: The court will GRANT Defendants' motion to dismiss Pirani's Amended Complaint. The court will enter a separate order that (a) DISMISSES WITH PREJUDICE both counts and (b) closes this case. Signed by Judge Corey L Maze on 9/26/2024. (LCB)

FILED
2024 Sep-26 AM 08:18
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
FIYYAZ PIRANI,
Plaintiff,
v.

Case No. 2:23-cv-486-CLM

MEDICAL PROPERTIES TRUST,
INC., et al.,
Defendants.
MEMORANDUM OPINION
Medical Properties Trust (“MPT”) buys then leases healthcare facilities.
In July 2019, MPT bought 16 facilities from Prospect Medical Holdings
(“Prospect”) for $1.55 billion, and Prospect agreed to lease space from MPT for
15 years—a ‘sale-leaseback’ transaction. Prospect struggled to pay its rent. So
in February 2023, MPT announced two impairment charges related to the
Prospect properties: a $171 million decrease in the value of four Prospect
hospitals in Pennsylvania, and a $112 million write off for unpaid rent. MPT’s
stock price fell 17.5% over the next week.
Fiyyaz Pirani traded MPT securities from July 2019 to February 2023.
Pirani says that, during that time, MPT knew that Prospect was struggling
financially and hid the ‘uncommercial transactions’ it used to prop up Prospect
to hide the looming impairment charges. Pirani says that MPT’s failure to
disclose Prospect’s struggles—thus delaying the impairment charge—injured
him and other investors who traded MPT securities during that time.
So Pirani sues MPT and its CEO, CFO, and CAO on behalf of a purported
class of investors under the Securities Exchange Act. MPT moves to dismiss
Pirani’s amended complaint. (Doc. 30). As explained within, the court finds
that Pirani’s amended complaint fails to meet the “tripled-layered pleading
standard” for private securities plaintiffs. Carvelli v. Ocwen Fin. Corp., 934
F.3d 1307, 1317 (11th Cir. 2019). The court also finds that Pirani’s failure to
adequately plead loss causation cannot be fixed by amendment. So the court
will DISMISS WITH PREJUDICE Pirani’s amended complaint.

BACKGROUND
A. Impairment Charges
The court starts with a quick accounting primer. Companies assign a
“carrying value” to an asset and record that value on the company’s balance
sheet. When the company determines that the current fair value of the asset
is less than the assigned carrying value, the company records the difference—
i.e., the lost value—as an “impairment” charge.
This case is about two impairment charges that MPT announced on
February 23, 2023. Both impairments relate to properties that MPT bought
from Prospect, then leased to Prospect. The first was a $171 million decrease
in the recorded value of four Prospect hospitals in Pennsylvania. The second
was a $112 million decrease in rent payments that MPT expected Prospect to
pay. This is how MPT recorded the impairment charges in the February 23
press release:

Pirani alleges that, until MPT revealed the impairments in the February
23rd press release, MPT hid (a) Prospect’s financial struggles that led to the

impairment charges and (b) MPT’s efforts to conceal the struggles. When the
public found out, MPT’s stock (traded as “MPW”) dropped 17.5% within a week.
Among other reasons, MPT asks the court to dismiss this case because
the market knew about the problems that led to the impairment charges before
February 2023. MPT openly talked about Prospect’s problems in 2022, and
market analysts reported and questioned MPT about Prospect’s problems in
2022. MPT argues that because the market knew about Prospect’s financial
struggles long before MPT reported the impairments on February 23, 2023,
Eleventh Circuit precedent precludes a finding that the February 23rd
announcement caused the 17.5% drop in stock value—meaning that MPT’s
announcement did not cause Pirani’s alleged injury. See Meyer v. Greene, 710
F.3d 1189, 1198 (11th Cir. 2013) (evidence that revealed information “[was]
already public is fatal to the Investors’ claim of loss causation”).
The parties’ arguments make two things important: (1) what MPT knew
about Prospect’s struggles before February 23, 2023, and (2) what the market
knew about Prospect’s struggles before February 23, 2023. Below, the court
lays out the facts Pirani pleaded in his complaint about both issues and
assumes they are true. 1 FED. R. CIV. P. 12(b)(6); see, e.g., Hishon v. King &
Spalding, 467 U.S. 69, 73 (1984). The court also quotes public documents that
the parties cite in the amended complaint, the motion to dismiss, and briefs if
(a) the document contains facts about what MPT or the market knew about
Prospect’s financial trouble before February 23, 2023, and (b) neither party
challenged the document’s authenticity. See SFM Holdings, Ltd. v. Banc. of
AM. Sec. LLC, 600 F.3d 1334, 1337 (11th Cir. 2010); Bryant v. Avado Brands,
Inc., 187 F.3d 1271, 1278 (11th Cir. 1999) (court can consider SEC filings).
A. MPT buys Prospect properties (July 2017)
MPT buys and develops medical facilities on a net lease basis, meaning
that MPT owns the property and leases building space to medical providers.
On July 15, 2017, MPT announced that it bought 16 properties (14 hospitals
and 2 behavioral health facilities) from Prospect for $1.55 billion. As part of
the deal, Prospect agreed to lease much of the space for the next 15 years to

1

The court short cites Pirani’s Amended Complaint (doc. 28) as “AC.”

operate hospitals. This “sale-leaseback” agreement was a common part of
MPT’s business model.
B. Prospect’s financial problems (2017—2023)
1. 2019: MPT and market analysts knew that making Prospect a longterm tenant carried risk. For example, three months before the sale-leaseback
agreement, Moody’s downgraded Prospect’s rating based in part on Moody’s
concern about Prospect’s business model for operating hospitals in California
and Pennsylvania:
Prospect’s B3 Corporate Family Rating reflects the company’s very
high financial leverage, shareholder-friendly financial policies,
and a history of failing to meet projections. The rating is also
constrained by the company’s high concentration of revenue and
earnings in only a few markets, and significant reliance on
Medicaid programs, particularly those in California and
Pennsylvania. Moody’s believes there is longer-term risk to relying
heavily on state Medicaid programs due to state and federal
budget constraints. Further, Moody’s believes that hospital
industry-wide challenges to growth and margin expansion,
including weak patient volume trends and increasing cost
pressures, will constrain organic earnings and cash flow growth
going forward.
Moody’s, Moody’s downgrades Prospect Medical Holdings, Inc.’s CFR to B3;
outlook changed to negative, (March 28, 2019) (cited in AC ¶ 94). While Moody’s
thought that Prospect accepting MPT’s purchase money could help Prospect’s
liquidity concerns, Moody’s was still concerned about Prospect’s operation of
hospitals in California and Pennsylvania:
Moody’s Investors Service commented that Prospect Medical
Holdings, Inc.’s ("Prospect Medical") announcement that Medical
Properties Trust, Inc. will invest $1.55 billion in it through a saleleaseback of the majority of Prospect Medical’s facilities provides
a meaningful liquidity boost. Prospect Medical expects to use the
funds to retire the company’s existing term loan debt, which stood
at $1.1 billion as of March 31, 2019. However, the sale-leaseback

transaction does not address the company’s continuing operating
challenges and lease-adjusted leverage will likely remain high. At
this time, there is no immediate impact on Prospect Medical’s B3
Corporate Family Rating or its negative rating outlook.
Moody’s, Prospect Medical’s sale-leaseback improves liquidity, however
operating challenges remain, (July 16, 2019) (highlight added).
2. 2020: COVID hit the next year. The market continued to question
Prospect’s business model and, thanks in part to COVID, started questioning
Prospect’s ability to pay MPT rent. For example, the Private Equity
Stakeholder Project (“PESP”) said this about Prospect in July 2020:
In 2019, in an effort to pay down some of the existing $1.1 billion
debt it had accrued in part to fund dividends, Prospect sold much
of its hospitals’ real estate to health care REIT Medical Properties
Trust and leased it back. Prospect and Leonard Green have
characterized the sale-leaseback transaction as beneficial to the
hospital company, though this is misleading; the sale-leaseback
merely replaced debt with lease liabilities and left Prospect with
fewer assets.
The terms of Prospect’s new lease are onerous; Prospect is paying
more in rent and interest to MPT than it would be paying had it
not undertaken the sale-leaseback transaction. Before the
transaction, Prospect had $1.35 billion in debt (including $207
million under revolving credit facility). After the transaction,
Prospect had $257 million in debt (including $70 million under
revolving credit facility) and $1.34 billion in lease liabilities. . . .
Prospect’s liabilities ($2.83 billion) dramatically exceeded its
assets ($1.86 billion) as of September 2019; and Prospect’s stated
assets are somewhat fictitious, as the company still lists its real
estate on its balance sheet even through it sold most of it to
Medical Properties Trust last year.
Prospect generated at most $61 million in EBITDA in 2019 (and $70.7 million in EBITDA when discontinued operations are
included).

By comparison, Prospect pays Medical Properties Trust around
$116 million per year in rent. Even before COVID-19, it was not
clear how Prospect would be able to pay the rent it owes Medical
Properties Trust without incurring additional debt.
Private Equity Stakeholder Project, Broken Promises: Regulators Question
Leonard Green’s Investment in Prospect Medical Holdings, (July 31, 2020)
(highlight added) (cited in AC ¶ 95).
Later that year, ProPublica published a story about Prospect’s failure to
pay bills for promised repairs and necessities like gasoline for ambulances,
sponges, IV fluids, and medical dressing. ProPublica, Investors extracted $400
million from a Hospital Chain that Sometimes Couldn’t Pay for Medical
Supplies or Gas for Ambulances, (Sept. 30, 2020) (cited in AC ¶ 96). Like
Moody’s and PESP, ProPublica openly questioned whether the sale-leaseback
agreement with MPT helped Prospect:
Eager to raise capital, Prospect sold its land and buildings last fall
in a sale-leaseback transaction that allowed the operations to
remain in the facilities. The company raised $1.55 billion. Prospect
used much of the cash to pay off its loans. It had effectively
replaced its debt payments with rent payments.
The sale of the land and buildings brought in much needed cash
and stabilized the company. But it also meant that Prospect had
shed by far its biggest asset, sharply reducing the value of the
company.
Id.
3. 2021: ProPublica followed up in February 2021 with a story about the
Rhode Island Attorney General’s attempt to block a private equity firm from
selling its majority stake in Prospect, thus putting two Rhode Island hospitals
at risk. (AC ¶ 97). In June 2021, the Rhode Island Attorney General published
a decision that noted Prospect “has sold substantially all its real property to
[MPT]” and thus Prospect “will not be able to find operational cash when it is
needed.” (AC ¶ 98). The Attorney General’s expert concluded that Prospect
would face a “liquidity crisis” within 18 to 24 months that would threaten
Prospect’s survival. (AC ¶ 100).

4. 2022: Prospect’s problems in Pennsylvania grew in 2022. In March
2022, PESP relayed an earlier report by The Philadelphia Inquirer that
Prospect laid off about 100 employees at one Pennsylvania hospital; closed the
maternity ward at another; and, suspended all impatient service at another.
(AC ¶ 104). PESP reported that the state was supplying nurses and therapists
to alleviate Prospect’s staffing shortages. Private Equity Stakeholder Project,
Prospect Medical Holdings Continues to Sell Off its Hospitals, Leaving Patient
Care in Question, (March 9, 2020). PESP further reported that Prospect used
the $1.55 billion it received from MPT in 2019 to pay off loans it took in 2018
and pay a $457 million dividend to investors. Id.
The market noticed. In September 2022, Credit Suisse warned of a
looming rent default by Prospect. (Doc. 30-13). Credit Suisse said that Prospect
was facing a “dire financial situation, string of executive layoffs, staff shortages
and recent legal action by Delaware County in Pennsylvania to force Prospect
to keep essential parts of its hospitals running.” (Id. pp. 4-5). Credit Suisse
predicted that a lease default would result in an operator change, and “we find
it hard pressed to see how a new operator would be able to pay current rent
rates given the poor financial condition and operating challenges at quite a few
of the Prospect operated hospitals that are owned by [MPT]”—particularly the
Pennsylvania hospitals because they could choose “a change in operations to
an operator with a ‘not-for-profit’ mission in the Pennsylvania market.” (Id. p.
5). Credit Suisse speculated that these issues, plus Prospect’s inability to sell
two of its operations, led MPT to give Prospect a $100 million bridge loan in
the Second Quarter (“Q2”) of 2022. (Id.). Credit Suisse predicted a “grey sky”
scenario of Prospect bankruptcy leading to a 40% rent cut for new operators
“or even an initial large rent deferral.” (Id.).
In December, Credit Suisse lowered its target price for MPT stock (MPW)
from $17 to $11, based in part on the increased likelihood that Prospect would
not pay rent in Pennsylvania:
We have also assessed tenant credit risk around Prospect Medical
Holdings (“Prospect”), MPW’s #4 tenant at 11.2% of 3Q22
revenues. Our recent conversations with management suggest
that the current situation regarding Prospect’s Pennsylvania
assets will lead to earnings dilution, which we have accounted for
in our updated model. Prospect’s Pennsylvania assets leased from

MPW are currently underperforming, as seen from Prospect’s TTM
EBITDAR rent coverage (reported on a 1-Q lag) declining to -0.8x
in 3Q22 from 0.6x in 2Q22 (Pennsylvania assets were not included
in the figure in 2Q22 but were included in 3Q22). Per management,
Pennsylvania represents 20% - 25% of Prospect’s revenues to
MPW. Prospect’s efforts to turn the Pennsylvania assets around
have been met by resistance from local healthcare regulations,
prompting a decision by MPW to exit the market via a transfer of
the income producing assets to Prospect for what we expect to be a
stake in Prospect’s operations. MPW has owned stakes in its
tenants before and does have a track record of selling such stakes
at an attractive profit. However, the near-term impact of such a
transfer would likely be dilutive to earnings.
(Doc. 30-14, p. 4) (highlight added). The court highlights the sentence above
because it reveals a fatal flaw in Pirani’s case: MPT management was talking
to market analysts about Prospect’s rent problems in Pennsylvania—and the
tactics MPT might use to address Prospect’s problems—several months before
MPT announced the impairment charge on February 23, 2023.
5. MPT’s statements in 2022: As Credit Suisse reported, MPW (a) loaned
Prospect another $100 million in Q2-2022, then (b) reported a -0.8% rent
coverage in Q3-2022 when it added Pennsylvania assets to its reported rental
coverage. MPT management and market analysts talked about both issues
during MPT’s Q3-2022 earnings call. (Doc. 34-1). Here’s what CFO Steven
Hammer said in his prepared remarks about the $100 million loan and its
impact on a possible impairment of Prospect properties:
On our second quarter earnings call, we said that while we were
unable to discuss certain potential and confidential Prospect
transactions that we had reason to believe that such transactions
would result in MPT’s avoidance of material impairment or loss
with respect to Prospect. We continue to be prohibited from
disclosures about confidential discussions but we remain
cautiously optimistic about repayment in the relatively near-term
of the related second quarter $100 million increase in our original
2019 first lien mortgage loan. Of course, there is no assurance that

any pending transactions, including possible repayments of
mortgage loans in the near-term will occur.
(Id., p. 8). During the subsequent Q&A, a market analyst for Mizuho Securities
asked MPT President and CEO Edward K. Aldag, Jr. about Prospect’s ability
to make future rent payments:
Q: Okay. That’s helpful. And then just on Prospect, obviously you
now included additional assets in that calculation of coverage.
So we’re seeing the negative coverage is there. But can you just
help us understand all the sources of capital that Prospect has
and kind of your rent is current today? What are your – what’s
your confidence around that rent being current going forward?
A: So that’s a good question. So we included Pennsylvania in the
coverage this time, and it’s important to note that the California
facilities continue to perform at acceptable levels. The
Pennsylvania facilities are not where we would like them to be,
certainly disappointed in where they are. I think that the
changes or some of the changes that Prospect has going on at
Pennsylvania is certainly in the right direction, haven’t borne
the fruit that we certainly would hope that they would at this
particular time. But remember, they’ve got the managed care
business, which is extremely profitable. That generates strong
cash flow for them and as Steve pointed out earlier, there are
potential transactions out there that we’re not in a position
where we can comment any further than that on that gives us
comfort at this particular time. And we remained comfortable
in the California facilities.
(Id., p. 10) (highlight added).
C. The Viceroy Report (January 2023)
Viceroy Research Group published a 33-page report about MPT on
January 26, 2023—about four weeks before MPT would announce the
impairments in its Q4-2022 and Full Year 2022 results. (Doc. 30-5).
In the first sentence, Viceroy acknowledged that it shorted MPW stock;
that is, Viceroy borrowed then sold MPW at a high price hoping to repurchase

the same amount of MPW stock at a lower price to pocket the difference. (Id.
p. 2). Viceroy finished the first sentence by alleging that MPT had “engaged in
billions of dollars of uncommercial transactions with its tenants and their
management teams in order to mask a pervasive revenue round-robin scheme
and / or theft.” (Id.). Viceroy listed four types of “uncommercial transactions”:
1. Sale-Leasebacks: MPT would buy property from “debt-crippled”
vendors, who would then lease the property back from MPT;
2. Cash-giveaways: MPT would “engage[] in various transactions”
in which MPT would not be fully repaid;
3. Bailouts: When a tenant couldn’t pay rent, MPT would acquire
equity in the tenant or give them loans so that the tenant could
pay rent and MPT could avoid recording an impairment; and,
4. Fake builds: MPT take on construction projects to either siphon
money away from MPT or to help distressed tenants pay for
things like taxes, insurance, and maintenance that the tenant
(not MPT) was contractually obligated to fund.
(Id., pp. 2-3). Viceroy listed one or more examples of each transaction, with
Prospect being the example of a bailout. (Id., pp. 24-27).
Viceroy started its four-page discussion of Prospect by saying that
Prospect was “borderline bankrupt” and had “landed itself in this position by
selling off assets to MPW and paying its shareholders enormous dividends at
the expense of the state.” (Id., p. 24). Viceroy quoted the already-mentioned
Rhode Island Attorney General decision to support this statement. (Id.).
Viceroy then explained the 2019 sale-leaseback agreement by again
citing the Rhode Island Attorney General’s decision. (Id., p. 25). Viceroy noted
that the “Rhode Island Attorney General’s investigation of Prospect’s
financials show clear signs of distress including a negative equity of >$1b.”
(Id.).
Viceroy next mentioned the $100 million loan that MPT added in 2022:
“Never one to let circumstances stop them throwing good money after bad,
MPW made a $100m mortgage loan to Prospect, secured against a California
hospital, in Q2 2022 for unspecified reasons. We doubt the collectability of this
loan.” (Id., p. 26). Viceroy pasted MPT’s 2Q-2022 report to support this
assertion:

(Id.).
Viceroy next noted that Moody’s had downgraded Prospect’s credit rating
to “junk status in March 2019,” just before the sale-leaseback with MPT:

(Id., p. 27). Viceroy followed up the Moody’s rating by noting that “Prospect’s
poor financial prospects are also reflected in regular media coverage of its
facilities. ProPublica has penned several articles detailing the decline of its

hospitals including operational, hygiene, and staffing failures.” (Id. (cleaned
up)).
Viceroy concluded: “a round-tripping transaction appears to have
actually worsened the financial wellbeing of an MPW client, despite providing
short-term liquidity.” (Id.).
D. Prospect’s Q4 and Full Year 2022 report (February 2023)
Prospect announced its Q4 and Full Year reports about four weeks later.
In a press release attached to its Form 8-K, Prospect announced that:
Fourth quarter 2022 net loss and full-year 2022 net income
included a real estate impairment of approximately $171 million
related to four properties leased to Prospect Medical Holdings
(“Prospect”) in Pennsylvania as well as a write-off of roughly $112
million in unbilled Prospect rent also included in Funds from
Operations (“FFO”) but excluded from normalized results[.]
(AC ¶ 85). Later in the announcement, MPT said this about the Pennsylvania
properties:
“The vast majority of our portfolio is positioned to support a
significant inflation-based increase in cash rents for 2023,” said
Edward K. Aldag, Jr., Chairman, President, and Chief Executive
Officer. “On the other hand, our initial outlook for this year
contemplates a conservative scenario due to the underperformance
of Prospect’s Pennsylvania hospitals that we first communicated
over a year ago, as well as the process by which we expect to
recover our full investment in Prospect’s Pennsylvania and
Connecticut hospitals.” . . .
MPT plans to reallocate capital away from real estate leased to
Prospect through the previously announced sale, predominantly
for cash, of its Connecticut hospitals later this year, as well as by
exercising lease provisions entitling it to the significant value
embedded in Prospect’s managed care platform. In order for this
to occur, 12 to 18 months is necessary to allow for Prospect to
recapitalize and prepare its managed care business for sale or
recapitalization.

Medical Properties Trust, Inc., Form 8-K, Exhibit 99.1, pp. 1-2. (Feb. 23, 2023)
(cited in AC ¶ 85).
On the same day, MPT announced that its co-founder and COO, Emmett
E. McLean, would be leaving in September. (AC ¶ 86).
MPT filed its Form 10-K, which reported the Full Year 2022 results, on
March 1, 2023. In it, MPT gave more details about the impairment charge:
Prospect (like other healthcare systems around the world)
struggled through the COVID-19 pandemic, starting in early 2020
and continuing through much of the 2022 first quarter with the
impact from the Omicron variant. Although admissions, surgeries,
and ER visits are back above pre-COVID levels at their California
and Connecticut properties, Prospect’s four Pennsylvania facilities
are still trailing. Now with the impact of higher labor and other
costs due to inflation, Prospect has experienced a decline in cash
flows during 2022. Prospect has been working through various
restructuring plans to manage their cash flow.
Some of these plans have made it to the binding commitment
stage, including the expected sale of their Connecticut properties
to Yale New Haven Health (“Yale”) announced in October 2022,
while others have not.
Until the 2022 fourth quarter, Prospect was current on its rent and
interest obligations under the various agreements. However, with
rent and interest now past due and certain of Prospect’s
restructuring plans yet to be finalized, we recorded an
approximate $280 million impairment charge in the 2022 fourth
quarter, as shown in “Real estate and other impairment charges,
net” on the consolidated statements of net income. As part of this
charge, we reduced the carrying value of the underperforming
Pennsylvania properties by approximately $170 million (to
approximately $250 million) and reserved all non-cash rent [due
from Prospect] for a total of $112 million. We expect to record rent
on our Prospect leases on a cash basis for the foreseeable future.
(AC ¶ 88).

E. Falling stock price (February 23 to March 1, 2023)
MPW stock closed at $12.20 per share the day before MPT announced its
Form 8-K, including the impairment. (AC ¶ 87). MPW fell to $11.14 by the close
of February 23rd and fell to $10.07 at the close of March 1, 2023. (Id.).
F. Pirani’s lawsuit
Pirani alleges that he “unknowingly and in reliance upon the integrity
of the market purchased [MPT’s] stock at artificially inflated prices.” (AC ¶
168). Pirani says that he either would not have purchased the stock, or would
have gotten it cheaper, had the market known about the misconduct revealed
by the Viceroy Report and the February 23rd press release that announced the
impairment charge. (AC ¶¶ 168-173). So Pirani sued MPT and its CEO
(Edward K. Aldag, Jr.), its CFO (R. Steven Hamner), and its CAO (J. Kevin
Hanna) under the Securities Exchange Act. The Defendants ask the court to
dismiss Pirani’s complaint under Rule 12(b)(6).
STANDARDS OF REVIEW
A. Rule 12(b)(6) generally
Rule 12(b)(6) allows the court to dismiss a complaint if it fails to state a
claim upon which relief can be granted. “To 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.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).
B. Pleading requirements under the PSLRA
As explained in Part A of the Discussion section, claims subject to the
Private Securities Litigation Reform Act, Pub. L. No. 104–67, 109 Stat. 737
(1995) (“PSLRA”) must satisfy three layers of pleading requirements.
1. Rule 8(a): First is the general pleading requirement that the
complaint must contain a “short and plain statement of the claim showing that
the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). Rule 8 does not require
“detailed factual allegations,” but does demand more than “an unadorned, ‘thedefendant-unlawfully-harmed-me’ accusation.” Iqbal, 556 U.S. at 678 (citing
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Mere “labels and

conclusions” or “a formulaic recitation of the elements of a cause of action” are
insufficient. Id.
2. Rule 9(b): Second, the plaintiff must meet Rule 9’s heightened
requirements for pleading fraud by “stat[ing] with particularity the
circumstances constituting fraud or mistake.” FED. R. CIV. P. 9(b). The
complaint must set forth: (1) precisely what statements were made in what
documents or oral representations or what omissions were made, and (2) the
time and place of each such statement and the person responsible for making
(or, in the case of omissions, not making) same, and (3) the content of such
statements and how they misled the plaintiff, and (4) what the defendants
obtained as a result of the fraud. Ziemba v. Cascade Int’l, Inc., 256 F.3d 1194,
1202 (11th Cir. 2001).
3. PSLRA: The PSLRA ratchets up Rule 9’s pleading standard in two
ways. First, the complaint must “specify each statement alleged to have been
misleading, the reason or reasons why the statement is misleading, and, if an
allegation regarding the statement or omission is made on information and
belief, the complaint shall state with particularity all facts on which that belief
is formed.” 15 U.S.C. § 78u–4(b)(1)(B). Second, the complaint “shall, with
respect to each act or omission alleged to violate this chapter, state with
particularity facts giving rise to a strong inference that the defendant acted
with the required state of mind.” 15 U.S.C. § 78u–4(b)(2).
DISCUSSION
Pirani pleads two claims under the Exchange Act. In Count 1, Pirani
alleges that all Defendants committed a fraud-on-the-market under Section
10(b) of the Exchange Act, 15 U.S.C. § 78j(b), as implemented by Securities and
Exchange Commission Rule 10b-5. (AC ¶¶ 203-217). In Count II, Pirani alleges
that the individual Defendants violated Section 20(a) of the Exchange Act, 15
U.S.C. § 78t(a). (AC ¶¶ 218-229).
Proving a violation of Rule 10b-5 in Count I is the first element of proving
a violation of § 20(a) in Count II. See Carvelli, 934 F.3d at 1330. So to survive
Defendants’ motion to dismiss both counts, Pirani must plead facts that would
ultimately prove Defendants violated Rule 10b-5. That rule states:

It shall be unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate commerce, or of
the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were
made, not misleading, or
(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person, in
connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5.
In his response to Defendants’ motion, Pirani says that “Defendants
knew or should have known that their statements in MPT’s 10-Ks and 10-Qs
throughout the Class Period were false or misleading when made.” (Doc. 33, p.
17). But Pirani’s theory about precisely what was false or misleading, and how
that falsity caused MPW’s value to drop in February 2023, is somewhat Jekyll
and Hyde—the theory changes depending on what element Pirani is trying to
defend in light of Defendants’ motion to dismiss.
1. Everyone knew: When discussing proof of falsity, for example, Pirani
says that everyone in the market knew about Prospect’s financial struggles for
years, so MPT should have recorded the impairment charges before Q4-2022:
Defendants argue that Plaintiff did not adequately plead details
such as “when during the more than three years prior to the actual
impairment such a charge should have been taken, why a charge
was required under MPT’s disclosed impairment methodology, or
how much such a charge should have been.” MTD at 10 (emphasis
in original). That is incorrect. The AC alleged that impairment
charges should have been recorded throughout the entire Class
Period (the “when”) because Defendants were aware of serious
liquidity problems at MPT’s tenants bearing on their ability to pay
rent (the “why”). AC ¶¶ 8, 67, 91-109.

(Doc. 33, p. 23). Pirani similarly argues that ‘everyone knew’ when discussing
his proof of scienter: “Defendants had access to abundant evidence of tenants’
financial distress throughout the Class Period. AC ¶¶ 91-109.” (Doc. 33, p. 35).
In both arguments, Pirani points to paragraphs 91-109 of his amended
complaint. In those paragraphs, Pirani lays out the public reports from March
2017 through the end of 2022 that the court detailed earlier at pages 4-9.
2. No one knew: Yet, when Pirani defends his proof that Defendants’ acts
caused MPW’s stock price to fall during the last week of February 2023, Pirani
says that no one knew about Prospect’s financial troubles, and MPT’s efforts to
help MPT overcome those struggles, until the Viceroy Report and MPT’s
impairment announcement revealed them to the market:
Plaintiff alleged that MPT’s February 23, 2023 impairment charge
announcement revealed the truth (that MPT’s assets were
overvalued), and that MPT’s stock price materially declined that
same day after the announcement was released. AC ¶¶ 13, 87, 169174.
(Doc. 33, p. 38). And indeed, in the paragraphs Pirani cites, Pirani pleaded that
the Viceroy Report and the impairment announcement revealed facts that
were unknown to the market:
169. The truth regarding Defendants’ misrepresentations and
omissions was revealed through multiple corrective disclosures.
170. First, on January 26, 2023, the Viceroy Report revealed the
distressed state of the Company’s tenants, the Company’s use of
round-trip transactions to bolster lease payments from tenants,
and the fact that those transactions were designed to mask the
need for impairment charges.
171. Second, on February 23, 2023, the Company filed a Form 8-K
announcing its $283 million impairment charge related to Prospect
and the Pennsylvania Properties. The Company also issued a
separate Form 8-K on that same day announcing that Mr. McLean,
the Company’s Co-Founder, Executive Vice President, COO, and
Secretary, was stepping down. The timing of his departure, on the
heels of the Viceroy Report and in conjunction with the $283

million impairment charge, signaled to the market that the
Company’s asset impairment issues may be more serious than the
Company had been portraying.
172. These corrective disclosures revealed the truth about the state
of the Company’s tenants and impairments in the value of the
Company’s real estate assets.
173. The corrective disclosures caused the Company’s stock price
to decline precipitously, as set forth above. The declines in stock
price are attributable to the market absorbing information that
corrected the Company’s previous misrepresentations and
omissions.
174. Defendants’ misrepresentations and omissions directly and
proximately caused an artificial inflation in the Company’s stock
price. The corrective disclosures caused a reversal of the artificial
inflation.
(AC ¶¶ 169-174).
Defendants list several problems that Pirani’s shifting theory causes in
their motion to dismiss and reply brief. (Docs. 30, 34). The court limits its
discussion to two: (1) Pirani’s failure to meet the PLSRA’s heighted pleading
standard and (2) Pirani’s failure to plead facts that would prove that MPT’s
statements or omissions caused its stock price to drop in February 2023.
A. Deficient Pleading
Both of Pirani’s claims are subject to three pleading requirements: Rule
8(a)’s general pleading standard, Rule 9(b)’s heightened pleading standard for
fraud claims, and the PLSRA’s special pleading standards. The Eleventh
Circuit has explained the “triple-layered pleading standard” like this:
To survive a motion to dismiss, a securities-fraud claim brought
under Rule 10b–5 must satisfy not only the run-of-the-mill federal
notice-pleading requirements, see Federal Rule of Civil Procedure
8(a)(2), but also the heightened pleading standards found in
Federal Rule of Civil Procedure 9(b) and the special fraud pleading
requirements imposed by the Private Securities Litigation Reform

Act of 1995, 15 U.S.C. § 78u–4. Failure to meet any of the three
standards will result in a complaint’s dismissal.
Rule 9(b) requires a plaintiff to “state with particularity the
circumstances constituting fraud or mistake”—which in the
securities-fraud context, we’ve explained, requires a plaintiff to
allege specifically (1) which statements or omissions were made in
which documents or oral representations; (2) when, where, and by
whom the statements were made (or, in the case of omissions, not
made); (3) the content of the statements or omissions and how they
were misleading; and (4) what the defendant received as a result
of the fraud.
The PSLRA—with some overlap—requires a complaint to “specify
each statement alleged to have been misleading” and “the reason
or reasons why the statement is misleading.” 15 U.S.C. § 78u–
4(b)(1)(B). It also requires, “with respect to each act or omission
alleged,” that a complaint “state with particularity facts giving rise
to a strong inference that the defendant acted with the required
state of mind.” Id. § 78u–4(b)(2)(A). The required state of mind, we
have held, is an “intent to defraud or severe recklessness on the
part of the defendant.” And a “strong inference” is one that is
“cogent and at least as compelling as any opposing inference one
could draw from the facts alleged.” Although scienter may be
inferred from an aggregate of factual allegations, it must be
alleged with respect to each alleged violation of the statute.
Carvelli, 934 F.3d at 1317-18 (some citations omitted).
Essentially, the “triple-layered pleading standard” requires Plaintiff to
plead 10 distinct facts, all of which work together, depending on whether the
Plaintiff is alleging Defendants made a false statement or Defendants omitted
a material fact. The court lists the requisite facts below, starting with the facts
subject to the heightened pleading standard (shaded in gray), followed by facts
that are subject to Rule 8’s general pleading standard:

Rule 10b-5, Defendant made a False or Misleading Statement
1. Content of the statement(s) that
was made
2. Location of the statement(s) that
was made—i.e., the particular
document or oral statement
3. Person who made the statement(s)
4. How the statement was false
5. How the statement misled investors
6. What the Defendant received as a
result of the statement
7. Facts that create an inference that
the Defendant acted with an
intent to defraud or with severe
recklessness
8. How Plaintiff relied on the
statement
9. The Plaintiff’s economic loss
10. How the statement caused the
Plaintiff’s economic loss
Rule 10b-5, Defendant Omitted a Material Fact
1. Content of the statement(s) that
was made
2. Location of the statement(s) that
was made—i.e., the particular
document or oral statement
3. Person who made the statement(s)
4. Content of the statement(s) that
should have been made but was not
5. How the omission misled investors
6. What the Defendant received as a
result of the omission

7. Facts that create an inference that
the Defendant acted with an
intent to defraud or with severe
recklessness
8. How Plaintiff relied on the
statement (#1) that was made
9. The Plaintiff’s economic loss
10. How the omission (#4) caused the
Plaintiff’s economic loss
Pirani fails to plead any of these required facts with specificity in Counts
I and II. Instead, he starts each count by adopting his earlier statement of
facts, see AC ¶¶ 203 (Count I), 218 (Count II), then he alleges in conclusory
fashion that Defendants acted in a way that would meet all of the requisite
elements. See AC ¶¶ 204-217 (Count I); 219-229 (Count II). Pirani’s conclusory
pleading leaves Defendants and the court to guess his precise theory of liability
under Rule 10b-5. For example, what precisely should MPT have said earlier;
when and where should MPT have made that precise statement; and how did
MPT’s failure to make that precise statement earlier cause MPW’s stock price
to drop more steeply in February 2023 than it would have immediately after
MPT made the earlier statement? (After all, if Pirani is right that impairment
charges diminish trade value, MPW’s value would have fallen whenever MPT
first disclosed the impairment.)
Because Pirani fails to meet the triple-layered pleading standard on
multiple facts, the court will grant Defendants’ motion to dismiss both counts
for failing to plead facts that would entitle Pirani to relief.
—
The next question is whether to give Pirani another chance to plead his
complaint and fill in all the blanks the court highlights above. Defendants
argue that Pirani’s effort would be futile for several reasons. The court agrees
with (at least) one: Pirani cannot plead facts that link MPT’s alleged omissions
to the drop in MPW’s trade value from February 23 to March 1, 2023.

B. Inability to Prove Loss Causation
To prove causation for his Rule 10b-5 claim and his §20(a) claim, Pirani
must offer “proof of a causal connection between the misrepresentation and the
investment’s subsequent decline in value.” Meyer, 710 F.3d at 1195; see also 15
U.S.C. § 78u-4(b)(4) (requiring proof that the misrepresentation “caused the
loss for which the plaintiff seeks to recover). Pirani pleads “fraud-on-themarket” to make this causal link. See (AC ¶¶ 177-189).
1. Fraud-on-the-market: Here’s what that means: Pirani relied on the
market’s knowledge of MPW’s value, rather than his own knowledge and
research. When Pirani bought MPW stock, the market overvalued MPW
because the market did not know about (a) Prospect’s financial troubles and
(b) MPT’s efforts to help Prospect pay rent because of those troubles—
techniques Viceroy called “uncommercial transactions.” When the market
discovered this information, the market corrected by devaluing MPW, thereby
causing Pirani’s stock to lose value. See Meyer, 710 F.3d at 1195 (“[I]n a fraudon-the-market case, the plaintiff must prove not only that a fraudulent
misrepresentation artificially inflated the security’s value but also that ‘the
fraud-induced inflation that was baked into the plaintiff’s purchase price was
subsequently removed from the stock’s price, thereby causing losses to the
plaintiff.’”). The revelation of the MPT’s false statement or omission to the
market is called the “corrective disclosure.” Id. at 1196.
The fraud-on-the-market theory hinges on an “efficient market” that
immediately digests and incorporates “all publicly available information about
a security . . . in the market price of the security.” Id. at 1197. “A corollary of
the efficient market hypothesis is that disclosure of confirmatory
information—or information already known by the market—will not cause a
change in the stock price. It follows that corrective disclosures must present
facts to the market that are new, that is, publicly revealed for the first time.”
Id. 1197-98 (cleaned up). “Because a corrective disclosure obviously must
disclose new information,” it dooms a Rule 10b-5 claim to plead a corrective
disclosure that revealed information or sources that “were already public.” Id.
at 1198.

2. Corrective disclosures: Pirani pleads two corrective disclosures: the
Viceroy Report and MPT’s Form 8-K press release. See (AC ¶¶ 169-172).
Neither is viable.
The Viceroy Report cannot serve as a viable corrective disclosure for
three reasons. First, Pirani abandons the Viceroy Report as a corrective
disclosure in his response to Defendants’ motion to dismiss. (Doc. 33, pp. 3738). Second, Viceroy merely repackaged quotes and information from MPT’s
public disclosures, The Wall Street Journal, Credit Suisse, the Rhode Island
Attorney General, and others, in a doom-inducing tone—which, of course, is in
a short-sellers’ interest. Meyer, 710 F.3d at 1199 (“the mere repackaging of
already-public information by an analyst or short-seller is simply insufficient
to constitute a corrective disclosure”). Third, MPW’s value increased after
Viceroy released its report, which means Pirani could not prove that the
Viceroy Report revelations injured him. 2
Nor can MPT’s February 23rd press release announcing the impairment
serve as a viable corrective disclosure. MPT explained the impairment in the
press release:
“On the other hand, our initial outlook for this year contemplates
a conservative scenario due to the underperformance of Prospect’s
Pennsylvania hospitals that we first communicated over a year
ago, as well as the process by which we expect to recover our full
investment in Prospect’s Pennsylvania and Connecticut hospitals.”
...
MPT plans to reallocate capital away from real estate leased to
Prospect through the previously announced sale, predominantly
for cash, of its Connecticut hospitals later this year, as well as by
exercising lease provisions entitling it to the significant value
embedded in Prospect’s managed care platform. In order for this
to occur, 12 to 18 months is necessary to allow for Prospect to
recapitalize and prepare its managed care business for sale or
recapitalization.
According to NASDAQ.com, MPW opened at $12.39 on the day Viceroy released its report, January
26, 2023. MPW closed at $12.58 that day and closed higher than $12.39 every day until February 7,
2023, when it closed at $12.34.
2

Medical Properties Trust, Inc., Form 8-K, Exhibit 99.1, pp. 1-2. (Feb. 23, 2023).
As it said in the press release, MPT had talked publicly about Prospect’s
struggles in Pennsylvania, and its efforts and ideas on how to deal with those
struggles, in 2022. For example, MPT reported the extra $100 million loan it
gave Prospect in 2022, and Credit Suisse talked about that loan in its
September 2022 credit report. (Doc. 30-13). When CFO Steven Hammer
mentioned the $100 million loan during the Q3-2022 earnings conference call,
he also mentioned that MPT was working on a “potential and confidential”
transaction to avoid an impairment of Prospect properties:
On our second quarter earnings call, we said that while we were
unable to discuss certain potential and confidential Prospect
transactions that we had reason to believe that such transactions
would result in MPT’s avoidance of material impairment or loss
with respect to Prospect. We continue to be prohibited from
disclosures about confidential discussions but we remain
cautiously optimistic about repayment in the relatively near-term
of the related second quarter $100 million increase in our original
2019 first lien mortgage loan. Of course, there is no assurance that
any pending transactions, including possible repayments of
mortgage loans in the near-term will occur.
(Doc. 34-1, p. 8). So MPT wasn’t hiding the potential impairment.
Nor had MPT hidden Prospect’s struggle to pay rent. Credit Suisse cited
a potential “large rent deferral” in its September valuation of MPW. (Doc. 3013, p. 5). MPT then disclosed that Prospect was having problems paying its
rent in Pennsylvania in its Q3-2022 report, which Credit Suisse talked about
in its December valuation. (Doc. 30-14). In that December report, Credit Suisse
said that it had “recent conversations with management” about “Prospect’s
Pennsylvania assets,” conversations that suggested to Credit Suisse that MPT
would suffer earnings dilution. (Id., p. 4).
Other analysts also asked MPT about Prospect’s rent problems. Here, for
example, was a question during MPT’s Q3-2022 earnings call:
Q: Okay. That’s helpful. And then just on Prospect, obviously you
now included additional assets in that calculation of coverage.
So we’re seeing the negative coverage is there. But can you just

help us understand all the sources of capital that Prospect has
and kind of your rent is current today? What are your – what’s
your confidence around that rent being current going forward?
A: So that’s a good question. So we included Pennsylvania in the
coverage this time, and it’s important to note that the California
facilities continue to perform at acceptable levels. The
Pennsylvania facilities are not where we would like them to be,
certainly disappointed in where they are. I think that the
changes or some of the changes that Prospect has going on at
Pennsylvania is certainly in the right direction, haven’t borne
the fruit that we certainly would hope that they would at this
particular time. But remember, they’ve got the managed care
business, which is extremely profitable. That generates strong
cash flow for them and as Steve pointed out earlier, there are
potential transactions out there that we’re not in a position
where we can comment any further than that on that gives us
comfort at this particular time. And we remained comfortable
in the California facilities.
(Id., p. 10).
The court could go on by citing Moody’s, ProPublica, PESP, and others,
see supra, pp. 4-9, but the point is made: When MPT announced that it recorded
impairment charges based on Prospect’s struggles to pay rent, the market
already knew that (a) Prospect was struggling to pay MPT rent for the
Pennsylvania properties, (b) an impairment of Prospect properties was
possible, and (c) MPT had loaned Prospect an extra $100 million, and was
considering other transactions, to help stave off an impairment.
3. Analysis: The court must assume that the market had digested and
incorporated this information before February 23, 2023. See Meyer, 710 F.3d
at 1197. But the court needn’t just assume that the market incorporated its
knowledge of Prospect’s struggles into MPW’s value; Credit Suisse dropped its
target price for MPW in December 2022—three months before the February
23rd press release—in part to “account for loss of rents at the Pennsylvania
assets leased to Prospect.” (Doc. 30-14, p.2).

Because the February 23rd press release announced an impairment
based on information already known and digested by the market, Pirani cannot
rely on it to prove loss causation. See Meyer, 710 F.3d at 1198 (“Because a
corrective disclosure ‘obviously must disclose new information,’ the fact that
the sources used in the Einhorn Presentation were already public is fatal to
the Investors’ claim of loss causation.”). To hold otherwise would subject
companies to Rule 10b-5 lawsuits every time they record an impairment later
than an investor believes they should have.
4. Futility: Pirani cannot fix this flaw by amending his complaint. Pirani
bases his loss (and purported class members’ losses) on MPW’s drop in value
from February 23, 2023, to March 1, 2023. (AC ¶¶ 13, 87). Pirani cannot plead
around the fact that the market knew about Prospect’s problems paying rent,
and MPT’s efforts to deal with Prospect’s struggles to pay rent, before February
23, 2023.
—
To sum up, Pirani fails to plead facts that could establish loss causation
for a Rule 10b-5 claim. Because both counts require Pirani to prove a Rule 10b5 claim, the court will dismiss both counts. Because Pirani cannot replead his
complaint to correct this deficiency, both dismissals will be with prejudice.
CONCLUSION
For these reasons, the court will GRANT Defendants’ motion to dismiss
Pirani’s Amended Complaint. The court will enter a separate order that (a)
DISMISSES WITH PREJUDICE both counts and (b) closes this case.
Done and Ordered on September 26, 2024.

_________________________________
COREY L. MAZE
UNITED STATES DISTRICT JUDGE