Grae v. Corrections Corporation of America et al
Filing
447
MEMORANDUM OPINION OF THE COURT. Signed by District Judge Aleta A. Trauger on 3/23/2021. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(vh)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
NIKKI BOLLINGER GRAE, Individually
and on Behalf of All Others Similarly
Situated,
)
)
)
)
Plaintiff,
)
)
v.
)
)
CORRECTIONS CORPORATION OF
)
AMERICA, DAMON T. HININGER,
)
DAVID M. GARFINKLE, TODD J.
)
MULLENGER, and HARLEY G. LAPPIN, )
)
Defendants.
)
Case No. 3:16-cv-2267
Judge Aleta A. Trauger
MEMORANDUM
Amalgamated Bank, as Trustee for the LongView Collective Investment Fund
(“Amalgamated”), has filed a Motion for Partial Summary Judgment (Doc. No. 347), to which
CoreCivic, Inc., Damon T. Hininger, David M. Garfinkle, Todd J. Mullenger, and Harley G.
Lappin 1 have filed a Response (Doc. No. 393), and Amalgamated has filed a Reply (Doc. No.
428). The defendants have filed a Motion for Summary Judgment (Doc. No. 352), to which
Amalgamated has filed a Response (Doc. No. 396), and the defendants have filed a Reply (Doc.
No. 418). The defendants also have filed a Request for Judicial Notice (Doc. No. 366), to which
Amalgamated has filed a Response (Doc. No. 392). For the reasons set out herein, CoreCivic’s
request for judicial notice will be granted, and each motion for summary judgment will be
granted in part and denied in part.
1
The court will refer to CoreCivic, Inc. as “CoreCivic” when discussing the actions of the defendant
business entity and will also use “CoreCivic,” at times, to refer to the defendants collectively, when
describing their litigation positions and actions. At some times relevant to this case, CoreCivic went by its
old name, Corrections Corporation of America, or “CCA,” and that name will appear in some quotations.
For the purposes of this opinion, the names are interchangeable.
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I. BACKGROUND
CoreCivic is a private, publicly traded company that owns and operates prisons and other
detention facilities, pursuant to contracts with the government agencies ultimately responsible for
the incarcerated individuals’ confinement and welfare. (Doc. No. 397 ¶¶ 1–2.) This class action
securities fraud case involves the actions and statements of CoreCivic and its executives from a
period of February 27, 2012 to August 17, 2016 (“Class Period”). To put it in a somewhat
simplified manner, Amalgamated, as the lead plaintiff, alleges that the defendants made false or
misleading statements or omissions about the quality and cost savings that CoreCivic provided to
government clients, including the federal Bureau of Prisons (“BOP”). Amalgamated argues that
those statements and omissions created a false picture of the health of CoreCivic’s relationship
with the BOP and the BOP’s likelihood of continuing to do business with CoreCivic. These false
or misleading statements and omissions, it is alleged, led to an overvaluation of CoreCivic’s
stock and, ultimately, losses on behalf of its investors when the BOP’s parent agency, the U.S.
Department of Justice (“DOJ”), announced that it would phase out its reliance on CoreCivic and
other private prison operators, leading the value of the stock to decrease. Amalgamated also
argues that a similar, smaller loss occurred when, shortly ahead of the comprehensive DOJ
announcement, the BOP declined to renew a renewable contract at one CoreCivic facility, the
Cibola County Correctional Center (“Cibola”).
A. CoreCivic’s BOP Prisons
During the Class Period, CoreCivic, according to its own disclosures, operated between
64 and 85 facilities for governments at the local, state, and federal level. 2 (Id. ¶ 3.) In a 2016
2
Amalgamated disputes the materiality of this fact and the admissibility of the underlying CoreCivic
disclosures, but it has identified no factual dispute regarding the numbers themselves. (Doc. No. 397 ¶ 3.)
Indeed, a considerable portion of Amalgamated’s responses follow that pattern. For reasons that the court
will explain later in this opinion, a bare objection that a cited document is inadmissible is not, in and of
2
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financial disclosure, CoreCivic boasted of an over 93% “retention rate” under its government
contracts—with that percentage defined to reflect how often a client would avail itself of a
previously agreed-to contract extension option to continue working with CoreCivic in a
particular facility (as opposed to defining “retention” to include, also, government decisions to
enter into wholly new contracts after all option periods had expired). (Id. ¶ 5; Doc. No. 360-1 at
15.) The rates for preceding years were similarly high or higher, with the lowest being an 87.8%
rate in 2013. (Doc. No. 397 ¶¶ 6–11.)
During the Class Period, CoreCivic had contracts with the BOP to operate five facilities:
Cibola, Adams County Correctional Center (“Adams”), Eden Detention Center (“Eden”), McRae
Correctional Facility (“McRae”), and the Northeast Ohio Correctional Center (“NEOCC”) (Id. ¶
15.) During the Class Period, CoreCivic’s revenue from those facilities accounted for between
9% and 13.7% of its total revenue. (Id. ¶ 16.) Each of the facilities was considered “low security”
and mostly housed inmates who were not U.S. citizens. (Id. ¶ 18.)
The contract for each facility included a Statement of Work that set forth the minimum
contract performance requirements, in the form of 18 “Performance Objectives.” (Id. ¶ 20.) At
least four of the contracts included provisions allowing CoreCivic to receive “Award Fees” for
meeting or exceeding performance benchmarks. The parties agree that, during the Class Period,
CoreCivic received award fees 10 times, with the awards ranging from 8% of the maximum
possible fee to 90% of the maximum possible fee. According to CoreCivic, those 10 Award Fees
were out of a total 18 opportunities in which Award Fees could have been earned, although
itself, inherently sufficient to exclude a fact from consideration on a motion for summary judgment.Under
this court’s Local Rules, a party seeking to establish that a fact is disputed must support that assertion ‘by
specific citation to the record.” L.R. 56.01(c)(3). Where either party has raised only an admissibilitybased objection to the other party’s asserted undisputed fact and has not cited a basis for disputing the
content of the fact itself, the court will treat that response as conceding, for the purposes of summary
judgment, that the substantive content of the fact is undisputed and that the court can consider the fact,
unless the record suggests that it will not be possible to present the fact in admissible form at trial.
3
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Amalgamated disputes that CoreCivic has established that it had only 18 Award Fee
opportunities. It appears undisputed, though, that CoreCivic’s rate of receiving at least some
Award Fee was not better than 10 out of 18 and that, for many of those 10 Award Fees earned,
CoreCivic earned less than half of what it could have earned under the relevant contract. (Id. ¶¶
21–23.)
The contracts between the BOP and CoreCivic were typically for an initial four-year
period, with three options for successive two-year extensions that BOP could exercise or decline.
The following chart shows the course of those contracts during the Class Period:
Facility
Adams
Contract
Start
4/1/09
Cibola
1/12/10
Eden
1/17/07
McRae
10/27/11
NEOCC 12/23/04
Extension 1
Extension 2
Extension 3
7/31/13
(exercised)
10/1/14
(exercised)
4/26/11
(exercised)
12/1/16
(exercised)
6/1/09
(exercised)
7/17/15
(exercised)
7/29/16
(DECLINED)
4/30/13
(exercised)
11/26/18
(exercised)
5/31/11
(exercised)
N/A
N/A
5/1/15
(exercised)
N/A
5/29/13
(exercised)
(Id. ¶¶ 25–40.) As the chart reflects, the BOP chose not to renew its contract with CoreCivic
regarding one facility, Cibola, during the period, but otherwise exercised its renewal options.
B. Monitoring and Review of CoreCivic BOP Facilities
1. Self-monitoring
According to CoreCivic and its executives, the company performed regular internal
audits of its facilities and tracked the facilities’ performance. CoreCivic executive Michael
Nalley, for example, testified that CoreCivic’s “robust internal audit system” was “very
comprehensive” and “very stringent.” (Doc. No. 361-15 at 75.) Although CoreCivic points to
4
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evidence confirming the existence of CoreCivic’s internal review systems, Amalgamated
disputes that the evidence establishes that such reviews were thorough or adequate. (Doc. No.
397 ¶¶ 42–44.) For example, Amalgamated points to an internal CoreCivic analysis that
concluded that CoreCivic’s Quality Assurance (“QA”) process did not sufficiently overlap with
the BOP’s own evaluation metrics, particularly in the area of health services. (Doc. No. 400-8 at
6.)
2. Third-Party Accreditation
CoreCivic’s BOP contracts required its facilities to receive accreditation from the
American Correctional Association (“ACA”). (Doc. No. 397 ¶ 46.) According to a 2005 BOP
document, “[t]he BOP uses ACA accreditation at its own prisons to establish a baseline of
acceptable performance.” (Doc. No. 398-5 at 5.) CoreCivic successfully maintained ACA
accreditation at all of its BOP facilities during the Class Period, which, according to CoreCivic,
reflects the facilities’ passing ACA audits, although Amalgamated suggests that that terminology
overstates the intensity of ACA review. (Doc. No. 397 ¶ 47.) Accreditation documentation
provided in connection with this case confirms that the ACA review process included “an outside
review by a team of experienced independent auditors” but also that the ACA relied, in part, on
“the satisfactory completion of a rigorous self-evaluation.” (Doc. No. 361-25 at 3.)
Amalgamated does not factually dispute that CoreCivic’s facilities maintained
accreditation or that their operations were, at least in some way, reviewed by the ACA in the
process. Amalgamated disputes, however, that successfully maintaining ACA accreditation is a
meaningful indicator that a facility was being operated adequately. (See Doc. No. 397 ¶ 45.) For
example, Amalgamated points out that D. Scott Dodrill, a retired BOP official hired by
CoreCivic as an expert in this case, admitted in his testimony that he was not aware of any
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instance in which any for-profit BOP prison operator lost its ACA accreditation during the Class
Period—which, Amalgamated suggests, is evidence that maintaining baseline accreditation was
not a significant accomplishment. (Doc. No. 398-3 at 224.)
Another entity, the Joint Commission, accredits certain healthcare facilities. During the
Class Period, CoreCivic’s BOP facilities maintained Joint Commission accreditation for their
healthcare operations. 3 (Doc. No. 397 ¶¶ 50–51; Doc. No. 367-11 at 187.) As with ACA
accreditation, the parties disagree regarding their characterizations of the thoroughness of the
Joint Commission’s reviews for its accredited facilities. There is, on one hand, no evidence that
would suggest that a facility that successfully maintained Joint Commission accreditation would
categorically have been an adequately operated facility. On the other hand, the evidence does
show that Joint Commission accreditation played a meaningful role in the ongoing regulation of
healthcare facilities, and there is no evidence in the record that any CoreCivic BOP facilities ever
lost or improperly operated without that accreditation. (Doc. No. 397 ¶¶ 50–51.)
3. BOP Monitoring
The BOP itself performed audits and monitoring of its CoreCivic-operated facilities
through its Program Review Division. Such reviews were at least annual. (Doc. No. 397 ¶ 52.)
The parties agree that, as part of the Program Review process, the BOP inspected the
performance of CoreCivic facilities, tested the adequacy of their internal quality controls, and
assessed risks related to contract performance. (Id. ¶ 53.) Program Reviews were performed
pursuant to guidelines based on the Statement of Work, professional guidelines referenced by the
3
The cited evidence is not entirely clear in confirming that, in fact, every CoreCivic BOP facility
received Joint Commission Accreditation, and Amalgamated does not concede that that was the case. The
evidence, however, fairly supports the inference that each facility was so accredited, and there is no
evidence that any CoreCivic BOP facility lacked Joint Commission accreditation for a healthcare facility
for which accreditation would have been appropriate.
6
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Statement of Work, applicable BOP policies, and any other appropriate measures and sources
referenced by or otherwise within the scope of the relevant contract. (Id. ¶ 54.)
Additionally, the BOP’s “Contract Facility Monitoring (‘CFM’) Section . . . provides
subject matter expertise in the form of routine monitoring of contract prisons.” (Id. ¶ 55.) At the
conclusion of each review of a contractor prison, the CFM Section would issue a CFM Report
documenting its findings, if any. (Id. ¶ 56.) A CFM Report could include findings of
deficiencies, repeat deficiencies, “repeat repeat deficiencies,” “repeat repeat repeat deficiencies,”
and “repeat repeat repeat repeat deficiencies,” as well as “significant findings.” (Id. ¶ 57; Doc.
No. 398-6 at 5.) A guidance document from the Department of Justice defined deficiencies as
“[p]roblems or weaknesses noted by the reviewer which are in need of correction. In its broadest
sense, a deficiency includes any condition needing improvement. A deficiency can include:
noncompliance from policy/regulation; lack of adequate internal controls; poor or unprofessional
practice; inefficient practice; ineffective results; poor quality, etc.” (Doc. No. 361-32 at 33.) A
“repeat deficiency” is defined as “[a] deficiency that was also listed as a deficiency during the
last program review,” reflecting “the failure of internal controls that were developed to correct a
noted deficiency.” (Id. at 36.) A “significant finding” is “[a] pattern of events or single event
normally linked to a program review objective that indicates a deficiency in an organization or
organizational element” and “is usually based on several related deficiencies.” (Id. at 37.) By
Amalgamated’s count, CoreCivic, during the Class Period, received “338 Deficiencies, 44
Repeat Deficiencies, 6 repeat Repeat Deficiencies, 2 triple-Repeat Deficiencies, 1 quadrupleRepeat Deficiency and 3 significant findings.” (Doc. No. 396 at 13.)
BOP policy also calls for all privately operated facilities under contract with the BOP to
have two full-time employees from the BOP’s Privatization Management Branch (“PMB”)
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overseeing the facility, although Amalgamated does not concede that this policy was always
adhered to. (Doc. No. 397 ¶ 63.) PMB personnel were onsite at the facilities to which they were
assigned. (Id. ¶ 64.) On-site BOP personnel have the power to issue Notices of Concern
(“NOCs”), identifying instances of contract nonperformance that they have witnessed or
identified. (Id. ¶ 66.) An NOC is, in the words of the DOJ Office of the Inspector General
(“OIG”), “a memorandum the PMB staff submits to a contractor when the contractor is
performing below a satisfactory level and the deficiency is more than minor or is a repetitive
deviation from the contract requirements.” (Id. ¶ 66; Doc. No. 361-28 at 9.) The parties agree
that, during the Class Period, CoreCivic facilities received a number of NOCs. (Doc. No. 397 ¶
67.)
BOP contractors were also evaluated pursuant to the BOP’s Contractor Performance
Assessment Reporting System (“CPARS”), which provided “tools to measure the quality and
timely reporting of past performance information.” Each CPARS report was known as a
Contractor Performance Assessment Report, or “CPAR.” (Id. ¶ 69; Doc. No. 361-37 at 2.) The
Federal Acquisitions Regulation (“FAR”) 4 refers to the CPARS as the “official source for past
performance information,” although Amalgamated suggests that that phrase, taken out of
context, could inflate the system’s importance, given that the parties agree that other sources
existed that reflected contractor performance in the BOP-contractor relationship. (Doc. No. 397 ¶
69.) Amalgamated also suggests that CPARs, compared to other sources, painted an overly
favorable picture of the contractor under review, because the contractor had a greater opportunity
to influence their content. (Doc. No. 396 at 21–22.) The FAR calls for contractor performance in
4
“The Federal Acquisition Regulations System is established for the codification and publication of
uniform policies and procedures for acquisition by all executive agencies. The Federal Acquisition
Regulations System consists of the Federal Acquisition Regulation (FAR), which is the primary
document, and agency acquisition regulations that implement or supplement the FAR.” 48 C.F.R. § 1.101.
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particular areas to be assessed on a five-tier scale, receiving a rating of either Exceptional, Very
Good, Satisfactory, Marginal, or Unsatisfactory. 48 C.F.R. § 42.1503, table 42-1.
C. Performance of Individual Facilities
The documentation memorializing the BOP’s dealings with CoreCivic facilities is
substantial, and the court will not summarize every potentially relevant finding or event here.
The court will, rather, highlight some key facts that are representative of the nature and trajectory
of the BOP’s relationship to CoreCivic with regard to each facility.5
1. Adams
During the Class Period, the BOP issued at least four CPARs for Adams. 6 (Doc. No. 397
¶ 74.) A November 8, 2012, CPAR included ratings in five areas, three of which were rated
“Satisfactory” and two of which were rated “Very Good.” The more detailed narrative
assessment noted a number of deficiencies—17 in total, most commonly in the area of health
services—but stated that CoreCivic had performed “all vital functions” under the contract. The
reviewer stated, under the “Recommendation” section, “Given what I know today about the
Contractor’s ability to execute what they promised in their proposal, I definitely would award to
them today given that I had a choice.” (Doc. No. 367-12 at 2–3.) The report added, however,
5
The court notes that CoreCivic’s history of NOCs, in particular, is discussed in greater detail in the
court’s Memorandum of December 18, 2017. (Doc. No. 76 at 3–13.) Although that Memorandum was
drafted at the motion to dismiss stage and therefore was not based on an evidentiary record, CoreCivic
has, at least generally speaking, not identified grounds for disputing the depiction of it as having
frequently and repeatedly received NOCs at its facilities.
6
The defendants assert that there were five CPARs for Adams, but Amalgamated concedes only four.
Amalgamated also objects that the CPARs are inadmissible hearsay. The relevance of those reports,
however, is not limited to the objective truth or falsity of their assessments, but rather extends to the
impression they gave CoreCivic and its executives of the BOP’s view of the company’s performance. See
United States v. Churn, 800 F.3d 768, 776 (6th Cir. 2015) (“A statement that is not offered to prove the
truth of the matter asserted but to show its effect on the listener is not hearsay.”) (quoting Biegas v.
Quickway Carriers, Inc., 573 F.3d 365, 379 (6th Cir. 2009)). All other admissibility issues aside,
therefore, the court may consider the CPARs at least insofar as they bear on the subjective understanding
of CoreCivic personnel.
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that, “[w]hile the Contractor has an extensive Quality Control audit tool, the tool was not
effective in all areas . . . .” (Id. at 2.)
CPARs from 2013 through 2016 were similar, albeit with some variation, including better
or worse individual ratings. For example, an August 2013 CPAR included two “Very Good”
ratings, two “Satisfactory” ratings, and one “Unsatisfactory” rating, while noting “[s]everal
deficient procedures or areas of non-conformance,” including over 20 deficiencies, although the
CPAR still provided a positive recommendation. (Doc. No. 367-21 at 2.) A CPAR from January
2015 had mostly “Satisfactory” ratings, with one “Very Good,” but acknowledged a number of
deficiencies, including 11 in the area of Health Services. (Doc. No. 367-22 at 3.) An October
2016 CPAR gave CoreCivic “Exceptional” and “Very Good” ratings for “Business Relations”
and “Timeliness of Performance,” respectively, but otherwise gave only “Satisfactory” ratings,
including for “Quality.” (Doc. No. 367-4 at 2.) The narrative assessment stated that “the
contractor at the Adams County Correctional Center (ACCC), delivered a quality of service to
the Bureau of Prisons (Bureau) that met the baseline contract requirements,” and the reviewer’s
recommendation was once again positive. (Id. at 3, 7.) The picture painted by the Adams
CPARs, overall, is that deficiencies, including recurring, unremedied deficiencies, were
common, and ratings in areas were sometimes below “Satisfactory,” but that the facility was
nevertheless usually found to have provided the core services required in a broadly acceptable,
though not exemplary, manner, causing the facility to receive positive recommendations. (See
Doc. No. 397 ¶ 76.)
On May 20, 2012, there was a riot7 at Adams. An account of the riot based on the
information alleged in the pleadings can be found in the court’s Memorandum of December 18,
7
CoreCivic prefers the term “disturbance” to the term “riot” to describe this incident, but it does not
dispute that the underlying events involved prisoners’ congregating and using force against facility
10
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2017. (Doc. No. 76 at 3–5.) The version of the riot described by the materials available at this
stage is, at least in its general details, largely the same. In short, Adams personnel lost control of
the facility population and, among other things, some facility staff were taken hostage and one
staff member—that is, one of CoreCivic’s own employees—was killed. (Doc. No. 397 ¶¶ 77–
80.) A BOP on-site monitor was present for and witnessed the riot. (Id. ¶¶ 81–83.)
After the riot, the BOP drafted an After-Action Report. (Id. ¶ 84; Doc. No. 367-25.) The
After-Action Report concluded that the riot could “be directly attributed to actions taken by the
[Adams] administration leading up to the event.” (Doc. No. 367-25.) The Review observed, in
particular:
[Adams] administration did not grasp the severity and degree of the Mexican
national inmates’ intent to orchestrate a meeting with approximately 1,700
Mexican national inmates and to escalate the situation to include violence toward
staff if their demands were not met. Had the [Adams] administration understood
the inmates’ intentions, a preventative lock down could have been initiated.
Systemic problems existed in the areas of communication, staffing deficiencies
impacting performance, and deficits in intelligence systems. Specifically, the lack
of Spanish-speaking staff, experienced staff, and experienced staff in the
Intelligence Office . . . negatively affected the flow of communication and
intelligence gathering.
(Id.)
The riot itself became public knowledge, although not all of the surrounding details were
immediately known. CoreCivic mentioned the riot as an “inmate disturbance” in its Form 10-Q
for the quarter that ended on June 30, 2012, and CoreCivic has identified instances in which
commentators or analysts mentioned the underlying events in the context of discussing the
potential effect, if any, on CoreCivic’s value as a company, but CoreCivic has not identified any
contemporaneous disclosures or analyses that acknowledged the substantive finding of
personnel. (Doc. No. 397 ¶¶ 77–80.) Based on the agreed-upon facts, the court is comfortable using the
term “riot.” The court notes, however, that the terminology used is ultimately of little, if any, importance
relative to the details themselves.
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culpability in the After-Action Report. (Doc. No. 397 ¶¶ 86–88.) CoreCivic also identifies a June
2016 article in The Nation magazine that discusses the events in some detail, including some
aspects of the After-Action Report. (Id. ¶ 91; Doc. No. 340-18 at 5–17.)
2. NEOCC
During the Class Period, the BOP issued four CPARs for NEOCC. (Doc. No. 397 ¶ 97.)
NEOCC’s CPAR issued for the performance period of June 1, 2011, through May 31, 2012,
recommended, “Given what I know today about the Contractor’s ability to execute what they
promised in their proposal, I probably would award to them today given that I had a choice.” (Id.
¶ 98; Doc. No. 376-26 at 2.) Half of that CPAR’s ratings were “Satisfactory,” and the other half
were “Very Good.” (Id.) The CPAR did, however, note some deficiencies during the review
period. (Id.) It also observed that “[t]he responsiveness at the institution level has not always
been favorable.” (Id.) NEOCC’s other CPARs were broadly similar or better, including a number
of “Very Good” ratings and laudatory statements in the narrative, although some deficiencies
were still noted. (See, e.g., Doc. No. 367-27 at 2; Doc. No. 367-28 at 2.)
The third and final option period under the NEOCC contract ended on May 31, 2015.
(Doc. No. 397 ¶ 101.) The BOP had issued a Pre-Solicitation Notice on March 25, 2013,
beginning the process of soliciting and reviewing new bids to perform future contract facility
operations housing non-citizen BOP prisoners. (Id. ¶¶ 102–05.) CoreCivic submitted a bid for
the contract to be fulfilled at NEOCC. (Id. ¶ 107.) The contract that CoreCivic sought for
NEOCC was instead rewarded to The GEO Group, Inc. (“GEO”), despite GEO’s bid having
included a higher price than CoreCivic’s. (Id. ¶ 109.) The BOP, in its internal Source Selection
Decision document, stated that “GEO’s strengths lead to a significantly better past performance
rating (Very Good vs Poor) and technical rating (Very Good vs Acceptable) compared to CCA’s
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NEOCC proposal,” resulting in the conclusion that GEO offered a greater value despite the
higher price (Doc. No. 367-34 at 55.)
CoreCivic maintains that the Source Selection Decision document was not provided to
CoreCivic, and, while Amalgamated argues that CoreCivic has not definitively established that
the document was not shared, there is no cited evidence suggesting that CoreCivic did
contemporaneously receive the full internal explanation. (Doc. No. 397 ¶ 112.) CoreCivic did,
however, receive a notification of the BOP’s decision that included the total estimated cost of the
GEO bid and explained that CoreCivic was not found to offer the “best value to the
Government.” (Id. ¶ 110; Doc. No. 362-17 at 3–4.) Amalgamated has pointed to evidence from
internal CoreCivic correspondence confirming that, regardless of whether the document itself
was shared, CoreCivic was aware that it was passed over, despite its superior price. (Doc. No.
397 ¶ 112.)
3. Cibola
On January 9, 2015, Cibola received a Cure Notice from the BOP that listed seven items
of non-conformance in health services and stated that, “unless the conditions are cured by April
21, 2015 the Government may terminate this contract.” (Id. ¶ 116.) The Cure Notice stated that
“Cibola County Correctional Center has numerous and repetitive items of critical
nonconformance in the area of Health Services, specifically, Patient Care,” including that
“emergency medical care prior to an inmate’s death was not provided by on-site medical staff as
required by policy,” because, among other things, “the only medical staff on duty left the scene
during CPR and did not return.” (Id.; Doc. No 362-23 at 7.) The Cure Notice warned that
“[f]ailure to provide proper healthcare in accordance with the contract requirements can seriously
jeopardize inmate, staff, and public health” and complained that some of the deficiencies that
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formed the basis for the notice “have been noted deficient back to 2011” (Doc. No. 362-23 at
10.)
On April 20, 2015, CoreCivic sent a letter in response to the Cure Notice, in which it
outlined a number of steps it claimed to be taking to address the issue of staffing for health
services at Cibola, including the hiring of new personnel and the implementation of bonuses to
improve retention. (Doc. No. 362-24 at 2–3.) On April 27, 2015, BOP Procurement Executive
Matt Nace sent an email to Cibola’s warden acknowledging “excellent progress” at the facility.
(Doc. No. 362-37 at 2.) On or around May 18, 2015, the BOP sent CoreCivic notice that, in light
of the facility’s progress, the BOP was lifting its imminent threat of contract termination for
Cibola. (Doc. No. 397 ¶ 123.) Internal correspondence among CoreCivic executives in 2016,
however, showed that problems and inadequacies regarding health services at Cibola had
continued, with executives voicing serious concerns and even outright pessimism regarding the
success of the company’s corrective efforts. (Doc. No. 398-19 at 1–3.) Some details of the Cure
Notice were eventually revealed to the public in the aforementioned article in The Nation. (Doc.
No. 397 ¶ 129.)
During the Class Period, the BOP issued five CPARs regarding Cibola. (Id. ¶ 124.) A
CPAR from October 2012 included a mixture of “Satisfactory” and “Very Good” ratings and
recommended, “Given what I know today about the Contractor’s ability to execute what they
promised in their Proposal. I definitely would award to them today given that I had a choice.”
(Doc. No. 367-38 at 2–4.) The CPAR credited Cibola with a “self-imposed high level of
performance” but also acknowledged “some difficulty conforming with contract requirements for
inmate health care,” particularly with regard to adequate staffing. (Id. at 2.) Later, however, some
CPARs were less positive. A CPAR covering periods of 2013 and 2014, for example, included
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two “Marginal” ratings, although it did ultimately include a positive recommendation. (Doc. No.
367-40 at 3, 5.) A CPAR covering the next year continued to find “Quality” to be “Marginal,”
while still making a positive recommendation. (Doc. No. 367-41 at 2, 6.) The “Marginal” rating
in the “Quality” metric continued for the next year as well. (Doc. No. 367-42 at 2.) The CPARs’
narratives also reflected Cibola’s history of deficiencies, including repeated deficiencies related
to health services and staffing levels. (Doc. Nos. 367-38 to -42.)
In mid-2016, following several years of noted concerns, the BOP declined to exercise its
renewal option under the Cibola contract, and the non-renewal was reported by news media in
early August of that year. (Doc. No. 397 ¶ 130.) CoreCivic itself acknowledged the non-renewal
no later than August 4, 2016, in its Form 10-Q for the second quarter of that year. (Id. ¶ 131.)
4. Eden
During the Class Period, the BOP issued five CPARs regarding Eden. (Id ¶ 133.) A
CPAR issued in July 2013 included four “Very Good” ratings and one “Satisfactory” rating.
(Doc. No. 367-43 at 2.) It noted “some areas of non-conformance” but ultimately gave a positive
recommendation. (Id.) The following year’s CPAR was also laudatory, rating the facility’s
“Quality” as “Exceptional.” (Doc. No. 367-44 at 2.) Ratings thereafter, however, declined. A
September 2016 CPAR, covering portions of 2014 and 2015, rated both “Quality” and
“Management” as “Marginal” and observed over 20 deficiencies. (Doc. No. 367-45 at 2.) The
narrative assessment observed that “[t]he August 2014, CFM review resulted in a Significant
Finding in the ‘Administration and Patient Care’ at the Eden Detention Center. . . . The CFM
identified six repeat-deficiencies and five deficiencies—ultimately resulting in a Significant
Finding warranting a follow-up CFM review in February 2015” (Id.) The CPAR also noted five
NOCs during the assessment period, four of which were related to staffing levels (including one
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based on staffing levels in health services). (Id. at 3.) The CPAR also noted that the BOP had
deducted several hundreds of thousands of dollars from CoreCivic’s invoices related to Eden for
issues related to staffing. (Id. at 4.) In the following year, the “Marginal” ratings were upgraded
to “Satisfactory,” but the CPAR noted several additional instances of noncompliance, including
those for which NOCs were issued. (Doc. No. 367-46 at 2–3.)
5. McRae
During the Class Period, the BOP issued five CPARs for McRae. (Doc. No. 397 ¶ 136.)
A CPAR issued in December 2012 included one “Satisfactory” rating, two “Very Good” ratings,
and one “Exceptional” rating. (Doc. No. 367-47 at 2.) The CPAR did, however, note two NOCs,
nine deficiencies, and one repeat deficiency. (Id.) The reviewer recommended, “Given what I
know today about the Contractor’s ability to execute what they promised in their proposal. I
definitely would award to them today given that I had a choice.” (Id. at 3.) The McRae CPARs
throughout the Class Period remained largely positive. Although the BOP noted some instances
of nonconformance, including those for which NOCs were issued, the ratings and
recommendations that the facility received continued to be supportive and laudatory. (Doc. Nos.
367-48 to -51; Doc. No. 397 ¶ 138.)
D. The OIG Review of BOP Contractors
On August 11, 2016, the DOJ publicly released a report entitled “Review of the Federal
Bureau of Prisons’ Monitoring of Contract Prisons” (“OIG Review”). (Doc. No. 397 ¶ 139.) The
authors of the OIG Review explained that the OIG “initiated this review to examine how the
BOP monitors [private prison] facilities” as well as to “assess[] whether contractor performance
meets certain inmate safety and security requirements and analyze[] how contract prisons and
similar BOP institutions compare with regard to inmate safety and security data.” (Doc. No. 149-
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1 at i.) The Review, which included examination of CoreCivic facilities and data, found that, “in
most key areas, contract prisons incurred more safety and security incidents per capita than
comparable BOP institutions.” (Id.) The OIG Review noted that, in “recent years, disturbances in
several federal contract prisons resulted in extensive property damage, bodily injury, and the
death of a Correctional Officer”—that death being the death of the officer killed at Adams. (Id. at
2.) The OIG Review observed that CoreCivic facilities experienced substantially higher rates,
relative to BOP institutions, of a number of unwelcome occurrences, such as inmate fights,
inmate-on-inmate assaults, and suicide attempts or self-mutilations. (Id. at 60–67.)
The Review did not recommend that the BOP stop using contract prisons. Rather, it
offered four recommendations, all of which contemplated, or at least did not foreclose,
continuing to work with private prison contractors. First, the Review recommended that the BOP
1. Convene a working group of BOP subject matter experts to evaluate why
contract prisons had more safety and security incidents per capita than BOP
institutions in a number of key indicators, and identify appropriate action, if
necessary.
(Doc. No. 149-1 at 45.) The remaining three recommendations were made for the purpose of
“improv[ing] monitoring and oversight of BOP contract prisons”:
2. Verify on a more frequent basis that inmates receive basic medical services
such as initial medical exams and immunizations.
3. Ensure that correctional services observation steps address vital functions
related to the contract, including periodic validation of actual Correctional Officer
staffing levels based on the approved staffing plan.
4. Reevaluate the checklist and review it on a regular basis with input from
subject matter experts to ensure that observation steps reflect the most important
activities for contract compliance and that monitoring and documentation
requirements and expectations are clear, including for observation steps requiring
monitors to engage in trend analysis.
(Id.)
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Appendix 9 to the Review consisted of response letters from the contractors under
review, including CoreCivic. CoreCivic suggested that the allegedly higher incidences of
undesirable events at contract prisons could be attributed to the fact that contract prisons tend to
house a demographically different population than BOP prisons. In particular, CoreCivic noted
that its prisons housed a disproportionate number of foreign nationals, which, CoreCivic argued,
posed unique security challenges. Ultimately, CoreCivic wrote:
We share the interests of the OIG and the BOP in ensuring contract prisons are
operated safely and securely and in compliance with contract requirements. We
are also committed to working in partnership with the BOP to address any
recommendations in furtherance of these goals. . . . We look forward to further
discussions with the BOP regarding the data and recommendations in the report
and collaboration on any policy or operational changes.
(Id. at 70.)
E. The Yates Memo
On August 18, 2016, just a few days after the release of the OIG Review, Deputy
Attorney General Sally Q. Yates issued a memorandum to the BOP entitled “Reducing our Use
of Private Prisons” (“Yates Memorandum”). (Doc. No. 149-4.) The Yates Memorandum directed
that, “as each [BOP private prison] contract reaches the end of its term, the Bureau should either
decline to renew that contract or substantially reduce its scope in a manner consistent with law
and the overall decline of the Bureau’s inmate population.” (Doc. No. 149-4at 3.) DAG Yates
explained that, while “[p]rivate prisons served an important role during a difficult period, . . .
time ha[d] shown that they compare poorly to our own [BOP] facilities.” (Id. at 2.) Private
facilities, Yates wrote, “simply do not provide the same level of correctional services, programs,
and resources; they do not save substantially on costs; and . . . they do not maintain the same
level of safety and security.” (Id.) Yates concluded that the BOP should “begin[] the process of
reducing—and ultimately ending—our use of privately operated prisons.” (Id. at 3.) The
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Memorandum noted that , the BOP was “already taking steps in this direction,” in that, “[t]hree
week ago, the Bureau declined to renew a contract for approximately 1,200 beds”—a reference
to Cibola. (Id.)
F. CoreCivic’s Stock Price
As a publicly traded company, CoreCivic’s shares were available on the open market at a
price reflecting the collective public valuation of the company among potential buyers and
sellers. On August 4, 2016, the value of the stock fell by 6.2%. The parties sharply disagree
regarding the cause or causes for the drop. CoreCivic maintains that the drop was solely caused
by the status of negotiations with U.S. Immigrations and Customs Enforcement (“ICE”), another
federal client not overseen by the DOJ. Amalgamated suggests that the drop in price was
attributable, at least in part, to the non-renewal of the Cibola contract, which had been publicly
acknowledged by CoreCivic on August 4, 2016, but which, CoreCivic argues, was mentioned in
news coverage before that date. (Doc. No. 429 ¶¶ 79–80.) The parties agree that there was no
statistically significant change in CoreCivic’s share price in the two days immediately preceding
August 4. (Id. ¶¶ 77–78.)
The parties agree that there was no statistically significant change in CoreCivic’s stock
price on August 11, 2016, the day of the release of the OIG Review. (Id. ¶ 81.) On August 18,
2016, however, in the immediate wake of the release of the Yates Memorandum, CoreCivic’s
stock price decreased by 35.5%. (Id. ¶ 81.) Because the Memorandum addressed private prison
contractors generally, and not CoreCivic alone, CoreCivic was not the only entity affected. For
example, GEO’s stock price decreased by 39.6%.that day as well. (Id. ¶ 83.) CoreCivic’s stock
price ultimately rebounded following the 2016 presidential election and rose slightly further
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when, in February 2017, the newly sworn Attorney General rescinded the Yates Memorandum.
(Doc. No. 397 ¶¶ 143, 146–47.)
G. Relevant CoreCivic Statements Throughout the Class Period
Amalgamated has identified a number of statements throughout the Class Period that, it
argues, were false and/or misleading. Each statement was publicly made, often in the context of
either a disclosure required by securities laws or in a public communication with investors.
Accordingly, the specific content and timing of the statements are largely uncontested, although
the parties’ interpretation of that content often differs substantially.
Although any single statement has the capacity, on its own, to form the premise of a
securities fraud claim, “[t]he key question . . . is ‘whether defendants’ representations, taken
together and in context, would have misled a reasonable investor.’” In re Skechers USA, Inc.
Secs. Litig., 444 F. Supp. 3d 498, 516 (S.D.N.Y. 2020) (quoting McMahan & Co. v. Wherehouse
Ent., Inc., 900 F.2d 576, 579 (2d Cir. 1990)). Amalgamated, in a Response to one of CoreCivic’s
Interrogatories, provided a comprehensive list of the statements on which it purports to base its
claims, and Amalgamated cites that Response in its briefing as “the only valid compilation of the
statements at issue.” (See Doc. No. 265-15 at 7–38; Doc. No. 396 at 4 n.6.) CoreCivic has
supplied an alternative list of what it believes, based on the operative complaint, to be the
statements at issue, which it included as Appendix A to its Memorandum in support of its
Motion for Summary Judgment. (Doc. No. 352-2.) Rather than going through the relevant
statements one by one, the court will provide a few emblematic instances of statements that
Amalgamated challenges as false or misleading regarding one or both of the two general issues
at the heart of this case: quality and cost savings. 8
8
CoreCivic suggests, based on its citation to an unpublished Sixth Circuit case, that this court must go
through a “statement-by-statement analysis” of each of the individual alleged misstatements. Bondali v.
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For example, on March 30, 2016—relatively late in the Class Period—Hininger wrote, in
a letter to shareholders, “Every day we remain focused on providing high-quality, safe and
secure facilities that meet the needs of our government partners. By consistently doing so, we
have experienced more than three decades of continued growth and contract retention rates in
excess of 90 percent.” (Doc. No. 423 ¶ 198.) He further emphasized:
We take pride in our strong record of operational excellence that has earned CCA
the confidence of our government partners. To maintain this confidence CCA is
focused on our long-term performance. This requires we provide our facilities and
staff with the necessary resources to operate the best corrections, detention and
residential reentry facilities. It is only through our commitment to our long-term
performance that CCA will drive future growth and increase shareholder value.
(Id.)
Similarly, at a June 2016 presentation, Hininger responded to a question about
CoreCivic’s viability in a potentially changing political environment as follows:
One thing I’d point to when people ask us what’s a Clinton White House look like
for you all, what’s a Trump White House look like for you all and their respective
administrations, and I can’t speak in absolutes and make definitive statements.
But I would say that being around 30 years and being in operation in many, many
states, and also doing work with the federal government going back to the 1980s,
where you had Clinton White House, you had a Bush White House, you had
Obama White House, we’ve done very, very well. We have operationally made
sure that we are providing high quality and standard and consistent services to our
partners and being very flexible and innovative in the solutions. And with that,
we’ve had some nice growth in our business under those three respective
Presidents. We had a lot of growth under Clinton, we had a lot of growth under
YumA Brands, Inc., 620 F. App’x 483, 491 (6th Cir. 2015). The proposition that that case set forth some
absolute drafting rule for summary judgment opinions in securities fraud cases, however, is mistaken. The
point that the Sixth Circuit made in Bondali was that the need to consider a body of statements together,
in context, does not change the fact that, for liability to be found, at least some “particular statement”
must either be “literally false” or “create[] a false impression.” Id. (quoting In re Oracle Corp. Sec. Litig.,
627 F.3d 376, 390 (9th Cir. 2010)). This case involves dozens of statements, each of which says
virtually—and in some cases, actually—one of the same few things. The court has discussed these
statements in detail before and given numerous examples. Its discussion of the potential truth and falsity
of those claims, as a legal matter, is the law of the case. Insofar as CoreCivic maintains that the court’s
analysis is nevertheless deficient unless it expressly acknowledges every statement, the court directly
references and incorporates CoreCivic’s Appendix A and Amalgamated’s cited Interrogatory Response
and notes that the specific examples in the body of this opinion are meant only to provide a representation
of the general content and tenor of the statements at issue.
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Bush, and we’ve had a lot of growth under President Obama. And so, with that, if
we continue to do a good job on the quality, and with that, we can
demonstrate . . . cost savings in our services, then I think we’ll be just fine.
(Doc. No. 423 ¶ 201.)
Although Hininger’s 2016 statements were especially in-depth, CoreCivic made other
claims about the relationship between the quality of CoreCivic’s services and its continued
business from clients throughout (and before) the Class Period. For example, numerous reports
that CoreCivic made to the SEC, beginning in November 2011, included the following
statement:
We believe our renewal rate on existing contracts remains high as a result of a
variety of reasons including, but not limited to, the constrained supply of available
beds within the U.S. correctional system, our ownership of the majority of the
beds we operate, and the quality of our operations.
(Id. ¶¶ 199–200.) Other examples include a November 2014 presentation in which CoreCivic
boasted that “short- and long-term savings by governments can be achieved by contracting with
the private sector without sacrificing quality” (Id. ¶ 206.)
The defendants point out that, during the Class Period, CoreCivic did publicly disclose
some reasons for concern regarding the long-term sustainability of the BOP’s reliance on private
prisons. Specifically, CoreCivic acknowledged that the BOP’s shift in favor of private facilities
had been precipitated, at least in part, by significant overcrowding in BOP facilities. Starting in
November 2015, CoreCivic’s SEC filings began to disclose that changes in policy had begun to
cause a decline in federal prison populations and that that trend could continue. At the same time,
however, CoreCivic offered reasons why the decline in overcrowding might not negatively affect
CoreCivic. (Doc. No. 397 ¶¶ 151–54.)
CoreCivic and executives also made a number of statements regarding supposed cost
savings offered by relying on private prison contractors. For example, On October 2, 2013,
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CoreCivic held a “2013 Analyst Day,” in which CoreCivic executives made a presentation to
investors and analysts. The presentation included a slide entitled “The Value CCA Provides to
Government Partners and Taxpayers,” claiming that a cited “Temple University Study” had
“substantiated” what the slide referred to as “annual cost savings of 12% or more.” (Id. ¶¶ 158–
59.) The “study” described was a working paper that was funded in part by private prison
operators, including CoreCivic. The fact that private prison contractors had funded the project
was noted on the slide itself. (Id. ¶ 160; Doc. No. 363-31 at 15.) In other investor presentations
and disclosures, defendants made similar claims about alleged cost savings from privatization
and/or from contracting with CoreCivic, in particular, including claims citing to studies that
CoreCivic had had a hand in funding. (Doc. No. 397 ¶¶ 167–76.)
CoreCivic also frequently compared supposed per diem costs between CoreCivic prisons
and BOP-operated facilities. Amalgamated, however, raises a number of objections to those
figures, suggesting that they did not present a fair picture of the actual relative costs of public
and private prisons. For example, Amalgamated objects that CoreCivic’s per diem figures for its
own facilities
did not include costs associated with the fact that taxpayers fund the privatization
management branch, which oversees the contract; taxpayers fund the public sector
employees who write the contract; taxpayers fund the BOP employees who
manage the process of awarding a contract; taxpayers fund the public sector staff
who monitor the contract while the prison is being operated; taxpayers fund the
staff who write and update policies and procedures to cover the operations of forprofit prisons within the BOP’s correctional system; taxpayers fund the senior
management of the BOP who had responsibility with respect to BOP inmates who
are in private prisons; and taxpayers fund the various other overhead costs
associated with letting a contract, overseeing a contract and maintaining ultimate
accountability for the inmates in private prisons such that an approach to cost
comparison that does not allocate overhead costs to the private vendor would
underestimate the true costs of contracting for the services.
(Id. ¶ 177.)
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As Amalgamated points out, the supposed cost savings of private prisons are contested,
and even the appropriate methodology for making such comparisons is uncertain. A 2007 report
by the Government Accountability Office (“GAO”) concluded that “[i]t is not currently feasible
to conduct a methodologically sound cost comparison of BOP and private and low minimum
security facilities because these facilities differ in several characteristics and BOP does not
collect comparable data to determine the impact of these differences on cost.” (Doc. No. 359-5 at
3.) CoreCivic’s own expert on public budgeting, Professor Justin Marlowe, acknowledges these
uncertainties, writing that “there is no one universally accepted methodology for comparing
costs” and, “[a]s would be expected given the complexity in measuring and comparing costs
between private and public correctional facilities, however, some divergent opinions exist.”
(Doc. No. 356-4 ¶¶ 21–22.)
Even when savings from privatization are concrete, moreover, they may be situational
and may not reflect sustainable efficiency advantages. For example, if a government experiences
a temporary excess in its prisoner population, it would, unsurprisingly, likely be less expensive
to temporarily pay to house overflow in a private facility, if the only other alternative would be
to construct an entirely new public facility. Those savings, though, would not necessarily suggest
that prison privatization is a more cost-effective alternative generally. (See Doc. No. 397 ¶ 156.)
It is, moreover, also possible for situational factors to render privatization particularly expensive,
such as when the government must expend resources to address undesired and unforeseen
situations associated with contractor underperformance. (Id.)
The OIG Review included an examination of the costs of contract prisons and BOPoperated prisons, and it concluded that “the average annual costs in the BOP institutions and the
contract prisons per capita were $24,426 and $22,488, respectively.” (Doc. No. 149-1 at 12.) The
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Review, however, “caution[ed] against drawing the conclusion from that data . . . that contract
prisons are necessarily lower cost than BOP institutions on an overall basis.” (Id. at 11–12.) The
OIG explained that it had been “unable to compare the overall costs of incarceration between
BOP institutions and contract prisons in part because of the different nature of the inmate
populations and programs offered in those facilities.” (Id. at 11.)
H. This Case
On August 23, 2016, Nikki Bollinger Grae filed a Class Action Complaint in this case.
(Doc. No. 1.) Notice of the suit was published in accordance with the Private Securities
Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. §78u-4(a)(3)(A)(i), and Amalgamated
filed a timely motion to be appointed lead plaintiff, see 15 U.S.C. §78u-4(a)(3)(B)(i). (Doc. No.
38.) Amalgamated claimed to have purchased or acquired almost 159,000 shares of CoreCivic
stock and suffered over $1.2 million in losses as a result of the conduct covered by the suit. (Doc.
No. 39 at 5.) The court granted Amalgamated’s motion, appointing it the lead plaintiff for the
case. (Doc. No. 52.)
On December 18, 2017, the court denied a Motion to Dismiss filed by the defendants.
(Doc. Nos. 76–77.) In so doing, the court addressed a number of the core issues that continue to
be central to this case, including, in particular, whether claims about the quality of CoreCivic’s
services could be actionable for fraud or whether they were, instead, merely non-actionable
“puffery.” The court concluded that Amalgamated’s causes of action were, if supported by the
facts, viable. (Doc. No. 76 at 28–30.)
On January 18, 2019, the court denied Amalgamated’s Motion to Certify Class. (Doc.
Nos. 143–44.) Amalgamated, however, filed a Motion to Reconsider, and, on March 26, 2019,
the court granted that motion, based in significant part on arguments that Amalgamated had not
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originally pursued but which the court deemed not to be waived. (Doc. Nos. 165–66.) In
addressing the class certification issue, the court also addressed another key question in this
case—whether claims for securities fraud could be premised on the theory that the defendants’
false or misleading public statements artificially maintained the high value of CoreCivic stock, a
“fraud-on-the-market” theory alleging “price maintenance,” in the parlance of securities law. The
court held that such a theory was an appropriate basis for liability under federal securities laws.
(Doc. No. 165 at 25.) CoreCivic pursued an interlocutory appeal on that issue, which the Sixth
Circuit denied, writing that its “case law supports the legal standard that the district court
applied.” (Doc. No. 13-1 at 2.)
CoreCivic now seeks summary judgment in its favor on all issues, and Amalgamated
seeks partial summary judgment on one issue—reliance. (Doc. Nos. 347, 352.)
II. LEGAL STANDARD
Rule 56 requires the court to grant a motion for summary judgment if “the movant shows
that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). If a moving defendant shows that there is no genuine issue
of material fact as to at least one essential element of the plaintiff’s claim, the burden shifts to the
plaintiff to provide evidence beyond the pleadings, “set[ting] forth specific facts showing that
there is a genuine issue for trial.” Moldowan v. City of Warren, 578 F.3d 351, 374 (6th
Cir. 2009); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). Conversely, to win
summary judgment as to its own claims, a moving plaintiff must demonstrate that no genuine
issue of material fact exists as to all essential elements of her claims. “In evaluating the evidence,
the court must draw all inferences in the light most favorable to the non-moving party.”
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Moldowan, 578 F.3d at 374 (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986)).
At this stage, “‘the judge’s function is not . . . to weigh the evidence and determine the
truth of the matter, but to determine whether there is a genuine issue for trial.’” Id. (quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). But “[t]he mere existence of a
scintilla of evidence in support of the [non-moving party’s] position will be insufficient,” and the
party’s proof must be more than “merely colorable.” Anderson, 477 U.S. at 249, 252. An issue of
fact is “genuine” only if a reasonable jury could find for the non-moving party. Moldowan, 578
F.3d at 374 (citing Anderson, 477 U.S. at 252).
III. ANALYSIS
A. Evidentiary Issues Related to Summary Judgment
1. Judicial Notice
As a preliminary matter, CoreCivic asks the court to take judicial notice of “(1) publicly
available Securities and Exchange Commission . . . disclosures; (2) publicly available articles,
news releases, and reports; (3) publicly available government documents; and (4) evidence
regarding CoreCivic’s stock price,” pursuant to Rule 201 of the Federal Rules of Evidence. (Doc.
No. 366 at 1.) Rule 201 permits a court, either by motion of a party or on its own motion, to
“judicially notice a fact that is not subject to reasonable dispute because it” either “(1) is
generally known within the trial court’s territorial jurisdiction; or (2) can be accurately and
readily determined from sources whose accuracy cannot reasonably be questioned.” Because
Rule 201 is a creature of the Rules of Evidence, it permits a court to treat a fact as proven, for the
purposes of trial, without the need for adhering to all of the ordinary requirements associated
with the admission of evidence—such as laying foundation, performing authentication, or
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swearing an appropriate witness. CoreCivic asks the court to use that mechanism to consider a
number of publicly discoverable documents, such as its own corporate filings, as well as widely
available news articles.
Because the court is currently considering only a motion for summary judgment, Rule
201 is not itself strictly necessary in order to bypass the formalities of admitting evidence. The
fundamental basis of a Rule 56 motion is not evidence, but facts—specifically, facts, supported
by citation to the record, that the court is permitted, by the Rules of Civil Procedure, to treat as
undisputed, either because the parties actually agree on those facts or because the party
challenging the facts has not disputed them sufficiently to persuade a reasonable fact finder. An
asserted undisputed material fact needs only to be (1) supported by citation to the record, Fed. R.
Civ. P. 56(c)(1), and (2) capable of being presented at trial in some admissible form, Fed. R. Civ.
P. 56(c)(1). See Mangum v. Repp, 674 F. App’x 531, 536– 37 (6th Cir. 2017) (quoting Fed. R.
Civ. P. 56(c), advisory committee’s note to 2010 amendment); Mount Vernon Fire Ins. Co. v.
Liem Constr., Inc., No. 3:16-CV-00689, 2017 WL 1489082, at *3 (M.D. Tenn. April 26, 2017)
(Crenshaw, J.); Wilson v. Stein Mart, Inc., No. 3:15-CV-01271, 2016 WL 4680008, at *2 (M.D.
Tenn. Sept. 7, 2016) (Nixon, S.J.); Jeffrey W. Stempel et al., 11–56 Moore’s Federal Practice—
Civil § 56.91 (2018); see also Maurer v. Indep. Town, 870 F.3d 380, 384 (5th Cir. 2017) (“At the
summary judgment stage, evidence need not be authenticated or otherwise presented in an
admissible form. After a 2010 revision to Rule 56, materials cited to support or dispute a fact
need only be capable of being presented in a form that would be admissible in evidence.”
(citations and internal quotation marks omitted)). At this stage, then, the determinative issue is
not technically whether the requirements of Rule 201 have been satisfied, but whether the
asserted facts can be presented in admissible form at trial.
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Amalgamated has not identified any plausible reason why the facts cited would be
incapable of being established with admissible evidence, if it came to that. That said, the court
will note that most, if not all, of the cited materials will likely be appropriate for judicial notice at
trial—not for the truth of the facts asserted therein, but for the basic fact that the documents exist
and say what they say. See Platt v. Bd. of Commissioners on Grievances & Discipline of Ohio
Supreme Ct., 894 F.3d 235, 245 (6th Cir. 2018) (noting that court “may take notice of the
documents and what they say, but it ‘[cannot] consider the statements contained in the document
for the truth of the matter asserted’” (quoting In re Omnicare, Inc. Sec. Litig., 769 F.3d 455, 467
(6th Cir. 2014)). It is appropriate, for example, to take judicial notice of “the full text of the SEC
filings, prospectus[es], [and] analysts’ reports,” but that does not mean that they constitute
evidence that their contents were accurate. N. Port Firefighters’ Pension-Loc. Option Plan v.
Fushi Copperweld, Inc., 929 F. Supp. 2d 740, 773–74 (M.D. Tenn. 2013) (Haynes, J.) (quoting
Bovee v. Coopers & Lybrand C.P.A., 272 F.3d 356, 360 (6th Cir. 2001)). If CoreCivic or its
attorneys had forged or altered any of these publicly discoverable documents, it would be easy
for Amalgamated to find out (and to request extremely severe consequences against the culpable
attorneys for doing so). The court, therefore, sees no obstacle to taking judicial notice of SEC
disclosures or government documents. While historical stock prices technically fall outside those
categories, the court similarly sees no obstacle to considering those historical prices, at least at
this stage.
News reports present a somewhat more difficult case, but the Sixth Circuit has previously
“take[n] judicial notice of the fact that . . . media articles . . . were published, without reaching
any conclusions about their truth.” City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399
F.3d 651, 662 n.10 (6th Cir. 2005). It may be that there are some obscure publications for which
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such judicial notice of their content would be inappropriate. In this era, however, when
significant news sources are widely archived and available through third-party databases, it
would make little sense to require a party to hunt down witnesses to confirm, for example, that a
news story was actually in a newspaper—at least, unless there is some reason to doubt that the
article is real. None of the supposed facts reported in such a story, of course, can be treated as
proven by that judicial notice. But noticing the article’s existence is far less problematic. The
court will, therefore, grant CoreCivic’s motion, at least insofar as it is necessary to do so to
consider the underlying facts in support of its motion for summary judgment.
2. Other Objections
The same principles resolve most of the other evidentiary objections that have been made
(primarily by Amalgamated) regarding the admissibility of evidence relied upon in support or
opposition to the pending motions. Amalgamated raised objections, most often on the basis of
hearsay, with regard to a large number of CoreCivic’s asserted undisputed facts, even ones that
appear to be largely unobjectionable. Few, if any, of the objected-to facts are incapable of being
produced in admissible form at trial. Moreover, many of the statements to which Amalgamated
has objected were not offered for the truth of the matter asserted and, therefore, are not hearsay.
See Churn, 800 F.3d at 776. This case is about an alleged fraud on the market, and, accordingly,
it is largely about perceptions—both in how the market perceived CoreCivic and how the
defendants themselves perceived reality when they made the statements at issue. For example, if
statements by the BOP reasonably convinced a defendant that CoreCivic was doing an
exemplary job, then that defendant might be found to lack the scienter necessary to commit
fraud—even if the BOP personnel who made the statements had been confused or lying. What
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matters is that the statements were made and heard, not necessarily that they were true. The
statements, therefore, may be considered for a purpose other than the truth of the facts asserted.
Other of the parties’ objections, particularly those involving expert testimony, were
resolved in the court’s Memorandum of March 17, 2021, declining to bar any of the parties’
proposed experts but limiting the scope of two experts’ testimony. (Doc. No. 439.) Accordingly,
without prejudice to any objection at trial, the court overrules all objections made to facts cited in
this opinion and/or relied upon by the court. The court strongly encourages the parties to work
together, prior to trial, to agree to stipulations regarding all facts that are not actually subject to
reasonable dispute.
B. Elements of a Claim for Securities Fraud
“Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder
prohibit ‘fraudulent, material misstatements or omissions in connection with the sale or purchase
of a security.’” La. Sch. Emps.’ Ret. Sys. v. Ernst & Young, LLP, 622 F.3d 471, 478 (6th Cir.
2010) (quoting Frank v. Dana Corp., 547 F.3d 564, 569 (6th Cir. 2008)). “To state a securities
fraud claim under Section 10(b), a plaintiff must allege, in connection with the purchase or sale
of securities, the misstatement or omission of a material fact, made with scienter, upon which the
plaintiff justifiably relied and which proximately caused the plaintiff’s injury.” Ashland, Inc. v.
Oppenheimer & Co., 648 F.3d 461, 468 (6th Cir. 2011) (quoting Frank, 547 F.3d at 569). The
defendants argue that the court should grant them summary judgment because (1) none of their
statements was materially false or misleading; (2) they did not act with the requisite scienter; and
(3) the relevant statements did not cause losses for Amalgamated or the other class members.
Amalgamated, in turn, requests partial summary judgment with regard to one issue—reliance.
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The first two of the issues that the defendants have identified are closely related. The
defendants are alleged to have made false or misleading statements about the quality and savings
that CoreCivic offered relative to the expectations of its government clients, including the BOP.
Particularly regarding the issue of quality, the evidence that might show material falsity and the
evidence that might show scienter significantly overlap, to the point where, at least in the context
of this case, it is difficult to wholly separate the two questions. The court, accordingly, will first
set out the governing standards for falsity, materiality, and scienter, which will then be applied to
the classes of statements at issue in this case. The court will then turn, to the extent necessary, to
the questions of loss causation and reliance.
1. Standard for Material Falsity
“Misrepresented or omitted facts are material only if a reasonable investor would have
viewed the misrepresentation or omission as having significantly altered the total mix of
information made available.” Ashland, 648 F.3d at 468 (quoting In re Sofamor Danek Grp., Inc.,
123 F.3d 394, 400 (6th Cir. 1997)). “Silence, absent a duty to disclose, is not misleading under
Rule 10b-5” and Section 10(b). In re Ford Motor Co. Sec. Litig., Class Action, 381 F.3d 563,
569 (6th Cir. 2004) (quoting Basic, Inc. v. Levinson, 485 U.S. 224, 239 n.17 (1988)). However,
where a defendant initially had no obligation to disclose facts on a particular subject, but he
chooses voluntarily to address the subject in relation to a securities transaction, he “assume[s] a
duty to speak fully and truthfully on th[e] subject[].” Id. (quoting Helwig v. Vencor, Inc., 251
F.3d 540, 561 (6th Cir. 2001)). The Sixth Circuit has stressed that a district court, in assessing
the materiality of statements, should not “attribute to investors a child-like simplicity” or “an
inability to grasp the probabilistic significance of [opinion statements].” In re Omnicare, 769
F.3d at 471–72.
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A finding of fraud under Section 10(b) cannot be premised on a statement that is “too
vague to qualify as material,” such as a claim that is so “soft” that it “escapes ‘objective
verification.’” Ashland, 648 F.3d at 468 (quoting In re Ford, 381 F.3d at 570). According to that
principle, a company’s general boasts of quality are typically insufficient to establish liability
under Section 10(b), because such statements usually “lack[] a standard against which a
reasonable investor could expect them to be pegged.” Id. at 671. For example, the Sixth Circuit
found non-actionable the Ford Motor Company’s statement that it “want[ed] to ensure that all
[its] vehicles ha[d] world-class quality” and were “defect-free.” In re Ford Motor, 381 F.3d at
571.
The Sixth Circuit, however, has also made clear that even superficially broad statements
of corporate self-praise must be evaluated in context to determine if they convey more than just a
generalized optimism. See City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651,
671–72 (6th Cir. 2005) (citing Casella v. Webb, 883 F.2d 805, 808 (9th Cir. 1989) (“What might
be innocuous ‘puffery’ or mere statement of opinion standing alone may be actionable as an
integral part of a representation of material fact when used to emphasize and induce reliance
upon such a representation.”); see also Scritchfield v. Paolo, 274 F. Supp. 2d 163, 175–76
(D.R.I. 2003) (stressing that “a company’s statements that it is ‘premier,’ ‘dominant,’ or
‘leading’ must not be assessed in a vacuum (i.e., by plucking the statements out of their context
to determine whether the words, taken per se, are sufficiently ‘vague’ so as to constitute
puffery”))). “[O]pinion or puffery . . . in particular contexts when it is both factual and
material . . . may be actionable.” Id. at 671–72 (quoting Longman v. Food Lion, Inc., 197 F.3d
675, 683 (4th Cir. 1999)) (emphasis omitted).
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2. Standard for Scienter
“In the securities-fraud context, scienter includes [1] knowing and deliberate intent to
manipulate, deceive, or defraud, and [2] recklessness.’” Doshi v. Gen. Cable Corp., 823 F.3d
1032, 1039 (6th Cir. 2016) (quoting Ley v. Visteon Corp., 543 F.3d 801, 809 (6th Cir. 2008)).
“Recklessness,” in this context, “is defined as ‘highly unreasonable conduct which is an extreme
departure from the standards of ordinary care. While the danger need not be known, it must at
least be so obvious that any reasonable man would have known of it.’” Frank, 646 F.3d at 959
(quoting PR Diamonds, Inc. v. Chandler, 364 F.3d 671, 681 (6th Cir. 2004)). The Sixth Circuit
has set forth a non-exhaustive list of nine factors relevant to determining scienter, although
several of those factors are relevant only with regard to certain theories of liability:
(1) insider trading at a suspicious time or in an unusual amount; (2) divergence
between internal reports and external statements on the same subject; (3)
closeness in time of an allegedly fraudulent statement or omission and the later
disclosure of inconsistent information; (4) evidence of bribery by a top company
official; (5) existence of an ancillary lawsuit charging fraud by a company and the
company’s quick settlement of that suit; (6) disregard of the most current factual
information before making statements; (7) disclosure of accounting information in
such a way that its negative implications could only be understood by someone
with a high degree of sophistication; (8) the personal interest of certain directors
in not informing disinterested directors of an impending sale of stock; and (9) the
self-interested motivation of defendants in the form of saving their salaries or
jobs.
Doshi, 823 F.3d at 1039–40 (quoting Helwig, 251 F.3d at 552). In examining scienter, “the
court’s job is not to scrutinize each allegation in isolation but to assess all the allegations
holistically.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 326 (2007).
Generally speaking, “fraudulent intent cannot be inferred merely from [an executive’s]
position[] . . . and alleged access to information.” PR Diamonds, 364 F.3d at 688. That does not,
however, mean that job titles or duties are irrelevant. While one cannot assume that an executive
had knowledge of facts that did not “pertain[] to central, day-to-day operational matters,” the
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Sixth Circuit has acknowledged that “high-level executives can be presumed to be aware of
matters central to their business’s operation.” Id. (citing In re Complete Mgmt., Inc. Sec. Litig.,
153 F. Supp. 2d 314, 325-36 (S.D.N.Y. 2001)) (emphasis added). As with most factual issues,
the rules of thumb set out in caselaw do not supersede a finder of fact’s ability (and indeed duty)
to consider the peculiarities of every unique case and to exercise common sense about the limited
facts presented.
The unusually strong statutory pleading requirements for securities fraud cases under the
PSLRA mean that Amalgamated’s allegations of scienter were tested significantly more
demandingly in connection with the defendants’ Motion to Dismiss than is typically the case
under the Federal Rules of Civil Procedure. “[T]he [PSLRA] imposes ‘[e]xacting . . .
requirements for pleading scienter.’” Ashland, 648 F.3d at 469 (quoting Frank, 547 F.3d at 570).
The plaintiff must, “with respect to each act or omission alleged . . . , 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). “To qualify as ‘strong’ . . . , an inference of scienter must be more than
merely plausible or reasonable—it must be cogent and at least as compelling as any opposing
inference of nonfraudulent intent.” Ashland, 648 F.3d at 469 (quoting Tellabs, 551 U.S. at 314).
The court “must ask: When the allegations are accepted as true and taken collectively, would a
reasonable person deem the inference of scienter at least as strong as any opposing inference?”
Tellabs, Inc., 551 U.S. at 326. Before the court can answer in the affirmative, it “must compare
[the inference of scienter] with other competing possibilities, allowing the complaint to go
forward ‘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.’” In re Omnicare,
769 F.3d at 473 (quoting Tellabs, Inc., 551 U.S. at 324). The court considered Amalgamated’s
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allegations pursuant to this standard in its Memorandum of December 18, 2017 and concluded
that the allegations supported a strong inference of scienter. (Doc. No. 76 at 37–42.)
C. Statements Regarding Quality and Related Issues
Amalgamated argues that CoreCivic or its executives knowingly made materially false
statements regarding the quality of CoreCivic’s services, its internal quality controls, the BOP’s
assessment of CoreCivic’s performance, CoreCivic’s compliance with applicable standards, and
the strength of CoreCivic’s relationship with its government clients. As the defendants
acknowledge, these issues were considered by the court, somewhat at length, in the context of
the defendants’ Motion to Dismiss. Amalgamated, in drafting its complaint, had already
reviewed many of the sources that continue to provide the basis for their allegations, and the
pleading standards of the PSLRA required the court to engage in an inquiry significantly closer
to the summary judgment standard than is applied for an ordinary motion to dismiss, or even an
ordinary motion to dismiss a claim of fraud subject to the more demanding standards of Rule
9(b) of the Federal Rules of Civil Procedure. It is unsurprising, then, that the parties’ arguments
on this issue are largely similar to those that were raised before. CoreCivic, however, argues that
“at summary judgment, [Amalgamated] cannot ignore the context of [CoreCivic’s] discrete
performance issues.” (Doc. No. 352-1 at 2.) CoreCivic argues that it has now had the opportunity
to paint a fuller picture of its relationship with the BOP and of the prison contracting industry as
a whole. In this context, CoreCivic argues, its history of, for example, numerous NOCs and
frequent multiple-repeat deficiency findings is simply far too unremarkable to render the
defendants’ broad boasts about CoreCivic’s performance to be false. Moreover, there is newly
identified evidence, such as the BOP’s history of giving positive recommendations regarding
CoreCivic facilities in its CPARs, supporting an inference that CoreCivic’s performance was not,
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in fact, particularly deficient, or at least so deficient that it would render the defendants’
statements false or misleading.
The facts and context that CoreCivic has identified may be persuasive to a jury on the
issue of material falsity, but they are not sufficient to support a grant of summary judgment.
Nothing about Amalgamated’s theory of the case is contingent on showing that CoreCivic never
received positive feedback from the BOP. Nor are Amalgamated’s claims undermined by the fact
that other prison contractors might have been in similar positions to CoreCivic. Certainly, if
CoreCivic is found to have provided worse service than its private sector competitors, then that
might support Amalgamated’s claims. The underlying risks and expectations at issue in this case,
however, involve CoreCivic’s services relative to the prospect of the BOP’s operating its own
prisons. It does not negate the theory of fraud if CoreCivic was just one of multiple private
prison contractors falling short of expectations. In any event, moreover, the evidence is far from
settled that CoreCivic’s services were, in fact, of comparable quality to that of its competitors.
For example, the BOP’s decision to select GEO over CoreCivic in its bid process, despite
CoreCivic’s superior price, suggests that CoreCivic did, in fact, raise particular quality concerns
at the BOP.
Amalgamated has produced evidence that CoreCivic repeatedly—and indeed routinely—
fell short of even minimum expectations at more than one of its BOP facilities. Although some
of its failures were minor and technical and perhaps of the type that one might expect in any
long-term government contracting relationship, numerous other failures were in areas where the
stakes were the highest that the stakes can be—that is to say, life and death, as with the issue of
health services. And the BOP informed CoreCivic, over and over again, that it had failed.
CoreCivic argues that, even if it did sometimes fall short of BOP expectations, the BOP was only
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one client, and its boasts were mostly about its client relationships and the quality of its services
in clients’ eyes generally. The BOP, however, was a single client that frequently accounted for
more than 10% of CoreCivic’s business. A reasonable juror could conclude that boasts about
meeting client expectations that ignored a client on which the company depended that much were
materially false or misleading.
CoreCivic brushes these facts aside by suggesting that “[s]ometimes bad things happen in
prisons no matter whether the government, or a private company like CoreCivic, operates them.”
(Doc. No. 352-1 at 1.) That is undoubtedly so. But this case is not a referendum on how prisons
should be run. At its heart, this is a case about a company and a client—specifically, a company
with a business model that limited its potential client base and a large, important client whose
exodus could be very damaging for the company. Although CoreCivic had many clients other
than the BOP, the percentage of CoreCivic’s business attributable to the BOP was considerable.
CoreCivic, knowing that, received a continuous stream of serious, credible feedback, suggesting
that the BOP was not satisfied with the quality of services it was receiving, at least much of the
time. In addition to the steady stream of NOCs and deficiency findings, there were pivotal major
events that themselves cast CoreCivic’s performance on its BOP contracts into doubt—the
Adams riot, the Cibola Cure Notice, the Cibola non-renewal, and the failure to obtain a new
contract for NEOCC. In that context, a reasonable jury could conclude that statements assuaging
investors that CoreCivic was meeting client expectations amounted to a materially false
concealment of a serious risk.
Similarly, nothing that CoreCivic has identified is sufficient to establish that a reasonable
juror would have no choice but to conclude that the defendants lacked knowledge of enough
underlying facts to be aware of the alleged falsity of their statements. To the contrary, the
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discovery performed by Amalgamated has, if anything, confirmed that CoreCivic and its
executives were very cognizant of the health of the company’s client relationships and of the fact
that performance issues could imperil those relationships. The defendants, attempting to show
that the BOP’s actions were unforeseeable, point to testimony by individual defendants that they
expected to continue to receive BOP business. The fact that the defendants even formed those
expectations, though, is confirmation that they were monitoring the underlying facilities and
relationships. CoreCivic’s internal correspondence confirms this close level of monitoring and
concern. (See, e.g., Doc. No. 423 ¶ 257 (describing email correspondence about concerns
regarding Eden).) Some correspondence, moreover, explicitly confirms concerns by CoreCivic
executives that quality issues could imperil BOP contracts. (Id. ¶ 249 (“Between you and me, I
don’t like having the [Cibola] contract expiration in September 2016 with BOP populations
system-wide declining so much. I don’t want them with any more excuses to not renew the
contract.”).) Indeed, at least by the latter days of the Class Period, internal correspondence
suggests that lobbyists working for, and communicating with, CoreCivic had deduced that there
might, in fact, have been a major move by the BOP away from private contractors on the
horizon.(See Doc. No. 401-6 at 4 (email stating that recent events “establish[ed] credibility to our
concerns that BOP is moving forward with a larger plan to cancel all contract confinement
beds”).)
The ambiguities and complications that CoreCivic has identified may well be enough for
a jury to ultimately conclude that the defendants’ boasts during the Class Period were simply
non-fraudulent spin, putting the most positive face on a reasonable interpretation of the
underlying events. A jury could also be convinced that, even if some of the statements were, in
hindsight, false or inadvertently misleading, there was enough uncertainty about the available
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information, at the time, that one or even all of the defendants lacked the requisite mental state to
be held liable for securities fraud. For example, there is evidence that, at the very least, the
defendants did not have all of the potentially available information about the BOP’s negative
view of its services, such as the internal BOP documentation surrounding the decision not to
award a new BOP contract to NEOCC. CoreCivic’s burden, on this motion, however, is not to
show that it could prevail, but that a verdict in its favor is the only outcome that a jury could
reasonably reach. It has failed to do so on the issues of material falsity and scienter with regard
to its statements about the quality of its services, the adequacy of its internal controls, its history
of compliance with applicable standards, or its clients’ estimation of its services. The court,
therefore, will not grant summary judgment on that ground.
D. Statements Regarding Cost Savings
The defendants argue, next, that, regardless of what the court has concluded regarding the
defendants claims of quality, Amalgamated has failed to produce evidence from which a
reasonable jury could conclude that the defendants knowingly or recklessly made materially false
statements regarding the issue of cost savings, particularly the possibility that CoreCivic could
provide cost savings relative to BOP-operated facilities. The court addressed the expert evidence
that CoreCivic has provided about cost in its Memorandum of March 17, 2021, addressing the
admissibility of particular expert testimony. (Doc. No. 439 at 12–15.) In short, CoreCivic does
not purport to be able to establish, beyond dispute, that, all relevant costs considered,
privatization of prisons, through CoreCivic or otherwise, necessarily saves money. How to make
such cost comparisons is, CoreCivic concedes, a contested issue in academic and public policy
literature. CoreCivic, however, has offered largely unrefuted testimony from a well-qualified
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expert, Justin Marlowe, that establishes that there are at least some plausible grounds for making
claims such as those made by the defendants regarding cost.
When it comes to cost savings, CoreCivic’s argument that Amalgamated can establish, at
most, non-actionable puffery is persuasive. Even if a jury concluded that CoreCivic did not, all
things considered, actually offer its government clients savings relative to public facilities, there
is simply not sufficient evidence from which the jury could conclude that the defendants, either
knowingly or recklessly, departed from expected accounting practices in making their claims.
Any reasonable investor would assume that CoreCivic and its executives likely painted the most
favorable defensible picture of its cost advantages possible, and Amalgamated has been unable to
identify evidence suggesting that they went further than that. The basic difficulties in drawing
fiscal comparisons, moreover, were no secret, and a sophisticated market would know to take
any claims by CoreCivic with that caveat in mind. The court, accordingly, will grant CoreCivic
and the individual defendants summary judgment with regard to Amalgamated’s claims based
solely on representations regarding cost.
Indeed, Amalgamated’s own briefing does not make a meaningful attempt to suggest that
it has viable securities fraud claims based solely on CoreCivic’s boasts of cost savings. Rather,
Amalgamated argues instead that the issues of cost savings and quality are “intertwined” because
the defendants’ statements “interwove CCA’s supposed high quality and great value.” (Doc. No.
396 at 18.) That may be true, but it does not change the fact that CoreCivic is entitled to seek
summary judgment regarding any theories of liability included in the operative complaint for
which it has not yet received judgment or dismissal, and, as CoreCivic points out, the Amended
Consolidated Complaint explicitly alleges that CoreCivic’s boasts about costs were, in and of
themselves, misleading. (See, e.g., Doc. No. 57 ¶¶ 186–89.)
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The only grounds that the plaintiffs continue to advance for finding that the defendants’
cost claims were, in and of themselves, false or misleading are (1) that the defendants’
statements did not inform investors “with the requisite intensity and credibility that there is no
reliable means to evaluate the costs of comparable facilities run by the BOP and CCA” and (2)
“that any apples-to-apples comparison of the BOP and CCA is impossible given the vast
differences in the facilities, the varied security levels and the services offered.” (Doc. No. 396 at
19.) The evidence, however, shows that there was a lively public debate regarding the supposed
cost savings associated with privatization, and, because Amalgamated relies on a fraud-on-themarket theory, it must operate under the assumption that investors were aware of that
uncertainty. Similarly, it was no secret that different prison types and populations posed different
needs, making cost comparison difficult.
The court, accordingly, will grant the defendants’ summary judgment with regard to any
claims that it was false or misleading solely to suggest that CoreCivic offered cost savings to its
government clients. The court stresses that its ruling is limited and should not be construed to
suggest that every statement in which cost was mentioned is now thrown out of the case. Many
of the statements that Amalgamated has identified refer to both cost savings and issues of
quality, sometimes beside each other and sometimes combined into the hybrid issue of value.
Any statement that contains claims about quality of services, explicitly or implicitly, may still be
relevant to Amalgamated’s claims discussed in the preceding section. Similarly, insofar as either
party may still wish to address the issue of cost savings because it is relevant to the foreseeability
of the discontinuation of the BOP’s business, it may be appropriate, within limits, to do so.
Nevertheless, the court will grant the defendants summary judgment with regard to the theory
that any statements were false or misleading solely with regard to the issue of cost savings.
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E. Loss Causation and Reliance
A Section 10(b) plaintiff must establish a “causal link between the alleged misconduct
and the economic harm ultimately suffered by the plaintiff.” Ohio Pub. Emps. Ret. Sys. v. Fed.
Home Loan Mortg. Corp., 830 F.3d 376, 384 (6th Cir. 2016) (quoting Lentell v. Merrill Lynch &
Co., 396 F.3d 161, 172 (2d Cir. 2005)). The notion of causation in the securities fraud context,
however, takes account of the fact that it is not usually the defendant’s false statement or
omission, in and of itself, that “cause[s] a security to drop in value, but rather, ‘the underlying
circumstance that [was] concealed or misstated’” Id. (quoting Lentell, 396 F.3d at 173). The
determinative question, in this case, is therefore whether any risk wrongfully concealed by the
defendants ultimately caused a harm to the value of CoreCivic’s stock.
Closely related to the concept of loss causation is the issue of reliance. “Investors can
recover damages in a private securities fraud action only if they prove that they relied on the
defendant’s misrepresentation in deciding to buy or sell a company’s stock.” Halliburton Co. v.
Erica P. John Fund, Inc. (“Halliburton II”), 573 U.S. 258, 263 (2014). For example, in a
conventional securities fraud case, an individual might show, via documentary or testimonial
evidence, that he personally relied on a particular misrepresentation in making the decision to
buy or sell at a specific price. See Chelsea Assocs. v. Rapanos, 527 F.2d 1266, 1271 (6th Cir.
1975) (“In the usual fraud case or case brought for misrepresentation in violation of Rule 10b-5,
proof of reliance upon the misstated or false fact is required.”) (citing Schlick v. Penn-Dixie
Cement Corp., 507 F.2d 374, 380 (2nd Cir. 1974), cert. denied, 421 U.S. 976 (1975)). Reliance
and loss causation are conceptually distinct, but linked, concepts: one looks at the mindset and
actions of the plaintiff, while the other looks at the ultimate economic consequences. When
combined, reliance and loss describe the full chain of events underlying a securities fraud claim.
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First, for example, a party buys (or sells or holds) a stock at a particular price, based on a
representation regarding a particular subject matter—in other words, there is reliance. Then,
some event related to that subject matter, which was concealed or misrepresented by the initial
statement, causes the stock to lose value—that is to say, there is loss causation. But unless both
elements exist—and, most importantly, both elements match each other in terms of their subject
matter—there is no claim. Otherwise, there is only a statement relied upon by a party to no
detriment—that is, reliance without loss—or a loss unrelated to a prior misrepresentation—that
is, loss without reliance.
As the court has already held, Amalgamated is permitted to pursue a fraud-on-the-market
theory of liability, based on the defendants’ alleged price maintenance through their false or
misleading statements. Fraud-on-the-market theories are based on the premise that “modern
securities markets, literally involving millions of shares changing hands daily, differ from the
face-to-face transactions contemplated by early fraud cases.” Basic, 485 U.S. at 243–44. As the
Supreme Court has explained:
In face-to-face transactions, the inquiry into an investor’s reliance upon
information is into the subjective pricing of that information by that investor.
With the presence of a market, the market is interposed between seller and buyer
and, ideally, transmits information to the investor in the processed form of a
market price. Thus the market is performing a substantial part of the valuation
process performed by the investor in a face-to-face transaction. The market is
acting as the unpaid agent of the investor, informing him that given all the
information available to it, the value of the stock is worth the market price.
Id. at 244 (quoting In re LTV Secs. Litig., 88 F.R.D. 134, 143 (N.D. Tex. 1980)). If, for example,
an executive of a company makes a false statement affecting the market price of the company’s
stock, and a buyer purchases the stock at that market price, the buyer has, as a practical matter,
relied on the executive’s false statement in deciding what price to pay for his shares—even if the
buyer was personally unaware of the statement. The “fraud-on-the-market” theory of reliance
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acknowledges that a modern investor, acting on an open and efficient securities exchange, is
relying on the market itself to be his eyes and ears with regard to publicly available information.
Id.
The Supreme Court has held that, pursuant to the fraud-on-the-market theory, there is a
rebuttable presumption of reliance with regard to material statements made about a company
whose stock is traded on an “efficient market”—in other words, a market that, through plentiful
and relatively unencumbered transaction opportunities, is able to assimilate all material public
information into a share’s price. Id. at 253; see Halliburton II, 573 U.S. at 270–72 (discussing
efficiency of capital markets). That fraud-on-the-market presumption of reliance is sometimes
referred to as the “Basic presumption,” after Basic Inc. v. Levinson. See In re BancorpSouth,
Inc., No. 17-0508, 2017 WL 4125647, at *1 (6th Cir. Sept. 18, 2017) (“The Basic fraud-on-themarket presumption is based on the ‘premise that market professionals generally consider most
publicly announced material statements about companies, thereby affecting stock market
prices.’”) (quoting Halliburton II, 573 U.S. at 272)).
“[T]o invoke the Basic presumption, a plaintiff must prove that: (1) the alleged
misrepresentations were publicly known, (2) they were material, (3) the stock traded in an
efficient market, and (4) the plaintiff traded the stock between when the misrepresentations were
made and when the truth was revealed.” Halliburton II, 573 U.S. at 277–78 (citing Basic, 485
U.S., at 248 n.27). Once a plaintiff makes an initial showing that it is entitled to the Basic
presumption, however, “a defendant may rebut it with ‘evidence that the asserted
misrepresentation (or its correction) did not affect the market price of the defendant’s stock.’”
BancorpSouth, 2017 WL 4125647, at *1 (quoting Halliburton II, 573 U.S. at 279–80). The issue
of whether a misstatement or correction actually affected a stock’s price is referred to as “price
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impact.” Id. “In the absence of price impact, Basic’s fraud-on-the-market theory and
presumption of reliance collapse,” because the “fundamental premise” of the fraud-on-themarket theory—that the alleged fraud was reflected in the price of the security—has been
refuted. Id. at 278 (quoting Erica P. John Fund, Inc. v. Halliburton Co. (“Halliburton I”), 563
U.S. 804, 813 (2011)).
The question of price impact, however, is made somewhat more complicated in a price
maintenance case, because the statements at issue are alleged only to have maintained, not
immediately affected, the price of the underlying stock. See Willis v. Big Lots, Inc., 242 F. Supp.
3d 634, 656–57 (S.D. Ohio 2017) (“[T]he price maintenance theory [is] the theory that a
misrepresentation can have a price impact not only by raising a stock’s price but also by
maintaining a stock’s already artificially inflated price . . . .”). In a price maintenance case, price
impact may be established, not via “evidence that a stock’s price rose in a statistically significant
manner after a misrepresentation,” but with evidence that “it declined in a statistically significant
manner after a corrective disclosure.” Id. at 657. If the corrective disclosure clues the market in
to the truth that the defendants had been falsely denying or concealing, and the value of the stock
declines in response, it is evidence that the falsehood had, indeed, been improperly maintaining
the higher price. Id. For example, if all the details about CoreCivic’s past performance had
suddenly been made public, and the price of the stock had immediately dropped, then that would
be a classic example of price impact demonstrated by a corrective disclosure.
That, of course, is not what happened here; there was no sudden, comprehensive
corrective disclosure, and the decline in the value of the stock was the result of an action taken
by a third party, the DOJ. Caselaw recognizes, however, that the equivalent of a corrective
disclosure—without any actual “disclosure” by the defendant itself—may come in the form of
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the real-world realization of the risk that a company’s executives concealed or denied. An event
may “reveal some [previously]-undisclosed fact with regard to the specific misrepresentations
alleged.” In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501, 511 (2d Cir. 2010) (citing In re
Flag Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29, 40–41 (2d Cir. 2009)). For example, in
Ohio Public Employees Retirement System v. Federal Home Loan Mortgage Corporation, the
plaintiff alleged that the defendant had concealed the extent of its risk of foreseeable losses in the
event of a substantial downturn in the housing market, particularly as related to subprime
mortgages. 830 F.3d at 381–82. When those risks materialized (and the public became aware of
the company’s losses), the stock price fell—even though there had not yet been a corrective
disclosure by the company admitting to its false statements. Id. at 388. The district court
dismissed the plaintiff’s securities fraud claim on the ground that, because there was no
“corrective revelation,” the plaintiff could not establish loss causation with regard to the
allegedly concealed risk. Ohio Pub. Employees Ret. Sys. v. Fed. Home Loan Mortg. Corp., No.
4:08CV160, 2014 WL 5516374, at *10 (N.D. Ohio Oct. 31, 2014). The Sixth Circuit reversed,
concluding that a plaintiff can rely on materialization of risk in the same manner as it would have
relied on a corrective disclosure. Ohio Pub. Employees Ret. Sys., 830 F.3d at 385.
As the court has mentioned, all of these core legal issues have already been addressed in
this litigation, and the court has held that Amalgamated’s general theories of loss causation and
reliance are sound. The only issues remaining under the present motions, therefore, are whether
(1) CoreCivic has shown, based on undisputed facts, that no reasonable finder of fact could
conclude that Amalgamated established loss causation and (2) whether Amalgamated has shown,
based on undisputed facts, that it is entitled to partial summary judgment on the issue of reliance.
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CoreCivic argues that Amalgamated cannot establish a causal link related to the Yates
Memorandum, because Amalgamated cannot establish that CoreCivic’s history of quality issues
was actually a precipitating factor in the DOJ’s decision. But the evidence of both parties,
including CoreCivic’s own statements throughout the class period, confirms that providing
quality services was a core part of maintaining the BOP’s business. That is particularly true,
given that the evidence shows that the BOP was beginning to move toward the end of a period of
overcrowding that had arguably necessitated some reliance on private contractors. It is simple
common sense that, as the DOJ’s need for stopgap extra capacity waned, the quality of
CoreCivic’s services would become more important for retaining business. Although the gold
standard of evidence for the DOJ’s reasoning might be testimony from the decisionmakers
themselves, the evidence that Amalgamated has provided is sufficient to support the inference
that CoreCivic’s quality issues played a role in the DOJ’s decision—just as the DOJ itself said
that they did. That is sufficient to establish the causal link under a fraud-on-the-market price
maintenance theory and, therefore, defeat CoreCivic’s motion for summary judgment on that
basis.
The defendants respond that, at various points throughout the Class Period, information
came out regarding CoreCivic facilities, such as through news coverage, that cast a negative light
on the quality of CoreCivic’s services, and the market value of the company did not, at the time,
go down. The defendants argue that this evidence shows that the market was aware of
CoreCivic’s quality issues and that investors did not consider those issues to reflect a risk of a
total loss of the BOP’s business. Accordingly, CoreCivic argues, the Yates Memorandum was
not the materialization of any concealed risk. As with other of CoreCivic’s arguments, this might
be persuasive to a jury, but it is not sufficient to remove the issue from reasonable dispute. The
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evidence shows that the public was aware of some of CoreCivic’s quality issues. There is no
evidence, however, that the bits and pieces of information available to the public painted the
whole picture. The risk at issue in this case, moreover, is not merely from the quality level of
CoreCivic’s services, but specifically from the BOP’s concerns about those services. The fact
that investors knew that there had been arguable shortcomings at CoreCivic facilities does not
negate the wealth of publicly unavailable information about the BOP’s detailed history of
complaints and deficiency findings.
CoreCivic argues next that Amalgamated cannot establish that the defendants’ alleged
misrepresentations caused a portion of the decline in price following the Cibola non-renewal. As
CoreCivic points out, there were allegedly some local media reports of the Cibola non-renewal a
few days before CoreCivic’s own prominent disclosure of what had happened, but a decline in
price accompanied only CoreCivic’s statements, not the first public news. The fact that there was
not an immediate decline in the stock’s value, CoreCivic argues, is inconsistent with a reliance
on the efficient capital markets hypothesis, a necessary precondition for a fraud-on-the-market
claim.
But there is nothing inconsistent about embracing the concept of efficient capital markets
generally and acknowledging that, in practice, some “public” disclosures may be so low-profile
that there will be some slight delay before the information disclosed is reflected in the market.
See Halliburton II, 573 U.S. at 272 (observing that a presumption of capital efficiency does not
require one “conclusively to adopt any particular theory of how quickly and completely publicly
available information is reflected in market price” (quoting Basic, 485 U.S. at 249 n.28 (1988))).
CoreCivic seems to take the position that a party (and the court) must choose between either
rejecting the idea of efficient capital markets outright or ascribing to the markets a nearly
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mystical ability to immediately assimilate even the most obscurely reported information. Taken
to its most absurd natural conclusion, CoreCivic’s version of efficient capital markets would
suggest that a stock price should instantly reflect any relevant fact disclosed, regardless of how
obscure and out-of-the-way the forum, as long as the disclosure was technically public. The fact
that that information reported only locally might take a small amount of time to be reflected in a
price is not inconsistent with relying on the efficient capital markets hypothesis in a more general
manner.
The scope of Amalgamated’s request for partial summary judgment is relatively narrow.
It asks the court to grant it partial summary judgment on the issue of reliance, because it is
pursuing a fraud-on-the-market theory that obviates the need to establish the plaintiff’s
subjective personal reliance on an individual level. As CoreCivic points out, and as
Amalgamated concedes, one of the requirements for actually establishing that the Basic
presumption applies—materiality—is still fiercely contested. See Halliburton II, 573 U.S. at
277–78 (“[T]o invoke the Basic presumption, a plaintiff must prove that: (1) the alleged
misrepresentations were publicly known, (2) they were material, (3) the stock traded in an
efficient market, and (4) the plaintiff traded the stock between when the misrepresentations were
made and when the truth was revealed.” (citing Basic, 485 U.S., at 248 n.27)). The lack of
materiality, alone, is sufficient to deny Amalgamated summary judgment outright on the issue of
reliance. As Amalgamated points out, however, the issue of materiality would be sent to the jury
regardless of the particular test for applying the Basic presumption, because materiality is an
element of any claim for securities fraud, regardless of whether it is a fraud-on-the-market case.
Amalgamated is, moreover, correct that the remaining requirements for triggering the
presumption are not reasonably contested. CoreCivic has not produced evidence sufficient to
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doubt that the market for CoreCivic stock was at least fundamentally efficient, albeit with
occasional delays and failures to acknowledge information promptly that the market for any
stock might experience. It is undisputed that trades by Amalgamated in CoreCivic’s stock were
made during the Class Period and that the relevant statements were also made during that period
and were public. Amalgamated, therefore, is entitled to partial summary judgment on the fact
that it can establish that it is entitled to the Basic presumption with regard to any statements that
it shows to be material.
CoreCivic argues, however, that the Basic presumption is rebuttable, and contested issues
of fact remain regarding whether CoreCivic can rebut it. Specifically, CoreCivic argues that it
can rebut the Basic presumption both (1) collectively for the entire class by showing, through
expert testimony, that there was no actual impact on the price of CoreCivic’s stock by the
challenged statements and (2) individually, with regard to Amalgamated itself, by establishing
that Amalgamated was individually indifferent to the truth about CoreCivic’s operations when it
bought and sold CoreCivic stock. See Halliburton II, 573 U.S. at 294 (stating that Basic
presumption is rebuttable).
With regard to the first of these arguments, CoreCivic is correct. CoreCivic has identified
sufficient contested evidence regarding the price impact of the defendants’ statements that it
should be entitled to attempt to persuade a jury that it can rebut the Basic presumption. “[A]
defendant may rebut [the presumption] with ‘evidence that the asserted misrepresentation (or its
correction) did not affect the market price of the defendant’s stock.’” BancorpSouth, 2017 WL
4125647, at *1 (quoting Halliburton II, 573 U.S. at 279–80). As CoreCivic points out, it has
advanced and provided evidentiary support for colorable arguments regarding the lack of price
impact of the statements and/or revelation of the truth at issue in this case. Amalgamated
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responds that the court concluded, at the class certification stage, that CoreCivic had failed to
rebut the Basic presumption with regard to price impact. (Doc. No. 165 at 35.) True as that may
be, the court’s ruling on a Rule 23 motion is not sufficient to take an issue away from the jury
unless the court’s factual determination was the only result that one could reasonably reach. The
court did not suggest, at the time, that that was the case, and it is not the case now. Although the
court was unpersuaded based on the material available then, CoreCivic has presented price
impact evidence from which a jury could conclude that the presumption was rebutted. The court,
accordingly, will not grant partial summary judgment in that regard.
CoreCivic’s argument regarding Amalgamated itself, however, is less persuasive.
CoreCivic argues that Amalgamated would have purchased and sold CoreCivic’s stock
regardless of what had been disclosed, because Amalgamated made its investment decisions
through outside advisors who used quantitative methods to make purchase and sale decisions.
Amalgamated is not required, however, to show that it never would have purchased CoreCivic’s
stock at all in order for a fraud-on-the-market theory of reliance to be viable. As the court has
explained, fraud on the market, in a case such as this, is about price, not whether some
transaction would have occurred at all. The very point of a fraud-on-the-market theory is that
fraudulent statements can, by setting the price, taint transactions regardless of the subjective
experience of any individual actor. In any event, Amalgamated’s briefing makes clear that it is
only seeking summary judgment on the issue of “class-wide reliance.” (Doc. No. 348 at 7.) The
issue of Amalgamated’s separate, individualized reliance is not before the court.
The court, accordingly, will grant Amalgamated partial summary judgment, only to the
extent that the court rules that the class is entitled to a rebuttable presumption of reliance with
regard to any public statements during the Class Period for which Amalgamated is able to
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establish materiality. That ruling, however, will be without prejudice to any rebuttal of the
presumption by CoreCivic through evidence of a lack of price impact.
II. CONCLUSION
For the foregoing reasons, CoreCivic’s Request for Judicial Notice (Doc. No. 366) will
be granted, Amalgamated’s Motion for Partial Summary Judgment (Doc. No. 347) will be
granted in part and denied in part, and CoreCivic’s Motion for Summary Judgment (Doc. No.
352) will be granted in part and denied in part. Amalgamated will be granted partial summary
judgment with regard to the fact that it is entitled to a rebuttable presumption of reliance with
regard to any public statements by the defendants for which it can establish materiality.
CoreCivic will be granted summary judgment with regard to all claims based solely on
defendants’ assertions about CoreCivic’s supposed cost advantages.
An appropriate order will enter.
______________________________
ALETA A. TRAUGER
United States District Judge
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