Weiner v. Tivity Health, Inc. et al

Filing 55

MEMORANDUM OPINION OF THE COURT. Signed by Chief Judge Waverly D. Crenshaw, Jr on 3/18/19. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(gb)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
ERIC WEINER, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,
v.
TIVITY HEALTH, INC., DONATO
TRAMUTO, GLENN HARGREAVES
and ADAM HOLLAND,
Defendants.

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Case No. 3:17-cv-01469
Chief Judge Crenshaw

MEMORANDUM OPINION
This is a putative class action under Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, 15 U.S.C. §§ 78j(b) and 78t(a), brought by Eric Weiner on behalf of himself and all those
who purchased Tivity Health, Inc. (“Tivity”) securities between March 6, 2017 and November 6,
2017. In addition to Tivity, Defendants include Donato Tramuto, its Chief Executive Officer; Glenn
Hargreaves, its interim Chief Financial Officer from March 6 until June 14, 2017; and Adam
Holland, who replaced Hargreaves on June 14, 2017, and became Tivity’s Chief Financial Officer.
Now pending before the Court is Defendants’ Motion to Dismiss (Doc. No. 38), to which Weiner
has responded in opposition (Doc. No. 47) and Defendants have replied (Doc. No. 50). For the
reasons that follow, the Motion to Dismiss will be denied.
I. Factual Allegations
The First Amended Complaint (Doc. No. 32) alleges the following facts:
Tivity is a health services company that offers fitness and health improvement programs to
its customers.

Tivity focuses on the senior population, and its flagship product called

“SilverSneakers” is responsible for 82% of Tivity’s overall annual revenues. (Doc. No. 32 ¶ 25).

SilverSneakers provides seniors enrolled in Medicare Advantage, Medicare Supplement,
and Group Retiree health plans with access to a national network of approximately 15,000 fitness
centers with which Tivity has formed contractual relationships. (Id.).1 Thus, instead of offering or
administering health insurance plans, Tivity generates its revenue by offering programs like
SilverSneakers to health plans for a fee. In return, plan customers are given access to fitness centers
as part of their coverage. (Id. ¶ 31).
One of Tivity’s most important health plan customers was United Healthcare, Inc. (“UHC”).
(Id.. ¶ 1). Indeed, UHC alone was responsible for more than 10% of Tivity’s revenues in fiscal year
2016, and the second largest customer in terms of revenue. (Id. ¶ 2).
Tivity knew that there was a risk that health plans like UHC would seek to directly compete
because of the low barriers to entry into the market, and the revenues that could be generated by
offering a fitness program benefit for Medicare Advantage beneficiaries. In fact, in Security and
Exchange Commission (“SEC”) filings, Tivity identified “two important risks facing its business.”
(Id.). Those were: (1) “health plan customers like UHC were responsible for a significant
percentage of its revenues” ; and (2) better-resourced entities, including its own health plan
customers (although never specifically identifying which customers), might compete with Tivity’s
product offerings. What Tivity did not disclose to the public, and what serves as the basis for
Weiner’s complaint, was that this potentiality had become a reality when UHC entered the market.
In late 2016, Tivity became aware that UHC had launched (or was in the process of

1

Medicare Advantage allows Medicare beneficiaries to receive their Medicare benefits
through private health plans; Medicare Supplement (or Medigap plans) are private insurance policies
that help pay some of the health care costs not covered by Medicare; and group retiree plans are
private group health plans that integrate with Medicare. (Id. ¶ 29). Of these three, Medicare
Advantage is the target market for SilverSneakers and serves as its “bread and butter.” (Id. ¶ 31)
2

launching) its Optum Fitness Advantage program to compete directly with SilverSneakers in select
states, including Washington and New Jersey. Nevertheless, during the open enrollment period for
electing health plan coverage that ran from October to the beginning of December, 2016, Tivity did
not disclose that information to its shareholders. To the contrary, it touted its relationship with
UHC by highlighting the parties’ successful contract renewal negotiation. (Id. 4). Further,
“[i]nstead of informing the investing public that one of Tivity’s most important customers was
becoming a competitor, [Tivity] inserted new risk language into the Company’s public filings stating
that there was a chance that ‘health plan customers could attempt to offer services themselves that
compete directly with our offerings or stop providing our offerings to their members.’” (Id.)
(emphasis added by Weiner). The FY16 Form 10-K containing this “new” language2 was filed on
March 6, 2017, (Id. ¶ 57), some six months after UHC had already begun to offer its competing
services. (Id. ¶ 59). According to Weiner, Tivity and the individual Defendants knew of UHC’s
entry into the field because:
(1) before and during the open enrollment period for 2017, which ran between
October and December 2016, Tivity executives were forwarded an aggressive letter
from UHC to a fitness center that stated that UHC was launching Optum Fitness
Advantage and that suggested that the fitness center would lose all SilverSneakers
members, not just those insured by UHC;
(2) before January 2017, UHC informed Tivity that it would not be renewing
SilverSneakers in at least New Jersey and Washington state;

2

Weiner asserts this language was “new” in the sense that it was a “sudden and subtle
revision” of the 10-K. (Doc. No. 47 at 3). That is, in earlier 10Ks when discussing the risks
associated in dependence on health plans, Tivity told investors that “a decision by our health plan
customers to take programs in-house could adversely affect our results of operations,” while the new
10-K specifically addressed risks posed by the “Competition.” (Id.). The substance, however,
remained unchanged: “there was a possibility that ‘health plan customers could attempt to offer
services themselves that compete directly with our offerings or stop providing our offerings to their
members.’” (Id.) (emphasis added) (citation omitted).
3

(3) in January 2017, UHC began operating Optum Fitness Advantage in New Jersey
and Washington state; and
(4) by early 2017, Tivity knew that UHC was sending letters about Optum Fitness
Advantage to partners outside of New Jersey and Washington state.
(Id.).
Despite the foregoing, Defendants continued to paint a rosy picture of its relationship with
UHC. For example, in a press release issued and dated April 27, 2017 relating to First Quarter 2017
results, Tramuto was quoted as saying: “We are also pleased to announce a three-year renewal of
our SilverSneakers contract with UHC Group, continuing a 20-year relationship with a partner who
shares our commitment to active lifestyles.” (Id. ¶ 60). Tramuto also spoke about an “A-B-C-D
strategy” that touted the “collaborat[ion] with partners,” and the “deepen[ing] relationship” with
partners, even though UHC had introduced a competitive program that was necessarily causing
Tivity to lose members of its SilverSneakers program. Shortly thereafter, in an earnings call,
Tramuto reiterated that the renewal of Tivity’s contract with UHC was on “favorable terms”; their
relationship “continues to be very strong;” and Tivity was “very pleased with the terms that we
have” with UHC. (Id. ¶¶ 64, 65). Responding to an analyst’s question as to whether there was “any
big switch between the way that contract [between Tivity and UHC] is structured,” Tramuto stated,
“No. And as I shared, it’s favorable terms.” (Id. ¶ 66). Likewise, in a Form 10-Q signed by
Hargreaves on May 4, 2017, Tivity represented that “[t]here have been no material changes to our
risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016.” (Id. ¶ 68). Holland made the same representation on behalf of Tivity when
he became Chief Financial Officer in a Form 10-Q dated August 4, 2017 for the period ending June
30, 2017. (Id. ¶ 70).

4

Allegedly to counteract the effects of UHC’s rollout of a competing program, Tivity’s
“executive management formed a committee to develop a strategic plan” that would “combat UHC’s
competitive threat.” (Id. ¶¶ 52, 71). The plan was referred to as “Project Success” and, among the
committee members was Caroline Khalil, Vice President of Network Partnership and Programming,
who communicated with a “Former High-Level Manager” and other select colleagues about the
program and UHC’s entry into the market. (Id. ¶¶ 52, 53). According to that unnamed Former
High-Level Manager, this was a “chaotic time” at Tivity because “senior management was unable
to reach a consensus on the messaging.” (Id. ¶ 54). Ultimately, however, it was determined that
fitness center partners could be verbally informed that UHC was coming on board as a competitor,
but that information was not to be publicly disclosed until after open-enrollment began in October
2017.
Tivity continued to represent that its relationship with UHC was the same, including stating
during a conference call on October 26, 2017 that there was “improved performance across [the]
functional areas” and a “contract renewal rate of over 99% for 2018.” (Id. ¶ 76). Also in the Form
10-Q signed by Holland for the quarter ending September 30, 2017, it was again represented that
there had been “no material changes to . . . risk factors.” (Id. ¶ 78).
On Monday, November 6, 2017, UHC announced that, beginning January 1, 2018, customers
enrolled in its Medicare Advantage plans in 11 states could participate in its Optum Fitness
Advantage program at no additional costs. When this news broke publically, Tivity’s stock price
plummeted by more than 34%, from a close of $48.05 per share on Friday, November 3, 2017, to
a close of $31.60 per share the following Monday. This drop of $16.45 per share was based upon
a trade volume of 9,034,800 shares, and was about 18 times more than the daily average of

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approximately 490,000 shares. “In response to this news, Defendants tried to reassure the marked
by explaining that Tivity’s 2018 guidance remained unchanged because Tivity had already factored
UHC’s actions into that guidance.” (Id. ¶ 84) (emphasis in original).
Weiner claims that during the proposed class period he purchased 20,658 shares of Tivity
common stock, but ended up losing more than $107,000 when UHC’s competing program came to
light. (Id. ¶ 11). Others, however, were a lot more fortunate, particularly those alleged to be
company insiders.
Hargreaves (who sold no stock during the two years prior to March 6, 2017) sold a total of
67,716 shares of Tivity common stock during the proposed class period for $2,621,401.10. These
sales reduced his stake in Tivity from approximately 70,000 shares before August 3, 2017, to
approximately 39,000 shares on November 2, 2017. (Id. ¶ 91).
Mary Flipse, Tivity’s Chief Legal Officer and Corporate Secretary, also sold no stock during
the two years prior to March 6, 2017, but sold 28,168 shares of Tivity common stock for
$1,114,232.74 during the proposed class period. These sales reduced Flipse’s stake in Tivity from
approximately 77,000 shares before August 11, 2017, to approximately 45,000 shares on November
3, 2017. (Id. ¶ 92).3
Finally, Conan Laughlin (“Laughlin”), “who served as a director member of the
compensation and audit committees throughout the Class Period, [and] is a significant activist
investor,” sold a large number of shares of Tivity stock owned by him and by entities he controlled
during the proposed class period. (Id. 94). More specifically, he, along with North Tide Capital

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Only a small portion of the stock sold by Hargreaves and Flipse was made pursuant to a
Rule 10b5-1 trading plan. (Id. ¶ 91, n.5; ¶ 92, n.6).
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Master, LP, was the beneficial owner of 10% of Tivity’s stock, and together sold 3,750,000 shares
of common stock for proceeds of $122,925,000. (Id. ¶ 95).4
II. Standards of Review
Generally, motions to dismiss for failure to state a claim are governed by Rule 12(b)(6). The
well- known principles surrounding resolutions of such motions as been succinctly summarized as
follows:
Under Rule 12(b)(6), the complaint is viewed in the light most favorable to plaintiffs,
the allegations in the complaint are accepted as true, and all reasonable inferences
are drawn in favor of plaintiffs. Bassett v. Nat'l Collegiate Athletic Ass’n, 528 F.3d
426, 430 (6th Cir. 2008). However, “a legal conclusion couched as a factual
allegation” need not be accepted as true. Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The factual allegations must “raise a
right to relief above the speculative level.” Id. The complaint must state a claim that
is plausible on its face, i.e., the court must be able to draw a “reasonable inference
that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citation omitted). This
“plausibility standard is not akin to a ‘probability requirement,’ but it asks for more
than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting
Twombly, 550 U.S. at 556, 127 S.Ct. 1955). “Where a complaint pleads facts that are
merely consistent with a defendant's liability, it stops short of the line between
possibility and plausibility of entitlement to relief.” Id. (quoting Twombly, 550 U.S.
at 557, 127 S.Ct. 1955 (internal quotation marks and citation omitted) ).
Nwanguma v. Trump, 903 F.3d 604, 607 (6th Cir. 2018).
Where, however, a complaint alleges fraud in the purchase or sale of securities in violation
of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5
promulgated thereunder, 17 C.F.R. 240.10b-5, a heightened pleading standard is mandated by the
Private Securities Litigation Reform Act of 1995 (“PSLRA”). Merrill Lynch, Pierce, Fenner &

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Before March 1, 2017, Laughlin held approximately 3,500,000 shares, which was reduced
to approximately 100,000 by August 1, 2017. Like Hargreaves and Flipse, Laughlin sold no shares
in the two years preceding the Class Period.
7

Smith Inc. v. Dabit, 547 U.S. 71, 81–82 (2006); Miller v. Champion Ents. Inc., 346 F.3d 660, 686
(6th Cir. 2003).5 Under the PSLRA, “the complaint shall specify each statement alleged to have
been misleading, the reason or reasons why the statement is misleading,” and shall “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).
III. Application of Law
The PSLRA, as Defendants are quick to point out, can be an “elephant-sized boulder
blocking [a securities fraud] suit[.]” In re Omnicare, Inc. Sec. Litig., 769 F.3d 455, 461 (6th Cir.
2014). But this does not mean the boulder cannot be circumnavigated, pushed aside, or at least
squeezed past so as to allow a plaintiff to open the doors to discovery. Weiner has done so in this
case.
Contrary to Defendants’ contention, when the allegations in the First Amended Complaint
are accepted as true,6 this litigation is not “based on nothing more than a company’s announcement
of bad news,” nor is Weiner improperly trying to “turn news of competition Tivity would face into

5

The PSLRA was intended to supersede and supplement the pleading requirements of Rule
9(b) of the Federal Rules of Civil Procedure for claims sounding in fraud. In re Navarre Corp. Sec.
Litig., 299 F.3d 735, 742 (8th Cir. 2002). While “both provisions require facts to be pleaded ‘with
particularity’” the PSLRA’s requirement for pleading scienter, “marks a sharp break with Rule
9(b),” because “‘a plaintiff can no longer plead the requisite scienter element generally, as he
previously could under Rule 9(b).’” Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242, 253 (3d
Cir. 2009) (quoting Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1238 (11th Cir. 2008)); see also
Wyser-Pratte Mgmt. Co. v. Telxon Corp., 413 F.3d 553, 563 (6th Cir. 2005) (observing that “Rule
9 provides that a defendant’s state of mind ‘may be averred generally,’ while the PSLRA adopted
a heightened standard for pleading scienter in federal securities fraud cases”).
6

Even with the heightened pleading standards applicable to a securities case under §10(b),
the allegations in the complaint are accepted as true, Frank v. Dana Corp., 547 F.3d 564, 570 (6th
Cir. 2008) (Frank I), and all reasonable inferences are drawn in plaintiff’s favor, Lormand v. US
Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009).
8

a securities fraud complaint.” (Doc. No. 39 at 6). Instead, Weiner alleges that Tivity thought it
important enough over the years to warn there would be an investment risk if one of its health-plan
customers chose to develop its competing program, yet when one of its largest customers made that
possibility a reality, Tivity actively concealed that information from its investors and suggested that
the relationship with that customer was as good as it had been in the past.
A. Materiality and Actionable Statements or Omissions
Tivity first moves to dismiss on the grounds that the “Complaint fails to allege that UHC’s
competing Optum program was material to Tivity’s bottom line, and, thus, as the Sixth Circuit holds,
the Complaint fails to state a claim and should be dismissed.” (Doc. No. 39 at 13). As support,
Tivity discusses three Sixth Circuit cases that it deems to be “particularly instructive” on the issue
of materiality. (Id.).
Pension Fund Group v. Tempur-Pedic International, Inc., 614 F. App’x 237 (6th Cir. 2015)
involved a securities complaint filed against Tempur-Pedic after stock prices dropped precipitously
when its competitor Serta made significant inroads into the viscoelastic (memory-foam) bed and
pillow market. While Tivity claims Tempur-Pedic “alleged a similar theory to the one at issue
here,” (Doc. No. 39), that theory was based on an entirely different factual pattern.
Like here, Tempur-Pedic disclosed that competition was a known “risk factor,” and the Sixth
Circuit affirmed dismissal at least in part because “Tempur–Pedic was not required to disclose its
internal analyses of how a specific competitor affected sales,” nor were “Tempur–Pedic’s risk
disclosures inadequate merely because the company’s growth appeared to slow – but not reverse –
due to competition[.]” Id. at 244. Unlike here, however, Tempur-Pedic acknowledged that
competition was already taking place. Specifically, in a January 2011 Press Release, Tempur-Pedic

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informed the investing public that “[d]uring the past several years, a number of our competitors,
including Sealy, Serta and Simmons, have offered viscoelastic mattress and pillow products.” Id.
at 243. This is a critical difference as evidenced by the Sixth Circuit’s distinguishing cases where
dismissal was denied “when defendants risk disclosures treat[ed] currently existing conditions as
mere possibilities” and “where the warnings clearly misrepresented facts.” Id.

In this regard, the

Sixth Circuit quoted In re Compuware Sec. Litig., 301 F. Supp.2d 672, 685 (E.D. Mich. 2004)
(emphasis added), in which the district court observed that “Defendants’ statement that ‘there can
be no assurance that IBM will not choose to offer significant competing products in the future,’
implied that IBM’s development of competing software was a possibility as opposed to an actuality,
and therefore, this statement does not qualify as meaningful cautionary language.” Likewise here,
Weiner is complaining about Defendants intentionally ignoring or distorting reality. See Berson v.
Applied Signal Tech., Inc., 527 F.3d 982, 986 (9th Cir. 2008) (observing statement that “speaks
entirely of as-yet-unrealized risks and contingencies” does not “alert[] the reader that some of these
risks may already have come to fruition); In re Snap Inc. Sec. Litig., No. 217CV03679SVWAGR,
2018 WL 2972528, at *6 (C.D. Cal. June 7, 2018) (finding that “hypothetical risk disclosures – e.g.,
Instagram Stories ‘may be directly competitive,’ – do not absolve Defendants of their duty to
disclose known material adverse trends currently affecting Snap’s user growth”).
Next, Tivity cites Zaluski v. United American Healthcare Corp., 527 F.3d 564 (6th Cir.
2008) as holding that there is “no duty to disclose information that might put a contract at risk,” and
a complaint fails when it is “devoid of allegations that the company thought that the [illegal]
payment put the contract at risk otherwise would have a negative impact.” (Doc. No. 39 at 14)
(emphasis in original). That precise language, however, appears nowhere in Zaluski. What the

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Sixth Circuit actually said, in the context of the potential loss of a contract based upon the payment
of bribes, was that there was no duty to disclose where there was no “evidence of internal
investigations and reports that gave rise to a duty to disclose” and there was “no evidence that [the
company] anticipated that the . . payments would lead to a termination or modification of its
contract.” 527 F.3d at 574. Here, of course, the allegations are that Tivity was hardly nonplussed
when it learned of UHC’s competing program. It formed a committee specifically to address the
problem, and implemented a communication plan for those who it actually chose to inform.
Finally, Defendants rely on Bondali v. Yum-A Brands, Inc., 620 F. App’x 483 (6th Cir.
2015), a case involving Kentucky Fried Chicken’s failure to inform its investors that batches of
chicken being supplied to a China subsidiary had tested positive for drug and antibiotic residues.
Defendants claim that “the Sixth Circuit has unambiguously and definitively foreclosed the type of
risk disclosure at issue in this case” (Doc. No. 39 at 16) because “cautionary statements are ‘not
actionable to the extent plaintiffs contend defendants should have disclosed risk factors ‘are’
affecting financial results rather than ‘may’ affect financial results,” 620 F. App’x at 491. However,
Bondali is unpublished and therefore not “binding precedent” or “binding authority,” (Doc. No. 50
at 6), as Defendants claim in their reply brief. See Chevalier v. Estate of Barnhart, 803 F.3d 789,
796 n.4 (6th Cir. 2015) (observing that unpublished decisions are “binding only on the parties”);
Crump v. Lafler, 657 F.3d 393, 405 (6th Cir. 2011) stating that “[u]npublished decisions in the Sixth
Circuit are, of course, not binding precedent on subsequent panels”); Sheets v. Moore, 97 F.3d 164,
167 (6th Cir. 1996) (noting that unpublished opinions “carry no precedential weight . . . [and] have
no binding effect on anyone other than the parties to the action”). Besides, the court in Bondali
explicitly recognized that “there may be circumstances under which [such] a risk disclosure might

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support Section 10(b) liability.” Bondali, 620 F. App’x at 491. Thus, it can hardly be said, as
Defendants claim, that “Bondali requires dismissal.” (Doc. No. 39 at 16).
Regardless of what distinctions there may be between this case and the ones relied upon by
Defendants, none of those cases suggested a change in the law surrounding materiality. To the
contrary, both Tempur-Pedic, 614 F. App’x at 242 and Zaluski, 527 F.3d at 571 reaffirm the “total
mix” standard articulated by the Supreme Court in Basic Inc. v. Levinson, 485 U.S. 224, 240
(1988).7
B. Safe Harbor
Defendants next seek shelter in the safe harbor provisions of the PSLRA for three allegedly
forward looking statements. Those statements are (1) the April 27, 2017 Press Release in which
Tramuto is quoted as saying that “[t]hrough our A-B-C-D strategy . . . we believe we are well
positioned to strengthen our market leadership program in serving the 50-plus market”; (2) a July
27, 2017 Press Release that stated, “[w]e believe we have a tremendous long-term opportunity to
increase participation in both our SilverSneakers and Prime programs8 within each program’s
existing base of millions of members who are already eligible to enroll and participate”; and (3) an
October 26, 2017 conference call in which Tramuto stated that, “[w]e expect to benefit from
improved performance across our functional areas. For example, we achieved a contract renewal
rate of over 99% for last fall.” (Doc. No. 39 First Amended Complaint ¶¶ 60, 70, 76).
The PSLRA contains a safe-harbor provision for a forward-looking statement whereby a

7

Bondali does not discuss the applicable standard.

8

The Prime program was similar to SilverSneakers, but was directed at the 18 to 64-year
old population and was offered through commercial health plans and employers. (Doc. No. 32,
Amended Complaint ¶ 25, n. 4).
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defendant “is liable for such statements only if they were material; if the defendant ‘had actual
knowledge that the statements were false or misleading’; and if the defendant did not identify the
statements as forward-looking or insulate them with ‘meaningful cautionary language.’” In re Ford,
381 F.3d at 568. “[F]or ‘forward-looking statements’ that are accompanied by meaningful
cautionary language, the . . . the safe harbor provided for in the PSLRA makes the state of mind
irrelevant.” Miller, 346 F.3d at 672 (citing 15 U.S.C. § 78u–5(c)(1)(A)). “In other words, if the
statement qualifies as ‘forward-looking’ and is accompanied by sufficient cautionary language, a
defendant’s statement is protected regardless of the actual state of mind.” Id.9
A company that chooses to speak, therefore, is protected against failed projections provided
it identifies “‘important factors that could cause actual results to differ materially from those in the
forward-looking statements.’” Helwig v. Vencor, Inc., 251 F.3d 540, 551 (6th Cir. 2001) (quoting
15 U.S.C. § 78u–5(c)(1)(A)(i)). While “a company need not list all factors, [t]he cautionary
statements must convey substantive information about factors that realistically could cause results
to differ materially from those projected in the forward-looking statements[.]” Id. at 558-9. In
observations worthy of repeating in some detail, the United States Court of Appeals for the District
of Columbia has recently observed:
[C]autionary language cannot be “meaningful” if it is “misleading in light of
historical fact[s],” . . . “that were established at the time the statement was made[.]”
Such statements are neither “significant” nor of “useful quality or purpose.” Indeed,
the Conference Report [to the PSLRA] states that “[a] cautionary statement that

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Under the PSLRA, a “forward-looking statement” is defined as: “(A) a statement containing
a projection of revenues . . . or other financial items; (B) a statement of the plans and objectives of
management for future operations . . . ; (C) a statement of future economic performance, including
any such statement contained in a discussion and analysis of financial condition by the management;
[and] (D) any statement of the assumptions underlying or relating to any statement described in
subparagraph (A), (B), or (C)[.]” 15 U.S.C. § 78u–5(i)(1).
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misstates historical facts is not covered by the safe harbor.” A warning that
identifies a potential risk, but “impl[ies] that no such problems were on the horizon
even if a precipice was in sight,” would not meet the statutory standard for safe
harbor protection. If a company were to warn of the potential deterioration of one
line of its business, when in fact it was established that that line of business had
already deteriorated, then, as the Second Circuit explained, its cautionary language
would be inadequate to meet the safe harbor standard. By analogy, the safe harbor
would not protect from liability a person “‘who warns his hiking companion to walk
slowly because there might be a ditch ahead when he knows with near certainty that
the Grand Canyon lies one foot away.’” . . . “As this court [has] noted, there is an
important difference between warning that something “might” occur and that
something “actually had” occurred.
Because Congress required that cautionary statements warn of “important factors
that could cause actual results to differ,” the cautionary language need not
necessarily “mention the factor that ultimately belies a forward-looking statement.”
That is, Congress did not require the cautionary statement warn of “all ” important
factors, so long as “an investor has been warned of risks of a significance similar to
that actually realized,” such that the investor “is sufficiently on notice of the danger
of the investment to make an intelligent decision about it according to her own
preferences for risk and reward.” Perfect clairvoyance may be impossible because
of events beyond a company’s control of which it was unaware. Congress required
that a company must warn of factors that “[h]av[e] much import or significance” and
“carry[ ] with [them] great or serious consequences,” and which are “likely to have
a profound effect on success[.]”
We join our sister circuits’ reasoned analysis of the safe harbor requirement that
forward-looking statements be accompanied by “meaningful cautionary statements.”
The words Congress chose provide instructive guidance and the remaining ambiguity
in application is informed by and resolved in view of Congress's purpose to protect
companies from “[a]busive litigation,” while still providing investors the information
they require to make reasoned decisions[.]
The question, then, is whether the Company’s statements . . . were accompanied by
warnings specific to the Company and tailored to the specific forward-looking
statements, not mere boilerplate, and consistent with the historical facts when the
statements were made, thereby carrying out Congress’s purpose to ensure that
investors have the information they need to make an informed decision on whether
or not to invest, or remain invested, in the Company.
In re Harman Int’l Indus., Inc. Sec. Litig., 791 F.3d 90, 102–03 (D.C. Cir. 2015).
Accepting the allegations in the Amended Complaint as true, the Court must answer the

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question posed in In re Harman in the negative. Notwithstanding Tivity’s arguments to the contrary,
the forward-looking statements at issue10 were provided in the context of cautionary statements that
were boilerplate, not meaningful, and inconsistent with the historical facts.
Tivity argues that its April 27, 2017, July 27, 2017, and October 26, 2017 press releases all
cautioned investors that its forward-looking statements could be “affected by certain risks and
uncertainties,” including: (1)”the Company’s ability to renew and/or maintain contracts with its
customers under existing terms or restructure these contracts on terms that would not have a material
negative impact on the Company’s results of operations”; (2) “the Company’s ability and/or the
ability of its customers to enroll participants and to accurately forecast their level of enrollment and
participation in the Company’s programs in a manner and within the time-frame anticipated by the
Company”; (3) “the risks associated with deriving a significant concentration of revenues from a
limited number of customers” (4) “the Company’s ability to effectively compete against other
entities, whose financial, research, staffing, and marketing resources may exceed the Company’s
resources.” (Doc. No. 39 at 19). These statements, coupled with its 2016 Annual Report, Tivity
submits, “were certainly sufficient to warn investors about the risks posed to revenue by potential
actions taken by health plan customers.” Id.
Tivity’s argument may be valid to an extent, but, as previously noted, cautionary statements
must be substantive and tailored. In re Harmon, 791 F.3d at 103; OFI Asset Mgmt. v. Cooper Tire
& Rubber, 834 F.3d 481, 491 (3d Cir. 2016); Helwig, 251 F.3d at 559. This “calls for ‘substantive

10

Unlike Weiner, the Court does not find it “debatable” whether the statements at issue were
(at least in part) forward-looking. The April 2017 press-release spoke about strengthening market
leadership going forward, the July 2017 press release suggested a long-term opportunity, and
Tramuto talked about the expected benefit from improving performance in the October 2017
conference call.
15

company-specific warnings based on a realistic description of the risks applicable to the particular
circumstances, not merely a boilerplate litany of generally applicable risk factors.’” Slayton v. Am.
Exp. Co., 604 F.3d 758, 772 (2d Cir. 2010) (quoting Southland Secs. Corp. v. INSpire Ins. Sols.,
Inc., 365 F.3d 353, 372 (5th Cir. 2004)).
According to the allegations in the Amended Complaint, before the FY16 Form 10-K was
filed on March 6, 2017 and the first Press Release on April 27, 2017, UHC had already: (1) started
operating Optum Fitness Advantage in New Jersey and Washington; and (2) sent letters to fitness
centers in other states. Then, by the time of the July 27, 2017 press release, Tivity allegedly knew
UHC would expand competition in at least nine other states, and formed a special committee to
address the problem. And, by the time of the October 26, 2017 conference call, Tivity developed
and implemented a communications plan to attempt to contain the UHC threat, informed its fitness
centers not to make any statements about UHC’s entry into the market, or even identify UHC as the
competitor. Given these historical facts, warnings about potential actions that might be taken in the
future by health plan customers were not meaningful.
C. Falsity
Outside of the safe harbor, Tivity briefly argues that the three statements Tramuto made on
April 27, 2017 regarding contract renewal are not actionable. That is, “the Complaint’s failure to
allege any facts demonstrating the falsity of the statements regarding the new UHC contract requires
dismissal of these statements from the Complaint.” (Doc. No. 39 at 20). Though not entirely clear,
this argument appears be based upon the premise that the statements about contract renewal were
“hard,” and not “soft” information.
“[A] company has a duty to disclose hard information but not soft information unless other

16

criteria are met.” Zaluski, 527 F.3d at 572. “Hard information is typically historical information
or other factual information that is objectively verifiable. Such information is to be contrasted with
‘soft’ information, which includes predications and matters of opinion.” Id. (quoting In re Sofamor
Danek Group, Inc., 123 F.3d 394, 401 (6th Cir. 1997)).
Contrary to Tivity’s assertion, the Amended Complaint does allege that the renewed contract
terms with UHC were less favorable than before because SilverSneakers would be offered in fewer
UHC Medicare Advantage markets. (Doc. No. 32, Amended Complaint ¶ 67). Besides, Tramuto’s
statements – to wit, “ a renewal that was completed on favorable terms,” “we renewed on favorable
terms, we “are very pleased with the terms,” and “it’s favorable terms” – are more likely matters
of opinion than hard information and “a defendant may choose silence or speech based on the
then-known factual basis, but it cannot choose half-truths.” In re Ford Motor Co. Sec. Litig., Class
Action, 381 F.3d 563, 569 (6th Cir. 2004). Thus, “[o]nce a company has chosen to speak on an issue
– even an issue it had no independent obligation to address – it cannot omit material facts related
to that issue so as to make its disclosure misleading.” Williams v. Globus Med., Inc., 869 F.3d 235,
241 (3d Cir. 2017). Here, not only did Tramuto fail to disclose UHC’s entry into the marketplace,
he twice deflected inquiry into the matter from an analysts during the conference call.
D. Scienter
Finally, Tivity argues that the Amended Complaint fails to sufficiently allege scienter. Its
argument here is two-fold: (1) viewed holistically, the allegations fail to establish the requisite
strong inference of scienter, and (2) the First Amended Complaint fails to plead the Helwig factors.
Turning to the latter point first, the Sixth Circuit in Helwig held that the facts alleged in a
securities complaint must present a “strong inference” of reckless behavior or knowing conduct,

17

“meaning that scienter must be the most plausible inference that could be drawn from the facts.”
Frank v. Dana Corp., 646 F.3d 954, 957 (6th Cir. 2011) (Frank II). The court then identified
“several factors usually relevant to scienter.” Helwig, 251 F.3d at 552. These “non-exhaustive list
of factors” include:
(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
.
Id. (quoting Greebel v. FTP Software, Inc., 194 F.3d 185, 194 (1st Cir. 1999)). Because Weiner
focuses almost exclusively on the unusual trading that occurred before UHC’s entry into the market
was announced, Defendants assert that his Amended Complaint is subject to dismissal.
Helwig, however, preceeded Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308
(2007). There, the Supreme Court noted that “Congress left the key term ‘strong inference’
undefined” in the PSLRA, and concluded that “the court must take into account plausible opposing
inferences” explaining:
18

The strength of an inference cannot be decided in a vacuum. The inquiry is
inherently comparative: How likely is it that one conclusion, as compared to others,
follows from the underlying facts? To determine whether the plaintiff has alleged
facts that give rise to the requisite “strong inference” of scienter, a court must
consider plausible, nonculpable explanations for the defendant’s conduct, as well as
inferences favoring the plaintiff. The inference that the defendant acted with scienter
need not be irrefutable, i.e., of the “smoking-gun” genre, or even the “most plausible
of competing inferences[.]”. . . Yet the inference of scienter must be more than
merely “reasonable” or “permissible”—it must be cogent and compelling, thus strong
in light of other explanations.
551 U.S. 308, 323–24 (2007) (internal citation omitted). Accordingly, a securities “complaint will
survive . . . only if a reasonable person would deem the inference of scienter cogent and at least as
compelling as any opposing inference one could draw from the facts alleged.” Id. at 324. In making
that determination, “the court’s job is not to scrutinize each allegation in isolation but to assess all
the allegations holistically.” Id. at 325.
Because the Supreme Court in Tellabs rejected the “most plausible requirement” utilized in
Helwig, Wiener argues that “reliance on the Helwig factors is unavailing.” (Doc. No. 47 at 25, n.
26). As support, he cites Frank II, wherein the Sixth Circuit observed:
In the past, we have conducted our scienter analysis in section 10(b) cases by sorting
through each allegation individually before concluding with a collective approach.
Cf. Konkol, 590 F.3d at 397–404; Ley v. Visteon Corp., 543 F.3d 801, 809–14 (6th
Cir.2008); PR Diamonds, Inc., 364 F.3d at 684. However, we decline to follow that
approach in light of the Supreme Court’s recent decision in Matrixx Initiatives, Inc.
v. Siracusano, ––U.S. ––, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011). There, the Court
provided for us a post-Tellabs example of how to consider scienter pleadings
“holistically” in section 10(b) cases. Id. at 1323–25 (quoting Tellabs, 551 U.S. at
326, 127 S.Ct. 2499) (internal quotation marks omitted). Writing for the Court,
Justice Sotomayor expertly addressed the allegations collectively, did so quickly,
and, importantly, did not parse out the allegations for individual analysis. Id. at
1324–25. This is the only appropriate approach following Tellabs's mandate to
review scienter pleadings based on the collective view of the facts, not the facts
individually. Tellabs, 551 U.S. at 322–23, 127 S.Ct. 2499 (“The inquiry . . . is
whether all of the facts alleged, taken collectively, give rise to a strong inference of
scienter, not whether any individual allegation, scrutinized in isolation, meets that
standard.”). Our former method of reviewing each allegation individually before
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reviewing them holistically risks losing the forest for the trees. Furthermore, after
Tellabs, conducting an individual review of myriad allegations is an unnecessary
inefficiency. Consequently, we will address the Plaintiffs’ claims holistically.
Frank II, 646 F.3d at 961. Although sorting through each allegation is time-consuming and likely
unnecessary in light of Tellabs, the Court does not read Franks II as pretermitting consideration of
the Helwig factors when determining whether the facts alleged, taken collectively, give rise to a
strong inference of scienter that is at least as compelling as any opposing inference. Indeed, postTellabs, some Sixth Circuit decisions have specifically addressed the Helwig factors in securities
fraud cases. See Dougherty v. Esperion Therapeutics, Inc., 905 F.3d 971, 981 (6th Cir. 2018) (noting
that “three of the Helwig factors weigh in Plaintiffs’ favor” and “[n]one of the other Helwig factors
apply in this case”); Doshi v. Gen. Cable Corp., 823 F.3d 1032, 1041 (6th Cir. 2016) (“Considering
all pleaded allegations holistically, Tellabs, . . . and applying the Helwig factors”); Konkol v.
Diebold, Inc., 590 F.3d 390, 399 (6th Cir. 2009) (post-Tellabs addressing each of the Helwig factors)
Here, when the factual allegations are considered collectively and holistically, there is a strong
inference that Defendants acted with at least reckless disregard for, if not knowledge of, the
misleading nature of their statements that is at least as compelling as any innocent inference. This
is true even when considering the Helwig factors.
The parties’ arguments for and against scienter are not elaborate. On the one hand,
Defendants argue that, assuming that Tivity had knowledge about UHC’s Optum Fitness Advantage
program because of the importance of the relationship between the two companies, UHC initially
rolled out this program in only two states.

Even then, UHC continued to offer Tivity’s

SilverSneakers program to at least its Group Medicare Advantage members. Furthermore, the
Amended Complaint does not allege that UHC’s Optum Fitness Advantage program caused or

20

threatened to cause Tivity to lose a significant number of members, or even that it had any impact
on Tivity’s revenues. From this, the only compelling inference to be drawn (according to
Defendants) is that Tivity believed that UHC’s actions were having little or no effect on Tivity’s
business or operations and that, therefore, Tivity had no duty to disclose it.
On the other hand, Weiner argues the compelling inference of knowledge or recklessness can
be derived from the fact that Tivity had long warned about health plans taking competitive programs
in-house and, recognizing that UHC was a top customer, panicked once UHC actually began to
compete. Not only were their suspicious stock sales by Defendants Hargreaves, and by Tivity’s
Chief Legal Office and a director member of the compensation in large amounts during the class
period that significantly reduced their respective shares in the company, Tivity formed a special
committee, and implemented a communications plan, to combat the UHC threat.11
In the Court’s view, the competing, plausible inferences are equally compelling. “[W]here
two equally compelling inferences can be drawn, one demonstrating scienter and the other
supporting a nonculpable explanation, Tellabs instructs that the complaint should be permitted to
move forward.” Frank I, 547 F.3d at 571. That is, in such circumstances, “‘Tellabs now awards the
draw to the plaintiff.’” Id. (quoting ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 59 (1st Cir.
2008)).
IV. Conclusion
On the basis of the foregoing, Defendants’ Motion to Dismiss (Doc. No. 38) will be denied,

11

At a minimum, these allegations encompass the first, second, third, and sixth Helwig

factors.
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and this case will be returned to Magistrate Judge Newbern for further pretrial case management.12
An appropriate Order will enter.

__________________________________________
WAVERLY D. CRENSHAW, JR.
CHIEF UNITED STATES DISTRICT JUDGE

12

Because Defendants seek dismissal of the Section 20(a) claims for secondary liability
against the individual Defendants solely on the grounds that the Amended Complaint fails to
adequately allege a Section 10(b) violation, the Section 20(a) claims likewise will not be dismissed.
22