In its recent report on securities suit filings in the year’s first half, Cornerstone Research noted that while securities suit filings generally in the first six months of the year were down, SPAC-related securities suit filings were up, with first half suit filings involving SPACs double the number of SPAC-related suits during the full prior year. As further evidence that this first half 2021 securities suit filing trend will continue as the year progresses, last week a plaintiff shareholder filed a securities class action lawsuit against a home healthcare equipment company that merged with a publicly traded SPAC in November 2019. As discussed below, this latest suit has much in common with many of the prior SPAC-related lawsuits, but it also has certain distinctive features as well.



AdaptHealth Corp. provides home healthcare equipment, supplies, and services. DFB Healthcare Acquisitions Corp. was a special purpose acquisition company (SPAC). DFB completed its IPO on February 16, 2018. On July 8, 2019, DFB announced that it had agreed to merge with AdaptHealth LLC, which at the time was the third largest distributor of home healthcare equipment. The merger closed on November 8, 2019. The shares of the combined company began trading on NASDAQ on November 11, 2019.


On July 19, 2021, short-seller Jehoshaphat Research published a report about AdaptHealth in which the Jehoshaphat claims that the company, which is a “roll-up” company formed through combination of smaller firms, had obscured the company’s actual organic growth by “retroactively changing past organic growth numbers to be higher, with no disclosures about the change.” The report claimed that while management had reported an organic growth trajectory of 8-10%, the company is “in fact experiencing double-digit organic decline.” The report suggested that the company’s “manipulation” of its organic growth figure was “a blatant violations of non-GAAP disclosure rules, for which companies get into huge trouble.”  In the subsequently filed securities class action lawsuit, the complaint alleged that the company’s share price declined nearly 6% on the publication of the report.


The Lawsuit

On July 29, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of Pennsylvania against AdaptHealth; Luke McGee, who served as the company’s CEO from the merger until June 2021; Stephen Griggs, who has served as the company’s CEO since June 2021; Gregg Holst, who served as the company’s CFO from the merger date until August 2020; and James Clemens, who served as the company’s CFO since August 2020. A copy of the complaint can be found here. The complaint purports to be filed on behalf of a class of AdaptHealth investors who purchased the company securities between November 11, 2019 (the date the combined company’s shares began trading on NASDAQ) and July 16, 2021 (the last trading day before the publication of the short-seller’s report).


The complaint alleges that throughout the class period, the defendants “made materially false and misleading statements regarding the company’s business, operations, and compliance policies.” Specifically, the complaint alleges that the defendants made misleading statements or failed to disclose that “(i) AdaptHealth had misrepresented its organic growth trajectory by retroactively inflating past organic growth numbers without disclosing the changes, in violation of SEC regulations; (ii) accordingly, the Company had materially overstated its financial prospects; and (iii) as a result, the Company’s public statements were materially false and misleading at all relevant times.”


The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.



By my count, this lawsuit is the 18th SPAC-related securities suit to be filed so far in 2021, and the fourth to be filed in July 2021. Interestingly, though the complaint refers to the AdaptHealth’s SPAC predecessor company and contains detailed allegations relating to the SPAC merger, the complaint does not name any SPAC individuals as defendants (or at least none of the individual defendants is alleged to have committed any wrongful acts prior to the merger date), and the complaint contains no allegations of misrepresentations or other wrongful acts prior to the completion of the merger. The misrepresentations alleged are all alleged to have taken place following the merger date.


It could be said that though this company completed a merger with a SPAC just prior to the class period, the lawsuit itself arguably has little to do with the fact that it was formed by a merger with a SPAC. Nevertheless, because the complaint contains numerous references to the SPAC merger transaction, for my purposes it counts as a SPAC-related lawsuit. By any measure, it does count as a lawsuit against a company that is the product of a merger with a SPAC.


The lawsuit does share another common feature with other prior securities lawsuits against post-SPAC-merger companies, and that is that in this lawsuit as in many of the prior suits the defendant company’s share price had declined following publication of a critical short-seller’s report. By my count, of the 18 SPAC-related securities class action lawsuits that have been filed so far this year, nine arose after the defendant company was the subject of a short-seller report.


One way that this lawsuit is different from the prior SPAC-related securities suits is that the supposed revelation that is the basis of the lawsuit took place well after the SPAC merger date. Unlike many of the other suits, where the supposed revelation took place shortly after the previously private company became publicly traded, the supposed revelation at the center of this suit took place more than a year and a half after the private company became a public company through the merger. That is, this case, unlike the prior suits does not involve a “stumble out of the gates.” In that respect, this lawsuit more closely resembles a run of the mill securities suit than it does the other SPAC-related lawsuits.


With respect to the issue of timing, it is also interesting to note when this lawsuit arose with respect to the initial IPO of the SPAC entity. The SPAC involved in this lawsuit was a part of the SPAC class of 2018 – that is, the SPAC went public well before the more recent SPAC IPO frenzy of late 2020 and early 2021. The fact that the SPAC-related lawsuit involving this 2018 SPAC company did not arise until July 2021, more than three years after the SPAC IPO, sheds some interesting light on the timing and sequence of SPAC-related risk exposure events. My point here is simply that, at least given the timing and sequence involved here, the suggestion is that it could be quite some time before all of the risk exposure events unfold with regard to the many SPACs that completed IPOs during the 2020-21 SPAC wave.


In other words, SPAC-related litigation could be a securities class action litigation filing trend phenomenon for some time to come.