In the latest dismissal motion ruling in a COVID-19-related securities class action lawsuit, the federal judge presiding over the securities suit filed against private prison company The GEO Group has granted the defendants’ motion to dismiss with respect to the plaintiff’s coronavirus-related allegations, while denying the motion with respect to certain of the plaintiff’s allegations unrelated to COVID-19. A copy of the court’s September 23, 2021 order can be found here.
GEO is real estate investment trust specializing in private prison facilities and related properties. As discussed here, in July 2020 the company and certain of its directors and offices were sued in a securities class action lawsuit filed in the Southern District of Florida.
The complaint references a number of general statements in the company’s SEC filings prior to the coronavirus outbreak about the company’s facilities safety and protocols. The complaint also references several statements the company made after a coronavirus outbreak in the company’s facilities, specifically referencing the outbreak and detailing the company’s response.
The complaint alleges that the defendants made misleading statements or failed to disclose that: “(i) the GEO Group maintained woefully ineffective COVID-19 response procedures; (ii) those inadequate procedures subjected residents of the Company’s halfway houses to significant health risks; (iii) accordingly, the Company was vulnerable to significant financial and/or reputational harm; (iv) as a result, the Company’s public statements were materially false and misleading at all relevant times.”
In November 2020, the lead plaintiff filed a consolidated amended complaint that added a number of additional allegations unrelated to the COVID-19 outbreak in the company’s facilities. Among other things, the amended complaint alleged that the defendants had made misrepresentations or omissions with respect to the stability of the company’s dividend; about the quality of services the company provides; about lawsuits pending against the company; and about the availability to the company of capital funding.
The defendants moved to dismiss the amended complaint.
The September 23, 2021 Order
On September 23, 2021, Southern District of Florida Rodney Smith granted the defendants’ motion to dismiss with respect the plaintiff’s COVID-19-related allegations. With respect to the plaintiff’s other allegations, Judge Smith granted the defendants’ motion in part and denied the motion in part.
In granting the defendants’ motion with respect to the COVID-19-related allegations, Judge Smith agreed with the defendants that the plaintiff had failed to plead that any of the defendants’ statements about COVID-19 were false.
The plaintiff, Judge Smith said, has not “alleged in the Amended Complaint any facts that would demonstrate that Defendants’ statements about addressing COVID-19 in their facilities were false.” The plaintiff has not alleged facts showing that, for example, GEO “did not implement comprehensive steps” to address and mitigate COVID-19 risks; or that GEO did not “implement best practices” or did not “deploy specialized sanitation teams.”
With respect to the plaintiff’s allegations that the defendants had misled investors into believing that GEO had the financial stability and systems in place to handle the COVID-19 pandemic when it did not, Judge Smith said that “none of the statements about addressing COVID-19 are anything other than statements about how GEO was addressing the COVID-19 pandemic in its facilities.” He added that the plaintiff has not alleged facts that would make these statements false or misleading, noting further that the plaintiff has not alleged that GEO was not doing what it said it was doing to address COVID-19 in its facilities.
Accordingly Judge Smith granted the defendants’ motion to dismiss the plaintiff’s COVID-19-related allegations. Judge Smith did also grant the plaintiff leave to file an amended complaint. However, he said that the plaintiff’s second amended complaint “shall not allege any claims based on statements that the Court has found non-actionable as forward looking or as puffery, corporate optimism, or opinion.” It isn’t entirely clear, but I read this aspect of Judge Smith’s order as allowing the plaintiff leave to attempt to replead his allegations with respect to COVID-19, as Judge Smith did not find the COVID-19-related non-actionable as forward looking or as puffery, corporate optimism, or opinion; he simply found that the plaintiff has not adequately alleged falsity.
In the wake of the COVID-19 pandemic, a number of companies that experienced COVID-19 outbreaks in their facilities were hit with securities class action lawsuits. By and large, these lawsuits have not fared well. Thus, for example, as detailed here, in April 2021, the COVID-19-related securities suit filed against Norwegian Cruise Lines was dismissed. And as discussed here, in March 2021, the COVID-19-related securities suit filed against Royal Caribbean was voluntarily dismissed. As discussed here, in June 2021, the court in the securities suit filed against Carnival Corp. was granted. Judge Smith’s recent dismissal of the COVID-19-related securities claims against GEO adds to this poor track record in these suits against companies that experienced coronavirus outbreaks in their facilities.
(To be sure, the Carnival Corp. suit dismissal was without prejudice; the plaintiff in that action filed a subsequent amended complaint, and the defendants then renewed their motion to dismiss. The defendants’ renewed dismissal motion remains pending. And of course the plaintiff in this case – apparently – also was granted leave to attempt to replead as well.)
While the COVID-19 securities suits against companies that experienced coronavirus outbreaks in their facilities have not fared well, that does not mean that none of the various COVID-19-related securities suits will succeed. Indeed, as noted here, the motion to dismiss was denied in the COVID-19 securities suit filed against vaccine manufacturer Inovio. Time will tell, of course, how all of these coronavirus-related cases will ultimately shake out. The vast majority of the COVID-19-related securities suits do not yet have a ruling on dismissal motions in the cases. In other words, the story on most of these cases, and in the cases taken collectively, is yet to be told.
In the meantime, as I noted in a post just a few days ago, and even though we are now well over a year-and-a-half into the pandemic, plaintiffs’ lawyers are continuing to file COVID-19-related securities suits. Just as the pandemic itself has gone on much longer than any of us could have anticipated at the outset, the accompanying litigation phenomenon has also proved to be unexpectedly long-lived.
Special thanks to a loyal reader for providing me with a copy of Judge Smith’s order.