Singh v. Cigna Corp
Court Docket Sheet

2nd Circuit Court of Appeals

2017-03484 (ca2)

ACKNOWLEDGMENT AND NOTICE OF APPEARANCE, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF.[2170725] [17-3484] [Entered: 11/13/2017 03:28 PM]

ACKNOWLEDGMENT AND NOTICE OF APPEARANCE Short Title:     Docket No.:  Lead Counsel of Record (name/firm) or Pro se Party (name):        Appearance for (party/designation):       DOCKET SHEET ACKNOWLEDGMENT/AMENDMENTS Caption as indicated is: () Correct () Incorrect. See attached caption page with corrections. Appellate Designation is: () Correct () Incorrect. The following parties do not wish to participate in this appeal: Parties: () Incorrect. Please change the following parties= designations: Party Correct Designation Contact Information for Lead Counsel/Pro Se Party is: () Correct () Incorrect or Incomplete. As an e-filer, I have updated my contact information in the PACER AManage My Account@screen. Name: Firm: Address: Telephone: Fax: Email: RELATED CASES () This case has not been before this Court previously. () This case has been before this Court previously. The short title, docket number, and citation are: () Matters related to this appeal or involving the same issue have been or presently are before this Court. The short titles, docket numbers, and citations are: CERTIFICATION I certify that () I am admitted to practice in this Court and, if required by LR 46.1(a)(2), have renewed my admission on OR that () I applied for admission on or renewal on. If the Court has not yet admitted me or approved my renewal, I have completed Addendum A. Signature of Lead Counsel of Record:     Type or Print Name:    OR Signature of pro se litigant: Type or Print Name: () I am a pro se litigant who is not an attorney. () I am an incarcerated pro se litigant.

NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF. [2170733] [17-3484] [Entered: 11/13/2017 03:31 PM]

NOTICE OF APPEARANCE FOR SUBSTITUTE, ADDITIONAL, OR AMICUS COUNSEL Short Title: Singh v. Cigna Corp. _____ Docket No.: 17-3484 ________ Substitute, Additional, or Amicus Counsel’s Contact Information is as follows: Name: Michael H. Rogers Firm: Labaton Sucharow LLP Address: 140 Broadway, 33rd Floor, New York, NY 10005 Telephone: 212-907-0814 ___________________________ Fax: 212-818-0477 E-mail: mrogers@labaton.com Appearance for: Lead Plaintiff/Appellant Minohor Singh (party/designation) Select One: G Substitute counsel (replacing lead counsel:) (name/firm) G Substitute counsel (replacing other counsel: _______) (name/firm) G Additional counsel (co-counsel with: James W. Johnson/Labaton Sucharow LLP ✔) (name/firm) G Amicus (in support of:) (party/designation) CERTIFICATION I certify that: ✔ G I am admitted to practice in this Court and, if required by Interim Local Rule 46.1(a)(2), have renewed my admission on OR G I applied for admission on. Signature of Counsel: s/Michael H. Rogers Type or Print Name: Michael H. Rogers

NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF. [2170741] [17-3484] [Entered: 11/13/2017 03:33 PM]

NOTICE OF APPEARANCE FOR SUBSTITUTE, ADDITIONAL, OR AMICUS COUNSEL Short Title: Singh v. Cigna Corp. _____ Docket No.: 17-3484 ________ Substitute, Additional, or Amicus Counsel’s Contact Information is as follows: Name: Matthew J. Hrutkay Firm: Labaton Sucharow LLP Address: 140 Broadway, 33rd Floor, New York, NY 10005 Telephone: 212-907-0747 ___________________________ Fax: 212-818-0477 E-mail: mhrutkay@labaton.com Appearance for: Lead Plaintiff/Appellant Minohor Singh (party/designation) Select One: G Substitute counsel (replacing lead counsel:) (name/firm) G Substitute counsel (replacing other counsel: _______) (name/firm) G Additional counsel (co-counsel with: James W. Johnson/Labaton Sucharow LLP ✔) (name/firm) G Amicus (in support of:) (party/designation) CERTIFICATION I certify that: ✔ G I am admitted to practice in this Court and, if required by Interim Local Rule 46.1(a)(2), have renewed my admission on OR G I applied for admission on. Signature of Counsel: s/Matthew J. Hrutkay Type or Print Name: Matthew J. Hrutkay

NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF. [2170748] [17-3484] [Entered: 11/13/2017 03:35 PM]

NOTICE OF APPEARANCE FOR SUBSTITUTE, ADDITIONAL, OR AMICUS COUNSEL Short Title: Singh v. Cigna Corp. _____ Docket No.: 17-3484 ________ Substitute, Additional, or Amicus Counsel’s Contact Information is as follows: Name: James T. Christie Firm: Labaton Sucharow LLP Address: 140 Broadway, 33rd Floor, New York, NY 10005 Telephone: 212-907-0781 ___________________________ Fax: 212-818-0477 E-mail: jchristie@labaton.com Appearance for: Lead Plaintiff/Appellant Minohor Singh (party/designation) Select One: G Substitute counsel (replacing lead counsel:) (name/firm) G Substitute counsel (replacing other counsel: _______) (name/firm) G Additional counsel (co-counsel with: James W. Johnson/Labaton Sucharow LLP ✔) (name/firm) G Amicus (in support of:) (party/designation) CERTIFICATION I certify that: ✔ G I am admitted to practice in this Court and, if required by Interim Local Rule 46.1(a)(2), have renewed my admission on OR G I applied for admission on. Signature of Counsel: s/James T. Christie Type or Print Name: James T. Christie

FORM C, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF.[2170754] [17-3484] [Entered: 11/13/2017 03:38 PM]

Case 17-3484, Document 12-1, 11/13/2017, 2170754, Page1 of 4 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT CIVIL APPEAL PRE-ARGUMENT STATEMENT (FORM C) 1. SEE NOTICE ON REVERSE 2. PLEASE TYPE OR PRINT 3. STAPLE ALL ADDITIONAL PAGES Case Caption: District Court or Agency: Judge: Minohor Singh, Connecticut Vanessa L. Bryant Individually and On Behalf of All Others Similarly Situated, Date the Order or Judgment Appealed District Court Docket No.: Plaintiff, from was Entered on the Docket: 3:16-cv-00182-VLB October 2, 2017 v. Date the Notice of Appeal was Filed: Is this a Cross Appeal? Cigna Corp., et al., Defendants. October 27, 2017 9 Yes ✔9 No Attorney(s) for Counsel’s Name: Address: Telephone No.: Fax No.: E-mail: Appellant(s): See attached list. 9 Plaintiff ✔ 9 Defendant Attorney(s) for Counsel’s Name: Address: Telephone No.: Fax No.: E-mail: Appellee(s): See attached list. 9 Plaintiff 9 Defendant ✔ Has Transcript Approx. Number of Number of Has this matter been before this Circuit previously? 9 Yes ✔ 9 No Been Prepared? Transcript Exhibits Pages: Appended to If Yes, provide the following: Yes Transcript: 22 Case Name: N/A 2d Cir. Docket No.: Reporter Citation: (i.e., F.3d or Fed. App.) ADDENDUM "A": COUNSEL MUST ATTACH TO THIS FORM: (1) A BRIEF, BUT NOT PERFUNCTORY, DESCRIPTION OF THE NATURE OF THE ACTION; (2) THE RESULT BELOW; (3) A COPY OF THE NOTICE OF APPEAL AND A CURRENT COPY OF THE LOWER COURT DOCKET SHEET; AND (4) A COPY OF ALL RELEVANT OPINIONS/ORDERS FORMING THE BASIS FOR THIS APPEAL, INCLUDING TRANSCRIPTS OF ORDERS ISSUED FROM THE BENCH OR IN CHAMBERS. ADDENDUM "B": COUNSEL MUST ATTACH TO THIS FORM A LIST OF THE ISSUES PROPOSED TO BE RAISED ON APPEAL, AS WELL AS THE APPLICABLE APPELLATE STANDARD OF REVIEW FOR EACH PROPOSED ISSUE. PART A: JURISDICTION 1. Federal Jurisdiction 2. Appellate Jurisdiction 9 U.S. a party 9 Diversity ✔ 9 Final Decision 9 Order Certified by District Judge (i.e., Fed. R. Civ. P. 54(b)) 9 ✔ Federal question 9 Other (specify): 9 Interlocutory Decision (U.S. not a party) Appealable As of Right 9 Other (specify): IMPORTANT. COMPLETE AND SIGN REVERSE SIDE OF THIS FORM. FORM C (Rev. October 2016) Case 17-3484, Document 12-1, 11/13/2017, 2170754, Page2 of 4 PART B: DISTRICT COURT DISPOSITION (Check as many as apply) 1. Stage of Proceedings 2. Type of Judgment/Order Appealed 3. Relief ✔ 9 Pre-trial 9 Default judgment 9 Dismissal/other jurisdiction 9 Damages: ✔ 9 Injunctions: 9 During trial 9 Dismissal/FRCP 12(b)(1) 9 Dismissal/merit 9 After trial lack of subject matter juris. ✔9 Judgment/Decision of the Court ✔ Sought: $ TBD 9 Preliminary ✔9 Dismissal/FRCP 12(b)(6) 9 Summary judgment Granted: $ 9 Permanent failure to state a claim 9 Declaratory judgment Denied: $ 9 Denied 9 Dismissal/28 U.S.C. § 1915(e)(2) 9 Jury verdict frivolous complaint 9 Judgment NOV 9 Dismissal/28 U.S.C. § 1915(e)(2) 9 Directed verdict other dismissal 9 Other (specify): PART C: NATURE OF SUIT (Check as many as apply) 1. Federal Statutes 2. Torts 3. Contracts 4. Prisoner Petitions 9 Antitrust 9 Communications 9 Freedom of Information Act 9 Admiralty/9 Admiralty/9 Civil Rights 9 Bankruptcy 9 Consumer Protection 9 Immigration Maritime Maritime 9 Habeas Corpus 9 Banks/Banking 9 Copyright 9 Patent 9 Labor 9 Assault/9 Arbitration 9 Mandamus 9 Civil Rights 9 Trademark 9 OSHA Defamation 9 Commercial 9 Parole 9 Commerce 9 Election ✔9 Securities 9 FELA 9 Employment 9 Vacate Sentence 9 Energy 9 Soc. Security 9 Tax 9 Products Liability 9 Insurance 9 Other 9 Commodities 9 Environmental 9 Other (Specify): 9 Negotiable 9 Other (specify): Instruments 9 Other Specify 5. Other 6. General 7. Will appeal raise constitutional issue(s)? 9 Hague Int’l Child Custody Conv. 9 Arbitration 9 Yes ✔ No 9 9 Forfeiture/Penalty 9 Attorney Disqualification 9 Real Property 9 Class Action Will appeal raise a matter of first 9 Treaty (specify): 9 Counsel Fees impression? 9 Other (specify): 9 Shareholder Derivative 9 Transfer 9 Yes ✔ No 9 1. Is any matter relative to this appeal still pending below? 9 Yes, specify: ✔9 No 2. To your knowledge, is there any case presently pending or about to be brought before this Court or another court or administrative agency which: (A) Arises from substantially the same case or controversy as this appeal? 9 Yes ✔9 No (B) Involves an issue that is substantially similar or related to an issue in this appeal? 9 Yes 9 ✔ No If yes, state whether 9 "A," or 9 "B," or 9 both are applicable, and provide in the spaces below the following information on the other action(s): Case Name: Docket No. Citation: Court or Agency: Name of Appellant: Date: November 13, 2017 Signature of Counsel of Record: s/James W. Johnson NOTICE TO COUNSEL Once you have filed your Notice of Appeal with the District Court or the Tax Court, you have only 14 days in which to complete the following important steps: 1. Complete this Civil Appeal Pre-Argument Statement (Form C); serve it upon all parties, and file it with the Clerk of the Second Circuit in accordance with LR 25.1. 2. File the Court of Appeals Transcript Information/Civil Appeal Form (Form D) with the Clerk of the Second Circuit in accordance with LR 25.1. 3. Pay the$505 docketing fee to the United States District Court or the $500 docketing fee to the United States Tax Court unless you are authorized to prosecute the appeal without payment. PLEASE NOTE: IF YOU DO NOT COMPLY WITH THESE REQUIREMENTS WITHIN 14 DAYS, YOUR APPEAL WILL BE DISMISSED. SEE LOCAL RULE 12.1. FORM C (Rev. December 2016) Case 17-3484, Document 12-1, 11/13/2017, 2170754, Page3 of 4 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT CIVIL APPEAL PRE-ARGUMENT STATEMENT (FORM C) ATTACHMENT TO FORM C Attorney(s) for Appellant-Plaintiff: Counsel’s Name: Address: Telephone No.: Fax No.: E-mail: James W. Johnson Labaton Sucharow LLP-NY 212-907-0859 212-818-0477 jjohnson@labaton.com 140 Broadway, 33rd Floor New York, NY 10005 Michael H. Rogers Labaton Sucharow LLP-NY 212-907-0814 212-818-0477 mrogers@labaton.com 140 Broadway, 33rd Floor New York, NY 10005 Matthew J. Hrutkay Labaton Sucharow LLP-NY 212-907-0747 212-818-0477 mhrutkay@labaton.com 140 Broadway, 33rd Floor New York, NY 10005 James T. Christie Labaton Sucharow LLP-NY 212-907-0781 212-818-0477 jchristie@labaton.com 140 Broadway, 33rd Floor New York, NY 10005 David C. Shufrin Hurwitz Sagarin Slossberg & Knuff LLC 203-877-8000 203-878-9800 dshufrin@hssklaw.com 147 North Broad St. Milford, CT 06460-0112 David A. Slossberg Hurwitz Sagarin Slossberg & Knuff LLC 203-877-8000 203-878-9800 dslossberg@hssklaw.com 147 North Broad St. Milford, CT 06460-0112 Case 17-3484, Document 12-1, 11/13/2017, 2170754, Page4 of 4 ATTACHMENT TO FORM C (cont’d) Attorney(s) for Appellees-Defendants: Counsel’s Name: Address: Telephone No.: Fax No.: E-mail: Andrew W. Stern Sidley Austin, LLP-NY 212-839-5397 212-839-5599 astern@sidley.com 787 Seventh Avenue New York, NY 10019-6018 Dorothy J. Spenner Sidley Austin, LLP-NY 212-839-7975 212-839-5599 dspenner@sidley.com 787 Seventh Avenue New York, NY 10019-6018 James O. Heyworth Sidley Austin, LLP-NY 212-839-6785 212-839-5599 jheyworth@sidley.com 787 Seventh Avenue New York, NY 10019-6018 Paula Cruz Cedillo McCarter & English, LLP 860-275-6700 860-724-3397 pcedillo@mccarter.com CityPlace 1, 36th Floor 185 Asylum Street Hartford, CT 06103 Thomas J. Finn McCarter & English, LLP 860-275-6700 860-724-3397 tfinn@mccarter.com CityPlace 1, 36th Floor 185 Asylum Street Hartford, CT 06103 Case 17-3484, Document 12-2, 11/13/2017, 2170754, Page1 of 96 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT CIVIL APPEAL PRE-ARGUMENT STATEMENT (FORM C) ADDENDUM "A" Nature of the Action This is a securities class action brought by court-appointed Lead Plaintiff Minohor Singh ("Plaintiff") on behalf of himself and all others similarly situated. Plaintiff asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, against Cigna Corporation ("Cigna") and various senior officers of Cigna (collectively "Defendants"). Cigna, a large national insurance company, and its senior officers made substantial efforts—beginning in 2012 and continuing through the present—to enter and compete in the fast-growing and immensely profitable Medicare Advantage insurance market because of the expanding number of "baby boomers" eligible for coverage under Medicare. Defendants’ primary means to enter this market was through the acquisition of HealthSpring, a regional insurer with more than 10 years of experience in offering private Medicare insurance. Prior to this acquisition by Cigna, HealthSpring was in full compliance with applicable regulations of Centers for Medicare & Medicaid Services ("CMS"), and had never been subject to sanctions by CMS. Unknown to investors, however, following the acquisition and reorganization of HealthSpring, Defendants received numerous warning letters Case 17-3484, Document 12-2, 11/13/2017, 2170754, Page2 of 96 from CMS that identified specific compliance violations. Even though such violations were never remediated or corrected, Defendants reassured investors throughout the Class Period (February 27, 2014 through August 2, 2016) that Cigna "ha[d] established policies and procedures to comply with applicable requirements," and would continue to allocate significant resources to such compliance efforts. Defendants failed to tell investors that such policies and procedures, and resources allocated thereto, were patently insufficient to ensure compliance. By omitting mention of the already-established compliance violations, Defendants’ Class Period statements presented investors with the false and misleading impression that Cigna was substantially in compliance with CMS regulations, when Defendants knew otherwise. Prior to and throughout the Class Period, Defendants ultimately received more than 75 notices of compliance violations—further evidence that Cigna’s CMS compliance infrastructure had essentially collapsed. CMS found even more violations when it audited Cigna’s operations in October 2015, and met with Defendants in December 2015 to review the violations. Defendants were well aware that their compliance policies and procedures were insufficient and materially increased risks to investors, yet none of this information was ever disclosed to investors during the Class Period. 2 Case 17-3484, Document 12-2, 11/13/2017, 2170754, Page3 of 96 Defendants knew and recklessly disregarded that their statements were false. Specifically, Defendants knew of information contradicting their statements by virtue of, inter alia, (1) their access to information, including the 75 CMS notices; and (2) their role in the acquisition and reorganization of HealthSpring. Defendants Cordani and Fritch also made several Class Period sales of Cigna stock supporting an inference that they knew their statements were false. Ultimately, Cigna announced on January 22, 2016 that CMS was sanctioning the Company, and as a result, Cigna was prohibited from marketing to or enrolling any new Medicare Advantage or Prescription Drug Plan customers until the violations were remedied, cutting off a lucrative source of revenue that they had strategically targeted as an avenue for growth. The market reacted strongly when these sanctions were announced on January 22, 2016, and Defendants’ stock fell $4.28, a 3.05% decline. Cigna later announced on July 29, 2016 that it had not yet remedied the compliance violations noted in the CMS sanctions letter, even though it had spent approximately $30 million in remediation costs. Cigna also disclosed on July 29, 2016 that it "may not be able to address matters arising from the [CMS Sanctions] Notice in a timely and satisfactory manner," an understated acknowledgement (understood by analysts as such) that: (a) Cigna would not remedy the issues for which it was sanctioned; and (b) such sanctions would not be lifted in sufficient 3 Case 17-3484, Document 12-2, 11/13/2017, 2170754, Page4 of 96 time to sell its Medicare plans in the open enrollment period for 2017. Thus Cigna would be excluded from that market until at least October 15, 2017. Following these announcements, Defendants’ stock again fell $11.86, a nearly 9% decline. Result Below The district court granted with prejudice Defendants’ motion to dismiss the Second Amended Complaint on September 28, 2017. Specifically, the district court: (a) dismissed Plaintiff’s § 10(b) claims for a purported failure to adequately plead material misstatements or omissions and scienter; (b) dismissed Plaintiff’s § 20(a) claims for a purported failure to plead a § 10(b) violation; and (c) denied leave to amend as futile, based on the incorrect factual finding that Plaintiff had conducted discovery while the motion to dismiss was pending when, in fact, discovery had been stayed pursuant to the Private Securities Litigation Reform Act. See 15 U.S.C. § 78u-4(b)(3)(B). The district court clerk entered judgment four days later, on October 2, 2017. Within 30 days of that entry of judgment, Plaintiff timely filed a notice of appeal on October 27, 2017. 4 Case Case Case 3:16-cv-00182-VLB 17-3484, 17-3484,Document DocumentDocument 12-2, 1-2, 10/27/2017, 11/13/2017, 81 Filed2159466, 2170754, 10/27/17Page1 Page5 Pageof of113 96 of 3 UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT MINOHOR SINGH, Individually and On) No. 3:16-CV-00182-VLB Behalf of All Others Similarly) Situated,) CLASS ACTION) Plaintiff,) October 27, 2017) v.)) CIGNA CORP., DAVID M. CORDANI,) THOMAS A. MCCARTHY, HERBERT) A. FRITCH, and RICHARD APPEL,)) Defendants.) NOTICE OF APPEAL Notice is hereby given that Lead Plaintiff in the above-captioned action, Minohor Singh, individually and on behalf of all others similarly situated, hereby appeals to the United States Court of Appeals for the Second Circuit from the October 2, 2017 Judgment (ECF No. 80), as well as all prior orders and rulings merged therein, including but not limited to the September 1, 2017 Ruling and Order on Motion for Reconsideration (ECF No. 77) and the September 28, 2017 Memorandum of Decision Granting Defendants’ Motion to Dismiss Second Amended Complaint (ECF No. 79). Dated: October 27, 2017 Respectfully submitted, LABATON SUCHAROW LLP By:/s/James W. Johnson James W. Johnson (pro hac vice) Michael H. Rogers (pro hac vice) Matthew J. Hrutkay (pro hac vice) James T. Christie (pro hac vice) Case Case Case 3:16-cv-00182-VLB 17-3484, 17-3484,Document DocumentDocument 12-2, 1-2, 10/27/2017, 11/13/2017, 81 Filed2159466, 2170754, 10/27/17Page2 Page6 Pageof of213 96 of 3 140 Broadway New York, New York 10005 (212) 907-0700 (212) 818-0477 (facsimile) jjohnson@labaton.com mrogers@labaton.com mhrutkay@labaton.com jchristie@labaton.com Counsel for the Lead Plaintiff and Lead Counsel for the Proposed Class David A. Slossberg (CT Bar No. 13116) David C. Shufrin (CT Bar No. 29230) HURWITZ SAGARIN SLOSSBERG & KNUFF, LLC 147 North Broad Street Milford, Connecticut 06460 (203) 877-8000 (203) 878-9800 (facsimile) dslossberg@hssklaw.com dshufrin@hssklaw.com Liaison Counsel for Lead Plaintiff and the Proposed Class 2 Case Case Case 3:16-cv-00182-VLB 17-3484, 17-3484,Document DocumentDocument 12-2, 1-2, 10/27/2017, 11/13/2017, 81 Filed2159466, 2170754, 10/27/17Page3 Page7 Pageof of313 96 of 3 CERTIFICATE OF SERVICE This is to certify that on October 27, 2017, a copy of the foregoing was filed electronically with this Court. Notice of this filing will be sent by e-mail to all parties by operation of the Court’s electronic filing system. Parties may access this filing through the Court’s electronic system./s/James W. Johnson 3 Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, As 1-2, of:10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage4 Page8 EDT of1ofof 13 9610 APPEAL,CLOSED,EFILE U.S. District Court United States District Court for the District of Connecticut (New Haven) CIVIL DOCKET FOR CASE #: 3:16−cv−00182−VLB Singh v. Cigna Corp et al Date Filed: 02/04/2016 Assigned to: Judge Vanessa L. Bryant Date Terminated: 10/02/2017 Cause: 15:78m(a) Securities Exchange Act Jury Demand: Plaintiff Nature of Suit: 850 Securities/Commodities Jurisdiction: Federal Question Plaintiff Jyotindra Patel represented by J. Alexander Hood, II Individually and On Behalf of All Others Pomerantz LLP − NY Similarly Situated 600 Third Avenue, 20th Floor TERMINATED: 08/28/2017 New York, NY 10016 212−661−1100 Fax: 917−463−1044 Email: ahood@pomlaw.com LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Jeremy A. Lieberman Pomerantz LLP − NY 600 Third Avenue, 20th Floor New York, NY 10016 (212) 661−1100 Fax: (917) 463−1044 Email: jalieberman@pomlaw.com LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Matthew L Tuccillo Pomerantz LLP 600 Third Avenue, 20th Floor New York, NY 10016 212−661−1100 Fax: 212−661−8665 Email: mltuccillo@pomlaw.com LEAD ATTORNEY ATTORNEY TO BE NOTICED Plaintiff Minohor Singh represented by James T. Christie Labaton Sucharow LLP−NY 140 Broadway, 33rd Floor New York, NY 10005 212−907−0700 Fax: 212−818−0477 Email: jchristie@labaton.com LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED James W. Johnson Labaton Sucharow LLP−NY 140 Broadway, 33rd Floor New York, NY 10005 212−907−0700 Fax: 212−818−0477 Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, As 1-2, of:10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage5 Page9 EDT of2ofof 13 9610 Email: jjohnson@labaton.com LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Matthew J. Hrutkay Labaton Sucharow LLP−NY 140 Broadway, 33rd Floor New York, NY 10005 212−907−0700 Fax: 212−818−0477 Email: mhrutkay@labaton.com LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Michael H. Rogers Labaton Sucharow LLP−NY 140 Broadway, 33rd Floor New York, NY 10005 212−907−0700 Fax: 212−818−0477 Email: mrogers@labaton.com LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED David C. Shufrin Hurwitz Sagarin Slossberg & Knuff LLC 147 North Broad St., PO Box 112 Milford, CT 06460−0112 203−877−8000 Fax: 203−878−9800 Email: dshufrin@hssklaw.com ATTORNEY TO BE NOTICED V. Defendant Cigna Corp represented by Andrew W. Stern Sidley Austin, LLP − NY 787 Seventh Avenue New York, NY 10019−6018 212−839−5397 Fax: 212−839−5599 Email: astern@sidley.com LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Dorothy J. Spenner Sidley Austin, LLP − NY 787 Seventh Avenue New York, NY 10019−6018 212−839−7975 Fax: 212−839−5599 Email: dspenner@sidley.com LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED James O. Heyworth Sidley Austin, LLP − NY 787 Seventh Avenue Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, As 1-2, of:10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage6 Page10 EDT of 3ofof 1396 10 New York, NY 10019−6018 212−839−6785 Fax: 212−839−5599 Email: jheyworth@sidley.com LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Paula Cruz Cedillo McCarter & English, LLP CityPlace 1 185 Asylum Street Hartford, Ct 06103 860−275−6700 Fax: 860−724−3397 Email: pcedillo@mccarter.com ATTORNEY TO BE NOTICED Thomas J. Finn McCarter & English, LLP CityPlace 1 185 Asylum Street Hartford, Ct 06103 860−275−6700 Fax: 860−724−3397 Email: tfinn@mccarter.com ATTORNEY TO BE NOTICED Defendant David M. Cordani represented by Andrew W. Stern (See above for address) LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Dorothy J. Spenner (See above for address) LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED James O. Heyworth (See above for address) LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Paula Cruz Cedillo (See above for address) ATTORNEY TO BE NOTICED Thomas J. Finn (See above for address) ATTORNEY TO BE NOTICED Defendant Thomas A. McCarthy represented by Andrew W. Stern (See above for address) LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Dorothy J. Spenner (See above for address) Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, As 1-2, of:10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage7 Page11 EDT of 4ofof 1396 10 LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED James O. Heyworth (See above for address) LEAD ATTORNEY PRO HAC VICE ATTORNEY TO BE NOTICED Paula Cruz Cedillo (See above for address) ATTORNEY TO BE NOTICED Thomas J. Finn (See above for address) ATTORNEY TO BE NOTICED Defendant Herbert A. Fritch represented by Andrew W. Stern (See above for address) ATTORNEY TO BE NOTICED Dorothy J. Spenner (See above for address) ATTORNEY TO BE NOTICED James O. Heyworth (See above for address) ATTORNEY TO BE NOTICED Paula Cruz Cedillo (See above for address) ATTORNEY TO BE NOTICED Thomas J. Finn (See above for address) ATTORNEY TO BE NOTICED Defendant Richard Appel represented by Andrew W. Stern (See above for address) ATTORNEY TO BE NOTICED Dorothy J. Spenner (See above for address) ATTORNEY TO BE NOTICED James O. Heyworth (See above for address) ATTORNEY TO BE NOTICED Paula Cruz Cedillo (See above for address) ATTORNEY TO BE NOTICED Thomas J. Finn (See above for address) ATTORNEY TO BE NOTICED Movant Randall Wilhelm Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, As 1-2, of:10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage8 Page12 EDT of 5ofof 1396 10 Date Filed # Docket Text 02/04/2016 1 COMPLAINT against Cigna Corp., David M. Cordani, Thomas A. McCarthy (Filing fee $400 receipt number 0205−3886255.), filed by Jyotindra Patel.(Tuccillo, Matthew) (Entered: 02/04/2016) 02/04/2016 2 EXHIBIT Civil Cover Sheet by Jyotindra Patel re 1 Complaint. (Tuccillo, Matthew) (Entered: 02/04/2016) 02/04/2016 Request for Clerk to issue summons as to Cigna Corp., David M. Cordani, Thomas A. McCarthy. (Tuccillo, Matthew) (Entered: 02/04/2016) 02/04/2016 Judge Vanessa L. Bryant added. (Walker, A) (Entered: 02/05/2016) 02/04/2016 3 Order on Pretrial Deadlines: Motions to Dismiss due on 5/3/2016. Amended Pleadings due by 4/4/2016. Discovery due by 8/5/2016. Dispositive Motions due by 9/4/2016. Signed by Clerk on 2/4/2016. (Shafer, J.) (Entered: 02/05/2016) 02/04/2016 4 ELECTRONIC FILING ORDER − PLEASE ENSURE COMPLIANCE WITH COURTESY COPY REQUIREMENTS IN THIS ORDER. Signed by Judge Vanessa L. Bryant on 2/4/2016. (Shafer, J.) (Entered: 02/05/2016) 02/04/2016 5 STANDING PROTECTIVE ORDER. Signed by Judge Vanessa L. Bryant on 2/4/2016. (Shafer, J.) (Entered: 02/05/2016) 02/04/2016 6 ORDER RE: Judge's Chambers Practices. Counsel are directed to read and comply with the Chambers Practices and Standing Orders prior to filing any document. So ordered. Signed by Judge Vanessa L. Bryant on 2/4/2016. (Shafer, J.) (Entered: 02/05/2016) 02/05/2016 7 NOTICE TO COUNSEL: Counsel initiating or removing this action is responsible for serving all parties with attached documents and copies of 5 Protective Order, 2 Exhibit filed by Jyotindra Patel, 4 Electronic Filing Order, 3 Order on Pretrial Deadlines, 6 Order Re: Chambers Practices, 1 Complaint filed by Jyotindra Patel. Signed by Clerk on 2/5/2016. (Shafer, J.) (Entered: 02/05/2016) 02/05/2016 8 ELECTRONIC SUMMONS ISSUED in accordance with Fed. R. Civ. P. 4 and LR 4 as to *Cigna Corp, David M. Cordani, Thomas A. McCarthy* with answer to complaint due within *21* days. Attorney *Matthew L Tuccillo* *Pomerantz Haudek Grossman & Gross LLP* *100 Park Avenue, 26th Floor* *New York, NY 10017*. (Shafer, J.) (Entered: 02/05/2016) 02/11/2016 9 MOTION for Attorney(s) J. Alexander Hood II to be Admitted Pro Hac Vice (paid $75 PHV fee; receipt number 0205−3894104) by Jyotindra Patel. (Attachments: # 1 Exhibit A − Affidavit)(Tuccillo, Matthew) (Entered: 02/11/2016) 02/12/2016 10 ORDER granting 9 MOTION for Attorney J. Alexander Hood II to be Admitted Pro Hac Vice. Signed by Clerk on 2/12/2016. (Shafer, J.) (Entered: 02/12/2016) 02/12/2016 11 MOTION for Attorney(s) Jeremy A. Lieberman to be Admitted Pro Hac Vice (paid $75 PHV fee; receipt number 0205−3894918) by Jyotindra Patel. (Attachments: # 1 Exhibit A − Affidavit)(Tuccillo, Matthew) (Entered: 02/12/2016) 02/16/2016 12 ORDER granting 11 MOTION for Attorney Jeremy A. Lieberman to be Admitted Pro Hac Vice. Signed by Clerk on 2/16/2016. (Shafer, J.) (Entered: 02/16/2016) 03/14/2016 13 NOTICE of Appearance by Thomas J. Finn on behalf of Cigna Corp, David M. Cordani, Thomas A. McCarthy (Finn, Thomas) (Entered: 03/14/2016) 03/14/2016 14 NOTICE of Appearance by Paula Cruz Cedillo on behalf of Cigna Corp, David M. Cordani, Thomas A. McCarthy (Cedillo, Paula) (Entered: 03/14/2016) 03/14/2016 15 Joint MOTION for Extension of Time to Modify 3 Order on Pretrial Deadlines by Cigna Corp, David M. Cordani, Thomas A. McCarthy. (Finn, Thomas) (Entered: 03/14/2016) 03/14/2016 16 Consent MOTION for Extension of Time by Cigna Corp, David M. Cordani, Thomas A. McCarthy. (Finn, Thomas) (Entered: 03/14/2016) Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, As 1-2, of:10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage9 Page13 EDT of 6ofof 1396 10 03/15/2016 17 ORDER granting 15 Motion for Extension of Time; granting 16 Motion for Extension of Time. Signed by Judge Vanessa L. Bryant on 03/15/2016. (Thomas, R.) (Entered: 03/15/2016) 03/16/2016 18 Corporate Disclosure Statement by Cigna Corp. (Finn, Thomas) (Entered: 03/16/2016) 03/18/2016 19 MOTION for Attorney(s) Andrew W. Stern to be Admitted Pro Hac Vice (paid $75 PHV fee; receipt number 0205−3937639) by Cigna Corp, David M. Cordani, Thomas A. McCarthy. (Attachments: # 1 Exhibit A)(Finn, Thomas) (Entered: 03/18/2016) 03/18/2016 20 MOTION for Attorney(s) Dorothy J. Spenner to be Admitted Pro Hac Vice (paid $75 PHV fee; receipt number 0205−3937645) by Cigna Corp, David M. Cordani, Thomas A. McCarthy. (Attachments: # 1 Exhibit A)(Finn, Thomas) (Entered: 03/18/2016) 03/18/2016 21 MOTION for Attorney(s) James O. Heyworth to be Admitted Pro Hac Vice (paid $75 PHV fee; receipt number 0205−3937654) by Cigna Corp, David M. Cordani, Thomas A. McCarthy. (Attachments: # 1 Exhibit A)(Finn, Thomas) (Entered: 03/18/2016) 03/21/2016 22 ORDER denying without prejudice to refiling Motions 19, 20, and 21 MOTIONS for Attorney(s) Stern, Spenner, and Heyworth to be Admitted Pro Hac Vice. Local Rule 83.1(d) requires the applicant to identify the corresponding bar identification number(s) each court of which said attorney is and has ever been a member. Signed by Judge Vanessa L. Bryant on 3/21/2016. (Shafer, J.) Modified on 3/24/2016 (Shafer, J.). (Entered: 03/21/2016) 03/24/2016 Docket Entry Correction re 22 Order on Motion for Admission Pro Hac Vice; corrected judge. (Shafer, J.) (Entered: 03/24/2016) 03/31/2016 23 MOTION for Attorney(s) Andrew W. Stern to be Admitted Pro Hac Vice by Cigna Corp, David M. Cordani, Thomas A. McCarthy. (Attachments: # 1 Exhibit A)(Finn, Thomas) (Entered: 03/31/2016) 03/31/2016 24 MOTION for Attorney(s) Dorothy J. Spenner to be Admitted Pro Hac Vice by Cigna Corp, David M. Cordani, Thomas A. McCarthy. (Attachments: # 1 Exhibit A)(Finn, Thomas) (Entered: 03/31/2016) 03/31/2016 25 MOTION for Attorney(s) James O. Heyworth to be Admitted Pro Hac Vice by Cigna Corp, David M. Cordani, Thomas A. McCarthy. (Attachments: # 1 Exhibit A)(Finn, Thomas) (Entered: 03/31/2016) 04/01/2016 26 ORDER granting 23 MOTION for Attorney Andrew W. Stern to be Admitted Pro Hac Vice; granting 24 MOTION for Attorney Dorothy J. Spenner to be Admitted Pro Hac Vice; and granting 25 MOTION for Attorney James O. Heyworth to be Admitted Pro Hac Vice. Signed by Clerk on 4/1/2016. (Shafer, J.) (Entered: 04/01/2016) 04/04/2016 27 MOTION to Appoint Counsel Notice of Motion and Motion of Minohor Singh for Appointment as Lead Plaintiff and Approval of Selection of Lead Counsel by Minohor Singh. (Attachments: # 1 Memorandum in Support, # 2 Declaration of Michael W. Stocker, # 3 Exhibit A, # 4 Exhibit B, # 5 Exhibit C, # 6 Exhibit D, # 7 Text of Proposed Order)(Shufrin, David) (Entered: 04/04/2016) 04/04/2016 28 MOTION to Appoint Counsel MOTION OF RANDALL S. WILHELM AND JYOTINDRA PATEL FOR APPOINTMENT AS LEAD PLAINTIFF AND APPROVAL OF COUNSEL by Jyotindra Patel. (Attachments: # 1 Memorandum in Support Memorandum of Law in Support of Motion, # 2 Declaration in Support of Motion, # 3 Exhibit Exhibit A, # 4 Exhibit Exhibit B, # 5 Exhibit Exhibit C, # 6 Exhibit Exhibit D, # 7 Exhibit Exhibit E, # 8 Text of Proposed Order Proposed Order)(Lieberman, Jeremy) (Entered: 04/04/2016) 04/27/2016 29 NOTICE by Jyotindra Patel, Randall Wilhelm re 28 MOTION to Appoint Counsel MOTION OF RANDALL S. WILHELM AND JYOTINDRA PATEL FOR APPOINTMENT AS LEAD PLAINTIFF AND APPROVAL OF COUNSEL Notice of Withdrawal of Motion. (Lieberman, Jeremy) (Entered: 04/27/2016) 04/28/2016 30 ORDER denying as moot 28 Motion to Appoint Counsel. See ECF No. 29. Signed by Judge Vanessa L. Bryant on 04/28/2016. (Thomas, R.) (Entered: 04/28/2016) 04/28/2016 31 Memorandum in Support re 27 MOTION to Appoint Counsel Notice of Motion and Motion of Minohor Singh for Appointment as Lead Plaintiff and Approval of Selection Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, 1-2, As of: 10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage10 Page14 EDT 7of ofof13 96 10 of Lead Counsel filed by Minohor Singh. (Shufrin, David) (Entered: 04/28/2016) 05/13/2016 32 ENTERED IN ERROR − 26(f) NOTICE: The Court has reviewed the file in this case to monitor the parties compliance with Local Rule 26(f). Local Rule 26(f) provides that, within 30 days after the appearance of any defendant, the attorneys of record and any unrepresented parties must confer for purposes described in Fed. R. Civ. P. 26(f). Local Rule 26(f) further provides that, within 10 days after the conference, the participants must jointly file a report of the conference using Form 26(f). It appears that more than forty four days have passed since the appearance of a defendant in this case but no report has been filed. Accordingly, it is hereby ordered that the parties must file on or before: May 27, 2016, (1) a written statement signed by all counsel of record demonstrating that this case is exempt from the requirement of filing a form 26(f) report; or (2) a form 26(f) report along with a written statement signed by all counsel of record explaining why sanctions should not be imposed for the parties failure to comply with Local Rule 26(f). Failure to comply with this order will result in dismissal of the complaint. Signed by Clerk on 05/13/16.(Fernandez, C.) Modified on 5/13/16 to say entered in error (Fernandez, C.). (Entered: 05/13/2016) 05/13/2016 33 Docket Entry Correction − 26(f) Notice 32 entered in error. (Fernandez, C.) (Entered: 05/13/2016) 05/17/2016 34 ORDER granting 27 Motion to Appoint Counsel. Please see attached. Signed by Judge Vanessa L. Bryant on 05/17/2016. (Thomas, R.) (Entered: 05/17/2016) 06/15/2016 35 MOTION for Attorney(s) Michael H. Rogers to be Admitted Pro Hac Vice (paid $75 PHV fee; receipt number 0205−4034830) by Minohor Singh. (Attachments: # 1 Exhibit A)(Shufrin, David) (Entered: 06/15/2016) 06/15/2016 36 MOTION for Attorney(s) James W. Johnson to be Admitted Pro Hac Vice (paid $75 PHV fee; receipt number 0205−4034867) by Minohor Singh. (Attachments: # 1 Exhibit A)(Shufrin, David) (Entered: 06/15/2016) 06/15/2016 37 MOTION for Attorney(s) James T. Christie to be Admitted Pro Hac Vice (paid $75 PHV fee; receipt number 0205−4034883) by Minohor Singh. (Attachments: # 1 Exhibit A)(Shufrin, David) (Entered: 06/15/2016) 06/15/2016 38 MOTION for Attorney(s) Matthew J. Hrutkay to be Admitted Pro Hac Vice (paid $75 PHV fee; receipt number 0205−4034889) by Minohor Singh. (Attachments: # 1 Exhibit A)(Shufrin, David) (Entered: 06/15/2016) 06/16/2016 39 ORDER granting 35 Motion for Attorney Michael H. Rogers to Appear Pro Hac Vice; granting 36 Motion for Attorney James W. Johnson to Appear Pro Hac Vice; granting 37 Motion for Attorney James T. Christie to Appear Pro Hac Vice; granting 38 Motion for Attorney Matthew J. Hrutkay to Appear Pro Hac Vice. Signed by Clerk on 6/16/2016. (Shafer, J.) (Entered: 06/16/2016) 08/01/2016 40 AMENDED COMPLAINT against All Defendants, filed by Minohor Singh. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2)(Shufrin, David) (Entered: 08/01/2016) 08/02/2016 41 ELECTRONIC SUMMONS ISSUED in accordance with Fed. R. Civ. P. 4 and LR 4 as to *Herbert A. Fritch* with answer to complaint due within *21* days. Attorney *David C. Shufrin* *Hurwitz Sagarin Slossberg & Knuff LLC* *147 North Broad St., PO Box 112* *Milford, CT 06460−0112*. (Shafer, J.) (Entered: 08/02/2016) 08/18/2016 42 NOTICE of Appearance by Thomas J. Finn on behalf of Herbert A. Fritch (Finn, Thomas) (Entered: 08/18/2016) 08/18/2016 43 NOTICE of Appearance by Paula Cruz Cedillo on behalf of Herbert A. Fritch (Cedillo, Paula) (Entered: 08/18/2016) 08/18/2016 44 NOTICE of Appearance by Andrew W. Stern on behalf of Herbert A. Fritch (Stern, Andrew) (Entered: 08/18/2016) 08/18/2016 45 NOTICE of Appearance by Dorothy J. Spenner on behalf of Herbert A. Fritch (Spenner, Dorothy) (Entered: 08/18/2016) Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, 1-2, As of: 10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage11 Page15 EDT 8of ofof13 96 10 08/18/2016 46 NOTICE of Appearance by James O. Heyworth on behalf of Herbert A. Fritch (Heyworth, James) (Entered: 08/18/2016) 08/22/2016 47 MOTION for Pre−Filing Conference by Cigna Corp, David M. Cordani, Herbert A. Fritch, Thomas A. McCarthy. (Finn, Thomas) (Entered: 08/22/2016) 08/23/2016 48 ORDER granting 47 Motion for Conference. A calendar notice will follow. Signed by Judge Vanessa L. Bryant on 08/23/2016. (Thomas, R.) (Entered: 08/23/2016) 08/23/2016 49 NOTICE OF E−FILED CALENDAR: THIS IS THE ONLY NOTICE COUNSEL/THE PARTIES WILL RECEIVE. The Court schedules a Telephonic Conference for 10/7/2016 at 09:00 AM before Judge Vanessa L. Bryant. The parties are ordered to call Chambers at 860−240−3123 with all parties on the line. In the alternative, the parties may call Chambers to distribute a dial−in number to the Court. (Thomas, R.) (Entered: 08/23/2016) 09/30/2016 50 MOTION for Extension of Time to Modify 3 Order on Pretrial Deadlines by Minohor Singh. (Attachments: # 1 Exhibit A − Declaration of Michael H. Rogers)(Rogers, Michael) (Entered: 09/30/2016) 10/03/2016 51 OBJECTION re 50 MOTION for Extension of Time to Modify 3 Order on Pretrial Deadlines filed by Cigna Corp, David M. Cordani, Herbert A. Fritch, Thomas A. McCarthy. (Finn, Thomas) (Entered: 10/03/2016) 10/07/2016 52 ORDER granting 50 Motion for Extension of Time. On or before 10/21/2016, the parties shall jointly propose a new scheduling order. Signed by Judge Vanessa L. Bryant on 10/07/2016. (Thomas, R.) (Entered: 10/07/2016) 10/07/2016 53 Minute Entry for proceedings held before Judge Vanessa L. Bryant: Telephonic Conference held on 10/7/16, Motion Hearing held on 10/7/16 re 50 MOTION for Extension of Time to Modify 3 Order on Pretrial Deadlines filed by Minohor Singh, 23 minutes.(Court Reporter F. Velez, ECRO.) (Fernandez, C.) (Entered: 10/11/2016) 10/14/2016 54 TRANSCRIPT of Proceedings: Type of Hearing: Telephone Conference. Held on 10/7/14 before Judge Vanessa L. Bryant. Court Reporter: Suzanne Benoit. IMPORTANT NOTICE − REDACTION OF TRANSCRIPTS: To remove personal identifier information from the transcript, a party must electronically file a Notice of Intent to Request Redaction with the Clerk's Office within seven (7) calendar days of this date. If no such Notice is filed, the court will assume redaction of personal identifiers is not necessary and the transcript will be made available through PACER without redaction 90 days from today's date. The transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. The policy governing the redaction of personal information is located on the court website at www.ctd.uscourts.gov. Redaction Request due 11/4/2016. Redacted Transcript Deadline set for 11/14/2016. Release of Transcript Restriction set for 1/12/2017. (Benoit, S.) (Entered: 10/14/2016) 10/20/2016 55 Joint MOTION To Set Pretrial Deadlines re 52 Order on Motion for Extension of Time by Minohor Singh.Responses due by 11/10/2016 (Rogers, Michael) (Entered: 10/20/2016) 10/21/2016 56 ORDER granting 55 Motion to Set Pretrial Deadlines. Second Amended Complaint due 11/30/2016. Motion to Dismiss due 02/13/2017. Opposition to Motion to Dismiss due 04/13/2017. Reply papers due 05/13/2017. Signed by Judge Vanessa L. Bryant on 10/21/2016. (Lee, E.) (Entered: 10/21/2016) 11/30/2016 57 AMENDED COMPLAINT Second against Cigna Corp, David M. Cordani, Herbert A. Fritch, Thomas A. McCarthy, Richard Appel, filed by Minohor Singh. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2)(Johnson, James) (Entered: 11/30/2016) 11/30/2016 Request for Clerk to issue summons as to Richard Appel. (Johnson, James) (Entered: 11/30/2016) 12/01/2016 58 ELECTRONIC SUMMONS ISSUED in accordance with Fed. R. Civ. P. 4 and LR 4 as to *Richard Appel* with answer to complaint due within *21* days. Attorney *James W. Johnson* *Labaton Sucharow LLP−NY* *140 Broadway, 33rd Floor* *New York, NY 10005*. (Shafer, J.) (Entered: 12/01/2016) Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, 1-2, As of: 10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage12 Page16 EDT 9of ofof13 96 10 01/05/2017 59 NOTICE of Appearance by Thomas J. Finn on behalf of Richard Appel (Finn, Thomas) (Entered: 01/05/2017) 01/05/2017 60 NOTICE of Appearance by Paula Cruz Cedillo on behalf of Richard Appel (Cedillo, Paula) (Entered: 01/05/2017) 01/05/2017 61 NOTICE of Appearance by Andrew W. Stern on behalf of Richard Appel (Stern, Andrew) (Entered: 01/05/2017) 01/05/2017 62 NOTICE of Appearance by Dorothy J. Spenner on behalf of Richard Appel (Spenner, Dorothy) (Entered: 01/05/2017) 01/05/2017 63 NOTICE of Appearance by James O. Heyworth on behalf of Richard Appel (Heyworth, James) (Entered: 01/05/2017) 01/20/2017 64 Joint MOTION for Leave to File Excess Pages to File Oversized Memoranda of Law in Support of and Opposition to Defendants' Motion to Dismiss the Second Amended Class Action Complaint by Richard Appel, Cigna Corp, David M. Cordani, Herbert A. Fritch, Thomas A. McCarthy. (Finn, Thomas) (Entered: 01/20/2017) 01/23/2017 65 ORDER granting 64 Motion for Leave to File Excess Pages as to both parties' requests for good cause shown. Signed by Judge Vanessa L. Bryant on 01/23/2017. (Lee, E.) (Entered: 01/23/2017) 02/13/2017 66 MOTION to Dismiss Second Amended Class Action Complaint by Richard Appel, Cigna Corp, David M. Cordani, Herbert A. Fritch, Thomas A. McCarthy.Responses due by 3/6/2017 (Attachments: # 1 Exhibit A, # 2 Exhibit 1, # 3 Exhibit 2, # 4 Exhibit 3, # 5 Exhibit 4, # 6 Exhibit 5, # 7 Exhibit 6, # 8 Exhibit 7, # 9 Exhibit 8, # 10 Exhibit 9, # 11 Exhibit 10, # 12 Exhibit 11, # 13 Exhibit 12, # 14 Exhibit 13, # 15 Exhibit 14, # 16 Exhibit 15, # 17 Exhibit 16, # 18 Exhibit 17, # 19 Exhibit 18, # 20 Exhibit 19, # 21 Exhibit 20, # 22 Exhibit 21, # 23 Exhibit 22, # 24 Exhibit 23, # 25 Exhibit 24, # 26 Exhibit 25, # 27 Exhibit 26, # 28 Exhibit 27, # 29 Exhibit 28)(Finn, Thomas) (Entered: 02/13/2017) 02/13/2017 67 Memorandum in Support re 66 MOTION to Dismiss Second Amended Class Action Complaint filed by Richard Appel, Cigna Corp, David M. Cordani, Herbert A. Fritch, Thomas A. McCarthy. (Finn, Thomas) (Entered: 02/13/2017) 04/13/2017 68 Memorandum in Opposition re 66 MOTION to Dismiss Second Amended Class Action Complaint filed by Minohor Singh. (Johnson, James) (Entered: 04/13/2017) 04/26/2017 69 Consent MOTION for Leave to File Excess Pages to File Oversized Reply Memorandum of Law in Further Support of Defendants' Motion to Dismiss the Second Amended Class Action Complaint by Richard Appel, Cigna Corp, David M. Cordani, Herbert A. Fritch, Thomas A. McCarthy. (Finn, Thomas) (Entered: 04/26/2017) 04/27/2017 70 ORDER granting 69 Motion for Leave to File Excess Pages for good cause shown. Signed by Judge Vanessa L. Bryant on 04/27/2017. (Lee, E.) (Entered: 04/27/2017) 05/12/2017 71 REPLY to Response to 66 MOTION to Dismiss Second Amended Class Action Complaint filed by Richard Appel, Cigna Corp, David M. Cordani, Herbert A. Fritch, Thomas A. McCarthy. (Finn, Thomas) (Entered: 05/12/2017) 08/28/2017 72 ORDER: Lead Plaintiff is ordered to file a proposed amended complaint on or before 09/04/2017 for the Court's consideration in contemplation of the request for leave to amend as set forth in the Opposition on the Motion to Dismiss Second Amended Complaint, Dkt. 68. Signed by Judge Vanessa L. Bryant on 08/28/2017. (Lee, E.) (Entered: 08/28/2017) 08/28/2017 73 ORDER: To comply with the Court's Order 34, the Clerk is directed to reinstate Minohor Singh as a party in this action and correct the case caption to name Minohor Singh as named, lead plaintiff. Jyotindra Patel shall be terminated as the named plaintiff. This termination shall have no impact on his membership in the class or his right to recover as a class member. Signed by Judge Vanessa L. Bryant on 08/28/2017. (Lee, E.) (Entered: 08/28/2017) 08/31/2017 74 MOTION for Reconsideration re 72 Order, dated August 28, 2017 by Minohor Singh. (Johnson, James) (Entered: 08/31/2017) Case: Case Case3:16-cv-00182-VLB 17-3484, 17-3484,Document Document12-2, As 1-2, of:10/27/2017, 11/13/2017, 10/27/20172159466, 2170754, 01:35 PMPage13 Page17 EDT 10of ofof 13 9610 08/31/2017 75 Memorandum in Support re 74 MOTION for Reconsideration re 72 Order, dated August 28, 2017 filed by Minohor Singh. (Johnson, James) (Entered: 08/31/2017) 09/01/2017 76 Memorandum in Opposition re 74 MOTION for Reconsideration re 72 Order, dated August 28, 2017 filed by Richard Appel, Cigna Corp, David M. Cordani, Herbert A. Fritch, Thomas A. McCarthy. (Finn, Thomas) (Entered: 09/01/2017) 09/01/2017 77 ORDER granting in part and denying in part 74 Motion for Reconsideration pursuant to the attached ruling and order. Lead Plaintiff shall file a Third Amended Complaint on or before 09/16/2017. Signed by Judge Vanessa L. Bryant on 09/01/2017. (Lee, E.) (Entered: 09/01/2017) 09/05/2017 Set Deadline: Third Amended Complaint due by 9/16/2017 per 77 Order. (Shafer, J.) (Entered: 09/05/2017) 09/15/2017 78 NOTICE by Minohor Singh re 77 Order on Motion for Reconsideration, of Intent not to Amend the Complaint (Johnson, James) (Entered: 09/15/2017) 09/28/2017 79 ORDER granting 66 Motion to Dismiss for the reasons set forth in the attached decision. The Clerk is directed to close this case. Signed by Judge Vanessa L. Bryant on 09/28/2017. (Lee, E.) (Entered: 09/28/2017) 10/02/2017 80 JUDGMENT. For Appeal Forms please go to the following website: www.ctd.uscourts.gov/forms/all−forms/appeals_forms. Signed by Clerk on 10/02/2017. (Shafer, J.) (Entered: 10/02/2017) 10/02/2017 JUDICIAL PROCEEDINGS SURVEY: The following link to the confidential survey requires you to log into CM/ECF for SECURITY purposes. Once in CM/ECF you will be prompted for the case number. Although you are receiving this survey through CM/ECF, it is hosted on an independent website called SurveyMonkey. Once in SurveyMonkey, the survey is located in a secure account. The survey is not docketed and it is not sent directly to the judge. To ensure anonymity, completed surveys are held up to 90 days before they are sent to the judge for review. We hope you will take this opportunity to participate, please click on this link: https://ecf.ctd.uscourts.gov/cgi−bin/Dispatch.pl?survey (Shafer, J.) (Entered: 10/02/2017) 10/27/2017 81 NOTICE OF APPEAL as to 80 Judgment by Minohor Singh. Filing fee $ 505, receipt number 0205−4583434. (Johnson, James) (Entered: 10/27/2017) Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17Page18 Page 1ofof9657 UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT MINOHOR SINGH,: Individually and On Behalf of All Others: Similarly Situated,: Plaintiff,: CIVIL ACTION NO.: 3:16-cv-00182 (VLB) v.:: September 28, 2017 CIGNA CORP., ET AL.,: Defendants.: MEMORANDUM OF DECISION GRANTING DEFENDANTS’ MOTION TO DISMISS SECOND AMENDED COMPLAINT [Dkt. 66] Proposed Lead Plaintiff Minohor Singh ("Proposed Lead Plaintiff" or "Singh") brings this action individually and on behalf of all others similarly situated1 against Defendants Cigna Corp. ("Cigna"), Cigna Chief Executive Officer David M. Cordani ("Cordani"), Cigna Chief Financial Officer Thomas A. McCarthy ("McCarthy"), former HealthSpring CEO and Chairman of the Board of Directors Herbert A. Fritch ("Fritch"), and Cigna Medicare Compliance Officer Richard A. Appel ("Appel") (collectively, "Defendants"). The Second Amended Complaint ("SAC") alleges violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act" or "Act"), codified under 15 U.S.C. §§ 78j(b) and 78t(a) respectively, and Rule 10b-5 promulgated by the Securities Exchange Commission ("SEC") under 17 C.F.R. § 240.10b-5, that occurred during the Class Period. Defendants move to dismiss the case in its entirety for failure to satisfy 1 The putative class comprises all persons and entities that purchased or otherwise acquired Cigna’s publicly traded common stock from February 27, 2014 until August 2, 2016 ("Class Period"). [Dkt. 57 (Second Am. Compl.) at 1]. 1 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17Page19 Page 2ofof9657 Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act ("PSLRA"). For the following reasons, the Defendants’ Motion to Dismiss is GRANTED. BACKGROUND2 The following facts and allegations are taken from the SAC, exhibits attached to the SAC, the public documents and filings, or any other document upon which Plaintiff references and relies. Cigna is a health services organization incorporated in Delaware that provides medical, dental, disability, life, and accident insurance both in the United States and internationally. [Dkt. 57 (Second Am. Compl.) ¶ 37]. In early 2012, Cigna acquired HealthSpring, a managed health care organization ("MCO") focusing primarily on providing Medicare Advantage and Part D medical insurance plans. See id. ¶¶ 50-51, 66. Cigna acquired HealthSpring for $3.8 billion: its largest ever acquisition. Id. ¶ 62. HealthSpring was one of the largest private Medicare insurers in the United States as of 2010. Id. ¶ 57. Its Medicare Advantage and Part D medical insurance plans are regulated by the Center for Medicare and Medicaid Services ("CMS"). Id. The acquisition was intended to create "synergies" across Cigna’s health insurance offerings and to complement its commercial health business for those who are current Cigna customers as they transition to Medicare, id. ¶ 66. Prior to the acquisition, CMS had never cited or sanctioned HealthSpring for non-2 The following facts and allegations are taken from the SAC and from the public documents and filings on which Plaintiff references and relies. 2 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17Page20 Page 3ofof9657 compliance and never prohibited marketing or selling Medicare policies to new customers. Id. ¶ 60. One year after the acquisition HealthSpring became Cigna’s largest source of revenue. Id. ¶ 68. This growth continued throughout 2013 and 2014. Id. ¶ 69. The SAC alleges that the 2011 Form 10-K acknowledges Cigna would be subject to CMS compliance reviews in light of the HealthSpring acquisition, which could lead to changes in business practices, fines, penalties, or other sanctions. Id. ¶ 70. The Defendants’ excerpt of the 2011 Form 10-K specifically states the success of the acquisition "will depend on Cigna’s ability to integrate HealthSpring with its existing businesses and the performance of the acquired business." [Dkt. 66-28 (2011 10-K) at 37]. In addition, the 2011 Form 10-K recognizes the integration will be complex, costly, time consuming, and will likely pose various difficulties.3 Ultimately, "[i]f Cigna is unable to integrate the HealthSpring business successfully, or if the acquired business underperforms, it could have a material adverse effect on Cigna’s business, results of operations and financial conditions." Id. 3 The listed difficulties include: "implementing the Company’s business plan for the combined business; executing Cigna’s growth plans by leveraging its capabilities and those of the businesses being acquired in serving the Seniors segment; unanticipated issues in integrating logistics, information, communications and other systems; changes in applicable laws and regulations or conditions imposed by regulators; retaining key employees; operating risks inherent in HealthSpring’s business and Cigna’s business; retaining and growing membership; renewing or successfully rebidding for contracts with CMS, leveraging the information technology platform of the acquired businesses; and unanticipated issues, costs, obligations and liabilities." Id. 3 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17Page21 Page 4ofof9657 On January 17, 2013, CMS publicly issued a memorandum to All Medicare Advantage Organizations, Prescription Drug Sponsors, Cost Plans, and Medicare-Medicaid Plans regarding the 2014 Application Cycle Past Performance Review Methodology Final. [Dkt. 66-7 (Mot. Dismiss Ex. 6 (CMS Mem.)]. This memorandum documents the review methodology used by CMS "to evaluate the performance of all Medicare contractors" and to "identify organizations with performance so impaired that CMS would prohibit the organization from further expanding its Medicare operations." Id. at 1. It applies to an organization’s application to offer Medicare benefits under a new contract or in an expanded service area, and CMS may deny the application if the past performance is out of compliance pursuant to the methodology. Id. at 1. CMS identified 11 performance categories for which "negative performance points" may be assigned, including a category for Compliance Letters and a category for Enforcement Actions.4 Id. at 6. "The number of potential negative performance points corresponds to the risk to the program and our beneficiaries from deficient performance in that particular area." Id. Pursuant to this memorandum, CMS Groups Directors will notify the affected organizations during the application review process if they will receive a Notice of Intent to Deny, so that they may proactively withdraw applications. Id. at 17. 4 All eleven performance categories are listed as follows: (1) Compliance Letters; (2) Performance Metrics; (3) Multiple Ad Hoc Corrective Action Plans (CAPs); (4) Ad Hoc CAPs with Beneficiary Impact; (5) Failure to Maintain Fiscally Sound Operations; (6) One-Third Financial Audits; (7) Performance Audits; (8) Exclusions; (9) Enforcement Actions; (10) Terminations and Non-Renewals; and (11) Outstanding Compliance Concerns Not Otherwise Captured. Id. at 6. 4 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17Page22 Page 5ofof9657 The memorandum includes a chart and describes in detail the differences between compliance letters: Compliance Letter Type Weight Rationale for Weight Notice of Non-Compliance 1 Mildest type of letter. Does not contain specific language regarding further compliance escalation or other consequences should the behavior/non-compliance continue. Warning Letter 3 Formal communication that describes the consequences of continued non-compliance; weighted 3 times greater than notices of non-compliance. Warning Letter with a 4 The matter is serious enough to Business Plan warrant a written response from the organization but not significant enough to warrant a CAP. CAP – Ad hoc compliance 6 Ad hoc CAPs represent the most event serious form of compliance notice. Rated at twice the weight of warning letters because the issuance of this type of letter indicates continuing and/or severe, systemic problems. Id. at 7. The memorandum details that CMS calculates a total Compliance Letter score and then ranks the contracts in descending order; the contracts in the 90th percentile receive an additional 2 negative performance points in the Compliance Letter category. Id. at 8. With respect to CAPs, the memorandum states that ad hoc CAPs are "relatively rare and are typically issued only when other forms of interventions have failed to correct a problem and/or the problem was especially egregious," noting as well that "[r]eceiving more than one such CAP during a performance 5 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17Page23 Page 6ofof9657 period is a powerful indication of ongoing performance problems." Id. at 9. CAPs with Beneficiary Impact are defined as those "related, directly or indirectly, to a beneficiary’s experience with the services and protections the contracting organization is required to provide...." Id. Examples include "proper administration of the organization’s beneficiary call center," as well as the following: 4RX data submissions to CMS, enrollment and disenrollment processing, application of correct low income subsidy (LIS) status for plan members, volume of member complaints logged into CMS’ Complaints Tracking Module (CTM), failure to provide appropriate Part D drugs, failure to apply safety edits when processing claims, processing of member appeals and grievances, marketing abuses, overall failure to appropriately administer the Part D benefit, execution of benefit coverage determinations, and formulary administration. Id. CAPs that are not a "significant threat to beneficiaries (and therefore [present] no beneficiary impact as defined here)" include "late reporting of financial information to CMS." Id. When CMS applies immediate sanctions, contracts under immediate sanction but released before the end of the end of the performance period receive 3 negative performance points. Id. at 12. Sanctions still in place at the end of the performance period yield 4 negative performance points, bringing the possible total to 7 negative performance points for immediate sanctions in the Enforcement Action category. Id. On February 27, 2014, the first day of the Class Period, Cigna filed its 2013 Form 10-K. [Dkt. 57 ¶ 119]. The 2013 Form 10-K states, "We have established policies and procedures to comply with applicable requirements." Id. ¶ 120. Under the "Medicare Regulations" section, Cigna recognized the right to obtain payment, 6 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17Page24 Page 7ofof9657 enroll and retain members as well as the marketing and sales activities are heavily regulated by CMS, but Cigna "expect[s] to continue to allocate significant resources to [its] compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs." Id. ¶ 121. Acknowledging that the Federal Government prioritizes the prosecution of health care fraud and abuse, Cigna further stated in the "Federal Audits of Government Sponsored Health Care Programs" section that "[t]he regulations and contractual requirements in this area are complex, are frequently modified, and are subject to administrative discretion. We expect to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness." Id. ¶ 122. Cordani certified that based on his knowledge the 2013 Form 10-K did not contain "any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report...." Id. ¶ 123. McCarthy signed a similar Sarbanes-Oxley Act ("SOX") certification of compliance. Id. ¶ 124. The 2013 Form 10-K also contains a Risk Factor section, an excerpt of which is submitted as an exhibit to the Defendants’ Motion to Dismiss.5 See [Dkt. 66-3 5 The SAC does not expressly address the risk factor section although it refers to other sections of the 2013 Form 10-Ks. In addition to "the facts as asserted within the four corners of the complaint," a court is permitted to utilize "the documents attached to the complaint as exhibits, and any documents incorporated by reference." McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). Accordingly, the Court refers to the risk factor sections as these Form 10-Ks are 7 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17Page25 Page 8ofof9657 (Mot. Dismiss Ex. 2, 2013 Form 10-K) at 18]. This section documents "risks related to litigation, regulatory audits and investigations" and states that such regulatory audits or agency reviews could lead to "changes to or clarifications of [Cigna’s] business practices, retroactive adjustments to certain premiums, significant fines, penalties, civil liabilities, criminal liabilities or other sanctions, including restrictions on [Cigna’s] ability to operate, that could have a material adverse effect on [Cigna’s] business, results of operation, financial condition, and liquidity." See Id. at 19. With respect to risks involving Medicare participation, Cigna also acknowledges that failure to comply with CMS and state governmental contractual requirements can lead to "fines or penalties that could impact [Cigna’s] profitability. See id. at 20. Failure to comply with state and federal health care laws and regulations can result in "fines, limits on expansion, restrictions or exclusions from programs or other agreements with federal or state governmental agencies that could adversely impact [Cigna’s] business, cash flows, financial condition and results of operation." See id. at 20-21. The SAC alleges that CMS "cited" Cigna in April 2014 "for misleading advertising in October and November 2013 relating to its Florida MA and PDP offerings," although the type of compliance letter is not specified. [Dkt. 57 ¶ 117]. Later that year in October 2014, CMS issued two separate notices of non-compliance "for failure to provide required medical records and improper payments to approximately 410 non-eligible medical service providers." Id. incorporated by reference and were provided to the Court as exhibits to Defendant’s Motion to Dismiss. 8 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17Page26 Page 9ofof9657 Also in October 2014, CMS’s Medicare Parts C and D Oversight and Enforcement Group ("MOEG") published its 2013 Part C and Part D Program Annual Audit and Enforcement Report. [Dkt. 66-6 (Mot. Dismiss Ex. 5, 2013 Audit Report)]. This annual audit publication is designed to "provide a brief overview of the Part C and Part D program audit and enforcement processes, a current and projected snapshot of the program audit landscape, a summary of the program audit and enforcement activities in 2013, and other highlights and noteworthy developments in MOEG’s operations since the issuance of our 2012 annual report." Id. at 3-4. The private companies that contract with CMS to provide health and prescription drug benefits to Medicare beneficiaries, i.e. "sponsors," can be audited by MOEG through this program. See id. at 7. MOEG chooses certain sponsors based on "data-driven risk assessment," which "generate[s] a risk score and subsequent ranking for all sponsors...." Id. Both low and high ranking sponsors can be chosen, and MOEG reserves resources to conduct Ad Hoc audits and audits based on referrals. Id. MOEG’s goal for this program since its inception in 2010 is to "audit every sponsor in the Part C and Part D programs within a reasonable time period." Id. at 11. Cigna was not listed as an audited sponsor for 2013. The SAC alleges that in December 2014, Cigna received five separate notices of non-compliance for improper pharmacy coverage. [Dkt. 57 ¶ 117]. Defendants submitted two warning letters from December 2014 pertaining to the failure of Cigna Healthcare of Arizona, Inc. and Bravo Health Pennsylvania, Inc. to comply with Medicare Part D in administering Cialis coverage contracts. See [Dkt. 66-16 9 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page27 Page 10 of of 9657 (Mot. Dismiss Ex. 15, Cigna of Ariz. Warning Letter); Dkt. 66-17 (Mot. Dismiss Ex. 16, Bravo Warning Letter)]. The SAC also refers to Cigna’s Code of Ethics and Principles of Conduct ("Code of Ethics"), published in December 2014. Id. ¶ 127. McCarthy is cited in the Code of Ethics as saying it is important to do things "the right way," which includes reporting financial results fairly and accurately. Id. ¶ 128. This is because "shareholders who invest in us expect it, as do the analysts who follow us" and accordingly "it’s so important for every employee on the global Cigna team to handle[,] maintain, and report on this information in compliance with all laws and regulations." Id. The Code of Ethics also includes a statement from Fritch acknowledging the responsibility to act with integrity, including under circumstances dealing with government officials. Id. ¶ 129. Proposed Lead Plaintiff believes these statements were materially false and misleading when made because Defendants knew about the notices of non-compliance, such non-compliance constituted a "serious threat to the health and safety" of Medicare patients and showed a lack of integrity in dealing with government officials, and CMS’s notices would have a material impact on Cigna if left unaddressed. Id. ¶ 130. The 2014 Form 10-K filed on February 26, 2015, contains the same compliance statements6 as those from the 2013 Form 10-K set forth in the 6 Namely, the Medicare Regulation states Cigna "expect[s] to continue to allocate significant resources to [its] compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs." Id. ¶ 133. The "Federal Audits of Government Sponsored Health Care Programs" states that "[t]he regulations and 10 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page28 Page 11 of of 9657 "Medicare Regulations" and "Federal Audits of Government Sponsored Health Care Programs" sections. Id. ¶¶ 133-34.7 It does not contain the statement from 2013: "We have established policies and procedures to comply with applicable requirements." Id. ¶ 120. The 2014 Form 10-K does include the same language from the risk factor section as those alleged in the 2013 Form 10-K above. Compare [Dkt. 66-2 at 18]; with [Dkt. 66-3 at 18]. Both Cordani and McCarthy issued certifications substantially similar to that which is stated above. Id. ¶ 135. The SAC lists several compliance letters sent over the course of 2015, which are alleged to be addressed to Appel as the Medicare Compliance Officer and establish violations that later became the basis for the sanctions. See [Dkt. 57 ¶¶ 115-18]. In February 2015, Cigna "was cited" for "inadequate claims processing systems that'were not accurately configured to capture and track the [maximum-out-of-pocket] amounts and ensure appropriate payment," although the type of contractual requirements in this area are complex, are frequently modified, and are subject to administrative discretion. [Cigna] expect[s] to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness." Id. ¶ 134. 7 Contrary to the aforementioned provisions cited by the Proposed Lead Plaintiff, the SAC also contains the allegation that over time, as Cigna became aware of the failures to comply with CMS regulations, it accordingly altered its annual filings. For example, Proposed Lead Plaintiff alleges the 2013 Form 10-K states, "We have established policies and procedures to comply with applicable requirements." Id. ¶ 113. However, the 2014 Form 10-K makes no such statement, and Proposed Lead Plaintiff contends this fact establishes Defendants knew that during 2014 either "(i) any established policies did not actually ensure Company compliance with applicable regulations; or (ii) there were no such policies." Id. Without including citations to regulations or policies, the Court cannot determine to what section this allegation pertains and whether it conflicts with the 10-K language set forth by the Proposed Lead Plaintiff in a different section. 11 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page29 Page 12 of of 9657 compliance letter is not specified. Id. ¶ 117. The next month Cigna received five separate notices of non-compliance "for failure to provide required certifications and failure to send members required timely explanations of benefits." Id. In April 2015, Cigna received two notices "for wrongly discontinuing coverage for 433 members and improper denial of prescription coverage for more than 1,700 claims." Id. In May, Cigna received two separate notices of non-compliance "for inaccurately describing benefits and failing to inform more than 500 physicians of their appeal rights who had been terminated by HealthSpring." Id. Then in June 2015, Cigna received at least 21 separate notices or warning letters "for failing to add a requisite class of pharmaceuticals to its plan formulary and for failure to meet call center timeliness requirements." Id. In July, CMS then sent Cigna at least 20 notices of non-compliance, warning letters, and a Corrective Action Plan Request "for failure to timely process enrollment applications, double billing, submission of incorrect and unreadable data for audit purposes, failure to submit required plans to regulatory agencies, untimely processing of approximately 1,600 appeals or redetermination requests, improper and untimely call center service, and failure to maintain an adequate network." Id. The SAC does not specify to what topic the Corrective Action Plan pertains. Cigna "was cited" in August 2015 "for failure to comply with pharmacy formulary submission and review requirements," but the type of compliance letter is unspecified. Id. In October 2015, Cigna "was cited" for "directing customer coverage determination requests to a voicemail line." Id. 12 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page30 Page 13 of of 9657 On October 13, 2015, CMS published its 2014 Part C and Part D Program Audit and Enforcement Report. [Dkt. 66-5 (Mot. Dismiss Ex. 4, 2014 Audit Report)]. Cigna was not listed as an audited sponsor for 2014. The SAC states that in December 2015, Cigna received 16 notices of non-compliance or warning letters "for improper and untimely call center service and failure to ensure the accurate entry of Notice of Change/Evidence of Coverage documents." Id. On January 22, 2016, Cigna filed a Form 8-K disclosing that the day prior CMS informed the company in a letter ("CMS Letter") that it would impose intermediate sanctions suspending the enrollment of Medicare beneficiaries and the marketing to new Medicare beneficiaries effective at 11:59 p.m. on January 21, 2016. Id. ¶ 101; [Dkt. 57-2 (Am. Compl. Ex. B., CMS Letter) at 1]. Cigna announced that the sanctions were imposed on account of operative deficiencies relating to its Parts C and D appeals and grievances, Part D formulary and benefit administration, and compliance program. [Dkt. 57 ¶ 102]. The Form 8-K states that "Cigna is working to resolve these matters as quickly as possible and is cooperating fully with CMS on its review." Id. ¶ 139; [Dkt. 66-9 (Mot. Dismiss Ex. 8, Form 8-K (Jan. 21, 2016)), Item 8.01]. Proposed Lead Plaintiff alleges Cigna failed to acknowledge the severity of the findings stated in the CMS Letter: that Cigna’s conduct was a "serious threat to the health and safety of Medicare beneficiaries" and that the violations resulted in delays, denials and increased costs regarding medical services and prescription drugs. Id. ¶ 103; [Dkt. 57-2 at 2]. 13 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page31 Page 14 of of 9657 The CMS Letter stems from an audit performed from October 5, 2015, to October 20, 2015, and it notes that "Cigna has had a longstanding history of non-compliance with CMS requirements." [Dkt. 57-2 at 2]. Specifically, "Cigna has received numerous notices of non-compliance, warning letters, and corrective action plans from CMS over the past several years. Id. A number of these notices were for the same violations discovered during the audit, demonstrating that Cigna has not corrected issues of non-compliance." Id. Many of these notices of non-compliance were sent during the Class Period, including a notice of non-compliance sent as early as 2013. See id. at 5. A subsequent warning about continued non-compliance was sent in 2015. Id. The CMS Letter also cited the HealthSpring acquisition, which added over one million beneficiaries to Cigna’s operations, "creat[ed] an organizations structure that is decentralized and fragmented." Id. Notably, the CMS Letter states that on December 9, 2015, CMS met with Cigna’s senior leadership "to discuss the serious nature of the deficiencies discovered during the audit." Id. The breakdown in operations, according to the CMS Letter, is attributable to the failure to integrate operations, which leads to inadequate monitoring and oversight of Part C and D requirements. Id. In failing to satisfy CMS regulations, Cigna "substantially failed to provide its enrollees with services and benefits...." Id. ¶ 139; [Dkt. 57-2 at 2]. Cigna’s stock fell from $140.13 closing price on Thursday, January 21, 2016, to $137.90 closing price on Friday, January 22, 2016. [Dkt. 57 ¶ 140]. By the end of the next closing day, Friday, January 25, 2016, Cigna’s stock price fell to $135.85. After receiving sanctions, Fritch announced in a media interview that Cigna 14 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page32 Page 15 of of 9657 had internal quality review processes that identified some areas prior to the audit findings. Id. ¶ 114. On July 29, 2016, Cigna filed a quarterly report, Form 10-Q, for the quarter ending June 30, 2016. Id. ¶ 143. This report indicated that Cigna would reduce its 2016 financial outlook due, in part, to substantial $30 million in costs to remedy compliance violations related to the CMS sanctions. Id. Such costs were expected to continue to grow until sanctions could be remediated, which Cigna acknowledged may not occur in a "timely and satisfactory manner...." Id. ¶ 144. Stock price fell from $135.99 at closing on Thursday, July 29, 2016, to $128.96 at closing on Friday, June 29, 2016. Id. ¶ 151. By closing on August 2, 2016 (the third consecutive trading day), stock price fell to $124.13, representing a drop of $11.86 per share. Id. ¶ 152. On the same day Cigna held an earnings conference call with analysts where Cordani and McCarthy addressed Cigna’s failure to comply with regulations and the timing and costs for remedying the violations. Id. ¶ 145. McCarthy acknowledged the costs were higher than expected and that they would continue at the same pace until violations were fully redressed. Id. ¶ 146. Analysts expressed concern about whether Cigna could resolve the audit issues prior to the annual enrollment period ("AEP") beginning October 15 and ending December 7 each year. Specifically, analysts understood that Cigna’s inability to participate in the AEP could lead to loss of membership and impact revenue and earnings contributions. See id. ¶¶ 149-50. 15 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page33 Page 16 of of 9657 During the Class Period (February 27, 2014 to August 2, 2016), Cordani sold 668,529 shares and Fritch sold 455,180 shares of Cigna stock.8 Id. ¶¶ 176. Such sales sharply contrast with their share sales from February 28, 2012 to January 21, 20149: Cordani sold 137,621 shares and Fritch sold 0 shares. Id. Proposed Lead Plaintiff alleges that the timing of the sales are suspicious given CMS already provided at least one notice of non-compliance but Cigna had not yet publicly reported any substantial non-compliance. See id. ¶ 180. The stock sales, Proposed Lead Plaintiff contends, are evidence of scienter. See id. ¶ 173. Proposed Lead Plaintiff alleges the market prices of Cigna’s common stock became artificially inflated as a result of Cigna’s material misstatements and omissions. Id. ¶ 183. This artificial inflation was partially removed as a result of the stock prices falling after the filing of the Form 8-K on January 22, 2016, and the filing of the Form 10-Q on July 29, 2016. Id. ¶¶ 184-85. As senior executives and/or directors, Cordani, McCarthy, and Appel are alleged to have obtained confidential and proprietary information about Cigna’s operations, compliance, information about Cigna’s failure to comply with regulations, including the 75 notices of non-compliance, and the effects of non-compliance. See id. ¶¶ 186-87. They took part in drafting, preparing and/or approving information and reports circulated to the public, shareholders, and 8 As a result of the sales, Cordani’s net proceeds were $71,942,705 and Fritch’s net proceeds were $59,835,369. Id. 9 Proposed Lead Plaintiff picked these dates as the "Control Period," "the approximately two-year period immediately preceding the Class Period...." Id. ¶ 174. 16 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page34 Page 17 of of 9657 investors, which contained material misstatements and omissions. Id. ¶ 187. By acting as senior executives and directors, Cordani, McCarthy and Appel were "controlling persons" of a publicly held company who had a duty under the Exchange Act to disseminate accurate information or correct any incorrect information. Id. ¶ 188. Also, Proposed Lead Plaintiff alleges that HealthSpring’s employees had "extensive institutional knowledge" but nonetheless Defendants "systematically engaged in a pattern of conduct in the wake of the acquisition that would lead to the exodus of many of HealthSpring’s regulatory compliance employees," which included some confidential witnesses. Id. ¶ 77. Confidential witnesses reported that Cigna replaced HealthSpring’s senior leadership team with new senior leadership from Cigna who were inexperienced with Medicare compliance, id. ¶ 78, and Cigna underpaid its compliance employees resulting in high turnover, id. ¶ 80. As such, approximately 90% of the employees brought in were legacy Cigna employees with little to no experience in CMS regulations or compliance. Id. ¶ 82. Appel chose not to seek out legacy HealthSpring employees with institutional knowledge about compliance. Id. ¶ 84. As Medicare Compliance Officer, Appel "was legally Cigna’s most senior officer charged with ensuring CMS’s Medicare regulations were followed" and therefore was legally responsible for reporting compliance problems up the chain of senior management, including Cordani, McCarthy, and Fritch. Id. ¶ 90 (emphasis omitted). Cigna also elected to reduce customer service staff during this time. Id. ¶ 91. 17 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page35 Page 18 of of 9657 In addition to the turnover from HealthSpring to Cigna employees, data processing systems failed to properly integrate patient information stored by the two companies. Id. ¶ 93. Without a centralized system Cigna could not quickly and accurately access information necessary to patient or provider needs. Id. ¶ 95. HealthSpring’s Vice President of Health Services, Claudia Douds, issued a plan in response to findings from internal audits that Cigna was out of compliance; despite its estimated cost of less than $5 million, Cigna rejected the plan and continued to oust HealthSpring legacy employees with significant experience. Id. ¶ 98. CMS sanctioned Cigna for non-compliance in January 2016, by the next month Cigna had not developed a plan to fully integrate the system. Id. ¶ 100. On September 6, 2016, CMS published its 2015 Part C and Part D Program Audit and Enforcement Report. [Dkt. 66-4 (Mot. Dismiss Ex. 3, 2015 Audit Report)]. Cigna was listed as an audited sponsor for 2015. It received a worse than average audit performance with a score of 1.90, wherein the average was 1.76 and the lower audit score represents better performance. See id. at 15. Specifically, Cigna received a better than average score for Compliance Program Effectiveness, id. at 16; Part D Coverage Determinations, Appeals, and Grievances, id. at 18; and Special Needs Plans Model of Care, id. at 20; but it received a worse than average score for Part D Formulary and Benefit Administration, id. at 17; and Part C Organization Determinations, Appeals, and Grievances, id. at 19. The publication cited the 2015 Program Audit as the reason for imposing the sanctions. Id. at 33. 18 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page36 Page 19 of of 9657 DISCUSSION I. Legal Standard To survive a motion to dismiss, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In considering a motion to dismiss for failure to state a claim, the Court should follow a "two-pronged approach" to evaluate the sufficiency of the complaint. Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). "A court'can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.’" Id. (quoting Iqbal, 556 U.S. at 679). "At the second step, a court should determine whether the'wellpleaded factual allegations,’ assumed to be true,'plausibly give rise to an entitlement to relief.’" Id. (quoting Iqbal, 556 U.S. at 679). "The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678 (internal quotations omitted). In general, the Court’s review on a motion to dismiss pursuant to Rule 12(b)(6) "is limited to the facts as asserted within the four corners of the complaint, the documents attached to the complaint as exhibits, and any documents incorporated by reference." McCarthy, 482 F.3d at 191. The Court may also consider "matters of which judicial notice may be taken" and "documents either in 19 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page37 Page 20 of of 9657 plaintiffs’ possession or of which plaintiffs had knowledge and relied on in bringing suit." Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); Patrowicz v. Transamerica HomeFirst, Inc., 359 F. Supp. 2d 140, 144 (D. Conn. 2005); see Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (acknowledging that in a § 10(b) case "courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice"). A complaint alleging violations of § 10(b) and Rule 10b-5 must meet the heightened pleading standard of Fed. R. Civ. P. 9(b) and the rules prescribed by the PSLRA, 15 U.S.C. § 78u-4(b). See Tellabs, Inc., 551 U.S. at 321. Under Rule 9(b), a plaintiff "must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). "To satisfy this requirement the plaintiff must (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 108 (2d Cir. 2012) (internal quotation marks omitted). Under the PSLRA, the complaint must (1) "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief,... shall state with particularity all facts on which that belief is formed;" and (2) plead facts "giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(1)(B), (b)(2)(A). See Tellabs, Inc., 551 U.S. at 321; Kleinman v. 20 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page38 Page 21 of of 9657 Elan Corp., PLC, 706 F.3d 145, 153 (2d Cir. 2013). As with any other type of 12(b)(6) motion, the Court must "accept all factual allegations in the complaint as true." Id. at 322. II. Count 1: Section 10(b) of the Exchange Act and Rule 10b-5 Proposed Lead Plaintiff alleges that Cigna, Cordani, McCarthy and Fritch (i.e. all Defendants except Appel) violated § 10(b) of the Exchange Act and Rule 10b-5 promulgated by the SEC under 17 C.F.R. § 240.10b-5. Section 10(b) of the Exchange Act makes it unlawful to "use or employ, in connection with the purchase or sale of any security... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78j(b). Rule 10b-5, promulgated by the SEC to implement this portion of the Exchange Act, makes it unlawful for any person, directly or indirectly, in connection with the purchase or sale of any security "[t]o employ any device, scheme or artifice to defraud; (b) [t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) [t]o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person." 17 C.F.R. § 240.10b–5. Under § 10(b) promulgated under Rule 10b-5, it is unlawful "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading." 17 C.F.R. § 240.10b-5. A plaintiff must establish 21 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page39 Page 22 of of 9657 the following five factors: "(1) a material misrepresentation (or omission); (2) scienter, i.e., a wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance...; (5) economic loss; and (6) loss causation." Kleinman, 706 F.3d at 152 (internal citations and quotation marks omitted). Defendants argue that the § 10(b) action should be dismissed on three grounds: failure to plead materiality, scienter, and loss causation. Proposed Lead Plaintiff challenges all three assertions. Accordingly, the Court addresses each assertion in turn. A. Material Misstatements or Omissions Defendants set forth several reasons why the SAC fails to plead with particularity a material misstatement or omission. First, they argue the SAC does not adequately allege the statements at issue were false at the time they were made because Proposed Lead Plaintiff mischaracterizes the Defendants’ statements, mischaracterizes the CMS notices, and relies on confidential witness statements that do not plead falsity. [Dkt. 67 at 19-20]. Second, Defendants posit the alleged misstatements are inactionable puffery because they are too general to create reliance from a reasonable investor. Id. at 27. Third, Defendants contend the allegations of omission are not material. Id. at 30. Proposed Lead Plaintiff disagrees for several reasons. The primary reason is that at least nine CMS regulations notified Defendants that their compliance procedures were insufficient. [Dkt. 68 at 2]. Despite disclosing various risks in the public filing documents, such risk disclosures could not insulate them from liability because they already happened. Id. at 17. In addition, Proposed Lead Plaintiff avers the SAC does not allege fraud-by-hindsight because the failure to disclose 22 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page40 Page 23 of of 9657 insufficient compliance practices created the risk they attempted to conceal. Id. at 18. And finally, Defendants’ statements were material, not puffery, because they contained fact-based information as opposed to hopes or aspirations. Id. at 20. The duty of a company registered on a public exchange to disclose information to the public is prescribed by a series of laws and regulations. See Basic Inc. v. Levinson, 485 U.S. 224, 258-59 (1988) (citing as an example 15 U.S.C. §§ 78m, 78o(d) (1982 ed. And Supp. IV)). These laws and regulations do not impose a duty of continuous disclosure. See Higginbotham v. Baxter Intern., Inc., 495 F.3d 753, 760, (7th Cir. 2007) (rejecting duty to update before next quarterly report) (citing Basic Inc. and Dirks v. SEC, 463 U.S. 646 (1983)); Gallagher v. Abbott Labs., 269 F.3d 806, 808 (11 Cir. 2001) (explaining that securities laws do not require continuous disclosure); Eisenstadt v. Centel Corp., 113 F.3d 738, 746 (7th Cir. 1997) (rejecting duty to update forward-looking statements that have become incorrect due to changing circumstances); see also In re IBM Corp. Sec. Litig., 163 F.3d 102, 105 (2d Cir. 1998) (no duty to correct because the statements were not misleading when made, and there was no duty to update vague statements of optimism or expressions of opinion); In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 261 (2d Cir. 1993) (ruling Time Warner’s statements regarding "serious" discussions of strategic alliances "lack the sort of definite positive projections that might require later correction" and "suggest only the hope of any company on talks with multiple partners, that the talks would go well"). "[I]t bears emphasis that § 10(b) and Rule 10b–5(b) do not create an affirmative duty to disclose any and all material information." Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44–45 (2011). A 23 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page41 Page 24 of of 9657 reasonable investor’s interest is not sufficient, standing alone, to require disclosure of an item. See Kleinman, 706 F.3d at 153; In re Time Warner Sec. Litig., 9 F.3d at 267 ("But a corporation is not required to disclose a fact merely because a reasonable investor would very much like to know that fact."). The duty to disclose instead arises where there is "a statute or regulation requiring disclosure" or a "corporate statement that would otherwise be inaccurate, incomplete, or misleading." Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 101 (2d Cir. 2015); see Kleinman, 706 F.3d at 153 ("Disclosure is required only when necessary to make statements made, in the light of the circumstances under which they were made, not misleading.") (citing 17 C.F.R. § 240.10b-5(b)) (emphasis added). Pursuant to the Exchange Act, a company registered with the SEC must make annual and quarterly filings disclosing information as specified by the Act. See generally, 17 C.F.R. Ch. II, Pt. 249, et seq. In addition to these annual and quarterly filings, there are certain regulatory filing requirements, such as those imposed by 17 C.F.R. § 229.303(a),(b) (Item 303), which requires disclosure of the "registrant’s financial condition, changes in financial condition and results of operations" each full fiscal year, including a description of "any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations," as well as "any material changes in the registrant’s results of operations" for an interim period. The central tenet for disclosure requirements, whether by statute, regulation, or a corporate statement, is that "[t]he veracity of a statement or omission is measured not by its literal truth, but by its ability to 24 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page42 Page 25 of of 9657 accurately inform rather than mislead prospective buyers." Kleinman, 706 F.3d at 153; In re BioScrip, Inc. v. Sec. Litig., 95 F. Supp. 3d 711, 727 (S.D.N.Y. 2015) (same). A misstatement or omission is material if there exists a "substantial likelihood that a reasonable shareholder would consider it important in deciding how to [act]." ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009) (quoting Basic Inc., 485 U.S. at 231-32). In other words, there must be a substantial likelihood the omitted fact would "significantly alter the'total mix’ of information made available" in the eyes of a reasonable investor. Id. This question is a mixed one of law and fact, and as such a court should not dismiss the complaint on a 12(b)(6) motion for lacking materiality unless the misstatements or omissions alleged in the complaint were required to be disclosed and are "so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance." Id. Proposed Lead Plaintiff does not point to a statute or regulation requiring disclosure of the CMS notices, any CMS audits as the one from October 2015 referenced in the Opposition to the Motion to Dismiss, see [Dkt. 68 at 2], or other allegedly material information, and therefore at issue is whether a corporate statement would otherwise be inaccurate, incomplete, or misleading. When a defendant does speak to an issue or topic, the "duty to tell the whole truth" arises. Meyer v. Jinkosolar Holdings Co., Ltd., 761 F.3d 245, 250 (2d Cir. 2014). A court cannot merely look at "[t]he literal truth of an isolated statement" but must examine "defendants’ representations, taken together and in context." Id. (quoting In re 25 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page43 Page 26 of of 9657 Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 247, 366 (2d Cir. 2010)). This "duty to tell the whole truth" has limitations, because a defendant is not required to reveal everything about a subject after disclosing one fact. Christine Asia Co., Ltd. v. Alibaba Grp. Holding Ltd., 192 F. Supp. 3d 456, 471 (S.D.N.Y. 2016). Indeed, a company need not disclose all communications with a regulator even where the regulator has notified the company about its operation’s deficiencies, particularly because "mismanagement alone does not constitute fraud." Acito v. IMCERA Grp., Inc., 47 F.3d 47, 55 (2d Cir. 1995) ("It is well settled that section 10(b) was not designed to regulate corporate mismanagement.") (internal quotation marks omitted); Alibaba, 192 F. Supp. 3d at 470 (finding a company does not have a duty to disclose communications with a regulator where deficiencies in operations have already been identified). That being said, "[a] generic warning of a risk will not suffice when undisclosed facts on the ground would substantially affect a reasonable investor’s calculations of probability." Jinkosolar, 761 F.3d at 251; Rombach v. Chang, 355 F.3d 164, 173 (2d Cir. 2004) ("Cautionary words about future risk cannot insulate from liability the failure to disclose that the risk has transpired."). 1. 2014 Code of Ethics: McCarthy and Fritch The Court first addresses whether the statements from McCarthy and Fritch published in the 2014 Code of Ethics constitutes a materially misleading statement. McCarthy’s quote advises employees to "do[] things'the right way’" and comply with laws and regulations. [Dkt. 66-15 at 7]. Fritch opines that employees "have a responsibility to act with integrity," including any interactions with government 26 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page44 Page 27 of of 9657 officials. Id. at 13. Although the Code of Ethics was made publicly available on the website and therefore was open for an investor to peruse, there is no reasonable investor who would rely on such "puffery" as these quotations reflect the precise meaning of the term: "general statements about reputation, integrity, and compliance with ethical norms are inactionable'puffery,’ meaning they are too general to cause a reasonable investor to rely upon them." City of Pontiac Policemen’s and Firemen’s Retirement Sys. v. UBS AG, 752 F.3d 173, 183 (2d Cir. 2014) (quoting ECA, 553 F.3d at 206 (2d Cir. 2009)). Moreover, the SAC does not allege at what point these individuals actually made these statements—Fritch and McCarthy could have uttered these words years before they were actually published in the Code of Ethics. Therefore, Proposed Lead Plaintiff cannot show these are opinions or beliefs that are actionable because they were "objectively false and disbelieved by the defendant at the time it was expressed." Fait v. Regions Fin. Corp., 655 F.3d 105, 110 (2d Cir. 2011); In re BioScrip, Inc., 95 F. Supp. 3d at 728 (same). Accordingly, these statements by Fritch and McCarthy are not material misstatements actionable under the PSLRA. 2. 2013 and 2014 Form 10-Ks: Cigna, Cordani, and McCarthy The Court next addresses the statements issued in the 2013 and 2014 Form 10-Ks in light of the "total mix of information made available" to the reasonable investor. See ECA, 553 F.3d at 197. After the acquisition, at the time when the statements were made, Proposed Lead Plaintiff alleges that Cigna received "at least nine [CMS] Notices prior to the first Class Period compliance statements, and at least 18 Notices before the final actionable statements...." [Dkt. 68 at 23]. The 27 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page45 Page 28 of of 9657 SAC does not contain factual details about all 18 notices allegedly sent by the final actionable statement, however it does provide a few examples: that Cigna received "two separate notices for failure to provide records, and for improper payments to approximately 410 medical service providers" in October 2014; and "five separate Notices of Non-compliance for improper pharmacy coverage" in December 2014. [Dkt. 57 ¶ 13]. Defendants clarify that five of the initial nine notices concerned the same coverage issue for the drug Cialis and they were sent to Cigna plans in different states. [Dkt. 67 at 23]. Proposed Lead Plaintiff also claims that Cigna received at least 75 CMS notices by the end of the Class Period. [Dkt. 57 ¶ 13]. Defendant avers that 66 of the 75 notices were issued after the alleged misstatements. [Dkt. 67 at 22]. Although the numerosity of the notices is worth noting, the materiality question requires the Court to focus on the content of the notices in order to decide whether the information would be important to a reasonable investor. On the one hand, it is widely understood that companies cannot be expected to comply with applicable regulations 100% of the time, particularly if they do not profess to do so. See Jinkosolar, 761 F.3d at 251 (acknowledging the defendant company did not guarantee compliance and stating "[s]uch compliance may often be unobtainable, and reasonable investors may be deemed to know that"); Alibaba, 192 F. Supp. 3d at 470 ("[A] corporation is not required to disclose every communication it has with a regulator—even where, as here, a regulator has informed a company of deficiencies in its operations."); In re FBR Inc. v. Securities Litig., 544 F. Supp. 2d 346, 362 (S.D.N.Y. 2008) (finding that boilerplate language on 28 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page46 Page 29 of of 9657 regulatory risk is not misleading when the description is not company-specific and a reasonable investor would not infer anything about the company’s state of compliance"). Cigna’s Form 10-Ks do not guarantee 100% compliance with administrative regulations. Indeed, the 2013 and 2014 Form 10-Ks state, "We expect to continue to allocate significant resources to our compliance, ethics, and fraud... programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs." [Dkt. 66-2 at 16; Dkt. 66-3 at 15]. If anything, Cigna’s decision to allocate significant resources supports the inference that Cigna is aware its compliance needs to improve, otherwise such an expansion would be a needless waste of resources. This is further supported by the fact that Cigna eliminated from Form 10-Ks the statement that it "established policies and procedures to comply with applicable requirements," [Dkt. 66-3 at 12], which appeared only in the 2013 Form 10-K but not thereafter. The correction does not inherently mean that, at the time when the 2013 Form 10K was published, the statement was materially misleading. As such, Cigna’s receipt of nine to 18 non-compliance notices is not, in it of itself, a reason requiring a duty to disclose. On the other hand, although a company cannot be expected to maintain 100% compliance with every applicable regulation, the existence of "ongoing and substantial" violations of regulations that are left undisclosed can lead to a material misstatement or omission if a reasonable investor would consider such information important. See Jinkosolar, 761 F.3d at 251-52. In Jinkosolar, the defendant was a solar cell and solar panel manufacturing company that failed to disclose in the prospectus its Chinese facilities’ ongoing and substantial violations 29 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page47 Page 30 of of 9657 of Chinese environmental, safe production, and construction regulations. Id. at 251. The prospectus contained information about defendant’s pollution abatement equipment and its 24-hour monitoring of environmental teams. Id. It also disclosed the costly nature of regulation compliance and warned that non-compliance "may lead to bad publicity, fines, and even a suspension of the business." Id. The Second Circuit held that, even though the prospectus included a general warning of relevant risks, its "failure to disclose then ongoing regulations pollution violations would cause a reasonable investor to make an overly optimistic assessment of the risk." Id. (emphasis added). Such an omission was material because "substantial non-compliance would constitute a substantial threat to earnings, if not to the entire venture." Id. at 252. Like the defendant in Jinkosolar, Cigna publicly reported its requirement to comply with regulations and warned that non-compliance could lead to "changes to or clarifications of our business practices, as well as fines, penalties or other sanctions." [Dkt. 66-2 at 13; Dkt. 66-3 at 12]. Cigna also stated that its "right to obtain payment..., enroll and retain members and expand into new service areas is subject to compliance with CMS’ numerous and complex regulations and requirements that are frequently modified and subject to administrative discretion." [Dkt. 66-2 at 16; Dkt. 66-3 at 15]. By February 2014, Cigna received at least nine notices. [Dkt. 68 at 2]. Neither the SAC nor the Opposition brief set forth the content of these notices or state in what way they would be material other than by volume. The Court therefore cannot determine that these nine notices were sufficiently material to require disclosure 30 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page48 Page 31 of of 9657 in the 2013 Form 10-K in order to prevent the statement that Cigna had "established policies and procedures to comply with applicable requirements" from being an actionable misstatement. See [Dkt. 57 ¶ 120]. The only notices referenced in the SAC indicates that Cigna was cited for "failure to provide records" and for "improper payments to approximately 410 medical service providers in October 2014, and then "in December 2014, Cigna received five separate Notices of Non-Compliance for improper pharmacy coverage." [Dkt. 57 ¶ 13]. Such notices are relevant to the materiality of the 2014 Form 10-K statement. The Court finds that a reasonable investor would not view these notices, which could at a later point be cured, to be "substantial and ongoing violations." In support of this conclusion is the January 2013 publicly issued memorandum titled "2014 Application Cycle Past Performance Review Methodology Final," which states that a notice of non-compliance is the "mildest type of letter" that "does not contain specific language regarding further compliance escalation or other consequences should the behavior/non-compliance continue." [Dkt. 66-7 at 7]. The Court notes that Defendants submitted as exhibits two warning letters issued in December 2014, and warning letters are described as "formal communication that describes the consequences of non-compliance." Id. These are not, however, referenced in the SAC and furthermore may also be cured with corrective action. The Court does not find Proposed Lead Plaintiff’s reference to BioScrip persuasive here. In BioScrip, the court held the plaintiff adequately alleged material misstatement because the company "suggest[ed] it routinely responded 31 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page49 Page 32 of of 9657 to investigatory requests from the Government, but was not presently in the process of responding to such a request." Id. at 727. Even though the company’s 2013 Form 10-K explained there was "no assurance that we will not receive subpoenas or be requested to produce documents in pending investigations or litigation from time to time," the company had already received a civil investigative demand from the Government. Id. The company also stated that it "believes it is in substantial compliance with all laws, rules and regulations that its business and operations" but warned that it could be subject to scrutiny or challenge at some point in the future. Id. at 728. Investigatory requests from the Government are not at issue here and Cigna’s notifications of non-compliance are not equivalent to a Government investigation. It is true that the 2013 Form 10-K stated it "established policies and procedures to comply with applicable requirements." [Dkt. 66-3 at 12]. However, Cigna made no contention that it was in "substantial compliance" with all laws, and the Court finds the facts in Jinkosolar, as stated above, more applicable. The reasoning in Jinkosolar, acknowledging a company cannot be expected to be in compliance with regulations 100% of the time, is therefore instructive. Accordingly, the Court gives greater weight to Jinkosolar. The CMS Letter attached as an exhibit to the SAC notifies Cigna of immediate sanctions and describes Cigna as having a "longstanding history of non-compliance with CMS requirements." [Dkt. 57-2 at 2]. Because the Court has not been provided with all notices referenced in the SAC, the CMS Letter provides a useful reflection of the type of conduct that occurred. The CMS Letter reveals that the magnitude of the non-compliance was not just volume or length but also in 32 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page50 Page 33 of of 9657 breadth. In reviewing various operational areas, CMS discovered Cigna "substantially failed to comply with CMS requirements regarding Part C and Part D organization/coverage determinations, appeal and grievances; Part D formulary and benefit administration; access to facilities and records; and compliance program effectiveness." Id. Cigna also received a variety of non-compliance notifications in the form of "notices of non-compliance, warning letters, and corrective action plans from CMS over the past several years." Id. at 2. Notably, the CMS letter does not detail when these types of notifications were received and the content therein. Upon receiving immediate intermediate sanctions, Cigna was prohibited from enrolling Medicare beneficiaries onto Cigna contracts and from marketing to Medicare beneficiaries. See [Dkt. 66-8 at 1]. In essence, the sanctions halted the growth of Cigna’s private Medicare business for 1.5 years while the sanctions remained. The sanctions were recently lifted off Cigna-HealthSpring on June 16, 2017. See Centers for Medicare & Medicaid Services, Part C and Part D Enforcement Actions, available at https://www.cms.gov/Medicare/Compliance-and-Audits/Part-C-and-Part-D-Compliance-and-Audits/PartCandPartDEnforcementActions-.html (last visited August 23, 2017) (documenting Cigna’s release from sanctions on June 16, 2017). It is important context that, as a result of the acquisition, CMS’ Medicare premiums became the "largest single source of revenues" for Cigna, accounting for approximately 21-22% of Cigna’s overall revenues between 2012 and 2014, and throughout the Class Period "CMS was Cigna’s only client that accounted for more than 10% of the 33 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page51 Page 34 of of 9657 Company revenues." [Dkt. 57 ¶ 8]. The inability to market and grow this extremely large source of revenue constitutes a substantial threat to earnings. The Court finds that a "reasonable investor" might view the breadth and volume of these compliance violations to be "ongoing and substantial," particularly in light of the fact that notices, warning letters, and corrective action plans were elicited during this time. However, the "duty to tell the whole truth" only arises when the "ongoing or substantial" violations are occurring at the time. See Jinkosolar, 761 F.3d at 250-51. The SAC does not sufficiently allege that there existed an "ongoing and substantial" violation at the time when the 2013 and 2014 Form 10-Ks statements were made. Because Proposed Lead Plaintiff does not allege that a statute or regulation required disclosure of non-compliance at some point after the Form 10-K statements but before the January 2016 Form 8-K disclosure of sanctions, the Court cannot find that subsequent compliance violations were material omissions.10 See Stratte-McClure, 776 F.3d at 101. The Court finds that the omissions made at the time when the alleged actionable statements were made are "obviously unimportant to a reasonable investor" because these early stage notices could be rectified at any time without risking a threat to earnings. See ECA, 553 F.3d at 197; Jinkosolar, 761 F.3d at 252. 10 Proposed Lead Plaintiff also alleges Cigna experienced a shifting employee base with a leadership team inexperienced in compliance, see [Dkt. 57 ¶ 78], and could not properly integrate data, see id. ¶ 94. Although the SAC alleges that CMS regulations required compliance reporting to senior leaders, id. ¶ 73, it raises no statute or regulation requiring disclosure of the failure to comply with regulations as to these issues. It furthermore does not indicate how any alleged actionable statements were materially misleading or there existed any material omissions in relation to these issues. See Stratte-McClure, 776 F.3d at 101 (stating a duty to disclose arises when a statute or regulation requires disclosure). 34 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page52 Page 35 of of 9657 Truisms, such as generic and theoretical "[c]autionary words about future risk cannot insulate from liability the failure to disclose that risk has transpired." Rombach v. Chang, 355 F.3d at 173. The 2014 Form 10-K expressly states that regulatory audits or reviews or actions by other governmental agencies could result in changes to or clarifications of our business practices, retroactive adjustments to certain premiums, significant fines, penalties, civil liabilities, criminal liabilities, or other sanctions, including restrictions on our ability to operate that could have a material adverse effect on our business, results of operation, financial condition and liquidity. [Dkt. 66-2 at 19]. The risk of the above changes had not already transpired because the CMS notices received by Cigna between the first and last actionable statement are not material misstatements or omissions. See In re Van der Moolen Holding N.V. Sec. Litig., 405 F. Supp. 2d 388, 400 (S.D.N.Y. 2005) ("[T]he Second Circuit previously has held that cautionary statements concerning forward-looking statements cannot insulate a defendant from potential liability for failure to disclose known material, adverse facts, see Rombach, 355 F.3d at 173...."). Indeed, in Rombach the Second Circuit acknowledged that Plaintiffs’ reference to a "handful of incidents" involving the now-bankrupt company were not sufficient to demonstrate already-transpired risk given that "[a] company that operates 119 separate facilities nationwide is bound to have some problems...." Rombach, 355 F.3d at 173. Notices of non-compliance involving potentially disparate topics unspecified by Plaintiff is not sufficiently "risky" to be actionable. In summary, the Court finds that the 2013 and 2014 Form 10-Ks did not contain material misstatements or omissions, and the statements from Cordani and Fritch were inactionable puffery. Proposed Lead Plaintiff additionally did not 35 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page53 Page 36 of of 9657 identify any duty to disclose under a regulation or statute, such as those set forth under Item 303. While this finding is sufficient to dismiss the case in its entirety, the Court will address the remaining disputed issues. B. Scienter "The PSLRA requires plaintiffs to state with particularity both the facts constituting the alleged violation, and the facts evidencing scienter, i.e., the defendant's intention to deceive, manipulate, or defraud." Tellabs, 551 U.S. at 313. "Under this heightened pleading standard for scienter, a'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.’" Slayton, 604 F.3d at 766 (quoting Tellabs, 551 U.S. at 324). The proper 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." Tellabs, 551 U.S. at, 322-23. The "strong inference" standard is met when the inference of fraud is at least as likely as any non-culpable explanations offered. Slayton, 604 F.3d at 766 (quoting Tellabs, 551 U.S. at 324). This inference "must be more than merely'reasonable’ or'permissible’—it must be cogent and compelling, thus strong in light of other explanations." Tellabs, 551 U.S. at 324. Such a high bar is intended to prevent allegations of fraud by hindsight. Id. at 320 (citing Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1129 (2d Cir. 1994)). A plaintiff may show an inference of scienter in two ways: "by alleging facts (1) showing that the defendants had both motive and opportunity to commit the fraud or (2) constituting strong circumstantial evidence of conscious misbehavior 36 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page54 Page 37 of of 9657 or recklessness." ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007). In making the scienter determination, the Court must also consider "plausible opposing inferences." Tellabs, Inc., 551 U.S. at 323. 1. Motive and Opportunity In the scienter analysis, "[o]pportunity would entail the means and likely prospect of achieving concrete benefits by the means alleged." Shields, 25 F.3d at 1130. The Court assumes Defendants had the opportunity to commit fraud as the individuals were officers of either Cigna or its subsidiary, HealthSpring, and Defendants do not directly challenge opportunity in their briefing. See Kalnit v. Eichler, 99 F. Supp. 2d 327, 335 (S.D.N.Y. 2000) aff'd, 264 F.3d 131 (2d Cir. 2001) (directors of company had opportunity to commit fraud); San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Companies, Inc., 75 F.3d 801, 813 (2d Cir. 1996) (individual defendants had opportunity to manipulate company stock where they held the highest positions of power and authority within the company). Motive entails "concrete benefits that could be realized by one or more of the false statements and wrongful nondisclosures alleged." Shields, 25 F.3d at 1130. In order to raise a strong inference of scienter by motive and opportunity, Plaintiff must allege that Defendants "benefitted in some concrete and personal way from the purported fraud." ECA, 553 F.3d at 198. "Motives that are generally possessed by most corporate directors and officers do not suffice; instead, plaintiffs must assert a concrete and personal benefit to the individual defendants resulting from the fraud." Kalnit, 264 F.3d at 139; see Novak v. Kasaks, 216 F.3d 37 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page55 Page 38 of of 9657 300, 307 (2d Cir. 2000) (stating that plaintiffs cannot satisfy the pleading standard "based on motives possessed by virtually all plaintiffs"). The Second Circuit has held generally that, among others, (1) "the desire for the corporation to appear profitable," (2) "the desire to keep stock prices high to increase officer compensation," and (3) the "desire to maintain the appearance of profitability" are such insufficient motives. Id.; Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 196 (2d Cir. 2008); see also Chill v. Gen. Elec. Co., 101 F.3d 263, 268 (2d Cir. 1996) ("such a generalized motive [as the desire to justify an investment and make it appear profitable], one which could be imputed to any publicly-owned, for-profit endeavor, is not sufficiently concrete for purposes of inferring scienter."). However, the motive can be sufficiently pleaded where "defendants misrepresented corporate performance to inflate stock prices while they sold their own shares." Kalnit, 264 F.3d at 139. The SAC generally alleges that Defendants Cigna, Cordani, McCarthy and Fritch made materially false and misleading statements or omissions "in an effort to conceal the Company’s non-compliance with CMS regulations, and to maintain the Company’s common stock at artificially inflated prices." See [Dkt. 57 ¶ 208]. The act of artificially inflating securities prices is not in it of itself motive. See ECA, 553 F.3d at 201 n.6 (We acknowledge that the artificial inflation of stock prices in order to acquire another company may, in some circumstances, be sufficient for scienter. But the inquiry is an extremely contextual one, and in this case Plaintiffs simply did not allege a unique connection between the fraud and the acquisition.") (internal quotation marks and citations omitted). Rather, it becomes actionable 38 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page56 Page 39 of of 9657 when viewed in connection with an actionable motive. Kalnit, 264 F.3d at 139 (acknowledging that artificially inflated stock must be connected with motive). The SAC does not indicate how concealing non-compliance constitutes a concrete or personal benefit to the Defendants and instead the Court is left to assume that Defendants did so for personal benefit. Furthermore, that Defendants did so for "significant personal pecuniary gain" does not satisfy the particularity requirement, because the SAC does not allege the type of "pecuniary gain" that motivated the sales. If the executive was motivated by a desire for executive compensation, to maintain the appearance of profitability or to protect their position, the conduct would not be actionable. In contrast, if they were motivated by the opportunity to sell stocks at inflated prices it would be actionable. Proposed Lead Plaintiff fails to assert sufficient facts to sustain his burden. Proposed Lead Plaintiff alleges slightly more information with respect to Defendants Cordani and Fritch, who sold stock during the Class Period. [Dkt. 57 ¶ 173]. Specifically, Cordani sold 668,529 shares worth $71,942,705 and Fritch sold 455,180 shares worth $59,835,369 during the Class Period (lasting from February 27, 2014 to August 2, 2016). Id. ¶ 176. In the Opposition to the Motion to Dismiss, Proposed Lead Plaintiff claims the Cordani and Fritch had "motive and opportunity" for "significant personal pecuniary gain," [Dkt. 68 at 38], and "to continue concealing the Company’s ongoing and increasingly frequent failures in compliance policies and procedures," id. at 36. Although both parties agree that in some circumstances selling stock is indicative of motive and opportunity to commit fraud, they dispute whether this situation demonstrates a strong inference 39 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page57 Page 40 of of 9657 of scienter. Cordani and Fritch both acquired more stock than they sold, but did so at no cost to them. See [Dkt. 67, at 34; Dkt. 68 at 38]. Further, these stock sales were made according to Rule 10b5-1 trading plans. [Dkt. 67 at 35]. Such plans allow company insiders who may possess material, non-public or inside information about the company to enter into an agreement with a broker dealer to purchase and sell company stock on behalf of the insider on a predetermined schedule specified in the plan and can provide an affirmative defense against an allegation that trades under this plan were based on such information. See 17 C.F.R. § 240.10b5-1(c). Cordani’s trading plan was renewed annually, including during the Class Period. [Dkt. 71 at 10]. Fritch’s trading plan was created during the Class Period because the "holdings were subject to a lock-up until September 15, 2014...." Id. Notably, "[t]rading plans are not a cognizable defense to scienter allegations on a motion to dismiss where... they were adopted during the Class Period." Id. at 201 (emphasis added). "The motive and opportunity element is generally met when corporate insiders misrepresent material facts to keep the price of stock high while selling their own shares at a profit." In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 74 (2d Cir. 2001); see Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171 (S.D.N.Y. 2010) (stating an example of adequate motive is where "the defendants sold their own shares while at the same time misrepresenting corporate performance in order to inflate stock prices") (quoting In re Refco, Inc. Sec. Litig., 503 F. Supp. 2d 611, 646 (S.D.N.Y. 2007)). It may be permissible to infer scienter when "unusual" insider sales are made while negative corporate news is withheld, and factors determining 40 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page58 Page 41 of of 9657 "unusual" include: "the amount of profit from the sales, the portion of stockholdings sold, the change in volume of insider sales, and the number of insiders selling." In re Scholastic Corp. Sec. Litig., 252 F.3d at 74; see In re Lululemon Secs. Litig., 14 F. Supp. 3d 553, 584 (S.D.N.Y. 2014) ("Stock sales may support allegations of scienter when those trades are suspicious in timing or amount."); In re EVCI Coll. Holding Corp. Sec. Litig., 469 F. Supp. 2d 88, 100 (S.D.N.Y. 2006) (finding that defendant "sold far too much stock," i.e. 41% if stock options are counted and 80% if they are not, only two weeks after the company was required to take measures having significant revenue implications); c.f. Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171 (S.D.N.Y. 2010) (finding the combination of defendants’ knowledge of fraud and access to information as well as their stock sales throughout the Class Period was sufficient to show a strong inference of scienter). A plaintiff ultimately must point to a "specific benefit that would inure to the defendants that would not be either generalized to all corporate directors or beneficial to all shareholders, not just the defendant directors specifically. Kalnit v. Eichler, 264 F.3d 161 (2d Cir. 2001). The SAC alleges Cordani and Fritch earned "extraordinarily large" net proceeds as a result of selling shares during the Class Period: $71,942,705 for Cordani and $59,835,369 for Fritch. See [Dkt. 57 ¶ 176]. The selling of even considerable shares is not sufficient, standing alone, to infer scienter. See In re Lululemon, 14 F. Supp. 3d at 585. Proposed Lead Plaintiff does not allege the portion of stockholdings sold. Proposed Lead Plaintiff compares the Class Period sales to the time period between February 28, 2012, and January 21, 2014; Cordani 41 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page59 Page 42 of of 9657 sold 137,621 shares worth $8,622,160 and Fritch did not sell any shares. Id. ¶ 174. As Defendants rightly point out, this roughly two-year time period does not match the duration of the Class Period and in all other respects it appears arbitrarily chosen. Fritch was also prohibited from selling any shares until September 15, 2014, which explains at least in part the drastic shift. [Dkt. 71 at 10]. Proposed Lead Plaintiff does not inform the Court whether McCarthy or Appel held stock and, if they did, whether they sold any shares. Were these defendants to elect not to sell their shares during the Class Period, it might undermine Proposed Lead Plaintiff’s claim. See San Leandro, 75 F.3d at 814 (finding that one company executive’s decision to sell stock does not give rise to fraudulent intent where other defendants did not do the same). Furthermore, the SAC does not allege what day these sales were made and what portion of the sales were made after the sanctions were disclosed. The Court need not decide whether the stock sales themselves demonstrate a "motive and opportunity" to defraud, because there is no indication they concurrently made any misrepresentations of material facts. During the class period Cordani acted as CEO, President, and Director of Cigna. [Dkt. 57 ¶ 38]. Fritch was President of HealthSpring throughout the Class Period. Id. ¶ 40. The SAC alleges that Cordani and Fritch "were able to, and did, control the contents of the Company’s SEC filings, reports press releases, and other public statements." Id. ¶ 182. It further alleges "Cordani and Fritch knew that these adverse facts alleged herein had not been disclosed to and were being concealed from the public, and that the positive representations that were being made were then false and misleading." Id. ¶ 187. The SAC alleges "Cordani and 42 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page60 Page 43 of of 9657 Fritch profited from the artificial inflation embedded in the trading price of Cigna stock caused by their false and misleading statements and omissions to investors during the Class period." [Dkt. 57 ¶ 173]. The SAC, however, does not allege any facts concerning any statements other than the ones the Court has already addressed. The Court has already determined that the 2013 and 2014 Form 10-K statements did not create any material misstatements or omissions. Cordani, therefore, is not liable for his certification of these forms. Proposed Lead Plaintiff specifically alleges Cordani "either knew or recklessly disregarded the fact that the Company was so decentralized and fragmented that it either could not comply with CMS regulations or could not determine whether it was compliant with CMS regulations." Id. ¶ 165. Without alleging he had a regulatory duty to disclose this information, his knowledge or reckless disregard alone does not mean that Cordani "misrepresent[ed] material facts to keep the price of stock high while selling [his] own shares at a profit." In re Scholastic Corp. Sec. Litig., 252 F.3d at 74. Fritch, in an interview published by USA Today on the same day as sanctions were established, stated, " Cigna "[has] internal quality review processes in place that identified some of the areas in advance of the audit findings and we have already started working to remedy them." [Dkt. 66-27 (Mot. Dismiss Ex. 26, Sanctions Article) at 2 of PDF; Dkt. 57 ¶ 114 (referencing media article)]. This statement appears to be truthful at the time when it was made. A plaintiff must adequately allege the defendants "were aware of or had access to information contrary to their public statements." See Freudenberg, 712 F. Supp. 2d at 201. The 43 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page61 Page 44 of of 9657 SAC does not identify a public statement previously made by Fritch that would be contrary to this statement. Accordingly, because these Defendants did not make any material misrepresentations, their stock sales do not reflect actionable "motive and opportunity" to defraud. 2. Circumstantial Evidence of Conscious Misbehavior or Recklessness As an alternative to motive and opportunity, "the scienter element can be satisfied by a strong showing of reckless disregard for the truth... [or] conscious recklessness—i.e., a state of mind approximating actual intent, and not merely a heightened form of negligence." S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 109 (2d Cir. 2009). Where motive is not apparent, as here, "the strength of the circumstantial allegations must be correspondingly greater...." ECA, 553 F.3d at 199. A plaintiff can satisfy this standard by alleging "facts showing'conduct which is highly unreasonable and which represents an extreme departure from the standards of ordinary care to the extent that the danger was either known to the defendants or so obvious that the defendants must have been aware of it.’" S. Cherry Group, 573 F.3d at 109 (quoting In re Carter–Wallace, Inc. Sec. Litig., 220 F.3d 36, 39 (2d Cir.2000)); In re CRM Holdings, Ltd. Sec. Litig., No. 10 CIV. 975 RPP, 2012 WL 1646888 (S.D.N.Y. May 10, 2012) recon. denied, No. 10 CIV 00975 RPP, 2013 WL 787970 (S.D.N.Y. Mar. 4, 2013) (quoting same). A plaintiff may also plead scienter by sufficiently alleging "that the defendants failed to review or check information that they had a duty to monitor, or ignored obvious signs of fraud, and 44 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page62 Page 45 of of 9657 hence should have known that they were misrepresenting material facts." S. Cherry St., 573 F.3d at 109. Further, securities fraud claims will suffice "when they have specifically alleged defendants’ knowledge of facts or access to information contradicting their public statements" and where they "specifically identify the reports or statements containing this information." Novak, 216 F.3d at 308-09. Proposed Lead Plaintiff raises numerous arguments that there is substantial circumstantial evidence sufficient to establish scienter, which the Court has attempted to distill into cogent topics: (1) Appel received the CMS notices and CMS regulations required him to report violations to senior management, including Cordani, McCarthy, and Fritch, [Dkt. 68 at 30]; (2) Defendants’ access to information means they knew or should have known they were misrepresenting material facts, id. at 30; (3) Defendants must have known about non-compliance issues due to the nature of their roles during the acquisition, the importance of the acquisition, and HealthSpring’s history of strong compliance, id. at 39-41; and (4) the confidential witnesses’ information bolsters the inference that Defendants knew or were intentionally ignorant of potential compliance failures given that Defendants did not take advantage of HealthSpring’s institutional knowledge and the data processing systems were inaccurate, id. at 41. Proposed Lead Plaintiff’s arguments are unavailing because, in essence, they merely allege that Defendants "must have known their statements to be untrue." BioScrip, 95 F. Supp. 3d at 738 ("Plaintiffs’ allegations boil down to the charge that Defendants must have known their statements to have been untrue due to the segment’s significance and the size of the client."). It may be true that Appel 45 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page63 Page 46 of of 9657 had "a duty to monitor information," but the SAC does not allege he failed to monitor any information. See S. Cherry St., 573 F.3d at 109. Assuming Appel had a duty to report each and every CMS notice to senior management, it is unclear how knowledge of these nine to 18 notices without acting upon them would be "highly unreasonable" or an "extreme departure from the standard of care to the extent that the danger was either known to the defendants or so obvious that the defendants must have been aware of it." See S. Cherry Grp., 573 F.3d at 109. Likewise, by merely alleging that Defendants had access to information, the Court cannot then conclude there exists circumstantial evidence of conscious misbehavior or reckless disregard. In addition, the SAC alleges facts suggesting Defendants were unaware, because they did not take advantage of HealthSpring’s institutional knowledge and the data processing systems were inaccurate. A plaintiff also cannot demonstrate scienter merely by "noting that an area of business was vital to a company" and then conclude that Defendants must have known of any false information. BioScrip, 95 F. Supp. 3d at 738. Like the confidential witnesses in BioScrip, the confidential witnesses here do not directly state "what... Defendants knew, when they learned it, or from whom." Id. at 739. Rather, the confidential witnesses speak generally about HealthSpring’s history of compliance, [Dkt. 57 ¶ 60], Fritch’s "passion for Medicare and compliance," id. ¶ 61, the post-acquisition replacement of HealthSpring employees with Cigna employees, see, e.g., id. ¶ 78, Appel’s failure to meet frequently with employees, id. ¶ 86, and Cigna’s data processing difficulties, see, e.g., id. ¶ 95. Not one confidential witness could speak to any Defendants’ specific 46 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page64 Page 47 of of 9657 knowledge. "Allegations premised on the testimony of confidential sources must show the individual defendants actually possessed the knowledge highlighting the falsity of public statements; conclusory statements that defendants were aware of certain information, and mere allegations that defendants would have or should have had such knowledge is insufficient." BioScrip, 95 F. Supp. 3d at 739 (internal quotation marks omitted). Accordingly, the allegations of the SAC attributed to the confidential witnesses are inadequate as a matter of law and contrary to their asserted premise, and therefore they are unpersuasive. Proposed Lead Plaintiff has not made a "strong showing" of either reckless disregard for the truth or conscious recklessness. S. Cherry St., 573 F.3d at 109. The Court cannot even identify specific facts sufficient to find heightened negligence. See id. When presented with Proposed Lead Plaintiff’s circumstantial evidence, the Court cannot conclude that "the inference of scienter... [is] at least as compelling as any opposing inference one could draw from the facts alleged." See Tellabs, Inc., 551 U.S. at 324. Defendants’ proposed competing inference— that "managerial errors eventually set the stage for CMS sanctions"—is highly probable particularly in light of Proposed Lead Plaintiff’s inability to provide compelling circumstantial evidence. See [Dkt. 67 at 44]. C. Loss Causation "Loss causation is the causal link between the alleged misconduct and the economic harm ultimately suffered by the plaintiff." Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 172 (2d Cir. 2005). The PLSRA confers upon the plaintiff "the 47 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page65 Page 48 of of 9657 burden of proving that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages." 15 U.S.C. § 78u–4(b)(4). Loss causation is akin, although not quite identical, to "proximate cause" in tort law: "a misstatement or omission is the'proximate cause’ of an investment loss if the risk that caused the loss was within the zone of risk concealed by the misrepresentations and omissions alleged by a disappointed investor." Lentell, 396 F.3d at 173. This means that the plaintiff must adequately allege "the subject of the fraudulent statement or omission was the cause of the actual loss suffered." Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 95 (2d Cir. 2001). In other words, a plaintiff must show "the misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security." Lentell, 396 F.3d at 173. To sufficiently plead the subject of the fraudulent statement or omission caused the actual loss, a plaintiff may either allege (a) "the existence of cause-in-fact on the ground that the market reacted negatively to a corrective disclosure of the fraud;" or (b) "the loss was foreseeable and caused by the materialization of the risk concealed by the fraudulent statement." Carpenters Pension Trust Fund of St. Louis v. Barclays PLC, 750 F.3d 227, 232-33 (2d Cir. 2014); BioScrip, 95 F. Supp. 3d at 733 (applying this standard). For the purposes of the loss causation analysis, the Court will assume that Defendants committed a material misrepresentation or omission (although they did not). The SAC alleges that Cigna’s common stock market prices were artificially inflated due to the material misstatements or omission, and two disclosures 48 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page66 Page 49 of of 9657 corrected this artificial inflation. First, Cigna filed an 8-K on January 22, 2016, notifying investors that CMS imposed immediate sanctions on Cigna on January 21, 2016. [Dkt. 57 ¶ 184]. Cigna’s stock price fell from $140.13 at the close of business on January 21, 2016, to $137.90 at the close of the next business day. Id. ¶¶ 25, 140. It then dropped to $135.85 on January 25, 2016, yielding a market cap loss of $1.1 billion and a decline of 3.05% per share. Id. ¶ 25. Second, Cigna announced in its July 29, 2016, Form 10-Q that it would be reducing its 2016 financial outlook. Id. ¶ 143. Specifically, it stated the costs to remedy the sanctions totaled approximately $30 million as of June 30, 2016. Id. ¶ 185. Cigna held an earnings conference call on the same day wherein McCarthy acknowledged Cigna was spending more than expected on remediation costs and might not be able to rectify matters in a timely and satisfactory matter, which prompted analysts to raise concerns about the possibility that Cigna’s failure to lift sanctions by the fall could prevent them from participating in the open enrollment period. Id. Stock fell from $135.99 at the close of business on July 28, 2016, to $128.96 at the close of business on July 29, 2016. Id. ¶ 151. Over the course of three consecutive trading days, Cigna’s share price fell $11.86 per share, approximately 8.8% from the July 28, 2016 closing price. Id. ¶ 152. To plead corrective disclosure, a plaintiff must allege "a disclosure of fraud by which the available public information regarding the company’s financial condition [was] corrected, and that the market reacted negatively to the corrective disclosure." Carpenters, 750 F.3d at 233 (internal quotation marks and citations omitted); see Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 347 (2005) (stating the 49 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page67 Page 50 of of 9657 plaintiff must do more than state that prices were artificially inflated as an "’artificially inflated purchase price’ is not itself a relevant economic loss"). A plaintiff is not required to plead the corrective disclosure is the only reason the stock price declined. See Carpenters, 750 F.3d at 233. Proposed Lead Plaintiff alleges Defendants failed to disclose the widespread and systemic failure to comply with CMS regulations. It was not until the 8-K filed on January 22, 2016, revealing CMS issued sanctions against Cigna, that the public became aware Cigna had been struggling with non-compliance. See [Dkt. 57 ¶ 138]. The very next day Cigna’s stock price dropped. This is not a situation where the plaintiff fails to demonstrate a loss suffered. See Dura, 544 U.S. at 347. Both the Second Circuit and district courts within the circuit have found similar allegations sufficiently plead loss causation. Carpenters, 750 F.3d at 233-34 (citing district court cases). Accordingly, assuming there existed a material misrepresentation or omission about systemic non-compliance that was corrected with the January 22, 2016 disclosure, which there did not, the Court would find loss causation adequately pleaded at the 12(b)(6) motion to dismiss stage.11 Even if Proposed Lead Plaintiff could not demonstrate corrective disclosure, "[a] risk allegedly concealed by Defendants which materialized and arguably caused the decline in shareholder value suffices." Freudenberg, 712 F. Supp. 3d at 202; see Lentell, 396 F.3d at 175 (providing that one way to show loss causation 11 The first disclosure would be sufficient, standing alone, to survive a motion to dismiss. The Court thus does not address the subsequent disclosure on July 29, 2016. 50 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page68 Page 51 of of 9657 would be to adequately allege that defendant "misstated or omitted risks that did lead to the loss"). The Court agrees with Proposed Lead Plaintiff that the issuance of sanctions constitutes the materialized risk. The Form 10-Ks explicitly states that regulatory audits, such as those conducted by CMS, could lead to "sanctions that could have a material adverse effect on [Cigna’s] business, results of operation, financial condition, and liquidity." [Dkt. 66-2 at 19; Dkt. 66-3 at 19]. This risk of sanctions materialized on January 21, 2016, as stated in the CMS Letter. That the stock price fell by the very next day is sufficient to satisfy a causal connection, upon which any intervening event breaking this connection is a matter not to be decided on a motion to dismiss. Emergent Capital Inv. Mgmt, LLC v. Stonepath Grp., Inc., 343 F.3d 189, 197 (2d Cir. 2003). III. Count II: Control Person Liability under Section 20(a) Finally, Proposed Lead Plaintiff alleges control person liability under Section 20(a) of the Exchange Act against Defendants Cordani, McCarthy, and Appel. Section 20(a) provides that Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable (including to the Commission in any action brought under paragraph (1) or (3) of section 78u(d) of this title), unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. 15 U.S.C. § 78t(a). "To establish a prima facie case of control person liability, a plaintiff must show (1) a primary violation by the controlled person, (2) control of 51 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page69 Page 52 of of 9657 the primary violator by the defendant, and (3) that the defendant was, in some meaningful sense, a culpable participant in the controlled person’s fraud." ATSI Commc’ns, 493 F.3d at 108. Because Proposed Lead Plaintiff has failed to establish a violation of section 10(b) of the Exchange Act, Proposed Lead Plaintiff has not established a primary violation and therefore the allegation of control person liability under section 20(a) cannot stand. See Jackson Nat. Life Ins. Co. v. Merrill Lynch & Co., Inc., 32 F.3d 697, 704 (2d Cir. 1994) (stating that "to state a claim under § 20A, a plaintiff must plead a predicate violation of the'34 Act or its rules and regulations"); In re Lululemon Sec. Litig., 14 F. Supp. 3d at 587 (applying rule). Accordingly, like the count before it this count is DISMISSED. IV. Leave to Amend Proposed Lead Plaintiff requests that, should the Court find the SAC fails to state a claim upon which relief may be granted, it grant leave to amend. Leave to amend is to be given freely "when justice so requires," Fed. R. Civ. P. 15(a), unless the moving party acted with "undue delay, bad faith or dilatory motive..., repeated failure to cure deficiencies by amendments previously allowed," or the amendment would create undue prejudice to the opposing party or be futile. Foman v. Davis, 371 U.S. 178, 182 (1962). "District courts typically grant plaintiffs at least one opportunity to plead fraud with greater specificity when they dismiss under Rule 9(b)." ATSI Comms., Inc., 493 F.3d 87, 108 (2d Cir. 2007). However, it is well within the court’s discretion to grant leave to amend under Fed. R. Civ. P. 15(a) "and a district court may therefore properly deny leave to amend where a plaintiff has already been given one opportunity to plead fraud with greater specificity." 52 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page70 Page 53 of of 9657 Abuhamdan v. Blyth, Inc., 9 F. Supp. 3d 175, 212 (D. Conn. 2014) (quoting Endovasc, Ltd. v. J.P. Turner & Co., LLC, 169 F. App’x. 655, 657–58 (2d Cir.2006)). As a review, Jyotindra Patel filed the initial complaint in this lawsuit on February 4, 2016. [Dkt. 1 (Compl.)]. In April 2016, Plaintiff moved to appoint Minohor Singh as Proposed Lead Plaintiff, which the Court granted. [Dkt. 28 (Mot. Appoint Counsel); Dkt. 34 (Order]. Singh thereafter amended the complaint, raising substantially more factual allegations. See [Dkt. 40 (Am. Compl.)]. In September 2016, Singh filed a Motion to Modify Pretrial Deadlines indicating intentions for requesting leave to amend due to "key developments" since the previous filing. [Dkt. 50 at 3]. Defendant opposed this objection and argued that Singh had six months from the filing of the original complaint and two months from his appointment as Proposed Lead Plaintiff to amend the complaint. [Dkt. 51 (Opp’n Mot. Modify) at 2]. The Court held a telephonic conference on October 7, 2016, and granted Plaintiff a modification of the scheduling order as well as leave to amend. See [Dkt. 54 (Tr. Tel. Conf.) at 19-21]. During the hearing the Court specifically asked Proposed Lead Plaintiff’s counsel, "[D]o you expect that if you were to amend you would be able to state with more particularity the basis of your claims?" Id. at 15:9-14. Counsel responded in the affirmative. See id. 15:15-18. Defense counsel posited that discovery had been ongoing for several months and that they "were prepared and have worked hard under [the Court’s] order to prepare a motion to dismiss that [they] were prepared to file in 10 days...." Id. at 17:24-18:3. Upon considering the arguments the Court determined Plaintiffs should have "a 53 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page71 Page 54 of of 9657 reasonable opportunity to complete discovery to the point where they are able to file an amended complaint that fairly reflects all of the information that they can reasonably acquire in conducting thorough due diligence of their allegations." Id. at 18:8-16. The Court reasoned, "[W]e want this matter to be resolved one way or the other on the merits with full consideration of all of the relevant facts, and if that takes an additional couple of months to do I think it’s time well spent for everyone involved, including Defendants." Id. at 19:14-20. Proposed Lead Plaintiff thereafter filed the SAC, which is operative today. Importantly, § 78u-4 of the PSLRA contemplates that in general "all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss...." 15 U.S.C. § 78u-4(b)(3)(B). Therefore when the Court granted leave to amend the Amended Complaint and extended the deadline for the motion to dismiss, there were practical implications enabling Proposed Lead Plaintiff to continue in his pursuit of discovery well past the period typically allowed. The Court contemplated these implications and determined it fair and necessary to give the Proposed Lead Plaintiff an opportunity to plead with particularity, in compliance with Rule 9(b), from the outset. As the Court directed, Proposed Lead Plaintiff was granted a modification of the scheduling order and leave to amend with the understanding that he would exercise due diligence. The Second Amended Complaint did indeed provide more factual allegations indicating Proposed Lead Plaintiff attempted to cure any defects with particularity. For example, the SAC contains a new section documenting that Cigna received 75 notifications of non-compliance from CMS, with explicit references to the content 54 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page72 Page 55 of of 9657 of certain notifications. [Dkt. 57 ¶¶ 115-18]. The SAC also raises new allegations that Defendant Appel was required to report to senior management information about Medicare compliance. Id. ¶¶ 159-61. These allegations are clear examples of Proposed Lead Plaintiff attempting to address the Rule 9(b) particularity requirements. For the reasons set forth above, they are substantively insufficient. Proposed Lead Plaintiff has already been given a chance to replead with greater specificity. See Abuhamdan, 9 F. Supp. 3d at 212-13. Proposed Lead Plaintiff believes he should be given another opportunity "after hearing the Court’s assessments of the merits of the Complaints." [Dkt. 68 at 49]. But this is not how leave to amend works. If it were, all plaintiffs would automatically be given leave to amend when they fail to satisfy Rule 9(b). Proposed Lead Plaintiff cites Abu Dhabi Commercial Bank v. Morgan Stanley & Co. Inc., No. 08 Civ. 7508(SAS), 2009 WL 33466754, at *2 (S.D.N.Y. Oct. 15, 2009), for the proposition that "a dismissal with prejudice is generally appropriate where a court puts a plaintiff on notice of a complaint’s deficiencies and the plaintiff fails to correct those deficiencies after amendment." At the telephonic conference held on October 7, 2016, the Court discussed with the parties the need to amend the complaint a second time, and specifically stated Proposed Lead Plaintiff must due its "due diligence," allowing additional discovery to afford Proposed Lead Plaintiff the opportunity to plead with particularity. See [Dkt. 54 at 18:8-16]. This is sufficient notice. In consideration of this ruling on Motion to Dismiss and request for leave to amend, on August 28, 2017, the Court ordered Proposed Lead Plaintiff to file a proposed third amended complaint on or before September 4, 2017 so that the 55 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page73 Page 56 of of 9657 Court could consider such a proposed amended complaint. [Dkt. 72]. Proposed Lead Plaintiff filed a Motion for Reconsideration four days later asking to defer filing an amended complaint until after the Court’s ruling on the pending Motion to Dismiss. The Court denied in part and granted in part the relief sought, and in its ruling denying relief it identified aspects of the SAC that failed to meet the heightened Rule 9(b) pleading standard and included case citations. The Court once again afforded the Proposed Lead Plaintiff an opportunity to file a Third Amended Complaint on or before September 16, 2017, prior to a ruling on the Motion to Dismiss. On September 15, 2017, Proposed Lead Plaintiff declined the Court’s offer to amend the complaint once again, notifying the Court that it would not file a Third Amended Complaint. [Dkt. 78]. Proposed Lead Plaintiff has failed to "cure deficiencies by amendments previously allowed." See Foman, 371 U.S. at 182. The Lead Plaintiff declined to do so knowing the deficiencies of the SAC. The fact that Proposed Lead Plaintiff has failed to sufficiently allege scienter after conducting considerable discovery (more than that customarily afforded) despite having knowledge of the SAC’s deficiencies indicates that Proposed Lead Plaintiff has not discovered sufficient evidence to allege either a failure to disclose or scienter. Proposed Lead Plaintiff’s claims are substantively deficient and Proposed Lead Plaintiff has not presented any basis for the Court to believe he could allege facts that could withstand a 12(b)(6) motion. See Alibaba, 192 F. Supp. 3d at 482; see also Cuoco v. Moritsugu, 222 F.3d 99, 112 (ruling in an inmate’s civil rights case that "the problem with Cuoco’s causes of action is substantive; better pleading will not cure it. Repleading would thus be 56 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 79 Filed2170754, 09/28/17 Page74 Page 57 of of 9657 futile."). Accordingly, further leave to amend would be futile. See Foman, 371 U.S. at 182. CONCLUSION For the aforementioned reasons, this case is DISMISSED with prejudice. The Clerk is directed to close this case. IT IS SO ORDERED. ________/s/__ ________ Hon. Vanessa L. Bryant United States District Judge Dated at Hartford, Connecticut: September 28, 2017 57 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16Page75 Page 1ofof9622 UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT-------------------------------x: JYOTINDRA PATEL, Individually: and On Behalf of All Others: Similarly Situated,: Plaintiffs,: Civil No.: 3:16-CV-00182 (VLB) vs.:: October 7, 2016 CIGNA CORP, ET AL.,: Defendants.::-------------------------------x Federal Building 450 Main Street Hartford, Connecticut TELEPHONE CONFERENCE MOTION FOR EXTENSION OF TIME TO MODIFY #3 ORDER (Transcription from Electronic Recording) Held Before: THE HON. VANESSA L. BRYANT United States District Judge Transcription Services of FALZARANO COURT REPORTERS, LLC 4 Somerset Lane Simsbury, CT 06070 860.651.0258 Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16Page76 Page 2ofof9622 2 A P P E A R A N C E S: For the Plaintiffs: LABATON SUCHAROW, LLP 140 Broadway-33rd Floor New York, New York 10005 212-907-0700 BY: MICHAEL H. ROGERS, ESQ. For the Defendants: SIDLEY AUSTIN, LLP 787 Seventh Avenue New York, New York 10019 212-819-5397 BY: ANDREW W. STERN, ESQ. Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16Page77 Page 3ofof9622 3 1 (Proceedings commenced at 9:06 a.m. via 2 telephone conference in chambers.) 3 4 MR. STERN: Good morning, your Honor. 5 MR. ROGERS: Good morning, your Honor. 6 THE COURT: Will one attorney be 7 speaking for the Plaintiffs and one for the 8 Defendant, or will multiple attorneys be 9 speaking for a party? 10 UNIDENTIFIED SPEAKER: If it’s easier 11 for the Court we can have Attorney Rogers 12 speak on behalf of the Plaintiffs. 13 THE COURT: That would be helpful. 14 MR. ROGERS: Sure. 15 MR. STERN: And your Honor, this is 16 Andrew Stern for the Defendants and I think 17 that I will be speaking for the Defendants 18 entirely. 19 THE COURT: Great. Before you speak as 20 we are making a record of this proceeding 21 and you’re not before the Court physically, 22 the court reporter in order to make an 23 accurate record will need to know who is 24 speaking, so please state your name before 25 you speak. Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16Page78 Page 4ofof9622 4 1 Is everyone able to hear me? 2 ALL: Yes, your Honor. 3 THE COURT: Now, by way of background 4 the case was filed by a complaint filed in 5 February of this year and the Defendants 6 have requested a pre-filing conference prior 7 to their filing a motion to dismiss. 8 Subsequent to that the Plaintiffs have 9 filed a motion to extend the time and modify 10 the pretrial order to which the Defendants 11 have filed an objection. Those filings were 12 made on the 30th of September and the 3rd of 13 October respectively. 14 It would appear that the parties are at 15 cross purposes in terms of how this matter 16 should proceed and I would hope to resolve 17 that this morning at this conference. 18 The first thing I think I’d like to 19 hear is from the Defendants on their October 20 3rd motion. 21 MR. STERN: Your Honor, this is Andrew 22 Stern from Sidley Austin for the Defendants, 23 and I assume you’re referring to our 24 objection to Plaintiffs’ motion that we file 25 on October 3rd? Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16Page79 Page 5ofof9622 5 1 THE COURT: I think that’s the only 2 thing on the docket that was filed on 3 October 3rd, yes. 4 MR. STERN: Well, I’m happy to speak to 5 that your Honor. 6 So as your Honor pointed out this case 7 was commenced in early February. There was 8 initially a contest for lead plaintiff which 9 evaporated rather quickly and by the end of 10 April the lead plaintiff knew that he would 11 be lead plaintiff and counsel knew that they 12 would be lead counsel in this action. And 13 from that point the schedule that had 14 previously been entered by the Court in 15 March was in effect and lead plaintiff took 16 an opportunity to file an amended complaint 17 nearly three months later on August 1st. 18 Pursuant to that schedule Defendants 19 assessed that complaint, had determined that 20 we believe it fails to state a claim on 21 numerous grounds which if your Honor wanted 22 to hear about we could talk about, but I 23 won’t address that yet. 24 We had a schedule in place since March 25 that called for the motion to dismiss to be Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16Page80 Page 6ofof9622 6 1 filed by October 17th, 10 days from now. We 2 have prepared that motion and were prepared 3 to go forward on it when we were surprised 4 by this very late request from Plaintiff to 5 yet again amend their complaint and extend 6 the schedule even further, proposing to not 7 even make a decision as to whether to seek 8 leave to file another amended complaint 9 until the middle of November. 10 We believe the case has been pending 11 for long enough, your Honor, and we think 12 it’s time to move forward with a motion that 13 tees up the question as to whether they have 14 stated a claim. We do not believe the 15 justification that the Plaintiff had set out 16 in their motion for yet another extension 17 and potential amendment of the complaint is 18 sufficient to permit it to go forward. 19 The truth is the Plaintiff is pointing 20 to, you know, further public statements of 21 my client, Cigna, in the eight months, nine 22 months that this case has been pending. And 23 they want to--they say they want to 24 consider amending the complaint yet again to 25 address those statements. But that can go Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16Page81 Page 7ofof9622 7 1 on forever, and the question really is 2 whether the Plaintiff has stated a claim. 3 We think we have strong grounds to argue 4 they have not stated a claim. We don’t 5 think that changes if they make further 6 amendments just to bring this complaint even 7 further forward. And at some point the 8 question, you know, needs to be put to the 9 Court and we were prepared to do that 10 pursuant to the schedule of ordered by the 11 Court and to file our motion in 10 days. 12 So that’s why we oppose the Plaintiff’s 13 motion. 14 THE COURT: What is the Plaintiff’s 15 position? Why do you believe you should be 16 permitted additional time to amend again? 17 MR. ROGERS: Hi, your Honor. This is 18 Michael Rogers speaking for the Plaintiffs. 19 And I just want to clarify of the factual 20 and procedural points that I think will 21 address that question more broadly. 22 It’s true that the complaint was filed, 23 the initial complaint in February of 2016. 24 That was, however, filed by a different law 25 firm on behalf of a different, a different Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16Page82 Page 8ofof9622 8 1 (unintelligible) Plaintiff. And--2 THE COURT: Well, I’m sorry, I’m sorry. 3 Let me ask you a question about that. I 4 mean are you contemplating restarting 5 litigation any time the Plaintiff is 6 represented by new counsel, supplementary or 7 in lieu of? 8 MR. ROGERS: I want to make sure I 9 understand your question, your Honor, but 10 you know, the--11 THE COURT: It sounds to me--12 MR. ROGERS: You’re--13 THE COURT: It sounds to me that you’re 14 saying that whenever a party is represented 15 by a new attorney, whether that attorney is 16 in addition to the attorney that was 17 previously representing them or in lieu of 18 an attorney that was previously representing 19 them, that new attorney is entitled by law 20 to recommence the litigation essentially by 21 filing a new complaint, propounding new 22 discovery, et cetera, et cetera. 23 Is that the rationale? Is that your 24 argument? 25 MR. ROGERS: Well, with all due Case Case3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16Page83 Page 9ofof9622 9 1 respect, your Honor, no, I’m not saying that 2 and I just want to make sure that we’re 3 clear on the issues here. When we moved for 4 lead plaintiff and were appointed lead 5 plaintiff in May of 2016, that was not only 6 new counsel, that was a new Plaintiff. In 7 other words, the PSLRA that dictates this 8 process said that within 60 days after the 9 initial complaint is filed any party can 10 move for lead plaintiff, which we did. So 11 effectively Mr. Singh, the court appointed 12 lead Plaintiff and Labaton Sucharow, the 13 court appointed lead counsel, only appeared 14 in this case on May 15th, 2016. 15 Mr. Patel, the first Plaintiff, and 16 Pomerantz as counsel are no longer a party 17 to this whatsoever. So to go back to your 18 question it’s not that we’re trying to say 19 that there’s new counsel and therefore that 20 restarts the process. Pursuant to federal 21 statute, PSLRA, the process essentially 22 began when the Court appointed Mr. Singh as 23 lead plaintiff on May 16th. And I can go on 24 to put that into further context but I want 25 to make sure that I’ve addressed the Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page84 Page 10 of of 9622 10 1 question that you had just asked me. 2 THE COURT: Okay. You have addressed 3 the question I was just asking and that is a 4 one-time opportunity for this case to be 5 essentially reconfigured, potentially 6 reconfigured. Are you in agreement with 7 that? 8 MR. ROGERS: Yes, I would agree with 9 that because there was talk about 10 reconfiguration as opposed to any other 11 motions to amend which is in the Court’s 12 discretion or (unintelligible) again. I 13 would agree with that. 14 THE COURT: Okay. So that was in May. 15 MR. ROGERS: That was when we appointed 16 as lead counsel for Mr. Patel. Correct. 17 And then we went on to file the 18 consolidated complaint pursuant to a Court 19 entered order, and I want to make this point 20 clear because I think it’s important, to 21 which we were not a part, that is a court 22 order that was pursuant to a proposal by 23 counsel for Cigna and counsel for Mr. Patel, 24 who as we said before is no longer in the 25 case. And it is true that we filed our Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page85 Page 11 of of 9622 11 1 complaint on August 1st pursuant to that 2 order. 3 THE COURT: Okay. And then--so you 4 filed it in August pursuant to that order, 5 and why should you be entitled to amend? 6 MR. ROGERS: Well, I mean I think that 7 that question moves somewhat away from the 8 PSLRA dictate and more into what we would 9 all consider standard civil litigation where 10 the (unintelligible) comes under Rule 15 11 apply. And, you know, I don’t need to tell 12 your Honor that it’s at the Court’s 13 discretion to grant leave to amend. 14 Just to put it into its proper context, 15 because I want to point out that the 16 Defendant seems to be framing this as some 17 kind of a dilatory tactic on our part and I 18 would say it’s quite the opposite as a 19 matter of fact. Again, to put it into its 20 proper context, let’s say your Honor denies 21 the instant motions and we go ahead and 22 brief the motion to dismiss in the coming 23 weeks and coming months. We feel the 24 complaint is strong as currently filed and 25 if your Honor denies the motion to dismiss Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page86 Page 12 of of 9622 12 1 we would likely at that point seek leave to 2 amend to alter the class period pursuant to 3 the statements at issue. I think that would 4 waste time as opposed--5 THE COURT: So this is basically--6 MR. ROGERS: I’m sorry. 7 THE COURT: This is basically the 8 question I’m asking. All right, so you 9 filed the amended complaint in August, 10 correct? All right. And we’re talking 11 about--12 MR. ROGERS: That’s correct. 13 THE COURT:--docket number 40, right? 14 Correct? 15 MR. ROGERS: Yes, that’s correct. 16 THE COURT: All right. 17 MR. ROGERS: That is correct. 18 THE COURT: And so now you’re seeking 19 to amend that complaint. 20 MR. ROGERS: I want to put it a 21 slightly nuanced point then. At the moment 22 we’re seeking leave to amend the current 23 schedule so that we’re not seen as violating 24 the Court’s schedule in seeking leave to 25 amend. I want to make it clear, your Honor, Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page87 Page 13 of of 9622 13 1 this motion to extend that we filed was out 2 of respect and deference to the fact that 3 there is a standing order and we didn’t want 4 to be in violation of it. We felt that by 5 moving to amend, for instance today or 6 tomorrow, would be in violation of the order 7 that we had until September 3rd. 8 THE COURT: Okay. 9 MR. ROGERS: I can say that, yes, we 10 are likely going to seek leave to amend 11 based upon what we’ve described in our 12 motion, but as of right now we just merely 13 wanted to extend the timeframe so we’re not 14 seen as violating a procedural order. 15 THE COURT: So you--16 MR. ROGERS: With that being said--17 THE COURT: You do not as you sit here 18--you are not aware as you sit here today 19 of facts that would lead you to conclude 20 that it is a certainty that you would seek 21 to amend the complaint. You’re simply 22 seeking additional time to conduct 23 discovery? 24 MR. ROGERS: No, your Honor, I would 25 not put it that way. And again I want to Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page88 Page 14 of of 9622 14 1 make it clear it is again in the Defendant’s 2 objection they seem to try to make a big 3 deal out of this notion that we’re going to, 4 quote/unquote, decide to amend, or 5 quote/unquote, to consider to amend. And I 6 want to make that clear that that is 7 something that was done purely out of 8 deference to the Court and in effort not to 9 unwantedly prejudice the Defendants. 10 As of right now we are strongly, 11 strongly inclined to amend based upon, 12 number one, the additional public statements 13 which has affected the company’s stock 14 price, and that 90-day lookback period 15 mandated by the PSLRA will expire in 16 approximately three weeks. That’s number 17 one. 18 And as we mentioned we have been 19 continuing to conduct our investigation in 20 terms of public records, materials available 21 from public agencies, from individuals, and 22 we have come into possession of additional 23 information which we consider corroborative 24 of our already strongly pled complaint, but 25 the Court may see as supplemental to that Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page89 Page 15 of of 9622 15 1 and that’s something that will remain to be 2 seen. And we are also very hopeful that 3 that information will continue to come in in 4 the coming weeks. That’s the reason we 5 showed that small amount of time to not rush 6 to make the decision, but to get to the core 7 of it we are mostly likely going to move to 8 amend. 9 THE COURT: And if you--based upon 10 the information that you have obtained which 11 you’ve summarized here, do you expect that 12 if you were to amend you would be able to 13 state with more particularity the basis of 14 your claims? 15 MR. ROGERS: That would certainly be 16 the hope and I can certainly say in good 17 faith that would be the intention, your 18 Honor. 19 THE COURT: Have you learned anything 20 that gives you reason to believe that that 21 is likely to occur? 22 MR. ROGERS: I want to be careful what 23 I say and not make some representation that 24 I can’t stand behind, but again to repeat 25 what I said we have strong, a strong sense Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page90 Page 16 of of 9622 16 1 of that and a strong and a good faith hope 2 that information that we are close to 3 procuring but have not gotten in our hands 4 as of today will do what you just suggested, 5 yes. 6 THE COURT: All right. Mr. Rogers. 7 MR. ROGERS: Yeah. 8 THE COURT: I appreciate, I appreciate 9 your position. I think I understand it and 10 I think I appreciate your position. 11 Is there anything else you think I 12 should know? 13 MR. ROGERS: If you have further 14 questions, your Honor, I’m happy to answer 15 them, but I think I’ve stated what I need to 16 say for the moment. 17 THE COURT: All right. 18 And why does the defense believe that 19 the Plaintiff should not have the additional 20 time to complete its preliminary discovery 21 in order to more fully describe their claims 22 or understand their claims and to assure 23 that the case is resolved on the merits? 24 MR. STERN: Your Honor, Andrew Stern 25 again for the Defendants. Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page91 Page 17 of of 9622 17 1 I think it’s as simple as this, your 2 Honor. The Plaintiff had an obligation 3 under Rule 11 to file a complaint to begin 4 with that they believe stated a claim, even 5 more so when they are alleging securities 6 fraud under the standards of the PSLRA, the 7 Private Securities Litigation Reform Act, 8 and under Rule 9B. 9 The initial complaint, again filed in 10 February, this Plaintiff and this counsel 11 filed the amended complaint in August, which 12 one would assume would have incorporated all 13 of their due diligence and investigation 14 before filing his complaint, and we’re 15 hearing now from Mr. Rogers that they are 16 hopeful to be getting more information that 17 would further support a complaint and would 18 be--might enable them to plead with more 19 particularity. 20 As I said, your Honor, we think at some 21 point the complaint needs to be tested, and 22 I understand we were talking about, oh, it’s 23 only another couple of months, but they’ve 24 had many months to do this. We were 25 prepared and have worked hard under your Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page92 Page 18 of of 9622 18 1 Honor’s order to prepare a motion to dismiss 2 that we were prepared to file in 10 days and 3 we believe that order ought to stick. 4 Obviously if your Honor is inclined to 5 permit them to amend again then we would 6 hold back and await to assess that 7 complaint. 8 THE COURT: I believe the fair thing to 9 do is to afford the Plaintiffs an 10 opportunity to--a reasonable opportunity 11 to complete discovery to the point where 12 they are able to file an amended complaint 13 that fairly reflects all of the information 14 that they can reasonably acquire in 15 conducting thorough due diligence of their 16 allegations. 17 I cannot disagree, Attorney Stern, with 18 the fact that at some point discovery has to 19 be complete, but I don’t believe that Mr. 20 Rogers is asking for an indefinite period of 21 discovery. He does appear to have 22 identified specific categories of 23 information and perhaps even specific 24 information that the Plaintiffs have 25 discovered and are pursuing, which suggests Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page93 Page 19 of of 9622 19 1 to me that the timeframe they have set forth 2 is not unrealistic. 3 Mr. Rogers, are you confident that the 4 amount of time that you have sought is going 5 to be sufficient and that you will not be 6 seeking further extensions of time for this 7 purpose? 8 MR. ROGERS: That’s correct, your 9 Honor. 10 THE COURT: You are? All right. 11 MR. ROGERS: Yes, your Honor. 12 THE COURT: In that case I don’t 13 believe that it is unreasonable and 14 certainly, you know, we want this matter to 15 be resolved one way or the other on the 16 merits with full consideration of all of the 17 relevant facts, and if that takes an 18 additional couple of months to do I think 19 it’s time well spent for everyone involved, 20 including the Defendants. 21 So I am going to grant the motion to 22 extend the deadline and we’ll proceed from 23 there. 24 MR. ROGERS: Thank you, your Honor. 25 MR. STERN: Your Honor, Andrew Stern Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page94 Page 20 of of 9622 20 1 for the Defendant again, and thank you, we 2 appreciate the Court’s order. 3 Just to clarify then, and this may be 4 something you ask us to work out between 5 counsel regarding the schedule. Should we 6--does your Honor anticipate then this 7 deadline for the Plaintiffs actually file a 8 proposed amended complaint or I guess a--9 it would just be a second amended complaint 10 at that point? Should we just set that 11 deadline today? 12 THE COURT: I do contemplate a 13 deadline. My preference is always for the 14 attorneys to propose a schedule if they can 15 work well together because you’re in the 16 best position to assess what a reasonable 17 timeframe would be. 18 So if you feel comfortable conferring 19 and proposing a schedule, I would be very 20 amenable to that. 21 MR. ROGERS: Your Honor, this is 22 Michael Rogers. We are also amenable to 23 that and are confident that the parties will 24 work it out. 25 MR. STERN: And this Andrew Stern. I Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page95 Page 21 of of 9622 21 1 are we will have no problem doing that, your 2 Honor. 3 THE COURT: Excellent. Excellent. 4 All righty. Thank you very much. Have 5 a wonderful holiday weekend. 6 MR. STERN: Thank you, your Honor. 7 MR. ROGERS: Thank you, your Honor. 8 UNIDENTIFIED SPEAKER: Thank you, your 9 Honor. 10 UNIDENTIFIED SPEAKER: So grant, and 11 just order the parties to jointly propose 12 the new schedule, your Honor? 13 THE COURT: And then give them two 14 weeks? 15 UNIDENTIFIED SPEAKER: Two weeks? 16 Okay. 17 (Proceedings concluded at 9:29 a.m.) 18 19 20 21 22 23 24 25 Case Case 3:16-cv-00182-VLB 17-3484, DocumentDocument 12-2, 11/13/2017, 54 Filed2170754, 10/14/16 Page96 Page 22 of of 9622 22 1 CERTIFICATE 2 3 I hereby certify that the foregoing 21 4 pages are a complete and accurate transcription to the 5 best of my ability of the electronic recording of the 6 Telephone Conference on Motion for Extension of Time 7 to Modify #3 Order in re: JYOTINDRA PATEL, ET AL. vs. 8 CIGNA CORP, ET AL., Civil No. 3:16-CV-00182 (VLB) held 9 before The Hon. Vanessa L. Bryant, United States 10 District Judge, in Hartford, Connecticut, on October 11 7, 2016. 12 13 ___ 14 Suzanne Benoit, Transcriber Date: 10/14/16 15 16 17 18 19 20 21 22 23 Case 17-3484, Document 12-3, 11/13/2017, 2170754, Page1 of 2 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT CIVIL APPEAL PRE-ARGUMENT STATEMENT (FORM C) ADDENDUM "B" Issues Proposed to be Raised on Appeal 1. Whether the district court erred in dismissing Plaintiff’s claims against Defendants for relief under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Securities and Exchange Commission Rule 10b-5 promulgated thereunder for failure to sufficiently allege material misstatements or omissions and scienter. 2. Whether the district court erred in dismissing Plaintiff’s claims against Defendants for relief under Section 20(a) of the Exchange Act for failure to sufficiently allege a primary violation under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. 3. Whether the district court erred in denying Plaintiff leave to amend his complaint as futile when the district court: (a) required Plaintiff to file an amended complaint before the court issued an order identifying which allegations the court found insufficient; (b) dismissed the complaint with prejudice only after the court issued an order that identified which allegations the court found insufficient; and (c) found that amendment was futile based on the incorrect factual finding that Plaintiff had conducted discovery while the motion to dismiss was Case 17-3484, Document 12-3, 11/13/2017, 2170754, Page2 of 2 pending when, in fact, discovery had been stayed pursuant to the Private Securities Litigation Reform Act. See 15 U.S.C. § 78u-4(b)(3)(B). Standard of Review for Proposed Issues 1. The district court’s dismissal of Plaintiff’s claims under Sections 10(b) and 20(a) of the Exchange Act, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, and the PSLRA, is reviewed de novo. See Reich v. Lopez, 858 F.3d 55, 59 (2d Cir. 2017) ("We review de novo the dismissal of a complaint for failure to state a claim upon which relief can be granted."), cert denied, 2017 WL 3608657 (U.S. Oct. 2, 2017); Espinoza ex rel. JP Morgan Chase & Co. v. Dimon, 797 F.3d 229, 236 (2d Cir. 2015) ("[W]hen a district court dismisses a fraud claim for lacking the particularized allegations required by Fed. R. Civ. P. 9(b), we review that dismissal de novo."). 2. The district court’s denial of leave to amend as futile is reviewed de novo. See City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 188 (2d Cir. 2014) ("We review a district court’s denial of leave to amend for abuse of discretion, unless the denial was based on futility, in which case we review that legal conclusion de novo."). 2

FORM D, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF.[2170781] [17-3484] [Entered: 11/13/2017 03:51 PM]

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT CIVIL APPEAL TRANSCRIPT INFORMATION (FORM D) NOTICE TO COUNSEL: COUNSEL FOR THE AP P ELLANT MUST FILE THIS FORM WITH THE CLERK OF THE SECOND CIRCUIT IN ALL CIVIL AP P EALS WITHIN 14 CALENDAR DAYS AFTER FILING A NOTICE OF AP P EAL. THIS SECTION MUST BE COMPLETED BY COUNSEL FOR APPELLANT CASE TITLE DISTRICT DOCKET NUMBER Minohor Singh, Individually and On behalf of All Others Similarly Situated, Connecticut 3:16-cv-00182-VLB Plaintiff, JUDGE APPELLANT v. Vanessa L. Bryant Minohor Singh Cigna Corp., et al., COURT REPORTER COUNSEL FOR APPELLANT Defendants. Suzanne Benoit Labaton Sucharow LLP Check the applicable provision: PROVIDE A DESCRIPTION, INCLUDING DATES, OF THE PROCEEDINGS FOR WHICH A TRANSCRIPT IS REQUIRED (i.e., oral argument, order from the bench, □ I am ordering a transcript. etc.) □ ✔ I am not ordering a transcript. Reason for not ordering a transcript: □ ✔ Copy is already available □ No transcribed proceedings □ Other (Specify in the space below): METHOD OF PAYMENT □ Funds □ CJA Voucher (CJA 21) INSTRUCTIONS TO COURT REPORTER: DELIVER TRANSCRIPT TO: (COUNSEL’S NAME, ADDRESS, TELEPHONE) □ PREPARE TRANSCRIPT OF PRE-TRIAL PROCEEDINGS □ PREPARE TRANSCRIPT OF TRIAL □ PREPARE TRANSCRIPT OF OTHER POST-TRIAL PROCEEDINGS □ OTHER (Specify in the space below): If a transcript is ordered, I certify that I have sent this form to the court reporter and have made satisfactory arrangements with the court reporter for payment of the cost of the transcript. See FRAP 10(b). I understand that unless I have already ordered the transcript, I shall order its preparation at the time required by FRAP and the Local Rules. COUNSEL’S SIGNATURE DATE s/James W. Johnson November 13, 2017 COURT REPORTER ACKNOWLEDGMENT: This section is to be completed by the court reporter. Return one copy to the Clerk of the Second Circuit. DATE ORDER RECEIVED ESTIMATED COMPLETION DATE ESTIMATED NUMBER OF PAGES SIGNATURE OF COURT REPORTER DATE Revised June, 2017

NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellee Cigna Corp, David Cordani, Thomas A. McCarthy, Herbert Fritch and Richard Appel, FILED. Service date 11/15/2017 by CM/ECF. [2172816] [17-3484] [Entered: 11/15/2017 12:40 PM]

Case 17-3484, Document 19, 11/15/2017, 2172816, Page1 of 1 NOTICE OF APPEARANCE FOR SUBSTITUTE, ADDITIONAL, OR AMICUS COUNSEL Short Title: Singh v. Cigna Corp. _____ Docket No.: 17-3484 ________ Substitute, Additional, or Amicus Counsel’s Contact Information is as follows: Name: Dorothy J. Spenner Firm: Sidley Austin LLP Address: 787 Seventh Avenue Telephone: 212-839-7375 ___________________________ Fax: 212-839-5599 E-mail: dspenner@sidley.com Appearance for: Cigna Corp., David M. Cordani, Thomas A. McCarthy, Herbert A. Fritch, and Richard Appel/Defendants-Appellees (party/designation) Select One: G Substitute counsel (replacing lead counsel:) (name/firm) G Substitute counsel (replacing other counsel: _______) (name/firm) G Additional counsel (co-counsel with: Andrew W. Stern/Sidley Austin LLP ✔) (name/firm) G Amicus (in support of:) (party/designation) CERTIFICATION I certify that: ✔ G I am admitted to practice in this Court and, if required by Interim Local Rule 46.1(a)(2), have renewed my admission on March 30, 2016 OR G I applied for admission on. Signature of Counsel:/s/Dorothy J. Spenner Type or Print Name: Dorothy J. Spenner

NEW CASE MANAGER, Dana Ellwood, ASSIGNED.[2178010] [17-3484] [Entered: 11/22/2017 08:51 AM]

United States Court of Appeals for the Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, NY 10007 ROBERT A. KATZMANN CATHERINE O'HAGAN WOLFE CHIEF JUDGE CLERK OF COURT Date: November 22, 2017 DC Docket #: 16-cv-182 Docket #: 17-3484cv DC Court: CT (NEW HAVEN) Short Title: Singh v. Cigna Corp DC Judge: Bryant NOTICE OF CASE MANAGER CHANGE The case manager assigned to this matter has been changed. Inquiries regarding this case may be directed to 212-857-8623.

NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Minohor Singh, FILED. Service date 01/26/2018 by CM/ECF. [2223067] [17-3484] [Entered: 01/26/2018 04:41 PM]

Case 17-3484, Document 41, 01/26/2018, 2223067, Page1 of 1 NOTICE OF APPEARANCE FOR SUBSTITUTE, ADDITIONAL, OR AMICUS COUNSEL Short Title: Singh v. Cigna Corp. _____ Docket No.: 17-3484 ________ Substitute, Additional, or Amicus Counsel's Contact Information is as follows: Name: David J. Goldsmith Firm: Labaton Sucharow LLP Address: 140 Broadway, 33rd Floor, New York, NY 10005 Telephone: 212-907-0879 ___________________________ Fax: 212-818-0477 E-mail: dgoldsmith@labaton.com Appearance for: Lead Plaintiff / Appellant Minohor Singh (party/designation) Select One: G Substitute counsel (replacing lead counsel:) (name/firm) G Substitute counsel (replacing other counsel: _______) (name/firm) G Additional counsel (co-counsel with: James W. Johnson / Labaton Sucharow LLP ✔) (name/firm) G Amicus (in support of:) (party/designation) CERTIFICATION I certify that: ✔ G I am admitted to practice in this Court and, if required by Interim Local Rule 46.1(a)(2), have renewed my admission on OR G I applied for admission on. Signature of Counsel: s/ David J. Goldsmith Type or Print Name: David J. Goldsmith

BRIEF & SPECIAL APPENDIX, on behalf of Appellant Minohor Singh, FILED. Service date 02/08/2018 by CM/ECF. [2232201] [17-3484] [Entered: 02/08/2018 02:17 PM]

Case 17-3484, Document 43, 02/08/2018, 2232201, Page1 of 124 17-3484 d IN THE United States Court of Appeals FOR THE SECOND CIRCUIT MINOHOR SINGH, Lead Plaintiff-Appellant, JYOTINDRA PATEL, Individually and On Behalf of All Others Similarly Situated, Plaintiff, —against— CIGNA CORP., DAVID CORDANI, THOMAS A. MCCARTHY, HERBERT FRITCH, RICHARD APPEL, Defendants-Appellees. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT BRIEF AND SPECIAL APPENDIX FOR LEAD PLAINTIFF-APPELLANT JAMES W. JOHNSON DAVID J. GOLDSMITH MICHAEL H. ROGERS JAMES T. CHRISTIE LABATON SUCHAROW LLP 140 Broadway New York, New York 10005 (212) 907-0700 Attorneys for Lead Plaintiff-Appellant Case 17-3484, Document 43, 02/08/2018, 2232201, Page2 of 124 TABLE OF CONTENTS Table of Authorities ................................................................................................. iii INTRODUCTION .....................................................................................................1 STATEMENT OF JURISDICTION..........................................................................5 ISSUES PRESENTED FOR REVIEW .....................................................................5 STATEMENT OF THE CASE ..................................................................................6 A. Summary of Pertinent Allegations ..................................................................6 1. Cigna Acquires HealthSpring to Get Into the Lucrative Private Medicare Business ..............................................6 2. The Individual Defendants Weaken Cigna's Medicare Compliance Function ...............................................8 3. CMS Puts the Individual Defendants on Notice of Cigna's Ineffective Medicare Compliance Function Starting in 2013 ...............................................11 4. Alleged Material Misstatements..........................................................13 5. CMS Imposes Sanctions Upon Finding That Cigna's Medicare Compliance Function Is Ineffective ....................................................16 B. The District Court's Opinion .........................................................................18 1. Material Misstatements .......................................................................18 2. Scienter ................................................................................................21 C. Relevant Procedural History ..........................................................................23 SUMMARY OF ARGUMENT ...............................................................................27 ARGUMENT ...........................................................................................................30 I. STANDARDS OF REVIEW.........................................................................30 Case 17-3484, Document 43, 02/08/2018, 2232201, Page3 of 124 II. THE DISTRICT COURT ERRED IN RULING THAT PLAINTIFFS DID NOT SUFFICIENTLY PLEAD MISSTATEMENTS OF MATERIAL FACT .................................31 A. Standards for Pleading Material Misrepresentation .................................................................31 B. Defendants Failed to Tell the Whole Truth Regarding Cigna's Compliance With CMS Requirements ................................................33 1. The District Court's "Immateriality By Hindsight" Approach Was Improper ..................................33 2. Cigna's Ability to Seek Retraction of the CMS Notices, a Basis for the District Court's Ruling, Supports a Finding of Materiality ................................38 C. The Statements Alleged in Cigna's Code of Ethics Are Actionable............................................................40 1. The Statements Were False When Made ..................................40 2. The Statements Are Not Immaterial Puffery ............................41 III. THE DISTRICT COURT ERRED IN RULING THAT PLAINTIFFS DID NOT SUFFICIENTLY PLEAD A STRONG INFERENCE OF SCIENTER ....................................42 A. Standards for Pleading Scienter ..........................................................42 B. The District Court Misapplied the Standard for Pleading Recklessness in This Circuit...........................................44 C. Cigna's Proffered Inference of "Managerial Errors" Is Uncompelling ................................................51 IV. THE SUFFICIENCY OF PLAINTIFFS' SECTION 20(a) CLAIMS SHOULD BE DECIDED BY THE DISTRICT COURT ON REMAND ..............................................54 CONCLUSION ........................................................................................................54 ii Case 17-3484, Document 43, 02/08/2018, 2232201, Page4 of 124 TABLE OF AUTHORITIES Page(s) Cases In re ArthroCare Corp. Securities Litigation, 726 F. Supp. 2d 696 (W.D. Tex. 2010) ........................................................ 49-50 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................ 31 ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) ................................................................................. 31 In re BioScrip, Inc. Securities Litigation, 95 F. Supp. 3d 711 (S.D.N.Y. 2015) ............................................................37, 49 Christine Asia Co. v. Ma, No. 16-2519-cv, 2017 WL 6003340 (2d Cir. Dec. 5, 2017) ......................................................................................... 53 City of Pontiac Policemen's and Firemen's Retirement System v. UBS AG, 752 F.3d 173 (2d Cir. 2014) ...................................................................41, 42, 48 City of Providence v. BATS Global Markets, Inc., 878 F.3d 36 (2d Cir. 2017) ...........................................................................31, 54 ECA & Local 134 IBEW Joint Pension Trust of Chicago v. JPMorgan Chase & Co., 553 F.3d 187 (2d Cir. 2009) .........................................................................43, 48 Employees' Retirement System of Government of the Virgin Islands v. Blanford, 794 F.3d 297 (2d Cir. 2015) ........................................................................passim iii Case 17-3484, Document 43, 02/08/2018, 2232201, Page5 of 124 In re Goldman Sachs Group, Inc. Securities Litigation, No. 10 Civ. 3461 (PAC), 2014 WL 2815571 (S.D.N.Y. June 23, 2014).............................................................................. 41-42 Indiana Public Retirement System v. SAIC, Inc., 818 F.3d 85 (2d Cir. 2016) ................................................................................. 53 Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011) ............................................................................................ 40 Johnson v. United States, 780 F.2d 902 (11th Cir. 1986) ............................................................................ 21 In re JPMorgan Chase Securities Litigation, 363 F. Supp. 2d 595 (S.D.N.Y. 2005) ................................................................ 46 Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) ............................................................................... 48 Maguire Financial, L.P. v. PowerSecure International, Inc., 876 F.3d 541 (4th Cir. 2017) .............................................................................. 48 Makor Issues & Rights, Ltd. v. Tellabs, Inc., 513 F.3d 702 (7th Cir. 2008) .............................................................................. 53 In re Marsh & McLennan Cos., Inc. Securities Litigation, 501 F. Supp. 2d 452 (S.D.N.Y. 2006) ..........................................................46, 52 Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) ........................................................................................33, 44 Meyer v. JinkoSolar Holdings Co., 761 F.3d 245 (2d Cir. 2014) ........................................................................passim In re Moody's Corp. Securities Litigation, 599 F. Supp. 2d 493 (S.D.N.Y. 2009) ................................................................ 46 iv Case 17-3484, Document 43, 02/08/2018, 2232201, Page6 of 124 New Orleans Employees Retirement System v. Celestica, Inc., 455 F. App'x 10 (2d Cir. 2011) .................................................................... 48-49 Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) ...................................................................35, 43, 48 Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015) ........................................................................................ 32 Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Management LLC, 595 F.3d 86 (2d Cir. 2010) ...........................................................................32, 33 Pirnik v. Fiat Chrysler Automobiles, N.V., No. 15-CV-7199 (JMF), 2016 WL 5818590 (S.D.N.Y. Oct. 5, 2016) ...................................................................................... 45 Richman v. Goldman Sachs Group, Inc., 868 F. Supp. 2d 261 (S.D.N.Y. 2012) ..........................................................41, 42 Roth v. Jennings, 489 F.3d 499 (2d Cir. 2007) ............................................................................... 38 SEC v. Gabelli, 653 F.3d 49 (2d Cir. 2011), rev'd on other grounds, 568 U.S. 442 (2013) .............................................................32, 37 South Cherry Street, LLC v. Hennessee Group LLC, 573 F.3d 98 (2d Cir. 2009) ................................................................................. 48 Teamsters Local 445 Freight Division Pension Fund v. Dynex Capital Inc., 531 F.3d 190 (2d Cir. 2008) ...................................................................43, 46, 48 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) .......................................................................... 31, 43-44, 48 TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976) ............................................................................................ 33 v Case 17-3484, Document 43, 02/08/2018, 2232201, Page7 of 124 In re Vivendi Universal, S.A. Securities Litigation, 765 F. Supp. 2d 512 (S.D.N.Y. 2011), aff'd, 838 F.3d 223 (2d Cir. 2016) ...................................................................... 35 Statutes and Rules Securities Exchange Act of 1934 Section 10(b), 15 U.S.C. § 78j(b) ................................................................passim Section 20(a), 15 U.S.C. § 78t(a)..............................................................5, 25, 54 Section 21D(b)(2)(A), 15 U.S.C. § 78u-4(b)(2)(A) ........................................... 42 Section 21D(b)(3)(B), 15 U.S.C. § 78u-4(b)(3)(B) ............................................ 24 Section 27, 15 U.S.C. § 78aa ................................................................................ 5 28 U.S.C. § 1291 ........................................................................................................ 5 28 U.S.C. § 1331 ........................................................................................................ 5 SEC Rule 10b-5, 17 C.F.R. § 240.10b-5..................................................................................passim 42 C.F.R. § 422.503(b)(4)(vi) .................................................................................. 12 42 C.F.R. § 422.503(b)(4)(vi)(B)............................................................................. 13 42 C.F.R. § 422.503(b)(4)(vi)(B)(2) ........................................................................ 13 Fed. R. App. P. 4(a)(1)(A) ......................................................................................... 5 vi Case 17-3484, Document 43, 02/08/2018, 2232201, Page8 of 124 INTRODUCTION This appeal arises from the Hon. Vanessa L. Bryant's dismissal of a securities class action complaint against Cigna Corporation, one of the nation's largest health care insurers, for failure to state a claim. Judge Bryant's decision cannot be sustained on de novo review. Judge Bryant consistently declined to credit Plaintiffs' well-pleaded allegations of a straightforward fraud: Cigna publicly assured (and reassured) investors that the Company was in compliance with the regulatory requirements of the federal Centers for Medicare and Medicaid Services ("CMS"), that it had established policies and procedures to comply with those requirements, and that it would continue to allocate significant resources to its compliance programs in order to comply with those requirements. The Company failed to disclose, however, that its Medicare compliance programs and infrastructure were entirely ineffective and had caused CMS to send dozens of notices of violations to Cigna's Medicare Compliance Officer. The violations and lack of compliance ultimately led CMS to bar Cigna from marketing or selling any new Medicare plans nationwide. Further, Judge Bryant managed this case under the erroneous impression that Plaintiffs had been receiving the benefit of discovery in the course of filing and amending their pleadings. Under the Private Securities Litigation Reform Act of 1995 ("PSLRA"), however, discovery is automatically stayed during the pleading Case 17-3484, Document 43, 02/08/2018, 2232201, Page9 of 124 stage in actions like this one, and no discovery occurred regardless of Judge Bryant's belief or intentions. Cigna bought HealthSpring, a leading Medicare insurer, in order to enter the lucrative, fast-growing business of selling private Medicare insurance to the "Baby Boomer" generation. The acquisition, the largest in Cigna's history, closed in early 2012. Medicare premiums immediately became Cigna's largest source of revenue, accounting for more than 20% of 2012, 2013, and 2014 revenues. HealthSpring had been successful at marketing and administering private Medicare plans, not only by making money, but also by its proven track record of compliance. Before the Cigna acquisition, HealthSpring had never been cited or sanctioned by CMS for violating regulations—not even once. Cigna was far more interested in Medicare premiums than compliance, however, to the point that the post-acquisition Company never had effective CMS compliance programs or infrastructure. Cigna installed its own employees into key compliance positions at the HealthSpring subsidiary despite their having little or no compliance experience. This pushed HealthSpring's experienced compliance personnel out the door. Defendants also made no effort to integrate the Cigna and HealthSpring data processing systems, a necessary component of a workable compliance infrastructure. 2 Case 17-3484, Document 43, 02/08/2018, 2232201, Page10 of 124 In 2013, the Company's Medicare Compliance Officer (who was from Cigna) received the first of dozens of notices from CMS identifying specific regulatory violations (collectively, "CMS Notices" or "Notices"). These violations went unremediated and uncorrected, and in at least one instance led CMS to send a further notice of the same violations. Cigna's CEO and CFO, and HealthSpring's President were aware of the violations because CMS rules required the Medicare Compliance Officer to escalate all instances of non-compliance up the chain. As of March 2015, Cigna received at least ten Notices describing failures to process Medicare coverage determinations, inadequate claims processing systems, failures to provide medical records, misleading advertising practices, and other specific violations going back to October 2013. Cigna continued to receive a steady stream of Notices—some 67 more by the end of 2015. CMS came to realize that Cigna was a serious problem. After conducting a two-week on-site audit in October 2015, CMS brought the hammer down. In a letter dated January 21, 2016 ("CMS Letter"), CMS found, among other things, that "Cigna's lack of an effective compliance infrastructure (specifically related to its monitoring and internal controls) [was] apparent," and that "Cigna's conduct pose[d] a serious threat to the health and safety of Medicare 3 Case 17-3484, Document 43, 02/08/2018, 2232201, Page11 of 124 beneficiaries." Joint Appendix ("JA") 86, 114, 129-30 (¶¶ 21, 103, 139)1; JA173, 175.2 CMS barred Cigna from marketing any Medicare plans or enrolling any new members nationwide—cutting off new revenues and growth—until the Company got its house in order. Cigna's disclosure of the CMS Letter and sanctions the next day erased more than $1 billion in market capitalization and caused investors to suffer damages. Six months later, Cigna disclosed that it was still out of compliance despite having spent $30 million on remediation efforts, and warned that the Company might not be able to timely or fully address its compliance issues. Cigna's stock price fell nearly 9%, causing further damages to investors. Because Judge Bryant misunderstood the PSLRA discovery stay, misapplied well-settled standards for pleading materiality and scienter in this Circuit, and improperly adopted Defendants' arguments for dismissal while refusing to credit Plaintiffs' well-pleaded factual allegations, this Court should reverse in part and remand for further proceedings. 1 Citations to "¶ ___" herein refer to paragraphs of the Second Amended Class Action Complaint for Violation of the Federal Securities Laws ("Complaint"). Throughout this brief, emphases in quotations are added unless otherwise noted. 2 The CMS Letter is an exhibit to the Complaint. JA165-76. 4 Case 17-3484, Document 43, 02/08/2018, 2232201, Page12 of 124 STATEMENT OF JURISDICTION The Complaint filed by Lead Plaintiff-Appellant Minohor Singh, individually and on behalf of a proposed Class (collectively, "Plaintiffs"), asserts claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and Securities and Exchange Commission ("SEC") Rule 10b-5, 17 C.F.R. § 240.10b-5. JA74-176. The district court had subject-matter jurisdiction under Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331. JA90 (¶ 33). Judge Bryant's Memorandum of Decision Granting Defendants' Motion to Dismiss Second Amended Complaint, dated September 28, 2017 ("Opinion"), dismissed the Complaint in its entirety and with prejudice. Special Appendix annexed hereto ("SPA") 1-57. A Judgment was entered on October 2, 2017. SPA58. Plaintiffs filed a Notice of Appeal on October 27, 2017. JA551-53. This appeal is timely under Fed. R. App. P. 4(a)(1)(A). This Court has jurisdiction under 28 U.S.C. § 1291. ISSUES PRESENTED FOR REVIEW 1. Whether the district court erroneously held that Defendants' alleged false and misleading statements were immaterial because the regulatory violations 5 Case 17-3484, Document 43, 02/08/2018, 2232201, Page13 of 124 evidenced in the pre-misstatement CMS Notices were not "ongoing and substantial" in comparison to the totality of violations described in the CMS Letter. 2. Whether the district court erroneously held that Defendants' alleged false and misleading statements were immaterial because Cigna was free to seek retraction of the pre-misstatement CMS Notices. 3. Whether the district court erroneously held that the alleged false and misleading statements in Cigna's December 2014 Code of Ethics and Principles of Conduct were not made on the date the Code of Ethics was published. 4. Whether the district court erroneously held that the alleged false and misleading statements in the Code of Ethics were immaterial puffery. 5. Whether the district court erroneously held that the Complaint did not sufficiently plead a strong inference of scienter despite specific allegations that the Individual Defendants had knowledge of material facts or access to information inconsistent with their public statements. STATEMENT OF THE CASE A. Summary of Pertinent Allegations 1. Cigna Acquires HealthSpring to Get Into the Lucrative Private Medicare Business In or about 2010, federally funded private health insurance and prescription drug coverage for persons eligible for Medicare (called "Medicare Advantage" and "Medicare Part D") emerged as a new opportunity for private health insurance 6 Case 17-3484, Document 43, 02/08/2018, 2232201, Page14 of 124 companies to shift their focus and make significant profits. The historically large "Baby Boomer" generation was becoming Medicare-eligible (1945 + 65 = 2010), and Medicare patients have always generated far more insurance revenue than other patients. JA79, 96-97 (¶¶ 1, 52-55). Cigna, despite being one of the nation's largest health care insurers, had no real presence in private Medicare, and wanted in. JA79, 97 (¶¶ 2, 55-56). The Company acquired HealthSpring, which did nothing but Medicare (and Medicaid) insurance and, in fact, was among the largest private Medicare insurers. JA79, 97- 98 (¶¶ 3, 57-58). HealthSpring had extensive experience doing business in accordance with the regulations enacted and enforced by CMS, an agency of the U.S. Department of Health and Human Services. JA79-80, 99 (¶¶ 3, 5, 61). According to Confidential Witness ("CW") 1, a former HealthSpring employee who had primary responsibility for HealthSpring's relationship with CMS, HealthSpring had never been cited or sanctioned by CMS for non-compliance in 17 years of operations. JA79-80, 92-93, 98-99 (¶¶ 4, 42, 60). The HealthSpring deal, for $3.8 billion in cash, closed in early 2012 and was Cigna's largest-ever acquisition. JA79-80, 99-100 (¶¶ 4, 62). Buying HealthSpring was a major strategic initiative for the Company. Defendant David M. Cordani, the CEO, told investors that "Cigna had long identified HealthSpring's specialty—providing a private insurance plan that combines 7 Case 17-3484, Document 43, 02/08/2018, 2232201, Page15 of 124 traditional Medicare coverage with additional services—as an important area for [Cigna's] growth." JA100 (¶ 64). HealthSpring immediately became Cigna's cash cow. In 2012, the first year after the acquisition, the HealthSpring subsidiary accounted for nearly 22% of Cigna's consolidated revenues, when none of Cigna's other business lines accounted for more than 10% of revenues. HealthSpring similarly brought in 22% and 21% of Cigna's total revenues in 2013 and 2014, again with no other business generating more than 10%. JA81, 101-02, 140 (¶¶ 8, 67-69, 172). 2. The Individual Defendants Weaken Cigna's Medicare Compliance Function HealthSpring was a defining acquisition for Cigna, and the Individual Defendants all had major roles. Cordani oversaw the integration of HealthSpring's operations into Cigna's operational structure. JA91, 138 (¶¶ 38, 165). Defendant Thomas A. McCarthy, the CFO, led the acquisition itself. JA91-92, 136 (¶¶ 39, 161). Defendant Herbert A. Fritch, who headed HealthSpring, remained President of the Cigna-HealthSpring subsidiary. JA92 (¶ 40). And Defendant Richard A. Appel was made Cigna's Medicare Compliance Officer, the top CMS compliance official, shortly after the acquisition. JA92 (¶ 41). With these roles and responsibilities, the Individual Defendants understood that integrating HealthSpring (which had exclusively sold Medicare plans) into Cigna (which had sold almost no Medicare plans) presented a substantial risk of 8 Case 17-3484, Document 43, 02/08/2018, 2232201, Page16 of 124 weakening CMS compliance protocols. JA102-03 (¶¶ 70-71). Less than a year before the acquisition was announced, Fritch told Managed Healthcare Executive, an industry publication, that "[t]here's no question that [HealthSpring] spend[s] a lot of time and effort on compliance," and remarked that "[i]t would be really hard to have Medicare Advantage as a sideline business and not really focus on it and dedicate the resources to things like compliance." JA99 (¶ 61). Nonetheless, by early 2013 (a year after the acquisition), Cigna had replaced most of HealthSpring's senior leadership including its Medicare Compliance Officer, Chief Operating Officer, and President of Operations, each of whom had significant CMS compliance experience, with Cigna employees who had little or no experience. JA81-82, 92, 105-11 (¶¶ 9, 41, 78-79, 83, 89, 92). HealthSpring's mid-level managers and rank-and-file employees in compliance were similarly pushed out in favor of inexperienced Cigna employees, in large part because Cigna didn't pay well and was unwilling to offer competitive salaries. JA106-11 (¶¶ 80- 83, 88, 91-92). Additionally, a significant workforce reduction in HealthSpring customer service employees prioritized cost savings to the detriment of regulatory compliance. JA94, 110 (¶¶ 47, 91). The HealthSpring people who were ushered- out had institutional knowledge not only of CMS requirements in general, but also 9 Case 17-3484, Document 43, 02/08/2018, 2232201, Page17 of 124 the company-specific compliance protocols that HealthSpring had implemented and followed for years without a hitch. JA92, 105-08 (¶¶ 41, 77-79, 83). Appel became Medicare Compliance Officer after having been Director of Cigna's Special Investigation Unit, and similarly had limited compliance experience. He had two years of Medicare compliance experience as compared to the pre-acquisition HealthSpring Medicare compliance officer's 17 years. JA82, 92 (¶¶ 10, 41). Appel didn't seek out HealthSpring's institutional knowledge on the subject. For example, CW1, HealthSpring's Senior Vice President for Government Programs and Medicare Compliance, never heard from Appel and eventually left. JA105, 108 (¶¶ 77, 84-85). The personnel changes were a direct and substantial cause of the Company's deteriorated compliance function. JA105- 08, 110-11 (¶¶ 78, 83, 91-92). At the same time, Cigna made no effort to integrate HealthSpring's two data processing systems, a necessary component of the Company's CMS compliance function, with Cigna's existing data processing system. JA81-82, 84, 87, 111 (¶¶ 9, 16, 26, 93-94). CW4, who had responsibility for HealthSpring's IT systems, explained that HealthSpring's Vice President for Health Services developed a plan, estimated to cost less than $5 million, in response to an internal audit showing that Cigna was out of compliance. Cigna rejected the plan and continued to usher-out qualified HealthSpring employees. JA112-13 (¶ 98). The disjointed, fragmented 10 Case 17-3484, Document 43, 02/08/2018, 2232201, Page18 of 124 nature of the Company's systems was one reason CMS found Cigna's compliance function ineffective. JA112-13 (¶¶ 95-97, 99); JA166, 172. Even after sanctions were imposed, according to CW8, Cigna had not developed a plan to convert the three systems into one, nor was there any apparent interest at the senior level in developing such a plan. JA113 (¶ 100). 3. CMS Puts the Individual Defendants on Notice of Cigna's Ineffective Medicare Compliance Function Starting in 2013 These actions and inactions had a direct and substantial impact on Cigna's compliance with CMS requirements. In 2013, CMS issued Cigna a Notice of Non- Compliance for failing to process Medicare coverage determinations. This was the first CMS enforcement activity involving HealthSpring since its founding. JA98- 99, 116, 118 (¶¶ 60, 110, 115). Nine more Notices followed through the end of February 2015, for misleading advertising that occurred in October and November 2013, failure to provide medical records and improper payments to hundreds of doctors, improper pharmacy coverage, and inadequate claims processing systems. JA83, 119-21 (¶¶ 13, 117). From March 2015 until CMS imposed sanctions in January 2016, CMS issued Cigna 64 additional Notices of Non-Compliance and Warning Letters citing 11 Case 17-3484, Document 43, 02/08/2018, 2232201, Page19 of 124 a wide array of violations,3 plus one Request for Corrective Action Plan. JA83, 119-21 (¶¶ 13, 116-117). In certain instances, CMS sent a Notice for similar violations cited in the pre-March 2015 Notices, such as untimely processing of coverage determinations or redetermination requests, or failure to process altogether. JA94-95, 119-21 (¶¶ 48, 117). In one instance, CMS sent a nonpublic Warning Letter for the same violations that had been cited in 2013, and that went unremediated and uncorrected for years. JA116 (¶ 110); JA169. The Individual Defendants all were aware of the pre-misstatement (and post- misstatement) CMS Notices or their contents. Each Notice was addressed to Appel as Cigna's Medicare Compliance Officer. JA119, 136 (¶¶ 116, 160). CMS's formal Compliance Program Guidelines provide that "[a]n effective compliance program cannot be achieved unless the CEO (or senior-most leader) and other senior management, as appropriate, are engaged in the compliance program." JA104 (¶ 74).4 The Guidelines required Appel to provide "Medicare compliance reports" to, among others, the "CEO" and "compliance committee." JA103 (¶ 72). These reports included "the status of the [Company's] Medicare compliance 3 The number 64 excludes two December 2015 Notices concerning call center operations that CMS retracted in February 2016, as discussed in Part II.B.2 below. 4 See 42 C.F.R. § 422.503(b)(4)(vi) (requiring all Medicare Advantage organizations to "[a]dopt and implement an effective compliance program, which must include measures that prevent, detect, and correct non-compliance with CMS' program requirements. . . ."). 12 Case 17-3484, Document 43, 02/08/2018, 2232201, Page20 of 124 program implementation, [and] the identification and resolution of suspected, detected or reported instances of noncompliance[.]" JA103, 136-37 (¶¶ 72, 162). The Guidelines similarly provided that "[t]he CEO must also be advised of all governmental compliance enforcement activity, from Notices of Non-compliance to formal enforcement actions." JA104, 137 (¶¶ 74, 164). Further, Cigna's Compliance Committee was "accountable to, and. . . provide[d] regular compliance reports to [the Company]'s senior-most leader and governing body." JA103-04, 137 (¶¶ 73, 163).5 Fritch was a member of the Compliance Committee during the Class Period.6 JA104 (¶ 74). 4. Alleged Material Misstatements On February 27, 2014, Cigna filed its Form 10-K Annual Report for 2013, signed by Cordani and McCarthy ("2013 Form 10-K"). Cordani and McCarthy also signed Sarbanes-Oxley certifications attesting that the Form 10-K was not materially false or misleading. JA121, 123 (¶¶ 119, 123-124). The 2013 Form 10-K stated under the heading "Regulation": 5 See 42 C.F.R. § 422.503(b)(4)(vi)(B) (requiring "[t]he designation of a compliance officer and a compliance committee who report directly and are accountable to the organization's chief executive or other senior management"); id. § 422.503(b)(4)(vi)(B)(2) ("The compliance officer and the compliance committee must periodically report directly to the governing body of the MA organization on the activities and status of the compliance program, including issues identified, investigated, and resolved by the compliance program."). 6 The Class is defined essentially as all persons and entities that purchased or otherwise acquired publicly traded Cigna common stock between February 27, 2014 and August 2, 2016, inclusive, and were damaged thereby. JA147 (¶ 190). 13 Case 17-3484, Document 43, 02/08/2018, 2232201, Page21 of 124 The laws and regulations governing our business continue to increase each year and are subject to frequent change. We have established policies and procedures to comply with applicable requirements. JA121-22 (¶ 120). The 2013 Form 10-K further stated, under the "Medicare Regulations" subheading: In our Medicare Advantage business, we contract with CMS to provide services to Medicare beneficiaries pursuant to the Medicare program. As a result, our right to obtain payment (and the determination of such payments), enroll and retain members and expand into new service areas is subject to compliance with CMS' numerous and complex regulations and requirements that are frequently modified and subject to administrative discretion. . . . We expect to continue to allocate significant resources to our compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs. JA122 (¶ 121). The 2013 Form 10-K further stated, under the "Federal Audits of Government Sponsored Health Care Programs" subheading: Fraud and abuse prohibitions encompass a wide range of activities, including kickbacks for referral of customers, billing for unnecessary medical services, improper marketing, and violation of patient privacy rights. The regulations and contractual requirements in this area are complex, are frequently modified, and are subject to administrative discretion. We expect to continue to allocate significant resources to comply with these requirements and to maintain audit readiness. 14 Case 17-3484, Document 43, 02/08/2018, 2232201, Page22 of 124 JA122-23 (¶ 122). In December 2014, the Company published a periodic Code of Ethics and Principles of Conduct. JA124 (¶ 127). The Code of Ethics quoted McCarthy: Doing things "the right way" extends to how we manage our information. Take our financial results, for example. We have an obligation to make sure we're analyzing and reporting our results fairly and accurately. The shareholders who invest in us expect it, as do the analysts who follow us. That's why it's so important for every employee on the global Cigna team to handle, maintain, and report on this information in compliance with all laws and regulations. JA125 (¶ 128). The Code of Ethics also quoted Fritch: As a respected health service organization, we have a responsibility to act with integrity in all we do, including any and all dealings with government officials. This is critical to help us achieve our mission to improve the health, well-being and sense of security of those we serve. JA125 (¶ 129). On February 26, 2015, Cigna filed its Form 10-K Annual Report for 2014, signed by Cordani and McCarthy ("2014 Form 10-K"). Cordani and McCarthy also signed Sarbanes-Oxley certifications substantially similar to those signed for the 2013 Form 10-K. JA126-27 (¶¶ 131, 135). The 2014 Form 10-K contained the same statements under the "Medicare Regulations" and "Federal Audits of Government Sponsored Health Care 15 Case 17-3484, Document 43, 02/08/2018, 2232201, Page23 of 124 Programs" subheadings of the "Regulation" heading made in the 2013 Form 10-K, as quoted above. JA126-27 (¶¶ 132-134). Absent from the 2014 10-K, however, was the representation in the 2013 Form 10-K that "[w]e have established policies and procedures to comply with applicable requirements." JA117-18, 139 (¶¶ 113, 170). 5. CMS Imposes Sanctions Upon Finding That Cigna's Medicare Compliance Function Is Ineffective CMS conducted an on-site audit of Cigna's Medicare operations from October 5-20, 2015. JA116 (¶¶ 108-109); JA166. On January 21, 2016, after meeting with senior management, CMS issued Cigna a nonroutine letter advising that the agency was imposing immediate regulatory sanctions. JA113-14, 116, 128-30 (¶¶ 101-102, 108, 138-139); JA165-76. The CMS Letter was addressed to Defendant Fritch and found, among other things, that "Cigna's lack of an effective compliance infrastructure (specifically related to its monitoring and internal controls) [was] apparent due to the substantial number of failures discovered during the audit, as well as Cigna's inability to provide CMS with complete and accurate data in response to requests [for information]." JA116 (¶ 109); JA173. CMS traced Cigna's "widespread and systematic" violations and "longstanding history of non-compliance with CMS requirements" directly to the 2012 acquisition of HealthSpring. JA86, 115 (¶¶ 21, 105-106); JA166, 173. 16 Case 17-3484, Document 43, 02/08/2018, 2232201, Page24 of 124 Further, CMS observed that Cigna's violations dated back to 2013, and referenced essentially every violation described in every Notice received by the Company since then. JA86, 117, 119, 121 (¶¶ 21, 112, 116, 118); JA169. CMS stated that certain notices sent to Cigna "over the past several years. . . were for the same violations discovered during the audit, demonstrating that Cigna has not corrected issues of non-compliance." JA166. CMS also expressed "significant concerns that additional failures. . . exist beyond those that the auditors were able to identify." JA116 (¶ 110); JA169. CMS stated unambiguously that Cigna's past conduct "pose[d] a serious threat to the health and safety of Medicare beneficiaries." JA86, 114, 129-30 (¶¶ 21, 103, 139); JA173, 175. Based on Cigna's ineffective compliance programs and infrastructure, CMS barred the Company from marketing its Medicare plans or enrolling any new customers nationwide—cutting off new revenues or growth—until the Company could show that it was fully in compliance. JA86, 113, 129-30 (¶¶ 22, 101, 139). Cigna publicly disclosed the CMS Letter the next day. This news caused Cigna stock to fall approximately 3%, erasing approximately $1.1 billion of market capitalization and damaging Lead Plaintiff and members of the Class. JA87, 130 (¶¶ 25, 140-141). Six months later, Cigna announced a reduction in earnings guidance, attributable in part to $30 million in remediation costs the Company had incurred 17 Case 17-3484, Document 43, 02/08/2018, 2232201, Page25 of 124 during the previous quarter. JA130-31 (¶¶ 142-143). Cigna also warned that the Company might not be able to address the issues raised in the CMS Letter "in a timely and satisfactory manner." JA131 (¶ 144). On this news, Cigna stock fell approximately 9%, further damaging Lead Plaintiff and Class members. JA133-34 (¶¶ 150-153). B. The District Court's Opinion 1. Material Misstatements The district court dismissed the Complaint for failure to sufficiently plead material misstatements or scienter. Judge Bryant recognized that even where disclosure is not mandated by a statute or regulation, "[w]hen a defendant does speak to an issue or topic, the 'duty to tell the whole truth' arises." SPA25 (quoting Meyer v. JinkoSolar Holdings Co., 761 F.3d 245, 250 (2d Cir. 2014)).7 Relying on JinkoSolar, the court used "ongoing and substantial violations" as a proxy for materiality, stating that "the existence of 'ongoing and substantial' violations of regulations that are left undisclosed can lead to a material misstatement or omission if a reasonable 7 Judge Bryant tacitly found that Cigna had a duty of full disclosure as to the sufficiency of its CMS compliance programs and associated risks, such that the Company had put the issue "in play." Meyer v. JinkoSolar Holdings Co., 761 F.3d 245, 250 n.3 (2d Cir. 2014) (quoting Shapiro v. UJB Fin. Corp., 964 F.2d 272, 282 (3d Cir. 1992)); see SPA29-30. 18 Case 17-3484, Document 43, 02/08/2018, 2232201, Page26 of 124 investor would consider such information important." SPA29 (quoting JinkoSolar, 761 F.3d at 251-52). With respect to the alleged misstatements in Cigna's 2013 and 2014 Form 10-Ks, Judge Bryant found that the statement in both that Cigna "expect[s] to continue to allocate significant resources to our compliance, ethics, and fraud. . . programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs" supported an inference that Cigna knew that its compliance regime needed improvement. SPA29 (emphasis in original). Judge Bryant found this inference further supported by the fact that the statement in the 2013 Form 10-K that Cigna has "established policies and procedures to comply with applicable requirements" did not appear in the 2014 Form 10-K. SPA29. The district court concluded, however, that the Form 10-Ks were not materially false or misleading. SPA34-35. The court found that the violations evidenced in the Notices predating the Form 10-Ks were not "ongoing and substantial" and thus were "obviously unimportant to a reasonable investor." SPA31, 34 (emphasis in original).8 8 The district court suggested incorrectly that the only pre-misstatement Notices described in the Complaint were two Notices in October 2014 for failure to provide records, and five Notices in December 2014 for improper pharmacy coverage. SPA28, 31. The court overlooked the Notice received by Cigna in 2013 for failure to process coverage determinations, a Notice received in February 2015 for inadequate claims processing systems, and a Notice received on April 28, 2014 for misleading advertising practices that occurred in October and November 2013. 19 Case 17-3484, Document 43, 02/08/2018, 2232201, Page27 of 124 Judge Bryant gave two reasons for this conclusion. First, the court reasoned that the pre-misstatement violations "could at a later point be cured." SPA31. The court looked to a chart in a CMS "2014 Application Cycle" memorandum, not referenced in the Complaint, that appeared to explain the differences between a Notice of Non-Compliance, a Warning Letter, a Warning Letter with a Business Plan, and a Corrective Action Plan ("CMS Chart"). SPA5; see JA349. The district court quoted the description of a Notice of Non-Compliance as the "mildest type of letter" that "does not contain specific language regarding further compliance escalation or other consequences should the behavior/non-compliance continue." SPA31; see JA349. The court also suggested that a Warning Letter "may also be cured with corrective action." SPA31. Second, Judge Bryant compared the compliance violations described in the pre-misstatement Notices with the totality of violations described in the CMS Letter. SPA32-34. The court found that a reasonable investor would view the totality of compliance violations as "ongoing and substantial" owing to their "breadth and volume" and because they elicited Warning Letters and a Request for Corrective Action Plan in addition to Notices of Non-Compliance. SPA34. The district court stated that the violations in the pre-misstatement Notices were not JA116, 118-21 (¶¶ 110, 115, 117). In all, Cigna received at least ten Notices before March 2015 concerning violations in 2013 and 2014, and had also engaged in other violations in October and November 2013. JA83, 116, 118-21 (¶¶ 13, 110, 115, 117). 20 Case 17-3484, Document 43, 02/08/2018, 2232201, Page28 of 124 "ongoing and substantial" because they "could be rectified at any time without risking a threat to earnings." SPA34.9 Separately, Judge Bryant rejected the alleged misstatements by McCarthy and Fritch in the Company's December 2014 Code of Ethics as immaterial puffery. SPA26-27. The court also stated that the Complaint did not allege when McCarthy and Fritch made those statements, speculating that they "could have uttered those words years before they were actually published in the Code of Ethics." SPA27. 2. Scienter Judge Bryant organized Plaintiffs' allegations of the Individual Defendants' intentional or reckless disregard for the truth into four sets of facts. First, Appel personally received all of the Notices and was required by CMS regulations to escalate them to senior management, which included Cordani, McCarthy, and Fritch. Second, these Defendants were aware of all of the Notices and the compliance violations they described. Third, given HealthSpring's history of strong CMS compliance and the importance of the CMS business to Cigna's total revenues, the Individual Defendants were uniquely positioned to be aware of the compliance violations and to recognize their implications and the potential for 9 Judge Bryant observed that the sanctions imposed by CMS had recently been lifted, after 18 months. SPA33. Because the court learned of this post-briefing (and irrelevant) development solely through its own research, the reference is improper to the extent the court gave it any weight. See Johnson v. United States, 780 F.2d 902, 909-10 (11th Cir. 1986) (trial judge may not rely on "outside research" in reaching its conclusions). 21 Case 17-3484, Document 43, 02/08/2018, 2232201, Page29 of 124 sanctions. Fourth, Confidential Witness averments showed that the Individual Defendants were fully aware (or intentionally ignorant) of the potential for compliance failure that could result from (i) the Company's inability to take advantage of HealthSpring's institutional knowledge about effective CMS regulatory compliance and (ii) the failure to integrate the Cigna and HealthSpring data processing systems. SPA45. Judge Bryant nonetheless found that these facts "merely allege that Defendants 'must have known their statements to be untrue.'" SPA45 (emphasis in original) (quoting In re BioScrip, Inc. Sec. Litig., 95 F. Supp. 3d 711, 738 (S.D.N.Y. 2015)). The court stated that it was "unclear" how Appel's and the other Individual Defendants' knowledge of the pre-misstatement Notices and failure to act on them was "highly unreasonable" or an "extreme departure from the standard of care to the extent that the danger was either known to the defendants or so obvious that the defendants must have been aware of it." SPA45- 46 (emphasis in original) (quoting South Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 109 (2d Cir. 2009)). The court stated similarly that the Individual Defendants' mere "access to information" did not raise an inference of knowing or reckless misconduct. SPA46 (emphasis in original). Further, Judge Bryant stated that the Individual Defendants' alleged failure to take advantage of HealthSpring's institutional knowledge and failure to integrate 22 Case 17-3484, Document 43, 02/08/2018, 2232201, Page30 of 124 the data processing systems suggested a lack of scienter. SPA46. The court then rejected the confidential witness allegations in their entirety because they did not speak directly to the Individual Defendants' knowledge. SPA46-47. Last, the district court accepted Defendants' contention that an inference of scienter was less compelling than an inference that "managerial errors" arising from the acquisition "eventually set the stage for CMS sanctions." SPA47. Judge Bryant went on to address Plaintiffs' allegations of loss causation, which Defendants also challenged, and concluded that loss causation was sufficiently pleaded. SPA47-51. The court then dismissed Plaintiffs' Section 10(b) and Rule 10b-5 claims and summarily dismissed the Section 20(a) control- person liability claims. SPA51-52, 57.10 C. Relevant Procedural History On February 4, 2016, Jyotindra Patel, a purchaser of Cigna common stock, filed a class action complaint in the U.S. District Court for the District of Connecticut. The complaint asserted claims against Cigna and certain individual defendants for violations of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5. 10 Judge Bryant denied Plaintiffs' request for leave to amend the Complaint. SPA52-57. Plaintiffs do not seek review of that ruling. Plaintiffs also do not seek review of the court's conclusion that the Complaint did not plead motive to defraud based on Cordani's and Fritch's sales of Cigna stock. SPA39-42. 23 Case 17-3484, Document 43, 02/08/2018, 2232201, Page31 of 124 The same day, the clerk of the district court issued a standing Order on Pretrial Deadlines providing, among other things, that "[t]he filing of a motion to dismiss shall not result in the stay of discovery or extend the time for completing discovery." JA13. Under the PSLRA, however, which governs this action, "all discovery and other proceedings [were] stayed during the pendency of any motion to dismiss[.]" 15 U.S.C. § 78u-4(b)(3)(B). On April 4, 2016, Minohor Singh, who lost more than $250,000 on his Class Period purchases of Cigna stock, moved pursuant to the PSLRA to be appointed as lead plaintiff and for approval of his selection of Labaton Sucharow LLP as lead counsel. Plaintiff Patel and another individual investor jointly filed a competing lead plaintiff motion. On May 17, 2016, Judge Bryant appointed Mr. Singh as lead plaintiff and Labaton Sucharow as lead counsel for the Class. On August 1, 2016, following a confidential pre-filing investigation, Lead Plaintiff filed a Consolidated Amended Class Action Complaint for Violation of the Federal Securities Laws ("CAC"), naming Cigna, Cordani, McCarthy, and Fritch as defendants. Judge Bryant scheduled a pre-motion conference to discuss Defendants' anticipated motion to dismiss. In advance of the conference, Plaintiffs filed a motion to modify certain pretrial deadlines, advising that developments since the 24 Case 17-3484, Document 43, 02/08/2018, 2232201, Page32 of 124 CAC was filed made it likely that Plaintiffs would seek leave to amend. Defendants objected in substantial part. During the conference, Judge Bryant appeared to believe, incorrectly, that Plaintiffs had been conducting merits discovery since May, and were now seeking more time to do so in furtherance of amending the complaint. JA67 ("THE COURT: . . . And why does the defense believe that the Plaintiff should not have the additional time to complete its preliminary discovery in order to more fully describe their claims or understand their claims and to assure that the case is resolved on the merits?"). Judge Bryant set a schedule for the filing of a Second Amended Complaint and briefing of a motion to dismiss. On November 30, 2016, Plaintiffs filed the Complaint, which is the operative pleading for purposes of this appeal. JA74-176. The Complaint asserts claims under Section 10(b) and Rule 10b-5 against Cigna, Cordani, McCarthy, and Fritch, and claims under Section 20(a) against Cordani, McCarthy, and also Appel (collectively, "Defendants") as control persons of Cigna. The Complaint also added detailed factual allegations concerning, among other things, approximately 75 notifications of compliance violations that Appel received from CMS. On February 13, 2017, Defendants moved to dismiss the Complaint for failure to state a claim. In their opposition brief, filed on April 13, 2017, Plaintiffs 25 Case 17-3484, Document 43, 02/08/2018, 2232201, Page33 of 124 requested leave to amend in the event the district court dismissed in whole or in part. Defendants filed a reply brief on May 12, 2017. Months later, on August 28, 2017, Judge Bryant directed Plaintiffs "to file a proposed [third] amended complaint on or before 09/04/2017 [Labor Day] for the Court's consideration in contemplation of the request for leave to amend as set forth in the Opposition on the Motion to Dismiss[.]" JA535. Plaintiffs promptly moved for reconsideration, which Judge Bryant decided on September 1, 2017. JA540-47. Judge Bryant expressed the incorrect belief that despite the stay of discovery under the PSLRA, the court's order following the pre- motion conference had permitted Plaintiffs to continue to take merits discovery in support of amending the complaint. JA544 ("When. . . the Court granted leave to amend the Amended Complaint and extended the deadline for the motion to dismiss, there were practical implications enabling Lead Plaintiff to continue in his pursuit of discovery well past the period typically allowed."). Judge Bryant denied reconsideration to the extent Plaintiffs sought leave to amend after a decision on the motion to dismiss, but extended Plaintiffs' time to amend from Labor Day to September 16, 2017. JA547. On September 15, 2017, Plaintiffs filed a Notice of Intent Not to Amend the Complaint. 26 Case 17-3484, Document 43, 02/08/2018, 2232201, Page34 of 124 On September 28, 2017, without hearing argument on the motion to dismiss, Judge Bryant issued a 57-page Opinion dismissing the Complaint with prejudice. SPA1-57. Judge Bryant reiterated the court's view that by allowing Plaintiffs to amend the pleadings, the court had permitted Plaintiffs, notwithstanding the PSLRA's stay of discovery, "to continue in [their] pursuit of discovery well past the period typically allowed." SPA54. The Opinion is reported on Westlaw as Singh v. Cigna Corp., No. 3:16-cv-00182 (VLB), 2017 WL 4318057 (D. Conn. Sept. 28, 2017). On October 2, 2017, the clerk of the district court issued a Judgment for Defendants. SPA58. Plaintiffs timely appealed on October 27, 2017. JA551-53. SUMMARY OF ARGUMENT 1. The district court's finding that the pre-misstatement regulatory violations were not "ongoing and substantial" in comparison with the totality of violations referenced in the CMS Letter, nearly a year later, was driven by an erroneous "immateriality by hindsight" approach. This approach led the court to make a judgment call with no frame of reference. Further, the court focused too heavily on counting and "weighing" individual Notices rather than assess the point in time, relative to the alleged misstatements, at which the facts alleged in the 27 Case 17-3484, Document 43, 02/08/2018, 2232201, Page35 of 124 Complaint raise an inference that Cigna's compliance programs and infrastructure were ineffective. 2. The facts alleged in the Complaint raise an inference that Cigna's compliance programs and infrastructure were ineffective in early 2013, a year after the acquisition closed and before the first alleged misstatement. CMS's findings were based on its October 2015 audit, and the conditions CMS observed did not develop overnight. Additionally, and for example, the CMS Letter traced Cigna's long history of Medicare violations and structural compliance deficiencies directly to the 2012 HealthSpring acquisition. Further, the absence of the "we have established policies and procedures" statement from the 2014 Form 10-K raises an inference that Cigna lacked such policies and procedures not only in 2014, but also in 2013. 3. The fact that Cigna was free to "cure" its violations and seek retraction of CMS Notices actually supports a finding of materiality. The record raises an inference that Cigna never voluntarily remediated any of its CMS policies or procedures, and that Cigna's array of compliance failures persisted through CMS's imposition of sanctions. 4. The alleged misstatements in Cigna's Code of Ethics were made in December 2014, when the Code of Ethics was published. The district court's view that these misstatements could have been uttered years before is speculative, and 28 Case 17-3484, Document 43, 02/08/2018, 2232201, Page36 of 124 even if they were, prior statements would not render the statements true in December 2014, after Cigna had received multiple CMS Notices. 5. Although some courts within this Circuit have dismissed aspirational statements found in corporate codes of ethics, the misstatements in Cigna's Code of Ethics are not immaterial puffery. They are not purely aspirational and are not so general as to compel a finding that no reasonable investor would have relied upon them. 6. Plaintiffs plead a strong inference of scienter by alleging with specificity that the Individual Defendants knew or were aware of nonpublic facts— the CMS Notices and their contents—that contradicted their public assurances of compliance with CMS regulatory requirements. Defendant Appel, as Medicare Compliance Officer, personally received each Notice and, as required by CMS guidelines, reported their contents to the other Individual Defendants. Particularly when read together with Plaintiffs' allegations of HealthSpring's previously clean compliance record, the pushing-out of knowledgeable HealthSpring employees, the failure to integrate the HealthSpring and Cigna data processing systems, the change in the Form 10-K disclosures, and the relative magnitude of the Medicare revenues, these notice allegations raise a strong inference of scienter. 7. The district court's conclusion that the Complaint did not sufficiently plead scienter misapplied the standard for alleging recklessness in this Circuit. The 29 Case 17-3484, Document 43, 02/08/2018, 2232201, Page37 of 124 district court put Plaintiffs to the burden of pleading not only that the Individual Defendants knew facts or had access to information suggesting that their public statements were not accurate, but also that they intended to mislead investors or acted recklessly. Such an additional pleading burden does not exist in this Circuit and makes little sense, particularly in view of Tellabs's directive to consider plausible nonculpable inferences. 8. Finally, the district court erred when it found that Defendants' proffered inference of "managerial errors" arising from the HealthSpring acquisition was more compelling than an inference of scienter. The change in Cigna's Form 10-K disclosures raises a compelling inference that Defendants Cordani and McCarthy, who signed and certified the 2013 and 2014 Form 10-Ks, knew or recklessly ignored that Cigna's "policies and procedures" were ineffective to assure substantial compliance. If the most plausible explanation for the alleged misstatements were "managerial errors," then why would Cigna deliberately revise its Form 10-K disclosures concerning its policies and procedures? ARGUMENT I. STANDARDS OF REVIEW This Court reviews de novo a district court's grant of a motion to dismiss for failure to state a claim. Employees' Ret. Sys. of Gov't of the V.I. v. Blanford, 794 F.3d 297, 304 (2d Cir. 2015). 30 Case 17-3484, Document 43, 02/08/2018, 2232201, Page38 of 124 In assessing the sufficiency of the complaint, this Court accepts all of the factual allegations as true and draws all reasonable inferences therefrom in favor of the plaintiffs. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); City of Providence v. BATS Glob. Mkts., Inc., 878 F.3d 36, 48 (2d Cir. 2017). To defeat a motion to dismiss, the complaint need only "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). "Determining whether a complaint states a plausible claim for relief will. . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679. II. THE DISTRICT COURT ERRED IN RULING THAT PLAINTIFFS DID NOT SUFFICIENTLY PLEAD MISSTATEMENTS OF MATERIAL FACT A. Standards for Pleading Material Misrepresentation To state a claim under Section 10(b) of the Exchange Act and SEC Rule 10b-5 for misrepresentation, a plaintiff must allege that the defendant (1) made misstatements of material fact, (2) with scienter, (3) in connection with the 31 Case 17-3484, Document 43, 02/08/2018, 2232201, Page39 of 124 purchase or sale of securities, (4) upon which the plaintiff relied, and (5) that the plaintiff's reliance was the proximate cause of its injury. See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 105 (2d Cir. 2007). Material falsity and scienter are the sole issues on appeal here. "[W]hether a statement is 'misleading' depends on the perspective of a reasonable investor: The inquiry (like the one into materiality) is objective." Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318, 1327 (2015). "The veracity of a statement or omission is measured not by its literal truth, but by its ability to accurately inform rather than mislead prospective buyers." Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Mgmt. LLC, 595 F.3d 86, 92 (2d Cir. 2010). Indeed, "[t]he law is well settled. . . that so- called 'half-truths'—literally true statements that create a materially misleading impression—will support claims for securities fraud." SEC v. Gabelli, 653 F.3d 49, 57 (2d Cir. 2011), rev'd on other grounds, 568 U.S. 442 (2013). "Even when there is no existing independent duty to disclose information, once a company speaks on an issue or topic, there is a duty to tell the whole truth." Meyer v. JinkoSolar Holdings Co., 761 F.3d 245, 250 (2d Cir. 2014). "The literal truth of an isolated statement is insufficient; the proper inquiry requires an examination of defendants' representations, taken together and in context. Thus, when an offering participant makes a disclosure about a particular topic, whether 32 Case 17-3484, Document 43, 02/08/2018, 2232201, Page40 of 124 voluntary or required, the representation must be complete and accurate." Id. at 250-51 (quoting In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 366 (2d Cir. 2010)). A complaint may not be dismissed on the ground that the alleged misstatements are not material "unless they are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance." Operating Local 649, 595 F.3d at 91 (citation omitted); see also TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 445 (1976) ("The question of materiality, it is universally agreed, is an objective one, involving the significance of an omitted or misrepresented fact to a reasonable investor."). Thus, materiality is ordinarily a jury question, requiring "delicate assessments of the inferences a 'reasonable shareholder' would draw from a given set of facts and the significance of those inferences to him." Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 36 (2011) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 236 (1988)). B. Defendants Failed to Tell the Whole Truth Regarding Cigna's Compliance With CMS Requirements 1. The District Court's "Immateriality By Hindsight" Approach Was Improper The district court found that Cigna's pre-misstatement Medicare violations were not material by comparing them to the totality of violations evidenced in the notifications referenced in the CMS Letter imposing sanctions. The court 33 Case 17-3484, Document 43, 02/08/2018, 2232201, Page41 of 124 compared the number and type of notification—Notice of Non-Compliance, Warning Letter, or Request for Corrective Action Plan (there was only one of those)—for the period from the first Notice through the filing of the 2014 Form 10-K (2013 – February 26, 2015) with the period from the first Notice through the CMS Letter (2013 – January 21, 2016). SPA32-34. The district court stated that the violations were "ongoing and substantial" over the latter, longer period because of their "breadth and volume" and because Warning Letters and a Request for Correction Plan were issued as well as Notices of Non-Compliance. SPA34. The court thus viewed the violations during the shorter, pre-misstatement period as not "ongoing and substantial." This "immateriality by hindsight" approach was improper. To properly consider whether the CMS violations were material as of February 26, 2015, the district court should have looked to the circumstances at Cigna before and leading up to that date—not 11 months later when the truth began to emerge. Moreover, rather than focus on the number and "weight" of individual CMS notices, the court should have looked at whether the circumstances at Cigna before February 26, 2015 raise an inference that the condition of Cigna's compliance programs and infrastructure—which caused all of the violations evidenced in the Notices, and which was the actual basis for the sanctions—was as bad (or substantially as bad) as it was when CMS imposed sanctions in January 2016. This is congruent with 34 Case 17-3484, Document 43, 02/08/2018, 2232201, Page42 of 124 courts' long rejection of "fraud by hindsight" claims, cautioning that corporate officials "are only responsible for revealing those material facts reasonably available to them." Novak v. Kasaks, 216 F.3d 300, 309 (2d Cir. 2000). Properly oriented, the district court should have found that the alleged false and misleading statements in Cigna's 2013 and 2014 Form 10-Ks were material. CMS's finding that Cigna lacked effective compliance programs and infrastructure resulted from its audit conducted on-site in October 2015. Plaintiffs are further entitled to the common-sense inference that these conditions did not develop overnight. See In re Vivendi Universal, S.A. Sec. Litig., 765 F. Supp. 2d 512, 554 (S.D.N.Y. 2011) ("While admissions that Vivendi faced a 'severe liquidity crisis' in June/July 2002, do not necessarily prove that Vivendi also had liquidity problems before the summer of 2002, it is rational to infer that a liquidity crisis severe enough to threaten Vivendi's very existence did not develop overnight."), aff'd, 838 F.3d 223 (2d Cir. 2016). The Complaint affirmatively raises an inference that Cigna's compliance programs and infrastructure were ineffective in 2013, before the first misstatement on February 27, 2014. As of early 2013, a year after the acquisition closed, most of the HealthSpring people with CMS compliance knowledge and experience (recall that HealthSpring had never been cited by CMS for noncompliance) had 35 Case 17-3484, Document 43, 02/08/2018, 2232201, Page43 of 124 been pushed out the door.11 Defendant Appel, who was appointed as Medicare Compliance Officer, had little experience and made little effort to learn from HealthSpring. And there was no effort to integrate the data processing systems. In 2013, Cigna received the first of many Notices from CMS, for failing to process Medicare coverage determinations. Cigna did nothing through 2014 and into 2015, however, and received a Warning Letter in 2015 "for these same violations." JA116 (¶ 110); JA169. CMS later pointed to this "history of non- compliance" in expressing its "significant concerns that additional failures in these areas exist beyond those that the auditors were able to identify." JA86, 116 (¶¶ 21, 110); JA169. CMS ultimately traced the violations directly to the HealthSpring acquisition. Because the conditions supporting CMS's finding that Cigna's compliance function was ineffective existed by 2013, the misstatements in Cigna's 2013 Form 10-K that "[w]e have established policies and procedures to comply with applicable requirements"; "[w]e expect to continue to allocate significant resources to our compliance. . . programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs"; and "[w]e expect to 11 While Plaintiffs have no quarrel with the Court's observation in JinkoSolar, 761 F.3d at 251, that companies generally do not "guarantee 100% compliance 100% of the time" and that such compliance is often unobtainable, it is notable that HealthSpring (a public company) had maintained 100% CMS compliance before Cigna came along. JA79-80, 98-99 (¶¶ 4, 60). 36 Case 17-3484, Document 43, 02/08/2018, 2232201, Page44 of 124 continue to allocate significant resources to comply with [CMS] regulations and requirements and to maintain audit readiness"; were materially false and misleading. JA121-23 (¶¶ 120-122); see JinkoSolar, 761 F.3d at 251 ("[I]nvestors would be misled by a statement. . . [describing steps taken to comply with applicable Chinese regulations] if in fact the equipment and 24-hour team[s] were then failing to prevent substantial violations of the Chinese regulations.").12 The same conclusion follows for the latter misstatements made in Cigna's 2014 Form 10-K filed in February 2015, after Cigna had received at least nine additional Notices from CMS—and, as discussed below, made no attempt to correct the violations. JA126-27 (¶¶ 133-134). Both of these conclusions are bolstered by Cigna's deletion, in the 2014 Form 10-K, of the "we have established policies and procedures" statement made in the 2013 Form 10-K. JA117, 139 (¶¶ 113, 170). This change raises an inference that Cigna lacked such policies and procedures not only in 2014, but also 12 Judge Bryant sought to distinguish In re BioScrip, Inc. Securities Litigation, 95 F. Supp. 3d 711, 727-28 (S.D.N.Y. 2015), on the basis that the civil investigative demand ("CID") BioScrip received is more serious than a CMS Notice, and Cigna did not state that it was "in substantial compliance." SPA31-32. A CID is an inquiry into alleged wrongdoing, see BioScrip, 95 F. Supp. 3d at 729, whereas CMS found multiple, actual compliance failures. Further, there is no real difference between an assurance of "substantial compliance" versus assurances of "having policies and procedures" or allocating "significant resources" to ensure compliance. A reasonable investor could have taken any of Cigna's assurances to mean that it had a reasonably effective compliance infrastructure and was not facing major compliance challenges. See id. at 730; Gabelli, 653 F.3d at 57. 37 Case 17-3484, Document 43, 02/08/2018, 2232201, Page45 of 124 in 2013. Given that the HealthSpring acquisition closed in early 2012, and CMS found after the October 2015 audit that Cigna lacked effective policies and procedures, it is implausible that Cigna would have had policies and procedures in place in 2013 and then abandoned them in 2014. The more plausible inference is that Cigna never had them after it bought HealthSpring. 2. Cigna's Ability to Seek Retraction of the CMS Notices, a Basis for the District Court's Ruling, Supports a Finding of Materiality The district court also found significant that pre-misstatement regulatory violations "could at a later point be cured" and "could be rectified at any time without risking a threat to earnings." SPA31, 34. Cigna's ability to seek retraction of CMS Notices only strengthens the inference that the challenged statements were materially false and misleading.13 Defendants argued below that the Notices alleged in the Complaint did not account for those that CMS may have retracted after Cigna successfully remediated the noncompliance. The record discloses only two such "Retraction Notices," however. JA442-43, 445-46. These Retraction Notices, which concern the same call center data issues, retracted Notices of Non-Compliance and Warning Letters 13 In using the CMS Chart to provide a reasoned basis for its conclusions on materiality—specifically, the finding that violations in Notices of Non-Compliance and Warning Letters can be cured at any time—Judge Bryant improperly took judicial notice of the CMS Chart for the truth of its contents rather than the statements it contained. See Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007) (citing Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991)). 38 Case 17-3484, Document 43, 02/08/2018, 2232201, Page46 of 124 sent to Cigna on December 17, 2015—after the alleged misstatements—and are themselves dated February 11, 2016, after CMS imposed the sanctions. JA442-43, 445-46. The Retraction Notices appear, moreover, to have arisen from a CMS methodology for analyzing call center data that CMS itself agreed was flawed. JA442-43, 445-46. Thus, Cigna did not voluntarily remediate any of its internal policies or procedures, and in any event did not successfully seek retraction during the misstatement period or even before sanctions were imposed. These facts raise an inference, consistent with Plaintiffs' allegations, that all of Cigna's compliance failures during the Class Period persisted through the imposition of sanctions. The CMS Letter supports this inference, stating that "[a] number of these notices were for the same violations discovered during the audit, demonstrating that Cigna has not corrected issues of non-compliance." JA166; see also JinkoSolar, 761 F.3d at 251 ("[T]he failure to disclose then-ongoing and serious pollution violations would cause a reasonable investor to make an overly optimistic assessment of the risk."). The fact that Cigna could seek retraction of CMS Notices by correcting the problem, but either did not or could not obtain retraction, supports a finding that the pre-misstatement violations were material. 39 Case 17-3484, Document 43, 02/08/2018, 2232201, Page47 of 124 C. The Statements Alleged in Cigna's Code of Ethics Are Actionable 1. The Statements Were False When Made The challenged statements in the Code of Ethics were misleading because Cigna was not acting with integrity in its dealings with government officials, as evidenced by its violations of CMS requirements, and because continuing violations would likely have a material impact on earnings. JA125 (¶¶ 128-130). The district court stated that the Complaint "does not allege at what point these individuals actually made these statements—Fritch and McCarthy could have uttered these words years before they were actually published in the Code of Ethics." SPA27. The Complaint indeed alleges when Defendants Fritch and McCarthy made the quoted statements: in December 2014, when the Code of Ethics was published. JA124 (¶ 127). The notations "12/14" and "12/14 © 2014 Cigna" appear at the bottom of the cover and first pages of the document, respectively. JA404-05; see Janus Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142-43 (2011) ("[I]n the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement was made by—and only by—the party to whom it is attributed."). Even if Fritch and McCarthy each made identical statements in 2012 or 2013 as the district court 40 Case 17-3484, Document 43, 02/08/2018, 2232201, Page48 of 124 speculated, that fact would not render the statements true when repeated in December 2014, after Cigna had received at least nine CMS Notices.14 2. The Statements Are Not Immaterial Puffery This Court has defined puffery to include "general statements about reputation, integrity, and compliance with ethical norms[.]" City of Pontiac Policemen's and Firemen's Ret. Sys. v. UBS AG, 752 F.3d 173, 183 (2d Cir. 2014) (quoted in SPA27). While some courts within this Circuit have dismissed aspirational statements found in corporate codes of ethics, courts have ruled such statements actionable where there is a contemporaneous nexus with the subject of the alleged fraud. In Richman v. Goldman Sachs Group, Inc., 868 F. Supp. 2d 261 (S.D.N.Y. 2012), the court upheld the alleged falsity of a list of general ethical principles, including "Integrity and honesty are at the heart of our business" and "Our reputation is one of our most important assets," where Goldman separately (and misleadingly) stated that it had extensive procedures and controls designed to address conflicts of interest. Id. at 277.15 14 Cigna received five CMS Notices during December 2014. JA119 (¶ 117). In the absence of judicially noticeable facts to the contrary, Plaintiffs are entitled to an inference that Defendant Appel received these Notices and reported their contents to Fritch and McCarthy before the Code of Ethics was published. 15 See also id. at 279-80 ("Goldman must not be allowed to pass off its repeated assertions that it complies with the letter and spirit of the law, values its reputation, and is able to address 'potential' conflicts of interest as mere puffery or statements of opinion."); In re Goldman Sachs Grp., Inc. Sec. Litig., No. 10 Civ. 3461 (PAC), 41 Case 17-3484, Document 43, 02/08/2018, 2232201, Page49 of 124 Here, the alleged misstatements—which, unlike those in Richman, are quotations attributed to senior executives—are not purely aspirational and are not so general as to compel a finding that no reasonable investor would have relied on them. Defendant Fritch acknowledged Cigna's (and his) "critical" "responsibility" to act with integrity with respect to dealings with government officials. JA125 (¶ 129). This directly concerns the alleged CMS compliance failures. Defendant McCarthy similarly acknowledged Cigna's (and his) "important" "obligation" to analyze and report financial results fairly and accurately. JA125 (¶ 128). This directly concerns the serious risk to earnings represented by unchecked CMS violations, a risk the district court recognized as significant. SPA34 ("The inability to market and grow this extremely large source of revenue constitutes a substantial threat to earnings."). III. THE DISTRICT COURT ERRED IN RULING THAT PLAINTIFFS DID NOT SUFFICIENTLY PLEAD A STRONG INFERENCE OF SCIENTER A. Standards for Pleading Scienter A securities fraud complaint must "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)(A); that is, knowingly or with reckless disregard for the truth. 2014 WL 2815571, at *2 (S.D.N.Y. June 23, 2014) (reaffirming Richman on reconsideration in view of intervening Circuit decisions including City of Pontiac). 42 Case 17-3484, Document 43, 02/08/2018, 2232201, Page50 of 124 See Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 194 (2d Cir. 2008). In this Circuit, scienter can be established by alleging facts showing either (1) motive and opportunity to commit the fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness. See Blanford, 794 F.3d at 306. Recklessness has been defined in this Circuit as "conduct which is highly unreasonable and which represents an extreme departure from the standards of ordinary care to the extent that the danger was either known to the defendant or was so obvious that the defendant must have been aware of it." Novak, 216 F.3d at 308. Circumstantial evidence can support an inference of scienter in a variety of ways, including where defendants "(1) benefitted in a concrete and personal way from the purported fraud; (2) engaged in deliberately illegal behavior; (3) knew facts or had access to information suggesting that their public statements were not accurate; or (4) failed to check information that they had a duty to monitor." ECA & Local 134 IBEW Joint Pension Trust of Chicago v. JPMorgan Chase & Co., 553 F.3d 187, 199 (2d Cir. 2009) (quoting Novak, 216 F.3d at 311). In analyzing scienter, courts "must review 'all the allegations holistically.'" Matrixx, 563 U.S. at 48 (quoting Tellabs, 551 U.S. at 326). The proper inquiry is "whether all of the facts alleged, taken collectively, give rise to a strong inference 43 Case 17-3484, Document 43, 02/08/2018, 2232201, Page51 of 124 of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard." Tellabs, 551 U.S. at 322-23 (emphasis in original). A "strong" inference of scienter is one that a reasonable person would deem "cogent" and "at least as likely as any plausible opposing inference." Id. at 324, 328 (emphasis in original). A strong inference need not be irrefutable, that is, of the "smoking-gun" genre, or even the "most plausible of competing inferences." Id. at 323-24. While the court "must consider plausible, nonculpable explanations for the defendant's conduct," the inferences supporting liability need only be equally strong. Id. at 310. This pleading standard, "[w]hile robust," recognizes nonetheless that "the court is 'unaided by discovery' at the motion to dismiss stage." Blanford, 794 F.3d at 306 (quoting Tellabs, 551 U.S. at 324 n.5). B. The District Court Misapplied the Standard for Pleading Recklessness in This Circuit As Judge Bryant recognized, "securities fraud claims will suffice 'when [plaintiffs] have specifically alleged defendants' knowledge of facts or access to information contradicting their public statements' and where they 'specifically identify the reports or statements containing this information.'" SPA45 (quoting Novak, 216 F.3d at 308-09). In a context similar to this case, "Plaintiffs do not need to show that the individual Defendants were personally involved with each [regulatory] violation or even aware of any particular violation. Instead, it is enough at this stage for Plaintiffs to allege that Defendants were aware of 44 Case 17-3484, Document 43, 02/08/2018, 2232201, Page52 of 124 nonpublic facts contradicting their public representations of substantial legal compliance." Pirnik v. Fiat Chrysler Autos., N.V., No. 15-CV-7199 (JMF), 2016 WL 5818590, at *7 (S.D.N.Y. Oct. 5, 2016) (emphases in original). Plaintiffs have done so, and more. The Complaint alleges the Individual Defendants' knowledge of specific facts or access to information—in particular, ten Notices received from CMS between 2013 and February 2015—that contradicted Defendants' assurances of compliance during that period. Each Notice, identified in the Complaint by subject matter and date, set forth specific violations of regulatory requirements that went unremediated through CMS's imposition of sanctions, and were referenced in the CMS Letter. The Complaint raises a straightforward inference that Defendants Appel, Cordani, and Fritch each received the Notices or their contents. Each Notice was addressed to Appel, and federal regulations required Appel to report "Medicare compliance reports" containing this information to, among others, the CEO and the Compliance Committee, of which Fritch was a member. JA103-04, 136-37 (¶¶ 72, 74, 160-161, 163). Defendant McCarthy, the CFO, also received the Medicare compliance reports. CMS has stated that it requires high-level involvement in compliance issues because "[a]n effective compliance program cannot be achieved unless the CEO. . . and other senior management, as appropriate, are engaged in the 45 Case 17-3484, Document 43, 02/08/2018, 2232201, Page53 of 124 compliance program." JA104, 137 (¶¶ 74, 164). McCarthy led the $3.8 billion HealthSpring acquisition, the largest in Company history, and as CFO remained closely involved in the cost side of compliance. JA91-92, 136 (¶¶ 39, 161). Medicare premiums rapidly became Cigna's largest business, accounting for more than 20% of revenues from 2012 onward. It is thus implausible that Appel, in sending Medicare compliance reports up the chain pursuant to CMS guidelines, would not have included the No. 2 executive.16 These allegations regarding (a) the central and continuing importance of HealthSpring to Company earnings, together with (b) HealthSpring's previously clean CMS compliance record, (c) Defendants' pushing out most qualified HealthSpring employees by early 2013, (d) Defendants' failure to integrate the HealthSpring and Cigna data processing systems, and (e) the deletion from the 2014 Form 10-K of the "we have established policies and procedures" 16 Each Individual Defendant's scienter is imputed to Cigna. Dynex, 531 F.3d at 195. Although Appel is not a Section 10(b) defendant, "[c]onfining the pool of employees from which a corporation's scienter may be inferred to those that made an underlying misstatement. . . is unduly limiting." In re Marsh & McLennan Cos. Sec. Litig., 501 F. Supp. 2d 452, 481 (S.D.N.Y. 2006); see also In re JPMorgan Chase Sec. Litig., 363 F. Supp. 2d 595, 627 (S.D.N.Y. 2005) ("[N]othing in Rule 9(b) or the PSLRA requires a plaintiff to allege that the same individual who made an alleged misstatement on behalf of a corporation personally possessed the required scienter."). Moreover, Appel's conduct as Medicare Compliance Officer bound the Company here. JA92, 109-10, 136 (¶¶ 41, 90, 160- 161); see In re Moody's Corp. Sec. Litig., 599 F. Supp. 2d 493, 515-16 (S.D.N.Y. 2009) ("There is no formulaic method or seniority prerequisite for employee scienter to be imputed to the corporation, but scienter by management-level employees is generally sufficient to attribute scienter to corporate defendants."). 46 Case 17-3484, Document 43, 02/08/2018, 2232201, Page54 of 124 representation made in the 2013 Form 10-K, on top of (f) the Notices themselves, collectively support a strong inference of scienter. These facts show that the Individual Defendants, no later than February 2015, knew or recklessly ignored that the Medicare compliance programs and infrastructure were ineffective. The district court concluded nonetheless that the Complaint pleads nothing more than that Defendants "must have known" their statements were untrue. SPA45. The court stated in conclusory fashion that it was "unclear" how Defendants' "knowledge of these. . . notices without acting upon them" would be highly unreasonable, and that "merely alleging. . . access to information" did not raise an inference of recklessness. SPA46 (emphasis in original). Effectively, the district court held that even if Plaintiffs sufficiently pleaded that the Individual Defendants knew or, more to the point, should have known that their public assurances to investors were misleading, Plaintiffs did not also plead an actual intent to mislead. There is no such additional pleading burden. In this Circuit, specific allegations that Defendants "knew facts or had access to information suggesting that their public statements were not accurate" consistently have sufficed to raise a strong inference of scienter. E.g., Blanford, 794 F.3d at 306 (citing ECA, 553 F.3d 47 Case 17-3484, Document 43, 02/08/2018, 2232201, Page55 of 124 at 199).17 This Court has made clear that "[u]nder such circumstances, defendants knew or, more importantly, should have known that they were misrepresenting material facts relating to the corporation." Novak, 216 F.3d at 308. Although the district court did not explain its reasoning, its flawed approach resembles that of the Fourth Circuit in Maguire Financial, L.P. v. PowerSecure International, Inc., 876 F.3d 541 (4th Cir. 2017). There, the court stated that "[a]n inference that an executive had enough knowledge to be aware that he was making an inaccurate statement might support an inference that he made a material misrepresentation but does not necessarily suggest an intent to mislead." Id. at 548. Knowingly misleading investors, in other words, does not raise an inference at the pleading stage that the speaker intended to mislead or acted recklessly. Maguire not only diverges significantly from this Court's decisions, but it also makes little sense, particularly given courts' obligation to consider plausible nonculpable inferences. See Tellabs, 551 U.S. at 324. Thus, in this Circuit, "knowledge of facts without acting on them," see SPA46, indeed raises a strong inference of scienter where, as here, those facts are inconsistent with defendants' public statements. See New Orleans Emps. Ret. Sys. v. Celestica, Inc., 455 F. App'x 10, 15 (2d Cir. 2011) ("[T]he particular allegations 17 See also South Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 110 (2d Cir. 2009) (cited in SPA44-46); ECA, 553 F.3d at 199; Dynex, 531 F.3d at 194; Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001) (all citing Novak, 216 F.3d at 307-09, 311); City of Pontiac, 752 F.3d at 185. 48 Case 17-3484, Document 43, 02/08/2018, 2232201, Page56 of 124 that [CEO] and [CFO] were specifically informed, and had reason to know, of the [material adverse facts] are sufficient to establish the individual defendants' scienter.") (summary order). The same is true with respect to "mere access to information," see SPA46, that, again as here, is inconsistent with what investors were told. See In re BioScrip, Inc. Sec. Litig., 95 F. Supp. 3d 711, 733 (S.D.N.Y. 2015) ("The Plaintiffs have adequately alleged that the Defendants 'knew facts or had access to information suggesting that their public statements were not accurate,' thus Plaintiffs supply the strong inference of scienter needed to surpass a motion to dismiss.") (quoting ECA, 553 F.3d at 199).18 Even if Cordani, McCarthy, and Fritch did not actually read the Medicare compliance reports (and Plaintiffs are entitled to an inference that they did), their access to these internal reports supports their scienter at this stage. Indeed, corporate executives have been presumed to be aware of adverse facts found in public media reports. See In re ArthroCare Corp. Sec. Litig., 726 F. Supp. 2d 696, 717 (W.D. Tex. 2010) ("The media reports detailed with striking specificity some of the major improprieties at ArthroCare, 18 Judge Bryant's reliance on BioScrip for "must have known" and core operations (SPA45, 46) concerns a separate, standalone alleged fraud in which the principal scienter allegation was that the business segment at issue "constituted a significant area of business for BioScrip." 95 F. Supp. 3d at 738. Although the fact that Cigna realized 20% of its revenue from HealthSpring supports a strong inference of scienter here (JA140 (¶ 172)), Plaintiffs also rely on specific allegations of notice lacking from the second half of the BioScrip opinion. 49 Case 17-3484, Document 43, 02/08/2018, 2232201, Page57 of 124 and were based on publically available information, which would have been readily available to [CEO] and [CFO]."); see also id. at 717 n.12 (rejecting argument that failure to allege that CFO read the media reports undermined scienter). The district court's failure here to recognize that specific allegations of Defendants' knowledge of facts or access to information contradicting their public statements suffice to raise a strong inference of reckless misconduct was error. Separately, the district court's statement that the Complaint "alleges facts suggesting Defendants were unaware" (SPA46) misreads Plaintiffs' allegations. The Individual Defendants' awareness of the Medicare violations by virtue of their receipt of the CMS Notices (or their underlying information), against the backdrop of the drain in Medicare compliance expertise and failure to integrate Cigna's and HealthSpring's data processing systems, supports an inference of recklessness. The district court's wholesale rejection of Plaintiffs' confidential witness allegations was similarly misguided. SPA46-47. Although certain confidential witnesses do speak directly to Appel's knowledge and conduct, see JA108-09 (¶¶ 84, 86-87, 89), the purpose of the confidential witness allegations is not solely to establish the Individual Defendants' personal knowledge; such knowledge is sufficiently alleged in connection with Appel's receipt and reporting of the CMS Notices. Rather, the confidential witness allegations show that the Individual Defendants fostered an environment that disabled Cigna's compliance programs 50 Case 17-3484, Document 43, 02/08/2018, 2232201, Page58 of 124 and infrastructure and enabled the regulatory violations to occur. See Blanford, 794 F.3d at 302, 308 (confidential witness allegations concerning knowledge of unnamed former employees supported scienter). C. Cigna's Proffered Inference of "Managerial Errors" Is Uncompelling Finally, Judge Bryant accepted Defendants' contention that "managerial errors eventually set the stage for CMS sanctions"—in other words, that Defendants mismanaged the HealthSpring acquisition—was a more compelling inference than an inference of scienter. SPA47 (finding nonculpable inference "highly probable"). The problem with that finding lies in Cigna's deletion from the 2014 Form 10-K of "[w]e have established policies and procedures to comply with applicable requirements." JA117, 139 (¶¶ 113, 170). This fact raises a compelling inference that Defendants Cordani and McCarthy, who signed and certified both the 2013 and 2014 Form 10-Ks, knew or recklessly ignored that Cigna's "policies and procedures" were ineffective to assure substantial compliance with CMS requirements. JA121, 123, 126-27 (¶¶ 119, 123-124, 131, 135); see SPA29 (inference that Cigna was aware its compliance needed improvement was "further supported by the fact that Cigna eliminated from Form 10-Ks the statement that it 'established policies and procedures to comply with applicable requirements'"). 51 Case 17-3484, Document 43, 02/08/2018, 2232201, Page59 of 124 If the most plausible explanation for the alleged misstatements were "managerial errors" rather than an intent to mislead or highly unreasonable conduct, then why would Cigna have deliberately revised its Form 10-K disclosures concerning its compliance policies and procedures? Suppose the HealthSpring acquisition merely raised unforeseen personnel and integration challenges as Defendants suggest, and the Company's CMS compliance function was robust and effective when the 2014 Form 10-K was filed.19 In this circumstance, the "we have established policies and procedures" representation in the 2013 Form 10-K still would have been true. But Cigna chose to delete that language from the 2014 Form 10-K, and the (still misleading) 2014 Form 10-K as filed was certified by Cordani and McCarthy to be true. Suppose instead that "managerial errors" caused the failure of Cigna's CMS compliance programs and infrastructure, as Defendants may also contend. In that circumstance, the deletion of the "policies and procedures" language from the 2014 Form 10-K raises a compelling inference that Cordani and McCarthy either knew that CMS compliance was a disaster or were willfully blind to that fact. Either 19 While there can be little doubt that Cigna mismanaged the acquisition on at least some level, the existence of corporate mismanagement does not preclude an Exchange Act claim where, as here, defendants' failure to disclose the mismanagement rendered the challenged statements materially misleading. See Marsh & McLennan, 501 F. Supp. 2d at 469 ("[W]ith respect to allegations of corporate mismanagement, disclosure is required where a failure to disclose facts that amount to mismanagement may render other statements misleading.") (citation omitted). 52 Case 17-3484, Document 43, 02/08/2018, 2232201, Page60 of 124 way, an inference of scienter is no less compelling (and is indeed more compelling) than "managerial errors." See Christine Asia Co. v. Ma, No. 16-2519- cv, 2017 WL 6003340, at *2 (2d Cir. Dec. 5, 2017) (district court wrongly accepted defendant's argument over plaintiffs' plausible inference of scienter) (summary order). Defendants may nonetheless contend that it is implausible that they would conceal Cigna's compliance weaknesses because CMS "eventually" imposed sanctions for which the managerial errors "set the stage," and they disclosed the CMS Letter promptly. SPA47. That argument "confuses expected with realized benefits." Makor Issues & Rights, Ltd. v. Tellabs, Inc., 513 F.3d 702, 710 (7th Cir. 2008). As of February 2015, Defendants knew their compliance programs and infrastructure were ineffective, but did not yet face an imminent threat of sanctions because the CMS audit did not occur until October 2015. Defendants thus "may have thought that there was a chance that the situation. . . would right itself. If so, the benefits of concealment might exceed the costs." Id.; see also Indiana Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85, 97 (2d Cir. 2016) (citing Makor, 513 F.3d at 710). Moreover, because Cigna received the CMS Letter in January 2016, it was unclear in February 2015 when the Company's compliance issues would become public. See id. 53 Case 17-3484, Document 43, 02/08/2018, 2232201, Page61 of 124 IV. THE SUFFICIENCY OF PLAINTIFFS' SECTION 20(a) CLAIMS SHOULD BE DECIDED BY THE DISTRICT COURT ON REMAND The district court summarily dismissed Plaintiffs' Section 20(a) control- person liability claims on the ground that Plaintiffs did not state a Section 10(b) claim. SPA52. Because the district court did not consider whether Plaintiffs sufficiently pleaded Defendants Cordani, McCarthy, and Appel's control of Cigna and culpable participation (see JA91-92, 145-47 (¶¶ 38-39, 41, 186-189)), this Court should remand on the issue. See City of Providence, 878 F.3d at 52 ("The district court did not reach [defendants'] other arguments for dismissal. . . . [W]ithout the benefit of the district court's consideration, we decline to address them."); JinkoSolar, 761 F.3d at 250. CONCLUSION For the reasons stated, Lead Plaintiff-Appellant respectfully requests that this Court reverse in part the Opinion and Judgment dismissing the Complaint, and remand for further proceedings. 54 Case 17-3484, Document 43, 02/08/2018, 2232201, Page62 of 124 Dated: February 8, 2018 Respectfully submitted, LABATON SUCHAROW LLP By: /s/ David J. Goldsmith James W. Johnson David J. Goldsmith Michael H. Rogers James T. Christie 140 Broadway New York, New York 10005 Tel.: (212) 907-0700 Fax: (212) 818-0477 jjohnson@labaton.com dgoldsmith@labaton.com mrogers@labaton.com jchristie@labaton.com Attorneys for Lead Plaintiff- Appellant Minohor Singh and Lead Counsel for the Class 55 Case 17-3484, Document 43, 02/08/2018, 2232201, Page63 of 124 Certificate of Compliance With Type-Volume Limit, Typeface Requirements, and Type-Style Requirements 1. This document complies with the type-volume limit of Fed. R. App. P. 32(a)(7)(B), as modified by Local Rule 32.1(a)(4)(A), because, excluding the parts of the document exempted by Fed. R. App. P. 32(f), this document contains 12,250 words. 2. This document complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because this document has been prepared in a proportionally spaced typeface using Microsoft Word 2010 in 14-point Times New Roman. Dated: February 8, 2018 /s/ David J. Goldsmith David J. Goldsmith Case 17-3484, Document 43, 02/08/2018, 2232201, Page64 of 124 CERTIFICATE OF SERVICE & CM/ECF FILING I hereby certify that I caused the foregoing Brief and Special Appendix for Lead Plaintiff-Appellant to be served on counsel for Defendants- Appellees via Electronic Mail generated by the Court's electronic filing system (CM/ECF) with a Notice of Docket Activity pursuant to Local Appellate Rule 25.1: Andrew W. Stern Dorothy J. Spenner James O. Heyworth Francesca E. Brody Sidley Austin LLP 787 Seventh Avenue New York, New York 10019 (212) 839-5300 I certify that an electronic copy was uploaded to the Court's electronic filing system. Six hard copies of the foregoing Brief and Special Appendix for Lead Plaintiff-Appellant were sent to the Clerk's Office by hand delivery to: Clerk of Court United States Court of Appeals, Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, New York 10007 (212) 857-8500 on this 8th day of February 2018. /s/ Samantha Collins Samantha Collins Case 17-3484, Document 43, 02/08/2018, 2232201, Page65 of 124 SPECIAL APPENDIX Case 17-3484, Document 43, 02/08/2018, 2232201, Page66 of 124 TABLE OF CONTENTS PAGE Memorandum of Decision Granting Defendants' Motion to Dismiss Second Amended Complaint [Dkt. 66] . . . . . . . . . . . . . . . . . . . . . . . . . . . . SPA1 Judgment Appealed From, dated October 2, 2017. . . . . . . . . . . . . . . . . . . . . SPA58 Case 17-3484, Document 43, 02/08/2018, 2232201, Page67 of 124 SPA1 7 UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT MINOHOR SINGH,: Individually and On Behalf of All Others: Similarly Situated,: Plaintiff,: CIVIL ACTION NO.: 3:16-cv-00182 (VLB) v.:: September 28, 2017 CIGNA CORP., ET AL.,: Defendants.: MEMORANDUM OF DECISION GRANTING DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT [Dkt. 66] Proposed Lead Plaintiff Minohor Singh ("Proposed Lead Plaintiff" or "Singh") brings this action individually and on behalf of all others similarly situated1 against Defendants Cigna Corp. ("Cigna"), Cigna Chief Executive Officer David M. Cordani ("Cordani"), Cigna Chief Financial Officer Thomas A. McCarthy ("McCarthy"), former HealthSpring CEO and Chairman of the Board of Directors Herbert A. Fritch ("Fritch"), and Cigna Medicare Compliance Officer Richard A. Appel ("Appel") (collectively, "Defendants"). The Second Amended Complaint ("SAC") alleges violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act" or "Act"), codified under 15 U.S.C. §§ 78j(b) and 78t(a) respectively, and Rule 10b-5 promulgated by the Securities Exchange Commission ("SEC") under 17 C.F.R. § 240.10b-5, that occurred during the Class Period. Defendants move to dismiss the case in its entirety for failure to satisfy 1 The putative class comprises all persons and entities that purchased or otherwise acquired Cigna's publicly traded common stock from February 27, 2014 until August 2, 2016 ("Class Period"). [Dkt. 57 (Second Am. Compl.) at 1]. 1 Case 17-3484, Document 43, 02/08/2018, 2232201, Page68 of 124 SPA2 7 Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act ("PSLRA"). For the following reasons, the Defendants' Motion to Dismiss is GRANTED. BACKGROUND2 The following facts and allegations are taken from the SAC, exhibits attached to the SAC, the public documents and filings, or any other document upon which Plaintiff references and relies. Cigna is a health services organization incorporated in Delaware that provides medical, dental, disability, life, and accident insurance both in the United States and internationally. [Dkt. 57 (Second Am. Compl.) ¶ 37]. In early 2012, Cigna acquired HealthSpring, a managed health care organization ("MCO") focusing primarily on providing Medicare Advantage and Part D medical insurance plans. See id. ¶¶ 50-51, 66. Cigna acquired HealthSpring for $3.8 billion: its largest ever acquisition. Id. ¶ 62. HealthSpring was one of the largest private Medicare insurers in the United States as of 2010. Id. ¶ 57. Its Medicare Advantage and Part D medical insurance plans are regulated by the Center for Medicare and Medicaid Services ("CMS"). Id. The acquisition was intended to create "synergies" across Cigna's health insurance offerings and to complement its commercial health business for those who are current Cigna customers as they transition to Medicare, id. ¶ 66. Prior to the acquisition, CMS had never cited or sanctioned HealthSpring for non- 2 The following facts and allegations are taken from the SAC and from the public documents and filings on which Plaintiff references and relies. 2 Case 17-3484, Document 43, 02/08/2018, 2232201, Page69 of 124 SPA3 7 compliance and never prohibited marketing or selling Medicare policies to new customers. Id. ¶ 60. One year after the acquisition HealthSpring became Cigna's largest source of revenue. Id. ¶ 68. This growth continued throughout 2013 and 2014. Id. ¶ 69. The SAC alleges that the 2011 Form 10-K acknowledges Cigna would be subject to CMS compliance reviews in light of the HealthSpring acquisition, which could lead to changes in business practices, fines, penalties, or other sanctions. Id. ¶ 70. The Defendants' excerpt of the 2011 Form 10-K specifically states the success of the acquisition "will depend on Cigna's ability to integrate HealthSpring with its existing businesses and the performance of the acquired business." [Dkt. 66-28 (2011 10-K) at 37]. In addition, the 2011 Form 10-K recognizes the integration will be complex, costly, time consuming, and will likely pose various difficulties.3 Ultimately, "[i]f Cigna is unable to integrate the HealthSpring business successfully, or if the acquired business underperforms, it could have a material adverse effect on Cigna's business, results of operations and financial conditions." Id. 3 The listed difficulties include: "implementing the Company's business plan for the combined business; executing Cigna's growth plans by leveraging its capabilities and those of the businesses being acquired in serving the Seniors segment; unanticipated issues in integrating logistics, information, communications and other systems; changes in applicable laws and regulations or conditions imposed by regulators; retaining key employees; operating risks inherent in HealthSpring's business and Cigna's business; retaining and growing membership; renewing or successfully rebidding for contracts with CMS, leveraging the information technology platform of the acquired businesses; and unanticipated issues, costs, obligations and liabilities." Id. 3 Case 17-3484, Document 43, 02/08/2018, 2232201, Page70 of 124 SPA4 7 On January 17, 2013, CMS publicly issued a memorandum to All Medicare Advantage Organizations, Prescription Drug Sponsors, Cost Plans, and Medicare- Medicaid Plans regarding the 2014 Application Cycle Past Performance Review Methodology Final. [Dkt. 66-7 (Mot. Dismiss Ex. 6 (CMS Mem.)]. This memorandum documents the review methodology used by CMS "to evaluate the performance of all Medicare contractors" and to "identify organizations with performance so impaired that CMS would prohibit the organization from further expanding its Medicare operations." Id. at 1. It applies to an organization's application to offer Medicare benefits under a new contract or in an expanded service area, and CMS may deny the application if the past performance is out of compliance pursuant to the methodology. Id. at 1. CMS identified 11 performance categories for which "negative performance points" may be assigned, including a category for Compliance Letters and a category for Enforcement Actions.4 Id. at 6. "The number of potential negative performance points corresponds to the risk to the program and our beneficiaries from deficient performance in that particular area." Id. Pursuant to this memorandum, CMS Groups Directors will notify the affected organizations during the application review process if they will receive a Notice of Intent to Deny, so that they may proactively withdraw applications. Id. at 17. 4 All eleven performance categories are listed as follows: (1) Compliance Letters; (2) Performance Metrics; (3) Multiple Ad Hoc Corrective Action Plans (CAPs); (4) Ad Hoc CAPs with Beneficiary Impact; (5) Failure to Maintain Fiscally Sound Operations; (6) One-Third Financial Audits; (7) Performance Audits; (8) Exclusions; (9) Enforcement Actions; (10) Terminations and Non-Renewals; and (11) Outstanding Compliance Concerns Not Otherwise Captured. Id. at 6. 4 Case 17-3484, Document 43, 02/08/2018, 2232201, Page71 of 124 SPA5 7 The memorandum includes a chart and describes in detail the differences between compliance letters: Compliance Letter Type Weight Rationale for Weight Notice of Non-Compliance 1 Mildest type of letter. Does not contain specific language regarding further compliance escalation or other consequences should the behavior/non-compliance continue. Warning Letter 3 Formal communication that describes the consequences of continued non- compliance; weighted 3 times greater than notices of non-compliance. Warning Letter with a 4 The matter is serious enough to Business Plan warrant a written response from the organization but not significant enough to warrant a CAP. CAP – Ad hoc compliance 6 Ad hoc CAPs represent the most event serious form of compliance notice. Rated at twice the weight of warning letters because the issuance of this type of letter indicates continuing and/or severe, systemic problems. Id. at 7. The memorandum details that CMS calculates a total Compliance Letter score and then ranks the contracts in descending order; the contracts in the 90th percentile receive an additional 2 negative performance points in the Compliance Letter category. Id. at 8. With respect to CAPs, the memorandum states that ad hoc CAPs are "relatively rare and are typically issued only when other forms of interventions have failed to correct a problem and/or the problem was especially egregious," noting as well that "[r]eceiving more than one such CAP during a performance 5 Case 17-3484, Document 43, 02/08/2018, 2232201, Page72 of 124 SPA6 7 period is a powerful indication of ongoing performance problems." Id. at 9. CAPs with Beneficiary Impact are defined as those "related, directly or indirectly, to a beneficiary's experience with the services and protections the contracting organization is required to provide. . . ." Id. Examples include "proper administration of the organization's beneficiary call center," as well as the following: 4RX data submissions to CMS, enrollment and disenrollment processing, application of correct low income subsidy (LIS) status for plan members, volume of member complaints logged into CMS' Complaints Tracking Module (CTM), failure to provide appropriate Part D drugs, failure to apply safety edits when processing claims, processing of member appeals and grievances, marketing abuses, overall failure to appropriately administer the Part D benefit, execution of benefit coverage determinations, and formulary administration. Id. CAPs that are not a "significant threat to beneficiaries (and therefore [present] no beneficiary impact as defined here)" include "late reporting of financial information to CMS." Id. When CMS applies immediate sanctions, contracts under immediate sanction but released before the end of the end of the performance period receive 3 negative performance points. Id. at 12. Sanctions still in place at the end of the performance period yield 4 negative performance points, bringing the possible total to 7 negative performance points for immediate sanctions in the Enforcement Action category. Id. On February 27, 2014, the first day of the Class Period, Cigna filed its 2013 Form 10-K. [Dkt. 57 ¶ 119]. The 2013 Form 10-K states, "We have established policies and procedures to comply with applicable requirements." Id. ¶ 120. Under the "Medicare Regulations" section, Cigna recognized the right to obtain payment, 6 Case 17-3484, Document 43, 02/08/2018, 2232201, Page73 of 124 SPA7 7 enroll and retain members as well as the marketing and sales activities are heavily regulated by CMS, but Cigna "expect[s] to continue to allocate significant resources to [its] compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs." Id. ¶ 121. Acknowledging that the Federal Government prioritizes the prosecution of health care fraud and abuse, Cigna further stated in the "Federal Audits of Government Sponsored Health Care Programs" section that "[t]he regulations and contractual requirements in this area are complex, are frequently modified, and are subject to administrative discretion. We expect to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness." Id. ¶ 122. Cordani certified that based on his knowledge the 2013 Form 10-K did not contain "any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. . . ." Id. ¶ 123. McCarthy signed a similar Sarbanes-Oxley Act ("SOX") certification of compliance. Id. ¶ 124. The 2013 Form 10-K also contains a Risk Factor section, an excerpt of which is submitted as an exhibit to the Defendants' Motion to Dismiss.5 See [Dkt. 66-3 5 The SAC does not expressly address the risk factor section although it refers to other sections of the 2013 Form 10-Ks. In addition to "the facts as asserted within the four corners of the complaint," a court is permitted to utilize "the documents attached to the complaint as exhibits, and any documents incorporated by reference." McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). Accordingly, the Court refers to the risk factor sections as these Form 10-Ks are 7 Case 17-3484, Document 43, 02/08/2018, 2232201, Page74 of 124 SPA8 7 (Mot. Dismiss Ex. 2, 2013 Form 10-K) at 18]. This section documents "risks related to litigation, regulatory audits and investigations" and states that such regulatory audits or agency reviews could lead to "changes to or clarifications of [Cigna's] business practices, retroactive adjustments to certain premiums, significant fines, penalties, civil liabilities, criminal liabilities or other sanctions, including restrictions on [Cigna's] ability to operate, that could have a material adverse effect on [Cigna's] business, results of operation, financial condition, and liquidity." See Id. at 19. With respect to risks involving Medicare participation, Cigna also acknowledges that failure to comply with CMS and state governmental contractual requirements can lead to "fines or penalties that could impact [Cigna's] profitability. See id. at 20. Failure to comply with state and federal health care laws and regulations can result in "fines, limits on expansion, restrictions or exclusions from programs or other agreements with federal or state governmental agencies that could adversely impact [Cigna's] business, cash flows, financial condition and results of operation." See id. at 20-21. The SAC alleges that CMS "cited" Cigna in April 2014 "for misleading advertising in October and November 2013 relating to its Florida MA and PDP offerings," although the type of compliance letter is not specified. [Dkt. 57 ¶ 117]. Later that year in October 2014, CMS issued two separate notices of non- compliance "for failure to provide required medical records and improper payments to approximately 410 non-eligible medical service providers." Id. incorporated by reference and were provided to the Court as exhibits to Defendant's Motion to Dismiss. 8 Case 17-3484, Document 43, 02/08/2018, 2232201, Page75 of 124 SPA9 7 Also in October 2014, CMS's Medicare Parts C and D Oversight and Enforcement Group ("MOEG") published its 2013 Part C and Part D Program Annual Audit and Enforcement Report. [Dkt. 66-6 (Mot. Dismiss Ex. 5, 2013 Audit Report)]. This annual audit publication is designed to "provide a brief overview of the Part C and Part D program audit and enforcement processes, a current and projected snapshot of the program audit landscape, a summary of the program audit and enforcement activities in 2013, and other highlights and noteworthy developments in MOEG's operations since the issuance of our 2012 annual report." Id. at 3-4. The private companies that contract with CMS to provide health and prescription drug benefits to Medicare beneficiaries, i.e. "sponsors," can be audited by MOEG through this program. See id. at 7. MOEG chooses certain sponsors based on "data-driven risk assessment," which "generate[s] a risk score and subsequent ranking for all sponsors. . . ." Id. Both low and high ranking sponsors can be chosen, and MOEG reserves resources to conduct Ad Hoc audits and audits based on referrals. Id. MOEG's goal for this program since its inception in 2010 is to "audit every sponsor in the Part C and Part D programs within a reasonable time period." Id. at 11. Cigna was not listed as an audited sponsor for 2013. The SAC alleges that in December 2014, Cigna received five separate notices of non-compliance for improper pharmacy coverage. [Dkt. 57 ¶ 117]. Defendants submitted two warning letters from December 2014 pertaining to the failure of Cigna Healthcare of Arizona, Inc. and Bravo Health Pennsylvania, Inc. to comply with Medicare Part D in administering Cialis coverage contracts. See [Dkt. 66-16 9 Case 17-3484, Document 43, 02/08/2018, 2232201, Page76 of 124 SPA10 7 (Mot. Dismiss Ex. 15, Cigna of Ariz. Warning Letter); Dkt. 66-17 (Mot. Dismiss Ex. 16, Bravo Warning Letter)]. The SAC also refers to Cigna's Code of Ethics and Principles of Conduct ("Code of Ethics"), published in December 2014. Id. ¶ 127. McCarthy is cited in the Code of Ethics as saying it is important to do things "the right way," which includes reporting financial results fairly and accurately. Id. ¶ 128. This is because "shareholders who invest in us expect it, as do the analysts who follow us" and accordingly "it's so important for every employee on the global Cigna team to handle[,] maintain, and report on this information in compliance with all laws and regulations." Id. The Code of Ethics also includes a statement from Fritch acknowledging the responsibility to act with integrity, including under circumstances dealing with government officials. Id. ¶ 129. Proposed Lead Plaintiff believes these statements were materially false and misleading when made because Defendants knew about the notices of non-compliance, such non- compliance constituted a "serious threat to the health and safety" of Medicare patients and showed a lack of integrity in dealing with government officials, and CMS's notices would have a material impact on Cigna if left unaddressed. Id. ¶ 130. The 2014 Form 10-K filed on February 26, 2015, contains the same compliance statements6 as those from the 2013 Form 10-K set forth in the 6 Namely, the Medicare Regulation states Cigna "expect[s] to continue to allocate significant resources to [its] compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs." Id. ¶ 133. The "Federal Audits of Government Sponsored Health Care Programs" states that "[t]he regulations and 10 Case 17-3484, Document 43, 02/08/2018, 2232201, Page77 of 124 SPA11 7 "Medicare Regulations" and "Federal Audits of Government Sponsored Health Care Programs" sections. Id. ¶¶ 133-34.7 It does not contain the statement from 2013: "We have established policies and procedures to comply with applicable requirements." Id. ¶ 120. The 2014 Form 10-K does include the same language from the risk factor section as those alleged in the 2013 Form 10-K above. Compare [Dkt. 66-2 at 18]; with [Dkt. 66-3 at 18]. Both Cordani and McCarthy issued certifications substantially similar to that which is stated above. Id. ¶ 135. The SAC lists several compliance letters sent over the course of 2015, which are alleged to be addressed to Appel as the Medicare Compliance Officer and establish violations that later became the basis for the sanctions. See [Dkt. 57 ¶¶ 115-18]. In February 2015, Cigna "was cited" for "inadequate claims processing systems that 'were not accurately configured to capture and track the [maximum- out-of-pocket] amounts and ensure appropriate payment," although the type of contractual requirements in this area are complex, are frequently modified, and are subject to administrative discretion. [Cigna] expect[s] to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness." Id. ¶ 134. 7 Contrary to the aforementioned provisions cited by the Proposed Lead Plaintiff, the SAC also contains the allegation that over time, as Cigna became aware of the failures to comply with CMS regulations, it accordingly altered its annual filings. For example, Proposed Lead Plaintiff alleges the 2013 Form 10-K states, "We have established policies and procedures to comply with applicable requirements." Id. ¶ 113. However, the 2014 Form 10-K makes no such statement, and Proposed Lead Plaintiff contends this fact establishes Defendants knew that during 2014 either "(i) any established policies did not actually ensure Company compliance with applicable regulations; or (ii) there were no such policies." Id. Without including citations to regulations or policies, the Court cannot determine to what section this allegation pertains and whether it conflicts with the 10-K language set forth by the Proposed Lead Plaintiff in a different section. 11 Case 17-3484, Document 43, 02/08/2018, 2232201, Page78 of 124 SPA12 7 compliance letter is not specified. Id. ¶ 117. The next month Cigna received five separate notices of non-compliance "for failure to provide required certifications and failure to send members required timely explanations of benefits." Id. In April 2015, Cigna received two notices "for wrongly discontinuing coverage for 433 members and improper denial of prescription coverage for more than 1,700 claims." Id. In May, Cigna received two separate notices of non-compliance "for inaccurately describing benefits and failing to inform more than 500 physicians of their appeal rights who had been terminated by HealthSpring." Id. Then in June 2015, Cigna received at least 21 separate notices or warning letters "for failing to add a requisite class of pharmaceuticals to its plan formulary and for failure to meet call center timeliness requirements." Id. In July, CMS then sent Cigna at least 20 notices of non-compliance, warning letters, and a Corrective Action Plan Request "for failure to timely process enrollment applications, double billing, submission of incorrect and unreadable data for audit purposes, failure to submit required plans to regulatory agencies, untimely processing of approximately 1,600 appeals or redetermination requests, improper and untimely call center service, and failure to maintain an adequate network." Id. The SAC does not specify to what topic the Corrective Action Plan pertains. Cigna "was cited" in August 2015 "for failure to comply with pharmacy formulary submission and review requirements," but the type of compliance letter is unspecified. Id. In October 2015, Cigna "was cited" for "directing customer coverage determination requests to a voicemail line." Id. 12 Case 17-3484, Document 43, 02/08/2018, 2232201, Page79 of 124 SPA13 7 On October 13, 2015, CMS published its 2014 Part C and Part D Program Audit and Enforcement Report. [Dkt. 66-5 (Mot. Dismiss Ex. 4, 2014 Audit Report)]. Cigna was not listed as an audited sponsor for 2014. The SAC states that in December 2015, Cigna received 16 notices of non- compliance or warning letters "for improper and untimely call center service and failure to ensure the accurate entry of Notice of Change/Evidence of Coverage documents." Id. On January 22, 2016, Cigna filed a Form 8-K disclosing that the day prior CMS informed the company in a letter ("CMS Letter") that it would impose intermediate sanctions suspending the enrollment of Medicare beneficiaries and the marketing to new Medicare beneficiaries effective at 11:59 p.m. on January 21, 2016. Id. ¶ 101; [Dkt. 57-2 (Am. Compl. Ex. B., CMS Letter) at 1]. Cigna announced that the sanctions were imposed on account of operative deficiencies relating to its Parts C and D appeals and grievances, Part D formulary and benefit administration, and compliance program. [Dkt. 57 ¶ 102]. The Form 8-K states that "Cigna is working to resolve these matters as quickly as possible and is cooperating fully with CMS on its review." Id. ¶ 139; [Dkt. 66-9 (Mot. Dismiss Ex. 8, Form 8-K (Jan. 21, 2016)), Item 8.01]. Proposed Lead Plaintiff alleges Cigna failed to acknowledge the severity of the findings stated in the CMS Letter: that Cigna's conduct was a "serious threat to the health and safety of Medicare beneficiaries" and that the violations resulted in delays, denials and increased costs regarding medical services and prescription drugs. Id. ¶ 103; [Dkt. 57-2 at 2]. 13 Case 17-3484, Document 43, 02/08/2018, 2232201, Page80 of 124 SPA14 7 The CMS Letter stems from an audit performed from October 5, 2015, to October 20, 2015, and it notes that "Cigna has had a longstanding history of non- compliance with CMS requirements." [Dkt. 57-2 at 2]. Specifically, "Cigna has received numerous notices of non-compliance, warning letters, and corrective action plans from CMS over the past several years. Id. A number of these notices were for the same violations discovered during the audit, demonstrating that Cigna has not corrected issues of non-compliance." Id. Many of these notices of non- compliance were sent during the Class Period, including a notice of non- compliance sent as early as 2013. See id. at 5. A subsequent warning about continued non-compliance was sent in 2015. Id. The CMS Letter also cited the HealthSpring acquisition, which added over one million beneficiaries to Cigna's operations, "creat[ed] an organizations structure that is decentralized and fragmented." Id. Notably, the CMS Letter states that on December 9, 2015, CMS met with Cigna's senior leadership "to discuss the serious nature of the deficiencies discovered during the audit." Id. The breakdown in operations, according to the CMS Letter, is attributable to the failure to integrate operations, which leads to inadequate monitoring and oversight of Part C and D requirements. Id. In failing to satisfy CMS regulations, Cigna "substantially failed to provide its enrollees with services and benefits. . . ." Id. ¶ 139; [Dkt. 57-2 at 2]. Cigna's stock fell from $140.13 closing price on Thursday, January 21, 2016, to $137.90 closing price on Friday, January 22, 2016. [Dkt. 57 ¶ 140]. By the end of the next closing day, Friday, January 25, 2016, Cigna's stock price fell to $135.85. After receiving sanctions, Fritch announced in a media interview that Cigna 14 Case 17-3484, Document 43, 02/08/2018, 2232201, Page81 of 124 SPA15 7 had internal quality review processes that identified some areas prior to the audit findings. Id. ¶ 114. On July 29, 2016, Cigna filed a quarterly report, Form 10-Q, for the quarter ending June 30, 2016. Id. ¶ 143. This report indicated that Cigna would reduce its 2016 financial outlook due, in part, to substantial $30 million in costs to remedy compliance violations related to the CMS sanctions. Id. Such costs were expected to continue to grow until sanctions could be remediated, which Cigna acknowledged may not occur in a "timely and satisfactory manner. . . ." Id. ¶ 144. Stock price fell from $135.99 at closing on Thursday, July 29, 2016, to $128.96 at closing on Friday, June 29, 2016. Id. ¶ 151. By closing on August 2, 2016 (the third consecutive trading day), stock price fell to $124.13, representing a drop of $11.86 per share. Id. ¶ 152. On the same day Cigna held an earnings conference call with analysts where Cordani and McCarthy addressed Cigna's failure to comply with regulations and the timing and costs for remedying the violations. Id. ¶ 145. McCarthy acknowledged the costs were higher than expected and that they would continue at the same pace until violations were fully redressed. Id. ¶ 146. Analysts expressed concern about whether Cigna could resolve the audit issues prior to the annual enrollment period ("AEP") beginning October 15 and ending December 7 each year. Specifically, analysts understood that Cigna's inability to participate in the AEP could lead to loss of membership and impact revenue and earnings contributions. See id. ¶¶ 149-50. 15 Case 17-3484, Document 43, 02/08/2018, 2232201, Page82 of 124 SPA16 7 During the Class Period (February 27, 2014 to August 2, 2016), Cordani sold 668,529 shares and Fritch sold 455,180 shares of Cigna stock.8 Id. ¶¶ 176. Such sales sharply contrast with their share sales from February 28, 2012 to January 21, 20149: Cordani sold 137,621 shares and Fritch sold 0 shares. Id. Proposed Lead Plaintiff alleges that the timing of the sales are suspicious given CMS already provided at least one notice of non-compliance but Cigna had not yet publicly reported any substantial non-compliance. See id. ¶ 180. The stock sales, Proposed Lead Plaintiff contends, are evidence of scienter. See id. ¶ 173. Proposed Lead Plaintiff alleges the market prices of Cigna's common stock became artificially inflated as a result of Cigna's material misstatements and omissions. Id. ¶ 183. This artificial inflation was partially removed as a result of the stock prices falling after the filing of the Form 8-K on January 22, 2016, and the filing of the Form 10-Q on July 29, 2016. Id. ¶¶ 184-85. As senior executives and/or directors, Cordani, McCarthy, and Appel are alleged to have obtained confidential and proprietary information about Cigna's operations, compliance, information about Cigna's failure to comply with regulations, including the 75 notices of non-compliance, and the effects of non- compliance. See id. ¶¶ 186-87. They took part in drafting, preparing and/or approving information and reports circulated to the public, shareholders, and 8 As a result of the sales, Cordani's net proceeds were $71,942,705 and Fritch's net proceeds were $59,835,369. Id. 9 Proposed Lead Plaintiff picked these dates as the "Control Period," "the approximately two-year period immediately preceding the Class Period. . . ." Id. ¶ 174. 16 Case 17-3484, Document 43, 02/08/2018, 2232201, Page83 of 124 SPA17 7 investors, which contained material misstatements and omissions. Id. ¶ 187. By acting as senior executives and directors, Cordani, McCarthy and Appel were "controlling persons" of a publicly held company who had a duty under the Exchange Act to disseminate accurate information or correct any incorrect information. Id. ¶ 188. Also, Proposed Lead Plaintiff alleges that HealthSpring's employees had "extensive institutional knowledge" but nonetheless Defendants "systematically engaged in a pattern of conduct in the wake of the acquisition that would lead to the exodus of many of HealthSpring's regulatory compliance employees," which included some confidential witnesses. Id. ¶ 77. Confidential witnesses reported that Cigna replaced HealthSpring's senior leadership team with new senior leadership from Cigna who were inexperienced with Medicare compliance, id. ¶ 78, and Cigna underpaid its compliance employees resulting in high turnover, id. ¶ 80. As such, approximately 90% of the employees brought in were legacy Cigna employees with little to no experience in CMS regulations or compliance. Id. ¶ 82. Appel chose not to seek out legacy HealthSpring employees with institutional knowledge about compliance. Id. ¶ 84. As Medicare Compliance Officer, Appel "was legally Cigna's most senior officer charged with ensuring CMS's Medicare regulations were followed" and therefore was legally responsible for reporting compliance problems up the chain of senior management, including Cordani, McCarthy, and Fritch. Id. ¶ 90 (emphasis omitted). Cigna also elected to reduce customer service staff during this time. Id. ¶ 91. 17 Case 17-3484, Document 43, 02/08/2018, 2232201, Page84 of 124 SPA18 7 In addition to the turnover from HealthSpring to Cigna employees, data processing systems failed to properly integrate patient information stored by the two companies. Id. ¶ 93. Without a centralized system Cigna could not quickly and accurately access information necessary to patient or provider needs. Id. ¶ 95. HealthSpring's Vice President of Health Services, Claudia Douds, issued a plan in response to findings from internal audits that Cigna was out of compliance; despite its estimated cost of less than $5 million, Cigna rejected the plan and continued to oust HealthSpring legacy employees with significant experience. Id. ¶ 98. CMS sanctioned Cigna for non-compliance in January 2016, by the next month Cigna had not developed a plan to fully integrate the system. Id. ¶ 100. On September 6, 2016, CMS published its 2015 Part C and Part D Program Audit and Enforcement Report. [Dkt. 66-4 (Mot. Dismiss Ex. 3, 2015 Audit Report)]. Cigna was listed as an audited sponsor for 2015. It received a worse than average audit performance with a score of 1.90, wherein the average was 1.76 and the lower audit score represents better performance. See id. at 15. Specifically, Cigna received a better than average score for Compliance Program Effectiveness, id. at 16; Part D Coverage Determinations, Appeals, and Grievances, id. at 18; and Special Needs Plans Model of Care, id. at 20; but it received a worse than average score for Part D Formulary and Benefit Administration, id. at 17; and Part C Organization Determinations, Appeals, and Grievances, id. at 19. The publication cited the 2015 Program Audit as the reason for imposing the sanctions. Id. at 33. 18 Case 17-3484, Document 43, 02/08/2018, 2232201, Page85 of 124 SPA19 7 DISCUSSION I. Legal Standard To survive a motion to dismiss, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In considering a motion to dismiss for failure to state a claim, the Court should follow a "two-pronged approach" to evaluate the sufficiency of the complaint. Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). "A court 'can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.'" Id. (quoting Iqbal, 556 U.S. at 679). "At the second step, a court should determine whether the 'wellpleaded factual allegations,' assumed to be true, 'plausibly give rise to an entitlement to relief.'" Id. (quoting Iqbal, 556 U.S. at 679). "The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678 (internal quotations omitted). In general, the Court's review on a motion to dismiss pursuant to Rule 12(b)(6) "is limited to the facts as asserted within the four corners of the complaint, the documents attached to the complaint as exhibits, and any documents incorporated by reference." McCarthy, 482 F.3d at 191. The Court may also consider "matters of which judicial notice may be taken" and "documents either in 19 Case 17-3484, Document 43, 02/08/2018, 2232201, Page86 of 124 SPA20 7 plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit." Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); Patrowicz v. Transamerica HomeFirst, Inc., 359 F. Supp. 2d 140, 144 (D. Conn. 2005); see Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (acknowledging that in a § 10(b) case "courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice"). A complaint alleging violations of § 10(b) and Rule 10b-5 must meet the heightened pleading standard of Fed. R. Civ. P. 9(b) and the rules prescribed by the PSLRA, 15 U.S.C. § 78u-4(b). See Tellabs, Inc., 551 U.S. at 321. Under Rule 9(b), a plaintiff "must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). "To satisfy this requirement the plaintiff must (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 108 (2d Cir. 2012) (internal quotation marks omitted). Under the PSLRA, the complaint must (1) "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, . . . shall state with particularity all facts on which that belief is formed;" and (2) plead facts "giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(1)(B), (b)(2)(A). See Tellabs, Inc., 551 U.S. at 321; Kleinman v. 20 Case 17-3484, Document 43, 02/08/2018, 2232201, Page87 of 124 SPA21 7 Elan Corp., PLC, 706 F.3d 145, 153 (2d Cir. 2013). As with any other type of 12(b)(6) motion, the Court must "accept all factual allegations in the complaint as true." Id. at 322. II. Count 1: Section 10(b) of the Exchange Act and Rule 10b-5 Proposed Lead Plaintiff alleges that Cigna, Cordani, McCarthy and Fritch (i.e. all Defendants except Appel) violated § 10(b) of the Exchange Act and Rule 10b-5 promulgated by the SEC under 17 C.F.R. § 240.10b-5. Section 10(b) of the Exchange Act makes it unlawful to "use or employ, in connection with the purchase or sale of any security. . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78j(b). Rule 10b-5, promulgated by the SEC to implement this portion of the Exchange Act, makes it unlawful for any person, directly or indirectly, in connection with the purchase or sale of any security "[t]o employ any device, scheme or artifice to defraud; (b) [t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) [t]o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person." 17 C.F.R. § 240.10b–5. Under § 10(b) promulgated under Rule 10b-5, it is unlawful "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading." 17 C.F.R. § 240.10b-5. A plaintiff must establish 21 Case 17-3484, Document 43, 02/08/2018, 2232201, Page88 of 124 SPA22 7 the following five factors: "(1) a material misrepresentation (or omission); (2) scienter, i.e., a wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance ...; (5) economic loss; and (6) loss causation." Kleinman, 706 F.3d at 152 (internal citations and quotation marks omitted). Defendants argue that the § 10(b) action should be dismissed on three grounds: failure to plead materiality, scienter, and loss causation. Proposed Lead Plaintiff challenges all three assertions. Accordingly, the Court addresses each assertion in turn. A. Material Misstatements or Omissions Defendants set forth several reasons why the SAC fails to plead with particularity a material misstatement or omission. First, they argue the SAC does not adequately allege the statements at issue were false at the time they were made because Proposed Lead Plaintiff mischaracterizes the Defendants' statements, mischaracterizes the CMS notices, and relies on confidential witness statements that do not plead falsity. [Dkt. 67 at 19-20]. Second, Defendants posit the alleged misstatements are inactionable puffery because they are too general to create reliance from a reasonable investor. Id. at 27. Third, Defendants contend the allegations of omission are not material. Id. at 30. Proposed Lead Plaintiff disagrees for several reasons. The primary reason is that at least nine CMS regulations notified Defendants that their compliance procedures were insufficient. [Dkt. 68 at 2]. Despite disclosing various risks in the public filing documents, such risk disclosures could not insulate them from liability because they already happened. Id. at 17. In addition, Proposed Lead Plaintiff avers the SAC does not allege fraud-by-hindsight because the failure to disclose 22 Case 17-3484, Document 43, 02/08/2018, 2232201, Page89 of 124 SPA23 7 insufficient compliance practices created the risk they attempted to conceal. Id. at 18. And finally, Defendants' statements were material, not puffery, because they contained fact-based information as opposed to hopes or aspirations. Id. at 20. The duty of a company registered on a public exchange to disclose information to the public is prescribed by a series of laws and regulations. See Basic Inc. v. Levinson, 485 U.S. 224, 258-59 (1988) (citing as an example 15 U.S.C. §§ 78m, 78o(d) (1982 ed. And Supp. IV)). These laws and regulations do not impose a duty of continuous disclosure. See Higginbotham v. Baxter Intern., Inc., 495 F.3d 753, 760, (7th Cir. 2007) (rejecting duty to update before next quarterly report) (citing Basic Inc. and Dirks v. SEC, 463 U.S. 646 (1983)); Gallagher v. Abbott Labs., 269 F.3d 806, 808 (11 Cir. 2001) (explaining that securities laws do not require continuous disclosure); Eisenstadt v. Centel Corp., 113 F.3d 738, 746 (7th Cir. 1997) (rejecting duty to update forward-looking statements that have become incorrect due to changing circumstances); see also In re IBM Corp. Sec. Litig., 163 F.3d 102, 105 (2d Cir. 1998) (no duty to correct because the statements were not misleading when made, and there was no duty to update vague statements of optimism or expressions of opinion); In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 261 (2d Cir. 1993) (ruling Time Warner's statements regarding "serious" discussions of strategic alliances "lack the sort of definite positive projections that might require later correction" and "suggest only the hope of any company on talks with multiple partners, that the talks would go well"). "[I]t bears emphasis that § 10(b) and Rule 10b–5(b) do not create an affirmative duty to disclose any and all material information." Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44–45 (2011). A 23 Case 17-3484, Document 43, 02/08/2018, 2232201, Page90 of 124 SPA24 7 reasonable investor's interest is not sufficient, standing alone, to require disclosure of an item. See Kleinman, 706 F.3d at 153; In re Time Warner Sec. Litig., 9 F.3d at 267 ("But a corporation is not required to disclose a fact merely because a reasonable investor would very much like to know that fact."). The duty to disclose instead arises where there is "a statute or regulation requiring disclosure" or a "corporate statement that would otherwise be inaccurate, incomplete, or misleading." Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 101 (2d Cir. 2015); see Kleinman, 706 F.3d at 153 ("Disclosure is required only when necessary to make statements made, in the light of the circumstances under which they were made, not misleading.") (citing 17 C.F.R. § 240.10b-5(b)) (emphasis added). Pursuant to the Exchange Act, a company registered with the SEC must make annual and quarterly filings disclosing information as specified by the Act. See generally, 17 C.F.R. Ch. II, Pt. 249, et seq. In addition to these annual and quarterly filings, there are certain regulatory filing requirements, such as those imposed by 17 C.F.R. § 229.303(a),(b) (Item 303), which requires disclosure of the "registrant's financial condition, changes in financial condition and results of operations" each full fiscal year, including a description of "any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations," as well as "any material changes in the registrant's results of operations" for an interim period. The central tenet for disclosure requirements, whether by statute, regulation, or a corporate statement, is that "[t]he veracity of a statement or omission is measured not by its literal truth, but by its ability to 24 Case 17-3484, Document 43, 02/08/2018, 2232201, Page91 of 124 SPA25 7 accurately inform rather than mislead prospective buyers." Kleinman, 706 F.3d at 153; In re BioScrip, Inc. v. Sec. Litig., 95 F. Supp. 3d 711, 727 (S.D.N.Y. 2015) (same). A misstatement or omission is material if there exists a "substantial likelihood that a reasonable shareholder would consider it important in deciding how to [act]." ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009) (quoting Basic Inc., 485 U.S. at 231-32). In other words, there must be a substantial likelihood the omitted fact would "significantly alter the 'total mix' of information made available" in the eyes of a reasonable investor. Id. This question is a mixed one of law and fact, and as such a court should not dismiss the complaint on a 12(b)(6) motion for lacking materiality unless the misstatements or omissions alleged in the complaint were required to be disclosed and are "so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance." Id. Proposed Lead Plaintiff does not point to a statute or regulation requiring disclosure of the CMS notices, any CMS audits as the one from October 2015 referenced in the Opposition to the Motion to Dismiss, see [Dkt. 68 at 2], or other allegedly material information, and therefore at issue is whether a corporate statement would otherwise be inaccurate, incomplete, or misleading. When a defendant does speak to an issue or topic, the "duty to tell the whole truth" arises. Meyer v. Jinkosolar Holdings Co., Ltd., 761 F.3d 245, 250 (2d Cir. 2014). A court cannot merely look at "[t]he literal truth of an isolated statement" but must examine "defendants' representations, taken together and in context." Id. (quoting In re 25 Case 17-3484, Document 43, 02/08/2018, 2232201, Page92 of 124 SPA26 7 Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 247, 366 (2d Cir. 2010)). This "duty to tell the whole truth" has limitations, because a defendant is not required to reveal everything about a subject after disclosing one fact. Christine Asia Co., Ltd. v. Alibaba Grp. Holding Ltd., 192 F. Supp. 3d 456, 471 (S.D.N.Y. 2016). Indeed, a company need not disclose all communications with a regulator even where the regulator has notified the company about its operation's deficiencies, particularly because "mismanagement alone does not constitute fraud." Acito v. IMCERA Grp., Inc., 47 F.3d 47, 55 (2d Cir. 1995) ("It is well settled that section 10(b) was not designed to regulate corporate mismanagement.") (internal quotation marks omitted); Alibaba, 192 F. Supp. 3d at 470 (finding a company does not have a duty to disclose communications with a regulator where deficiencies in operations have already been identified). That being said, "[a] generic warning of a risk will not suffice when undisclosed facts on the ground would substantially affect a reasonable investor's calculations of probability." Jinkosolar, 761 F.3d at 251; Rombach v. Chang, 355 F.3d 164, 173 (2d Cir. 2004) ("Cautionary words about future risk cannot insulate from liability the failure to disclose that the risk has transpired."). 1. 2014 Code of Ethics: McCarthy and Fritch The Court first addresses whether the statements from McCarthy and Fritch published in the 2014 Code of Ethics constitutes a materially misleading statement. McCarthy's quote advises employees to "do[ ] things 'the right way'" and comply with laws and regulations. [Dkt. 66-15 at 7]. Fritch opines that employees "have a responsibility to act with integrity," including any interactions with government 26 Case 17-3484, Document 43, 02/08/2018, 2232201, Page93 of 124 SPA27 7 officials. Id. at 13. Although the Code of Ethics was made publicly available on the website and therefore was open for an investor to peruse, there is no reasonable investor who would rely on such "puffery" as these quotations reflect the precise meaning of the term: "general statements about reputation, integrity, and compliance with ethical norms are inactionable 'puffery,' meaning they are too general to cause a reasonable investor to rely upon them." City of Pontiac Policemen's and Firemen's Retirement Sys. v. UBS AG, 752 F.3d 173, 183 (2d Cir. 2014) (quoting ECA, 553 F.3d at 206 (2d Cir. 2009)). Moreover, the SAC does not allege at what point these individuals actually made these statements—Fritch and McCarthy could have uttered these words years before they were actually published in the Code of Ethics. Therefore, Proposed Lead Plaintiff cannot show these are opinions or beliefs that are actionable because they were "objectively false and disbelieved by the defendant at the time it was expressed." Fait v. Regions Fin. Corp., 655 F.3d 105, 110 (2d Cir. 2011); In re BioScrip, Inc., 95 F. Supp. 3d at 728 (same). Accordingly, these statements by Fritch and McCarthy are not material misstatements actionable under the PSLRA. 2. 2013 and 2014 Form 10-Ks: Cigna, Cordani, and McCarthy The Court next addresses the statements issued in the 2013 and 2014 Form 10-Ks in light of the "total mix of information made available" to the reasonable investor. See ECA, 553 F.3d at 197. After the acquisition, at the time when the statements were made, Proposed Lead Plaintiff alleges that Cigna received "at least nine [CMS] Notices prior to the first Class Period compliance statements, and at least 18 Notices before the final actionable statements. . . ." [Dkt. 68 at 23]. The 27 Case 17-3484, Document 43, 02/08/2018, 2232201, Page94 of 124 SPA28 7 SAC does not contain factual details about all 18 notices allegedly sent by the final actionable statement, however it does provide a few examples: that Cigna received "two separate notices for failure to provide records, and for improper payments to approximately 410 medical service providers" in October 2014; and "five separate Notices of Non-compliance for improper pharmacy coverage" in December 2014. [Dkt. 57 ¶ 13]. Defendants clarify that five of the initial nine notices concerned the same coverage issue for the drug Cialis and they were sent to Cigna plans in different states. [Dkt. 67 at 23]. Proposed Lead Plaintiff also claims that Cigna received at least 75 CMS notices by the end of the Class Period. [Dkt. 57 ¶ 13]. Defendant avers that 66 of the 75 notices were issued after the alleged misstatements. [Dkt. 67 at 22]. Although the numerosity of the notices is worth noting, the materiality question requires the Court to focus on the content of the notices in order to decide whether the information would be important to a reasonable investor. On the one hand, it is widely understood that companies cannot be expected to comply with applicable regulations 100% of the time, particularly if they do not profess to do so. See Jinkosolar, 761 F.3d at 251 (acknowledging the defendant company did not guarantee compliance and stating "[s]uch compliance may often be unobtainable, and reasonable investors may be deemed to know that"); Alibaba, 192 F. Supp. 3d at 470 ("[A] corporation is not required to disclose every communication it has with a regulator—even where, as here, a regulator has informed a company of deficiencies in its operations."); In re FBR Inc. v. Securities Litig., 544 F. Supp. 2d 346, 362 (S.D.N.Y. 2008) (finding that boilerplate language on 28 Case 17-3484, Document 43, 02/08/2018, 2232201, Page95 of 124 SPA29 7 regulatory risk is not misleading when the description is not company-specific and a reasonable investor would not infer anything about the company's state of compliance"). Cigna's Form 10-Ks do not guarantee 100% compliance with administrative regulations. Indeed, the 2013 and 2014 Form 10-Ks state, "We expect to continue to allocate significant resources to our compliance, ethics, and fraud. . . programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs." [Dkt. 66-2 at 16; Dkt. 66-3 at 15]. If anything, Cigna's decision to allocate significant resources supports the inference that Cigna is aware its compliance needs to improve, otherwise such an expansion would be a needless waste of resources. This is further supported by the fact that Cigna eliminated from Form 10-Ks the statement that it "established policies and procedures to comply with applicable requirements," [Dkt. 66-3 at 12], which appeared only in the 2013 Form 10-K but not thereafter. The correction does not inherently mean that, at the time when the 2013 Form 10K was published, the statement was materially misleading. As such, Cigna's receipt of nine to 18 non- compliance notices is not, in it of itself, a reason requiring a duty to disclose. On the other hand, although a company cannot be expected to maintain 100% compliance with every applicable regulation, the existence of "ongoing and substantial" violations of regulations that are left undisclosed can lead to a material misstatement or omission if a reasonable investor would consider such information important. See Jinkosolar, 761 F.3d at 251-52. In Jinkosolar, the defendant was a solar cell and solar panel manufacturing company that failed to disclose in the prospectus its Chinese facilities' ongoing and substantial violations 29 Case 17-3484, Document 43, 02/08/2018, 2232201, Page96 of 124 SPA30 7 of Chinese environmental, safe production, and construction regulations. Id. at 251. The prospectus contained information about defendant's pollution abatement equipment and its 24-hour monitoring of environmental teams. Id. It also disclosed the costly nature of regulation compliance and warned that non-compliance "may lead to bad publicity, fines, and even a suspension of the business." Id. The Second Circuit held that, even though the prospectus included a general warning of relevant risks, its "failure to disclose then ongoing regulations pollution violations would cause a reasonable investor to make an overly optimistic assessment of the risk." Id. (emphasis added). Such an omission was material because "substantial non-compliance would constitute a substantial threat to earnings, if not to the entire venture." Id. at 252. Like the defendant in Jinkosolar, Cigna publicly reported its requirement to comply with regulations and warned that non-compliance could lead to "changes to or clarifications of our business practices, as well as fines, penalties or other sanctions." [Dkt. 66-2 at 13; Dkt. 66-3 at 12]. Cigna also stated that its "right to obtain payment. . ., enroll and retain members and expand into new service areas is subject to compliance with CMS' numerous and complex regulations and requirements that are frequently modified and subject to administrative discretion." [Dkt. 66-2 at 16; Dkt. 66-3 at 15]. By February 2014, Cigna received at least nine notices. [Dkt. 68 at 2]. Neither the SAC nor the Opposition brief set forth the content of these notices or state in what way they would be material other than by volume. The Court therefore cannot determine that these nine notices were sufficiently material to require disclosure 30 Case 17-3484, Document 43, 02/08/2018, 2232201, Page97 of 124 SPA31 7 in the 2013 Form 10-K in order to prevent the statement that Cigna had "established policies and procedures to comply with applicable requirements" from being an actionable misstatement. See [Dkt. 57 ¶ 120]. The only notices referenced in the SAC indicates that Cigna was cited for "failure to provide records" and for "improper payments to approximately 410 medical service providers in October 2014, and then "in December 2014, Cigna received five separate Notices of Non-Compliance for improper pharmacy coverage." [Dkt. 57 ¶ 13]. Such notices are relevant to the materiality of the 2014 Form 10-K statement. The Court finds that a reasonable investor would not view these notices, which could at a later point be cured, to be "substantial and ongoing violations." In support of this conclusion is the January 2013 publicly issued memorandum titled "2014 Application Cycle Past Performance Review Methodology Final," which states that a notice of non-compliance is the "mildest type of letter" that "does not contain specific language regarding further compliance escalation or other consequences should the behavior/non- compliance continue." [Dkt. 66-7 at 7]. The Court notes that Defendants submitted as exhibits two warning letters issued in December 2014, and warning letters are described as "formal communication that describes the consequences of non- compliance." Id. These are not, however, referenced in the SAC and furthermore may also be cured with corrective action. The Court does not find Proposed Lead Plaintiff's reference to BioScrip persuasive here. In BioScrip, the court held the plaintiff adequately alleged material misstatement because the company "suggest[ed] it routinely responded 31 Case 17-3484, Document 43, 02/08/2018, 2232201, Page98 of 124 SPA32 7 to investigatory requests from the Government, but was not presently in the process of responding to such a request." Id. at 727. Even though the company's 2013 Form 10-K explained there was "no assurance that we will not receive subpoenas or be requested to produce documents in pending investigations or litigation from time to time," the company had already received a civil investigative demand from the Government. Id. The company also stated that it "believes it is in substantial compliance with all laws, rules and regulations that its business and operations" but warned that it could be subject to scrutiny or challenge at some point in the future. Id. at 728. Investigatory requests from the Government are not at issue here and Cigna's notifications of non-compliance are not equivalent to a Government investigation. It is true that the 2013 Form 10-K stated it "established policies and procedures to comply with applicable requirements." [Dkt. 66-3 at 12]. However, Cigna made no contention that it was in "substantial compliance" with all laws, and the Court finds the facts in Jinkosolar, as stated above, more applicable. The reasoning in Jinkosolar, acknowledging a company cannot be expected to be in compliance with regulations 100% of the time, is therefore instructive. Accordingly, the Court gives greater weight to Jinkosolar. The CMS Letter attached as an exhibit to the SAC notifies Cigna of immediate sanctions and describes Cigna as having a "longstanding history of non- compliance with CMS requirements." [Dkt. 57-2 at 2]. Because the Court has not been provided with all notices referenced in the SAC, the CMS Letter provides a useful reflection of the type of conduct that occurred. The CMS Letter reveals that the magnitude of the non-compliance was not just volume or length but also in 32 Case 17-3484, Document 43, 02/08/2018, 2232201, Page99 of 124 SPA33 7 breadth. In reviewing various operational areas, CMS discovered Cigna "substantially failed to comply with CMS requirements regarding Part C and Part D organization/coverage determinations, appeal and grievances; Part D formulary and benefit administration; access to facilities and records; and compliance program effectiveness." Id. Cigna also received a variety of non-compliance notifications in the form of "notices of non-compliance, warning letters, and corrective action plans from CMS over the past several years." Id. at 2. Notably, the CMS letter does not detail when these types of notifications were received and the content therein. Upon receiving immediate intermediate sanctions, Cigna was prohibited from enrolling Medicare beneficiaries onto Cigna contracts and from marketing to Medicare beneficiaries. See [Dkt. 66-8 at 1]. In essence, the sanctions halted the growth of Cigna's private Medicare business for 1.5 years while the sanctions remained. The sanctions were recently lifted off Cigna-HealthSpring on June 16, 2017. See Centers for Medicare & Medicaid Services, Part C and Part D Enforcement Actions, available at https://www.cms.gov/Medicare/Compliance- and-Audits/Part-C-and-Part-D-Compliance-and- Audits/PartCandPartDEnforcementActions-.html (last visited August 23, 2017) (documenting Cigna's release from sanctions on June 16, 2017). It is important context that, as a result of the acquisition, CMS' Medicare premiums became the "largest single source of revenues" for Cigna, accounting for approximately 21- 22% of Cigna's overall revenues between 2012 and 2014, and throughout the Class Period "CMS was Cigna's only client that accounted for more than 10% of the 33 Case 17-3484, Document 43, 02/08/2018, 2232201, Page100 of 124 SPA34 7 Company revenues." [Dkt. 57 ¶ 8]. The inability to market and grow this extremely large source of revenue constitutes a substantial threat to earnings. The Court finds that a "reasonable investor" might view the breadth and volume of these compliance violations to be "ongoing and substantial," particularly in light of the fact that notices, warning letters, and corrective action plans were elicited during this time. However, the "duty to tell the whole truth" only arises when the "ongoing or substantial" violations are occurring at the time. See Jinkosolar, 761 F.3d at 250-51. The SAC does not sufficiently allege that there existed an "ongoing and substantial" violation at the time when the 2013 and 2014 Form 10-Ks statements were made. Because Proposed Lead Plaintiff does not allege that a statute or regulation required disclosure of non-compliance at some point after the Form 10-K statements but before the January 2016 Form 8-K disclosure of sanctions, the Court cannot find that subsequent compliance violations were material omissions.10 See Stratte-McClure, 776 F.3d at 101. The Court finds that the omissions made at the time when the alleged actionable statements were made are "obviously unimportant to a reasonable investor" because these early stage notices could be rectified at any time without risking a threat to earnings. See ECA, 553 F.3d at 197; Jinkosolar, 761 F.3d at 252. 10 Proposed Lead Plaintiff also alleges Cigna experienced a shifting employee base with a leadership team inexperienced in compliance, see [Dkt. 57 ¶ 78], and could not properly integrate data, see id. ¶ 94. Although the SAC alleges that CMS regulations required compliance reporting to senior leaders, id. ¶ 73, it raises no statute or regulation requiring disclosure of the failure to comply with regulations as to these issues. It furthermore does not indicate how any alleged actionable statements were materially misleading or there existed any material omissions in relation to these issues. See Stratte-McClure, 776 F.3d at 101 (stating a duty to disclose arises when a statute or regulation requires disclosure). 34 Case 17-3484, Document 43, 02/08/2018, 2232201, Page101 of 124 SPA35 7 Truisms, such as generic and theoretical "[c]autionary words about future risk cannot insulate from liability the failure to disclose that risk has transpired." Rombach v. Chang, 355 F.3d at 173. The 2014 Form 10-K expressly states that regulatory audits or reviews or actions by other governmental agencies could result in changes to or clarifications of our business practices, retroactive adjustments to certain premiums, significant fines, penalties, civil liabilities, criminal liabilities, or other sanctions, including restrictions on our ability to operate that could have a material adverse effect on our business, results of operation, financial condition and liquidity. [Dkt. 66-2 at 19]. The risk of the above changes had not already transpired because the CMS notices received by Cigna between the first and last actionable statement are not material misstatements or omissions. See In re Van der Moolen Holding N.V. Sec. Litig., 405 F. Supp. 2d 388, 400 (S.D.N.Y. 2005) ("[T]he Second Circuit previously has held that cautionary statements concerning forward-looking statements cannot insulate a defendant from potential liability for failure to disclose known material, adverse facts, see Rombach, 355 F.3d at 173. . . ."). Indeed, in Rombach the Second Circuit acknowledged that Plaintiffs' reference to a "handful of incidents" involving the now-bankrupt company were not sufficient to demonstrate already-transpired risk given that "[a] company that operates 119 separate facilities nationwide is bound to have some problems. . . ." Rombach, 355 F.3d at 173. Notices of non-compliance involving potentially disparate topics unspecified by Plaintiff is not sufficiently "risky" to be actionable. In summary, the Court finds that the 2013 and 2014 Form 10-Ks did not contain material misstatements or omissions, and the statements from Cordani and Fritch were inactionable puffery. Proposed Lead Plaintiff additionally did not 35 Case 17-3484, Document 43, 02/08/2018, 2232201, Page102 of 124 SPA36 7 identify any duty to disclose under a regulation or statute, such as those set forth under Item 303. While this finding is sufficient to dismiss the case in its entirety, the Court will address the remaining disputed issues. B. Scienter "The PSLRA requires plaintiffs to state with particularity both the facts constituting the alleged violation, and the facts evidencing scienter, i.e., the defendant's intention to deceive, manipulate, or defraud." Tellabs, 551 U.S. at 313. "Under this heightened pleading standard for scienter, a '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.'" Slayton, 604 F.3d at 766 (quoting Tellabs, 551 U.S. at 324). The proper 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." Tellabs, 551 U.S. at, 322-23. The "strong inference" standard is met when the inference of fraud is at least as likely as any non-culpable explanations offered. Slayton, 604 F.3d at 766 (quoting Tellabs, 551 U.S. at 324). This inference "must be more than merely 'reasonable' or 'permissible'—it must be cogent and compelling, thus strong in light of other explanations." Tellabs, 551 U.S. at 324. Such a high bar is intended to prevent allegations of fraud by hindsight. Id. at 320 (citing Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1129 (2d Cir. 1994)). A plaintiff may show an inference of scienter in two ways: "by alleging facts (1) showing that the defendants had both motive and opportunity to commit the fraud or (2) constituting strong circumstantial evidence of conscious misbehavior 36 Case 17-3484, Document 43, 02/08/2018, 2232201, Page103 of 124 SPA37 7 or recklessness." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007). In making the scienter determination, the Court must also consider "plausible opposing inferences." Tellabs, Inc., 551 U.S. at 323. 1. Motive and Opportunity In the scienter analysis, "[o]pportunity would entail the means and likely prospect of achieving concrete benefits by the means alleged." Shields, 25 F.3d at 1130. The Court assumes Defendants had the opportunity to commit fraud as the individuals were officers of either Cigna or its subsidiary, HealthSpring, and Defendants do not directly challenge opportunity in their briefing. See Kalnit v. Eichler, 99 F. Supp. 2d 327, 335 (S.D.N.Y. 2000) aff'd, 264 F.3d 131 (2d Cir. 2001) (directors of company had opportunity to commit fraud); San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Companies, Inc., 75 F.3d 801, 813 (2d Cir. 1996) (individual defendants had opportunity to manipulate company stock where they held the highest positions of power and authority within the company). Motive entails "concrete benefits that could be realized by one or more of the false statements and wrongful nondisclosures alleged." Shields, 25 F.3d at 1130. In order to raise a strong inference of scienter by motive and opportunity, Plaintiff must allege that Defendants "benefitted in some concrete and personal way from the purported fraud." ECA, 553 F.3d at 198. "Motives that are generally possessed by most corporate directors and officers do not suffice; instead, plaintiffs must assert a concrete and personal benefit to the individual defendants resulting from the fraud." Kalnit, 264 F.3d at 139; see Novak v. Kasaks, 216 F.3d 37 Case 17-3484, Document 43, 02/08/2018, 2232201, Page104 of 124 SPA38 7 300, 307 (2d Cir. 2000) (stating that plaintiffs cannot satisfy the pleading standard "based on motives possessed by virtually all plaintiffs"). The Second Circuit has held generally that, among others, (1) "the desire for the corporation to appear profitable," (2) "the desire to keep stock prices high to increase officer compensation," and (3) the "desire to maintain the appearance of profitability" are such insufficient motives. Id.; Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 196 (2d Cir. 2008); see also Chill v. Gen. Elec. Co., 101 F.3d 263, 268 (2d Cir. 1996) ("such a generalized motive [as the desire to justify an investment and make it appear profitable], one which could be imputed to any publicly-owned, for-profit endeavor, is not sufficiently concrete for purposes of inferring scienter."). However, the motive can be sufficiently pleaded where "defendants misrepresented corporate performance to inflate stock prices while they sold their own shares." Kalnit, 264 F.3d at 139. The SAC generally alleges that Defendants Cigna, Cordani, McCarthy and Fritch made materially false and misleading statements or omissions "in an effort to conceal the Company's non-compliance with CMS regulations, and to maintain the Company's common stock at artificially inflated prices." See [Dkt. 57 ¶ 208]. The act of artificially inflating securities prices is not in it of itself motive. See ECA, 553 F.3d at 201 n.6 (We acknowledge that the artificial inflation of stock prices in order to acquire another company may, in some circumstances, be sufficient for scienter. But the inquiry is an extremely contextual one, and in this case Plaintiffs simply did not allege a unique connection between the fraud and the acquisition.") (internal quotation marks and citations omitted). Rather, it becomes actionable 38 Case 17-3484, Document 43, 02/08/2018, 2232201, Page105 of 124 SPA39 7 when viewed in connection with an actionable motive. Kalnit, 264 F.3d at 139 (acknowledging that artificially inflated stock must be connected with motive). The SAC does not indicate how concealing non-compliance constitutes a concrete or personal benefit to the Defendants and instead the Court is left to assume that Defendants did so for personal benefit. Furthermore, that Defendants did so for "significant personal pecuniary gain" does not satisfy the particularity requirement, because the SAC does not allege the type of "pecuniary gain" that motivated the sales. If the executive was motivated by a desire for executive compensation, to maintain the appearance of profitability or to protect their position, the conduct would not be actionable. In contrast, if they were motivated by the opportunity to sell stocks at inflated prices it would be actionable. Proposed Lead Plaintiff fails to assert sufficient facts to sustain his burden. Proposed Lead Plaintiff alleges slightly more information with respect to Defendants Cordani and Fritch, who sold stock during the Class Period. [Dkt. 57 ¶ 173]. Specifically, Cordani sold 668,529 shares worth $71,942,705 and Fritch sold 455,180 shares worth $59,835,369 during the Class Period (lasting from February 27, 2014 to August 2, 2016). Id. ¶ 176. In the Opposition to the Motion to Dismiss, Proposed Lead Plaintiff claims the Cordani and Fritch had "motive and opportunity" for "significant personal pecuniary gain," [Dkt. 68 at 38], and "to continue concealing the Company's ongoing and increasingly frequent failures in compliance policies and procedures," id. at 36. Although both parties agree that in some circumstances selling stock is indicative of motive and opportunity to commit fraud, they dispute whether this situation demonstrates a strong inference 39 Case 17-3484, Document 43, 02/08/2018, 2232201, Page106 of 124 SPA40 7 of scienter. Cordani and Fritch both acquired more stock than they sold, but did so at no cost to them. See [Dkt. 67, at 34; Dkt. 68 at 38]. Further, these stock sales were made according to Rule 10b5-1 trading plans. [Dkt. 67 at 35]. Such plans allow company insiders who may possess material, non-public or inside information about the company to enter into an agreement with a broker dealer to purchase and sell company stock on behalf of the insider on a predetermined schedule specified in the plan and can provide an affirmative defense against an allegation that trades under this plan were based on such information. See 17 C.F.R. § 240.10b5-1(c). Cordani's trading plan was renewed annually, including during the Class Period. [Dkt. 71 at 10]. Fritch's trading plan was created during the Class Period because the "holdings were subject to a lock-up until September 15, 2014. . . ." Id. Notably, "[t]rading plans are not a cognizable defense to scienter allegations on a motion to dismiss where. . . they were adopted during the Class Period." Id. at 201 (emphasis added). "The motive and opportunity element is generally met when corporate insiders misrepresent material facts to keep the price of stock high while selling their own shares at a profit." In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 74 (2d Cir. 2001); see Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171 (S.D.N.Y. 2010) (stating an example of adequate motive is where "the defendants sold their own shares while at the same time misrepresenting corporate performance in order to inflate stock prices") (quoting In re Refco, Inc. Sec. Litig., 503 F. Supp. 2d 611, 646 (S.D.N.Y. 2007)). It may be permissible to infer scienter when "unusual" insider sales are made while negative corporate news is withheld, and factors determining 40 Case 17-3484, Document 43, 02/08/2018, 2232201, Page107 of 124 SPA41 7 "unusual" include: "the amount of profit from the sales, the portion of stockholdings sold, the change in volume of insider sales, and the number of insiders selling." In re Scholastic Corp. Sec. Litig., 252 F.3d at 74; see In re Lululemon Secs. Litig., 14 F. Supp. 3d 553, 584 (S.D.N.Y. 2014) ("Stock sales may support allegations of scienter when those trades are suspicious in timing or amount."); In re EVCI Coll. Holding Corp. Sec. Litig., 469 F. Supp. 2d 88, 100 (S.D.N.Y. 2006) (finding that defendant "sold far too much stock," i.e. 41% if stock options are counted and 80% if they are not, only two weeks after the company was required to take measures having significant revenue implications); c.f. Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171 (S.D.N.Y. 2010) (finding the combination of defendants' knowledge of fraud and access to information as well as their stock sales throughout the Class Period was sufficient to show a strong inference of scienter). A plaintiff ultimately must point to a "specific benefit that would inure to the defendants that would not be either generalized to all corporate directors or beneficial to all shareholders, not just the defendant directors specifically. Kalnit v. Eichler, 264 F.3d 161 (2d Cir. 2001). The SAC alleges Cordani and Fritch earned "extraordinarily large" net proceeds as a result of selling shares during the Class Period: $71,942,705 for Cordani and $59,835,369 for Fritch. See [Dkt. 57 ¶ 176]. The selling of even considerable shares is not sufficient, standing alone, to infer scienter. See In re Lululemon, 14 F. Supp. 3d at 585. Proposed Lead Plaintiff does not allege the portion of stockholdings sold. Proposed Lead Plaintiff compares the Class Period sales to the time period between February 28, 2012, and January 21, 2014; Cordani 41 Case 17-3484, Document 43, 02/08/2018, 2232201, Page108 of 124 SPA42 7 sold 137,621 shares worth $8,622,160 and Fritch did not sell any shares. Id. ¶ 174. As Defendants rightly point out, this roughly two-year time period does not match the duration of the Class Period and in all other respects it appears arbitrarily chosen. Fritch was also prohibited from selling any shares until September 15, 2014, which explains at least in part the drastic shift. [Dkt. 71 at 10]. Proposed Lead Plaintiff does not inform the Court whether McCarthy or Appel held stock and, if they did, whether they sold any shares. Were these defendants to elect not to sell their shares during the Class Period, it might undermine Proposed Lead Plaintiff's claim. See San Leandro, 75 F.3d at 814 (finding that one company executive's decision to sell stock does not give rise to fraudulent intent where other defendants did not do the same). Furthermore, the SAC does not allege what day these sales were made and what portion of the sales were made after the sanctions were disclosed. The Court need not decide whether the stock sales themselves demonstrate a "motive and opportunity" to defraud, because there is no indication they concurrently made any misrepresentations of material facts. During the class period Cordani acted as CEO, President, and Director of Cigna. [Dkt. 57 ¶ 38]. Fritch was President of HealthSpring throughout the Class Period. Id. ¶ 40. The SAC alleges that Cordani and Fritch "were able to, and did, control the contents of the Company's SEC filings, reports press releases, and other public statements." Id. ¶ 182. It further alleges "Cordani and Fritch knew that these adverse facts alleged herein had not been disclosed to and were being concealed from the public, and that the positive representations that were being made were then false and misleading." Id. ¶ 187. The SAC alleges "Cordani and 42 Case 17-3484, Document 43, 02/08/2018, 2232201, Page109 of 124 SPA43 7 Fritch profited from the artificial inflation embedded in the trading price of Cigna stock caused by their false and misleading statements and omissions to investors during the Class period." [Dkt. 57 ¶ 173]. The SAC, however, does not allege any facts concerning any statements other than the ones the Court has already addressed. The Court has already determined that the 2013 and 2014 Form 10-K statements did not create any material misstatements or omissions. Cordani, therefore, is not liable for his certification of these forms. Proposed Lead Plaintiff specifically alleges Cordani "either knew or recklessly disregarded the fact that the Company was so decentralized and fragmented that it either could not comply with CMS regulations or could not determine whether it was compliant with CMS regulations." Id. ¶ 165. Without alleging he had a regulatory duty to disclose this information, his knowledge or reckless disregard alone does not mean that Cordani "misrepresent[ed] material facts to keep the price of stock high while selling [his] own shares at a profit." In re Scholastic Corp. Sec. Litig., 252 F.3d at 74. Fritch, in an interview published by USA Today on the same day as sanctions were established, stated, " Cigna "[has] internal quality review processes in place that identified some of the areas in advance of the audit findings and we have already started working to remedy them." [Dkt. 66-27 (Mot. Dismiss Ex. 26, Sanctions Article) at 2 of PDF; Dkt. 57 ¶ 114 (referencing media article)]. This statement appears to be truthful at the time when it was made. A plaintiff must adequately allege the defendants "were aware of or had access to information contrary to their public statements." See Freudenberg, 712 F. Supp. 2d at 201. The 43 Case 17-3484, Document 43, 02/08/2018, 2232201, Page110 of 124 SPA44 7 SAC does not identify a public statement previously made by Fritch that would be contrary to this statement. Accordingly, because these Defendants did not make any material misrepresentations, their stock sales do not reflect actionable "motive and opportunity" to defraud. 2. Circumstantial Evidence of Conscious Misbehavior or Recklessness As an alternative to motive and opportunity, "the scienter element can be satisfied by a strong showing of reckless disregard for the truth. . . [or] conscious recklessness—i.e., a state of mind approximating actual intent, and not merely a heightened form of negligence." S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 109 (2d Cir. 2009). Where motive is not apparent, as here, "the strength of the circumstantial allegations must be correspondingly greater. . . ." ECA, 553 F.3d at 199. A plaintiff can satisfy this standard by alleging "facts showing 'conduct which is highly unreasonable and which represents an extreme departure from the standards of ordinary care to the extent that the danger was either known to the defendants or so obvious that the defendants must have been aware of it.'" S. Cherry Group, 573 F.3d at 109 (quoting In re Carter–Wallace, Inc. Sec. Litig., 220 F.3d 36, 39 (2d Cir.2000)); In re CRM Holdings, Ltd. Sec. Litig., No. 10 CIV. 975 RPP, 2012 WL 1646888 (S.D.N.Y. May 10, 2012) recon. denied, No. 10 CIV 00975 RPP, 2013 WL 787970 (S.D.N.Y. Mar. 4, 2013) (quoting same). A plaintiff may also plead scienter by sufficiently alleging "that the defendants failed to review or check information that they had a duty to monitor, or ignored obvious signs of fraud, and 44 Case 17-3484, Document 43, 02/08/2018, 2232201, Page111 of 124 SPA45 7 hence should have known that they were misrepresenting material facts." S. Cherry St., 573 F.3d at 109. Further, securities fraud claims will suffice "when they have specifically alleged defendants' knowledge of facts or access to information contradicting their public statements" and where they "specifically identify the reports or statements containing this information." Novak, 216 F.3d at 308-09. Proposed Lead Plaintiff raises numerous arguments that there is substantial circumstantial evidence sufficient to establish scienter, which the Court has attempted to distill into cogent topics: (1) Appel received the CMS notices and CMS regulations required him to report violations to senior management, including Cordani, McCarthy, and Fritch, [Dkt. 68 at 30]; (2) Defendants' access to information means they knew or should have known they were misrepresenting material facts, id. at 30; (3) Defendants must have known about non-compliance issues due to the nature of their roles during the acquisition, the importance of the acquisition, and HealthSpring's history of strong compliance, id. at 39-41; and (4) the confidential witnesses' information bolsters the inference that Defendants knew or were intentionally ignorant of potential compliance failures given that Defendants did not take advantage of HealthSpring's institutional knowledge and the data processing systems were inaccurate, id. at 41. Proposed Lead Plaintiff's arguments are unavailing because, in essence, they merely allege that Defendants "must have known their statements to be untrue." BioScrip, 95 F. Supp. 3d at 738 ("Plaintiffs' allegations boil down to the charge that Defendants must have known their statements to have been untrue due to the segment's significance and the size of the client."). It may be true that Appel 45 Case 17-3484, Document 43, 02/08/2018, 2232201, Page112 of 124 SPA46 7 had "a duty to monitor information," but the SAC does not allege he failed to monitor any information. See S. Cherry St., 573 F.3d at 109. Assuming Appel had a duty to report each and every CMS notice to senior management, it is unclear how knowledge of these nine to 18 notices without acting upon them would be "highly unreasonable" or an "extreme departure from the standard of care to the extent that the danger was either known to the defendants or so obvious that the defendants must have been aware of it." See S. Cherry Grp., 573 F.3d at 109. Likewise, by merely alleging that Defendants had access to information, the Court cannot then conclude there exists circumstantial evidence of conscious misbehavior or reckless disregard. In addition, the SAC alleges facts suggesting Defendants were unaware, because they did not take advantage of HealthSpring's institutional knowledge and the data processing systems were inaccurate. A plaintiff also cannot demonstrate scienter merely by "noting that an area of business was vital to a company" and then conclude that Defendants must have known of any false information. BioScrip, 95 F. Supp. 3d at 738. Like the confidential witnesses in BioScrip, the confidential witnesses here do not directly state "what. . . Defendants knew, when they learned it, or from whom." Id. at 739. Rather, the confidential witnesses speak generally about HealthSpring's history of compliance, [Dkt. 57 ¶ 60], Fritch's "passion for Medicare and compliance," id. ¶ 61, the post-acquisition replacement of HealthSpring employees with Cigna employees, see, e.g., id. ¶ 78, Appel's failure to meet frequently with employees, id. ¶ 86, and Cigna's data processing difficulties, see, e.g., id. ¶ 95. Not one confidential witness could speak to any Defendants' specific 46 Case 17-3484, Document 43, 02/08/2018, 2232201, Page113 of 124 SPA47 7 knowledge. "Allegations premised on the testimony of confidential sources must show the individual defendants actually possessed the knowledge highlighting the falsity of public statements; conclusory statements that defendants were aware of certain information, and mere allegations that defendants would have or should have had such knowledge is insufficient." BioScrip, 95 F. Supp. 3d at 739 (internal quotation marks omitted). Accordingly, the allegations of the SAC attributed to the confidential witnesses are inadequate as a matter of law and contrary to their asserted premise, and therefore they are unpersuasive. Proposed Lead Plaintiff has not made a "strong showing" of either reckless disregard for the truth or conscious recklessness. S. Cherry St., 573 F.3d at 109. The Court cannot even identify specific facts sufficient to find heightened negligence. See id. When presented with Proposed Lead Plaintiff's circumstantial evidence, the Court cannot conclude that "the inference of scienter. . . [is] at least as compelling as any opposing inference one could draw from the facts alleged." See Tellabs, Inc., 551 U.S. at 324. Defendants' proposed competing inference— that "managerial errors eventually set the stage for CMS sanctions"—is highly probable particularly in light of Proposed Lead Plaintiff's inability to provide compelling circumstantial evidence. See [Dkt. 67 at 44]. C. Loss Causation "Loss causation is the causal link between the alleged misconduct and the economic harm ultimately suffered by the plaintiff." Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 172 (2d Cir. 2005). The PLSRA confers upon the plaintiff "the 47 Case 17-3484, Document 43, 02/08/2018, 2232201, Page114 of 124 SPA48 7 burden of proving that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages." 15 U.S.C. § 78u–4(b)(4). Loss causation is akin, although not quite identical, to "proximate cause" in tort law: "a misstatement or omission is the 'proximate cause' of an investment loss if the risk that caused the loss was within the zone of risk concealed by the misrepresentations and omissions alleged by a disappointed investor." Lentell, 396 F.3d at 173. This means that the plaintiff must adequately allege "the subject of the fraudulent statement or omission was the cause of the actual loss suffered." Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 95 (2d Cir. 2001). In other words, a plaintiff must show "the misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security." Lentell, 396 F.3d at 173. To sufficiently plead the subject of the fraudulent statement or omission caused the actual loss, a plaintiff may either allege (a) "the existence of cause-in-fact on the ground that the market reacted negatively to a corrective disclosure of the fraud;" or (b) "the loss was foreseeable and caused by the materialization of the risk concealed by the fraudulent statement." Carpenters Pension Trust Fund of St. Louis v. Barclays PLC, 750 F.3d 227, 232-33 (2d Cir. 2014); BioScrip, 95 F. Supp. 3d at 733 (applying this standard). For the purposes of the loss causation analysis, the Court will assume that Defendants committed a material misrepresentation or omission (although they did not). The SAC alleges that Cigna's common stock market prices were artificially inflated due to the material misstatements or omission, and two disclosures 48 Case 17-3484, Document 43, 02/08/2018, 2232201, Page115 of 124 SPA49 7 corrected this artificial inflation. First, Cigna filed an 8-K on January 22, 2016, notifying investors that CMS imposed immediate sanctions on Cigna on January 21, 2016. [Dkt. 57 ¶ 184]. Cigna's stock price fell from $140.13 at the close of business on January 21, 2016, to $137.90 at the close of the next business day. Id. ¶¶ 25, 140. It then dropped to $135.85 on January 25, 2016, yielding a market cap loss of $1.1 billion and a decline of 3.05% per share. Id. ¶ 25. Second, Cigna announced in its July 29, 2016, Form 10-Q that it would be reducing its 2016 financial outlook. Id. ¶ 143. Specifically, it stated the costs to remedy the sanctions totaled approximately $30 million as of June 30, 2016. Id. ¶ 185. Cigna held an earnings conference call on the same day wherein McCarthy acknowledged Cigna was spending more than expected on remediation costs and might not be able to rectify matters in a timely and satisfactory matter, which prompted analysts to raise concerns about the possibility that Cigna's failure to lift sanctions by the fall could prevent them from participating in the open enrollment period. Id. Stock fell from $135.99 at the close of business on July 28, 2016, to $128.96 at the close of business on July 29, 2016. Id. ¶ 151. Over the course of three consecutive trading days, Cigna's share price fell $11.86 per share, approximately 8.8% from the July 28, 2016 closing price. Id. ¶ 152. To plead corrective disclosure, a plaintiff must allege "a disclosure of fraud by which the available public information regarding the company's financial condition [was] corrected, and that the market reacted negatively to the corrective disclosure." Carpenters, 750 F.3d at 233 (internal quotation marks and citations omitted); see Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 347 (2005) (stating the 49 Case 17-3484, Document 43, 02/08/2018, 2232201, Page116 of 124 SPA50 7 plaintiff must do more than state that prices were artificially inflated as an "'artificially inflated purchase price' is not itself a relevant economic loss"). A plaintiff is not required to plead the corrective disclosure is the only reason the stock price declined. See Carpenters, 750 F.3d at 233. Proposed Lead Plaintiff alleges Defendants failed to disclose the widespread and systemic failure to comply with CMS regulations. It was not until the 8-K filed on January 22, 2016, revealing CMS issued sanctions against Cigna, that the public became aware Cigna had been struggling with non-compliance. See [Dkt. 57 ¶ 138]. The very next day Cigna's stock price dropped. This is not a situation where the plaintiff fails to demonstrate a loss suffered. See Dura, 544 U.S. at 347. Both the Second Circuit and district courts within the circuit have found similar allegations sufficiently plead loss causation. Carpenters, 750 F.3d at 233-34 (citing district court cases). Accordingly, assuming there existed a material misrepresentation or omission about systemic non-compliance that was corrected with the January 22, 2016 disclosure, which there did not, the Court would find loss causation adequately pleaded at the 12(b)(6) motion to dismiss stage.11 Even if Proposed Lead Plaintiff could not demonstrate corrective disclosure, "[a] risk allegedly concealed by Defendants which materialized and arguably caused the decline in shareholder value suffices." Freudenberg, 712 F. Supp. 3d at 202; see Lentell, 396 F.3d at 175 (providing that one way to show loss causation 11 The first disclosure would be sufficient, standing alone, to survive a motion to dismiss. The Court thus does not address the subsequent disclosure on July 29, 2016. 50 Case 17-3484, Document 43, 02/08/2018, 2232201, Page117 of 124 SPA51 7 would be to adequately allege that defendant "misstated or omitted risks that did lead to the loss"). The Court agrees with Proposed Lead Plaintiff that the issuance of sanctions constitutes the materialized risk. The Form 10-Ks explicitly states that regulatory audits, such as those conducted by CMS, could lead to "sanctions that could have a material adverse effect on [Cigna's] business, results of operation, financial condition, and liquidity." [Dkt. 66-2 at 19; Dkt. 66-3 at 19]. This risk of sanctions materialized on January 21, 2016, as stated in the CMS Letter. That the stock price fell by the very next day is sufficient to satisfy a causal connection, upon which any intervening event breaking this connection is a matter not to be decided on a motion to dismiss. Emergent Capital Inv. Mgmt, LLC v. Stonepath Grp., Inc., 343 F.3d 189, 197 (2d Cir. 2003). III. Count II: Control Person Liability under Section 20(a) Finally, Proposed Lead Plaintiff alleges control person liability under Section 20(a) of the Exchange Act against Defendants Cordani, McCarthy, and Appel. Section 20(a) provides that Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable (including to the Commission in any action brought under paragraph (1) or (3) of section 78u(d) of this title), unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. 15 U.S.C. § 78t(a). "To establish a prima facie case of control person liability, a plaintiff must show (1) a primary violation by the controlled person, (2) control of 51 Case 17-3484, Document 43, 02/08/2018, 2232201, Page118 of 124 SPA52 7 the primary violator by the defendant, and (3) that the defendant was, in some meaningful sense, a culpable participant in the controlled person's fraud." ATSI Commc'ns, 493 F.3d at 108. Because Proposed Lead Plaintiff has failed to establish a violation of section 10(b) of the Exchange Act, Proposed Lead Plaintiff has not established a primary violation and therefore the allegation of control person liability under section 20(a) cannot stand. See Jackson Nat. Life Ins. Co. v. Merrill Lynch & Co., Inc., 32 F.3d 697, 704 (2d Cir. 1994) (stating that "to state a claim under § 20A, a plaintiff must plead a predicate violation of the '34 Act or its rules and regulations"); In re Lululemon Sec. Litig., 14 F. Supp. 3d at 587 (applying rule). Accordingly, like the count before it this count is DISMISSED. IV. Leave to Amend Proposed Lead Plaintiff requests that, should the Court find the SAC fails to state a claim upon which relief may be granted, it grant leave to amend. Leave to amend is to be given freely "when justice so requires," Fed. R. Civ. P. 15(a), unless the moving party acted with "undue delay, bad faith or dilatory motive. . ., repeated failure to cure deficiencies by amendments previously allowed," or the amendment would create undue prejudice to the opposing party or be futile. Foman v. Davis, 371 U.S. 178, 182 (1962). "District courts typically grant plaintiffs at least one opportunity to plead fraud with greater specificity when they dismiss under Rule 9(b)." ATSI Comms., Inc., 493 F.3d 87, 108 (2d Cir. 2007). However, it is well within the court's discretion to grant leave to amend under Fed. R. Civ. P. 15(a) "and a district court may therefore properly deny leave to amend where a plaintiff has already been given one opportunity to plead fraud with greater specificity." 52 Case 17-3484, Document 43, 02/08/2018, 2232201, Page119 of 124 SPA53 7 Abuhamdan v. Blyth, Inc., 9 F. Supp. 3d 175, 212 (D. Conn. 2014) (quoting Endovasc, Ltd. v. J.P. Turner & Co., LLC, 169 F. App'x. 655, 657–58 (2d Cir.2006)). As a review, Jyotindra Patel filed the initial complaint in this lawsuit on February 4, 2016. [Dkt. 1 (Compl.)]. In April 2016, Plaintiff moved to appoint Minohor Singh as Proposed Lead Plaintiff, which the Court granted. [Dkt. 28 (Mot. Appoint Counsel); Dkt. 34 (Order]. Singh thereafter amended the complaint, raising substantially more factual allegations. See [Dkt. 40 (Am. Compl.)]. In September 2016, Singh filed a Motion to Modify Pretrial Deadlines indicating intentions for requesting leave to amend due to "key developments" since the previous filing. [Dkt. 50 at 3]. Defendant opposed this objection and argued that Singh had six months from the filing of the original complaint and two months from his appointment as Proposed Lead Plaintiff to amend the complaint. [Dkt. 51 (Opp'n Mot. Modify) at 2]. The Court held a telephonic conference on October 7, 2016, and granted Plaintiff a modification of the scheduling order as well as leave to amend. See [Dkt. 54 (Tr. Tel. Conf.) at 19-21]. During the hearing the Court specifically asked Proposed Lead Plaintiff's counsel, "[D]o you expect that if you were to amend you would be able to state with more particularity the basis of your claims?" Id. at 15:9- 14. Counsel responded in the affirmative. See id. 15:15-18. Defense counsel posited that discovery had been ongoing for several months and that they "were prepared and have worked hard under [the Court's] order to prepare a motion to dismiss that [they] were prepared to file in 10 days. . . ." Id. at 17:24-18:3. Upon considering the arguments the Court determined Plaintiffs should have "a 53 Case 17-3484, Document 43, 02/08/2018, 2232201, Page120 of 124 SPA54 7 reasonable opportunity to complete discovery to the point where they are able to file an amended complaint that fairly reflects all of the information that they can reasonably acquire in conducting thorough due diligence of their allegations." Id. at 18:8-16. The Court reasoned, "[W]e want this matter to be resolved one way or the other on the merits with full consideration of all of the relevant facts, and if that takes an additional couple of months to do I think it's time well spent for everyone involved, including Defendants." Id. at 19:14-20. Proposed Lead Plaintiff thereafter filed the SAC, which is operative today. Importantly, § 78u-4 of the PSLRA contemplates that in general "all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss. . . ." 15 U.S.C. § 78u-4(b)(3)(B). Therefore when the Court granted leave to amend the Amended Complaint and extended the deadline for the motion to dismiss, there were practical implications enabling Proposed Lead Plaintiff to continue in his pursuit of discovery well past the period typically allowed. The Court contemplated these implications and determined it fair and necessary to give the Proposed Lead Plaintiff an opportunity to plead with particularity, in compliance with Rule 9(b), from the outset. As the Court directed, Proposed Lead Plaintiff was granted a modification of the scheduling order and leave to amend with the understanding that he would exercise due diligence. The Second Amended Complaint did indeed provide more factual allegations indicating Proposed Lead Plaintiff attempted to cure any defects with particularity. For example, the SAC contains a new section documenting that Cigna received 75 notifications of non-compliance from CMS, with explicit references to the content 54 Case 17-3484, Document 43, 02/08/2018, 2232201, Page121 of 124 SPA55 7 of certain notifications. [Dkt. 57 ¶¶ 115-18]. The SAC also raises new allegations that Defendant Appel was required to report to senior management information about Medicare compliance. Id. ¶¶ 159-61. These allegations are clear examples of Proposed Lead Plaintiff attempting to address the Rule 9(b) particularity requirements. For the reasons set forth above, they are substantively insufficient. Proposed Lead Plaintiff has already been given a chance to replead with greater specificity. See Abuhamdan, 9 F. Supp. 3d at 212-13. Proposed Lead Plaintiff believes he should be given another opportunity "after hearing the Court's assessments of the merits of the Complaints." [Dkt. 68 at 49]. But this is not how leave to amend works. If it were, all plaintiffs would automatically be given leave to amend when they fail to satisfy Rule 9(b). Proposed Lead Plaintiff cites Abu Dhabi Commercial Bank v. Morgan Stanley & Co. Inc., No. 08 Civ. 7508(SAS), 2009 WL 33466754, at *2 (S.D.N.Y. Oct. 15, 2009), for the proposition that "a dismissal with prejudice is generally appropriate where a court puts a plaintiff on notice of a complaint's deficiencies and the plaintiff fails to correct those deficiencies after amendment." At the telephonic conference held on October 7, 2016, the Court discussed with the parties the need to amend the complaint a second time, and specifically stated Proposed Lead Plaintiff must due its "due diligence," allowing additional discovery to afford Proposed Lead Plaintiff the opportunity to plead with particularity. See [Dkt. 54 at 18:8-16]. This is sufficient notice. In consideration of this ruling on Motion to Dismiss and request for leave to amend, on August 28, 2017, the Court ordered Proposed Lead Plaintiff to file a proposed third amended complaint on or before September 4, 2017 so that the 55 Case 17-3484, Document 43, 02/08/2018, 2232201, Page122 of 124 SPA56 7 Court could consider such a proposed amended complaint. [Dkt. 72]. Proposed Lead Plaintiff filed a Motion for Reconsideration four days later asking to defer filing an amended complaint until after the Court's ruling on the pending Motion to Dismiss. The Court denied in part and granted in part the relief sought, and in its ruling denying relief it identified aspects of the SAC that failed to meet the heightened Rule 9(b) pleading standard and included case citations. The Court once again afforded the Proposed Lead Plaintiff an opportunity to file a Third Amended Complaint on or before September 16, 2017, prior to a ruling on the Motion to Dismiss. On September 15, 2017, Proposed Lead Plaintiff declined the Court's offer to amend the complaint once again, notifying the Court that it would not file a Third Amended Complaint. [Dkt. 78]. Proposed Lead Plaintiff has failed to "cure deficiencies by amendments previously allowed." See Foman, 371 U.S. at 182. The Lead Plaintiff declined to do so knowing the deficiencies of the SAC. The fact that Proposed Lead Plaintiff has failed to sufficiently allege scienter after conducting considerable discovery (more than that customarily afforded) despite having knowledge of the SAC's deficiencies indicates that Proposed Lead Plaintiff has not discovered sufficient evidence to allege either a failure to disclose or scienter. Proposed Lead Plaintiff's claims are substantively deficient and Proposed Lead Plaintiff has not presented any basis for the Court to believe he could allege facts that could withstand a 12(b)(6) motion. See Alibaba, 192 F. Supp. 3d at 482; see also Cuoco v. Moritsugu, 222 F.3d 99, 112 (ruling in an inmate's civil rights case that "the problem with Cuoco's causes of action is substantive; better pleading will not cure it. Repleading would thus be 56 Case 17-3484, Document 43, 02/08/2018, 2232201, Page123 of 124 SPA57 7 futile."). Accordingly, further leave to amend would be futile. See Foman, 371 U.S. at 182. CONCLUSION For the aforementioned reasons, this case is DISMISSED with prejudice. The Clerk is directed to close this case. IT IS SO ORDERED. ________/s/__ ________ Hon. Vanessa L. Bryant United States District Judge Dated at Hartford, Connecticut: September 28, 2017 57 Case 17-3484, Document 43, 02/08/2018, 2232201, Page124 of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¶ PRWLRQ LW LV KHUHE\ 25'(5(' $'-8'*(' DQG '(&5((' WKDW WKLV FDVH LV GLVPLVVHG ZLWK SUHMXGLFH 'DWHG DW +DUWIRUG &RQQHFWLFXW WKLV QG GD\ RI 2FWREHU 52%,1 ' 7$%25$ &OHUN %\ 6 -HUHP\ - 6KDIHU -HUHP\ 6KDIHU 'HSXW\ &OHUN (2'

LR 31.2 SCHEDULING NOTIFICATION, on behalf of Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, informing Court of proposed due date 05/10/2018, RECEIVED. Service date 02/09/2018 by CM/ECF.[2233864] [17-3484] [Entered: 02/09/2018 05:35 PM]

Case 17-3484, Document 49, 02/09/2018, 2233864, Page1 of 1 SIDLEY AUSTIN LLP 787 SEVENTH AVENUE NEW YORK, NY 10019 +1 212 839 5300 +1 212 839 5599 ASTERN@SIDLEY.COM AMERICA • ASIA PACIFIC • EUROPE +1 212 839 5397 February 9, 2018 Submitted via ECF Catherine O'Hagan Wolfe Clerk of Court United States Court of Appeals for the Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, NY 10007 Re: Singh v. Cigna Corp. et al., No. 17-3484 Dear Ms. O'Hagan Wolfe: This firm is counsel for Defendants-Appellees Cigna Corp., David Cordani, Thomas A. McCarthy, Herbert Fritch, and Richard Appel (collectively, "Appellees") in the above-referenced appeal. Pursuant to Local Rule 31.2(a)(1)(B), Appellees request that the deadline for their answering brief be set as May 10, 2018, which is within 91 days after the filing of the Plaintiff- Appellant's brief on February 8, 2018. Very truly yours, /s/ Andrew W. Stern Andrew W. Stern cc: All counsel of record (via ECF) Sidley Austin (NY) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.

SO-ORDERED SCHEDULING NOTIFICATION, setting Appellees Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy Brief due date as 05/10/2018, FILED.[2235651] [17-3484] [Entered: 02/14/2018 11:21 AM]

Case 17-3484, Document 53, 02/14/2018, 2235651, Page1 of 1 UNITED STATES COURT OF APPEALS for the SECOND CIRCUIT ____________________________________________ At a Stated Term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 14th day of February, two thousand and eighteen, ____________________________________ Minohor Singh, ORDER Docket No: 17-3484 lllllllllllllllllllllPlaintiff - Appellant, Jyotindra Patel, Individually and On Behalf of All Others Similarly Situated, lllllllllllllllllllllPlaintiff, v. Cigna Corp, David Cordani, Thomas A. McCarthy, Herbert Fritch, Richard Appel, lllllllllllllllllllllDefendants - Appellees. _______________________________________ Counsel for APPELLEES Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy has filed a scheduling notification pursuant to the Court's Local Rule 31.2, setting May 10, 2018 as the brief filing date. It is HEREBY ORDERED that Appellees' brief must be filed on or before May 10, 2018. If the brief is not filed by that date, the appeal will proceed to a merits panel for determination forthwith, and Appellees will be required to file a motion for permission to file a brief and appear at oral argument. A motion to extend the time to file the brief or to seek other relief will not toll the filing date. See Local Rule 27.1(f)(1); cf. RLI Insurance Co. v. JDJ Marine, Inc., 716 F.3d 41, 43-45 (2d Cir. 2013). For The Court: Catherine O'Hagan Wolfe, Clerk of Court

BRIEF, on behalf of Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, FILED. Service date 05/10/2018 by CM/ECF. [2299751] [17-3484] [Entered: 05/10/2018 11:57 AM]

17-3484 Case 17-3484, Document 56, 05/10/2018, 2299751, Page1 of 66 United States Court of Appeals for the Second Circuit MINOHOR SINGH, Plaintiff-Appellant, JYOTINDRA PATEL, Individually and On Behalf of All Others Similarly Situated, Plaintiff, – v. – CIGNA CORP., DAVID CORDANI, THOMAS A. MCCARTHY, HERBERT FRITCH, RICHARD APPEL, Defendants-Appellees. –––––––––––––––––––––––––––––– ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT BRIEF FOR DEFENDANTS-APPELLEES ANDREW W. STERN JAMES O. HEYWORTH FRANCESCA E. BRODY SIDLEY AUSTIN LLP 787 Seventh Avenue New York, New York 10019 (212) 839-5300 Attorneys for Defendants-Appellees Case 17-3484, Document 56, 05/10/2018, 2299751, Page2 of 66 CORPORATE DISCLOSURE Pursuant to Federal Rule of Appellate Procedure 26.1, Cigna Corp. ("Cigna") certifies that it has no parent corporation and that no publicly held company owns more than 10% of Cigna's outstanding shares. i Case 17-3484, Document 56, 05/10/2018, 2299751, Page3 of 66 TABLE OF CONTENTS CORPORATE DISCLOSURE ...................................................................................i TABLE OF CONTENTS .......................................................................................... ii TABLE OF AUTHORITIES ....................................................................................iv INTRODUCTION .....................................................................................................1 COUNTERSTATEMENT OF ISSUES .................................................................... 6 STATEMENT OF THE CASE .................................................................................. 7 1. Cigna and CMS Compliance ................................................................. 7 2. The Challenged Statements .................................................................12 3. Procedural History...............................................................................15 SUMMARY OF ARGUMENT ...............................................................................17 STANDARD OF REVIEW .....................................................................................18 ARGUMENT ...........................................................................................................19 I. THE DISTRICT COURT CORRECTLY HELD THAT PLAINTIFF DID NOT ALLEGE A MATERIALLY FALSE OR MISLEADING STATEMENT................................................................................................19 A. The District Court Correctly Held that the Complaint Failed to Allege that Statements About Cigna's Compliance Program Were Misleading ...........................................................................................21 1. The Court Correctly Found that Cigna Did Not Assure Investors of Complete Regulatory Compliance ........................21 2. The Court Correctly Rejected the Contention that the Revision of Language in Cigna's Annual Report Supports an Inference of Falsity ........................................................................................28 3. Cigna's Receipt of Several Routine Compliance Notices Did Not Render Its Statements False or Misleading When Made ... 30 ii Case 17-3484, Document 56, 05/10/2018, 2299751, Page4 of 66 4. The Ability to Cure Issues or Retract Notices Has No Bearing on the Truth or Falsity of the Challenged Statements .............. 34 B. The District Court Correctly Held that Statements in Cigna's Code of Ethics Were Immaterial Puffery..........................................................35 C. The District Court's Reference to Plaintiff's Pre-Filing Investigation Is Irrelevant..........................................................................................38 II. THE DISTRICT COURT CORRECTLY HELD THAT PLAINTIFF FAILED TO ALLEGE THE REQUISITE STRONG INFERENCE OF SCIENTER ....................................................................................................40 A. The District Court Correctly Found that the Complaint Did Not Allege Strong Evidence of Conscious Misbehavior or Recklessness ............ 40 1. The Conclusory Assertion that Defendants "Must Have Known" that Statements Were Untrue Is Insufficient to Plead Scienter......................................................................................42 2. The District Court Correctly Determined that the Complaint's Confidential Witness Allegations Did Not Give Rise to a Strong Inference of Scienter .................................................................49 3. The Revision of Statements in the 2014 Annual Report Does Not Raise a Compelling Inference of Scienter .........................52 III. THE DISTRICT COURT CORRECTLY DISMISSED THE CONTROL PERSON CLAIMS ........................................................................................54 CONCLUSION ........................................................................................................56 CERTIFICATE OF COMPLIANCE ......................................................................... 1 CERTIFICATE OF SERVICE .................................................................................. 2 iii Case 17-3484, Document 56, 05/10/2018, 2299751, Page5 of 66 TABLE OF AUTHORITIES Page(s) Cases ACEquip LTD v. Am. Eng'g Corp., 315 F.3d 151 (2d Cir. 2003) ...............................................................................18 Acito v. IMCERA Grp., Inc., 47 F.3d 47 (2d Cir. 1995) ...................................................................................40 Anschutz Corp. v. Merrill Lynch & Co., Inc., 690 F.3d 98 (2d Cir. 2012) .................................................................................19 ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) .............................................................................9, 55 In re Austl. & N.Z. Banking Grp. Ltd. Sec. Litig., No. 08 Civ. 11278, 2009 WL 4823923 (S.D.N.Y. Dec. 14, 2009) ..............23, 32 In re BioScrip Inc. Sec. Litig., 95 F. Supp. 3d 711 (S.D.N.Y. 2015) ......................................................24, 25, 49 Boca Raton Firefighters & Police Pension Fund v. Bahash, 506 F. App'x 32 (2d Cir. 2012) ....................................................................37, 46 C.D.T.S. v. UBS AG, No. 12 Civ. 4924, 2013 WL 6576031 (S.D.N.Y. Dec. 13, 2013) ..........30, 42, 46 Campo v. Sears Holdings Corp., 371 F. App'x 212 (2d Cir. 2010) ........................................................................50 Carpenters Pension Trust Fund of St. Louis v. Barclays PLC, 750 F.3d 227 (2d Cir. 2014) ...............................................................................31 City of Pontiac Policemen's and Firemen's Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014) ...................................................................23, 33, 36 ECA, Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009).............................................................54 In re Elan Corp. Sec. Litig., 543 F. Supp. 2d 187 (S.D.N.Y. 2008) ................................................................50 iv Case 17-3484, Document 56, 05/10/2018, 2299751, Page6 of 66 Emps.' Ret. Sys. of Gov't of the Virgin Islands v. Blanford, 794 F.3d 297 (2d Cir. 2015) ...............................................................................51 Fishbaum v. Liz Claiborne, Inc., 189 F.3d 460 (2d Cir. 1999) .........................................................................20, 54 Frederick v. Mechel OAO, 475 F. App'x 353 (2d Cir. 2012) ........................................................................48 Glaser v. The9, Ltd., 772 F. Supp. 2d 573 (S.D.N.Y. 2011) ..............................................42, 48, 50, 52 Gmurzynska v. Hutton, 355 F.3d 206 (2d Cir. 2004) ...............................................................................18 Harris v. AmTrust Fin. Servs., Inc., 649 F. App'x 7 (2d Cir. 2016) ............................................................................54 Janbay v. Canadian Solar, Inc., No. 10 Civ. 4430, 2012 WL 1080306 (S.D.N.Y. Mar. 30, 2012) ..........29, 41, 53 Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) ...............................................................................41 Kleinman v. Elan Corp., 706 F.3d 145, 152 (2d Cir. 2013) .................................................................20, 22 Kuriakose v. Fed. Home Loan Mortg. Corp., 897 F. Supp. 2d 168 (S.D.N.Y. 2012) ..........................................................42, 53 Lopez v. Ctpartners Exec. Search Inc., 173 F. Supp. 3d 12 (S.D.N.Y. 2016) ............................................................36, 37 In re Lululemon Sec. Litig., 14 F. Supp. 3d 553 (S.D.N.Y. 2014) ............................................................29, 30 Maguire Financial, L.P. v. PowerSecure Int'l, Inc., 876 F.3d 541 (4th Cir. 2017) ..............................................................................47 Menaldi v. Och-Ziff Capital Mgmt. Grp. LLC, 277 F. Supp. 3d 500 (S.D.N.Y. 2017) ..........................................................26, 27 v Case 17-3484, Document 56, 05/10/2018, 2299751, Page7 of 66 Meyer v. JinkoSolar Holdings Co., 761 F.3d 245 (2d Cir. 2014) ...................................................................25, 26, 27 In re NQ Mobile, Inc. Sec. Litig., No. 13 Civ. 7608, 2015 WL 1501461 (S.D.N.Y. Mar. 27. 2015) ......................55 Pirnik v. Fiat Chrysler Autos., N.V., No. 15 Civ. 7199, 2016 WL 5818590 (S.D.N.Y. Oct. 5, 2016) .........................45 Retail Wholesale & Dep't Store Union Local 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268 (9th Cir. 2017) ........................................37 Richman v. Goldman Sachs Grp., Inc., 868 F. Supp. 2d 261 (S.D.N.Y. 2012) ................................................................37 Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) .............................................................19, 20, 30, 36 Singh v. Cigna Corp., 277 F. Supp. 3d 291 (D. Conn. 2017)................................................................... 7 Stratte-McClure v. Morgan Stanley, 776 F.3d 94 (2d Cir. 2015) ...........................................................................40, 41 Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190 (2d Cir. 2008) .......................................................................46 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) ................................................................................39, 40, 46 Tongue v. Sanofi, 816 F.3d 199 (2d Cir. 2016) ...............................................................................18 Tyler v. Liz Claiborne, Inc., 814 F. Supp. 2d 323 (S.D.N.Y. 2011) ............................................................33, 8 In re Vivendi Universal, S.A. Sec. Litig., 765 F. Supp. 2d 512 (S.D.N.Y. 2011) ................................................................32 Statutes and Rules Securities Exchange Act of 1934 Section 10(b), 15 U.S.C. § 78j(b) ................................................................passim vi Case 17-3484, Document 56, 05/10/2018, 2299751, Page8 of 66 Section 20(a), 15 U.S.C. § 78t(a).................................................................passim SEC Rule 10b-5, 17 C.F.R. § 240.10b-5..................................................................................passim Fed. R. Civ. P. 9(b) ............................................................................................18, 19 Fed. R. Civ. P. 12(b)(6)............................................................................................18 Fed. R. Evid. 201 .....................................................................................................11 vii Case 17-3484, Document 56, 05/10/2018, 2299751, Page9 of 66 INTRODUCTION This Court should affirm the District Court's dismissal of Plaintiff-Appellant Minohor Singh's ("Plaintiff" or "Appellant") Second Amended Complaint ("Complaint") as to Defendants-Appellees Cigna Corp. ("Cigna"), David Cordani, Thomas A. McCarthy, Herbert Fritch, and Richard Appel (collectively, "Defendants" or "Appellees") because, as the District Court correctly held, the Complaint failed to plead that any challenged statement was materially false or misleading and failed to plead that any Defendant acted with scienter. In his Complaint, Plaintiff attacked five distinct statements made between February 2014 and February 2015 in Cigna's annual reports and its internal Code of Ethics, each pertaining to the existence of, and allocation of resources to, Cigna's regulatory compliance regime, and the importance of legal compliance and integrity. Plaintiff asserts that, in light of the imposition of regulatory sanctions in January 2016 (nearly a year after the last challenged statement), Defendants' earlier statements about its compliance procedures must have been false. But Plaintiff failed to plead that any of the challenged statements was false or misleading, nor did he plead a sufficient basis to conclude that any Defendant knew or should have known that any challenged public statement was false when made. The District Court, therefore, properly dismissed the Complaint, and Plaintiff has presented nothing on appeal that compels a different result. Case 17-3484, Document 56, 05/10/2018, 2299751, Page10 of 66 Instead, as he did before the District Court, Plaintiff creates and attacks a straw man. Plaintiff's argument, and underlying claims, are based entirely on the false premise that Cigna "assured" its shareholders of regulatory compliance. See Plaintiff-Appellant's Opening Brief ("Br.") at 1 ("Cigna publicly assured (and reassured) investors that the Company was in compliance with the regulatory requirements of" the primary regulator of its Medicare-related business, the Centers for Medicare & Medicaid Services, or "CMS"). The record is clear that Cigna made no such assurance, and the District Court correctly observed that "Cigna's Form 10-Ks do not guarantee 100% compliance with administrative regulations" (SPA29), nor even that Cigna "was in 'substantial compliance' with all laws" (SPA32). The underlying foundation of all of Plaintiff's arguments, therefore, is deeply flawed. For each of the following reasons, the District Court's dismissal of the Complaint should be affirmed. First, the District Court correctly held that the Complaint failed to plead with particularity any materially false or misleading statement. See infra Part I.A. No well-pleaded fact supports a conclusion that any statement was false at the time it was made. The District Court correctly found that Cigna's disclosures did not guarantee regulatory compliance (see infra Part I.A.1) and that the revision of certain disclosures from year to year did not support an inference that either 2 Case 17-3484, Document 56, 05/10/2018, 2299751, Page11 of 66 statement was false (see infra Part I.A.2). Plaintiff relies heavily upon Cigna's receipt of regulatory notices from CMS (which pertained largely to discrete, non- systemic issues), but the overwhelming majority of those notices post-date the challenged public disclosures and, as such, the District Court correctly rejected Plaintiff's assertion that they support an inference that any challenged statement was false when made. See infra Part I.A.3. Moreover, the District Court correctly held that employee-directed statements in Cigna's Code of Ethics regarding the importance of integrity and compliance with applicable laws and regulations were nonactionable, immaterial puffery. SPA26-27; see infra Part I.B. In an effort to obtain a different result on appeal, Plaintiff twists the District Court's reasoning nearly beyond recognition. Plaintiff suggests that the Court simply compared the number of compliance notices received before and after the challenged statements, and concluded that, because fewer were received before, any omission or misstatement was "immaterial." The District Court did no such thing. In fact, the District Court considered the content of the handful of notices that pre-dated the challenged statements and concluded that they did not support a conclusion that anything was amiss in Cigna's public statements; the Court's holding had nothing to do with a numerical comparison between the two sets of notices. SPA31; infra Part I.A.3. 3 Case 17-3484, Document 56, 05/10/2018, 2299751, Page12 of 66 Similarly misconstruing the District Court's holding, Plaintiff points to the ability of CMS to retract notices – as it did with two Notices on which the Complaint relied – and argues that each Notice that was not subsequently retracted deserved greater weight than the District Court gave it. But Plaintiff misapprehends the nature of a retraction and, more importantly, fails to acknowledge one of the keystones of the District Court's holding: that any post- February 2015 notice is of no legal relevance here. See infra Part I.A.4. Finally, Plaintiff seizes upon the District Court's remark that the Code of Ethics statements were undated, as though a clear date could turn immaterial puffery into something else. See infra Part I.B. In addition, Plaintiff criticizes the District Court's remarks about "discovery," suggesting that the District Court believed that Plaintiff had undertaken merits discovery notwithstanding the PSLRA stay. But the Court's references to discovery were directed to Plaintiff's months-long, post-complaint investigation and fact gathering in connection with Plaintiff's repeated attempts to amend his complaint. In any event, the District Court's comments affected neither the standards it applied nor their correct application to the deficient pleading before the Court. See infra Part I.C. Second, the District Court correctly found that the Complaint failed to plead the requisite strong inference of scienter. See infra Part II. On appeal, Plaintiff 4 Case 17-3484, Document 56, 05/10/2018, 2299751, Page13 of 66 argues that Appellees acted recklessly – abandoning earlier allegations of motive to defraud – but Plaintiff's assertions of recklessness are speculative and non- compelling. The District Court correctly found that Plaintiff's allegations amounted to no more than an assertion that Appellees "must have known" their statements were false, and the Complaint failed to specifically allege knowledge, access to knowledge, or an underlying contradictory fact. Largely for the same reason that his falsity argument fails, Plaintiff's scienter argument fails: nothing in the Complaint suggested that any Defendant knew or had access to facts suggesting that Cigna's compliance regime was non- existent, under-resourced, or otherwise not functioning. Plaintiff's critiques on appeal – that the District Court applied an "actual intent" standard; that confidential witness accounts as to corporate "environment" sufficed to allege scienter; and that the revision of certain disclosure language over time suggests that both versions were knowingly false – fail to change the ineluctable conclusion that nothing in the Complaint supported a conclusion that any Defendant knew or should have known that any challenged statement was false. See infra Part II.A.2- 3. Finally, the District Court correctly dismissed the claims of control person liability under Section 20(a) of the Exchange Act because the absence of a primary violation defeats those claims. See infra Part III. 5 Case 17-3484, Document 56, 05/10/2018, 2299751, Page14 of 66 In short, for all of its misdirection and unsupported critiques, nothing in Plaintiff's brief supports reversal. The District Court correctly dismissed the Complaint, and its decision should be affirmed. COUNTERSTATEMENT OF ISSUES 1. Whether the District Court correctly determined that the Complaint failed to allege any materially false or misleading statement, where the challenged statements in Cigna's annual reports described the existence of, and allocation of resources to, a compliance regime, but never assured perfect compliance with any applicable rules or regulations, and Plaintiff failed to allege with particularity any facts supporting a conclusion that any challenged statement was false when made. 2. Whether the District Court correctly determined that the Complaint failed to allege any materially false or misleading statement, where the challenged statements in Cigna's "Code of Ethics" were generalized assertions about the importance of integrity and legal compliance. 3. Whether the District Court correctly determined that the Complaint failed to allege a strong inference of conscious misbehavior or recklessness, where the Complaint did not plead particularized facts supporting an inference that any Defendant was, or should have been, aware of facts that rendered Defendants' public statements untrue. 6 Case 17-3484, Document 56, 05/10/2018, 2299751, Page15 of 66 4. Whether the District Court properly determined that the Complaint failed to pled a secondary "control person" claim, in light of the Complaint's failure to plead (a) an actionable misstatement and scienter and (b) culpable participation. STATEMENT OF THE CASE Pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), the United States District Court for the District of Connecticut (Bryant, J.) dismissed Plaintiff's Complaint because it failed to state a claim under Sections 10(b) or 20(a) of the Exchange Act of 1934. See Singh v. Cigna Corp., 277 F. Supp. 3d 291 (D. Conn. 2017). 1. Cigna and CMS Compliance Appellee Cigna, together with its subsidiaries, is a global health services organization. SPA2. Cigna delivers healthcare products and services to customers through employer-based, government-sponsored, and individual insurance coverage arrangements. JA192. In January 2012, Cigna acquired HealthSpring Inc. ("HealthSpring") for $3.8 billion, significantly bolstering its Medicare Advantage and Medicare Part D business. SPA2; JA212.1 The individual 1 As the District Court explained, the HealthSpring acquisition "was intended to create 'synergies'" across the combined entity's health insurance offerings. SPA2. In its 2011 Form 10-K, Cigna explained that the success of the HealthSpring 7 Case 17-3484, Document 56, 05/10/2018, 2299751, Page16 of 66 Appellees are Cigna CEO David Cordani, former Cigna CFO Thomas McCarthy, 2 former HealthSpring President Herbert Fritch, and Cigna Medicare Compliance Officer Richard Appel. SPA1. CMS, a division of the U.S. Department of Health and Human Services, is Cigna's primary regulator for its business unit that offers Medicare Advantage and Part D plans. SPA2. CMS conducts "rigorous auditing" of organizations (called "sponsors") that offer such Medicare services (JA231) and requires sponsors to have an effective compliance program (JA172). CMS aggressively utilizes its enforcement authorities, including by imposing civil monetary penalties, intermediate sanctions (including suspending payment, enrollment and/or marketing activities), and for-cause contract terminations. JA233. As Cigna stated, CMS' regulations and requirements are "numerous and complex," are "frequently modified," and are "subject to administrative discretion." JA200. CMS makes this clear in its own reports of its audit and acquisition would "depend on Cigna's ability to integrate HealthSpring with its existing businesses," which would be "complex, costly, time consuming," and difficult. SPA3. Cigna specifically warned that, if it "is unable to integrate the HealthSpring business successfully. . . it could have a material adverse effect on Cigna's business, results of operations and financial conditions." SPA3. 2 Mr. McCarthy retired from Cigna after the District Court briefing was complete. See Cigna Newsroom, Cigna Names Four Proven and Tenured Leaders to Executive Team, https://www.cigna.com/newsroom/news-releases/2017/cigna- names-four-proven-and-tenured-leaders-to-executive-team (Feb. 23, 2017). 8 Case 17-3484, Document 56, 05/10/2018, 2299751, Page17 of 66 enforcement activities. See JA228-341 (CMS annual audit reports). For instance, in a 2015 report, CMS stated that its audits routinely find compliance failures across a large percentage of the sponsors that are audited in any given year, and many deficiencies are widespread and repeated "year after year." See JA255-58. As the primary regulator of Medicare offerings, CMS continually monitors sponsors' business and operations, and it did so as to Cigna and its subsidiaries during the relevant period. CMS' regulatory activity included correspondence with Cigna employees in compliance roles, in the form of notices of non-compliance, which are "used to document small or isolated problems," and warning letters, which are typically issued when a sponsor has received a notice of non-compliance yet a specific problem persists (collectively, "Notices"). JA349. As the District Court explained, notices of non-compliance are the "[m]ildest type of letter" (SPA5); in contrast, a CMS-issued corrective action plan ("CAP") indicates a "severe" or "systematic" issue, or an "ongoing performance problem[]." SPA5-6. As described in the District Court's decision, during the period when the challenged statements were made – February 27, 2014 through February 26, 2015 – CMS sent nine Notices to Cigna, relating to issues as disparate as "advertising in October and November 2013 relating to its Florida [Medicare Advantage] and [Part D Program] offerings" (SPA8), "improper pharmacy coverage" (SPA9), and 9 Case 17-3484, Document 56, 05/10/2018, 2299751, Page18 of 66 the failure of an Arizona subsidiary and a Pennsylvania subsidiary to comply with "Cialis coverage contracts." SPA9.3 In addition to continuous supervision, between October 5, 2015 and October 20, 2015, CMS conducted a routine comprehensive audit of Cigna's Medicare operation. JA362. Three months later, by letter dated January 21, 2016, CMS informed Cigna that it would impose intermediate sanctions on the Medicare business unit. Cigna promptly disclosed the sanctions letter. See JA361. The sanctions did not affect services to Cigna's existing Medicare beneficiaries, but required the suspension of Cigna's enrollment of, and marketing to, new Medicare beneficiaries. JA375. The Complaint alleged that Cigna's stock price fell from $140.13 to $135.85 between January 21 and January 25, 2016 (SPA14), but it 3 The District Court also described other compliance letters that Cigna received in 2015, after the statements at issue were made, pertaining to a variety of other subjects, including the timely delivery of explanations of benefits, prescription denials, and call center timeliness, among others. See SPA11-12. The Complaint alleges only nine Notices received prior to February 2015, when the last challenged statement was made. JA119. The "nine to 18" Notices that the District Court referenced include seven that Cigna allegedly received in March and April 2015, after the challenged statements were made (see JA120; SPA12), and two from December 2014 that the Court counted twice because, in addition to being described in the Complaint, they were appended to Defendants' motion to dismiss (see SPA11 (describing seven letters from December 2014, though Complaint alleges five)). 10 Case 17-3484, Document 56, 05/10/2018, 2299751, Page19 of 66 promptly recovered to $140.32 on February 25, 2016 and $145.27 on March 14, 2016. 4 With the imposition of sanctions, Cigna began the complex task of remediating the deficiencies cited by CMS. Throughout that process, Cigna timely and candidly disclosed the risk that sanctions might remain in place longer than management hoped, the effects thereof, and the significant cost of remediation. JA386, 396-97. On July 29, 2016, Cigna announced that it had spent $30 million on the remediation, which the Complaint alleges was followed by a stock price drop from $135.99 on July 29 to $124.13 on August 2. JA130, 133. Within 10 trading days, by August 12, 2016, Cigna's stock price rebounded to $133.31.5 When Cigna determined that it would not meet its aggressive timeframe to have sanctions lifted in time for Medicare open enrollment in Fall 2016, it promptly disclosed that fact. JA88; JA400. Sanctions were lifted in June 2017, and Cigna was permitted to resume normal marketing and enrollment practices. SPA33.6 4 See Cigna Corp. (CI), Yahoo! Finance, https://finance.yahoo.com/chart/CI. This Court may take judicial notice of Cigna's stock price. Acticon AG v. China N. E. Petroleum Holdings Ltd., 692 F.3d 34, 37 n.1 (2d Cir. 2012). 5 See Cigna Corp. (CI), Yahoo! Finance, https://finance.yahoo.com/chart/CI. 6 CMS' decision to lift sanctions is an undisputed fact in the public record, of which the District Court properly took judicial notice. See Fed. R. Evid. 201(b) & (c)(1). 11 Case 17-3484, Document 56, 05/10/2018, 2299751, Page20 of 66 2. The Challenged Statements The putative class period begins on February 27, 2014, when Cigna filed its Form 10-K for 2013 (the "2013 10-K"). SPA6; JA211. In the 2013 10-K, Cigna warned that the "regulations and contractual requirements" applicable to government sponsored health care programs "are complex, are frequently modified, and are subject to administrative discretion." SPA7; JA219. Accordingly, Cigna noted that it "expect[s] to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness." SPA7; JA219. In the "Medicare Regulations" section, the 2013 10-K also stated that Cigna "expect[s] to continue to allocate resources to [its] compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs." SPA7; JA218. In its "Regulations" section, Cigna stated that it "ha[s] established policies and procedures to comply with applicable regulations." SPA6; JA215. Finally, the 2013 10-K's discussion of risk factors explained that Cigna faced "risks related to litigation, regulatory audits and investigations," which could lead to, among other things, "fines, penalties, civil liabilities. . . or other sanctions, including restrictions on [Cigna's] ability to operate, that could have a material adverse effect on [Cigna's] business, results of operations, financial condition, and liquidity." SPA8; JA221-22. 12 Case 17-3484, Document 56, 05/10/2018, 2299751, Page21 of 66 Cigna filed its 2014 Form 10-K on February 26, 2015 (the "2014 10-K"). SPA10; JA191. As in the 2013 10-K, in the "Medicare Regulations" section, the 2014 10-K stated that Cigna "expect[ed] to continue to allocate significant resources to [its] compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs." SPA10 n.6; JA200. Also like the 2013 10-K, the 2014 10-K warned that Cigna faced "complex" and "frequently modified" regulations that are "subject to administrative discretion," and that Cigna "expect[s] to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness." SPA10 n.6; JA200. The relevant risk factor disclosures in the 2014 10-K are the same as those in the 2013 10-K. SPA11; JA202. The "Regulation" section of the 2014 10-K set forth new disclosures regarding the worldwide regulatory regime that Cigna faced in place of the previous year's statement that "we have established policies and 13 Case 17-3484, Document 56, 05/10/2018, 2299751, Page22 of 66 procedures to comply with applicable requirements." 7 SPA11; cf. JA196.8 As described more fully, infra, Plaintiff alleged that the foregoing statements regarding Cigna's "established policies and procedures" and its expectation that it would "continue to allocate significant resources" to compliance are materially false or misleading, an allegation the District Court soundly rejected. SPA35. In addition to the statements regarding regulatory and compliance issues, the Complaint challenged two statements from Cigna's employee-directed Code of Ethics, published on Cigna's website in December 2014. SPA10. In the Code of 7 Specifically, under "Regulation," the 2013 10-K had stated: The laws and regulations governing our business continue to increase each year and are subject to frequent change. We have established policies and procedures to comply with applicable requirements. JA215. The 2014 10-K expanded on the subject, noting that: The laws and regulations governing our business continue to increase each year and are subject to frequent change. We are regulated by state, federal and international regulatory agencies that generally have discretion to issue regulations and interpret and enforce laws and rules. These regulations can vary significantly from jurisdiction to jurisdiction, and the interpretation of existing laws may also change periodically. Domestic and international governments continue to enact and consider various legislative and regulatory proposals that could materially impact the health care system. . . . JA196. 8 Messrs. Cordani and McCarthy signed Sarbanes-Oxley Act certifications attesting to the 2013 and 2014 10-Ks. SPA7; JA208-09, 226-27. 14 Case 17-3484, Document 56, 05/10/2018, 2299751, Page23 of 66 Ethics, McCarthy was quoted as follows: Doing things 'the right way' extends to how we manage our information. Take our financial results, for example. We have an obligation to make sure we're analyzing and reporting our results fairly and accurately. The shareholders who invest in us expect it, as do the analysts who follow us. That's why it's so important for every employee on the global Cigna team to handle, maintain, and report on this information in compliance with all laws and regulations. SPA10; JA411. Likewise, the Code of Ethics quoted Fritch: As a respected health service organization, we have a responsibility to act with integrity in all we do, including any and all dealings with government officials. This is critical to help us achieve our mission to improve the health, well-being and sense of security of those we serve. SPA10; JA417. The Complaint alleged that the underlined portions of these Code of Ethics statements were materially false and misleading, but the District Court characterized them as non-actionable "puffery" on which no reasonable investor would rely. SPA27. 3. Procedural History On February 4, 2016, less than two weeks after Cigna received the CMS sanctions letter, shareholder Jyotindra Patel commenced this action. JA5. On March 15, 2016, the District Court stayed discovery pursuant to the PSLRA and stayed Defendants' responsive pleading until a Lead Plaintiff had been appointed. 15 Case 17-3484, Document 56, 05/10/2018, 2299751, Page24 of 66 See JA6, JA14-23. Lead Plaintiff and Lead Counsel were appointed on May 17, 2016 and they filed an amended complaint on August 1, 2016. JA7-8. Shortly before Defendants' motion to dismiss was due to be filed, Plaintiff sought an extension of deadlines to permit a further amended complaint, to which Defendants objected. See JA9 (Dkt. Nos. 50-51). On October 7, 2016, at a telephonic conference before the District Court, Plaintiff explained that he sought additional time because he was "continuing to conduct [an] investigation in terms of public records, materials available from public agencies, from individuals. . . ." JA65. In granting leave to amend, the District Court noted that Plaintiff's investigation had gone on nearly long enough, but the Court nonetheless permitted Plaintiff still more time to "complete discovery to the point where [he is] able to file an amended complaint that fairly reflects all of the information that [he] can reasonably acquire in conducting thorough due diligence of [his] allegations." JA69. Nearly two months later, on November 30, 2016, Plaintiff filed a second amended complaint (the "Complaint"), which provided "more factual allegations" and named an additional defendant, Mr. Appel. SPA54-55; JA74-176. Defendants moved to dismiss on February 13, 2017. JA10. In his brief in opposition to the motion to dismiss, Plaintiff requested leave to amend yet again in the event the District Court granted the motion. See SPA55. On August 28, 2017, the District 16 Case 17-3484, Document 56, 05/10/2018, 2299751, Page25 of 66 Court issued an order giving Plaintiff the opportunity to submit a proposed third amended complaint. SPA55; JA535. Plaintiff moved for reconsideration of the District Court's order, "asking to defer filing an amended complaint until after the Court's ruling on the pending" motion. SPA56; JA537. The District Court granted in part and denied in part the motion for reconsideration, issuing an 8-page order that set forth various deficiencies in the Complaint. SPA56; JA540-47. Despite the District Court's explanation of those deficiencies, Plaintiff filed a notice informing the Court that he would not take the opportunity to amend the complaint. SPA56; JA548. The District Court entered its final order on September 28, 2017, dismissing the Complaint in its entirety and with prejudice, and Plaintiff noticed this appeal on October 27, 2017. SUMMARY OF ARGUMENT This Court should affirm the District Court's September 28, 2017 decision dismissing the Complaint in its entirety. Each of the claims properly was dismissed as a matter of law because Plaintiff did not plead sufficiently that any of the challenged statements was materially false or misleading. Specifically, the Complaint failed to allege that Cigna's statements regarding the existence of, and allocation of resources to, its Medicare compliance program were false when made, notwithstanding Plaintiff's reference to Cigna's receipt of regulatory notices before and after the statements were made. The District Court also held correctly 17 Case 17-3484, Document 56, 05/10/2018, 2299751, Page26 of 66 that Cigna's statements about the importance of integrity and ethics were immaterial puffery. The District Court's decision also may be affirmed on the independent grounds that Plaintiff failed to plead a cogent and compelling inference of scienter. The Complaint lacks well-pleaded allegations that would raise a strong inference that any Defendant acted recklessly by making statements they knew or should have known to be false. STANDARD OF REVIEW The Court reviews de novo the District Court's dismissal of a complaint under Rule 12(b)(6). Tongue v. Sanofi, 816 F.3d 199, 209 (2d Cir. 2016). In conducting its review, the appellate court is "free to affirm a district court decision on any grounds for which there is a record sufficient to permit conclusions of law, even grounds not relied upon by the district court." Gmurzynska v. Hutton, 355 F.3d 206, 210 (2d Cir. 2004); see also ACEquip Ltd. v. Am. Eng'g Corp., 315 F.3d 151, 155 (2d Cir. 2003). Though Plaintiff cites the correct de novo appellate standard, the opening brief barely acknowledges the applicable heightened pleading standard under Rule 9(b) and the PSLRA. See Br. 30-31. A complaint alleging violations of Section 10(b) and Rule 10b-5 must satisfy Rule 9(b) and the PSLRA's pleading 18 Case 17-3484, Document 56, 05/10/2018, 2299751, Page27 of 66 requirements. See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007). To satisfy Rule 9(b), "the plaintiff must '(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'" Anschutz Corp. v. Merrill Lynch & Co., Inc., 690 F.3d 98, 108 (2d Cir. 2012) (quoting Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004)). "The PSLRA expanded on [that] standard, requiring that 'securities fraud complaints specify each misleading statement; that they set forth the facts on which a belief that a statement is misleading was formed; and that they state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.'" Anschutz, 690 F.3d at 108 (citation omitted). As explained below, the District Court correctly concluded that the Complaint failed to satisfy these standards. ARGUMENT I. THE DISTRICT COURT CORRECTLY HELD THAT PLAINTIFF DID NOT ALLEGE A MATERIALLY FALSE OR MISLEADING STATEMENT The District Court correctly found that the Complaint did not plead facts sufficient to allege a materially false or misleading statement. SPA35. Plaintiff contends that the District Court erred in ruling that he did not sufficiently plead 19 Case 17-3484, Document 56, 05/10/2018, 2299751, Page28 of 66 misstatements of material fact, but Plaintiff has not articulated any coherent justification to warrant reversal of the District Court's ruling. To state a claim for a violation of Section 10(b) of the Exchange Act, "a plaintiff must plead a plausible claim that includes the action's basic elements: (1) a material misrepresentation (or omission); (2) scienter, i.e., a wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss causation." Kleinman v. Elan Corp., 706 F.3d 145, 152 (2d Cir. 2013) (citation omitted). With respect to the first element, falsity, a complaint must allege with particularity how the statements attributed to a defendant are false or misleading. See Rombach, 355 F.3d at 174. Notably, this particularity requirement "demands that the complaint contain specific factual allegations demonstrating that a statement was false or misleading when made." Fishbaum v. Liz Claiborne, Inc., 189 F.3d 460, at *2 (2d Cir. 1999) (emphasis added). At the core of his claim, Plaintiff alleges five misstatements – three from Cigna's annual reports, and two from its internal Code of Ethics: • "We have established policies and procedures to comply with applicable requirements." Br. at 14; JA215 (2013 10-K). • "We expect to continue to allocate significant resources to our compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs." Br. at 14; JA218 (2013 10-K); JA200 (2014 10-K). 20 Case 17-3484, Document 56, 05/10/2018, 2299751, Page29 of 66 • "We expect to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness." Br. at 15-16; JA219 (2013 10-K); JA200 (2014 10-K). • "[I]t's so important for every employee on the global Cigna team to handle, maintain, and report on this information in compliance with all laws and regulations." Br. at 15; JA411 (Code of Ethics). • "[W]e have a responsibility to act with integrity in all we do, including any and all dealings with government officials." Br. at 15; JA417 (Code of Ethics). As discussed below, the District Court correctly concluded that Plaintiff failed to allege facts supporting a conclusion that the statements in Cigna's 10-Ks regarding the existence of, and allocation of resources to, its compliance program were false or misleading. In addition, the Court properly held that statements in Cigna's Code of Ethics about the importance of integrity and ethics are immaterial puffery. This Court should affirm the District Court's dismissal. A. The District Court Correctly Held that the Complaint Failed to Allege that Statements About Cigna's Compliance Program Were Misleading 1. The Court Correctly Found that Cigna Did Not Assure Investors of Complete Regulatory Compliance Plaintiff argues that Cigna "publicly assured (and reassured) investors that the Company was in compliance with the regulatory requirements of [CMS]." Br. at 1. But as the District Court correctly found, "Cigna's Form 10-Ks do not 21 Case 17-3484, Document 56, 05/10/2018, 2299751, Page30 of 66 guarantee 100% compliance with administrative regulations." SPA29.9 A plain reading of the statements at issue shows that Cigna never assured (nor even suggested) full compliance. See SPA32 ("Cigna made no contention that it was in 'substantial compliance' with all laws. . . ."). Plaintiff challenges general statements in Cigna's 2013 and 2014 public filings regarding the Company's compliance function and argues that because CMS imposed sanctions in 2016, nearly a year after the last challenged statement, Cigna's earlier statements were false. Br. at 36-37. Plaintiff, however, points to no well-pleaded facts supporting such a conclusion. For example, Plaintiff does not even attempt to allege that Cigna, contrary to its public statements, lacked policies and procedures to comply with CMS regulations. Similarly, Plaintiff argues that statements about Cigna's expectation to continue to allocate resources to compliance were misleading, but he does not support that argument with any 9 It is unclear what the basis is for Plaintiff's assertion that the District Court "tacitly found" a "duty of full disclosure." Br. at 18 n.7. The District Court accurately described in general terms the disclosure obligations of a publicly traded company (SPA23-26) and then held that none of the challenged statements was false or misleading by omission (SPA35-36). Plaintiff did not allege a theory of liability under a "duty to correct," or otherwise assert that Defendants had an affirmative duty to disclose every communication with its regulator. See generally Kleinman, 706 F.3d at 152-53 ("[I]t bears emphasis that § 10(b) and Rule 10b–5(b) do not create an affirmative duty to disclose any and all material information. . . . Disclosure of an item of information is not required. . . simply because it may be relevant or of interest to a reasonable investor." (citation omitted)). 22 Case 17-3484, Document 56, 05/10/2018, 2299751, Page31 of 66 allegations that, if proven, would demonstrate that Cigna did not have that expectation or, in fact, had not allocated significant resources. Plaintiff argues that "there is no real difference between an assurance of 'substantial compliance' versus assurances of 'having policies and procedures' or allocating 'significant resources' to ensure compliance." Br. at 37 n.12. Thus, Plaintiff insists, an investor "could have" interpreted Cigna's "assurances" to mean "[Cigna] had a reasonably effective compliance infrastructure and was not facing major compliance challenges." Br. at 37 n.12. Plaintiff provides no support for this assertion, and law of this Circuit holds that he is mistaken. See, e.g., In re UBS AG Sec. Litig., No. 07 Civ. 11225, 2012 WL 4471265, at *33-37 (S.D.N.Y. Sept. 28, 2012), aff'd sub nom. City of Pontiac Policemen's & Firemen's Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014) (dismissing for failure to plead actionable misstatement where plaintiff alleged that UBS assured the market of its compliance function but "UBS made no such assurances or guarantees regarding the success of its divisions"); In re FBR Inc. Sec. Litig., 544 F. Supp. 2d 346, 362-63 (S.D.N.Y. 2008) (dismissing complaint where plaintiff alleged that defendants' description of its compliance program assured investors that program was effective but "defendants never claimed that the company was in 'full compliance with all regulations, or that it had no outstanding regulatory issues'") (citation omitted); In re Austl. & N.Z. Banking Grp. Ltd. Sec. Litig., No. 08 Civ. 11278, 2009 WL 23 Case 17-3484, Document 56, 05/10/2018, 2299751, Page32 of 66 4823923, at *14-15 (S.D.N.Y. Dec. 14, 2009) (dismissing complaint where plaintiff alleged that statements regarding the "quality of [defendant's] risk management practices" constituted assurances to the market); see also In re Goldman Sachs Group Inc. Sec. Litig., No. 10 Civ. 3461, 2014 WL 2815571, *5 (S.D.N.Y. June 23, 2014) (distinguishing disclosures akin to guarantees from appropriately cautious ones and explaining that the market would not be assured of compliance where a company stated that "it strove to comply with applicable laws"). Plaintiff cites In re BioScrip Inc. Securities Litigation, 95 F. Supp. 3d 711, 727-30 (S.D.N.Y. 2015), for the proposition that a reasonable investor would have interpreted Cigna's "assurances" to mean that "it had a reasonably effective compliance infrastructure and was not facing major compliance challenges." Br. at 37 n.12. But BioScrip provides no support to Plaintiff because the "reassuring" statements deemed misleading in that case are markedly different from those at issue here. In BioScrip, the complaint alleged that the company failed to disclose, among other things, its receipt of a Civil Investigative Demand ("CID") from the U.S. government concerning an unlawful "kickback" scheme involving pharmaceutical sales. BioScrip, 95 F. Supp. 3d at 727. In its disclosures, BioScrip repeatedly and expressly asserted its belief that it was in compliance with applicable regulations, stating: "the Company believes it is in substantial 24 Case 17-3484, Document 56, 05/10/2018, 2299751, Page33 of 66 compliance with all laws, rules and regulations that affect[] its business and operations," "we believe we are in compliance with Medicaid and Medicare billing rules," and "we believe we are in compliance with the legal requirements imposed by the anti-kickback laws." Id. at 728 (emphasis added). In light of the Company's prior receipt of the CID, the BioScrip court found that "a reasonable investor could have been misled by. . . the assertion that. . . [BioScrip] was presently in full legal compliance." Id. at 732. No similar conclusion is plausible here because Cigna's challenged statements are far more cautious than BioScrip's, and do not assert even a belief as to regulatory "compliance." The more apt comparison, as the District Court concluded, is to the distinction drawn in Meyer v. JinkoSolar Holdings Co., 761 F.3d 245 (2d Cir. 2014). See SPA29-32. JinkoSolar involved a solar products company subject to various Chinese environmental regulations. JinkoSolar, 761 F.3d. at 247. Two categories of challenged disclosures were at issue: the first pertained to the costs of compliance and non-compliance with applicable regulations, and the second pertained to specific pollution abatement technology and monitoring that the company employed. Id. at 247-49 (describing disclosure of 24-hour monitoring by environmental teams, among other measures). In June 2010, within a month of the challenged disclosures, JinkoSolar was notified by a regulator of "existing problems" in its environmental compliance efforts. Id. at 248. The plant at issue 25 Case 17-3484, Document 56, 05/10/2018, 2299751, Page34 of 66 in JinkoSolar was eventually shut down for remedial action, and the company suffered a 40% stock drop. Id. at 249. In assessing the alleged misstatements, the JinkoSolar court found that the first category of statements, about the "variety of pollution regulations and the high cost of both compliance and non-compliance," were not misstatements, but that the second category of statements regarding specific, ongoing compliance efforts were misleading because "the equipment and 24-hour [monitoring] team were then failing to prevent substantial violations of the [applicable] regulations," and therefore the company had provided shareholders "an overly optimistic assessment of the risk." Id. at 250-51 (emphasis added). As the District Court found here, Cigna's generalized statements about the existence of a compliance program are akin to the first, non-actionable category of statements in JinkoSolar because they pertain only to the regulations Cigna faces and the allocation of resources to comply. 10 Unlike the misleading JinkoSolar 10 The court in Menaldi v. Och–Ziff Capital Management Group LLC, 277 F. Supp. 3d 500, 513 (S.D.N.Y. 2017), similarly distinguished the misrepresentations found in JinkoSolar from general statements about compliance. There, the court rejected plaintiff's argument that the defendant's assertions that "[w]e have implemented a global compliance program," and "[o]ur compliance program includes comprehensive policies and supervisory procedures," were false or misleading because defendant did not disclose potential regulatory violations. Menaldi, 277 F. Supp. 3d at 512-14. The Menaldi court held that the general statements about compliance were not misleading and explained, "[i]f this type of milquetoast corporate-speak required disclosure of all potential. . . violations then known to the company, then 'any company that has a compliance program and discloses that 26 Case 17-3484, Document 56, 05/10/2018, 2299751, Page35 of 66 statements, the statements here do not extol the specifics of the compliance program such that a reasonable investor could be unduly comforted and misled in light of substantial and ongoing compliance failures. Cf. JinkoSolar, 761 F.3d at 251. And, as the District Court found, the absence of "substantial and ongoing" violations at Cigna precluded a determination that the disclosures were misleading.11 Notably, and tellingly ignored by Plaintiff, Cigna's Form 10-Ks consistently cautioned: We are frequently the subject of regulatory market conduct and other reviews, audits and investigations by. . . CMS. . . . These regulatory audits. . . could result in changes to or clarifications of our business practices, retroactive adjustments to certain premiums, significant fines, penalties, civil liabilities, criminal liabilities or other sanctions. . . . program in even the most austere terms would be required, ipso facto, to disclose any possible deviation that came to its attention.'" Id. at 513 (citation omitted). 11 The District Court did not, as Plaintiff asserts, improperly use "'ongoing and substantial violations' as a proxy for materiality." See Br. at 18. Rather, the Court cited JinkoSolar for the proposition that if disclosures touted a company's compliance mechanism while "substantial and ongoing" violations were currently taking place, the failure to disclose the violations could render the omission materially false and misleading. SPA34. The District Court noted, in contrast, that the handful of Notices issued before the last statement at issue here are not evidence of "substantial and ongoing" violations such that the failure to disclose them was misleading by omission. SPA34 ("[T]he Court cannot find that subsequent compliance violations were material omissions."). 27 Case 17-3484, Document 56, 05/10/2018, 2299751, Page36 of 66 JA222; accord JA203. Moreover, the context of the alleged misstatements reinforces the conclusion that Cigna viewed CMS' and other applicable regulations as "numerous and complex," "subject to frequent change," and "frequently modified and subject to administrative discretion," and believed that compliance challenges could arise given the complicated and shifting regulatory landscape. JA218-21; accord JA200-02. 2. The Court Correctly Rejected the Contention that the Revision of Language in Cigna's Annual Report Supports an Inference of Falsity Plaintiff contends that the revision of language in Cigna's 2013 10-K ("[w]e have established policies and procedures to comply with applicable requirements") suggests that language in Cigna's 2013 and 2014 10-Ks was false. Br. at 37-38. The District Court rejected this conclusory argument, finding that the revision "does not inherently mean that, at the time when the 2013 Form 10K was published, the statement was materially misleading." SPA29. The language was replaced in the 2014 10-K with additional language discussing the complexity and continually changing landscape of Medicare regulations. SPA11; cf. JA196. Plaintiff insists that the replacement of this clause "raises an inference that Cigna lacked [compliance] policies and procedures not only in 2014, but also in 2013." Br. at 37-38. Plaintiff provides no support for this conclusion and offers nothing to satisfy the PSLRA's requirement that a complaint must assert why the 28 Case 17-3484, Document 56, 05/10/2018, 2299751, Page37 of 66 statement was false. See In re Lululemon Sec. Litig., 14 F. Supp. 3d 553, 571 (S.D.N.Y. 2014), aff'd 604 F. App'x 62 (2d Cir. 2015) ("The Second Circuit has repeatedly stated that plaintiffs must do more than simply assert that a statement is false – 'they must demonstrate with specificity why that is so.'") (citation omitted). Plaintiff contends that "it is implausible that Cigna would have had policies and procedures in place in 2013 and then abandoned them in 2014." Br. at 38. But the revision of the challenged language does not suggest that compliance policies were abandoned. Contrary to Plaintiff's assertion, "the more plausible inference" is not that Cigna "never had" policies and procedures (Br. at 38) but, rather, that Cigna updated a paragraph in its corporate disclosure to fully reflect the shifting regulatory environment in which Cigna operates. See JA196 (discussing the breadth and evolving nature of Medicare regulations). The revision, in the context of extensive risk disclosures, does not create any inference of falsity, let alone a compelling one. Cf. Janbay v. Canadian Solar, Inc., No. 10 Civ. 4430, 2012 WL 1080306, *8 (S.D.N.Y. Mar. 30, 2012) ("That CSI revised some of its reported financial results for 4Q 2009. . ., does not render false the Company's statement about its internal controls as of December 31, 2008, which statement was made more than a year earlier. . . ."). 29 Case 17-3484, Document 56, 05/10/2018, 2299751, Page38 of 66 3. Cigna's Receipt of Several Routine Compliance Notices Did Not Render Its Statements False or Misleading When Made The District Court correctly found that Cigna's receipt of Notices "involving potentially disparate topics," did not render false the challenged statements in Cigna's 10-Ks and Code of Ethics. SPA35. Before this Court, Plaintiff again points to the Notices and asserts that they support an inference that Cigna's compliance function was ineffective when the alleged misstatements were made because they demonstrate that Cigna had "compliance failures during the Class Period." Br. at 39. Plaintiff's conclusory arguments, however, do not change the conclusion that Plaintiff did not plead plausibly or with any specificity how the Notices, either individually or in the aggregate, demonstrate that the challenged statements in Cigna's Form 10-Ks or Code of Ethics were false when made. "A violation of Rule 10b-5 cannot occur unless an alleged material misstatement or omission was false at the time it was made." C.D.T.S. v. UBS AG, No. 12 Civ. 4924, 2013 WL 6576031, at *3 (S.D.N.Y. Dec. 13, 2013). In order to state a claim, Plaintiff "must do more than assert in a conclusory fashion that statements were or must have been false." Id.; see also Rombach, 355 F.3d at 174; In re Lululemon Sec. Litig., 14 F. Supp. 3d at 571 (complaint "must demonstrate with specificity why" challenged statement is false). "That a statement true when made later becomes untrue – or is later shown to be untrue – does not constitute falsity." C.D.T.S., 2013 WL 6576031, at *3. Plaintiff fails, as he did in the 30 Case 17-3484, Document 56, 05/10/2018, 2299751, Page39 of 66 District Court, to establish a sufficient connection between the CMS Notices and truth of the challenged statements at the time they were made. First, as explained above, the challenged statements in Cigna's Form 10-Ks did not assure regulatory compliance, and neither the existence of the Notices nor their specific content suggests that Cigna lacked compliance procedures, did not allocate significant resources to compliance, or did not believe that integrity and compliance were important. See JA 215, 218-19, 200. Second, even assuming that Plaintiff's characterization of the statements as "assurances" were accurate, and it is not, his claims would fail because he grossly exaggerates the nature and gravity of routine CMS notices. See Br. at 36. The CMS notices are not sanctions or penalties, they are not akin to an investigation, and they are not an indication of imminent pecuniary loss. See JA349. Medicare is complex, highly regulated, and involves frequent communication with regulators. See generally JA228-68, JA270-307, JA308-40. Such contact, whether in the form of CMS notices or otherwise, does not render generic statements concerning compliance procedures misleading, nor does it give rise to a duty to disclose the details of each exchange with a regulator. See Carpenters Pension Trust Fund of St. Louis v. Barclays PLC, 750 F.3d 227, 235-36 (2d Cir. 2014) (complaint failed to plead falsity where broad statements that "minimum control requirements had been established" did not mention the particular deficiencies 31 Case 17-3484, Document 56, 05/10/2018, 2299751, Page40 of 66 alleged to underlie the fraud); see also In re Austl. & N.Z. Banking Grp., 2009 WL 4823923, at *14 (finding public statements not false or misleading where the "[alleged] fraud consisted of ANZ's misrepresentation of its 'equity finance practices'" but "[t]hose practices. . . are not the subject of the representations cited in the Complaint"). Further, contrary to his assertion, Plaintiff has not pleaded facts that entitle him to an inference that Cigna's compliance programs and infrastructure were ineffective in 2013. See Br. at 35.12 Plaintiff insists that in order to "consider whether the CMS violations were material. . . the District Court should have looked to the circumstances at Cigna before and leading up to [February 26, 2015]." Br. at 34. He fails to heed his own advice, however, and points to the imposition of sanctions in 2016 in an attempt to construct a backward-looking inference about Cigna's compliance function in 2013, 2014, and early 2015. See 12 Plaintiff's reliance on In re Vivendi Universal, S.A. Securities Litigation, 765 F. Supp. 2d 512, 554 (S.D.N.Y. 2011), to support his argument for a "common- sense," backward-looking inference is unavailing. Aside from the fact that Vivendi is a post-trial case subject to a different standard of review, the facts are not comparable. There, plaintiffs argued that defendant made false statements prior to a severe liquidity crisis that brought defendant to the verge of bankruptcy. Id. at 536. The alleged misstatements included, e.g., explicit assurances of the company's "very sound financial footing." Id. at 537-38. The court, in addressing a motion for a new trial, opined that the jury could have inferred that defendant's liquidity issues materialized prior to the crisis in light of considerable evidence provided by plaintiff at trial. Id. at 540. No such assurances nor extensive evidence exists here. 32 Case 17-3484, Document 56, 05/10/2018, 2299751, Page41 of 66 Br. at 34, 38. Plaintiff's attempt to impute the circumstances as they were known in 2016 onto the challenged statements made months and years earlier in order to create an inference of falsity is a textbook example of pleading "fraud by hindsight," which, as a matter of law, must be rejected. See City of Pontiac Policemen's and Firemen's Ret. Sys. v. UBS AG, 752 F.3d 173, 188 (2d Cir. 2014) ("[The Second Circuit] do[es] not recognize allegations of 'fraud by hindsight.'"). Indeed, courts have refused to credit backward-facing inferences within significantly shorter timeframes. E.g., Tyler v. Liz Claiborne, Inc., 814 F. Supp. 2d 323, 340 (S.D.N.Y. 2011) (refusing to find an inference of falsity where plaintiff alleged the underlying facts were known two months earlier than the facts became public); Coronel v. Quanta Holdings Ltd., No. 07 Civ. 1405, 2009 WL 174656, at *29 (S.D.N.Y. Jan. 26, 2009) (declining to find public statements and SOX certifications that defendant "had established and evaluated disclosure controls and procedures" false based upon disclosure of internal control problems five months later). In short, the Complaint alleged that, in the ten-month period between April 2014 and February 2015, Cigna received nine Notices. JA119. The District Court correctly determined that those Notices did not suggest "'substantial and ongoing violations,'" and that in light of Cigna's risk disclosures, the Notices were not 33 Case 17-3484, Document 56, 05/10/2018, 2299751, Page42 of 66 sufficiently "risky" to be actionable. SPA29-35.13 In light of the timing and content of the Notices, none of which Plaintiff disputes before this Court, that determination was correct and should be affirmed. 14 4. The Ability to Cure Issues or Retract Notices Has No Bearing on the Truth or Falsity of the Challenged Statements Attempting to spin the facts to his benefit, Plaintiff points to the fact that CMS actually retracted two of the Notices that he put before the District Court and contends, without basis, that Cigna could seek retraction of Notices once underlying issues were cured. See Br. at 38. By extension, Plaintiff argues, the remaining Notices "strengthen[] the inference that the challenged statements were materially false and misleading." Br. at 38. Plaintiff's argument is absurd. As is clear from the record, a retraction serves to "rescind[] the compliance action," and is the result when that compliance action never should have been 13 Oddly, Plaintiff argues that the District Court improperly applied an "immateriality by hindsight" approach to find the few CMS Notices received during the pre-misstatement period immaterial as compared to those received after the challenged statements. Br. at 33-34. But Plaintiff's assertion that the District Court relied on a quantitative, comparative approach to materiality finds no support in the court's opinion. In fact, the District Court stated, "[a]lthough the numerosity of the notices is worth noting, the materiality question requires the Court to focus on the content of the notices in order to decide whether the information would be important to a reasonable investor." SPA28 (emphasis added). The court's materiality determination was expressly based on content, and not merely quantity. 14 On appeal, Plaintiff has abandoned any prior assertion that his confidential witness allegations support his claim of falsity. See Br. at 33-41. 34 Case 17-3484, Document 56, 05/10/2018, 2299751, Page43 of 66 issued in the first place. See JA441-43, JA444-46 (retraction notices). Retraction has nothing to do with remediation efforts by the recipient of a compliance notice (see JA442-43; JA445-46),15 and the retractions say nothing about the remediation efforts that Cigna undertook in response to other Notices, or the materiality of the Notices that were not retracted. B. The District Court Correctly Held that Statements in Cigna's Code of Ethics Were Immaterial Puffery The District Court correctly held that the statements attributed to Fritch and McCarthy in Cigna's Code of Ethics regarding the importance of integrity and legal compliance are inactionable corporate puffery. See SPA27. Plaintiff challenges two statements integrated into the Code of Ethics. In the first statement, McCarthy states "it's so important for every employee on the global Cigna team to handle maintain, and report on this information in compliance with all laws and regulations." JA411. In the second, Fritch states "we have a responsibility to act with integrity in all we do, including any and all dealings with government officials." JA417. Plaintiff argues that these are actionable misstatements "because Cigna was not acting with integrity in its dealings with government 15 Plaintiff misconstrues the District Court's comment regarding violations in the Notices that "could at a later point be cured" as a comment regarding retraction notices. Br. at 38. The District Court's observation goes to the conclusion that the violations were not "substantial and ongoing" and therefore not material and does not address remediation efforts. SPA31. 35 Case 17-3484, Document 56, 05/10/2018, 2299751, Page44 of 66 officials. . . and, because continuing violations would likely have a material impact on earnings." Br. at 40. Plaintiff's unsupported conclusions are wrong as a matter of law. As the District Court found, these aspirational statements are classic, immaterial puffery. See SPA27 (the challenged Code of Ethics statements "reflect the precise meaning" of puffery) (emphasis added). The District Court correctly concluded that "no reasonable investor [] would rely on such 'puffery'" because the statements are too general to cause reliance. SPA27. "It is well-established that general statements about reputation, integrity, and compliance with ethical norms are inactionable 'puffery,' meaning that they are 'too general to cause a reasonable investor to rely upon them.'" City of Pontiac Policemen's and Firemen's Ret. Sys., 752 F.3d at 183 (citation omitted). Accordingly, as this Circuit has explained, "expressions of puffery and corporate optimism do not give rise to securities violations." Rombach, 355 F.3d at 174. Courts routinely hold that general statements in corporate codes of ethics are not actionable "because they are quintessentially the sort of puffery about corporate 'reputation, integrity, and compliance with ethical norms' that define the [puffery] category." Lopez v. Ctpartners Exec. Search Inc., 173 F. Supp. 3d 12, 28-30 (S.D.N.Y. 2016) (dismissing 10(b) claims focused on statements in Code of Business Conduct and Ethics concerning expectations of honesty, integrity, and 36 Case 17-3484, Document 56, 05/10/2018, 2299751, Page45 of 66 ethical conduct); Boca Raton Firefighters & Police Pension Fund v. Bahash, 506 F. App'x 32, 37 (2d Cir. 2012) (statements concerning integrity and credibility were puffery); see also Retail Wholesale & Dep't Store Union Local 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1276 (9th Cir. 2017) (noting absence of "a case from any jurisdiction in which a court found alleged noncompliance with an ethical code actionable").16 As in the District Court, Plaintiff has not set forth any basis for concluding that the general statements about the importance of compliance and acting with integrity were anything but classic puffery upon which no reasonable investor would rely. Thus, this Court should affirm the District Court's rejection of these claims. 16 Plaintiff relies upon Richman v. Goldman Sachs Group, Inc., 868 F. Supp. 2d 261, 277 (S.D.N.Y. 2012), to support his argument that courts have found aspirational statements in corporate codes of ethics actionable. Richman is inapposite. The statements at issue in Richman were from the defendant's annual reports and discussed the value of the company's reputation and ability to address conflicts of interest, notwithstanding ongoing transactions that reflected conflicts of interest. Id. at 279-80. The court found that the company's pointed misrepresentations were directly contrary to defendants' alleged conduct. Id. Here, in contrast, the Code of Ethics statements Plaintiff challenges are pitched at a general and aspirational level and "do not address any concrete policy or practice." See Lopez, 173 F. Supp. 3d at 30 (distinguishing Richman where challenged statements about "culture, reputation, and compliance were made at a highly general level"). 37 Case 17-3484, Document 56, 05/10/2018, 2299751, Page46 of 66 C. The District Court's Reference to Plaintiff's Pre-Filing Investigation Is Irrelevant Plaintiff criticizes the District Court for "express[ing] [an] incorrect belief" that Plaintiff was "tak[ing] merits discovery." Br. at 25-26; id. at 4, 27. Plaintiff misconstrues the District Court's statements; the court's discussion of Plaintiff's pleadings-stage investigation – interviewing confidential witnesses, collecting publicly-available documents – accurately described Plaintiff's informal discovery efforts. Moreover, Plaintiff's critique is untethered to any substantive aspect of the District Court's ruling or his arguments on appeal. And rightly so. The District Court's comments regarding "discovery" had no bearing on its decision. At all times during the District Court proceedings, it was clear that formal discovery was stayed pursuant to the PSLRA. See JA15 ¶ 4; JA23; JA38. During the discovery stay, Plaintiff sought the court's leave to amend his complaint, asserting that he needed several months to marshal additional facts in an effort to adequately plead his case. See JA37 ("Lead Counsel's investigation of the claims in the CAC has been ongoing, and it has led to, and is continuing to lead to, discovery of facts both corroborative of, and supplemental to, those alleged in the CAC."). Plaintiff's counsel told the Court that he was "continuing to conduct [an] investigation in terms of public records, material available from public agencies, from individuals. . . ." JA65. The District Court expressly understood that Plaintiff was conducting an investigation "in order to more fully describe [his] 38 Case 17-3484, Document 56, 05/10/2018, 2299751, Page47 of 66 claims." JA67 (emphasis added).17 In granting leave to amend, the District Court explained that Plaintiff's investigation had gone on nearly long enough, but he would be indulged additional time to "complete discovery to the point where [he is] able to file an amended complaint that fairly reflects all of the information that [he] can reasonably acquire in conducting thorough due diligence of [his] allegations." JA69. While Plaintiff now latches onto the Court's use of the word "discovery," nothing in Judge Bryant's statements or the Court's subsequent application of the appropriate legal standards reflects any misunderstanding of the procedural stage of the case. Indeed, nothing in the District Court's Opinion supports Plaintiff's accusation that the Court, in applying the appropriate standard of review, did not understand that the Complaint – the third pleading attempted in this case – was "unaided by discovery." See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 n.5 (2007) (appropriate standard of review contemplates that parties are "unaided by discovery"). As is clear from the Opinion, the District Court applied 17 Notably, if in fact Plaintiff believed that the District Court misapprehended the scope of the ongoing investigation, he never made any attempt to correct the Court's misunderstanding. See JA65-71 (discussing next steps following grant of leave to file second amended complaint); JA537 (seeking reconsideration of order permitting plaintiff to file proposed third amended complaint); JA541 (on motion for reconsideration, discussing the October 2016 conference granting leave to file second amended complaint); see also JA548 (notice of intent not to amend the complaint). 39 Case 17-3484, Document 56, 05/10/2018, 2299751, Page48 of 66 the correct standard applicable to a motion to dismiss, and assumed that Plaintiff's well-pleaded, non-conclusory facts were true. See SPA19-21. Plaintiff's complaint about the Court's reference to "discovery," therefore, is a red herring that the Court should reject. II. THE DISTRICT COURT CORRECTLY HELD THAT PLAINTIFF FAILED TO ALLEGE THE REQUISITE STRONG INFERENCE OF SCIENTER A. The District Court Correctly Found that the Complaint Did Not Allege Strong Evidence of Conscious Misbehavior or Recklessness As the District Court correctly found, nothing in the Complaint raised the requisite "strong inference" of an "intent to deceive the public." Acito v. IMCERA Grp., Inc., 47 F.3d 47, 54 (2d Cir. 1995). The "exacting" standard for pleading scienter requires that a plaintiff allege with particularity "a mental state embracing intent to deceive, manipulate, or defraud." Tellabs, 551 U.S. at 319 (citation omitted). A complaint that does not allege a "strong inference" of scienter – i.e., one that is not "cogent and at least as compelling as any opposing inference" – must be dismissed. Id. at 314. The heightened standard "can be satisfied by 'alleging facts (1) showing that the defendants had both motive and opportunity to commit the fraud or (2) constituting strong circumstantial evidence of conscious misbehavior or recklessness.'" Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 106 (2d Cir. 2015) (citation omitted). The latter inquiry – conscious misbehavior or 40 Case 17-3484, Document 56, 05/10/2018, 2299751, Page49 of 66 recklessness – requires a showing of "a state of mind approximating actual intent, and not merely a heightened form of negligence." Id. (citation omitted). "Where motive is not apparent. . . the strength of the circumstantial allegations must be correspondingly greater." Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001) (citation omitted). Indeed, in the absence of motive, a complaint "must allege a degree of scienter 'approaching a knowledgeable participation in the fraud or a deliberate and conscious disregard of facts' and 'must detail specific contemporaneous data or information known to the defendants that was inconsistent with the representation in question.'" Janbay, 2012 WL 1080306, at *11 (citation omitted). The District Court correctly applied the pleading standard and found no such "strong inference" in the Complaint. SPA36-47. On appeal, Plaintiff abandons his previous assertion that the Complaint alleged "motive and opportunity" to commit fraud, and does not challenge the District Court's finding that no such motive was alleged. See SPA44; Br. at 43-51. Instead, Plaintiff argues that the Complaint adequately alleged scienter because "it is enough at [the pleading] stage for Plaintiff[] to allege that Defendants were aware of nonpublic facts contradicting their public representations of substantial legal compliance." Br. at 44-45 (citation omitted). But the Complaint contains no such allegations, and Plaintiff misstates the inference (or lack thereof) that reasonably can be drawn from the allegations 41 Case 17-3484, Document 56, 05/10/2018, 2299751, Page50 of 66 that are there. As such, the District Court's determination that Plaintiff failed to plead scienter was correct and should be affirmed. 1. The Conclusory Assertion that Defendants "Must Have Known" that Statements Were Untrue Is Insufficient to Plead Scienter As the District Court correctly found, Plaintiff's reliance on Cigna's receipt of routine CMS notices between 2013 and 2015 to raise a strong inference of scienter is misplaced. The District Court aptly summarized the Complaint's allegations in this respect: (1) [Defendant] Appel received the CMS notices and CMS regulations required him to report violations to senior management, including Cordani, McCarthy, and Fritch. . . (2) Defendants' access to information means they knew or should have known that they were misrepresenting material facts. . . . SPA45. The District Court explained that those allegations do not suffice to create an inference of scienter because "they merely allege that Defendants 'must have known their statements to be untrue.'" SPA45. In this Circuit, "[a]n allegation that a defendant merely ought to have known is not sufficient to allege recklessness." Kuriakose v. Fed. Home Loan Mortg. Corp., 897 F. Supp. 2d 168, 184 (S.D.N.Y. 2012); see also Glaser v. The9, Ltd., 772 F. Supp. 2d 573, 588 (S.D.N.Y. 2011) ("[A]llegations that 'information was the sort of [data]' that 'would have been reviewed by the Individual Defendants are too speculative to give rise to a strong inference of scienter.'") (citation omitted); C.D.T.S., 2013 WL 6576031, at *6 42 Case 17-3484, Document 56, 05/10/2018, 2299751, Page51 of 66 ("There are a number of cases in which plaintiffs have sought to base claims of fraud on statements regarding risk and internal control systems that later prove not to deter or catch trading losses; courts often dismiss such actions for a failure adequately to plead scienter.") (citing cases). Beyond that, the District Court explained that even assuming that Appel had a duty to report "each and every CMS notice to senior management, it is unclear how knowledge of these nine to 18 notices without acting upon them would be 'highly unreasonable' or an 'extreme departure from the standard of care to the extent that the danger was either known to the defendants or so obvious that the defendants must have been aware of it.'" SPA46 (citations omitted). Plaintiff's argument, in response, is simply to dispute the inference that the District Court drew, repeating his refrain that the receipt of those notices "contradicted Defendants' assurances of compliance during that period." See Br. at 45. But that argument fails due to three faulty assumptions. First, it relies upon the false premise that Cigna "assured" its investors of perfect compliance. As explained in detail above, Cigna's challenged statements contained no such assurance. SPA29 ("Cigna's Form 10-Ks do not guarantee 100% compliance with administrative regulations."). Second, Plaintiff erroneously contends that his "Complaint alleges the Individual Defendants' knowledge of specific facts or access to information." Br. at 45 (emphasis added). But Plaintiff points to nothing 43 Case 17-3484, Document 56, 05/10/2018, 2299751, Page52 of 66 in the Complaint that alleged knowledge of these supposedly contradictory facts on the part of individual Defendants Cordani, McCarthy, and Fritch; at best, the Complaint alleged only potential access to information. See Br. at 45 (citing JA103-04 and JA136-37, which discuss only access to information via CMS reporting-up requirement). Third, the receipt of several routine CMS Notices would have placed Defendants on notice, at most, that the Company's compliance was less than perfect. As the District Court correctly found, even assuming that each Defendant received the nine Notices before the statements at issue were made, nothing in those letters would have indicated to Defendants that Cigna's statements about the existence of and allocation of resources to its compliance program were false. Plaintiff fundamentally mischaracterizes both the statements he challenges and the nature and gravity of the Notices, which are an indication of neither systematic non-compliance nor of imminent financial loss. JA349; see also SPA32 (notices not equivalent to a government investigation). In short, the most Plaintiff alleged is access to information that did not contradict any public statement. That is a very long way from a strong, cogent inference that Defendants intended to lie to their shareholders. See SPA45-46.18 18 Plaintiff's argument lays bare his distortion of his own allegations in this regard. Citing New Orleans Employees Retirement System v. Celestica, Inc., 455 F. App'x 10, 15 (2d Cir. 2011), Plaintiff asserts that "'knowledge of facts without acting on 44 Case 17-3484, Document 56, 05/10/2018, 2299751, Page53 of 66 As the District Court correctly found, the Complaint failed to plead scienter based on the receipt of CMS Notices because nothing about those notices shows Defendants' awareness of facts inconsistent with the challenged statements.19 The CMS Notices were routine and non-severe (see SPA31), and provide no basis for a conclusion that Cigna's compliance regime was non-existent or unfunded, or even that it was failing. 20 them,' . . . raises a strong inference of scienter where, as here, those facts are inconsistent with defendants' public statements." Br. at 48. But Plaintiff has failed to plead either the knowledge or the inconsistency that would create an inference of scienter in this case. Plaintiff points to nothing in the Complaint to suggest that the Notices contained information inconsistent with the challenged public statements, and nothing to suggest that any Defendant had reason to know that any Notice may have been inconsistent with any challenged statement. 19 Plaintiff's reliance on Pirnik v. Fiat Chrysler Automobiles, N.V., No. 15 Civ. 7199, 2016 WL 5818590 (S.D.N.Y. Oct. 5, 2016), is also misplaced. Br. at 44-45. In Pirnik, which arose out of the massive Takata airbag recall, the plaintiff alleged that defendants were actually aware of deficient recalls, and those recalls undermined company statements about its "substantial compliance" with applicable safety regulations. Pirnik, 2016 WL 5818590, at *7. No such knowledge exists here. 20 Plaintiff's argument, reduced to a footnote, that the individual Defendants' scienter should be imputed to Cigna, is without basis in his Complaint. Br. at 46 n.16. Notably, Plaintiff does not seem to argue a theory of corporate scienter independent from individual Defendant scienter. Br. at 26 n.16. Moreover, Plaintiff's footnote argument only addresses Appel, and makes only the conclusory assertion that Appel's actions "bound the Company here." Id. The record citations that Plaintiff provides simply describe Appel's role, title, and the fact that he was addressee on the CMS Notices. Id. (citing JA92, 109, 136). Plaintiff identifies no allegation in the Complaint that suggests that Appel, a non-executive employee of a Cigna subsidiary, had any ability to bind the company, particularly as pertains to its disclosures to shareholders. 45 Case 17-3484, Document 56, 05/10/2018, 2299751, Page54 of 66 In assessing Plaintiff's scienter-related allegations, the District Court properly considered the opposing, non-culpable inferences from the facts in the Complaint, e.g., that as Cigna's public statements disclosed, the post-merger integration of HealthSpring was difficult. See Tellabs, 551 U.S. at 324 (a cogent inference of scienter must be "strong in light of other explanations"). The imperfect management of that integration is not securities fraud. See Boca Raton Firefighters & Police Pension Fund, 506 F. App'x at 36 (Section 10(b) "does not reach mere 'instances of corporate mismanagement.'") (citation omitted); see also C.D.T.S., 2013 WL 6576031, at *7 ("It is well established in the Second Circuit that Section 10(b) claims are not supported if the crux of the allegations is that a company was mismanaged; the allegations must allege 'manipulation or deception.'") (citation omitted). Moreover, the authorities on which Plaintiff relies simply explain the basic legal proposition that Appel's non-executive position does not preclude imputing his state of mind. Nothing in the pleadings or Plaintiff's brief explains why any knowledge attributable to Appel would suffice to create an inference of recklessness, let alone one that should be imputed to the company. Indeed, on these pleadings, the lack of individual scienter, on the part of any Defendant or anyone else, precludes an inference of corporate scienter. See, e.g., Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 195 (2d Cir. 2008) ("When the defendant is a corporate entity, this means that the pleaded facts must create a strong inference that someone whose intent could be imputed to the corporation acted with the requisite scienter."). 46 Case 17-3484, Document 56, 05/10/2018, 2299751, Page55 of 66 In addition, Plaintiff argues that the District Court improperly imposed an "actual intent" requirement. Br. at 47.21 But the District Court did no such thing. The District Court specifically found that the facts pled did not even create an inference of "heightened negligence," a lesser showing than recklessness. SPA47 (quoting S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 109 (2d Cir. 2009)). Indeed, Plaintiff appears to fundamentally misunderstand the District Court's reasoning in this respect. The Court's reasoning did not focus on whether the Defendants may have known about the Notices, but rather on the facts that Defendants are alleged to have known. See SPA47. As the District Court explained, even assuming knowledge or access to knowledge, "it is unclear how knowledge of these nine to 18 notices without acting upon them would be 'highly unreasonable' or an 'extreme departure from the standard of care. . . .'" SPA46. In other words, assuming Defendants' knowledge of the CMS Notices, the content 21 In support of his tortured logic, Plaintiff contends that the District Court's analysis resembled the Fourth Circuit ruling in Maguire Financial, L.P. v. PowerSecure International, Inc., 876 F.3d 541 (4th Cir. 2017), which, according to Plaintiff, found that "knowingly misleading investors" did not support an inference of scienter. Br. at 48. Plaintiff asserts that, in contrast, in this Circuit, "knowledge of facts without acting on them" raises a strong inference of scienter. Br. at 48. To be clear, the District Court neither cited Maguire, nor applied its analysis. Whatever the merits of the Maguire approach, the problem with Plaintiff's analogy is not only that the District Court found a lack of knowledge, but that the facts of which Defendants were allegedly aware (or should have been aware) – the handful of Notices – did not make the Company's statements inaccurate. SPA47. 47 Case 17-3484, Document 56, 05/10/2018, 2299751, Page56 of 66 of those Notices was not of such a character that any Defendant would have been reckless in making any subsequent, challenged statement. SPA46. Plaintiff also returns to the discredited "core operations" doctrine 22 in his effort to argue that the Defendants "must have known" that their statements were false. See Br. at 46 (citing "the central and continuing importance of HealthSpring to Company earnings"). The District Court specifically found that "[a] plaintiff [] cannot demonstrate scienter merely by 'noting that an area of business was vital to a company. . . .'" SPA46 (citation omitted). In any event, the importance of the Medicare business to Cigna's overall earnings does not equate to knowledge of compliance issues allegedly affecting that sector, and falls even farther short of intent to defraud. See Glaser, 772 F. Supp. 2d at 595 ("[T]hat an allegedly fraudulent statement concerned 'core operations,' standing alone, is insufficient to support strong circumstantial evidence of scienter."). Even applying the "core operations" doctrine, the Complaint did not allege that the HealthSpring sector, while important, was "essential" to "corporate survival" as required by the doctrine. Tyler, 814 F. Supp. 2d at 343-44 (16% of annual sales too small to 22 This Circuit has "not yet expressly addressed whether, and in what form, the 'core operations' doctrine survives as a viable theory of scienter" following the enactment of the PSLRA. Frederick v. Mechel OAO, 475 F. App'x 353, 356 (2d Cir. 2012); see also In re Rockwell Med., Inc. Sec. Litig., No. 16 Civ. 1691, 2018 WL 1725553, at *15 (S.D.N.Y. Mar. 30, 2018) (noting "doubts as to the doctrine's continuing import"). 48 Case 17-3484, Document 56, 05/10/2018, 2299751, Page57 of 66 invoke core operations doctrine); cf. JA81 (alleging that Medicare premiums account for 21-22% of Cigna's annual sales). 2. The District Court Correctly Determined that the Complaint's Confidential Witness Allegations Did Not Give Rise to a Strong Inference of Scienter Rejecting the Complaint's vague, conclusory (and largely irrelevant) confidential witness allegations, the District Court found that "[n]ot one confidential witness could speak to any Defendants' specific knowledge." SPA46- 47. The Court explained that none could "directly state 'what. . . Defendants knew, when they learned it, or from whom.'" SPA46 (citing BioScrip, 95 F. Supp. 3d at 739). Indeed, the Complaint's confidential witness allegations said nothing about what any Defendant knew. On appeal, Plaintiff seems to concede this shortfall in his pleadings, but still argues that "certain confidential witnesses do speak directly to Appel's knowledge and conduct." Br. at 50 (citing JA108-09 (Compl. ¶¶ 84, 86, 87, 89)). The four Complaint paragraphs that Plaintiff cites, however, do not contain a single alleged fact within Mr. Appel's knowledge, with the possible exception of a secondhand opinion that Mr. Appel "lack[ed] . . . substantive Medicare compliance experience."23 23 Rather, those paragraphs concern generalized assertions about the corporate environment. Paragraph 84, whose assertions are not attributed to any particular confidential witness, simply contends that Mr. Appel did not seek out legacy 49 Case 17-3484, Document 56, 05/10/2018, 2299751, Page58 of 66 In this Circuit, a confidential witness allegation is insufficient to allege the requisite "strong inference" of scienter unless it addresses a defendant's state of mind. See In re Elan Corp. Sec. Litig., 543 F. Supp. 2d 187, 220 (S.D.N.Y. 2008); see also Campo v. Sears Holdings Corp., 371 F. App'x 212, 217 (2d Cir. 2010) (confidential witness allegations did not give rise to a strong inference of scienter where witnesses did not know whether defendants "actually accessed or reviewed the reports" that may have undermined the challenged public statements); Glaser, 772 F. Supp. 2d at 591 ("[C]onfidential source allegations must show that individual defendants actually possessed the knowledge highlighting the falsity of public statements. . . mere allegations that the defendants 'would have' or 'should have' had such knowledge is insufficient."). "[E]ven confidential high level executives' statements will be insufficient absent some allegation that the witness communicated with the individual defendants claimed against in the case, or else that the witness was privy to the individual defendants' knowledge." Glaser, 772 F. Supp. 2d at 589-90. Applying these well-established principles, the District HealthSpring employees. JA108. In paragraph 86, CW 2 asserts that he/she only met with Mr. Appel once. JA108. Paragraph 87 mentions Mr. Appel in the context of an assertion about a different Cigna employee who replaced CW 2. JA108-09. And paragraph 89 notes that CW 4 considered Mr. Appel "a joke" but does not explain why. JA109. 50 Case 17-3484, Document 56, 05/10/2018, 2299751, Page59 of 66 Court correctly found that the confidential witness allegations "are inadequate as a matter of law." SPA47. Indeed, Plaintiff does not attempt to argue that any confidential witness – or his Complaint in general, for that matter – spoke directly to the knowledge of Messrs. Cordani, McCarthy, and Fritch, but simply relies on the CMS reporting requirement to presume knowledge. Br. at 50. The District Court properly rejected this argument. SPA46 ("Assuming Appel had a duty to report each and every CMS notice to senior management" – an obligation that differs from a more generalized reporting requirement – "it is unclear how knowledge of these [CMS] notices without acting upon them would be 'highly unreasonable' . . . .") (emphasis added). Finally, Plaintiff contends that he need not allege knowledge because the confidential witness allegations "show that the Individual Defendants fostered an environment that disabled Cigna's compliance programs and infrastructure and enabled the regulatory violations to occur." Br. at 50-51.24 But Plaintiff fails to 24 In support, Plaintiff relies on Employees' Retirement Systems of Government of the Virgin Islands v. Blanford, 794 F.3d 297, 302, 308 (2d Cir. 2015), but unlike here, in Blanford, the allegation of scienter was based on "motive," not solely "conscious misbehavior," i.e., the court found that the complaint alleged suspicious stock sales and "significant personal gain" on the part of the individual defendants. In addition, that case involved the observation of distinct efforts to mislead auditors and inflate financials to tell a "false growth story," while "executives [] discouraged questions about the inventory practices and ignored [] repeated complaints." Id. at 306-07. The blatant fraud in Blanford has no bearing 51 Case 17-3484, Document 56, 05/10/2018, 2299751, Page60 of 66 explain how that is sufficient to allege a strong inference of an intent to defraud. See Glaser, 772 F. Supp. 2d at 594 (confidential witness allegations "solely concerning the corporate environment," without reference to what any defendant knew, insufficient to allege scienter). Indeed, it is not. As the District Court found, the more cogent and compelling inference to be drawn from the confidential witness allegations (and indeed, from all of Plaintiff's allegations) about "corporate environment" is that the integration of two multi-billion dollar enterprises was difficult.25 SPA47 ("Defendants' proposed competing inference – that 'managerial errors eventually set the stage for CMS sanctions' – is highly probable particularly in light of [] Plaintiff's inability to provide compelling circumstantial evidence.") (emphasis added). Nothing in the confidential witness allegations overcomes the far more compelling inference of lack of intent. 3. The Revision of Statements in the 2014 Annual Report Does Not Raise a Compelling Inference of Scienter Plaintiff points to the replacement of a sentence in Cigna's 2014 10-K that had appeared in the 2013 10-K ("we have established policies and procedures to Plaintiff's far weaker allegation of "foster[ing] an environment that disabled [] compliance programs and infrastructure." Cf. Br. at 50-51. 25 As noted, Cigna warned that this could be the case in its 2011 annual report. See SPA3 (citing JA533) ("The integration [of HealthSpring] may be complex, costly, and time-consuming" and listing several "potential difficulties," including "unanticipated issues in integrating logistics, information, communications and other systems"). 52 Case 17-3484, Document 56, 05/10/2018, 2299751, Page61 of 66 comply with applicable requirements") and argues that the change "raises a compelling inference" that the sentence was false when published in the 2013 10- K. Br. at 51. Far from a compelling inference, this is abject conjecture disconnected from the factual record. First, as discussed above, the "we have established" sentence was replaced by a paragraph that presented a more detailed and fulsome discussion of the changing regulatory environment that Cigna faced. Compare JA215, with JA196; see also section I.A.2, supra.26 The far more compelling inference to be drawn from the changed language is that Cigna updated and improved the clarity of its compliance-related disclosures. See Kuriakose, 897 F. Supp. 2d at 185 ("It defies logic to conclude that executives who are seeking to perpetrate fraudulent information upon the market would make such fulsome disclosures."); compare Janbay, 2012 WL 1080306, at *14 (correction of financial statements insufficient to raise inference of scienter). Second, Plaintiff posits that Cigna deleted the "we have established" language from the 2013 10-K because that sentence was untrue, only to replace it with "still misleading" language about Cigna's compliance regime in the 2014 10- 26 The 2014 10-K retained disclosures about the allocation of resources to Cigna's compliance program – a necessary corollary of which is the existence of that program, consistent with the 2013 disclosure. JA200. 53 Case 17-3484, Document 56, 05/10/2018, 2299751, Page62 of 66 K. Br. at 52. Plaintiff does not and cannot explain how such a change could possibly benefit Cigna or otherwise suggest an intent to deceive its shareholders. This is a far cry from a "compelling inference" of scienter. Finally, as described above in Part I.A.2, Plaintiff points to no allegation that supports a conclusion that the original (2013) sentence was false when made, so no inference of scienter could follow. Fishbaum v. Liz Claiborne, Inc., 189 F.3d 460, at *5 (2d Cir. 1999) (where plaintiff argued that defendants were reckless by "making statements wholly inconsistent with the Company's state of affairs," the district court's finding that plaintiff failed to plead a false statement likewise defeated scienter). III. THE DISTRICT COURT CORRECTLY DISMISSED THE CONTROL PERSON CLAIMS The Complaint asserted a claim for control person liability against Defendants Cordani, McCarthy, and Appel under Section 20(a) of the Exchange Act. The District Court correctly dismissed these claims because the Complaint did not plead a primary violation under Section 10(b) (see SPA52), and that dismissal should be affirmed. See Harris v. AmTrust Fin. Servs., Inc., 649 F. App'x 7, 10 (2d Cir. 2016) (a claim under Exchange Act Section 20(a) is properly dismissed when a complaint fails to plead a primary violation); see also ECA, Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 207 (2d Cir. 2009) (Section 20(a) claims "must also fail" where plaintiffs 54 Case 17-3484, Document 56, 05/10/2018, 2299751, Page63 of 66 failed to state a claim under Section 10(b)); ATSI Commc'ns, Inc., 493 F.3d at 108 (affirming district court dismissal of Section 20(a) claim where appellant failed to allege any primary violation). The District Court's judgment dismissing these claims can independently be affirmed because Plaintiff has not identified any allegation demonstrating the other elements of a "control person" claim. Specifically, Plaintiff does not argue that he has alleged "culpable participation" by Defendants Cordani, McCarthy, or Appel, as the Complaint contains no "particularized facts of [their] conscious misbehavior or recklessness." Special Situations Fund III QP, L.P. v. Deloitte Touche Tohmatsu CPA, Ltd., 33 F. Supp. 3d 401, 438 (S.D.N.Y. 2014); see In re NQ Mobile, Inc. Sec. Litig., No. 13 Civ. 7608, 2015 WL 1501461, at *4 (S.D.N.Y. Mar. 27, 2015) ("[A] plaintiff must allege "culpable participation" and plead that element with particularity."); see also SPA44-47 (finding Plaintiff did not adequately allege conscious misbehavior or recklessness).27 27 Plaintiff's Section 20(a) claim is defective for the additional reason that he has failed to plead that Appel had any ability to control any primary violator. To plead "control" under Section 20(a), one "must allege that the defendant possessed the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract, or otherwise." In re NQ Mobile, Inc. Sec. Litig., 2015 WL 1501461, at *2 (citation omitted). 55 Case 17-3484, Document 56, 05/10/2018, 2299751, Page64 of 66 CONCLUSION For the reasons described herein, the District Court's decision dismissing this action with prejudice should be affirmed. May 10, 2018 Respectfully submitted, /s/ Andrew W. Stern ___________________ Andrew W. Stern James O. Heyworth Francesca E. Brody SIDLEY AUSTIN LLP 787 Seventh Avenue New York, New York 10019 (212) 839-5300 Attorneys for Defendants-Appellees Cigna Corp., David Cordani, Thomas A. McCarthy, Herbert Fritch, Richard Appel 56 Case 17-3484, Document 56, 05/10/2018, 2299751, Page65 of 66 CERTIFICATE OF COMPLIANCE 1. This brief complies with the word limit of Rule 32(a)(7)(B) of the Federal Rules of Appellate Procedure, as modified by Local Rule 32.1(a)(4)(A) because, excluding the parts of the document exempted by Rule 32(f) of the Federal Rules of Appellate Procedure, this brief contains 13,166 words. 2. This brief complies with the typeface requirements of Rule 32(a)(5) of the Federal Rules of Appellate Procedure and the type-style requirements of Rule 32(a)(6) of the Federal Rules of Appellate Procedure because this brief has been prepared in a proportionally spaced typeface using Microsoft Word 2016 in 14- point Times New Roman font. Dated: May 10, 2018 /s/ Andrew W. Stern ___________________ Andrew W. Stern Attorney for Defendants-Appellees Cigna Corp., David Cordani, Thomas A. McCarthy, Herbert Fritch, Richard Appel Case 17-3484, Document 56, 05/10/2018, 2299751, Page66 of 66 CERTIFICATE OF SERVICE I hereby certify that on this 10th day of May 2018, I electronically filed and served the foregoing brief using the CM/ECF System. /s/ Andrew W. Stern Andrew W. Stern Attorney for Defendants-Appellees Cigna Corp., David Cordani, Thomas A. McCarthy, Herbert Fritch, Richard Appel

ORAL ARGUMENT STATEMENT LR 34.1 (a), on behalf of filer Attorney Mr. Andrew W. Stern, Esq. for Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, FILED. Service date 05/21/2018 by CM/ECF. [2308156] [17-3484] [Entered: 05/21/2018 06:42 PM]

Case 17-3484, Document 59, 05/21/2018, 2308156, Page1 of 1 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT ORAL ARGUMENT STATEMENT (Local Rule 34.1(a)) TO REQUEST ORAL ARGUMENT, FILL OUT THIS FORM AND FILE IT WITH THE CLERK WITHIN 14 DAYS AFTER THE FILING OF THE LAST APPELLEE BRIEF. IF THIS FORM IS NOT TIMELY FILED, YOU WILL NOT BE PERMITTED TO ARGUE IN PERSON. Short Title of Case: Singh v. Cigna Corp. Docket No.: 17-3484 Name of Party: Cigna Corp., David Cordani, Thomas A. McCarthy, Herbert Fritch, Richard Appel Status of Party (e.g., appellant, cross-appellee, etc.): Appellees Check one of the three options below: ✔ I want oral argument. An attorney whose preference depends on whether other attorneys will argue should consider conferring before I want oral argument only if requesting argument. After the appeal has been at least one other party does. scheduled for oral argument, a motion by counsel to forgo oral argument, even on consent, may be denied. I do not want oral argument. If no party wants oral argument, the case will be decided on the basis of the written briefs. If you want oral argument, you must appear in Court on the date set by the Court for oral argument. The Court may determ ine to decide a case without oral argument even if the parties request it. If you want oral argument, state the name of the person who will argue: Name: Andrew W. Stern (An attorney must be admitted to practice before the Court in accordance with Local Rule 46.1.) If you want oral argument, list any dates (including religious holidays), that fall in the interval from 6 to weeks after the due date of this form, that the person who will argue is not available to appear in Court: 7/05/2018, 7/06/2018, 7/16/2018 - 8/14/2018, 9/08/2018, 9/13/2018 - 9/18/2018 $1<21(:+2:$176 72 $5*8(0867 83'$7(7+(&2857,1:5,7,1* 2) $1< &+$1*(,1 $9$,/$%,/,7< 7+(&2857 0$< &216,'(5 $)$,/85(72 83'$7($%287 $9$,/$%,/,7<:+(1 '(&,',1* $ 027,21 72 3267321($ 6(7 $5*80(17 '$7(. Filed by: Print Name: Andrew W. Stern Date: 5/21/2018 Signature: /s/ Andrew W. Stern 5HYLVHG 'HFHPEHU

REPLY BRIEF, on behalf of Appellant Minohor Singh, FILED. Service date 05/24/2018 by CM/ECF. [2310647] [17-3484] [Entered: 05/24/2018 11:49 AM]

Case 17-3484, Document 63, 05/24/2018, 2310647, Page1 of 37 17-3484 d IN THE United States Court of Appeals FOR THE SECOND CIRCUIT MINOHOR SINGH, Lead Plaintiff-Appellant, JYOTINDRA PATEL, Individually and On Behalf of All Others Similarly Situated, Plaintiff, —against— CIGNA CORP., DAVID CORDANI, THOMAS A. MCCARTHY, HERBERT FRITCH, RICHARD APPEL, Defendants-Appellees. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT REPLY BRIEF FOR LEAD PLAINTIFF-APPELLANT JAMES W. JOHNSON DAVID J. GOLDSMITH MICHAEL H. ROGERS JAMES T. CHRISTIE LABATON SUCHAROW LLP 140 Broadway New York, New York 10005 (212) 907-0700 Attorneys for Lead Plaintiff-Appellant Case 17-3484, Document 63, 05/24/2018, 2310647, Page2 of 37 TABLE OF CONTENTS Page Table of Authorities ................................................................................................. iii INTRODUCTION .....................................................................................................1 ARGUMENT .............................................................................................................4 I. THE DISTRICT COURT ERRONEOUSLY FOUND THAT PLAINTIFFS DID NOT SUFFICIENTLY PLEAD MATERIAL MISSTATEMENTS ....................................................4 A. Defendants' Representations About CMS Compliance Were Materially Misleading .............................................4 1. The Court Can Reasonably Infer That Cigna's CMS Compliance Programs and Infrastructure Were Ineffective Before March 2015 .........................................4 2. Cigna Assured a Reasonable Degree of Compliance With CMS Requirements ...................................9 3. Cigna's Deletion of "Policies and Procedures" Supports Falsity ....................................................13 4. Cigna's Risk Disclosures Do Not Render the Misstatements Immaterial ......................................14 5. The Retraction Notices Support Materiality .............................16 B. The Code of Ethics Statements Are Actionable..................................16 II. THE DISTRICT COURT ERRONEOUSLY FOUND THAT PLAINTIFFS DID NOT SUFFICIENTLY PLEAD A STRONG INFERENCE OF SCIENTER ....................................17 A. Plaintiffs Allege Defendants' Knowledge of Facts or Access to Information Contradicting Their Public Statements ......................................................................17 Case 17-3484, Document 63, 05/24/2018, 2310647, Page3 of 37 B. The District Court Effectively Imposed an Actual Intent Standard ....................................................................21 C. Plaintiffs' Confidential Witness Allegations Support an Inference of Scienter .........................................................22 D. Cigna's Deletion of "Policies and Procedures" Undermines Any Inference of Benign Intent ......................................24 III. THE DISTRICT COURT MISUNDERSTOOD THE OPERATION OF THE PSLRA DISCOVERY STAY .................................26 IV. REMAND IS APPROPRIATE ON PLAINTIFFS' CONTROL-PERSON LIABILITY CLAIMS ...............................................28 CONCLUSION ........................................................................................................29 ii Case 17-3484, Document 63, 05/24/2018, 2310647, Page4 of 37 TABLE OF AUTHORITIES Page(s) Cases Asher v. Baxter International Inc., 377 F.3d 727 (7th Cir. 2004) .............................................................................. 15 In re Australia & New Zealand Banking Group Ltd. Securities Litigation, No. 08 Civ. 11278 (DLC), 2009 WL 4823923 (S.D.N.Y. Dec. 14, 2009) .................................................... 12 Baker v. Dorfman, 239 F.3d 415 (2d Cir. 2000) ............................................................................... 28 In re Barrick Gold Securities Litigation, No. 13 Civ. 3851 (SAS), 2015 WL 1514597 (S.D.N.Y. Apr. 1, 2015) ................................................11, 18 In re BioScrip, Inc. Securities Litigation, 95 F. Supp. 3d 711 (S.D.N.Y. 2015) ............................................................ 10-11 Christine Asia Co. v. Ma, 718 F. App'x 20 (2d Cir. 2017) .......................................................................... 15 City of Providence v. BATS Global Markets, Inc., 878 F.3d 36 (2d Cir. 2017) ................................................................................. 28 Employees' Retirement System of Government of the Virgin Islands v. Blanford, 794 F.3d 297 (2d Cir. 2015) ......................................................................... 23-24 In re FBR Inc. Securities Litigation, 544 F. Supp. 2d 346 (S.D.N.Y. 2008) ................................................................ 12 Glaser v. The9, Ltd., 772 F. Supp. 2d 573 (S.D.N.Y. 2011) ................................................................ 23 Halliburton Co. v. Erica P. John Fund, Ltd., 134 S. Ct. 2398 (2014) ........................................................................................ 21 iii Case 17-3484, Document 63, 05/24/2018, 2310647, Page5 of 37 In re Hi-Crush Partners L.P. Securities Litigation, No. 12 Civ. 8557 (CM), 2013 WL 6233561 (S.D.N.Y. Dec. 2, 2013) ................................................ 20-21 Iowa Public Employees' Retirement System v. MF Global, Ltd., 620 F.3d 137 (2d Cir. 2010) ......................................................................... 5-6, 7 Janbay v. Canadian Solar, Inc., No. 10 Civ. 4430 (RWS), 2012 WL 1080306 (S.D.N.Y. Mar. 30, 2012) .................................................... 14 Kleinman v. Elan Corp., 706 F.3d 145 (2d Cir. 2013) ............................................................................... 12 Menaldi v. Och-Ziff Capital Management Group LLC, 277 F. Supp. 3d 500 (S.D.N.Y. 2017) ................................................................ 12 Meyer v. JinkoSolar Holdings Co., 761 F.3d 245 (2d Cir. 2014) ...............................................................9, 10, 11, 15 New Orleans Employees Retirement System v. Celestica, Inc., 455 F. App'x 10 (2d Cir. 2011) .................................................................... 19, 20 Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) ............................................................................... 22 Pirnik v. Fiat Chrysler Automobiles, N.V., No. 15-CV-7199 (JMF), 2016 WL 5818590 (S.D.N.Y. Oct. 5, 2016) ...................................... 18-19, 19-20 Richman v. Goldman Sachs Group, Inc., 868 F. Supp. 2d 261 (S.D.N.Y. 2012) .......................................................... 16-17 Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) ............................................................................... 15 Rothman v. Gregor, 220 F.3d 81 (2d Cir. 2000) ................................................................................... 6 iv Case 17-3484, Document 63, 05/24/2018, 2310647, Page6 of 37 In re Salix Pharmaceuticals, Ltd., No. 14-CV-8925 (KMW), 2016 WL 1629341 (S.D.N.Y. Apr. 22, 2016) ..............................................20, 25 SEC v. Gabelli, 653 F.3d 49 (2d Cir. 2011), rev'd on other grounds, 568 U.S. 442 (2013) ............................................................... 9-10 Singleton v. Wulff, 428 U.S. 106 (1976) ............................................................................................ 28 South Cherry Street, LLC v. Hennessee Group LLC, 573 F.3d 98 (2d Cir. 2009) ................................................................................. 22 Teamsters Local 445 Freight Division Pension Fund v. Dynex Capital Inc., 531 F.3d 190 (2d Cir. 2008) .........................................................................17, 18 Tyler v. Liz Claiborne, Inc., 814 F. Supp. 2d 323 (S.D.N.Y. 2011) .................................................................. 7 In re UBS AG Securities Litigation, No. 07 Civ. 11225 (RJS), 2012 WL 4471265 (S.D.N.Y. Sept. 28, 2012) ................................................... 12 In re Vivendi Universal, S.A. Securities Litigation, 765 F. Supp. 2d 512 (S.D.N.Y. 2011), aff'd, 838 F.3d 223 (2d Cir. 2016) ........................................................................ 6 In re Vivendi Universal, S.A. Securities Litigation, 381 F. Supp. 2d 158 (S.D.N.Y. 2003) .................................................................. 6 Statute Securities Exchange Act of 1934 § 21D(b)(3)(B), 15 U.S.C. § 78u-4(b)(3)(B) ...................................................... 26 v Case 17-3484, Document 63, 05/24/2018, 2310647, Page7 of 37 INTRODUCTION Cigna's brief confirms that the district court's dismissal of the Complaint cannot be sustained on de novo review. Defendants premise much of their argument on the notion that Cigna never assured investors of 100% regulatory compliance, and that the Company's alleged misrepresentations about having "policies and procedures" to comply with CMS requirements and "allocating significant resources" to compliance were literally true. Plaintiffs have not argued that Cigna guaranteed perfect compliance, however (even though HealthSpring had boasted such a record before the acquisition), and courts routinely reject this type of hair-splitting at the pleading stage. Cigna's notable deletion of its "policies and procedures" representation from the 2014 Form 10-K also supports an inference of falsity, and the generic "replacement" language did nothing to fill the gap. Nor did Cigna's plain-vanilla risk factor concerning potential regulatory action. A reasonable investor could conclude from Cigna's representations that the Company maintained at least a reasonable degree of compliance with CMS requirements, and Defendants do not assert otherwise. Defendants essentially concede that the facts alleged in the Complaint raise an inference that Cigna's CMS compliance programs and infrastructure were Case 17-3484, Document 63, 05/24/2018, 2310647, Page8 of 37 ineffective before March 2015.1 Defendants' attempt to portray the Complaint as an example of "fraud by hindsight" is without merit given the significant events between 2012 and 2015 referenced in the January 2016 CMS Letter, some of which are corroborated in the Complaint. With regard to the district court's materiality analysis, the Opinion below makes plain that regulatory violations during the misstatement period were found to be not "ongoing and substantial" based on little more than a hindsight comparison of the number of CMS Notices received as of the end of the misstatement period versus the Class Period. The undisputed fact that the totality of compliance violations referenced in the CMS Letter were material does not mean that the existing violations during the misstatement period were immaterial. As for scienter, Defendants attempt to distinguish between the Individual Defendants' knowledge of and access to the Notices, but the standard for pleading recklessness makes no such distinction, and the Complaint clearly raises an inference of knowledge owing to Defendant Appel's receipt of the Notices and CMS's detailed intracompany reporting requirements. 1 The Class Period is February 27, 2014 through August 2, 2016. JA78, 147 (p. 1, ¶ 190). The "misstatement period," or subperiod between the first and last allegedly false and misleading statements, is February 27, 2014 through February 26, 2015, when Cigna filed its 2013 and 2014 Form 10-K reports. JA121, 126 (¶¶ 119, 131). 2 Case 17-3484, Document 63, 05/24/2018, 2310647, Page9 of 37 Defendants' argument that the noncompliance information did not contradict Cigna's public statements is an attempt to reargue falsity and materiality under the guise of scienter, and ignores many of Plaintiffs' scienter allegations. Their effort to defend the district court's reasoning on scienter is equally illogical. Either the district court, in electing to address scienter, assumed that Plaintiffs sufficiently pleaded material misrepresentations—in which case the district court erroneously found that Defendants' knowledge or access to information contradicting their public statements did not raise an inference of recklessness—or the district court effectively and erroneously held Plaintiffs to a standard of establishing actual intent to defraud. In view of Cigna's deliberate deletion of the "policies and procedures" language from the 2014 Form 10-K, Defendants say little to support their proffered nonculpable inference of "managerial errors." And Defendants do not come close to showing that a benign inference is more compelling than an inference of fraud. The parties' arguments should be considered against the backdrop of the district court's misunderstanding of the operation of the PSLRA discovery stay here. Although Defendants assert that "nothing" in the Opinion reflects this misunderstanding, the Opinion reiterates, among other things, the district court's view that "Defense counsel posited that discovery had been ongoing for several months[.]" SPA53. 3 Case 17-3484, Document 63, 05/24/2018, 2310647, Page10 of 37 Finally, remand is appropriate on the sufficiency of Plaintiffs' control- person liability claims, which the district court did not substantively address. The Opinion and Judgment below should be reversed in part, and the case remanded for further proceedings. ARGUMENT I. THE DISTRICT COURT ERRONEOUSLY FOUND THAT PLAINTIFFS DID NOT SUFFICIENTLY PLEAD MATERIAL MISSTATEMENTS A. Defendants' Representations About CMS Compliance Were Materially Misleading 1. The Court Can Reasonably Infer That Cigna's CMS Compliance Programs and Infrastructure Were Ineffective Before March 2015 Plaintiffs argue in the principal brief that the district court's "immateriality by hindsight" approach—finding that the pre-misstatement regulatory violations were immaterial based on the totality of violations referenced in the CMS Letter— was improper, and that the district court should have assessed whether the facts before March 2015 raise an inference that Cigna's compliance programs and infrastructure were as bad as they were when CMS imposed sanctions in January 2016. Plaintiffs asserted that this approach is congruent with avoiding "fraud by hindsight" claims. See Brief and Special Appendix for Lead Plaintiff-Appellant ("Prin. Br.") at 33-36. 4 Case 17-3484, Document 63, 05/24/2018, 2310647, Page11 of 37 In contesting such an inference, Defendants say nothing about the facts alleged in the Complaint, but suggest that Plaintiffs' backward-looking reference to "circumstances as they were known in 2016" improperly pleads fraud by hindsight. Brief for Defendants-Appellees ("Defs. Br.") at 33. Defendants are wrong. The CMS Letter is dated January 21, 2016, but references earlier events that informed the agency's findings and decision to impose sanctions. These included: (a) "Cigna's acquisition of HealthSpring, Inc. in 2012, which. . . contributed to creating an organizational structure that is decentralized and fragmented"2; (b) the Notice of Non-Compliance Cigna received in 2013 "for failing to process Part D coverage determinations and redeterminations within the required timeframes"; (c) the Warning Letter that Cigna "again" received "in 2015 for these same violations"; and (d) CMS's October 5-20, 2015 on-site audit. JA166, 169 (CMS Letter annexed to Complaint); JA115-16 (¶¶ 106, 110). These facts, some of which are corroborated in the Complaint, see JA111- 13, 115, 119-21 (¶¶ 93-100, 107, 117), show that Plaintiffs have not pleaded fraud by hindsight. See Iowa Pub. Emps.' Ret. Sys. v. MF Glob., Ltd., 620 F.3d 137, 143 n.13 (2d Cir. 2010) (district court's conclusion that disclosure of risk management problems in February 2008 says nothing about state of affairs in July 2007 "fails to draw a reasonable inference in the plaintiffs' favor. Depending on the problem, its 2 Throughout this brief, emphases in quotations are added unless otherwise noted. 5 Case 17-3484, Document 63, 05/24/2018, 2310647, Page12 of 37 existence in February 2008 may support an inference that it was present six months earlier. This is sufficient to raise [the plaintiffs'] right to relief above the speculative level.") (internal quotation marks omitted); In re Vivendi Universal, S.A. Sec. Litig., 381 F. Supp. 2d 158, 181 (S.D.N.Y. 2003) ("The Second Circuit has explicitly recognized that plaintiffs may 'rel[y] on post-class period data to confirm what a defendant should have known during the class period.'") (quoting In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 72 (2d Cir. 2001)); Rothman v. Gregor, 220 F.3d 81, 92 (2d Cir. 2000) (drawing class period inferences from end of class period and post-class period events).3 Defendants' attempt to distinguish In re Vivendi Universal, S.A. Securities Litigation, 765 F. Supp. 2d 512 (S.D.N.Y. 2011), aff'd, 838 F.3d 223 (2d Cir. 2016), is unpersuasive. See Defs. Br. at 32 n.12. Because this is a post-trial decision as Defendants note, the court applied a standard of review higher than that applicable here. 765 F. Supp. 2d at 535. Moreover, Defendants' proffered factual distinctions are irrelevant. In view of CMS's tracing of the entire problem to the 2012 HealthSpring acquisition, among other facts, this Court can infer that 3 Plaintiffs also point to confidential witness averments describing facts on the ground as of early 2013, a year after the acquisition closed and before the misstatement period, further supporting an inference that Cigna's compliance programs and infrastructure were ineffective as of then. See Prin. Br. at 35-36. Thus, Defendants' wishful assertion aside, Plaintiffs continue to rely on their confidential witness allegations in support of falsity. Prin. Br. at 8-11, 35-36; see Defs. Br. at 34 n.14. 6 Case 17-3484, Document 63, 05/24/2018, 2310647, Page13 of 37 Cigna's compliance was a mess long before CMS came on-site in October 2015. See MF Glob., 620 F.3d at 143 n.13; cf. Tyler v. Liz Claiborne, Inc., 814 F. Supp. 2d 323, 340 (S.D.N.Y. 2011) (declining to infer knowledge of order cuts as of February 2007 because "the July 31, 2007 New York Times article on which the [complaint] heavily relies, stated that Macy's order cuts occurred in April 2007, not in February") (emphasis in original) (cited by Defendants). In a footnote, Defendants argue that Plaintiffs' "immateriality by hindsight" criticism is flawed because the district court was concerned more with the content of the Notices than their numbers. Defs. Br. at 34 n.13. Regardless of the precise weight the district court may have given to quality versus quantity, the district court undeniably took the collective Notices preceding the CMS Letter and compared them to the subset of Notices that Cigna received before the end of the misstatement period. After finding that the totality of violations forming the basis of the CMS Letter was material, the district court found that the existing violations during the misstatement period were not material based on little more than the comparative volumes of Notices. SPA32-34; see Prin. Br. at 33-34.4 Defendants 4 Among the 74 Notices issued to Cigna before the CMS Letter, 10 preceded the filing of the 2014 Form 10-K. See Prin. Br. at 11-12. The Opinion states in conclusory form that the Complaint did not "set forth the content of these [pre- misstatement] notices or state in what way they would be material other than by volume." SPA30. Plaintiffs sufficiently alleged the content and materiality of these Notices, however, including several that the district court overlooked. JA119-21 (¶¶ 117-118); Prin. Br. at 19 n.8. 7 Case 17-3484, Document 63, 05/24/2018, 2310647, Page14 of 37 do not dispute that the district court's focus on the Notices excluded any broader consideration of when Cigna's Medicare compliance programs and infrastructure were ineffective. Consistent with the district court's focus, Defendants seek to downplay the meaning of CMS Notices, insisting that they are "not sanctions or penalties," "not akin to an investigation," and "not an indication of imminent pecuniary loss." Defs. Br. at 31 (emphases in original). These assertions should not be credited where, as this case shows, CMS Notices can lead to all four. See JA166 ("Summary of Noncompliance. . . CMS conducted an audit of Cigna's Medicare operations from October 5, 2015 through October 20, 2015.") (CMS Letter); SPA33-34 ("Upon receiving immediate intermediate sanctions, Cigna was prohibited from enrolling Medicare beneficiaries onto Cigna contracts and from marketing to Medicare beneficiaries. . . . The inability to market and grow this extremely large source of revenue constitutes a substantial threat to earnings."). In any event, the individual Notices themselves were not the real problem for Cigna investors. The Notices were symptomatic of—and, as discussed in Part II.A below, put the Individual Defendants on notice of—Cigna's serious underlying (and undisclosed) problem: "Cigna's lack of an effective compliance infrastructure (specifically related to its monitoring and internal controls)." JA173 (CMS Letter). 8 Case 17-3484, Document 63, 05/24/2018, 2310647, Page15 of 37 2. Cigna Assured a Reasonable Degree of Compliance With CMS Requirements Cigna defends the accuracy of the challenged representations first by arguing that the Company did not guarantee 100% compliance with CMS requirements. Defs. Br. at 21-22. Plaintiffs have not argued that Cigna promised 100% compliance, however, nor that Cigna had an obligation to meet such a standard. Indeed, Plaintiffs acknowledged this Court's observation in Meyer v. JinkoSolar Holdings Co., 761 F.3d 245, 251 (2d Cir. 2014), that companies generally do not "guarantee 100% compliance 100% of the time" and that such compliance is often unobtainable. Even so, as alleged in the Complaint, HealthSpring maintained 100% CMS compliance before the acquisition—placing responsibility for Cigna's myriad compliance failures solely upon Cigna's shoulders. See Prin. Br. at 36 n.11. Next, Defendants argue that the alleged misstatements were literally true— that Cigna had policies and procedures to comply with CMS regulations, expected to continue to allocate significant resources to compliance, and did allocate significant resources—and the facts alleged in the Complaint do not show otherwise. Defs. Br. at 22-23. "The law is well settled," however, "that so-called 'half-truths'—literally true statements that create a materially misleading impression—will support claims for securities fraud." SEC v. Gabelli, 653 F.3d 9 Case 17-3484, Document 63, 05/24/2018, 2310647, Page16 of 37 49, 57 (2d Cir. 2011), rev'd on other grounds, 568 U.S. 442 (2013); see Prin. Br. at 32-33.5 Even if the alleged misstatements fall into this category, the Court should have little difficulty concluding that they "gave comfort to investors that reasonably effective steps were being taken to comply with applicable [CMS] regulations."6 JinkoSolar, 761 F.3d at 251. Although Cigna did not explicitly state that it was "in compliance" or "in substantial compliance" with CMS requirements, a reasonable investor would understand the statement "[w]e have established policies and procedures to comply with applicable requirements," under the heading "Regulation," JA121-22 (¶ 120), to mean not only that such policies and procedures were in place, but also that Defendants were adhering to them and achieving at least a reasonable degree of compliance as a result. See In re 5 As Defendants well know, the basis for the duty of full disclosure here arises from Cigna's decision to speak about CMS compliance. "Even when there is no existing independent duty to disclose information, once a company speaks on an issue or topic, there is a duty to tell the whole truth." JinkoSolar, 761 F.3d at 250; see Defs. Br. at 22 n.9. Defendants do not dispute that Cigna chose to speak or that Cigna thereby had a duty to speak truthfully and completely. 6 CMS's findings suggest that Cigna in fact lacked appropriate "policies and procedures." Cigna's violations of compliance program requirements included "[f]ailure to establish and implement a formal risk assessment program and an effective system for routine monitoring and auditing of identified compliance risks," "[f]ailure to have an effective monitoring and auditing work plan that addresses risk associated with Medicare Part C and D benefits," and "[f]ailure to maintain thorough documentation of all deficiencies identified and corrective action taken." JA172 (CMS Letter). These and other findings suggest in turn that Cigna was not allocating significant resources to compliance. 10 Case 17-3484, Document 63, 05/24/2018, 2310647, Page17 of 37 BioScrip, Inc. Sec. Litig., 95 F. Supp. 3d 711, 728 (S.D.N.Y. 2015) (upholding falsity of "[w]e believe we have procedures in place to ensure the accuracy of our claims"); In re Barrick Gold Sec. Litig., No. 13 Civ. 3851 (SAS), 2015 WL 1514597, at *11 n.141 (S.D.N.Y. Apr. 1, 2015) (upholding falsity of "the company has put in place a range of measures to mitigate the potential impact of dust emissions on glaciers"). Notably, Cigna did not disclose that "the integration of two multi-billion dollar enterprises was difficult" (Defs. Br. at 52), or that a "breakdown in its operations had made it difficult for Cigna to adequately monitor and oversee whether it is in compliance with the Medicare Parts C and D requirements."7 JA166 (CMS Letter); see also Part I.A.4 below. The same is true of Cigna's representation, under the heading "Medicare Regulations," that "we expect to continue to allocate significant resources to our compliance. . . programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs," and similar statements. JA122-23, 126-27 (¶¶ 121-122, 133-134). While it may appear clear from this statement in hindsight that "Cigna [was] aware its compliance need[ed] to improve," SPA29, a reasonable investor would not have understood this at the 7 Disclosing that the integration of HealthSpring "may be complex, costly and time-consuming," and could involve "potential difficulties" and "unanticipated issues," Defs. Br. at 52 n.25, wasn't the same thing. See JinkoSolar, 761 F.3d at 251 ("Th[e] misleading omission is not cured by the additional statement that non- compliance with the environmental regulations may be very costly."). 11 Case 17-3484, Document 63, 05/24/2018, 2310647, Page18 of 37 time. He or she would have understood instead that CMS compliance was a priority for Cigna following the HealthSpring acquisition, and that the Company was maintaining at least a reasonable degree of compliance. Put differently, the Court cannot find at this stage that no reasonable investor would conclude that Cigna was maintaining at least a reasonable degree of CMS compliance. See Kleinman v. Elan Corp., 706 F.3d 145, 153 (2d Cir. 2013) ("Even a statement which is literally true, if susceptible to quite another interpretation by the reasonable investor, may properly be considered a material misrepresentation."). The Medicare-specific nature of Cigna's compliance representations distinguish them from the generalized "milquetoast corporate-speak" rejected in Menaldi v. Och-Ziff Capital Management Group LLC, 277 F. Supp. 3d 500, 513 (S.D.N.Y. 2017), and other cases on which Defendants rely.8 8 See In re UBS AG Sec. Litig., No. 07 Civ. 11225 (RJS), 2012 WL 4471265, at *34-35 (S.D.N.Y. Sept. 28, 2012) (code of ethics and conduct statements dismissed as puffery); In re FBR Inc. Sec. Litig., 544 F. Supp. 2d 346, 360 (S.D.N.Y. 2008) (generalized company-wide compliance program); In re Australia & N.Z. Banking Grp. Ltd. Sec. Litig., No. 08 Civ. 11278 (DLC), 2009 WL 4823923, at *14 (S.D.N.Y. Dec. 14, 2009) ("equity finance practices" not subject of generalized misrepresentations alleged); Defs. Br. at 23-24, 26-27 n.10. Additionally, in Menaldi, unlike here, the defendant company expressly warned that its "policies and procedures may not be effective in all instances to prevent violations." 277 F. Supp. 3d at 513. 12 Case 17-3484, Document 63, 05/24/2018, 2310647, Page19 of 37 3. Cigna's Deletion of "Policies and Procedures" Supports Falsity Cigna's representation in the 2013 Form 10-K that "[w]e have established policies and procedures to comply with applicable requirements" was not "replaced" or "updated" in the 2014 Form 10-K. Defs. Br. at 28-29. In contrast to the alleged misrepresentation, the "replacement" language was barely Company- specific, let alone specific to Cigna's Medicare compliance policies and procedures.9 The language added nothing material to the 2013 Form 10-K disclosure concerning Cigna's regulatory environment, and did not necessitate the deletion of the "policies and procedures" representation. To the extent this representation was "replaced," the replacement was entirely nonsubstantive, and Defendants provide no credible explanation for it. The bottom line is that Cigna represented in its 2013 Form 10-K that the Company had policies and procedures to comply with applicable requirements, and in filing its 2014 Form 10-K—which, like the 2013 Form 10-K, was signed and certified by Defendants Cordani and McCarthy—Cigna chose not to make that 9 "We are regulated by state, federal and international regulatory agencies that generally have discretion to issue regulations and interpret and enforce laws and rules. These regulations can vary significantly from jurisdiction to jurisdiction, and the interpretation of existing laws and rules also may change periodically. Domestic and international governments continue to enact and consider various legislative and regulatory proposals that could materially impact the health care system. See 'Regulatory and Legislative Developments' on page 13." JA196 (2014 Form 10-K); cf. JA215 (2013 Form 10-K). 13 Case 17-3484, Document 63, 05/24/2018, 2310647, Page20 of 37 representation. JA121-23, 126-27, 139 (¶¶ 119-120, 123-124, 131, 135, 170). This change in disclosure not only was material on its face, but also followed Cigna's receipt of multiple additional Notices during 2014 and early 2015 that put Defendants on further notice of the fundamental weaknesses in the Company's compliance programs and infrastructure. JA119-21 (¶ 117). Plaintiffs therefore should be accorded an inference of falsity as to both Form 10-Ks. See Prin. Br. at 37-38.10 4. Cigna's Risk Disclosures Do Not Render the Misstatements Immaterial Defendants point to cautionary language in the Form 10-Ks disclosing essentially that Cigna is often the subject of reviews, audits, and investigations by CMS and various state and foreign government authorities, and that these regulatory actions "could" have results that "could" have a material adverse effect on Cigna's business. Defs. Br. at 12-13, 27-28; JA203 (2014 Form 10-K), JA222 (2013 Form 10-K). Nothing in Cigna's generalized disclosures warned investors that its Medicare compliance programs and infrastructure could be ineffective, let alone 10 The court in Janbay v. Canadian Solar, Inc., No. 10 Civ. 4430 (RWS), 2012 WL 1080306 (S.D.N.Y. Mar. 30, 2012), which Defendants cite, found that a statement about internal controls as of December 31, 2008 was not rendered false by a restatement that adjusted financial results for the fourth quarter of 2009. Id. at *8-9; see Defs. Br. at 29. Here, the material weaknesses in Cigna's CMS compliance and its receipt of CMS Notices covered 2013 and 2014. 14 Case 17-3484, Document 63, 05/24/2018, 2310647, Page21 of 37 that they were ineffective at those times. Accordingly, the cautionary language inadequately disclosed both the escalating risk represented by Cigna's deteriorated compliance function and the risk that future CMS audits meant for Cigna's business. See JinkoSolar, 761 F.3d at 251 ("A generic warning of a risk will not suffice when undisclosed facts on the ground would substantially affect a reasonable investor's calculations of probability."); Rombach v. Chang, 355 F.3d 164, 173 (2d Cir. 2004) ("Cautionary words about future risk cannot insulate from liability the failure to disclose that the risk has transpired."). This is illustrated by the material declines in Cigna's stock price upon the Company's January 22, 2016 disclosure of the CMS Letter and subsequent July 29, 2016 announcement that (among other things) Cigna might not be able to address the issues raised in the CMS Letter "in a timely and satisfactory matter." JA128- 31, 133 (¶¶ 138-144, 151-152); see Christine Asia Co. v. Ma, 718 F. App'x 20, 22- 23 (2d Cir. 2017) (materiality of concealed information shown by substantial stock decline upon disclosure) (summary order). Indeed, if Cigna disclosed any allegedly concealed information as Defendants assert, and the market was thus fully conditioned as to any allegedly concealed risks, then "it is hard to understand the sharp drop in the price" when those risks materialized. Asher v. Baxter Int'l Inc., 377 F.3d 727, 734 (7th Cir. 2004). 15 Case 17-3484, Document 63, 05/24/2018, 2310647, Page22 of 37 5. The Retraction Notices Support Materiality Defendants argue that the Retraction Notices relate to compliance actions that should not have been issued in the first place, and have nothing to do with Cigna's ability to cure regulatory violations. Defs. Br. at 34-35. If this is so, then the Court can infer that every CMS Notice other than those few that are the subject of the two Retraction Notices was properly issued. And the Court can still infer, consistent with Plaintiffs' allegations, that all of Cigna's compliance failures during the Class Period persisted through CMS's imposition of sanctions. Defendants do not respond to the argument that the district court improperly took judicial notice of the CMS Chart for its truth in stating that violations can be cured at any time. See Prin. Br. at 38 n.13, 39; SPA5, SPA31. B. The Code of Ethics Statements Are Actionable Defendants do not respond to Plaintiffs' argument that the district court erred in finding that the alleged misstatements in Cigna's Code of Ethics were not false when made. See Prin. Br. at 40-41; SPA27. Further, these misstatements are not immaterial puffery. Unlike the statements dismissed in the cases Defendants cite, the challenged statements are quotations attributed to Individual Defendants, reflect a contemporaneous nexus with the subject of the alleged fraud, and are not purely aspirational. Prin. Br. at 41-42; see Richman v. Goldman Sachs Grp., Inc., 868 F. Supp. 2d 261, 277 16 Case 17-3484, Document 63, 05/24/2018, 2310647, Page23 of 37 (S.D.N.Y. 2012). Defendants' observation that the statements at issue in Richman were from Goldman Sachs's annual report and not a stand-alone code of ethics is not relevant. See Defs. Br. at 37 n.16. II. THE DISTRICT COURT ERRONEOUSLY FOUND THAT PLAINTIFFS DID NOT SUFFICIENTLY PLEAD A STRONG INFERENCE OF SCIENTER A. Plaintiffs Allege Defendants' Knowledge of Facts or Access to Information Contradicting Their Public Statements Suggesting that "at best, the Complaint allege[s] only potential access to information," Defs. Br. at 44, Defendants dispute that Plaintiffs' allegations raise an inference of the Individual Defendants' actual knowledge of the CMS Notices and their contents. Plaintiffs are entitled to the reasonable inference, however, that Appel read the Notices addressed to him in his capacity as Medicare Compliance Officer, and that Cordani, McCarthy, and Defendant Fritsch (as well as Appel himself) read the Medicare compliance reports similarly detailing all instances of noncompliance with CMS requirements.11 See Prin. Br. at 45-46. But even if the 11 Defendants' suggestion that the Complaint alleges no basis for imputing the scienter of Cordani (the CEO) and McCarthy (the CFO) to Cigna is not serious. See Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 195 (2d Cir. 2008) ("In most cases, the most straightforward way to raise such an inference [of scienter] for a corporate defendant will be to plead it for an individual defendant."). With respect to Appel, who is named in the Section 20(a) Count but not the Section 10(b) Count, Defendants argue factually that Appel cannot formally bind the Company, but do not dispute that his scienter can be imputed to Cigna notwithstanding the fact that he is not a "speaker." Defs. Br. at 45-46 n.20; see Prin. Br. at 46 n.16. Appel's positions as Cigna's Medicare 17 Case 17-3484, Document 63, 05/24/2018, 2310647, Page24 of 37 Individual Defendants turned a blind eye to the noncompliance information, their receipt of and access to it supports recklessness. "Securities fraud claims typically have sufficed to state a claim based on recklessness when they have specifically alleged defendants' knowledge of facts or access to information contradicting their public statements. Under such circumstances, defendants knew or, more importantly, should have known that they were misrepresenting material facts related to the corporation." E.g., Barrick Gold, 2015 WL 1514597, at *6 (quoting Novak v. Kasaks, 216 F.3d 300, 308 (2d Cir. 2000)). Regardless of Defendants' effort to separate knowledge from what the district court called "mere" access to information, see SPA46, the pleading standard appropriately draws no such distinction. See Prin. Br. at 44, 47-48 & n.17. Defendants argue that receipt of the Notices made them aware, at most, that compliance was "less than perfect." Defs. Br. at 44. This is a falsity or materiality argument, not a scienter argument. See Pirnik v. Fiat Chrysler Autos., N.V., No. 15-CV-7199 (JMF), 2016 WL 5818590, at *7 (S.D.N.Y. Oct. 5, 2016) ("To the extent Defendants are rearguing falsity under the guise of scienter, their argument is without merit for the reasons discussed above; and to the extent they are Compliance Officer and as a control person, and his central role in the alleged fraud, support imputing his scienter to the Company at this stage. "Corporate scienter" is not at issue here because Plaintiffs have identified Appel. Cf. Dynex, 531 F.3d at 195 ("[I]t is possible to raise the required inference with regard to a corporate defendant without doing so with regard to a specific individual defendant."). 18 Case 17-3484, Document 63, 05/24/2018, 2310647, Page25 of 37 presenting a materiality argument in disguise, the argument is without merit because materiality 'is generally not an appropriate basis on which to dismiss a complaint.'") (quoting Vivendi, 381 F. Supp. 2d at 182).12 Defendants' receipt of the Notices—together with (a) HealthSpring's previously clean compliance record, (b) the deletion of the "we have established policies and procedures" representation in the 2013 Form 10-K, (c) the failure to integrate the HealthSpring and Cigna data processing systems, (d) Defendants' pushing out most qualified HealthSpring compliance employees by early 2013, and (e) the central and continuing importance of HealthSpring to Company earnings— support a strong inference that the Individual Defendants, no later than February 2015, knew or recklessly ignored that the Company's Medicare compliance programs and infrastructure were ineffective. See New Orleans Emps. Ret. Sys. v. Celestica, Inc., 455 F. App'x 10, 15 (2d Cir. 2011) ("[T]he particular allegations that [CEO] and [CFO] were specifically informed, and have reason to know, of the growing inventory stockpile. . . are sufficient to establish the individual defendants' scienter.") (summary order); Pirnik, 2016 WL 5818590, at *7 ("Plaintiffs do not need to show that the individual Defendants were. . . aware of any particular violation. Instead, it is enough at this stage for Plaintiffs to allege 12 Defendants' attempt to distinguish Pirnik on its facts is unavailing. Defs. Br. at 45 n.19. Plaintiffs plead an inference of actual knowledge, and the result in Pirnik in any event does not turn on Defendants' "knowledge vs. access" construct. 19 Case 17-3484, Document 63, 05/24/2018, 2310647, Page26 of 37 that Defendants were aware of nonpublic facts contradicting their public representations of substantial legal compliance.") (emphasis in original). Defendants argue that the "core operations" doctrine is nearly dead in this Circuit and that a business accounting for 21-22% of total revenue was insufficiently vital to the Company. Defs. Br. at 48-49. As to the doctrine's viability, this Court has taken care to recognize the principle that core operations allegations, in combination with others, will support an inference of scienter. See Celestica, 455 F. App'x at 14 n.3; see also In re Salix Pharm., Ltd., No. 14-CV- 8925 (KMW), 2016 WL 1629341, at *16 (S.D.N.Y. Apr. 22, 2016) ("additional allegations" of core operations "buttress the allegations of scienter discussed above") (citing In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326, 353 (S.D.N.Y. 2011)). No Court of Appeals has rejected this principle. The $3.8 billion purchase of HealthSpring was Cigna's largest-ever acquisition at the time. The deal was a Company-defining initiative, transforming Cigna from a company with no real presence in private Medicare into one of the largest private Medicare insurers. While HealthSpring "only" accounted for 21- 22% of Cigna's total annual revenue during the Class Period, none of Cigna's other business lines generated more than 10% of revenue. See Prin. Br. at 6-8; In re Hi-Crush Partners L.P. Sec. Litig., No. 12 Civ. 8557 (CM), 2013 WL 6233561, at *26 (S.D.N.Y. Dec. 2, 2013) (applying core operations doctrine to infer senior 20 Case 17-3484, Document 63, 05/24/2018, 2310647, Page27 of 37 management's awareness that contract accounting for 18% of revenues had been repudiated). HealthSpring may not have been essential to Cigna's survival, but it was Cigna's new cash cow and undeniably was, or should have been, a focus of the Individual Defendants' attention from the start of the Class Period. B. The District Court Effectively Imposed an Actual Intent Standard Defendants argue that the district court did not improperly impose an "actual intent" standard, but concluded that the information contained in the CMS Notices was so mild and routine that Defendants did not act recklessly by making the alleged statements about compliance. Defs. Br. at 47-48. This argument is illogical and contrary to the Opinion. Because the district court elected to address scienter notwithstanding its conclusion on falsity, which was "sufficient to dismiss the case in its entirety," SPA36, the court should be presumed to have addressed conscious misbehavior or recklessness under the assumption that Plaintiffs sufficiently pleaded material misstatements. Otherwise, analyzing scienter would be pointless because falsity and scienter are independent elements of Plaintiffs' claims. See Halliburton Co. v. Erica P. John Fund, Ltd., 134 S. Ct. 2398, 2407 (2014). Notably, the district court expressly made this assumption in addressing loss causation. SPA48. With this assumption of falsity in mind, the district court said that "it is unclear how knowledge of these. . . notices without acting upon them would be 21 Case 17-3484, Document 63, 05/24/2018, 2310647, Page28 of 37 'highly unreasonable' or an 'extreme departure from the standard of care to the extent that the danger was either known to the defendants or so obvious that the defendants must have been aware of it.'" SPA46 (second emphasis in original) (quoting South Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 109 (2d Cir. 2009)). But knowledge of the Notices "without acting upon them," and proceeding to make materially misleading statements nonetheless, defines reckless behavior. The district court went on to say that "[l]ikewise, by merely alleging that Defendants had access to information, the Court cannot conclude there exists circumstantial evidence of conscious misbehavior or reckless disregard." SPA46 (emphasis in original). The district court thus compared "mere" access to information to actual knowledge of such facts, and concluded that allegations of access cannot support a strong inference of scienter. That is contrary to the recklessness standard articulated in Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000), and consistently applied since by this Court. See, e.g., South Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 110 (2d Cir. 2009) (quoting Novak, 216 F.3d at 307-09); Prin. Br. at 47-48 & n.17. Accordingly, the district court effectively, and erroneously, held Plaintiffs to a pleading standard of actual intent to defraud. C. Plaintiffs' Confidential Witness Allegations Support an Inference of Scienter None of the cases Defendants cite stands for the proposition that a confidential witness allegation will support a strong inference of scienter only if "it 22 Case 17-3484, Document 63, 05/24/2018, 2310647, Page29 of 37 addresses a defendant's state of mind." Defs. Br. at 50. The standard for "buttress[ing] an argument for strong circumstantial evidence with information obtained from confidential sources" is that they "must be 'described in the complaint with sufficient particularity to support the probability that a person in the position occupied by the source would possess the information alleged.'" E.g., Glaser v. The9, Ltd., 772 F. Supp. 2d 573, 589 (S.D.N.Y. 2011) (quoting Novak, 216 F.3d at 314) (cited by Defendants). Defendants do not dispute that the confidential witnesses referenced in the Complaint meet this standard. CW4, for example, HealthSpring's Vice President of IT-Software Development, Infrastructure, and Architecture, considered Appel's appointment as Medicare Compliance Officer to be "a joke" because he, like her new supervisor, "was ignorant of all aspects of CMS and Medicare." JA93, 109 (¶¶ 45, 89); see Defs. Br. at 49-50 n.23. That the plaintiff in Employees' Retirement System of Government of the Virgin Islands v. Blanford, 794 F.3d 297 (2d Cir. 2015), alleged scienter based on motive as well as conscious misbehavior, and alleged "blatant fraud" in Defendants' view, has nothing to do with the fact that the Court similarly found that this standard was met. Id. at 307 ("The Complaint also explains why these statements were fraudulent by detailing numerous CWs' observations that Green Mountain's inventory was decidedly not at 'appropriate levels.' These witnesses 23 Case 17-3484, Document 63, 05/24/2018, 2310647, Page30 of 37 are former employees of Green Mountain and M. Block, and the Complaint specifies each witness's position, length of employment, and job responsibilities."); see Defs. Br. at 51-52 n.24. D. Cigna's Deletion of "Policies and Procedures" Undermines Any Inference of Benign Intent The district court's finding that Defendants' proffered nonculpable inference of "managerial errors" outweighed an inference of scienter cannot be squared with Cigna's deletion of the "policies and procedures" representation from the 2014 Form 10-K. See Prin. Br. at 51-53. Defendants' repeated argument that this representation was merely replaced by "detailed" language about Cigna's changing regulatory environment (Defs. Br. at 53) is unpersuasive, as discussed in Part I.A.3 above. The retained and allegedly misleading representations in both Form 10-Ks that Cigna "expect[s] to continue to allocate significant resources," JA200, JA218-19,13 similarly do not fill the gap left in the 2014 Form 10-K by the deletion of the "policies and procedures" language. See Defs. Br. at 53 n.26. 13 See JA200 ("We expect to continue to allocate significant resources to our compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs.") (2014 Form 10-K), JA218 (same) (2013 Form 10-K); JA200 ("We expect to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness."), JA219 (same); see also JA122-23, 126-27 (¶¶ 121-122, 133-134). 24 Case 17-3484, Document 63, 05/24/2018, 2310647, Page31 of 37 Defendants mischaracterize Plaintiffs' reference to the 2014 Form 10-K as "still misleading." See Prin. Br. at 52. It is this "continue to allocate" language, not any language that ostensibly "replaced" the "policies and procedures" representation, that renders the 2014 Form 10-K misleading notwithstanding the deletion of the "policies and procedures" representation. Last, Plaintiffs have shown in their principal brief and in Part I.A.2 above (and have alleged) that the "policies and procedures" representation was false and misleading when made in the 2013 Form 10-K. But even were this Court to affirm on this specific falsity point, given that Cordani and McCarthy signed and certified both Form 10-Ks, the deletion of "policies and procedures" would nonetheless support a strong inference of scienter with respect to the misstatements alleged in the 2014 Form 10-K. See Prin. Br. at 52-53. In sum, Defendants' proffered nonculpable inference of "managerial errors" of the HealthSpring acquisition should not be deemed more compelling than an inference of scienter. Defs. Br. at 46; see Salix, 2016 WL 1629341, at *16 ("Defendants fail to provide the Court with any cogent non-fraudulent inference that is more compelling than the inference of fraud alleged by Plaintiffs.") (emphasis in original). 25 Case 17-3484, Document 63, 05/24/2018, 2310647, Page32 of 37 III. THE DISTRICT COURT MISUNDERSTOOD THE OPERATION OF THE PSLRA DISCOVERY STAY The record supports the conclusion that the district court, notwithstanding the automatic stay of discovery under the PSLRA, 15 U.S.C. § 78u-4(b)(3)(B), had the misimpression that Plaintiffs had been receiving the benefit of formal discovery up through the filing of the Complaint. Defendants argue that the district court consistently was aware that Plaintiffs were conducting a confidential pre-filing investigation "in order to more fully describe their claims." Defs. Br. at 38-39 (emphasis and alteration removed) (quoting JA67 (Oct. 7, 2016 court teleconference)). The district court's remarks went substantially further, however: "[W]hy does the defense believe that the Plaintiff should not have the additional time to complete its preliminary discovery in order to more fully describe their claims or understand their claims and to assure that the case is resolved on the merits?" JA67; see also JA70 ("[W]e want this matter to be resolved one way or the other on the merits with full consideration of all of the relevant facts, and if that takes an additional couple of months to do I think it's time well spent for everyone involved, including the Defendants."). The district court's references to resolution "on the merits" suggests that the court believed that Plaintiffs were seeking additional time to conduct formal discovery. And in discussing the teleconference in its decision on 26 Case 17-3484, Document 63, 05/24/2018, 2310647, Page33 of 37 Plaintiffs' motion for reconsideration, the district court observed that "Defense counsel posited that discovery had been ongoing for several months[.]" JA541. The reconsideration decision also included the following: Section 78u-4 of the PSLRA contemplates that in general "all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss. . . ." 15 U.S.C. § 78u-4(b)(3)(B). When, after conducting the telephonic conference, the Court granted leave to amend the Amended Complaint and extended the deadline for the motion to dismiss, there were practical implications enabling Lead Plaintiff to continue in his pursuit of discovery well past the period typically allowed. JA544. This passage similarly suggests that the district court believed, notwithstanding the discovery stay, that the court had generously permitted Plaintiffs to continue to take discovery in support of filing the Complaint. If the district court had been referring to a confidential pre-filing investigation, its reference to the discovery stay would be superfluous. Contrary to Defendants' assertion that "nothing" in the Opinion supports this misimpression (Defs. Br. at 39), the Opinion reiterates the above-quoted passage as well as other relevant parts of the record. SPA54 ("Importantly, § 78u-4 of the PSLRA contemplates that in general. . . ."); see also id. (quoting district court's "on the merits" remarks from teleconference), SPA53 (stating district court's view 27 Case 17-3484, Document 63, 05/24/2018, 2310647, Page34 of 37 that during teleconference, "Defense counsel posited that discovery had been ongoing for several months"). IV. REMAND IS APPROPRIATE ON PLAINTIFFS' CONTROL-PERSON LIABILITY CLAIMS Because the Complaint sufficiently pleads both material misstatements and scienter as discussed above, and the district court concluded that loss causation was sufficiently pleaded (SPA47-51), the district court's summary dismissal of Plaintiffs' Section 20(a) claims (SPA52) was improper. Whether the Complaint sufficiently pleads control of Cigna and culpable participation by Cordani, McCarthy, and Appel should be considered by the district court in the first instance. See City of Providence v. BATS Glob. Mkts., Inc., 878 F.3d 36, 52 (2d Cir. 2017); see also Singleton v. Wulff, 428 U.S. 106, 120 (1976) ("It is the general rule, of course, that a federal appellate court does not consider an issue not passed upon below."). Defendants attempt to argue these issues now, but offer no reason why this Court should act as a court of first review rather than as a reviewing Court. Defs. Br. at 55; see Baker v. Dorfman, 239 F.3d 415, 420 (2d Cir. 2000) (court generally will reach issues not decided below only where necessary to avoid manifest injustice or where issue is purely legal). 28 Case 17-3484, Document 63, 05/24/2018, 2310647, Page35 of 37 CONCLUSION For the reasons stated above and in the principal brief, Lead Plaintiff- Appellant respectfully requests that this Court reverse in part the Opinion and Judgment dismissing the Complaint, and remand for further proceedings. Dated: May 24, 2018 Respectfully submitted, LABATON SUCHAROW LLP By: /s/ David J. Goldsmith James W. Johnson David J. Goldsmith Michael H. Rogers James T. Christie 140 Broadway New York, New York 10005 Tel.: (212) 907-0700 Fax: (212) 818-0477 jjohnson@labaton.com dgoldsmith@labaton.com mrogers@labaton.com jchristie@labaton.com Attorneys for Lead Plaintiff- Appellant Minohor Singh and Lead Counsel for the Class 29 Case 17-3484, Document 63, 05/24/2018, 2310647, Page36 of 37 Certificate of Compliance With Type-Volume Limit, Typeface Requirements, and Type-Style Requirements 1. This document complies with the type-volume limit of Fed. R. App. P. 32(a)(7)(B), as modified by Local Rule 32.1(a)(4)(B), because, excluding the parts of the document exempted by Fed. R. App. P. 32(f), this document contains 6,692 words. 2. This document complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because this document has been prepared in a proportionally spaced typeface using Microsoft Word 2010 in 14-point Times New Roman. Dated: May 24, 2018 /s/ David J. Goldsmith David J. Goldsmith Case 17-3484, Document 63, 05/24/2018, 2310647, Page37 of 37 CERTIFICATE OF SERVICE & CM/ECF FILING I hereby certify that I caused the foregoing Reply Brief for Lead Plaintiff-Appellant to be served on counsel for Defendants-Appellees via Electronic Mail generated by the Court's electronic filing system (CM/ECF) with a Notice of Docket Activity pursuant to Local Appellate Rule 25.1: Andrew W. Stern Dorothy J. Spenner James O. Heyworth Francesca E. Brody Sidley Austin LLP 787 Seventh Avenue New York, New York 10019 (212) 839-5300 I certify that an electronic copy was uploaded to the Court's electronic filing system. Six hard copies of the foregoing Reply Brief for Lead Plaintiff-Appellant were sent to the Clerk's Office by hand delivery to: Clerk of Court United States Court of Appeals, Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, New York 10007 (212) 857-8500 on this 24th day of May 2018. /s/ Samantha Collins Samantha Collins

ORAL ARGUMENT STATEMENT LR 34.1 (a), on behalf of filer Attorney David J. Goldsmith for Appellant Minohor Singh, FILED. Service date 05/24/2018 by CM/ECF. [2310917] [17-3484] [Entered: 05/24/2018 02:44 PM]

Case 17-3484, Document 64, 05/24/2018, 2310917, Page1 of 1 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT ORAL ARGUMENT STATEMENT (Local Rule 34.1(a)) TO REQUEST ORAL ARGUMENT, FILL OUT THIS FORM AND FILE IT WITH THE CLERK WITHIN 14 DAYS AFTER THE FILING OF THE LAST APPELLEE BRIEF. IF THIS FORM IS NOT TIMELY FILED, YOU WILL NOT BE PERMITTED TO ARGUE IN PERSON. Short Title of Case: Singh v. Cigna Corp. Docket No.: 17-3484 Name of Party: Minohor Singh Status of Party (e.g., appellant, cross-appellee, etc.): Lead Plaintiff-Appellant Check one of the three options below: ✔ I want oral argument. An attorney whose preference depends on whether other attorneys will argue should consider conferring before I want oral argument only if requesting argument. After the appeal has been at least one other party does. scheduled for oral argument, a motion by counsel to forgo oral argument, even on consent, may be denied. I do not want oral argument. If no party wants oral argument, the case will be decided on the basis of the written briefs. If you want oral argument, you must appear in Court on the date set by the Court for oral argument. The Court may determ ine to decide a case without oral argument even if the parties request it. If you want oral argument, state the name of the person who will argue: Name: David J. Goldsmith (An attorney must be admitted to practice before the Court in accordance with Local Rule 46.1.) If you want oral argument, list any dates (including religious holidays), that fall in the interval from 6 to weeks after the due date of this form, that the person who will argue is not available to appear in Court: July 5-6 and 19-20; August 1-3, 10, 13-17, and 27-31; September 3, 10, and 19, 2018. . Filed by: Print Name: David J. Goldsmith Date: 05/24/2018 Signature: /s/ David J. Goldsmith

LETTER, on behalf of Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, updating unavailability for oral argument, RECEIVED. Service date 06/26/2018 by CM/ECF.[2333118] [17-3484] [Entered: 06/26/2018 06:50 PM]

Case 17-3484, Document 67, 06/26/2018, 2333118, Page1 of 1 SIDLEY AUSTIN LLP 787 SEVENTH AVENUE NEW YORK, NY 10019 +1 212 839 5300 +1 212 839 5599 ASTERN@SIDLEY.COM AMERICA • ASIA PACIFIC • EUROPE +1 212 839 5397 June 26, 2018 Submitted via ECF Catherine O'Hagan Wolfe Clerk of Court United States Court of Appeals for the Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, NY 10007 Re: Singh v. Cigna Corp. et al., No. 17-3484 Dear Ms. O'Hagan Wolfe: I write to update the Court on my availability for oral argument in the above-captioned case. This letter supplements my Oral Argument Statement filed on May 21, 2018 (Dkt. No. 59) as I am now also unavailable from August 21-24, 2018, September 10-12, 2018, October 19, 2018 and November 2-6, 2018. I therefore respectfully request that the Court not schedule oral argument during those times as well. Thank you for your consideration. Respectfully submitted, /s/ Andrew W. Stern Andrew W. Stern cc: All counsel of record (via ECF) Sidley Austin (NY) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.

LETTER, on behalf of Appellant Minohor Singh, Attorney David J. Goldsmith availability for oral argument, RECEIVED. Service date 07/02/2018 by CM/ECF.[2337299] [17-3484]--[Edited 07/03/2018 by WD] [Entered: 07/02/2018 07:04 PM]

Case 17-3484, Document 72, 07/02/2018, 2337299, Page1 of 1 David J. Goldsmith Partner 212 907 0879 direct 212 907 0700 main 212 883 7079 fax dgoldsmith@labaton.com New York Office 140 Broadway July 2, 2018 New York, NY 10005 By ECF Ms. Catherine O'Hagan Wolfe Clerk of the Court United States Court of Appeals for the Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, New York 10007 Re: Singh v. Cigna Corp., No. 17-3484 Dear Madam Clerk: I write respectfully to update the Court regarding my availability for oral argument in the above- titled case. In supplement to my Oral Argument Statement filed on May 24, 2018 (Dkt. No. 64), I am now also unavailable to appear on September 24-28 and November 14-16, 2018. Thank you for accommodating these additional dates. Respectfully submitted, /s/ David J. Goldsmith David J. Goldsmith DJG/idi cc: All Counsel of Record (by ECF)

ARGUMENT NOTICE, to attorneys/parties, TRANSMITTED.[2353380] [17-3484] [Entered: 07/26/2018 11:20 AM]

Case 17-3484, Document 76-1, 07/26/2018, 2353380, Page1 of 1 United States Court of Appeals for the Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, NY 10007 ROBERT A. KATZMANN CATHERINE O'HAGAN WOLFE CHIEF JUDGE CLERK OF COURT Date: July 26, 2018 DC Docket #: 16-cv-182 Docket #: 17-3484cv DC Court: CT (NEW HAVEN) Short Title: Singh v. Cigna Corp DC Judge: Bryant NOTICE OF HEARING DATE Argument Date/Time: Tuesday, October 2, 2018 at 2:00 p.m. Location: Thurgood Marshall U.S. Courthouse, 40 Foley Square, New York, NY, 10007, 17th Floor, Room 1703 Time Allotment: 10 minutes per side. Counsel and non-incarcerated pro se litigants presenting oral argument must register with the courtroom deputy 30 minutes before argument. A motion or stipulation to withdraw with or without prejudice must be filed no later than 3 business days prior to the scheduled date of argument. The Court will consider the motion or stipulation at the time of argument, and counsel's appearance is required with counsel prepared to argue the merits of the case. If a stipulation to withdraw with prejudice is based on a final settlement of the case, the fully-executed settlement must be reported immediately to the Calendar Team, and a copy of it must be attached to the stipulation. Inquiries regarding this case may be directed to 212-857-8595. ------------------------------------------------------------------------------------------------------ Counsel must file the completed form in accordance with Local Rule 25.1 or 25.2. Pro Se parties must submit the form in paper. Name of the Attorney/Pro Se presenting argument: Firm Name (if applicable): Current Telephone Number: The above named attorney represents: () Appellant/Petitioner () Appellee-Respondent () Intervenor Date: _____________________ Signature: ________________________________ Case 17-3484, Document 76-2, 07/26/2018, 2353380, Page1 of 1 United States Court of Appeals for the Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, NY 10007 ROBERT A. CATHERINE O'HAGAN WOLFE KATZMANN CLERK OF COURT CHIEF JUDGE Date: July 26, 2018 DC Docket #: 16−cv−182 Docket #: 17−3484cv DC Court: CT (NEW HAVEN) Short Title: Singh v. Cigna Corp DC Judge: Bryant NOTICE TO THE BAR Offsite Video Argument. At this time the Court does not provide offsite video argument. Recording of Argument. An audio recording of oral argument is available on the Court's website. In addition, a CD of an argument may be purchased for $31 per CD by written request to the Clerk. The request should include the case name, the docket number and the date or oral argument. CDs will be delivered by first class mail unless the request instructs to hold for pick−up or requests Federal Express Service, in which case a Federal Express account number and envelope must be provided. Court Reporters. Parties may arrange − at their own expense − for an official court reporter to transcribe argument from a copy of the hearing tape or to attend and transcribe the hearing directly. A party must first obtain written consent from opposing counsel − or move the Court for permission − to have the court reporter attend and transcribe the hearing and must provide the calendar clerk written notice, including the name, address and telephone number of the attending reporter and, if applicable, the reporting firm at least one week prior to the hearing date. Interpreter Services for the Hearing Impaired. Counsel requiring sign interpreters or other hearing aids must submit a written notice to the Calendar Team at least one week before oral argument. Inquiries regarding this case may be directed to.

LETTER, on behalf of Appellant Minohor Singh, &lt;EDIT by Clerk's Office&gt; RECEIVED. Service date 07/26/2018 by CM/ECF.[2353986] [17-3484] [Entered: 07/26/2018 04:54 PM]

Case 17-3484, Document 78, 07/26/2018, 2353986, Page1 of 1 David J. Goldsmith Partner 212 907 0879 direct 212 907 0700 main 212 883 7079 fax dgoldsmith@labaton.com New York Office 140 Broadway July 26, 2018 New York, NY 10005 By ECF Ms. Catherine O'Hagan Wolfe Clerk of the Court United States Court of Appeals for the Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, New York 10007 Re: Singh v. Cigna Corp., No. 17-3484 Dear Madam Clerk: I write respectfully on behalf of Plaintiffs-Appellants in the above-referenced case concerning the notice of appearance of Matthew J. Hrutkay as additional counsel, filed on November 13, 2017 (Dkt. No. 10). Mr. Hrutkay is no longer associated with our Firm. His notice of appearance accordingly should be withdrawn. Respectfully, /s/ David J. Goldsmith David J. Goldsmith DJG/idi cc: All Counsel of Record (by ECF)

NOTICE OF HEARING DATE ACKNOWLEDGMENT, on behalf of Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, FILED. Service date 07/27/2018 by CM/ECF. [2354490] [17-3484] [Entered: 07/27/2018 12:53 PM]

Case 17-3484, Document 76-1, 07/26/2018, 2353380, Pagel of 1 United States Court of Appeals for the Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, NY 10007 ROBERT A. KATZMANN CATHERINE O'HAGAN WOLFE CHIEF,JlJDGE CLERK OF COURT Date: July 26, 2018 DC Docket#: l 6-cv-182 Docket#: 17-3484cv DC Court: CT (NEW HA YEN) Short Tit le: Singh v. C igna Corp DC Judge: Bryant NOTICE OF HEARING DATE Argument Dateffime: Tuesday, October 2, 2018 at 2:00 p.m. Location: Thurgood Marshall U.S. Courthouse, 40 Foley Square, New York, NY, 10007, 17th Floor, Room 1703 Time Allotment: IO minutes per side. Counsel and non-incarcerated prose litigants presenting oral argument must register with the courtroom deputy 30 minutes before argument. A motion or stipulation to withdraw with or without prejudice must be filed no later than 3 business days prior to the scheduled date of argument. The Court w ill consider the motion or stipulation at the time of argument, and counsel's appearance is required with counsel prepared to argue the merits of the case. If a stipulation to withdraw with prejudice is based on a final settlement of the case, the fully-executed settlement must be repo1ted immediately to the Calendar Team, and a copy of it must be attached to the stipulation. Inquiries regarding this case may be directed to 212-857-8595. Counsel must file the completed form in accordance with Local Rule 25.1 or 25.2. Pro Se parties must submit the form in paper. Name of the Attorney/Pro Se presenting argument: Andrew W. Stern Firm Name (if applicable): Sidley Austin LLP Current Telephone Number: (212)839-5300 The above named attorney represents: () Appellant/Petitioner (X) Appellee-Respondent () Intervenor Date: 2..7J'v(7a Df.8 Signature: ~~

NOTICE OF HEARING DATE ACKNOWLEDGMENT, on behalf of Appellant Minohor Singh, FILED. Service date 07/27/2018 by CM/ECF. [2354597] [17-3484] [Entered: 07/27/2018 02:35 PM]

Case 17-3484, Document 82, 07/27/2018, 2354597, Page1 of 1 Case 17-3484, Document 76-1, 07.12612018, 2353380, Pa~el 011 United St.te~ Court or Appe.l~ for the Soeond Circuit Thur~ood Marshll U,S. Courthou~e 40 Foley Square New York., NY 10007 ROBIRT A. KA TZM!r.N:II CATlUUUNfI O'HAGAN WO"'~J! CHIE'JUOO~ CLJ:lIJ< Of COURT Date; July 26, 20 I 8 DC Docket #; 16-cv-182 Docket #; 17-34R4cv DC Court; cr (NEW HAYEN) Short Tille; Singh v. Cigna Corp DC Judge; Bryant NOTICE OF HEARING DATE A'1lument Dat~ime: Tu""day, Detcher 2, 2018 at 2:00 p.m. Lou.tlnn: Thurgood Mmhall U.S. Courthouse, 40 Foley Square, New York, NY, 10007, 17th Floor, Room 1703 Time Anotment: 10 minutes per sl<k. Counsel and non-incarC"rated pro se litlganis prcscniing oral argument mum register with the courtroom deputy 30 minute. MfOle argument. A motion or stipulation to withdraw with or without prejudice must be filed no later than 3 busines. days priOl to the scheduled date of argument. The Court will con~ider the motion or stipUlation"t the time of argument, and counsel's oppcarllIlC" i. required with counsel prepared to argue the merits of the cMe. If a stipulation to withdraw with prejudice is based on a final settlement of the c ..e, the fully-executed settlement must be reported immediately to the Calendar Team, and a copy of it must be attached to the,tiputation. Inquirieo; regarding this c ..e may be dirocted to 212-857-8595. - - - ---~-.-- - --------- ..-.--.-.------------"--.------------------- Coun8d m..,t file the completed Corm In accordancewitlt Local Rule 2S.1 or 25.2. Pro Se pMrtle& mu~t !ubmit the form in paper, !\'ame oflhe AttorneylPro Se presenting arl:llment: David J. Goldsmith Firm Name {if applicable); Labalon Sucharow LLP CulTCrK Telephone Numher: 2t2-007-OS79 July 27, 2018

NEW CASE MANAGER, Brenda Mojica, ASSIGNED.[2369230] [17-3484] [Entered: 08/16/2018 09:54 AM]

Case 17-3484, Document 84, 08/16/2018, 2369230, Page1 of 1 United States Court of Appeals for the Second Circuit Thurgood Marshall U.S. Courthouse 40 Foley Square New York, NY 10007 ROBERT A. KATZMANN CATHERINE O'HAGAN WOLFE CHIEF JUDGE CLERK OF COURT Date: August 16, 2018 DC Docket #: 16-cv-182 Docket #: 17-3484cv DC Court: CT (NEW HAVEN) Short Title: Singh v. Cigna Corp DC Judge: Bryant NOTICE OF CASE MANAGER CHANGE The case manager assigned to this matter has been changed. Inquiries regarding this case may be directed to 212-857-8563.

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1
10/27/2017
NOTICE OF CIVIL APPEAL, with district court docket, on behalf of Appellant Minohor Singh, FILED. [2159466] [17-3484] [Entered: 10/30/2017 10:04 AM]
2
10/27/2017
DISTRICT COURT JUDGMENT, dated 10/02/2017, RECEIVED.[2159480] [17-3484] [Entered: 10/30/2017 10:13 AM]
3
10/27/2017
PAYMENT OF DOCKETING FEE, on behalf of Appellant Minohor Singh, district court receipt # 02054583434, FILED.[2159482] [17-3484] [Entered: 10/30/2017 10:14 AM]
4
10/30/2017
CAPTION, Movant removed, AMENDED.[2159591] [17-3484] [Entered: 10/30/2017 11:18 AM]
6
10/30/2017
ELECTRONIC INDEX, in lieu of record, FILED.[2161744] [17-3484] [Entered: 11/01/2017 11:34 AM]
5
10/31/2017
ACKNOWLEDGMENT AND NOTICE OF APPEARANCE, on behalf of Appellee Cigna Corp, David Cordani, Thomas A. McCarthy, Herbert Fritch and Richard Appel, FILED. Service date 10/31/2017 by CM/ECF.[2161020] [17-3484] [Entered: 10/31/2017 01:55 PM]
8
11/13/2017
ACKNOWLEDGMENT AND NOTICE OF APPEARANCE, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF.[2170725] [17-3484] [Entered: 11/13/2017 03:28 PM]
9
11/13/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF. [2170733] [17-3484] [Entered: 11/13/2017 03:31 PM]
10
11/13/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF. [2170741] [17-3484] [Entered: 11/13/2017 03:33 PM]
11
11/13/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF. [2170748] [17-3484] [Entered: 11/13/2017 03:35 PM]
12
11/13/2017
FORM C, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF.[2170754] [17-3484] [Entered: 11/13/2017 03:38 PM]
13
11/13/2017
FORM D, on behalf of Appellant Minohor Singh, FILED. Service date 11/13/2017 by CM/ECF.[2170781] [17-3484] [Entered: 11/13/2017 03:51 PM]
14
11/13/2017
ATTORNEY, Michael H. Rogers for Minohor Singh, in case 17-3484, [9], ADDED.[2170923] [17-3484] [Entered: 11/13/2017 04:29 PM]
15
11/13/2017
ATTORNEY, Matthew J. Hrutkay for Minohor Singh, in case 17-3484, [10], ADDED.[2170931] [17-3484] [Entered: 11/13/2017 04:30 PM]
16
11/13/2017
ATTORNEY, James T. Christie for Minohor Singh, in case 17-3484, [11], ADDED.[2170937] [17-3484] [Entered: 11/13/2017 04:33 PM]
19
11/15/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellee Cigna Corp, David Cordani, Thomas A. McCarthy, Herbert Fritch and Richard Appel, FILED. Service date 11/15/2017 by CM/ECF. [2172816] [17-3484] [Entered: 11/15/2017 12:40 PM]
20
11/15/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellee Cigna Corp, David Cordani, Thomas A. McCarthy, Herbert Fritch and Richard Appel, FILED. Service date 11/15/2017 by CM/ECF. [2172826] [17-3484] [Entered: 11/15/2017 12:43 PM]
21
11/15/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellee Cigna Corp, David Cordani, Thomas A. McCarthy, Herbert Fritch and Richard Appel, FILED. Service date 11/15/2017 by CM/ECF. [2172858] [17-3484] [Entered: 11/15/2017 01:02 PM]
11/16/2017
ATTORNEY, Dorothy J. Spenner for Thomas A. McCarthy Cigna Corp David Cordani Herbert Fritch Richard Appel, in case 17-3484, [19], ADDED.[2173407] [17-3484] [Entered: 11/16/2017 09:01 AM] (Text entry; no document attached.)
23
11/16/2017
ATTORNEY, James Ormerod Heyworth for Thomas A. McCarthy Cigna Corp David Cordani Herbert Fritch Richard Appel, in case 17-3484, [20], ADDED.[2173410] [17-3484] [Entered: 11/16/2017 09:03 AM]
24
11/16/2017
ATTORNEY, Francesca Eva Brody for Thomas A. McCarthy Cigna Corp David Cordani Herbert Fritch Richard Appel, in case 17-3484, [21], ADDED.[2173413] [17-3484] [Entered: 11/16/2017 09:05 AM]
29
11/22/2017
NEW CASE MANAGER, Dana Ellwood, ASSIGNED.[2178010] [17-3484] [Entered: 11/22/2017 08:51 AM]
30
11/22/2017
LOCAL RULE 31.2 NOTICE, placing this appeal on the Court's Expedited Calendar, setting appellant's brief due date as 12/27/2017, appellees' brief due date as 01/31/2018, TRANSMITTED.[2178029] [17-3484] [Entered: 11/22/2017 09:01 AM]
32
11/27/2017
MOTION, for removal from the expedited appeals calendar, on behalf of Appellant Minohor Singh, FILED. Service date 11/27/2017 by CM/ECF. [2180282] [17-3484] [Entered: 11/27/2017 06:46 PM]
36
11/30/2017
MOTION ORDER, granting motion to remove the case from the expedited appeals calendar [32] filed by Appellant Minohor Singh, by RKW, FILED. [2183945][36] [17-3484] [Entered: 11/30/2017 04:25 PM]
37
12/01/2017
LR 31.2 SCHEDULING NOTIFICATION, on behalf of Appellant Minohor Singh, informing Court of proposed due date 02/08/2018, RECEIVED. Service date 12/01/2017 by CM/ECF.[2184789] [17-3484] [Entered: 12/01/2017 02:10 PM]
40
12/05/2017
SO-ORDERED SCHEDULING NOTIFICATION, setting Appellant Minohor Singh Brief due date as 02/08/2018. Joint Appendix due date as 02/08/2018, FILED.[2186503] [17-3484] [Entered: 12/05/2017 10:40 AM]
41
01/26/2018
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Minohor Singh, FILED. Service date 01/26/2018 by CM/ECF. [2223067] [17-3484] [Entered: 01/26/2018 04:41 PM]
01/29/2018
ATTORNEY, David J. Goldsmith for Minohor Singh, in case 17-3484, [41], ADDED.[2223394] [17-3484] [Entered: 01/29/2018 10:31 AM] (Text entry; no document attached.)
43
02/08/2018
BRIEF & SPECIAL APPENDIX, on behalf of Appellant Minohor Singh, FILED. Service date 02/08/2018 by CM/ECF. [2232201] [17-3484] [Entered: 02/08/2018 02:17 PM]
44
02/08/2018
JOINT APPENDIX, volume 1 of 2, (pp. 1-269), on behalf of Appellant Minohor Singh, FILED. Service date 02/08/2018 by CM/ECF.[2232204] [17-3484] [Entered: 02/08/2018 02:19 PM]
45
02/08/2018
JOINT APPENDIX, volume 2 of 2, (pp. 270-553), on behalf of Appellant Minohor Singh, FILED. Service date 02/08/2018 by CM/ECF.[2232207] [17-3484] [Entered: 02/08/2018 02:20 PM]
49
02/09/2018
LR 31.2 SCHEDULING NOTIFICATION, on behalf of Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, informing Court of proposed due date 05/10/2018, RECEIVED. Service date 02/09/2018 by CM/ECF.[2233864] [17-3484] [Entered: 02/09/2018 05:35 PM]
53
02/14/2018
SO-ORDERED SCHEDULING NOTIFICATION, setting Appellees Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy Brief due date as 05/10/2018, FILED.[2235651] [17-3484] [Entered: 02/14/2018 11:21 AM]
56
05/10/2018
BRIEF, on behalf of Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, FILED. Service date 05/10/2018 by CM/ECF. [2299751] [17-3484] [Entered: 05/10/2018 11:57 AM]
59
05/21/2018
ORAL ARGUMENT STATEMENT LR 34.1 (a), on behalf of filer Attorney Mr. Andrew W. Stern, Esq. for Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, FILED. Service date 05/21/2018 by CM/ECF. [2308156] [17-3484] [Entered: 05/21/2018 06:42 PM]
61
05/24/2018
CASE CALENDARING, for the week of 08/27/2018, PROPOSED.[2310500] [17-3484] [Entered: 05/24/2018 10:59 AM]
63
05/24/2018
REPLY BRIEF, on behalf of Appellant Minohor Singh, FILED. Service date 05/24/2018 by CM/ECF. [2310647] [17-3484] [Entered: 05/24/2018 11:49 AM]
64
05/24/2018
ORAL ARGUMENT STATEMENT LR 34.1 (a), on behalf of filer Attorney David J. Goldsmith for Appellant Minohor Singh, FILED. Service date 05/24/2018 by CM/ECF. [2310917] [17-3484] [Entered: 05/24/2018 02:44 PM]
67
06/26/2018
LETTER, on behalf of Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, updating unavailability for oral argument, RECEIVED. Service date 06/26/2018 by CM/ECF.[2333118] [17-3484] [Entered: 06/26/2018 06:50 PM]
71
07/02/2018
CASE CALENDARING, for the week of 10/01/2018, PROPOSED.[2336767] [17-3484] [Entered: 07/02/2018 12:36 PM]
72
07/02/2018
LETTER, on behalf of Appellant Minohor Singh, Attorney David J. Goldsmith availability for oral argument, RECEIVED. Service date 07/02/2018 by CM/ECF.[2337299] [17-3484]--[Edited 07/03/2018 by WD] [Entered: 07/02/2018 07:04 PM]
07/25/2018
CASE CALENDARING, for argument on 10/02/2018, SET.[2352307] [17-3484] [Entered: 07/25/2018 09:57 AM] (Text entry; no document attached.)
76
07/26/2018
ARGUMENT NOTICE, to attorneys/parties, TRANSMITTED.[2353380] [17-3484] [Entered: 07/26/2018 11:20 AM]
78
07/26/2018
LETTER, on behalf of Appellant Minohor Singh, <EDIT by Clerk's Office> RECEIVED. Service date 07/26/2018 by CM/ECF.[2353986] [17-3484] [Entered: 07/26/2018 04:54 PM]
07/27/2018
ATTORNEY, Matthew J. Hrutkay, for Appellant Minohor Singh, TERMINATED.[2354094] [17-3484] [Entered: 07/27/2018 09:07 AM] (Text entry; no document attached.)
81
07/27/2018
NOTICE OF HEARING DATE ACKNOWLEDGMENT, on behalf of Appellee Richard Appel, Cigna Corp, David Cordani, Herbert A. Fritch and Thomas A. McCarthy, FILED. Service date 07/27/2018 by CM/ECF. [2354490] [17-3484] [Entered: 07/27/2018 12:53 PM]
79
07/27/2018
ATTORNEY, Matthew J. Hrutkay, for Appellant Minohor Singh, TERMINATED.[2354094] [17-3484] [Entered: 07/27/2018 09:07 AM]
82
07/27/2018
NOTICE OF HEARING DATE ACKNOWLEDGMENT, on behalf of Appellant Minohor Singh, FILED. Service date 07/27/2018 by CM/ECF. [2354597] [17-3484] [Entered: 07/27/2018 02:35 PM]
79
07/27/2018
ATTORNEY, Matthew J. Hrutkay, for Appellant Minohor Singh, TERMINATED.[2354094] [17-3484] [Entered: 07/27/2018 09:07 AM]
84
08/16/2018
NEW CASE MANAGER, Brenda Mojica, ASSIGNED.[2369230] [17-3484] [Entered: 08/16/2018 09:54 AM]
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