Case 1:19-cv-00437-MSM-PAS Document 79 Filed 02/11/21 Page 1 of 29 PageID #: 1643
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`UUNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF RHODE ISLAND
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`CITY OF MIAMI FIRE FIGHTERS’
`AND POLICE OFFICERS’
`RETIREMENT TRUST and
`INTERNATIONAL UNION OF
`OPERATING ENGINEERS PENSION
`FUND OF EASTERN
`PENNSYLVANIA AND DELAWARE,1
`Plaintiffs,
`
`v.
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`CVS HEALTH CORPORATION;
`LARRY J. MERLO; DAVID M.
`DENTON; JONATHAN C. ROBERTS;
`ROBERT O. KRAFT; AND EVA C.
`BORATTO,
`Defendants.
`
`C.A. No. 19-437-MSM-PAS
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`
`
`MEMORANDUM AND ORDER
`
`
`Mary S. McElroy, United States District Judge.
`
`
`Before the Court is the Defendants’ Motion to Dismiss (ECF No. 67) a
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`shareholder securities fraud action, brought pursuant to the Private Securities
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`Litigation Reform Act (“PSLRA”), 15 U.S.C.A. § 78u-4. The Defendants, CVS Health
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`Corporation (“CVS” or “CVS Health”) and several executives of both CVS and its
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`1 This action was originally entitled Anarkat v. CVS Health Corporation, but
`the parties agreed to substitute the then-named plaintiff by court-approved
`stipulation. (ECF No. 31). The case was filed in the Southern District of New York
`but transferred to Rhode Island on August 9, 2019. It was filed as a putative class
`action on behalf of all persons who acquired CVS Health stock between the dates of
`February 9, 2016 and February 20, 2019, inclusive (the “Class Period”), but at the
`time of this writing, there has not been class certification.
`1
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`subsidiary, Omnicare, Inc. (“Omnicare”), contend that the Amended Complaint (ECF
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`No. 38) fails to meet the enhanced pleading standard applicable to lawsuits claiming
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`violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the
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`“Exchange Act”), 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated
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`thereunder, 17 C.F.R. §240.10b-5.2
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`For the reasons stated below, the Court GRANTS the Defendants’ Motion to
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`Dismiss. (ECF No. 67).
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`II.
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`STANDARD FOR PLEADING
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`In brief, and explained below, the Plaintiffs allege that CVS Health made
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`statements during the Class Period that were both false and misleading, that the
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`Plaintiffs relied on those statements and, as a result, suffered an economic loss. (ECF
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`No. 38 at 131, ¶¶ 346-61).3
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`“To state a cause of action under § 10(b) and Rule 10b-5, a plaintiff must plead,
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`with sufficient particularity, that the defendant made a false statement or omitted a
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`material fact, with the requisite scienter, and that the plaintiff’s reliance on this
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`statement or omission caused the plaintiff’s injury.” Gross v. Summa Four, Inc., 93
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`2 The defendants are CVS Health, Larry J. Merlo, David M. Denton, Jonathan
`C. Roberts, Robert O. Kraft, and Eva C. Boratto (collectively, the “Defendants”).
`3 All statements of fact are taken from the Amended Complaint and as is
`appropriate at this stage of litigation are assumed to be true. Securities fraud
`litigation, however, demands that the Plaintiffs not only allege sufficient facts but
`that they plead them with particularity and support them with detailed information.
`In re Cabletron Systems, Inc., 311 F.3d 11, 27 (1st Cir. 2002) (complaint must specify
`statements alleged to have been misleading, and the reason they are misleading;
`beliefs must be backed with sufficient facts to support them).
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`2
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`F.3d 987, 992 (1st Cir. 1996). A fact is “material only if its disclosure would alter the
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`total mix of facts available to the investor and if there is a substantial likelihood that
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`a reasonable shareholder would consider it important to the investment decision.”
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`Hill v. Gozani, 638 F.3d 40, 57 (1st Cir. 2011) (quoting Cooperman v. Individual,
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`Inc., 171 F.3d 43, 49 (1st Cir.1999)). Actions brought under this rubric must meet an
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`enhanced threshold of pleading, far greater than the conventional “plain statement”
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`subject to Federal Rule of Civil Procedure 12(b)(6). Hill, 638 F.3d at 55. The
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`heightened pleading demands that the Amended Complaint specify each statement
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`alleged to be misleading and the reason. Id. In other words, statements made on
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`information and belief must state the particular facts from which that belief was
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`formed. Id. at 55-56.
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`To defend against a Motion to Dismiss, the Plaintiffs must allege sufficient and
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`adequately detailed facts to show that the Defendants either “consciously intended to
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`defraud” or “acted with a high degree of recklessness.” Aldridge v. A.T. Cross Corp.,
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`284 F.3d 72, 82 (1st Cir. 2002). While the Plaintiffs may rely on inference, that
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`inference must be a “strong” one rather than a merely “reasonable” one, and the facts
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`supporting that inference must be stated with particularity. In re Cabletron Systems,
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`Inc., 311 F.3d 11, 28 (1st Cir. 2002). Liability may be shown by either affirmative
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`statements that were false when made or by the omission of information that is so
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`important that what was disclosed is rendered “so incomplete as to mislead.” City of
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`Roseville Employees’ Retirement Syst. v. Textron, Inc., 810 F. Supp. 2d 434, 443
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`(D.R.I. Aug. 24, 2011) (quoting Hill, 638 F.3d at 57). The inference of actionable
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`3
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`scienter must be “at least as compelling as any opposing inference of nonfraudulent
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`intent.” In re Ariad Pharmaceuticals, Inc., 842 F.3d 744, 751 (1st Cir. 2016). If the
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`Court finds no actional misstatements, however, it need not reach the issue of
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`whether the complaint fails to adequately allege scienter. Hill, 638 F.3d at 70 n.9;
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`see infra n.21.
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`III.
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`BACKGROUND
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`CVS is a national company, founded in 1963 and headquartered in Rhode
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`Island, traditionally selling retail from nearly 10,000 chain stores across the country.
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`While it is a combination of convenience store and drug store, a large part of its retail
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`business stems from its pharmacies. In recent years, CVS has focused on the
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`pharmacy business, giving vaccinations and housing “minute clinics” that provide
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`immediate medical care to walk-in customers. It has, according to the Amended
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`Complaint, 156 specialty long-term care (“LTC”) pharmacies in forty-six states and a
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`LTC repackaging facility. (ECF No. 38 at 2, ¶¶ 2-3). CVS has made acquisitions that
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`both enhanced its medical focus and spawned lawsuits. In 2015, it acquired
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`Omnicare, a national distributor of pharmaceuticals with a leadership role in the
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`skilled nursing facility arena. That acquisition gave rise to this litigation. Then, in
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`2018, CVS acquired Aetna Inc. (“Aetna”). That acquisition generated other litigation.
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`E.g., Waterford Township Police & Fire Ret. Syst. v. CVS Health Corporation, et al.,
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`No. 1:19-cv-00434-MSM (D.R.I.) (ECF No. 1, filed Aug. 15, 2019).
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`The two acquisitions are related. The Plaintiffs here are shareholders who
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`held CVS stock during the period after the Omnicare acquisition but before the Aetna
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`4
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`purchase. They contend that CVS actively put out false and misleading information
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`in its financial reports and announcements during the Class Period, motivated by the
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`desire to hide its struggling LTC business to ensure that the Aetna purchase would
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`succeed and on terms preferable to CVS. (ECF No. 38 at 6, ¶¶ 15-16). They allege
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`that although CVS acquired Omnicare with the idea of taking over what was at the
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`time a healthy distribution network of pharmaceuticals in the LTC market,
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`mismanagement ultimately spurred substantial client losses. In addition to false and
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`misleading reports designed to hide the problem from investors, the Plaintiffs point
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`to CVS’s decision to “fold[]” the LTC business into its front-store retail operations in
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`its financial reports to make it impossible for investors to see the drain. (ECF No. 38
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`at 6, ¶ 8).
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`IIII. ANALYSIS
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`The allegations of fraudulent statements fall into three categories. First, the
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`Plaintiffs allege straightforward false and misleading statements about CVS Health’s
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`performance and the success of its operations. Second, the Plaintiffs contend that the
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`failure to disclose the customer losses, and the inadequacy of the disclosure that
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`finally did occur, caused the statements made to be misleading. And third, the
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`Plaintiffs complain that CVS misled investors by omitting unfavorable facts from the
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`goodwill assessments attributed to its LTC business before taking a significant
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`impairment.
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`5
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`AA. False Statements
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`The Plaintiffs point to a series of statements that, except for some thin
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`warnings in 2017 and early 2018 of possible client retention problems, painted a rosy
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`and profitable picture of the alliance of CVS and Omnicare. The acquisition was
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`undertaken to expand CVS profits by bringing under its umbrella what was touted
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`at the time as a leading presence—indeed, the leader—in the LTC skilled nursing
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`facilities market. Statements by CVS executives issued in 2016 and early 2017 gave
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`no clue that the optimism of the endeavor would not come to fruition.4 At most, these
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`statements began to warn that success might take a little longer than predicted.5
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`Plaintiffs contend that it was not until 2018 that CVS executives cast doubt on the
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`ultimate achievement.
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`The statements can be placed in three categories:
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`1. That CVS had capitalized on Omnicare’s leadership position in the LTC
`industry and was, therefore, itself a “leader.”6
`2. That the “synergies” it had implemented were working well, when,
`according to the Amended Complaint, they were driving away
`customers. (ECF No. 38 at 40, ¶ 118).
`
`
`4 The Plaintiffs point to, and the Court recounts, several statements made prior
`to the Class Period, presumably as background and as relevant to the knowledge of
`CVS executives. Greebel v. FTP Software, Inc., 194 F.3d 185, 202 (1st Cir. 1999)
`(events prior to class period may be probative of subsequent practice). Statements
`that were made before the class period began, however, are not actionable under the
`PLSRA. In re Int’l Bus. Machines Corp. Sec. Litig., 163 F.3d 102, 107 (2nd Cir. 1998).
`5 For example, the warning that the Defendants point to in February 2016 that
`client loss “could” occur is a far cry from acknowledging that it was occurring. (ECF
`No. 67 at 16).
`6 Most of these statements occurred before the Class Period. For example,
`Defendant Kraft boasted at the December 2015 Analyst day that CVS had acquired
`the “leading pharmacy provider to elderly in chronic care settings.” That year’s
`annual report asserted that CVS Health was a “leading presence in long-term
`pharmacy care [having] forged a competitive advantage.” (ECF No. 38 at 39, ¶ 116).
`6
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`3. Direct assertions that the acquisition was succeeding in expanding
`CVS’s revenues and would continue to be profitable.7
`With respect to statements during the Class Period, as for the first set—that
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`the new endeavor was, by virtue of the acquisition, a “leader” in the LTC industry—
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`that is more a statement of optimism, or perhaps wishful thinking, than anything an
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`investor would rely on. Statements of hope are not unusual and are generally
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`considered mere “puffery.” Glassman v. Computervision Corp., 90 F.3d 617, 636 (1st
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`Cir. 1996) (noting, however, that the statements were accompanied by “strongly
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`cautionary language”); Accord, San Leandro Emergency Medical Group Profit
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`Sharing Plan v. Philip Morris Companies, Inc., 75 F.3d 801, 812 (2nd Cir. 1996)
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`(statements that company “should deliver income growth in earnings per share”
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`without disclosing defection of Marlboro smokers to discount brands were not
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`actionable). Such “puffery” is not actionable as it “encompasses statements that lack
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`the sort of definite positive projections that might require later correction.” In re
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`General Electric Securities Litigation, No. 19-cv-1013 (DLC), 2020 WL 2306434 at *7
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`(S.D.N.Y. May 7, 2020) (examples are that a merger was “off to a promising start,”
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`that the defendant was “optimistic” about earnings and “expected” its product to
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`perform well, and the like).8
`
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`7 For example, Defendant Merlo asserted on the 2016 Analyst Day that CVS
`continued to hold a “leadership position in long-term care with Omnicare.” (ECF No.
`38 at 33, ¶ 95). Those rosy predictions continued into the first quarter of 2017,
`echoing the ones made on the May 2, 2017 first quarter call. Id.
`8 In a supplemental filing (the “Supplemental Letter”), the Defendants brought
`to the Court’s attention In re General Electric Securities Litigation, No. 1:19-cv-
`01013, 2020 WL 2306434 (S.D.N.Y. May 5, 2020) (“General Electric”) as relevant to
`their Motion to Dismiss. (ECF No. 72). Claiming “improper gamesmanship” before
`7
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`[C]ourts have demonstrated a willingness to find immaterial as a matter
`of law a certain kind of rosy affirmation commonly heard from corporate
`managers and numbingly
`familiar to the marketplace—loosely
`optimistic statements that are so vague, so lacking in specificity, or so
`clearly constituting the opinions of the speaker, that no reasonable
`investor could find them important to the total mix of information
`available.
`
`Shaw v. Digital Equipment Corp., 82 F.3d 1194, 1217 (1st Cir. 1996).9 The First
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`Circuit is especially strict in this regard, and vague prospects of future success that
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`prove ill-founded are not sufficiently material unless accompanied by statements
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`implying certainty or by erroneous statements of fact. Colby v. Hologic, Inc., 817 F.
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`Supp. 204, 209, 211 (D. Mass. 1993).
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`As a characterization, these first set of statements may have been overly
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`optimistic. But absent assertions supported by fact that CVS Health at that time had
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`only a small fraction of the market, or was barely a “player,” the labeling of CVS as a
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`“leader” can hardly be termed objectively false. And, indeed, one of the failings of the
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`Amended Complaint is that it does not draw a clear timeline of customer losses; thus,
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`while there is an ample demonstration of customer loss, there is no comparative basis
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`oral argument, the Plaintiffs asked the Court to strike the Defendants’ Supplement
`Letter or disregard General Electric. (ECF No. 74). The Court denies the Plaintiffs’
`requests. The Court did not review General Electric in detail until it received the
`Plaintiffs’ response to the Supplemental Letter, alleviating any “gamesmanship” the
`Defendants may have attempted to gain.
`9 Citing as examples of such “loosely optimistic statements,” that a company:
`was expecting “another year of strong growth,” San Leandro, 75 F.3d at 811; was “on
`target toward achieving the most profitable year in its history,” Hillson Partners Ltd.
`Partnership v. Adage, Inc., 42 F.3d 204, 213 (4th Cir. 1994); or was “’well positioned’
`for growth,” In re Caere Corp. Sec. Litig., 837 F. Supp 1054, 1057-58 (N.D. Cal. 1993).
`Additionally, “[p]rospects for long term growth are bright” was also deemed a “loosely
`optimistic statement.” Colby, 817 F. Supp. at 211.
`8
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`for concluding that the customer base had fallen so far behind what it was pre-
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`acquisition as to make the “leadership” label cross from exaggeration into falsehood.
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`The second set of statements—to the effect that the “synergies” effectuated by
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`CVS were helping to ensure that the Omnicare acquisition was “performing well”—
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`are statements of opinion which are not actionable unless the circumstances raise a
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`strong inference that the speaker knows the opinion is untrue. See Omnicare, Inc. v.
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`Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175, 185-86 (2015). An
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`example of this is the statement made by Defendant Denton on the third quarter 2016
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`call that it was only a matter of time before the Omnicare operation lived up to
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`expectations. (ECF No. 38 at 102, ¶ 285). Other statements were merely expressions
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`of hope for future success, such as “I’m confident that we’ll capitalize on the synergies
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`once [the needs of residents are targeted].” (ECF No. 38 at 97, ¶ 272 (quoting the
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`CVS Health third quarter 2016 call)). Even though the Amended Complaint is replete
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`with instances of customer loss, the Amended Complaint does not demonstrate a clear
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`connection between customer dissatisfaction and CVS’s insistence on migrating its
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`existing retail protocols to the LTC market. While that causal relationship may have
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`existed in the minds of the Plaintiffs’ confidential witnesses, there is no direct
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`evidence of its truth. See City of Roseville, 810 F. Supp. 2d at 444 (confidential
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`witnesses alleged pattern of increasing cancellations of loans, but the information
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`was not specific enough about percentages). This contrasts with the direct connection
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`between the statements and the actuality in In re Ariad Pharmaceuticals, Inc., 842
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`F.3d 744 (1st Cir. 2016). There, officials expressed optimism about obtaining a
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`9
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`“favorable label” from the Food and Drug Administration (“FDA”) weeks after
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`learning that the FDA had rejected ARIAD’s proposed label. Id. at 753. It was
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`misleading, the Circuit Court held, to continue to put out expressions of hope about
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`an event that clearly was not going to occur. Id. Disclosure of the rejection “would
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`have altered the total mix of information available to investors.” Id. Similarly, in
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`Aldridge v. A.T. Cross Corp., 284 F.3d 72 (1st Cir. 2002), the undisclosed information
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`directly contracted the explicit statements made. There, the company made specific
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`predictions about profitability even with price reductions without disclosing that it
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`had agreed to insulate distributors against price cuts and that it had committed to
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`“take back” agreements whereby it would allow returns of unsold inventory. Id. at
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`82-83. In addition, there were allegations that the company knew that those
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`arrangements rendered its reserve insufficient. Id. at 83. The district court’s
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`dismissal of the complaint was reversed. Id. at 85.
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`The most problematic statements are those in the third category—statements
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`such as those contained in the second quarter 2016 call: “revenues in the retail/LTC
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`Segment increased 16.0%, or $2.8 billion, to approximately $20.0 billion . . . primarily
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`driven by the addition of the long-term care (“LTC”) pharmacy operations acquired
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`as part of the acquisition of [Omnicare].” (ECF No. 38 at 36, ¶ 106). The Plaintiffs
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`do not contend, however, that the numbers were false; instead, they dispute the
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`implication that the Omnicare-acquired business was continuing to succeed when
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`customers were leaving. Again, the Plaintiffs provide no clear timeline that matches
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`the time when the statements were made to specific customer losses. Nor do they
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`10
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`include sufficient information to determine how much of the customer base had left
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`at any given period. Indeed, they complain that CVS itself did not break out the
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`Omnicare-based operations from the remainder of the retail business. Id. at ¶¶ 109,
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`113. That same lack of segregated numbers makes it impossible to discern whether
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`the effect of the customer loss was so significantly inconsistent with the performance
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`statements as to render the latter false.
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`Moreover, many of these statements are “forward-looking,” looking to the
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`future. Such forward-looking statements are protected under the Exchange Act. In
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`re Biogen Inc. Securities Litigation, 193 F.Supp.3d 5, 40-41 (D. Mass. 2016). For
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`example, the pronouncements do not speak of CVS Health’s “having attracted” large
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`numbers of customers; instead, they speak of its “ability to attract and retain
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`managed care customers and favorable industry trends.” (ECF No 38 at 80, ¶ 239).
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`In that respect, the statements are different from those held actionable in Matrixx
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`Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011). Matrixx involved a cold remedy
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`that, it turned out, had the unfortunate side effect of loss of smell. There was no
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`disclosure of the reports of consumers who had lost their sense of smell even though
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`the company had received much information from doctors, including some studies of
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`the relationship between the adverse effect and the product. Id. at 31. What the
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`company did tout was that it was “poised for growth,” and predicted that revenues
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`would be up. Id. at 33. Moreover, Matrixx had issued a press release suggesting that
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`studies confirmed the cold remedy did not cause a loss of smell when in fact it had
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`conducted no such studies. Id. at 34. Taken collectivity, the statements were such
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`11
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`that “reasonable investors” would have viewed the omitted facts as “having
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`significantly altered the ‘total mix’ of information made available.” Id. at 47 (quoting
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`Basic Inc. v. Levinson, 485 U.S. 224, 232 (1988)).
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`Finally, many statements the Plaintiffs point to are simply too vague to have
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`been material. The second quarter 2016 10-Q, for example, stated that “Net revenues
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`were positively affected by the addition of LTC.” (ECF No. 38 at 81, ¶ 241). The
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`statement on the Fiscal Year 2016 call that “the addition of both Omnicare and the
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`Target pharmacies and clinics has contributed nicely to our performance . . .” was
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`similarly vague. (ECF No. 38 at 102, ¶ 286) (emphasis supplied). Plaintiffs point to
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`what were basically the same few statements using the phrases “positively affected”
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`and “ability to attract and retain” customers but repeated many times. (ECF No. 38
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`at 79-84, ¶¶ 239-245). The repetition over the course of 2016 and into 2017 does not
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`make them any less vague nor any more demonstrably false.
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`BB. Misleading Statements Regarding Client Retention
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`The Plaintiffs contend that the statements recounted above were, if not false,
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`misleading because CVS failed to contemporaneously reveal the extent of the
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`customer losses it was sustaining. (ECF No. 69 at 19.) The Amended Complaint does
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`not allege affirmative false statements about client retention. Instead, it relies on a
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`theory that the omission of client loss information throughout 2016 and much of 2017
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`was so fundamental, and the references to “difficulties with client retention” so
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`oblique and late when they began to emerge, that CVS Health’s financial statements
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`12
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`and pronouncements were misleading. Id. (citing Matrixx Initiatives, 563 U.S. at 44-
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`45).
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`There is no question that CVS Health was suffering significant customer loss.
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`Omnicare was at the time of its acquisition a leading distributor of pharmaceuticals
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`to LTC facilities. By bringing Omnicare’s pharmaceutical distribution network, and
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`its customer base, into what was later termed CVS/Retail, the CVS corporation
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`intended to harvest the increased revenues previously captured by Omnicare. CVS
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`to that point had served primarily a retail pharmacy clientele.
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`The Plaintiffs contend that soon after the acquisition, the CVS/Omnicare
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`operation began to lose customers “in droves” for several reasons, all due to CVS’s
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`lack of understanding of the LTC customer needs, its attempt to force LTC sales into
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`its templates for retail sales, its inability to maintain good relationships with
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`customers because
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`it substituted knowledgeable Omnicare employees with
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`inexperienced CVS account managers, and its overall mismanagement of the LTC
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`distribution. (See, e.g., ECF No. 38 at 50, 79-81, 104-07, ¶¶ 147, 239, 240, 241, 288,
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`291, 293, 295). The inability to retain customers was the result, allegedly, of
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`specifically described phenomena:
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`1. CVS Retail’s losing, by both voluntary and involuntary termination, several
`experienced customer service representatives who then “poached” their former
`Omnicare clients and brought them to their new employers.
`2. Customers reacting to poor customer service by either leaving CVS Health at
`the conclusion of their outstanding contracts or deliberately failing to make
`payments, resulting in cancellations of their contracts.
`3. CVS imposing new “synergies” on previous Omnicare customers that they did
`not like, such as centralized billing resulting in reimbursement delays,
`substituting account managers for customer service representatives, and
`forbidding district managers from meeting directly with LTC facilities.
`13
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`4. Attempting to run the LTC distribution network as it did its retail pharmacies,
`from several different distribution locations.
`5. Creating a bottleneck by untimely notifying account managers of new
`customers.
`The Plaintiffs proffer much support of their claim of actual customer losses.
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`They also demonstrate the many opportunities CVS passed up to include mention of
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`increasing customer retention problems. The critical question, however, is whether
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`the rosy prospects painted by CVS and its executives were explicit enough to move
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`past mere “puffery” and to create a positive outlook with sufficient clarity to render
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`those statements misleading without inclusion of the omitted information.
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`1. Substantiation of Loss of Customers
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`As a backdrop, the Amended Complaint relies on nineteen confidential
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`witnesses (“CWs”), most of them former CVS or Omnicare employees. (ECF No. 38
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`at 15-22, ¶¶ 46-69). Information from confidential witnesses may be relied upon if
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`the persons are sufficiently described and the information sufficiently detailed to
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`create an inference of personal knowledge of the circumstances described. In re
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`Cabletron Systems, 311 F.3d at 29 (adopting criteria of Novak v. Kasaks, 216 F.3d
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`300, 314 (2nd. Cir. 2000)). If they are not named, they must be sufficiently described
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`to support the probability that such a person would have the knowledge alleged. In
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`re Cabletron Systems, 311 F.3d at 29-30. Here, the CWs are described by their
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`14
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`roles,10 whether they were employed by CVS or Omnicare,11 their responsibilities
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`regarding customers,12 the geographic area or customer base they were affiliated
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`with,13 and, where otherwise not apparent, the basis of their knowledge.14 The
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`10 CWs 1, 2, 4, 6, and 7 were all consultant pharmacists. (ECF No. 38 at 15-
`17, ¶¶ 47, 48, 50, 53-54). CW3 was a staff pharmacist. Id. at ¶ 50. CW5 was director
`of public relations for Omnicare. Id. at ¶ 52. CW8 was regional director of human
`resources. Id. at ¶ 55. CW9 was a district manager. Id. at ¶56. CW10 was a regional
`manager. Id. at ¶58.
`11 CWs 1, 3, 14, and 15 worked for Omnicare before the acquisition and
`Omnicare LTC or CVS Health afterwards. Id. at ¶¶ 47, 50, 62, 65. CWs 2, 4, 5, 6,
`10-13 worked for Omnicare prior to the acquisition. Id. at ¶¶ 48, 51-53, 59-62.
`12 For example, CW2 “served for a time as the primary point of contact for LTC
`facilities,” “assist[ing] LTC facility leaders and staff in identifying, evaluating and
`addressing pharmacy-related concerns, ….”, as did CW 1. Id. at ¶¶ 47,48. CW3 filled
`prescriptions for approximately 180 skilled nursing and assisted living facilities.” Id.
`at ¶ 50.
`13 CW1 covered facilities in South Florida, Id. at ¶ 47; CW 2 “served over 100
`LTC facilities for Omnicare in Ohio,” Id. at ¶ 49. CW3 served the Saratoga Springs,
`N.Y. area. Id. at ¶ 50. CW7 handled eight accounts in New York and other areas in
`the eastern region. Id. at ¶ 54. CW 8 worked in the west region. Id. at ¶ 55. CW9
`worked in Southern California in 2015 and the region around St. Louis, Missouri,
`from 2016 to 2018. Id. at ¶ 56. Prior to the acquisition, CW10 managed all the
`Omnicare pharmacies in Missouri, Kansas, and Southern Illinois. Id. at ¶ 58.
`14 The former employees of Omnicare or CVS Health are described as working
`in the industry directly for competitors, or still involved in relationships with current
`Omnicare LTC employees. CW2, for example, “has kept in contact with individuals
`who remained with CVS Health after the acquisition[,]” and “has a close relationship
`with a former high-ranking executive of Omnicare who is now the CEO of Remedi
`SeniorCare (“Remedi”), an LTC pharmacy provider that competes with the Omnicare
`LTC business.” Id. at ¶ 48. He also “attended meetings of all Omnicare pharmacy
`managers in the area where loss of accounts and contract status were discussed.” Id.
`at ¶ 49. CW6 works for competitor Polaris Pharmacy Services in Fort Lauderdale,
`Fla. Id. at ¶ 53. CW11 works for competitor Skilled Care Pharmacy in Mason, Ohio.
`Id. at ¶ 59. CW12 left Omnicare to work for Wayne’s Drugs in Oswego, N.Y., an
`enterprise affiliated with Harbor Pharmacy, an LTC service provider in Syracuse. Id.
`at ¶ 60. He then worked for both Specialty RX and ProCare LTC, both LTC providers
`in the N.Y./Connecticut area. Id. CW13, who left an Omnicare affiliate in New York
`in 2014, “has maintained relationships with his former colleagues at Omnicare, CVS
`Health and the LTC industry in general.” Id. at ¶ 61. CW14 worked for an Omnicare
`affiliate until 2017 as a pharmacy technician, then supervising pharmacist and
`15
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`Amended Complaint describes the network within which information was shared
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`about business development and the customer base, particularly involving
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`dissatisfied customers and those about to leave Omnicare LTC. All Omnicare LTC
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`employees, specifically including upper management, had access to a tool called
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`SalesForce which “track[ed] customers, including customer performance and losses
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`of accounts.” Id. at ¶¶ 57, 64. In addition, some CWs described regular telephone
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`calls with management to discuss customer gains and losses.15 The Amended
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`Complaint ties various factual allegations to specific CWs16 and therefore, together
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`with the description of who the CWs are, demonstrates a sufficient basis for personal
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`knowledge. The Court finds that the confidential witnesses are sufficiently described,
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`both as to their roles and their knowledge base, as to warrant reliance on their
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`allegations for purposes of this Motion to Dismiss.
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`Having sufficiently established the basis of the allegations, the Plaintiffs also
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`establish the significant client retention loss that they attribute to CVS operations
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`after the acquisition. The customer base the Amended Complaint focuses on is that
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`of skilled nursing facilities. At the time of acquisition in May 2015, Omnicare was a
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`general manager; he currently works for Prescription Center, a LTC pharmacy. Id.
`at ¶ 62.
`15 CW14 had weekly calls with account managers and monthly calls with other
`general managers. Id. at ¶¶ 63, 64. CW14 maintains that there were regular calls
`upper management at Omnicare and CVS Health, specifically including Defendant
`Kraft, to discuss pharmacy performance and customer losses. Id. at ¶ 64.
`16 For example, the information about loss of customers to Remedi is attributed
`to CW2, who is alleged to have a close personal relationship with the CEO of Remedi.
`Id. at ¶ 48. Similarly, CW3, who provided information about the loss of customers in
`upstate New York (Id. at ¶ 122), covered the Saratoga Springs, N.Y. area. Id. at ¶
`50.
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`16
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`leading provider of pharmaceuticals to skilled nursing facilities. The Amended
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`C