UNITED STATES DISTRICT COURT
`MIDDLE DISTRICT OF TENNESSEE
`NASHVILLE DIVISION
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`ROBERT STROUGO, individually and )
`on behalf of all others similarly situated,
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`No. 3:20-cv-00165
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`Plaintiffs,
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`v.
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`TIVITY HEALTH, INC., et al.,
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`Defendants.
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`MEMORANDUM OPINION
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`Pending before the Court in this securities action relating to Tivity Health Inc.’s acquisition
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`of Nutrisystem, Inc. is Plaintiff Sheet Metal Workers Local No. 33’s Motion for Class Certification
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`(Doc. No. 125). That motion has been fully briefed by the parties (Doc. Nos. 126, 131, 149), an
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`evidentiary hearing was held at Tivity’s request (Doc. No. 133), and supplemental briefs have been
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`filed (Doc. Nos. 168, 172). For the reasons that follow, Plaintiff’s Motion for Class Certification
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`will be granted.
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`I. Background
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`The alleged facts underlying this case were set out in a prior opinion of this Court relating
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`to Defendants’ Motion to Dismiss. Drawn from the Consolidated Complaint (Doc. No. 105), those
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`facts are as follows:
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`Tivity Health, Inc. provides fitness and wellness programs geared toward senior
`citizens. (Compl. ¶ 2). Donato Tramuto served as Tivity’s Chief Executive Officer
`and Adam Holland served as Chief Financial Officer. (Id. ¶¶ 23, 25). Hoping to
`expand the business in the face of intense competition, Tivity acquired Nutrisystem,
`a company known for its diet programming, for $1.3 billion. (Id. ¶¶ 6, 41–43, 51,
`123). Following the acquisition, which became final on March 8, 2019, Dawn Zier,
`who was Nutrisystem’s former top executive, became Tivity’s President and Chief
`Operating Officer. (Id. ¶¶ 6, 24).
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`It is alleged that Tivity painted a deceitfully rosy picture of the Nutrisystem
`acquisition (the “Nutrisystem Claim”).1 (Id. ¶¶ 52–77). Executives misled investors
`about Nutrisystem’s performance in the beginning of 2019 and the acquisition’s
`impact on Tivity’s new “nutrition segment.” (Id). Tivity misstated that the new
`segment was “on track” and “performing well” despite its poor performance from the
`onset. (Id. ¶¶ 8–9, 54–55, 80, 98, 181). At the heart of Tivity’s alleged cover-up were
`misstated financial statistics. Specifically, the company reported that its adjusted
`earnings before interest, taxes, depreciation, and amortization (“EBITDA”) was
`$13.3 million.(Id. ¶ 8). But this number failed to account for an $8.3 million loss that
`resulted in an actual adjusted EBITDA of $5 million. (Id. ¶¶ 8–9, 53–54, 56, 88,
`94–95, 98, 178).
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`In August 2019, Defendants again told investors that Tivity’s nutrition segment
`results were “on track according to plan,” (Id. ¶¶ 10, 64, 69, 101), and continued to
`report an adjusted EBITDA that failed to account for the $8.3 million loss. (Id. ¶¶ 9,
`54 67–69, 74–76, 98(a), 107(a), 119(a)). Despite these assurances, however, Tivity
`launched a “Buy One, Get One Free” offer to customers, allegedly to recoup the
`hidden Nutrisystem losses. (Id. ¶ 12). Soon after the offer’s launch, on December 9,
`2019, Zier was “mutually terminated” without explanation. (Id. ¶ 13).
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`Then, on February 19, 2020, Defendants disclosed, for the first time in nearly a year,
`the $8.3 million adjusted EBITDA loss. (Id. ¶¶ 14, 78–83, 174, 179). Executives also
`admitted to the weaknesses of the Nutrisystem acquisition and announced a charge
`that reduced the value of the goodwill associated with the acquisition (the “Goodwill
`Claim”). ((Id.; see also ¶¶ 15, 79, 173).
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`Lead Plaintiff Sheet Metal Workers Local No. 33, Cleveland District, Pension Fund
`acquired Tivity securities between March 8, 2019 and February 20, 2020.2 They
`brought this putative class action under Federal Rule of Civil Procedure 23 against
`Tivity, Tramuto, Holland, and Zier (“Defendants”) on behalf of all those who
`purchased Tivity securities during that period. (Id. ¶¶ 21, 192).
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`(Doc. No. 116 at 1-3, Strougo v. Tivity Health, Inc., 551 F. Supp. 3d 839, 844-45 (M.D. Tenn. 2021)
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`(footnote omitted).
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`Based upon those alleged facts and the record that has been developed, Plaintiff seeks to
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`certify a class consisting of the following:
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`1 Although not identified as such in the Complaint, Tivity characterizes Plaintiff’s claims as being
`the “Nutrisystem,” “Goodwill,” and “Scheme” Claims.
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`2
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`All persons who purchased or otherwise acquired the common stock of Tivity Health,
`Inc. between March 8, 2019, and February 19, 2020, inclusive. Excluded from the
`Class are Tivity, Donato Tramuto, Adam C. Holland, and Dawn Zier, members of
`their immediate families, and any entity of which Defendant has a controlling
`interest, and the legal representatives, heirs, predecessors, successors, or assigns of
`any excluded party.
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`(Doc. No. 126 at 1). Plaintiff also requests that Robbins Geller Rudman & Dowd LLP be appointed
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`as Class Counsel. (Id.).
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`II. Standards Governing Class Certification
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`Class actions are “‘an exception to the usual rule that litigation is conducted by and on behalf
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`of the individual named parties only.’” Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013) (quoting
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`Califano v. Yamasaki, 442 U.S. 682, 700–701 (1979)). Consequently, a class action can be certified
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`only if, “after rigorous analysis,” a court is satisfied that the prerequisites of Rule 23(a) have been
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`met and that the action falls within one of the categories under Rule 23(b). Wal-Mart Stores, Inc. v.
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`Dukes, 564 U.S. 338, 350 (2011); Zehentbauer Family Land, LP v. Chesapeake Expl., L.L.C., 935
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`F.3d 496, 503 (6th Cir. 2019).
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`Rule 23(a) establishes four requirements for class certification: (1) the class is so numerous
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`that joinder of all members is impracticable; (2) there are questions of law or fact common to the
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`class; (3) the claims or defenses of the representative parties are typical of those of the class; and (4)
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`the representative parties will fairly and adequately protect the interests of the class. Fed. R. Civ.
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`P. 23(a). “These four requirements – numerosity, commonality, typicality, and adequate
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`representation – serve to limit class claims to those that are fairly encompassed within the claims of
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`the named plaintiffs because class representatives must share the same interests and injury as the
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`class members.” In re Whirlpool Corp. Front-Loading Washer Prod. Liab. Litig., 722 F.3d 838, 850
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`3
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`(6th Cir. 2013). Rule 23(b), in turn, provides in pertinent part that when the requirements of Rule
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`23(a) are met a class action may be maintained if “the court finds that the questions of law or fact
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`common to class members predominate over any questions affecting only individual members, and
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`that a class action is superior to other available methods for fairly and efficiently adjudicating the
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`controversy.” Fed. R. Civ. P. 23(b).
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`The decision whether to certify a class is committed to the sound discretion of the district
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`judge, and turns on the particular facts and circumstances of each individual case. In re Whirlpool,
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`722 F.3d at 850. This may require “the court to probe behind the pleadings before coming to rest
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`on the certification question,” and this “analysis will frequently entail ‘overlap with the merits of the
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`plaintiff’s underlying claim.’” Comcast, 569 U.S. at 33 (quoting Dukes, 564 U.S. at 350).
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`Nevertheless, at the class certification stage, the court can only consider “those matters relevant to
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`deciding if the prerequisites of Rule 23 are satisfied,” and “may not ‘turn the class certification
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`proceedings into a dress rehearsal for the trial on the merits.’” In re Whirlpool, 722 F.3d at 851-52
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`(quoting Messner v. Northshore Univ. Health Sys., 669 F.3d 802, 811 (7th Cir. 2012)).
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`III. Application of the Governing Standards
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`“In securities class action cases, the crucial requirement for class certification will usually
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`be the predominance requirement of Rule 23(b)(3).” Halliburton Co. v. Erica P. John Fund, Inc.
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`(“Halliburton II”), 573 U.S. 258, 276 (2014). This is because “Rule 23(b) requires a showing that
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`questions common to the class predominate . . . in favor of the class.” Amgen Inc. v. Connecticut
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`Ret. Plans & Tr. Funds, 568 U.S. 455, 459 (2013) (emphasis in original). “Common questions are
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`those ‘that can be proved through evidence common to the class.’” Bridging Communities Inc. v.
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`Top Flite Fin. Inc., 843 F.3d 1119, 1124 (6th Cir. 2016) (quoting In re Whirlpool Corp., 722 F.3d
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`4
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`at 858). That said, “plaintiffs seeking class certification ‘need not prove that each element of a claim
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`can be established by classwide proof: What the rule does require is that common questions
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`predominate over any questions affecting only individual [class] members.’” Id. “In other words,
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`‘[t]o satisfy the predominance requirement in Rule 23(b)(3), a plaintiff must establish that the issues
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`in the class action that are subject to generalized proof, and thus applicable to the class as a whole,
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`. . . predominate over those issues that are subject only to individualized proof.’” Id. at 1124-25
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`(quoting Beattie v. CenturyTel, Inc., 511 F.3d 554, 564 (6th Cir. 2007)).
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`This is precisely the issue here, with Tivity arguing that the predominance factor is not met
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`for three reasons: (1) lack of reliance; (2) the incapability of measuring damages on a classwide
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`basis, and (3) the lack of a common “scheme” to defraud investors.
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`A. Reliance
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`Tivity notes “[i]t is axiomatic that Plaintiff must prove as an essential element of its securities
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`fraud claims that it relied on the allegedly false or misleading statements when purchasing stock.”
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`(Doc. No. 131 at 1) (citing Amgen Inc., 568 U.S. at 462-63. Tivity also argues that “because
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`reliance is an essential element of Plaintiff’s claims, and the inquiry into reliance is inherently
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`individualized. . . . Plaintiff must establish that a presumption of reliance applies to obtain class
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`certification.” (Id. at 7) (citing Halliburton II, 573 U.S. at 263). Although the Court agrees with both
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`propositions of law, it cannot conclude, as Tivity does, that Plaintiff is not entitled to class
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`certification based upon its alleged inability to prove reliance.
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`Reliance is “essential” because “proof of reliance ensures that there is a proper connection
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`between a defendant’s misrepresentation and a plaintiff’s injury.” Erica P. John Fund, Inc. v.
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`Halliburton Co. (“Halliburton I”), 563 U.S. 804, 810 (2011). Although the “traditional (and most
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`direct) way” for a plaintiff to demonstrate reliance is by showing that he was aware of a company’s
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`statement and engaged in a relevant transaction . . . based on that specific misrepresentation,” this
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`is often unfeasible and “places an unnecessarily unrealistic evidentiary burden on the [securities]
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`plaintiff who has traded on an impersonal market.” Basic Inc. v. Levinson, 485 U.S. 224, 245 (1988).
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`Furthermore, “[r]equiring proof of individualized reliance from each member of the proposed
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`plaintiff class effectively” would prevent such plaintiffs “from proceeding with a class action, since
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`individual issues” would “overwhelm[ ] the common ones.” Id. at 242. To address those problems,
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`the Supreme Court in Basic established a rebuttable presumption for securities plaintiffs under a
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`“fraud on the market theory” that is based on this hypothesis:
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`“[I]n an open and developed securities market, the price of a company’s stock is
`determined by the available material information regarding the company and its
`business . . . . Misleading statements will therefore defraud purchasers of stock even
`if the purchasers do not directly rely on the misstatements. . . . The causal connection
`between the defendants’ fraud and the plaintiffs’ purchase of stock in such a case is
`no less significant than in a case of direct reliance on misrepresentations.”
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`Id. at 241-242 (quoting Peil v. Speiser, 806 F.2d 1154, 1160–1161 (3rd Cir. 1986)); see also In re
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`BancorpSouth, Inc., No. 17-0508, 2017 WL 4125647, at *1 (6th Cir. Sept. 18, 2017) (“The Basic
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`fraud-on-the-market presumption is based on the premise that market professionals generally
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`consider most publicly announced material statements about companies, thereby affecting stock
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`market prices.”).
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`Application of the presumption announced in Basic is not automatic, however. Instead, “a
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`plaintiff must make the following showings to demonstrate that the presumption of reliance applies
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`in a given case: (1) that the alleged misrepresentations were publicly known, (2) that they were
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`material, (3) that the stock traded in an efficient market, and (4) that the plaintiff traded the stock
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`between the time the misrepresentations were made and when the truth was revealed.” Halliburton
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`II, 573 U.S. at 258.
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`Nor is the Basic presumption conclusive: “Any showing that severs the link between the
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`alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to
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`trade at a fair market price, will be sufficient to rebut the presumption of reliance.” Basic, 485 U.S.
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`at 248. “So for example, if a defendant could show that the alleged misrepresentation did not, for
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`whatever reason, actually affect the market price, or that a plaintiff would have bought or sold the
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`stock even had he been aware that the stock’s price was tainted by fraud, then the presumption of
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`reliance would not apply.” Halliburton II, 573 U.S. at 269.
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`Here, the Consolidated Complaint alleges – and there is seemingly no dispute – that Tivity’s
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`stock price fell $10.43 per share, or 45.59% to close at $12.50 per share on February 20, 2020. This
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`occurred after Tivity issued a release the day before “announcing its financial results for 4Q19 and
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`FY19.” (Doc. No. 105, Cmpl. ¶ 172). The release disclosed (1) Tivity’s “Nutrition segment had a
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`disappointing end to 2019”; (2) the “4Q19 Nutrition segment revenues came in at $113.7 million”
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`which was “a 12.2% decrease compared to the same quarter last year”; (3) the “4Q19 Nutrition
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`segment adjusted EBITDA totaled $13.9 million, which missed analysts’ expectations”; and (4)
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`Tramuto had been summarily fired. (Id., ¶¶ 172, 175). In a conference call that same day, newly-
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`appointed interim executives admitted that “the nutrition business has not worked out as well as
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`planned since the completion of the acquisition in March 2019”; “last year was a step backward”;
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`and “after experiencing a year of decline in new customers, industry history shows it’s a tremendous
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`challenge to reverse the trend for the next diet season.” (Id. ¶ 174).
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`Notwithstanding the dramatic drop in stock value when news of Nutrisystem’s poor
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`performance broke on February 20, 2020, Tivity argues that the Basic presumption is unwarranted
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`because the allegedly corrective information in that earnings release had been previously disclosed
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`to the market, meaning that it could not have impacted the price on February 19, 2020. (Doc. No.
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`131 at 11). That is, Plaintiff has not shown a price impact, either on the front end or back end.2
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`As already noted, Plaintiff’s primary contention is that Tivity made materially false or
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`misleading statements or omission beginning on March 8, 2019. Such statements allegedly
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`continued, with Tivity including reporting on August 7-8, 2019 that the Nutrition segment was
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`experiencing “early success,” that it was “pleased with [the] results,” and again on November 11-12,
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`2019 reassuring investors that its Nutrition segment was “on track” and “on plan.” (Doc. No. 105,
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`Consol. Compl. ¶¶ 10, 100-105). Absent from the statements and disclosures was Nutrisystem’s
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`poor performance for the portion of Q1 2019 occurring before the Tivity-Nutrisystem merger closed
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`(“the Q1 Stub Period”). Specifically, Plaintiff alleges “Tivity concealed that Nutrisystem incurred
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`a massive $8.3 million loss during the premerger weeks of first quarter 2019 (“1Q19”), resulting in
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`an actual adjusted EBITDA of a mere $5 million for 1Q19, or 62% lower than the $13.3 million they
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`reported post-merger.” (Doc. No. 126 at 3).
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`In support of its position that there was no price impact notwithstanding Plaintiff’s
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`allegations and the release and statements on February 19, 2020, Tivity begins by asserting that, on
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`2 “There are two ways that a defendant can show lack of price impact. First, a defendant can provide
`direct ‘evidence of no front-end price impact’ – meaning that when an alleged misrepresentation was made,
`it ‘had no discernable impact on [the] stock price.’ Second, a defendant can [provide] evidence of no
`back-end price impact – meaning that there was no decrease in price following a claimed corrective
`disclosure.” In re Chicago Bridge & Iron Co. N.V. Sec. Litig., No. 17 CIV. 01580 (LGS), 2019 WL
`5287980, at *7 (S.D.N.Y. Oct. 18, 2019). See also Zwick Partners, LP v. Quorum Health Corp., No.
`3:16-CV-02475, 2019 WL 1450546, at *10 (M.D. Tenn. Mar. 29, 2019). In short, “price impact may be
`demonstrated either at the time the alleged misrepresentations were made [front-end], or at the time of their
`correction [back-end].” In re Bancorp South, Inc., 2017 WL 4125647 at *1.
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`8
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`various occasions, it disclosed the “weak 2019 diet season[.]” (Doc. No. 131 at 11). For example,
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`on February 19, 2019, “Nutrisystem management noted during a joint earning conference call with
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`Tivity that ‘early diet seasons trends indicate mixed results’ and the ‘response in January started out
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`softer than anticipated.’” (Doc. No. 131 at 11). Further, during an earnings conference call on May
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`9, 2019, Tivity noted that “January and February did start of a little weaker than expected.” (Id. at
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`11-12). Also on May 9, 2019, “Tivity provided pro forma review and earning for Q1 2019 adjusted
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`to include operating results of Nutrisystem from January 1, 2019 to March 7, 2019,” and those
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`results showed that “net income decreased by approximately $8.8 million” when Nutrisystem’s
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`performance during that period was included. (Id. at 12).
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`Those same arguments were addressed and rejected by the Court in ruling on Tivity’s
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`Motion to Dismiss. As the Court pointed out, the allegations are that Tivity repeatedly assured
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`investors on several occasions during that class period that “the nutrition segment has ‘performed
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`well across several key metrics,’ including revenue and adjusted EBITDA,’ and that the segment’s
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`performance was ‘on track.’” (Doc. No. 116 at 6) (citations to Complaint omitted). Furthermore,
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`the EBITDA was “the key metric . . . ‘used to evaluate performance,’” and Tivity doubled down
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`on that metric in “specific press releases, conference calls, SEC filings, and investor presentations.”
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`(Id.). While Tivity may have stated that the Nutrition Segment started off “a little [“softer” or]
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`weaker than expected,” and “indicated mixed results,” this does not address Plaintiff’s central
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`allegation that Tivity never disclosed the Nutrition segment’s $8.3 million net loss until February
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`19, 2020. The “pro forma review” on May 9, 2019 showing a net income decrease of $8.8 million
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`hardly sufficed to establish investor knowledge because it did not show the adjusted EBITDA.
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`Indeed, Tivity was informed that investors found the Nutrition Segment Q1 EBITDA “difficult to
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`understand,” with one investor stating that Tivity was “hiding NTRI Q1 EBITDA,” and another
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`indicating he “could not follow the EBITDA for the nutrition business – full year vs stub period[.]”
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`(Doc. No. 147-5, 146-6 at 11, 22). A Jefferies analyst commented that “[w]e don’t think that
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`[Nutrisystem’s pre-transaction EBITDA losses] has been fully appreciated by investors,” although
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`Jefferies guesstimated Nutrisystem’s Stub Period EBITDA losses to be around $9 million. An
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`analyst at Crag-Hallum, on the other hand, concluded in both August and November 2019 that
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`“January and February are roughly breakeven in EBITDA for Nutrisystem.” (Doc. No. 184-4 at 13).
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`In an effort to shore up its argument that there was no price impact with the adjusted
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`EBITDA revelation on February 19, 2020, Tivity relies primarily upon the expert opinion of Dr.
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`Paul A. Gompers, the Eugene Holman Professor of Business Administration at the Harvard
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`Business School.3 In both his expert report (Doc. No. 132-1) and at the evidentiary hearing before
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`the Court, Dr. Gompers presented several reasons why he believed the market already knew about
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`Nutrisystem’s poor performance before the February 19, 2020 disclosures. Tivity succinctly
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`summarizes those reasons as follows:
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`First, before the start of the alleged class period, on February 19, 2019, Tivity issued
`its projected revenue and EBITDA guidance for FY 2019. Although the
`Nutrisystem merger had not closed, the deal had been announced, and thus Tivity
`also included in its release a reference to Nutrisystem’s announced projections,
`noting that Nutrisystem’s performance would only impact Tivity following the close
`of the deal. That Nutrisystem guidance projected that Nutrisystem “would earn
`between 100 and $110 million of EBITDA” in 2019, with the first quarter
`accounting for 5-6%, or approximately $5-$6.6 million. At this time, neither Tivity
`nor Nutrisystem disclosed Nutrisystem’s actual performance for Q1 2019, but that
`was to be expected, as the quarter was still in progress[.]
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`3 The Court found Dr. Gompers to be a credible witness for the most part, but was underwhelmed
`by his testimony.
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`Second, on May 8 and 9, 2019, after the merger with Nutrisystem closed, Tivity
`issued its earnings release and Form 10-Q for Q1 2019. These disclosures revealed
`the performance of the company overall for Q1 2019, as well as the results of
`Tivity’s two new divisions: the Healthcare Segment (Tivity’s legacy business), and
`the Nutrition Segment (Nutrisystem’s legacy business). With respect to the Nutrition
`Segment, the release and Form 10-Q noted that Tivity was reporting only
`Nutrisystem’s Q1 performance for the period of the quarter when Tivity actually
`owned Nutrisystem. Tivity thus disclosed that Nutrisystem earned $13.3 million in
`EBITDA for the portion of Q1 when it was owned by Tivity. At the same time,
`however, to provide investors insight into what the company’s performance would
`have looked like for Q1 2019 if Tivity had owned Nutrisystem for the full quarter,
`Tivity also included pro forma financial statements in its Form 10-Q. Those pro
`forma financial statements revealed to investors that Nutrisystem had a net income
`loss of $8.8 million for the Q1 Stub Period.
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`Tivity also re-affirmed its 2019 guidance that had been issued in February 2019. See
`Ex. 3 at 3. That guidance, as noted above, indicated to the market that Nutrisystem
`expected to earn $5-$6.6 EBITDA million during all of Q1 2019, and that is exactly
`what happened. Nutrisystem’s actual Q1 2019 EBITDA of $5 million met the
`company’s guidance.
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`Third, on August 7, 2019, Tivity issued its earnings release for Q2 2019. In addition
`to reporting Q2 2019 earnings, Tivity lowered its 2019 earnings guidance from what
`had been announced in February. And, along with its release, Tivity provided an
`earnings supplement presentation, which walked through the Q2 performance and
`compared the revised guidance to the initial guidance, both for the full company and
`for the separate reporting segments. For the Nutrition Segment, Tivity further
`provided a comparison of the revised guidance for the period of the year when
`Tivity owned Nutrisystem versus what that guidance would look like had Tivity
`owned Nutrisystem for the full year. “[B]ecause the only difference between those
`two numbers is the performance of Nutrisystem before Tivity owned it . . . that
`difference represents the EBITDA performance of Nutrisystem from January 1st to
`March 7th,” which revealed a $9 million EBITDA loss for Nutrisystem’s Q1 Stub
`Period.
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`(Doc. No. 168 at 4-5) (internal citations omitted). “Both as a matter of financial economics and
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`commonsense,” Tivity argues, these disclosures “prove that the information Plaintiff claims
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`revealed the ‘truth’ of the Nutrisystem Claim – i.e. the February 19, 2020 disclosure of
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`Nutrisystem’s $8.3 million EBITDA loss – did not impact stock price.” (Id. at 7).
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`Recently, the Supreme Court addressed price impact and the Basic presumption, holding
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`that “[t]he defendant bears the burden of persuasion to prove a lack of price impact.” Goldman
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`Sachs Grp., Inc. v. Arkansas Tchr. Ret. Sys., 141 S. Ct. 1951, 1963 (2021). This burden is by a
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`preponderance of the evidence: “The defendant must ‘in fact’ seve[r] the link between a
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`misrepresentation and the price paid by the plaintiff – and a defendant’s mere production of some
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`evidence relevant to price impact would rarely accomplish that feat.” Id. at 1962. “The district
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`court’s task is simply to assess all the evidence of price impact – direct and indirect – and determine
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`whether it is more likely than not that the alleged misrepresentations had a price impact.” Id. at
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`1963.
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`To sever the link in this case, Tivity must show a complete lack of price impact. Waggoner
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`v. Barclays PLC, 875 F. 3d 79, 99-103 (2d Cir. 2017); In re Chicago Bridge & Iron Co. N.V. Sec.
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`Litig., No. 17 CIV. 1580 (LGS), 2020 WL 1329354, at *4 (S.D.N.Y. Mar. 23, 2020); Monroe Cnty.
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`Employees' Ret. Sys. v. S. Co., 332 F.R.D. 370, 395–96 (N.D. Ga. 2019); City of Cape Coral Mun.
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`Firefighters’ Ret. Plan v. Emergent Biosolutions, Inc., HQ, 322 F. Supp. 3d 676, 687 (D. Md.
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`2018). Tivity has not come close to carrying its burden.
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`To begin, if it is true that investors knew about Nutrisystem’s lagging performance before
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`the February 19, 2020 disclosures, then the argument can be made that (1) the disclosures were not
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`material; and (2) materiality is not suitable for determination at the class certification stage. See
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`Id. at 459 (holding that “[w]hile [plaintiff] certainly must prove materiality to prevail on the merits,
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`. . . such proof is not a prerequisite to class certification”). Indeed, Plaintiff forwards that as one
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`basis to reject Tivity’s loss causation argument.
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`To be sure, the securities laws “overlap[] to some extent,” Lorenzo v. Sec. & Exch.
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`Comm’n, 139 S. Ct. 1094, 1109 (2019), but this does not mean, as Plaintiff argues, that the
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`“materiality question [] is superfluous to the Court’s Rule 23 analysis[.]” (Doc. No. 172 at 1).
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`Indeed, to so hold would require the “court to split some very fine hairs” because, under Hallburton
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`II, “a district court must be willing to consider evidence offered by the defense to show that the
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`alleged misrepresentations did not actually affect the price of the securities.” In re Allstate Corp.
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`Sec. Litig., 966 F.3d 595, 600, 608 (7th Cir. 2020). Accordingly, the Court turns to Gompers’
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`opinion and the substantive reasons why Tivity has not shown by a preponderance of the evidence
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`that its alleged misstatements had no price impact.
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`At the hearing, Gompers testified that “what Nutrisystem said on February 19, 2019, was
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`that they would earn between 5 and $6.6 million of EBITDA in the first quarter of 2019, for the
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`whole quarter, from January 1st to March 31st.” (Doc. No. 164 at 19). He then pointed out that
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`Nutrisystem’s actual 1Q19 EBITDA was $5 million, which was within the projections. (Id. at 20).
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`All this may be true, but it is unhelpful and does not add even a feather to Tivity’s side of the
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`preponderance of the evidence scale. This is because the Form 8-K relied upon by Gomper was not
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`filed until February 19, 2020. That day is the last day of the proposed class period and hence class
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`members would not have been in a position to make the comparison that Gomper’s made.
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`Dr. Gompers also asserted that investors should have known about the financial state of
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`Nutrisystem and its approximate 1Q19 EBITDA on August 7, 2019 when Tivity issued a release
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`announcing its 2Q19 financial results, as well as guidance for the remainder of FY19. Attached to
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`the Form 8-K filed with the SEC on that day was a “Q2 2019 Earning Release – Supplemental
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`Material” that included a “Consolidated Basis – Updated 2019 Financial Guidance” chart, as well
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`as a “Nutrisystem Stand-Alone Full Year Basis – Updated 2019 Financial Guidance” chart. (Pf’s
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`Hrg. Exh. Tab 9).
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`Those charts show Nutrition Segment guidance ranges for all of FY19, as well as for just
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`the post-acquisition (March 8, 2019 to the end of the year) period. Dr. Gompers testified that
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`because the only difference between the guidance ranges was whether the Stub Period was included,
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`investors were in a position to approximate Nutrisystem’s Stub Period EBITDA by simply
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`calculating the difference between the midpoints of the two guidance ranges. By his calculation,
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`this difference was $9 million based upon the information contained in the following table from the
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`Supplemental Material:
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`(Pf. Hrg. Exh. Tab 9). Looking at the first column, the mid-point of the Nutrition Segment
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`Adjusted EBITDA for the Stub Period is $82 (80+84=164÷2=82), and the mid-point of the
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`Nutrition Segment Adjusted EBITDA for the year $73 (71+75=156÷2=73). This leaves a difference
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`of $9 million (82-73=9).
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`Why reasonable investors would necessarily take it upon themselves to make the calculation
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`is unclear, particularly given that the calculation comes from the last page of the Supplemental
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`Material. See Lea v. TAL Educ. Grp., 837 F. App'x 20, 28 (2d Cir. 2020) (collecting cases for the
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`proposition that “‘buried’ information is insufficient to constitute adequate disclosure”). Moreover,
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`nothing in the materials informs investors which chart should be used, or why the “2019 Guidance
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`Updated” column should be used over the “2019 Guidance Original” column. If one does the same
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`math utilizing the second column, the midpoint of the Nutrition Segment Adjusted EBITDA Stub
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`Period is $96 (91+101=192÷2=96), the mid-point of the Nutrition Segment Adjusted EBITDA for
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`the year is $96, leaving a difference of $1 million (96-95=1). The reason for an $8 million
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`difference between the columns is unexplained in the Form 8-K.
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`In addition to the foregoing, Dr. Gompers criticizes an “event study” performed by
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`Plaintiff’s expert, W. Scott Dalrymple, C.F.A., that showed a cause-and-effect relationship between
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`the release of new, Tivity-specific information (good or bad), and the movement in Tivity’s stock
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`price (up or down). (Doc. No. 127-2, Dalrymple Rpt. ¶¶ 51-69). However “there generally ‘is no
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`reason to burden the court with review of an event study and the opposing expert’s attack of it,’”
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`unless “‘defendants present evidence of lack of price impact or that the market was inefficient,’”
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`neither of which Tivity has done. Weiner v. Tivity Health, Inc. (Tivity I”), 334 F.R.D. 123, 134
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`(M.D. Tenn. 2020) (quoting Angley v. UTi Worldwide Inc., 311 F. Supp. 3d 1117, 1126 (C.D. Cal.
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`2018)). “Besides, ‘[d]ebates about the precise degree to which stock prices accurately reflect public
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`information are ... largely beside the point.’” Id. (quoting Halliburton II, 573 U.S. at 272) (emphasis
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`in original).
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`Based on the evidence presented, the Court cannot say “‘news of [the allegedly concealed
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`truth] credibly entered the market and dissipated the effects of the misstatement,’” or that “‘the
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`causal connection between the alleged fraud and the market price was broken’” before the release
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`and statements on February 19, 2020. Id. (quoting In re Allstate Corp. 966 F.3d at 606). Even if it
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`did, Gompers’ opinion does not address Plaintiff’s “Goodwill” as opposed to the “Nutrisystem”
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`Claim.