Deerfield Beach Police Pension Fund v. Quality Systems, Inc.
|Court:||United States District Court, Central District of California|
|Judge:||Hon. Cormac J. Carney|
|Case Contacts:||Gerald H. Silk, Avi Josefson, Benjamin Galdston|
Securities fraud class action on behalf of purchasers of Quality Systems, Inc. (“QSI” or the “Company”) common stock during the time period from May 26, 2011 through July 25, 2012, inclusive (the “Class Period”), alleging claims pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against QSI; the Company’s founder and Chairman, Sheldon Razin; its Chief Executive Officer, Steven T. Plochocki; and its Chief Financial Officer, Paul Holt (collectively, “Defendants”).
QSI develops and sells practice management software to medical and dental providers, including software related to scheduling and billing. Throughout the Class Period, QSI portrayed itself as a high-growth company, repeatedly touting its record growth in revenue and earnings, and robust pipeline of business that contained hundreds of millions of dollars of software sales that the Company sought to realize within the next six to eight months. QSI also repeatedly issued bullish annual guidance to investors, stating that it was confident that it would achieve annual growth rates in earnings per share (“EPS”) well in excess of 20%.
In truth, Defendants knew and recklessly disregarded that QSI’s growth was materially slowing. Indeed, throughout the Class Period, Defendants were privy to real-time data concerning the revenues and earnings of each of QSI’s operating divisions, and QSI’s guidance was continuously updated based on that real-time data. Accordingly, Defendants knew and recklessly disregarded that the fiscal 2012 guidance calling for earnings growth of as much as 33% was directly contradicted by the reality of QSI’s performance.
On May 7, 2012, the Company announced that it was experiencing delays in closing sales, which raised investor concerns about the Company’s fiscal 2012 performance. As a result of these concerns, QSI’s stock price declined 17% over the next two trading days, falling from a closing price of $36.99 on May 6 to a closing price of $30.99 on May 8, on very high volume.
A few days later, on May 10, 2012, QSI revealed that, contrary to its prior statements touting its continued record growth, its ability to generate earnings had materially slowed in fiscal 2012. Specifically, QSI announced that it would report EPS of between $1.27 and $1.30 for fiscal 2012 – or as much as 36% below its guidance. Following this announcement, QSI’s stock price immediately declined 6%, falling from $32.09 to $30.12 on May 10, on extremely high volume.
Then, before the market opened on July 26, 2012, Defendants announced that the Company’s EPS had materially declined from the year-ago quarter, and withdrew QSI’s highly favorable fiscal 2013 guidance. That disclosure caused the price of QSI stock to decline from $23.63 per share to $15.95 per share on July 26, 2012.
On April 7, 2014, the Court-appointed Lead Plaintiffs, Arkansas Teacher Retirement System and the City of Miami Fire Fighters’ and Police Officers’ Retirement Trust, filed an Amended Complaint For Violations Of The Federal Securities Laws (“Amended Complaint”). On June 20, 2014, Defendants filed a motion to dismiss the Amended Complaint, which Lead Plaintiffs opposed. On October 20, 2014, following oral argument, the court granted Defendants’ motion to dismiss with prejudice. On November 17, 2014, Lead Plaintiffs filed a motion for reconsideration seeking leave to amend the Amended Complaint, which Defendants opposed. On January 5, 2015, the Court denied Lead Plaintiffs’ motion for reconsideration. Lead Plaintiffs appealed the case to the Ninth Circuit Court of Appeals. The parties have fully briefed the appeal, which is currently under submission.