Robbins Geller Wins Appeal in Ninth Circuit for Quality Systems Investors

On July 28, 2017, the United States Court of Appeals for the Ninth Circuit ruled in plaintiffs’ favor in the Quality Systems securities case, reversing the district court’s prior dismissal of the action. Quality Systems, Inc. (“QSI”) sells practice management and electronic health records software and related services to medical and dental practices nationwide. 

The case charges defendants with violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934.  Specifically, the case alleges that defendants violated the federal securities laws by disseminating false and misleading statements and projections during the class period to the investing public regarding QSI’s business performance and revenue and earnings growth for fiscal years 2012 and 2013, as well as QSI’s product sales and the market demand for QSI’s products.  As a result of defendants’ false statements and omissions, shares of QSI traded at artificially inflated prices during the class period, reaching a class period-high of $50.04 per share on September 27, 2011.  In violation of §10(b)’s prohibition on trading on material non-public information, defendant Steven T. Plochocki profited from the artificially inflated share price by dumping nearly 90% of his QSI holdings, prior to the public disclosure of defendants’ fraud and when QSI’s stock price was near its all-time high.

Following appellate briefing and oral argument, a three-judge Ninth Circuit panel reversed the dismissal in a unanimous, published decision spanning 37 pages. Writing for the court on an acknowledged issue of first impression concerning “mixed” future and present-tense misstatements, Judge William A. Fletcher explained that “non-forward-looking portions of mixed statements are not eligible for the safe harbor provisions of the PSLRA . . . . Defendants made a number of mixed statements that included projections of growth in revenue and earnings based on the state of QSI’s sales pipeline.” The panel also held that “both the non-forward-looking and the forward-looking portions of these statements were materially false or misleading,” and that defendants’ false statements were not mere corporate optimism or inactionable corporate “puffery”; rather, they “went beyond ‘feel good’ optimistic statements” by providing “concrete description[s]” of past and present sales while making optimistic statements.

The Ninth Circuit reversed the district court’s dismissal and remanded the case to the district court for further proceedings.

Robbins Geller appellate partner Joseph D. Daley, who briefed and argued the appeal, applauded the Ninth Circuit ruling: “We felt very strongly that the district court had committed reversible error in allowing defendants to insulate their numerous misstatements as corporate “puffery” and non-actionable forward-looking statements.”  In addition to Daley, Robbins Geller attorneys Darren J. Robbins, Robert R. Henssler, Jr. and Christopher D. Stewart obtained this result for investors.

In re Quality Systems, Inc. Securities Litigation, No. 15-55173, Opinion (9th Cir. July 28, 2017).