On behalf of NextGen Healthcare, Inc. (formerly known as Quality Systems, Inc.), its founder and former chairman Sheldon Razin, and former CEO Steven Plochocki, Latham successfully defended a “holder’s claim”— a claim by a shareholder that he was planning to sell his shares but changed his mind and held them in reliance on false statements made by the defendants.
The plaintiff was NextGen’s second-largest shareholder and a former director. He amassed 9.33 million shares over the course of 30 years and waged five failed takeover attempts. In that time, he repeatedly vilified the company, its Board, and management in his public filings. And he never sold a single share of NextGen stock. But according to plaintiff, things changed in late 2011 and early 2012. Plaintiff said that he became fed up with the constant battles, decided to sell all of his shares, and started making plans to do so. Then, according to the plaintiff, he changed his mind and decided to hold his shares in alleged reliance on positive statements about the Company’s financial prospects made by defendants. After the company retracted its financial guidance on July 26, 2012, the stock price fell, and the plaintiff claimed that the price decline caused him US$400 million in damages.
The parties tried their case to an Orange County jury in what appears to have been the first holder’s claim trial in 84 years. While holder’s claims are not permitted under the federal securities laws, the California Supreme Court’s 2003 decision in Small v. Fritz recognized the existence of this cause of action under California law. The Latham team utilized arguments based on Small v. Fritz in proving that the company’s statements were neither fraudulent nor relied upon by plaintiff in deciding not to sell his stock.
After deliberating for four hours, the jury returned a complete defense verdict, concluding that the statements made by the Defendants were not fraudulent.
“We are thrilled to obtain a complete defense verdict on behalf of our clients,” said Peter Wald, partner and co-lead defense counsel. “Today’s decision represents an important vindication for them, each of whom has been subject to these baseless claims for eight years. We thank the jury for the considerable time and attention that they devoted to this case, which spans a dispute going back more than two decades.”
“As we were clearly able to prove, the only fraud committed here was by the plaintiff,” said Michele Johnson, partner and co-lead defense counsel. “It has been a long journey and a hard-fought battle, and we are pleased the jury was able to see and understand that the plaintiff’s claims were entirely without merit.”
The Latham team is led by partners Peter Wald, Michele Johnson, Nicholas Siciliano, and Andrew Gray, with associates Whitney Weber, Kathryn George, Mazamir Yousefi, Marissa Perry, Sonya Shaikh, Allie O'Hara, and Jordan Mundell, paralegals, Karen Patterson, Everett Bulthuis and LeeAnn Haller, and Legal Secretaries Tricia Bondoc and Jana Roach.