United States Court of Appeals For the First Circuit

No. 21-1479

CITY OF MIAMI FIRE FIGHTERS' AND POLICE OFFICERS' RETIREMENT TRUST, individually and on behalf of all other persons similarly situated; INTERNATIONAL UNION OF OPERATING ENGINEERS PENSION FUND OF EASTERN PENNSYLVANIA AND DELAWARE, individually and on behalf of all other persons similarly situated,

Plaintiffs, Appellants,

v.

CVS HEALTH CORPORATION; LARRY J. MERLO; DAVID M. DENTON; JONATHAN C. ROBERTS; ROBERT O. KRAFT; EVA C. BORATTO,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND

[Hon. Mary S. McElroy, U.S. District Judge]

Before

Lynch, Kayatta, and Gelpí, Circuit Judges.

Jeremy A. Lieberman, with whom Brian Calandra, Patrick V. Dahlstrom, Pomerantz LLP, James E. Miller, Eric L. Young, Jayne A. Goldstein, Miller Shah LLP, Robert D. Klausner, Stuart Kaufman, Klausner, Kaufman, Jensen & Levinson, Stephen Cypen, and Cypen & Cypen were on brief, for appellants. Steven M. Farina, with whom George A. Borden, Amanda M. MacDonald, Michael J. Mestitz, Elizabeth A. Wilson, Williams & Connolly LLP, Robert C. Corrente, and Whelan Corrente & Flanders LLP were on brief, for appellees. August 18, 2022 KAYATTA, Circuit Judge. Two retirement funds brought

this putative securities fraud class action against CVS Health

Corporation arising out of difficulties CVS Health experienced in

the wake of its acquisition of Omnicare, Inc., a company that

provides pharmacy services to long-term care facilities.

Plaintiffs allege that executives of CVS Health and its newly

acquired subsidiary employed false statements and misleading

nondisclosures to conceal from investors for more than three years

the disintegration of Omnicare's customer base that eventually led

to a series of write-offs totaling more than $8 billion. The

district court dismissed plaintiffs' complaint because it failed

to allege any actionable false statements or misleading omissions.

On careful de novo review, we find that the district court's

assessment was on the mark. We therefore affirm the dismissal and

the subsequent denial of plaintiffs' attempt to revisit the

judgment. Our reasoning follows.

I.

As this case comes to us on a motion to dismiss, we draw

the facts from the operative Amended Class Action Complaint ("the

complaint") and certain of CVS Health's public filings with the

Securities Exchange Commission (SEC). See Fire & Police Pension

Ass'n of Colo. v. Abiomed, Inc.,

, 232 n.2 (1st Cir.

2015) (considering public SEC filings among other undisputed

records at the motion-to-dismiss stage); Watterson v. Page, 987

- 3 - F.2d 1, 3 (1st Cir. 1993) (noting "narrow exceptions" to the

traditional rule barring consideration of materials outside the

complaint, including for documents whose authenticity is not

disputed).

A.

Headquartered in Woonsocket, Rhode Island, CVS Health is

a publicly traded company that provides integrated pharmacy

healthcare services and operates thousands of retail stores and

clinics across the United States. In 2015, CVS Health acquired

Omnicare, then the leading provider of pharmaceutical services to

long-term care (LTC) facilities.1 Plaintiffs allege that the newly

acquired LTC business subsequently "hemorrhaged" customers due to

CVS Health's mismanagement, including its decision to centralize

and standardize a number of operations that Omnicare had previously

tailored to each customer. According to the complaint, CVS Health

misleadingly concealed these customer losses and their causes so

as not to threaten CVS Health's ability to acquire financing for

another large acquisition planned for 2018. The purported class

period spans from allegedly misleading statements made in February

1 CVS Health's subsidiary, CVS Pharmacy, Inc., entered the agreement to acquire Omnicare in May 2015, with the acquisition closing that August. For ease of discussion, we refer to this acquisition throughout our opinion as the action of the parent reporting entity, CVS Health.

- 4 - 2016 through the ultimate disclosure of the full extent of

Omnicare's lost value in February 2019.

B.

In gauging whether plaintiffs have pleaded facts

sufficient to proceed with their claim that CVS Health misled

investors about the difficulties encountered with the acquired

Omnicare LTC business, we begin the fact that between 2016 and

2019 CVS Health repeatedly and publicly wrote off chunks of the

$8.6 billion in goodwill2 originally assigned to the Omnicare

acquisition. The first negative disclosure concerning the LTC

business came on November 8, 2016, when, in the third-quarter Form

10-Q filing,3 CVS Health reported a reduced goodwill balance of

2"Goodwill" is an accounting term that refers to the value of anticipated future financial results of an asset, as initially measured by the difference between the price paid for the asset and its fair value. Under Generally Accepted Accounting Principles, the acquiring company must test its goodwill allocation at least annually, as well as in response to events or circumstances that would likely impair the asset's goodwill. See City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,

(9th Cir. 2017) (citing Financial Accounting Standards Board Accounting Standards Codification (ASC), Topic 350: Intangibles—Goodwill and Other, ASC 350-20-35- 28)). "Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value."

(quoting ASC 350-20-25-30). 3The SEC requires public companies to file a comprehensive report about their financial performance, called a Form 10-Q, at the end of the first three quarters of each fiscal year.

.308a. Full-year financials are reported annually in the Form 10-K, shortly after the fourth quarter concludes. See

§ 249.310.

- 5 - only $6.3 billion for the acquired LTC business. The filing stated

that while some reporting units "exceed[ed] their carrying values

by significant margins," the LTC business exceeded its carrying

value by just 7%. During a presentation to investors and analysts

the following month, CVS Health's then-Chief Financial Officer

(CFO) David Denton warned that "[a]s for the retail Long-Term Care

segment, it will be a challenging year. Revenue growth is expected

to be flat to down 1.5%."

This downward reporting trend continued. The following

year, on November 6, 2017, CVS Health disclosed that the fair value

of the LTC business now exceeded its carrying value by only

"approximately 1%." In the same 10-Q filing, CVS Health also

explained that its cash-flow projections for the LTC unit had

declined because of "customer reimbursement pressures, industry

trends such as lower occupancy rates in skilled nursing facilities,

and client retention rates." Finally, it cautioned that:

If we do not achieve our forecasts, given the small excess of fair value over the related carrying value, as well as current market conditions in the healthcare industry, it is reasonably possible that . . . the LTC reporting unit could be deemed to be impaired by a material amount.

Six months later, on May 2, 2018, CVS Health issued

similar warnings about the challenges facing the LTC business --

including client retention -- and the possibility of an impairment.

Then, in the second-quarter 10-Q issued on August 8, 2018, the

- 6 - company reported that it had conducted an interim goodwill test

resulting in the impairment of the LTC unit's goodwill to the tune

of $3.9 billion. Even with this write-down, CVS Health warned

that, due to client retention rates and other specified challenges,

"it is reasonably possible in the near term that the goodwill of

the LTC reporting unit could be deemed to be impaired again by a

material amount."

As predicted, the bad news continued. In February 2019,

CVS Health recognized a further impairment of $2.2 billion

assessed in the fourth quarter of 2018. In so doing, the company

identified "client retention rates" as one of several factors that

contributed to the declining value of the business. In this

manner, the goodwill value of the LTC business shrank from the

initial value of $8.6 billion in May 2015 to just $431 million at

the end of 2018.

C.

Plaintiffs claim that this escalating disclosure of

difficulties with the LTC business and write-downs of goodwill

came too late. They also point to numerous statements by senior

management that plaintiffs say misled investors by either

affirmatively misrepresenting or omitting material facts. We

group these alleged statements into five buckets for ease of

discussion.

- 7 - The first group concerns representations about the

condition and financial performance of the LTC business. For

example, the fiscal year 2015 Form 10-K filed in February 2016

stated that CVS Health's "segments benefited from the Omnicare

acquisition" and that an increase in net revenues for the

Retail/LTC Segment -- a business reporting unit containing both

the LTC business and CVS Health's much larger preexisting retail

business -- "was primarily driven by the acquisition of Omnicare."

The quarterly and annual filings for 2016 then echoed these

sentiments in substantially similar language. The complaint

asserts generally that this category of statements was "materially

false and misleading," though it does not allege any revenue

information contrary to the statements. The most specific

descriptions of these statements instead allege that these

statements were misleading because they gave a positive impression

of the business without disclosing that Omnicare LTC customers

were fleeing.

Second, in December 2016, Denton allegedly claimed at an

annual investor conference that CVS Health had "a leadership

position in long-term care with Omnicare." Chief Executive Officer

(CEO) Larry Merlo then reiterated during a second-quarter 2017

analyst call that "Omnicare remains the leader in the market."

The complaint generally alleges that these statements were "false

- 8 - and misleading" because they omitted information about customer

exodus.

Third, plaintiffs take issue with statements that they

contend overstated CVS Health's understanding of its LTC

customers. The company in multiple 2017 filings said that pharmacy

revenue in the umbrella reporting unit containing both its LTC and

larger retail businesses "continued to benefit from [CVS Health's]

ability to attract and retain managed care customers." It also

reiterated in nearly all quarterly and annual filings throughout

the class period a general "Overview of Our Business" section that

touted CVS Health's "deep understanding of [consumers', payors',

and providers'] diverse needs through [CVS Health's] unique

integrated model." More specifically to the LTC business, Merlo

on investor calls in August 2016 and August 2017 stated that the

company was "[w]orking with our LTC clients to address currently

unmet needs of their residents," and that it had "invested the

time and capital . . . to get the right technology and processes

in place in order to differentiate our offering to make it more

compelling for our clients as well as the residents at these

facilities." The complaint alleges that these statements were

false and misleading because defendants did not in fact understand

their LTC customers' needs and many of these customers were fleeing

CVS Health due to poor customer service.

- 9 - Fourth, plaintiffs call out a series of statements about

CVS Health's realization of "synergies" between its existing

retail pharmacy business and its new LTC business. For example,

at the outset of the class period in February 2016, Merlo reported

on an earnings call with analysts and investors that "Omnicare

performed well and in line with our expectations as we began to

realize some of the anticipated synergies." Merlo then reiterated

in a May 2016 earnings call that the LTC business "benefited from

some of the anticipated costs and sourcing synergies." The

complaint alleges that these statements touting "synergies" were

false and misleading because it was in fact the "synergies"

implemented by CVS Health that caused LTC customers to leave.

Fifth, the complaint alleges that the company's

"boilerplate" statements of risks facing the LTC business, as

repeated in SEC filings throughout the class period, misleadingly

purported to alert investors to only future risks that were, in

fact, "already occurring." These statements cautioned, for

example, that "[t]here can be no assurance that we will be able to

win new business or secure renewal business on terms as favorable

to us as the present terms" and observed that "[p]otential

difficulties that may be encountered in the [acquisition]

- 10 - integration process include . . . [r]etaining existing customers

and attracting new customers."4

D.

To support their theory that the goodwill write-downs

were too late and the foregoing statements from the company duped

the investing public, plaintiffs rely on evidence proffered by

their nineteen confidential witnesses (CWs), comprised of former

CVS Health or Omnicare employees. The CWs offer a broad array of

anecdotes concerning legacy Omnicare customers that CVS failed to

retain in the years following the acquisition. An example conveys

the nature of these allegations:

[Confidential Witness 4 (CW4)] both saw personally and learned from contacts in the LTC industry that Omnicare LTC divisions in Illinois and Missouri, and particularly the St. Louis region, lost at least 50% of their business from 2015 to 2019. CW4 said that the customers who left CVS Health were largely poached by former Omnicare and CVS Health employees.

4 The complaint also identified as a separate category of misrepresentations certain executive defendants' certifications that each SEC filing was complete, accurate, and compliant with applicable law, which plaintiffs allege were false and misleading because the filings in fact contained false information and did not therefore comply with applicable law. But these certification statements are only alleged to be false or misleading to the extent the other alleged statements within those filings were, so we need not discuss the certifications as a distinct category of misrepresentations.

- 11 - II.

In February 2019, plaintiffs commenced this lawsuit

against CVS Health, its CEO Merlo, and its former CFO Denton.

Shortly thereafter, the parties agreed that those defendants need

not respond to the original complaint. Rather, after the

appointment of a lead plaintiff and lead counsel, counsel served

an amended complaint on those and several additional CVS Health

defendants in late July 2019.5 That Amended Class Action Complaint

is now the operative complaint.

The complaint includes claims for violations of

section 10(b) of the Securities Exchange Act of 1934 ("the Exchange

Act"), codified at 15 U.S.C. § 78j(b), and its implementing SEC

Rule 10b-5, codified at

.10b-5, as well as

section 20(a) of the Exchange Act, codified at 15 U.S.C. § 78t(a).

Defendants moved to dismiss the complaint for failure to state a

claim, pursuant to Federal Rule of Civil Procedure 12(b)(6). In

plaintiffs' opposition to the motion to dismiss, they wrote: "If

the Court grants any portion of the Motion, Plaintiffs respectfully

request an opportunity to move for leave to amend pursuant to

[Federal] Rule [of Civil Procedure] 15(a)(2)." The district court

5The other individual defendants include Jonathan Roberts (Executive Vice President (EVP) and Chief Operating Officer of CVS Health, starting in March 2017), Robert Kraft (former EVP of CVS Health and President of Omnicare from August 2015 to October 2017), and Eva Boratto (EVP and CFO of CVS Health starting in November 2018).

- 12 - heard argument on the motion on September 16, 2020 and ultimately

granted the motion in full on February 11, 2021, dismissing the

amended complaint with prejudice after finding that it failed to

allege any materially false or misleading statements. City of

Mia. Fire Fighters' & Police Officers' Ret. Tr. v. CVS Health

Corp.,

, 87–90, 94, 97–98 & n.21 (D.R.I. 2021).

The district court did not reach defendants' alternative argument

that the complaint failed to adequately plead the element of

scienter.

at 28 n.21.

Four weeks later, plaintiffs moved the court under

Rule 59(e) to reconsider its ruling so as to permit plaintiffs to

amend the complaint for a second time. With this motion, they

included a Proposed Second Amended Class Action Complaint

containing additional allegations. Unpersuaded, the district

court denied the motion to reconsider and the request for further

amendment. Plaintiffs then appealed that ruling along with the

grant of the motion to dismiss.

III.

A.

Having described the course of proceedings and the gist

of plaintiffs' allegations, we turn now to the merits of

plaintiffs' appeal. We begin with plaintiffs' challenge to the

district court's order granting defendants' motion to dismiss. We

review this challenge de novo, "accept[ing] well-pleaded factual

- 13 - allegations in the complaint as true and . . . view[ing] all

reasonable inferences in the plaintiff[s'] favor." Constr. Indus.

& Laborers Joint Pension Tr. v. Carbonite, Inc.,

(1st Cir. 2021).

1.

At the outset, we note that the viability of plaintiffs'

section 20(a) claim for control-person liability is contingent on

their section 10(b) claim, and no party argues here that one claim

ought stand should the other fall. See Mehta v. Ocular

Therapeutix, Inc.,

(1st Cir. 2020) ("A claim

brought under section 20(a) is . . . derivative of a claim

alleging an underlying securities law violation."). We thus

proceed to consider the viability of the section 10(b) claim as

dispositive of the whole complaint.

Section 10(b) of the Exchange Act prohibits the use, "in

connection with the purchase or sale of any security[,] . . . [of]

any manipulative or deceptive device or contrivance in

contravention of such rules and regulations as the [SEC] may

prescribe as necessary or appropriate in the public interest or

for the protection of investors." 15 U.S.C. § 78j(b). SEC

Rule 10b-5 is such a rule, implementing section 10(b)'s

prohibition by making it unlawful to "make any untrue statement of

a material fact or to omit to state a material fact necessary in

order to make the statements made, in the light of the

- 14 - circumstances under which they were made, not misleading."

.10b–5(b).

Stating a claim under section 10(b) and Rule 10b-5

requires the pleading of six elements: "(1) a material

misrepresentation or omission; (2) scienter; (3) a connection with

the purchase or sale of a security; (4) reliance; (5) economic

loss; and (6) loss causation." Carbonite,

(quoting

In re Biogen Inc. Sec. Litig.,

(1st Cir. 2017)).

Additionally, Federal Rule of Civil Procedure 9(b) requires

plaintiffs claiming fraud to "state with particularity the

circumstances constituting fraud." Complaints alleging securities

fraud specifically are also subject to the heightened pleading

requirements of the Private Securities Litigation Reform Act

(PSLRA), including the mandate that plaintiffs "specify each

statement alleged to have been misleading, [and] the reason or

reasons why the statement is misleading." 15 U.S.C. § 78u-4(b)(1).

Against the backdrop of these heightened pleading requirements,

our analysis begins and ends with the first of the section 10(b)

elements, as we agree with the district court that the complaint

fails to allege a material misrepresentation or omission.

For allegedly false statements to support a claim of

securities fraud, they must be "false when made." Gross v. Summa

Four, Inc.,

(1st Cir. 1996); see also Karth v.

Keryx Biopharms., Inc.,

(1st Cir. 2021) ("[A

- 15 - plaintiff] may not plead 'fraud by hindsight'; i.e., a complaint

'may not simply contrast a defendant's past optimism with less

favorable actual results' in support of a claim of securities

fraud." (quoting ACA Fin. Guar. Corp. v. Advest, Inc.,

, 62 (1st Cir. 2008))). Moreover, "[section] 10(b) and

Rule 10b-5(b) do not create an affirmative duty to disclose any

and all material information. Disclosure is required under these

provisions only when necessary 'to make . . . statements made, in

light of the circumstances under which they were made, not

misleading.'" Matrixx Initiatives, Inc. v. Siracusano,

(2011) (omission in original) (quoting

.10b-

5(b)). Thus, a theory of securities fraud liability premised on

nondisclosure or omission must also rest on some statement that,

absent disclosure, misleads as to a contemporaneous material fact.

2.

Close review of the complaint reveals that, despite its

length, it fails to allege sufficiently specific facts about the

state of the LTC business at particular points in time to enable

us to conclude that any of the goodwill write-downs were too late

or that any of defendants' alleged misstatements contradicted the

state of that business as it then stood. Plaintiffs thus fail to

allege that defendants made statements of fact that were false

when made or misleadingly incomplete in light of contemporaneous

circumstances.

- 16 - We start with the parties' point of agreement: the

condition of the LTC business at either end of the class period.

Between the May 2015 acquisition and the end of the class period

in February 2019, the Omnicare business suffered a material

reduction in value on the order of $8 billion. The dispute centers

therefore on whether the complaint alleges facts demonstrating --

"with particularity," Fed. R. Civ. P. 9(b) -- that defendants

misrepresented the existence, extent, nature, or pace of that

reduction as it occurred. But the complaint provides us with no

meaningful way to compare defendants' disclosures and statements

about the LTC business with the contemporaneous state of the

business. The district court was especially critical of the

complaint's failure to juxtapose the proffered reports of lost

customers with what CVS was disclosing at the time of those losses.

See CVS Health, 519 F. Supp. 3d at 88–89, 97. In the wake of that

criticism, one would have expected perhaps a timeline in

plaintiffs' brief on appeal. One would have been disappointed.

We have nevertheless reviewed the complaint's forty-six

paragraphs alleging customer losses and have identified just six

that attempt to place losses within specific periods of time --

and even then, only in highly general terms. The following

summarized allegations from the complaint contain references to

the timing of a customer loss:

- 17 - 1. One CW, who worked for a former "Omnicare LTC customer

with four campuses and approximately 850 to 900 beds,"

fired CVS Health as its LTC provider and moved to a

competitor "in 2016."

2. Omnicare competitor Remedi SeniorCare "had been taking

Omnicare customers who were leaving or had left CVS

Health since 2015."

3. "Omnicare LTC divisions in Illinois and Missouri, and

particularly [in] the St. Louis region, lost at least

50% of their business from 2015 to 2019." This included

one client operating "a large number of nursing homes

in Missouri" that withdrew its business from CVS Health

"in 2016."

4. Omnicare competitor Polaris Pharmacy Services "took 30%

of the Omnicare LTC business in South Florida in 2016."

5. "In 2015," Omnicare competitor Modern Health Pharmacy

"took 10% to 15% of Omnicare's business in California."

6. An Omnicare affiliate in New York called MedWorld lost

75% of its 22,000 beds "almost immediately after the

[Omnicare] Acquisition" with "another 15% of the

beds . . . lost thereafter," such that, "only 18 months

- 18 - after the Acquisition, the MedWorld location where CW13

worked closed."

Two of these allegations cover such broad swaths of time

that they effectively provide no date limitation. The second

describes a particular competitor who had been pulling an

unspecified number of CVS customers "since 2015." The third notes

that a regional division of Omnicare suffered customer losses "from

2015 to 2019." For all we can discern from these capacious

timeframes, these two losses may not have come anywhere close to

their ultimate scale until shortly before the complaint was filed.

And we certainly have no basis for finding that CVS Health

experienced these losses before it took an appropriate write-down

or made an inconsistent statement -- indeed, that some losses of

customers occurred "since 2015" or "from 2015 to 2019" is entirely

consistent with CVS Health's reporting.

As to the other four allegations that are tethered to

some more precise timeframe, the complaint paints with only a

slightly finer brush. It alleges customers left CVS only within

particular years; i.e., one competitor poached customers "in

2015," two others did so "in 2016," and an Omnicare affiliate

pharmacy in New York lost most of its customers "immediately after

- 19 - the Acquisition" such that a particular site of that affiliate

closed "18 months after the Acquisition."6

Of these four losses of customers, only the first ("in

2015") definitively occurred prior to the first disclosed goodwill

write-down (in November 2016). But the complaint provides us with

no reason to think that that 2015 loss by itself was both material

and not offset by new business. Nor does the complaint offer any

reason to regard the alleged loss of some customers in 2016 as

anything but consistent with the general negative trend of CVS

Health's goodwill write-offs beginning in 2016 and its statement

in 2017 that issues with "client retention rates" contributed to

declining revenues in the prior year. Cf. Ponsa-Rabell v.

Santander Sec. LLC,

(1st Cir. 2022) ("[I]t is not

a material omission to fail to point out information of which the

market is already aware." (quoting Baron v. Smith,

(1st Cir. 2004))).

6 Plaintiffs' appellate brief did not facilitate our attempt to locate in time the complaint's allegations of customer loss, as the brief attributes to several alleged losses more specific time periods than actually pleaded. The brief claims that two specified sets of lost customers -- one comprising several skilled nursing facilities in upstate New York and a second set comprising customers poached by competitor Remedi -- occurred "by the end of 2015." In fact, the complaint alleges that the New York customers were lost "in the aftermath of the acquisition" and that Remedi had been poaching customers "since 2015." Elsewhere, the brief claims that two specified losses (in California and New York) were suffered "shortly after the Acquisition" when only one of these was alleged as such in the complaint.

- 20 - Plaintiffs' concession that they "do not dispute

anything about Defendants' accounting," which necessarily includes

the figures included in the company's goodwill reports throughout

the class period, reinforces the gap in their pleading. For

accurate figures to mislead, plaintiffs would need to point us to

some more concrete and inaccurate conclusions that those figures

would invite, not just pockets of customer loss that may very well

have been entirely consistent with the reported goodwill

diminution. Nor can we simply infer that because CVS Health

eventually wrote off the goodwill assigned to the Omnicare

acquisition that it should have done so sooner. See In re

Cabletron Sys., Inc.,

(1st Cir. 2002)

("[P]laintiffs may not simply seize upon disclosures made later

and allege that they should have been made earlier." (alteration

in original) (quoting Berliner v. Lotus Dev. Corp.,

(D. Mass. 1992))).

Plaintiffs' failure to establish a reasonably clear

timeline of customer losses inconsistent with the company's

goodwill disclosures is representative of the complaint's

overarching failure to allege material facts inconsistent with

defendants' public statements. To start, plaintiffs allege that

CVS Health misled investors in December 2016 and in the second

quarter of 2017 by publicly invoking Omnicare's position as a

"leader" in the LTC market. But the complaint never alleges that

- 21 - Omnicare was in fact not the market leader -- even by the end of

the class period, long after these statements were made.7

Similarly, plaintiffs point to repeated statements in filings

starting shortly after the acquisition indicating that the

Retail/LTC Segment's revenue gains were primarily driven by the

Omnicare acquisition. But, again, they do not challenge any

reported accounting metrics and do not allege that the Omnicare

acquisition in fact failed to contribute substantial revenue.

Plaintiffs also allege that CVS Health misleadingly

touted its understanding of LTC customers, but they marshal a

series of statements that do no such thing. Most of these

statements refer not to customers of the LTC business but to a

much broader universe of customers -- those of the umbrella

Retail/LTC Segment or the "consumers, payors, and providers"

serviced by the entirety of CVS Health.8 Several other statements

7 Plaintiffs claim that several district court cases support their argument that "[s]tatements characterizing a business as a leader [are] misleading when the business is materially declining." But none of these cases even suggest, much less hold, that a claim of leadership is false or misleading merely because the size of the lead has materially shrunk. See Ark. Pub. Emp. Ret. Sys. v. GT Solar Int'l, Inc., No. 08-cv-312,

, at *7–11 (D.N.H. Oct. 7, 2009); Scritchfield v. Paolo,

(D.R.I. 2003); In re Lucent Techs., Inc. Sec. Litig.,

(D.N.J. 2002). 8 Plaintiffs' brief on appeal recasts one of these alleged statements concerning customer needs to make it appear as if the statement referred specifically to the LTC business. The complaint alleges that all of the class-period SEC filings stated CVS Health was:

- 22 - discuss efforts taken to improve the experience of LTC customers,

but the complaint never alleges that CVS Health failed to take

these efforts. For example, plaintiffs point to Merlo's statement

in August 2017 that "[w]e have invested the time and capital over

the past two years to get the right technology and processes in

place in order to differentiate our offering." Rather than

alleging that the company in fact did not invest in technology and

processes to "differentiate [its] offering," plaintiffs contend

only that some customers chose to leave CVS Health in part because

of new technologies and processes. That outcome plainly is not

inconsistent with Merlo's statement that the company invested in

those operations with different aims in mind.

the only integrated pharmacy health care company with the ability to impact consumers, payors, and providers with innovative, channel-agnostic solutions to complex challenges managing costs and care. We have a deep understanding of their diverse needs through our unique integrated model . . . . This statement appears in the CVS Health filings in a section headed "Overview of Our Business," which summarizes the business of the entire CVS Health Corporation, including its "9,800 retail locations, more than 1,100 retail health care clinics, [and, among other services,] leading pharmacy benefits manager." Plaintiffs' brief, however, inserts a bracketed revision when quoting from the above statement such that it purportedly refers to "the LTC business's 'deep understanding of [our LTC customers'] diverse needs.'" The full quote above makes plain that the phrase "their diverse needs" refers in context to the needs of "consumers, payors, and providers" -- for the entire CVS Health enterprise -- rather than plaintiffs' preferred recasting.

- 23 - As to the fifth category of alleged misrepresentations,

plaintiffs' briefing castigates defendants' general public

references to anticipated and realized "synergies" from the

Omnicare acquisition. But while their CWs identify several of CVS

Health's business operations decisions that allegedly alienated

LTC customers by providing less personalized service, the

complaint points to no specific instance where a defendant claimed

-- contrary to then-existing facts -- that a particular business

operation was succeeding.9 Moreover, defendants' statements

frequently paired the realization of synergies with cost savings,

a potential benefit of centralized business operations as to which

the complaint is totally silent.10

9 We note that Merlo's February 2016 "synergies" statement also refers positively to corporate performance: "Omnicare performed well and in line with our expectations as we began to realize some of the anticipated synergies." To the extent plaintiffs' concerns are with this statement's representation about performance (i.e., "Omnicare performed well") rather than its characterization of "synergies," we have already explained why the complaint provides us with no basis for deeming such statements false or misleading when made. 10 In addition to the complaint's failure to allege facts contrary to this category of statements, we are also skeptical that statements touting anticipated or realized "synergies" from a corporate merger, untethered to some objective indicator, would be specific enough to constitute a statement of material fact. Such statements may fairly be characterized as "loosely optimistic statements that are so vague [or] so lacking in specificity . . . that no reasonable investor could find them important to the total mix of information available." Shaw v. Digit. Equip. Corp.,

(1st Cir. 1996).

- 24 - To be sure, statements need not be literally false to

give rise to liability under section 10(b). Statements that are

literally true may nonetheless omit information necessary to

prevent them from steering investors toward inaccurate

conclusions. See SEC v. Johnston,

(1st Cir. 2021)

("[Statements] can also be misleading if they are half-truths,

painting a materially false picture in what they say because of

what they omit."). But those conclusions must still be inaccurate

as of the time the statements were made. See

.10b-5(b) (prohibiting the omission of facts necessary to

prevent statements from being misleading "in the light of the

circumstances under which the[] [statements] were made"); Ganem v.

InVivo Therapeutics Holdings Corp.,

, 455–56 (1st Cir.

2017) (finding plaintiff's omission theory insufficient where the

complaint failed to allege facts "necessary . . . for the

statements to have been misleading when made"). While plaintiffs

generally allege in the alternative that all of the alleged

misrepresentations discussed above also omitted material facts

concerning LTC customer loss, we simply cannot infer from this

complaint that any of the alleged statements were misleadingly

incomplete for largely the same reasons we cannot infer their

falsity -- the complaint provides too little basis for comparing

any material conclusions implied by the statements against the

contemporaneous state of the LTC business.

- 25 - This observation also captures the final category of

statements, which are only alleged as misleadingly incomplete,

rather than directly false: CVS Health's "boilerplate risk

factors" that warned of the possibility that the company would not

realize benefits from its acquisitions because of, among other

risks, difficulties with retaining customers. We have recognized

that warnings or disclosures in the securities context that frame

risks as merely hypothetical may be misleading when they resemble

the "Grand Canyon" metaphor, in that "one cannot tell a hiker that

a mere ditch lies up ahead, if the speaker knows the hiker is

actually approaching the precipice of the Grand Canyon." Karth,

. However, we have also clarified that, in the

context of a section 10(b) claim, a speaker warning of a

hypothetical risk only acquires a duty to disclose further known

information about the extent of that risk when "the alleged risk

had a 'near certainty' of causing 'financial disaster' to the

company" or where the warned-of risk "had already begun to

materialize."

at 137–38 (quoting Hill v. Gozani,

,

59–60 (1st Cir. 2011)).

Plaintiffs assert that the LTC business's loss of

goodwill value due to customer flight was just such a "near

certainty" -- throughout the entire class period -- because these

losses had already begun to materialize as of the first such risk

statement made in the February 2016 Form 10-K that kicked off the

- 26 - class period. But, again, and as we recently noted in another

case rejecting a Grand Canyon comparison, "[w]hether or not this

assertion is true we cannot determine because the . . . plaintiffs

simply do not plead sufficient allegations allowing us to do so."

Ponsa-Rabell,

. As we have already explained, the

complaint fails to provide the information necessary to infer that

there was any material net loss of customers that was not timely

reflected in the 2016 write-off. A fortiori, it hardly suffices

to allege in conclusory terms that the failure of the acquisition

was a "near certainty." Our caselaw on this variety of omission

theory "does not require a company to be omniscient, even if the

company looks foolish in hindsight for not properly predicting

whatever harm befell it." Karth,

.

In sum, as it is plaintiffs' burden to plead specific

facts "showing that the statements presented to the public were

false or misleading at the time they were made," Suna v. Bailey

Corp.,

(1st Cir. 1997), their failure to do so

means they have failed to allege the necessary element of a

misrepresentation or omission of material fact. See Gross,

("Though Gross adamantly contends that the statement

is false, the amended complaint provides little in the way of

specific facts to support this contention."). Accordingly, we

agree with the district court that the complaint fails to allege

a violation of section 10(b) or Rule 10b-5.

- 27 - B.

We turn our attention, finally, to plaintiffs' efforts

to be allowed a third bite of the apple in the form of a second

amended complaint. By the time defendants filed their motion to

dismiss, plaintiffs had once amended their complaint already, so

they no longer had a right to amend the pleading again without the

agreement of defendants or leave of the court. See Fed. R. Civ.

P. 15(a)(1). Such leave, though, would have been "freely given"

had plaintiffs asked and "justice so require[d]."

In short,

when plaintiffs received the motion to dismiss spelling out what

defendants claimed to be gaps in the amended complaint, plaintiffs

could have sought leave to amend their pleading yet again. Whether

the court would have allowed the motion, we do not know, because

plaintiffs never filed it.

Instead, plaintiffs simply included in their memorandum

opposing the motion to dismiss a brief note asking for a

conditional opportunity to move for leave to amend, "if the Court

grants any portion of the [m]otion [to dismiss]." No motion or

argument was advanced in support of this request. Nor was any

proposed amendment filed. The district court treated this

"contingent" request as holding "no legal significance." City of

Mia. Fire Fighters' & Police Officers' Ret. Tr. v. CVS Health

Corp.,

, 233 (D.R.I. 2021). We see no reason

to treat it otherwise. See Abiomed,

("No proper

- 28 - request [to amend] was made to the district court, only a mention

in a footnote in their opposition to dismissal."); Fisher v.

Kadant, Inc.,

(1st Cir. 2009) (reiterating that

a contingent request to amend a complaint contained in an

opposition to a motion to dismiss "does not constitute a motion to

amend a complaint" (quoting Gray v. Evercore Restructuring L.L.C.,

(1st Cir. 2008))). It therefore stands to

reason, a fortiori, that plaintiffs' conditional request cannot

"transmogrify [a] post-judgment motion for reconsideration into a

Rule 15(a) motion." Fisher,

.

When the district court then dismissed the first amended

complaint, it did so with prejudice. That approach is disfavored,

at least when dealing with a complaint that has not been previously

amended, but is nevertheless allowed within the discretion of the

district court. See In re Genzyme Corp. Sec. Litig.,

(1st Cir. 2014).

Once judgment was entered, Rule 15 was no longer on the

table. Rather, plaintiffs first needed to get the judgment set

aside. See

. Toward that end, they filed their

unsuccessful Rule 59(e) motion to reconsider the court's order

dismissing their complaint. A district court may grant such a

motion "where the movant shows a manifest error of law," "newly

discovered evidence," or "an error not of reasoning but

apprehension." Ruiz Rivera v. Pfizer Pharms., LLC,

,

- 29 - 81 (1st Cir. 2008) (first quoting Kansky v. Coca-Cola Bottling Co.

of New England,

(1st Cir. 2007), and then quoting

Sandoval Diaz v. Sandoval Orozco, No. 01-1022,

, at

*2 (D.P.R. June 24, 2005)). "The granting of a motion for

reconsideration is 'an extraordinary remedy which should be used

sparingly.'" Palmer v. Champion Mortg.,

(1st Cir.

2006) (quoting 11 Charles Alan Wright et al., Federal Practice and

Procedure § 2810.1 (2d ed. 1995)). We review challenges to the

denial of a Rule 59(e) motion for manifest abuse of discretion.

Ruiz Rivera,

.

Plaintiffs rely on a claim of newly discovered evidence.

A party asking a court to reconsider its judgment on this basis

must show "that [it] could not in the exercise of reasonable

diligence have obtained [the] new evidence earlier." In re Biogen,

. So, we focus on what plaintiffs knew or reasonably

could have learned "before the district court entered its order of

dismissal." Id.; see also Advest, 512 F.3d at 57 ("The plaintiffs

argue . . . they were entitled to wait and see if their amended

complaint was rejected by the district court before being put to

the costs of filing a second amended complaint. . . . Plaintiffs

have it exactly backwards.").

The Proposed Second Amended Class Action Complaint

(PSAC) plaintiffs included with their Rule 59(e) motion identified

twenty-five new CWs, seventeen of whom were drawn entirely from

- 30 - another complaint against CVS Health filed in September 2020, and

eight of whom were identified by plaintiffs' investigators. The

district court did not clearly err in finding that the allegations

that were lifted directly from the September complaint were easily

discoverable through due diligence well before the dismissal order

the following February. As to the remaining set of eight new CWs,

plaintiffs point to only two in arguing that this evidence could

not have been discovered before the dismissal. Those two CWs were

still employed by CVS Health "when Plaintiffs were preparing the

Complaint," with one employed there until October 2020, "after

motion to dismiss briefing and oral argument were completed."

Thus, even plaintiffs' presumptively best examples of late-

discovered evidence were nonetheless available to them at least

three months before the court dismissed their complaint. Of

course, plaintiffs in suits of this type may have good grounds for

seeking a reasonable period of time within which to gather and

synthesize newly available information. But in that event, they

should notify the court of their supplemental investigation so

that the court can consider delaying its ruling in anticipation of

the filing of an amended complaint. See In re Biogen,

("[T]he plaintiffs could have alerted the court to their

intentions earlier, but did not."). Plaintiffs here gave no such

notice, so the "argument that the district court abused its

discretion by failing to account for the time the plaintiffs needed

- 31 - to vet the evidence . . . has no force."

As the district

court below noted:

Even if they did not at that time know of the full extent of the testimony they could obtain from these eight confidential witnesses, they could have moved to amend and requested leave for an extension of time in which to submit the proposed amended complaint. Instead, for five months, they simply waited and hoped for a favorable decision.

CVS Health, 541 F. Supp. 3d at 234.

Finally, plaintiffs argue that the combined effects of

our precedent as applied by the district court lead to a "manifest

injustice" to the detriment of meritorious claimants. Of course,

the same could be said when any significant deadline or procedural

rule is enforced. Moreover, whether the proposed amendment would

have itself withstood a motion to dismiss is hardly clear. Even

in plaintiffs' briefs on appeal, they point to no new allegations

in the PSAC that would connect defendants' public statements with

contradictory contemporaneous facts or would demonstrate that the

further anecdotal losses described by the new CWs materially

exceeded the losses recognized by CVS Health itself in the

pertinent time frames. So this is not a case in which a manifestly

meritorious claim has been lost due to any delay by counsel.

There are also off-setting, prudential considerations.

As we have previously noted, "allowing plaintiffs to hedge their

bets by adding a cursory contingent request in an opposition to a

- 32 - motion to dismiss would encourage plaintiffs to test the mettle of

successive complaints and freely amend under Rule 15(a) if their

original strategic choices prove inadvisable." Fisher,

; see also Advest, 512 F.3d at 57 (explaining that honoring

this combination of conditional and post-judgment requests "would

lead to delays, inefficiencies, and wasted work"). Thus, entirely

apart from any leniency in granting proper motions to amend a

complaint under Rule 15, "[p]laintiffs may not, having the needed

information, deliberately wait in the wings . . . with another

amendment to a complaint should the court hold the first amended

complaint was insufficient." Advest, 512 F.3d at 57.

For largely the same reasons, plaintiffs miss the mark

in their last-ditch argument that the district court's denial of

leave to amend here would permit dismissing PSLRA complaints with

prejudice and without leave to amend in every case. First, we do

not know how the district court would have treated a properly filed

motion to amend here because plaintiffs did not file one. See CVS

Health, 541 F. Supp. 3d at 233 (noting, for example, that

plaintiffs here failed to attach an amended complaint to their

conditional request for leave to amend, as required by local rule).

Second, there is no basis for contending that in this case the

grounds for the dismissal were somehow a surprise. To the

contrary, they were the focus of defendants' briefing. See

Abiomed,

("[P]laintiffs were put on notice of the

- 33 - deficiencies in the complaint by the motion to dismiss. If they

had something relevant to add, they should have moved to add it

then. . . . We wish to discourage this practice of seeking leave

to amend after the case has been dismissed."). Third, we reiterate

that plaintiffs' basis for seeking leave to amend was an ongoing

investigation about which, prior to dismissal, they never informed

the court. Fourth, the dismissal came twenty-four months after

plaintiffs commenced this action and seventeen months after

defendants filed their motion to dismiss explaining why they

contended that the complaint was deficient -- certainly long enough

to allow the district court to assume that the table was set for

a final disposition. Accordingly, our ruling today does nothing

to discourage district courts in their discretion from staying

rulings to allow for reasonable due diligence, from temporarily

postponing the entry of judgment after granting a Rule 12(b)(6)

motion, see 1 Steven S. Gensler & Lumen N. Mulligan, Federal Rules

of Civil Procedure, Rules and Commentary, Rule 15 ("[l]eave to

amend after dismissal of complaint but before final judgment"), or

from granting motions to reconsider dismissal when due diligence

uncovers new evidence that was previously unavailable.

In sum, the district court did not abuse its discretion

or commit a legal error when it denied plaintiffs' Rule 59(e)

motion.

- 34 - IV.

For the foregoing reasons, the district court's orders

dismissing plaintiffs' complaint and denying the motion to

reconsider are affirmed.

- 35 -