Class action against Centene rebuffed by 8th U.S. Circuit Court of

St. Louis Daily Record & St. Louis Countian, Oct 20, 2008 by Donna Walter

A federal appeals court upheld the dismissal of a securities fraud class action against Centene Corp. and its officers, saying the pleadings weren't spe-cific enough for the case to move forward.

"It's very difficult in the current environment to make a securities class action," said Joe Jacobson, of Green, Jacobson & Butsch in Clayton, one of the local lawyers in the lawsuit.

"Congress has passed laws, which courts have interpreted, that basically require you to have your entire case packed up and almost ready to try before you file a lawsuit," he said.

The 8th U.S. Circuit Court of Appeals said Thursday that the plaintiffs didn't meet the "heightened pleading requirements" mandated by the Private Se-curities Litigation Reform Act of 1995. The law requires plaintiffs to specify each allegedly misleading statement and explain why it's misleading and to spe-cify facts that give a "strong inference" that the defendant acted with scienter, or "reckless or intentional wrongdoing," the court said, citing several earlier cases.

The plaintiffs alleged that Centene made misleading statements on April 25, 2006; June 6, 2006; and June 20, 2006. In July 2006, the company restated its second-quarter earnings as a result of a $9.7 million adjustment for additional medical costs related to March 2006 in Indiana and Texas. Centene stock dropped about 35 percent, from $21.04 to $13.60. Earlier projections anticipated second- quarter revenue between $495 million to $500 million.

The 8th Circuit framed the plaintiffs' argument as: Centene must have been aware of the additional $9.7 million in medical costs in February or March because it monitors costs through the mandatory prior-authorization program and touts its ability to predict medical costs.

But the plaintiffs didn't allege any "contemporaneous reports, witness statements, or any information that had actually been provided to defendants as of April or June that indicated that Centene would need to increase estimated medical costs," the court said.

This fact also helped defeat the scienter allegation. "Here, plaintiffs merely assert that this information must have existed and must have been known. Plaintiffs' speculation is plainly insufficient to support an inference of scienter," the court said.

In addition, although two of the officers sold their personal Centene stock in April 2006, those sales were in accordance to trading plans in place since December 2005, the court said.

"Stock sales pursuant to Rule 10b-5 trading plans 'can raise an inference that the sales were prescheduled and not suspicious,' " the court said, quoting Cent. Laborers Pension Fund v. Integrated Elec. Servs. Inc., a 2007 5th Circuit decision.

The court also said the close proximity between the positive statements and the following month's announcement, while relevant, isn't enough to support a "strong inference of scienter," the court said.

With the current law, lawyers who rely on contingency fees need to think long and hard about taking securities cases, Jacobson said. Green, Jacobson & Butsch got involved in the case against Centene because, as local counsel, the firm would have less of a financial commitment in the period before a judge made a decision on a motion to dismiss, he said.

"You have to pass by cases you think have real merit where the likely recovery isn't sufficient to cover the cost," he said.

Centene's lawyer, Walter C. Carlson of Sidley Austin in Chicago, was one of the lawyers representing the defendants. He did not return a call for comment by press time.