Grae v. Corr. Corp.

NIKKI BOLLINGER GRAE, Individuallyand on Behalf of All Others Similarly Situated, Plaintiff, v. CORRECTIONS CORPORATION OF AMERICA, DAMON T. HININGER,DAVID M. GARFINKLE, TODD J. MULLENGER, and HARLEY G. LAPPIN, Defendants.

Case No. 3:16-cv-2267

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION

March 23, 2021

Judge Aleta A. Trauger

MEMORANDUM

Amalgamated Bank, as Trustee for the LongView Collective Investment Fund ("Amalgamated"), has filed a Motion for Partial Summary Judgment (Doc. No. 347), to which CoreCivic, Inc., Damon T. Hininger, David M. Garfinkle, Todd J. Mullenger, and Harley G. Lappin¹ have filed a Response (Doc. No. 393), and Amalgamated has filed a Reply (Doc. No. 428). The defendants have filed a Motion for Summary Judgment (Doc. No. 352), to which Amalgamated has filed a Response (Doc. No. 396), and the defendants have filed a Reply (Doc. No. 418). The defendants also have filed a Request for Judicial Notice (Doc. No. 366), to which Amalgamated has filed a Response (Doc. No. 392). For the reasons set out herein, CoreCivic's request for judicial notice will be granted, and each motion for summary judgment will be granted in part and denied in part.

I. BACKGROUND

CoreCivic is a private, publicly traded company that owns and operates prisons and other detention facilities, pursuant to contracts with the government agencies ultimately responsible for the incarcerated individuals' confinement and welfare. (Doc. No. 397 ¶¶ 1-2.) This class action securities fraud case involves the actions and statements of CoreCivic and its executives from a period of February 27, 2012 to August 17, 2016 ("Class Period"). To put it in a somewhat simplified manner, Amalgamated, as the lead plaintiff, alleges that the defendants made false or misleading statements or omissions about the quality and cost savings that CoreCivic provided to government clients, including the federal Bureau of Prisons ("BOP"). Amalgamated argues that those statements and omissions created a false picture of the health of CoreCivic's relationship with the BOP and the BOP's likelihood of continuing to do business with CoreCivic. These false or misleading statements and omissions, it is alleged, led to an overvaluation of CoreCivic's stock and, ultimately, losses on behalf of its investors when the BOP's parent agency, the U.S. Department of Justice ("DOJ"), announced that it would phase out its reliance on CoreCivic and other private prison operators, leading the value of the stock to decrease. Amalgamated also argues that a similar, smaller loss occurred when, shortly ahead of the comprehensive DOJ announcement, the BOP declined to renew a renewable contract at one CoreCivic facility, the Cibola County Correctional Center ("Cibola").

A. CoreCivic's BOP Prisons

During the Class Period, CoreCivic, according to its own disclosures, operated between 64 and 85 facilities for governments at the local, state, and federal level.² (Id. ¶ 3.) In a 2016financial disclosure, CoreCivic boasted of an over 93% "retention rate" under its government contracts—with that percentage defined to reflect how often a client would avail itself of a previously agreed-to contract extension option to continue working with CoreCivic in a particular facility (as opposed to defining "retention" to include, also, government decisions to enter into wholly new contracts after all option periods had expired). (Id. ¶ 5; Doc. No. 360-1 at 15.) The rates for preceding years were similarly high or higher, with the lowest being an 87.8% rate in 2013. (Doc. No. 397 ¶¶ 6-11.)

During the Class Period, CoreCivic had contracts with the BOP to operate five facilities: Cibola, Adams County Correctional Center ("Adams"), Eden Detention Center ("Eden"), McRae Correctional Facility ("McRae"), and the Northeast Ohio Correctional Center ("NEOCC") (Id. ¶ 15.) During the Class Period, CoreCivic's revenue from those facilities accounted for between 9% and 13.7% of its total revenue. (Id. ¶ 16.) Each of the facilities was considered "low security" and mostly housed inmates who were not U.S. citizens. (Id. ¶ 18.)

The contract for each facility included a Statement of Work that set forth the minimum contract performance requirements, in the form of 18 "Performance Objectives." (Id. ¶ 20.) At least four of the contracts included provisions allowing CoreCivic to receive "Award Fees" for meeting or exceeding performance benchmarks. The parties agree that, during the Class Period, CoreCivic received award fees 10 times, with the awards ranging from 8% of the maximum possible fee to 90% of the maximum possible fee. According to CoreCivic, those 10 Award Fees were out of a total 18 opportunities in which Award Fees could have been earned, althoughAmalgamated disputes that CoreCivic has established that it had only 18 Award Fee opportunities. It appears undisputed, though, that CoreCivic's rate of receiving at least some Award Fee was not better than 10 out of 18 and that, for many of those 10 Award Fees earned, CoreCivic earned less than half of what it could have earned under the relevant contract. (Id. ¶¶ 21-23.)

The contracts between the BOP and CoreCivic were typically for an initial four-year period, with three options for successive two-year extensions that BOP could exercise or decline. The following chart shows the course of those contracts during the Class Period:

Facility

Contract

Start

Extension 1

Extension 2

Extension 3

Adams

4/1/09

7/31/13

(exercised)

7/17/15

(exercised)

N/A

Cibola

1/12/10

10/1/14

(exercised)

7/29/16

(DECLINED)

N/A

Eden

1/17/07

4/26/11

(exercised)

4/30/13

(exercised)

5/1/15

(exercised)

McRae

10/27/11

12/1/16

(exercised)

11/26/18

(exercised)

N/A

NEOCC

12/23/04

6/1/09

(exercised)

5/31/11

(exercised)

5/29/13

(exercised)

(Id. ¶¶ 25-40.) As the chart reflects, the BOP chose not to renew its contract with CoreCivic regarding one facility, Cibola, during the period, but otherwise exercised its renewal options.

B. Monitoring and Review of CoreCivic BOP Facilities

1. Self-monitoring

According to CoreCivic and its executives, the company performed regular internal audits of its facilities and tracked the facilities' performance. CoreCivic executive Michael Nalley, for example, testified that CoreCivic's "robust internal audit system" was "very comprehensive" and "very stringent." (Doc. No. 361-15 at 75.) Although CoreCivic points toevidence confirming the existence of CoreCivic's internal review systems, Amalgamated disputes that the evidence establishes that such reviews were thorough or adequate. (Doc. No. 397 ¶¶ 42-44.) For example, Amalgamated points to an internal CoreCivic analysis that concluded that CoreCivic's Quality Assurance ("QA") process did not sufficiently overlap with the BOP's own evaluation metrics, particularly in the area of health services. (Doc. No. 400-8 at 6.)

2. Third-Party Accreditation

CoreCivic's BOP contracts required its facilities to receive accreditation from the American Correctional Association ("ACA"). (Doc. No. 397 ¶ 46.) According to a 2005 BOP document, "[t]he BOP uses ACA accreditation at its own prisons to establish a baseline of acceptable performance." (Doc. No. 398-5 at 5.) CoreCivic successfully maintained ACA accreditation at all of its BOP facilities during the Class Period, which, according to CoreCivic, reflects the facilities' passing ACA audits, although Amalgamated suggests that that terminology overstates the intensity of ACA review. (Doc. No. 397 ¶ 47.) Accreditation documentation provided in connection with this case confirms that the ACA review process included "an outside review by a team of experienced independent auditors" but also that the ACA relied, in part, on "the satisfactory completion of a rigorous self-evaluation." (Doc. No. 361-25 at 3.)

Amalgamated does not factually dispute that CoreCivic's facilities maintained accreditation or that their operations were, at least in some way, reviewed by the ACA in the process. Amalgamated disputes, however, that successfully maintaining ACA accreditation is a meaningful indicator that a facility was being operated adequately. (See Doc. No. 397 ¶ 45.) For example, Amalgamated points out that D. Scott Dodrill, a retired BOP official hired by CoreCivic as an expert in this case, admitted in his testimony that he was not aware of anyinstance in which any for-profit BOP prison operator lost its ACA accreditation during the Class Period—which, Amalgamated suggests, is evidence that maintaining baseline accreditation was not a significant accomplishment. (Doc. No. 398-3 at 224.)

Another entity, the Joint Commission, accredits certain healthcare facilities. During the Class Period, CoreCivic's BOP facilities maintained Joint Commission accreditation for their healthcare operations.³ (Doc. No. 397 ¶¶ 50-51; Doc. No. 367-11 at 187.) As with ACA accreditation, the parties disagree regarding their characterizations of the thoroughness of the Joint Commission's reviews for its accredited facilities. There is, on one hand, no evidence that would suggest that a facility that successfully maintained Joint Commission accreditation would categorically have been an adequately operated facility. On the other hand, the evidence does show that Joint Commission accreditation played a meaningful role in the ongoing regulation of healthcare facilities, and there is no evidence in the record that any CoreCivic BOP facilities ever lost or improperly operated without that accreditation. (Doc. No. 397 ¶¶ 50-51.)

3. BOP Monitoring

The BOP itself performed audits and monitoring of its CoreCivic-operated facilities through its Program Review Division. Such reviews were at least annual. (Doc. No. 397 ¶ 52.) The parties agree that, as part of the Program Review process, the BOP inspected the performance of CoreCivic facilities, tested the adequacy of their internal quality controls, and assessed risks related to contract performance. (Id. ¶ 53.) Program Reviews were performed...