STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS

PROVIDENCE, SC. SUPERIOR COURT

(FILED: September 1, 2020)

IN RE: CVS HEALTH CORPORATION : No. PC-2019-5658

SECURITIES LITIGATION : CLASS ACTION

(Consolidated with

PC-2019-6685)

DECISION

STERN, J. Before this Court are the following Motions to Dismiss the above-captioned

Complaint: 1) Defendants CVS Health Corporation (CVS), Larry Merlo, David Denton, Eva

Boratto, David Dorman, Richard Bracken, C. David Brown II, Alecia DeCoudreaux, Nancy-Ann

DeParle, Anne Finucane, Jean-Pierre Millon, Mary Schapiro, Richard Swift, William Weldon,

and Tony White’s (the Individual CVS Defendants) (collectively, the CVS Defendants) Motion

to Dismiss; 2) Defendants Lazard Frères & Co. LLC and Allen & Company LLC’s (collectively,

the Advisor Defendants) Motion to Dismiss; and 3) Defendants Fernando Aguirre, Mark T.

Bertolini, Frank M. Clark, Molly J. Coye, Roger N. Farah, Jeffrey E. Garten, Shawn M. Guertin,

Ellen M. Hancock, Richard J. Harrington, Edward J. Ludwig, and Olympia J. Snowe’s

(collectively, the Aetna Defendants) Motion to Dismiss. The CVS Defendants, Advisor

Defendants, and Aetna Defendants move to dismiss the Consolidated Complaint filed by City of

Warren Police & Fire Retirement System (City of Warren), individually and on behalf of all

others similarly situated, and David Freundlich (Freundlich), individually and on behalf of all

others similarly situated (collectively, Plaintiffs). Jurisdiction is pursuant to G.L. 1956 § 8-2-14

and Super. R. Civ. P. 12 (Rule 12).

2

I

Facts and Travel

A

Omnicare Acquisition

In or around May of 2015, CVS announced its acquisition of Omnicare, Inc. (Omnicare),

a nationwide provider of pharmaceutical services in assisted living and long-term care (LTC)

facilities. Consol. Compl. ¶ 43. The acquisition of Omnicare was complete on or about August

18, 2015, and Omnicare’s operations—other than its specialty pharmacy business—were

integrated into CVS’s newly named Retail Long-Term Care Segment (Retail/LTC Unit). Id.

¶¶ 7, 45. In connection with the acquisition, CVS recognized “goodwill”1 of approximately $9.1

billion; $8.7 billion was allocated to the Retail/LTC Unit and $6.5 billion was specifically

allocated to the LTC Unit (LTC Unit). Id. ¶ 45.

In the following years, the “goodwill” attributable to the LTC Unit in connection with the

Omnicare acquisition became impaired. Id. ¶ 60. Plaintiffs allege that CVS’s poor customer

service and negative trends impacting the LTC industry as a whole prevented the Omnicare

business from growing as anticipated. Id. ¶¶ 53, 60; see also ¶¶ 54-59. CVS filed its Form 10-K

for the year ending December 31, 2016 (2016 Form 10-K) and disclosed that in the third quarter

of 2016 the required annual goodwill impairment test revealed that the fair value of the LTC Unit

exceeded its carrying value of $6.4 billion by 7%. Id. ¶ 61. Nine months later, CVS filed its

third-quarter form 10-Q for 2017 (2017 Q3 Form 10-Q), which disclosed that the LTC Unit

exceeded its carrying value by 1% and explained “that it was ‘reasonably possible that the

operational performance of the LTC reporting unit could be below [CVS’s] current expectation

1 “Goodwill represents intangible assets acquired in a business combination (e.g., customer

loyalty and brand reputation) that cannot be separately identified or directly measured.” Id. ¶ 8.

3

in the near term and the LTC reporting unit could be deemed to be impaired by a material

amount.’” Id. ¶ 62. The same disclosures regarding the annual test for impairment of goodwill

performed in the third-quarter of 2017 and discussed in the 2017 Q3 Form 10-Q were repeated in

CVS’s Form 10-K for the year ending December 31, 2017 (2017 Form 10-K), which was filed

on February 14, 2018. Id.

B

Aetna Merger and Offering Documents

On January 4, 2018, CVS filed a draft Form S-4 (the Registration Statement) with the

Securities and Exchange Commission (SEC), which registered shares to be issued and exchanged

in connection with the Aetna Merger (the Merger). Id. ¶ 64. On February 9, 2018, CVS filed a

final amendment to the Registration Statement and it became effective. Id. ¶ 65. The

Registration Statement included, inter alia, a final prospectus for the CVS shares issued and

exchanged in the Merger and incorporated by reference in the 2017 Q3 Form 10-Q and the 2017

Form 10-K (collectively, the Offering Documents). Id. In March of 2018, both CVS and

Aetna’s shareholders voted to approve the Merger and, on November 28, 2018, CVS issued

approximately 274.4 million new shares of common stock to former Aetna Shareholders. Id.

¶¶ 4, 67.

1

Advisor Defendants

The Offering Documents also contained expert opinions prepared by the Advisor

Defendants. Id. ¶ 129. Specifically, the Advisor Defendants “represented to Aetna shareholders

that the merger consideration was fair, from a financial point of view, to Aetna shareholders.”

4

Id. The Advisor Defendants also opined in the Offering Documents that they had conducted

adequate due diligence regarding the operations and financial condition of the companies. Id.

C

Instant Litigation

Now, Plaintiffs allege that the Offering Documents were negligently prepared and

contained misstatements and omissions of material facts. Id. ¶ 68. Namely, the Plaintiffs allege

that the statements concerning CVS’s testing for goodwill impairment and the fair value of

goodwill allocated to the LTC Unit were materially false and misleading. Id. ¶ 74. Plaintiffs

assert that CVS should have performed an interim goodwill impairment test because the

goodwill values reported in the Offering Documents was stale. Id. ¶ 12. Through the instant

action, Plaintiffs represent a putative class of all persons who acquired CVS common stock

pursuant to the Merger and traceable to the Offering Documents. Id. ¶ 111. Plaintiffs claim that

the CVS Defendants violated § 11 of the Securities Act of 1933 (1933 Act) because the Offering

Documents contained misstatements and omissions of material facts which made the Offering

Documents misleading. Id. ¶ 119. Plaintiff Freundlich also asserts that the Advisor Defendants

violated § 11 of the 1933 Act by providing expert opinions in the Offering Documents and

representing that the Merger was fair and that the Advisor Defendants had conducted due

diligence. Id. ¶ 129.

Plaintiffs also claim that the CVS Defendants violated § 12(a)(2) of the 1933 Act by

promoting and selling CVS shares to Plaintiffs by means of the defective Offering Documents.

Id. ¶ 136. Plaintiff Freundlich also asserts that the Aetna Defendants violated § 12(a)(2) of the

1933 Act by soliciting the putative class to vote in favor of the Merger and to sell their Aetna

shares and purchase CVS common shares in connection with the Merger. Id. ¶ 142. Lastly,

5

Plaintiffs claim that the Individual CVS Defendants violated § 15 of the 1933 Act by

participating in the alleged violations of §§ 11 and 12(a)(2) of the 1933 Act by signing or

authorizing the signing of the Offering Documents and participating in the Merger process. Id.

¶ 149.

On June 11, 2020, this Court heard from all parties. After considering the written and

oral arguments, the Court now decides the instant motions to dismiss.2

II

Personal Jurisdiction

The Aetna Defendants move to dismiss Count IV, which is asserted by Plaintiff

Freundlich and alleges that the Aetna Defendants are liable for the alleged misstatements and

omissions in the Offering Documents pursuant to § 12(a)(2) of the 1933 Act. See Consol.

Compl. ¶¶ 140-45. The Aetna Defendants argue, inter alia, that Count IV must be dismissed

because this Court does not have personal jurisdiction over the Aetna Defendants.3

2 After the hearing on oral arguments, the Court received several communications from the

parties regarding developments in a class action against CVS and several of its executives

pending in the Supreme Court of the State of New York and docketed as Labourers’ Pension

Fund of Central and Eastern Canada v. CVS Health Corp., Index No. 651700/2019 (LPF).

While the Court recognizes that these correspondences were intended to inform the Court about

the status of the LPF case, the Court will not consider the substantive arguments made by

counsel in the correspondences. After the June 11, 2020 hearing, the record was effectively

closed, and this Decision is based on the extensive briefing and oral arguments, during which the

parties were given ample opportunity to be heard. 3 The Aetna Defendants also move to dismiss Shawn Guertin (Guertin) from this case. Guertin

is alleged to be Aetna’s Executive Vice President, Chief Financial Officer, and Chief Enterprise

Risk Officer during the relevant time period. Id. ¶ 40. Guertin is also alleged to have “reviewed,

contributed to, and approved the Offering Documents.” Id. However, there is no cause of action

asserted against Guertin. Count IV is asserted against the “Aetna Director Defendants,” a term

defined in the Consolidated Complaint which does not include Guertin. See id. ¶ 41 (defining

the “Aetna Director Defendants” as “Fernando Aguirre, Frank M. Clark, Molly J. Coye, Roger

N. Farah, Jeffrey E. Garten, Ellen M. Hancock, Mark T. Bertolini, Richard J. Harrington,

Edward J. Ludwig, and Olympia J. Snowe”). Freundlich has acknowledged that the

Consolidated Complaint inadvertently named Guertin as a defendant. See Pl. Freundlich’s Mem.

6

A

Standard of Review

“It is well established that to withstand a defendant’s Rule 12(b)(2) motion to dismiss a

complaint for lack of in personam jurisdiction, a plaintiff must allege sufficient facts to make out

a prima facie case of jurisdiction.” Cerberus Partners, L.P. v. Gadsby & Hannah, LLP, 836 A.2d

1113, 1118 (R.I. 2003) (citing Ben’s Marine Sales v. Sleek Craft Boats, 502 A.2d 808, 809 (R.I.

1985)). “A prima facie case of jurisdiction is established when the requirements of Rhode

Island’s long-arm statute are satisfied.” Id. at 1118 (citation omitted). Section 9-5-33(a) of the

Rhode Island General Laws provides the following:

“Every foreign corporation, every individual not a resident of this

state . . . and every partnership or association, composed of any

person or persons not such residents, that shall have the necessary

minimum contacts with the state of Rhode Island, shall be subject

to the jurisdiction of the state of Rhode Island . . . in every case not

contrary to the provisions of the constitution or laws of the United

States.”

Our Supreme Court has interpreted § 9-5-33(a) as allowing Rhode Island courts to exercise

jurisdiction “over nonresident defendants to the fullest extent allowed by the United States

Constitution.” Rose v. Firstar Bank, 819 A.2d 1247, 1250 (R.I. 2003) (citing McKenney v.

Kenyon Piece Dye Works, Inc., 582 A.2d 107, 108 (R.I. 1990)).

Opp’n Mot. Dismiss n.3. Accordingly, the Court finds that Plaintiff Freundlich has failed to

state a claim upon which relief can be granted against Guertin because no claim has been

asserted against Guertin. Guertin is dismissed from this action.

7

B

Specific Jurisdiction4

The Aetna Defendants argue that they are not subject to specific jurisdiction in Rhode

Island because Freundlich’s claim that the Aetna Defendants violated § 12(a)(2) of the 1933 Act

does not arise from their purposeful contacts with Rhode Island. Specifically, the Aetna

Defendants contend that Aetna is a Pennsylvania company with its principal place of business in

Connecticut, and there are not particularized allegations in the Consolidated Complaint relative

to the Aetna Defendants’ connections to Rhode Island.

Freundlich objects, arguing that the Aetna Defendants are subject to specific jurisdiction

in Rhode Island because the Aetna Defendants purposefully availed themselves of Rhode Island

by negotiating and approving a merger with a Rhode Island company. Freundlich argues that

pursuant to the Merger, Aetna became a wholly owned subsidiary of a Rhode Island company,

four of the Aetna Defendants were added to the CVS Board of Directors, the Aetna Defendants

prepared, reviewed, and/or approved the Offering Documents sent to Aetna Shareholders, and

the Aetna Defendants encouraged Aetna Shareholders to approve the Merger. Freundlich

contends that these activities, when viewed in the aggregate, show that the Aetna Defendants

deliberately and purposefully availed themselves of the privilege of doing business in Rhode

Island, and the Aetna Defendants could reasonably anticipate being hailed into court in Rhode

Island.

“[A] party can make a prima facie showing of specific personal jurisdiction over a

defendant ‘if the claim sufficiently relates to or arises from any of a defendant’s purposeful

contacts with the forum.’” Cassidy v. Lonquist Management Co., LLC, 920 A.2d 228, 233 (R.I.

4 Freundlich concedes that the Aetna Defendants are not subject to general jurisdiction in Rhode

Island.

8

2007) (quoting Rose, 819 A.2d at 1251). “The United States Supreme Court has emphasized that

‘[i]n order for a state court to exercise specific jurisdiction, the suit must aris[e] out of or relat[e]

to the defendant’s contacts with the forum.’” Martins v. Bridgestone Americas Tires Operations,

LLC, No. PC-2017-2420, 2018 WL 1341662, at *8 (R.I. Super. Mar. 8, 2018) (quoting Bristol-

Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773, 1780 (2017) (internal

quotations omitted))). Accordingly, “[t]he defendant must have performed ‘some act by which

[it] purposefully [availed] itself of the privilege of conducting activities within the forum state,

thus invoking the benefits and protections of its laws.”’ Cerberus Partners, 836 A.2d at 1119

(quoting Rose, 819 A.2d at 1251). Factors determining whether specific jurisdiction exists

include “the relationship among the defendant, the forum, and the litigation.” State of Maryland

Central Collection Unit v. Board of Regents for Education of University of Rhode Island, 529

A.2d 144, 151 (R.I. 1987) (citing Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). Establishing

“specific jurisdiction is a far less onerous burden for the plaintiff to carry than that of general

jurisdiction.” Cerberus Partners, 836 A.2d at 1119 (citing Ben’s Marine Sales, 502 A.2d at 812).

Plaintiff Freundlich’s claim against the Aetna Defendants arises out of § 12(a)(2) of the

1933 Act and, accordingly, the Court must examine whether the Aetna Defendants’ contacts with

Rhode Island have a sufficient relation to the alleged misstatements and omissions contained in

the Offering Documents. See Cassidy, 920 A.2d at 233. Based on the allegations contained

within the Consolidated Complaint, along with the affidavits proffered by the Aetna Defendants,5

the Court finds that Plaintiff Freundlich has failed to carry his burden in showing a prima facie

showing of specific jurisdiction. First, none of the Advisor Defendants reside in Rhode Island or

5 In ruling on a 12(b)(2) motion to dismiss for lack of personal jurisdiction, the Court is not

limited to the pleadings and may consider matters outside the Consolidated Complaint. See Rule

12(b) (providing that consideration of a motion to dismiss for failure to state a claim upon which

relief can be granted is limited to the pleading).

9

have resided in Rhode Island at any point in the last five years. See Aetna Defs.’ Mot. Exs. C1-

C10 ¶ 2. Second, the Advisor Defendants did not “draft, review, or approve the prospectus that

was filed in connection with [the Merger] while in the State of Rhode Island.” See id. at ¶ 4.

Accordingly, the Court finds that Plaintiff Freundlich has failed to show that there was any

affiliation between Rhode Island and the alleged violations of § 12(a)(2) of the 1933 Act because

no activities or occurrences related to the alleged misstatements or omissions contained within

the Offering Documents occurred in Rhode Island. See Bristol-Myers Squibb, 137 S. Ct. at 1780

(noting that for specific jurisdiction to exist there must be “‘an affiliation between the forum and

the underlying controversy, principally, [an] activity or an occurrence that takes place in the

forum state . . . .’” (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915,

919 (2011))).

In addition, the Court finds the fact that subsequent to the Merger, Aetna became a

wholly owned subsidiary of a Rhode Island company and four of the Aetna Defendants were

added to the CVS Board of Directors is not a relevant contact for purposes of specific

jurisdiction. Any post-Merger events are not related to Plaintiff Freundlich’s claim that the

Offering Documents contained material misstatements or omissions. See Harlow v. Children’s

Hospital, 432 F.3d 50, 61 (1st Cir. 2005) (discussing the timing of contacts for specific

jurisdiction and concluding that the “focus [should] be on those contacts leading up to and

surrounding the claimed injury”).6

6 Moreover, to prove the Aetna Defendants are liable for a violation of § 12(a)(2) of the 1933

Act, Plaintiff Freundlich must establish that the Offering Documents contained untrue statements

of material fact or material omissions about the goodwill allocated to the LTC Unit. Quite

clearly, this claim is limited to the Registration Statement, prospectus, and Offering Documents,

and does not implicate any post-Merger events.

10

Accordingly, the only remaining relevant alleged contacts the Aetna Defendants had with

Rhode Island are detailed in the Registration Statement itself, and include discussions with CVS

senior management, both in-person and telephonically, regularly scheduled and special board of

directors’ meetings during which the Aetna Defendants received updates on the Merger, and due

diligence meetings. See CVS Defs.’ Mot. Ex. 6 at 90-97. However, the Court cannot

determine—based on the record before it—where the meetings or telephonic calls took place

and/or were placed to and, therefore, these contacts are not purposeful contacts with Rhode

Island. Cf. Regan v. Kidder Peabody & Co., No. 23273/90, 1991 WL 354937, at *4 (N.Y. Sup.

Ct. July 3, 1991) (finding specific personal jurisdiction against a corporate executive for alleged

violations of the 1993 Act where the executive attended board meetings in New York, executed

the registration statement in New York, and made “several” calls to New York). Accordingly,

the Court cannot determine whether the Aetna Defendants established sufficient minimum

contacts with—and thereby purposefully availed themselves of—Rhode Island because it is

unclear what relationship, if any, the Aetna Defendants had with Rhode Island relative to the

alleged misstatements and omissions contained within the Offering Documents. See Walden v.

Fiore, 134 S. Ct. 1115, 1122 (2014) (recognizing that the relationship between a nonresident

defendant and the forum state “must arise out of contacts that the ‘defendant himself’ creates

with the forum State.”) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985))).

Based on the foregoing, the Court finds that Plaintiff Freundlich has failed to make a

prima facie showing of specific personal jurisdiction over the Aetna Defendants. Accordingly,

the Aetna Defendants’ motion to dismiss for lack of personal jurisdiction is granted.

11

III

Duplicative

The CVS Defendants, joined by the Aetna Defendants and the Advisor Defendants

(collectively, the Defendants), move to dismiss the Consolidated Complaint, arguing that it is

duplicative of class actions filed in other jurisdictions. Specifically, the Defendants contend that

this Court should dismiss the Consolidated Complaint in favor of other earlier-filed class actions

pending in Rhode Island federal court and New York state court. Plaintiffs object, arguing that

the other pending class actions assert claims under different statutes and involve predominantly

different parties, that the “first-to-file” rule is inapplicable in the context of parallel suits pending

in two different state courts, and that the balance of convenience favors maintaining the instant

action.7

7 The Court notes that the “first-to-file” rule is not contemplated by the Rule 12 motions, but the

First Circuit Court of Appeals has recently held that a first-to-file issue is non-jurisdictional and

“is to be addressed under Federal Rule of Civil Procedure 12(b)(6), not Rule 12(b)(1) . . . .”

United States v. Millenium Laboratories., Inc., 923 F.3d 240, 244 (1st Cir. 2019), cert. denied

sub nom. Estate of Cunningham v. McGuire, 140 S. Ct. 851 (2020). Thus, the First Circuit

confines its review of a first-to-file issue “to the pleadings and to facts subject to judicial notice.”

Id. This includes the facts alleged in the pending complaint and any other relevant first-filed

complaints. Id. at 245. Consideration of other relevant first-filed complaints is in accordance

with our Supreme Court’s precedent that when addressing a motion to dismiss pursuant to Rule

12(b)(6), a trial justice may consider documents that fall within “the First Circuit Court of

Appeals’ ‘narrow exception for documents the authenticity of which are not disputed by the

parties [and] for official public records . . . .”’ Mokwenyei v. Rhode Island Hospital, 198 A.3d

17, 22 (R.I. 2018) (quoting Chase v. Nationwide Mutual Fire Insurance Company, 160 A.3d

970, 973 (R.I. 2017)). Accordingly, in ruling on the Defendants’ motion to dismiss based on the

first-to-file rule, the Court may consider the allegations in the Consolidated Complaint and the

allegations in any other relevant first-filed complaints.

12

A

Overview of the “First-to-File” Rule

1

“First-to-File” Rule – Federal Courts

The “first-to-file” rule has been applied by federal courts to remedy the problem of

“wasted resources because of piecemeal litigation, the possibility of conflicting judgments, and a

general concern that the courts may unduly interfere with each other’s affairs.” TPM Holdings,

Inc. v. Intra-Gold Industries, Inc., 91 F.3d 1, 4 (1st Cir. 1996). Accordingly, where two cases

are filed in separate federal courts and “the overlap between the two suits is nearly complete, the

usual practice is for the court that first had jurisdiction to resolve the issues and the other court to

defer.” Id. (citing West Gulf Maritime Association v. ILA Deep Sea Local 24, 751 F.2d 721, 729

(5th Cir. 1985)). However, “‘[t]he preference for the first-filed action is not a per se rule, but

rather a policy governed by equitable considerations,”’ Feinstein v. Brown, 304 F. Supp. 2d 279,

283 (D.R.I. 2004) (quoting SW Industries, Inc. v. Aetna Casualty & Surety, Co., 653 F. Supp.

631, 634 (D.R.I. 1987)), and made at the discretion of the court. See Nortek, Inc. v. Molnar, 36

F. Supp. 2d 63, 69 (D.R.I. 1999). A court may exercise its discretion to decline to defer to the

first-filed action “where the balance of convenience weighs in favor of the second-filed action or

where there are special circumstances.” Berkshire Place Associates, LP v. MDG Real Estate

Global Limited, No. 1:19-CV-432-MSM-LDA, 2020 WL 516727, at *2 (D.R.I. Jan. 31, 2020)

(internal quotations omitted).

13

2

“First-to-File” Rule – Rhode Island Courts

While our Supreme Court has applied the “first-to-file” rule in situations where the same

or similar plaintiffs have filed two parallel actions in two courts within this state, see Barone v.

O’Connell, 785 A.2d 534, 535 (R.I. 2001) (holding that “‘where the two courts’ jurisdictions

overlap, principles of comity shall control and the court whose jurisdiction is first invoked

should resolve the issues presented to it’”) (quoting Halliwell v. Lippitt Realty Co., 121 R.I. 927,

927, 394 A.2d 708, 709 (1978))); see also Lippman v. Kay, 415 A.2d 738, 741 (R.I. 1980)

(recognizing that “when two courts of the same state have concurrent jurisdiction over a claim

and the claim is asserted in both courts, the court in which the claim was first asserted has

priority of jurisdiction and the second court must defer to it”), it has not had occasion to consider

the application of the “first-to-file” rule between a case filed in a court in our state and another

case filed in a court of a sister state, or between a case filed in a court in our state and another

case filed in a federal court.8 However, our Supreme Court has recognized the doctrine of forum

non conveniens, see Kedy v. A.W. Chesterton Co., 946 A.2d 1171, 1179 (R.I. 2008)

(acknowledging that the doctrine is part of Rhode Island’s jurisprudential landscape), is

analogous to the “first-to-file” rule both in its purpose and analysis. See 32A Am. Jur. 2d

Federal Courts § 1202 (explaining that the factors considered when applying the “first-to-file”

8 Notwithstanding that our Supreme Court has not addressed the application of the “first-to-file”

rule in a context similar to the one before this Court, the “first-to-file” rule has been previously

addressed in the Superior Court Business Calendar context. While not binding on this Court, it

has been acknowledged that there is “a general rule of judicial discretion that a court may stay or

dismiss proceedings when there is a prior case pending in another court of competent jurisdiction

involving the same issues and the same parties.” The Big East Conference v. West Virginia

University, No. PB-2011-6391, 2011 WL 6933720, at *8 (R.I. Super. Dec. 27, 2011).

14

rule “include many of the factors ordinarily determinative of whether to grant a change of venue

for convenience, or in the interest of justice”).

Additionally, many state courts have recognized that application of the “first-to-file” rule

is appropriate to resolve whether a state court action should be deferred in favor of an earlier-

filed action in another state court or a federal court. See, e.g., Wamsley v. Nodak Mutual

Insurance Co., 178 P.3d 102, 110 (Mont. 2008) (affirming the district court’s denial of a motion

to stay proceedings in Montana pending the outcome of a previously filed declaratory judgment

action in North Dakota); Sherry v. Sherry, 131 Nev. 1346, 1346 (2015) (affirming the application

of the “first-to-file” rule where a first-filed Illinois action and a later-filed Nevada action

involved the same parties and sought to resolve the shared issue of the termination of the parties’

marriage); Wachtell, Lipton, Rosen & Katz v. CVR Energy, Inc., 143 A.D.3d 648, 648 (N.Y.

App. Div. 2016) (finding that a party’s choice of federal forum for an earlier-filed legal

malpractice action was “entitled to comity” and warranted dismissal of state declaratory

judgment action based on the same cause of action and involving the same parties); Darling v.

American Graphics Institute, Inc., No. CIV.A. CV-02-602, 2003 WL 22019549, at *2 (Me.

Super. Aug. 6, 2003) (staying a proceeding pursuant to the “first-to-file” rule where “identical

issues [were] to be arbitrated pursuant to a proper federal court Order”). Based on our Supreme

Court’s recognition of the “first-to-file” rule as between two sister state court actions—along

with its explicit recognition of the analogous doctrine of forum non conveniens—and the wide

recognition of the rule across both federal and state courts, this Court finds that application of the

“first-to-file” rule is appropriate in the instant matter.

15

B

Application of the “First-to-File” Rule

1

Chronology of the Actions

First, the Court must consider the chronology of the actions. See Alltrade, Inc. v.

Uniweld Products, Inc., 946 F.2d 622, 625 (9th Cir. 1991). Here, the instant Complaint was filed

on May 13, 2019, and there are two first-filed actions relevant to this analysis. See Ward v.

Follett Corp., 158 F.R.D. 645, 648 (N.D. Cal. 1994) (explaining that for purposes of the “first-to-

file” rule the chronology of the actions is measured from the date of filing the original complaint,

not any amended complaints). First, on February 25, 2019, a shareholder filed a class action

against CVS and several of its executives in the United States District Court for the Southern

District of New York. The action was transferred to the United States District Court for the

District of Rhode Island and docketed as Anarkat v. CVS Health Corp., No. 1:19-cv-00437

(Anarkat). Second, on March 22, 2019, a different shareholder filed a class action against CVS

and several of its executives in the Supreme Court of the State of New York. The action was

docketed as Labourers’ Pension Fund of Central and Eastern Canada v. CVS Health Corp.,

Index No. 651700/2019 (LPF).9

9 Defendants also reference the Waterford Township Police & Fire Retirement System v. CVS

Health Corp., Inc. matter, which is presently pending in the United States District Court for the

District of Rhode Island and docketed as No. 1:19-cv-00434 (Waterford). However, the

Waterford complaint was filed on August 15, 2019, which is after the instant Complaint was

filed on May 13, 2019. See Ward, 158 F.R.D. at 648 (explaining that for purposes of the “first-

to-file” rule the chronology of the actions is measured from the date of filing the original

complaint, not any amended complaints). Accordingly, the Waterford action is not relevant to

this Court’s analysis for purposes of the “first-to-file” rule. Also irrelevant is a case pending in

the New York Supreme Court Commercial Division docketed as Cambria County Employees

Retirement System v. CVS Health Corp., No. 653223/2019 (Cambria). Cambria was filed on

May 31, 2019, which is after the instant Complaint was filed on May 13, 2019. See id.

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2

Substantial Overlap

Next, the Court must determine whether there is “a substantial overlap of parties and

issues” in the two actions. McGlynn v. Credit Store, Inc., 234 B.R. 576, 581 (Bankr. D.R.I.

1999). The Defendants argue that there is nearly complete overlap between the parties and issues

in the prior-filed actions. Specifically, the Defendants argue that the Plaintiffs seek to represent

a putative class that is identical to the putative classes in Anarkat and LPF, and there is a core

group of defendants common to Anarkat, LPF, and this action. Defendants also contend that the

issues presented and the relief requested in Anarkat and LPF are substantially similar to this

action because each allege that CVS mispresented the performance and goodwill valuation of the

LTC Unit in the Offering Documents and seek monetary damages for the decline in CVS’s share

prices.

Plaintiffs object, arguing that Anarkat and LPF involve substantially different parties and

claims. Plaintiffs argue that the putative class in Anarkat is different than the putative class in

this action, and that the defendants named across the three actions are different, including the

eleven independent CVS Directors named in this action, along with the Aetna Defendants and

Advisor Defendants named by Freundlich. Plaintiffs also contend that the claims advanced in

Anarkat are different than the claims advanced in the instant action. Namely, Plaintiffs maintain

that the Anarkat action asserts § 10(b) fraud claims under the 1934 Act, while the instant action

asserts § 11 strict liability claims under the 1933 Act.

17

a

Anarkat

First, the Court finds that the putative class Plaintiffs seek to represent in this action are

substantially similar to the putative class already being represented in Anarkat. In Anarkat, the

putative class is “all investors who purchased or otherwise acquired . . . CVS . . . securities

between February 9, 2016 and February 20, 2019.” Anarkat Compl. ¶ 1. While the putative

class in the instant action is narrower and only includes “all persons who acquired CVS common

stock pursuant or traceable to the Offering Documents,” Consol. Compl. ¶ 111, CVS issued the

new shares of common stock to former Aetna Shareholders on November 28, 2018. Id. ¶¶ 4, 67.

Accordingly, the putative class in this action is completely subsumed within the Anarkat putative

class.

Next, the Court finds that there is substantial overlap between the defendants named in

Anarkat and the defendants named in the instant action. For purposes of the first-to-file rule, the

parties in the two actions need not be perfectly identical in order for there to be substantial

overlap. See Baatz v. Columbia Gas Transmission, LLC, 814 F.3d 785, 790 (6th Cir. 2016). As

such, the addition of eleven independent CVS Directors in this action is of no moment because

these Directors are closely affiliated with CVS.10 See Foxfield Villa Associates, LLC v. Regnier,

10 As the Aetna Defendants have been dismissed from this action on independent grounds, the

Court finds that their addition to the instant action is not relevant to the “first-to-file” analysis.

Moreover, the addition of the Advisor Defendants in the instant action does not render it

substantially different from Anarkat and LPF. There are no individualized allegations advanced

against the Advisor Defendants, and

“[w]here the issues are substantially similar, the absence of a

single party from the first-filed suit will not necessarily defeat the

first-to-file rule. Indeed, if parties were required to be identical,

then the rule and its benefits could be easily avoided simply by

adding a party or a claim to the later-filed action.” Herer v. Ah Ha

Publishing, LLC, 927 F. Supp. 2d 1080, 1089 (D. Or. 2013).

18

918 F. Supp. 2d 1192, 1197 (D. Kan. 2013) (holding that the defendants in a federal suit were

substantially similar to the defendant in a state suit where the additional federal suit defendants

were “closely affiliated with the defendant present in both cases” and included defendant’s

holding company and members of the boards of directors).

Lastly, the Court finds that there is substantial overlap between the issues in the Anarkat

action and the issues in the instant action. Anarkat advances claims under the 1934 Act and

alleges that the Offering Documents contained false and misleading statements and omissions

about the condition, performance, and value of the LTC Unit. Anarkat Compl. ¶¶ 1, 27. While

the instant Consolidated Complaint advances claims under the 1933 Act—which the United

States Supreme Court has recognized federal and state courts have concurrent jurisdiction over

and which are not removable to federal court, see Cyan, Inc. v. Beaver County Employees

Retirement Fund, 138 S. Ct. 1061, 1064-65 (2018)—the relevant focus for the “first-to-file” rule

is not the specific claims advanced between the actions, but rather “overlapping subject matter is

the key; exact identity of claims is not required.” Catanese v. Unilever, 774 F. Supp. 2d 684,

689 (D.N.J. 2011). Accordingly, the facts alleged in Anarkat are substantially similar to those

advanced in the instant Consolidated Complaint, and the claims involve the same alleged

misstatements and/or omissions in the Offering Documents. U.S. ex rel. Heineman-Guta v.

Guidant Corp., 718 F.3d 28, 34 (1st Cir. 2013) (holding that the “first-to-file” rule bars a later-

filed complaint under the False Claims Act where the later-filed complaint “‘states all the

essential facts of a previously-filed [complaint]’ or ‘the same elements of a fraud described in an

earlier suit.’” (quoting U.S. ex rel. Duxbury v. Ortho Biotech Products, L.P., 579 F.3d 13, 32 (1st

Cir. 2009))). “[T]he fact that this action involves claims under the 1933 Act and the [Anarkat]

action involves claims under the 1934 Act is not a reason to deny a stay motion: ‘it is

19

inconsequential that different legal theories or claims [are] set forth in the two actions.’” Mahar

v. General Electric Co., 65 Misc. 3d 1121, 1132, 112 N.Y.S.3d 879, 888 (N.Y. Sup. Ct. 2019),

reargument denied, (N.Y. Sup. Ct. 2020) (quoting Shah v. RBC Capital Markets, LLC, 115

A.D.3d 444, 445, 981 N.Y.S.2d 524, 525 (1st Dept. 2014)).

Based on the foregoing, the Court finds that there is substantial overlap of parties and

issues between Anarkat and the Consolidated Complaint. Before turning to whether an

exception to the “first-to-file” rule applies, the Court must also consider whether there is

substantial overlap between LPF and the instant action.

b

LPF

First, the Court finds that the putative class in LPF and the putative class in the instant

action substantially overlap. In LPF, the putative class is “all persons or entities who purchased

or acquired CVS common stock pursuant and/or traceable to the Registration Statement, and who

were damaged thereby.” LPF Compl. ¶ 92. Similarly, the putative class in the instant action is

“all persons who acquired CVS common stock pursuant or traceable to the Offering

Documents.” Consol. Compl. ¶ 111. Accordingly, the putative class in this action is identical to

the LPF putative class.

Next, the Court finds that the defendants named in LPF and the Defendants in the instant

action also substantially overlap. In LPF, CVS is named as a defendant along with three

individual CVS executives. LPF Compl. ¶¶ 24-27. While the instant action also includes eleven

other independent CVS Directors as Defendants, the Court has already concluded that this

addition is of no moment because the eleven independent CVS Directors are closely affiliated

with CVS. See Foxfield Villa, 918 F. Supp. 2d at 1197.

20

Finally, the Court finds that there is substantial overlap of issues between LPF and the

instant action. LPF alleges that “the Registration Statement contained materially false and

misleading statements concerning [CVS’s] goodwill,” LPF Compl. ¶ 10; see also id. ¶ 62, and

advances claims under §§ 11, 12, and 15 of the 1933 Act. See id. Counts I, II, and III. Similarly,

the instant action alleges that the registration was “negligently prepared, contained untrue

statements of material fact, and omitted material facts both required by governing regulations

and necessary to make the statements made not misleading,” see Consol. Compl. ¶ 68, and

claims violations of §§ 11, 12, and 15 of the 1933 Act against the CVS Defendants. Id. at

¶¶ 117-125, 135-139, 146-149. As such, the Court finds that there is a substantial overlap of the

parties and issues between LPF and the Consolidated Complaint.

3

Equitable Considerations

Even where a first-filed suit may be given priority due to substantial overlap, exceptions

to the “first-to-file” rule may weigh against deferring to the first-filed action. See Employers

Insurance of Wausau v. Fox Entertainment Group, Inc., 522 F.3d 271, 275 (2d Cir. 2008)

(recognizing two exceptions to the “first-to-file” rule). The party attempting to overcome the

first-filed presumption bears the burden of demonstrating that one or both of the exceptions

applies. Veryfine Products, Inc. v. Phlo Corp., 124 F. Supp. 2d 16, 21 (D. Ma. 2000)

(citing Nowak v. Tak How Investments, Ltd., 94 F.3d 708, 719 (1st Cir. 1996)); see also

Feinstein, 304 F. Supp. 2d at 283.11

11 Two exceptions to the “first-to-file” rule are recognized. “Generally, a ‘special circumstances’

exception to the first filed rule exists where ‘forum shopping alone motivated the choice of the

situs for the first suit.’” 800-Flowers, Inc. v. Intercontinental Florist, Inc., 860 F. Supp. 128, 132

(S.D.N.Y. 1994) (quoting William Gluckin & Co. v. International Playtex Corp., 407 F.2d 177,

178 (2d Cir. 1969)). The “special circumstances” exception is meant to forestall a party who

21

An “exception to the first-filed rule [applies] when the balance of convenience favors the

second action.” Learning Network, Inc. v. Discovery Communications, Inc., 11 F. App’x 297,

302 (4th Cir. 2001). Consideration of the “balance of convenience” exception is akin to a forum

non conveniens analysis. See Merola v. Cuomo, No. 1:19-cv-899 (GLS/TWD), 2019 WL

4857462, at *2 (N.D.N.Y. Oct. 2, 2019); see also Veryfine Products, Inc., 124 F. Supp. 2d at 24

(recognizing that “[c]ourts essentially look to the forum non conveniens factors” when

considering the balance of convenience exception). As our Supreme Court has recognized, “the

forum non conveniens inquiry focuses on the inconvenience of continuing in the chosen forum

by weighing private- and public-interest factors.” Kedy, 946 A.2d at 1184. The private-interest

factors include, but are not limited to, (1) the relative ease of access to proof; (2) availability of

compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing,

witnesses; (3) possibility of view of premises, if view would be appropriate to the action; (4) and

all other practical problems that make trial of a case easy, expeditious, and inexpensive. Id. The

public-interest factors include protecting a court’s dockets from cases which lack a significant

connection to the forum; encouraging the trial of actions in the localities in which they arose; and

consideration of the court’s familiarity with governing law. See id. at 1185.

Plaintiffs maintain that the balance of convenience weighs in favor of proceeding with

the instant action over the LPF action. In support, Plaintiffs rely heavily on a decision rendered

in the Anarkat action, in which the United States District Court for the Southern District of New

York conducted a change of venue analysis pursuant to 28 U.S.C. § 1404(a) and found that

“won the race to the courthouse by misleading his [or her] opponent . . . .” Transcanada Power

Marketing, Ltd. v. Narragansett Electric Co., 402 F. Supp. 2d 343, 348 (D. Mass. 2005). Here,

the Plaintiffs have not argued that the special circumstances exception is applicable and therefore

the Court will not address that exception. See Pollard v. Acer Group, 870 A.2d 429, 434 (R.I.

2005) (recognizing that arguments not raised before the trial court are deemed waived).

22

transfer to the United States District Court for the District of Rhode Island was warranted (the

Transfer Decision). The Transfer Decision held that “in the interest of justice” the action would

be transferred to Rhode Island “based on the convenience of witnesses, the location of relevant

documents and relative ease of access to sources of proof, the locus of operative facts, and the

availability of process to compel the attendance of unwilling witnesses.” Transfer Dec. 2. Plaintiffs

also assert that the Anarkat action is subject to the heightened federal pleading standard, which our

Supreme Court has explicitly rejected.

Applying the balance of convenience exception here by looking to the forum non

conveniens factors our Supreme Court has articulated, the Court finds that the balance of

convenience does not favor this action proceeding over Anarkat and LPF. 12 First, the private-

interest factors do not weigh in favor of proceeding in this action. While CVS is headquartered

in Rhode Island, which may lead to the availability of evidence, documents, and compulsory

process for attendance of witnesses being more convenient in Rhode Island, the Anarkat action is

currently pending in the District of Rhode Island. Furthermore, the Plaintiffs have not provided

a persuasive argument to show that proceeding in the LPF action is substantially more

inconvenient and would result in the unavailability of evidence or witnesses. The Plaintiffs also

do not make a compelling argument that trial of this case is more easy, expeditious, or

inexpensive in this Court rather than in federal court or New York state court. Rather, ease,

expediency, and expense favor the first-filed presumption because requiring the Defendants “to

12 Both parties also address the plaintiff’s choice of forum as a factor to be weighed in the

balance of convenience analysis. While the plaintiff’s choice of forum is not a factor our

Supreme Court has identified in its forum non conveniens analysis, see Kedy, 946 A.2d at 1184,

some courts have looked to “the original plaintiff’s choice of forum” in conducting the balance

of convenience analysis. See Quality One Wireless, LLC v. Goldie Group, LLC, 37 F. Supp. 3d

536, 542 (D. Mass. 2014). “However, in the prior pending action inquiry, the plaintiff whose

choice of forum is relevant is the original plaintiff—i.e., the plaintiff in the first-filed action.” Id.

at 542–43. Accordingly, the forums chosen by the plaintiffs in Anarkat and LPF—federal court

and New York State court—are afforded deference and weigh in favor of staying this action.

23

defend materially identical suits in [multiple fora] would inevitably lead to duplication of

voluminous discovery and documentary evidence. . . .” Panitch v. Quaker Oats Co., No. 16-

4586, 2017 WL 1333285, at *7 (E.D. Pa. Apr. 5, 2017). As such, the Court finds that the

private-interest factors do not weigh in favor of disregarding the first-filed presumption.

The public-interest factors also do not weigh in favor of proceeding in this action. While

Rhode Island clearly has a connection to the action because CVS is a Rhode Island company, the

Consolidated Complaint does not allege that any of the Plaintiffs are Rhode Island residents, and

the alleged misstated goodwill of the LTC Unit was observed “in different areas of the country”

due “to the significant client losses resulting from CVS’s poor customer service.” Consol.

Compl. ¶ 79(c). The Consolidated Complaint also compares the decrease in value of the CVS

stock to the performance of the New York Stock Exchange. Id. ¶ 15. Accordingly, this Court

does not have an overriding connection to the allegations advanced, such that the first-filed

presumption in favor of the federal action and the New York state action should be disregarded.

See Catanese, 774 F. Supp. 2d at 690 (finding that a forum is not the appropriate venue for an

action simply because a corporate defendant is headquartered there).

Moreover, the Consolidated Complaint is based entirely on federal law. While this Court

certainly has adjudicated claims arising under federal laws, there is no particular familiarity with

the governing law in this action which would overcome the first-filed presumption. While the

Anarkat action is subject to the federal courts’ heightened pleading standards, the LPF action is

subject to New York’s notice pleading standard. See N.Y. C.P.L.R. § 3013 (McKinney).

Accordingly, the Court finds that staying this action, in favor of the first-filed actions, would be

in the public interest because it will “promote judicial efficiency, economy and consistency of

results.” Catanese, 774 F. Supp. 2d at 690.

24

Based on the foregoing, the Court finds that Anarkat and LPF are first-filed actions

which substantially overlap with the instant action, and the Plaintiffs have not proven that an

exception to the first-filed presumption applies. As such, this action is stayed in favor of the

first-filed actions.

IV

Conclusion

Based on the foregoing, the Aetna Defendants’ motion to dismiss for lack of personal

jurisdiction is granted. The Defendants’ motion to stay the instant proceeding in favor of the

first-filed actions is also granted. Counsel shall prepare and submit the appropriate order for

entry.

25

RHODE ISLAND SUPERIOR COURT

Decision Addendum Sheet

TITLE OF CASE: In Re: CVS Health Corporation Securities Litigation

CASE NO: PC-2019-5658 (Consolidated with PC-2019-6685)

COURT: Providence County Superior Court

DATE DECISION FILED: September 1, 2020

JUSTICE/MAGISTRATE: Stern, J.

ATTORNEYS:

For Plaintiff: Thomas W. Lyons, III, Esq., for City of Warren Police

and Fire Retirement System

Robert M. Duffy, Esq. and Stephanie F. Friedel, Esq.,

for David Freundlich

For Defendant: Rachelle R. Green, Esq.; Robert Corrente, Esq.;

Brenna A. Force, Esq.; Emily J. Migliaccio, Esq.;

Geoffrey W. Millson, Esq.; Christopher N. Dawson,

Esq.