The Complaint brings forth claims for violations of the Securities Exchange Act of 1934 against Patterson Companies, Inc. (“Patterson,” or the “Company”), and certain of its senior executives. The Complaint alleges that Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired Patterson common stock during the Class Period.
Patterson, a corporation with its headquarters located in St. Paul, Minnesota, is the second largest full-service distributor of dental products in the nation. The Company supplies its products mainly through two subsidiaries—Patterson Dental and Patterson Animal Health. The Company’s main competitors are Henry Schein, Inc. (“Schein”) and Benco Dental Supply Company (“Benco”), who, together with Patterson, controlled nearly 85% of the dental supply market throughout the Class Period. Patterson attributed its competitive advantage in the dental market to the Company’s “premium customer service,” “highly qualified and motivated sales force,” “competitive pricing,” and top-of-the-line products.
Specifically, the Complaint alleges that Defendants made false and/or misleading statements or failed to disclose that: (1) Defendants were, in fact, engaged in a fraudulent and illegal price-fixing conspiracy with both Schein and Benco to collusively boycott Group Purchasing Organizations (GPOs” or “buying groups”) that represented small and independent dental practices within the industry in violation of in the Federal Trade Communication Act (the “FTC Act”); and (2) that the Company’s revenue and earnings were fraudulently inflated by this illegal scheme. On February 12, 2018, the FTC filed a formal complaint against Patterson and its co-conspirators for its this conduct, alleging that it violated federal antitrust laws. The FTC’s complaint, resulting from an extensive three-year investigation, was extraordinarily detailed, including excerpts from a plethora of internal and inter-firm emails, phone calls and text messages among the most senior officers at each of the three companies. On this news, Patterson’s stock price fell 5%, wiping out $160 million in market capitalization in one day. Then less than three weeks later, on March 1, 2018, Patterson announced disappointing results for the third quarter of fiscal year 2018, stunning the market by disclosing a dramatic decline in overall earnings of 26%, coupled with the immediate resignation of the Company’s CFO. Indeed, absent illegal collusion with Schein and Benco, Patterson’s obsolete business model could not maintain its historically healthy profit margins due to GPOs increasingly talking hold in the dental industry. On this news, Patterson’s stock dropped, falling 24% on March 1, 2018, from $31.58 per share to $24.11 per share, wiping out nearly $700 million in market capitalization. Post Class Period, on April 19, 2018, the Texas Attorney General (“AG”) brought suit against Patterson alleging that the collusive “group boycott” violated state antitrust laws. Patterson settled the action the same day, agreeing to cease its anticompetitive conduct, pay $200,000 in costs, and provide the Texas AG an ongoing log of all oral and written communications among its senior level executives for one year. On August 30, 2018, Patterson reported that its earnings missed consensus expectations again, and admitted the shortfall was due to “competitive pricing pressures at the point of sales” driven by a changing customer base of buying groups. On this news, Patterson’s stock fell again by 5%. The Company’s stock has never regained its value.
On August 30, 2018, the Court appointed Plymouth County Retirement System, Pembroke Pines Pension Fund for Firefighters and Police Officers, Central Laborers Pension Plan, and Gwinnet County Public Employees Retirement System as Lead Plaintiffs and Saxena White P.A. as Co-Lead Counsel.
On November 9, 2018, Lead Plaintiffs filed their Amended Complaint. Defendants filed their Motion to Dismiss the Amended Complaint on January 18, 2019, Lead Plaintiffs filed their Opposition to Defendants’ Motion on March 19, 2019, and Defendants filed their Reply on May 3, 2019. On July 25, 2019, Magistrate Judge Steven E. Rau issued a Report and Recommendation to the District Court regarding Defendants’ Motion to Dismiss. Significantly, Judge Rau found that Lead Plaintiffs alleged “a long-running scheme at Patterson, concocted in the upper echelons of corporate management, to collude with its direct competitors to stifle new entrants to the market to protect its artificially inflated prices charged by reason of unorganized buyers with little power.” Lead Plaintiffs’ allegations, according to Judge Rau, were bolstered by the FTC complaint, and sufficiently asserted securities violations against Patterson and its former CEO Scott Anderson.
Defendants filed an objection to Judge Rau’s Report and Recommendation on August 8, 2019, and Lead Plaintiffs filed a response to Defendants’ objection on August 22, 2019. On September 10, 2019, the Court adopted the July 25, 2019 Report and Recommendation of Judge Rau. On September 24, 2019, Defendants filed their Answer to the Amended Complaint.
On September 28, 2020, the Court issued an order granting Lead Plaintiffs’ Motion to Certify Class, Appoint Class Representatives and Appoint Class Counsel, finding Plaintiffs met the preponderance requirement that entitled them to a presumption of classwide reliance under the fraud-on-the-market theory.
On October 12, 2020, Defendants filed with the Eighth Circuit Court of Appeals a petition for interlocutory review of the Court’s class certification order. The following day, Defendants filed a Motion to Stay pending their petition, which the District Court denied on November 19, 2020 by finding Defendants could not show irreparable harm or a likelihood of success on the merits of their appeal.
After more than three years of hard fought litigation, where both fact and expert discovery was completed, motions for summary judgment and to exclude expert testimony were pending, and with a trial date soon-to-be set, the parties reached a $63 million dollar settlement, an outstanding result for the Class. Throughout these exceptional efforts, Plaintiffs propounded and responded to numerous document requests, served multiple non-party subpoenas, obtained and reviewed nearly 800,000 pages of documents produced by Defendants, conducted 26 fact and expert depositions, and defended 11 fact and expert depositions on behalf of the Class.
On October 14, 2021, Lead Plaintiffs filed their Unopposed Motion for Preliminary Approval of Settlement. On February 3, 2022, the Court issued an Order Granting Preliminary Approval of the Settlement and Permitting Notice to the Class. At a final hearing on June 9, 2022, the Court approved the settlement and plan of allocation, and awarded Lead Counsel attorney fees and expenses finding them to be fair and reasonable in all respects.
