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United States Court of Appeals for the Fifth Circuit
February 17, 2005, Filed
[*319] EDITH H. JONES, Circuit Judge:
This case, on review pursuant to FED. RULE CIV. PROC. 23(f), implicates the standards and procedures used by district courts when considering certification of securities class actions dependent on the "fraud on the market" theory. See Basic, Inc. v. Levinson, 485 U.S. 224, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988). Like our brethren in the Third, Fourth, Seventh and Ninth Circuits, we hold that a careful certification inquiry is required and findings must be made based on adequate admissible evidence to justify class certification. Because the district court erroneously applied too lax a standard of proof to the plaintiffs' fraud-on-the-market allegations, we must vacate the class certification and remand.
Amedisys provides home health care, nursing, home infusion therapy, and ambulatory surgery services. The company's stock is traded on the NASDAQ Over The Counter Bulletin Board ("OTCBB"). Approximately ninety percent [**2] of Amedisys's revenue comes from Medicare. This case stems from the conduct of Amedisys and its directors in reporting profits based on new Medicare procedures.
Beginning October 1, 2000, Medicare implemented the Prospective Payment System ("PPS"), which altered the way Medicare compensated home health care companies. Under PPS, Medicare paid health care companies like Amedisys a portion of their fees in advance, based on forward-looking estimates of the cost of services. After the company provided the service, the remainder of the fee was paid; alternatively, if the initial payment proved too high, the company had to reimburse Medicare the difference. To comply with the new PPS procedures, Amedisys purchased and implemented new computer software.
Plaintiffs allege that Amedisys willfully manipulated the PPS program to inflate the estimated costs for certain health services; that it thereby artificially fueled company earnings; and, ultimately, that Amedisys's actions wrongfully enhanced its stock price. On June 13, 2001, Amedisys issued a curative statement, conceding that it had overstated revenues, but maintaining that the overstatements were inadvertently caused by the new software [**3] used with the PPS program. The stock price fell.
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401 F.3d 316 *; 2005 U.S. App. LEXIS 2778 **; Fed. Sec. L. Rep. (CCH) P93,115
FRANCES UNGER, ET AL.; Plaintiffs, WILLIAM PATTERSON, lead plaintiff; GORDON ELLIS, lead plaintiff, Plaintiffs-Appellees, versus AMEDISYS INC; ET AL., Defendants-Appellants.
Subsequent History: As Revised February 23, 2005.
Prior History: [**1] Appeals from the United States District Court for the Middle District of Louisiana.
Unger v. Amedisys, Inc., 2003 U.S. Dist. LEXIS 27977 (M.D. La., Aug. 1, 2003)
Disposition: VACATED AND REMANDED.
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