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Sept. 17 — A health-care information systems developer won dismissal of a suit by its largest investor who claimed he lost $80 million by relying on the company's alleged misrepresentations when deciding not to sell his stock, a California state court ruled Sept. 16.
In granting the company summary judgment, Judge Mary Fingal Schulte of Orange County Superior Court found Sept. 16 that Ahmed Hussein couldn't establish reasonable reliance on Quality Systems Inc.'s (QSI) statements and financial projections. He “was a sophisticated investor who had a long history of deep distrust for Defendants, their ability to manage the company and their willingness to provide truthful information about the company,” the court said.
Hussein claimed that he intended to sell his QSI shares in late 2011 or early 2012, but then decided against it after QSI's chief executive officer, Steven Plochocki, allegedly indicated that the company expected to increases in net income and financial growth. However, following a retraction of its revenue projections and earnings for FY 2013, QSI's stock nose-dived in July 2012 causing Hussein to lose over $80 million in a single day.
Following his massive losses, Hussein sued QSI under California law for fraud and deceit, constructive fraud and negligent misrepresentation.
Contrary to Hussein's claims that he was misled by the company, the court said the evidence showed that he actively monitored the company's financial performance. Hussein expressed continuous concern about the corporation's financial situation, the accuracy of its public disclosures, and even voted against the budget he claimed to rely on in retaining his shares. Further, in his deposition, Hussein testified that “he was ‘very proud' because his prediction of QSI's financial decline ‘came true,'” the court found.
The defendant's counsel—Peter Wald, partner at Latham & Watkins LLP—said in a statement e-mailed to Bloomberg BNA that he was “very gratified by” the court's ruling.
The decision “addresses the California Supreme Court's concern—first expressed in Small v. Fritz, Cal. 4th 167, 184 (2003)—that courts guard against nonmeritorious lawsuits brought by shareholders who claim ‘reliance' on defendants' alleged misrepresentations in deciding not to sell their stock,” Wald said. “In holding that plaintiffs are not free to manipulate their own prior statements in an effort to sustain such claims, Judge Schulte conducted a diligent review of the record and precisely identified the contradictions that preclude plaintiff’s claim here.”
Counsel for Hussein, Stephen Morrissey, a partner at Susman Godfrey, said they will seek to have the ruling “reversed, either by the trial court or on appeal.”
“We remain very confident in the case,” Morrissey said. “We were very surprised that the court found there was not enough evidence that a 74-year-old shareholder could reasonably rely on statements made by the officers of a public company,” he added.
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To view the court's order, visit:http://www.bloomberglaw.com/public/document/HUSSEIN_VS_RAZIN_Docket_No_30201300679600_Cal_Super_Ct_Oct_04_201.
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