Cases / Current Cases

PHC, Inc. Shareholder Litigation

Supreme Court Denies Certiorari in PHC Shareholder Litigation

On November 13, 2018, the United States Supreme Court denied the petition for certiorari filed by the CEO of PHC, Inc.  The CEO sought to appeal a decision from the United States Court of Appeals for the First Circuit, which, earlier this year, affirmed a judgment ordering him to disgorge over $3 million to PHC’s shareholders.  In affirming, the First Circuit found that the shareholder class, represented by Wolf Popper LLP, had demonstrated at trial that the CEO “dominated PHC and had pervasive control over its affairs” and used this control to negotiate an unfair cash payment for himself as part of a merger agreement.  Accordingly, disgorgement of the CEO’s “inflated portion [of the payment] gained through his breach of fiduciary duty” was “suitably tailored to redress [his] inequitable conduct.”

The Court noted that the questions presented in the appeal were “intricate, entangled and in some instances novel,” and complimented counsel for their “unusually good arguments.”

The PHC trial and appellate team consisted of Chet B. Waldman, Jeffrey W. Chambers, Patricia I. Avery, and Adam J. Blander.

Read more about this victory for investors here.

First Circuit Affirms Disgorgement Order Won By Wolf Popper LLP for PHC Shareholder Class Following Trial

On July 2, 2018, the United States Court of Appeals for the First Circuit affirmed, 3-0, the decision of Chief Judge Patti Saris of the U.S. District Court for the District of Massachusetts in ordering disgorgement of $3 million to a class of PHC shareholders.  A copy of the opinion can be found here.

Court Orders Disgorgement of $3 Million to PHC Shareholder Class Following Trial

In In re: PHCInc. Shareholder Litigation, the plaintiff, a shareholder of a behavioral health company sought damages arising from a stock-for-stock merger in which the company’s CEO and chief negotiator received a multi-million dollar payment as well as an attractive employment package in the newly combined company.  On January 14, 2016, the Court certified a class of all Class A shareholders of the company who abstained or voted against the merger, and appointed Wolf Popper LLP as Lead Counsel to represent the class. MAZ Partners LP v. Shear, No. CV 11-11049-PBS, 2016 WL 183519 (D. Mass. Jan. 14, 2016).  After over five years of litigation, a two-week trial commenced in February 2017, resulting in a jury finding that the CEO, through his control of the company’s board of directors, effectuated a merger unfair to the Class A shareholders.  Following trial, Chief Judge Patti Saris complemented counsel, stating “I think you all did a great job trying this case….[Y]ou’re very civil throughout this entire proceeding and I thank the folks in [your office] for so much support that they’ve given along the way because I know it’s a big case with a lot of paper.... And someone should study the case in terms of how attorneys should treat one another, and I appreciate that.”

In a post-trial decision dated July 13, 2017, Judge Saris ordered the CEO to disgorge $2,964,396 plus interest, representing his ill-gotten gains from the merger.  While Judge Saris had certified a class consisting only of Class A shareholders who abstained or voted against the merger, she found that the CEO breached his fiduciary duty to all Class A shareholders of the company.  Citing to the folk tale of “The Little Red Hen,” Judge Saris proceeded to award the entire disgorgement amount to the certified class represented by Wolf Popper LLP, reasoning that it alone “did the work in proving the breach of fiduciary duty” and thus could reap the full extent of the rewards resulting from its diligence.

Court Certifies Class and Schedules Trial in In re: PHC, Inc. Shareholder Litigation

New York, NY (PR Newswire) – Notice of Pendency of Class Action – To:  All Class A shareholders of PHC, Inc. (“PHC”) who abstained from voting or voted against the 2011 merger of PHC with Acadia Healthcare Company, Inc. (“Acadia”) (the “Merger”), and held their shares immediately prior to and whose shares were converted to Acadia shares after the effective merger date (the “Class”).

The United States District Court, District of Massachusetts has certified In re: PHC, Inc. Shareholder Litigation, C.A. No. 11-11049-PBS as a class action. A trial against certain former PHC directors, Acadia and Acadia Merger Sub, LLC (the “Defendants”), has been scheduled to begin on February 27, 2017.  

This lawsuit alleges Defendants violated fiduciary duties owed to the Class by causing the Merger to be effected on unfair terms and pursuant to an unfair process. Plaintiff MAZ Partners LP, on behalf of the Class, seeks an award of damages, interest, costs and other relief, including additional Acadia shares. Plaintiff must prove any entitlement to, and the amount of, any damages awarded at trial. The Court appointed Wolf Popper LLP as Lead Counsel to represent the Class. You may retain your own counsel at your own expense.

If you want to stay in the Class and share in any potential recovery, you need not do anything now. You will be bound by the Court’s determinations in this Action and will not be able to sue the Defendants for these legal claims in any other lawsuit. If you do not want to stay in the Class, you must exclude yourself. You will not share in any potential recovery or be bound by any decision in this lawsuit. However, you may be able to file/continue with your own lawsuit against the Defendants at your own expense. To exclude yourself, send a written request including your name, address, email address, telephone number and signature, and a statement indicating you request exclusion from the Class in In re: PHC, Inc. Shareholder Litigation postmarked no later than February 21, 2017 to:

Wolf Popper LLP
845 Third Avenue
New York, NY  10022

More information and a Notice may be obtained by writing to:

In re: PHC, Inc. Shareholder Litigation
c/o KCC Class Action Services
P.O. Box 43434
Providence, RI  02940-3434

Trial On Behalf Of PHC, Inc. Class A Shareholders Who Didn’t Vote In Favor Of Merger With Acadia, Inc. Scheduled To Begin December 12, 2016.

On November 1, 2011, PHC, Inc. (“PHC”), a Massachusetts corporation, merged with Acadia, Inc. (“Acadia”)  in a stock for stock Merger in which each share of PHC’s Class A Common Stock held by the members of the Class immediately prior to the Merger were converted into and became exchangeable for one-quarter (¼) of one share of Acadia Common Stock (the “Exchange Ratio”).  PHC Class A shareholders received 22.5% of the combined company and Acadia’s shareholders received 77.5%.  In addition, PHC’s Class B stockholders received a $5 million payment, $4.7 million of which went to Bruce A. Shear (“Shear”), PHC’s Chief Executive Officer (“CEO”), President and Chairman of its Board of Directors (“Board”).  Plaintiff alleges that, among other things,  Shear breached his fiduciary duty and engaged in self-dealing as a controlling shareholder by negotiating the $5 million payment. Plaintiff further alleges that Shear and PHC’s other five directors breached their fiduciary duties to the Class A stockholders by agreeing to an inadequate Exchange Ratio and by providing Shear and the other Class B stockholders with an unjustified $5 million cash payment.  Trial in the case is scheduled to begin December 12, 2015.

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