Teladoc Defeats Securities Class Action Arising from Disclosures About Membership Growth

Paul, Weiss achieved a significant victory for Teladoc Health, Inc., and several Teladoc directors and officers, when a New York state court judge dismissed a putative securities class action alleging misrepresentations about Teladoc’s membership growth.

In a complaint filed in New York County Supreme Court, a shareholder alleged that the registration statement issued in September 2020 in connection with Teladoc’s $18.5 billion acquisition of Livongo Health was revealed to be materially false and misleading when—five months after it became effective—Teladoc disclosed a disappointing projection of membership growth in 2021. Asserting claims under the Securities Act of 1933, the plaintiff claimed that Teladoc failed to disclose that the 2020 membership growth, which spiked during the pandemic, had “pulled forward” new members from its existing pipeline, leaving Teladoc with a depleted pipeline of potential new members. This registration statement was used to register approximately 60 million shares provided to Livongo shareholders as part of the merger.

This represents the plaintiff’s second complaint stemming from the same allegations. In an earlier lawsuit in Illinois state court, the plaintiff alleged that Teladoc had “admitted” in January 2021 that membership growth prospects were limited, allegedly revealing that membership growth prospects had been inflated in the registration statement. After the Teladoc defendants informed the plaintiff that they intended to dismiss the Illinois action for lack of personal jurisdiction, the plaintiff agreed to dismiss it and refile in New York, but subsequently waited more than a year after the January 2021 disclosure that had purportedly revealed the fraud.

In dismissing all claims, New York State Supreme Court Justice Andrew Borrok dismissed the case both under the statute of limitations and for failure to state a cause of action. As to statute of limitations, the judge noted that plaintiff had previously admitted in the Illinois action that the January 2021 disclosure was the first time it learned of the alleged misstatements and omissions in the registration statement. He further held that plaintiff could not evade the one-year statute of limitations by simply omitting that previous Illinois admission from its New York complaint – which instead claimed that February 2021 was the first point at which it learned of the alleged misstatements and omissions. “[A]t best, this is disingenuous and, at worst, unethical,” the judge wrote.

The court also found that the disclosures about membership were not misleading, noting that the alleged misrepresentations included accurate historical data, and a projection about 2021 revenue that the company met. Noting that Teladoc’s total membership did not decline over the relevant period, the court concluded that the plaintiff’s theory—that the registration statement omitted disclosure of the diminished membership pipeline—was not actionable, reasoning that such information would not have been material and did not render statements in the registration statement misleading.

The Paul, Weiss team included litigation partners Daniel Kramer and Audra Soloway, who argued the motion; and counsel Caitlin Grusauskas.