Teladoc Secures Dismissal of Putative Securities Fraud Class Action

Paul, Weiss secured the dismissal with prejudice of a putative securities fraud class action against Teladoc Health, Inc. and certain individual defendants from Magistrate Judge Barbara Moses of the Southern District of New York.

The case—one of several brought during the #MeToo era that alleged securities violations related to executive misconduct—was based on an extramarital affair between Teladoc’s former CFO and a junior subordinate that allegedly began in 2014. In late 2016, after senior management learned of the affair, Teladoc engaged outside counsel to conduct an internal investigation, and the CFO was disciplined. In December 2018, the Southern Investigative Research Foundation (SIRF) published an article detailing the story of the affair. Teladoc’s stock price dropped by nearly 7%, and the CFO resigned shortly thereafter.

Plaintiffs’ securities fraud claims were based on two sets of statements in Teladoc’s public filings, neither of which Judge Moses found actionable. First, plaintiffs argued that statements discussing Teladoc’s commitment to integrity and ethics, including through its Code of Business Conduct and Ethics (CBCE), were rendered materially misleading in failing to disclose the CFO’s misconduct and the company’s allegedly insufficient response, allegedly rendering the CBCE “a dead letter.” Judge Moses held that the statements were inactionable because they were aspirational in nature, and thus did not invite reasonable reliance, and they were also not issued in a context in which the company was seeking to assure investors during a time of concern. Second, plaintiffs argued that general risk disclosures concerning the importance of senior executives were materially misleading in failing to disclose the possibility that the CFO’s misconduct could lead him to leave the company. Judge Moses held that defendants making such statements do not have a duty to disclose that an executive might subsequently lose their position, observing that the statements in question did not mention the CFO by name. Having ruled that there were no material misstatements, Judge Moses declined to reach the issue of scienter. Finally, Judge Moses denied leave to amend as futile, noting that plaintiffs’ counsel “offer[ed] no clue as to what might save their claims if they were granted another opportunity.”

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