In re CVS Health Corporation Securities Litigation

• Court: Supreme Court of Rhode Island
• Decided: January 14, 2025
• Docket: 2023-0115-Appeal. and 2023-0143-Appeal.
• Status: Published

Opinion

Supreme Court

No. 2023-115-Appeal. (PC 19-5658) No. 2023-143-Appeal. (PC 19-6685)

In re CVS Health Corporation : Securities Litigation.

NOTICE: This opinion is subject to formal revision before publication in the Rhode Island Reporter. Readers are requested to notify the Opinion Analyst, Supreme Court of Rhode Island, 250 Benefit Street, Providence, Rhode Island 02903, at Telephone (401) 222-3258 or Email opinionanalyst@courts.ri.gov of any typographical or other formal errors in order that corrections may be made before the opinion is published. Supreme Court

No. 2023-115-Appeal. (PC 19-5658) No. 2023-143-Appeal. (PC 19-6685)

Present: Suttell, C.J., Robinson, and Lynch Prata, JJ.

OPINION Justice Lynch Prata, for the Court. In this consolidated action, the

plaintiffs, City of Warren Police and Fire Retirement System (the City) and David

Freundlich (collectively, plaintiffs1), appeal from a judgment of the Superior Court

dismissing the entirety of plaintiffs’ Revised Amended Consolidated Complaint

(RACC). The RACC alleged violations of §§ 11, 12(a)(2), and 15 of the Securities

Act of 1933 (the Securities Act). For the reasons set forth herein, we affirm the

judgment of the Superior Court.

1 Pursuant to an order issued on May 31, 2023, the Court consolidated the appeals of the City and Mr. Freundlich. -1- Facts and Travel

We derive the following facts from plaintiffs’ RACC, which, for the purposes

of a motion to dismiss, are assumed to be true. EDC Investment, LLC v. UTGR, Inc.,

275 A.3d 537, 542 (R.I. 2022). This is a consolidated securities action brought on

behalf of persons who acquired CVS Health Corporation (CVS) common stock

issued after CVS’s 2018 merger with Aetna (the merger). Both plaintiffs acquired

CVS common stock via the merger. The plaintiffs aver that the registration

statement, prospectus, and all other documents (the offering documents) relating to

the merger violate §§ 11, 12, and 15 of the Securities Act because they contained

misstatements of fact and omitted certain information.

CVS is a Delaware-incorporated company with its principal place of business

in Woonsocket, Rhode Island. 2 CVS has over 9,800 retail locations, with more than

1,100 walk-in clinics, and manages over 94 million pharmacy plans. Its business is

2 The additional named defendants are Larry J. Merlo (President, Chief Executive Officer, and Director), David M. Denton (Executive Vice President and Chief Financial Officer), Eva C. Boratto (Executive Vice President, Controller, and Chief Accounting Officer), David W. Dorman (Chairman of the CVS Board of Directors), Richard M. Bracken (Director on CVS Board of Directors), C. David Brown II (Director on CVS Board of Directors), Alecia A. DeCoudreaux (Director on CVS Board of Directors), Nancy-Ann M. DeParle (Director on CVS Board of Directors), Anne M. Finucane (Director on CVS Board of Directors), Jean-Pierre Millon (Director on CVS Board of Directors), Mary L. Schapiro (Director on CVS Board of Directors), Richard J. Swift (Director on CVS Board of Directors), William C. Weldon (Director on CVS Board of Directors), and Tony L. White (Director on CVS Board of Directors). They are collectively referred to as “defendants” or CVS. -2- broken into three segments: Corporate (Corporate), Pharmacy Services (Pharmacy),

and Retail/Long Term Care (LTC). The Retail/LTC segment sells merchandise and

prescription drugs.

In connection with the November 18, 2018 merger, CVS issued about 274.4

million shares of its common stock to former Aetna shareholders. The plaintiffs

submit that “[e]ach former share of Aetna common stock issued and outstanding

immediately before the [m]erger was converted into the right to receive 0.8378

shares of newly issued CVS common stock and $145 per share in cash.” CVS’s

stock price on November 28, 2018, closed at $80.27 per share. The plaintiffs’

complaint alleges that the offering documents contained materially false and

misleading statements concerning the health of CVS’s LTC business after its

purchase of Omnicare, Inc. (Omnicare), a provider of pharmaceuticals, consulting,

and other healthcare services, on August 18, 2015 (the acquisition). The plaintiffs

also take issue with CVS’s compliance with generally accepted accounting

principles (GAAP).

Omnicare primarily served skilled nursing facilities (SNFs)—which are in-

patient rehabilitation and medical treatment centers—and assisted living facilities

(ALFs)—which assist elderly adults who are “substantially unable” to live

independently. Except for its specialty pharmacy business, Omnicare’s operations

became part of CVS’s Retail/LTC segment. After the acquisition, CVS provided

-3- that its “goodwill” 3 was about $9.1 billion, with $8.7 billion of that amount attributed

to the Retail/LTC operating segment. Of the $8.7 billion amount, $6.5 billion was

allotted to CVS’s LTC reporting unit.

CVS touted that Omnicare’s goodwill “represent[ed] future economic benefits

expected to arise from the Company’s expanded presence in the pharmaceutical care

market, the assembled workforce acquired, expected purchasing and revenue

synergies, as well as operating efficiencies and cost savings.” The plaintiffs posit

that GAAP requires at least an annual determination of goodwill impairment.

CVS’s optimism about the acquisition rapidly faded, however, as it realized

that Omnicare was “a business rife with problems that was quickly deteriorating.”

Omnicare had scaled back its operations prior to the acquisition to improve

short-term profitability, and CVS continued that practice post-purchase. CVS

purportedly ran Omnicare like its Retail segment and struggled to adapt to the

“customer-focused” LTC business.

Customer service became the flash point during CVS’s operation of

Omnicare. Understaffing and budget shortfalls affected CVS’s LTC segment.

Resulting delays of prescription deliveries from CVS’s underfunding angered its

3 Black’s Law Dictionary defines “goodwill” as “[a] business’s reputation, patronage, and other intangible assets that are considered when appraising the business, esp[ecially] for purchase * * *.” Black’s Law Dictionary 834 (12th ed. 2024). -4- consumers, who purchased prescriptions from competitors with higher quality

customer service. Several customers abandoned CVS for competitors. ALFs felt

the greatest negative effects because residents were not obligated to use CVS’s

business at their facility. Penetration rates—or the rate of customers using in-house

pharmacies versus unaffiliated providers—were “disturbingly low.”

Competition was rampant for CVS in the LTC industry. Overworked

managers struggled to adequately serve Omnicare’s facilities and caused CVS’s

LTC customer service to continue to plummet. “[M]om and pop” pharmacies bested

CVS with better customer service, and larger competitors provided faster

prescription deliveries.

While CVS had problems of its own making, the LTC sector in general was

plagued by low occupancy at nursing homes, sparse bed census, and customer

reimbursement pressures, even prior to the acquisition. Low reimbursement rates

for patients on Medicaid netted LTC facilities only eighty-nine cents for every dollar

of cost, on average. Occupancy rates declined beginning in 2015 due to shifting

patient preferences and increased ability for ALFs to accept typical SNF patients.

Between CVS’s mismanagement of Omnicare and the downward trend in the

LTC market, the goodwill allocated by CVS to its LTC business became impaired.

An impairment test of the same revealed that the LTC unit’s fair market value

-5- exceeded its carrying value4 by merely 1 percent in the third quarter of 2017. This

was a stark decline from the 7 percent in which the fair market value exceeded the

carrying value the year prior.

Just before the merger, on February 9, 2018, CVS filed its amended

registration statement with the Securities and Exchange Commission (SEC) on Form

S-4, and CVS further submitted a prospectus that included the CVS shares issued

and exchanged in the merger. The plaintiffs allege that the offering documents

“were negligently prepared, contained untrue statements of material fact, and

omitted material facts both required by governing regulations and necessary to make

the statements” not misleading. They claim that the documents overstated the value

of the goodwill CVS allocated to the LTC unit after the acquisition and that CVS

falsely stated that it complied with GAAP. The plaintiffs further aver that the

offering documents misrepresented that the fair market value for the LTC unit still

remained above the carrying value because CVS had used the annual impairment

test results from the third quarter of 2017. The plaintiffs advance that CVS knew,

or should have known, that the goodwill had already been impaired when the

offering documents were released.

4 “Carrying value,” also termed “book value” is “[t]he value at which an asset is carried on a balance sheet.” Black’s Law Dictionary 225, 265 (12th ed. 2024). -6- The plaintiffs take issue with CVS’s failure to perform an interim impairment

test—as required by GAAP. GAAP mandates that an impairment test must be

performed if “events or circumstances occur that would more likely than not * * *

reduce the fair market value of a reporting unit below its carrying amount.” GAAP

provides circumstances in which impairment tests are required, including both

entity-specific changes and market trends.

An interim impairment test, according to plaintiffs, would have put CVS on

notice that the LTC segment had a substantial impairment that needed to be

recognized. The full extent of the substantial impairment of the goodwill was

revealed only after the shareholders approved the merger, despite factors that were

allegedly present in the third quarter of 2017.

The 2017 Form 10-K 5 discussing CVS’s goodwill indicated that an

impairment test may be conducted if “the carrying value may not be recoverable”

and, in the event impairment was present, it “could have a material adverse effect on

our financial condition and results of operations.” In the same document, CVS

disclosed that it had $52.1 billion in goodwill and intangible assets and that $38.5

5 A “Form 10-K” is “a comprehensive overview of the company’s business and financial condition and includes audited financial statements.” U.S. Securities and Exchange Commission, Form 10-K, Investor.gov, https://www.investor.gov/introduction-investing/investing-basics/glossary/form- 10-k (last visited Jan. 9, 2025). Federal law mandates that publicly reporting companies file a Form 10-K annually. Id. -7- billion of that amount represented goodwill. It fully disclosed that the “LTC

reporting unit exceed[ed] its carrying value by approximately 1%.” (Emphasis

omitted.) The 10-K noted that “it is possible that actual results could differ from the

estimates used in our impairment tests.” The form also emphasized that CVS was

optimistic that the acquisition of Omnicare would “enhance our service

offerings * * *.”

The plaintiffs allege that CVS failed to disclose that cost-cutting at Omnicare

would result in poor customer service and employment of less experienced CVS

employees. According to plaintiffs, CVS’s attempts to run Omnicare like its Retail

business caused customers to look to competitors. The plaintiffs specifically take

issue with the following misleading or non-disclosures in the offering documents:

(1) the loss of customers in the LTC business; (2) deteriorating customer service; (3)

operating Omnicare like a Retail business; (4) competition from companies with

higher quality service; and (5) an inability to integrate acquired pharmacies into the

LTC segment.

Moreover, plaintiffs assert that warnings to CVS of potentially poor

performance from Omnicare had already occurred. For its part, the offering

documents cautioned that client losses and failure to obtain new business might

occur, termination of facility agreements could happen, the inability to integrate new

business might happen, and “[a]ny one of these challenges or risks could impair our

-8- ability to realize any benefit from our acquisitions after [CVS has] expended

resources on them.” (Emphasis omitted.) The plaintiffs postulate that these

statements were false or misleading because CVS had already lost customers from

cost-cutting, and the downturn in the LTC industry was going to prevent CVS from

receiving a return on its Omnicare investment. The plaintiffs continue that the

offering documents misrepresented that CVS had benefitted from acquiring

Omnicare, that its goodwill was $38.5 billion in December 2017, and that it had

performed an adequate impairment test.

The material omissions that plaintiffs claim were made by CVS in the offering

documents include: (1) that CVS was experiencing revenue problems related to the

acquisition; (2) that the SNFs were not performing as anticipated; (3) that CVS’s

goodwill was overstated; (4) that more capital was needed to “achieve the synergies”

contained in the offering documents; and (5) that growth was impaired by industry

trends. The plaintiffs allege that, at the time of filing this suit, CVS’s stock price

had dipped all the way to $52.36 per share, an almost 35 percent decline after the

merger. The plaintiffs state that the post-merger price of the stock lagged

significantly behind the New York Stock Exchange composite.

On May 13, 2019, the City initiated this action by filing a three-count

complaint in Superior Court alleging violations of §§ 11, 12(a)(2), and 15 of the

Securities Act. After the City amended its original complaint, defendants moved on

-9- August 20, 2019, to stay the matter, pending the adjudication of defendants’ motion

to dismiss a case in the Supreme Court of New York in Labourers’ Pension Fund of

Central and Eastern Canada v. CVS Health Corp. et al., Index No. 651700/2019

(LPF). The defendants asserted that LPF was similar to the City’s action and that

the New York court’s adjudication of the motion to dismiss in LPF would “have

substantial bearing” on the Superior Court’s decision. The Superior Court denied

that motion on October 2, 2019.

Subsequently, and pursuant to Rule 42(a) of the Superior Court Rules of Civil

Procedure, the Superior Court consolidated the City’s matter with a similar action,

David Freundlich v. CVS Health Corporation, et al., PC 19-6685. On March 2,

2020, defendants filed their motion to dismiss the entirety of plaintiffs’ complaint

pursuant to Rule 12(b)(6). In their motion, defendants argued that plaintiffs failed

to state a claim under well-established securities pleading requirements. The

plaintiffs, in their objection to the motion to dismiss, insisted that they had pled a

securities claim by alleging that CVS had overstated its goodwill, misstated other

critical financial information, and omitted facts from its offering documents. This,

according to plaintiffs, sufficiently stated claims for violations of the Securities Act.

Instead of ruling on the motion to dismiss, the Superior Court stayed the action

pending adjudication of LPF and another securities action, Anarkat v. CVS Health

- 10 - Corp., No. 1:19-cv-00437 (Fire Fighters),6 on September 1, 2020. The Superior

Court relied on the “first to file” rule, which, the court explained, allows the first of

two similar cases filed in different jurisdictions to proceed while the other is stayed.

Thereafter, on June 17, 2021, plaintiffs filed a motion to vacate the stay—a

motion which asserted that plaintiffs’ claims were substantively distinguishable

from the other securities actions—and to amend their complaint; plaintiffs later

submitted the RACC on September 8, 2021. After the Appellate Division of the

Supreme Court of New York (the New York Court) dismissed LPF and the United

States Court of Appeals for the First Circuit affirmed the dismissal of Fire Fighters,

the Superior Court lifted the stay on September 28, 2022. 7 On October 7, 2022,

6 This action was later renamed City of Miami Fire Fighters’ and Police Officers’ Retirement Trust v. CVS Health Corporation, by stipulation. City of Miami Fire Fighters’ and Police Officers’ Retirement Trust v. CVS Health Corporation, 519 F. Supp. 3d 80, 80 n.1 (D.R.I. 2021). Both LPF and Fire Fighters were filed as class actions. 7 The Appellate Division of the Supreme Court of New York in LPF court concluded that a group of CVS’s shareholders “failed to plead an actionable opinion * * * because it did not identify any embedded facts in the opinion on goodwill” and the shareholders “failed to plead an actionable opinion * * * because the nature of the inquiry in forming the opinion was disclosed and [the shareholders do] not allege that the stated methodology was not followed.” Labourers’ Pension Fund of Central & Eastern Canada v. CVS Health Corporation, 144 N.Y.S. 3d 16, 17-18 (N.Y. App. Div. 2021). Likewise, the court in Fire Fighters affirmed the dismissal of CVS shareholder claims brought pursuant to the Securities and Exchange Act of 1934, holding that the plaintiffs failed to sufficiently allege “facts about the state of the LTC business at particular points in time to enable [the court] to conclude that any of the goodwill write-downs were too late or that * * * [the] alleged misstatements contradicted the state of the business as it then stood.” City of Miami Fire Fighters’

- 11 - defendants filed a renewed motion to dismiss pursuant to Rule 12(b)(6), arguing

again that plaintiffs did not plead that CVS made false or misleading statements, that

plaintiffs could not support §§ 12 or 15 claims, and that LPF and Fire Fighters

should be followed and the RACC dismissed. The plaintiffs countered that the

RACC contained allegations that differed from those proffered in LPF and Fire

Fighters, that the offering documents included a multitude of falsehoods and

misstatements, and that plaintiffs had sufficiently alleged claims under §§ 12 and 15.

Notably, plaintiffs vigorously contended that they had stated a viable securities

action over defendants’ objection, and neither party asked the Superior Court to

invoke the doctrine of res judicata.

In an order dated February 20, 2023, the Superior Court granted defendants’

motion to dismiss, holding that plaintiffs’ action is barred because of collateral

estoppel, that the rulings from LPF and Fire Fighters were persuasive and the court

agreed with those holdings that plaintiffs had failed to state a claim upon which relief

could be granted, and principles of judicial economy favored dismissal. The

Superior Court made its collateral estoppel ruling sua sponte, as neither party argued

that issue. The plaintiffs timely appealed.8

and Police Officers’ Retirement Trust v. CVS Health Corporation, 46 F.4th 22, 31 (1st Cir. 2022). 8 By order dated December 4, 2023, this Court directed the Superior Court to enter judgment along with Mr. Freundlich’s notice of appeal in PC 19-6685 and to thereafter transmit the record to this Court. - 12 - Standard of Review

“The sole function of a motion to dismiss is to test the sufficiency of the

complaint.” Maltais v. Maltais, 306 A.3d 449, 452 (R.I. 2024) (quoting Jenkins v.

City of East Providence, 293 A.3d 1267, 1270 (R.I. 2023)). “In passing on a Rule

12(b) dismissal, this Court applies the same standard as the trial justice.” Id. (quoting

Jenkins, 293 A.3d at 1270). “We thus are confined to the four corners of the

complaint and must assume all allegations are true, resolving any doubts in

plaintiffs’ favor.” Id. (quoting Jenkins, 293 A.3d at 1270).

Nevertheless, “allegations that are more in the nature of legal conclusions

rather than factual assertions are not necessarily assumed to be true.” DiLibero v.

Mortgage Electronic Registration Systems, Inc., 108 A.3d 1013, 1016 (R.I. 2015)

(brackets omitted) (quoting Doe ex rel. His Parents and Natural Guardians v. East

Greenwich School Department, 899 A.2d 1258, 1262 n.2 (R.I. 2006)). “A motion

to dismiss may be granted only ‘if it appears beyond a reasonable doubt that a

plaintiff would not be entitled to relief under any conceivable set of facts.’”

Narragansett Electric Company v. Minard, 21 A.3d 274, 278 (R.I. 2011) (brackets

omitted) (quoting Estate of Sherman v. Almeida, 747 A.2d 470, 473 (R.I. 2000)).

- 13 - Discussion

Collateral Estoppel

The plaintiffs first argue that the Court should reverse the trial justice’s

decision to preclude plaintiffs’ action because collateral estoppel was never argued

to the Superior Court, the trial justice incorrectly applied the collateral estoppel

framework, and due process bars the exercise of collateral estoppel. In his order, the

trial justice concluded that plaintiffs “in this matter are the same persons as the prior

actions.” Although the trial justice did not specifically discuss whether the classes

had been certified in Fire Fighters and LPF, he did note that plaintiffs here are “the

same or * * * completely subsumed” by the parties in those cases. He therefore held

that, after analyzing all three collateral estoppel requirements, the action was

precluded.

“Under the doctrine of collateral estoppel, ‘an issue of ultimate fact that has

been actually litigated and determined cannot be re-litigated between the same

parties or their privies in future proceedings.’” Paolino v. Commonwealth Engineers

& Consulting, Inc., 318 A.3d 209, 215 (R.I. 2024) (quoting Commercial Union

Insurance Company v. Pelchat, 727 A.2d 676, 680 (R.I. 1999)). “The application

of collateral estoppel requires ‘(1) an identity of issues; (2) a final judgment on the

merits; and (3) an establishment that the party against whom collateral estoppel is

asserted was a party or in privity with a party to the prior action.’” Id. (quoting

- 14 - Providence Teachers Union, Local 958, American Federation of Teachers, AFL-

CIO v. McGovern, 113 R.I. 169, 172, 319 A.2d 358, 361 (1974)).

Based on general adherence to the principle that uncertified class actions

cannot bind nonmembers of the class, courts have declined to determine that privity

exists for collateral estoppel. See, e.g., Villagrana v. Graham, 60 Fed. Appx. 713,

715 (10th Cir. 2003) (declining to preclude the plaintiff’s action because of a lack of

privity between her and uncertified members of a prior class action); cf. Salatino v.

Chase, 939 A.2d 482, 490 (Vt. 2007) (“[N]otice to members of a certified class is

required because when a previously certified class action is dismissed or settled, it

will have a res judicata or collateral estoppel effect on class members.”). “A person

who is not a party to an action but who is represented by a party is bound by and

entitled to the benefits of a judgment as though he were a party.” Restatement

(Second) Judgments § 41 (Oct. 2024 Update).

The classes of plaintiffs were not certified in Fire Fighters and LPF, therefore

we are constrained from determining that plaintiffs are in privity with the class

members in those cases. Indeed, defendants concede as much, offering that they “do

not dispute that collateral estoppel does not apply here because the putative plaintiff

classes in LPF and Fire Fighters were not certified when the other courts dismissed

those claims.” Accordingly, the trial justice erred by relying on collateral estoppel

in dismissing plaintiffs’ complaint. This does not, however, conclude our analysis.

- 15 - Waiver

The defendants assert that plaintiffs waived an appeal challenging the

Superior Court’s determination that the RACC was not viable on the merits because

plaintiffs’ initial brief focused on the trial justice’s collateral estoppel ruling alone.

The defendants point to Rule 16 of the Supreme Court Rules of Appellate Procedure

and plaintiffs’ brief—which defendants claim failed to address the merits of the trial

justice’s decision beyond collateral estoppel—as support for their position.

The plaintiffs denied that they waived an appeal of the merits of the Superior

Court’s determination by stating “there was no decision on the merits.” (Emphasis

omitted.) They contend that the Superior Court’s brief adoption of the persuasive

determinations in Fire Fighters and LPF could not have been a merits adjudication

because those courts applied different pleading standards.

“[T]his Court staunchly adheres to the raise or waive rule.” State v. Mosley,

320 A.3d 942, 974 (R.I. 2024) (quoting State v. Barros, 148 A.3d 168, 174 (R.I.

2016)). We have held that issues a party has failed to brief are deemed waived. See,

e.g., Rice v. State, 38 A.3d 9, 16 n.10 (R.I. 2012). Arguments “first decided by the

trial court and then not raised in [this] Court by an appellant—either in the

appellant’s brief, or, for cases placed on the show-cause calendar, in that party’s

prebriefing or supplemental show-cause statements—are deemed waived * * * for

- 16 - purposes of the appeal at issue * * *.” Stebbins v. Wells, 818 A.2d 711, 720 (R.I.

2003); see also Carrozza v. Voccola, 90 A.3d 142, 163 n.23 (R.I. 2014).

Article I, Rule 16(a) of the Supreme Court Rules of Appellate Procedure

provides that the appellant’s brief must include, inter alia, “[a] specification of the

errors claimed[,]” “[t]he specific questions raised[,]” and the exact relief a moving

party seeks. In addition to these requirements, Rule 16(a)(6) declares that “[e]rrors

not claimed, questions not raised, and points not made ordinarily will be treated as

waived and not be considered by the Supreme Court.” Succinctly put, Rule 16(a)

requires appellants to raise and fully develop arguments on appeal. North Farm

Home Owners Association, Inc. v. Bristol County Water Authority, 315 A.3d 933,

942 n.4 (R.I. 2024). Failing to raise the question that plaintiffs now ask us to review

is at odds with Rule 16(a)(6) of Article I of the Supreme Court Rules. See Terzian v.

Lombardi, 180 A.3d 555, 558 (R.I. 2018).

In their counterstatement filed before full briefing was ordered, defendants

extensively argued that the trial justice properly concluded that plaintiffs failed to

state a legally viable securities’ action. The plaintiffs’ “[q]uestions [r]aised on

[a]ppeal” section of their full brief, however, refers only to collateral estoppel or res

judicata, simply asking:

“1. Whether Defendants waived their collateral estoppel or res judicata defenses?

- 17 - “2. Whether the Superior Court misapplied the doctrine of collateral estoppel?”

The plaintiffs could have easily opted to include an alternative question by

which they addressed the merits of their complaint or the trial justice’s comity

determination in the event other bases existed for dismissing the RACC aside from

collateral estoppel. In the Superior Court, on at least two separate occasions,

plaintiffs spilled considerable ink arguing the merits of their contention that they

pled claims under the Securities Act. For reasons unbeknownst to this Court,

plaintiffs decided to pose only two questions for our review, neither of which ask us

to opine on the trial justice’s decision to dismiss the merits of the RACC.

Further, “[o]ur precedent clearly establishes that we are precluded from

concluding that a plaintiff has complied with Rule 16(a) when that plaintiff ‘raised

questions’ in his or her brief but did so ‘without accompanying those general

statements with meaningful arguments, analysis, discussion, or citation [to]

authority.’” Terzian, 180 A.3d at 558 (brackets and deletions omitted) (quoting

Horton v. Portsmouth Police Department, 22 A.3d 1115, 1130 (R.I. 2011)). “What

is more, we will not ‘scour the record to identify facts in support of the plaintiff’s

broad claims, and we will not give life to arguments that the plaintiff has failed to

develop on his own.’” Id. (quoting McMahon v. Deutsche Bank National Trust Co.,

131 A.3d 175, 176 (R.I. 2016) (mem.)).

- 18 - We have made this clear on several occasions. In Estate of Meller v. Adolf

Meller Co., 554 A.2d 648 (R.I. 1989), we declared: “We believe that it is not

inappropriate for us to expect, and indeed to demand that the briefs before us will

contain all the arguments that the parties wish us to consider and not to inform

ourselves by seeking out memoranda that may have been filed before another

tribunal.” Estate of Meller, 554 A.2d at 654. Likewise, in McGarry v. Pielech, 108

A.3d 998 (R.I. 2015), a plaintiff appealing an employment discrimination claim was

barred from pressing his appeal because he failed to raise or argue a ruling of the

trial justice. McGarry, 108 A.3d at 1006-07. After declining to consider that portion

of the plaintiff’s appeal, we stated that “the briefs before us will contain all the

arguments that the parties wish us to consider.” Id. at 1007 (quoting Estate of Meller,

554 A.2d at 654). We reaffirmed this McGarry tenet a few months later in

Renewable Resources, Inc. v. Town of Westerly, 110 A.3d 1166 (R.I. 2015). See

Renewable Resources, 110 A.3d at 1173. Courts elsewhere have made similar

determinations. E.g., McBride v. Merrell Dow and Pharmaceuticals, Inc., 800 F.2d

1208, 1210 (D.C. Cir. 1986) (“We generally will not entertain arguments omitted

from an appellant’s opening brief and raised initially in his reply brief.”); see 5 Am.

Jur. 2d Appellate Review § 479 (footnote omitted) (stating that, although there are

some discrete exceptions, the general rule among courts throughout the nation is that

- 19 - “a court ordinarily will not consider matters on appeal that are not specifically and

distinctly argued in an appellant’s opening brief”); see also id. at §§ 478, 481.

The plaintiffs allocate approximately one page of their brief to support their

position that the Superior Court’s dismissal of the RACC was not a decision

adjudicating the merits of plaintiffs’ claims and inexplicably delayed their Securities

Act analysis until their reply brief. The plaintiffs aver that, “[r]ead in context,” the

portion of the order “is part of the Superior Court’s collateral estoppel analysis, not

a separate legal analysis justifying dismissal.” The plaintiffs’ position that the trial

justice did not dismiss the matter on the merits is unconvincing. The trial justice

concluded his collateral estoppel analysis and then proceeded to adopt the

“persuasive reasoning and findings” of the LPF and Fire Fighters decisions. The

plaintiffs failed to take up the fact that the Superior Court did address the merits of

the RACC. After all, “a dismissal, with prejudice, constitutes a final judgment on

the merits.” Goodrow v. Bank of America, N.A., 184 A.3d 1121, 1128 (R.I. 2018)

(quoting DiPinto v. Sperling, 9 F.3d 2, 4 (1st Cir. 1993)). The order states that

“[p]laintiffs’ claims under the RACC are dismissed with prejudice.”

The Court views the trial justice’s adoption of the “persuasive reasoning and

findings” of the Fire Fighters and LPF courts as an adjudication of the merits of the

RACC, separate and apart from the trial justice’s collateral estoppel rationale. In his

order, after opining that collateral estoppel precluded plaintiffs’ allegations, the trial

- 20 - justice prefaced his comparison to Fire Fighters and LPF with a statement that he

was addressing “the ultimate issue as to whether CVS made false or misleading

statements in its public securities documents * * *.” We view this language as

unequivocally confronting the merits of plaintiffs’ claims, albeit briefly, because the

trial justice concluded that plaintiffs alleged substantially similar violations of

securities laws rejected by the New York court in LPF and the First Circuit in Fire

Fighters. See Labourers’ Pension Fund of Central & Eastern Canada v. CVS Health

Corporation, 144 N.Y.S. 3d 16, 17-18 (N.Y. App. Div. 2021); City of Miami Fire

Fighters’ and Police Officers’ Retirement Trust v. CVS Health Corporation, 46 F.4th

22, 31-34 (1st Cir. 2022). We have not previously opined that a trial justice is

prohibited from largely adopting by reference the findings of another court in a

similar matter, and we decline to do so now. Here, it is clear from the record that all

parties were intimately aware of the issues and conclusions contained in both cases

addressed by the Superior Court.

There was a multitude of briefing that occurred in the Superior Court where,

generally, plaintiffs stated that CVS’s offering statements “contained multiple

material misstatements and omissions” and breaches of defendants’ duty to disclose

information related to their goodwill. The plaintiffs specifically identified purported

violations of Items 105 and 303 of SEC Regulation S-K. The plaintiffs declared that

failing to adhere to GAAP made CVS’s disclosures misleading and incomplete.

- 21 - Additionally, plaintiffs dismissed the notion that their claims were barred by

Omnicare, Inc. v. Laborers District Council Construction Pension Fund, 575 U.S.

175 (2015). 9 Finally, plaintiffs posited that CVS’s statements about risk factors were

actionable because those factors had already occurred.

In response to these arguments in the Superior Court defendants contended,

inter alia, that plaintiffs failed to state a viable securities claim because none of

defendants’ statements in the offering documents were false at the time they were

made, and plaintiffs cannot argue that defendants should have presented the

information it did differently. The defendants also averred that plaintiffs failed to

allege facts that supported their position that a different goodwill opinion should

have been reached earlier or that “no reasonable investor could have believed that

the issues [p]laintiffs claim were omitted did not exist.” (Quoting City of Miami Fire

Fighters’ and Police Officers’ Retirement Trust v. CVS Health Corporation, 519 F.

Supp. 3d 80, 98 (D.R.I. 2021).) In the Superior Court, defendants also advanced that

9 In Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 173 (2015), the Supreme Court of the United States held that § 11 claims for false statements are only actionable when shareholders can show the opinions in a company’s offering documents were not believed or the facts supporting those opinions were untrue, and that § 11’s omission provision can create liability if a registration statement omits material facts concerning the issuer’s knowledge of the statement of opinion and “those facts conflict with what a reasonable investor would take from the statement * * *.” Omnicare, 575 U.S. at 185-86, 189. - 22 - the RACC proffers no facts that defendants failed to consider in reaching its

goodwill opinion.

Clearly, plaintiffs were well acquainted with the argument that the RACC

failed to state a viable claim under the Securities Act. The plaintiffs could have

repackaged the same arguments they made a half dozen times in the course of this

litigation for our review and still complied with Rule 16(f)’s generous word count.

See Rule 16 of Article I of the Supreme Court Rules. Further, plaintiffs’ preference

to wait until their reply brief to address defendants’ stance on the viability of

plaintiffs’ securities claims was misguided. The plaintiffs’ initial brief provides

defendants “indicated in their Counterstatement that they intend to argue that the

Superior Court dismissed Plaintiff’s claim on the merits and that the Order can be

sustained on that basis. Should Appellees renew that argument in their brief,

Appellant will address it further in reply.” Because of the extensive briefing in the

Superior Court and the Rule 12A statements filed in this Court, plaintiffs were aware

that defendants would assert that the RACC was dismissed on the merits by the

Superior Court.

It is inappropriate for an appellant to reserve the right to “wait and see” what

the appellee may say in their initial brief and then respond by way of a Rule 16(c)

brief. Courts across the country have rejected this practice. See, e.g., Bitner v.

Department of Corrections & Rehabilitation, 304 Cal. Rptr. 3d 145, 156 n.3 (Cal.

- 23 - Ct. App. 2023). As defendants’ counsel aptly stated at oral argument, plaintiffs were

“sandbagging” by waiting until a reply brief to develop an argument. See Sparkle

Hill, Inc. v. Interstate Mat Corporation, 788 F.3d 25, 29 (1st Cir. 2015); see also

Wilson v. Fairhaven Police Department, No. 21-1711, 2023 WL 9690610, at *1 (1st

Cir. Sept. 13, 2023) (“[A]rguments raised for the first time in appellant’s reply brief

also are waived.”). For these reasons, we discern no reasonable basis for plaintiffs’

“punt” to their reply brief and conclude that plaintiffs have waived any appeal on the

merits. See Rule 16 of Article I of the Supreme Court Rules.

Finally, plaintiffs’ initial brief neglected to address the trial justice’s

determination that the RACC must be dispatched “in the best interest of judicial

economy[.]” Once again, this analysis conducted by the trial justice, although brief,

was separate and apart from his collateral estoppel conclusion. The plaintiffs do

nothing to challenge this holding; instead they belabor the same argument in reply

that the order was “a de facto application of collateral estoppel[.]” By not analyzing

judicial economy and comity principles as an independent basis for dismissing the

RACC in its initial brief, the issue is waived.

Costs

Lastly, CVS seeks costs incurred from responding to the plaintiffs’ appeal

pursuant to both G.L. 1956 §§ 9-22-9 and 9-22-20. The request does not contain

any argument, meaningful or otherwise, as to why the statutory provisions they cite

- 24 - justified an award of costs, much less what they mean by “costs”—i.e., court costs

or attorneys’ fees. See Terzian, 180 A.3d at 558 (holding that a lack of “meaningful

discussion thereof or legal briefing of the issues, does not assist the Court in focusing

on the legal questions raised, and therefore constitutes a waiver of that issue”)

(quoting Horton, 22 A.3d at 1130). Thus, this issue is likewise deemed waived.

Conclusion For the reasons stated herein, we affirm the judgment of the Superior Court.

The papers shall be returned to the Superior Court.

Justice Goldberg and Justice Long did not participate.

- 25 - STATE OF RHODE ISLAND SUPREME COURT – CLERK’S OFFICE Licht Judicial Complex 250 Benefit Street Providence, RI 02903

OPINION COVER SHEET

Title of Case In re CVS Health Corporation Securities Litigation.

No. 2023-115-Appeal. (PC 19-5658) Case Number No. 2023-143-Appeal. (PC 19-6685)

Date Opinion Filed January 14, 2025

Justices Suttell, C.J., Robinson and Lynch Prata, JJ.

Written By Associate Justice Erin Lynch Prata

Source of Appeal Providence County Superior Court

Judicial Officer from Lower Court Associate Justice Brian P. Stern

For Plaintiffs:

Thomas L. Laughlin, IV, Pro Hac Vice Thomas W. Lyons, III, Esq. Attorney(s) on Appeal For Defendants:

Amanda M. MacDonald, Pro Hac Vice Robert C. Corrente, Esq.