A federal judge has rejected PACS Group’s attempt to relocate two consolidated shareholder lawsuits from New York to its Utah headquarters, according to court documents released this week. US District Judge Lewis Liman ruled that the nursing home giant, along with seven executives and underwriters named in the complaints, must face the allegations in the Southern District of New York, where the suits were initially filed last November.
These legal challenges are part of a larger fallout stemming from an activist research report that accused PACS Group of exploiting a COVID-era waiver. The report alleged the company inflated admissions and revenues by improperly classifying lower-acuity patients as needing high-acuity skilled care. Following the report’s release, PACS Group’s stock price plummeted by 27%, wiping out significant shareholder value.
The initial complaints were filed by individual investor Christopher Manchin and the New Orleans Employees’ Retirement System, the latter represented by the 1199SEIU Health Care Employees Pension Fund. The SEIU, claiming a loss of nearly half a million dollars, is seeking class-action status to represent other affected investors. Judge Liman consolidated these cases in January, appointing the SEIU as the lead plaintiff.
In his May 2nd ruling, Judge Liman addressed PACS Group’s request to move the consolidated cases to Utah, where the company is based and many of its leaders reside. While acknowledging that the lawsuits could have initially been filed in Utah, he ultimately sided with keeping the proceedings in New York. A key factor in his decision was the presence of the firm’s underwriters in New York, as well as the potential for further consolidation and trial efficiency, given that two additional similar shareholder lawsuits have since been filed in the same New York district court. These subsequent suits allege similar securities violations, along with claims of “breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, and waste of corporate assets.”
Judge Liman also noted that neither party demonstrated that litigating in either New York or Utah would create an undue financial burden. He pointed to the “substantial personal means” of PACS’ executives, derived largely from dividends and stock sales, and the significant assets of the Pension Fund, which he described as a “large, sophisticated institutional investor” with over $16.8 billion in assets.
A representative for PACS Group did not respond to a request for comment from McKnight’s Long-Term Care News regarding Judge Liman’s decision. The company has remained largely silent on the lawsuits that followed the report by Hindenberg Research, a short-selling firm that has since ceased operations. Despite the firm’s aggressive tactics and serious allegations, few of its claims have resulted in federal charges or civil victories.
PACS Group has faced further scrutiny, having not released any financial results since the second quarter of 2024, citing an ongoing internal investigation. The company, which last reported operating 314 post-acute and senior care facilities across 17 states, has acknowledged receiving civil investigative demands from federal authorities but has not provided further details.
As of Wednesday’s market close, PACS Group’s shares were trading at $10.52, significantly down from their 52-week high of $43.92. Judge Liman has not yet scheduled any hearings for the four shareholder cases currently pending in the New York District Court. This ruling ensures that the legal battles facing PACS Group will continue to unfold in New York, a decision that could have significant implications for the company and its investors.