By Evan Weinberger
Law360, New York (September 2, 2011) --
A California judge on Friday denied CardioNet Inc'smotion to dismiss a putative securities class action alleging the heart monitor maker made false statements about its reimbursement rate in the run-up to its 2008 initial public offering.
Judge Joan M. Lewis of the California Superior Court in San Diego County denied CardioNet's Save Article motion for demurrer — the equivalent of a motion to dismiss under California state law — finding that "at the pleading stage plaintiff has sufficiently pled a material misrepresentation or omission in the registration statements."
Judge Lewis set a June 2012 trial date.
"We look forward to preparing for trial," said Mary K. Blasy, a partner with Scott + Scott LLP representing the plaintiffs.
CardioNet could not immediately be reached for comment Friday.
The complaint, originally filed in state court by the West Palm Beach Police Pension Fund in March 2010, alleges that CardioNet made materially false statements about the rate at which Medicare and other health insurance providers reimbursed the company and physicians for the use of its Mobile Cardiac Outpatient Telemetry heart monitors.
MCOT monitors are implanted into a patient's heart, allowing physicians and other medical professionals to keep tabs on heart arrhythmia remotely.
CardioNet's stock began to sink in spring 2009 after analysts reported that Centers for Medicare and Medicaid Services contractor Highmark Medicare Services Inc. planned to reduce the reimbursement rate for the company's monitors, the complaint says.
The stock tanked in summer 2009 when CardioNet confirmed the lower reimbursement rates despite earlier denials, the complaint says.
According to the complaint, CardioNet priced an $83 million initial public offering in March 2008 at $18 per share. A $152 million secondary stock offering in August 2008 priced CardioNet stock at $26.50 per share.
By July 13, 2009, CardioNet stock closed at $5.87 per share, the complaint says.
CardioNet had the complaint removed to federal court in April 2010, but it was sent back to the California court in March. Under Ninth Circuit law, plaintiffs can pursue class actions alleging violations of the Securities Act of 1933 in state courts.
CardioNet had moved for a protective order blocking discovery pending its motion to dismiss, but Judge Lewis denied that as well on Thursday.
The company has 14 days to respond to the complaint.
The complaint, which seeks to represent all investors who purchased shares in the IPO and secondary offering, names former CardioNet CEO Randy Thurman and Chief Financial Officer Martin Galvan as well as members of the company's board of directors.
A similar securities class action against CardioNet filed in Pennsylvania federal court was dismissed in August 2010.
The pension fund is represented by Mary K. Blasy, Walter W. Noss, David R. Scott and Erin Comite of Scott & Scott LLPand Amber L. Eck of Zeldes & Haeggquist LLP.
CardioNet is represented by Joseph E. Floren, Elizabeth A. Frohlich, Jennifer R. Bagosy, Marc J. Sonnenfeld and Karen Pieslak Pohlmann of Morgan Lewis & Bockius LLP.
The case is West Palm Beach Police Pension Fund v. CardioNet Inc., case number 37-2010-00086836, in the Superior Court of California, County of San Diego.
--Editing by Lindsay Naylor.
