Hudson v. GoHealth, Inc.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

)

)

In re GOHEALTH, INC. SECURITIES ) Case No. 20-cv-5593

LITIGATION )

) Honorable Sharon Johnson Coleman

)

MEMORANDUM OPINION AND ORDER

Lead Plaintiffs bring this action on behalf of themselves and all others similarly situated

(collectively, “Plaintiffs”) against GoHealth, Inc. (“GoHealth” or the “Company”), Centerbridge1,

NVX Holdings, Inc. (“NVX Holdings”), and three Individual Defendants: Clinton P. Jones

(“Jones”), Brandon M. Cruz (“Cruz”), and Travis J. Matthiesen (“Matthiesen”) (collectively,

“Defendants”). Plaintiffs allege Defendants violated Sections 11 and 15 of the Securities Act of

1933, 15 U.S.C. §§ 77k and 77o (the “Securities Act”). Before the Court is Centerbridge’s motion to

dismiss Federal Rule of Civil Procedure 12(b)(6) [75]. For the following reasons, the Court grants in

part and denies in part Defendant’s motion to dismiss.

Background

The Court presumes familiarity with the facts as outlined in its April 5, 2022 ruling, denying

the remaining Defendants’ motion to dismiss. Centerbridge is a global private investment firm that

served as the primary beneficiary and private equity sponsor of GoHealth’s initial public offering

(“IPO”). Prior to the IPO, Centerbridge acquired the entirety of the equity in Norvax, LLC

(“Norvax”), GoHealth’s operating entity. Centerbridge also entered into a stockholder agreement

with GoHealth and NVX Holdings, a company controlled by GoHealth’s founders (the

“Founders”). The stockholder agreement required Centerbridge and NVX Holdings to vote all

1 Consisting of Centerbridge Partners, L.P., CCP III AIV VII Holdings, L.P, CB Blizzard Co-Invest Holdings, L.P.,

Blizzard Aggregator, LLC, Centerbridge Associates III, L.P., and CCP III Cayman GP Ltd.

outstanding shares in favor of Centerbridge directors at any stockholder meeting in which directors

are elected.

In July 2020, in connection with IPO, GoHealth filed its registration statement (the

“Registration Statement”) with the Securities and Exchange Commission (“SEC”). As explained in

the Court’s April 5, 2022 ruling, statements made in the Registration Statement form the basis for

the Plaintiffs’ allegations of liability. Relevant to Centerbridge, the Registration Statement included

that, upon completion of the IPO:

The Founders and Centerbridge will control, in the aggregate, approximately 70.8%

of the voting power represented by all our outstanding classes of stock. As a result,

the Founders and Centerbridge will continue to exercise significant influence over all

matters requiring stockholder approval, including the election and removal of

directors and the size of our board, any amendment of our amended and restated

certificate of incorporation or bylaws and any approval of significant corporate

transactions (including a sale of all or substantially all of our assets), and will continue

to have control over our business, affairs, and policies, including the appointment of

our management… We expect that members of our board will continue to be

appointed by and/or affiliated with the Founders and Centerbridge who will have

the ability to appoint the majority of directors… (Dkt. 76-1, at 83.)

After the IPO, GoHealth was considered a controlled company under the listing rules of the

NASDAQ.

Legal Standard

A motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim tests the sufficiency

of the complaint, not its merits. Skinner v. Switzer, 562 U.S. 521, 529, 131 S. Ct. 1289, 179 L. Ed. 2d

233 (2011). When considering dismissal of a complaint, the Court accepts all well-pleaded factual

allegations as true and draws all reasonable inferences in favor of the plaintiff. Erickson v. Pardus, 551

U.S. 89, 94, 127 S. Ct. 2197, 167 L. Ed. 2d 1081 (2007) (per curiam). To survive a motion to

dismiss, a plaintiff must “state a claim for relief that is plausible on its face.” Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). A complaint is facially

plausible when the plaintiff alleges enough “factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556

U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009).

Discussion

Section 15 of the Securities Act “provid[es] a vehicle to hold one defendant vicariously liable

for the securities violations committed by another.”2 Donahoe v. Consol. Operating & Prod. Corp., 30

F.3d 907, 911 (7th Cir. 1994). To state a claim under Section 15, Plaintiffs must allege that the

control person actually exercised control over the violator and possessed the ability to control the

specific activity upon which the primary violation was predicated. Harrison v. Dean Witter Reynolds,

Inc., 974 F.2d 873, 881 (7th Cir. 1992). Control is often a question of fact not appropriate for

resolution at the motion to dismiss stage. See Flynn v. Exelon Corp., No. 19 C 8209, 2021 WL

1561712, at *11 (N.D. Ill. Apr. 21, 2021) (Kendall, J.) (citing In re Spiegel, Inc. Sec. Litig., 382 F. Supp.

2d 989, 1029 (N.D. Ill. 2004) (Pallmeyer, J.)). The Seventh Circuit views Section 15 “as remedial, to

be construed liberally, and requiring only some indirect means of discipline or influence short of

actual direction to hold a ‘control person’ liable.” Harrison, 974 F.2d at 880–81 (citations omitted).

First, because the Court denied the motion to dismiss Plaintiffs’ Section 11 claim, the

Section 15 claim does not fail as a matter of law. (Dkt. 100.); see also W. Palm Beach Firefighters’ Pension

Fund v. Conagra Brands, Inc., 495 F. Supp. 3d 622, 673 (N.D. Ill. 2020) (Pacold, J.). Centerbridge

argues that Plaintiffs’ Section 15 claim nevertheless fails for two reasons: (1) Centerbridge did not

actually exercise control over the general operations of GoHealth; and (2) Centerbridge did not have

the power or ability to control the acts underlying the alleged violation at issue here.

Plaintiffs sufficiently allege that Centerbridge possessed actual control over GoHealth’s

operations. The Registration Statement states that Centerbridge and the Founders possessed the

2 The Court cites to case law analyzing control person liability under Section 20(a) of the Securities Exchange Act

because “the analysis applied to [§§ 15 and 20(a)] is the same.” See Central Laborers’ Pension Fund v. SIRVA, Inc., No. 04 C

7644, 2006 WL 2787520, at *24 (N.D. Ill. Sept. 22, 2006) (Guzman, J.) (citing Donohoe, 30 F.3d at 911–13).

ability to: control matters requiring stockholder approval; control the amendment of the certificate

of incorporation or bylaws; control significant corporate transactions; and appoint members of the

Company’s board that may be affiliated with Centerbridge and the Founders. (See Dkt. 76-1, at 83.)

The stockholder agreement also required that CCP III give prior approval for certain corporate

actions. Centerbridge argues that this shows it merely possessed the ability to control GoHealth and

Plaintiffs fail to allege any conduct evidencing actual control. To the contrary, the Registration

Statement states that Centerbridge would continue to exercise this control over GoHealth post-IPO,

permitting the reasonable inference that Centerbridge had exercised control prior to the IPO.

Next, Centerbridge argues that Plaintiffs fail to allege that Centerbridge alone exercised

control over the Company because the Registration Statement refers to control exercised by both

Centerbridge and the Founders. This argument too fails because more than one entity may have

requisite control under Section 15. 15 U.S.C. § 77o(a) (“Every person who… controls any person

liable under sections 77k or 77l of this title, shall also be liable jointly and severally…”) (emphasis

added). That Centerbridge and the Founders may have shared control does not foreclose

Defendant’s liability. Moreover, that CCP III became a minority shareholder after the IPO is not

dispositive of Plaintiffs’ claims where Plaintiffs sufficiently allege other indicia of control. Cf. Fulton

Cty. Emps. Ret. Sys. v. MGIC Inv. Corp., 675 F.3d 1047, 1057 (7th Cir. 2012) (“A bloc of 20% or less

may be enough for working control when no one else holds a substantial portion.”).

Likewise, Plaintiffs sufficiently allege that Centerbridge possessed the ability to control

GoHealth’s acts underlying the alleged violation, that is, the alleged misstatements and/or material

omissions in the Registration Statement. In particular, the Registration Statement states that

Centerbridge would continue to exercise significant control over the election, removal, and

appointment of directors. Plaintiffs therefore plausibly allege that Centerbridge possessed the ability

to control the Company’s statements to the investing public. See, e.g., In re Spiegel, Inc. Sec. Litig., 382

F. Supp. 2d at 1022 (defendant’s ability to appoint associates to leadership positions supported

plaintiffs’ allegation that defendant had the authority to control the company’s statements to the

public). Plaintiffs’ allegations are sufficient, and the Court shall not delve deeper into a factual

inquiry at the motion to dismiss stage. Harrison, 974 F.2d at 880-81.

Finally, Defendants argue that Plaintiffs failed to link three entities under Centerbridge

umbrella to the claims: Centerbridge Partners, Centerbridge Associates ITI, L.P., and CCP II

Cayman GP Ltd. These entities did not directly invest in GoHealth, they are not included in the

Registration Statement’s description of Centerbridge, and the complaint contains no specific

allegations of control as to them. Plaintiffs respond that the entities’ lack of direct investment does

not foreclose control person lability, but Plaintiffs fail to further respond to Defendant’s argument.

See Keri v. Bd. Of Trastees of Purdue Univ., 458 F.3d 620, 643 n.7 (7th Cir. 2006) (failure to respond to

an opposing party’s argument implies concession), overriled on other grounds by Hill v. Tangherlini, 724

F.3d 965 (7th Cir. 2013). Defendants Centerbridge Partners, Centerbridge Associates I, L.P., and

CCP III Cayman GP Ltd. are dismissed without prejudice.

Conclusion

For the foregoing reasons, the Court grants in part and denies in part Defendant

Centerbridge’s motion to dismiss [75].

IT IS SO ORDERED.

Date: 4/18/2022

Entered: A CG { C Ea

SHARON JOHNSON COLEMAN

United States District Judge