United States District Court, M.D. Florida, Tampa Division
JULIAN KEIPPEL, Individually and on behalf of all others similarly situated, Plaintiff,
HEALTH INSURANCE INNOVATIONS, INC., GAVIN SOUTHWELL, and MICHAEL D. HERSHBERGER, Defendants.
WILLIAM F. JUNG, UNITED STATES DISTRICT JUDGE
Oklahoma Municipal Retirement Fund and City of Birmingham
Retirement and Relief System (collectively "Lead
Plaintiffs" or "Plaintiffs") filed a
Consolidated Class Action Complaint against Defendant Health
Insurance Innovations, Inc. and its executives Defendant
Gavin Southwell and Defendant Michael D. Hershberger
(collectively "Defendants") for alleged violations
of federal securities laws. This matter is before the Court
on Defendants' Motion to Dismiss the Consolidated
Complaint (Dkt. 41), Lead Plaintiffs' response in
opposition (Dkt. 47), and Defendants' reply (Dkt.
After careful review of the pleadings and for the reasons
stated below, the Court finds that the Defendants' motion
to dismiss (Dkt. 41) is due to be denied.
Procedural and Factual Background
Consolidated Class Action Complaint (the
"Complaint") asserts a securities fraud class
action on behalf of all purchasers of the common stock of
Health Insurance Innovations, Inc.
("HIIQ") between September 25, 2017 and April II,
2019, inclusive (the "Class Period"). Dkt. 30. HIIQ
is a Delaware corporation with headquarters in Tampa,
Florida, that sells and distributes health and life insurance
products. Id. ¶ 13. Defendant Gavin Southwell
("Southwell") has served as HIIQ's president
since July 2016 and its chief executive officer
("CEO") since November 2016. Id. ¶
14. Defendant Michael D. Hershberger
("Hershberger") served as HIIQ's chief
financial officer ("CFO") since September 2015.
Id. ¶ 15. Plaintiffs allege that throughout the
Class Period, Southwell and Hershberger (collectively
"Individual Defendants") controlled the contents of
HIIQ's reports to the Securities and Exchange Commission
("SEC"), as well as press releases and
presentations to investors, analysts, and portfolio managers.
Id. ¶ 16.
Dorfman ("Dorfman") was an owner, member or manager
of Simple Health Plans LLC ("Simple Health Plans"),
Health Benefits One LLC ("HBO"), Health Center
Management LLC ("HCM"), Innovative Customer Care
LLC ("ICC"), Simple Insurance Leads LLC
("SIL"), and Senior Benefits One, LLC
("SBO") (collectively "Simple Health").
Id. ¶¶ 17-23. Simple Health advertised,
marketed, distributed, and/or sold HIIQ's limited benefit
and medical discount plans to consumers throughout the United
States. Id. ¶ 24. The plans are not
comprehensive health insurance and do not comply with the
Affordable Care Act ("ACA"). Id. ¶1.
allege that, throughout the Class Period, Defendants falsely
assured investors that HIIQ and its call centers adhered to
exceptional compliance standards and experienced low rates of
consumer complaints. Id. ¶ 2. Defendants
claimed a complaint rate of nearly 0.0% on HIIQ policies and
attributed their performance to outstanding customer service
and compliance. Id. ¶¶ 2-3.
general, Plaintiffs allege a widespread fraudulent scheme in
which agents at HIIQ's distributor call centers (Simple
Health) preyed on consumers in search of comprehensive health
insurance and sold them essentially worthless policies in a
classic bait-and-switch scam. Id. ¶ 4-5.
Unwitting consumers were duped into believing they were
purchasing a Preferred Provider Organization medical
insurance policy ("PPO") that is compliant with the
ACA, but instead were sold a limited benefit indemnity plan
that was not ACA-compliant and resulted in consumers being
stuck with thousands of dollars of unpaid medical bills and
penalties for not having ACA-compliant insurance.
Id. ¶¶ 5, 40. The FTC ultimately obtained
a court order shutting down Simple Health's operations
and freezing its assets. Id.
partnership with Simple Health was formed in March 2013.
Id. ¶ 44. Simple Health exclusively sold HIIQ
products, and in turn HIIQ directed and performed a variety
of services for Simple Health, including processing
enrollment forms, collecting payments, and financing Simple
Health's business by advancing commissions. Id.
¶ 45. By 2015, Simple Health had call centers across the
State of Florida and was responsible for almost all of
HIIQ's limited benefit indemnity policy sales.
Id. ¶ 46. From January 2016 to April 2018
Simple Health received $145 million from one of HIIQ's
wholly-owned subsidiaries. Id. ¶ 47. This
amount represented 49% of the total third-party commissions
paid by HIIQ during the approximate same time frame.
Id. Simple Health was HIIQ's largest call center
and accounted for up to half of HIIQ's revenues during
the Class Period. Id. ¶ 42.
allege that HIIQ and Simple Health teamed up to deceive
consumers by creating misleading "lead generation"
websites and implementing fraudulent sales practices using
misleading sales scripts and classic telemarketing scams.
Id. ¶¶ 49-54. The misleading websites used
terms associated with the ACA such as "Obamacare,"
"Obama Health Care," and "Obama
Marketplace" to lure prospective customers to Simple
Health call centers in the anticipation of shopping for
ACA-compliant policies. Id. ¶ 50. In addition
to creating the lead generation websites, HIIQ was
responsible for finding and training salespeople to staff the
Simple Health call centers and providing them with carefully
crafted scripts designed to mislead consumers into believing
they were being offered ACA-compliant policies. Id.
¶¶ 54-57. Sales agents employed numerous deceptive
tactics falsely representing that the policies were a PPO
health insurance plan, that the plan qualified under the ACA,
that the insurance plan was widely accepted by physicians in
the customer's geographic area, and that there were no
limitations for pre-existing conditions. Id.
¶¶ 59, 68. In fact, the HIIQ plans were not PPOs,
nor were they insurance, but rather the plans merely provided
a discount for medical care, the level of which was unknown
prior to receiving the care. Id. ¶ 60.
before and during the Class Period, HIIQ received thousands
of customer complaints that its call centers, including
Simple Health, misrepresented the nature and material terms
of the plans sold. Id. ¶ 70. Despite the
excessive number of customer complaints, HIIQ, Southwell, and
Hershberger represented in investor presentations, conference
calls, press releases and SEC filings that HIIQ enjoyed
excellent customer service and a low level of complaints.
Id. ¶¶ 157-202.
Alleged False and Misleading Statements by HIIQ
September 25, 2017 HIIQ investor presentation with the SEC,
HIIQ stated it had "best-in-class compliance" which
was a "significant barrier to entry" for
competitors. HIIQ claimed customer complaints to the
Department of Insurance ("DOI") were less than
0.01% of policies in force as of June 30, 2017. Id.
¶ 158. In a press release published on September 27,
2017, HIIQ represented that it had unparalleled customer
service. Id. ¶ 162. A November 1, 2017, press
release stated HIIQ engaged in "secret shopping" of
its external call centers to ensure compliance and claimed
that it previously terminated distributors that did not meet
compliance benchmarks. Id. ¶ 164. HIIQ claimed
its investment in compliance has generated a strong customer
experience. Id. ¶ 165. In a November 2, 2017,
investor conference call, Southwell attributed the
company's "record performance" to providing
consumers with insurance that meets their needs. Id.
¶ 166. Southwell represented that HIIQ's technology
holds HIIQ's distributors to high standards in customer
service and compliance. Id. ¶ 167. In the call,
Southwell stated that no third-party call center represented
more than 16% of sales. Id. ¶ 168. A November
8, 2017 investor presentation asserted that customer
complaints upheld by the DOI were 0.0% of policies in force
as of September 2017. Id. ¶ 172. In a December
15, 2017 press release and SEC report, HIIQ announced the
formation of a new risk and compliance committee to further
strengthen the company's market-leading compliance.
Id. ¶ 174.
March 1, 2018, investor conference call, Southwell stated
that HIIQ's third-party licensed agent call centers drove
the year-over-year increases in HIIQ's business and that
HIIQ's improved compliance and customer service resulted
in a less than 0.01% DOI complaint ratio. Id. ¶
176. Hershberger stated the high customer service was driven
by the company's technology platform. Id. ¶
177. Southwell stated that too many calls to customer service
due to a call center's misconduct would result in HIIQ
turning off the link to its system so as to maintain its high
level of customer satisfaction. Id. On March 13,
2018, HIIQ published an investor presentation that stated
customer complaints upheld by the DOI were 0.0% of policies
in force since December 2017. Id. ¶ 179. In a
May 3, 2018, investor conference call, Southwell stated that
HIIQ had outstanding compliance performance and highly
compliant third-party call centers. Id. ¶ 181.
Southwell compared HIIQ's complaint ratio to AC A
carriers, claiming the AC A carriers have 14 to 37 times more
complaints than HIIQ. Id. He stated that while the
AC A carriers' complaints have risen significantly,
HIIQ's complaints plummeted 56% over the same period from
2016 to 2017. Id. ¶ 182. In a May 8, 2018
presentation, HIIQ again represented that customer complaints
upheld by the DOI are 0.01% of policies in force as of March
2018. Id. ¶ 184. In an August 2, 2018, investor
conference call, Southwell touted HIIQ's record revenue
and performance, attributing the success to low levels of
customer complaints upheld by the DOI and HIIQ's
commitment to customer service. Id. ¶ 187. In
an October 30, 2018, investor conference call, Southwell
states that HIIQ works with leading third-party distributors
to ensure that customers are offered a product that meets
their demands and needs. Id. ¶ 192. In
promoting HIIQ's high compliance standards and high
customer satisfaction, Hershberger stated he wanted investors
to have all the facts. Id. Southwell claimed that
HIIQ had a very happy consumer base, very low number of
complaints, and very high customer satisfaction. Id.
In November and December 2018 press releases, HIIQ downplayed
the relationship between HIIQ and Simple Health, claiming
that Simple Health was the agency of record for less than 10%
of HIIQ's submitted policies. Id. ¶ 194.
These statements were made following the FTC's press
release on November 2, 2018, announcing the commencement of
an enforcement action against Simple Health and Dorfman.
Id. In a December 20, 2018, investor presentation,
HIIQ highlighted the reduced number of DOI and Better
Business Bureau ("BBB") complaints about HIIQ.
Id. ¶ 197. The presentation sought to minimize
the importance of Simple Health and the percentage of
submitted policies from it. Id. ¶ 198.
January 7, 2019, HIIQ filed a report with the SEC that was
signed by Hershberger and included an investor presentation
stating that Health Benefit One was 8.2% of submitted
applications through October 2018 and that complaints were
down. Id. ¶ 200. The presentation stated there
were 4 upheld DOI complaints in 2017 and 3 DOI complaints
upheld in 2018. Id. In a March 6, 2019, investor
conference call, Southwell recapped the amount of time,
energy and investment spent over the last few years on
creating best-in-class compliance and customer care.
Id. ¶ 202. He emphasized that the strength of
the business is attributable to HIIQ's technology,
customer experience, and compliance. Id.
Additional A negations of Scienter
loaned to Simple Health tens of millions of dollars in
working capital that allowed Simple Health to grow.
Id. ¶ 205. HIIQ co-founded with Simple Health
the lead generation websites. Id. HIIQ recruited and
trained Simple Health sales agents. Id. The receiver
for the FTC concluded that Simple Health was a classic
bait-and-switch scam and that the business was never legally
viable and deception permeated the entire business
relationship with customers. Id. ¶ 159. At the
same time HIIQ was telling investors that HIIQ had no
complaints, its own senior officers acknowledged in emails
that HIIQ was being bombarded with complaints about Simple
Health and that customer complaints were "out of
control." Id. ¶ 161. HIIQ's documents
revealed it received thousands and thousands of complaints
about Simple Health every year from 2014 through 2018.
Id. HIIQ's technology, a proprietary data
management platform, documented all of the Simple Health
customer complaints and indicated that customer satisfaction
was exceptionally poor. Id. HIIQ emails and other
HIIQ evidence revealed that HIIQ was aware of Simple
Health's sales misconduct for years dating back to 2014.
Id. ¶¶ 208, 211. Simple Health accounted
for 49% of the third-party commissions paid by HIIQ in the
January 2016 to April 2018 time frame. Id. ¶
216. The Individual Defendants engaged in insider trading
each selling unusually large amounts of their HIIQ stock in
February 2019 prior to several disastrous disclosures that
resulted in a significant decline in the stock price.
Id. ¶ 219. The sale of stock was far out of
line with the Individual Defendants' prior trading