A Montgomery County circuit judge has thrown out a shareholders' lawsuit against Mid-Atlantic Medical Services Inc. that accused the company of misleading them about the company's financial health.
The shareholders had alleged that the Rockville-based managed-care company made misleading statements that inflated its stock price long enough for Mamsi's chief executive to sell shares worth nearly $3 million.
"We take some pride in the fact that the state court set it aside," said Mamsi Vice Chairman Thomas P. Barbera.
Kenneth J. Vianale, the lawyer representing the shareholders, said they are considering an appeal.
Judge James C. Chapin granted the company's motion to dismiss the suit after a hearing on it. He made no judgment on the truth of the allegations, but said the shareholders had to have read or heard the allegedly misleading statements in order to have been damaged, and they hadn't.
The shareholders argued that federal courts have long held that the stock market takes misleading statements and factors them into the stock price. Thus, shareholders relied on the stock market to be its "unpaid agent," said Vianale, an attorney with the New York firm of Milberg Weiss Bershad Hynes & Lerach.
Company officials said recent reforms in federal law are designed to encourage companies to make "forward-looking" statements, and that the shareholders had filed the case in the state court to sidestep reforms in federal law.
"We think the logic used by the trial judge was appropriate," said Joseph L. Guarriello, Mamsi's general counsel. He said the ruling is significant for other public companies in Maryland.
No other judge in Maryland has ruled on the issue.
The lawsuit was a class action on behalf of stockholders who bought Mamsi shares between Feb. 29 and Aug. 14, 1996. At the beginning of that period, the shares were trading at more than $20 each.
In March, the suit claims, George T. Jochum, the company's chairman and CEO, exercised options to buy stock at $5.92 a share, and sold 110,000 shares at prices ranging from $20.50 to $21.23 each.
In April, Mamsi announced that its earnings would be about one-third lower than expected, and the stock lost 17 percent of its value in one day. The company posted a loss of 14 cents a share in August.
Vianale said the suit also alleged that the company had claimed it would raise premiums and lower medical costs, and that, in fact, it lowered premiums.
Mamsi is the largest managed-care company based in Maryland, covering 1.5 million people in the mid-Atlantic.
Pub Date: 4/04/97