The shareholders claimed that Centene overpaid for Woodland Hills, Calif.-based Health Net and its nine board directors hid major issues about the payer, including “poorly designed and unprofitable insurance products,” lawsuits, state and federal investigations, and a California tax claim for nearly $1 billion. The lawsuit alleged that when the issues became public in 2016, Centene’s share price dropped 8 percent, “amounting to a loss of over $1 billion in shareholder value.”
The 8th Circuit upheld a 2020 ruling from a federal St. Louis judge who said shareholders never demanded that Centene sue the alleged perpetrators and they never defended their claim about that demand being futile. The circuit court applied a new “demand futility” test first adopted by the Delaware Supreme Court in September and rejected the shareholders’ request to send the case back to St. Louis so they could amend their complaint to align with the revision.
The appeals court agreed with the St. Louis judge’s ruling that the lawsuit claimed Centene directors knew about Health Net’s financial issues and hid them, not that they acted with any intent to harm shareholders. The claim was not enough to overcome the presumption that at least half the directors were “disinterested” under the 2020 version of the demand-futility rule, and it was not enough to show that they faced “a substantial likelihood of liability” under the 2021 revision.
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