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This website is designed to inform you about the above-captioned shareholder derivative action brought on behalf and for the benefit of AdaptHealth styled, Hessler v. McGee et al., Civ. No. 2:21-cv-053335-GJP (E.D. Pa.) (the “Derivative Action”), the terms of the settlement of the Derivative Action, and how the Settlement affects the legal rights of AdaptHealth stockholders. The terms of the proposed Settlement are set forth in a written Stipulation of Settlement, dated April 23, 2024 which you may view here.
In a stockholder derivative suit, one or more persons or entities who are current stockholders of a corporation sue on behalf of and for the benefit of the corporation, seeking to enforce the corporation’s legal rights. In the Derivative Action, Plaintiff has filed suit against Defendants on behalf of and for the benefit of AdaptHealth.
Please read the Notice carefully and in its entirety, as it provides additional information on the history of the case and the terms of the settlement.
AdaptHealth is a Delaware corporation with its principal place of business located in Plymouth Meeting, Pennsylvania. AdaptHealth describes itself as a national leader in providing patient-centric technology-enabled chronic disease management solutions, including home health-care equipment, medical supplies to the home and related services in the United States. AdaptHealth was privately held until November 11, 2019, when it began trading on the NASDAQ under symbol “AHCO,” pursuant to a business combination between DFB Healthcare Acquisitions Corp., a special purpose acquisition company, and AdaptHealth Holdings LLC.
Plaintiff alleges that the Individual Defendants caused the Company to issue materially false and misleading statements and/or omissions concerning the methodology used to calculate the Company’s organic revenue growth and Defendant McGee’s involvement in an alleged foreign tax fraud arising from certain past private activity. Plaintiff alleges that the Individual Defendants breached their fiduciary duties by failing to correct these allegedly false and misleading statements, and that they failed to maintain an adequate system of oversight, disclosure controls and procedures, and internal controls over financial reporting and due diligence into its management team. Finally, Plaintiff alleges that the alleged false and misleading statements exposed the Company to significant reputational harm and financial damages. Defendants vigorously dispute Plaintiff’s allegations and deny that the claims have merit.
In addition, the Company (together with a number of its current and former officers and directors, all of which are defendants in the Derivative Action) was sued in this Court for violations of the federal securities laws in connection with the issuance of alleged materially false and misleading statements and/or omissions concerning the methodology used to calculate the Company’s organic revenue growth and Defendant McGee’s involvement in an alleged foreign tax fraud arising from certain past private activity by a putative shareholder on behalf of a purported class of investors in an action entitled Delaware County Employees Retirement Systems et al. v. AdaptHealth Corp. et al., Civ. No. 2:21-cv-03382-HB (E.D.P.A.).
Plaintiff commenced the Derivative Action in good faith and continues to believe that her derivative claims have legal merit, and the entry by the Plaintiff into the Stipulation is not an admission as to lack of any merit of any derivative claims asserted or that could be asserted in the Derivative Action. Plaintiff and Plaintiff’s Counsel believe that the claims raised in the Derivative Action have merit and that their investigations support the claims. Without conceding the merit of any of the Defendants’ defenses, and in light of the benefits of the Settlement as well as to avoid the potentially protracted time, expense, and uncertainty associated with continued litigation, including potential trial(s) and appeal(s), Plaintiff and Plaintiff’s Counsel have concluded that it is desirable that the Derivative Action be fully and finally settled in the manner and upon the terms and conditions set forth in the Stipulation.
Plaintiff and Plaintiff’s Counsel have also taken into account the uncertain outcome and the risk of any litigation, especially complex litigation such as would be entailed by the Derivative Action, the difficulties and delays inherent in such litigation, the cost to the Company – on behalf of which Plaintiff filed the Derivative Action – and distraction to the management of AdaptHealth that would result from extended litigation. Based on their evaluation, and in light of what they believe to be the significant benefits conferred upon the Company as a result of the Settlement, Plaintiff and Plaintiff’s Counsel have determined that the Settlement is in the best interests of Plaintiff and the Company, and have agreed to settle the Derivative Action upon the terms and subject to the conditions set forth in the Stipulation.
The principal terms, conditions, and other matters that are part of the Settlement, which is subject to approval by the Court, are summarized below. This summary should be read in conjunction with, and is qualified in its entirety by reference to, the text of the Stipulation and its accompanying Exhibits, which have been filed with the Court and are available at www.adapthealthderivativesettlement.com.
As a result of the negotiations between and among the Parties, in consideration for the full settlement and release of the Released Claims, and upon Final Approval, AdaptHealth will implement the Corporate Governance Reforms described below and reflected in Exhibit A to the Stipulation. Defendants acknowledge that Plaintiff was a substantial cause of AdaptHealth’s adoption and maintenance of the Corporate Governance Reforms. The Corporate Governance Reforms shall remain in effect for a period of at least six (6) years. Defendants acknowledge and agree that the Corporate Governance Reforms are significant and confer substantial benefits upon AdaptHealth and its shareholders.
A. Review of Disclosures Giving Rise to the Litigation: AdaptHealth’s Audit Committee will retain outside counsel to conduct a postmortem review of the disclosures that gave rise to the Derivative Action as part of a concerted effort to improve the Company’s governance practices. All work performed by retained outside counsel, including the results of its review and related reports to the Audit Committee, shall remain confidential and privileged.
B. Board Self-Evaluation: AdaptHealth will be required to conduct mandatory evaluations that test the effectiveness of the Board of Director’s governance and oversight procedures through the use of director questionnaires prepared by the Nominating and Governance Committee with the assistance of outside counsel, which shall consider industry guidance and best practices. Such questionnaires shall be distributed and completed once every three years. The Nominating and Governance Committee will review the results and report to the Board regarding the results and any recommendations for improvements.
C. Board Composition and Practices:
1. AdaptHealth shall nominate and appoint, at its sole discretion, one (1) additional outside director to the Company’s Board of Directors who meets the independence standards promulgated by NASDAQ.
2. The Nominating and Governance Committee shall annually evaluate the composition of the Board to: (a) assess the skills and expertise that are currently represented on the Board as a whole, and in individual directors, as well as the skills and experience that the Board may find valuable in the future; and (b) assess the effectiveness of the efforts to seek a diversity of occupational and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives and to enhance the diversity of the Board.
D. Enhanced Board Reporting: The General Counsel, Chief Compliance Officer, Chief Accounting Officer or any independent member of the Board will be authorized to convene a meeting of the Audit Committee of the Board to review (1) any concerns, including whistleblower issues, reports of management wrongdoing, pending or threatened litigation, and such other matters that the General Counsel, Chief Compliance Officer, Chief Accounting Officer, or independent Board members identify and/or (2) any concerns, including any material compliance issues raised by the U.S. Securities and Exchange Commission (“SEC”), U.S. Department of Justice, or other regulatory agencies, and the effectiveness of AdaptHealth’s policies, procedures, systems, and controls designed to ensure regulatory compliance.
E. Enhanced Responsibilities of the Audit Committee:
1. The Audit Committee will be required to consult the General Counsel, Chief Compliance Officer, and/or any other senior-level management representative, as it deems necessary, to review the accuracy of public disclosures with respect to material investigations involving AdaptHealth’s officers and directors that are required to be disclosed under state and/or federal laws and regulations.
F. Enhanced Responsibilities of the Compliance Committee:
1. The Compliance Committee will be required to consult the General Counsel, Chief Compliance Officer, and/or any other senior-level management representative, as it deems necessary, to review the accuracy of public disclosures with respect to (a) healthcare regulatory compliance matters that may have a material impact on AdaptHealth’s operational performance or financial health and (b) material healthcare regulatory investigations involving AdaptHealth’s officers and directors that are required to be disclosed under state and/or federal laws and regulations.
2. The Compliance Committee will be required to meet with the Chief Compliance Officer at least twice a year.
G. Enhanced Responsibilities of Management-Level Disclosure Committee:
1. The Management-Level Disclosure Committee will report quarterly to the Audit Committee regarding the Disclosure Committee’s meetings and activities.
2. The Management-Level Disclosure Committee will be required to obtain approval from the CEO or CFO to implement any changes to its Charter.
A hearing was held on November 13, 2024 at 10:00, before the Honorable Gerald J. Pappert, at the United States District Court for the Eastern District of Pennsylvania, James A. Byrne U.S. Courthouse 601 Market Street, Philadelphia, PA 19106 (the “Settlement Hearing”), at which the Court will: (a) determine whether Plaintiff and Plaintiff’s Counsel have adequately represented the interests of AdaptHealth and its stockholders; (b) determine whether the proposed Settlement on the terms and conditions provided for in the Stipulation is fair, reasonable, adequate, and in the best interests of AdaptHealth and its stockholders; (c) determine whether the Notice fully satisfies the requirements of Rule 23.1 and due process; (d) determine whether a judgment substantially in the form attached as Exhibit D to the Stipulation should be entered dismissing the Derivative Action with prejudice against Defendants; (e) determine whether the motion by Plaintiff’s Counsel for the Fee and Expense Award should be approved; (f) hear and determine any objections to the Settlement or the motion by Plaintiff’s Counsel for the Fee and Expense Award; and (g) consider any other matters that may properly be brought before the Court in connection with the Settlement.
The Settlement was approved on November 15, 2024. You may view the Order and Final Judgement for additional details.
