## Facts

- Amedisys, Inc. provided home health care-related services and derived about 90% of its revenue from Medicare reimbursements.
- Medicare’s Prospective Payment System (PPS) took effect October 1, 2000, paying providers partly in advance based on estimated costs and later reconciling payments.
- Amedisys implemented new software to operate under PPS.
- Plaintiffs alleged Amedisys and certain officers/directors intentionally manipulated PPS cost estimates to inflate reported earnings and the stock price.
- On June 13, 2001, Amedisys disclosed it had overstated revenues, attributing the problem to inadvertent errors caused by the new PPS software; the stock price fell after the disclosure.
- A purchaser of Amedisys stock filed a putative class action (later consolidated with others) asserting Exchange Act § 10(b) and § 20(a) claims and Rule 10b-5, seeking damages under a fraud-on-the-market theory.
- The district court certified a Rule 23(b)(3) class of Amedisys stock purchasers; defendants obtained interlocutory review under Rule 23(f).

## Issues

1. What evidentiary scrutiny and findings a district court must make when deciding class certification in a securities-fraud case under Rule 23(b)(3).
2. Whether plaintiffs met their burden to show an efficient market for Amedisys stock sufficient to invoke the Basic fraud-on-the-market presumption at class certification.
3. Whether the district court adequately supported Rule 23(a) and Rule 23(b)(3) findings—particularly predominance—with admissible evidence and a rigorous analysis.

## Decision

- The Fifth Circuit vacated the class-certification order and remanded.
- The court held district courts must conduct a rigorous, evidence-based Rule 23 analysis and make specific findings supported by admissible evidence.
- The court held the district court applied an unduly lax standard by accepting allegations and conclusory expert assertions, particularly on market efficiency, without sufficient scrutiny or record-supported findings.

## Legal Principles

- Plaintiffs bear the burden of proving Rule 23(a) and Rule 23(b)(3) requirements with evidence; Rule 23 is not satisfied by pleadings alone.
- A district court must probe behind the pleadings as needed to resolve disputes relevant to certification, even if the inquiry overlaps with merits-related questions.
- In a fraud-on-the-market case, predominance commonly depends on whether the Basic presumption of reliance applies; this requires a factual showing that the security traded in an efficient market.
- Market efficiency is not presumed from trading on an OTC venue; it must be supported by economic evidence (e.g., trading volume, analyst coverage, market makers, and price response to new information).
- Expert testimony offered to prove market efficiency at certification must be tested for support in data and methodology; conclusory opinions are insufficient.

## Conclusion

The Fifth Circuit required district courts to make specific, admissible-evidence-based findings on Rule 23 requirements in securities class actions, including a concrete showing of market efficiency before applying the fraud-on-the-market presumption, and it vacated certification where the district court’s analysis was insufficient.


Unger v. Amedisys, Inc., 401 F.3d 316 (5th Cir. 2005)