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Oregon Public Employees Retirement Fund v. Apollo Group Inc.

United States Court of Appeals, Ninth Circuit

December 16, 2014

OREGON PUBLIC EMPLOYEES RETIREMENT FUND; AMALGAMATED BANK, as Trustee for the LongView LargeCap 500 Index Fund, the LongView LargeCap 500 Index VEBA Fund, the LongView Quantitative LargeCap Fund, and the LongView Quantitative LargeCap VEBA Fund; MINEWORKERS' PENSION SCHEME, Plaintiffs-Appellants,
v.
APOLLO GROUP INCORPORATED; JOHN SPERLING; GREGORY W. CAPPELLI; CHARLES B. EDELSTEIN; GREGORY J. IVERSON; JOSEPH I. D'AMICO; BRIAN L. SWARTZ; BRIAN E. MUELLER; PETER V. SPERLING; WILLIAM J. PEPICELLO, Defendants-Appellees

Argued and Submitted, Phoenix, Arizona: October 10, 2014.

Page 599

[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the District of Arizona. D.C. No. 2:10-cv-01735-JAT. James A. Teilborg, District Judge, Presiding.

Securities Fraud

The panel affirmed the district court's dismissal of investors' class action under § 10(b) of the Securities Exchange Act and SEC Rule 10b-5 against Apollo Group, Inc., a for-profit education company, and Apollo officers and directors.

The plaintiffs alleged that the defendants made false and misleading statements of material fact regarding Apollo's enrollment and revenue growth, financial condition, organizational values, and business focus. They also alleged that, during the class period, certain individual defendants traded on inside information related to the false and misleading statements of material fact.

Agreeing with the Fourth Circuit, the panel held that the heightened pleading standards of Fed.R.Civ.P. 9(b) apply to all elements of a securities fraud action, including loss causation.

The panel held that the material misrepresentations alleged in Counts I, III, and IV of the amended complaint were not objectively false statements, but rather were examples of lawful " business puffing." The plaintiffs also failed adequately to plead scienter or loss causation.

The panel held that, as to Count II, the plaintiffs did not show how Apollo's accounting numbers regarding student revenue were incorrect or misstated.

The panel held that the plaintiffs failed to state a claim for insider trading because the alleged non-public information to which the defendants had access was the same information at issue in Counts I-IV.

The panel held that the plaintiffs also could not establish control person liability.

Stuart M. Grant (argued), Grant & Eisenhofer P.A., Wilmington, Delaware, for Plaintiffs-Appellants.

Linda T. Coberly (argued), William P. Ferranti, and Benjamin L. Ellison, Winston & Strawn LLP, Chicago, Illinois; David B. Rosenbaum, Osborn Maledon, P.A., Phoenix, Arizona, for Defendants-Appellees.

Before: J. Clifford Wallace, Barry G. Silverman, and Milan D. Smith, Jr., Circuit Judges. Opinion by Judge Milan D. Smith, Jr.

OPINION

Page 602

M. SMITH, Circuit Judge:

In this consolidated class action, the Plaintiffs-Appellants (Plaintiffs) represent a class of investors that purchased stock in Apollo Group Inc., between May 21, 2007 and October 13, 2010 (the Class Period). The Plaintiffs allege that the Defendants-Appellees (Defendants), Apollo, a for-profit education company, and Apollo officers and directors, violated section 10(b) of the Securities and Exchange Act and SEC Rule 10b-5. According to the Plaintiffs, the Defendants made false and misleading statements of material fact regarding Apollo's enrollment and revenue growth, financial condition, organizational values, and business focus. The Plaintiffs also allege that, during the Class Period, certain individual Defendants traded on inside information related to the false and misleading statements of material fact. Finally, the Plaintiffs allege that certain officers and directors of Apollo are liable as controlling persons for the misstatements and omissions of their supervisees. The district court dismissed the Plaintiffs' Amended Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). We affirm the decision of the district court for four reasons.

First, the material misrepresentations the Plaintiffs alleged in Counts I, III, and IV of the Amended Complaint are not objectively false misstatements, but are examples of lawful " business puffing." Even if the Plaintiffs adequately alleged a misstatement or omission, they did not adequately plead scienter or loss causation, both of which are independent bases on which to affirm the district court's decision.

Second, Count II contains largely conclusory allegations that Apollo improperly recorded student revenue. The Plaintiffs do not show how Apollo's accounting numbers were incorrect or misstated. Apollo also disclosed to its investors information concerning the collection of revenue and tuition, which negates the Plaintiffs' misstatement and omission theory.

Third, the Plaintiffs' allegations that the Defendants are guilty of insider trading fail to state a claim because the alleged non-public information to which the Defendants had access is the same information at issue in Counts I, II, III, and IV of the Amended Complaint.

Fourth, the Plaintiffs cannot establish control person liability because their control person claim relies on the faulty allegations made in the other counts.

FACTUAL AND PROCEDURAL BACKGROUND

Defendant Apollo Group Inc. is an Arizona-based company that owns and operates postsecondary education institutions, and is one of the largest private education providers in the United States. The majority of Apollo's revenue comes from its

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subsidiary, the University of Phoenix. The remaining Defendants are individuals who served as Apollo officers and directors during the Class Period, between May 21, 2007 and October 13, 2010. The Plaintiffs represent a class of investors who purchased Apollo stock during the Class Period.

Counts I, II, III, and IV of the Plaintiffs' Amended Complaint allege that, during the Class Period, the Defendants made materially false and misleading statements concerning Apollo's (1) enrollment and revenue growth, (2) financial condition, (3) organizational values, and (4) business focus in violation of section 10(b) of the Securities and Exchange Act and SEC Rule 10b-5. These alleged misstatements appeared in Apollo's filings with the SEC, press releases, and conference calls and interviews. The Plaintiffs also allege that the Defendants failed to disclose material facts necessary to make the statements not misleading.

In Counts V and VII of their Amended Complaint, the Plaintiffs allege that individual Defendants John Sperling, Peter Sperling, Joseph D'Amico, and William Pepicello committed insider trading by trading on non-public information related to the allegedly ...


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