Oregon Public Employees Retirement Fund v. Apollo Group Inc.
774 F.3d 598
| 9th Cir. | 2014Background
- Plaintiffs filed a consolidated securities-fraud class action on behalf of investors who bought Apollo Group stock between May 21, 2007 and October 13, 2010, alleging violations of Section 10(b) and Rule 10b-5.
- Plaintiffs alleged Apollo made false or misleading statements about enrollment and revenue growth, financial condition, organizational values, and recruitment/business focus, and failed to disclose material facts.
- Plaintiffs also alleged insider trading by several Apollo officers and directors and asserted control-person liability under Section 20(a).
- The district court dismissed the amended complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim; Plaintiffs appealed.
- The Ninth Circuit affirmed dismissal, concluding Plaintiffs failed to plead actionable misstatements/omissions, scienter, and loss causation, and therefore also failed to state insider-trading and control-person claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Apollo made material false statements or omissions under §10(b)/Rule 10b-5 | Apollo falsely touted enrollment/revenue growth and hid unethical recruitment and incentive practices | Apollo's public statements were generic "puffery" and public filings disclosed marketing, enrollment, withdrawals, and refund/accounting practices | Statements were non-actionable puffery or disclosed; no adequately pleaded material misrepresentation or omission |
| Whether Plaintiffs pleaded scienter with particularity | Corporate and anonymous-witness allegations show widespread deceptive recruitment and management knowledge | Allegations were vague, anecdotal, and insufficient to raise a strong inference of intent or deliberate recklessness | Scienter not adequately alleged after holistic Tellabs analysis |
| Whether Plaintiffs pleaded loss causation | Government reports, press releases, and other disclosures revealed the fraud and caused market losses | Disclosures cited were general, industry-wide, or investigatory and did not correct specific prior misrepresentations | Loss causation not plausibly pleaded under Rule 9(b) (applied to all elements) |
| Whether insider trading and control-person claims survive | Individual defendants traded while possessing material nonpublic information; officers supervised violative practices | Insider-trading and control claims rely on the defective §10(b) allegations; without primary violation, secondary claims fail | Insider-trading and control-person claims dismissed for failure to plead underlying violations |
Key Cases Cited
- Stoneridge Inv. Partners v. Scientific-Atlanta, 552 U.S. 148 (Rule 10b-5 elements and reliance/causation principles)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (test for pleading scienter; holistic inference analysis)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (loss causation requirement in securities fraud)
- In re Cutera Sec. Litig., 610 F.3d 1103 (statements of corporate optimism as non-actionable puffery)
- SEC v. Todd, 642 F.3d 1207 (distinguishing objective accounting misstatements from puffery)
- In re Daou Sys., Inc., 411 F.3d 1006 (scienter standards and GAAP/accounting allegations)
- N.M. State Inv. Council v. Ernst & Young LLP, 641 F.3d 1089 (applying the Tellabs scienter framework)
- Loos v. Immersion Corp., 762 F.3d 880 (announcements of internal investigations insufficient by themselves to establish corrective disclosure)
- Massachusetts Ret. Sys. v. CVS Caremark Corp., 716 F.3d 229 (example where a specific corrective revelation by an executive supported loss causation)