Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc.
| Decision Date | 16 December 2014 |
| Docket Number | No. 12–16624.,12–16624. |
| Parties | 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. |
| Court | U.S. Court of Appeals — Ninth Circuit |
OPINION TEXT STARTS HERE
Stuart M. Grant (argued), Grant & Eisenhofer P.A., Wilmington, DE, for Plaintiffs–Appellants.
Linda T. Coberly (argued), William P. Ferranti, and Benjamin L. Ellison, Winston & Strawn LLP, Chicago, IL; David B. Rosenbaum, Osborn Maledon, P.A., Phoenix, AZ, for Defendants–Appellees.
Appeal from the United States District Court for the District of Arizona, James A. Teilborg, District Judge, Presiding. D.C. No. 2:10–cv–01735–JAT.
Before: J. CLIFFORD WALLACE, BARRY G. SILVERMAN, and MILAN D. SMITH, JR., Circuit Judges.
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.
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 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 false and misleading disclosures that Apollo made to its investors.
Finally, in Count VI, the Plaintiffs allege that, during the Class Period, Defendants John Sperling, Peter Sperling, Joseph D'Amico, Gregory Capelli, Charles Edelstein, Brian Swartz, Brian Mueller, and Gregory Iverson violated section 20(a) of the Securities and Exchange Act because each was a controlling person who had direct and supervisory involvement in the daily operations of Apollo. As controlling persons, they would be jointly and severally liable for violations of section 10(b) of the Securities and Exchange Act and Rule 10b–5.
After allowing the Plaintiffs to amend their initial complaint, the district court dismissed the Plaintiffs' Amended Complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. The Plaintiffs subsequently filed this timely appeal.
We have subject matter jurisdiction pursuant to Section 27 of the Securities and Exchange Act, 15 U.S.C. § 78aa(a), and 28 U.S.C. §§ 1331 and 1337(a). We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291.
We review de novo the district court's dismissal of the Plaintiffs' Amended Complaint under Federal Rule of Civil Procedure 12(b)(6) and accept all factual allegations in the Amended Complaint as true. N.M. State Inv. Council v. Ernst & Young LLP, 641 F.3d 1089, 1094 (9th Cir.2011).
To plead a claim under section 10(b) and Rule 10b–5, the Plaintiffs must allege: (1) a material misrepresentation or omission; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss causation. Stoneridge Inv. Partners, LLC v. Scientific–Atlanta, Inc., 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008).
The Plaintiffs incorrectly argue that each of the six elements of their 10(b) claims is subject to the pleading standards of Federal Rule of Civil Procedure 8(a)(2), which requires that “a complaint [ ] contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Securities fraud class actions must meet the higher, exacting pleading standards of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA). See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313–14, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). Rule 9(b) requires that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b).
The PSLRA requires that “the complaint shall, with respect to each act or omission ..., state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u–4(b)(2)(A). The PSLRA also requires that “the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” Id. at § 78u–4(b)(1)(B).
Although it is clear that Rule 9(b) and the PSLRA apply to almost all elements of a securities fraud action, the law is less clear about the pleading standard that applies to the loss causation element. In Dura Pharmaceuticals, Inc. v. Broudo, the Supreme Court suggested that Rule 8's “short and plain statement” might apply: “we assume, at least for argument's sake, that neither the Rules nor the securities statutes impose any special further requirement in respect to the pleading of proximate causation or economic loss.” 544 U.S. 336, 346, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005).
After Dura, we have applied a plausibility standard to loss causation, which avoids the question of whether the Rule 8(a) or Rule 9(b) pleading standard applies. See WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1053 (9th Cir.2011) (); In re Gilead Sciences Sec. Litig., 536 F.3d 1049, 1057 (9th Cir.2008) (). At times, we have applied both Rule 8(a) and 9(b) standards to allegations of loss causation, finding that plaintiffs meet both standards. See Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 989–90 (9th Cir.2008).
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...of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA)." Or. Pub. Emp. Ret. Fund v. Apollo Group Inc. , 774 F.3d 598, 603–04 (9th Cir. 2014). Under Federal Rule of Civil Procedure 9(b), "[i]n alleging fraud or mistake, a party must state with partic......