Finally ending a case first filed back in October 2004 and that involved one of the few securities lawsuits to go to trial, the parties to the long-running Apollo Group securities suit have reached an agreement to settle the case for $145 million. This resolution is interesting not only because it concludes a long- running case with a complex procedural history, but also because the settlement amount appears to represent substantially less than the $277.5 million value that observers had placed on the plaintiffs’ January 2008 jury verdict.
District of Arizona Judge James A. Teilborg’s November 29, 2011 order preliminarily approving the $145 million settlement can be found here. The parties’ stipulation of settlement is attached to the November 29 order. David Bario’s December 2, 2011 Am Law Litigation Daily article, in which the settlement was first reported, can be found here.
It would be quite an understatement to say that this case has had a long and complex procedural history.
As detailed in greater length here, plaintiffs filed the suit after the company’s share price declined following the disclosure of a U.S. Department of Education report alleging that the company had violated DOE rules. On September 7, 2004, the company agreed to pay $9.8 million to settle the allegations. News of the settlement first became public on September 14, 2004, but the company’s share price did not actually decline until September 21, 2004, when a securities analyst issued a report expressing concern about the company’s possible exposure to future regulatory issues.
On January 16, 2008, a civil jury entered a verdict in favor of the plaintiff class on all counts, awarding damages of $5.55 per share, estimated at the time to represent $277.5 million. Under the verdict, Apollo is responsible for 60 percent of the plaintiffs’ losses, former Apollo CEO Tony Nelson is responsible for 30 percent, and former CFO Kenda Gonzales is responsible for 10 percent. The jury verdict is discussed at greater length here.
As discussed in greater length here, on August 4, 2008, Judge Teilborg entered an order (here) granting the defendants’ motion for judgment as a matter of law, based on his finding that the trial testimony did not support the jury’s finding of loss causation. Judge Teilborg’s order vacated the judgment and entered judgment in defendants’ favor.
In its post-trial motion, Apollo argued that the evidence at trial was insufficient to support a finding that the analyst reports represented "corrective disclosure," because they did not contain any new fraud-revealing information. Judge Teilborg found that "the evidence at trial undercut all bases on which [the plaintiff] claimed the (analyst) reports were corrective."
Accordingly, Judge Teilborg concluded that although the plaintiff "demonstrated that Apollo misled the markets in various ways concerning the DoE program review," the plaintiff "failed to prove that Apollo’s actions caused investors to suffer harm." The court therefore concluded that "Apollo is entitled to judgment as a matter of law."
In a June 23, 2010 opinion (here), a three-judge panel of the Ninth Circuit held that the district court "erred in granting Apollo judgment as a matter of law." The opinion states that "the jury could have reasonably found that the (analyst) reports following various newspaper articles were ‘corrective disclosures’ providing additional or more authoritative fraud-related information that deflated the stock price."
The Ninth Circuit further held that Apollo is not entitled to a new trial and that there is no basis for remittitur (reduction of the verdict). The Ninth Circuit reversed and remanded the case with "instructions that the district court enter judgment in accordance with the jury’s verdict."
The company filed a petition for writ of certiorari to the U.S. Supreme Court. As discussed here, on March 7, 2011, the Supreme Court denied Apollo Group’s petition for writ of certiorari, leaving the Ninth Circuit’s decision standing. The case then returned to the district court for further proceedings.
Upon the case’s return to the District Court, the defendants’ raised a number of issues in connection with the entry of judgment in the case. For example the defendants raised issues with respect to the individual eligibility of class members to secure recovery, the calculation and assessment of damages per claimant and the procedures with respect to claims administration and processing for resolution by the District Court. The defendants also maintained that they are entitled to conduct individual discovery and, potentially, jury or bench trials, to rebut the presumption of reliance on the integrity of the market price with respect to individual class members, among other things.
In light of the potential for these disputes to prolong the case and postpone the ultimate payment of to the plaintiff class, the parties agreed to enter mediation proceedings that ultimately resulted in the settlement of the case.
According to the parties’ settlement stipulation, the settlement amount of $145 million is to be paid by Apollo Group. The settlement stipulation does not mention any payment into the settlement by the individual defendants. The settlement stipulation does not indicate whether any of the $145 million is to be paid or reimbursed by insurance. The stipulation of settlement states that the lead plaintiffs may seek an award from the fund of up to 33.33% of the amount of the fund, plus expenses of $1.875 million. (A one-third fee award would amount to about $48.33 million). Defendants agreed in the stipulation that they will take no position with respect to the fee request.
The apparent gap between the $145 million settlement and the reported $277.5 million value of the jury verdict is hard to figure, especially since both amounts purportedly represented a value of $5.55 per share. In the Am Law Litigation Daily article linked above, defense counsel is quoted as saying that he doesn’t know where the original estimate of the value of the jury verdict came from, particularly given that predicting the number of damaged shares that would actually be claimed would be unknown until the claims process had played out — particularly given the defenses the defendants asserted to various of the potential individual claims. In other words, the jury verdict may never actually have been worth anything near the reported $277.5 million.
The significance of the settlement may be only that it finally brings an end to this long-running case. On the other hand, the amount and fact of the settlement may stand as a cautionary warning to any securities litigation defendants that are thinking about forcing their case to trial. To be sure, some of the post-PSLRA securities cases that have gone to trial have resulted in defense verdicts (most notably, the JDS Uniphase case, about which refer here). But as reflected in the securities case trial scoreboard maintained by Adam Savett, the current tally of post-PSLRA securities trials stands at 6 wins for plaintiffs, 5 for defendants (assuming that the Apollo Group case is still counted as a plaintiff win, even though it ultimately settled). With that tally, and in light of the magnitude of the Apollo Group post-appeals settlement, any defendant contemplating a trial would have to think hard about the downside of taking their case to the jury.
Apollo Group has probably more than had its fill of securities class action litigation. The company not only had this case to contend with, but in November 2006, it got hit with an options backdating-related securities class action lawsuit. The options backdating securities case was ultimately dismissed, as reported here. Not only that, but in August 2010, Apollo Group was one of several for-profit education companies hit with shareholder suits in connection with an industry scandal involving student recruiting and student loans. That case remains pending in the District of Arizona, before Judge Teilborg. (The deadline for the plaintiffs to file their amended complaint is December 6, 2012.)