In a terse June 23, 2010 ruling (here), the Ninth Circuit reversed the district court’s post-trial ruling that set aside the $277.5 million jury verdict in the Apollo Group securities class action lawsuit, and remanded the case for "entry of judgment in accordance with the jury’s verdict."



Apollo Group is the parent of the University of Phoenix (UOP), the largest for-profit provider of higher education in the United States. According to the plaintiff’s amended complaint (here), in 2003, two former UOP employees filed a False Claims Act action against UOP alleging that UOP received U.S. Department of Education funding in violation of laws specifying the way company educational recruiters may be compensated.


The Department of Education initiated an investigation of the issues raised in the False Claims Act action, and on February 5, 2004, a Department of Education employee issued a "Program Review Report" that accused UOP of violating the Department of Education rules with respect to education employees’ compensation. The plaintiff in the securities case alleges that the violations in the report could have resulted in the limitation or termination of Department of Education funding to UOP.

On September 7, 2004, Apollo agreed to pay the Department of Education $9.8 million to settle the program review. The settlement agreement (a copy of which can be found here) specified that Apollo’s entry into the agreement did not constitute an admission of wrongdoing or liability. News of the allegations in the Department of Education report first became public on September 14, 2004. The price of Apollo’s stock fell significantly on September 21, 2004, when a securities analyst issued a report expressing concern about the company’s possible exposure to future regulatory issues. Plaintiff shareholders subsequently initiated a securities class action lawsuit in the District of Arizona.


On January 16, 2008, a civil jury entered a verdict in favor of the plaintiff class on all counts, awarding damages of $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 James Teilborg of the United States District Court for the District of Arizona 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.


Judge Teilborg had held in connection with the parties’ pre-trial cross-motions for summary judgment that the issue whether the analyst reports constituted "corrective disclosure" sufficient to support a finding of loss causation was a question for the jury.


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, the court 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."


The Ninth Circuit’s Opinion

In its June 23, 2010 opinion, 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."



Given the procedural development of this case so far, there may be no reason to assume that the June 23 ruling by the three-judge panel represents the case’s final stage. The defendants undoubtedly will seek rehearing and/or rehearing en banc, and given the stakes involved, the defendants may well seek Supreme Court review. However, the likelihood of the defendants obtaining rehearing or rehearing en banc, much less convincing the Supreme Court to take up the case, seems like a remote possibility. The defendants may continue to agitate, but they may be running out of options.


With the reinstatement of the plaintiffs’ verdict in this case, and the entry of the jury verdict in the plaintiffs’ favor in the Vivendi case, the securities class action jury trial scoreboard is looking more favorable to plaintiffs.


According to data included in the 2009 NERA year-end securities litigation study (about which refer here), and adjusted for the Ninth Circuit’s opinion in Apollo Group and for the verdict in Vivendi, the securities lawsuit jury verdict scoreboard shows as follow: since the enactment of the PSLRA, there have been 23 securities class action lawsuit that have gone to trial, of which 16 have gone all the way to verdict. Of those 16 cases, nine have resulted in a verdict for the plaintiffs in whole or in part, and six have gone in favor of the defendants.


Data from Adam Savett of the Claims Compensation Bureau (here) show that there have now been nine cases filed post-PSLRA involving conduct occurring after the enactment of the PSLRA that have resulted in jury verdicts or bench decisions at trial. Of these nine, five have gone for the plaintiffs and four have gone for defendants.


Plaintiffs have to be heartened by the Ninth Circuit’s decision in the Apollo Group case. But notwithstanding this development, and for many reasons, trials in securities lawsuits still are likely to remain extremely rare.


A June 23, 2010 Bloomberg article by Thom Weidlich and Emily Heller about the Ninth Circuit’s opinion can be found here.


Special thanks to a loyal reader for providing a copy of the Ninth Circuit’s opinion.


Self-Restraint:  I considered captoning this post "Apollo — "Oh No!" but thought better of it.