Opposition Brief — Apollo Group, Inc. v. Policemen's Annuity & Benefit Fund

oO

No. 10-649

IN THE

Supreme Court of the Ginited States

APOLLO GROUP, INGC., TODD S. NELSON.

AND KENDA B. GONZALES.

Petitioners

POLICEMEN’S ANNUITY AND BENEFIT FUND OF CHICAGO

Respondent

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

BRIEF IN OPPOSITION FOR RESPONDENT

STEPHEN R. BASSER GERALD J. RODO

SAMUEL M. WARD Counsel of Record

BARRACK, RODOS & BACINE LEONARD BARRACK

600 West Broadway JEFFREY A. BARRACK

Suite 900 BARRACK, RODOS & BACINI

San Diego, California 9210 3300 Two Commerce Squar

(619) 230-0800 2001 Market Street

Philadelphia, Pennsylvania 19103

WILLIAM G. FAIRBOURN (215) 963-0601

FRANCIS J. BALINT, JR (vrodos@barrack.com

KATHRYN HONECKER

BONNETT, FAIRBOURN,

FRIEDMAN & BALINT, P.C

2901 North Central Avenus

Suite 1000

Phoenix, Arizona 85012

(602) 274-1100 February 4, 2011

QUESTION PRESENTED

Petitioners attempt to paint this case as involving

broad questions of securities law, but in fact the dis

pute presented is narrow and fact-specific. In its

current posture, the case presents one question:

Whether the record evidence was sufficient for

a properly instructed jury to find that a stock

analyst’s reports issued on September 20, 2004,

immediately before an economically and statis-

tically significant decline in the stock price of

corporate petitioner Apollo Group, Inc., were

corrective disclosures that respondent could

employ as part of its proof of loss causation.

Ll

TABLE OF CONTENTS

Page

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Woo Pee ae aay 8 |) yy |. Se iN

(ogy 8 tT ty gt.) RUNDE Renee inn Ney Sere UMA BALI Rr ATR |

STATEMENT OF THE CASE... ........0.c0ccecceesccccscccseens 2

REASONS FOR DENYING THE PETITION ......... 12

. APOLLO HAS FAILED TO SHOW

ANY RELEVANT CONFLICT IN THE

2) | ig 5. Re ne eerie en At ee pee em Nee ee 12

A. There Is No Relevant Circuit Conflict

About the Timing of Corrective Dis-

IID accecuiphiince te ccuiptacanued ott tmaun: 12

B. There Is No Circuit Conflict Regard-

ing the Treatment of Analyst Reports....... 18

It. APOLLO HAS FAILED TO SHOW ANY

CONFLICT WITH BASIC OR DURA........... 21

A. Basic Expressly Declined To Adopt

the Timing Rule Apollo Seeks.................. 21

B. Dura Did Not Draw the _ Fact-

Opinion Distinction that Apollo

FE Rae Moles et ete ORR SPR Sh RE leite oO 23

[l. THIS CASE IS AN UNSUITABLE

VEHICLE FOR CONSIDERING THE

QUESTIONS APOLLO SEEKS TO

PE inspec encen eee etieseaen cadaeeeaen 24

A. This Case Is’ Fact-Specific and

Record-Intensive, and Apollo Has

Not Preserved Any Materiality

a gre eers pc vets recneieeerrtueesaaeeen 24

B. The Recent Grant in Erica P. Johr

vt

Fund v. Halliburton Is Irrelevant....... 26

THE DECISION OF THE NINTH

CIRCUIT IS CORRECT 28

CONCLUSION

APPENDIX

1\

TABLE OF AUTHORITIES

Page

Archdiocese of Milwaukee Supporting Fund,

Inc. v. Halliburton Co., 597 F.3d 330 (5th

Cir. 2010), cert. granted sub nom. Erica P.

John Fund, Inc. v. Halliburton Co., 131 S.

Ct. 856 (2011) (No. 09-1403) .......0...... 19, 20, 26, 28

Aspen Skiing Co. v. Aspen Highlands Skiing

fare., 472 Ud. 585 (1965) ...............2... rasnieeeiee 28

Basic, Ince. v. Levinson, 485 U.S. 224

EET... aca anicawsuiiesavukaiaioteneksiwir eee rh, Oey ee

Burlington Coat Factory Sec. Litig., In re,

114 F.3d 1410 (3d Cir. 1997)..........000.000... 14, 17, 26

City of Monroe Employees Ret. Sys. v. Bridge-

j

stone Corp., 399 F.3d 651 (6th Cir. 2005)...........

Dura Pharms., Inc. v. Broudo, 544 U.S. 336

(2005) acu eke uasuaudapuaskeces one A ie

Erica P. John Fund, Inc. v. Halliburton Co..

cert. granted, 131 S. Ct. 856 (2011) (No. 09

| oe ccc euudunsuessacusuuvaseusansubnustaeeee 26, 27, 28

Gilead Sciences Sec. Litig., In re, 536 F.3d

1049 (9th Cir. 2008), cert. denied, 129 S. Ct.

1993 (2009) ..2. 000s. seantedeweie uaatome aaa

Merck & Co., Inc. Sec. Litig., In re, 482 F.3d

261 (3d Cir. 2005)........ upnaceunawawanes uma See Li, $4,

-+ vu. Martin K. Eby Constr. Co., 386 U.S

J

Neel:

9

od

No. 84 Employer-Teamster Joint Council

Pension Trust Fund v. America West Hold-

ing Corp., 320 F.3d 920 (9th Cir. 20038)......... LG ve

Omnicom Group, Inc. Sec. Litig., In_ re,

aoe Foe GOL Cod Cit. DOIG)... cchecexsctrestoies 15, 16, 20

Oran v. Stafford, 226 F.3d 275 (3d Cir.

11) scpaceunderuenenastessed oeeeemieatin conte 13, 14, 17, 26

Reeves v. Sanderson Plumbing Prods., 530 U.S.

Oe (OR, ca ee 3 30

Teachers’ Ret. Sys. of Louisiana v. Hunter,

477 F.3d 162 (4th Cir. 2007) ............ SAND Porn 19, 20

Teamsters Local 445 Freight Div. Pension

Fund v. Bombardier Inc., 546 F.3d 196

eS a. I ss checscaxcs ne bres cence ear ee eee 16

Thompson v. RelationServe Media, Inc., 610

cee Gees C3 TO Aa oo ces ccc ses 15, 20

Weeks v. Angelone, 528 U.S. 225 (2000)................... 13

STATUTES, REGULATIONS, AND RULES

Higher Education Act of 1965, tit. IV, 20 U.S.C.

TEPER OF GOR: x. cedacceerec Dae oe Z

20 U.S.C. § 1094(a)(20)...ecccccccceccecececececeseseseseeeveeee: 2

Private Securities Litigation Reform Act of

1995, Pub. L. No. 104-67, 109 Stat. 737....... 23

17 C.F.R. § 240.10b-5 (SEC Rule 10b-5) ............ 10, 26

Fed. R. Civ. P.:

PENNE Be sccnicecavsticn don L5

SRN ici viv etennten subsea ees Seas eaeninaceneee ate aS

VI

OTHER MATERIALS

Brief in Opposition, Erica P. John Fund, Inc.

v. Halliburton Co., No. 09-1403 (U.S. filed

PR ee esc eicnencn cievewecaaras ecto veaundeocep suave: 27

ra

Petition for a Writ of Certiorani, Krica P. John

Fund, Inc. v. Halliburton Co., No. 09-1403

(EFAS. TARE RY BB, IE csicsvcscacendverscncntnssnseeseeys 27

Restatement (Second) of Torts (1977) 23

INTRODUCTION

Petitioners Apollo Group, Inc., its former chief

executive officer Todd Nelson, and its former chief fi

nancial officer Kenda Gonzales (collectively, “Apollo”)

seek review of a jury verdict finding them lable for

securities fraud. After weeks of testimony, including

expert testimony on both sides about the behavior of

Apollo’s tock price, the jury found that Apollo de-

frauded its investors by making misrepresentations

about a highly critical report by the U.S. Department

of Education (“DOE”) that had major implications for

Apollo’s future prospects.

Apollo now seeks to escape that verdict by asking

the Court to rule that too much time passed between

the date that its fraud was revealed and the date

that its stock price fell, thereby precluding its inves-

tors as a matter of law from proving that they were

harmed by its fraud. Any such rule would be in-

applicable here, because the jury, dutifully applying

the instructions Apollo concedes are correct, actually

found a stock price decline that came immediately

after a fraud-revealing disclosure anc continued into

the next day. That finding is not only correct and

consistent with every court of appeals decision on

analogous facts, but also far too fact-specific to war-

rant this Court’s review.

Apollo also seeks a second rule: that information

received by the market cannot reveal a fraud if it

constitutes analysis of, synthesis of, or commentary

on previously disclosed information. That rule, too

cannot apply on the facts necessarily accepted by the

jury: that fraud in this case was revealed by an

investment analyst who found new, fraud-related

re

information about Apollo that alerted investors to

the increased risks arising from the DOE Report and

4 I

the corrective actions demanded by DOE and taken

by Apollo in response to the Report.

Apollo’s arguments in favor of review are unper-

suasive. Cases involving months-long gaps between

the revelation of the fraud and the fall in the inves-

tor’s stock price are simply inapposite, as is any ten-

sion between the circuits over how to approach such

scenarios. The court below rightly perceived this

case as a fact-specific application of well-settled law,

and there is no reason for this Court to review that

judgment.

STATEMENT OF THE CASE

Apollo is the largest for-profit institution of higher

education in the United States. The University of

Phoenix (“‘UOP”) accounts for 95% of Apollo's reve-

nues. UOP in turn derives 60% of its revenues from

federal student loans issued under Title IV of the

Higher Education Act of 1965 (“Title 1V”). To receive

funds from Title IV loans, UOP needed (and had) a

program participation agreement with DOK. That

agreement “condition[ed] ... [UOP’s] eligibility” for

Title [V loans on (among other things) a prohibition

on making “any commission, bonus, or other incen-

tive payment based directly or indirectly on success

in securing enrollments or financial aid to any per

sons or entities engaged in any student recruiting or

admission activities.” 20 U.S.C. § 1094(a)(20). This

case 1s about misrepresentations and omissions from

Apollo to its investors about a DOK report finding

that UOP had violated that prohibition and demand-

ing corrective action to address the violations, as well

as about the consequences for UOP’s future business

from DOE’s finding.

Apollo seeks judgment as a matter of law after

an adverse jury verdict following instructions that

9

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in relevant part largely tracked those submitted by

Apollo (and that Apollo admits were “correct{],” Pet.

10). A court “entertaining [such] a motion” must

“review all of the evidence in the record” and must

“draw all reasonable inferences in favor of the non-

moving party.” Reeves v. Sanderson Plumbing

Prods., 530 U.S. 133, 151 (2000). It “may not make

credibility determinations or weigh the evidence.”

Id. Respondent sets forth the following summary of

the evidence in light of that standard.

1. In August 20038, the DOE began a “Program

Review” of UOP’s compliance with Title IV. The

Program Review included witness interviews, site

inspections, and a lengthy document review. It was

followed by a Program Review Report (the “Report’).

On February 5, 2004, Apollo received a copy of the

Report from DOE. Excerpts of Record (“ER”) 370.

The Report’s findings were damning. As DOE

summarized it, the Report made “a serious finding”

that UOP was using an “improper incentive compen-

sation system for those involved in recruiting activi-

ties” and was “systemically engag[ing] in actions

designed to mislead [DOE] and to evade detection” of

its misconduct. Jd. DOE described these findings as

showing a “substantial breach of [UOP’s] fiduciary

duty.” Jd. Among other things, the Report found

that “UOP bases [recruiters’] salaries solely on the

number of students they enroll,” ER379, and that

UOP employed “evasion” and “euphemisms” to con-

ceal “the fact that UOP pays distinct and significant

financial incentives solely based on recruiters’ suc-

cess in securing enrollments,” ER396.!

| These findings were particularly damaging to Apollo be-

cause, as the evidence later showed, it previously had an excel-

lent reputation for regulatory compliance. As one analyst put

In the Report, DOE demanded that Apollo take

corrective actions, including “substantial and com-

prehensive changes to the salary compensation sys-

tem for its recruiters and their direct supervisors.”

ER401. In June 2004, Apollo changed its compen-

sation plan for its recruiters by including explicit

weigh‘ed percentages for the different factors that

were used to determine compensation. HR222-25.

The change prevented recruiters’ supervisors from

making salary determinations based solely on the

number of enrollments that a recruiter obtained.

ER223-24.2 Apollo “[s]ubmit/ed]” the new compensa-

tion plan for review by DOE as part of a “corrective

action plan to respond to [DOE’s] concerns” in order

to obtain “closure” with DOE and avoid “similar find-

ings in the future.” ER367-68.

In addition, on September 1, 2004, Apollo paid

$9.8 million to DOE as part of a settlement of the

dispute arising out of the Report. This payment was

the largest fine ever imposed by DOE on a for-profit

university. ER63-64.

2. The jury was asked to consider whether Apollo

made “an untrue statement of material fact or

omit[ted] a material fact necessary under the cir-

cumstances to keep the statements that were made

from being misleading” when publicly discussing its

relationship with DOE and the program review

it, the investment community had perceived Apollo as being as

“pure as the driven snow.” ER672 (internal quotation marks

omitted).

“ Apollo’s chief human resources officer testified that the June

2004 changes to Apollo's compensation plan were “material”

and that any time “you change something material as compen-

sation” it creates risks of increased employee dissatisfaction and

lower productivity. ER224, ER227-28.

throughout the class period. As to each statement

the jury answered “yes.” See App., infra, la-2a

(Verdict Form).? Petitioners did not disclose the exis-

tence of the DOE Report until announcing the set

tlement with DOE, and the jury was asked whether

petitioners Apollo and Nelson then continued to mis

lead the market about the Report’s highly negative

findings about Apollo’s recruitment compensation

scheme. The jury answered “yes.” See id. at 2a-3a,

6a-7a. The verdict reflects the jury’s conclusion that

petitioners never revealed that DOE had demanded

that Apollo make comprehensive changes to its sys

tem for compensating recruiters or that Apollo had

made such changes. Not until September 20, 2004,

was there a full, adequate disclosure of these facts

and their implications on Apollo.

As an example of these false and misleading

statements, in March 2004, more than five weeks

after receiving the Report, petitioner ‘Todd Nelson

(who was then Apollo’s CEO) mentioned to industry

analysts during a conference call that DOE had con

ducted a “normal” and “ongoing program review.”

ER511. When asked “when any type of report will be

issued” by DOE, Nelson answered that it was “tough

to say.” ER515 (emphasis added). He also told the

analysts that Apollo was “very comfortable” that the

program review would lead to “nothing that would be

material.” Jd. In fact, Nelson consciously recognized

that the Report and the changes it required were

material to Apollo, and he sought to prevent the pub

% The knowingly false or misleading character of Apollo

corporate statements was found by the jury, see App., infra, 2a

3a, and is not challenged in Apollo’s petition. The same is true

for the individual petitioners. See id. at 6a-7a (Nelson), 9a-10a

(Gonzales).

6

lic release of the Report by writing to the Secretary of

Education, urging that DOE not publicly release the

Report. ER353. In response, DOE did not release

the Report. Upon examination at trial, Nelson was

asked whether he had contemporaneously believed

that public release of the report would “adversely

impact the stock price of Apollo’s securities,” and he

answered: “Absolutely, yes.” Trial Transcript (“Tr.”)

1103.

On September 7, 2004, shortly after its agreement

to pay DOE $9.8 million, Apollo issued a press release

stating that it was “pleased to announce” an “agree

ment” with DOE “to resolve ... the [UOP] program

review. ER568. The press release minimized the

significance of the resolution with DOE by disclosing

it along with several other pieces of information,

including the positive news that Apollo would be

expanding into Mexico. It contained no substantive

information about the contents of the Report.

The same day, Nelson told analysts about the set

tlement of the DOE program review and in doing so

he made several false and misleading statements.

He described the Report merely as an “interim

report’ with a “negative tone.” ER572. He said that

Apollo had “decided to settle this issue now rather

than later for $9.8 million and put it behind us,”

assuring the market that the settlement would

“take[| away, hopefully, any clouds that may be lin

gering with regulatory issues.” ER572.

Nelson also said that the settlement would not

“have a material impact on the growth of the com

‘On August 26, 2004, DOF had advised Apollo that it “dfid]

not consider the [Report] to be an ‘interim’ report” and that the

Report was a “discrete final action” by DOE. ER54‘%

pany or our financial performance.” ER572. He

mentioned the company’s new compensation scheme,

which he said would make it more “transparent,” but

stated that it was “unrelated” to the dispute with

DOK. ER574. He did not disclose to the market the

substance or contents of the Report; in particular,

he said nothing about DOF’s finding that Apollo had

engaged in systemic deception, nor did he disclose

DOE’s demand for comprehensive changes to Apollo’

compensation scheme for recruiters the engine of

Apollo’s revenue

3. On September 8, 2004, several Wall Street

analysts, none of whom had actually read the Report,

issued reports accepting Apollos claim that its regu

latory problems were over (One analy St writing on

September 8 described the disclosure as a “positiv

for the company. that “could put to rest some ol

the potential ‘noise related to the program

review. ER658. Another described the settlement a

“remov|ing] virtually every maternal legal/regulatory

issue’ faced by Apollo. ER674. Notably, analyst

Kelly Flynn of UBS Investment Services issued a

report on September 8, 2004, adopting this theme

and suggesting that the settlement “may reduce

[Apollo’s] near-term event risk.” ER624. Apollo

stock price had been $82.72 on September 7. _ It

dropped shghtly to $82.07 on September 8, and fur

ther to $80.50 on September 9. ER602-03

On September 14 and 15, several newspape.

published articles describing ome of the Report

findings. The articles related some of the Report

negative findings and noted that Apollo had “di

closed fey Ictau about tne Keport content

KR672. The articles also quoted Nelson describing

1]

ily

the Report as “very, very unfair, ER580, and “tota

false,” ER672. Neither these newspaper articles no:

the prior analyst reports contained any details about

the material changes to Apollo's compensation sy

tem made in response to the Report or revealed that

those changes were material and increased the oper

ating risks associated with its future prospect

Apollo’s stock price had been $80.63 on September

13. It dropped slightly to $80.09 on September 14

and further to $78.68 on September 15. ER603

On September 20, having received and read the

Report, education specialist Kelly Flynn of UBS

Investment Services, who had issued a report on

september &, see supra p. 7, released two investment

analyses about Apollo She concluded that “the con

tents of the [Report] may cause more concerns about

Apollo's] regulatory risk,’ ER502, and that Apollo :

“enrollment growth [could] be hurt by,” among othe)

things, “increasing enrollment advisor turnover

HER491. She also reported that current and forme:

recruiters had told her that “internal enrollment ta

gets were getting harder to hit” and that “tui ove

hald] increased since [the] 6/04 intro[duction] of {the]

new complensation| plan.” ER502. Flynn was the

first investment analyst to review the report and wa

also the first to interview Apollo's recruiter Apol

lo’s stock price had been $78.35 on September 17 (a

Friday). It immediately dropped to $75.82 on Sep

tember 20, and further to $72.00 on September 2]

KR603. This two-day decline was statistically signif

icant

1, On October |] 2004, a complaint was filed

against Apollo for securities fraud. Respondent wa

appointed lead plaintiff by the district court. Thi

district court denied Apollos motions to dism) ind

for summary judgment, and certified a cla of inve

Q

tors in Apollo’s stock. A jury trial commenced on

November 14, 2007, and lasted 22 days.

Loss causation was a heavily contested issue at

trial. Both sides presented expert evidence about the

significance of the Report and the subsequent disclo-

sures, particularly Flynn’s September 20 reports.

Dr. Steven Feinstein, an economist testifying for the

investors, conducted an event study and gave an

opinion that identified new information contained in

the September 20 reports that revealed the fraud.

Dr. Feinstein’s analysis parsed out other factors that

could have otherwise impacted Apollo's stock price,

including the movement of the stocks of the for-profit

education sector, other non-fraud-related factors,

and previously disclosed information. Tr. 1977-87:

KR161-64. Apollo’s expert, Dr. Kenneth Lehn, con-

ducted an event study that confirmed that Apollo’s

stock price decline between September 20-21 was

statistically significant. Tr. 3456-57; Trial Exhibit

(“Ex.”) 24281, at 472-75. This point was uncontested

at trial. Both experts agreed with the price data and

calculations used by the other and both agreed that

their analyses were designed to account for “random”

movement. ER90, ER259-61, ER263; Tr. 2003-04.

Despite this, and while acknowledging that “there’s

only a 5 percent chance that what you are seeing is

random,” Dr. Lehn contended that the statistically

significant stock decline was due to “random” chance.

ER263.

At the close of the investors’ case, Apollo sought

judgment as a matter of law, contending that the

investors could not prove loss causation because

Flyvnn’s analysis did mot comiain “new facts ... that

demonstrate[d] the falsity of something that [Apollo]

had previously ... said.” Tr. 2254. The district court

10

denied that motion, finding that the “jury cfould]

conclude that the facts .. . dribble[d] into the market-

place” over time, and that Flynn had “connect{ed] the

dots in such a way that they became the corrective

disclosure.” ER209.

The district court instructed the jury that “the

alleged misrepresentations and omissions in this case

could have caused the plaintiff to suffer damages

only if you determine that the analyst reports issued

by Kelly Flynn on September 20, 2004 were correc-

os

tive disclosures” and that, “[i]f you conclude that

these reports were not corrective disclosures, then

you cannot find that a misrepresentation or omission

caused the plaintiff to suffer damages.” ER298-99.

Petitioners acknowledged that “this instruction is

aimed at preventing ... the jury from looking at

[earlier] disclosures and ... by making them deter-

mine that the Flynn report was a corrective disclo-

sure.” Tr. 3783-84.

So instructed, the jury gave a verdict in favor of the

investors on every element of a Rule 10b-5 claim,

finding that Apollo had made (i) false or misleading

statements (11) upon material matters (11) with scien-

ter (iv) proximately causing damage to the investors.

Nelson’s statements on the September 7, 2004 con-

ference call announcing Apollo’s settlement with

DOE were among the statements that the jury found

fraudulent. See App., infra, 5a.

5. On August 4, 2008, the district court granted

Apollo’s renewed motion for judgment as a matter of

law, departing from its earlier reasoning and ruling

that there was no evidence to support the jury’s

finding on loss causation. The court first rejected

Apollo’s argument that, as a matter of law, “a market

analyst's opinion ... is not, and never can be, a

1]

‘corrective disclosure.” Pet. App. 8a. The court

expressed concerns that such a rule would “give com-

panies [a] perverse incentive to engage in opaque,

piecemeal disclosures,” and “encourage corporate

gamesmanship.” Jd. at 9a. The court further ob-

served that the Third Circuit had expressly declined

to adopt any such rule in In re Merck & Co., Inc.

Securities Litigation, 432 F.3d 261 (3d Cir. 2005).

The district court, however, did accept Apollo's

narrower, case-specific argument that “the Flynn

reports were not necessary t: reveal the fraud in

this case because they did net provide any new,

fraud-revealing analysis.” Pet. App. 10a. In doing

so, the court stated that “Flynn was not the first to

tie future regulatory problems to the DOE report”

because the September 14 and 15 articles had already

done so. /d. at lla. It stated that the hnk Flynn

drew between the Report and increased turnover

among Apollo’s recruiters was “factually wrong” and

therefore could not “possibly be corrective informa-

tion,” and also that the investors “did not present any

evidence linking this claim to Apollo’s misrepresenta-

tions.” Jd. Finally, the court stated that it did not

matter that Flynn was the first analyst to read the

DOE Report because she “did not disclose any of the

[Report’s] contents” to the market. Jd. at 12a.

In a footnote, the district court also acknowledged

that the investors had presented two additional

grounds for concluding that Flynn had made a cor-

rective disclosure: “(1) Flynn’s statement that enroll-

ment counselors had reported that enrollment tar-

gets were getting harder to hit; and (2) the fact that

the UOP had adopted a new compensation pian.”

Id. at 12a n.3. The court rejected those additional

IO

grounds because it found they were not “linked in

any way to Apollo’s prior misrepresentations.” Jd.

6. On March 3, 2010, the Ninth Circuit reversed

in an unpublished memorandum opinion. The panel

(Kozinski, C.J., Fletcher, J., and Gettleman, D.J., by

designation) disposed of Apollo’s loss-causation claim

by reasoning that “[t]he jury could have reasonably

found that the UBS reports following various news-

paper articles were ‘corrective disclosures’ providing

additional or more authoritative fraud-related infor-

mation that deflated the stock price.” Pet. App. 2a.

On August 17, 2010, the court of appeals denied :2-

hearing and rehearing en banc.

REASONS FOR DENYING THE PETITION

I. APOLLO HAS FAILED TO SHOW ANY

RELEVANT CONFLICT IN THE CIRCUITS

A. There Is No Relevant Circuit Conflict

About the Timing of Corrective Disclosures

Apollo contends that the circuits are divided on the

question whether a price decline “weeks or months”

after a corrective disclosure is sufficient to support

loss causation as a matter of law. Pet. i. This case

does not present that question because the jury was,

as petitioners acknowledged, correctly instructed

that it could only find for the investors if it found

that Flynn’s September 20 reports were corrective

disclosures. See supra p.10. The jury did find for

the investors: therefore, it concluded that Flynn’s

* The district court also rejected Apollo’s motion for a new

trial, its various evidentiary challenges, and its attempt to

obtain remittitur. The court of appeals upheld these rulings,

and Apollo has net, challenged them in its petition

13

September 20 reports were corrective disclosures.®

The jury’s necessary finding of loss causation from

the immediate stock drop on that day and the follow-

ing day, therefore, involves no delay of “weeks or

months.”

Further, even if the jury had reiiea upon the Sep-

tember 14 and 15 newspaper articles as additional

corrective disclosures, the delay between those dates

and the end of the stock price decline was only four

trading days. Apollo argues repeatedly that this case

involves a delay of as long as “two weeks,” Pet. 9, 13,

18, but in doing so simply ignores the jury’s finding

that Apollo’s initial announcement on September 7

was itself materially false and misleading, see App.,

infra, la-2a, 5a, and so could hardly have been a

corrective disclosure. Apollo does not challenge {er

acknowledge) that finding in its petition. Its conten-

tion that this case involves a two-week delay between

the revelation of fraudulently concealed information

and the market’s reaction to that revelation is there-

fore unsupported by the record.

In any event, Apollo substantially overstates the

disagreement among the circuits and mischaracter-

izes the cases upon which it reltes. All of them can

be straightforwardly distinguished from this case.

First, Apollo cites (at 15-16) Oran vu. Stafford, 226

F.3d 275 (3d Cir. 2000) (Alito, J.), in which the Third

Circuit stated that, “in an efficient market, the mate-

riality of disclosed information may be measured post

hoc by looking to the movement, in the period imme-

diately following disclosure, of the price of the firm’s

is

“A jury is presumed to tollow its instructions,” especially

where, as here, “each of the jurors affirmed in open court the

verdict.” Weeks v. Angelone, 528 U.S. 225, 234 (2000): see Tr.

4120-22.

14

stock.” Id. at 282. The Third Circuit’s statement in

Oran, however, must be read in light of the facts of

that case, which involved a delay of more than two

months between the disclosure of concealed informa-

tion and the price drop for which investors sought tc

recover. See id. at 280, 282-83 (disclosure on July 8,

1997; price drop beginning on September 15, 1997).?

In re Burlington Coat Factory Securities Litigation,

114 F.3d 1410 (3d Cir. 1997) (Alito, J.), the other

Third Circuit case on which Apollo relies, similarly

involved a delay of “approximately two months”

between the disclosure of concealed information and

its effect on the company’s stock price. Jd. at 1425.

The Third Circuit's conclustons in those cases that

a two-month delay in market reaction precluded a

securities-fraud plaintiff from showing materiality as

a matter of law are irrelevant to the present case. It

is entirely consistent with Oran and Burlington Coat

Factory to hold that a jury could reasonably find loss

causation in light of the far shorter interval at issue

here (whether that interval is considered to be the

day of the fraud-revealing disclosure and the follow-

ing day, or four trading days). Indeed, the Third

Circuit has clarified that it has not adopted any

requirement that the price change “instantaneously.”

Merck, 432 F.3d at 269 (considering a stock’s beha-

vior over the month following a disclosure).

’ The Third Circuit also observed that the defendant compa-

ny’s “share price rose by $3.00 during the four days after the

[July 8] disclosure.” Oran, 226 F.3d at 283. Nevertheless, given

the far longer two-month delay ectually presented by the facts

it confronted, the Third Circuit cannot be considered to have

held in Oran that any delay here dispels materiality as a matter

of law.

15

Second, Apollo also erroneously relies on Thompson

v. RelationServe Media, Inc., 610 F.3d 628 (11th

Cir. 2010). Apollo claims that the Eleventh Circuit

“h[eld| that a plaintiff’s theory of loss causation was

‘frivolous’ where the stock price did not react follow-

ing an initial alleged corrective disclosure, but de-

clined 22 days later following a second alleged correc-

tive disclosure.” Pet. 16 (quoting Thompson, 610

F.3d at 689). Apollo also attributes to the Eleventh

Circuit the statement that investors cannot prevail

by “‘measur[ing] loss causation over twenty days

after the market had learned of the alleged fraud.”

Id.

The language Apollo quotes, however, does not

come from the majority opinion in that case, but froni

Judge Tjoflat’s partial dissent.6 The Thompson

majority did not reach any question of loss causation,

but instead upheld the district court’s dismissal of a

securities-fraud complaint for failure to plead scien-

ter and failure to plead secondary lability. The court

then remanded for a determination of Rule 11 sanc-

tions rather than itself holding that the claims were

frivolous. See 610 F.3d at 633-39. Apollo's careless

mischaracterization of a dissenting position as a

holding offers no support for its petition.

Third, Apollo relies (at 17) on the Second Circuit's

opinion in Jn re Omnicom Group, Inc. Securities Liti-

gation, 597 F.3d 501 (2d Cir. 2010), which involved a

delay of a year between the disclosure of allegedly

concealed information and its effect on the company’s

8 See Thompson, 610 F.3d at 639 (start of Judge Tjoflat’s opi-

ion); id. at 68 passage quoted by petitioners). Judge Tjoflat

was 1n dissent vecause he thought that the court of appeals

should itself impose sanctions in the first instance, which was

the subject of his loss-causation argument at page 689.

16

stock price. See id. at 511. But Apollo concedes, as it

must, that, “[wJith such a long time lag, the Second

Circuit did not have occasion to opine about just

how quickly the market must react.” Pet. 17. That

concession gives up the game: the whole point of

Apollo’s arguments is the supposed conflict “about

just how quickly the market must react.”

Apollo nevertheless suggests that the Second Cir-

cuit took a position on that issue by stating that the

market “‘promptly digested’” relevant information.

Omnicom, 597 F.3d at 511. That phrase, however,

was merely a quotation from the complaint in that

case, see id., and is not the stuff of precedent. Later

panels and district courts in the Second Circuit will

not be bound by the language the Omnicom investors

chose to use. And, even if they somehow were, the

word “promptly” would encompass a time period of

the day of the traud-revealing disclosure and the

next day, or four trading days, depending on the

circumstances.”

Fourth, Apollo concedes (at 18-20) that the Ninth

Circuit’s decision in this case was consistent not only

with its own precedent, but also with the precedent

of the Fifth and Sixth Circuits. The decisions it cites

do indeed support the decision of the Ninth Circuit

% Apollo further argues that Teamsters Local 445 Freight

Division Pension Fund v. Bombardier Inc., 546 F.3d 196 (2d Cir.

2008), is relevant to the conflict it seeks to establish. Not so.

Teamsters Local 445 held only that, after hearing expert evi-

dence, a district court acting as factfinder did not clearly err in

finding that an investor had failed to prove that the market for

a particular security was efficient, based in part on evidence

that the security's price had not moved in response to certain

informs)on. See id. at 207-10. That case did not involve any

determination of materiality or loss causation as avmatter of

law.

17

— each of them considered a time period between

disclosure and price drop substantially longer than

the one at issue here, yet held that the period's

length did not foreclose recovery as a matter of law.

It is worth emphasizing, moreover, that (as Apollo

admits, at 20) the Sixth Circuit cited Third Circuit

precedent with approval when it held that investors

could state a claim involving 2 price drop that occurs

incrementally on separate disclosures over a period

of six weeks. See City of Monroe Employees Ret. Sys.

v. Bridgestone Corp., 399 F.3d 651 (6th Cir. 2005)

(quoting Burlington Coat Factory, 114 F.3d at 1425).

The Monroe court thus does not appear to have per-

ceived any relevant conflict.

Ulumately, to the extent there are differences

among the circuits on the permissible length of such

a period, they concern periods of two to three months.

For periods of that length, Oran and Burlington Coat

Factory suggest that the Third Circuit would deny

recovery as a matter of law, and No. 84 Emplovyer-

Teamster Joint Council Pension Trust Fund v. Amer-

ica West Holding Corp., 320 F.3d 920 (9th Cir. 2003),

and In re Gilead Sciences Securities Litigation, 536

F.3d 1049 (9th Cir. 2008), cert. denied, 129 S. Ct.

1993 (2009), suggest that the Ninth Circuit would

leave the question to a jury. This case, however,

would not be a suitable vehicle to resolve that ques-

tion. If the Court affirmed the judgment of the Ninth

Circuit, it might well leave open the possibility that

the longer periods at issue in petitioners’ cited cases

were still too long. And the Court would have no

basis to reverse the judgment below under the ques-

tion presented by netitioners without encroaching on

the province of the properly instructed jury’s findings

of fact given the record evidence.

18

B. There Is No Circuit Conflict Regarding the

Treatment of Analyst Reports

Apollo also contends that the circuits are divided

on the question whether an investor may prove loss

causation by relying on “an analyst|’s! ... report that

merely synthesizes and comments upon ... already-

public information.” Pet. i. This case does not

present that question because Flynn’s September 20

reports — ‘the corrective disclosures on which the jury

relied in this case - did more than merely synthesize

and comment on already-public information: they

provided the market with new fraud-revealing infor-

mation, gleaned from Flynn’s review of the DOE

Report and from her interviews of current and for-

mer UOP recruiters, about the long-term significance

of the Report, UOP’s new compensation plan, and its

likely effect on Apollo’s prospects. See supra p. 8 and

infra pp. 28-31 (describing the specific new informa-

tion that Flynn provided to the market on September

20).

In any event, Apollo again overstates its case.

None of the cases it cites supports a categorical rule

that a corrective disclosure may not arise out of an

analysis or commentary that reveals a fraud by using

publicly available information. Thus, even if Flynn

had relied only on publicly available information in

her September 20 report (which she did not), the

Ninth Circuit’s decision would not implicate any

intercircuit conflict.

First, Apollo relies (at 20-22) on Merck, in which

the Third Circuit considered a company’s disclosure

that it had adopted a new accounting method. The

effect of the new method on the company’s reported

revenues was possible to derive using a “handful of

calculations.” 432 F.3d at 270. The calculations

19

were made by a journalist a few months after the

company’s initia] disclosure. The Third Circuit held

that, because the calculations were of “minimal ...

complexity,” the journalist’s article showing their re-

sults was not a Corrective disclosure: the information

was all previously available to the market. Id.

As the district court noted, see Pet. App. 9a, the

Third Circuit in Merck carefully avoided announcing

a rule that analysis of existing information could

never amount to a corrective disclosure. Instead,

stating that it did not “wish to reward opaqueness,”

the court “decline[d]| to decide how many mathemati-

‘al calculations are too many” in order for an analy-

sis to constitute new information. Merck, 432 F.3d at

271. As a result, Merck cannot be read nearly as

broadly as Apollo suggests. Instead, it invites a case

specific determination of whether a particular analy-

sis rises to the requisite level — which does not con

flict with the Ninth Circuit’s approach here.

Second, the other cases on which Apollo relies (at

20-22) are similarly far afield. In Teachers’ Retire-

ment System of Louisiana v. Hunter, 477 F.3d 162

(4th Cir. 2007), the Fourth Circuit held that the de-

scription in a court filing of certain transactions that

a company had already disclosed years ago in filings

with the Securities and Exchange Commission was not

a corrective disclosure. See id. at 187-88. The case

did not involve any analysis, synthesis, or commen-

tary, much less adopt a rule that such matters are

irrelevant. It therefore cannot be read as creating

any conflict with the judgment below.

In Archdiocese of Milwaukee Supporting Fund, Inc.

v. Halliburion Co., 597 F.3d 330 (5th Cir. 2010),

the Fifth Circuit stated that a corrective disclosure

cannot be merely “[c]onfirmatory information [that]

20

is already known to the market and, having been

previously digested by the market, will not affect

the stock price.” Jd. at 337. As with Teachers, Halli-

burton did not involve any analysis, synthesis, or

commentary: the examples of “confirmatory” state-

ments that the court identified involved comparing a

statement by the defendant to an earlier statement

by the defendant and concluding that it had con-

cealed nothing material. See id. at 340, 343 n.50.

In Omnicom, the Second Circuit rejected a claim

that a newspaper article constituted a corrective dis-

closure because there was “no ambiguity” that it did

not “even purport to reveal some undisclosed fact

with regard to ... specific misrepresentations in the

complaint.” 597 F.3d at 512. The court further

rejected comments from two accounting professors

quoted in the article as mere “conclusory suspicions.”

Id. Omnicom certainly stands for the proposition

that some newspaper articles amount to mere “nega-

tive characterization[s]” that do not tell the market

anything new. /d. But, like Merck, Teachers, and

Halliburton, it falls far short of the categorical rule

that Apollo seeks. And Apollo’s erroneous reliance

(at 20-22) on Judge Tjoflat’s dissent in Thompson,

610 F.3d at 690-61, and mischaracterization of that

dissent as the law of the Eleventh Circuit, offers no

support for its claim of a conflict. See supra p. 15.

Third, to bolster its claim of a conflict, Apollo relies

heavily on the Ninth Circuit's statement that “the

jury could reasonably have found that the UBS

reports following various newspaper articles were

‘corrective disclosures’ providing additional or more

authoritative fraud-related information.” Pet. App.

2a. Apollo cannot dispute, however, that a report

that provides “additional” information is properly a

corrective disclosure. But Apollo's criticism of the

Ninth Circuit for “ignor{ing] the critical fact that the

Flynn reports did not disclose any additional facts”

(Pet. 22 (internal quotation marks and emphas)

omitted)) simply asks this Court to second-guess the

jury's fact-finding province and offers no basis for

this Court to grant certiorari on a question of law

Apollo contends further that the Ninth Circuit

use of the word “authoritative” reveals a circuit

conflict, because (it say: ther circuits would not

consider whether a statement was made by an

“authoritative” source. Pet. 2] is we have shown

\pollo has failed to establish that any other circuit

follows the categorical r'le it seek Regardle the

Ninth Circuit's choice of that particular word in an

unpublished per curiam opinion would not warrant

review — especially because the record shows that th

iury here could reasonably have found that Flynn

reports did provide the market with information that

was “additional” as well as “more authoritative Se

infra pp. 25-3]

Il. APOLLO HAS FAILED TO SHOW ANY

CONFLICT WITH BASIC OR DURA

A. Basic Expressly Declined To Adopt th

Timing Rule Apollo Seeks

In Basic, Inc. v. Levinson, 485 U.S. 224 (1988), th

Court adopted the fraud-on-the-market theory a

means of proving reliance in class action Tha

theory “1s based on the hypothesi that, in n opel

and developed securities market, the price of a com

pany s stock is determined by the available materia!

information regarding the company and its hu

ness. dd. at 241. As a result, “|[m]jisleading stat

ments will therefore defraud purchasers of stoc!

even if the purchasers do not directly rely on the

misstatements. Jd. at 241-42. The theory creates a

“rebuttabie presumption of relance” on misleading

statements by those who buy stock during a time at

which the price has been influenced by material mi

representations. /d. at 242

In doing so, the Basic Court expressly declined

conclusively to adopt any particular theory of how

quickly and completely publicly available informa

tion 1s reflected in market price ld. at 248 n.2#

It also made clear that it was not attempting to

determine by adjudication what economists and social

t}

clentists have debated through the use of sophi

cated statistical analysis and the application of eco

nomic theory ld. at 246 n.25

Apollo contend however, that the principl idopt

ed in Basic requires the conclusion that “efficient

tock markets generally respond to new information

within one day Pet. 24.'° ‘To support this conten

tion, Apollo cites nothing in asic, but instead reli

na 1991 article reviewing the economic literature

on the efficient-market hypothesi See id \pollo

thus argues that Basic adopted a “particular theor

f how quickly and completely publicly available

information is reflected in market pric Rast 1s

U.S. at 248 n.28, while ignoring the Court Lat

nent that it wa not doling any uch thin

Indeed the nth Cuireuit ae lO! mn 177

West, one of the primary targets of Apollo's ernticism

market hypothesis. See 320 F.3d at 934 & n.12. It is

Apollo's argument, rather than the decision of the

court of appeals, that runs counter to Basic.

B. Dura Did Not Draw the Fact-Opinion Dis-

tinction that Apollo Urges

In Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S

336 (2005), this Court held that the Private Securt-

ties Litigation Reform Act of 1995 requires investors

to “adequately allege and prove the traditional elements

of causation and loss.” /d. at 346. In reaching that

conclusion, the Court quoted a comment to § 548A of

the Restatement (Second) of Torts (1977), which “says

that a person who ‘misrepresents the financial condi

tion of a corporation in order to sell its stock’ becomes

lable to a relying purchaser ‘for the loss’ the pur

chaser sustains ‘when the facts ... become generally

known’ and ‘as a result’ share value ‘depreciate|s].”

Dura, 544 U.S. at 344.

Apollo’s claim that Dura supports its position relies

entirely on Dura’s use of the word “facts” in this

passage It argues that, by using that word, the

Court established that “[aJnalyses, opinions, and

predictions cannot be ‘corrective’ within the meaning

of Dura.” Pet. 28. This is a remarkable feat of over-

reading. Dura does not discuss the significance of

analyses, opinions, and predictions in proving loss

causation; none of those issues was contested in that

case.

Instead, Dura’s only significance for this case is

that it establishes the investors’ burden to prove by a

preponderance of the evidence that Apollo's fraudu-

lent misrepresentations caused their losses. Anollo’s

contention that. Dura (which does not even use the

phrase “corrective cisclosure”’) augmented those basic

requirements with specialized burdens of pleading

2A

and proof is without support in this Court’s language

Or reasoniny.

Hl. THIS CASE IS AN UNSUITABLE VEHICLE

FOR CONSIDERING THE QUESTIONS

APOLLO SEEKS TO PRESENT

A. This Case Is Fact-Specific and Record-

Intensive, and Apollo Has Not Preserved

Any Materiality Question

Apollo’s failure to show any conflict of authority

relevant to the Ninth Circuit's unpublished per

curiam decision in this case would alone support a

denial of review. Even if this Court were persuaded

to develop the iaw of loss causation, however, this

case would be an unsuitable vehicle for doing: so.

There are at least three reasons why.

Kirst, the judgment of the Ninth Circuit is firmly

supported by the ground that the jury here found

(after receiving undisputedly correct instructions)

that Flynn’s September 20 reports were corrective

disclosures and that the drop in Apollo's stock price

occurred immediately and continued into the next

day. If this Court were to grant review, the investors

could and would defend the judgment below on that

fact-specific basis. If the Court upheld the judgment

on that. ground, it would have no occasion to reach

the broader questions of law that Apollo argues in its

petition, and its decision would have little signifi

cance except to the parties in this case.

The oral argument in the court of appeals makes 1

quite clear that the judges perceived this fact-specific

ground for affirmance. Chief Judge Kozinski observed

that the September 20 reports were “the first time

there was a public disclosure about the high turnover

1]

and its effect on the profitability of the company.”

Judge Gettleman expressed the view that the Sep

tember 20 reports gave “good reasons for [downgrad

ing Apollo’s stock] that I don’t think were ever articu

lated before ... based on facts that were articulated

for the first time in this report.”'2) Judge Fletcher

stated that “the things that are in the [UBS] Reports]

seriously contradict numerous statements by Apollo”

and that “the jury could readily conclude that they

are fraud revealing.”'’ There is every reason to think

that this Court would conclude likewise after hearing

argument on the merits and reviewing the full trial

record placed before the jury.

second, the procedural posture of this CASE makes

it an unattractive vehicle for another reason as well

This is an evidentiary challenge to a jury verdict

reached after 22 days of tnal and thousands of pages

of testimony. Reviewing the record in such a case

is not a good use of this Court’s limited resources. !"

Because relatively few securities-fraud cases ever

reach trial, a decision that apphes a_post-verdict

standard is less likely to provide useful guidance for

the lower courts than would an otherwise simular

case at the pleading or summary judgment stage.

Third, Apollo has hmited the questions presented

to the issue of loss causation. See Pet.1i. The Third

'! Audio Recording of Oral Argument in Policemen’s Annuity

Benefit Fund of Chicago v. Apollo at 25:36-26:26, No. O08 16971

(9th Cir.), avatlable at http://www.ca9 uscourts.gov/datastore

media/20 10/03/03/08- 1697 L.wma (‘Argument Recording’)

12 Id. at 31:37-32:52

Id. at 35:52-26-06

14 “Pinal action” on such a factual review “normally rest

with the court of appeals.” Neely v. Martin kK. Eby Constr. Co.,

386 U.S. 317, 327-28 (1967)

‘pg’

L0

Circuit cases on which Apollo relies, however, were

all cases about materiality, not loss causation. See

Burlington Coat lactory, 114 F.3d at 1425; Oran, 226

Resd at 282: Merck, 432 ¥.3d at 268-71. Indeed, the

Third Circuit has resisted any attempt to conflate

these two distinct elements of a Rule 10b-5 cause of

action, imsisting that they are “different concepts.”

Merck, 432. F.3d at 275. Given the central role that

these decisions play in Apollo's argument, it only

makes sense to consider them Qf at all) in a case

where the particular argument that persuaded the

Third Circuit has actually been preserved

B. The Recent Grant in Erica P. John Fund v.

Halliburton Is Irrelevant

Apollo's petition does not mention the pendency

before this Court of Erica P. John Irund, Inc. v

Halliburton Co., No. 09-1403," in which this Court

granted certiorari on January 7, 2011.'© However, a

group of Apollo's amict argue that “taking this case

in tandem with Halliburton would enable this Court

to resolve the Circuit splits regarding the law of loss

causation at the various stages of a case’s life cycle in

a comprehensive manner.” Brief for Former SKC

Commissioners and Law Professors as Amict Curtae

in Support of Petitioners’ Petition at 15

> The decision of the Fifth Circuit under review in Hallibur

ton was reported as Archdiocese of Milwaukee Supporting Fund,

Inc. v. Halliburton Co., 597 F.3d 330, which is discussed supra

pp. 19-20

l© Although Apollo’s petition was filed on November 15, 2010

before the Court had granted certiorari in Halliburton. the

Court had already invited the Solicitor General to file) an

amicus brief in that case on October 4, 2010, so Apollo certainly

had notice that the Court was giving Halliburton serious con

sideration when it filed its petition, and could have addressed

that petition if relevant

This contention lacks merit. The questions on

which this Court granted certiorar: in Halliburton

have to do with when investors must prove loss cau

sation: whether they must “establish loss causation

at class certification by a preponderance of admisst

ble evidence,” or whether instead a requirement that

they do so amounts to “improper|] considerfation of|

the merits of the underlying litigation” at the certifi

cation stage. Pet. ati, No. 09-1408. In this case, by

contrast, the class has long been certified, and that

certification is not now contested. (The parties stipu

lated that all of the requirements of Rule 23 had been

satisfied and stipulated to certification of the class.

Dist. Ct. Dkt. Entries 116, 117.) The only question

presented here is whether there was sufficient evi

dence to support the jury’s finding for the investors

on the merits. Nothing the Court 1s remotely lkely

to say in Halliburton will shed light on that issue.

See Br. in Opp. at 18, No. 09-1403 (observing that

petitioners in that case have not sought review on

the merits of loss causation).

Kven if the Court were somehow to reach the

merits of the loss-causation issue in Halliburton, u

would still be highly unlikely that its decision would

be relevant to this case. Although petitioners con-

tend that the decision in Halliburton conflicts with

the decision below here, they do not even allege that

the Fifth Circuit’s decision is relevant to their first

question presented, concerning the timing of correc-

tive disclosures. As for the second question presented,

concerning the degree to which analysis or commen-

tary can serve as a corrective disclosure, the Fifth

analysis, that the district court in that case had not

abused its discretion based on the evidence before it.

See 597 F.3d at 339-43. Were this Court. to review

and uphold that decision in Halliburton, it would

cast no doubt on the Ninth Circwit’s determination on

the present, very different facts that the jury could

reasonably find for plaintiffs here. As a result, the

errant of review in /lalltburton supports neither a

grant nor a hold of the present petition.

IV. THE DECISION OF THE NINTH CIRCUIT

IS CORRECT

Review 1s unjustified for one more reason: — the

Ninth Circuit was correct in reversing the district

court’s grant of judgment as a matter of law and

reinstating the jury’s verdict. A court reviewing a

jury verdict “must interpret the entire record in the

light most favorable” to the party that prevailed at

trial, giving it “the benefit of all inferences which the

evidence fairly supports, even though contrary infer

ences might be drawn.” Aspen Skiing Co. v. Aspen

Highlands Skiing Corp., 472 U.S 585, 604 (1985)

There was ample evidence to support the jury's infer

ence that the September 20 analyses contained new,

fraud-revealing information that contradicted peti-

tioners’ public statements and caused a statistically

significant decline in Apollo’s stock price.

The September 20 reports were the first to disclose

the material changes to the enrollment counselor

compensation system and the msks associated with

those changes, and to note that then-current and

former enrollment counselors told UBS that “turn-

over has increased since 6/04 intro of new comp plan.”

ER502. Dr. Feinstein explained to the jury that in-

vestors would have been concerned about. “impacts on

{|Apollo’s] sales and profits because of management

distraction,” because “the new incentive plan might

not be as incentivizing as the old incentive plan,” and

YQ

because “employee turnover [could occur] for that

very same reason.” ER121. He also testified that

investors would have interpreted Flynn’s reports as

disclosing that “[s]lomething bad happened as far as

the fundamentals and performance of the company at

the same time they changed the comp plan.” ER180.

Dr. Feinstein also tied the new, fraud-revealing

information in the UBS reports to the statistically

significant decline of Apollo stock on September 20

and 21.

The reports also told the market that the “content:

of the DOK’s recent program review may cause more

concerns about [Apollo's] regulatory risk.” ER502

(emphasis added).'7 That disclosure directly contra-

dicted Nelson’s September 7, 2004 claim that reso-

lution of the DOE review “removeld] any potential

distractions from our management.” KR572. And

the jury could also infer that Flynn’s reports, which

traced the link between the DOE Report and Apollo’s

new compensation plan, informed the market for the

first time that Nelson had hed when he stated that

the new compensation plan was “unrelated” to the

DOK Report and designed simply to make the system

more “transparent.” ER574.

Apollo sought to contradict this evidence of loss

causation, by offering expert testimony that the

decline in the stock price on September 20 and 21

was neither related to petitioners’ fraud nor related

to the publication of Flynn’s reports, but was instead

the result of a “random” decline. ER264-65. Apollo

argued at length that there was “nothing new” in the

'? This reference to increased regulatory msk specific to Apol-

lo also differs fron a news article on September 15 that dis-

cussed “regulatory control” of the education “sector” and risks to

the sector from increased congressional scrutiny. ER598.

30

UBS reports and that their contents had already

been disclosed to investors. See, e.g., Tr. 4007-14.

Having heard this testimony and having weighed its

credibility, the jury found for the investors.

Moreover, the district court’s decision overturning

the jury verdict was erroneous. ‘The court’s most

obvious error was its reliance on Apollo's argument

that “enrollment-counselor turnover actually decreased

after the implementation of the new compensation

plan.” Pet. App. lla. This argument was based on

uncorroborated testimony from Apollo's director of

human resources. See id. (citing Tr. 2408:1-2411:5);

KR217-19. The court was not entitled to credit this

testimony after the jury had rejected it. See Reeves,

530 U.S. at 151 (explaining that a court deciding a

motion for judgment as a matter of law “must dis-

regard all evidence favorable to the moving party

that the jury is not required to believe”). Apollo

conceded before the court of appeals tha! the jury

“mfight] be entitled to disbelieve” this testimony

because it was offered by an adverse party witness.!*

Id. at 143 (jury may conclude that “defendant's

explanation is pretextual’).

The district court also erred when it ruled that the

investors had failed to “link[] this claim to Apollo's

misrepresentations.” Pet. App. lla. As just one

example, Nelson’s September 7 statement which

the jury found to be fraudulent — included statements

that the settlement would not “have a material impact

1S Argument Recording at 19:27-19:32. ‘This witness was

impeached at trial when her testimony that the changes to

Apollo’s compensation plan were unrelated to the DOE Report

was contradicted by an internal email indicating that Apollo's

new compensation plan was designed to avoid “similar findings

in the future” by DOK. ER367; see also ER352.

on [Apollo's] growth . .. or [it]s financial performance”

and that the new compensation scheme was “un-

related” to the dispute with DOE. ER572, ER574.

The jury could infer that the effect of the new

compensation scheme would be material (through its

effects on turnover and recruiters’ incentives), that it

was closely related to Apollo’s dispute with DOK, and

that these facts disclosed on September 20 were

tightly linked to Apollo’s misstatements and omis

sions and petitioners’ failure to disclose the contents

of the DOE Report, its demand for corrective action,

and the material changes to the enrollment counselor

compensation plan resulting from that call for correc-

tive action. The same lnk apphes to flynn’s state-

ment that Apollo’s enrollment targets were becoming

harder to hit, which the jury could infer was a result

of Apollo’s new compensation plan.

Finally, the district court also erred when it rejected

the investors’ argument that Flynn’s reports “tie[d]

future regulatory problems te the DOE report.” Pet.

App. lla. The point of this argument was that Flynn

had diagnosed the problem as being worse than

expected based on previously available information.

See ER502 (“We .. think contents of DOE’s recent

program review may cause more concerns about

|Apollo’s] regulatory risk.”). The jury could reasona

bly infer that Flynn meant (and the market accepted)

that Apollo’s stock price before issuance of the Sep-

tember 20 Flynn reports was still overvalued in light

of this risk. That reasonable inference provided sup-

port for the jury’s conclusion that Flynn’s research

provided new information to the market.

In sum, the court of appeais correctly concluded

that the district court had overstepped its bounds

and usurped the jury's role by overturning its verdict.

That highly fact-specific determination does not war

rant this Court’s review.

CONCLUSION

The petition for a writ of certiorari should bi

denied

Respectfully submitted

STEPHEN R. BASSER GERALD J. RODCS

SAMUEL M. WARD Counsel of Record

BARRACK, RODOS & BACINE LEONARD BARRACK

600 West Broadway JEFFREY A. BARRACK

Suite 900 BARRACK, RODOS & BACINE

San Diego, California 9210 3300 Two Commerce Square

(619) 230-0800 2001 Market Street

Philadelphia, Pennsylvania 19103

WILLIAM G. FAIRBOURN (215) 963-0600

FRANCIS J. BALINT, JR (grodos@barrack.com

KATHRYN HONECKER

BONNETT, FAIRBOURN,

FRIEDMAN & BALINT, P.

2901 North Central Avenu:

Suite 1000

Phoenix, Arizona 85

(602) 274-1100 February 4

APPENDIX

la

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Master File No. CV 04-2147-PHX-JAT (Lead)

CV 04-2204-PHX-JAT (Consolidated)

CV 04-2334-PHX-JAT (Consolidated)

CLASS ACTION

IN RE APOLLO GROUP INC. SECURITIES LITIGATION

This Document relates to: All Actions

VERDICT FORM

We, the jury, duly empaneled and sworn in the

above-entitled case. upon our oaths, do hereby find a:

follows:

SECTION 10(b) CLAIM AGAINST APOLLO

1. Did Apollo make an untrue statement of a

material fact or omit a material fact necessary under

the circumstances to keep the statements that were

made from being misleading?

A) The Press Release of Apollo Group, Inc., dated

February 27, 2004:

Yes: X No:

B) The Analyst Conference on March 12, 2004

Yes: X No:

C) The Form 10-Q dated April 13, 2004:

Yes: X No:

D) The Analyst Conference Call on June 24, 2004

Yes: X No:

KH) The Analyst Conference Call on August 25.

2004:

Yes: X No

I’) The Analy St Conferense e Call on September /

2004

Yes Xx No

If you answered all parts of Question 1 “no,” leave

Questions 2, 3, and 4 blank and proceed to Question

5. If you answered Question 1 “yes” as to any state

ment, answer Question 2 as to that statement. Do

not answer Question 2 for any statement for which

you answered Question 1 “no.”

2. For any statement as to which a “yes” answer

was given 1n Question 1, did Apollo act knowingly or

recklessly with respect to that misrepresentation or

omission?

\) The Press Release of Apollo Group, Inc., dated

February 27, 2004

Yes: X No

The Analyst Conference on March 12, 2004

Yes x No

C) The Form 10-Q dated April 13, 2004

Yes: X No

D) The Analyst Conference Call on June 24, 2004

Yes: X No:

E) The Analyst Conference Call on August 25.

2004:

Yes: X No

The Analyst Conference Call on September 7

2004

Yes: X

If you answered Question 2 “no” as to all state

ments left over from Question 1, leave Question:

3 and 4 blank and proceed to Question 5. If you

answered Question 2 “yes” as to any statement

answer Question 3 as to that statement Do not

answer Question 3 for any statement for which you

answered Question 2 “no

3 ror any statement as to which a “ye answel

was given in Question 2, more specifically, did Apollo

act knowingly with respect to that misrepresentation

)

or omissi10n.

\) The Pre Release of \pe llo Group. [1 dated

)

February 27, 2004

Y ¢ xX No

} he Ana! t Confers \ rcn YT

Ye x O

()) lhe Form 10-Q dated Ap L004

Y« Xx No

1)) The Anal t Conierence Cal le ¢ )

Y Xx J (

I, ) The Analy { Conferen: Call on AU

2004

Ye Xx No

H ) The Analvst Conference Call on Septem be

2ZU04

T7 v7 »

res aA iN@®

Proceed to Que tion 4

1. For any statement as to which a “yes” answer

was given in Question 2, did that misrepresentation

or omission cause the plaintiff to suffer damages?

(By answering this question in the affirmative, you

are finding that Apollo violated the securities laws.)

\) Che Press Release of Apollo Croup, Inc., dated

)

February 27, 2004

Vo x No

13 The Analyst Conference on March 2 2OOA

Ye X No

( Ihe k‘orm 1O-Q d | qd \T ’ } {)A

Y ¢ x No

L)) The Analyst Conference Call on June 1 YPOO4A

Y« 4 p ()

i) Ihe Analyst ¢ nierel ee }

2004

=

Y ¢ .

The Analyst Cont September

2OOA

Ye \y J

Pro Ped fT » Gur ia }

SECTION 10(b) CLAIM AGAINST TODD

NELSON

5. Did Todd Nelson make an untrue statement of a

material fact or omit a matenal fact necessary under

the circumstances to keep the statements that were

made from being misleading?

\) The Press Release of Apollo Group, Inc., dated

February 27, 2004:

Yes: X No:

B) The Analyst Conference on March 12, 2004

Yes: X No:

C) The Form 10-Q dated April 13, 2004:

Yes: X No:

D) The Analyst Conference Call on June 24, 2004:

Yes: X No:

Kk) The Analyst Conference Call on August 25,

2004:

Yes: xX No

I’) The Analyst Conference Call on September 7,

2004

Yes: X No

If you answered all parts of Question 5 “no,” leave

Questions 6, 7, and 8 blank and proceed to Question

9. If you answered Question 5 “yes” as to any state

ment, answer Question 6 as to that statement. Do

not answer Question 6 for any statement for which

you answered Question 5 “no.”

6. For any statement as to which a “yes” answer

was given in Question 5, did Todd Nelson act know

ingly or recklessly with respect to that misrepresen

tation or omission?

A) The Press Release of Apollo Group, Inc., dated

Mebruary 27, 2004

Yes x No

» Analyst Conference on March 12, 2004

A No

The Form 10-Q dated April 13, 2004

Yes: X No:

The Analyst Conference Call on June 24, 2004

Yes: X No

The Analyst Conference Call on August

2004

Yes pt No:

The Analyst Conference Call on September 7,

2004:

Tou: 3 No:

lf you answered Question 6 “no” as to all state

ments left over from Question 5, leave Question “%

and 8 blank and proceed to Question 9. If you

answered Question 6 “yes” as to any statement,

answer Question 7 as to that statement Do not

answer Question 7 for any statement for which you

answered Question 6 “no.”

7. Kor any statement as to which a “yes” answet

was given in Question 6, more specifically, did Todd

Nelson act knowingly with respect to that misrepre

sentation or omission?

A) The Press Release of \pollo (;roup line a ited

February 27, 2004:

Yes: X No

The Analyst Conferences

Yes: X No

The Form 10-Q dated April

Yes: X No

The Analyst Conference Call on June

Yes: X No

The Analyst Conference

2004:

Yes: X No

The Analyst Conference C:

OO:

Yes xX No

Proceed to Question &

8. kor any statement as to which a “yes” answe)

was given in Question 6, did that misrepresentation

or omission cause the plaintiff to suffer damages?

(By answering this question in the affirmative, you

are finding that. Todd Nelson violated the securiti

laws.)

A) ‘The Press Release of Apollo Group, Inc., dated

Kebruary 27, 2004

Yes: X No

Yes: X No:

C) The Form 10-Q dated April 13, 2004

Yes: X No:

1D) The Analyst Conference Call on June 24, 2004

Yes: X No

Ki) The Analyst Conference Call on August 25,

2004:

Yes: X No

Ky) The Analyst Conference Call on September 7,

2004:

Yes: X No:

Proceed to Question 9

SECTION 10(b) CLAIM AGAINST KENDA

GONZALES

9. Did Kenda Gonzales make an untrue statement

of a material fact or omit a material fact necessary

under the circumstances to keep the statements that

were made from being misleading?

A) ‘The Press Release of Apollo Group, Inc., dated

February 27, 2004:

Yes X No:

8) The Form 10-Q dated April 13, 2004

Yes: X No

If you answered all parts of Question 9 “no,” leave

Questions 10, 11, and 12 blank and proceed to Ques

tion 13. If you answered Question 9 “yes” as to any

statement, answer Question LO as to that statement

Qa

<

Do not answer Question 10 for any statement for

which you answered Question 9 “no.”

LO. For any statement as to which a “yes” answer

was given in Question 9, did Kenda Gonzales act

knowingly or recklessly with respect to that misrep

resentation or omission?

A) The Press Release of Apollo Group, Inc., dated

February 27, 2004:

Yes: X No:

B) The Form 10-Q dated April 13, 2004

Yes: X No:

If you answered Question 10 “no” as to all state-

ments left over from Question 9, leave Questions 11

and 12 blank and proceed to Question 13. If you

answered Question 10 “yes” as to any statement,

answer Question Il as to that statement. Do not

answer Question 11 for any statement for which you

answered Question 10 “no.”

11. For any statement as to which a “yes” answer

was given in Question 10, more specifically, did

Kenda Gonzales act knowingly with respect to that

misrepresentation or omission?

A) The Press Release of Apollo Group, Inc., dated

February 27, 2004:

Yes: X No:

Bb) The Form 10-Q dated April 13, 2004

Yes: X No:

)

Proceed to Question 12.

1Qa

12. For any statement as to which a “yes” answer

was given in Question 10, did that misrepresentation

or omission cause the plaintiff to suffer damages?

(By answering this question in the affirmative, you

are finding that Kenda Gonzales violated the securi

ties laws.)

A) The Press Release of Apollo Group, Inc., dated

February 27, 2004:

Yes: X No: _

B) The Form 10-Q dated April 13, 2004:

Yes: X No:

Proceed to Question 13.

SECTION 20(a) CLAIM AGAINST TODD

NELSON

Answer Question 13 only if you answered

Question 4 “yes.” If you answered “no” to

Question 4 or left it blank, leave Questions 13

and 14 blank and proceed to Question 15.

13. Did ‘Todd Nelson possess, directly or indirectly,

the actual power to direct or cause the direction of

the management and policies of Apollo?

Yes: X No:

Proceed to Question 14

—

—

a

14. Did the defendants prove by a preponderance

of the evidence both that Todd Nelson did not direct

ly or indirectly induce Apollo’s violation of the securi-

ties laws and that he acted in good faith as that term

is defined in the jury instructions?

Yes: No: X

Proceed to Question 15.

Answer Question 15 only if you answered

Question 12 “yes.” If you answered “no” to

Question 12 or left it blank, leave Questions 15

and 16 blank and proceed to Question 17.

15. Did Todd Nelson possess, directly or indirectly,

the actual power to direct Kenda Gonzales?

Yes: X No:

Proceed to Question 16

16. Did the defendants prove by a preponderance

of the evidence both that Todd Nelson did not direct-

ly or indirectly induce Kenda Gonzales’s violation of

the securities laws and that he acted in good faith as

that term is defined in the jury instructions?

Yes: No: X

Proceed to Question 17

l2a

Answer Question 17 only if you answered

“ves” to Questions 4, 8, or 12. If you answered

“no” to each of these questions or left them

blank, sign and return the verdict form without

answering any further questions.

17. Specify the total amount of damages per share

that the plaintiff suffered as a result of the misrepre

sentation(s) or omission(s):

$ 5.55 per share

Proceed to Question 18.

l8. What is the percentage of responsibility for the

plaintiff's loss that you assign to each defendant

whom you found in answers to Questions 4, 8, and/or

12 to have violated the securities laws? The total

must add up to 100%. In determining the percentage

of responsibility for each such defendant, you must

consider: (1) the nature of the conduct of each defen

dant found to have caused or contributed to the loss

incurred by the plaintiff; and (2) the nature and

extent of the causal relationship between the conduct

of each defendant and the damages incurred by the

plaintiff.

Percentage

Apollo 60

Todd Nelson 30)

Kenda Gonzales LO

100% Total

Sign and return this form.

9 1/16/08

(Presiding Juror Number) (Date)