OPERF v. Apollo Group

Businesses may make statements about their overall revenue to investors if the statements fall into the category of lawful "business puffery."

Defendant, Apollo Group Inc., is a for-profit company that owns and operates post-secondary educational institutions such as the University of Phoenix. The additional defendants are former Apollo officers who served the company during the May 21, 2007 and October 13, 2010, Class Period. Plaintiffs represent several stock investors who purchased stock from the defendant during that Class Period. Plaintiffs purchased the stock from the defendants under the assumption that the defendants were a for-profit education company. However, plaintiffs now allege that the defendants violated section 10(b) of the Securities Exchange Act as well as SEC Rule 10b-5 by making “false and misleading statements of material fact regarding [Defendant’s] enrollment and revenue growth, financial condition, organizational values, and business focus.” The district court dismissed this claim under Federal Rule of Civil Procedure 12(b)(6) and the Ninth Circuit, on appeal, affirmed that decision for four different reasons. First, the panel found that defendants’ statements are not false, but instead are examples of lawful “business puffery.” Next, the plaintiffs allege that the defendants improperly recorded student revenue. The panel did not agree with this allegation, and found that plaintiffs failed to show how the defendants’ accounting numbers were misrepresented. Additionally, plaintiffs alleged that defendants were guilty of insider trading as well, but the panel found that plaintiffs, in this instance, failed to state a claim because the information plaintiffs were requesting was already accessed in previous complaints. Lastly, plaintiffs alleged that certain defendants violated section 20(a) of the Exchange Act because “they were controlling persons who had direct and supervisory involvement in day-to-day operations of Apollo.” But the panel found that plaintiffs did not adequately allege these violations. AFFIRMED.