18 DEFENDANTS' MOTION FOR STAY 19 OF EXECUTION OF JUDGMENT 20 PENDING POST-TRIAL MOTIONS

Transcription

1 1 GIBSON, DUNN & CRUTCHER LLP WAYNE W. SMITH 2 JOSEPH P. BUSCH, III JARED M. TOFFER 3 KRISTOPHER P. DIULIO 3161 Michelson Drive 4 Irvine, CA Telephone: (949) Facsimile: (949) kdiulio@gibsondunn.com SNELL & WILMER L.L.P. OSBORN MALEDON, P.A. 7 JOEL P. HOXIE (#005448) DAVID B. ROSENBAUM (#009819) JOSEPH G. ADAMS (#00) MAUREEN BEYERS (#0174) 8 One Arizona Center 2929 North Central Avenue, Suite 00 Phoenix, AZ Phoenix, AZ Telephone: (602) Telephone: (602) Facsimile: (602) Facsimile: (602) jadams@swlaw.com mbeyers@omlaw.com 11 Attorneys for Defendants APOLLO GROUP, INC.; TODD S. NELSON 12 and KENDA B. GONZALES 14 IN THE UNITED STATES DISTRICT COURT 15 FOR THE DISTRICT OF ARIZONA In re Apollo Group Inc. Securities Litigation Master File No. CV PHX-JAT DEFENDANTS' MOTION FOR STAY 19 OF EXECUTION OF JUDGMENT PENDING POST-TRIAL MOTIONS This Document Relates To: All Actions ORAL ARGUMENT REQUESTED EXPEDITED REVIEW REQUESTED Gibson, Dunn & Case 2:04-cv-047-JAT Document 5 Filed 02/01108 Page 1 of 10

2 1 1. INTRODUCTION 2 Defendants move for an order staying the enforcement of judgment under Federal 3 Rule of Civil Procedure ("FRCP") 62(b) pending disposition of post-trial motions. The Court 4 entered judgment jointly and severally against Defendants on January 30, 08. Within 10 5 days of entry of judgment, Defendants will file motions for judgment as a matter of law under 6 FRCP 50(b), for new trial under FRCP 59, and for remittitur (collectively "Motions"). The 7 Court is empowered to stay execution of judgment while these Motions are pending because 8 of the significant impact any of these Motions may have on the judgment and because of the 9 limited amount of time necessary to resolve these Motions. 10 Apollo Group Inc. ("Apollo") is capable of fulfilling the requirements of the judgment; 11 as such, the interests of Plaintiff are protected such that no additional security should be 12 required for the Court to stay the judgment while the Motions are pending. Even were additional security required, Defendants request that the stay be conditioned on Apollo 14 posting a bond of $47.5 million ARGUMENT 16 A. Legal Standard 17 Judgment is automatically stayed for 10 days after it is entered, which is the same period during which Defendants may bring their post-trial motions. FRCP 62(a) ("no 19 execution shall issue upon a judgment nor shall proceedings be taken for its enforcement until the expiration of 10 days after its entry."); FRCP 50(b) and 59(b). Following the automatic stay, during the time that any post-trial motions may be pending, the Court may further stay enforcement. FRCP 62(b). The stay pending disposition of post-trial motions may be 23 granted upon the "discretion" of the Court and on "such conditions for the security of the 24 adverse party as are proper." Id. If necessary, following resolution of post-trial motions, 25 Defendants are entitled to an automatic stay of enforcement during the disposition of any appeal by potentially posting a supersedeas bond. FRCP 62(d); see Dillon v. Chicago, F.2d 902, 904 (7th Cir. 1988). Here, where Defendants request a stay under FRCP 62(b), the rules do not explicitly Gibson Dunn 8 Case 2:04-cv-047-JAT Document 5 1 Filed 02/01/08 Page 2 of 10

3 1 contemplate the filing of a supersedeas bond. And even under Rule 62(d), which does 2 discuss the use of a supersedeas bond, "the trial court may, at its discretion, either waive the 3 bond requirement or allow the judgment debtor to use some alternative type of security." 4 Brooktree Corp v. Advanced Micro Devices, Inc., 757 F. Supp. 1101, 1104 (S.D. Cal. 1990). 5 Although the posting of a supersedeas bond mandates a stay "as a matter of right," Rule 6 62(d) "in no way necessarily implies that filing a bond is the only way to obtain a stay." 7 Federal Prescription Servs. Inc. v. Am. Pharm. Ass'n, 636 F.2d 755, (D.C. Cir. 1980); 8 Northern Indiana Public Serv. v. Carbon County Coal, 799 F.2d 5, 1 (7th Cir. 1986) 9 (waiving the requirement of bond pending appeal where the appellant was solvent with a net 10 worth in excess of the judgment). 11 B. This Court Should Stay the Execution of the Judgment Pending Post-Trial Motions 12 Defendants have a right under FRCP 50 and 59 to move for judgment as a matter of 14 law and for a new trial. Furthermore, Defendants anticipate filing a motion for remittitur to 15 modify the size of the judgment consistent with the applicable law and the facts that were 16 presented to the jury. It is appropriate for the Court to stay execution pending the resolution 17 of these motions because these motions may alter significantly whatever judgment, if any, 1 8 that is ultimately enforceable against Defendants. Defendants' post-trial motions are due within 10 days of entry of judgment, Plaintiff's 19 responses are due within 10 days of Defendants' motions, after which Defendants may file replies within 5 days. FRCP 50 and 59; L.R.Civ Based on the time requirements for these filings, any delay due to post-trial motions is slight. Furthermore, Plaintiff is entitled to 23 post-judgment interest from the date of entry of judgment and is thus compensated for any 24 "delay" in the event that the judgment withstands post-trial motions. For these reasons, 25 Defendants request that execution of the judgment be stayed pending resolution of post-trial 27 C. motions. No Bond Is Required Under FRCP 62(b) During a Stay Pending Post-Trial Motions The Court has discretion to condition an FRCP 62(b) stay "on such conditions for the Gibson Dunn & Case 2:04-cv-047-JAT Document 5 2 Filed 02/01108 Page 3 of 10

4 1 security of the adverse party as are proper." There is no requirement that a movant post a 2 bond, in part, because of the small degree of risk inherent in granting a stay pending 3 disposition of post-trial motions. Furthermore, in conditions such as those that face the 4 parties to this litigation, it would be proper to waive the bond requirement even under FRCP 5 62(d). Courts look to several factors when evaluating whether to stay enforcement pending 6 appeal without requiring a supersedeas bond: 7 (1) the complexity of the collection process; (2) the amount of time 8 required to obtain a judgment after it is affirmed on appeal; (3) the degree of confidence that the district court has in the availability of funds to pay 9 the judgment; (4) whether the defendant's ability to pay the judgment is so plain that the cost of a bond would be a waste of money; and (5) whether 10 the defendant is in such a precarious financial situation that the requirement 11 to post a bond would place other creditors of the defendant in an insecure position. 12 Dillon, 866 F.2d at (internal citations omitted). Applying these criteria to the instant 14 case makes clear that Defendants should not be required even to give a supersedeas bond to 15 obtain a stay of the execution pending appeal, and certainly should not be required to do so 16 pending the shorter amount of time necessary to resolve post-trial motions. 17 The lack of complexity of the collection process in this case weighs in favor of waiving any requirement of a security. If the Motions are denied, Defendants anticipate 19 filing an appeal, in which case Defendants would be entitled to an automatic stay upon giving a supersedeas bond. It is thus clear that Defendants will be entitled under the rules to a stay of execution. Furthermore, Defendants are likely entitled to a stay even without the need to give a supersedeas bond. Apollo is capable of satisfying the judgment. See Declaration of 23 Joseph L. D'Amico ("D'Amico Decl.") If the judgment were affirmed by the Ninth Circuit and Defendants did not seek further review, then Defendants would satisfy the judgment as required by the claims procedure. There would be no need for Plaintiff to engage in any collection process often associated with judgments, other than to determine 27 that claims are appropriately made by class members. See D'Amico Decl Gibson Dunn 8 Case 2:04-cv-047-JAT Document 5 3 Filed 02/01/08 Page 4 of 10

5 1 The amount of time required to satisfy a judgment after it is affirmed on appeal will 2 not be determined by Defendants' ability to pay a judgment, but will depend on when the 3 claims process is commenced and completed. Here, unlike the typical judgment, there has 4 been no fixed dollar sum entered against Defendants. Instead, judgment has been entered in 5 the amount of up to $5.55 per damaged share. To determine the total amount of damages, 6 putative class members must complete a claim form and undergo a claim process to conclude 7 if their shares were in fact damaged and the amount of those damages. Once class members 8 complete this process and the total amount of claims is determined, Defendants are capable of 9 satisfying those proper claims that are submitted. See D'Amico Decl Here, there is no question that Apollo has the ability to pay any judgment, even though 11 the total amount of the judgment is not known by either side and cannot be determined until 12 there has been an appropriate claims process. See D'Amico Decl In Federal Prescription Servs, the court waived the bond requirement in part because of the judgment 14 debtor's substantial net worth. 636 F.2d at 761. Similar to the defendants in Federal 15 Prescription Servs, Apollo is financially sound. See D'Amico Decl. 3-4, Exs. A and B 16 (excerpts of Apollo's 07 SEC Form 10-K and January 1, 08 Form 10-Q). A review of 17 Apollo's annual total assets from establishes that Apollo consistently maintains above $645 million in current assets and $1.2 billion in total assets. Id. Although, it is 19 currently unclear for what, if any, amount Defendants will be liable if their post-trial motions and any appeal are denied, it is evident from Apollo's balance sheets that it can satisfy any resulting judgment. Requiring Apollo to divert funds from operations to obtain a supsedeas bond in spite of Apollo's demonstrable ability to pay the judgment "would be a waste of 23 money" and is unnecessary. See Olympia Equip. Leasing Co. v. Western Union Tel. Co., F.2d 794, 796 (7th Cir. 1986) ("an inflexible requirement of a bond would be 25 inappropriate...where the defendant's ability to pay the judgment is so plain that the cost of the bond would be a waste of money"). 27 Gibson Dunn & Case 2:04-cv-047-JAT Document 5 4 Filed 02/01/08 Page 5 of 10

6 1 Thus, it is evident that an application of the Dillon criteria to the instant case leads to 2 the conclusion that Defendants should not be required to post a bond in any amount to obtain 3 a stay of execution pending disposition of their post-trial Motions. 4 D. Even If Additional Security Were Necessary, Any Security Should be Within a Reasonable Range 5 As discussed above, no additional security should be required from Defendants, 6 particularly pending post-trial motions. But even if additional security were required, any 7 security should be an amount which represents a realistic and probable estimate of the total 8 judgment that may be satisfied by Defendants following an appropriate claims process. 9 The judgment in this case was entered in the form of up to $5.55 per share, rather than 10 as a fixed amount to be paid by Defendants. See Judgment at 2. As a result, until the claims 11 process is completed and the number of damaged shares is determined, it is impossible to 12 determine the actual dollar amount of the judgment that will ultimately be paid by Defendants. Therefore, if the Court determines to require security, it must approximate a 14 reasonable amount for any security until the claims process has run its course. To assist the Court in its approximation, Defendants analyzed the amount of the security based on a two key factors: (1) an estimate of the number of potentially damaged shares and (2) the expected number of claims that will be filed. There were 349,127, 643 shares traded during the class period. Tr. Ex According to Plaintiff's damages expert, Dr. Feinstein, of that total, between 30 and 50 million shares of Apollo stock were bought and held through the end of the class period. RT 1996: :8. 1 If the Court were to accept the mid-point of Dr. Feinstein's estimate, then the judgment should be based on a calculation using 40 million shares as a base (or 11.5% of the total shares traded during the class period). It has also been established that from August 25 'Plaintiff is expected to refer to Defendants' reference in this case in their closing involving a $300 million fraud (calculation based on testimony from Plaintiff's expert). However, this 27 was in the context of arguing the insignificance of the alleged misrepresentations as compared to how large the claim could be based on the calculations of Plaintiff's expert. It was not an admission that any ultimate recovery would be any particular amount. Gibson Dunn 8 Case 2:04-cv-047-JAT Document 5 5 Filed 02/01/08 Page 6 of 10

7 1 5, 04, through and including August 25, 04, APOL stock traded below Dr. Feinstein's 2 PSLRA "bounce back" amount of $ Tr. Ex ,2,803 shares traded during 3 those days. Multiplying 46,2,803 by the same percentage derived from using Dr. 4 Feinstein's estimate of the total number of damaged shares (using the mid-point percentage of %) equals 5,316,082 shares that were bought between August 5, 04 and 25, 04 and 6 held through the end of the class period. Tr. Ex Although investors who bought on 7 those days are members of the Class, they have suffered no damages. As a result, those million shares (or.3% of the potentially eligible 40 million shares) should be excluded 9 from the 40 million share estimate. 10 In addition, Dr. Feinstein did not exclude shares traded from September 14, 04 to 11 September, 04, from his estimate. But the judgment entered by the Court includes only 12 those class members who held Apollo stock through September, 04.,902,080 shares traded during this six day period. Multiplying,902,080 by the same 11.5% used above 14 equals 2,5,739 shares -- representing 6.3% of the potentially eligible 40 million shares. 15 Accordingly, 19.6% (.3% + 6.3%) of Dr. Feinstein's estimated amount of shares traded 16 should be removed from the number of shares used to calculate damages, resulting in a more 17 realistic estimate of 32,160,000 shares bought during the class period and held through the close of trade on September which might be eligible to assert a proper claim for damages. 19 In addition, it is important to note that research studies indicate that in securities cases, on average only % to 30% of potential institutional claimants actually file a claim. See James D. Cox and Randall S. Thomas, Leaving Money on the Table: Do Institutional Investors Fail to File Claims in Securities Class Actions?, 80 Wash. U. L.Q. 855, Tbls. 2 and 23 3 (02). As a result, assuming that claims are filed on 25% of those 32,160,000 shares, that 24 means that 8,040,000 shares will be tendered for the recovery of damages. Multiplying 25 8,040,000 shares by $5.55 yields a gross damage amount of $44,6,000. To that amount 27 2Defendants' preliminary calculation for the 90-day period commencing on September, 04 is $ Gibson Dunn & Case 2:04-cv-047-JAT Document 5 6 Filed 02/01/08 Page 7 of 10

8 1 can be added the Court's award of prejudgment interest from the date of purchase to the date 2 of judgment, compounded annually. Estimating prejudgment interest based on a mean 3 purchase date of June 5, 04, 3 and an average interest rate of 1.75%, 4 takes the potential 4 amount of the judgment to $47,549,908. Even doubling that estimate would result in a bond 5 just over $95 million. Although no supersedeas bond is required for the Court to stay 6 execution of the judgment, were the Court to require such a bond, the amount of that bond 7 should be $47.5 million, and in no event should exceed $95 million. 8 III. CONCLUSION 9 For the foregoing reasons, Defendants seek an order staying judgment pending 10 disposition of their Motions without the requirement of a security, or in the alternative, to 11 post a security of $47.5 million. 12 Dated: February 1, 08 Respectfully submitted, By: /s/ Kristopher P. Diulio 14 Kristopher P. Diulio, appearing pro hac vice 15 OSBORN MALEDON, P.A. GIBSON, DUNN & CRUTCHER LLP North Central Avenue, Suite Michelson Drive Phoenix, AZ Irvine, CA Telephone: (602) Telephone: (949) SNELL & WILMER L.L.P. 19 One Arizona Center Phoenix, AZ Telephone: (602) The midpoint of the Class Period. Attorneys for Defendants 27 4The interest rate determined according to the formula defined by the judgment ran from a weekly high of 2.% to a weekly low of 1.16%, with an average of 1.75%. See Selected Interest Rates, available at Gibson Dunn & Case 2:04-cv-047-JAT Document 5 7 Filed 02/01108 Page 8 of 10

9 1 CERTIFICATE OF SERVICE I hereby certify that on February 1, 08, the attached document was electronically 2 transmitted to the Clerk of the Court using the CM/ECF System which will send notification 3 of such filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: 4 Ramzi Abadou ramzia(oerachlaw.com 5 6 Joseph G Adams jadams(swlaw.com 7 Francis Joseph Balint, Jr. fbalint(&,bffb.com 8 William J. Ban wbanbarrack.com 9 Jeffrey A. Barrack jbarrack(&,barrack.com Stephen R. Basser sbasser(oparrack.com Maureen Beyers mbeyers(&,omlaw.com James R. Condo jcondo(swlaw.com Joel Philip Hoxie jhoxie(swlaw.com 15 William J. Maledon wmaledonomlaw.com 16 Robert D. Mitchell robertmitchell(&,mitchelllaw.com 17 Mark R. Rosen mroserabarrack.com 19 David B. Rosenbaum drosenbaum(&,omlaw.com Stephen G. Schulman sschulman(milbergweiss.com Rosemary J. Shockman RShock(&,aol.com Geoffrey M. Trachtenberg ernt(oclegal.com 23 Marc M. Umeda mumeda(&,ruflaw.com 24 Samuel M. Ward sward(oparrack.com Gibson Dunn 8 Case 2:04-cv-047-JAT Document 5 Filed 02/01/08 Page 9 of 10

10 1 I further certify that copies of the foregoing were sent on February 1, 08, via U.S. 2 Mail to the following parties: 3 Leonard Barrack Barrack Rodos Bacine 4 2 Commerce Square 5 01 Market St., Ste 3300 Philadelphia, PA Patrick Joseph Coughlin Lerach Coughlin Stoia Geller Rudman & Robbins LLP Pine Street 9 Ste 00 San Francisco, CA /s/ Dena F. Kennedy Gibson, Dunn CruLcherLLP Case 2:04-cv-047-JAT Document 5 2 Filed 02/01/08 Page