Pension Trust Fund For Operating Engineers v. DeVry Education Group, Inc. et al

Northern District of Illinois, ilnd-1:2016-cv-05198

MEMORANDUM by Utah Retirement Systems in support of motion for miscellaneous relief 23 MEMORANDUM IN SUPPORT OF THE MOTION OF THE UTAH RETIREMENT SYSTEMS FOR APPOINTMENT AS LEAD PLAINTIFF AND APPROVAL OF ITS SELECTION OF COUNSEL

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Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 1 of 12 PageID #:132 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION PENSION TRUST FUND FOR OPERATING ENGINEERS, Individually and on Behalf of All No. 1:16-CV-05198 Others Similarly Situated, Hon. Jorge L. Alonso Plaintiff, v. DEVRY EDUCATION GROUP, INC., DANIEL HAMBURGER, RICHARD M. GUNST, AND TIMOTHY J. WIGGINS, Defendants. MEMORANDUM OF LAW IN SUPPORT OF THE MOTION OF THE UTAH RETIREMENT SYSTEMS FOR APPOINTMENT AS LEAD PLAINTIFF AND APPROVAL OF ITS SELECTION OF COUNSEL Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 2 of 12 PageID #:133 I. PRELIMINARY STATEMENT The above-captioned action (the "Action") is a putative class action alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and Securities Exchange Commission ("SEC") Rule 10b-5, 17 C.F.R. § 240.10b-5, on behalf of all purchasers of DeVry Education Group, Inc. ("DeVry" or the "Company") securities during the period between February 4, 2011 and January 27, 2016 (the "Class Period"). The Utah Retirement Systems ("URS") respectfully submits this Memorandum of Law in support of its Motion seeking an Order: (i) appointing URS as Lead Plaintiff pursuant to the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), 15 U.S.C. § 78u-4(a)(3)(B); (ii) approving, pursuant to 15 U.S.C. § 78u-4(a)(3)(B)(v), URS's selection of Spector Roseman Kodroff & Willis, P.C. ("SRKW") as Lead Counsel and Wexler Wallace LLP ("Wexler Wallace") as Liaison Counsel for the proposed class; and (iii) granting such other relief as the Court may deem just and proper. Pursuant to the PSLRA, the Court is to appoint as Lead Plaintiff the "most adequate plaintiff," or the member of the Class that the Court determines "to be most capable of adequately representing the interests of class members." 15 U.S.C. § 78u-4(a)(3)(B)(i). In that regard, the Court is required to determine which "person or group of persons" has the "largest financial interest" in the relief sought by the Class in this litigation and also whether such movant makes a prima facie showing that it is a typical and adequate class representative under Rule 23 of the Federal Rules of Civil Procedure. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I); see also Johnson v. Tellabs, Inc., 214 F.R.D. 225, 227-28 (N.D. Ill. 2002) (St. Eve, J.) (discussing the requirements for appointment as Lead Plaintiff). 1 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 3 of 12 PageID #:134 URS respectfully submits that it is the "most adequate plaintiff," as defined by the PSLRA, and should be appointed as Lead Plaintiff. URS incurred $7 million/$7.2 million (LIFO/FIFO) in losses on its investments in DeVry common stock during the Class Period and, to the best of its knowledge, there is no other movant asserting a larger financial interest in this Action. See Wexler Decl., Ex. A & B.1 Moreover, URS satisfies the applicable requirements of Rule 23 of the Federal Rules of Civil Procedure in that its claims are typical of the claims of the putative class and it will fairly and adequately represent the interests of the class. Finally, URS has selected SRKW as its proposed Lead Counsel. As a firm with significant experience in successfully litigating securities actions, the appointment of SRKW as Lead Counsel in this Action is appropriate. Constr. Workers Pension Trust Fund v. Navistar Int'l Corp., No. 13 C 2111, 2013 WL 3934243, at *4 (N.D. Ill. July 30, 2013) (Der–Yeghiayan, J.) ("Generally, the [L]ead Plaintiff's choice [of counsel] is deemed reasonable, absent extraordinary circumstances."). Wexler Wallace is similarly experienced in complex litigation and is well qualified to serve as Liaison Counsel for the class. Id. Accordingly, URS respectfully requests that the Court appoint it as Lead Plaintiff and otherwise grant its motion. II. FACTUAL BACKGROUND DeVry provides educational services through a number of subsidiaries, including DeVry University. Through its five colleges, DeVry University offers programs in healthcare, business, technology, accounting, finance, and law. During the Class Period, Defendants touted the employment prospects of DeVry's graduates, emphasizing that roughly 90% of its graduates obtained employment in their field of 1 References to the "Wexler Decl., Ex. __" are to the exhibits attached to the accompanying Declaration of Kenneth A. Wexler, dated July 12, 2016, and submitted herewith. 2 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 4 of 12 PageID #:135 study within six months of graduation and that their salaries one year after graduation are 15% higher than the average or median salaries of graduates from other schools. For example, in its 2011 Annual Report, issued on August 26, 2011, DeVry stated that 89 percent of its graduates had jobs in their fields at an average salary of more than $43,000. Similarly, in its 2013 Annual Report, the Company asserted that "[n]inety percent of DeVry University's calendar 2012 graduates in the active job market were employed in their fields of study within six months of graduation at an average salary of $43,539." Contrary to Defendants' Class Period statements, on January 27, 2016, the Federal Trade Commission (the "FTC") filed a lawsuit against DeVry and DeVry University for engaging in deceptive practices by misrepresenting the benefits of obtaining a degree from DeVry University. Based on files maintained by DeVry's Career Services Department, the FTC complaint asserted that the actual number of graduates who found employment in their field of study within six months was "significantly smaller than 90%" and that its graduates' salaries did not match Defendants' claims. According to the FTC, Defendants based their misleading graduate employment claims on an unreliable sampling methodology that contradicted other employment data that was available to Defendants. Also on January 27, 2016, the U.S. Department of Education (the "DOE") issued a Notice of Intent to Limit DeVry's participation in programs authorized under Title IV of the Higher Education Act of 1965 after concluding that DeVry could not substantiate its claims of its graduates' employment prospects. The DOE charged that, beginning in at least 2008 through at least August 2015, DeVry's marketing materials represented, among other things, that "[s]ince 1975, 90.1% of DeVry graduates system- wide in the active job market held positions in their fields of study within 6 months of graduation." Despite several requests that DeVry substantiate the accuracy of the assertions in 3 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 5 of 12 PageID #:136 its marketing materials, the DOE concluded that "DeVry is unable to substantiate the truthfulness of those representations, as required by federal law." On this news, the price of DeVry common stock declined $3.65 per share, or more than 15%, from a close of $23.74 on January 26, 2016, to close at $20.09 per share on January 27, 2016. III. ARGUMENT A. URS Should Be Appointed as Lead Plaintiff 1. The Procedure Required by the PSLRA The PSLRA establishes a procedure that governs the appointment of a lead plaintiff in "each private action arising under [the Exchange Act] that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure." 15 U.S.C. § 78u-4(a)(1); see also 15 U.S.C. § 78u-4(a)(3)(B)(i). First, the plaintiff who files the initial action must publish a notice to the class, within 20 days of filing the action, informing class members of their right to file a motion for appointment as lead plaintiff. See 15 U.S.C. § 78u-4(a)(3)(A)(i). Within 60 days after publication of the notice, any person or group of persons who are members of the proposed class may apply to the Court to be appointed as lead plaintiff, whether or not they have previously filed a complaint in the action. See 15 U.S.C. § 78u-4(a)(3)(A) and (B). Second, the PSLRA provides that, within 90 days after publication of the notice, the Court shall consider any motion made by a class member and shall appoint as lead plaintiff the member of the class who the Court determines to be "most capable of adequately representing the interests of class members." See 15 U.S.C. § 78u-4(a)(3)(B). In determining the "most 4 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 6 of 12 PageID #:137 adequate plaintiff," the PSLRA provides that the Court shall adopt a presumption that the most adequate plaintiff is the person that: (aa) has either filed the complaint or made a motion in response to a notice. . .; (bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and (cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure. 15 U.S.C. § 78u-4(a)(3)(B)(iii); see also Tellabs, 214 F.R.D. at 227-28 (describing the lead plaintiff selection process). As set forth herein, URS satisfies these requirements and should be appointed as Lead Plaintiff. 2. URS Satisfies the "Lead Plaintiff" Requirements of the PSLRA a. URS's Motion is Timely and Contains the Requisite Certification The Action was filed on May 13, 2016, and the relevant notice was published that day on Marketwired, a national, business-oriented newswire service. See Wexler Decl., Ex. C. Therefore, the deadline for filing motions for appointment as Lead Plaintiff in this Action is July 12, 2016. URS's motion for appointment as Lead Plaintiff is therefore timely. As additionally required by the PSLRA, 15 U.S.C. § 78u-4(a)(2), URS has also duly signed and filed a certification stating that it is willing to serve as a representative party on behalf of the class. See Wexler Decl., Ex. A. Accordingly, URS has satisfied the individual requirements of the PSLRA and is entitled to have its application for appointment as Lead Plaintiff and approval of its selection of Counsel, as set forth herein, considered and approved by the Court. 5 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 7 of 12 PageID #:138 b. URS Has the Requisite Financial Interest in the Relief Sought by the Class The PSLRA requires that the lead plaintiff have "the largest financial interest in the relief sought by the class." 15 U.S.C. § 78u-4(a)(3)(B)(iii). In making that determination, courts typically find a movant's losses on its class period purchases of the relevant securities to be the most important consideration. See, e.g., Navistar, 2013 WL 3934243, at *3; Motorola, 2003 WL 21673928, at *3. Here, URS incurred $7 million/$7.2 million (LIFO/FIFO) in losses on its Class Period purchases of DeVry common stock. See Wexler Decl., Ex. A & B. URS thus has a significant financial interest in this case, and to the best of its knowledge there is no other movant asserting a larger financial interest in the relief sought by the class. c. URS Satisfies the Requirements of Rule 23 In addition to possessing the largest financial interest in the outcome of the litigation, the lead plaintiff must "otherwise satisf[y] the requirements of Rule 23 of the Federal Rules of Civil Procedure." 15 U.S.C. § 78u-4(a)(3)(B). Rule 23(a) provides that a party may serve as a class representative if the following requirements are satisfied: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative party are typical of the claims or defenses of the class; and (4) the representative party will fairly and adequately protect the interests of the class. "In selecting the lead plaintiff under the PSLRA, however, typicality and adequacy of representation are the only relevant considerations." Tellabs, 214 F.R.D. 225 at 228. URS satisfies both the typicality and adequacy requirements of Rule 23, thereby justifying its appointment as Lead Plaintiff. A movant's claims are typical if they "arise[ ] from the same event or practice or course of conduct that gives rise to the claims of class members and his or her claims are based on the 6 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 8 of 12 PageID #:139 same legal theory," though the movant's claims "need not be identical" to those of other class members. Id. (internal quotation marks and citation omitted). URS satisfies this requirement because, just like all other class members, it: (i) purchased DeVry common stock during the Class Period; (ii) was adversely affected by Defendants' false and misleading statements; and (iii) suffered damages as a result thereof. Thus, URS's claims are typical of those of other class members. Separately, the adequacy requirement is met where: (1) the movant's "claims are not antagonistic or in conflict with those of the class"; (2) the movant "has sufficient interest in the outcome of the case to ensure vigorous advocacy"; and (3) the movant "is represented by competent, experienced counsel who be able to prosecute the litigation vigorously." Id. at 228- 29. Here, URS is an adequate class representative. As evidenced by its substantial losses, URS is highly motivated to vigorously pursue this litigation for the benefit of the class. In addition, as shown below, URS's proposed Lead Counsel are highly qualified, experienced, and able to conduct this complex litigation in an effective and professional manner. Moreover, URS has no conflicts of interest with other class members. Thus, URS is adequate, and satisfies the applicable requirements of Rule 23. Indeed, as a state-wide public pension fund and a sophisticated institutional investor with a substantial financial interest in the litigation, URS is precisely the type of Lead Plaintiff Congress envisioned when it enacted the PSLRA. See H.R. Conf. Rep. No. 104-369, at 34 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 733 ("The Conference Committee believes that increasing the role of institutional investors in class actions will ultimately benefit shareholders and assist courts by improving the quality of representation in securities class actions."). Congress reasoned that increasing the role of institutional investors, which typically have a large 7 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 9 of 12 PageID #:140 financial stake in the outcome of the litigation, would be beneficial because institutional investors with a large financial stake are more apt to effectively manage complex securities litigation. See id. at 34-35, 1995 U.S.C.C.A.N. at 733-34; see also In re Motorola, No. 03 C 287, 2003 WL 21673928, at *3 (N.D. Ill. July 16, 2003) (Pallmeyer, J.) (observing that Congress sought to "encourage[e] institutional investors to serve as lead plaintiffs"). As an institutional investor, URS is therefore precisely the type of Lead Plaintiff that Congress envisioned when it passed the PSLRA, and appointment of URS as Lead Plaintiff will further that critical legislative goal. See id. B. The Court Should Approve URS's Choice of Counsel Pursuant to 15 U.S.C. § 78u-4(a)(3)(B)(v), the proposed lead plaintiff "shall, subject to the approval of the court, select and retain counsel to represent the class." See also Navistar, 2013 WL 3934243, at *4 ("Generally, the [L]ead Plaintiff's choice [of counsel] is deemed reasonable, absent extraordinary circumstances."). Here, URS has selected SRKW as Lead Counsel and Wexler Wallace as Liaison Counsel for the class. As detailed in its firm résumé, SRKW has extensive expertise and experience in the field of securities litigation. See Wexler Decl., Ex. D. In this regard, SRKW has successfully prosecuted numerous securities fraud class actions as lead and co-lead counsel, recovered billions on behalf of defrauded investors, and negotiated and implemented significant corporate governance measures for the benefit of shareholders. For example, SRKW represented a number of large institutions in the landmark action, In re Parmalat Securities Litigation, No. 04 Civ. 0030 (LAK) (S.D.N.Y.), which has been referred to as the "Enron of Europe." In that case, SRKW and its co-counsel not only secured a $96.5 million settlement against the defendants, but also devised a unique legal theory against the bankrupt Parmalat entity that used Italian 8 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 10 of 12 PageID #:141 bankruptcy law to secure funds not normally available to investors. The Court acknowledged the efforts of SRKW and its co-counsel by stating: "[Class Counsel] did a wonderful job here for the class and were in all respects totally professional and totally prepared. I wish I had counsel this good in front of me in every case." In re Parmalat Sec. Litig., No. 04 Civ. 0030 (LAK) (S.D.N.Y. Mar. 2, 2009). Similarly, in In re SCOR Holding (Switzerland) AG Litigation, No. 04 Civ. 07897 (DLC) (S.D.N.Y.), SRKW obtained a $145 million recovery for a global class of investors, which involved settling the action on two continents—the first trans-Atlantic resolution of a securities class action. These cases, and others like them noted in its firm résumé, serve to confirm that SRKW is amply qualified to represent the class in this litigation. Finally, Wexler Wallace is experienced in litigating complex actions and is well qualified to serve as Liaison Counsel for the class. See Wexler Decl., Ex. E. Accordingly, the Court should approve URS's selection of SRKW as Lead Counsel and Wexler Wallace as Liaison Counsel for the proposed class. IV. CONCLUSION For the foregoing reasons, Utah Retirement Systems respectfully requests that the Court: (i) appoint URS as Lead Plaintiff; (ii) approve its selection of Spector Roseman Kodroff & Willis as Lead Counsel and Wexler Wallace as Liaison Counsel for the class; and (iii) grant such other relief as the Court may deem just and proper. DATED: July 12, 2016 WEXLER WALLACE LLP By: /s/ Kenneth A. Wexler Kenneth A. Wexler 55 West Monroe St. Suite 3300 Chicago, IL 60603 Telephone: (312) 346-2222 Facsimile: (312) 346-0022 9 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 11 of 12 PageID #:142 Email: kaw@wexlerwallace.com Proposed Liaison Counsel for the class SPECTOR ROSEMAN KODROFF & WILLIS, P.C. Mark S. Willis 1101 Pennsylvania Avenue, N.W. Suite 600 Washington, D.C. 20004 Tel: (202) 756-3600 Fax: (202) 756-3602 Email: mwillis@srkw-law.com Robert M. Roseman Daniel J. Mirarchi Andrew N. Dodemaide 1818 Market Street, Suite 2500 Philadelphia, PA 19103 Telephone: (215) 496-0300 Facsimile: (215) 496-6611 Email: rroseman@srkw-law.com dmirarchi@srkw-law.com adodemaide@srkw-law.com Attorneys for Utah Retirement Systems and proposed Lead Counsel for the class 10 Case: 1:16-cv-05198 Document #: 24 Filed: 07/12/16 Page 12 of 12 PageID #:143 CERTIFICATE OF SERVICE I hereby certify that on July 12, 2016, I caused the foregoing to be filed with the Clerk of the Court using the Court's CM/ECF system. Notice of this filing will be sent to all counsel of record through the Court's CM/ECF system. Dated: July 12, 2016 /s/ Kenneth A. Wexler Kenneth A. Wexler 11