(Reuters) - U.S. District Judge Yvonne Gonzalez Rogers of Oakland ruled Tuesday that shareholders can proceed with claims that Apple CEO Tim Cook misrepresented declining demand in China for iPhones on a phone call with analysts in November 2018, just days before Apple told its largest manufacturers to slow production. As my Reuters colleague Jon Stempel reported this morning, the judge said it was “simply implausible” that Cook was unaware of the drop in demand, given the timing of the production slowdown.
The shareholders’ firm that argued precisely that point to Judge Rogers was not Labaton Sucharow, the firm representing the lead plaintiff in the Apple shareholder class action, a Rhode Island state employees’ pension fund. As Judge Rogers noted, a different law firm, Robbins Geller Rudman & Dowd, representing a different fund, the Norfolk Pension Fund, briefed her on why the timing of Apple’s production cut was a sign of Apple’s allegedly fraudulent intent during that November 2018 analyst call. (Apple did not immediately respond to a Reuters request for comment.)
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You’re probably thinking it’s odd for a second shareholders’ firm to submit a brief opposing a defendant’s motion to dismiss a securities fraud class action. But here’s something even more peculiar: It looks like Judge Rogers is on the verge of replacing Labaton and its client with Robbins Geller and the Norfolk fund as leaders of this case. In the final paragraph of the judge’s dismissal order, she said she “intends to reconsider the motion for lead counsel” and directed Labaton to confer with Robbins Geller on “the orderly transition of leadership.”
Yep: Robbins Geller appears, in the middle of the case, to be on the verge of assuming control of a class action in which investors allege tens of billions of dollars in losses.
Robbins Geller’s Shawn Williams declined to provide a statement on this quite unusual development. Carol Villegas and Christine Fox of Labaton did not respond to my email.
Judge Rogers’ reconsideration of who should lead the case did not come out of the blue. The controversy actually goes back to the very beginning of the litigation. Robbins Geller’s client, the Norfolk fund, filed an initial class action complaint based on Apple’s alleged misrepresentations about iPhone demand. It asserted a class period beginning on the date of Cook’s call with analysts in November 2018. Labaton’s client, the Rhode Island fund, filed a complaint asserting that Apple’s alleged deceit dated back much farther, beginning with alleged misstatements denying that software was “throttling” older iPhone models.
The Rhode Island fund lost less than $50,000 in the class period proposed by Robbins Geller’s client. But the longer class period it asserted allowed the Rhode Island fund to claim losses of $4 million, making it the presumptive lead plaintiff if Judge Rogers consolidated the cases. Robbins Geller argued against consolidation, but at a hearing last August, the judge said there did not seem to be a “logical way” to separate the two class actions.
She also said, however, that she was skeptical of the throttling claims and the longer class period asserted by Labaton’s client. The solution, Judge Rogers said, was to allow a round of briefing on a motion to dismiss. If the throttling claims ended up being dismissed, she said, she would “re-evaluate the appropriateness of who is leading the class and most likely appoint Norfolk.”
In her order appointing Labaton’s client, the judge explicitly said that Robbins Geller’s client was permitted to seek leave to file its own short brief supplementing Labaton’s arguments against dismissal. That’s why Robbins Geller was able to brief Apple’s allegedly fraudulent intent on the November 2018 analyst call even though its client was not the lead plaintiff.
Judge Rogers’ decision on Tuesday suggests she’s sticking to what she said at the lead plaintiff hearing last year. She did indeed toss the throttling claims, leaving only the iPhone demand allegations to be litigated. The judge did not define a class period – this was a ruling on Apple’s motion to dismiss, not a class certification decision – but it’s hard to see why the class should begin before November 2018, when the alleged misstatements occurred. In that shortened class period, Robbins Geller’s client experienced vastly larger losses than Labaton’s.
Defining the class period is an underappreciated art form, to be sure. I think I’m a pretty big securities class action nerd, and even I don’t usually pay much attention to the start date proposed by lead plaintiff candidates.
But thanks to the contretemps in the Apple case, I will from now on.