United States District Court, N.D. Illinois, Eastern Division
BOCA RATON FIREFIGHTERS' AND POLICE PENSION FUND and WEST PALM BEACH FIREFIGHTERS PENSION FUND, individually and on behalf of all others similarly situated, Plaintiffs,
DEVRY INC., DANIEL HAMBURGER, and RICHARD M. GUNST, Defendants.
JOHN E. GRADY, District Judge.
The court makes the following findings pursuant to the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4.
We will assume that the reader is familiar with our opinions dismissing Boca Raton Firefighters' and Police Pension Fund's ("Boca Raton") first amended complaint ("FAC") and second amended complaint ("SAC"). See Boca Raton Firefighters' and Police Pension Fund v. DeVry Inc., No. 10 C 7031 , 2012 WL 1030474 (N.D. Ill. Mar. 27, 2012) ("Boca Raton I"); Boca Raton Firefighters' and Police Pension Fund v. DeVry Inc., No. 10 C 7031, 2013 WL 1286700 (N.D. Ill. Mar. 27, 2013) ("Boca Raton II"). Nevertheless, it will be helpful to briefly discuss this lawsuit's procedural history. On November 1, 2010, Robbins Geller Rudman & Dowd LLP ("Robbins Geller"), as counsel for Boca Raton, filed its original securities-fraud complaint against Devry, Inc., Daniel Hamburger, Richard M. Gunst, and David Pauldine. The parties filed a joint scheduling stipulation before their first court appearance. The stipulation, which we entered, allowed Boca Raton to file a "consolidated complaint" 60 days after an order designating it as "lead plaintiff." (See Order re Joint Scheduling Stip., Dkt. 18.) The defendants would then have 60 days to answer the "consolidated complaint, " or if the plaintiffs did not file one, 60 days to answer the original complaint. (Id.) On January 3, 2011, Boca Raton moved for an order designating it as lead plaintiff, Robbins Geller as lead counsel, and Wexler Wallace LLP as liaison counsel. We granted that motion without any objection from the defendants. At the hearing on the motion, defense counsel inquired whether Boca Raton intended to file an amended complaint. (See Trans. of Hearing, dated Jan. 5, 2011, Dkt. 28, at 5.) Plaintiff's counsel, David J. George, responded that he intended to amend the complaint and requested 60 days to do so (consistent with the scheduling stipulation). (Id.) We asked counsel why he needed such a long time, and he explained that Boca Raton's fact investigation was "ongoing" and that it needed to bolster the complaint's allegations to satisfy the PSLRA's heightened pleading requirements. ( Id. at 5-6.) We then asked counsel whether he believed that his current complaint satisfied the PSLRA:
The Court: You think your present complaint is insufficient to pass muster?
Mr. George: Your Honor, from - yes. The complaint as it stands now would not be one that I would stand on under the standards under the Private Securities Litigation Reform Act, and as a matter of pattern and practice in these cases, once lead plaintiff is appointed, because up until this point there has not been one, a new complaint is filed that incorporates all of the materials that we gathered in the course of the factual investigation. And, in fact, 60 days - they have actually agreed to it - it's a reasonable and customary amount of time in these cases.
(Id. at 6.) So, without objection from the defendants, we gave Boca Raton 60 days to file an amended complaint, and gave the defendants 60 days to answer or otherwise plead:
THE COURT: Well, then, Mr. Salpeter, I think you can assume that there will be an amended complaint, so you should hold your fire until you see what it looks like.
MR. SALPETER: I agree. So I guess the order that your Honor previously put into effect where they get 60 days to amend their complaint and then we get 60 days thereafter to attack the complaint stands. Is that fair?
THE COURT: Do you think you will need 60?
MR. SALPETER: I'd like 60.
THE COURT: All right. We will let that stand.
MR. SALPETER: Okay.
(Id. at 7.)
Boca Raton filed its amended complaint, entitled "Consolidated Class Action Complaint, " on March 7, 2011, (See FAC, Dkt. 27.) The FAC did not name Pauldine as a defendant, but in a footnote Boca Raton continued to allege that he had engaged in insider trading. (See id. at ¶ 41, n.1.) Many of the FAC's allegations were based upon counsel's interviews with confidential witnesses (students and DeVry employees). (See id. at ¶¶ 38-72.) The thrust of the FAC was that Devry had a "predatory" business model that put profits ahead of education - a curious basis for a securities-fraud lawsuit. The FAC contained many loosely related anecdotes from students and front-line employees at Devry's various campuses. We concluded that these allegations did not support an inference of widespread fraud impugning the company's positive statements concerning its operations during the class period. The FAC's strongest (but still deficient) allegations concerned Devry's recruiter-compensation practices. The Higher Education Act ("HEA") prohibits schools from providing "any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student ...