Case 4:19-cv-02033-YGR Document 369 Filed 06/26/23 Page 1 of 10
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`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
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`IN RE APPLE INC. SECURITIES
`LITIGATION
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`Case No. 4:19-cv-02033-YGR
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`ORDER DENYING SUMMARY JUDGMENT
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`Dkt. No.: 293
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`Before the Court is defendants’ motion for summary judgment. Defendants1 move to
`dismiss plaintiff’s Section 10(b) claim for failure to show: (1) that the Challenged Statement (see,
`infra, Section I) was false or misleading, (2) that defendant Tim Cook acted with scienter, or (3)
`that the Challenged Statement caused plaintiff’s losses. Defendants argue that the Section 20(a)
`claim should be dismissed as to all defendants because it is derivative of the Section 10(b) claim
`and additionally, as to defendant Luca Maestri, because he did not have control over or induce
`Cook to make the Challenged Statement and acted in good faith. Based on the briefing and with
`the benefit of oral argument on May 10, 2023, the Court denies the motion.
`BACKGROUND
`I.
`The Court assumes the parties’ familiarity with the facts of this case and therefore
`discusses them only as necessary to explain its decision. For ease of reference, the Court includes
`the question leading to the Challenged Statement made by Cook during Apple’s November 1,
`2018 call (“the November 1 Call”) and the answer containing the Challenged Statement. Wamsi
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`1 Defendants are Apple Inc. (“Apple” or the “Company”), Timothy D. Cook (Chief
`Executive Officer, or “CEO,” of Apple), and Luca Maestri (Chief Financial Officer, or “CFO,” of
`Apple). “Plaintiff” refers to lead plaintiff Norfolk County Council as Administering Authority of
`the Norfolk Pension Fund.
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`Case 4:19-cv-02033-YGR Document 369 Filed 06/26/23 Page 2 of 10
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`Mohan of Bank of America asked:
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`“Tim, there has been some real deceleration in some of these emerging markets,
`partly driven by some concerns around some of the rules the administration is
`contemplating and partly driven by things that are more specific to China, for
`instance, like some of the regulations around gaming. So can you talk about how
`you see the trajectory there for the business and what you think of the initiatives of
`some companies like Netflix and Fortnite trying to bypass the App Store around
`subscriptions? And I have a follow-up.”
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`Cook responded, in relevant part:
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`“Sure. Great question. Starting with emerging markets. The emerging markets that
`we’re seeing pressure in are markets like Turkey, India, Brazil, Russia, these are
`markets where currencies have weakened over the recent period. In some cases,
`that resulted in us raising prices, and those markets are not growing the way we
`would like to see. To give you a perspective in -- at some detail, our business at
`India in Q4 was flat. Obviously, we would like to see that be a huge growth. Brazil
`was down somewhat compared to the previous year. And so I think -- or at least the
`way that I see these is each one of the emerging markets has a bit of a different
`story. And I don’t see it as some sort of issue that is common between those for the
`most part. In relation to China specifically, I would not put China in that
`category. Our business in China was very strong last quarter. We grew 16%, which
`we’re very happy with. iPhone, in particular, was very strong double-digit growth
`there. Our other products category was also stronger, in fact, a bit stronger than
`even the company -- overall company number. The App Store in China, we have
`seen a slowdown or a moratorium to be more accurate on new game approvals.
`There is a new regulatory setup in China, and there’s -- things are not moving the
`way they were moving previously. We did see a few games approved recently, but
`it's very far below the historic pace. And as you’re probably seeing, some of the
`larger companies there that are public have talked about this as they’ve announced
`their earnings as well. We don’t know exactly when this will -- the approvals will
`sort of return to a normal pace. So I would not want to predict that. I do not view,
`just to try -- for avoidance of doubt here, I don’t view that, that issue has anything
`to do with the trade-related discussions between the countries. I think that is strictly
`a domestic issue in China . . .”
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`(Dkt. No. 294-3, Cook Decl. Ex. 3, “Call Transcript” at 7.)
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`II.
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`JUDICIAL NOTICE
`The Court first addresses the parties’ requests for judicial notice. (Dkt. No. 293-2; 323-4).
`Judicial notice “permits a court to notice an adjudicative fact if it is ‘not subject to reasonable
`dispute,’” which means the fact is “‘generally known,’ or ‘can be accurately and readily
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`Case 4:19-cv-02033-YGR Document 369 Filed 06/26/23 Page 3 of 10
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`determined from sources whose accuracy cannot reasonably be questioned.’” Khoja v. Orexigen
`Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018) (quoting Fed. R. Evid. 201(b)). A court can,
`for example, take notice of a matter of public record. Id. Courts have discretion in taking judicial
`notice. Id.
`Not every fact within a noticed document is judicially noticeable for its truth. Id. Relevant
`here, courts may take judicial notice of documents not for the truth of the matter asserted, but for
`the purpose of showing that particular information was available to the stock market. Helitrope
`Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999) (“We take judicial notice
`that the market was aware of the information contained in news articles submitted by the
`defendants.”).
`DEFENDANTS’ REQUEST FOR JUDICIAL NOTICE
`A.
`Defendants request judicial notice of various publicly available documents including
`Security and Exchange Commission (“SEC”) filings, public statements by Apple, news articles,
`and analyst reports. (Dkt. No. 293-2.) Plaintiff does not dispute that these documents are
`appropriate for judicial notice. The majority of its opposition is directed at defendants’
`interpretations of the facts in these documents. Such arguments are not relevant to whether the
`documents are judicially noticeable. See City of Miami Gen. Emps. & Sanitation Emps. Ret. Tr. v.
`RH, Inc., 302 F. Supp. 3d 1028, 1033 n.1 (N.D. Cal. 2018) (“To the extent plaintiffs take issue
`with the statements in these documents and defendants’ arguments based thereon, such argument
`belongs in plaintiffs’ opposition to defendants’ motion to dismiss and thus does not persuade on
`the question of whether judicial notice is proper.”).
`Plaintiff argues that Exhibit 15 to defendants’ request for judicial notice, an article
`published on 9to5Mac.com about iPhone XR, should not be judicially noticed because it is not
`cited in defendants’ memorandum in support of summary judgment, rather, it is only cited in the
`declaration of Kevan Parekh. Plaintiff provides no authority indicating that a document must be
`directly cited in the underlying motion to be judicially noticed. Accordingly, this argument fails.
`Second, plaintiff argues that the article “does not appear to be a reliable source for the data cited”
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`Case 4:19-cv-02033-YGR Document 369 Filed 06/26/23 Page 4 of 10
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`and that Parekh’s declaration does not confirm that the data is accurate. Again, plaintiff provides
`no authority in support of this argument. The Court GRANTS judicial notice of this article for the
`purpose of determining what information was available to the market.
`Plaintiff objects to Exhibits 84, 87, 88, and 89 which are news articles that defendants seek
`to admit to show “historical stock prices and related publicly available financial information”
`regarding Apple. (Dkt. No. 293-2 at 2.) Plaintiff responds that these articles are in fact being
`presented as impermissible and irrelevant character evidence to show that defendants are
`“admired.” (Dkt. No. 323-05 at 4.) In reply, defendants appear to concede that, contrary to their
`initial request, they have submitted these articles as evidence of defendants’ character, but that
`such evidence may be permissible where “‘a party is alleged to have committed essentially
`criminal acts.’” (Dkt. No. 330 at 2 (quoting S.E.C. v. Saul, 1991 WL 218061, at *2 (N.D. Ill. Oct.
`16, 1991)).) Defendants assert that these articles indicate that the market held defendants in high
`regard before and after the alleged fraud, undermining plaintiff’s allegations. The Court finds
`these articles are not relevant or helpful to its analysis and DENIES the request for judicial notice
`as to those exhibits.
`Plaintiff opposes judicial notice of Exhibit 92, an article reporting on Chinese gaming
`regulations on the basis that the Court cannot take notice of the truth of the facts asserted in the
`article (i.e., that China had tightened gaming regulations). Defendants respond that they seek
`notice of this document to show what information regarding gaming, and its potential impact on
`Apple’s performance in China, was available to the market, not the actual truth of that
`information. The Court agrees with defendants and GRANTS judicial notice of Exhibit 92.
`Plaintiff opposes judicial notice of Exhibit 86, a news article reporting Apple’s market cap
`on September 7, 2022 as “in no way relevant to this case.” (Dkt. No. 323-5.) Defendants
`maintain it shows “Cook has grown Apple’s market value by over a trillion dollars during his
`tenure as CEO” to the benefit of shareholders, which disproves his intent to defraud shareholders.
`Defendants provide no authority in support of their position. This appears to be another attempt to
`obtain notice of general and irrelevant character evidence. The Court DENIES judicial notice of
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`Case 4:19-cv-02033-YGR Document 369 Filed 06/26/23 Page 5 of 10
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`Exhibit 86.
`Unless otherwise noted above, defendants’ request for judicial notice is GRANTED. The
`Court affords the noticed documents their proper evidentiary weight.
`Plaintiff’s Request for Judicial Notice
`B.
`Plaintiff seeks judicial notice of various documents “for the limited purpose of showing
`that the information contained . . . was available to the market on the dates of their dissemination.”
`(Dkt. No. 323-4 at 1.) Defendants oppose judicial notice of Exhibits 63, 94, 124-125, 128, and
`130-31. The Court takes plaintiff’s failure to file a reply addressing this opposition as a
`concession to defendants’ arguments. The Court DENIES judicial notice of Exhibits 63, 94, 124-
`125, 128, and 130-31. It GRANTS judicial notice of the remaining documents. Absent another
`basis for exclusion, documents in the public record are proper subjects of judicial notice. Reyn’s
`Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006). The Court affords
`them their proper evidentiary weight.
`III. LEGAL FRAMEWORK
`Summary Judgment
`A.
`The standard for summary judgment, including its burdens and inferences is well known
`and not in dispute.
`Section 10(B)
`B.
`Section 10(b) of the Securities Exchange Act of 1934 prohibits the use of “any
`manipulative or deceptive device or contrivance” related to the purchase or sale of securities when
`the use violates the regulations promulgated by the SEC. 15 U.S.C. § 78j(b). Under the operative
`regulation, Rule 10b–5, it is unlawful for any person “[t]o make any untrue statement of fact or to
`omit to state a material fact necessary in order to make the statements made, in the light of the
`circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b–5(b).
`“To be viable, a claim brought under § 10(b) and Rule 10b–5 must contain six essential
`elements: ‘(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a
`connection between the misrepresentation or omission and the purchase or sale of a security; (4)
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`Case 4:19-cv-02033-YGR Document 369 Filed 06/26/23 Page 6 of 10
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`reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.’”
`Retail Wholesale & Dep’t Store Union Loc. 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d
`1268, 1274 (9th Cir. 2017) (citation and internal quotation marks omitted).
`Section 20(a)
`C.
`“[U]nder Section 20(a), a defendant may be liable for securities violations if (1) there is a
`violation of the Act and (2) the defendant directly or indirectly controls any person liable for the
`violation.” S.E.C. v. Todd, 642 F.3d 1207, 1223 (9th Cir. 2011) (citations omitted). However,
`“there is no liability if ‘the controlling person acted in good faith and did not directly or indirectly
`induce the act or acts constituting the violation.’” Id. (quoting 15 U.S.C. § 78t(a)). “The burden is
`on the defendant to show that both requirements of the good-faith exception are met.” Id. (citation
`omitted).
`IV. ANALYSIS
`Section 10(b)
`A.
`False and Misleading
`1.
`Defendants raise three arguments for why the Challenged Statement is not false or
`misleading: (1) it was a non-actionable opinion, (2) plaintiff’s interpretation is untenable, and (3)
`even assuming plaintiff’s interpretation, the Challenged Statement was accurate.
`“A false statement is one that is not true. Even if a statement is literally true, it can still be
`misleading.” In re Tesla, Inc. Sec. Litig., No. 18-CV-04865-EMC, 2022 WL 1497559, at *14
`(N.D. Cal. Apr. 1, 2022). “[A] statement is misleading if it would give a reasonable investor the
`impression of a state of affairs that differs in a material way from the one that actually
`exists.” Retail Wholesale, 845 F.3d at 1275 (internal quotation marks omitted).
`First, defendants argue that because Cook used the words “I would not” when stating “I
`would not put China in that category,” the Challenged Statement is an opinion, and thus non-
`actionable short of a showing that he did not hold the belief he professed, and it is objectively
`untrue. City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d
`605, 615-16 (9th Cir. 2017) (citing Omnicare, Inc. v. Laborers Dist. Council Const. Industry
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`Case 4:19-cv-02033-YGR Document 369 Filed 06/26/23 Page 7 of 10
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`Pension Fund, 575 U.S. 175, 186 (2015)). The Court already rejected this theory on motion to
`dismiss. Defendants’ briefing here does not present new argument or compel a different result.
`Defendants’ second argument is that the Challenged Statement cannot be understood as
`plaintiff presents it, that is, as a statement about future rather than past performance, and as a
`statement about performance in China generally rather than specific to the impact of currency
`devaluation. There is sufficient evidence from which a jury could find the Challenged Statement
`was about future performance including that there were numerous other statements by defendants
`on the call about future performance2 and that Mohan’s question was about the “trajectory” of
`Apple’s performance. Indeed, though defendants offer alternative interpretations of Cook’s
`response, they have offered no alternative interpretation of Mohan’s question. Given that Cook
`was asked a question about the future, a reasonable fact finder could find Cook’s response was
`also about the future.3 Based on a plain reading of the statement, which was responding to a
`question about deceleration generally in emerging markets, a fact finder could reasonably interpret
`the Challenged Statement broadly and in line with plaintiff’s position and not as a statement about
`currency specifically. (See also Dkt. No. 341-5 at 5.)
`Finally, defendants argue that even if the challenged statement can be understood to mean
`that Apple was not seeing deceleration in China (including in iPhone sales), that statement was not
`untrue or misleading because the Guidance released the same day as the Challenged Statement
`took data about reductions in iPhone demand into consideration and reflected such trends.
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`2 For example, Maestri said, “I’d like to review our outlook, which includes the types of
`forward-looking information that Nancy referred to . . .” and then addressed Apple’s expected
`performance. (Call Transcript at 6.) Cook stated “we could not be more bullish about Apple’s
`future.” (Id. at 4.)
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` Cook’s declaration stating that he was talking about the past does not change this result.
`(Dkt. No. 294 at ¶¶ 25-30.) It is the role of the fact finder to weigh such evidence. S.E.C. v.
`Platforms Wireless Int’l Corp., 617 F.3d 1072, 1095 (9th Cir. 2010) (“[i]f such a self-serving
`assertion could be viewed as controlling, there would never be a successful prosecution or claim
`for fraud”). Similarly, defendants’ argument that analyst reports on the November 1 call support
`their position is not dispositive. Provenz v. Miller, 102 F.3d 1478, 1493 (9th Cir. 1996) (“We do
`not think that these reports ‘effectively counterbalance[d]’ defendants’ false and misleading
`statements.”).
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`Through the Guidance, defendants reason, Apple provided the full picture of expected
`performance in China in 2019, based on existing knowledge, even if Cook did not mention the
`reduction in iPhone production and orders during the November 1 call. This argument fails to
`persuade. Defendants provide no authority indicating that disclosure in one context (the
`Guidance) ameliorates misrepresentation in another (the November 1 Call). Further, incorporating
`data regarding the iPhone into its overall forecast is different than disclosing that Apple was
`seeing reductions in demand for iPhone.
`In conclusion, defendants have not shown the Challenged Statement false or misleading.
`Scienter
`2.
`Plaintiff’s theory of scienter is that Cook (whose scienter is attributable to Apple) knew
`facts that made the Challenged Statement false when made. Defendants do not dispute that Cook
`knew about the production and demand cuts in China when he made the Challenged Statement,
`they argue that facts indicating that he otherwise acted in good faith prove that he did not have the
`requisite scienter.
`“Scienter may be established [] by showing that the defendants knew their statements were
`false.” Gebhart v. S.E.C., 595 F.3d 1034, 1041 (9th Cir. 2010). “The most direct way to show
`both that a statement was false when made and that the party making the statement knew that it
`was false is via contemporaneous reports or data, available to the party, which contradict the
`statement.” Nursing Home Pension Fund, Loc. 144 v. Oracle Corp., 380 F.3d 1226, 1230 (9th
`Cir. 2004). A jury could find plaintiff has done so here. Though defendants are correct that
`evidence of good faith, including that Cook did not sell any of his Apple stock during the class
`period, can cut against a finding of scienter, such evidence is to be weighed by the jury. Howard
`v. Everex Sys., Inc., 228 F.3d 1057, 1060 (9th Cir. 2000) (stating scienter is a “fact-specific” issue
`which should ordinarily be left to the trier of fact); No. 84 Emp.-Teamster Joint Council Pension
`Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 944 (9th Cir. 2003) (“Scienter can be
`established even if the officers who made the misleading statements did not sell stock during the
`class period”) (citing Hanon v. Dataprods. Corp., 976 F.2d 497, 507 (9th Cir.1992)).
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`Accordingly, defendants’ scienter argument fails.
`Loss Causation
`3.
`Defendants next argue that plaintiff cannot show loss causation, that is, that the
`misrepresentation was a substantial cause of plaintiff’s financial loss because the reduction in
`stock price during the class period had to have been the result of factors that occurred after
`November 1.
`“To prove loss causation, plaintiffs need only show a causal connection between the fraud
`and the loss [citation] by tracing the loss back to the very facts about which the defendant lied.”
`Mineworkers’ Pension Scheme v. First Solar Inc., 881 F.3d 750, 753 (9th Cir. 2018) (cleaned up).
`Defendants maintain that because the November 1 Guidance was accurate until mid-
`November, the eventual diversion from its projections after mid-November must have been due to
`alternative, unforeseen causes. This argument fails for at least two reasons. First, there are
`material disputes of fact regarding the reliability of the Guidance. Just because the accounted for
`all available data as of November 1 does not mean that the predictions it made based on that data
`accurately predicted how Apple would perform under conditions known as of November 1.
`Indeed, there were concerns at Apple that prior product performance had not provided an accurate
`model for predicting XR performance. (Dkt. No. 323-3, Plaintiff’s Response to Defendants’
`Statement of Facts, Nos. 22, 59.) Further, the Guidance’s short-term accuracy is not dispositive of
`its long-term accuracy.
`Second, in his January 2, 2019 public letter, Cook explicitly attributed the decrease in
`stock value at least in part to decreased sales in China in November due to a slowing economy.
`(Dkt. No. 322-12, Ex. 123 (“most of our revenue shortfall to our guidance, and over 100 percent
`of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac
`and iPad. China’s economy began to slow in the second half of 2018”).) The record shows that
`defendants knew about these potential risks to iPhone sales before November 1. A reasonable jury
`could find that failure to disclose these risks caused plaintiff’s harm.
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`Section 204
`B.
`Defendants argue that Maestri is entitled to summary judgment on the Section 20(a) claim
`because he does not control Cook and is therefore not responsible for any violation caused by
`Cook’s statement. The Court already addressed and rejected this argument on motion to dismiss.
`(Dkt. No. 123 at 22.) Plaintiff’s claim is based on Maestri’s role as a control person for Apple not
`Cook. Apple is also a person liable for the Challenged Statement. 5
`Defendants further fail to prove Maestri is entitled to the good-faith exception. Facts going
`to Maestri’s good faith, such as that he did not sell stock during the class period, are for the fact
`finder to weigh. Similarly, defendants have not shown Maestri, who prepared for the call with
`Cook, did not “directly or indirectly induce” the statement. Additionally, defendants did not
`respond to plaintiff’s argument that under the indirect participation rule articulated in Flood v.
`Miller, Maestri may be liable for his failure to correct the Challenged Statement. Flood v. Miller,
`35 F. App’x 701, 703 (9th Cir. 2002) (stating “inaction in the form of a failure to supervise can ...
`result in secondary liability”) (citation and internal quotation marks omitted). The Court deems
`that silence as a concession.
`The Court denies the motion for summary judgment on this claim.
`CONCLUSION
`In conclusion, the motion for summary judgment is DENIED.
`This terminates docket number 293.
`IT IS SO ORDERED.
`
`V.
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`Dated:
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`June 26, 2023
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`______________________________________
`YVONNE GONZALEZ ROGERS
`UNITED STATES DISTRICT JUDGE
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`4 Defendants also argue that because the Section 20(a) claim is derivative of the Section
`10(b) claim, all defendants are entitled to judgment on the 20(a) claim if judgment is granted
`based on Section 10(b). Given the denial of summary judgment on Section 10(b), this argument is
`moot.
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`5 As addressed on dismissal, the “definition of ‘person’ under the Act encompasses a
`‘company.’” S.E.C. v. Todd, 642 F.3d 1223 (quoting 15 U.S.C. § 78c(a)(9)).
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