Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-00722/USCOURTS-azd-2_11-cv-00722-3/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 28:1331 Fed. Question

---

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Darlene Smith, derivatively on behalf of 

Apollo Group, Inc., 

Plaintiff, 

v. 

John G. Sperling, Peter V. Sperling, Charles 

B. Edelstein, Gregory W. Cappelli, Terri C. 

Bishop, Dino J. Deconcini, Samuel A. 

Dipiazza, Jr., Stephen J. Giusto, Roy A. 

Herberger, Jr., Ann Kirschner, K. Sue 

Redman, James R. Reis, Manuel F. Rivelo, 

George Zimmer, Joseph D’Amico, Gregory 

J. Iverson, Brian L. Swartz, Brian Mueller, 

P. Robert Moya, Robert W. Wrubel, 

William J. Pepicello, 

 Defendants, 

vs. 

Apollo Group, Inc., an Arizona corporation, 

 Nominal Defendant. 

No. CV 11-722-PHX-JAT

ORDER 

 The Court, having reviewed the full briefing on Nominal Defendant Apollo 

Group, Inc.’s Motion to Dismiss Plaintiff’s Derivative Complaint (Doc. 74) is inclined to 

dismiss this case for lack of standing. However, the Court will allow Plaintiff ten days to 

file a supplement to her Response to Apollo Group, Inc.’s Motion to Dismiss Plaintiff’s 

Derivative Complaint to solely address standing. 

 Pursuant to Federal Rule of Civil Procedure 23.1, when a shareholder of a 

Case 2:11-cv-00722-JAT Document 83 Filed 05/16/12 Page 1 of 4
- 2 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

corporation brings a derivative action to enforce a right that the corporation may properly 

assert, but has failed to enforce, the derivative action may not be maintained if it appears 

that the plaintiff “does not fairly and adequately represent the interest of shareholders . . . 

who are similarly situated in enforcing the right of the corporation.” Fed.R.Civ.P. 

23.1(a). At the pleading stage, the Complaint must “allege that the plaintiff was a 

shareholder at the time of the transaction complained of, or that the plaintiff’s share or 

membership later devolved on it by operation of law.” Fed.R.Civ.P. 23.1(b)(1). 

 The Complaint asserts claims spanning a period of over three years, from 2007 to 

2010 and, in her Complaint, Plaintiff asserts that she “was a shareholder of Apollo Group 

at the time of the transactions and events complained of herein, and has continuously held 

stock.” (Doc. 1 at 4). Plaintiff argues that this statement is sufficient to meet the 

requirements of Rule 23.1. 

 Defendant argues that Plaintiff is required to unambiguously allege the date(s) on 

which she acquired and held shares of stock in the corporation on behalf of which she 

seeks to assert claims. 

 It is necessary for Plaintiff to show that she was a shareholder at the time of the 

transaction/events complained of because a derivative plaintiff may only complain about 

actions that allegedly occurred during the period for which she held shares. See Baca v. 

Crown, No. 10-16718, 458 Fed.Appx. 694, 696 (9th Cir. Nov. 21, 2011). This is often 

referred to as the “contemporaneous ownership rule.” The Court is aware of no Ninth 

Circuit opinion addressing to what specificity a plaintiff must allege contemporaneous 

ownership and there appears to be a split of authority among district courts as to the 

specificity required for such allegations. See Garza ex rel Navistar Int’l Corp. v. Belton, 

No. 08 C 1387, 2010 WL 3324881, at *9 (N.D. Ill. Aug. 13, 2010) (noting split and citing 

cases). 

 Defendants argue that the need for specificity in pleading continuous ownership is 

even more pronounced since the Supreme Court’s decision in Ashcroft v. Iqbal, 556 U.S. 

662 ___, 129 S.Ct. 1937, 1949 (2009), which requires claims to be pled with specificity. 

Case 2:11-cv-00722-JAT Document 83 Filed 05/16/12 Page 2 of 4
- 3 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 If a derivative Complaint alleged one transaction or event and a plaintiff alleged 

that he/she/it was a shareholder at the time of the event, it is likely the Court and 

Defendants would have no problems determining that the contemporaneous ownership 

requirement was met. However, where, as here, Plaintiff has claims that span over three 

years and Defendant has challenged Plaintiff’s standing/contemporaneous ownership, the 

Court has no way to adequately analyze whether Plaintiff has standing to assert all of her 

claims or whether her claims should be limited to the transactions that occurred while she 

was a shareholder of Apollo. 

 The only way the Court could make such a determination is for Plaintiff to allege 

the dates of contemporaneous ownership. Thus, even if Plaintiff was not required to 

allege the dates in her Complaint, she certainly should have alleged them in her Response 

to the Motion to Dismiss for lack of standing. Plaintiff does not argue, and the Court has 

no reason to believe, that such a requirement imposes an unreasonable burden on 

Plaintiff. On the other hand, Defendants argue that it would be extremely burdensome to 

engage in extensive discovery with Plaintiff only to later discover that Plaintiff did not 

have standing to assert the derivative claims under Rule. 23.1. The Court agrees. The 

Court is further persuaded that such a requirement is necessary in this case because of 

Plaintiff’s continued refusal to disclose the dates of contemporaneous ownership to 

Defendants. 

 Accordingly, the Court will give Plaintiff one final chance to establish that she has 

standing to assert the derivative claims. 

 IV. CONCLUSION 

Based on the foregoing, 

IT IS ORDERED that Plaintiff shall file a supplement to her Response to 

Defendant’s Motion to Dismiss Plaintiff’s Derivative Complaint within 10 days of the 

date of this Order. Such supplement shall solely address the standing issue discussed 

herein and shall not exceed 5 pages. Nominal Defendant Apollo Group, Inc. may file a 

Response to the Supplement within 5 days of the filing of such supplement. Such 

Case 2:11-cv-00722-JAT Document 83 Filed 05/16/12 Page 3 of 4
- 4 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Response shall not exceed 5 pages. No reply will be allowed. If Plaintiff fails to file a 

supplement within 10 days of the date of this Order, the Motions to Dismiss pending 

before this Court will be granted without further warning. 

 Dated this 16th day of May, 2012. 

 

 

Case 2:11-cv-00722-JAT Document 83 Filed 05/16/12 Page 4 of 4