Revelations have surfaced in a court filing that the estate of Apple founder Steve Jobs is being sued by one of the company's shareholders. The class action lawsuit claims that Apple misled investors and damaged the value of the company by striking a controversial hiring agreement with other corporations. The action formerly lists the defendants in this case as being Tim Cook, William Campbell, Millard Drexler, Arthur Levinson, Robert Iger, Andrea Jung, Fred Anderson and the Estate of Steven Jobs.
According to court papers filed this week, Apple violated the US Securities and Exchange Act by cutting deals with Google and other firms not to actively recruit employees away from each other. The case was filed by shareholder R Andre Klein on behalf of all Apple shareholders.
Basic Overview of the Action
This is a shareholder derivative action seeking to remedy the wrongdoing committed by Apple's senior directors and officers who have caused millions of dollars in damages to Apple and its shareholders. Plaintiff asserts claims under federal law for violations of Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78n(a), and under state law for breach of fiduciary duty, gross mismanagement, corporate waste, and breach of the duty of honest services.
Apple's co-founder and former Chief Executive Officer ("CEO"), Steve Jobs (now deceased), and other Apple executives and directors entered into unlawful, anti-competitive non-solicitation agreements with executives at other companies, such as Adobe Systems ("Adobe"), Google, Inc. ("Google"), and Intel Corporation ("Intel"). Pursuant to these agreements, which violated United States antitrust laws, the Individual Defendants caused Apple to agree not to recruit the employees of other companies, and vice versa. In an order dated August 8, 2014 in In re High- Tech Employee Antitrust Litigation, No. 11-cv-2509 LHK (N.D. Cal.), the Honorable Lucy H. Koh rejected a proposed $324.5 million settlement as inadequate and unfair based in part on the strength of the evidence against Jobs. Devoting five pages of her 32-page order to discussing the evidence against Jobs, Judge Koh identified him as "a, if not the, central figure in the alleged conspiracy" to engage in anti-poaching practices because "several witnesses, in their depositions, testified to [Jobs's] role in the anti-solicitation agreements."
In California, non-compete agreements are generally void and unenforceable, in addition to potentially violating antitrust laws.
The United States Department of Justice ("DOJ") began investigating Apple's hiring practices in 2009. The DOJ filed a complaint against Apple, Adobe, Google, Intel, Intuit, and Pixar on September 24, 2010, alleging that these companies' private agreements restrained trade, which was per se unlawful under the antitrust laws. The DOJ found the agreements "facially anticompetitive because they eliminated a significant form of competition to attract high tech employees, and, overall, substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities." The DOJ stated that the agreements "disrupted the normal price-setting mechanisms that apply in the labor setting."
The DOJ announced a settlement of the action on its website on September 24, 2010. (A final judgment in the action was entered on March 17, 2011.)
Despite the DOJ's investigation, Apple did not disclose to its shareholders the details of the DOJ's investigation. None of Apple's proxy statements, quarterly filings, and annual filings disclosed the DOJ investigation, the settlement reached in September of 2010, or the final judgment signed on March 17, 2011. The Company's proxy statements filed on January 11, 2011, January 9, 2012, January 7, 2013, and January 10, 2014 also failed to disclose the DOJ investigation, settlement, and final judgment.
The complaint before the court is a lengthy 77 pages wherein Klein criticized Steve Jobs as being "zealous pursuit of profits" and that "Jobs's conduct is a reminder that even widely respected businessmen can knowingly commit unlawful acts in the zealous pursuit of profits. Additionally Klein stated that "In this case, Jobs and the other individual defendants knowingly caused Apple to enter into agreements that violated California law and US antitrust laws."
The Four Counts against Apple
There are four formal Counts against Apple listed in this case as noted below:
Count I: Violation of § 14(a) of the Exchange Act against Defendants Campbell, Cook, Drexler, Iger, Jung, and Levinson.
Count II: Breach of Fiduciary Duty and Aiding and Abetting Breach of Fiduciary Duty against All Individual Defendants
Count III: Gross Mismanagement against All Individual Defendants
Count IV: Waste of Corporate Assets against All Individual Defendants
The class action case presented in today's report was filed in the California Northern District Court, San Jose Office. The Presiding Judge in this case is noted as being Judge Paul Singh Grewal. This is a Stockholders Suit that was originally filed on Monday.
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