Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Apple shareholders sue board of directors over non-solicitation agreements, (Aug 13, 2014)

By Linda O’Brien, J.D., LL.M.

The late founder and other executives of Apple Inc. allegedly entered into unlawful anticompetitive agreements with other high tech companies under which Apple agreed not to recruit employees of the other companies, thereby breaching their fiduciary duty of care in prudently managing the company’s assets and business, according to a derivative lawsuit filed in the federal district court of San Jose by a group of Apple shareholders (Klein v. Cook, August 11, 2014).

Timothy Cook, Millard Drexler, Arthur Levinson, Robert Iger, and Andrea Jung currently serve on the board of directors for consumer electronics developer Apple. R. Andre Klein is an owner of Apple common stock.

The complaint alleges that Steve Jobs, Apple’s late co-founder and former chief executive officer (CEO), and other Apple executives, entered in non-solicitation agreements with other high tech companies under which the companies agreed not to recruit employees from each other. In 2009, the U.S. Department of Justice (DOJ) began investigating Apple’s hiring practices and filed a complaint against Apple and five high tech companies, alleging that the companies’ private non-solicitation agreements restrained trade, which were per se unlawful under antitrust laws. In 2010, the DOJ announced the settlement of the action in a press release.

Apple did not disclose to its shareholders the details of the DOJ investigation. Moreover, none of Apple’s proxy statements, quarter filings, or annual filings disclosed the DOJ investigation, settlement in 2010, or entry of final judgment in 2011. The proxy statements failed to disclose that (1) the defendants caused Apple to engage in anti-poaching practices; (2) Apple was under investigation for potential antitrust violations; (3) the defendants’ conduct could lead to criminal charges and civil liability; and (4) Apple could be liable for substantial damages. Based on the false and misleading information in the proxy statements, Apple recommended that the defendants be re-elected as Apple directors year after year, the complaint charges.

According to the complaint, Jobs personally lead the unlawful non-solicitation agreements with other companies and recklessly disregarded the fact that the agreements were unlawful and could expose Apple to significant liability and damages. In a class action suit brought by former employees against Apple and the high tech companies for alleged suppression of compensation, a proposed $324 million settlement recently was rejected by the federal district court in San Jose as inadequate and unfair, based in part on the strength of the evidence against Jobs as a central figure in the anti-poaching conspiracy.

Apple’s reputation allegedly has been harmed as a result of the illegal agreements. Additionally, the company’s technological and economic growth has been impeded by the suppressing high-velocity labor in the high-tech market, according to the lawsuit. Apple will continue to incur significant expenditures from (1) years of lost opportunities to hire more qualified employees that were employed at other companies; (2) defending and paying a settlement in the employee class action suit; and (3) defending and settling allegation by the DOJ, the shareholder claimed.

The derivative action was not barred by the statute of limitations, since the complaint was timely filed. In the alternative, the limitations period allegedly was tolled during late CEO Steve Job’s adverse domination of Apple and the board of directors. Moreover, the defendants concealed their wrongful acts and continuing conspiracy, the complaint charged.

The shareholder asserts claims for breach of fiduciary duty, gross mismanagement, waste of corporate assets, and violations of Section 14 of the Exchange Act. The action seeks declaratory relief, damages, restitution, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 5:14-cv-03634-PSG.

Attorneys: Francis A. Bottini, Jr. (Bottini & Bottini) for R. Andre Klein.

Companies: Apple Inc.

News: Antitrust CaliforniaNews