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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-cv-1451-REB-CBS (Consolidated with Civil Action Nos. 01-cv-1472-REB-CBS, 01-cv-1527-REB-CBS, 01cv-1616-REB-CBS, 01-cv-1799-REB-CBS, 01-cv-1930-REB-CBS, 01-cv-2083-REBCBS, 02-cv-0333-REB-CBS, 02-cv-0374-REB-CBS, 02-cv-0507-REB-CBS, 02-cv-0658REB-CBS, 02-cv-755-REB-CBS, 02-cv-798-REB-CBS and 04-cv-0238-REB-CBS) In re QWEST COMMUNICATIONS INTERNATIONAL, INC. SECURITIES LITIGATION LEAD PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT
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I.
INTRODUCTION This unopposed motion1 is submitted by Lead Plaintiffs in support of their request for
entry of the [Proposed] Order Preliminarily Approving Partial Settlement and Approving Form and Manner of Notice ("Notice Order") submitted herewith. The Notice Order will: (a) preliminarily approve the proposed partial settlement of this class action on the terms set forth in the Stipulation of Partial Settlement dated as of November 21, 2005 ("Stipulation");2 (b) approve the Settling Parties' proposed form and method for giving notice of the pendency of this action and the settlement to the putative Class; (c) direct that the notice be given to Class Members as approved by the Court; and (d) schedule a Settlement Hearing at which the Court considers: (i) the Settling Parties' request for final approval of the settlement and entry of the proposed Partial Final Judgment and Order of Partial Dismissal
1
Pursuant to Local Rule 7.1, Lead Counsel has conferred with counsel for all parties. While no party opposes this motion, defendants Nacchio and Woodruff oppose the terms of the proposed partial settlement and have stated their express intention to oppose final approval of the proposed partial settlement based on their contention that, among other things, the proposed partial settlement unfairly and improperly purports or seeks to extinguish, impair or affect their rights to indemnification (whether pursuant to law, contract or Qwest governance instruments) or their other claims, and otherwise prejudice their rights or their claims with respect to adjudication or resolution of the claims asserted against them. Defendants Nacchio and Woodruff respectfully reserve all of their rights, objections and remedies with respect to final approval of the proposed partial settlement. Furthermore, defendants Nacchio and Woodruff reserve all of their rights as to the claims asserted against them, including their opposition to class certification, which incorporated by reference the briefs of other defendants.
2
All capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Stipulation. Attached as exhibits to the Stipulation are: [Proposed] Order Preliminarily Approving Partial Settlement and Approving Form and Manner of Notice (Exhibit A); Notice of Pendency and Partial Settlement of Class Action (Exhibit A-1); Proof of Claim and Release (Exhibit A-2); Summary Notice (Exhibit A-3); and [Proposed] Partial Final Judgment and Order of Partial Dismissal With Prejudice (Exhibit B). -1-
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with Prejudice; (ii) the Plan of Allocation of settlement proceeds; and (iii) Lead Counsel's application for an award of attorneys' fees and reimbursement of expenses and Lead Plaintiffs' request for reimbursement of their expenses (including lost wages). After some four years of hard-fought litigation, the Settling Parties have reached an agreement to settle this litigation on the terms set forth in the Stipulation which is being filed concurrently herewith. This partial settlement resolves all claims against the Settling Defendants but does not resolve the claims against Joseph P. Nacchio (former Chief Executive Officer of Qwest) and Robert S. Woodruff (former Chief Financial Officer of Qwest) who are not parties to the settlement. The settlement provides for the payment of $400,000,000.00 in cash for the benefit of the Class. An additional $250 million in cash may also be distributed to the Class from the SEC Distribution Fund.3 Lead Plaintiffs and their counsel believe that the substantial recovery obtained for the benefit of the Class
3
The settlement is on behalf of the stipulated Class defined as: all persons who purchased or otherwise acquired Qwest publicly traded securities (including common stock, bonds, and options) from May 24,1999 through July 28, 2002 ("Class Period"). Excluded from the Class are Defendants and any Persons affiliated with or related to any Defendant. For purposes of this provision, the persons affiliated with or related to any Defendant are members of the immediate family of each Individual Defendant, any entity in which any Defendant has a controlling interest, officers and directors of Qwest and its subsidiaries and affiliates, partners, shareholders, and members of Arthur Andersen LLP, and the legal representatives, heirs, predecessors, successors and assigns of any such excluded party. Also excluded from the Class are those Persons who request exclusion from the Class in such form and manner, and within such time, as the Court shall prescribe. Also excluded from the Class is any current or former officer, director, employee, or agent of Qwest who has been sued by the United States Securities and Exchange Commission in connection with such Person's affiliation with or conduct related to Qwest.
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given Qwest's financial condition is an excellent recovery and easily meets the standards for preliminary and final approval. II. HISTORY OF THE LITIGATION On July 27, 2001, New England Healthcare Employees Pension Fund filed a class action complaint, entitled New England Health Care Employees Fund v. Qwest et al., Civil Action No. 01-N-1451-REB-CBS, in the United States District Court for the District of Colorado, alleging various violations of the federal securities laws. A number of similar class action complaints were subsequently filed in the United States District Court for the District of Colorado. Pursuant to the Private Securities Litigation Reform Act of 1995 ("PSLRA"), all of the related class action complaints were consolidated under the first filed case No. 01-N-1451; New England Healthcare Employees Pension Fund, Clifford Mosher, Tejinder Singh, and Satpal Singh were appointed Lead Plaintiffs; and a consolidated class action complaint was filed. Lead Plaintiffs filed amended complaints on December 3, 2001, April 5, 2002, May 2, 2002, August 21, 2002, and February 6, 2004. In the Fifth Amended Complaint, the named defendants in the Litigation were Qwest Communications International Inc., Arthur Andersen LLP, Joseph Nacchio, Philip Anschutz, Robin Szeliga, Robert Woodruff, Stephen Jacobsen, Drake Tempest, Marc Weisberg, James Smith, Lewis Wilks, Craig Slater, Afshin Mohebbi, Gregory Casey, and Vinod Khosla. The causes of action asserted in the Fifth Amended Complaint were for violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. Lead Plaintiffs sought to recover money and/or other relief on behalf of themselves and a putative class.
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On November 4, 2002, Lead Plaintiffs moved for a temporary restraining order and a preliminary injunction to prevent Qwest from selling certain assets, or, in the alternative, to place the proceeds from that sale in trust. Qwest opposed that motion. The Court denied Lead Plaintiffs' request for a temporary restraining order, and following supplemental briefing and a hearing at which both sides presented evidence, denied Lead Plaintiffs' request for a preliminary injunction. Defendants moved to dismiss Lead Plaintiffs' various consolidated amended complaints, and Lead Plaintiffs opposed Defendants' motions. Defendants' motions to dismiss were granted in part and denied in part, with some Individual Defendants being dismissed from the Litigation. In other instances, the claims or allegations against Defendants were narrowed. Those Defendants not dismissed from the Litigation filed answers denying all material allegations of Lead Plaintiffs' Fifth Amended Complaint and asserted various defenses. Lead Plaintiffs and Defendants engaged in extensive discovery, which has been coordinated with discovery in several other state and federal securities actions. For example, Qwest has produced more than 8,000,000 pages of documents, and Lead Plaintiffs and Defendants have conducted more than 50 depositions. Those depositions began in early 2005. In March 2005, Lead Plaintiffs filed a motion for class certification that was fully briefed at the time the proposed settlement was reached. As part of the settlement, the Settling Parties stipulated to the certification of the Class which is defined in the Stipulation and footnote 3 herein. -4-
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In October 2005, with the substantial assistance of retired U.S. District Court Judge Layn R. Phillips and retired California Superior Court Judge Daniel Weinstein, the Settling Parties reached a tentative agreement to settle for $400 million ($10 million to be contributed by Arthur Andersen LLP) after extensive arm's-length negotiations. III. THE PROPOSED SETTLEMENT WARRANTS PRELIMINARY APPROVAL As a matter of public policy, settlement is a strongly favored method for resolving disputes. See Grady v. De Ville Motor Hotel, Inc., 415 F.2d 449, 451 (10th Cir. 1969), Alvarado Partners v. Mehta, 723 F. Supp. 540, 551 (D. Colo. 1989). This is especially true in complex class actions such as this. See, e.g., Officers for Justice v. Civil Serv. Comm'n, 688 F.2d 615, 625 (9th Cir. 1982), Cotton v. Hinton, 559 F.2d 1326, 1331 (5th Cir. 1977). Rule 23(e) of the Federal Rules of Civil Procedure requires judicial approval for the compromise of claims brought on a class basis. At the final approval hearing, the Court will have before it extensive papers submitted in support of the proposed settlement and will be asked to make a determination as to whether the settlement is fair, reasonable and adequate, under all of the circumstances. At this juncture, however, the Settling Parties request only that the Court grant preliminary approval of the settlement. In determining whether preliminary approval is warranted, the sole issue before the Court is whether the proposed settlement is within the range of what might be found fair, reasonable and adequate, so that notice of the proposed settlement should be given to Class Members and a hearing scheduled to consider final settlement approval. See Manual for Complex Litigation, Fourth §13.14, at 173 (Federal Judicial Center 2004) ("First, the [court] reviews the proposal preliminarily to determine whether it is sufficient to warrant -5-
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public notice and a hearing. If so, the final decision on approval is made after the hearing."). The Settling Parties are now requesting the Court to take the first step in this process and grant preliminary approval of the proposed partial settlement. The proposed settlement clearly satisfies the standard for approval. The settlement provides an
immediate and substantial cash benefit to the Class, providing the sum of $400 million. An additional $250 million may also be available for distribution to eligible Class Members. The $400 million represents one of the larger cash settlements of a securities class action; Lead Plaintiffs believe it to be in the top 10 or 15 settlements achieved after the passage of the PSLRA. Given the complexities of this Litigation, the substantial risks of continued litigation and Qwest's financial condition, Lead Counsel believe the settlement represents an excellent resolution of this Litigation against the Settling Defendants and eliminates the risk that the Class might not otherwise recover if litigation were to continue. Moreover, reference to factors established by the Tenth Circuit in granting final approval of class action settlements lend support to the proposition that the settlement is well within the range of possible approval. See Gottlieb v. Wiles, 11 F.3d 1004, 1014 (10th Cir. 1993); Jones v. Nuclear Pharmacy, Inc., 741 F.2d 322, 324 (10th Cir. 1984). First, there is no reason to doubt the fairness of the settlement. The proposed settlement is the product of lengthy, arm's length, negotiations among Lead Counsel and counsel for the Settling Defendants. The negotiations were aided and facilitated by a retired United States District Court judge and a retired California State Court judge. The Settling Parties fully expect the mediator to confirm the reasonableness of the settlement. Only after extensive -6-
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negotiations and analysis of the case and Qwest's financial condition were the Settling Parties able to achieve a mutually acceptable resolution of Lead Plaintiffs' claims against the Settling Defendants. Second, the substantial and immediate recovery provided by the settlement outweighs the mere possibility of future relief after protracted, uncertain and expensive litigation. In this case, the Settling Defendants have expressly denied and continue to deny all claims of wrongdoing or liability against them arising out of the allegations set forth in the Fifth Amended Complaint. Lead Plaintiffs believe that, at a minimum, the Settling
Defendants would have claimed a lack of scienter as to misstatements or omissions during the Class Period. Lead Plaintiffs further expected that the Settling Defendants would have maintained that, at best, their misstatements or omissions were made accidentally, mistakenly or negligently. Although Lead Plaintiffs believe that they could have
demonstrated the requisite scienter, a rational trier of fact could have disagreed as to certain statements or omissions. In addition, Lead Plaintiffs believe that the Settling Defendants would have disputed both the existence and amount of damages. Clearly, the damages issues would have been hard fought at trial. Another major risk facing the Class was the potential delay of this litigation pending the outcome of the ongoing Qwest criminal investigation. On August 3, 2005 the United States Attorney's Office for the District of Colorado moved to stay more than a third of the 80 depositions Lead Plaintiffs sought to take in this action while it considers whether to bring criminal charges. While the motion has not yet been decided, under the local rules of the District of Colorado, discovery is stayed while the motion is on file. Further, the United States Attorney's Office has indicated -7-
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in court that its request to delay the depositions may be extended past indictment and until any potential trial, which could be years in the future. Finally, even if Lead Plaintiffs had prevailed at trial as to both liability and damages, there was a substantial risk that it would prove to be a Pyrrhic victory. Put simply, Qwest's financial condition and the potential financial impact upon the Company that would accompany a large judgment by Lead Plaintiffs at trial, were major risks facing the Class. The $400 million recovery for the Class adequately accounts for these, and other significant risks at trial, including the defendants' defenses. Lead Plaintiffs, through their counsel, having carefully considered and evaluated, inter alia, the relevant legal authorities and evidence to support the claims asserted against the Settling Defendants, the likelihood of prevailing on these claims, the risk, expense and duration of continued litigation, the likely appeals and subsequent proceedings necessary if Lead Plaintiffs did prevail against the Settling Defendants at trial, and the collectability of any favorable judgment after trials and appeals, have concluded that the settlement is clearly fair, reasonable and adequate and in the best interest of the Class. Lead Counsel have significant experience in securities and other complex class action litigation and have negotiated numerous other substantial class action settlements throughout the country. While the Settling Parties believe the settlement merits final approval, the Court need not make that determination at this time. The Court is being asked to permit notice of the terms of the settlement to be sent to the Class and schedule a hearing, pursuant to Federal Rule of Civil Procedure 23(e), to consider any expressed views by Class Members of the fairness of the settlement, the Plan of Allocation, and Lead Counsel's request for an -8-
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award of fees and expenses. 5 James Wm. Moore, Moore's Federal Practice ¶23.85[3], at 23-353 to 23-354 (3d ed. 2002). IV. SCHEDULE OF EVENTS In connection with preliminary approval of the settlement, the Court must set a final approval hearing date, dates for mailing and publication of the Notice and Summary Notice and deadlines for objecting to the settlement, seeking exclusion from the Class, and filing papers in support of the settlement. The parties propose the following schedule: Notice mailed to Class Summary Notice published Deadline for filing papers in support of the settlement, Plan of Allocation of settlement proceeds and request for an award of attorneys' fees and expenses Deadline for objecting to settlement, Plan of Allocation of settlement proceeds or request for attorneys' fees and expenses and for seeking exclusion from the Class Deadline for filing reply to objections Settlement Hearing 10 days after the Court enters the Notice Order ("Notice Date") 10 days after Notice Date 40 days after Notice Date
50 days after Notice Date
14 days before Settlement Hearing No fewer than 100 days after Notice Date
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