Free Brief in Support of Motion - District Court of Colorado - Colorado

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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 Actions Nos. 01-cv-1472, 01-cv-1527, 01-cv-1616, 01-civ 1799, 01-civ -1930, 01-cv-2083, 02-cv-333, 02-cv-374, 02-cv-507, 02-cv-658, 02-cv755; 02-cv-798, 04-cv-238) In re QWEST COMMUNICATIONS INTERNATIONAL, INC. SECURITIES LITIGATION This document relates to: STICHTING PENSIOENFONDS ABP v. QWEST COMMUNICATIONS INTERNATIONAL INC., ET AL. Civil Action No. 04-cv-238-REB-CBS ______________________________________________________________________ PLAINTIFF'S BRIEF IN SUPPORT OF ITS MOTION FOR RECONSIDERATION ______________________________________________________________________

Plaintiff Stichting Pensioenfonds ABP ("ABP"), by and through its undersigned counsel, and pursuant to Federal Rule of Civil Procedure 59(e), hereby respectfully seeks reconsideration of this Court's Order Concerning Defendants' Motions to Dismiss re: Complaint of Plaintiff Stichting Pensioenfonds ABP, dated September 12, 2005, to the extent that the Court dismissed Plaintiff's claim under Section 20(a) of the Exchange Act against Defendant Drake Tempest ("Tempest"). As set forth below, reconsideration of this decision is appropriate to correct the Court's misapprehension of the facts that resulted in the Court dismissing a claim that had not properly been briefed. To explain, Tempest did not put Plaintiff on effective notice that he intended to challenge the sufficiency of Plaintiff's allegations of "control" underlying Plaintiff's Section 20(a) claim but merely incorporated briefing by other

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defendants. As a result, in responding to Tempest's "me too" brief, Plaintiff did not specifically point-out in the Argument section of the briefing on the subject, the specific paragraphs of the First Amended Complaint that contained factual allegations demonstrating Tempest's culpability as a "control person." In point of fact, however, the First Amended Complaint contains ample facts establishing Tempest's control over Qwest to support a claim under Section 20(a), and many, if not all of the allegations were set forth in the "Factual Background" section of Plaintiff's prior brief. For these reasons, Plaintiff respectfully requests that the Court reconsider its dismissal of Plaintiff's Section 20(a) claim against Tempest. BACKGROUND On September 12, 2005, this Court issued a decision largely rejecting the motions to dismiss filed by defendants Afshin Mohebbi, Gregory Casey, Robin Szeliga and Drake Tempest.1 In re Qwest Comm. Int'l, Inc. Sec. Litig., No. 01-cv-1451-REBCBS, 2005 WL 2240524 (D. Colo. Sept. 12, 2005) ("September 12, 2005 Decision"). This decision followed the Court's March 29, 2005 decision in which the Court, inter alia, wholly rejected motions to dismiss filed by Defendants Qwest, Phillip Anschutz and

Mohebbi, Casey, Szeliga and Tempest, filed their respective motions to dismiss the First Amended Complaint on September 10, 2004. The First Amended Complaint states the following causes of action against these defendants: (1) Count I asserts a claim against Woodruff, Nacchio and Szeliga under Section 18 of the Exchange Act; (2) Count III asserts a claim against each of the Qwest Individual Defendants under Section 10(b) and Rule 10b-5 of the Exchange Act; (3) Count VI states a claim against each of the individual defendants under Section 20(a) of the Exchange Act; (4) Count VIII states a claim against Nacchio and Szeliga under Section 304 of the Sarbanes-Oxley Act; (5) Count IX states a claim against the Qwest Individual Defendants under the Colorado Securities Act; (6) Count XI states a claim against the Qwest Individual Defendants for common law fraud; (7) Count XII states a claim against the Qwest Individual Defendants for civil conspiracy; and (8) Count XV states a claim against the Qwest Individual Defendants for negligent misrepresentation.

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Craig Slater. In re Qwest Comm. Int'l, Inc. Sec. Litig., No. 01-cv-1451-REB-CBS, slip op. (D. Colo. Mar. 29, 2005) ("March 29, 2005 Decision"). In his motion to dismiss the First Amended Complaint filed on September 10, 2004 ("Tempest MTD"),2 Tempest did not present any independent arguments at all. Instead, he but merely incorporated by reference the legal arguments raised in motions to dismiss filed by Defendants Craig Slater and Phillip Anschutz, Joseph Nacchio, Afshin Mohebbi and Qwest. Tempest MTD at 2. Tempest wrote: "To avoid burdening the Court with duplicative papers, Tempest joins in and adopts the portions of the Motions to dismiss filed by Defendants Qwest, Nacchio, Anschutz and Slater, and Casey which address the deficiencies in all counts alleged against Tempest. See, e.g., Qwest Motion (Sections I, IV-VI), Nacchio Motion (Sections II-IV), Anschutz and Slater Motion (Sections I-II, IV-VI)." Id. Of these briefs, only the memorandum filed by Anschutz and Slater addressed the issue of "control persons" liability under Section 20(a). In Argument IV of their motion to dismiss filed with Court on August 9, 2004 ("Anschutz and Slater MTD"), Anschutz and Slater argued that ABP had failed to sufficiently allege that Anschutz and Slater, as directors of Qwest, could be liable as control persons under Section 20(a). Anschutz and Slater MTD at 21-22. Plaintiff responded to this argument in its

Response to the Qwest Defendants' Motions to Dismiss the First Amended Complaint, docketed as 127 in 04-cv-0238-REB-CBS (D. Colo. Sept. 17, 2004) and the Court rejected Slater and Anschutz's argument in the March 29, 2005 Decision. Specifically,

Defendant Drake S. Tempest's Motion to Dismiss, dated September 10, 2004, docketed as 121, in 04cv-0238-REB-CBS.

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the court held that the First Amended Complaint pleads sufficient facts to support a control-person claim against both Slater and Anschutz. See March 29, 2005 Decision at 38. In sum, therefore, the Court's March 29, 2005 Decision and September 12, 2005 Decision rejected all of the arguments upon which Tempest's motion to dismiss was based. In addressing Tempest's motion to dismiss in the September 12, 2005 Decision, however, the Court dismissed Plaintiffs' Section 20(a) against Tempest not based on an application of the law, but because the Court determined specific factual allegations giving rise to Tempest's liability as a "control person" were not elucidated in the briefing on his motion to dismiss. The Court held: ABP has not pointed to any specific allegations in the Complaint that indicate that Tempest had control over any of the primary violators who committed the violations alleged in the Complaint, and the court has not noted any such allegations in its review of the Complaint. I note that the Complaint is over 300 pages long. The court's practice standards require "specific references in the form of pinpoint citations" to identify relevant excerpts from a document. REB Civ. Practice Standard II.D.2. If there are specific allegations concerning Tempest's control over primary violators, its is ABP's burden to cite specifically to those allegations. See Phillips v. James, --- F.3d ----, 2005 U.S. App. Lexis 19074, *13, No. 03-4272, slip op. at 10 (10th Cir. September 2, 2005) (absent specific citation to record by plaintiff, court will not sift through record for support for argument). Absent allegations that indicate that Tempest had control over any of the primary violators who committed the violations alleged in the Complaint, ABP has not stated a § 20(a) claim against Tempest. September 12, 2005 Decision at 25.

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As an initial matter, Plaintiff respectfully suggests that it was not on notice of -- nor did Tempest properly raise -- an argument that the First Amended Complaint failed to allege sufficient facts regarding Tempest's control-person status. As such, Plaintiff respectfully suggests that it was a misapprehension of the facts to dismiss Plaintiff's Section 20(a) claim against Tempest on grounds that Plaintiff did not identify in the previous briefs the specific facts in the First Amended Complaint supporting this claim. In point of fact, however, the First Amended Complaint contains more than adequate facts establishing Tempest's liability as a control-person of a primary violator of the securities laws. And many of these facts actually were set forth in Plaintiff's response briefs. See, e.g., September 17, 2004 Response Brief at 7 (identifying Tempest's

position with the Company), 17 (describing how Tempest conspired with Szeliga and Nacchio to counter criticism of Qwest accounting), and 18 (quoting letter from Tempest to Denver Post in which he defended Qwest's accounting practices). Accordingly,

Plaintiff respectfully requests that the Court reconsider its dismissal of Plaintiff's Section 20(a) claim against Tempest. ARGUMENT I. IT IS APPROPRIATE FOR THE COURT TO RECONSIDER ITS DISMISSAL OF PLAINTIFFS' SECTION 20(A) CLAIM AGAINST TEMPEST Reconsideration is proper under Fed. R. Civ. P. 59(e).3 A motion for

reconsideration is an opportunity for the court to correct manifest errors of law or fact.

Under Rule 59 of the Federal Rule of Civil Procedure, a party may move for reconsideration of a final judgment or order within 10 days of the entry of the order. Fed. R. Civ. P. 59(e). Plaintiff seeks reconsideration of an order entered on September 12, 2005 and therefore this motion is timely.

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Harsco Corp. v. Zlotnicki, 779 F.2d 906, 909 (3d Cir. 1985), cert. denied, 476 U.S. 1171 (1986). Appropriate grounds for a motion to reconsider include the "obvious

misapprehension by the court of a party's position, the facts, or the law; or a mistaken decision by the court of issues outside those presented for determination." All West Pet Supply Co. v. Hill's Pet Products Div., Colgate-Palmolive Co., 847 F.Supp. 858, 860 (D. Kan. 1994) (quoting Renfro v. City of Emporia, 732 F. Supp. 1116, 1117 (D. Kan. 1990) aff'd, 948 F.2d 1529 (10th Cir. 1991), cert. dismissed, 503 U.S. 915 (1992); United States v. Ibarra, 920 F.2d 702, 706 (10th Cir. 1990) (noting that a "motion to reconsider would be appropriate where, for example, the Court has patently misunderstood a party, or has made a decision outside the adversarial issues presented to the Court by the parties, or has made an error not of reasoning but of apprehension") vacated on other grounds, 502 U.S. 1 (1991). The decision to grant or deny a motion for reconsideration is committed to this court's discretion. See Hancock v. Oklahoma City, 857 F.2d 1394, 1395 (10th Cir. 1988). Plaintiff respectfully suggests that reconsideration is warranted in this case because the Court decided issues that were not properly raised in Tempest's motion to dismiss and thus Plaintiff was not afforded an opportunity to address these issues in its briefing. In order to properly raise an issue in a motion to dismiss, a party must state "with particularity" the grounds for dismissal. Fed. R. Civ. P. 7(b)(1). Rule 7 is designed "'to afford notice of the grounds and prayer of the motion to both the court and the opposing party, providing that party with a meaningful opportunity to respond and the court with enough information to process the motion correctly.'" Cambridge Plating Co.

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v. Napco, Inc., 85 F.3d 752, 760 (1st Cir.1996) (quoting Registration Control Sys., Inc. v. Compusystems, Inc., 922 F.2d 805, 808 (Fed.Cir.1990)) (finding that plaintiff was not properly placed on notice of defendants' argument where argument was a single sentence in a footnote). In this case, Tempest's motion to dismiss did not adequately apprise Plaintiff that he was challenging the sufficiency of Plaintiff's factual allegations relating to his position as a "control person" within the meaning of Section 20(a). Indeed, Tempest's two-page motion to dismiss simply incorporated by reference briefs filed by other defendants without identifying any particular arguments or explaining how any such arguments could have applied to him. See Tempest MOL at 2. In fact, of the briefs Tempest incorporated, only Anschutz's and Slater's brief (filed August 9, 2004) addressed the issue of control person liability under Section 20(a). Plaintiff fully addressed these

arguments in its September 17, 2004 Response Brief and the Court resolved these arguments in Plaintiff's favor. See March 29, 2005 Decision at 23. Because Plaintiff was not put on notice by Tempest that he was challenging the sufficiency of Plaintiff's factual allegations regarding his control over primary violators, Plaintiff had no "meaningful opportunity to respond" to the argument. As such, it was a manifest error of fact for the Court to dismiss Plaintiff's Section 20(a) claim against Tempest on grounds that plaintiff had "not pointed to any specific allegations in the Complaint that indicate that Tempest had control over any of the primary violators who committed the violations alleged in the Complaint." Reconsideration under Rule 59(e) is therefore warranted.

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II.

THE FIRST AMENDED COMPLAINT ALLEGES SUFFICIENT FACTS TO SUPPORT A SECTION 20(A) CLAIM AGAINST TEMPEST Had Plaintiff been properly placed on notice that Tempest was challenging the

sufficiency of Plaintiff's control-person allegations, it would have highlighted the wealth of facts in the First Amended Complaint, and which were also set forth in Plaintiff's response briefs, that establish Tempest's liability as a control-person of a primary violator of Section 10(b). "To state a prima facie case of control person liability, the plaintiff must establish (1) a primary violation of the securities laws and (2) `control' over the primary violator by the alleged controlling person." September 12, 2005 Decision at 22; citing Maher v. Durango Metals, Inc., 144 F.3d 1302, 1305 (10th Cir. 1998). To allege control, "the plaintiffs must allege facts that indicate that the defendant had the `possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise." Id.; see also Adams v. Kinder-Morgan, Inc., 340 F. 3d 1083, 1108 (10th Cir. 2003). The allegations of the First Amended Complaint

regarding Tempest are more than sufficient in this regard. This Court already has recognized that the First Amended Complaint4 adequately pleads a claim under Section 10(b) against Qwest and certain individual defendants, including, among others, Robin Szeliga. In fact, the First Amended Complaint amply demonstrates Tempest's "control" over these primary violators. As recognized by the Court in the September 12, 2005 Decision, the First Amended Complaint alleges that

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All references to the First Amended Complaint shall appear as "¶ __".

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Tempest was Qwest's Executive Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary. ¶28. As such, he was in the position to control the content of Qwest's SEC filings and public statements. ¶ 507, 510. These facts alone have been found sufficient to establish control-person liability under Section 20(a). See, e.g., Griffin v. GK Intelligent Sys., Inc., 87 F. Supp. 2d 684, 689 (S.D. Tex. 1999) ("Plaintiffs have alleged that Norville, as director, vice president, chief financial officer, chief administrative officer, and general counsel, had actual power or influence over GK and the ability to control corporate policy. These allegations satisfy Plaintiffs' pleading requirements under Section 20(a) of the Act"). But Plaintiff's allegations do not stop there. In addition to these facts, Plaintiff has alleged specific examples of Tempest's actual control over primary violators of Section 10(b). For example, Tempest's control over Qwest is evident from his mounting a response to criticism of Qwest's accounting in 2001, on behalf of Qwest. ¶76, 507. On September 10, 2001, Tempest wrote a letter to the Denver Post in which he defended Qwest's accounting practices against an article published in that newspaper. ¶507. He asserted, "The article accuses Qwest of intentionally publishing misleading financial statements by electing an accounting treatment for optical capacity sales that other companies do not use. This is entirely false . . . Our financial statements are not `misleading.' How can they be misleading if we simply report what is required by

GAAP." Id. (see also September 17, 2004 Brief at 15). In fact, as we know now from Qwest's restatement, Qwest's accounting did not comply with GAAP. See generally ¶¶85-90. Tempest's letter, expressly written on behalf of Qwest, confirms Tempest's

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ability to control Qwest's disclosures, his ability to speak on behalf of Qwest, and his familiarity with Qwest's accounting practices. Tempest also helped orchestrate Qwest's response to criticism from analysts at Morgan Stanley regarding Qwest's accounting in June 2001. ¶99 (see also September 17 Brief at 15). After Morgan Stanley issued its report, Robin Szeliga met with Tempest and Nacchio to discuss how to respond to these charges. In her notes following the meeting, she wrote: "Quietly close Morgan Stanley out of Co.--banking, personal wealth management, options program, IB [investment banking] opportunities." And

noted that they had "called Grubman" and she was to "work with Salomon [Smith Barney] to get out their note ASAP." ¶ 99. Of course, following this meeting, Jack Grubman, Salomon's analyst's came out with a ringing endorsement of Qwest's accounting and claimed that it was "safe to assume that Qwest's accounting practices are well within general accepted accounting principles, and furthermore, well within industry practices." ¶ 100, 668, 670. The fact that Tempest was involved in framing Qwest's public response and directing Szeliga to do so, is further evidence of his control over these primary violators of the securities laws. The First Amended Complaint also alleges that Tempest was among the persons that had the power to determine whether to disclose illicit revenue-boosting sideagreements that Qwest executives ¶667. had secretly negotiated with other

telecommunications companies.

According to testimony by Szeliga before

Congress, she became aware of an email authored by Afshin Mohebbi to an executive at Cable & Wireless, in which he acknowledged the existence of a secret side-

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agreement that would permit Qwest to inflate its revenue by structuring a transaction in a particular manner. Id. (September 17 Brief at 13). Szeliga testified that she spoke with Nacchio and Tempest about her concerns with that email and other secret side deals but nothing was done to restate Qwest's financials. Id. The fact that Tempest was in a position to dictate a course of action for Szeliga underscores his control over Qwest and, in this case, Szeliga. Tempest's position as a control person at Qwest was even perceived by Qwest's employees. A letter from an anonymous Qwest "whisteblower" employee to Phillip

Anschutz in May 2002 stated the following: I am asking that you fire Joe Nacchio and Drake Tempest for cause. Qwest has violated security laws, FCC rules and some state commission rules. Joe and Drake did not order specifically subordinates to do unethical and/or illegal acts. However, they set goals and targets that were impossible to attain without engaging in unethical and/or illegal acts. Basically, subordinates were given the choice of attaining these targets or being fired. Unfortunately, at least a dozen Qwest employees chose to break the law rather than face dismissal. ¶513. In sum, these facts are more than sufficient to plead Tempest's liability as a control person of primary violators of the securities laws under Section 20(a).

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CONCLUSION

WHEREFORE, Stichting Pensioenfonds ABP respectfully requests that its motion for reconsideration be granted. Date: September 26, 2005 Respectfully submitted, _/s Michael J. Barry_______ Jay W. Eisenhofer Michael J. Barry Sharan Nirmul GRANT & EISENHOFER P.A. Chase Manhattan Centre 1201 N. Market Street Wilmington, Delaware 19801 Telephone: (302) 622-7000 Facsimile: (302) 622-7100 Clyde A. Faatz, Jr. Christopher J.W. Forrest Robin L. Nolan HAMILTON & FAATZ A Professional Corporation 1600 Broadway, Suite 500 Denver, Colorado 80202-4905 Telephone: (303) 830-0500 Facsimile: (303) 860-7855 Attorneys for Plaintiff Stichting Pensioenfonds ABP

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CERTIFICATE OF SERVICE I hereby certify that on this 26th day of September, 2005, a copy of the foregoing PLAINTIFF'S BRIEF IN SUPPORT OF ITS MOTION FOR RECONSIDERATION was electronically filed with the Clerk of the Court using the USDC CM/ECF system, which will send notification of such filing to the following email addresses:
Timothy Granger Atkeson [email protected] [email protected];[email protected];[email protected];sco [email protected];[email protected];[email protected];kwa [email protected];[email protected] Michael James Barry [email protected] [email protected];[email protected] Jeffrey Allen Berens [email protected] Nicholas M. Billings [email protected] Terry W. Bird [email protected] Jessica Brody [email protected] [email protected];[email protected];[email protected];joh [email protected];[email protected];[email protected] ;[email protected];[email protected] Spencer A. Burkholz [email protected] [email protected] John K. Carroll [email protected] Kwame A. Clement [email protected] [email protected] David Lawrence Cook [email protected]

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Jennifer Lynn Coon [email protected] [email protected] Marguerite S. Dougherty [email protected] Michael J. Dowd [email protected] [email protected] Mark T. Drooks [email protected] [email protected] Stephanie Erin Dunn [email protected] [email protected] Thomas E. Egler [email protected] [email protected] Clyde A. Faatz, Jr [email protected] [email protected];[email protected] Christopher James W. Forrest [email protected] [email protected];[email protected] Joshua David Franklin [email protected] John A. Freedman [email protected] Walter W. Garnsey, Jr [email protected] [email protected] Terence C. Gill [email protected] [email protected];[email protected] Marcy Marie Heronimus [email protected] [email protected];[email protected] Scott M. Himes [email protected] Michael James Hofmann [email protected] [email protected] Kevin Brent Huff [email protected] [email protected] Shelby Hunt [email protected]

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Lee Frederick Johnston [email protected] [email protected];[email protected] Roberta A. Kaplan [email protected] Gary Michael Kramer [email protected] [email protected] William J. Leone [email protected] [email protected];[email protected] Alfred P. Levitt [email protected] [email protected] David Meister [email protected] James D. Miller [email protected] [email protected];[email protected] Robert Nolen Miller [email protected] [email protected] James E. Nesland [email protected] [email protected];[email protected] Sharan Nirmul [email protected] [email protected] Robin Lee Nolan [email protected] [email protected];[email protected] Elissa J. Preheim [email protected] Kimberly Wolf Price [email protected] Thomas Vincent Reichert [email protected] [email protected] Eric Tolentino Rillorta [email protected] Kenneth F. Rossman, IV [email protected]

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Scott Saham [email protected] Scott B. Schreiber [email protected] Paul Howard Schwartz [email protected] [email protected];[email protected];[email protected] David L. Schwarz [email protected] [email protected] Jeffrey Allen Smith [email protected] [email protected];[email protected] Holly Stein Sollod [email protected] [email protected];[email protected] Jesus Manuel Vazquez, Jr [email protected] [email protected] Jennifer H. Weddle [email protected] [email protected]

And, I also certify that I served same by depositing the foregoing in the U.S. Mail, first-class, postage prepaid, addressed to the following:
David R. Boyd Lerach Coughlin Stoia Geller Rudman & Robbins, LLP 401 B Street #1700 San Diego, CA 92101 Cleo J. Rauchway Rothgerber, Johnson & Lyons, LLP United States District Court Box 11 1200 17th Street, Suite #3000 Denver, CO 80202 Vincent J. Marella Bird, Marella, Boxer & Wolpert, APC 1875 Century Park East 23rd Floor Los Angeles, CA 90067

/s/ Michael J. Barry Michael J. Barry 4