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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Case No. 01-cv-01451-REB-CBS (Consolidated With Civil Action Nos. 01-cv-1472-REB-CBS, 01-cv-01527-REB-CBS, 01-cv-1616-REB-CBS, 01--cv-01799-REB-CBS, 01-cv-01930-REB-CBS, 01-cv-02083-REB-CBS, 02-cv-00333-REB-CBS, 02-cv-00374-REB-CBS, 02-cv-00507-REB-CBS, 02-cv-00658-REB-CBS, 02-cv-00755-REB-CBS, 02-cv-00798-REB-CBS, and 04-cv-00238-REB-CBS) In Re QWEST COMMUNICATIONS INTERNATIONAL, INC. SECURITIES LITIGATION DEFENDANT DRAKE TEMPEST'S RESPONSE TO LEAD PLAINTIFFS' OBJECTION TO THE AUGUST 22, 2005 ORDER OF MAGISTRATE JUDGE SHAFFER DENYING PLAINTIFFS' MOTION TO COMPEL FURTHER RESPONSES TO PLAINTIFFS' FIRST SET OF INTERROGATORIES On August 22, 2005, after considering full briefing and oral argument, Magistrate Judge Shaffer rejected Lead Plaintiffs' request that the Court compel Defendant Drake Tempest to divulge personal financial information about investments he made in companies that did not purchase IRUs from Qwest or otherwise have anything to do with the claims in this case.1 Magistrate Judge Shaffer sensibly reasoned that the information Lead Plaintiffs were demanding was "too remote and too tangential" to Lead Plaintiffs' claims or Mr. Tempest's defenses to be discoverable. (See Aug. 17, 2005 Mots. Hr'g Tr. at 58, Docket # 790, relevant portions attached hereto as Exhibit A) Lead Plaintiffs' objection now recycles the same arguments (in most instances verbatim) that Magistrate Judge Shaffer considered and rejected. In so doing, though, Lead Plaintiffs fail to mention the highly deferential "clearly erroneous or contrary to law"
Mr. Tempest agreed to produce information regarding investments he made in companies that did purchase IRUs at some point from Qwest.
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standard of review under which this Court must evaluate Magistrate Judge Shaffer's Order. Lead Plaintiffs' omission is not an oversight. Lead Plaintiffs know that when measured against this standard of review, their objection is even more baseless than their original motion. The Court should be clear on what is -- and is not at issue -- in Lead Plaintiffs' motion. As noted, prior to Lead Plaintiffs' filing their motion, Mr. Tempest agreed to provide Lead Plaintiffs with the information they requested with respect to investments he made in Qwest suppliers who at some time purchased IRUs from Qwest. (See Ex. A) (We refer to these suppliers as "the IRU Vendors." This refers to Qwest vendors who bought, not sold, IRUs.)2 Thus, the only information at issue in Lead Plaintiffs' motion (and Lead Plaintiffs' objection) is private financial information about personal investments Mr. Tempest made in various Qwest vendors who had no alleged involvement whatsoever with Qwest IRUs or any of the other claims or defenses in this case ("the Non-IRU Vendors"). This distinction is critical because the only purported justification offered by Lead Plaintiffs for the relevance of Mr. Tempest's personal financial information to Lead Plaintiffs' claims is the alleged link between the investments and subsequent IRU purchases. Because there is no conceivable connection between the claims in this case and executives' personal investments in suppliers who were not involved with IRUs, Magistrate Judge Shaffer's Order denying Lead Plaintiffs' motion to compel Mr. Tempest's irrelevant, private financial information was neither clearly erroneous nor contrary to law. For this reason and the reasons below, the Court should overrule Lead Plaintiffs' objections.
Mr. Tempest believes these investments are completely irrelevant to Lead Plaintiffs' claims and outside the scope of Rule 26(b)(1) because they occurred nearly one to two years before any of the IRU sales. Nevertheless, in the spirit of cooperation and to avoid burdening the Court with another discovery dispute, Mr. Tempest agreed to respond to the interrogatories to this extent.
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I.
ARGUMENT A. Legal Standard Because Magistrate Judge Shaffer's Order addresses a non-dispositive issue, the
Court may reverse the decision only if the Court finds it to be "clearly erroneous or contrary to law." Fed. R. Civ. P. 72(a); Cook v. Rockwell Int'l Corp., 147 F.R.D. 237, 243 (D. Colo. 1993). Under the clearly erroneous standard of review, Magistrate Judge Shaffer's Order should not be rejected merely because the Court would have decided the matter differently. Anderson v. City of Bessemer, 470 U.S. 564, 573 (1985). Rather, the Court must affirm Magistrate Judge
Shaffer's Order unless "the court on the entire evidence is left with the definite and firm conviction that a mistake has been made." Cook, 147 F.R.D. at 243. Lead Plaintiffs cannot satisfy their high burden of showing that Magistrate Judge Shaffer's Order was clearly erroneous as applied to Mr. Tempest. B. Magistrate Judge Shaffer's Determination that Mr. Tempest's Personal Investments in Vendors Who Never Were Involved in IRUs Are Outside the Scope of Fed. R. Civ. P. 26(b)(1) Was Not Clearly Erroneous or Contrary to Law Discovery under Fed. R. Civ. P. 26(b)(1), though broad, is not limitless. Rule 26(b)(1) does not open the door to every aspect of a defendant's life in the hopes that a plaintiff may find some admissible evidence. Rather, as the Advisory Committee Notes plainly state, a discovery request must have some logical connection to the claims or defenses asserted in the pleadings. Fed. R. Civ. P. 26, Advisory Comm. Notes, subdivision (b)(1) (2000) ("The
Committee intends that the parties and the court focus on the actual claims and defenses involved in the pleadings. * * * * The rule change signals . . . to the parties that they have no entitlement to develop new claims or defenses not already identified in the pleadings. * * * *
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[I]nformation must be relevant [to the claims or defenses asserted in the pleadings] to be discoverable, even though inadmissible . . . .") In other words, if the discovery sought is not relevant to a claim or defense, discovery is not permitted. Simpson v. University of Colo., 220 F.R.D. 354, 359 (D. Colo. 2004) (defining scope of discovery under Rule 26(b)(1)). Magistrate Judge Shaffer properly recognized and applied these limitations on the scope of discovery when he denied Lead Plaintiffs' motion to compel private financial information about Mr. Tempest's investments in the Non-IRU Vendors, which, again, were the only investments at issue in Lead Plaintiffs' motion. Magistrate Judge Shaffer concluded that
Mr. Tempest's investments in the Non-IRU Vendors were "too remote and too tangential" and thus "do not fall within the scope of proper discovery under [Rule] 26(b)(1)." (Ex. A at 58-59) Magistrate Judge Shaffer's Fed. R. Civ. P. 26(b)(1) analysis of this issue was correct in all respects and, in any event, certainly was not clearly erroneous or contrary to law. Lead Plaintiffs' objection offers the same hackneyed "relevance" arguments to this Court that Magistrate Judge Shaffer rejected. Notably absent from either their motion to compel or their objection is any cogent analysis of how there could be any logical connection between Mr. Tempest's personal investments in the Non-IRU Vendors and the claims asserted in the Fifth Amended Complaint. The entire foundation of Lead Plaintiffs' "relevance" argument is that Qwest executives used vendor investments to coerce vendors into purchasing unwanted IRUs as a way for Qwest to inflate revenues. That foundation crumbles with respect to the Non-IRU Vendors for the obvious reason that, by definition, the Non-IRU Vendors never purchased IRUs. Try as Lead Plaintiffs might, it goes without saying that Defendants could not have caused Qwest to improperly recognize revenue from non-existent IRU sales. That being the case,
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Mr. Tempest's personal investments in the Non-IRU Vendors cannot possibly be relevant to Lead Plaintiffs' securities fraud claims that Qwest engaged in sham IRUs. None of Lead Plaintiffs' various arguments establish even the slightest link between the Non-IRU Vendors and Lead Plaintiffs' claims. Nor, moreover, do any of Lead Plaintiffs' arguments come close to establishing that Magistrate Judge Shaffer's Order is clearly erroneous or contrary to law. Lead Plaintiffs' argument that Magistrate Judge Shaffer's Order should be set aside because Qwest and other individual defendants have "implicitly conceded" the relevance of such information through their document productions is absolutely wrong. (Objection at 2) There has been no such recognition, implicit or otherwise. Qwest, which was never asked for vendor information, produced a handful of "vendor" documents because they were part of the hundreds of thousands of documents Qwest produced to the SEC and the burden of trying to limit the production to Lead Plaintiffs by topic was too onerous and time consuming. Mr. Nacchio explicitly objected to the relevance of Lead Plaintiffs' requests for vendor information in his interrogatory and continued to object to their relevance in subsequent correspondence with Lead Plaintiffs' counsel. (See Drake Tempest's Opposition to Lead
Plaintiffs' Motion to Compel Further Responses to Plaintiffs' First Set of Interrogatories, Ex. B, Filed Under Seal) That Mr. Nacchio produced documents to avoid burdening the Court with another discovery dispute is in no way an acknowledgement of the relevance of vendor transactions to Lead Plaintiffs' claims, much less one that is binding on Mr. Tempest. For similar reasons, Marc Weisberg's indictment does not establish the relevance of vendor investments to Lead Plaintiffs' claims. Mr. Weisberg is not a defendant in this case and was not even indicted for violating federal securities law. In fact, Lead Plaintiffs voluntarily
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dismissed their claims against Mr. Weisberg on October 15, 2004. Furthermore, none of the individual defendants in this case are defendants in the Weisberg criminal proceeding. Lead Plaintiffs' argument that Defendants' vendor investments have been pled in the Fifth Amended Complaint and thus are "direct evidence of Defendants' scienter" is a canard. (Objection at 5) There is one sentence of one paragraph in Lead Plaintiffs' 203-page,
435-paragraph pleading that says: "Defendants also benefited from their position at Qwest by receiving shares of supplier companies whose stock price these Qwest insiders could influence by purchasing decisions they caused Qwest to make." (Fifth Am. Compl. ¶ 61) The fact that Lead Plaintiffs stick a gratuitous sentence in their Complaint that on its face has nothing to do with the claims they assert (or Defendants' defenses to those claims) does not broaden the scope of discovery under the Federal Rules.3 "Relevancy analysis [under Rule 26(b)(1)] must be guided by the specific claims and defenses asserted by the parties." Simpson, 220 F.R.D. at 365 (emphasis added). There are no claims in this case complaining that the Defendants influenced the stock price of Qwest suppliers. The claims in this case are that the Defendants violated federal securities laws by artificially inflating Qwest's revenues by, among other things, entering into sham IRU transactions, improperly accounting for IRU sales and equipment sales to companies like KMC Telecom Holdings, and otherwise improperly accounting for Qwest revenue. (E.g. Fifth Am.
For the same reasons, Lead Plaintiffs' newly minted argument that vendor investments are relevant to impeach any potential testimony offered by Defendants that they lacked scienter does not make Mr. Tempest's personal investments discoverable. Lead Plaintiffs never raised this argument below -- Magistrate Judge Shaffer raised it sua sponte and then rejected it as a basis for allowing discovery. Further, impeachment evidence must relate to the witness' character for truthfulness. FED. R. EVID. 608(b). Mr. Tempest's investments in Qwest vendors who never purchased an IRU have absolutely no bearing on his character for truthfulness and it was not clearly erroneous for Magistrate Judge Shaffer to conclude so. 6
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Compl. ¶¶ 65-115, 122, 126-53) There is not a single claim in the Fifth Amended Complaint remotely connected to the Non-IRU Vendor investments. Nor could there be. The Non-IRU Vendors never purchased an IRU from Qwest and thus could not have provided Qwest's executives with a means to inflate Qwest revenues in the manner alleged by Lead Plaintiffs. They were just ordinary Qwest suppliers. Although Lead Plaintiffs argue that Mr. Tempest and other individual Defendants usurped Qwest investment opportunities in connection with these investments, there is not a single allegation in the Fifth Amended Complaint about Mr. Tempest or any other Qwest executive usurping a corporate investment opportunity. More importantly, there is no claim in the Fifth Amended Complaint for usurping a corporate opportunity. That type of claim, which would belong solely to Qwest, not individual shareholders, was brought in the derivative action filed against numerous individuals and has been settled and released by Qwest. (See Drake Tempest's Opposition to Lead Plaintiffs' Motion to Compel Further
Responses to Plaintiffs' First Set of Interrogatories, Ex. C) Lead Plaintiffs likewise cannot rely on the slew of criminal cases they cite to establish that investments in the Non-IRU Vendors are discoverable on a theory that they are relevant "uncharged acts" or are discoverable to prove Mr. Tempest acted with scienter or had the motive and opportunity to misrepresent Qwest's finances to investors through bogus IRU transactions and to sell Qwest stock at inflated prices based upon material, non-public information. (Objection at 8-10) Apart from the obvious distinction that this case is not a criminal case, investments in the Non-IRU Vendors cannot be part of or connected to the alleged "scheme" to defraud Qwest investors alleged in the Fifth Amended Complaint for precisely the reason already discussed -- they were investments in companies that did not purchase IRUs from Qwest. Nor
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are the Non-IRU Vendors "inextricably intertwined" with Lead Plaintiffs' claims such that Lead Plaintiffs' prosecution of the alleged fraud would be "confusing and incomplete" without mention of the Non-IRU Vendors. Simply put, there is no "clear and logical" connection -- as Lead Plaintiffs concede there must be -- between investments in the Non-IRU Vendors and Lead Plaintiffs' claims that Mr. Tempest intentionally misrepresented Qwest's finances by improperly recognizing revenue from bogus IRU transactions. There also is no "clear and logical"
connection between the motive and opportunity identified by Lead Plaintiffs -- the ability to influence vendors to purchase unwanted IRUs so Qwest could meet its revenue targets -- and Mr. Tempest's investments in the Non-IRU Vendors for exactly the same reason. II. CONCLUSION Lead Plaintiffs have not articulated any conceivable connection -- let alone a connection that would render Magistrate Judge Shaffer's analysis clearly erroneous -- between Mr. Tempest's Non-IRU Vendor investments and Lead Plaintiffs' claims of securities fraud in the Fifth Amended Complaint. Accordingly, Lead Plaintiffs have not met the high burden of proof required under Fed. R. Civ. P. 72(a) to set aside Magistrate Judge Shaffer's Order denying their motion to compel.
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Dated: September 22, 2005
s/Paul H. Schwartz Paul H. Schwartz COOLEY GODWARD LLP James E. Nesland Jeffrey A. Smith 380 Interlocken Crescent, Suite 900 Broomfield, CO 80021-8023 Telephone: (720) 566-4000 FAX: (720) 566-4099 E-mail: [email protected] [email protected] [email protected] Attorneys for Defendant Drake S. Tempest
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CERTIFICATE OF SERVICE I hereby certify that on September 22, 2005, I electronically filed the foregoing DEFENDANT DRAKE TEMPEST'S RESPONSE TO LEAD PLAINTIFFS' OBJECTION TO THE AUGUST 22, 2005 ORDER OF MAGISTRATE JUDGE SHAFFER DENYING PLAINTIFFS' MOTION TO COMPEL FURTHER RESPONSES TO PLAINTIFFS' FIRST SET OF INTERROGATORIES with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Timothy G. Atkeson Michael J. Barry Frederick J. Baumann Jeffrey A. Berens Nicholas M. Billings Terry W. Bird Bruce F. Black Spencer A. Burkholz Kwame A. Clement David L. Cook John F. Cove, Jr. Marguerite S. Dougherty Michael J. Dowd Mark T. Drooks Stephanie E. Dunn Thomas E. Egler Clyde A. Faatz, Jr Christopher J.W. Forrest Joshua D. Franklin John A. Freedman Walter W. Garnsey, Jr Terence C. Gill Kirsten E. Gillibrand Michael J. Grudberg Mark C. Hansen Marcy M. Heronimus Scott M. Himes Michael J. Hoffman Kevin B. Huff Shelby Hunt Lee F. Johnston Roberta A. Kaplan James D. Kilroy Gary M. Kramer Alfred P. Levitt [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected] [email protected] [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected] [email protected]; [email protected] [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected]; [email protected] [email protected]; [email protected]; [email protected] [email protected] [email protected] [email protected]; [email protected] [email protected]; [email protected]; [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]; [email protected] [email protected] [email protected]; [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected]
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Martin D. Litt James M. Lyons David Meister James D. Miller Robert N. Miller Blain D. Myhre Sharan Nirmul Cindy C. Oliver Neil Peck Elissa J. Preheim Kimberly W. Price Thomas V. Reichert Eric T. Rillorta Kenneth F. Rossman, IV Scott Saham David L. Schwarz David W. Shapiro Holly Stein Sollod Charles A. Stillman Jesus M. Vazquez, Jr. Jennifer H. Weddle David A. Zisser
[email protected] [email protected]; [email protected] [email protected] [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected]; [email protected] [email protected] [email protected] [email protected]; [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]; [email protected] [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected]
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and I hereby certify that a copy of the foregoing DEFENDANT DRAKE TEMPEST'S RESPONSE TO LEAD PLAINTIFFS' OBJECTION TO THE AUGUST 22, 2005 ORDER OF MAGISTRATE JUDGE SHAFFER DENYING PLAINTIFFS' MOTION TO COMPEL FURTHER RESPONSES TO PLAINTIFFS' FIRST SET OF INTERROGATORIES was placed in the United States Mail, postage prepaid, addressed to: Jonathan D. Schiller, Esq. David R. Boyd, Esq. Boies, Schiller & Flexner, LLP 5301 Wisconsin Avenue, N.W. Washington, DC 20015 Geoffrey C. Jarvis, Esq. Grant & Eisenhofer, P.A. 1201 North Market Street, Suite 2100 Wilmington, DE 19801 Scott B. Schreiber, Esq. Arnold & Porter 555 Twelfth Street, NW Washington, DC 20004-1206 s/Paul H. Schwartz Paul H. Schwartz COOLEY GODWARD LLP James E. Nesland Jeffrey A. Smith 380 Interlocken Crescent, Suite 900 Broomfield, CO 80021-8023 Telephone: (720) 566-4000 FAX: (720) 566-4099 E-mail: [email protected] [email protected] [email protected] Attorneys for Defendant Drake S. Tempest
239688 v1/CO
Ty Cobb, Esq. Hogan & Hartson 1200 17th Street, Suite 1500 Denver, CO 80202 Vincent J. Marella, Esq. Bird, Marella, Boxer & Wolpert, APC 1875 Century Park East, 23rd Floor Los Angeles, CA 90067
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