Free Reply to Response to Motion - District Court of Colorado - Colorado

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 1 of 48

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' REPLY IN SUPPORT OF MOTION FOR CLASS CERTIFICATION

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 2 of 48

TABLE OF CONTENTS Page I. II. INTRODUCTION .................................................................................................. 1 ARGUMENT ......................................................................................................... 2 A. The Plaintiffs Are Proper Class Representatives ....................................... 2 1. The Plaintiffs Will Adequately Represent the Class ........................ 2 a. b. c. d. 2. 3. New England Will Adequately Represent the Class ............. 5 The Singhs Will Adequately Represent the Class ................ 7 Clifford Mosher Will Adequately Represent the Class .......... 9 Plaintiffs' Innocent Errors in Court Submissions Do Not Render Them Inadequate ............................................ 11

The Plaintiffs' Claims Are Typical of Those of the Class ............... 14 There Are No Conflicts Within the Proposed Class....................... 19 a. b. c. d. There Is No Conflict Between Pre-Merger Qwest and U S West Shareholders ...................................................... 20 There Is No Conflict Between Holders and Sellers of Stock .................................................................................. 25 Andersen's Hypothetical Conflicts Fail ............................... 28 The Claims of the Proposed Class Representatives Are Typical of the Claims of All Class Members Including Those Who Purchased Qwest Bonds ................. 32

B. III.

Loss Causation Will Be Proven on Common Evidence............................ 34

CONCLUSION.................................................................................................... 35

-i-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 3 of 48

TABLE OF AUTHORITIES Page Antonson v. Robertson, 141 F.R.D. 501 (D. Kan. 1991) ........................................................................... 15 Basic Inc. v. Levinson, 485 U.S. 224 (1988) ........................................................................................... 16 Berger v. Compaq Computer Corp., 257 F.3d 475 (5th Cir. 2001)................................................................................. 3 Berger v. Compaq Computer Corp., 279 F.3d 313 (5th Cir. 2002)................................................................................. 3 Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975)............................................................. 23, 28, 29, 35 Cheney v. Cyberguard Corp., 213 F.R.D. 484 (S.D. Fla. 2003) ......................................................................... 11 City P'ship Co. v. Jones Intercable, Inc., 213 F.R.D. 576 (D. Colo. 2002) ................................................................... passim Dura-Bilt Corp. v. Chase Manhattan Corp., 89 F.R.D. 87 (S.D.N.Y. 1981) ....................................................................... 14, 29 Dura Pharms., Inc. v. Broudo, 125 S. Ct. 1627 (2005) ................................................................................. 34, 35 Endo v. Albertine, 147 F.R.D. 164 (N.D. Ill. 1993) ........................................................................... 33 Epstein v. Moore, No. 87-2984 (AET), 1988 U.S. Dist. LEXIS 5450 (D.N.J. June 13, 1988) ....................................................................................... 33 Esplin v. Hirschi, 402 F.2d 94 (10th Cir. 1968)................................................................................. 2 Greene v. Emersons, Ltd., 86 F.R.D. 47 (S.D.N.Y. 1980) ............................................................................. 20 - ii -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 4 of 48

Page Handwerger v. Ginsberg, No. 73 Civ. 4832(HFW), 1975 U.S. Dist. LEXIS 14546 (S.D.N.Y. Jan. 2, 1975) ...................................................................................... 33 Herbst v. Able, 47 F.R.D. 11 (S.D.N.Y. 1969) ............................................................................. 27 In re Cavanaugh, 306 F.3d 726 (9th Cir. 2002)................................................................................. 3 In re Fannie Mae Sec. Litig., 355 F. Supp. 2d 261 (D.D.C. 2005) .................................................................... 12 In re First Republicbank Sec. Litig., No. 3-88-0641-H, 1989 U.S. Dist. LEXIS 11139 (N.D. Tex. Aug. 1, 1989)..................................................................................... 14 In re Intelcom Group Sec. Litig., 169 F.R.D. 142 (D. Colo. 1996) .............................................................. 14, 16, 30 In re NASDAQ Market-Makers Antitrust Litig., 169 F.R.D. 493 (S.D.N.Y. 1996) ......................................................................... 20 In re Pizza Time Theatre Sec. Litig., 112 F.R.D. 15 (N.D. Cal. 1986) .......................................................................... 14 In re Proxima Corp. Sec. Litig., No. 93-1139-IEG, 1994 U.S. Dist. LEXIS 21443 (S.D. Cal. May 4, 1999) ...................................................................................... 26 In re Qwest Savs., No. 02-RB-464 (CBS), 2004 U.S. Dist. LEXIS 24693 (D. Colo. Sept. 27, 2004) ............................................................................. passim In re Reliance Acceptance Group, Inc. Sec. Litig., No. SA-98-CA-0044 OG, 1998 WL 388260 (W.D. Tex. June 29, 1998) ........................................................................... 23, 29 In re Ribozyme Pharms., Inc. Sec. Litig., 205 F.R.D. 572 (D. Colo. 2001) .......................................................................... 31 - iii -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 5 of 48

Page In re Royal Ahold N.V. Sec. & ERISA Litig., 219 F.R.D. 343 (D. Md. 2003) ............................................................................ 17 In re Saxon Sec. Litig., No. 82 Civ. 3103, 1984 U.S. Dist. LEXIS 19223 (S.D.N.Y. Feb. 23, 1984) .................................................................................... 32 In re USEC Sec. Litig., 168 F. Supp. 2d 560 (D. Md. 2001) .................................................................... 12 In re Vesta Ins. Group, Inc. Sec. Litig., No. 98-AR-1407-S, 1999 U.S. Dist. LEXIS 22233 (N.D. Ala. Oct. 25, 1999) .................................................................................... 17 In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 267 (S.D.N.Y. 2003) ................................................................... 28, 34 In re Worlds of Wonder Sec. Litig., No. C 875491 SC, 1990 U.S. Dist. LEXIS 8511 (N.D. Cal. Mar. 26, 1990) ................................................................................... 30 Kalodner v. Michaels Stores, 172 F.R.D. 200 (N.D. Tex. 1997)........................................................................ 12 Kerns v. Spectralink Corp., No. 02-D-263 (MJW), 2003 U.S. Dist. LEXIS 11711 (D. Colo. July 2, 2003)........................................................................ 3, 10, 24, 25 Kolin v. Am. Plan Corp., No. CV-84-3183, 1986 U.S. Dist. LEXIS 27057 (E.D.N.Y. Apr. 8, 1986)....................................................................................... 15 Lerner v. Haimsohn, 126 F.R.D. 64 (D. Colo. 1989) .............................................................................. 1 Lewis v. Goldsmith, 95 F.R.D. 15 (D.N.J. 1982) ................................................................................. 26

- iv -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 6 of 48

Page Longden v. Sunderman, 123 F.R.D. 547 (N.D. Tex. 1988)........................................................................ 33 Queen Uno Ltd. P'ship v. Coeur D'Alene Mines Corp., 183 F.R.D. 687 (D. Colo. 1998) ................................................................... passim Randle v. SpecTran, 129 F.R.D. 386 (D. Mass. 1988)......................................................................... 15 Rasner v. Sturm, No. 00-K-1376 (D. Colo. Sept. 13, 2002).............................................................. 4 Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180 (10th Cir. 2002)........................................................................... 24 Schwartz v. Celestial Seasonings, 178 F.R.D. 545 (D. Colo. 1998) ............................................................ 3, 4, 11, 30 Seidman v. Am. Mobile Sys., 157 F.R.D. 354 (E.D. Pa. 1994).......................................................................... 14 Serafimov v. Netopia, Inc., No. C-04-03364 RMW, 2004 U.S. Dist. LEXIS 25184 (N.D. Cal. Dec. 3, 2004) ..................................................................................... 17 Serfaty v. Int'l Automated Sys., 180 F.R.D. 418 (D. Utah 1998)........................................................................... 23 Simon v. Westinghouse Elec. Corp., 73 F.R.D. 480 (E.D. Pa. 1977)............................................................................ 26 Sley v. Jamaica Water & Utils., Inc., 77 F.R.D. 391 (E.D. Pa. 1977).............................................................................. 1 Taubenfeld v. Career Educ. Corp., No. 03 C 8884, 2004 U.S. Dist. LEXIS 4363 (D. Ill. Mar. 22, 2004).......................................................................................... 17 Wyatt v. Poundstone, 169 F.R.D. 155 (M.D. Ala. 1995) ........................................................................ 20 -v-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 7 of 48

Page STATUTES, RULES AND REGULATIONS 15 U.S.C. §78u-4(a)(3)(B)(vi).............................................................................................. 12 Federal Rules of Civil Procedure Rule 23 ................................................................................................. 1, 3, 14, 31 Rule 23(a)............................................................................................................. 2 Rule 23(h)........................................................................................................... 10

- vi -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 8 of 48

I.

INTRODUCTION Qwest Communications International, Inc. ("Qwest" or the "Company") has admitted

it falsely recognized more than $2 billion in revenue. Its former CFO pled guilty to insider trading charges. Yet, they and other defendants seek to deny investors their sole practical avenue of recovery by opposing class certification here. Courts have refused to be deceived about defendants' actual motives in making such challenges: [D]efendants who take such a position . . . are realistically not concerned with the "best" representation for the plaintiff class but rather their goal is to ensure "no" representation. Sley v. Jamaica Water & Utils., Inc., 77 F.R.D. 391, 394 (E.D. Pa. 1977). With regard to most issues presented, this Court has already addressed and rejected almost every argument raised by defendants. In re Qwest Savs., No. 02-RB-464 (CBS), 2004 U.S. Dist. LEXIS 24693 (D. Colo. Sept. 27, 2004). Yet, no defendant even cites this case. Even discounting defendants' obvious prejudice against certification, their arguments fail. Plaintiffs allege a common fraudulent scheme by defendants similarly affecting all members of the proposed class, based on the same false and misleading statements issued over the same period of time. In such cases, "the United States Court of Appeals for the Tenth Circuit has endorsed class actions as an appropriate means to resolve claims under the federal securities laws." Lerner v. Haimsohn, 126 F.R.D. 64, 65 (D. Colo. 1989). Without a doubt, this case satisfies the requirements for class certification under Rule 23, and certification is required to ensure that defrauded Qwest investors get their day in court: But taking the issue [of class certification] in the context of the securities laws and realizing that "the ultimate effectiveness of the federal remedies . . . -1-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 9 of 48

may depend in large measure on the applicability of the class action device," the interests of justice require that in a doubtful case . . . any error, if there is to be one, should be committed in favor of allowing the class action. Esplin v. Hirschi, 402 F.2d 94, 101 (10th Cir. 1968).1 II. ARGUMENT A. The Plaintiffs Are Proper Class Representatives 1. The Plaintiffs Will Adequately Represent the Class

Defendants try to distract this Court's attention from the adequacy standard in this District ­ and plaintiffs' clear qualification thereunder ­ by shifting the focus from these proposed representatives' vigorous and attentive prosecution of this case to innocent errors in certain court submissions. The proposed class representatives, as Lead Plaintiffs, have demonstrated their commitment to the class by: (a) monitoring developments in the case and making important decisions in consultation with their attorneys; (b) preparing for and sitting for their depositions; (c) producing relevant documents to their counsel and defendants; (d) responding to discovery served on them; (e) reviewing complaints and motions filed in the case; (f) offering to be present for any hearing on class certification if requested by the Court; and (g) being willing to attend the trial of this matter. Under the law of this District, they are plainly adequate representatives under Rule 23(a). See, e.g., City P'ship Co. v. Jones Intercable, Inc., 213 F.R.D. 576 (D. Colo. 2002) (appointing as class representatives plaintiffs who participated in the case by reading certain court filings, keeping in touch with their lawyers, preparing for their depositions by meeting with

1

All emphasis is added and citations are omitted here and throughout. -2-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 10 of 48

attorneys and reviewing documents, and some of whom stated they would attend the trial). In light of the evidence, defendants resort to cheap personal attacks and sophistry. First, conspicuously absent from the entirety of Qwest's discussion of the supposed inadequacy of the proposed representatives is a citation to a single District of Colorado or Tenth Circuit case discussing the adequacy standard. See Qwest Resp. at 5-11.2 This alone demonstrates that Qwest's assertions are not supported by the law of this District or Circuit. In fact, adequacy challenges of the species posited by defendants herein are typically rejected in this District. See, e.g., Kerns v. Spectralink Corp., No. 02-D-263 (MJW), 2003 U.S. Dist. LEXIS 11711 (D. Colo. July 2, 2003); City P'ship, 213 F.R.D. 576; Schwartz v. Celestial Seasonings, 178 F.R.D. 545 (D. Colo. 1998); Queen Uno Ltd. P'ship v. Coeur D'Alene Mines Corp., 183 F.R.D. 687, 694 (D. Colo. 1998). Second, no defendant challenges the qualifications of Lead Counsel to represent the class. This is significant. Schwartz, 178 F.R.D. at 553 ("Defendants pose no objection to the experience and commitment of plaintiffs' counsel. This in itself goes a long way to negating their argument that the class will be inadequately represented.").

2

Qwest runs from the numerous cases of this District construing the adequacy standard, opting instead to open the discussion with a citation to the Fifth Circuit's decision in Berger v. Compaq Computer Corp., 257 F.3d 475, 484 (5th Cir. 2001). Qwest also fails to inform the Court of the Fifth Circuit's later clarification, in Berger v. Compaq Computer Corp., 279 F.3d 313, 314 (5th Cir. 2002), that it did not fashion an "additional, independent requirement for the adequacy standard" from the PSLRA in securities cases. Contrary to Qwest's suggestion, the PSLRA did not change Rule 23's standard for determining adequacy (see, e.g., In re Cavanaugh, 306 F.3d 726, 736-39 (9th Cir. 2002)), and certainly no purported higher standard for adequacy has been adopted by the Tenth Circuit. -3-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 11 of 48

Third, this Court stands on solid ground in refusing defendants' invitation to hold a mini-trial on the adequacy of the proposed representatives: Rather than hold a mini-trial on the "factual" question of what constitutes adequate or inadequate representation in this case, I find Plaintiffs have made a prima facie showing that the proposed class representatives will adequately represent the class through qualified counsel and resolve any doubts about their adequacy raised by Defendants in favor of upholding the class. Rasner v. Sturm, No. 00-K-1376, slip op. at 3 (D. Colo. Sept. 13, 2002) (Kane, J.) (appointing Lead Counsel's predecessor firm and Dyer & Shuman LLP (Liaison Counsel herein) as class counsel). See Ex. A.3 The Rasner court was no doubt guided by the straightforward standard of adequacy applied in this District, which focuses mainly on whether the proposed representative has general knowledge about the case, and will devote the required effort to represent the class. City P'ship, 213 F.R.D. at 584; see also Schwartz, 178 F.R.D. at 553 ("Rule 23(a)(4) is satisfied if the plaintiff has common interests with the class and will vigorously prosecute the interests of the class through qualified counsel."). As established below, all of the proposed representatives more than meet this simple standard. This Court has already made a threshold finding that the proposed class representatives will adequately represent the class. See Ex. B (10/16/01 Order (granting lead plaintiff motion)), at 4. Defendants offer no legitimate reason to depart from this finding.

3

All exhibits ("Ex. __") are attached hereto unless otherwise indicated. -4-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 12 of 48

a.

New England Will Adequately Represent the Class

Qwest's unwarranted attacks on the adequacy of New England Health Care Employees Pension Fund (the "Fund") are mostly based on a key obfuscation ­ namely, by failing to mention that the Fund employs their regular outside counsel, John Creane, to carefully monitor this litigation on its behalf. Even though defendants insisted upon taking Mr. Creane's deposition, Qwest almost completely ignores his deposition testimony ­ for obvious reasons: the retention of a separate attorney to monitor litigation such as this demonstrates the Fund's active and independent role in this action. Qwest's claim that the Fund has litigated this case in a "disinterested manner" (Qwest Resp. at 8) is utterly false. As Mr. Creane testified in deposition, he discusses with the Fund's trustees the inception of any new securities fraud litigation. Moreover,

whenever he was sent a proposed draft complaint by Lead Counsel, he discussed it with trustees of the Fund. Ex. C, Creane Depo. at 45:1-47:13. In addition, Mr. Creane has exhibited detailed participation in this litigation on behalf of the Fund. He prepared for his deposition by reviewing pleading and correspondence files, the Fund's retainer agreement , and the Fund's certification, and by speaking to Lead Counsel. Id. at 8:19-10:9;11:8-25. He discussed plaintiffs' motion to secure a constructive trust over the proceeds from Qwest's sale of its directory services division with Lead Counsel and other plaintiffs before it was filed. Id. at 32:13-33:8. He also has discussed the addition of new defendants to the case and the SEC's recent settlement with Qwest. Id. at 31:21-32:3. Mr. Creane is aware of the Fund's allegations in this case as involving "inflate[ed] . . . earnings" and "accounting shenanigans [of] Arthur Anders[e]n." Id. at 59:3-5-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 13 of 48

16. Mr. Creane understands the responsibilities of the Fund as a class representative to monitor developments in the litigation, to not accept an individual settlement, and to represent the interests of the class. Id. at 53:3-13. Moreover, while Qwest attempts to fault the Fund's (non-attorney) Executive Director for not memorizing the allegations of the Fund's other securities fraud suits (Qwest Resp. at 8), it fails to mention that Mr. Creane was able to recite those details. Id. at 22:23-26:8. Again, Mr. Creane is the Fund's lawyer. He has shown that he is doing his job. Qwest just ignores him. In addition to Mr. Creane, the Fund's Executive Director, Robert Tessier, has also been active in the litigation. He participated in the preparation of the Fund's answers to interrogatories. Ex. D, Tessier Depo. at 23:12-25. He also participated in a conference call with Lead Counsel and the other plaintiffs to discuss settlement of the case (id. at 188:1924), and reviewed the motion for class certification before it was filed. Id. at 197:9-17. Mr. Tessier further vowed to attend any hearing on class certification and the trial of this matter, upon advice of Fund counsel. Id. at 196:18-197:12. Equally unavailing is Qwest's suggestion that there is something improper about the Fund's retention of Lead Counsel to monitor the Fund's holdings. Mr. Creane stated that having the monitoring agreement in place is "probably an obligation of the trustees as fiduciaries." Ex. C at 27:23-24. Further, this monitoring agreement does not authorize the automatic filing of a suit by Lead Counsel on the Fund's behalf ­ instead, any such suit would be the product of "a separate agreement." Id. at 26:16-21. Finally, any suggestion that the Fund is unduly litigious is likewise unsupportable. See id. at 48:16-17 ("There were numerous losses reported that didn't necessarily lead to lawsuits by anyone."). -6-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 14 of 48

b.

The Singhs Will Adequately Represent the Class

Both Tejinder Singh ("T. Singh") and his brother Sat Pal Singh ("S. Singh") have amply demonstrated their ability and willingness to adequately represent the class. Their attentive participation in, and knowledge of, this case confirms their commitment to vigorously prosecute this case as class representatives. S. Singh has both an MBA and a Master's degree in international relations/foreign affairs (Ex. E, S. Singh Depo. at 8:12-19), and has regularly invested in publicly-traded securities for 10-12 years. Id. at 38:12-39:4. Since the inception of this case, he has been actively involved in its prosecution. He, along with the other plaintiffs, successfully obtained appointment as Lead Plaintiff. Ex. B. He maintains contact with his attorneys who keep him informed about the case (Ex. E at 34:7-9), and promptly responded to interrogatories propounded to him by defendants. Id. at 30:10-25. S. Singh reviewed the motion for class certification before it was filed (id. at 167:22-168:1), and spent around three and a half to four hours preparing for his deposition (id. at 177:2-15) by reviewing the plaintiffs' court filings, documents evidencing his trades and losses in Qwest securities and his discovery responses. Id. at 28:4-29:19. Without a doubt, S. Singh has a proven track record of "devoting time and effort to the lawsuit." City P'ship, 213 F.R.D. at 584. Moreover, S. Singh demonstrated detailed knowledge of plaintiffs' case. In

response to defense counsel's questions, he described his losses in Qwest stock as the product of "accounting[]" "fraud," wrought by misstatements made by corporate officers and audit failures by its "accounting firm." Ex. E at 60:23-61:17. He is also aware that during -7-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 15 of 48

the fraud at Qwest, many of its officers continued to make rosy statements about its business while personally engaging in insider sales with knowledge of the true state of affairs within the Company. Id. at 64:13-20; 106:7-107:5. Indeed, S. Singh accurately describes in layperson's terms plaintiffs' allegations of material misstatements, insider trading, causation and reliance: [F]raud has been committed, wrong information has been given to the shareholders, insiders have been selling their stocks at higher prices, and at the same time the executives are making a statement that the company is in good shape, which is contrary to the facts, and the stock has taken a tumble, and shareholders are losing money from left to right due to the misrepresentation of the executives of the corporation. And it was ­ and we lost money and other shareholders lost the money because we trusted the corporation. Id. at 143:7-19. S. Singh also stated that, in consultation with his attorneys, he will attend the trial of this case. Id. at 169:5-10. He properly understands that he is not entitled to any additional payment for serving as a lead plaintiff, but only compensation for time spent and expenses incurred in the discharge of his duties as a lead plaintiff. Id. at 172:5-24. T. Singh likewise has shown himself to be a model class representative. He has a Master's degree in economics (Ex. F, T. Singh. Depo. at 8:16-18), and has been investing in publicly-traded securities for around 18 years. Id. at 49:17-22. He understands that he seeks to represent those persons who purchased Qwest securities and who lost money as a result of the fraud. Id. at 154:1-6. T. Singh participates in conference calls with Lead Counsel and other plaintiffs. Id. at 265:9-18. He has reviewed the complaints. Id. at 268:24-269:2. He answered interrogatories propounded by defendants (id. at 185:9-19), prepared for his deposition by reviewing case documents sent to him by Lead Counsel over -8-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 16 of 48

the past several years (id. at 43:1-17), and submitted a declaration in support of this motion. Id. at 181:18-20. T. Singh testified that he remains committed to pursuing this case. Id. at 237:18-238:5. T. Singh is thoroughly versed in plaintiffs' allegations and the responsibilities of a class representative. He correctly understands that the case concerns accounting fraud and that Qwest restated around $2.5 billion dollars in revenues, classing it with the frauds at WorldCom and Enron. Id. at 216:14-23; 217:17-19. He knows that Qwest executives sold company shares while making optimistic statements about Qwest, and is also aware of the rough amount of insider trading proceeds realized by defendants Anschutz and Nacchio. Id. at 216:24-217:4. He also understands that as a class representative, he is expected to testify at trial and to safeguard the interests of other class members. Id. at 262:24-263:7. He stated that he will attend the trial of this case even if it lasts for several months (id. at 237:18-238:5), and that he would also attend a hearing if the Court so required him. Id. at 289:3-5. He testified that he would refuse to accept a proposed settlement that would be unfair to other investors. Id. at 238:14-20. In light of this testimony by the Singhs, it is readily apparent why Qwest ignores their testimony ­ they are not the "absentees" Qwest says they are. c. Clifford Mosher Will Adequately Represent the Class

Mr. Mosher similarly has demonstrated his ability to represent the class. He has been investing in publicly-traded securities for 40 years. Ex. G, Mosher Depo. at 63:2464:15. He participates in "regular" conference calls. Id. at 223:5-15. He has read and approved the complaints filed. Id. at 236:17-19. He produced all of the records of his stock -9-

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 17 of 48

trading in Qwest (id. at 210:9-14), and prepared answers to interrogatories. Id. at 56:11-15. Mr. Mosher prepared for his deposition by reviewing his investment records, documents filed in the case, certain of Qwest's SEC filings and his interrogatory responses (id. at 39:47-40:18; 51:6-11; 54:16-20; 56:11-20), and by meeting with his attorneys. Id. at 57:11-13. He refuted defense counsel's suggestion that his attorneys will make the decisions in this litigation for him (id. at 230:22-231:3), and stated that he would attend any hearing on class certification held by the Court, as well as the trial. Id. at 238:22-239:5. Mr. Mosher further understands the responsibilities of a class representative. Id. at 223:2-18. He correctly understands that none of the plaintiffs are entitled to any special compensation for fulfilling their role in the litigation. Id. at 228:13-18. Qwest tries to distract the Court from Mr. Mosher's clear fitness to serve by staging an irrelevant sideshow concerning Lead Counsel's retainer agreements with the proposed representatives. See Qwest Resp. at 11. Qwest faults Mr. Mosher for not memorizing all of the terms of the agreement ­ but this is hardly inexcusable. While Mr. Mosher maintains a copy of his retainer agreement (Ex. G at 186:9-11), he had not looked at the document "in a couple years." Id. at 186:16-17.4 In any event, Mr. Mosher remembered its salient terms,

4

Qwest also argues that "[n]one of the Lead Plaintiffs identified any written communication" regarding the legal fees. Qwest Resp. at 11 n.11. It fails to note, however, that defendants originally asked for the fee agreements in document requests, but abandoned their request when Lead Plaintiffs objected on relevancy grounds. Further, under Fed. R. Civ. P. 23(h), any fee award will be determined by this Court, not Lead Plaintiffs. Finally, just as where defendants have argued that it is wrong for Lead Counsel in securities cases to agree to bear the "costs of prosecuting the action," the arguments here regarding alternative fee structures should be, in the end, rejected as "baseless." Kerns, 2003 U.S. Dist. LEXIS 11711, at *8 (citing Queen Uno, 183 F.R.D. at 692). - 10 -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 18 of 48

i.e., that it provided for representation on a contingent basis, with his attorneys advancing costs. Ex. G at 187:20-22.5 Again, though, the focus here is on whether Mr. Mosher will "devote[] time and effort to the lawsuit." City P'ship, 213 F.R.D. at 584. He has plainly made a showing that he will. d. Plaintiffs' Innocent Errors in Court Submissions Do Not Render Them Inadequate

Faced with the proposed representatives' forceful demonstration of their commitment, defendants are reduced to harping on court submissions they made concerning their trading in Qwest stock and participation in other cases. See Qwest Resp. at 5-11. This desperate effort fails. Defendants' attack is misplaced. A challenge to the credibility of a proposed representative relates only to the merits of plaintiffs' case, which is impermissible at the class certification stage.6 When, as here, inaccuracies in court submissions are innocent errors, a finding of inadequacy is not warranted. For example, in Queen Uno, defendants argued that a proposed class representative was improper because he failed to list the sale

5

Further, Qwest fails to mention testimony by other plaintiffs where they recall detail contained in the retainer agreements. See Ex. C at 39:23-40:8; Ex. F at 243:16-244:1.
6

See Cheney v. Cyberguard Corp., 213 F.R.D. 484, 496 (S.D. Fla. 2003) ("[W]hen determining whether or not to certify a class, `any inquiry concerning a [Plaintiff's] credibility is an impermissible examination of the merits of the case.'"; refusing to consider defendants' challenge that the plaintiff supposedly "failed to disclose his involvement in the present case in another class action"); Schwartz, 178 F.R.D. at 553 ("`in the context of complex securities litigation, attacks on the adequacy of the class representative based on the representative's . . . credibility are rarely appropriate'"). - 11 -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 19 of 48

of 1,000 shares of stock in his certification. 183 F.R.D. at 692. The court rejected this argument because "this was an honest mistake." Id. at 692-93.7 Qwest ignores testimony by all of the proposed representatives establishing that these were innocent errors. Mr. Creane testified that the Fund's omission in its certification of an additional securities fraud case was a simple mistake. Ex. C at 56:22-24.8 In executing his certification, T. Singh believed that he had furnished complete and accurate information. Ex. F at 171:10-14 ("I did look into the document[s] which I have at that time and copied those numbers from them, and to the best of my knowledge at that time, these numbers are correct."). Mr. Mosher similarly testified that errors in his certification

7

See also In re USEC Sec. Litig., 168 F. Supp. 2d 560, 567-68 (D. Md. 2001) (lead plaintiff appointed even where certification "did not set forth `all [his] transactions'" due to a "clerical error"); cf. Kalodner v. Michaels Stores, 172 F.R.D. 200, 210 (N.D. Tex. 1997) (holding that a plaintiff's credibility did not render him inadequate where the inconsistent statements did not "suggest a deliberate attempt to mislead"). Qwest attempts to manufacture nefarious intent on behalf of the Fund, arguing that disclosing the Ernst & Young case could have barred the Fund from serving as a class representative in this case given the prohibition in 15 U.S.C. §78u-4(a)(3)(B)(vi) on serving as a lead plaintiff in more than five cases in three years. Qwest Resp. at 7-8. Qwest's suggestion is meritless. First, the prohibition in 15 U.S.C. §78u-4(a)(3)(B)(vi) does not concern the mere pursuit of lead plaintiff status, but prohibits only the act of serving as a lead plaintiff beyond the enumerated limit ­ and as Qwest concedes, the Fund was not appointed lead plaintiff in the Ernst &Young case. Qwest Resp. at 8 n.8. Second, the prohibition of 15 U.S.C. §78u-4(a)(3)(B)(vi) does not invariably apply to institutional investors such as the Fund. See In re Fannie Mae Sec. Litig., 355 F. Supp. 2d 261, 264 (D.D.C. 2005) (quoting legislative history as stating: "[i]nstitutional investors seeking to serve as lead plaintiff may need to exceed this limitation and do not represent the type of professional plaintiff this legislation seeks to restrict"). - 12 -

8

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 20 of 48

were the product of a mistake. Ex. G at 166:15-19. "At the time I did not realize that I was omitting those. It was not intentional." Id. at 167:22-168:1.9 Likewise, the errors in certain of the proposed representatives' declarations supporting this motion were innocent. S. Singh testified that he made an attempt to confirm the accuracy of the declaration before it was submitted to the Court. Ex. E at 102:16-17 ("at that time, that's [] the best information I had, so that's what we gave"). He listed in the declaration all of the transactions of which he was then aware ­ but only later did he discover that more transactions were made. Id. at 131:13-17; 133:17-22. T. Singh also acted under the belief that his initial declaration was complete and accurate. Ex. F at 177:6-7 ("But that point in time [(i.e., when the declaration was executed)], I considered that as complete, yes."). The proposed representatives cannot be deemed inadequate for these "honest mistake[s]." Queen Uno, 183 F.R.D. at 692-93. Upon learning of these errors, the Singhs promptly filed corrected declarations.10 Defendants have all the relevant information.

Qwest's contention that had plaintiffs' certifications not contained these errors, plaintiffs would likely not have obtained appointment as Lead Plaintiffs in this case is wrong. Plaintiffs' motion for appointment as lead plaintiffs was unopposed and initially centered around a much shorter class period. See Ex. B at 1. Qwest's attempt to accuse the Singhs of misconduct in purportedly not listing this litigation in a certification filed in the BellSouth case (Qwest Resp. at 10-11), is baseless. Qwest claims that the BellSouth certification, dated September 18, 2002, features the Singhs stating that they "have not served or sought to serve as a class representative" in the preceding three years. This statement is clearly true, however, as at that time, the Singhs had not filed their motion for class certification in this case. - 13 10

9

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 21 of 48

2.

The Plaintiffs' Claims Are Typical of Those of the Class

All of the proposed representatives make claims typical of the class. Qwest misstates and obscures the facts, misapplies the fraud-on-the-market presumption and the typicality standard, and ignores the cases rejecting the arguments it advances. First, rebutting the presumption of reliance on the integrity of the market ­ including attacks on plaintiff's investment strategy ­ requires consideration of the case's merits; thus, the defense of nonreliance is not a basis for the denial of class certification.11 Defendants' typicality challenge should be denied on this basis alone. Next, the typicality prong of Rule 23 is not applied inflexibly. Qwest Savs., 2004 U.S. Dist. LEXIS 24693, at *14. Further, "`[a]lthough the plaintiffs may have purchased their stock at different times, and relied upon different sources of public information in making their investment decisions, those variations are insufficient to defeat the class on typicality grounds.'" In re Intelcom Group Sec. Litig., 169 F.R.D. 142, 148 (D. Colo. 1996). "Thus, a difference in the amount of damages, date, size, or manner of purchase, the type of purchaser, and even the specific document influencing the purchase will not render the claim atypical in most securities actions." Dura-Bilt Corp. v. Chase Manhattan Corp., 89 See, e.g., In re First Republicbank Sec. Litig., No. 3-88-0641-H, 1989 U.S. Dist. LEXIS 11139, at *27-*28 (N.D. Tex. Aug. 1, 1989) ("Even if [the defendants] . . . can prove non-reliance to rebut the fraud-on-the-market presumption, this goes to the merits of the case and cannot be considered by the Court on a motion for class certification."); In re Pizza Time Theatre Sec. Litig., 112 F.R.D. 15, 22 (N.D. Cal. 1986) ("although lack of reliance may be a defense, that goes to the merits of the case and cannot be considered in a certification motion"); Seidman v. Am. Mobile Sys., 157 F.R.D. 354, 361 (E.D. Pa. 1994) ("whether or not Mr. Seidman in fact relied on the integrity of the market goes to the merits of the case and is therefore an inappropriate matter for the Court to consider on a motion for class certification"). - 14 11

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 22 of 48

F.R.D. 87, 99 (S.D.N.Y. 1981). Further, a representative's investment strategy is of little importance to his suitability as a class representative: it does not create an atypical defense or rebut the presumption of reliance. See Randle v. SpecTran, 129 F.R.D. 386, 390-91 (D. Mass. 1988); Kolin v. Am. Plan Corp., No. CV-84-3183, 1986 U.S. Dist. LEXIS 27057, at *27 (E.D.N.Y. Apr. 8, 1986); see also Antonson v. Robertson, 141 F.R.D. 501, 508 (D. Kan. 1991). Qwest misstates the facts in arguing that the Fund is atypical, asserting that the Fund made "three" purchases of Qwest stock after it filed its initial complaint in this case on July 27, 2001. Qwest Resp. at 13 n.13. The Fund's declaration reveals only one purchase of Qwest stock, made on July 31, 2001 ­ and that purchase is now inside the class period. See Motion for Class Certification ("Motion"), Ex. A, Schedule A. This small purchase by the Fund ­ one out of a total of 15 during the relevant period ­ represents no bar to a finding of typicality. Qwest's labeling of this purchase as being made with "actual knowledge" of the criminal fraud is just deceptive wordplay. As plaintiffs allege, while certain partial disclosures by Qwest on July 20-26, 2001 made Qwest's share price fall, after this time, "Qwest's stock continued to trade at artificially inflated levels because the Company's financial condition and poor prospects continued to be concealed." Fifth Consolidated Amended Class Action Complaint for Violation of the Securities Act of 1933 and the Securities Exchange Act of 1934 ("Complaint"), ¶329. At the time of the Fund's purchase on July 31, 2001, the market did not have "actual knowledge" of the ongoing criminal conspiracy at Qwest because defendants continued to hide the full scope of the fraud. In this respect, in making this purchase, the Fund was in the exact - 15 -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 23 of 48

same position as every other class member ­ i.e., paying artificially-inflated prices for Qwest stock while still unaware of the scope and nature of the fraud at Qwest.12 The fraud-on-the-market presumption is straightforward: "plaintiffs may rely on the fraud-on-the-market presumption of reliance if they prove purchase of a security and that a material misrepresentation was made concerning the security which resulted in an artificial change in price." Intelcom, 169 F.R.D. at 147. As the Supreme Court has observed, "it is hard to imagine that there ever is a buyer or seller who does not rely on market integrity." Basic Inc. v. Levinson, 485 U.S. 224, 246-47 (1988). The Fund's ignorance of the true extent of the fraud at Qwest in late July 2001 makes it just like all of the other class members, justifying reliance on the market price of Qwest stock. Qwest also argues that the Singhs and Mr. Mosher cannot rely on the fraud-on-themarket presumption because they profited from earlier short-term trades. But, Qwest ignores the difference between an investor's reliance, on the one hand, and that investor's trading strategy, on the other. Even short-term investors are entitled to assume that the price of their securities has not been fraudulently inflated:

The post-July 27, 2001 purchase by the Fund also was the result of a necessarily structured sequence of purchases by the Fund's outside investment manager ­ initiated well before any of Qwest's fraud was revealed. See Ex. H, Ujazdowski Depo. at 70:14-21 ("But when you're accumulating large chunks of stock, and remember this is 1 of 65 or so accounts that held the stock, you just can't pick up the phone and say buy everything or sell everything. You have to scale in, you have to scale out, and the pace at which you do that depends on what's happening, you know, today at this moment in the market."); id. at 82:12-83:7 ("The March through July buys are actually all related . . . . So I view that as one continuous, as I said before, scaling in, scaling out. That's one big scaling in transaction."). - 16 -

12

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 24 of 48

[The plaintiff's] investment strategy is none of defendants' business . . . . Whatever the strategy, [plaintiff] should have been able to presume that the market price for Vesta was based on honest and accurate financial information. In re Vesta Ins. Group, Inc. Sec. Litig., No. 98-AR-1407-S, 1999 U.S. Dist. LEXIS 22233, at *25 (N.D. Ala. Oct. 25, 1999). Numerous courts have held that even day traders are entitled to the fraud-on-the-market presumption and may serve as class representatives in securities fraud cases.13 All of the proposed representatives relied on defendants' misstatements in their purchases.14 T. Singh testified that in analyzing stocks to purchase as long term holdings,

13

See, e.g., In re Royal Ahold N.V. Sec. & ERISA Litig., 219 F.R.D. 343, 354 (D. Md. 2003) ("It has been suggested that [plaintiff] is atypical because it is a day-trader, and daytraders allegedly do not rely on the financial statements or the fundamental value of a company as the rest of the market does. But where false information and misleading omissions pollute the market, all types of investors are injured."); Taubenfeld v. Career Educ. Corp., No. 03 C 8884, 2004 U.S. Dist. LEXIS 4363, at *12-*13 (D. Ill. Mar. 22, 2004) ("Koontz and Margaritis also theorize that day traders may not be able to rely on the fraud on the market theory of reliance . . . many courts have rejected this theory."); Serafimov v. Netopia, Inc., No. C-04-03364 RMW, 2004 U.S. Dist. LEXIS 25184, at *17-*18 (N.D. Cal. Dec. 3, 2004) ("Many district courts that have considered the issue or surveyed case law have largely concluded that day traders may serve as class representatives."). Qwest's citation to Queen Uno, 183 F.R.D. at 692, in urging that stock purchase decisions may disqualify proposed representatives, is misplaced. In that case, the putative class representative was a market maker in the security who purchased purely out of obligation due to its position on the exchange.

The Fund's investment advisor testified that in making those purchases, he considered Qwest's "[r]evenue growth and also EBITDA, earnings before interest, tax and depreciation, the growth in those two metrics, the cash on hand, and the basic, . . . various measures of the asset value of the business" (Ex. H at 85:9-13) ­ much of which plaintiffs allege to have been fraudulently reported. Moreover, in analyzing stocks, the Fund relied on the same information as did the larger market of investors, i.e., analyst reports and statements by management on conference calls. Id. at 38:18-22; 44:9-12. The Fund's purchases in March through July 2001 were based directly on defendants' false statements about Qwest. Id. at 79:10-16 ("In that period, since they had closed the merger and then - 17 -

14

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 25 of 48

he scrutinized their "revenue growth" and the quality of their management. Ex. F at 59:2024. In the purchase of his short term investments, he used the same criteria: Q. For the time period from May 1999 through February 2002, what criteria did you use to select short-term investments in the telecommunications industry? * * * A. The criteria is the same, when the company has a bright future and the sales are growing and the revenue is growing and the profitability is growing, so that's an indication that they can do good during the next three or four quarters. Id. at 64:23-65:12. T. Singh is typical of the rest of the class in that he even relied on the rosy statements by Qwest management: I did listen to the management. I still remember that Mr. Nacchio came on TV and he said the company is great, everything is doing great, we're going to do very good. Then I had hopes that this company is going to do great. Id. at 214:21-215:15. In fact, T. Singh testified that he relied upon the market price of Qwest's stock in choosing to purchase it. Id. at 116:7-11 ("Qwest was one of those companies where they have revenue growth, sales growth, good rosy pictures. See, with all the information, market takes care of the price of the stock."); Id. at 197:10-11 ("So that $35 at that time, I thought it was a good price, and that's the reason I bought it.").15 Mr. Mosher relied on "statements made at that time by Qwest, which have proven to be fraudulent, led [him] to believe that it was probably the best of all the baby Bells to invest

the following few quarters from that time on . . . in terms of the company's guidance, earnings forecast, what analysts were looking for, the company was hitting all of those, all of those targets.").
15

Because T. Singh purchased stocks for both himself and S. Singh (id. at 96:5-24), the same analysis here applies to S. Singh's purchases. - 18 -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 26 of 48

in." Ex. G at 105:25-106:3. Specifically, he relied on "statements that were made in financial reports." Id. at 111:15-19. Even if he "was purchasing or buying stock more frequently," Mr. Mosher considered "[t]he profit picture of the company, the product of the company, the management of the company . . . to be invested in companies that would have growth and have future profits and, with that, allow [him] to have a better retirement." Id. at 95:9-24. By looking to these long-term aspects of Qwest, Mr. Mosher was no doubt quite similar to the majority of investors in the Company. After considering these factors at the time of purchase, Mr. Mosher would on occasion sell some of his holdings to take unanticipated profits. Id. at 99:24-100:1. Yet the fact remains that in making those purchases, he still relied on the same information as did the class. Thus, Qwest's sweeping accusation that Mr. Mosher and the Singhs supposedly disregarded "Qwest's value or financial performance" (Qwest Resp. at 1) is simply false. All of the proposed representatives purchased Qwest stock at artificially-inflated prices, in reliance on Qwest's fraudulent financial reporting, and suffered losses ­ just like the rest of the class. As this Court has held: A plaintiff's claim is typical of class claims if it challenges the same conduct that would be challenged by the class. Factual differences among individual claims do not defeat typicality, as long as the legal theory underlying the plaintiffs' claims is the same. Qwest Savs., 2004 U.S. Dist. LEXIS 24693, at *14-*15. 3. There Are No Conflicts Within the Proposed Class

Qwest and Andersen LLP ("Andersen") then raise certain potential "conflicts" between class members bar certification. Yet none of the phantom conflicts actually exist - 19 -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 27 of 48

and, even if they did, they do not outweigh the classwide interest in finding defendants liable for their fraud. Should any real tensions between the positions of class members later arise, this Court can solve them. As this Court has noted, "[a]lthough different groups of plaintiffs may have been exposed to different . . . misrepresentations, those differences do not destroy the large foundation of commonality among the plaintiffs' misrepresentation allegations." Qwest Savs., 2004 U.S. Dist. LEXIS 24693, at *16. a. There Is No Conflict Between Pre-Merger Qwest and U S West Shareholders

Qwest first manufactures a purported conflict between Qwest shareholders and U S West shareholders when the companies merged. Qwest Resp. at 17-19. To win on this, Qwest must satisfy an exceedingly high standard: in order to warrant denial of class certification, it must be shown that any asserted "conflict" is so palpable as to outweigh the substantial interest of every class member in proceeding with the litigation. In re NASDAQ Market-Makers Antitrust Litig., 169 F.R.D. 493, 514-15 (S.D.N.Y. 1996). This requires far more than theoretical differences between class members: in large and complex litigation such as this one, potentially involving thousands of class members and scores of legal issues, many of them convoluted and difficult, it would be impossible to obtain and maintain 100% agreement within the class as to all matters. To impose such a requirement would, in effect, preclude the use of the class action device in many of the very cases where it could be most advantageous. Wyatt v. Poundstone, 169 F.R.D. 155, 161 (M.D. Ala. 1995); see also Greene v. Emersons, Ltd., 86 F.R.D. 47, 61 (S.D.N.Y. 1980) ("While differing interests among class members may ultimately surface, the greater weight of recent authority militates against denying class certification on that ground, at least at this stage of the proceedings."). - 20 -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 28 of 48

Qwest argues that classic Qwest shareholders would seek to minimize the amount that Qwest's stock was artificially inflated at the time of the merger, while U S West shareholders would seek to maximize it. This assertion makes no sense. Qwest's expert never explains exactly why these classic Qwest shareholders would need to minimize inflation at the time of the merger. Indeed, while the expert purports to give an "example" of a hypothetical shareholder who, while holding Qwest shares purchased before the class period and purchasing additional shares long after the merger, would somehow want to show that Qwest shares were "not" inflated at the time of the merger (see Cox Decl., ¶17), we are merely told that this is so because this shareholder was supposedly a "beneficiary" of the inflation at the time of the merger. Id.16 While the expert claims that this hypothetical shareholder was a "beneficiary" of the inflation at the time of the merger, the fact remains that this merger-time inflation does not serve to reduce this shareholder's damage in any way. Qwest's expert is silent on this issue. Because the supposed "benefi[t]" here does not operate to reduce recoverable damages, this shareholder actually has no interest in "minimizing" the amount of price inflation at the time of the merger.17 Qwest's expert is wrong.

Actually, classic Qwest shareholders would seem to have the same interest in proving the falsity of Qwest's pre-merger financial statements, as class members who received Qwest stock through the Qwest/U S West merger.
17

16

Moreover, Qwest's underlying assumption of precisely what benefit classic Qwest shareholders supposedly received is hardly cognizable. Grasping at straws, Qwest's expert asserts that classic Qwest shareholders benefited from this inflation because it "reduced the Conversion Ratio" (Cox Decl., ¶17) in the merger's share exchange, allowing this group of shareholders to retain a larger percentage of Qwest's outstanding shares. Yet we are never told how this produced a tangible, realized economic benefit to these - 21 -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 29 of 48

In fact, while Qwest's "example" of a "hypothetical investor" fails to demonstrate why pre-merger Qwest shareholders would need to minimize price inflation at the time of the merger, a real-world example conclusively proves it wrong. In this case, the Fund bought Qwest shares before the merger but within the class period. T. Singh held U S West shares at the time of the merger, exchanging them for Qwest shares. See Motion, Exs. A, C. Qwest would thus classify the Fund as a "Classic Qwest Holder[]," and T. Singh as a "U.S. West Holder[]" (Cox Decl., ¶9(A), (B)), whose interests in proving price inflation supposedly conflict. Qwest argues that because T. Singh exchanged his U S West shares in the merger, he has an interest in maximizing the amount of price inflation at the time of the merger. Yet the Fund would also seek to maximize inflation at the time of the merger, as it purchased those shares in the same general time period as the merger. See Motion, Ex. A (listing purchases on June 15, 16, 20 and 21, 2000). Thus, both the Fund and T. Singh would seek to maximize the inflation caused by statements in Qwest's 1999 SEC Form 10K and 1stQ01 SEC Form 10-Q, among numerous other documents. Inflation at this time would both establish that: (1) T. Singh received inflated stock in the merger; and (2) the

shareholders. Nor does Qwest demonstrate that this "benefi[t]" was so great as to outweigh the obvious interest of that shareholder in securing monetary recovery for the artificially-inflated price that she paid for Qwest stock. Simply put, Qwest's speculative, academic observations of paper "benefits" to shareholders does nothing to detract from the hard fact that all class members have a concrete economic interest in maximizing the amount of price inflation in Qwest stock. - 22 -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 30 of 48

Fund paid inflated prices for the stock it purchased ­ securing both plaintiffs the recovery of their damages. No conflict exists.18 First, Qwest and its expert argue that different class members may seek to maximize inflation at different times. See Cox Decl., ¶16. Even if this were true, courts have repeatedly rejected the argument. [Defendants argue that] some members of the class will want to maximize the inflation of stock prices existing on a given date, while others will want to minimize it. This argument, which essentially relates to damages, has been rejected by a number of courts, and I find it unpersuasive in this case. In re Reliance Acceptance Group, Inc. Sec. Litig., No. SA-98-CA-0044 OG, 1998 WL 388260, at *5 (W.D. Tex. June 29, 1998); see also Serfaty v. Int'l Automated Sys., 180 F.R.D. 418, 420 (D. Utah 1998) ("`Any differences in interests among class members in demonstrating the amount of price inflation on a given day are secondary to the predominant interests shared in proving the existence of materially misleading statements and omissions.'"). As the seminal case of Blackie v. Barrack, 524 F.2d 891, 908-10 (9th Cir. 1975) held: [Defendants] contend that the interests of class members in proving damages from price inflation . . . irreconcilably conflict, because some class members will desire to maximize the inflation existing on a given date while others will desire to minimize it. . . . We agree that class members might at some point during this litigation have differing interests. We altogether Notably, the "example" shareholder used by Qwest's expert does not even match the category of "Classic Qwest Holder" sketched by Qwest. Qwest describes such a shareholder as one who "purchased Qwest stock prior to the Qwest-USW merger and within the class period." Qwest Resp. at 3. Yet in the "example," Qwest's expert uses a Qwest shareholder whose pre-merger Qwest shares were purchased before the class period, as it "held" that stock "at the beginning of the [c]lass [p]eriod." Cox Decl., ¶17. These shares would thus not even be included in the class' claims. - 23 18

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 31 of 48

disagree, for a spate of reasons, that such potential conflicts afford a valid reason at this time for refusing to certify the class. * * * Here, the conflict, if any, is peripheral, and substantially outweighed by the class members' common interests. . . . Every class member shares an overriding common interest in establishing the existence and materiality of misrepresentations. The major portion of the inflation alleged is attributed to causes which allegedly persisted throughout the class period. It will be in the interest of each class member to maximize the inflation from those causes at every point in the class period, both to demonstrate the sine qua non ­ liability ­ and to maximize his own potential damages ­ the more the stock is inflated, the more every class member stands to recover. The same reasoning applies in this case. Qwest, again, ignores it.19 Second, any divergent interests between classic Qwest shareholders and U S West shareholders (though again, none have yet to be identified) would be adequately represented by the proposed representatives in this case. The Fund and the Singhs are counted among the two groups with supposedly conflicting interests in proving price inflation. The Fund and the Singhs, in pursuing their own recoveries, will thus inexorably safeguard the interests of these groups of class members. This further warrants the rejection of Qwest's conflict argument.20

These authorities also effectively dispose of the contentions of Qwest's expert that the interest of those who sold during the class period supposedly conflict with the interests of other class members (Cox Decl., ¶¶25-28), and that plaintiffs will purportedly not benefit from their claims (Cox Decl., ¶¶29-37), as the gravamen of these arguments is likewise that certain class members may wish to maximize and minimize inflation at different times. Moreover, such arguments are essentially based on timing differences in class member purchases, and "`cases from the Tenth Circuit have routinely rejected the contention that timing differences among the class members' purchases preclude a finding of typicality.'" Spectralink, 2003 U.S. Dist. LEXIS 11711, at *17 n.2. See Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1188 (10th Cir. 2002) (upholding class action settlement over objections, in part because "each subgroup [of the - 24 20

19

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 32 of 48

Third, as this Court has recognized, it possesses more than adequate power to address any conflict that may arise. Qwest Savs., 2004 U.S. Dist. LEXIS 24693, at *19. If certified, this Court will supervise the notice disseminated to class members, allow an opportunity to opt out, and pass over the fairness of any proposed settlement. b. There Is No Conflict Between Holders and Sellers of Stock

Qwest then advances one of the most tired and oft-rejected class certification "conflict" arguments in asserting that the interests of those who sold their damaged Qwest stock supposedly conflict with people who have not yet sold. Qwest Resp. at 19-20. This argument has previously been dismissed in this District. See Spectralink, 2003 U.S. Dist. LEXIS 11711, at *14-*15 (certifying class). Qwest itself recently saw a similar argument rejected in a Colorado state court class action case. In Brody v. Hellman, No. 00 CV 4142 (D.C. Colo.), Qwest argued against certification on the ground that a purported conflict existed between those in the proposed class who sold their Qwest shares and those who still retain them. The court disagreed, finding no conflict to exist and certifying the class. See Ex. I, Order Granting Plaintiffs' Motion for Class Certification signed Jan. 31, 2005 at 3 ("The fact that some members of the class have held the stock and some have sold does not create a conflict.").

class] had its own class representative during settlement negotiations," and their representation by the same plaintiffs' counsel served to "motivate Plaintiffs' counsel to seek the largest overall award possible"); Queen Uno, 183 F.R.D. at 694 (certifying class of purchasers of different investments because among the class representatives were purchasers of each type of investment, and as such, "[t]ogether they can ensure that evidence is presented to support all interests"). - 25 -

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 33 of 48

The Brody court also disregarded the factual premise Qwest advances here. See id. at 4 ("[I]t is far from clear that Qwest's stock price will drop at all, let alone drastically, should Plaintiffs prevail here."). The conclusion of Qwest's expert that "any damage award, settlement payment or other expense" in this case would "necessarily" "reduce [Qwest's] assets" (Cox Decl., ¶20 & n.9) is also just plain wrong. Qwest and Andersen have substantial insurance policies and indemnification structures implicated by plaintiffs' allegations, which can absorb large payments without any adverse affect on Qwest's financial position. Thus, this expert's attempt to illustrate the "harm" to a hypothetical Qwest holder (id., ¶21) is fatally flawed. Past experience serves to defeat Qwest's assertion that a settlement of this case would see current share prices fall. On November 19, 2004, The Denver Post published an article entitled Qwest in Settlement Talks for Big Bucks which discussed rumors that Qwest would "pay out $500 million to shareholders" to settle lawsuits. See Ex. J. The next trading day, Qwest stock closed up 1.3%. Qwest stock similarly rose after Qwest settled the Brody case for $50 million this past June. As would be expected, most courts reject this view.21 As T. Singh continues to hold Qwest stock he received in the U S West merger, so all interests, again, are represented.

See, e.g., Lewis v. Goldsmith, 95 F.R.D. 15, 21 (D.N.J. 1982) ("The majority of cases, however, recognize that in virtually all securities actions of this nature there will be class members who have sold shares and some who have retained them, and have not found the conflict created to be sufficiently serious to defeat the certification of a class."); Simon v. Westinghouse Elec. Corp., 73 F.R.D. 480, 484 (E.D. Pa. 1977) (Conflicts "between sellers and those who continued to hold relate only to damages, and thus are peripheral to the central issues in this case. Such conflicts potentially are presented in - 26 -

21

Case 1:01-cv-01451-REB-KLM

Document 780

Filed 08/15/2005

Page 34 of 48

Ex. F at 155:11-19. The Court has the means to safeguard the interests of class members should any conflict materialize. See, e.g., Herbst v. Able, 47 F.R.D. 11, 15 (S.D.N.Y. 1969) (noting that any class member with holdings so large that he would prefer not to assert his claims for past losses may request exclusion from the class). Finally, Qwest's suggestion that plaintiffs' purported inability to represent current Qwest shareholders is demonstrated by their earlier effort to secure a recovery for the class by seeking a constructive trust over the QwestDex proceeds, is meritless. Again, T. Singh still holds stock. Further, the other proposed representatives considered the financial consequences to Qwest of their motion, and considered