Free Reply to Response to 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 Action Nos. 01-RB-1472, 01-RB-1527, 01-RB-1616, 01RB-1799, 01-RB-1930, 01-RB-2083, 02-RB-0333, 02-RB-0374, 02-RB-0507, 02RB-0658, 02-RB-755, 02-RB-798, and 02-RB-238) In re QWEST COMMUNICATIONS INTERNATIONAL INC. SECURITIES LITIGATION

QWEST COMMUNICATIONS INTERNATIONAL INC.'S RESPONSE TO LEAD PLAINTIFFS' MOTION FOR CLASS CERTIFICATION

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TABLE OF CONTENTS

RELEVANT FACTUAL BACKGROUND.......................................................................... 2 I. II. The Proposed Class And Class Claims.................................................................. 2 The Putative Class Representatives....................................................................... 3

ARGUMENT ..................................................................................................................... 5 I. Lead Plaintiffs Cannot Qualify As Class Representatives Under Rule 23(a). ......... 5 A. Lead Plaintiffs Have Taken Actions That Disqualify Them From Serving As Class Representatives............................................................... 5 1. New England Filed Misleading Declarations with the Court, Violated the PLSRA, and Has Exercised No Oversight of Its Securities Litigations. ........................................................................ 6 The Singhs Have Repeatedly Submitted Misleading Declarations. ..................................................................................... 8 Mr. Mosher Is Similarly Unqualified To Represent The Proposed Class. ................................................................................................ 11

2.

3.

B.

Lead Plaintiffs Are Atypical Because They Cannot Rely Upon the "Fraud-on-the-Market" Presumption that is Essential to the 10b-5 Claims.......................................................................................................... 12 1. New England Cannot Rely Upon the "Fraud-on-the-Market" Presumption Because It Continued to Purchase Qwest Stock After It Investigated the Alleged Fraud and Filed A Compliant.......... 13 The Singhs and Mosher Cannot Rely Upon the "Fraud-on-theMarket" Presumption Because they Were Trading on Price Movement and Not on Reliance on The Integrity of The Price.......... 14

2.

C.

Lead Plaintiffs Lack Standing To Assert Claims Based Upon Qwest Bonds And Therefore Fail To Satisfy The Rule 23(a) Typicality Requirement For These Claims. .................................................................. 15 The Proposed Class Contains Irreconcilable Conflicts. ............................... 17 1. The Interests of U S WEST Holders and Classic Qwest Holders Are Incompatible. .............................................................................. 17

D.

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2.

The Interests of Class Members Who Currently Hold Qwest Stock Conflict with Those of Class Members Who Liquidated Their Qwest Holdings Before the End of the Putative Class Period................................................................................................ 19

II.

Lead Plaintiffs Have Not Offered and Cannot Offer Any Means To Prove Essential Elements Of Their Claims With Common Evidence................................ 20 A. B. Individual Issues Predominate Concerning Loss Causation. ....................... 21 Individual Issues Predominate Concerning Reliance for the 10b-5 Bond Claims.......................................................................................................... 23

CONCLUSION .................................................................................................................. 25

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TABLE OF AUTHORITIES Cases Albertson's, Inc. v. Amalgamated Sugar Co., 503 F.2d 459 (10th Cir. 1974).................................................................................... 17 Basic v. Levinson, 485 U.S. 224 (1988) ............................................................................................ 13, 24 Berger v. Compaq Computer Corp., 257 F.3d 475 (5th Cir. 2001)........................................................................................ 6 Berwecky v. Bear, Stearns & Co., 197 F.R.D. 65 (S.D.N.Y. 2000) .................................................................................. 14 Chiaretti v. Orthodontic Ctrs. of Am., No. 03-1027, 2003 U.S. Dist. LEXIS (E.D. La. Aug. 28, 2003) .................................... 6 City Partnership Co. v. Jones Intercable, Inc., 213 F.R.D. 576, 585 (D. Colo. 2002) ......................................................................... 12 Dudding v. Norton Frickey & Assoc., 11 P.3d 441, 446 (Colo. 2000)................................................................................... 11 Dura Pharmaceuticals, Inc. v. Broudo, 125 S. Ct. 1627 (2005) ..................................................................................... 2, 21-23 Epstein v. American Reserve Corp., No. 79 C 4767, 1988 WL 40500 (N.D. Ill. April 21, 1988) .......................................... 14 Freeman v. Laventhol & Horwath, 915 F.2d 193 (6th Cir. 1990)...................................................................................... 25 Gariety v. Grant Thornton, LLP, 368 F.3d 356 (4th Cir. 2004)...................................................................................... 24 Gary Plastic Packaging Corp. v. Merrill, Lynch, Pierce, Fenner & Smith, 903 F.2d 176 (2d Cir. 1990)....................................................................................... 13 Grubb v. Federal Deposit Ins. Corp., 868 F.2d 1151 (10th Cir. 1989).................................................................................. 16 Hevesi v. Citigroup Inc., 366 F.3d 70 (2d Cir. 2004)......................................................................................... 12 Hoiles v. Alioto, 345 F. Supp.2d 1178 (D. Colo. 2004) ................................................................... 11-12

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In re Bank One Shareholders Class Actions, 96 F.Supp.2d 780 (N.D. Ill. 2000) .............................................................................. 15 In re BellSouth Litigation .......................................................................................... 10-11 In re Clearly Canadian Sec. Litig., 875 F. Supp. 1410 (N.D. Cal. 1995) .......................................................................... 19 In re Eaton Vance Corp. Sec. Litig., 219 F.R.D. 38, 42 (D. Mass. 2003) .............................................................................. 6 In re Healthsouth Corp. Sec. Litig., 213 F.R.D. 447 (N.D. Ala. 2003)................................................................................ 18 In re Microstrategy Sec. Litig., 110 F.Supp.2d 427 (E.D. Va. 2000)........................................................................... 15 In re Qwest Communications Int'l Sec. Litig., 243 F.Supp.2d 1179 (D. Colo. 2003) ............................................................... 8, 10, 20 In re Rhythms Sec. Litig., 300 F.Supp.2d 1081 (D. Colo. 2004) ......................................................................... 12 In re Ribozyme Pharmaceuticals, Inc. Sec. Litig., 119 F.Supp.2d 1156 (D. Colo. 2000) ......................................................................... 24 In re Safeguard Scientifics, 216 F.R.D. 577 (E.D. Pa. 2003)................................................................................. 15 In re Salomon Analyst Metromedia Litig., 2005 WL 23187 (S.D.N.Y. June 5, 2005) .................................................................. 16 In re Storage Tech. Sec. Litig., 113 F.R.D. 113, 120 (D. Colo. 1986) ......................................................................... 16 Joseph v. Wiles, 223 F.3d 1155 (10th Cir. 2000).................................................................................. 16 Masri v. Wakefield, Rubenstein v. Wakefield, 106 F.R.D. 322 (D. Colo. 1984) ................................................................................. 18 New England Health Care Employees Pension Fund v. Ernst & Young, LLP, 336 F.3d 495 (6th Cir. 2003)........................................................................................ 8 Queen Uno Ltd. Partnership v. Coeur D'Alene Mines Corp., 183 F.R.D. 687 (D. Colo. 1998) ................................................................................. 13 Rector v. City and County of Denver, 348 F.3d 935 (10th Cir. 2003).................................................................................... 15

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Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180 (10th Cir. 2002).................................................................................. 17 Schwartz v. Celestial Seasonings, Inc., 178 F.R.D. 545 (D. Colo. 1998) ................................................................................... 5 Shook v. El Paso County, 386 F.3d 963 (10th Cir. 2004)................................................................................ 5, 21 Sprague v. Gen. Motors Corp., 133 F.3d 388 (6th Cir. 1998) (en banc)...................................................................... 12 Stinson v. Van Valley Development Corp., 714 F. Supp. 132 (E.D. Pa. 1989).............................................................................. 25 Unger v. Amedisys Inc., 401 F.3d 316 (5th Cir. 2005)...................................................................................... 24 Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 350 F.3d 1181 (11th Cir. 2003).................................................................................. 18 Yousefi v. Lockheed Martin Corp., 70 F.Supp.2d 1061 (C.D. Cal. 1999) ........................................................................... 8 Other Authorities § 10b of the Securities Exchange Act of 1934................................................................. 2 § 11 of the Securities Act of 1933 ................................................................................... 2 15 U.S.C. § 78u-4(a)(2)(A) .............................................................................................. 6 15 U.S.C. § 78u-4(a)(2)(A)(iv) ......................................................................................... 9 15 U.S.C. § 78u-4(a)(2)(A)(v).......................................................................................... 7 15 U.S.C. § 78u-4(a)(3)(B)(vi) ......................................................................................... 7 540 U.S. 1183 (2004) ...................................................................................................... 8 C.R.C.P. Chp. 23.3, Rules 4 & 5 ................................................................................... 11 Colorado RPC 1.5(c), Chapter 23.3, C.R.C.P ............................................................... 11 Fed. R. Civ. P. 23 ...................................................................................................passim Fed. R. Civ. P. 23, 2003 Advisory Committee Notes..................................................... 20

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Lead Plaintiffs' Motion for Class Certification turns on two basic questions: (1) are these plaintiffs proper class representatives; and (2) can the elements of their claims be proven with common evidence at a mass trial? As explained below, the answer to both questions is no, and class certification must therefore be denied. Three independent reasons render Lead Plaintiffs incapable of representing the putative class: First, the putative class representatives have taken actions that disqualify them from serving as fiduciaries to absent class members. Discovery revealed that these plaintiffs secured Lead Plaintiff status by submitting false sworn certifications to this Court. Indeed, had they submitted accurate certifications, these plaintiffs would likely not have qualified as Lead Plaintiffs under the Private Securities Litigation Reform Act (the "PSLRA"), 15 U.S.C. § 78u-4. Compounding this problem is the fact that three of the four plaintiffs recently conceded that the original declarations they submitted in support of their pending Motion for Class Certification also misstate critical information about their transactions in Qwest securities.1 Second, each Lead Plaintiff is subject to unique defenses concerning his ability to rely upon the "fraud-on-the-market" presumption of reliance. Three of the Lead Plaintiffs sought to profit from small swings in Qwest's stock price unrelated to Qwest's value or financial performance. The remaining Lead Plaintiff continued to purchase Qwest stock after filing a securities lawsuit against the company alleging that it had been defrauded. Further, Lead Plaintiffs are subject to another unique defense: each lacks standing to bring claims based on Qwest bonds because none of the Lead Plaintiffs purchased any

1

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bonds. These unique defenses render the Lead Plaintiffs atypical of the class they seek to represent. Third, the class Lead Plaintiffs propose to certify has been defined so broadly that irreconcilable conflicts render certification improper. Finally, in addition to the proposed representatives' inability to represent the putative class, certification is improper because Lead Plaintiffs have not proffered any means to prove essential elements of the class claims with common evidence. As the Supreme Court's recent decision in Dura Pharmaceuticals, Inc. v. Broudo, 125 S. Ct. 1627 (2005), makes clear, the federal securities laws require proof of a specific causal connection between an alleged fraud and a plaintiff's injury. For purposes of Lead Plaintiffs' request for class certification, the issue is whether the causal connection between the supposed artificial price inflation and dozens of alleged misstatements and omissions over nearly three years can be proven with common evidence. Lead Plaintiffs have offered no suggestion as to how they would carry this burden and, thus, certification is improper under Rule 23(b)(3). RELEVANT FACTUAL BACKGROUND I. The Proposed Class And Class Claims. In their Fifth Consolidated Amended Class Action Complaint ("FAC"), Lead Plaintiffs assert claims for violation of § 10b of the Securities Exchange Act of 1934 and § 11 of the Securities Act of 1933. They seek to represent the following class: "All persons who purchased or otherwise acquired Qwest publicly traded securities from May 24, 1999 through February 12, 2002, and who were damaged thereby." Lead Plaintiffs' Motion for
1

On June 22, 2005, Tejinder Singh, Satpal Singh and Clifford Mosher sought to correct errors in their original declarations by filing "supplemental declarations." 2

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Class Certification (hereinafter "Mot.") at 5. The putative class would include several distinct groups, including: U S WEST Holders: Individuals who acquired Qwest stock in exchange for U S WEST ("USW") common stock pursuant to the merger between those companies that was completed on June 30, 2000. Classic Qwest Holders: Individuals who purchased Qwest stock prior to the Qwest-USW merger and within the class period. Current Qwest Holders: Individuals who acquired Qwest securities during the class period, and continue to hold Qwest securities. Qwest Sellers: Individuals who acquired Qwest securities during the class period, and also sold Qwest stock during the class period. Qwest Debt Holders: Individuals who purchased Qwest bonds. Ex. 1, June 28, 2005 Decl. of Charles C. Cox ¶ 9 (hereinafter "Cox Decl.").2 II. The Putative Class Representatives. New England Healthcare Employees Pension Fund ("New England"): New England is a defined benefits pension plan for members of certain healthcare workers unions, established pursuant to the Taft-Hartley Act. By law, its investment decisions must be made by outside investment advisors. Ex. 2, 30(b)(6) Dep. of New England Representative Robert Tessier at 79-80, 155 (hereinafter "New England Dep."). At no expense to New England, the law firm of Lerach, Coughlin, Stoia, Geller, Rudman & Robbins ("Lerach Coughlin" or "Lead Counsel") monitors New England's

In support of its opposition to the motion for class certification, Qwest submits the Declaration of Dr. Charles Cox, PhD. As described in the curriculum vitae that accompanies his Declaration, Dr. Cox is a renown economist who has served as both a Commissioner and the Chief Economist for the United States Securities & Exchange Commission. Dr. Cox will testify to the matters set forth in his Declaration at an evidentiary hearing on the motion for class certification, should the Court decide to conduct a hearing. 3

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investments for potential lawsuits. Id. at 51-61.3 New England is not familiar with the criteria Lerach Coughlin uses to assess whether to sue on its behalf. Id. at 62-66. Since 1999, Lerach Coughlin (or its predecessor firm) has filed at least eight securities class actions on behalf of New England. Ex. 3, 3/8/2005 New England's Supplemental Response to Arthur Anderson Interrogatories, Answer 15 (listing seven cases); New England Dep. at 181-83 (verifying eighth case). In fact, New England has never turned down a single securities fraud suit recommended by Lerach Coughlin (or its predecessor firm). Ex. 4, John Creane Dep. at 47. Satpal Singh ("S. Singh") and Tejinder Singh ("T. Singh"): S. Singh and T. Singh are brothers who actively traded large positions of Qwest common stock during the time period 1999 through 2001. T. Singh, who is now a professional investor, Ex. 5, T. Singh Dep. at 28-29, generally makes trading decisions for both S. Singh and himself. See id. at 96; Ex. 6, S. Singh Dep. at 41-42. T. Singh trades so frequently that, for the years 1999, 2000, and 2001, he could not state whether he executed greater or fewer than 100,000 trades per year. T. Singh Dep. at 78-80. During the time period 1999 through 2001, T. Singh day-traded Qwest common stock ­ i.e., he bought and sold on the same day, or within a few days, in order to realize short-term profits from price movements. Id. at 208. At his deposition, S. Singh disclaimed knowledge as to how the decisions to buy and sell stock on his account were made, stating his brother, T. Singh, would have that information. S. Singh Dep. at 53-56.4

Lead Counsel's predecessor firm, Milberg Weiss, previously monitored New England's investments. Id. at 53. 4 S. Singh also completed several profitable transactions in Qwest stock. See Ex 7, 5/18/2005 Supplemental Responses of Tejinder Singh and Satpal Singh to Qwest's Interrogatories, Answer 1. 4

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Clifford Mosher ("Mosher"): Mosher is a retiree, who in March 2001 began trading large stock positions on short swings (i.e., buying and selling a stock within a matter of days). Ex. 8, Mosher Dep. at 137-38. Qwest was among the stocks Mosher traded during this period. Id. at 199-200. He further testified that his Qwest trades were swing trades, and that such trades were unusual for him. Id. ARGUMENT To prevail on their motion, Lead Plaintiffs are required to show, under a strict burden of proof, that all of the requirements of Rule 23 are met. See Shook v. El Paso County, 386 F.3d 963, 968 (10th Cir. 2004). Thus, they must prove the following Rule 23(a) prerequisites: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. Fed. R. Civ. P. 23(a). In addition, because they are proceeding under Rule 23(b)(3), Lead Plaintiffs must also establish that questions of law and fact common to the class predominate over individual issues. See Schwartz v. Celestial Seasonings, Inc., 178 F.R.D. 545, 550 (D. Colo. 1998). Lead Plaintiffs cannot satisfy their burden of proof with respect to either the 23(a) prerequisites or the 23(b)(3) predominance requirement. I. Lead Plaintiffs Cannot Qualify As Class Representatives Under Rule 23(a). A. Lead Plaintiffs Have Taken Actions That Disqualify Them From Serving As Class Representatives.

In "complex class action securities cases governed by the PSLRA, the adequacy standard must reflect the governing principles of the Act and, particularly, Congress's emphatic command that competent plaintiffs, rather than lawyers, direct such cases."

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Berger v. Compaq Computer Corp., 257 F.3d 475, 484 (5th Cir. 2001). Here, Lead Plaintiffs' disregard for the requirements of the PSLRA, combined with their lack of candor with the Court, establish their inadequacy to represent the class. The PSLRA requires any person or entity seeking to serve as a lead plaintiff in a securities case to submit a sworn certification to the court. 15 U.S.C. § 78u-4(a)(2)(A). "The purpose of the certification is to ensure more effective representation of investors in securities . . . class actions by transferring control of the litigation from the attorneys to the investors." In re Eaton Vance Corp. Sec. Litig., 219 F.R.D. 38, 42 (D. Mass. 2003) (internal quotation omitted). Discovery has revealed that each Lead Plaintiff omitted or misstated significant information from his/its PSLRA certification and other verified submissions to the Court.5 The omitted and misstated information, and the circumstances surrounding those misstatements and omissions, confirm that Lead Plaintiffs are inadequate class representatives. 1. New England Filed Misleading Declarations with the Court, Violated the PLSRA, and Has Exercised No Oversight of Its Securities Litigations.

"A primary tenet of the PSLRA is to protect a class from representation by repeat plaintiffs, who may not adequately monitor numerous litigations and counsel simultaneously." Chiaretti v. Orthodontic Ctrs. of Am., No. 03-1027, 2003 U.S. Dist. LEXIS 25264, at *5 (E.D. La. Aug. 28, 2003). Thus, the PSLRA certification requires, inter alia, that parties identify every securities action in which they have sought to serve as a class

Lead Plaintiffs' PSLRA certifications previously filed with the Court are attached as Ex. 9 hereto. 6

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representative in the three years preceding the date of the certification. See 15 U.S.C. § 78u-4(a)(2)(A)(v). New England violated the PSLRA by failing to disclose all the cases in which it sought to serve as a representative party in the three years preceding the date of its certification. Specifically, in its July 26, 2001 PSLRA certification and its September 21, 2001 amended PSLRA certification, Ex. 9, New England omitted the putative securities class action New England Health Care Employees Pension Fund v. Ernst & Young, No. 1:00CV000124 (W.D. Ky.), which it had filed on June 28, 2000 and was pending on July 26, 2001.6 In addition to violating the PSLRA's disclosure requirements, the failure to disclose the Ernst & Young litigation is important for another reason: disclosure of that case would have jeopardized New England's eligibility to serve as a lead plaintiff. Under the PSLRA's "professional plaintiff" provision, New England presumptively could not have served as lead plaintiff in both this case and the Ernst & Young litigation because doing so would have exceeded the statutory limit of five cases within three years.7 Put differently, had it disclosed the Ernst & Young case in its PSLRA certification, New England risked becoming presumptively ineligible to serve as Lead Plaintiff in In re Qwest Securities

New England was represented in the Ernst & Young litigation by the same law firm that represents it in this lawsuit. A copy of the Ernst & Young complaint and PSLRA certification are attached as Ex. 10 hereto. 7 See 15 U.S.C. § 78u-4(a)(3)(B)(vi) ("a person may be a lead plaintiff, or an officer, director, or fiduciary of a lead plaintiff, in no more than 5 securities class actions brought as plaintiff class actions pursuant to the Federal Rules of Civil Procedure during any 3-year period"). 7

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Litigation.8 New England never needed to confront that risk, however, having simply failed to disclose the Ernst & Young litigation. Moreover, discovery confirmed that New England is precisely the type of uninvolved, figurehead plaintiff that the PSLRA sought to eliminate. The deposition testimony New England provided depicts a passive plaintiff, entirely reliant on Lead Counsel to manage the litigation. New England has completely delegated its securities litigation to its outside counsel: (1) outside counsel, Lerach Coughlin, monitors New England's holdings for potential securities cases, New England Dep. at 51-64; (2) the corporate designee to testify about New England's other securities litigations could not identify a single fact about any of the other seven securities class actions it has brought, id. at 165-70; and (3) New England does not monitor its securities cases as closely as it does other litigation. Id. at 174-75. Put simply, allowing New England to represent an enormous class in such a disinterested manner and based upon a false PSLRA certification would undermine the PSLRA and Rule 23. See generally Yousefi v. Lockheed Martin Corp., 70 F.Supp.2d 1061, 1068 (C.D. Cal. 1999) ("One of [the PSLRA's] primary goals is to enable plaintiffs to seize control of securities fraud class action suits from the plaintiff's bar."). 2. The Singhs Have Repeatedly Submitted Misleading Declarations.

The Singhs concede that they provided incorrect information to the Court in their PSLRA certifications as well as in the original declarations they submitted in support of the

In the end, New England was never appointed Lead Plaintiff in the Ernst & Young litigation because the case was dismissed at the pleading stage. See New England Health Care Employees Pension Fund v. Ernst & Young, LLP, 336 F.3d 495 (6th Cir. 2003) (affirming dismissal), cert. denied, 540 U.S. 1183 (2004). 8

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motion for class certification. Moreover, this is not the only time the Singhs have submitted misleading information to a federal court in a securities case. T. Singh and S. Singh each misrepresented his transactions in Qwest stock in his PSLRA certification. T. Singh's certification represented that he held 4,000 shares of Qwest stock. Ex. 9. S. Singh's represented that he held 4,000 shares of Qwest stock. Ex. 9. At the time of their certifications, however, T. Singh actually held approximately 1,000 shares, T. Sing. Dep. at 213-14, and S. Singh held 2,000 shares. 1/20/2005 Decl. of S. Singh in Support of Mot. for Class Certification (attached as Ex. D to the Mot. for Class Certification). Further, T. Singh's and S. Singh's PSLRA certifications failed to set forth all of their transactions in Qwest stock, as required by 15 U.S.C. § 78u-4(a)(2)(A)(iv). T. Singh had six buy-and-sell transactions and one purchase of Qwest call options that he omitted from his certification. S. Singh had eleven buy-and-sell transactions that he omitted from his certification. See Ex 7, 5/18/05 Supplemental Responses of Tejinder Singh and Satpal Singh to Qwest's Interrogatories, Answer 1. When questioned about these discrepancies, T. Singh explained that due to his active trading, he could not keep track of his holdings. T. Singh Dep. at 213 ("See, that's what happens. When you trade actively, you really cannot -- cannot keep everything in your mind the right way, how much shares I have bought or sold"). In addition to the false certifications they submitted to the Court in support of their applications for Lead Plaintiff status, the Singhs conceded in deposition that the separate declarations they submitted in support of their pending Motion for Class Certification are inaccurate as well. With the Motion for Class Certification, S. Singh submitted a

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declaration to this Court stating: "During the relevant time period, I had the following trades in Qwest common stock: [listing trades]." 1/20/05 Decl. of S. Singh, ¶ 1 (attached as Ex. D to the Mot. for Class Certification). Similarly, T. Singh submitted a declaration stating: "A chart displaying our trading in Qwest securities during the relevant time period is attached as Exhibit A." 1/20/05 Decl. of T. Singh, ¶1 (attached as Ex. C to the Mot. for Class Certification). At their depositions, however, the Singhs admitted that the representations in their declarations were again inaccurate, omitting two buy-and-sell transactions in Qwest stock for T. Singh and nine buy-and-sell transactions in Qwest stock for S. Singh. T. Singh Dep. at 189-90; S. Singh Dep. at 111-12, 124-30, 139-42.9 As Lead Counsel explained in the Cardinal Health Inc. Sec. Litig., submitting these types of inaccurate records to the Court "make[s] it difficult, if not impossible, for the Court to rely on . . . [the putative class representatives'] capacity to represent the class in this complex litigation."10 Moreover, this is not the first time the Singhs have submitted inaccurate information to a federal court presiding over a securities case. On September 18, 2002, T. Singh and S. Singh executed PSLRA certifications in In re BellSouth Securities Litigation, a case proceeding in the United States District Court for the Northern District of Georgia. Ex. 12, Singh PSLRA Certifications from In re BellSouth Securities Litigation. Although they had already been appointed as Lead Plaintiffs in In re Qwest Securities Litigation, the Singhs' In re BellSouth Securities Litigation certification incorrectly stated (again under penalty of perjury) to the federal court in Georgia that: "During the last three years, I have not served
9

As noted above (fn. 1 supra), the Singhs filed supplemental declarations on June 22, 2005, purporting to correct their errors.

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or sought to serve as a class representative in any case brought under the federal securities laws." Id. at ¶ 5. When asked about the In re BellSouth Litigation at their depositions in this case, T. Singh and S. Singh claimed not to recall the lawsuit. S. Singh Dep. at 158-59; T. Singh Dep. at 255-57. Put simply, the Singhs' repeated submission of false and erroneous information to this Court and others, combined with their absentee approach to their Lead Plaintiff position, render them inadequate representatives. 3. Mr. Mosher Is Similarly Unqualified To Represent The Proposed Class.

Like the Singhs, the PSLRA certification Mr. Mosher presented to this Court when applying for lead plaintiff status failed to set forth all of his transactions in Qwest stock. Mosher conceded that he omitted two profitable buy-and-sell transactions from his certification. Mosher Dep. at 164-73. In addition, Mosher plainly lacks the necessary understanding of his responsibilities as a class representative. He is unaware of the class period, id. at 166-67, could provide little information about what he has done to prosecute this case, id. at 206-12, has never spoken to any of the other putative class representatives, id. at 226, and believes he signed a retainer agreement in which the contingency terms "weren't specifically spelled out." Id. at 188.11
10

Ex. 11, The Pension Fund Group's Consolidated Opp'n to the Competing Mots. for Appointment as Lead Plaintiff, at 17 (Mr. Lerach on brief). 11 Indeed, as to each Lead Plaintiff, it appears that Lead Counsel failed to comply with Colorado's ethical rules for contingent fee arrangements, which require that a lawyer disclose, in writing, certain facts to the prospective client before entering into a contingent fee agreement. See Colorado RPC 1.5(c), Chapter 23.3, C.R.C.P. In particular, Rule 4 of Chapter 23.3 requires that a lawyer disclose, in writing, certain facts to the prospective client before entering into a contingent fee agreement, and Rule 5 sets forth the required contents of any contingent fee agreement. See C.R.C.P. Chp. 23.3, Rules 4 & 5; see also Hoiles v. Alioto, 345 F. Supp.2d 1178, 1185 (D. Colo. 2004); Dudding v. Norton Frickey & Assoc., 11 P.3d 441, 446 (Colo. 2000) (assures "that clients will know the terms and 11

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B.

Lead Plaintiffs Are Atypical Because They Cannot Rely Upon the "Fraud-on-the-Market" Presumption that is Essential to the 10b-5 Claims.

"The premise of the typicality requirement is simply stated: as goes the claim of the named plaintiff, so go the claims of the class." Sprague v. Gen. Motors Corp., 133 F.3d 388, 399 (6th Cir. 1998) (en banc). Thus, class certification is inappropriate where a putative class representative is subject to unique defenses that do not apply to the entire class. See City Partnership Co. v. Jones Intercable, Inc., 213 F.R.D. 576, 585 (D. Colo. 2002) ("Where it is predictable that a major focus of the litigation will be on an arguable defense unique to the named plaintiff . . . , then the named plaintiff is not a proper class representative."). As in nearly every 10b-5 class action, Lead Plaintiffs seek to utilize the "fraud-onthe-market" presumption to establish the essential element of reliance on a classwide basis. 12 See generally Hevesi v. Citigroup Inc., 366 F.3d 70, 77 (2d Cir. 2004) ("fraud-onthe-market" presumption of reliance "is often essential to class certification in securities suits"). Here, however, all of the Lead Plaintiffs are subject to unique defenses concerning their ability to rely upon the "fraud-on-the-market" presumption and, thus, each must be

conditions of payment when contracting for attorney's services."). Here, the evidence shows that Lerach Coughlin did nothing to comply with these duties. None of the Lead Plaintiffs identified any written communication from Lerach Coughlin containing the information required under Rule 4, and none of them testified that their actual agreements with Lerach Coughlin contained the required protections found in Rule 5. (See T. Singh Dep., pp. 274-85; S. Singh Dep., p. 159; Mosher Dep., pp. 242-54; New England Health Dep., pp. 205-207.) Accordingly, Lerach Coughlin is left with an unenforceable fee agreement, and a claim against Lead Plaintiffs for quantum meruit. Hoiles, 345 F. Supp. 2d at 1187. 12 The "fraud-on-the-market" theory "creates a rebuttable presumption of reliance in securities fraud cases." In re Rhythms Sec. Litig., 300 F.Supp.2d 1081, 1091 (D. Colo. 2004) (Kane, J.). "The theory is based on the hypothesis that buyers and sellers of securities rely on the integrity of an efficient market, which reflects all information available to the public, including misinformation, in the market price of a stock." Id. 12

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disqualified as a class representative. See, e.g., Queen Uno Ltd. Partnership v. Coeur D'Alene Mines Corp., 183 F.R.D. 687, 692 (D. Colo. 1998) (disqualifying putative class representative that was subject to unique defenses concerning its purchasing decisions and reliance on the integrity of the market). 1. New England Cannot Rely Upon the "Fraud-on-the-Market" Presumption Because It Continued to Purchase Qwest Stock After It Investigated the Alleged Fraud and Filed A Compliant.

The "fraud-on-the-market" presumption may be rebutted by "[a]ny showing that severs the link between the alleged misrepresentation" and the plaintiff's "decision to trade at a fair market price." Basic v. Levinson, 485 U.S. 224, 248 (1988). An investor who purchases stock despite knowledge of the alleged fraud cannot utilize the "fraud-on-themarket" presumption. See id. at 248-49. Courts therefore refuse to appoint class representatives who continued to purchase stock after the investigation or filing of their complaint --.i.e., after they are aware of the alleged fraud. See, e.g., Gary Plastic Packaging Corp. v. Merrill, Lynch, Pierce, Fenner & Smith, 903 F.2d 176, 179-80 (2d Cir. 1990) (affirming denial of class certification on the basis that plaintiff was "an inappropriate class representative since its claim is subject to several unique defenses including its continued purchases of CDs through Merrill despite having notice of, and having investigated, the alleged fraud"). It is undisputed that New England continued to purchase Qwest stock after filing its complaint against Qwest on July 27, 2001. 1/25/05 New England Class Cert. Decl., Schedule A (attached as Ex. A to the Mot. for Class Certification); see also New England Dep. at 144-46.13 That is, New England continued to purchase stock despite actual
13

New England made three additional purchases of Qwest stock within ten days of filing this lawsuit. 1/25/05 New England Class Cert. Decl., Schedule A. 13

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knowledge of the allegedly ongoing activity for which it seeks to recover through this action.14 In fact, although it could have done otherwise, New England never directed its investment manager not to purchase Qwest stock. New England Dep. at 135-36; Ex. 13, Ted Ujazdowski Dep. at 51. Because it continued to purchase Qwest stock despite actual knowledge of the alleged fraud, New England cannot rely upon the "fraud-on-the-market" theory and, therefore, cannot represent a "fraud-on-the-market" class. 15 2. The Singhs and Mosher Cannot Rely Upon the "Fraud-on-theMarket" Presumption Because they Were Trading on Price Movement and Not on Reliance on The Integrity of The Price.

The Singhs and Mosher are also atypical and cannot rely upon "fraud-on-themarket" presumption. During the class period, the Singhs and Mosher bought and sold large volumes of Qwest stock, holding those blocks for short time periods and seeking to profit from normal price fluctuations that occur in every stock. For example, T. Singh described a process of buying Qwest stock in the morning and then "getting out" later in the day after the price increased 70 cents. T. Sing Dep. 199-200. Similarly, Mosher conceded that his decision to purchase 6,000 shares of Qwest stock on May 17, 2001, which he sold on May 21, 2001, was based upon his charting of the stock price and the expectation of a "short term spike in price." Mosher Dep. at 199. These investment
14

It is important to remember that plaintiffs contend the conduct continued throughout the putative class period. Thus, under its own allegations, New England purchased Qwest stock with knowledge of an ongoing fraud. 15 See Berwecky v. Bear, Stearns & Co., 197 F.R.D. 65, 70 (S.D.N.Y. 2000) ("As this Court has previously noted, a person that increases his holdings in a security after revelation of an alleged fraud involving that security is subject to a unique defense that precludes him from serving as a class representative."); Epstein v. American Reserve Corp., No. 79 C 4767, 1988 WL 40500, at *4 (N.D. Ill. April 21, 1988) ("Plaintiffs filed their original complaint in this action on November 15, 1979, yet both the Epsteins and Wengers, through their broker Herb Jablin, continued to purchase ARC securities until March and January of 1980, respectively. Such behavior is commonly held to create a unique defense vitiating typicality."). 14

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strategies rebut the Singhs' and Mosher's reliance on the "fraud-on-the-market" presumption because they relied upon price fluctuations, not the integrity of the market, to make their investment decisions. See In re Safeguard Scientifics, 216 F.R.D. 577, 582 (E.D. Pa. 2003) ("In light of Lead Plaintiff Adal's employment as a day trader (or `position trader') who typically focuses on technical price movements rather than price, we find that even under a fraud-on-the-market theory, Defendants have presented compelling reason to rebut the reliance presumption."). Thus, the Singhs and Mosher are inappropriate representatives for a class seeking to invoke the "fraud-on-the-market" presumption. See In re Microstrategy Sec. Litig., 110 F.Supp.2d 427, 436-37 (E.D. Va. 2000) (putative lead plaintiff "was atypical investor that engage[d] in transactions far beyond the scope of what a typical investors contemplates"); In re Bank One Shareholders Class Actions, 96 F.Supp.2d 780, 784 (N.D. Ill. 2000) (denying lead plaintiff status to "an institutional investment manager (a hedge fund) that engaged in extensive daytrading"). C. Lead Plaintiffs Lack Standing To Assert Claims Based Upon Qwest Bonds And Therefore Fail To Satisfy The Rule 23(a) Typicality Requirement For These Claims.

The Tenth Circuit has explained: A prerequisite for certification is that the class representatives be a part of the class and possess the same interest and suffer the same injury as class members. A representative's individual claim must be typical of the claims of the class members he seeks to represent. By definition, class representatives who do not have Article III standing to pursue the class claims fail to meet the typicality requirements of Rule 23. Rector v. City and County of Denver, 348 F.3d 935, 949-50 (10th Cir. 2003) (emphasis supplied) (internal citations omitted). Thus, an individual cannot serve as a class representative for claims that he could not maintain on his own behalf. See id.

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In order to have standing to assert a federal securities law claim based on misrepresentations in connection with the purchase or sale of securities, a plaintiff must have actually purchased the securities at issue. See Grubb v. Federal Deposit Ins. Corp., 868 F.2d 1151, 1159 (10th Cir. 1989) ("A party bringing a private action for money damages under Rule 10b-5 must be an actual purchaser or seller of securities."). In addition, to have standing to assert a § 11 claim, a plaintiff must have bought the particular offering covered by the allegedly false registration statement. See Joseph v. Wiles, 223 F.3d 1155, 1158-61 (10th Cir. 2000). It is undisputed that none of the Lead Plaintiffs purchased or otherwise acquired Qwest bonds during the putative class period. See New England Dep. at 131; T. Singh Dep. at 152; S. Singh Dep. at 95-96; Mosher Dep. at 158.16 Lead Plaintiffs therefore have no standing to assert the 10b-5 or § 11 bond claims, and cannot represent a class of bond purchasers. Certification must therefore be denied for all of the § 11 and 10b-5 bond claims. See, e.g. In re Storage Tech. Sec. Litig., 113 F.R.D. 113, 120 (D. Colo. 1986) (certifying 10b-5 claims, but denying class certification of § 11 claims because class representative did not purchase shares pursuant to registration statement).17

This comes as something of a revelation. In its Motion to Dismiss the Fourth Amended Complaint, Qwest argued that Lead Plaintiffs lacked standing to bring their Section 11 bond claims. Despite knowing that none of them had purchased Qwest bonds and, thus, none of them had standing to bring the Section 11 bond claims, Lead Plaintiffs disingenuously argued that they sufficiently alleged standing to survive a motion to dismiss by pleading that they purchased Qwest bonds. See 10/15/02 Lead Plaintiffs' Consolidated Opp'n to Mots. to Dismiss the Fourth Amended Compl. at 45-46. 17 See also In re Salomon Analyst Metromedia Litig., No. 02 Civ. 7966 2005 WL 23187, a *2 (S.D.N.Y. June 5, 2005) ("defendants are correct that these plaintiffs lack standing to bring claims on behalf of purchasers of Metromedia debt securities (as opposed to equity securities) . . . because the Complaint identifies no named plaintiff with standing to bring these claims"). 16

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D.

The Proposed Class Contains Irreconcilable Conflicts.

"Rule 23(a) demands that `the representative parties will fairly and adequately protect the interests of the class.'" Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1187 (10th Cir. 2002) (quoting Rule 23). Intra-class conflicts preclude fair and adequate representation. See Albertson's, Inc. v. Amalgamated Sugar Co., 503 F.2d 459, 463 (10th Cir. 1974). In this case, the proposed class is defined so broadly that it contains irreconcilable conflicts that prohibit certification. 1. The Interests of U S WEST Holders and Classic Qwest Holders Are Incompatible.

The USW Merger closed on June 30, 2000 ­ i.e., during the proposed class period. The proposed class therefore includes both Classic Qwest Holders (i.e., individuals who held Qwest stock prior to the merger) and U S WEST Holders (i.e., individuals who held USW stock prior to the merger). Cox Decl. ¶¶ 9, 15. One of the primary allegations of the class claims is that Qwest stock was artificially inflated at the time of the merger.18 This creates a conflict between the financial interests of Classic Qwest Holders and those of U S WEST Holders that cannot exist in a single class. Through the merger transaction, U S WEST Holders received Qwest stock for their shares of USW stock at a ratio determined by the price of Qwest sock. Cox Decl. ¶¶ 1214. If Qwest's stock price was inflated at the time of the merger, as alleged in the FAC, Classic Qwest Holders would have benefited from the inflation by acquiring the USW assets at a discount. On the other hand, U S WEST Holders would have been harmed by the inflation because they would have received less than the agreed upon price for their

See, e.g., FAC ¶ 64 ("in order to avoid having to pay cash to U S West shareholders as part of the merger, Qwest and the Individual Defendants engaged in a campaign to artificially inflate the price of Qwest stock"). 17

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interests in USW. As Dr. Cox explains, "the interests of Classic Qwest Holders and U.S. West Holders are antagonistic: to maximize their own recoveries, the Classic Qwest Holders would need to minimize the amount of inflation that is established at the time of the Merger, but U.S. West Holders would need to maximize it." Cox Decl. ¶ 16 (footnote omitted). Thus, the interests of U S WEST Holders directly conflict with those of Classic Qwest Holders. In re Healthsouth Corp. Sec. Litig., 213 F.R.D. 447 (N.D. Ala. 2003), is directly on point. There, the court denied certification due to precisely the type of conflict present here. In Healthsouth, the owners of Healthsouth stock allegedly benefited from price inflation when Healthsouth acquired Horizon/CMS Healthcare and National Surgery Centers. See id. at 462-64. The Healthsouth court reasoned that a class containing both former Healthsouth stockholders (the Healthsouth court referred to this group as open market purchasers) and former stockholders of Horizon/CMS Healthcare and National Surgery Centers presented such a fundamental and direct conflict that it could not be resolved and certification would be improper. See id. at 463. Here, as in Healthsouth, the class has been defined so broadly that it presents an irreconcilable conflict between members that benefited from the alleged stock inflation and those injured by that same alleged inflation. This conflict precludes certification. See, e.g., Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 350 F.3d 1181, 1190 (11th Cir. 2003) ("To our knowledge, no circuit has approved of class certification where some class members derive a net economic benefit from the very same conduct alleged to be wrongful by the named representatives of the class.") Masri v. Wakefield, Rubenstein v. Wakefield, 106 F.R.D. 322, 327 (D. Colo. 1984) (Porfilio, J.) (finding "no question that the interests of class

18

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members with devalued interests and those with interests that were not devalued are concretely adverse, raising the specter of conflict and creating the necessity for the determination of countless unique factual issues"). 2. The Interests of Class Members Who Currently Hold Qwest Stock Conflict with Those of Class Members Who Liquidated Their Qwest Holdings Before the End of the Putative Class Period.

Although only one of them continues to hold any Qwest shares, the class Lead Plaintiffs propose to represent includes Current Qwest Holders (i.e., individuals who continue to hold Qwest securities).19 As Dr. Cox explains, however, this presents another significant intra-class conflict because "any expense incurred by the Company due to the litigation (including any damage award, settlement payment, or other expense directly or indirectly related to the litigation) would reduce the value of Current Qwest Holders' shares." Cox Decl. ¶ 20. Therefore, Current Qwest Holders want to limit any recovery on behalf of the class in order to protect and maintain their interests in the company, whereas class members that no longer hold Qwest stock simply want to maximize their recovery. Id. Although every securities class action that includes both current and former shareholders raises "serious questions about the adequacy of representation of all wouldbe class members," In re Clearly Canadian Sec. Litig., 875 F. Supp. 1410, 1422 (N.D. Cal. 1995), the conflict in this case is acute ­ Lead Plaintiffs have already demonstrated they cannot adequately represent Current Qwest Holders. On November 4, 2002, Lead Plaintiffs moved for a temporary restraining order and preliminary injunction freezing and imposing a constructive trust over all of the proceeds of the QwestDex sale. If granted, the
19

T. Singh continues to hold 352 shares of Qwest stock, with an approximate value of $1,300. 19

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motion would have been financially devastating to Qwest and the Current Qwest Holders. Indeed, this Court found that Lead Plaintiffs' motion threatened "financial Armageddon for Qwest on the one hand for imponderous gain to the plaintiffs on the other." In re Qwest Communications Int'l Sec. Litig., 243 F.Supp.2d 1179, 1187 (D. Colo. 2003). The Court further explained: Absent the constraints of the proposed preliminary injunction, which appear to lead almost ineluctably to insolvency and bankruptcy, Qwest has a chance to continue to survive and grow financially to the benefit of all its dependants, a fortiori, the plaintiffs. Id. (emphasis supplied). Lead Plaintiffs clearly had no intention of protecting the interests of Current Qwest Holders when they brought a motion that threatened the financial viability of the Company. When asked about this at deposition, New England's representative could not recall any consideration being given to the potential effect of bankruptcy on Current Qwest Holders. New England Dep. at 198-99. Likewise, Mosher did not take the threat of bankruptcy seriously, and does not consider Current Qwest Holders to be similarly situated to members of the proposed class. Mosher Dep. at 213-217. By disregarding the interest of Current Qwest Holders in this manner, Lead Plaintiffs and their attorneys have demonstrated that they cannot adequately represent Current Qwest Holders.20 Certification must be denied on that basis. II. Lead Plaintiffs Have Not Offered and Cannot Offer Any Means To Prove Essential Elements Of Their Claims With Common Evidence. As the proponents of class certification, Lead Plaintiffs bear the burden of demonstrating that common issues predominate such that the class claims can be
20

As Dr. Cox explains, the available institutional data confirms that there are a significant number of Current Qwest Holders in the proposed class. Cox Decl. ¶¶ 22-24. 20

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adjudicated in a mass trial. See Fed. R. Civ. P. 23, 2003 Advisory Committee Notes ("A critical need is to determine how the case will be tried."). Lead Plaintiffs made no effort to do so. It is evident, however, that individual issues plainly preclude a mass trial of the sweeping class proposed by Lead Plaintiffs. Thus, Lead Plaintiffs cannot meet their burden of proof on this element and class certification must be denied. A. Individual Issues Predominate Concerning Loss Causation.

As the Supreme Court recently emphasized, loss causation (i.e., a causal connection between the material misrepresentation and the claimant's loss) is an essential element of every § 10b-5 claim. See Dura Pharmaceuticals, Inc. v. Broudo, 125 S. Ct. 1627 (2005). Under Rule 23(b)(3), Lead Plaintiffs must therefore demonstrate how they will prove with common evidence that each class member's loss was caused by disclosure of the alleged fraud as opposed to other factors, such as "changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other events." Dura, 125 S. Ct. at 1634. Lead Plaintiffs have proffered no method ­ none ­ to make this determination for the multitude of class members that purchased (and in some cases sold) at widely varying prices throughout the more than 2 ½ years included in the putative class period. In fact, the motion for class certification does not even mention loss causation. Put simply, Lead Plaintiffs' failure to explain how, with common evidence, they will prove loss causation for each class member renders certification improper.21 See Shook, 368 F.3d at 968 (plaintiffs bear the burden of demonstrating class certification is proper).

Lead Plaintiffs have also failed to proffer any means to prove damages on a classwide basis. 21

21

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Further, Lead Counsel as much as recognized that certification of this class after Dura would be impossible ­ in the brief they submitted in Dura, Lead Counsel argued that adopting Dura's position would effectively deny recovery in the Qwest litigation. Ex. 14, Respondent's Brief at fn.9. Moreover, the approach to loss causation that Lead Plaintiffs articulated in discovery is legally deficient. In their discovery responses, Lead Plaintiffs explain their theory of loss causation in the following way: "Plaintiff alleges that he and the class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Qwest publicly-traded securities." E.g., Ex. 3, 3/8/2005 New England's Supplemental Response to Arthur Anderson Interrogatories, Answer 7 (emphasis supplied). In Dura, however, the Supreme Court emphasized that under the securities laws, payment of an "artificially inflated price is not itself a relevant economic loss." 125 S. Ct. at 1634. But this is precisely the theory Lead Plaintiffs apparently advance. Certification, however, cannot be predicated on a legally deficient theory. Lead Plaintiffs' own admissions demonstrate that transaction-by-transaction consideration of all the relevant economic factors is necessary in this case. For example, New England, which liquidated all of its Qwest holdings in September 2001, admitted that economic factors played a large part in the decline of Qwest stock's price. The investment advisor that made the decision to buy and sell Qwest stock for New England testified: I to this day believe that a significant portion of the decline in Qwest was caused by a rapid deterioration in business conditions in the years as this internet bubble unwound because it caused a lot of the earlier business projections as to usage of this fiber optic capacity that they had laid, web hosting, all these types of, you know, technology coming through to communications T-RBGS pacing of that just really fell off a clip for the industry, not just Qwest.

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And I think because of that, it had in large -- had as a very significant part to do with the decline in Qwest stock specifically, yes. Ujazdowski Dep. at 78-79. Similarly, Lead Plaintiffs concede in their Complaint that a significant portion of the decline in Qwest stock resulted from market forces unrelated to the alleged fraud.22 Thus, the loss causation determination must be made for each transaction throughout the more than 2 ½ year class period because the effect of the relevant economic factors, as well as the impact of Qwest's disclosures and statements, are not common over time. See Dura, 125 S. Ct. at 1632. Lead Plaintiffs failed to explain how, with common evidence, they will prove the essential element of loss causation. Certification should therefore be denied. Moreover, the Supreme Court recently rejected the very theory of loss causation Lead Plaintiffs identified in their discovery responses and, therefore, they have failed to articulate a legally viable loss causation theory, much less how they will prove it with common evidence. B. Individual Issues Predominate Concerning Reliance for the 10b-5 Bond Claims.

As noted above, the class 10b-5 claims are premised upon the "fraud-on-themarket" theory of reliance. In the absence of the "fraud-on-the-market" presumption, individual issues of reliance predominate, as each class member must prove that he relied upon an alleged misrepresentation to purchase Qwest securities. See Basic, 485 U.S. at

See, e.g., FAC ¶ 300 ("Despite these [positive] statements [by Qwest] Qwest's stock declined in early 2001 from the $45 range in 1/01 to the $35 range in early 3/01 as market observers were concerned about the prospects in the telecommunications industry.").

22

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242. The "fraud-on-the-market" presumption, however, applies only in cases involving securities traded on efficient, open, and developed markets. See id. at 241. "In order to take advantage of the [fraud-on-the-market] doctrine . . . a plaintiff must plead, and ultimately prove, that the market on which the security is traded is efficient." In re Ribozyme Pharmaceuticals, Inc. Sec. Litig., 119 F.Supp.2d 1156, 1164 (D. Colo. 2000). In the instant case, the FAC does not allege that Qwest's bonds traded in an efficient market ­ the FAC states only that "Qwest's common stock is traded in an efficient market on the New York Stock Exchange." FAC at ¶ 37 (emphasis added). The motion for class certification also fails to contain any reference to an efficient bond market. Under these circumstances, the putative class cannot invoke the fraud-on-the-market presumption to prove the reliance element for its 10b-5 claims ­ that element must instead be proven on an individualized basis not susceptible to common evidence or to class certification. Even if Lead Plaintiffs had alleged that the bond markets at issue in this case were efficient, at the class certification stage the Court must go beyond mere allegations to determine whether an efficient market exists. See Unger v. Amedisys Inc., 401 F.3d 316, 321-25 (5th Cir. 2005) (reversing district court's certification because it assumed existence of efficient market); Gariety v. Grant Thornton, LLP, 368 F.3d 356, 364-67 (4th Cir. 2004) (same). To "determine whether a security trades on an efficient market, a court should consider factors such as, among others, whether the security is actively traded, the volume of trades, and the extent to which it is followed by market professionals." Gariety, 368 F.3d at 368. As Dr Cox explains, the available economic data and literature does not support the efficient market hypothesis for corporate bonds. Bonds are not actively and openly traded.

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Cox Decl. ¶ ¶ 39-40. Indeed, the bond markets lack any transparency. This lack of transparency is "fundamentally inconsistent with a claim of market efficiency." Cox Decl. ¶ 42. Thus, it is not surprising that several courts have concluded that bonds do not trade on efficient markets. See, e.g., Freeman v. Laventhol & Horwath, 915 F.2d 193,198-199 (6th Cir. 1990) (holding, as a matter of law, that a primary market for newly issued municipal bonds is not efficient); Stinson v. Van Valley Development Corp., 714 F. Supp. 132, 137 (E.D. Pa. 1989) (finding plaintiffs' claims that the bonds at issue were publicly offered throughout the United States in a diverse market "insufficient to show the sort of open and developed market warranting application of the fraud on the market theory"). The FAC does not plead that Qwest bonds traded on an efficient market, and the undisputed evidence is that corporate bonds do not trade on an efficient market. The "fraud-on-the-market" presumption therefore cannot apply to the 10b-5 bond claims asserted on behalf of the proposed class, and individual issues of reliance will necessarily predominate concerning each bond purchaser's 10b-5 claim. CONCLUSION For the reasons set forth above, Lead Plaintiffs are incapable of representing the proposed class, and individual issues would predominate in a mass trial of the class claims. The motion for class certification must therefore be denied.

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Dated: June 30, 2005

Respectfully submitted,

s/Marcy M. Heronimus Marcy M. Heronimus SHERMAN & HOWARD, L.L.C. 633 Seventeenth Street, Suite 300 Denver, CO 80202 Telephone: (303) 297-2900 Facsimile: (303) 298-0940

Jonathan D. Schiller David R. Boyd Alfred P. Levitt Kenneth F. Rossman IV BOIES, SCHILLER & FLEXNER, LLP 5301 Wisconsin Avenue, N.W. Washington, D.C. 20015 Telephone: (202) 237-2727 Facsimile: (202) 237-6131

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CERTIFICATE OF SERVICE I hereby certify that on June 30, 2005, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Jeffrey Allen Berens [email protected] James E. Nesland [email protected]; [email protected];[email protected] Thomas E. Egler [email protected];[email protected] James Michael Lyons [email protected];[email protected] Neil Peck [email protected];[email protected];[email protected] Mark T. Drooks [email protected];[email protected] Bruce F. Black [email protected];[email protected] Stephanie Erin Dunn [email protected];[email protected] Charles A. Stillman [email protected] Neil McGill Gorsuch [email protected];[email protected] Timothy Granger Atkeson [email protected] John A. Freedman [email protected]

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and I hereby certify that I have served the foregoing via U.S. mail and Federal Express as indicated on this 30th day of June, 2005 to the following individuals: William S. Lerach (via Fed Ex) Lerach, Coughlin, Stoia & Robbins LLP 401 B. Street, suite 1700 San Diego, CA 92101-4297 Jason R. Llorens (via mail) Lerach, Coughlin, Stoia & Robbins LLP 9601 Wilshire Blvd. Suite 510 Los Angeles, CA 90210 Joe R. Whatley, Jr. (via mail) Whatley Drake, L.L.C. P.O. Box 10647 Birmingham, Al 35202-0647 Wesley R. Powell (via mail) Clifford Chance US LLP 31 West 52nd Street New York, NY 10019-6131 s/Patricia Eckman

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