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

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 1 of 13

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge Robert E. Blackburn Civil Case No. 04-CV-00781-REB-PAC (Consolidated with Civil Action 06-CV-02189) SHRINERS HOSPITALS FOR CHILDREN, a Colorado Corporation, Plaintiff, v. QWEST COMMUNICATIONS INTERNATIONAL INC., et al., Defendants.

QWEST'S REPLY TO PLAINTIFF'S MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS CLAIMS FILED IN SHRINERS HOSPITALS FOR CHILDREN v. ARTHUR ANDERSEN & COMPANY, et al.

Qwest Communications International Inc. ("Qwest" or the "Company") and Qwest Capital Funding, Inc. ("QCF") respectfully submit this Reply to Plaintiff's Memorandum in Opposition [Docket No. 126, filed March 19, 2007] to Qwest's and QCF's Motion to Dismiss [Docket No. 117, filed Jan. 16, 2007] the complaint filed in Shriners Hospitals for Children v. Arthur Andersen & Company, et al., No. 06-CV-02189-REB-MEH ("Shriners II"). In a memorandum largely lacking meaningful discussion of the law--or citation to applicable authority--Plaintiff ("SHC") struggles even to maintain that its claims are not time barred and utterly fails to explain how it has come to have duplicative lawsuits against Qwest pending before this Court. In the end, SHC simply asserts that it is

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 2 of 13

entitled to claim a "mulligan" now that the federal class action has settled and re-litigate its years-old case, ignoring all adverse prior rulings by this Court. Indeed, SHC even goes so far as to argue this case should be before another judge. SHC could have filed a broad, timely complaint and avoided the American Pipe tolling issue altogether. Alternatively, it could have waited until class certification was resolved in the federal class action before filing anything, as several other opt-out plaintiffs did. Instead, it chose to file a narrow complaint prior to the class certification decision, multiplying litigation in abrogation of the policies of American Pipe, and then, inexplicably, to file another, new action after the class certification decision, further multiplying the proceedings. This type of gamesmanship should not be rewarded, and this Court should dismiss SHC's claims. ARGUMENT I. SHC'S CLAIMS ARE TIME BARRED. SHC's claims are time barred, and American Pipe does not apply. A. American Pipe Tolling Does Not Save SHC's Claims.

SHC's opposition arguments are difficult to decipher but seem to boil down to two points.1 First, SHC argues that it was entitled to assert its claims once the federal class

SHC's argument is made more difficult to follow as a result of SHC's failure to consistently provide a pinpoint citation, or even any citation at all, for the various propositions of law it asserts. This Court has already instructed SHC on its failures in this regard. Shriners' Hospitals for Children v. Qwest Communications Int'l Inc. et al., No. 04-CV-0781-REB-PAC, 2005 WL 2350569, at *5 n.1 (D. Colo. Sept. 23, 2005) ("Both common courtesy and REB Civ. Practice Standard II.D.2. require `specific references in the form of pinpoint citations . . . .' Future filings which do not contain the required pinpoint citations may be stricken."). 2

1

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 3 of 13

action was certified for purposes of settlement, despite this Court's prior ruling to the contrary. (Opp'n at 4-6.) As SHC is aware, this Court already has determined that American Pipe tolling does not apply to members of a putative class who, like SHC, pursue their own claims prior to the class certification determination. This Court specifically noted in Shriners I that "a plaintiff who is a member of a putative class who files an action independent of the class before the class is certified, or class certification is denied, cannot benefit from American Pipe tolling." Shriners' Hospitals for Children v. Qwest Communications Int'l Inc. et al., No. 04-CV-0781-REB-PAC, 2005 WL 2350569, at *5 (D. Colo. Sept. 23, 2005).2 Despite this Court's clear ruling, SHC attempts to avert dismissal here by relying solely on Judge Krieger's unpublished decision in Schimmer v. State Farm Mutual Auto Ins. Co., 2006 WL 2361810 (D. Colo. Aug. 15, 2006). SHC's reliance on Judge Krieger's decision, which SHC mistakenly refers to as the "law of the case," is unavailing. (Opp'n at 8-9.) SHC cites no authority, because there is none, to support its erroneous assumption that one district court's rulings are binding on another district court. Moreover, this Court's ruling in Shriners I is correct and controlling here, and SHC offers no meaningful argument to the contrary. The result reached by this Court finds support in a number of other decisions,3 including the Sixth Circuit's opinion in

All unpublished decisions cited in this reply brief are attached as exhibits to Qwest's opening brief. See also Glater v. Eli Lilly & Co., 712 F.2d 735, 739 (1st Cir. 1983); Calvello v. Electronic Data Systems, Civ. A. No. 00-CV-800-RJA-HBS, 2004 WL 941809 at *4 3
3

2

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 4 of 13

Wyser-Pratte Management Co., Inc. v. Telxon Corp., 413 F.3d 553, 569 (6th Cir. 2005). Indeed, like this Court, the Sixth Circuit analyzed the policy considerations favoring judicial efficiency underlying American Pipe and noted that "[t]he purposes of American Pipe tolling are not furthered when plaintiffs file independent actions before decision on the issue of class certification." Id. This Court's decision on this issue fosters the very principle at the heart of American Pipe by discouraging unnecessary and extraneous litigation. Schimmer does not do so, and was wrongly decided. This Court's ruling regarding American Pipe tolling, and not Judge Krieger's, is best described as the law of this case.4 See Robbins v. Wilkie, 433 F.3d 755, 764 (10th Cir. 2006) ("The law of the case doctrine provides that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages of the same case.") (internal citation and quotation marks omitted). Indeed, as the Tenth Circuit has recognized, the law of the case doctrine "is intended to prevent continued reargument of issues already decided. . . and to preserve scarce court resources--to avoid `in short, Dickens's Jarndyce v. Jarndyce syndrome.'" Huffman v. Saul Holdings

(W.D.N.Y. April 15, 2004); In re WorldCom, Inc. Secs. Litig., 294 F. Supp.2d 431, 451 (S.D.N.Y. 2003); Chinn v. Giant Food, Inc., 100 F. Supp. 2d 331, 335 (D. Md. 2000); Wahad v. City of New York, Civ. A. No. 75-CV-6203-AKH, 1999 WL 608772 at *6 (S.D.N.Y. Aug. 12, 1999); In re Brand Name Prescription Drugs Antitrust Litig., Civ. A. No. 94-CV-897, 1998 WL 474146 at *7-9 (N.D. Ill. Aug. 6, 1998); Chemco, Inc. v. Stone, McGuire & Benjamin, Civ. A. No. 91-CV-5041, 1992 WL 188417 at * 2 (N.D. Ill. July 29, 1992). See also Aguinaga v. United Food & Commercial Workers Int'l Union, 854 F. Supp. 757, 773 (D. Kan. 1994) (citing 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4478, at 788 (1981)). 4
4

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 5 of 13

Ltd. Partnership, 262 F.3d 1128, 1132 (10th Cir. 2001) (internal citations omitted). There is no reason for the Court to revisit this issue. Second, SHC seems to suggest, without basis in applicable law or fact, that American Pipe tolling is inapposite because the claims filed in Shriners II somehow "relate back" to those filed in Shriners I. (Opp'n at 5-6.) SHC cites only Rule 15 in support of its argument. Rule 15, of course, is the rule governing amendments. Shriners II, however, was not an amendment of Shriners I. Indeed, to the extent SHC attempted to amend Shriners I, it failed. Qwest's motion to consolidate Shriners I and II provides no basis in the law for treating Shriners II as an amendment of Shriners I for purposes of Rule 15 relation-back analysis, as SHC suggests. SHC's relation-back argument has no merit and does not save SHC's claims. B. American Pipe Tolling Does Not Apply to Claims That Were Not Asserted in the Class Action.

SHC contends, without citation to on-point authority, state law defines the scope of American Pipe tolling resulting from a federal class action. This is wrong.5 Federal law governs the scope of tolling resulting from federal class actions. See, e.g., San Francisco Unified School Dist. v. W.R. Grace & Co., 37 Cal.App.4th 1318, 139 (1995) ("[W]e believe that the fact that the class action was filed in federal court makes it more likely that the United States Supreme Court cases apply. The United States Supreme Court is the ultimate authority on the meaning of Federal Rules of Civil Procedure, The state court decision SHC cites does not analyze the question of whether state or federal law applies and, importantly, did not involve a federal class action, but rather a state class action. See Teachers Retirement Sys. Of Louisiana v. Alvarado, et al., No. 05-CV-3649 (Colo. Dist. Ct., Denver). 5
5

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 6 of 13

which was the basis of these decisions. . . . Under the supremacy clause, these decisions have the force of law in California if the class action was filed in federal court."). Federal class action tolling doctrine tolls the statute of limitations only for those claims actually asserted in a putative class action complaint.6 Indeed, this Court already found in Shriners I that "the filing of a putative class action complaint tolls the period of limiations only for claims that are identical to the claims asserted in the putative class action complaint." Shriners I, 2005 WL 2350569, at *5 (citing Johnson v. Railway Express Agency, 421 U.S. 454, 467 n.14 (1975)) (emphasis added). The class action on which SHC relies to toll its claims, In re Qwest, involved only claims under Section 10(b) and Section 11. Therefore, as an opt out, SHC may only rely on American Pipe tolling to preserve Section 10(b) and Section 11 claims against the defendants named in the class action. Its state law claims, Counts III through VI, were not tolled and are time barred.

See Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345, 354 (1983) ("The tolling rule of American Pipe . . . should not be read . . . as leaving a Plaintiff free to raise different or peripheral claims following denial of class status.") (Powell, J., concurring) (emphasis added); Johnson v. Railway Express Agency, 421 U.S. 454, 467 (1975) ("[T]he tolling effect given to the timely prior filings in American Pipe . . . depended heavily on the fact that those filings involved exactly the same cause of action subsequently asserted.") (emphasis added); Card v. Duker, 122 F. App'x. 347, 349 (9th Cir. 2005) ("The Supreme Court has . . . not extended tolling due to class litigation beyond American Pipe's narrow allowance for identical causes of action . . . ."); Caprin v. Simon Transp. Servs., Inc., 99 F. App'x 150, 156-58 (10th Cir. 2004) (affirming dismissal of a federal securities claim under Section 11 as untimely, in spite of the fact that the putative class plaintiffs' earlier complaints had advanced Section 10(b) claims arising out of the same set of facts). 6

6

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 7 of 13

II.

PLAINTIFF CONCEDES ALL CLAIMS AGAINST QCF MUST BE DISMISSED. In its Opposition, SHC withdraws all of its claims against QCF. (Opp'n at 11.)

SHC asks the Court to dismiss these claims "without prejudice," yet fails to provide to any justification for such treatment. As set forth in Qwest's opening brief, the claims against QCF are time barred and completely lack merit, and should therefore be dismissed with prejudice. III. SHC CONCEDES ITS NEGLIGENT MISREPRESENTATION CLAIM IS PREDICATED ON IMPERMISSIBLE ALLEGATIONS OF CONSTRUCTIVE RELIANCE. SHC argues, without citation to authority on point, that Colorado law does not require actual reliance to support a claim for negligent misrepresentation.7 SHC's argument that Colorado law requires reasonable reliance and so must not require actual reliance is a non sequitur. The law, of course, requires that reliance be both reasonable and actual.8 Cf. In re Mercer, 246 F.3d 391, 411 (5th Cir. 2001) (discussing plaintiff's

SHC argues that the "law of the case" doctrine prevents Qwest from challenging the sufficiency of its negligent misrepresentation claim because this Court rejected Qwest's challenges to the negligent misrepresentation claim in Shriners I. Qwest, however, did not raise the sufficiency of the reliance allegations with respect to the negligent misrepresentation claims in Shriners I. So, the issue raised here by Qwest has not been previously decided, and the doctrine does not apply. Colorado has adopted the rationale of Restatement (Second) of Torts § 552 concerning negligent misrepresentation claims. See U.S. Welding, Inc. v. Burroughs Corp., 587 F. Supp. 49, 49 (D. Colo. 1984). A majority of courts considering § 552 have held that it requires actual reliance. See, e.g. In re Sofamor Danek Group, Inc., 123 F.3d 394, 404 (6th Cir. 1997) (dismissing negligent misrepresentation claim based on fraud-on-the-market reliance allegations); Smolen v. Deloitte, Haskins & Sells, 921 F.2d 959, 964 (9th Cir. 1990) (concluding, under § 552, "negligent misrepresentation requires actual and justifiable reliance"); In re Westinghouse Secs. Litig., 832 F. Supp. 948, 989 (W.D. Pa. 1993) (noting the "fraud on the market theory has never been made applicable to a common law claim of negligent misrepresentation ..."); Goldman 7
8

7

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 8 of 13

burden at common law of proving "not only that it actually relied on [defendant's] representation, but also that its reliance was justifiable."). SHC's brief makes clear that it did not plead actual reliance because it could not. Its claims are based exclusively on theories of constructive reliance. (Opp'n at 13 (stating SHC "relied on the public market value of the QWEST securities").) Although allegations of constructive reliance may satisfy the pleading standards for SHC's Section 10(b) claim because of the fraud-on-the-market presumption, they are inadequate under common law. Cf. Kaufman v. i-Stat Corp., 754 A.2d 1188, 1198 (N.J. 2000) ("Since the Supreme Court accepted fraud on the market . . . no state court with the authority to consider whether Basic is persuasive has chosen to apply it to claims arising under its own state's laws."); Mirkin v. Wasserman, 5 Cal.4th 1082, 1088 (Cal. 1993) (discussing common law fraud claims); supra note 8. SHC's negligent misrepresentation claim should be dismissed with prejudice. IV. SHC CONCEDES ITS FRAUD CLAIM IS PREDICATED ON IMPERMISSIBLE ALLEGATIONS OF CONSTRUCTIVE RELIANCE. SHC argues that any determination made in Shriners I with respect to its fraud claim also applies in this case. (Opp'n at 13.) SHC then states--incorrectly and without citation--that this Court "sustained" its fraud claim in Shriners I. That is false. This Court dismissed SHC's fraud claim. Shriners I, 2005 WL 2350569 at *16 (noting that SHC conceded failure to adequately plead reliance). Services Mechanical Contracting, Inc. v. Citizens Bank & Trust Co. of Paducah, 812 F. Supp. 738, 742 (W.D. Ky. 1992) (stating the "RESTATEMENT and its comments make clear that actual reliance on the information by the person for whom it was intended is required for liability for a negligent misrepresentation"). 8

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 9 of 13

Qwest agrees with SHC that the Court's previous ruling is controlling. Despite dismissal of the fraud claim in Shriners I for failure to adequately plead reliance, SHC simply repeated the same inadequate, boilerplate allegations of reliance. See Compl. ¶¶ 70, 263(b) (compare with Shriners I Am. Compl. ¶¶ 311b). In its Opposition, SHC confirms that it is alleging nothing more than "fraud on the market." (Opp'n at 14.) Although such allegations may be sufficient under Section 10(b), they are inadequate under common law. See Kaufman, 754 A.2d at 1198; Mirkin, 5 Cal.4th at 1088; supra note 8. SHC's fraud claim should be dismissed with prejudice. V. SHC CANNOT STATE A CLAIM FOR BREACH OF FIDUCIARY DUTY AGAINST THE CORPORATION ITSELF. In a discussion lacking a single citation to authority, SHC argues that Qwest itself, as opposed to its officers and directors, owed shareholders a fiduciary duty. (Opp'n at 15.) As Qwest detailed in its opening brief, that is not the law. In Delaware, the corporation itself does not owe a fiduciary duty to its shareholders.9 SHC's breach of fiduciary duty claim should be dismissed with prejudice.

See, e.g., Arnold v. Soc'y for Sav. Bancorp, Inc., 678 A.2d 533, 539 (Del. 1996) (holding no cause of action against corporation for breach of fiduciary duty under Delaware law); In re Dataproducts Corp. Shareholders Litig.,Civ. A. No. 11164, 1991 WL 165301, *6 (Del. Ch. Aug 22, 1991) ("[A] corporation qua corporate entity is not a fiduciary of, and thus cannot owe a fiduciary duty to, its shareholders."); Radol v. Thomas, 772 F.2d 244, 258 (6th Cir. 1985) ("There is not, and could not conceptually be any authority that a corporation as an entity has a fiduciary duty to its shareholders."). In fact, at least one other court has dismissed a similar breach of fiduciary duty claim against Qwest for this very reason. See California State Teachers' Retirement Sys. v. Qwest Communications Int'l Inc., No. 415546 (Nov. 7, 2003, Ca. Super. Ct.). 9

9

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 10 of 13

VI.

SHC HAS NOT PROPERLY MOVED TO AMEND. In a further demonstration of its inattention to the rules, SHC improperly seeks

leave to amend in its opposition. (Opp'n at 16.) As this Court already instructed SHC in Shriners I, D.C.Colo.LCivR 7.1 prohibits the inclusion of a motion in the response or reply to another motion. Shriners I, 2005 WL 2350569 at *16. SHC should not be granted leave to amend. CONCLUSION For all of the foregoing reasons, the claims against Qwest and QCF in the complaint captioned Shriners Hospitals for Children v. Arthur Andersen & Company, et al. should be dismissed with prejudice. DATED: April 16, 2007 Respectfully submitted, __/s/ Alfred P. Levitt__ Jonathan D. Schiller David R. Boyd Alfred P. Levitt BOIES, SCHILLER & FLEXNER LLP 5301 Wisconsin Avenue, N.W.; Suite 800 Washington, DC 20015 Telephone: (202) 237-2727 Facsimile: (202) 237-6131 Terence C. Gill SHERMAN & HOWARD, L.L.C. 633 Seventeenth Street, Suite 300 Denver, CO 80202 Telephone: (303) 297-2900 Facsimile: (303) 298-0940 Attorneys for Qwest Communications International Inc. & Qwest Capital Funding, Inc.

10

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 11 of 13

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge Robert E. Blackburn CERTIFICATE OF SERVICE I hereby certify that on this 16th day of April, 2007, a copy of the foregoing REPLY TO PLAINTIFF'S MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS CLAIMS FILED IN SHRINERS HOSPITALS FOR CHILDREN v. ARTHUR ANDERSEN & COMPANY, et al. was electronically filed with the Clerk of the Court using the USDC CM/ECF system, which will send notification of such filing to the following e-mail addresses: Terence C. Gill [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] Counsel for Qwest Communications Int. Inc. Counsel for Qwest Communications Int. Inc. Counsel for William L. Eveleth Counsel for Richard L. Weston Counsel for William L. Eveleth Counsel for Plaintiff Counsel for John M. Walker Counsel for Douglas K. Hutchins Counsel for Bryan K. Treadway

Marcy M. Heronimus Karoline E. Jackson Douglas P. Lobel Larry A. Mackey Charles G. Michaels Stephen C. Peters John M. Richilano M. Robert Thornton

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 12 of 13

and, I also certify that I have served same by depositing in the U.S. Mail, first-class postage prepaid, addressed to the following: I. Walton Bader Bader & Bader, LLP 50 Main Street; PMB 1029 Suite 1000 White Plains, NY 10606 Counsel for Plaintiff Herbert J. Stern Edward S. Nathan Jeffrey Speiser Joel M. Silverstein Stern & Kilcullen 75 Livingston Avenue Roseland, NJ 07068 Counsel for Joseph P. Nacchio Mark T. Drooks Thomas V. Reichert Bird, Marella, Boxer, Wolpert, Nessim, Drooks & Lincenberg, A Professional Corporation 1875 Century Park East, 23rd Floor Los Angeles, CA 90067-2561 Counsel for Robin Szeliga James Miller Clifford Chance US LLP 31 West 52nd Street New York, NY 10166 Counsel for Robert Woodruff Robert N. Miller Stephanie E. Dunn Perkins Coie, LLP 1899 Wynkoop St., Ste. 700 Denver, CO 80202 Counsel for James Smith

James Nesland Paul Schwartz Jeff Smith Cooley Godward Kronish LLP 380 Interlocken Crescent, Suite 900 Broomfield, CO 80021-8023 Counsel for Drake Tempest Michael J. Hofman Martin D. Litt Holme Roberts & Owen LLP 1700 Lincoln Street, Suite 4100 Denver, CO 80203 Counsel for Philip Anschutz & Craig Slater

Case 1:04-cv-00781-REB-KLM

Document 129

Filed 04/16/2007

Page 13 of 13

Scott B. Schreiber John A. Freedman Kwame Clement Elissa Preheim Arnold & Porter 555 Twelfth Street, NW Washington, DC 20004-1206 Counsel for Arthur Andersen LLP Ty Cobb Andrew Shoemaker Daniel F. Shea Charles Mitchell Coates Lear Hogan & Hartson, LLP 1200 17th Street, Suite 1500 Denver, CO 80202 Counsel for Stephen Jacobsen & Lewis Wilks Walter Garnsey, Jr. Kelly Haglund Garnsey & Kahn LLC 1441 18th Street, Suite 300 Denver, CO 80202-1255 Counsel for Gregory Casey Forrest W. Lewis Forrest W. Lewis, P.C. 1600 Broadway; #1525 Denver, CO 80202 Counsel for Frank Noyes

David A. Zisser Isaacson, Rosenbaum P.C. 633 17th Street, Suite 2200 Denver, CO 80202 Counsel for Marc Weisberg

Barbara Moses Ashley Rupp Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, P.C. 565 Fifth Avenue New York, NY 10017 Counsel for Afshin Mohebbi

Richard Jacobson Michael Trager Arnold & Porter LLP 555 Twelfth Street, NW Washington, DC 20004-1206 Counsel for Gregory Casey

/s/ Jed Donaldson Jed Donaldson