Free Motion to Dismiss - District Court of Colorado - Colorado

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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. __________________________________________________________ MOTION OF QWEST COMMUNICATIONS INTERNATIONAL INC. AND QWEST CAPITAL FUNDING 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 seek dismissal of the complaint filed in Shriners Hospitals for Children v. Arthur Andersen & Company, et al., No. 06- CV 02189-REB-MEH ("Shriners II").1 For the reasons that follow, the claims advanced against Qwest and QCF in Shriners II should be dismissed with prejudice.2

On December 6, 2006, this Court granted Qwest's motion to consolidate this action with Shriners Hospitals for Children v. Qwest Communications International Inc., No. 04-CV-00781, 2005 WL 2350569, at *4 (D. Colo. Sept.23, 2005) ("Shriners I"), and ordered that the two cases proceed under a common caption. See Shriners Hospitals For Children v. Qwest Communications International Inc., et al., Order Granting Defendants' Motion To Consolidate (December 6, 2006) (Docket No. 108). The United States Supreme Court recently granted certiorari in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 437 F.3d 588 (7th Cir. 2006), cert. granted, 2007 WL 30549 (U.S. Jan. 05, 2007) (No. 06-481) (attached hereto as Exhibit 1), to consider whether a
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PROCEDURAL HISTORY By the time Plaintiff Shriners Hospitals for Children ("SHC") filed its initial complaint in March of 2004, numerous law suits presenting broad challenges to Qwest's financial statements had already been pending for years. More than a dozen complaints had been consolidated into the putative class action proceeding in this Court ("In re Qwest"). Additionally, by that point, there were also pending an opt-out complaint filed in this Court that advanced similar allegations, an ERISA class action, and a complaint filed by the Securities and Exchange Commission against a number of former Qwest officers and employees that related to two specific Qwest transactions. Further, by that time Qwest had made extensive public disclosures regarding its anticipated restatement of its prior financial statements, (see Qwest Communications International Inc., Form 8-K dated July 28, 2002, Aug. 19, 2002, Sept. 22, 2002, Nov. 14, 2002, and Feb. 11, 2003), and the Company had issued its Annual Report on Form 10-K, which explained in considerable detail its final decisions regarding restatement of Qwest's financial statements for the years ended December 31, 2000 and December 31, 2001. See Qwest Communications International Inc., Annual Report on Form 10-K, October 16, 2003, at 30 ­ 31; 97-108. In addition, the In re Qwest class plaintiffs had filed their

court must consider competing inferences in determining whether a complaint for securities fraud has alleged facts sufficient to establish a "strong inference" that the defendant has acted with scienter, as is required by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(1). If the Court's resolution of that issue suggests that a further examination of the adequacy of SHC's complaint in this case is appropriate, Qwest and QCF will supplement this motion. 2

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Fifth Consolidated Amended Class Action Complaint, which remains the operative complaint in that action. In the face of this substantial body of information and myriad legal claims from which to choose, SHC elected essentially to copy the narrow complaint filed by the SEC in SEC v. Arnold, et al., No. 03-CV-328-REB-MEH (filed February 25, 2003), and thus to pursue claims that were "limited to two discrete transactions undertaken by Qwest, the Genuity transaction and the ASFB transaction." Shriners Hospitals for Children v. Qwest Communications International Inc., No. 04-CV-0781, 2005 WL 2350569, at *4 (D. Colo. Sept.23, 2005) ("Shriners I") (attached hereto as Exhibit 2). In response to the Defendants' motions to dismiss Shriners I, SHC acknowledged numerous deficiencies of its Amended Complaint but repeatedly stated its intention to amend its complaint again to address them, and it maintained that the anticipated amendments would be timely under the tolling doctrine of American Pipe and Construction Co. v. Utah, 414 U.S. 538 (1974).3 In response, as it decided the motions to dismiss in Shriners I, this Court also addressed the American Pipe tolling argument that SHC had advanced to support its next intended amendment: There are significant limitations on American Pipe tolling. First, the filing of a putative class action complaint tolls the period of limitations only for claims that are identical to the claims asserted in the putative class action complaint. Johnson v. Railway Express Agency, 421 U.S. 454, 467, n.14, 95 S. Ct. 1716, 44 L. Ed.2d 295 (1975). Second, a plaintiff who is a member of a putative class who files an action independent of the class before the class is certified, SHC did not, however, file an actual motion to amend. See Shriners I, 2005 WL 2350569 at * 16. 3
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or class certification is denied, cannot benefit from American Pipe tolling. Shriners I, 2005 WL 2350569 at *5. The Court thus commented, "[i]t appears that many, and possibly all, of these proposed additional claims would be barred by the statute of limitations if presented in this case," id., and concluded, "[a]t this point in time, SHC cannot rely on the putative class action in In re Qwest as tolling the statute of limitations for other federal securities fraud claims it may wish to pursue." Id. Following this Court's decision in Shriners I, Qwest and other defendants filed answers to SHC's Amended Complaint. See Docket Nos. 84 - 89, filed on December 5, 2005. Some thirteen months after this Court's decision, and after having received answers to its Amended Complaint in Shriners I, SHC commenced a new action against Qwest and a different group of defendants in Shriners Hospitals for Children v. Arthur Andersen & Company, et al., No. 06-CV-02189-REB-MEH ("Shriners II"), seeking essentially the same damages and other relief as it sought in Shriners I. This second complaint, which is now consolidated with Shriners I, is the subject of this motion to dismiss. ARGUMENT I. ALL CLAIMS AGAINST QWEST AND QCF ADVANCED IN SHRINERS II ARE TIME BARRED. The Shriners II complaint advances considerably broader allegations than those of Shriners I. In fact, the claims of Shriners II are virtually identical to those alleged in the Fifth Consolidated Amended Class Action Complaint in In re Qwest, and--perhaps more importantly--to the claims in the complaint filed by Stichting Pensioenfonds ABP

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("ABP") in February of 2004. Cf. In re Qwest Communications Int'l, Inc. Secs. Litig., 387 F. Supp.2d 1130, 1139 (D. Colo. 2005) (describing the general categories of claims in In re Qwest and in the ABP case). Given the similarity of the factual allegations of Shriners II and those advanced by ABP, this Court's analysis of the statute of limitations issues in the ABP case controls here.4 As the Court explained in considering whether ABP's claims were timely filed, the statute of limitations for ABP's claims began running in early 2002. Stichting Pensioenfonds, ABP v. Qwest Communications Int'l Inc., Civ. A. No. 04-CV-00238REB-PAC, Order of March 29, 2005, at 11 (Docket No. 209).5 Accordingly, SHC's similar claims in Shriners II, which were not filed until October 31, 2006--more than two and a half years after the ABP complaint and more than four and a half years after SHC was on notice of its claims--are time barred absent a tolling of the applicable limitations

The statute of limitations determination is governed by the two-step analysis articulated in Sterlin v. Bioimmune Systems. See In re Qwest Communications Int'l Inc. Secs. Litig., 387 F. Supp. 2d 1130, 1141-42 (D. Colo. 2005), citing Sterlin v. Bioimmune Systems, 154 F.3d 1191 (10th Cir. 1998). Applying that analysis to the ABP complaint, the Court concluded that the initiation of the numerous class actions complaints that were on file by late 2001 likely constituted the kind of "storm warnings" of possible fraud under Sterlin, and that a diligent investor might require an additional six months in order to obtain sufficient understanding of a fraudulent scheme as complex as that alleged by ABP. Under those circumstances, the Court reasoned that the ABP complaint, which was filed on February 9, 2004, was filed within the applicable two year period governing the federal claims advanced there. In re Qwest, 387 F. Supp. 2d at 1142; see also id. at 1151. Although the Court incorporated portions of its earlier decision in this case into the decision that was published as In re Qwest Communications International Inc., 387 F. Supp. 2d 1130 (D. Colo. 2005), the decision reported in the Federal Supplement does not incorporate the portion of the Court's earlier dismissal order that is cited separately above. 5
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periods.6 SHC effectively concedes as much by advancing its own, incorrect interpretation of the American Pipe tolling doctrine in allegations sprinkled throughout the Shriners II complaint itself. See, e.g., Shriners II Compl., ¶¶ 34-41, 48. A. Plaintiff Forfeited Its Ability To Rely On American Pipe Tolling By Abandoning The Class Action Mechanism And Pursuing Its Separate Remedies Prior To Class Certification. This Court has already 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. The Court's considered treatment of this issue in Shriners I represents the law of the case for these parties, cf. Robbins v. Wilkie, 433 F.3d 755, 764 (10th Cir. 2006)(quoting Arizona v. California, 460 U.S. 605, 618 (1983)) ("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.'"); 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)), and it should now be applied as a basis for dismissal of Shriners II.

Shriners II advances claims against Qwest and QCF under Section 10(b) of the Securities Exchange Act of 1934 (Count I); the Colorado Securities Act (Count III); common law fraud (Count IV); negligent misrepresentation (Count V); and breach of fiduciary duty (Count VI). The federal claim in Count I is governed by a two-year statute of limitations, see In re Qwest, 387 F. Supp.2d 1130, 1140 (D. Colo. 2005), and the Colorado claims in Counts III-V are governed by the three-year limitations period of Colorado Rev. Stat. § 13-80-101(c). Id. at 1150-51. The claim in Count VI appears to be governed by a three-year statute as well. See Colo. Rev. Stat. § 13-80-101(f) (setting three year statute of limitations for claims involving breach of trust or fiduciary duty). 6

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As the Court noted in Shriners I, "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 I, 2005 WL 2350569 at *5. In reaching that judgment, the Court endorsed the analysis offered by the district court in In re WorldCom, Inc. Secs. Litig., 294 F. Supp.2d 431 (S.D.N.Y. 2003), that "[a]pplying the tolling doctrine to separate actions filed prior to class certification would create the very inefficiency that American Pipe sought to prevent." Shriners I, 2005 WL 2350569 at *5, quoting WorldCom, 294 F. Supp.2d at 451. The Court explained: Many good purposes are served by such forbearance, as American Pipe and Crown Cork themselves spell out. The parties and courts will not be burdened by separate lawsuits which, in any event, may evaporate once a class has been certified. At the point in a litigation when a decision on class certification is made, investors are usually in a far better position to evaluate whether they wish to proceed with their own lawsuit, or to join a class, if one has been certified. Shriners I, 2005 WL 2350569 at *5, quoting WorldCom, 294 F. Supp.2d at 451. This Court's judgment finds support in a number of other decisions, including the Sixth Circuit's subsequent opinion in Wyser-Pratte Management Co. v. Telxon Corp., 413 F.3d 553 (6th Cir. 2005). Like this Court, the Sixth Circuit endorsed the district court's analysis in WorldCom, adding that "[t]he purposes of American Pipe tolling are not furthered when plaintiffs file independent actions before decision on the issue of class certification, but are when plaintiffs delay until the certification issue has been decided." Id. at 569 (quoting WorldCom, 294 F. Supp.2d at 452.) The Sixth Circuit also

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noted this limitation on American Pipe tolling had gained substantial support even before the WorldCom decision, As is exemplified by In re WorldCom, this limitation on class action tolling has taken hold in a number of district courts, with no courts rejecting it, and it is not a new proposition. See, e.g., In re Ciprofloxacin Hydrochloride Antitrust Litig., 261 F. Supp.2d 188, 221 (E.D.N.Y. 2003); Rahr v. Grant Thornton, LLP, 142 F.Supp.2d 793, 800 (N.D. Tex. 2000); Stutz v. Minn. Mining & Mfg. Co., 947 F. Supp. 399, 404 (S.D. Ind. 1996); Wachovia Bank & Trust Co. v. Nat'l Student Mktg. Corp., 461 F. Supp. 999, 1012 (D.D.C.1978). Wyser-Pratte, 413 F.3d at 569. See also Glater v. Eli Lilly & Co., 712 F.2d 735, 739 (1st Cir. 1983) ("The policies behind Rule 23 and American Pipe would not be served, and in fact would be disserved, by guaranteeing a separate suit at the same time that the class action is ongoing."); Calvello v. Electronic Data Systems, Civ. A. No. 00-CV-800-RJAHBS, 2004 WL 941809 at *4 (W.D.N.Y. April 15, 2004) ("By filing her present action while the issue of class certification was [still pending in the class action], plaintiff in effect waived the toll that the pending class certification created under American Pipe.") (attached hereto as Exhibit 3); 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) (same) (attached hereto as Exhibit 4); 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) (same) (attached hereto as Exhibit 5); Chemco, Inc. v. Stone, McGuire & Benjamin, Civ. A. No. 91-CV-5041, 1992 WL 188417 at * 2 (N.D. Ill. July 29, 1992) (same) (attached hereto as Exhibit 6). Judge Krieger's recent decision in Schimmer v. State Farm Mutual Automobile Ins. Co., 2006 WL 2361810 (D. Colo. Aug.

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15, 2006) (attached hereto as Exhibit 7), which accorded the benefit of American Pipe tolling to a plaintiff that had initiated suit prior to the class certification determination, runs contrary to this extensive body of case law. At the time Schimmer was decided, however, Judge Kreiger was apparently unaware of this Court's decisions in Shriners I and Teachers' Retirement System of Louisiana v. Qwest, et al., 2005 WL 2359311 (D. Colo. Sept. 23, 2005) (attached hereto as Exhibit 8). Judge Kreiger did not cite those opinions, and she stated that the question she considered was an issue of first impression in the Colorado courts. Schimmer, 2006 WL 2361810 at *5. Moreover, although Schimmer acknowledged the Sixth Circuit's decision in Wyser-Pratte, Judge Kreiger appears to have rejected its reasoning because WyserPratte had "treat[ed] class action tolling as an equitable doctrine in which fairness considerations drive its application" which was inconsistent with the Tenth Circuit's characterization of American Pipe tolling as a legal doctrine in its opinion in Joseph v. Wiles. Schimmer, 2006 WL 2361810 at *6 (citing Joseph v. Wiles, 223 F.3d 1155, 1166-67 (10th Cir. 2000)). With due respect to the court in Schimmer, Wyser-Pratte did not characterize American Pipe tolling as either a legal or an equitable doctrine,7 and the Sixth Circuit's assessment of tolling in that case does not depend on any such distinction. Furthermore, the Sixth Circuit's reference to fairness considerations in Wyser-Pratte--which the Court in Schimmer seems to have faulted--was actually a

The only specific reference to equitable tolling in the Wyser-Pratte opinion is found in footnote 6 of the Court's opinion, pertaining to the court's discussion of another issue that had nothing to do with American Pipe tolling. See Wyser-Pratte Management Co. v. Telxon Corp., 413 F.3d 553, 561, n.6 (6th Cir. 2005). 9

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quote from American Pipe itself. See Wyser-Pratte, 413 F.3d at 567 (quoting American Pipe, 414 U.S. at 554-55). Nothing in Joseph v. Wiles compromises the reasoning of Wyser-Pratte or this Court's own judgment in Shriners I. To the contrary, Joseph v. Wiles recognizes that the application of the American Pipe doctrine should be informed by the fundamental purpose of Rule 23 of the Federal Rules of Civil Procedure, which "encourages judicial economy by eliminating the need for potential class members to file individual claims." Joseph v. Wiles, 223 F.3d at 1167. Shriners I, WorldCom, Wyser-Pratte and the many other federal decisions cited above foster that very principle by discouraging the proliferation of litigation that will result if litigants who prematurely abandon the class action mechanism are allowed to benefit from American Pipe tolling. Schimmer, by contrast, does not. In short, Schimmer was wrongly decided and should not cause this Court to deviate from the considered views it expressed in Shriners I and the Teachers' Retirement System decisions. Allowing SHC the benefit of American Pipe tolling would be especially inappropriate under the circumstances presented here. Long before SHC filed its initial complaint in this case it had access to a substantial body of public information as well as a full panoply of legal claims advanced by other plaintiffs. SHC could have used that information and those complaints in preparing its own complaint and thus could have presented all of the potential issues it wished to litigate at one time. Indeed, SHC was required to do so by the Tenth Circuit's rule prohibiting claims-splitting: "[a]ll claims arising out of the transaction must ... be presented in one suit or be barred from

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subsequent litigation." Nwosun v. General Mills Rests., Inc., 124 F.3d 1255, 1257 (10th Cir. 1997); see also Johnson v. Ashcroft, 378 F.3d 164, 172 n. 10 (2d Cir. 2004) (citation omitted) ("In civil suits a litigant must advance all available evidence and legal arguments relating to a claim or controversy in the context of a single proceeding."). As the ABP litigation demonstrates, SHC could have filed this broader complaint in a timely manner and thus avoided the American Pipe tolling issue altogether. Alternatively, SHC could have waited until the question of class certification was resolved in In re Qwest. Instead, and remarkably, SHC chose the one path that would cause the greatest judicial inefficiency possible under the circumstances: it filed a narrow complaint prior to the class certification decision, multiplying litigation in abrogation of the policies of American Pipe, and then it multiplied the litigation still more by filing yet another separate action after the class certification decision, in an attempt to exploit American Pipe's policy designed to avoid multiplying litigation. Having consumed the time and attention of the Court and the parties on the limited issues it chose to advance in Shriners I, SHC should not now be permitted to claim a mulligan so that it can copy the broader complaints it previously ignored. Neither the American Pipe doctrine nor the general policies of the Federal Rules should be twisted to accommodate such gamesmanship. See, e.g., UNR Industries, Inc. v. Continental Ins. Co., 623 F. Supp. 1319, 1324 (D.C. Ill. 1985) (a plaintiff's approach of "holding back and only playing his cards when necessary to avoid defeat" is contrary to the policies Rule 1 of the Federal Rules of Civil Procedure); Johnsen v. Rogers, 551 F. Supp. 281, 284 (D.C. Cal. 1982); Dow Corning Corp. v. General Elec. Co., 461 F. Supp.

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519, 520 (D.C.N.Y. 1978) ("[W]here the moving party had knowledge of the facts upon which the proposed amendment was based, but failed to include them in the original complaint, leave to amend may be denied.").8 Shriners II is untimely and should be dismissed with prejudice. B. Even If It Were Applicable, American Pipe Tolling Would Only Reach Claims That Are Identical To Those Filed In The Class Action. In the references to American Pipe that SHC sprinkles throughout its Shriners II complaint, it overlooks a second significant limitation of American Pipe tolling that this Court recognized--that "the filing of a putative class action complaint tolls the period of limitations only for claims that are identical to the claims asserted in the putative class action complaint." Shriners I, 2005 WL 2350569 at *5. This limitation is likewise fatal to SHC's claims against Qwest and QFC in Shriners II. That American Pipe tolling is limited to claims identical to those asserted in the class action is well established in the case law. In Johnson v. Railway Express Agency, 421 U.S. 454 (1975), a case decided only one year after American Pipe itself, the Supreme Court itself emphasized the narrowness of its American Pipe tolling doctrine.9 As the Court then stated: [T]he tolling effect given to the timely prior filings in American Pipe and in Burnett [v. New York Central R. Co., 380 U.S. 424 (1965)] depended heavily on the fact that those filings involved exactly the same cause of action subsequently asserted. This factor was more than an abstract or There is no suggestion in Schimmer that the plaintiff in that case was engaged in similar gamesmanship, which offers a basis for distinguishing the Schimmer case from this one, should the Court wish to do so. Johnson held that the timely filing of an employment discrimination charge with the Equal Employment Opportunity Commission pursuant to the Civil Rights Act of 1964 did not toll the limitation period for an action, based on the same facts, brought under the Civil Rights Act of 1866. Johnson v. Railway Express Agency, 421 U.S. 454 (1975). 12
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theoretical consideration because the prior filing in each case necessarily operated to avoid the evil against which the statute of limitations was designed to protect. Johnson, 421 U.S. at 467 (emphasis added). The Court further noted in Johnson that "[o]nly where there is complete identity of the causes of action will the protections suggested by petitioner necessarily exist and will the courts have an opportunity to assess the influence of the policy of repose inherent in a limitation period." Id. at 467 (emphasis added). Justice Powell again emphasized the narrowness of American Pipe tolling in his concurring opinion in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), which extended American Pipe tolling to plaintiffs that elect to file individual actions (rather than seeking to intervene) after a class certification decision. As he stated there, "[t]he 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." Id. at 354 (Powell, J., concurring) (emphasis added). See also Card v. Duker, 122 Fed.Appx. 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., 99 Fed.Appx. 150 (10th Cir. 2004) (affirming dismissal of a Section 11 claim 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); In re Commonwealth Oil/Tesoro Petroleum Corp. Secs. Litig., 467 F. Supp. 227, 258-59 (W.D. Tex. 1979) (statute of limitations for a federal securities claim under Section 11 was not tolled by the pendency of previously filed federal securities class action

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asserting claims under Section 10(b)); Lindner Dividend Fund, Inc. v. Ernst & Young, 880 F. Supp. 49, 53-54 (D. Mass. 1995) (previous claim under Section 10(b) does not toll statute for Section 18 claim); Decker v. Massey-Ferguson, Ltd., 534 F. Supp. 873, 883 (S.D.N.Y. 1981) (same), aff'd in part, rev'd in part on other grounds, 681 F.2d 111 (2d Cir. 1982). Judge Babcock's recent decision in Grubka v. WebAccess Int'l., Inc., 2006 WL 2527815 (D. Colo. Aug. 31, 2006) (attached hereto as Exhibit 9), asserted that American Pipe tolling turns on whether the defendants received fair notice of potential claims against them. Based on that mistaken conclusion, he held that Colorado RICO claims were tolled by a putative class action alleging federal RICO claims. With respect, Grubka was wrongly decided and offers no basis for departing from this Court's conclusion in Shriners I. The Supreme Court's decision in Johnson v. Railway Express Agency, 421 U.S. 454 (1975)--the case on which this Court principally relied in reaching its judgment in Shriners I (see 2005 WL 2350569 at *5, citing Johnson, 421 U.S. at 467)--quite clearly teaches that the reach of American Pipe tolling is defined by the identity of the claims, not by any similarity of the factual allegations that might support one claim or another. The notice that Qwest received in this particular case did not provide the kind of notice that would support tolling in any event. To the contrary, the complaint SHC filed in Shriners I provided Qwest notice that SHC had decided to eschew a broad attack of the kind previously filed by the Lead Plaintiffs in In re Qwest or by the plaintiff ABP in the Stichting Pensioenfonds case and instead to limit its claims to those arising out of

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the two transactions that SHC addressed. The class action advanced no claims for violations of Colorado law. See Fifth Consolidated Amended Class Action Complaint For Violation Of The Securities Act Of 1933 And The Securities Exchange Act of 1934, Civ. A. No. 01-CV-1451 REB-PAC (Docket No. 315, filed Feb. 6, 2004). Accordingly, no limitations periods were tolled for any of the state law causes of action advanced in Shriners II. Thus, SHC's state law claims in Counts III through VI are time barred, even under the three-year statute of limitations applied by this Court, see note 5, supra, and must be dismissed with prejudice. C. No Limitations Periods Were Tolled For Qwest Capital Funding, Which Was Not Named As A Defendant In The Class Action. Finally, American Pipe tolling cannot salvage any of SHC's claims against QCF because QCF was not a defendant in the class action litigation on which the tolling doctrine would depend. Even if SHC could avail itself of American Pipe tolling against Qwest, it still could not benefit from a similar tolling for QCF. As the Sixth Circuit noted in Wyser-Pratte, "The few cases that have considered similar situations have held that class action tolling does not apply to a defendant not named in the class action complaint." Wyser-Pratte, 413 F.3d at 567. In fact, American Pipe tolling is routinely denied in cases where the defendant against whom tolling was sought was not a defendant in the class action litigation on which the tolling was based. See, e.g., Highland Park Ass'n of Businesses & Enterprises, 1996 WL 382252 at *4 (6th Cir. 1996) (attached hereto as Exhibit 10); Arneil v. Ramsey, 550 F.2d 774, 782, n.10 (2d Cir. 1977); Ballard v. Tyco Int'l., 2005 WL 928537 at *3 (D. N. H. April 22, 2005) (attached hereto as Exhibit 11); Prieto v. John Hancock Mut. Life Ins. Co., 132 F. Supp. 15

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2d 506, 518-19 (N.D. Tex. 2001), aff'd on other grounds, 2002 WL 760853 (5th Cir. April 17, 2002) (attached hereto as Exhibit 12); Anderson v. Cornejo, 1999 WL 258501, at *4 (N.D. Ill. April 21, 1999) (attached hereto as Exhibit 13); Lindner Dividend Fund v. Ernst & Young, 880 F. Supp. 49, 53-54 (D. Mass. 1995); Mott v. R.G. Dickinson & Co., 1993 WL 63445 at *5 (D. Kan. Feb. 24, 1993) (attached hereto as Exhibit 14); In re Clinton Oil Co. Secs. Litig., 1977 WL 1009 at *16 (D. Kan. March 18, 1977) (attached hereto as Exhibit 15). Therefore, all of SHC's claims against QCF are time barred. II. SHC'S FAILURE TO ALLEGE ANY MISCONDUCT AGAINST QCF REQUIRES THAT ALL CLAIMS AGAINST QCF BE DISMISSED. SHC names QCF as a defendant in five of its counts. At no point, however, does SHC allege any facts establishing liability against QCF under any theory. Indeed, in the entire complaint there is not a single, meaningful allegation regarding QCF's actions or its purported role in the alleged fraud. Therefore, even if the claims against QCF were not time barred, they still would require dismissal for failure to state a claim on which relief can be granted. SHC mentions QCF in just 12 paragraphs. See Compl. ¶¶ 7, 8, 9, 186, 201, 251, 253, 255, 270, 294, 321, 349. In these paragraphs, SHC alleges only that QCF: (1) was a wholly owned subsidiary of Qwest acting at the direction of its parent, ¶¶ 7, 8, 9, 255; (2) is subject to jurisdiction in Colorado, ¶ 186; (3) is named as defendant to the fraud claim based on the doctrine of "Respondeat Superior," ¶¶ 251, 253; and (4) that it "[o]btain[ed] money from a stockholder of its controlling corporation based on required financial reports that were false and misleading," ¶ 201. Beyond that, SHC merely repeats verbatim the following confused paragraph four times: "While plaintiff submits 16

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that the acts of wrongdoing set forth in this Complaint were performed directly by the defendants QWEST and QWEST CAPITAL these defendants would also be liable since the individual defendants acted within the scope of their employment by QWEST." Compl. ¶¶ 270, 294, 321, 349. SHC's claims fail miserably, even under the more relaxed pleading standards of Rule 8 of the Federal Rules of Federal Procedure, and they certainly cannot satisfy the more demanding requirements of the PSLRA or of Rule 9(b), which govern Counts 1, 3, 4, and 6. See generally In re Qwest, 387 F.Supp.2d 1130, 1143-44 (D. Colo. 2005). Nowhere in the Shriners II complaint can one find a single allegation of specific, substantive conduct by QCF that is relevant to the charges advanced against it, much less an allegation of QCF's misconduct. The only allegation in the complaint that even attempts to link QCF to the allegations against the other defendants is the generic assertion that QCF "[o]btain[ed] money from a stockholder of its controlling corporation based on required financial reports that were false and misleading." Compl. ¶ 201. There is, however, no allegation linking QCF to any of the alleged false statements in this case--for example, and critically, there is no suggestion that any of the allegedly false "financial reports" were issued by QCF. There is also no explanation of how QCF obtained "money from a stockholder of its controlling corporation," or even of what that allegation means. Similarly, there is no allegation of any specific act that QCF undertook at the direction of Qwest. And finally, despite a passing reference to the theory of respondeat superior in one count against QCF, see id. ¶ 253, the Complaint

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does not identify a single employee, officer, or agent of QCF, much less one who is alleged to have acted negligently or fraudulently. In short, SHC's hollow claims against QCF rest entirely on its alleged status as a wholly owned subsidiary of Qwest. Liability cannot be predicated on that meager offering, however, and these claims must be dismissed for failure to state a claim on which relief can be granted. III. SHC'S COMMON LAW FRAUD AND NEGLIGENT MISREPRESENTATION CLAIMS FAIL TO ALLEGE FACTS SUPPORTING ACTUAL RELIANCE. To state a claim for common law fraud or negligent misrepresentation under Colorado law, a plaintiff must plead, among other elements, that he or she actually relied on the defendant's misrepresentation. See Robert K. Schrader, P.C. v. Etta Indus., Inc., 892 P.2d 363, 366 (Colo. App. 1994) (discussing fraud); First National Bank in Lamar v. Collins, 616 P.2d 154, 155 (Colo. App. 1980) (discussing negligent misrepresentation).10 In Shriners I, this Court dismissed SHC's fraud claim for failure to adequately allege facts supporting an inference of actual reliance. Shriners I, 2005 WL 2350569 at *16 (noting that SHC conceded failure to plead reliance). Despite that dismissal, SHC has simply repeated its earlier inadequate, boilerplate allegations of reliance. See Compl. ¶¶ 70, 263(b) (compare with Shriners I Am. Compl. ¶¶ 311b). Indeed, SHC's generic allegations specifically reference "constructive," not actual reliance. See Compl.

Under Colorado law, SHC's fraud claim must be pled with particularity. See Colorado R. Civ. Proc. 9(b); Rosenthal v. Dean Witter Reynolds, Inc., 908 P.2d 1095, 1099 n.7 (Colo. 1996). 18

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¶¶ 70, 263(b). The complaint is devoid of a single factual allegation that any person actually relied upon any misrepresentation when making an investment decision on SHC's behalf. SHC does not provide facts supporting allegations of actual reliance because it cannot. When SHC alleges it "relied" on misstatements, it means nothing more than it believes that it purchased securities at a price that was inflated due to fraud. See Compl. ¶¶ 70, 263(b) (specifically alleging "constructive" reliance). 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."). Because SHC has failed to allege the specifics required to support a claim of actual reliance, this Court should dismiss its fraud and negligent misrepresentation claims in Counts IV and V of the Shriners II complaint. IV. SHC CANNOT PLEAD A BREACH OF FICUCIARY DUTY CLAIM AGAINST QWEST OR QCF. Count VI purports to advance a claim against Qwest and QCF for breach of fiduciary duty. (Compl. ¶¶ 286-309.) This claim must be dismissed for failure to state a claim on which relief can be granted. To state a claim for breach of fiduciary duty, a plaintiff must establish the existence of a fiduciary relationship, its breach, and damage proximately caused by that 19

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breach. See Destefano v. Grabrian, 763 P.2d 275, 284, 289 (Colo. 1988); Legatski v. Bethany Forest Assoc. Inc., No 03C-10-011-RFS, 2006 WL 1229689, *3 (Del. Super. April 28, 2006) (attached hereto as Exhibit 16).11 The apparent basis for SHC's implicit assumption that Qwest owed a fiduciary duty to it arises from SHC's ownership of Qwest stock, which is alleged in support of this claim. (Id. ¶¶ 288.). Governing Delaware law clearly establishes that a corporation does not owe a fiduciary duty directly to its shareholders, bondholders, or potential investors, however. 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); Simons v. Cogan, 549 A.2d 300, 304 (Del. 1988) (affirming trial court's order dismissing breach of fiduciary duty claim by holders of convertible debentures); 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.") (attached hereto as Exhibit 17); 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."). 12

The heightened pleading standards of Rule 9(b) apply to SHC's breach of fiduciary duty claim. See Robison v. Caster, 356 F.2d 924, 925 (7th Cir. 1966) ("The plaintiff admits that the breach of fiduciary relationship which he is attempting to assert is a `scheme to defraud.' Rule 9(b) must therefore be followed."); Zucker v. Katz, 708 F. Supp. 525, 530 (S.D.N.Y 1989). The existence and extent of fiduciary duties in the corporate context is decided under the law of the state of incorporation. See Ficor, Inc. v. McHugh, 639 P.2d 385, 391 (Colo. 1982) (quoting Restatement (Second) of Conflict of Laws s 309 (1971)). As SHC recognizes, Qwest was incorporated under the laws of Delaware. See Compl. ¶ 6. 20
12

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The mandate for dismissal of Court VI against QCF is even clearer. SHC alleges no facts whatsoever that suggest a basis for a fiduciary relationship between QCF and SHC, and none can be inferred from QCF's relationship to Qwest, which itself owes no fiduciary duties to this plaintiff. Moreover, as noted previously, SHC alleges nothing suggesting any misconduct by QCF, whether acting as a fiduciary or otherwise. Like all of SHC's claims against QCF, its claim in Count VI is based solely on QCF's alleged status as a wholly owned subsidiary of Qwest. As urged previously, liability cannot be predicated on this status alone. See Part II, supra. CONCLUSION For all of the foregoing reasons, the complaint captioned Shriners Hospitals for Children v. Arthur Andersen & Company, et al. should be dismissed with prejudice.

Thus, Delaware law establishes whether a fiduciary duty existed between Qwest and SHC. 21

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DATED: January 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.

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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 January, 2007, a copy of the foregoing MOTION OF QWEST COMMUNICATIONS INTERNATIONAL INC. AND QWEST CAPITAL FUNDING 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

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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

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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

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