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In re Aol Time Warner, Inc. Sec. & "Erisa" Lit.

Document Cited authorities 83 Cited in 190 Precedent Map Related
Vincent
Decision Date05 May 2004
Docket NumberNo. 02 Civ. 5575(SWK).,MDL No. 1500.,02 Civ. 5575(SWK).
PartiesIn re AOL TIME WARNER, INC. SECURITIES AND "ERISA" LITIGATION
CourtU.S. District Court — Southern District of New York

381 F.Supp.2d 192

In re AOL TIME WARNER, INC. SECURITIES AND "ERISA" LITIGATION

MDL No. 1500.

No. 02 Civ. 5575(SWK).

United States District Court, S.D. New York.

May 5, 2004.

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Christopher J. Gray, Lead Atty., Lovell & Stewart, L.L.P., New York, NY, Corey D. Holzer, Lead Atty., Holzer Holzer & Cannon LLC, Atlanta, GA, for Jennifer J. Fadem.

Brian Philip Murray, Rabin, Murray & Frank LLP, New York, NY, for Jennifer J. Fadem, Salomon Hami.

Aaron Lee Brody, Lead Atty., Stull, Stull & Brody, New York, NY, for Salomon Hami.

Holly K. Kulka, Timothy P. Wei, Michael L. Rugen, Lead Attys., Heller Ehrman White & McAuliffe, LLP, New York, NY, for Ernst & Young LLP.

Blair G. Connelly, Lead Atty., Latham & Watkins, L.L.P., New York, NY, for Eric Keller.

Corey D. Holzer, Lead Atty., Holzer Holzer & Cannon LLC, Atlanta, GA, for Steven Schmalz, Mariam Antin, Mark Bluestein, Malka Birnbaum, Ernest Hack, Harvey Matcovsky, Delbert Currens, Howard Rosengarten, Alan Russo, Harriet Goldstein, Barbara Dietel, Earl Bennett, Jack L. McBride, Vardan Sarkisov, Sherry Weindorf, Earl Mikolitch, John Pleggenkuhle, Prena Smajlaj.

Samuel Howard Rudman, Lead Atty., Milberg, Weiss, Bershad, Hynes & Lerach, L.L.P., New York, NY, for Steven Schmalz, Delbert Currens.

Mariam Probst Rosner, Lead Atty., Wolf, Popper, L.L.P., New York, NY, for Mariam Antin.

Brian Philip Murray, Lead Atty., Rabin, Murray & Frank LLP, New York, NY, for Mark Bluestein.

Gregory Michael Egleston, Lead Atty., Bernstein, Liebhard & Lifshitz, LLP, New York, NY, for Malka Birnbaum.

Robert I. Harwood, Lead Atty., Wechsler Harwood LLP, New York, NY, for Ernest Hack.

Jules Brody, Lead Atty., Stull Stull & Brody, New York, NY, for Harvey Matcovsky.

Jill S. Abrams, Lead Atty., Abbey Gardy, LLP, New York, NY, for Howard Rosengarten.

Menachem E. Lifshitz, Lead Atty., Bernstein, Liebhard & Lifshitz, L.L.P., New York, NY, for Alan Russo, Harriet Goldstein.

Frederic Scott Fox, Lead Atty., Kaplan Fox & Kilsheimer, L.L.P., New York, NY, for Barbara Dietel.

Aaron Lee Brody, Lead Atty., Stull Stull & Brody, New York, NY, for Earl Bennett.

Thomas H. Burt, Lead Atty., Wolf, Haldenstein, Adler, Freeman & Herz, L.L.P., New York, NY, for Jack L. McBride.

Ira M. Press, Lead Atty., Kirby, McInerney & Squire, L.L.P., New York, NY, for Vardan Sarkisov.

James V. Bashian, Lead Atty., Law Offices of James V. Bashian, P.C., New York, NY, for Sherry Weindorf.

Patrick Anthony Kingman, Lead Atty., Schatz and Nobel PC, Hartford, CT, for Earl Mikolitch.

Frederick Taylor Isquith, Sr., Lead Atty., Wolf, Haldenstein, Adler, Freeman & Herz, L.L.P., New York, NY, for John Pleggenkuhle.

Nadeem Faruqi, Lead Atty., Faruqi & Faruqi, L.L.P., New York, NY, for Prena Smajlaj.

OPINION AND ORDER

KRAM, District Judge. 

                TABLE OF CONTENTS
                I.  INTRODUCTION ..........................................................201
                   II.  PROCEDURAL HISTORY OF THIS ACTION .....................................202
                  III.  THE PARTIES ...........................................................203
                   IV.  THE COMPLAINT .........................................................204
                    V.  PLAINTIFF'S SUBSTANTIVE CLAIMS ........................................205
                        A.  Section 11 ........................................................205
                        B.  Section 12(a)(2) ..................................................205
                        C.  Section 15 ........................................................205
                        D.  Section 13 ........................................................205
                        E.  Section 10(b) .....................................................206
                        F.  Section 14 ........................................................206
                        G.  Section 20 ........................................................206
                        H.  28 U.S.C. § 1658 ("Sarbanes-Oxley") ..........................206
                   VI.  LEGAL STANDARD FOR MOTION TO DISMISS ..................................206
                  VII.  APPLICABLE STATUTE(S) OF LIMITATIONS ..................................207
                        A.  This Action Was Filed on September 16, 2002 .......................207
                        B.  Sarbanes-Oxley Applies to MSBI's 10(b) Claims .....................208
                 VIII.  AN AOL INVESTOR OF "ORDINARY INTELLIGENCE" WOULD
                         NOT HAVE BEEN AWARE OF THE PROBABILITY THAT SHE
                         HAD BEEN DEFRAUDED PRIOR TO JULY 18, 2002 ............................209
                        A.  The Sun, Hughes and Gateway Transactions Are Insufficient To
                              Trigger Plaintiff's Duty to Inquire .............................210
                        B.  The Vendor Advertising and Equity Deals Are Also Insufficient to
                              Trigger Plaintiff's Duty to Inquire .............................210
                   IX.  THE CLAIMS AGAINST THE NEWLY-NAMED DEFENDANTS ARE
                         TIMELY ...............................................................212
                    X.  BECAUSE THE AMENDED COMPLAINT IS TIMELY, ALLEGATIONS
                         OF TOLLING ARE UNNECESSARY ...........................................212
                   XI.  MSBI HAS PROPERLY PLED COMPLIANCE WITH THE STATUTE
                         OF LIMITATIONS .......................................................212
                  XII.  THE AMENDED COMPLAINT PLEADS ALLEGED MISSTATEMENTS
                          WITH PARTICULARITY ..................................................213
                        A.  Allegedly Overstated A & C Revenue ................................214
                
                B.  The Sections 11 and 12(a)(2) Claims Based on the Merger
                             Registration Statement Are Pled With Particularity ...............216
                 XIII.  WITH THE EXCEPTIONS NOTED BELOW, THE SECTION 10(B)
                         CLAIMS ARE NOT DISMISSED .............................................216
                        A.  MSBI May Proceed Under Rules 10b-5(a) & (c) .......................217
                        B.  It is Axiomatic That a Claim Under Section 10(b) Must Allege
                             Facts Giving Rise To a Strong Inference of Fraudulent Intent .....217
                            1.  MSBI Has Not Adequately Pled Motive And Opportunity ...........218
                            2.  MSBI Has Satisfactorily Pled Conscious Misbehavior or
                                 Recklessness With Respect to Some, But Not All of the
                                 Defendants ...................................................219
                            3.  MSBI Has Adequately Alleged Scienter With Respect to
                                 Corporate Defendants AOLTW and AOL ...........................219
                            4.  MSBI Has Adequately Alleged Conscious Misbehavior or
                                 Recklessness With Respect to Defendants Pittman, Kelly
                                 Pace, Keller and Colburn, But Not With Respect to Defendants
                                 Schuler, Novack, Levin, Parsons, Ripp, Rindner
                                 Berlow or Case ...............................................220
                                a.  Robert W. Pittman .........................................220
                                b.  J. Michael Kelly ..........................................221
                                    i.  Kelly's Statements Do Not Qualify for Protection
                                         Under Either the "Bespeaks Caution" Doctrine or
                                         the PSLRA Safe Harbor ................................222
                                c.  Barry Schuler .............................................223
                                d.  Kenneth J. Novack .........................................224
                                e.  Gerald Levin ..............................................224
                                f.  Wayne H. Pace .............................................225
                                g.  Richard Parsons ...........................................225
                                h.  Joseph Ripp ...............................................225
                                i.  Eric Keller ...............................................226
                                     i.  Keller Is Not Subject to Section 11 Liability ........227
                                    ii.  The 10(b) Claim is Timely ............................227
                                j.  Steven Rindner ............................................227
                                k.  Myer Berlow ...............................................228
                                l. David Colburn .............................................229
                                m.  Stephen M. Case ...........................................230
                  XIV.  THE SECTIONS 10(B) AND 14(A) CLAIMS ADEQUATELY PLEAD
                         LOSS CAUSATION .......................................................231
                   XV.  AOLTW'S ARGUMENTS IN SUPPORT OF DISMISSAL OF THE
                         SECTION 14(A) CLAIMS ARE UNPERSUASIVE ................................232
                  XVI.  MSBI'S CLAIMS UNDER SECTION 12(A)(2) BASED ON THE BOND
                         OFFERINGS ARE DISMISSED AS TO AOLTW AND THE INDIVIDUAL
                         DEFENDANTS ...........................................................232
                 XVII.  MSBI'S SECTION 11 CLAIMS BASED ON THE BOND REGISTRATION
                         STATEMENT (COUNTS FIVE AND SIX) ARE DISMISSED
                         AS TO AOLTW AND THE INDIVIDUAL DEFENDANTS ............................233
                XVIII.  MSBI'S SECTIONS 15 AND 20 CLAIMS FOR CONTROL PERSON
                         LIABILITY ARE DISMISSED WITH RESPECT TO SOME, BUT
                         NOT ALL OF THE INDIVIDUAL DEFENDANTS .................................233
                  XIX.  ERNST & YOUNG'S MOTION TO DISMISS IS GRANTED IN PART
                         AND DENIED IN PART ...................................................235
                
                A.  The Section 11 Claim Based on the Bond Registration Statement
                             (Count 7) Is Dismissed With Prejudice ............................236
                        B.  The Section 11 Claim Based on the Merger Registration Statement
                             (Count 3) Is Timely ..............................................236
                            1.  The Section 11 Merger Registration Claim Is Pled With
                                 Particularity ................................................237
                        C.  MSBI's Section 10(b) Claim Against E & Y Properly Pleads
                             Scienter .........................................................237
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