In re Mci Worldcom, Inc. Securities Litigation

Decision Date29 March 2002
Docket NumberNo. CIV.A. 3:00-CV-833BN.,CIV.A. 3:00-CV-833BN.
Citation191 F.Supp.2d 778
CourtU.S. District Court — Southern District of Mississippi

Don John W. Barrett, Richard Runft Barrett, Jesse M. Harrington, Barrett Law Offices, Lexington, MS, Samuel H. Rudman, Melvyn I. Weiss, Milberg, Weiss, Bershad, Hynes & Lerach, New York, NY, Deborah R. Gross, Law Offices Bernard M. Gross, P.C., Philadelphia, PA, Kenneth J. Vianale, Maya Saxena, Millberg, Weiss, Bershad, Hynes & Lerach, LLP, Boca Raton, FL, for Harriet Goldstein, Vincent Pinto, all others similarly situated, plaintiffs.

Jesse M. Harrington, Barrett Law offices, Lexington, MS, for Vincent J. Moleta, Michael Sabbia, Wayne County Employees Retirement system, David Klein, Simms Family, City of Lakeland Employee Pension Fund, plaintiff.

R. David Kaufman, Martin Patrick McDowell, Brunini, Grantham, Grower & Hewes, Jackson, MS, Thomas F. O'Neil, III, Adam H. Charnes, Worldcom, Inc.— Legal Division, Washington, DC, Michael J. Chepiga, Paul C. Curnin, Simpson, Thacher & Bartlett, New York, NY, for MCI Worldcom, Bernard J. Ebbers, Scott D. Sullivan, defendants.


BARBOUR, District Judge.

This cause is before the Court on the Motion of Defendants to Dismiss. Having considered the Motion, Response, Rebuttal, attachments to each, and supporting and opposing authority, the Court finds that the Motion is well taken and should be granted.

I. Background and Procedural History

WorldCom is an international telecommunications company that provides its customers with voice, data, internet and international communications services. With its purchase of MCI Communications Corp. ("MCI"), in September of 1998, WorldCom became the second largest telecommunications company in the United States. In October of 1999, WorldCom agreed to purchase Sprint, the third largest telecommunications company in the United States, in a stock-for-stock purchase that was ultimately blocked by United States and European antitrust regulators in July of 2000.

Between February 11, 2000, and November 1, 2000, the stock prices of WorldCom and its two largest competitors, AT & T and Sprint, fell precipitously: the price of AT & T stock fell 55%, or $27 per share, to approximately $22; the price of WorldCom stock fell 74%, or $50 per share, to approximately $18; and, the price of Sprint stock fell 64%, or $41 per share, to approximately $23. During this period, the price of WorldCom stock reached a 52-week low following the October 26, 2000, issuance by Defendants of a press release reporting lower than expected third quarter 2000 revenues, decreased growth in the internet division UUNet, and a write-off of $685 million for certain accounts deemed uncollectible. On November 1, 2000, the date on which WorldCom issued an earnings warning and announced in a special meeting with analysts the creation of a tracking stock to contain certain assets it had obtained through the MCI acquisition, the price of WorldCom stock fell 20%. At the November 1, 2000, meeting with analysts, WorldCom chief executive officer Bernard J. Ebbers ("Ebbers") apologized for "let[ting] you as investors down," and stated, "[T]he management team of this company is not at all satisfied with where we are today." Motion, Exhibit "16," Transcript of November 1, 2000, Analyst Meeting.1

Following Ebbers' statement and the October 26, and November 1, 2000, announcements of WorldCom, Plaintiffs filed separate securities fraud complaints against WorldCom, Ebbers, and chief financial officer Scott D. Sullivan ("Sullivan") in Mississippi, New York and Washington, D.C. Their actions were consolidated by this Court on March 27, 2001, and Plaintiffs filed their Consolidated Amended Class Action Complaint on June 1, 2001. Plaintiffs seek to represent a class consisting of all persons who purchased the common stock of WorldCom between February 10, 2000, and November 1, 2000, inclusive, and allege that WorldCom made material misstatements and omissions in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Plaintiffs also allege that Defendants Ebbers and Sullivan were liable in their individual capacities as "controlling persons" under section 20(a) of the Securities Exchange Act.

With the instant Motion, Defendants urge the Court to dismiss Plaintiffs' claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim, and under Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act ("Reform Act"), 15 U.S.C. § 78u-4(b), for failure to plead fraud with particularity. The Court has painstakingly examined the 110 page, 285 paragraph Complaint. The Complaint is replete with cross-references and repetition. On first reading, the instinctive reaction is exactly what is intended by Plaintiffs. The numbers are so large, the stakes were so high, and the fall of the dollar value of WorldCom stock so precipitous that the reader reacts by thinking that there must have been some corporate misbehavior. However, after a thorough examination, it becomes apparent that the Complaint is a classic example of "puzzle pleading" and that it does not attain the heightened pleadings requirements for this type case. The Court hereafter addresses each statement made by the corporation and the individual Defendants upon which Plaintiffs rely.

II. Legal Standard

For the purposes of a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, all material allegations in Plaintiffs' Complaint must be taken as true and construed in the light most favorable to Plaintiffs. Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir.1982), cert. denied, 459 U.S. 1105, 103 S.Ct. 729, 74 L.Ed.2d 953 (1983). A Rule 12(b)(6) dismissal is not appropriate unless it appears to a certainty that Plaintiffs would not be entitled to relief under any set of facts that could be proven. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Rule 12(b)(6) requires dismissal upon such a finding by the Court. Baton Rouge Bldg. & Constr. Trades Council v. Jacobs Constructors, Inc. 804 F.2d 879, 881 (5th Cir.1986) (citing Hishon v. King & Spalding, 467 U.S. 69, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)).

III. Analysis
A. Applicable Laws

Rule 10b-5 provides:

Employment of Manipulative and Deceptive Devices:

It shall be unlawful for any person, directly or indirectly, by the use of any means of instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) to employ any device, scheme, or artifice to defraud,

(b) to make any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or

(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5.

Similarly, section 10(b) of the Security Exchange Act provides that it is unlawful

to use or employ [by any means or instrumentality of interstate commerce], in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. § 78j(b).

B. Elements of a Claim under Section 10(b) and Rule 10b-5 and Pleading Requirements Under Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995

To state a claim for securities fraud under section 10(b) of the Securities Exchange Act and Rule 10b-5, a plaintiff must allege, "in connection with a purchase or sale of securities, `(1) a misstatement or an omission (2) of material fact (3) made with scienter (4) on which plaintiff relied (5) that proximately caused [the plaintiff's] injury.'" Nathenson v. Zonagen, Inc., 267 F.3d 400, 407 (5th Cir.2001) (quoting Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir. 1994)). A claim for securities fraud is subject to the heightened level of pleading established by Rule 9(b) of the Federal Rules of Civil Procedure and must be set forth "with particularity." See Tuchman, 14 F.3d at 1067. Under Rule 9(b), plaintiffs must "specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent." Williams v. WMX Techs., Inc., 112 F.3d 175, 177 (5th Cir. 1997). The heightened pleading standard "provides defendants with fair notice of the plaintiffs' claims, protects defendants from harm to their reputation and good will, reduces the number of strike suits, and prevents plaintiffs from filing baseless claims and then attempting to discover unknown wrongs." Tuchman, 14 F.3d at 1067.

The pleading requirements of Rule 9(b) were reinforced by the 1995 passage of the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b). Under the Reform Act, plaintiffs must "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). Additionally, the Reform Act requires that a plaintiff "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind," 15 U.S.C. § 78u-4(b)(2), that is, a "strong inference of either intentional misconduct or severe recklessness."...

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    • United States District Courts. 6th Circuit. United States District Courts. 6th Circuit. Southern District of Ohio
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1 books & journal articles
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    • United States
    • Louisiana Law Review No. 73-2, January 2013
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