Barnard v. Verizon Communications, Inc.
451 F. App'x 80
3rd Cir.2011Background
- Idearc, Inc. was formed in a 2006 spin-off by Verizon to continue its Yellow Pages business; Idearc debt was exchanged with JPMC serving as administrative agent.
- Idearc incurred $2 billion in debt to Verizon as partial consideration for the Yellow Pages business and exclusive publishing rights.
- Idearc filed for Chapter 11 bankruptcy on March 31, 2009; appellees challenged the bankruptcy outcomes with Appellants participating in proceedings.
- The Bankruptcy Plan cancelled Idearc’s existing stock, issued new stock to creditors, and created a litigation trust to pursue estate claims.
- The Bankruptcy Court confirmed the Plan over Appellants’ objections; Appellants later appealed and sought rescission/stay, but those motions were denied.
- Appellants filed suit in district court asserting securities fraud, insider trading, common law fraud, conversion, a Bivens claim, and a § 206 claim; the district court dismissed the second amended complaint with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Securities fraud viability under PSLRA | Appellants contend Verizon/JPMC misled investors in Idearc spin-off. | Appellees argue the complaint lacks particularized misstatements and causal facts under PSLRA. | Securities claim failure affirmed; not pleaded with PSLRA particularity. |
| Common law fraud viability | Appellants rely on the same misrepresentation theory as securities fraud. | Appellees contend lack of particularized facts and similar deficiencies as federal claim. | Common law fraud claim dismissed for lack of particularized allegations; subsumed by securities pleading failure. |
| Conversion/undue influence leveraged against bankruptcy plan | Appellants allege JePMC improperly shifted claims to obtain equity via the Plan. | Appellees view claim as collateral attack on bankruptcy judgment and improperly raised. | Dismissal affirmed as collateral attack; res judicata under Bankruptcy judgment. |
| Communications Act § 206 claim viability | Appellants claim spin-off violated Communications Act to permit unlawful funds use for licenses. | Appellees argue theory is not cognizable and merely repackaged fraud claim. | Statutory claim rejected; allegations insufficient to state § 206 claim. |
| Opportunity to amend and summary judgment consideration | Appellants should have been allowed to amend and court should consider pending summary judgment. | Amendment futile; summary judgment moot after dismissal on pleadings. | Dismissal with prejudice affirmed; summary judgment not required due to futile amendment. |
Key Cases Cited
- McCabe v. Ernst & Young, LLP, 494 F.3d 418 (3d Cir. 2007) (PSLRA pleading requirements for misrepresentation or omission)
- In re Aetna, Inc. Sec. Litig., 617 F.3d 272 (3d Cir. 2010) (two PSLRA pleading requirements; particularity and strong inference)
- GFL Advantage Fund, Ltd. v. Colkitt, 272 F.3d 189 (3d Cir. 2001) (similarities between federal and state fraud pleading in Third Circuit)
- Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210 (3d Cir. 1999) (final judgments and collateral attack principles; res judicata)
- Phillips v. Cnty. of Allegheny, 515 F.3d 224 (3d Cir. 2008) (appropriate standards for permitting amendment after dismissal)