In Re Level 3 Communications, Inc. Securities Litigation
2012 U.S. App. LEXIS 2376
| 10th Cir. | 2012Background
- Lead plaintiff sues Level 3 and executives under §10(b) and Rule 10b-5 for alleged fraudulent integration of WilTel and other acquisitions during 2006–2007; district court dismissed with prejudice under 12(b)(6) and the appeal followed.
- Company acquired WilTel (Dec 2005) and metro entities Progress, ICG, TelCove, Looking Glass (2006) and Broadwing (Jan 2007); the central issue is whether statements about WilTel integration were false or misleading.
- Plaintiff alleges defendants’ public statements during the class period (2006–2007) about progress and expected benefits of integration were false; internal reports allegedly showed delays and cost overruns.
- Defendants argued statements were nonactionable puffery or forward-looking, and that plaintiff failed to plead facts showing scienter with the required strong inference under the PSLRA.
- The district court held no strong inference of scienter and dismissed; the Tenth Circuit affirms, applying Tellabs and PSLRA heightened pleading standards.
- The court analyzes materiality, falsity, and scienter, concluding that several statements could be viewed as false but the plaintiff fails to plead a strong inference of scienter.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the statements were material misstatements or nonactionable puffery | Plaintiff contends several WilTel progress statements were false | Defendants contend statements were aspirational/puffery or forward-looking | Some statements were potentially actionable but overall failure to plead scienter |
| Whether the alleged statements were actually false or misleading | Internal reports contradicted public progress claims | Internal reports did not prove false statements, context unclear | Four concrete statements could be misleading; falsity not established for all |
| Whether plaintiff pleaded the required strong inference of scienter | Plaintiff asserts awareness through access to internal reports | Inferences are not cogent; motives insufficient | No strong inference of scienter; at most negligence or misalignment of views |
| Whether disclosures after the class period undermine scienter | Post-period disclosures show knowledge of issues during class period | Disclosures reflect hindsight assessment, not scienter | Post-period disclosures do not establish scienter |
Key Cases Cited
- Adams v. Kinder-Morgan, Inc., 340 F.3d 1083 (10th Cir.2003) (pleading elements; heightened PSLRA standard; specificity required)
- Grossman v. Novell, Inc., 120 F.3d 1112 (10th Cir.1997) (materiality; puffery distinction; verified by objective facts)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (Supreme Court 2007) (strong inference standard for scienter; holistic review)
- Omnicare, Inc. v. Lab. Corp. of Am. Life, 583 F.3d 935 (6th Cir.2009) (agency disclosure standards; motive considerations)
- In re Cutera Sec. Litig., 610 F.3d 1103 (9th Cir.2010) (nonactionable statements; rosy predictions)
- Ronconi v. Larkin, 253 F.3d 423 (9th Cir.2001) (inconsistencies between statements and reports; affirmative yet inconclusive)