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IN RE WORLDCOM

January 20, 2004.

IN RE WORLDCOM, INC. SECURITIES LITIGATION, This Document Relates to: 02 Civ. 3288 (DLC); CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM and THE LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION, Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; BOARD OF TRUSTEES OF THE TEACHERS' RETIREMENT SYSTEM OF THE STATE OF ILLINOIS, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; STATE UNIVERSITIES RETIREMENT SYSTEM OF ILLINOIS, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; ILLINOIS STATE BOARD OF INVESTMENT, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; WEST VIRGINIA INVESTMENT MANAGEMENT BOARD, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; UNITED FOOD AND COMMERCIAL WORKERS UNION LOCAL 880 — RETAIL FOOD EMPLOYERS JOINT PENSION FUND, et al., Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; ALAMEDA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION, et al., Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; SCREEN ACTORS GUILD — PRODUCERS PENSION AND HEALTH PLANS, et al., Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; WASHINGTON STATE INVESTMENT BOARD, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; MINNESOTA STATE BOARD OF INVESTMENTS, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; MONTANA BOARD OF INVESTMENTS, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; LOS ANGELES BOARD OF FIRE & POLICE PENSION COMMISSIONERS, et al., Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; THE MARYLAND — NATIONAL CAPITAL PARK AND PLANNING COMMISSION EMPLOYEES' RETIREMENT SYSTEM, Plaintiff, -v-, BERNARD J. EBBERS, et al., Defendants; HEAVY & GENERAL LABORERS' LOCALS 472 & 172 PENSION & ANNUITY FUNDS, TEAMSTERS LOCAL 408 PENSION FUND AND TEAMSTERS LOCAL 863 GUARANTEED FUND, Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; STATE OF WISCONSIN INVESTMENT BOARD and MILWAUKEE EMPLOYEES' RETIREMENT SYSTEM, Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; MAINTENANCE EMPLOYEES TEAMSTERS LOCAL 416 PENSION FUND, et al., Plaintiffs, -v-, BERNARD J. EBBERS, et al., Defendants; MAINE STATE RETIREMENT SYSTEM, Plaintiff, -v- CITIGROUP, INC., et al., Defendants MUNICIPAL EMPLOYEES' RETIREMENT SYSTEM OF MICHIGAN, et al., Plaintiffs, -v-, BERNARD J. EBBERS, et al., Defendants; STATE OF ALASKA DEPT. OF REVENUE and ALASKA STATE PENSION INVESTMENT BOARD, Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; McMORGAN & COMPANY, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; CARPENTERS PENSION TRUST FOR SOUTHERN CALIFORNIA, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; ALASKA ELECTRICAL PENSION FUND, Plaintiff, -v- CITIGROUP, INC., et al., Defendants; UFCW INTERNATIONAL UNION — INDUSTRY PENSION FUND, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; MASSACHUSETTS STATE GUARANTEED ANNUITY FUND, et al., Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; ALASKA PERMANENT CAPITAL MANAGEMENT COMPANY, Plaintiff, -v- CITIGROUP, INC., et al., Defendants; DENVER AREA MEAT CUTTERS & EMPLOYERS PENSION PLAN, et al., Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; LOCALS 302 AND 612 OF THE INTERNATIONAL UNION OF OPERATING ENGINEERS — EMPLOYERS CONSTRUCTION INDUSTRY RETIREMENT TRUST, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; ALASKA TEAMSTER — EMPLOYER PENSION TRUST, Plaintiff, -v- CITIGROUP, INC., et al., Defendants; DISTRICT NO. 9, I.A. OF M & A.W., PENSION TRUST, et al., Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; THE NATIONAL ASBESTOS WORKERS PENSION FUND, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants; AMERICAN INTERNATIONAL GROUP, INC., et al., Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants; THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, Plaintiff, -v- BERNARD J. EBBERS, et al., Defendants


The opinion of the court was delivered by: DENISE COTE, District Judge

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  OPINION AND ORDER

  On November 21, 2003, the motion to dismiss one of the individual actions filed by the law firm Milberg Weiss Bershad Hynes & Lerach ("Milberg Weiss") in the litigation arising from the collapse of WorldCom, Inc. ("WorldCom") was granted in part. In re WorldCom, Inc. Securities Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22738546 (S.D.N.Y. Nov. 21, 2003)("November 21 Opinion"). The November 21 Opinion dismissed several claims on the ground that the statute of limitations provision within the Securities Act of 1933 ("Securities Act") applied to, and barred, the Securities Act claims brought in that action. In addition, the November 21 Opinion dismissed the Securities Act Section 12(a)(2) claim based on a December 2000 private placement of WorldCom debt for failure to state a claim.

  Based on the rulings in the November 21 Opinion, defendants have now moved to dismiss claims in thirty-six other individual WorldCom actions ("Individual Actions"), including nine such actions in their entirety. The plaintiffs in the action subject to the November 21 Opinion have also moved for reconsideration of that opinion. This Opinion addresses the motion for reconsideration of the November 21 Opinion and the motions to dismiss insofar as those motions are addressed to thirty-one Individual Actions filed by Milberg Weiss ("Milberg Weiss Actions"). Familiarity with the November 21 Opinion is assumed. For the following reasons, the motion for reconsideration is denied and the motions to dismiss are granted. Page 12

  Background

  On June 25, 2002, WorldCom announced that it would undertake a massive restatement of its financial statements. Within weeks, it filed the largest bankruptcy in United States history. The private civil litigation arising from WorldCom's implosion has largely been transferred to this Court by the Judicial Panel on Multi-District Litigation ("MDL Panel").

  The class actions alleging WorldCom claims began to be filed in this district on April 30, 2002. They were consolidated by an Order of August 15, 2002.

  Meanwhile, numerous actions alleging individual, as opposed to class, claims were filed in venues across the country. Many were filed by Milberg Weiss. Each of the Milberg Weiss Actions was filed in a state court and removed to federal court as "related to" the WorldCom bankruptcy. The complaints in the Milberg Weiss Actions had been drafted to avoid the removal and class action provisions of the federal securities laws. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21219037, at *1 (S.D.N.Y. May 22, 2003). As a consequence, those complaints did not include any class action claims or claims brought under the Securities Exchange Act of 1934 ("Exchange Act"), inclusion of either type of claim would have provided independent bases for removal of the action to federal court. In re WorldCom, Inc. Sec. Litig., 293 B.R. 308, 315 (S.D.N.Y. 2003). Instead, the Milberg Weiss Actions pleaded solely claims brought pursuant to the Securities Act, principally Sections 11 and Page 13 12(a)(2) claims, based on alleged misrepresentations made in connection with WorldCom bond offerings. There is concurrent jurisdiction in state and federal courts for Securities Act claims. Id. at 325. A few of the Milberg Weiss Actions were remanded to state court before their transfer to this Court by the MDL Panel, but most have been transferred to this Court.

  Milberg Weiss has described its reasons for the tactical pleading decision to eschew Exchange Act claims as follows. It asserts that it has "developed a strategy which we believe will maximize the recovery of our clients' damages resulting from the collapse of the WorldCom bonds." Milberg Weiss relied on Sections 11 and 12(a)(2) claims because they "are uniquely strong claims," since they provide "for non — fraud liability as to the signers of the registration statement, the underwriters of the securities and the accountants who certified the financial statements." These individuals "are prima facie liable for any false statements." These claims are "an extremely strong remedy since fraud need not be alleged and [they are] not subject to any of the enhanced pleading burdens attached to fraud claims. By contrast, the common stock claims asserted in the [WorldCom] class action are all fraud claims, subject to a much higher scienter proof requirement." Milberg Weiss identified additional alleged advantages in pleading solely Securities Act claims as the fact that a "plaintiff need not prove causation of damages" and the fact that such claims may be "brought in state court." Milberg Weiss identified the underwriters of WorldCom's bond Page 14 offerings, who are named as defendants in the Securities Act claims, as "the most likely source of any recovery," since other potential defendants have limited resources. With these and other arguments it urged its clients not to join the WorldCom class action, but instead to file their own individual actions in state court. Letter of May 23, 2003 from William S. Lerach of Milberg Weiss.*fn1

  By Orders dated December 23, 2002, and May 28, 2003, the Individual Actions before this Court and the securities class action were consolidated for pretrial proceedings. Through an Order of May 28, 2003, plaintiffs in Individual Actions who wished to amend their complaints were required to do so within three weeks of their action's arrival on this Court's docket.

  At a conference on September 12, 2003, defense counsel gave notice of their intent to bring two separate sets of motions to dismiss claims that are common to many Individual Actions.*fn2 Defense counsel indicated that their first set of motions would Page 15 be based upon the statute of limitations bar to many claims, including their contention that American Pipe tolling does not apply to Individual Actions filed or amended before a decision is rendered on the motion to certify a class.*fn3

  At a conference of September 22, the Court proposed and the parties agreed that the defendants would initially address their motions to dismiss to one or two of the complaints in the Individual Actions. The plaintiffs in those actions would oppose them and the plaintiffs in other Individual Actions would be permitted also to file a single, joint amicus brief in opposition. An Order of September 22 provided that when a decision on the motion to dismiss was issued, the parties in the other Individual Actions in which the same legal issues arise would be given an opportunity to show cause "why the decision does not apply to those actions."

  The September 22 Order set the schedule for two tranches of motions to dismiss claims common to many of the Individual Actions. The first tranche of the motions to dismiss were to address defendants' claims that there were statute of limitations bars to claims asserted in the Individual Actions and that the December 2000 private placement does not give rise to a Page 16 Securities Act claim.*fn4 The first tranche of the motions to dismiss was filed on October 3, and was fully submitted on October 31. The November 21 Opinion addressed the motion to dismiss the complaint in 03 Civ. 6592 filed by Milberg Weiss on behalf of two Alaska plaintiffs ("MW Alaska Action").

  In brief, the November 21 Opinion ruled as follows.*fn5 It held that the statute of limitations contained in Section 13 ("Section 13") of the Securities Act, 15 U.S.C. § 77m, governs the Section 11 Securities Act claim in the MW Alaska Action. That limitations period is the earlier of (a) three years from the date of the initial registration statement, or (b) one year from the date on which a plaintiff is put on actual or constructive notice of the facts underlying the claim. 2003 WL 22738546, at *5.

  The November 21 Opinion rejected the plaintiffs' argument that the longer statute of limitations period in Section 804 ("Section 804") of the Sarbanes — Oxley Act of 2002 ("Sarbanes — Oxley"), 28 U.S.C. § 1658, applied to their claim, since Section 804 applies to claims of fraud and their Section 11 claim did not sound in fraud. Id. Section 804 provides in pertinent part that Page 17

 
a private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the [Exchange Act], may be brought not later than the earlier of — (1) 2 years after the discovery of the facts constituting the violation, or (2) 5 years after such violation."
28 U.S.C. § 1658 (emphasis supplied).

  The plaintiffs in the MW Alaska Action admitted that their claim did not sound in fraud. They argued, however, that Section 804 should nonetheless apply because the claim arose from WorldCom's accounting manipulations and Congress' use of the term "manipulation" (as well as the term fraud) in Section 804 signified Congress' intent to extend Section 804 beyond the securities fraud statute, that is, beyond Section 10(b) of the Exchange Act. The November 21 Opinion found that the text of Section 804 parallels the text of the private causes of action for securities fraud, and uses terms not found in Section 11, which refers only to material misrepresentations or omissions. 2003 WL 22738546, at *8. It held that Section 804 extends the time for private causes of action under the securities laws only for claims of fraud, deceit, manipulation or contrivance. Id. at *9. The plain language of Section 804 does not encompass Sections 11 and 12(a)(2) claims. Id.

  Since the Section 11 claim arising from the 1998 WorldCom Bond Offering expired in August 2001, or three years after the date of the registration statement for that offering, the Section 11 claim in the MW Alaska Action addressed to that offering was Page 18 dismissed as time — barred. Id. On the other hand, the November 21 Opinion rejected the defendants' contention that the plaintiffs in the MW Alaska Action were on inquiry notice as a matter of law as of April 20, 2002, that is, one year before the MW Alaska Action was filed, of the basis of their remaining Section 11 claims. Id. at *12. It found, however, that "[t]here can be no doubt that at least as of WorldCom's announcement on June 25, 2002 — that it would have to restate its publicly reported financial results for 2001 and the first quarter of 2002 by $3.8 billion — plaintiffs were on inquiry notice of their Sections 11 and 12(a)(2) claims." Id. at *14.*fn6

  The plaintiffs in the MW Alaska Action argued that the American Pipe tolling doctrine extended Section 13's statute of limitations. See American Pipe & Construe. Co. v. Utah, 414 U.S. 538 (1974). The doctrine provides that "the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action." Id. at 554. Adopting the position taken by every other district court in this circuit that has considered the issue, the November 21 Opinion held that a plaintiff who chooses to file an action independently of the class before a determination on class Page 19 certification cannot benefit from the American Pipe tolling rule. 2003 WL 2273846, at *15. As a consequence, the amendment of the MW Alaska Action complaint on September 24, 2003, to add claims against additional defendants was time — barred and the claims against those additional defendants were dismissed with prejudice. Id. at *17. The plaintiffs in the MW Alaska Action failed to show that the omission of these defendants from the initial pleading was a mistake or could otherwise relate back to a timely pleading. Id. at *14.

  Finally, the November 21 Opinion dismissed the Section 12(a)(2) claim arising from the December 2000 WorldCom private placement. It is undisputed that Section 12(a)(2) does not provide a cause of action for private placements. Id. While the plaintiffs had argued that the December 2000 private placement was in fact a public offering, and thus, within the ambit of a Section 12(a)(2) claim, the complaint in the MW Alaska Action described the transaction as a "private placement" exempt from SEC registration requirements. In addition, the Offering Memorandum for the December 2000 Offering confirmed that it was a private placement. Id. at *18.

  The November 21 Opinion also rejected the plaintiffs' request to amend their pleading to allege that the December 2000 Offering was a public offering. The proposed amendment did not include any deletion of the allegations that the December 2000 Offering was exempt from registration or that the December Offering was a private placement. Id. at *18 n.37. The Page 20 plaintiffs were unable to identify how the December 2000 Offering was exempt from registration requirements other than as a private placement. Id. The plaintiffs did not seek leave to amend any other portion of their pleading.

  The November 21 Opinion dismissed with prejudice each of the following claims in the MW Alaska Action: the Section 11 claim based on the 1998 Bond Offering, and the Section 12(a)(2) claim based on the December 2000 private placement. The motions to dismiss by defendants added after June 25, 2003, were also granted with prejudice.

  During a conference on November 24, the Court and the parties discussed the derivative motion practice that would be based on the November 21 Opinion. In advance of the conference, counsel for the Underwriter Defendants*fn7 had circulated a list of the claims in the Individual Actions that they contended were subject to dismissal based on the November 21 Opinion. A schedule was set so that each plaintiff would have an opportunity to show why the November 21 Opinion did not control the motions to dismiss that were to be brought against its complaint. Counsel for the plaintiffs in the Milberg Weiss Actions represented that, with the exception of one issue, they would not reargue any of the rulings in the November 21 Opinion, and that Page 21 the issue was simply how the November 21 Opinion applied to each of the Milberg Weiss Actions.*fn8 He did wish to reargue, however, the decision that time-barred claims were dismissed with prejudice.*fn9

  On or about December 2, defendants in the Individual Actions filed notices of motion to dismiss claims or entire actions based on the November 21 Opinion. A schedule attached to their notices of motion identified the bases for the motion in connection with each complaint that was the subject of the motion. The grounds identified were the statute of limitations bars for the Securities Act claims based on the 1998, May 2000 and May 2001 WorldCom Bond Offerings, the statute of limitations bar to the addition of defendants to Securities Act claims in pleadings amended after June 25, 2003,*fn10 and the failure to state a Section Page 22 12(a)(2)claim regarding the December 2000 WorldCom private placement. With respect to the statute of limitations issues, the defendants contend that all claims arising under the Securities Act relating to the August 1998 Bond Offering are barred, that all claims filed or added after May 12, 2003 based on the May 2000 ...


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