United States District Court, S.D. New York
January 20, 2004.
IN RE WORLDCOM, INC. SECURITIES LITIGATION, This Document Relates to: 02 Civ. 3288 (DLC); PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO, et al., Plaintiffs, -v- BERNARD J. EBBERS, et al., Defendants
The opinion of the court was delivered by: DENISE COTE, District Judge
OPINION AND ORDER
On December 2, 2003, certain defendants moved to dismiss some of
the claims asserted in Public Employees Retirement System of Ohio,
et al. v. Ebbers, et al., 03 Civ. 0338 (the "Ohio
Action"). For the following reasons, the motions are granted in part.
The Ohio Action is one of many individual, as opposed to class, actions
("Individual Actions") filed as a result of the WorldCom, Inc.
("WorldCom") debacle. On June 25, 2002, WorldCom announced that it would
be necessary to make a massive restatement of its financial results. The
Ohio Action was filed in state court on September 4, 2004. It was removed
by defendants, transferred to this Court by the Judicial Panel on
Multi-District Litigation, and filed in this district on January 16,
2003. Its motion to remand was denied by an Opinion and Order of May 5,
2003. In re WorldCom, Inc. Securities Litig., No. 02 Civ. 3288 (DLC),
2003 WL 21031974 (S.D.N.Y. May 5, 2003).
An Order of May 28, permitted any Individual Action then assigned to
this Court to file an amended complaint by July 11, 2003. It gave notice
that no further amendments would be allowed for those actions without
permission of the Court. On July 11, the plaintiffs filed an amended
complaint which added Cincinnati Retirement Systems ("Cincinnati") as a
plaintiff, and Steven M. Case ("Case") and various underwriters
("Additional Underwriters") as additional defendants. The original
complaint had pleaded solely state law claims. The amended complaint
added federal claims under both the Securities Act of 1933 ("Securities
Act") and the Securities Exchange Act of 1934.
An Order of September 22, scheduled the motions to dismiss that
defendants wished to bring concerning claims common to many Individual
Actions. The first phase of those motions addressed the statute of
limitations for Securities Act claims and the viability of a Securities
Act Section 12(a)(2) claim for a December 2000 WorldCom private
placement. As described in the September 22 Order, the defendants brought
their motions to dismiss against representative pleadings, with the
understanding that after an opinion was issued, the defendants would
direct any additional motion practice against the other complaints that
were vulnerable to motions to dismiss based on that Opinion, and that
plaintiffs in those actions would have an opportunity to show why the
Opinion did not control the motion to dismiss brought against their
An Opinion of November 21 resolved the motion to dismiss in the
representative action. In re WorldCom, Inc. Securities Litig., 02 Civ.
3288 (DLC), 2003 WL 22738546 (S.D.N.Y. Nov. 21, 2003) ("November 21
Opinion"). Familiarity with that Opinion is assumed. In brief, its
relevant holding for this motion was that the one year/three year statute
of limitations within the Securities Act governed the filing of the
Securities Act claims in that action. Id. at *9. It also found 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. On December 2, defendants moved to
dismiss certain Securities Act claims in the Ohio Action (and in
thirty-five other Individual Actions) based on the November 21 Opinion.
The plaintiffs in the Ohio Action have reserved their rights to disagree
with the holdings in the November 21 Opinion, but have not attempted to
The Ohio Action plaintiffs agree that the November 21 Opinion requires
dismissal of some of the claims subject to the motion to dismiss.
Specifically, they concede that all Securities Act claims based on the
WorldCom 1998 Bond Offering, all Securities Act claims asserted by
Cincinnati, and all Securities Act claims asserted against some of the
defendants Case and "Unaffiliated Underwriter Defendants"
added in the amended complaint must be dismissed.
The Ohio Action plaintiffs contend that claims against the "Additional
Affiliated Underwriter Defendants" added in the amended pleading, and the
Securities Act claims based on the WorldCom May 2000 and May 2001 Bond
Offerings relate back to the filing of their original complaint. The law
that governs analysis of the relation back of claims and parties
has been described in recent Opinions, and is incorporated herein. Id.
*13; In re WorldCom, Inc. Securities Litig., No. 02 Civ. 3288 (DLC),
WL (S.D.N.Y. Jan. 20, 2004).*fn2
May 2000 Bond Offering
The initial complaint in the Ohio Action did not give notice that the
plaintiffs sought to bring any claim based on the May 2000 Bond Offering.
The complaint did not allege that the registration statement for the May
2000 Bond Offering contained misrepresentations. None of the state law
claims pleaded in that complaint was based on the May 2000 Bond Offering.
The motion to dismiss the Securities Act claims based on the May 2000
Bond Offering is granted.
May 2001 Bond Offering
The Securities Act claim based on the May 2001 Bond Offering stands on
a different footing. The initial complaint in the Ohio Action alleged
that the registration statement for that offering included
misrepresentations. Its causes of action could be read
to raise claims based on that offering. The motion to dismiss the
Securities Act claims based on the May 2001 Bond Offering is denied as to
those defendants named in the initial complaint.
Additional Affiliated Underwriter Defendants
The plaintiffs contend that their Securities Act claims, based on the
May 2001 Bond Offering, against certain defendants added in the amended
pleading relate back since they are European affiliates of the originally
named defendants. The plaintiffs explain that the original complaint
"mistakenly alleged, due to a mistake in identities" that certain
American banks were underwriters for the bonds instead of their European
Baldly asserting a "mistake" in identity is insufficient to show that a
mistake actually occurred. To the extent that a defendant is listed in
the registration statement as an underwriter, an investor has adequate
notice of identity such that a conclusory assertion of mistake is
inadequate. The Ohio Action plaintiffs have not shown that they
misapprehended the identities of the entities they wished to sue. As a
consequence, to the extent an entity was listed as an underwriter in the
registration statement for the May 2001 Bond Offering, the failure to
name that entity in the original pleading must be considered a matter of
choice, not mistake.
Nor can the plaintiffs rely on the fact that other pleadings in the
Securities Litigation may have named one or more of these defendants in a
timely filed pleading. The plaintiffs' decision
in such circumstances to omit them from their own timely filed pleading
is further evidence that it was a matter of choice, and not mistake.
McKowan Lowe & Co. v. Jasmine, Ltd., 295 F.3d 380, 384-85 (3d Cir.
2002), does not assist the plaintiffs. McKowan addressed the issue of
whether American Pipe tolling permitted the substitution of a new class
The defendants' motion to dismiss with prejudice certain Securities Act
claims is granted in part. Counsel for the Underwriter Defendants shall
submit a proposed order conforming to the rulings in the Opinion.