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IN RE WORLDCOM

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 Page 3 Action"). For the following reasons, the motions are granted in part.

Background

  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. Page 4

  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 action.

  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 Page 5 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 reargue it.*fn1

  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. at Page 6 *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 Page 7 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 affiliates.

  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 Page 8 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 representative.

  Conclusion

  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.

  SO ORDERED.


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