Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

IN RE LORAL SPACE & COMMUNICATIONS LTD.

February 23, 2004.

IN RE LORAL SPACE & COMMUNICATIONS LTD. SECURITIES LITIGATION, This document relates to: ALL ACTIONS


The opinion of the court was delivered by: JOHN KOELTL, District Judge

OPINION and ORDER

This action is based upon an amended consolidated class action complaint alleging violations of the federal securities laws arising out of allegedly false and misleading public statements made by the defendant, Loral Space & Communications Ltd. ("Loral"), a Bermuda company, regarding the performance and financial condition of Globalstar, L.P. ("Globalstar"), a telecommunications company in which Loral had heavily invested. The lead plaintiff, Joe F. Moore, Jr., sues on behalf of himself and others (the "plaintiffs") who purchased shares of Loral stock between November 4, 1999 and April 2, 2001 (the proposed "class period"). The plaintiffs assert claims against Loral; Bernard L. Schwartz ("Schwartz"), the Chief Executive Officer and Chairman of the Board of Directors of both Loral and Globalstar; and Richard L. Townsend ("Townsend"), the Chief Financial Officer and Senior Vice-President of Loral and Chief Financial Officer of Globalstar (collectively, the "defendants"). Page 2

This action originated out of a series of individual lawsuits that were consolidated pursuant to Federal Rule of Civil Procedure 42(a). In an order dated March 2, 2002, the Court designated Joe F. Moore, Jr., the lead plaintiff for the proposed class in the consolidated action pursuant to the procedures specified in § 21D of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78u-4 et seq.*fn1 The plaintiffs thereafter filed a Consolidated Class Action Complaint (the "Complaint") asserting (1) violations of § 10(b) of the Exchange Act, 15 U.S.C. § 78j (b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, against all defendants; and (2) violations of § 20(a) of the Exchange Act, 15 U.S.C. § 78t, against defendant Schwartz.

  The defendants moved to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on various grounds. The parties appeared before the Court on May 9, 2003 for argument on the motion to dismiss. At that conference, the plaintiffs requested leave to amend the Complaint. The Court granted leave to amend the Complaint within thirty days, and denied the motion to dismiss as moot without prejudice to renewal against any amended complaint.

  On June 9, 2003, the plaintiffs filed a Second Consolidated Class Action Complaint (the "Amended Complaint"). Defendants Schwartz and Townsend now move to dismiss the Amended Complaint Page 3 pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) as well as the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b) ("PSLRA").*fn2 The defendants contend that the plaintiffs have failed adequately to plead scienter, that many of the alleged misrepresentations or omissions are not actionable because they are forward-looking statements or mere corporate "puffery," that the plaintiffs cannot demonstrate reliance given the total mix of information about Globalstar in the marketplace, and that the plaintiffs have not adequately pleaded loss causation. Defendant Schwartz also moves to dismiss the § 20(a) control person liability claim on the grounds that the plaintiffs have failed to plead a primary violation of the securities laws.

  I

  On a motion to dismiss, the allegations in the complaint are accepted as true. See Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss, all reasonable inferences are drawn in the plaintiffs' favor. See Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court's function on a motion to dismiss is "not to weigh the Page 4 evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, the defendants' motion to dismiss should be granted only if it appears that the plaintiffs can prove no set of facts in support of their claim that would entitle them to relief. See Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 514 (2002); Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Grandon, 147 F.3d at 188; Goldman, 754 F.2d at 1065.

  In deciding the motion, the Court may consider documents that are referenced in the complaint, documents that the plaintiffs relied on in bringing suit and that are either in the plaintiffs' possession or the plaintiffs knew of when bringing suit, or matters of which judicial notice may be taken. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); Vtech Holdings Ltd. v. Lucent Techs., Inc., 172 F. Supp.2d 435, 437 (S.D.N.Y. 2001). "[W]hen a plaintiff chooses not to attach to the complaint or incorporate by reference a document upon which it relies and which is integral to the complaint, the court may nonetheless take the document into consideration in deciding the defendant[s'] motion to dismiss, without converting the proceeding to one for summary judgment." Int'l Audiotext Network, Inc. v. AT&T Co., Page 5 62 F.3d 69, 72 (2d Cir. 1995) (internal citation and quotation marks omitted); see Yucyco, Ltd. v. Republic of Slovenia, 984 F. Supp. 209, 215 (S.D.N.Y. 1997). Accordingly, the following facts alleged in the Amended Complaint are accepted as true for the purposes of this motion.

  Loral is a Bermuda exempt company with its principal executive offices in New York, New York. (Am. Compl. ¶ 13.) Loral is one of the world's leading satellite communication companies and has substantial activities in satellite manufacturing and satellite-based communication services. (Id.) Loral's satellite-related business includes acting, through a subsidiary, as the General Managing Partner of Globalstar, L.P. ("Globalstar"), which commenced operations in October 1999 and which owns and operates a global telecommunications network designed to serve virtually every populated area of the world. (Id.) As of November 9, 1999, Loral owned 43% of the equity of Globalstar. (Id.) As of December 31, 1999, Loral's total assets amounted to $5.6 billion. (Am. Compl. ¶ 10.)

  Bernard L. Schwartz was, at all relevant times, the Chief Executive Officer and Chairman of the Board of Directors of both Loral and Globalstar. (Am. Compl. ¶ 14.) Schwartz owned 2.5% of the common stock of Loral and 1.7% of the common stock of Globalstar. (Id.) Richard J. Townsend was, at all relevant times, Chief Financial Officer of both Loral and Globalstar, as well as Senior Vice President of Loral. (Am. Compl. ¶ 15.) Page 6

  Globalstar was founded by Loral and Qualcomm Incorporated ("Qualcomm") with the stated goal of owning and operating a satellite constellation network that would serve every populated area of the world. (Am. Compl. ¶ 29.) Globalstar mobile phones function as cellular phones where terrestrial cellular service is available, and, where cellular service is not available, they link up with the Globalstar network of low-earth orbit satellites. (Id.) Loral's business plan was to use the Globalstar system to provide a cost-effective communications solution for areas that were either underserved or not served by existing telecommunications infrastructure. (Id.)

  In 1995, Globalstar received an FCC license to construct and launch its satellite constellation network, and it began placing satellites in orbit in 1998. (Am. Compl. ¶ 30.) The Globalstar system of 48 satellites became operational in 1999, and full commercial service began in the first quarter of 2000. (Id.) The Globalstar system operates through a series of "gateways," each of which serves a large geographic area. (Am. Compl. ¶ 31.) The gateways consist of large antennas that relay calls between the satellites and local public telephone networks, as well as other equipment and software that keep the system operational. (Id.)

  The Globalstar system did not meet Loral's expectations, and Globalstar's poor performance contributed to Loral's net loss of $1,469,678,000 for the year 2000, which was reported in Page 7 Loral's 2000 Form 10-K filed on April 2, 2001. (Am. Compl. ¶¶ 104-105.) By April 3, 2001, the price of Loral stock had sunk to $1.15 per share, from about $18 per share at the beginning of the class period, which was also before the well publicized stock market decline in 2000. (Am. Compl. ¶¶ 11, 106.)

  The plaintiffs allege that during the class period, the defendants misled the investing public, including the plaintiffs, to believe that Globalstar was meeting or exceeding expectations, and that Globalstar was a viable investment and asset of Loral. (Am. Compl. ¶ 9.) The plaintiffs allege that the defendants made allegedly false and misleading statements concerning Globalstar in public interviews, press releases, and conference calls with investment analysts from November 1999 through January 2001. (See, e.g., Am. Compl. ¶¶ 36-37, 40, 42, 46, 61, 64-65, 69-70, 75, 76, 86, 89.) The plaintiffs also allege that the defendants made other allegedly false and misleading statements in Loral's Form 10-K for the year ended December 31, 1999, in Loral's Form 10-Q for the quarter ending March 31, 2000, in Loral's Form 10-Q for the quarter ended June 30, 2000, and in Loral's Form 10-Q for the quarter ending September 30, 2000. (See, e.g., Am. Compl. ¶¶ 53, 56-58, 62-63, 85, 99, 103.)

  The alleged misrepresentations and omissions relate to several broad categories of facts and circumstances concerning Loral and the performance of the Globalstar system. First, the Page 8 plaintiffs allege that the defendants consistently overstated and misrepresented the actual and projected number of subscribers to the Globalstar communications service, even though the defendants knew that Globalstar was falling short in its attempts to attract subscribers. (Am. Compl. ¶¶ 9, 33-36, 37a, 38-39, 43-45, 46a, 61, 64-65, 72-75, 88-89, 92, 108.) Second, the plaintiffs allege that the defendants failed to disclose in a timely fashion the difficulties Globalstar had encountered in rolling out numerous gateways, difficulties that included regulatory delays in some foreign countries and problems encountered in China, one of Loral's largest anticipated foreign markets. (Am. Compl. ¶¶ 36, 37b, 46b, 46c, 47, 67-69, 108-109.) Third, the plaintiffs allege that the defendants failed to disclose that Globalstar's success was affected by the growing market for cellular telephones. (Am. Compl. ¶¶ 10, 37c, 46b.) Fourth, the plaintiffs allege that adequate disclosures were not made with respect to the inability of the Globalstar system to support inter-gateway roaming, a problem which depressed customer demand and corporate revenues. (Am. Compl. ¶¶ 36, 37d, 44, 69, 108.) Fifth, the plaintiffs allege that in the aftermath of the bankruptcy of Iridium, another company in the space-based communications industry, the defendants misrepresented the differences between Globalstar and Iridium in order to mislead investors into thinking that Globalstar would not face a similar fate as Iridium. (Am. Page 9 Compl. ¶¶ 33, 35, 41-42, 48-49.) Sixth, the plaintiffs allege that Loral made misrepresentations about its intentions to continue to support and invest in Globalstar. (Am. Compl. ¶¶ 70, 86.) Finally, the plaintiffs allege that the defendants failed to recognize an impairment of Loral's investment in Globalstar in Loral's public financial statements until April 2001, a failure that the plaintiffs allege violated Loral's own accounting procedures as well as Generally Accepted Accounting Principles ("GAAP"), and a failure that the plaintiffs allege caused Loral's public filings with the SEC to be materially false and misleading. (Am. Compl. ¶¶ 7-8, 39-40, 53, 58-60, 62-63, 77, 82-85, 96-99, 103.)

  II

  The defendants contend that the plaintiffs' § 10(b) and Rule 10b-5 claim should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) because the plaintiffs have failed adequately to plead scienter pursuant to Federal Rule of Civil Procedure 9(b) and the PSLRA.

  Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b) provides in relevant part:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange —
  (b) To use or employ, in connection with the purchase or sale of any security registered on a national Page 10 securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
 Similarly, Rule 10b-5, promulgated under § 10(b) and codified at 17 C.F.R. § 240.10b-5, provides:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
  In order to state a claim brought pursuant to § 10b and Rule 10b-5, a plaintiff must allege sufficiently that "in connection with the purchase or sale of securities, the defendant, acting with scienter, made a false material representation or omitted to disclose material information and that the plaintiff's reliance on defendant's action caused [the plaintiff] injury." Rothman v. Gregor, 220 F.3d 81, 89 (2d Cir. 2000) (alteration in original) (citing Chill v. Gen. Elec. Co., 101 F.3d 263, 266 (2d Cir. 1996)); see also Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001) (citing San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., Page 11 75 F.3d 801, 808 (2d Cir. 1996)); Buxbaum v. Deutsche Bank, 196 F. Supp.2d 361, 372 (S.D.N.Y. 2002).

  In the context of securities fraud statutes, scienter "means intent to deceive, manipulate, or defraud, or at least knowing misconduct." SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1467 (2d Cir. 1996) (citations omitted); see also S.E.C. v. Todt, No. 98 Civ. 3980, 2000 WL 223836, at *9 (S.D.N.Y. Feb. 25, 2000), aff'd, 7 Fed. Appx. 98 (2d Cir. 2001). Scienter may be inferred from proof of "facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness" or from proof that a defendant had "both motive and opportunity to commit fraud." Rothman, 220 F.3d at 90; see also Kalnit, 264 F.3d at 138; Chill, 101 F.3d at 267. An "egregious refusal to see the obvious, or to investigate the doubtful, may in some cases give rise to an inference of . . . recklessness." Novak v. Kasaks, 216 F.3d 300, 308 (2d Cir. 2000) (quotations omitted).

  Moreover, allegations of securities fraud under § 10(b) and Rule 10b-5 are subject to Federal Rule of Civil Procedure 9(b) and the PSLRA's requirements regarding scienter. See 15 U.S.C. § 78u-4(b)(2); Chill, 101 F.3d 263, 266 (2d Cir. 1996); Acito v. Imcera Group, Inc., 47 F.3d 47, 52 (2d Cir. 1995); Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1127-28 (2d Cir. 1994). Under the PSLRA, "plaintiffs must state with particularity facts giving rise to a strong inference that the defendant acted with Page 12 the required state of mind," namely, the intent to "deceive, manipulate, defraud, or knowing misconduct." Press v. Chemical Inv. Servs. Corp., 166 F.3d 529, 537-38 (2d Cir. 1999). "The requisite `strong inference' of fraud may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Shields, 25 F.3d at 1128, quoted by Press, 166 F.3d at 538.

  The defendants argue that the plaintiffs have not pleaded scienter adequately under either of these two approaches.

  A

  The defendants first contend that the plaintiffs cannot raise a strong inference of fraud because the plaintiffs have failed to allege that the defendants had both motive and opportunity to commit fraud. In the Amended Complaint, the plaintiffs allege that the defendants were motivated to make material misrepresentations concerning Globalstar's financial condition because the viability of Loral depended on the success of Globalstar, and because the profitability of Globalstar was important to securing additional financing on favorable terms. (See, e.g., Am. Compl. ¶¶ 10-11, 32, 87.) In their papers opposing the motion to dismiss, the plaintiffs add a separate allegation that defendant Schwartz was motivated to commit the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.