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IN RE ADELPHIA COMMUNICATIONS SEC. AND DERIVATIVE LITIG.

August 16, 2005.

IN RE ADELPHIA COMMUNICATIONS CORPORATION SECURITIES AND DERIVATIVE LITIGATION. THIS MEMORANDUM AND ORDER APPLIES TO Consolidated Class Action Complaint, 03 Civ. 5750, 02 Civ. 9804, 03 Civ. 5789, 03 Civ. 7300, 03 Civ. 5751, 03 Civ. 5754, 03 Civ. 5772.


The opinion of the court was delivered by: LAWRENCE McKENNA, District Judge

MEMORANDUM AND ORDER

Defendants Erland E. Kailbourne ("Kailbourne"), Dennis Coyle ("Coyle"), Pete Metros ("Metros") (collectively the "Audit Committee Members"), and Leslie Gelber (collectively the "Outside Directors"), former members of the Adelphia Board of Directors, move to dismiss, on limitations grounds, certain claims in the Consolidated Class Action Complaint and in five individual actions, including: LACERA (03-CV-5750); NYCERS (03-CV-5789); N.J. Div. (03-CV-7300); Stocke, (03-CV-5772) (03-CV-5754); and Franklin (03-CV-5751).*fn1 For the reasons set forth below, the motion is granted in part and denied in part.*fn2 Background

A recitation of the allegations at issue is unnecessary, as they are substantially similar to those contained in the Consolidated Class Action Complaint (the "CCAC"), discussed in this Court's May 27, 2005 Memorandum and Order (the "May 27 Order"). In re Adelphia Communications Corp. Sec. & Deriv. Litig., No. 03 MD 1529, 2005 WL 1278544, at *1-4. (S.D.N.Y. May 31, 2005) Familiarity with the May 27 Order, as well as this Court's July 18, 2005 Memorandum and Order, 2005 WL 1679540 (S.D.N.Y. July 18, 2005) (the "July 18 Order"), is assumed. For purposes of clarity, this Court reiterates its finding in the July 18 Order that LACERA, NYCERS, Stocke, and Franklin are governed by one-year/three-year limitations framework, while N.J. Div. is governed by the two-year/five-year extended limitations framework. 2005 WL 1679540, at *2-4.

  Arguments Regarding the One-Year Limitations Period

  The Outside Directors move to dismiss various claims under the one-year limitations period, including: a LACERA § 11 claim against Kailbourne and a § 18 claim against Audit Committee Members; a NYCERS § 18 claim against the Audit Committee Members; a Franklin § 11 claim against Kailbourne and a § 18 claim against the Audit Committee Members; § 10(b) and § 20(a) claims against the Outside Directors in Stocke; and a N.J. Div. § 18 claim against Audit Committee Members. (Global Motion at 1-2) 1. Inquiry Notice

  This Court previously found that plaintiffs in the CCAC and in the individual actions were on inquiry notice of their claims against lending bank and underwriter defendants as of June 2002, based on the issuance of storm warnings and the filing of Huff 1. 2005 WL 1278544, at *11; 2005 WL 1679540, at *5. That finding applies equally to claims against the Outside Directors, all of whom were members of the Adelphia board of directors during the relevant time period. See, e.g., Lentell v. Merrill Lynch & Co. Inc., 396 F.3d 161, 169 (2d Cir. 2005) (recognizing that, in the context of the one-year limitations period, directors are primary wrongdoers, not secondary or tertiary wrongdoers).

  2. Tolling the Limitations Period

  The relevant plaintiffs have alleged that they investigated the basis for their claims. 2005 WL 1679540, at *5 & n. 17; LACERA Am. Compl. at 1; N.J. Div. Am. Compl. at 1-2; Franklin Am. Compl. at 1. However, they do not argue that the limitations period was tolled during those investigations in order to permit their discovery of essential, and previously unknown, facts underlying their claims against the Outside Directors. Even if that argument had been made, it would have been unsuccessful, as plaintiffs do not point to any essential facts which they discovered in the course of their investigations and which could not have been discovered earlier. 2005 WL 1679540, at *5. 3. Timeliness of the Challenged Claims

  All the claims being challenged under the one-year limitations period were first asserted in amended pleadings filed on December 22, 2003.*fn3 Because the relevant plaintiffs were on inquiry notice of their claims as of June 2002, eighteen months before the claims were first asserted, all of the aforementioned claims are time-barred under the one-year limitations period, with the exception of the § 18 N.J. Div. claim against Audit Committee Members. As discussed, supra, the N.J. Div. claim is governed by the two-year extended limitations period. Because N.J. Div. claim was filed less than two-years after inquiry notice was triggered, the claim is timely.

  4. Leave to Replead

  As discussed, the relevant plaintiffs did not argue that there are facts, essential to their claims against the Outside Directors, which they discovered during their investigations and which could not have been discovered earlier. However, it is not entirely impossible that plaintiffs could allege the existence of such facts. Thus, LACERA, NYCERS, Franklin, and Stocke are granted leave to replead facts sufficient to demonstrate that the one-year limitations period was tolled during their investigations. Leave to replead is granted in the same manner and with identical limitations as was granted in the May 27 Order. 2005 WL 1278544, at *14.

  Arguments Regarding the Three-Year Limitations Period

  1. LACERA

  a. Section 11 Claim Against Kailbourne

  The § 11 claim against Kailbourne is based on the contents of a "May 1999 Registration Statement," a shelf registration statement.*fn4 (LACERA Am. Compl. ¶¶ 345, 351) That registration statement governed three securities transactions, the "November 2009 Bonds," the "2010 Bonds," and the "2011 Bonds." (Id. at ¶¶ 66, 345) The November 2009 Bonds were also issued pursuant to a prospectus filed on November 12, 1999, and the 2010 Bonds, pursuant to a prospectus filed on September 18, 2000. (Id. ¶¶ 73, 87) Because the § 11 claim was filed in December 2003 (LACERA Opp'n at 30), more than three-years after the the effective date of the documents governing the November 2009 Bonds and the 2010 Bonds, the claim is untimely as to both of those transactions. However, the claim is timely as to the 2011 Bonds. That is so because ...


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