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In re WorldCom

March 22, 2006

04 CIV. 0232 (DLC)

The opinion of the court was delivered by: Denise Cote, District Judge


This Opinion requires a prediction as to whether Georgia's highest court would recognize an action brought by a holder of publicly traded securities. Defendant Citigroup Global Markets, Inc. f/k/a Smith Barney Co. ("Citigroup") has moved to dismiss the action brought under Georgia common law by William Moxley and Teresa Moxley (the "Moxleys") following the collapse of WorldCom, Inc. ("WorldCom"). Finding that Georgia would join the majority view rejecting claims brought under the common law by holders of publicly traded securities, the case is dismissed.


On June 25, 2002, WorldCom announced a massive restatement of its financials. Shortly thereafter it filed for bankruptcy. Even before WorldCom announced its financial restatement, litigation had been filed in the Southern District of New York alleging that WorldCom had violated federal securities laws. That litigation was assigned to this Court. In the months following WorldCom's restatement, multiple lawsuits were filed alleging violations of both federal and state laws. Those actions filed in state courts were removed as "related to" WorldCom's bankruptcy. Actions outside this district were then transferred to this Court by the Judicial Panel on Multi-District Litigation ("MDL Panel").

This Court consolidated all class actions by Order dated August 15, 2002 ("Class Action"). By Order dated December 23, 2002, the Court determined that all individual actions ("Individual Actions") and the Class Action involved common questions of law and fact and that they should be consolidated for pretrial purposes. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288(DLC), 2002 WL 31867720 at *1 (S.D.N.Y. Dec. 23, 2002). The consolidated WorldCom securities litigation is referred to as the Securities Litigation.

Beginning in the fall of 2003, the defendants in the Securities Litigation began to bring waves of motions to dismiss the Individual Actions.*fn2 The third tranche in the motions to dismiss was filed beginning on November 5, 2004. That set of motions includes the instant motion to dismiss the Moxleys' complaint.

The Moxley Action

The Moxleys filed their complaint in the state court of Fulton County, Georgia on September 30, 2003, more than a year after WorldCom's dramatic announcement of its restatement. An amended complaint was filed on October 16, 2003. The amended complaint is the pleading to which the motion to dismiss is addressed and is referred to hereinafter as the Complaint. On November 19, 2003, the defendant removed the action to the United States District Court for the Northern District of Georgia. The action was then transferred by the MDL Panel to this Court on January 8, 2004, and consolidated for pretrial proceedings with the Securities Litigation.

Fact discovery of all defendants in the Securities Litigation ended on July 9, 2004. On August 6, 2004, the Moxley plaintiffs sent a letter to the Court inquiring whether they would have the opportunity to take the depositions of Mark Daner ("Daner") and William Bennet ("Bennet"). This request was denied because the plaintiffs had not complied with the Court's scheduling order concerning discovery and had not provided a sufficient explanation for failing to do so. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2004 WL 1836999 (S.D.N.Y. Aug. 17, 2004).

The following facts are taken from the Complaint. William C. Moxley is a former employee of WorldCom. He began working for the telecommunications company MCI in 1995, and became an employee of WorldCom when MCI and WorldCom merged in 1997. He no longer worked for WorldCom at the time he filed this action. Teresa O. Moxley is Mr. Moxley's wife. She began working for MCI in 1994, and became a WorldCom employee after the merger. She was still a WorldCom employee as of the filing of the lawsuit.

Between 1997 and 2000, the Moxleys purchased WorldCom securities through their 401(k) accounts and Mr. Moxley also purchased shares of WorldCom stock for his personal investment account. In addition, in 1996, 1997 and 1998, Mr. Moxley was granted WorldCom stock options as part of the WorldCom Employee Stock Option Plan. All of the options were vested by February 4, 2000. As of July 2000, the value of WorldCom stock "had decreased substantially" from its peak in June of 1999, but the exercise prices for Mr. Moxley's options were still below the price at which WorldCom stock was trading.

In July 2000, Mr. Moxley was invited to attend a luncheon sponsored by Smith Barney & Co., Inc. ("Smith Barney"). In choosing to attend, Mr. Moxley was "primarily" seeking advice on whether it was prudent to exercise his options and use the proceeds of a sale of WorldCom shares to diversify his portfolio. He was also seeking advice on whether to sell the other WorldCom shares he and his wife owned. He does not identify Smith Barney as their broker. During the luncheon Mr. Moxley met with two financial consultants employed by Smith Barney, Daner and Bennet, who offered to provide him with a document called a retirement planner ("Planner") that would advise the Moxleys on future investment decisions. The Moxleys received the Planner on July 20, 2000.

The plaintiffs allege that the Planner advised the Moxleys to hold all of their WorldCom options and shares for a period of at least three years. They further allege that based on the advice from the Planner they decided to forbear exercising their stock options and liquidating their WorldCom holdings.

The Planner, which is incorporated by reference into the Complaint, is a twenty-three page document that bears the following disclaimer ...

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