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In re Adelphia Communications Corporation Securities and Derivative Litigation

December 22, 2009

IN RE ADELPHIA COMMUNICATIONS CORPORATION SECURITIES AND DERIVATIVE LITIGATION


The opinion of the court was delivered by: McKENNA, D.J.

THIS DOCUMENT RELATES TO

No. 03 MDL 1529 (LMM)

MEMORANDUM AND ORDER

This action -- AIG DKR SoundShore Holdings, Ltd., et al. v. Scientific-Atlanta, Inc., Motorola, Inc., Wallace Haislip and Julian Eidson (05 Civ. 4055) -- was filed in the Superior Court of Fulton County, Georgia, removed to the United States District Court for the Northern District of Georgia, and transferred to this district for inclusion in the above-identified multidistrict litigation.*fn1

Adelphia Communications Corporation ("Adelphia") was a provider of cable television. The corporate defendants, Scientific-Atlanta, Inc. ("SA") and Motorola, Inc. ("Motorola") manufactured cable converters (set top boxes) necessary for cable customers to watch cable programming.*fn2 Adelphia, SA and Motorola entered into arrangements described as follows in the Complaint:

Beginning in 2000, Adelphia hatched a scheme to inflate the earnings reported on its financial statements. The conspiracy involved [SA] and Motorola engaging in a series of 'wash' transactions with Adelphia to generate artificial revenue. Specifically, [SA] and Motorola overcharged Adelphia for equipment and 'washed' the overcharges by paying the same amounts back to Adelphia for fictional 'marketing support' services. The 'marketing support' revenue was recognized by Adelphia immediately but was not offset by the increased equipment expense which was amortized into the future. Thus, Defendants conspired with Adelphia to enhance the appearance of its current financial performance. (Complaint, ¶ 1.)*fn3 Plaintiffs are purchasers of Adelphia securities.

The complaint alleges claims for (i) common law fraud, (ii) conspiracy to defraud, and (iii) punitive damages and attorneys' fees.

Defendants move for dismissal on a variety of grounds: that the claims are preempted by the Securities Litigation Uniform Standards Act ("SLUSA"), 15 U.S.C. § 78bb(f); that the claims are barred by limitations; that plaintiffs have failed to allege claims on which relief can be granted, and, further, have failed to plead with the particularity required by Fed. R. Civ. P. 9(b); and that plaintiffs have failed to join Adelphia, an indispensable party under id. 12(b)(7) and 19.

On a motion for dismissal under id. 12(b)(6), a court must accept all non-conclusory factual allegations as true, and may consider documents incorporated into the complaint by reference; "the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient 'to raise a right to relief above the speculative level.'" ATSI Commc'ns, Inc. v. The Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (footnote omitted)). Rule 9(b) requires that, "[i]n alleging fraud . . . a party must state with particularity the circumstances constituting fraud. . . ." Id. "Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Id.

Plaintiffs' claims are not preempted by SLUSA for substantially the reasons set forth in the LACERA Order, 2009 WL 2407835 *2.

Adelphia is not an indispensable party for the reason set forth in the LACERA Order. Id.

Defendants argue that this Court should dismiss the complaint as barred by the former one/three year statue of limitations applicable to claims under the federal securities laws. (Motorola Mem. at 6-8; SA Mem. at 6 (adopting Motorola argument).) Plaintiffs' claims, however, are not brought under any federal law, and the limitation period urged is not applicable here.

In a multidistrict case, "a federal court ruling upon questions of state law [is required] to apply the same state substantive law, including choice-of-law rules, that would have been applied by a state court in the jurisdiction in which a case ...


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