In re Frontier Commc'ns, Corp.

In re FRONTIER COMMUNICATIONS, CORP. STOCKHOLDERS LITIGATION

No. 3:17-cv-1617 (VAB)

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

March 8, 2019

RULING AND ORDER ON MOTIONS TO DISMISS

On April 30, 2018, Arkansas Teacher Retirement System ("ATRS") and Carlos Lagomarsino ("Mr. Lagomarsino" or, in conjunction with ATRS, "Lead Plaintiffs"), filed an amended class action Complaint ("Am. Class Compl.") on behalf of shareholders who "purchased or otherwise acquired the publicly traded common stock of Frontier Communications Corporation ("Frontier") between February 6, 2015 and February 28, 2018, inclusive ("Class Period"); and/or (ii) purchased or otherwise acquired Frontier common stock or Mandatory Convertible Preferred Stock (collectively, "Frontier Securities") either in or traceable to the Company's offerings of common and preferred stock conducted on or about June 2, 2015 and June 8, 2015." Consol. Class Action Compl. for Violations of the Federal Securities Laws ("Am. Class Compl."), ECF No. 134 ¶ 1.¹

Lead Plaintiffs are suing numerous Defendants, described below, for violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. §§ 77k, 77l(a)(2), and 77(o); Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a); and Rule 10b-5 of The Securities and Exchange Commission ("SEC"), 17 C.F.R. § 240.10b-5. Am. Class Compl. ¶¶ 1, 12.

Defendants have moved to dismiss the case, arguing that Plaintiffs have failed to: (1) state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6); (2) satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), and 15 U.S.C. §§ 77k, 77l(a)(2), 77o, 78t(a), 78u-4(b)(1)(A-B), 78u-4(b)(2)(A), 78u-4(b)(4); or (3) file this lawsuit within the statute of limitations period imposed by 15 U.S.C. § 77m and 28 U.S.C. § 1658(b)(1). Notice of Defs. Mot. to Dismiss the Consol. Class Action Compl., ECF No. 143, 146; Mem. of Law in Support of Defs. Mot. to Dismiss the Consol. Class Action Compl. ("Def. Mem. of Law"), ECF No. 144.

For the reasons set forth below, the Court now GRANTS Defendants' motions to dismiss, ECF Nos. 143, 146.

To the extent that the deficiencies in this ruling can be addressed, Plaintiffs may file a motion for leave to amend the Amended Class Action Complaint, along with a proposed amended pleading, by May 10, 2019.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Allegations

This lawsuit focuses on Frontier's planned acquisition of Verizon's California, Texas, and Florida wireline operations ("CTF Acquisition") and related efforts to raise capital in 2015-16. See e.g., Am. Class Compl. ¶ 2; Def. Mem. of Law at 2.²

1. The Defendants

Plaintiffs have sued three groups of Defendants: (1) the Frontier Defendants, (2) Additional Securities Act Defendants, and (3) the Underwriter Defendants.

a. The Frontier Defendants

Plaintiffs allege violations of Section 10(b) of the Exchange Act, SEC Rule 10b-5, and Section 11 of the Securities Act, against Frontier, a Delaware corporation based in Connecticut, Am. Class Compl. ¶ 18, and violations of Section 10(b) of the Exchange Act, SEC Rule 10b-5, and 20(a) of the Exchange Act against five corporate officers (together with Frontier, "the Frontier Defendants"):

• Mary Agnes Wilderotter ("Ms. Wilderotter"), who allegedly served as Frontier's Chief Executive Officer ("CEO") from November 2004 to April 2015, and as a member of the Company's Board of Directors "at all relevant times until April 2016," id. ¶ 19, and as the Company's Executive Chairman from April 2015 to April 2016, id.;

• Daniel J. McCarthy ("Mr. McCarthy"), who allegedly served as Frontier's Executive Vice President ("EVP") and Chief Operating Officer ("COO") from January 2006 to April 2012, as Frontier's President and COO from April 2012 to April 2015, as Frontier's President and CEO from April 3, 2015 to the present, and as a member of Frontier's Board of Directors during all relevant times, id. ¶ 20;

• John M. Jureller ("Mr. Jureller"), who allegedly served as the company's EVP and Chief Financial Officer ("CFO") from January 2013 to November 4, 2016, id. ¶ 21;

• Ralph Perley McBride ("Mr. McBride"), who allegedly served as Frontier's CFO from November 4, 2016 through the end of the class period, id. ¶ 22; and

• John Gianukakis ("Mr. Gianukakis"), who allegedly served as Frontier's Vice President and Treasurer from May 27, 2014 to April 2017, id. ¶ 23.

Mr. Jureller, Mr. McCarthy, and Ms. Wilderotter allegedly filed false statements with the SEC. ¶¶ 293-296.

b. Additional Securities Act Defendants

Eleven additional individual Defendants allegedly violated Sections 11 and 15 of the Securities Act:

• Donald W. Daniels ("Mr. Daniels"), who allegedly served as Frontier's Executive Chairman from April 2015 to April 2016, id. ¶ 295;

• Leroy T. Barnes, Jr. ("Mr. Barnes"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 296;

• Peter C.B. Bynoe ("Mr. Bynoe"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 297;

• Diana S. Ferguson ("Ms. Ferguson"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 298;

• Edward Fraioli ("Mr. Fraioli"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 299;

• Pamela D.A. Reeve ("Ms. Reeve"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 300;

• Virginia Ruesterholz ("Ms. Ruesterholz"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 301;

• Howard L. Schrott ("Mr. Schrott"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 302;

• Larraine D. Segil ("Ms. Segil"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 303;

• Mark Shapiro ("Mr. Shapiro"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 304; and

• Myron A. Wick, III ("Mr. Wick"), who allegedly served as a member of Frontier's Board of Directors at all relevant times, id. ¶ 305.

c. The Underwriter Defendants

Ten underwriter Defendants also allegedly violated Sections 11 and 12(a)(2)of the Securities Act:

• J.P. Morgan Securities LLC ("J.P. Morgan"), allegedly a Delaware limited liability company (LLC) with headquarters in New York, New York. J.P. Morgan was allegedly paid at least $37,500,000 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 310; • Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill"), allegedly a Delaware corporation with a principal place of business in New York, New York. Merrill was allegedly paid at least $9,187,500 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 311;

• Citigroup Global Markets Inc. ("Citigroup"), allegedly a New York corporation with a principal place of business in New York, New York. Citigroup was allegedly paid at least $9,187,500 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 312;

• Credit Suisse Securities USA LLC ("Credit Suisse"), allegedly a Delaware LLC with headquarters in New York, New York. Credit Suisse was allegedly paid at least $3,525,000 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 313;

• Barclays Capital Inc. ("Barclays"), allegedly a Connecticut corporation with headquarters in New York, New York. Barclays was allegedly paid at least $3,525,000 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 314;

• Morgan Stanley & Co. LLC ("Morgan Stanley"), allegedly a Delaware LLC with headquarters in New York, New York. Morgan Stanley was allegedly paid at least $3,525,000 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 315;

• Mizuho Securities USA LLC ("Mizuho"), allegedly a Delaware corporation with headquarters in New York, New York. Mizuho was allegedly paid at least $3,525,000 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 316;

• Deutsche Bank Securities Inc. ("Deutsche Bank"), allegedly a Delaware corporation with headquarters in New York, New York. Deutsche Bank was allegedly paid at least $3,187,500 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 317;

• Goldman Sachs & Co. LLC ("Goldman Sachs"), allegedly a New York LLC with headquarters in New York, New York. Goldman Sachs was allegedly paid at least $918,750 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 318; and

• UBS Securities LLC ("UBS"), allegedly a Delaware corporation with headquarters in New York, New York. UBS was allegedly paid at least $918,750 for services in connection with the Offerings described below, plus additional fees in connection with its purchases of overallotment Frontier stock, id. ¶ 319.

2. Relevant Events Leading up to the CTF Acquisition Announcement

In July 2010, Frontier "embarked on what was then [allegedly] the Company's largest purchase to date: the 2010 Verizon Acquisition. The . . . Acquisition tripled Frontier's size by adding nearly...