CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 1 of 54
`
`UNITED STATES DISTRICT COURT
`DISTRICT OF MINNESOTA
`
`IN RE: CENTURYLINK SALES
`PRACTICES AND SECURITIES
`LITIGATION
`
`This Document Relates to:
`
`Civil Action No. 18-296 (MJD/KMM)
`
`Patrick E. Gibbs, CA Bar No. 183174
`COOLEY LLP
`3175 Hanover Street
`Palo Alto, CA 94304
`Telephone: (650) 843-5535
`Facsimile: (650) 618-0387
`pgibbs@cooley.com
`
`Sarah Lightdale, NY Bar No. 4395661
`COOLEY LLP
`55 Hudson Yards
`New York, NY 10001
`Telephone: (212) 479-6374
`Facsimile: (212) 479-6275
`slightdale@cooley.com
`
`Ryan Blair, CA Bar No. 246724
`COOLEY LLP
`4401 Eastgate Mall
`San Diego, CA 92121
`Telephone: (858) 550-6047
`Facsimile: (858) 527-2750
`rblair@cooley.com
`
`MDL No. 17-2795 (MJD/KMM)
`
`DEFENDANTS’ MEMORANDUM
`OF LAW IN OPPOSITION
`TO PLAINTIFFS’ MOTION FOR
`CLASS CERTIFICATION AND
`APPOINTMENT OF CLASS
`REPRESENTATIVES AND CLASS
`COUNSEL
`
`Oral Argument Requested
`
`Douglas P. Lobel, VA Bar No. 42329
`David A. Vogel, VA Bar No. 48971
`Dana A. Moss, VA Bar No. 80095
`COOLEY LLP
`Reston Town Ctr., 11951 Freedom Dr.
`Reston, Virginia 20190-5656
`Telephone: (703) 456-8000
`dlobel@cooley.com
`dvogel@cooley.com
`dmoss@cooley.com
`
`William A. McNab, MN Bar No. 320924
`Thomas H. Boyd, MN Bar No. 0200517
`WINTHROP & WEINSTINE, P.A.
`225 South Sixth Street, Suite 3500
`Minneapolis, MN 55402
`Telephone: (612) 604-6400
`wmcnab@winthrop.com
`tboyd@winthrop.com
`
`Jerry W. Blackwell, MN Bar No. 186867
`BLACKWELL BURKE P.A.
`431 South 7th Street, Suite 2500
`Minneapolis, MN 55415
`Telephone: (612) 343-3200
`blackwell@blackwellburke.com
`
`Counsel for Defendants
`
`

`

`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 2 of 54
`
`TABLE OF CONTENTS
`
`Page
`RELEVANT BACKGROUND .......................................................................................... 4
`I.
`THE PARTIES AND THE PUTATIVE CLASS ........................................ 4
`II.
`THE ALLEGED MISREPRESENTATIONS ............................................. 5
`III.
`THE ALLEGED CORRECTIVE DISCLOSURES ..................................... 6
`STANDARD OF REVIEW ................................................................................................ 7
`ARGUMENT ...................................................................................................................... 9
`I.
`PLAINTIFFS CANNOT SATISFY THE RULE 23(B)(3)
`PREDOMINANCE REQUIREMENT BECAUSE INDIVIDUAL
`QUESTIONS OF RELIANCE OVERWHELM QUESTIONS
`COMMON TO THE CLASS ....................................................................... 9
`A.
`PLAINTIFFS CANNOT PROVE CLASS-WIDE
`RELIANCE WITH THE BASIC PRESUMPTION .......................... 9
`1.
`THE BASIC PRESUMPTION CAN BE REBUTTED
`BY THE PRODUCTION OF EVIDENCE OF NO
`“FRONT-END” OR “BACK-END” PRICE
`CHANGES ............................................................................. 9
`THE EVIDENCE SHOWS NO “FRONT-END”
`PRICE IMPACT .................................................................. 12
`a.
`Almost Universally, the Alleged Misstatements
`Did Not Inflate the Price of CenturyLink Stocks...... 12
`Plaintiffs Cannot Demonstrate Front-End Price
`Impact by Reference to Four of the 52 At-Issue
`Dates .......................................................................... 13
`In Light of the Undisputed Evidence, Plaintiffs
`Cannot Credibly Argue All Alleged
`Misrepresentations “Maintained” the Prices ............. 14
`THE EVIDENCE ALSO SHOWS NO “BACK-END”
`PRICE IMPACT .................................................................. 16
`a.
`The Allegedly “Corrective” Disclosures
`Revealed Nothing More than the Fact of
`Litigation ................................................................... 16
`
`2.
`
`3.
`
`b.
`
`c.
`
`-i-
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`

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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 3 of 54
`
`TABLE OF CONTENTS
`(continued)
`
`Page
`
`b.
`
`The June 19 Disclosure Did Not Cause a
`Material Drop in the Price of CenturyLink
`Stock .......................................................................... 18
`PLAINTIFFS CANNOT PROVE CLASS-WIDE
`RELIANCE WITH THE AFFILIATED UTE
`PRESUMPTION ............................................................................. 19
`1.
`DEFENDANTS DID NOT HAVE A DUTY TO
`DISCLOSE ........................................................................... 19
`PLAINTIFFS CANNOT TURN A CASE ABOUT
`AFFIRMATIVE MISREPRESENTATIONS INTO A
`CASE ABOUT OMISSIONS .............................................. 21
`PLAINTIFFS HAVE NOT OFFERED A DAMAGES
`METHODOLOGY THAT IS COMMON TO THE PUTATIVE
`CLASS AND CONSISTENT WITH THEIR LIABILITY THEORY ...... 23
`A.
`PREDOMINANCE REQUIRES PROOF THAT CLASS-
`WIDE DAMAGES CAN BE MEASURED IN A WAY
`THAT IS CONSISTENT WITH PLAINTIFFS’ LIABILITY
`CASE ............................................................................................... 23
`PLAINTIFFS’ EXPERT FAILS TO IDENTIFY A
`DAMAGES MODEL WITH THE SPECIFICITY
`REQUIRED BY COMCAST ........................................................... 25
`PLAINTIFFS’ EXPERT FAILS TO SHOW HOW HIS
`“OUT-OF-POCKET METHOD” COULD BE APPLIED IN
`A WAY THAT IS CONSISTENT WITH PLAINTIFFS’
`LIABILITY CASE .......................................................................... 29
`HALLIBURTON I DOES NOT CHANGE PLAINTIFFS’
`BURDEN UNDER COMCAST ...................................................... 32
`III. OREGON DOES NOT MEET THE TYPICALITY OR
`ADEQUACY REQUIREMENTS OF RULE 23(A)(3) AND (A)(4) ........ 33
`A.
`THROUGHOUT THE CLASS PERIOD, OREGON HAD
`UNIQUE ACCESS TO INFORMATION AND AN
`OPPORTUNITY TO UNCOVER THE ALLEGED FRAUD ....... 34
`
`B.
`
`2.
`
`II.
`
`B.
`
`C.
`
`D.
`
`-ii-
`
`
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`

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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 4 of 54
`
`TABLE OF CONTENTS
`(continued)
`
`Page
`
`B.
`
`C.
`
`OREGON CONTINUED PURCHASING CENTURYLINK
`SECURITIES EVEN AFTER LEARNING OF THE
`ALLEGED FRAUD ........................................................................ 36
`OREGON DID NOT IN FACT RELY ON ANY OF THE
`ALLEGED MISSTATEMENTS OR OMISSIONS ....................... 38
`EVEN IF A CLASS CAN BE CERTIFIED, THE COURT
`SHOULD SHORTEN THE CLASS PERIOD........................................... 40
`A.
`THE JUNE 16, 2017, BLOOMBERG ARTICLE FULLY
`DISCLOSED ALLEGATIONS OF CENTURYLINK’S
`FRAUD TO THE MARKET .......................................................... 41
`THE JUNE 19 ARTICLE AND JULY 12
`ANNOUNCEMENT PROVIDED NO ADDITIONAL
`INFORMATION TO THE MARKET ............................................ 42
`CONCLUSION ................................................................................................................ 44
`
`IV.
`
`B.
`
`-iii-
`
`
`
`

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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 5 of 54
`
`TABLE OF AUTHORITIES
`
`Cases
`
`Page(s)
`
`Affiliated Ute Citizens of Utah v. United States,
`406 U.S. 128 (1972) .............................................................................................. passim
`
`Alaska Elec. Pension Fund v. Pharmacia Corp.,
`No. 03-cv-1519, 2007 WL 276150 (D.N.J. Jan. 25, 2007) .......................................... 42
`
`In re Am. Italian Pasta Co. Sec. Litig.,
`No. 05-cv-0725, 2007 WL 927745 (W.D. Mo. Mar. 26, 2007) ............................ 42, 43
`
`In re Apollo Grp., Inc. Sec. Litig.,
`No. 04-cv-2147, 2008 WL 3072731 (D. Ariz. Aug. 4, 2008) ..................................... 44
`
`Ark. Teachers Ret. Sys. v. Goldman Sachs Grp., Inc.,
`879 F.3d 474 (2d Cir. 2018) ......................................................................................... 16
`
`Basic Inc. v. Levinson,
`485 U.S. 224 (1988) .............................................................................................. passim
`
`Beaver Cty. Emps’ Ret. Fund v. Tile Shop Holdings, Inc.,
`No. 14-cv-786, 2016 WL 4098741 (D. Minn. 2016) ............................................. 20, 21
`
`Berwecky v. Bear, Stearns & Co.,
`197 F.R.D. 65 (S.D.N.Y. 2000) ................................................................................... 38
`
`In re BP p.l.c. Sec. Litig.,
`No. 10-MD-2185, 2013 WL 6388408 (S.D. Tex. Dec. 6, 2013) ........................... 25, 29
`
`Catogas v. Cyberonics,
`292 F. Appx. 311 (5th Cir. 2008) ................................................................................. 43
`
`Comcast Corp. v. Behrend,
`569 U.S. 27 (2013) ................................................................................................ passim
`
`In re Credit Suisse First Bos. Corp. (Lantronix Inc.) Analyst Sec. Litig.,
`250 F.R.D. 137 (S.D.N.Y. 2008) ............................................................... 13, 15, 16, 17
`
`Davidson v. Wilson,
`973 F.2d 1391 (8th Cir. 1992) ..................................................................................... 34
`
`

`

`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 6 of 54
`
`In re Domestic Drywall Anti. Litig.,
`No. 13-MD-2437, 2017 WL 3700999 (E.D. Pa. Aug. 24, 2017) .......................... 25, 29
`
`Ebert v. Gen. Mills, Inc.,
`823 F.3d 472 (8th Cir. 2016) ......................................................................................... 7
`
`Eckstein v. Balcor Film Investors,
`58 F.3d 1162 (7th Cir. 1995) ....................................................................................... 40
`
`In re Fed. Nat’l Mortg. 'Ass’n Secs., Derivative & ERISA Litig.,
`247 F.R.D. 32 (D.D.C. Jan. 7, 2008) ........................................................................... 42
`
`Ferreras v. Am. Airlines,
`946 F.3d 178 (3d Cir. 2019) ........................................................................................... 8
`
`Find-What Investor Grp. v. FindWhat.com,
`658 F.3d 1282 (11th Cir. 2011) ................................................................................... 10
`
`In re Finisar Corp. Sec. Litig.,
`No. 11-cv-01252, 2017 WL 6026244 (N.D. Cal. Dec. 5, 2017) ................................. 12
`
`In re GenesisIntermedia Sec. Litig.,
`232 F.R.D. 321 (D. Minn. 2015) ...................................................................... 33, 34, 38
`
`George v. China Auto. Sys., Inc.,
`No. 11-cv-7533, 2013 WL 3357170 (S.D.N.Y. 2013) ................................................ 37
`
`Halliburton Co. v. Erica P. John Fund, Inc.,
`573 U.S. 258 (2014) ................................................................................... 10, 11, 16, 41
`
`Hayes v. MagnaChip Semiconductor Corp.,
`No. 14-cv-01160, 2016 WL 7406418 (N.D. Cal. Dec. 22, 2016) ............................... 44
`
`IBEW Local 98 Pension Fund v. Best Buy Co., Inc.,
`818 F.3d 775 (8th Cir. 2016) ........................................................................... 10, 11, 15
`
`Jensen v. Thompson,
`No. 17-cv-4014, 2018 WL 1440329 (D.S.D. Mar. 22, 2018) ...................................... 20
`
`Joseph v. Wiles,
`223 F.3d 1155 (10th Cir. 2000) ................................................................................... 23
`
`Landry v. Price Waterhouse Chartered Accountants,
`123 F.R.D. 474 (S.D.N.Y. 1989) ................................................................................. 36
`
`- ii -
`
`

`

`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 7 of 54
`
`Laventhall v. Gen. Dynamics Corp.,
`704 F.2d 407 (8th Cir. 1983) ....................................................................................... 20
`
`Loritz v. Exide Techs.,
`No. 13-cv-02607, 2015 WL 6790247 (C.D. Cal. July 21, 2015) .................... 22, 25, 29
`
`Meyer v. Greene,
`710 F.3d 1189 (11th Cir. 2013) ................................................................................... 17
`
`In re Monsanto,
`493 B.R. 852 (Bankr. D.N.M. 2013) ........................................................................... 33
`
`In re Moody’s Corp. Sec. Litig.,
`274 F.R.D. 480 ............................................................................................................. 11
`
`In re NationsMart Corp. Sec. Litig.,
`130 F.3d 309 (8th Cir. 1997) ....................................................................................... 20
`
`Ohio Pub. Emps. Ret. Sys. v. Fed. Home Loan Mtg. Corp.,
`No. 08-cv-0160, 2018 WL 3861840 (N.D. Ohio Aug. 14, 2018) ......................... passim
`
`Postawko v. Mo. Dep’t of Corr.,
`910 F.3d 1030 (8th Cir. 2018) ................................................................................... 8, 9
`
`Rand–Heart of N.Y., Inc. v. Dolan,
`812 F.3d 1172 (8th Cir. 2016) ..................................................................................... 43
`
`Rocco v. Nam Thai Elecs, Inc.,
`245 F.R.D. 131 (S.D.N.Y. 2007) ................................................................................. 38
`
`Royal Park Invs. SA/NV v. Deutsche Bank Nat’l Trust Co.,
`No. 14-CV-4394, 2018 U.S. Dist. LEXIS 61457 (S.D.N.Y. Apr. 11,
`2018) ................................................................................................................ 24, 29, 32
`
`In re Safeguard Scientifics,
`216 F.R.D. 577 (E.D. Penn. 2003) ............................................................................... 38
`
`Schwab v. E*TRADE Fin. Corp.,
`285 F. Supp. 3d 745 (S.D.N.Y. 2018), aff’d 752 F. Appx 56 (2d Cir.
`2018) ............................................................................................................................ 22
`
`Schwab v. E*TRADE Fin. Corp.,
`752 F. Appx. 56 (2d Cir. 2018) .................................................................................... 21
`
`Shores v. Sklar,
`647 F.2d 462 (5th Cir. 1981) ................................................................................. 39, 40
`- iii -
`
`

`

`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 8 of 54
`
`Singleton v. Fifth Generation, Inc.,
`No. 5:15-CV-474, 2017 U.S. Dist. LEXIS 170415 (N.D.N.Y. Sept. 27,
`2017) ................................................................................................................ 24, 29, 32
`
`Stuart v. State Farm Fire & Cas. Co.,
`910 F.3d 371 (8th Cir. 2018) ......................................................................................... 8
`
`Teachers’ Ret. Sys. of La. v. Hunter,
`477 F.3d 162 (4th Cir. 2007) ....................................................................................... 17
`
`W. Va. Pipe Trades Health & Welfare Fund v. Medtronic, Inc.,
`325 F.R.D. 280 (D. Minn. 2018) ...................................................................... 21, 41, 42
`
`Wal-Mart Stores, Inc. v. Dukes,
`564 U.S. 338 (2011) ....................................................................................................... 8
`
`In re Zonagen, Inc. Sec. Litig.,
`322 F. Supp. 2d 764 (S.D. Tex. 2003) ......................................................................... 11
`
`Other Authorities
`
`Fed. R. Civ. P. 23(a)(1)-(4) ................................................................................................. 8
`
`Fed. R. Civ. P. 23(b)(3) .............................................................................................. passim
`
`Rule 10b–5 ......................................................................................................................... 10
`
`Rule 10b-5(b) ..................................................................................................................... 20
`
`Rule 23 ........................................................................................................................ passim
`
`Rule 23(a) .................................................................................................................. 7, 8, 33
`
`Rule 23(b) .................................................................................................................. 7, 8, 39
`
`- iv -
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`

`

`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 9 of 54
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`The Motion for Class Certification and Appointment of Class Representatives and
`
`Class Counsel (“Motion”) (Dkt. 188) should be denied because Plaintiffs1 have not met
`
`their burden of establishing that reliance and damages can be proven on a class-wide
`
`basis. In addition, the Motion should be denied because Oregon is an atypical and
`
`inadequate class representative; it is subject to unique defenses rarely present in securities
`
`litigation that will consume fact discovery and the trial of this case.
`
`Plaintiffs Cannot Prove Reliance on a Class-Wide Basis. Plaintiffs rest on two
`
`presumptions to prove reliance of the putative class members on the misstatements and
`
`omissions alleged in the Consolidated Securities Class Action Complaint (“Complaint” or
`
`“Compl.”) (Dkt. 143). Without these presumptions, Plaintiffs cannot show that common
`
`issues predominate over individual questions as required by Rule 23(b)(3) of the Federal
`
`Rules of Civil Procedure. Neither presumption applies here.
`
`Plaintiffs primarily rely on the “fraud-on-the-market” presumption. They allege
`
`that affirmative misrepresentations on 55 dates over a four-plus-year period directly
`
`affected the price of CenturyLink, Inc. (“CenturyLink”) common stock and 7.60% Senior
`
`Notes due September 15, 2039 (“Notes”), and thus the Court can presume, under Basic
`
`“Plaintiffs” are Lead Plaintiff the State of Oregon, by and through the Oregon
`1
`State Treasurer and the Oregon Public Employees Retirement Board, on behalf of the
`Oregon Public Employees Retirement Fund (“Oregon”), and Named Plaintiff Fernando
`Alberto Vildosola, as trustee for the AUFV Trust U/A/D 02/19/2009 (“Vildosola”).
`
`- 1 -
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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 10 of 54
`
`Inc. v. Levinson, 485 U.S. 224 (1988), that every putative class member relied on those
`
`statements. However, the facts rebut the presumption:
`
` On only four of the 52 dates for which Plaintiffs claim CenturyLink’s
`alleged misstatements affected the price of CenturyLink securities2 did the
`price of CenturyLink stock significantly increase;
`
` Plaintiffs’ expert has not established a statistically significant link between
`any alleged misrepresentations and changes in the price of CenturyLink
`stock and Notes, including for those four dates; and
`
` Plaintiffs’ expert has failed to establish that any of the three “corrective
`disclosures” actually “corrected” the alleged misrepresentations.
`
`Based on this evidence of lack of price impact, the Basic presumption is rebutted, and
`
`Plaintiffs must prove by a preponderance of the evidence that the alleged
`
`misrepresentations in fact inflated the price of CenturyLink common stock and Notes.
`
`For these same reasons, they cannot do so.
`
`Plaintiffs also claim a class-wide presumption of reliance on alleged omissions
`
`under Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972). But in this
`
`Circuit, the presumption arises only when the seller breached a clear duty to disclose
`
`information, generally in the context of face-to-face transactions. Plaintiffs have failed to
`
`identify a clear duty to disclose (even when asked through an interrogatory), and virtually
`
`all of the at-issue transactions were conducted on impersonal markets. Furthermore, the
`
`Affiliated Ute presumption does not apply to cases, like this one, that center on alleged
`
`affirmative misstatements as opposed to omissions.
`
`Plaintiffs allege CenturyLink made misstatements on 55 days, but the
`2
`misstatements in total could theoretically have affected the price of CenturyLink
`securities on only 52 trading days. See Blair Decl. Ex. 1 at ¶ 9 n.10.
`
`- 2 -
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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 11 of 54
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`Plaintiffs’ Damages Model is Not Connected to Their Liability Case. Plaintiffs
`
`have not shown that damages can be calculated on a class-wide basis, precluding
`
`certification under Rule 23(b)(3). Plaintiffs’ expert has opined that a common damages
`
`methodology could account for damages over the entire four-plus-year Class Period, but
`
`it is clear from his report and deposition that he has not done any work to show how he
`
`would or could calculate damages consistent with Plaintiffs’ theory of liability. His
`
`damages model—which is simply a calculation involving the subtraction of one number
`
`from another—fails to account for the theory of this case.
`
`Oregon is an Atypical and Inadequate Representative. Oregon is subject to unique
`
`non-reliance defenses that make it entirely different from all other putative class members:
`
` While it was purchasing CenturyLink securities, Oregon was conducting a
`law enforcement investigation of the alleged sales and billing practices it
`now claims CenturyLink concealed;
`
` Despite claiming to have learned about an alleged consumer fraud by
`CenturyLink in June 2017, Oregon inexplicably continued to purchase
`CenturyLink securities; and
`
` Oregon admits it did not read or review the documents containing the
`alleged misstatements and omissions prior to purchasing CenturyLink
`securities, and that doing so was not part of its investment strategy.
`
`Each of these issues raises significant questions about Oregon’s reliance on the alleged
`
`misrepresentations and omissions, which will distract from the claims of other putative
`
`class members during discovery and at trial.
`
`The Class Period Should End on June 16, 2017. Even if the Court certifies a
`
`class, the Class Period should end on June 16, 2017—not on July 12, 2017, as Plaintiffs
`
`propose. On June 16, Bloomberg published an article that revealed allegations of a
`
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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 12 of 54
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`consumer fraud by CenturyLink; Oregon itself testified that it was the day the “dam
`
`broke” and the “market underst[ood], as a whole, what was occurring.” Post-June 16,
`
`purchasers cannot prove reliance on a class-wide basis under Basic or Affiliated Ute,
`
`because after this date, the price of CenturyLink securities no longer reflected any of the
`
`misrepresentations or omissions alleged in the Complaint. Accordingly, if a class is to be
`
`certified (and it should not be), the Class Period must end on June 16, 2017.
`
`RELEVANT BACKGROUND
`
`I.
`
`THE PARTIES AND THE PUTATIVE CLASS
`
`CenturyLink is a Louisiana-based telecommunications company whose operating
`
`subsidiaries provide integrated services to enterprise and residential customers in the
`
`United States and abroad. Compl. at ¶¶ 28, 37. It is among the largest providers of
`
`communication services to enterprises. Id. at ¶ 37. The Executive Defendants3 held
`
`senior positions at CenturyLink during the Class Period. Id. at ¶¶ 29–34.
`
`Oregon alleges that it traded CenturyLink common stock throughout the Class
`
`Period. See id. at ¶ 26. Vildosola alleges that the AUFV Trust U/A/D 02/19/2009
`
`purchased 30,000 units of Notes on January 30, 2015. See id. at ¶ 27.
`
`Plaintiffs seek to certify the following class, subject to certain exclusions not
`
`relevant here:
`
`All persons and entities that purchased or otherwise acquired
`publicly traded CenturyLink common stock or 7.60% Senior
`
`The “Executive Defendants” are Defendants Glen F. Post, III, R. Stewart Ewing,
`3
`Jr., David D. Cole, Karen Puckett, Dean J. Douglas, and G. Clay Bailey, collectively.
`Together, CenturyLink and the Executive Defendants are referred to as “Defendants.”
`
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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 13 of 54
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`Notes due September 15, 2039, during the period between
`March 1, 2013 to July 12, 2017, inclusive (the “Class Period”),
`and who were damaged thereby (the “Class”).
`
`Plaintiffs’ Memorandum in Support of the Motion (“Mem.”) (Dkt. 190).
`
`II.
`
`THE ALLEGED MISREPRESENTATIONS
`
`Plaintiffs claim that CenturyLink routinely misquoted prices and improperly billed
`
`consumer and small business customers for services they did not request, a practice they
`
`describe as “cramming.” Compl. at ¶ 1. Plaintiffs further claim that CenturyLink and the
`
`Executive Defendants misled shareholders by “falsely attribut[ing] CenturyLink’s
`
`substantial revenue and subscriber growth in its consumer and small business segments to
`
`the Company’s focus on ‘customer needs’ and its ‘customer first’ sales approach,
`
`competitive ‘bundling’ marketing strategy, and strict adherence to the Company’s
`
`Unifying Principles: ‘fairness, honesty and integrity.’” Id. at ¶ 3. According to Plaintiffs,
`
`the revenue and subscriber growth in CenturyLink’s consumer and small business
`
`segments was, instead, driven entirely by the practices Plaintiffs refer to as “cramming.”
`
`Id. at ¶ 2.
`
`Plaintiffs allege that Defendants made false and misleading statements on 55
`
`different dates during the Class Period. Id. at ¶¶ 190–263 & App. A. Plaintiffs claim
`
`throughout their Complaint that Defendants “repeatedly” told investors false information
`
`and “touted” untrue facts about CenturyLink’s business model, strategy, revenue drivers,
`
`sales and billing practices, and culture. See id. at ¶¶ 15, 39, 40, 42, 48, 52, 54, 55, 58, 59,
`
`151, 185, 193, 195, 208, 226. Plaintiffs claim that these allegedly false statements were
`
`“critical” to investors. See id. at ¶¶ 3, 61.
`
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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 14 of 54
`
`III.
`
`THE ALLEGED CORRECTIVE DISCLOSURES
`
`Plaintiffs claim that investors learned the “truth” about CenturyLink’s cramming
`
`scheme through three corrective disclosures on June 16, June 19, and July 12, 2017. See
`
`id. at ¶¶ 152–171. Plaintiffs allege that each of these disclosures caused the price of
`
`CenturyLink common stock and the Notes to decline in a “statistically significant”
`
`manner. See id. at ¶¶ 154, 160, 171, 266.
`
`The evidence, however, does not support that these disclosures revealed a
`
`previously concealed “truth” about CenturyLink’s sales and billing practices or revenue
`
`trends. Most notably, not one of 14 leading market analysts lowered their target price
`
`estimates for CenturyLink in the week following the June 16 and June 19 disclosures.
`
`See Blair Decl. Ex. 1 at ¶ 115. The first analyst to lower its target price estimate for
`
`CenturyLink did so on June 29. See id. In fact, another analyst raised its target price
`
`estimate for CenturyLink two weeks after the alleged disclosures on July 5. See id.
`
`In their commentaries on the lawsuit after the June 16 and June 19 disclosures,
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`analysts specifically noted the decline in significance of CenturyLink’s consumer
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`segment, and they viewed this decline as weakening any potential impact of the news.
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`See id. at ¶¶ 117–22. Other analysts found the lawsuit to be a “mere distraction,” and
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`another noted that the subject of the June 16 disclosure—the reporting of a former
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`employee’s lawsuit alleging a “Wells Fargo-type” fraud at CenturyLink—would be
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`inconsequential for CenturyLink’s investors. See id.
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`Analysts were likewise dismissive of the alleged corrective disclosure on July 12,
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`2017. After this “disclosure,” analysts reiterated their opinion in June that a lawsuit filed
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`by the Minnesota Office of the Attorney General (“MNAG”) against CenturyLink should
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`have a “limited impact,” and that the issue had “been blown out of proportion in terms of
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`timing and possible financial relevance.” Id. at ¶ 126. Another analyst similarly noted
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`that the stock sell-off after the July 12 disclosure “looks overdone.” Id. at ¶ 127.
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`Finally, CenturyLink’s stock price did not move with or in response to specific
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`news related to the June 19 statement. Id. at ¶ 157. Although at least three news stories
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`discussing the lawsuits against CenturyLink were published over the weekend prior to
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`Monday, June 19, CenturyLink’s stock opened at the same price level as it closed on
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`Friday, June 16—and, in fact, increased right after the market opened. Id. at ¶ 158.
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`Furthermore, any major price declines on June 19 were not preceded by any news
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`releases. Id. at ¶ 159. Finally, the overall 1.4 percent decline in price on June 19 was not
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`unique to CenturyLink: at least one of CenturyLink’s main competitors had a greater
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`price decrease on the same day. Id. at ¶ 160. Thus, market factors, not the June 19
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`statement, were responsible for stock price changes.
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`STANDARD OF REVIEW
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`Plaintiffs “must meet all of the requirements of Rule 23(a) and must satisfy one of
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`three subsections of Rule 23(b).” Ebert v. Gen. Mills, Inc., 823 F.3d 472, 477 (8th Cir.
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`2016) (quotations omitted). Although the Court has broad discretion to certify a class, it
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`must conduct a “rigorous analysis” to determine whether the requirements have been met.
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`Postawko v. Mo. Dep’t of Corr., 910 F.3d 1030, 1036 (8th Cir. 2018).
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`Under Rule 23(a), Plaintiffs must prove that (1) the class is so numerous that
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`joinder of the putative class members is impractical; (2) there are questions of law or fact
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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 16 of 54
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`common to the class; (3) the claims or defenses of the representative parties are typical of
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`the claims or defenses of the class; and (4) the class representatives are able to represent
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`the class fairly and adequately. Fed. R. Civ. P. 23(a)(1)-(4); see Wal-Mart Stores Inc. v.
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`Dukes, 564 U.S. 338, 350 (2011) (“A party seeking class certification must affirmatively
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`demonstrate his compliance with the Rule—that is, he must be prepared to prove that
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`there are in fact sufficiently numerous parties, common questions of law or fact, etc.”).
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`Plaintiffs “must also satisfy through evidentiary proof at least one of the
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`provisions of Rule 23(b).” Comcast Corp. v. Behrend, 569 U.S. 27, 32 (2013). Here,
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`Plaintiffs have moved for certification under subsection (b)(3) of Rule 23, see Mem. at
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`13, which requires proof that “questions of law or fact predominate over any questions
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`affecting only individual members, and that a class action is superior to other available
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`methods for fairly and efficiently adjudicating the controversy.” Stuart v. State Farm
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`Fire & Cas. Co., 910 F.3d 371, 374–75 (8th Cir. 2018) (quoting Fed. R. Civ. P. 23(b)(3)).
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`Plaintiffs bear the burden of proving compliance with each Rule 23 requirement
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`by a preponderance of the evidence. See Dukes, 564 U.S. at 350 (“Rule 23 does not set
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`forth a mere pleading standard.”); Ferreras v. Am. Airlines, 946 F.3d 178, 184 (3d Cir.
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`2019) (“Rule 23 . . . requires a showing that each of the Rule 23 requirements has been
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`met by a preponderance of the evidence at the time of class certification.”). In
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`determining whether Plaintiffs have met their burden of proof, the Court is permitted to
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`consider merits questions to the extent “they are relevant in determining whether the Rule
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`23 prerequisites for class certification are satisfied.” Postawko, 910 F.3d at 1037.
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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 17 of 54
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`ARGUMENT
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`I.
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`PLAINTIFFS CANNOT SATISFY THE RULE 23(B)(3) PREDOMINANCE
`REQUIREMENT BECAUSE INDIVIDUAL QUESTIONS OF RELIANCE
`OVERWHELM QUESTIONS COMMON TO THE CLASS
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`Under the “rigorous analysis” standard, Plaintiffs have not proven that common
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`questions predominate over individual questions of reliance. Accordingly, Plaintiffs do
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`not meet the predominance criterion of Rule 23(b)(3), precluding certification of a class.
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`A.
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`Plaintiffs Cannot Prove Class-Wide Reliance with the Basic
`Presumption
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`In attempting to prove that each putative class member relied on each of the
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`alleged misstatements, Plaintiffs rely on the “fraud-on-the-market” presumption of
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`reliance established by Basic. See Mem. at 14–15. However, the movement of
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`CenturyLink’s stock and Note prices in response to the alleged misstatements and
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`corrective disclosures rebuts that presumption. In the face of this evidence, Plaintiffs
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`cannot carry their burden of proving that the fraud-on-the-market presumption applies in
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`this case and that the predominance requirement has been satisfied.
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`1.
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`The Basic Presumption Can Be Rebutted by the Production of
`Evidence of No “Front-End” or “Back-End” Price Changes
`
`To establish that every member of a putative class of investors “relied” on alleged
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`misstatements, courts may employ a class-wide presumption of reliance established by
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`Basic. See Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 281–82 (2014)
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`(“Halliburton II”). The Basic presumption substitutes for individualized proof of each
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`buyer’s reliance on the alleged misrepresentations. Basic, 485 U.S. at 221. To invoke it,
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`CASE 0:18-cv-00296-MJD-KMM Document 226 Filed 03/23/20 Page 18 of 54
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`Plaintiffs must show tha