Amedee v. Level 3 Communications, Inc.

          ORDER

          RAYMOND P. MOORE UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the following: (1) Plaintiff's Unopposed Motion for Preliminary Approval of Class Action Settlement and Brief in Support (the “Motion to Approve”) (ECF No. 31); and (2) Joint Motion to Strike Response of Dean Houser to Plaintiff's Motion for Preliminary Approval, or in the Alternative to Establish a Deadline for Reply (the “Motion to Strike”) (ECF No. 39). Upon consideration of the motions, the court record, and the applicable rules and case law, and being otherwise fully advised, the Court (1) denies without prejudice Plaintiff's Motion to Approve; and (2) grants the Motion to Strike.

         I. BACKGROUND

         This case arises from the merger by which CenturyLink, Inc. (via certain wholly-owned subsidiaries) acquired Defendant Level 3 Communications, Inc. (“Level 3”), and the disclosures which preceded such merger. Briefly, this is what transpired.

         On January 17, 2017, Plaintiff filed his class action complaint on behalf of public stockholders of Level 3 to enjoin the vote on a proposed transaction in which Level 3 would be acquired by CenturyLink. Plaintiff alleged that the proposed transaction resulted from an inadequate process; Level 3 “insiders” stood to gain handsomely from the proposed transaction; and the Schedule 14A Preliminary Proxy Statement filed with the U.S. Securities and Exchange Commission (“SEC”), which recommended that Level 3 shareholders vote in favor of the proposed transaction, omitted and/or misrepresented material information. Based on such allegations, Plaintiff asserted Defendants (consisting of Level 3 and its Board of Directors) violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, and Rule 14a-9. In his complaint, Plaintiff sought class certification and to enjoin the stockholder vote on the proposed transaction and, if the proposed transaction was consummated, for rescission or rescissory damages.

         As represented in the Motion to Approve, after the filing of the complaint, the parties engaged in settlement discussions; reached an agreement-in-principle memorialized in a Memorandum of Understanding (the “MOU”) dated February 9, 2017, where Defendants agreed to disclose certain additional information concerning the merger (“Supplemental Disclosures”) to Level 3 shareholders prior to the shareholder vote. Thereafter, on February 13, 2017, Level 3 and CenturyLink filed a joint definitive proxy statement/prospectus included in a registration statement on Form S-4 with the SEC (the “Definitive Proxy”). The Definitive Proxy included the Supplemental Disclosures.

         On March 16, 2017, approximately 81.2% of Level 3's outstanding shares of common stock voted in favor of approving the merger.

         Following the merger, Plaintiff represents, he conducted additional investigation (including taking depositions) to confirm the terms of the proposed settlement (i.e., the non-monetary benefit of requiring that CenturyLink provide the Supplemental Disclosures in exchange for an expansive release related to the merger) were fair and reasonable.

         On November 1, 2017, the merger closed. Thereafter, the parties entered into a Stipulation of Settlement (ECF No. 31-2) and filed the Motion to Approve that is now before this Court. Under the Motion to Approve, a non-opt-out class would settle this action based on what has occurred - the issuance of the Supplemental Disclosures - with no monetary (or nonmonetary) benefit.

         II. ANALYSIS: THE MOTION TO STRIKE

         On October 23, 2018, Dean Houser, an alleged shareholder of Level 3 stock during the relevant time period, filed an “objection” to the Motion to Approve. Mr. Houser's objection was filed long after the due date for any responses to the Motion to Approve, and without leave of Court. Hence, the parties filed their Motion to Strike, arguing Mr. Houser's objection was untimely. Mr. Houser fails to respond to the Motion to Strike. Upon review, the Court agrees. Accordingly, the Motion to Strike is granted and Mr. Houser's objection is stricken.

         III. ANALYSIS: MOOTNESS

         A federal court has an independent obligation to examine its own jurisdiction at every stage of the proceeding. Amazon, Inc. v. Dirt Camp, Inc., 273 F.3d 1271, 1276 (10th Cir. 2001). Based on the Court's review of the papers, a question of mootness is raised.^[1]

         The federal courts' jurisdiction extends only to actual cases or controversies. Garcia v. Bd. of Educ. of Albuquerque Pub. Sch., 520 F.3d 1116, 1123 (10th Cir. 2008). “This means that, throughout the litigation, the plaintiff must have suffered, or be threatened with, an actual injury traceable to the defendant and likely to be redressed by a favorable judicial decision.” Spencer v. Kemna, 523 U.S. 1, 7 (1998) (internal quotations and citation omitted). “Mootness is implicated when a case or controversy, originally present, ceases to exist.” Smallwood v. Scibana, 227 Fed.Appx. 747, 748 (10th Cir. 2007) (unpublished). “Mootness is the most notable exception to that general rule [that subject matter jurisdiction, once properly attached, does not vanish]; the jurisdiction of a federal court evaporates when subsequent events terminate the controversy extant at the inception.” Smallwood, 227 Fed.Appx. at 748 (citing Pittsburg County Rural Water Dist. No. 7 v. City of McAlester, 358 F.3d 694, 706 (10th Cir. 2004) (further citing omitted)).

         In this case, the primary relief sought was an injunction - to enjoin the stockholder vote on the proposed transaction. But, that stockholder vote has already occurred, and apparently with the consent of Plaintiff; thus, that relief sought may not be had. As an alternative, if the proposed transaction was consummated, Plaintiff sought rescission or rescissory damages. But, the transaction went forward with Plaintiff and Plaintiff's counsel's blessing. It would be disingenuous to now seek to rescind that which they let go forward. And, of course, the Stipulation of Settlement was filed under Rule 11 of the Federal Rules of Civil Procedure and specifically stated Plaintiff “is agreeing to the Settlement only because the Supplemental Disclosures resulting from the Action and the Settlement permitted Level 3's shareholders to make a materially more fully informed decision as to whether to vote for or against the Merger.” (ECF No. 31-2, p. 24.)^[2] Thus, it appears rescission (or rescissory damages) based on alleged nondisclosures are not being - and cannot now be - sought. Accordingly, Plaintiff shall show cause why this case should not be dismissed without prejudice as moot.^[3]

         Nonetheless, as the Motion to Approve has been pending a long time (due to the Court's docket and not to any action by the parties), the Court addresses the Motion to Approve, should Plaintiff convince the Court this matter is not moot.

         IV. ANALYSIS: THE MOTION TO APPROVE

         In reviewing the Motion to Approve, the Court considers the Class Action Fairness Act, 28 U.S.C. § 1711 et seq. (“CAFA”); the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4 (“PSLRA”); and Fed.R.Civ.P. 23. Upon such review, the Court finds the Motion to Approve wanting in several respects.

         A. CAFA

         At this juncture, the Court finds the requirements under CAFA appear to be satisfied.^[4]See ECF No. 33 (Defendants' compliance).

         B. ...