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In re Frontier Communications Corporation Derivative Litigation

United States District Court, D. Connecticut

July 23, 2018

IN RE FRONTIER COMMUNICATIONS CORPORATION DERIVATIVE LITIGATION.

          RULING AND ORDER ON MOTION TO CONSOLIDATE, MOTION TO APPOINT LEAD PLAINTIFF AND APPROVE LEAD COUNSEL, AND MOTION TO DEFER LITIGATION

          HONORABLE VICTOR A. BOLDEN UNITED STATES DISTRICT JUDGE

         Currently pending before the Court are three motions related to this shareholder derivative lawsuit.

         First, Cynthia Graham moved to consolidate In re Frontier Communications Corporation Derivative Litigation, No. 3:17-cv-1792, with two other cases, Williams v. McCarthy, No. 3:18-cv-00826, and Graham v. McCarthy, No. 3:18-cv-00844, as well as to appoint counsel, and to modify the Court's Ruling and Order appointing lead plaintiff and lead counsel, ECF No. 34. Graham Br., ECF No. 39.

         Second, Plaintiffs in In re Frontier Communications Corporation Derivative Litigation, No. 3:17-cv-1792, also moved to consolidate that case with Williams v. McCarthy, No. 3:18-cv-00826, and Graham v. McCarthy, No. 3:18-cv-00844. Feldbaum Mot. to Consolidate, ECF No. 43.

         Third, nominal Defendant Frontier Communications Corporation (“Frontier”), Individual Defendants[1], and Plaintiffs filed a joint motion to defer litigation of the derivative case until after a ruling on an anticipated motion to dismiss in a related case, In re Frontier Communications Corporation Securities Litigation, Lead Case No. 3:17-cv-01617-VAB (the “Direct Securities Action”).[2] Mot. to Defer Litig., ECF No. 44.

         For the following reasons, the motions to consolidate, ECF Nos. 39, 43, are GRANTED. The motion to modify the Court's Ruling and Order and to appoint Ms. Graham as lead plaintiff and Scott Scott Attorneys at Law LLP (“Scott Scott”) as lead counsel, ECF No. 39, is GRANTED IN PART AND DENIED IN PART. The Court will appoint Ms. Graham as co-lead plaintiff with Irving Feldbaum and Scott Scott Attorneys at Law LLP (“Scott Scott”) as co-lead counsel with Johnson Fistel, LLP (“Johnson Fistel”). The motion to defer litigation is GRANTED.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         The Court assumes familiarity with the factual and procedural background of this case. See Order on Mot. to Appoint Lead Pl. and Lead Counsel at 2-5, ECF No. 34.

         A. Factual Allegations

         In February 2015, Frontier allegedly announced a plan to acquire wireline operations from Verizon Communications, Inc. (“Verizon”), for $10.54 billion in cash and assumed debt. Baker Compl. ¶ 3. Frontier allegedly acquired the wireline in April 2016. Id. ¶ 4.

         During the following year, Frontier allegedly disclosed that it had lost millions of dollars after the acquisition, in part because of non-paying accounts acquired as a part of the Verizon deal. Id. ¶ 5. Daniel McCarthy, Frontier's Chief Executive Officer (“CEO”), allegedly claimed that Frontier would clean up and disconnect those accounts. Id. ¶¶ 6-7. Frontier's stock dropped. Id. ¶ 7.

         Frontier continued to lose money over the first quarter of 2017. Id. ¶ 8. Ralph Perley McBride, Frontier's Chief Financial Officer (“CFO”), explained that the financial loss was partly due to the company's efforts to clean up the non-paying accounts. Id. ¶ 9. Frontier's stock dropped again. Id. ¶ 9.

         The Individual Defendants allegedly caused the nominal defendant, Frontier, to issue false and misleading statements about its business operations and compliance policies. Id. ¶ 10. As a result, and as a result of the decline in Frontier's stock market value, the company allegedly has lost value. Id. ¶ 11. Frontier's Board, however, allegedly refuses to initiate litigation against the Individual Defendants for breaches of fiduciary duties, and Plaintiffs therefore assert this shareholder derivative lawsuit on its behalf. Id. ¶ 12.

         B. Procedural History

         On February 10, 2018, this Court granted a motion to consolidate two cases: Baker v. McCarthy, No. 3:17-cv-1792, and Feldbaum v. Barnes, No. 3:17-cv-1893. ECF No. 19. Together, those cases became In re Frontier Communications Corporation Derivative Litigation, No. 3:17-cv-1792.

         On March 22, 2018, the Court granted an unopposed motion to appoint Celeste Baker and Irving Feldbaum as joint lead plaintiffs, and to approve their choices of: Johnson Fistel as lead counsel, Diserio Martin O'Connor & Castigliono LLP (“Diserio Martin”) as liaison counsel, and the Law Offices of Nicholas Koluncich III, LLC as additional counsel for Plaintiffs. Order at 1, ECF No. 34.

         On April 3, 2018, the parties filed a joint motion to extend the deadline for filing a Rule 26(f) Report until after the filing of an amended complaint in the Federal Direct Securities Action. ECF No. 36. In order to have reasonable time to review the amended complaint in the Direct Securities Action, the parties requested that the consolidated complaint in the Derivative Action be filed on or before May 30, 2018, and the 26(f) Report be filed sixty days after that. Id. On April 4, 2018, the Court granted the motion. Order, ECF No. 37 (granting motion for extension of time “for the filing of a Rule 26(f) report to sixty (60) days following the filing of a consolidated complaint in the Federal Securities Action”).

         On May 18, 2018, Ms. Graham, the plaintiff in Graham v. McCarthy, No. 3:18-cv-00844, filed a Notice of Related Cases. ECF No. 38. On May 24, 2018, she filed a motion to appoint counsel and modify the March 22, 2018 Ruling and Order on Motion to Appoint Lead Plaintiff and Approve Lead Counsel, and a motion to consolidate Graham v. McCarthy, No. 3:18-cv-00844, In re Frontier Communications Corporation Derivative Litigation, No. 3:17-cv-1792, and Williams v. McCarthy, No. 3:18-cv-00826. ECF No. 39.

         Also on May 24, 2018, Ms. Baker and Mr. Feldbaum filed a motion to consolidate In re Frontier Communications Corporation Derivative Litigation, No. 3:17-cv-1792, with Williams v. McCarthy, No. 3:18-cv-00826, and Graham v. McCarthy, No. 3:18-cv-00844. ECF No. 43. That same day, Ms. Baker, Mr. Feldbaum, Frontier, and the Individual Defendants filed a joint motion to defer litigation until after a ruling on an anticipated motion to dismiss in the Frontier ...


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