United States District Court, D. Connecticut
In re FRONTIER COMMUNICATIONS, CORP. STOCKHOLDERS LITIGATION
RULING AND ORDER ON MOTIONS TO DISMISS
VICTOR
A. BOLDEN UNITED STATES DISTRICT JUDGE
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 Dated: the 2010 Verizon
Acquisition. The . . . Acquisition tripled Frontier's
size by adding nearly five million wireline customers across
fourteen states.” Am. Class Compl. ¶ 32. In one of
the acquired states, West Virginia, Frontier allegedly
departed from the “industry-standard ‘lease
back' method” of gradually merging the acquired and
acquiring company's equipment, systems, and accounts,
id. ¶¶ 29, 33, to a faster “flash
cut” method in which the “acquired company's
assets turn over to the acquirer in one immediate transfer at
the close of the acquisition . . . without any phase-in
periods.” Id. ¶¶ 30, 33. Following
the acquisition, Frontier Defendants allegedly “quickly
labeled the West Virginia Flash Cut a triumph.”
Id. ¶ 34. Allegedly, Frontier's West
Virginia flash cut was not a triumph. See,
e.g., id. ¶ 63. While the Frontier
Defendants maintained that the flash cut was a success,
id. ¶ 34, they nonetheless described the
process as complex, or “the corporate equivalent of
brain surgery . . . . ” Id. ¶ 28.
On
December 17, 2013, Frontier allegedly announced its next
flash cut project: “all of AT&T's wireline
business and [] statewide fiber optics network in
Connecticut[.]” Id. ¶ 35. The Connecticut
acquisition allegedly “brought Frontier to denser
suburban and even light urban markets for the first time in
the Company's history.” Id. ¶ 3. Ms.
Wilderotter allegedly claimed, “We are very confident
in our ability to integrate this property successfully and
efficiently on this rapid schedule just as we did the flash
cut of West Virginia back in 2010.” Id. ¶
35. Nevertheless, on the day of the announcement, a
Morningstar analyst allegedly wrote that Frontier was still
having challenges integrating its past acquisitions.
Id. ¶ 263. The analyst allegedly characterized
the performance bonuses awarded to Ms. Wilderotter, Mr.
McCarthy, and Mr. Jureller as “premature.”
Id.
On
October 14, 2014, Frontier customers in West Virginia filed a
putative class action complaint alleging that Frontier's
Internet service was much slower than promised. Id.
¶ 63; Sheridan v. Citizens Telecomm. Co. of
W.Va., No. 14-cv-115 (W.Va. Cir. Ct., Lincoln Cnty.
2014); rev'd, Citizens Telecomm. Co. of W.Va. v.
Sheridan, 239 W.Va. 67, 71, 799 S.E.2d 144, 154 (2017)
(“For the foregoing reasons, we reverse the November
30, 2015 order of the Circuit Court of Lincoln County
[denying the motion to compel arbitration] and remand with
instructions to enter an order compelling arbitration on an
individual basis.”).
Eleven
days later, on October 25, 2014, the Connecticut flash cut
allegedly occurred. Id. ¶ 38. Within two days,
Frontier's East Region President allegedly claimed that
“the overwhelming majority of customers, approximately
99 percent, experienced a seamless transition from AT&Ts
service to Frontier.” Id. ¶ 38. That
statement allegedly was not true. ¶ 68. Additionally, in
the month following the flash cut, Connecticut's Public
Utilities Regulatory Authority (“PURA”) allegedly
“received more complaints about Frontier . . . than it
had received over the prior year for all other cable
providers in the state combined.” Id. ¶
68.
On
November 14, 2014, Connecticut's Attorney General and
Department of Consumer Protection allegedly “filed a
request that PURA convene a meeting at which the public could
confront Frontier's officials and provide testimony
regarding their complaints.” Id. That meeting
was allegedly held on December 22, 2014. Id.
“At that meeting, Frontier executives [allegedly]
appeared before Connecticut's disgruntled customers and,
as the New Haven Register [allegedly] described,
outlined ‘the most glaring misjudgments' that
plagued the Connecticut Acquisition: (1) Frontier's
training only ‘70 of a possible 322 AT&T customer
service employees . . . on the new company's
systems'; (2) ‘[u]nderestimating the volume of
customer complaints Frontier would receive by 12
percent'; and (3) ‘[p]roblems with loss of
video-on-demand services and associated licensing
agreements.'” Id.
Nevertheless,
on December 8, 2014, Mr. Jureller, then Frontier's CFO,
allegedly claimed that “probably 99%-plus of our
[Connecticut] customers had a great experience.”
Id. ¶ 38. Three days later, Ms. Wilderotter,
then Frontier's CEO, allegedly “announced that
Frontier's board had voted to increase its dividend,
‘reflect[ing] the Board's confidence in
Frontier's business and financial strength and our solid
execution performance in integrating the Connecticut
acquisition.'” Id.
3.
Announcement of and Fundraising for the CTF
Acquisition
On
February 5, 2015, Frontier allegedly announced the plan to
acquire the California, Texas, and Florida wireline
operations of Verizon Communications, Inc. Id.
¶¶ 2, 97; Def. Mem. of Law at 2. That day, Frontier
held a press call for investors and filed a Form 8-K with the
SEC, “in which Frontier [allegedly] stated that it
‘estimated OpEx [Operating Expenses] and CapEx [Capital
Expenditures] integration cost of approximately $450 million
in 2015/2016' for the CTF Acquisition.” Am. Class
Compl. ¶ 190.[3]
During
the press call, Mr. McCarthy, then Frontier's COO,
allegedly stated that the $450 million would cover
“total integration costs . . . . [including] both
operating expense and capital expense, ” id.
¶ 191; CEO Wilderotter allegedly added that Frontier had
a “proven track record of achieving and exceeding
acquisition cost savings . . . . [while] creat[ing] a smooth
transition for customers with no disruption to service,
” id. ¶ 173. On February 5, 2015,
Frontier's common stock price allegedly closed at
$115.50. Id. ¶ 242.
The
class period for this case begins on February 6, 2015.
Id. ¶ 1. Less than three weeks later, on
February 25, 2015, Frontier allegedly disclosed continuing
service issues and cost overruns of ten percent on the
Connecticut flash cut in a Form 10-K filing with the SEC.
Id. ¶ 71.[4]
On
March 3, 2015, Frontier allegedly announced the resignation
of Ms. Wilderotter as the company's CEO. Id.
¶ 19. That same day, Frontier's CFO, Mr. Jureller,
allegedly spoke at a Morgan Stanley Technology, Media &
Telecommunication Conference. Id. ¶ 49. The
analyst interviewing Mr. Jureller allegedly expressed
surprise that the company was undertaking the CTF Acquisition
so soon after the Connecticut flash cut; Mr. Jureller
allegedly replied: “[W]e're the only ones that have
successfully done carve-outs . . . and it's no easy feat
to do. These are hard things to do [and] Connecticut . . .
exceeded our expectations.” Id. ¶¶
49, 174, 256.
Several
days later, on March 9, 2015, Mr. Jureller allegedly
delivered a similar presentation at the Deutsche Bank Media,
Internet and Telecommunication conference, stating: “.
. . having done this before . . . . We have the playbook
written. It is a lift. We've got three separate states
that we're going to flash cut at one time, so knowing the
value of the flash cut and executing on that is going to be
really important.” Id. ¶ 175. On March
11, 2015, Mr. Jureller allegedly used the
“playbooks” metaphor again at a Goldman Sachs
Leveraged Finance Conference. Id. ¶ 176.
On
April 28, 2015, Frontier and Verizon allegedly filed the
proposed flash cut with the Federal Communications
Commission, claiming that: “Existing retail and
wholesale customers will continue to receive substantially
the same services.” Id. ¶ 50.
On May
15, 2015, Mr. McCarthy, now Frontier's CEO, allegedly
told conference[5]attendees that the CTF Acquisition would
“expand Frontier's business into ‘fairly
urban properties in Tampa and Dallas Fort-Worth and in
Southern California[]' [and that t]hese areas . . .
‘typically are more competitive than the more rural
markets' Frontier had historically served, further
compounding the demand for Frontier to deliver technical
sophistication-sophistication that it never before had to
deliver.” Id. ¶ 47.
On May
28, 2015, Mr. McCarthy “appeared at the Sanford C.
Bernstein Strategic Decisions Conference where he stated that
Frontier had the ability to ‘do heart and lung
transplants in a weekend,' and that ‘we've
become comfortable at doing' integrations like the CTF
Acquisition.” Id. ¶ 177.
In
contrast to these public statements, a number of Frontier
employees allegedly had reservations about the company's
ability to execute the CTF flash cut.[6] “[A] former senior
technical analyst with Frontier . . . . [felt] that the
Company operated with ‘very little coherent
thought' and unlike anything else he had seen in his/her
career. As an example, FE-9 noted that the Company did not
even begin to create an operative organizational chart until
approximately October 2015.” Id. ¶ 81. A
senior IT professional “described the existence, and
senior management's awareness, of a ‘Gap
Analysis' prepared for the CTF Acquisition that revealed
hundreds of gaps in functionality between Frontier and
Verizon's systems.” Id. ¶ 251. A
senior technical analyst for Commercial Business Technical
Support and Frontier's former ITSM Managing
Engineer[7] alleged that Frontier “violated
industry practice by maintaining multiple, separate databases
and systems to track and manage customers acquired in past
transactions, ” id. ¶ 77, and
“described Frontier's systems as
‘nightmarish,' ‘absolutely trash,' and
‘untechnological[, ]'” id. ¶
182. A former National Operations Support Manager who
allegedly transitioned from Verizon as part of the CTF
Acquisition described Frontier's technology as
“‘decades' behind Verizon's-even
accounting for the fact that Verizon had stopped performing
system enhancements on its CTF assets for the year prior to
the CTF Flash Cut.” Id. ¶ 85.
These
and other Frontier employees allegedly predicted that the CTF
flash cut would not go well. See, e.g.,
id. ¶¶ 86-93. Some employees alleged that
“Defendants knew the CTF Acquisition could not succeed
because the Company had no understanding of the network it
was acquiring from Verizon.” Id. ¶ 94.
The former ITSM Managing Engineer claims:
those working on the CTF Flash Cut had explicitly warned
Frontier management that the CTF Flash Cut would fail because
Frontier had failed to fully map Verizon's network in
advance of the cutover . . . . Frontier had no way of knowing
what the network actually looked like and was making
decisions about the flash cut largely by guessing . . . .
[T]he failure to complete a network map was so dire that [I
and my coworkers] had sent memoranda to, and had meetings
with, Frontier management to recommend that the Company wait
another four months before the CTF Flash Cut, but management
ignored these entreaties.”
Id. ¶ 94.
On June
2, 2015, Frontier announced two offerings that would
“finance a portion of the cash consideration payable in
connection with Frontier's previously announced [CTF
Acquisition].” Id. ¶ 288. The stock
offerings would allegedly include: “1) an offering of
17, 500, 000 shares of Mandatory Convertible Preferred Stock,
Series A, for $1.75 billion; and 2) an offering of 150, 000,
000 shares of common stock, for $750 million.”
Id. On June 8, 2015, Frontier allegedly offered the
Preferred Stock at $100.00 per share. Id. ¶
242.
On June
10, 2015, Frontier allegedly announced that it “was
closing the Offering[s], having raised a total of $2.5
billion from public investors[. Thereafter, ] Underwriter
Defendants [allegedly had] ¶ 30-day overallotment option
to purchase from Frontier up to an additional 15, 000, 000
shares of common stock and up to an additional 1, 750, 000
shares of Preferred Stock, in each case at the same prior
public offering price per share.” Id. ¶
289.
“On
or about June 19, 2015, the Underwriter Defendants
[allegedly] exercised the overallotment option, and closed
the overallotment sale on or about June 24, 2015, generating
additional proceeds of $75 million from sales of common
stock, as well as an additional $175 million from sales of
Preferred Stock. In all, during June 2015, Frontier
[allegedly] obtained a total of $2.75 billion through the
Offerings[.]” Id. Frontier's largest flash
cut allegedly occurred roughly nine months later.
Id. ¶¶ 95, 97.
4.
Events Following the Closing of the 2015 Offering
In the
months between the closing of its offering and the CTF flash
cut, Frontier's corporate officers continued to claim
that the CTF flash cut would be a success. On September 16,
2015, Mr. Jureller, the CFO, allegedly assured attendees at
the Goldman Sachs Communacopia Conference that Verizon would
“continue to maximize value” in the CTF accounts
until the day of the flash cut, when Frontier would acquire
the accounts. Id. ¶ 148.
He also
told attendees: “We are spending a substantial amount
of money, mostly in advance of the cut over. We've said
out there that we will probably spend about $450 million or
so on our integration efforts with most of that being before
that day one cut over in really getting everything aligned
from a capital perspective, from an operating and systems
perspective, to have a strong experience coming out of the
gate.” Id. ¶ 196.
On
October 5, 2015, Frontier allegedly submitted the proposed
flash cut to the Public Utilities Commission of the State of
California, allegedly claiming that the company “had a
‘proven ability to successfully transition customers to
its network, as demonstrated by the [2010 Verizon
Acquisition],' and emphasiz[ing] that customers
‘should not experience any disruption in service'
as a result of the CTF Acquisition, including but not limited
to disruption to all-important 911 service, [because Frontier
would] ‘train[] current Verizon employees on
Frontier's systems to ensure a seamless transition for
customers.'” Id. ¶ 50.
In
December 2015, Frontier allegedly reached a $160 million
settlement with the West Virginia Attorney General for the
2010 flash cut. Id. ¶¶ 63, 262. The
settlement was allegedly “the largest
independently-negotiated consumer protection settlement in
the state's history, and occurred after state regulators
had received thousands of complaints from consumers that
caused serious doubt that Frontier's ‘seasoned
integration team' had ever actually ‘successfully
integrat[ed]' the state.” Id. ¶ 63.
On February 29, 2016, Mr. McCarthy, the CEO, told an audience
of conference attendees that flash cuts are “a heavy
lift” and that Frontier was probably the only player in
the industry really who goes for a flash cut.”
Id. ¶ 30.
Also,
on February 29, 2016, Mr. Gianukakis, then Frontier's
Vice-President and Treasurer, spoke positively about the
upcoming CTF Acquisition at the Morgan Stanley Technology,
Media & Telecommunications Conference:
[E]verything is going quite well, so we're ready to
conclude the transaction on April 1. . . . I think the thing
is we've done these flash-cuts in a number of instances
before. Back in 2010, we had done a flash-cut on one of the
states and then we did Connecticut in 2014 as a flash-cut,
and so now we're going forth with our next flash-cut . .
. . [T]hese are systems that we know very well. We have a set
of playbooks and checklist and work product that we've
done in the past. And of course, in any one of these
flash-cuts integrations, you learn. And we certainly have
learned in our prior transactions and we've gotten
better. We've become more refined, we develop our own
expertise on how to implement these transactions. They're
quite complex. These are not simple transactions to
integrate. . . .
Id. ¶ 55.
On
April 1, 2016, the CTF Acquisition and flash cut allegedly
occurred. Id. ¶ 97. Six days later, on April 7,
2016, Connecticut's Stamford Advocate allegedly
published an article on problems with the CTF flash cut,
stating: “Frontier was little better positioned to
absorb a far-flung broadband network in 2016 than it was in
2014 in taking on AT&T's operations in Connecticut,
when it was hit with some of the same complaints that
bedeviled it this past week.” Id. ¶ 55.
In the
weeks and months after the flash cut, Frontier management and
employees allegedly knew that the “CTF Flash Cut was .
. . a colossal disaster, ” id. ¶ 102, but
many of the Frontier Defendants allegedly kept touting its
success, see, e.g., id.
¶¶ 100-01, 109. Then, “[o]n May 4, 2016, Mike
Gatto, the chair of the California State Assembly's
Utilities & Commerce Committee (“CAUCC”),
demanded that the “alarming” “problems . .
. be resolved swiftly, ” noting that “[c]ities
are unable to live stream council meetings and residents are
at risk because of the inability to dial 911 in an emergency.
My committee will hold hearings on the impact on our
constituents and the appropriate government response if these
problems persist.” A few days later, the CAUCC
allegedly announced that it would hold formal hearings
concerning Frontier on May 18, 2016.” Id.
¶ 110.
On
November 1, 2016, Frontier allegedly informed investors,
after the close of the market, that the CTF integration had
cost “66% more than Defendants' estimate of $450
million in integration costs for 2015/16 . . . .”
Id. ¶ 139. That announcement allegedly caused
the price of Frontier shares to fall 13.7% from $58.95 on
November 1, 2016 to $50.85 on November 2, 2016--a loss
[allegedly amounting to] $630 million in shareholder
value.” Id. ¶ 139.
On
February 27, 2018, Frontier allegedly issued a press release,
after the close of the market, “announcing its fourth
quarter and full year 2017 results . . . nearly two years
after Defendants had first declared the CTF Acquisition a
‘success.'” Id. ¶ 164.
Allegedly due to that press release and Frontier's
challenges with the CTF acquisition, id.
¶¶ 164-66, Frontier's stock price allegedly
fell 10.9% the next day. Id. ¶¶ 166, 242.
On May
2, 2017, Frontier allegedly announced, after the close of the
market, a revenue decline of $53 million from the previous
quarter, in part due to “cleanup of CTF nonpaying
accounts.” Id. ¶ 243. Simultaneously,
Frontier allegedly announced that it was cutting its dividend
by 62%. Id. Allegedly due to that announcement,
Frontier's stock price allegedly fell 16.6% the next day.
Id.
On
October 31, 2017, Frontier allegedly announced, after the
close of the market, that it would miss earnings before
interest, tax, depreciation and amortization
(“EBITDA”) guidance for 2017. Id.
Allegedly due to that announcement, Frontier's stock
price fell 26.8% the next day. Id.
On
February 27, 2018, Frontier allegedly announced, after the
close of the market, that: “(1) the total cost of
integrating the CTF Acquisition was $962 million, with $59
million in 2017 alone, (2) churn had increased nearly 10%
since 2016, and (3) Frontier was canceling its dividend
completely.” Id.
On
February 28, 2018, the close of this case's class period,
id. ¶ 1, Frontier's common stock allegedly
fell 23.9% to $7.03, id. ¶¶ 242-43, and
Frontier's Preferred Stock allegedly closed at $12.67,
id. at ¶ 242.
B.
Procedural Background
On
September 26, 2017, Chris Bray filed a class action Complaint
for violation of the federal securities laws on behalf of
himself and all others similarly situated. Class Action
Compl. for Violations of Fed. Securities Laws, ECF No. 1. On
November 27, 2017, John DuBois, a separate Plaintiff, filed a
motion to consolidate related actions, appoint lead
Plaintiff, and approve lead plaintiff's selection of
counsel. Mot. of John DuBois to (1) Consol. Related Actions;
(2) Approve Lead Pl., and (3). Approve Lead Pl. Counsel, ECF
No. 23. Thereafter, ten additional Plaintiffs moved to
...