DENVER (Legal Newsline) - A Colorado appeals court gave a man another chance to sue over the 2017 merger of CenturyLink and Level 3 Communications, reversing a district court decision that dismissed his case without the option of amending the complaint.
Noting that plaintiff Dean Houser’s allegations included “facts” that were borrowed from another lawsuit in Minnesota, Colorado’s Division III Court of Appeals, in a March 31 decision, said his lawsuit was properly dismissed the first time but could be revived if he comes up with more solid evidence for his claims. The court said this was the first time a Colorado appeals court had addressed the sufficiency of facts required to support a state lawsuit under federals securities laws.
Houser filed the purported class action in Colorado state court in 2018, claiming Century Link had misstated material information in its merger documents filed with the Securities and Exchange Commission. The telecommunications company, now called Lumen, announced plans to merge with rival Level 3 in October 2016 and closed the transaction in November 2017.
In a series of disclosures, most of them after the transaction, the companies were accused of selling customers unneeded services, a practice known as “cramming.” Houser cited some of those allegations in his Colorado suit, including claims by a Minnesota woman who said she was fired for raising concerns about cramming inside the company.
The district court dismissed his complaint, saying he failed to provide enough evidence to support his claims against a motion to dismiss.
“We pause to observe that Houser’s briefs on appeal are suffused with assertions of fact that aren’t included in his complaint but, rather, are garnered from the complaint in a different case” in Minnesota, the appeals court said. “But he doesn’t cite any authority for the proposition that a party may salvage his own complaint by pointing the court to allegations in a complaint filed in a different case, and we aren’t aware of any.”
Houser cited a California decision that treated a whistleblower lawsuit as a “corrective disclosure” of material information that caused a company’s stock price to fall, but that is irrelevant in this case because it doesn’t involve claims about stock-market losses, the appeals court said. Most of his allegations dated after the merger documents were filed, the court added, undermining claims those documents were misleading.
The appeals court said Houser was improperly deprived of a chance to amend his complaint with better-supported factual allegations, however. CenturyLink argued any attempt would be futile, but the appeals court said information that emerged in the Minnesota litigation since he filed suit might support claims the cramming incidents were known to the company before the merger documents were filed with the SEC.
Lawsuits over SEC merger disclosures nearly always were filed in federal court until the U.S. Supreme Court decided in Cyan v. Beaver County Employees Retirement Fund in 2018 that certain claims based on federal securities law also could be heard by state courts.