Pension Fund Past Summary Judgment in Idearc
On February 20, 2013, U.S. District Court Judge Ed Kinkeade issued an order denying defendants’ motion for summary judgment, allowing the securities fraud claims against Idearc senior executives to proceed to trial. In so holding, the court rejected defendants’ arguments that there were no issues of material fact to be determined by a jury. The Kentucky State District Council of Carpenters Pension Trust Fund (“Kentucky Carpenters”) is serving as lead plaintiff in the action.
In February 2010, shareholders filed a securities fraud class action complaint against senior executives at Idearc based on their false and misleading statements regarding decreases in Idearc’s bad debt. More specifically, the action alleged that while defendants were assuring investors that Idearc’s revenues were being driven by the company’s “stringent” credit and collection policies, defendants had actually significantly relaxed Idearc’s credit policies to inflate its reported revenue. By selling to non-creditworthy customers, the company was able to report tens of millions of dollars of sales that it otherwise would not have been able to report. At the same time, the company was also accumulating tens of millions of dollars of uncollectible receivables. The defendants caused the company to carry these uncollectible receivables on its books as though they were collectible until mid-2008, when the company finally began to admit that it would have to begin writing off these uncollectible receivables in a piecemeal fashion over several quarters.
In denying defendants’ motion for summary judgment, the court ruled that lead plaintiff had presented sufficient evidence supporting its allegations to warrant a jury trial. In so holding, the court rejected numerous defenses raised by defendants. For example, the court rejected defendants’ contention that they did not play any role in determining Idearc’s bad debt expense or allowance for doubtful accounts. To the contrary, the court found that there was sufficient circumstantial evidence establishing that each defendant played a key role in accounting for Idearc’s bad debt expense. The court also rejected defendants’ contention that they could not be liable for fraud because they purportedly relied in good faith on Idearc’s auditor’s approval of Idearc’s reported bad debt expense and allowance for doubtful accounts. The court instead agreed with plaintiff that no good-faith defense exists where defendants intentionally failed to provide their auditors with pertinent information or affirmatively lied to them. Finally, the court rejected defendants’ arguments regarding loss causation (i.e., that defendants’ misstatements caused plaintiff’s losses), again agreeing with plaintiff that defendants cannot avoid liability on loss causation grounds simply by refusing to admit to the falsity of their prior statements. The trial in this action is scheduled for June 3, 2013.
Robbins Geller is lead counsel for the Kentucky Carpenters. Said plaintiff’s attorney Debra J. Wyman, “We concur with Judge Kinkeade’s ruling and look forward to aggressively prosecuting this case on behalf of the plaintiff.”
Buettgen v. Harless, No. 3:09-cv-00791, Order (N.D. Tex. Feb. 20, 2013).