Qualcomm Inc. v. American Wireless License Group, LLC
| Docket Number: | 2005-IA-01827-SCT Linked Case(s): 2005-IA-001827-SCT ; 2005-IA-01827-SCT |
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| Supreme Court: | Opinion Link Opinion Date: 11-15-2007 Opinion Author: Diaz, P.J. Holding: Affirmed and Remanded |
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| Additional Case Information: |
Topic: Securities Act - Arbitration - Section 11 claims - 15 U.S.C. § 77k - Section 15 claims - 17 C.F.R. § 230.405(f) - Section 75-71-717(a)(2) Judge(s) Concurring: SMITH, C.J., WALLER, P.J., EASLEY, CARLSON, RANDOLPH AND LAMAR, JJ. Non Participating Judge(s): GRAVES AND DICKINSON, JJ. Procedural History: Dismissal; Motion to Compel Arbitration Nature of the Case: CIVIL - TORTS - OTHER THAN PERSONAL INJURY & PROPERTY DAMAGE |
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| Trial Court: |
Date of Trial Judgment: 09-06-2005 Appealed from: Hinds County Circuit Court Judge: Tomie Green Disposition: Denied Defendant's Motion to Dismiss, or in the alternative, to compel arbitration. Case Number: 251-03-692CIV |
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| Consolidated: Consolidated with 2005-IA-01841-SCT Harvey P. White, Scot B. Jarvis, Susan G. Swenson, Thomas J. Bernard, Jeffrey P. Williams, Anthony R. Chase, Michael B. Targoff, Jill E. Barad, Robert C. Dynes, James E. Hoffmann, Stewart Douglas Hutcheson, Daniel O. Pegg, Leonard C. Stephens and Qualcomm Incorporated v. American Wireless License Group, LLC, and Homer A. Whittington, Jr., as Trustee for the Homer A. Whittington, Jr. Revocable Trust, et al.; Hinds Circuit Court 1st District; LC Case #: 251-03-692CIV; Ruling Date: 09/06/2005; Ruling Judge: Tomie Green; Consolidated with 2005-IA-01883-SCT Harvey P. White, Scot B. Jarvis, Susan G. Swenson, Thomas J. Bernard, Jeffrey P. Williams, Anthony R. Chase, Michael B. Targoff, Jill E. Barad, Robert C. Dynes, James E. Hoffmann, Stewart Douglas Hutcheson, Daniel O. Pegg, Leonard C. Stephens and Qualcomm Incorporated v. Homer A. Whittington, Jr., et al.; Hinds Circuit Court 1st District; LC Case #: 251-03-175CIV; Ruling Date: 09/12/2005; Ruling Judge: Tomie Green; Consolidated with 2005-IA-01829-SCT Qualcomm Incorporated v. Homer A. Whittington, Jr., et al.; Hinds Circuit Court 1st District; LC Case #: 251-03-175CIV; Ruling Date: 09/06/2005; Ruling Judge: Tomie Green; Consolidated with 2005-CA-01894-SCT Harvey P. White, Scot B. Jarvis, Susan G. Swenson, Thomas J. Bernard, Jeffrey P. Williams, Anthony R. Chase, Michael B. Targoff, Jill E. Barad, Robert C. Dynes, James E. Hoffmann, Stewart Douglas Hutcheson, Daniel O. Pegg, Leonard C. Stephens and Qualcomm Incorporated v. American Wireless License Group, LLC; Hinds Circuit Court 1st District; LC Case #: 251-03-692 CIV; Ruling Date: 09/06/2005; Ruling Judge: Tomie Green; Consolidated with 2005-CA-01895-SCT Harvey P. White, Scot B. Jarvis, Susan G. Swenson, Thomas J. Bernard, Jeffrey P. Williams, Anthony R. Chase, Michael B. Targoff, Jill E. Barad, Robert C. Dynes, James E. Hoffmann, Stewart Douglas Hutcheson, Daniel O. Pegg and Leonard C. Stephens v. Homer A. Whittington, Jr., as Trustee for the Homer A. Whittington, Jr., Revocable Trust; et al.; Hinds Circuit Court 1st District; LC Case #: 251-03-175 CIV; Ruling Date: 09/06/2005; Ruling Judge: Tomie Green. | ||
| Party Name: | Attorney Name: | Brief(s) Available: | ||
| Appellant: | QUALCOMM INCORPORATED |
GLENN GATES TAYLOR,
B. WADE SMITH, IV,
CHRISTY MICHELLE SPARKS |
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| Appellee: | AMERICAN WIRELESS LICENSE GROUP, LLC, AND HOMER A. WHITTINGTON, JR., AS TRUSTEE FOR THE HOMER A. WHITTINGTON, JR. REVOCABLE TRUST, ET AL. | EUGENE COURSEY TULLOS, PETER J. TEPLEY, CHRISTOPHER A. SHAPLEY, JOSEPH ANTHONY SCLAFANI, MEREDITH JOWERS LEES, PAGE ANDERSON POERSCHKE, J. MICHAEL REDIKER | ||
Synopsis provided by:  If you are interested in subscribing to the weekly synopses of all Mississippi Supreme Court and Court of Appeals hand downs please contact Tammy Upton in the MLI Press office. |
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| Topic: | Securities Act - Arbitration - Section 11 claims - 15 U.S.C. § 77k - Section 15 claims - 17 C.F.R. § 230.405(f) - Section 75-71-717(a)(2) |
| Summary of the Facts: | The individual plaintiffs are members of American Wireless License Group, a Mississippi limited liability company. The individual defendants are current and former officers and directors of Leap Wireless International, Inc., or its successors in interest. Until September 1998, Leap was a subsidiary of the corporate defendant, Qualcomm Incorporated. In 2001, Leap transferred approximately 1.9 million shares of unregistered Leap stock to AWG in exchange for wireless telephone licenses. The agreement provided that the shares were to be transferred in a private offering not subject to the registration requirements of the Securities Act of 1933. The agreement also contained a provision that any dispute arising from or related to the agreement would be submitted to binding arbitration at the election of either Leap or AWG. Pursuant to the agreement, Leap registered AWG’s stock with the Securities and Exchange Commission, and AWG began selling its stock on the public market in the fall of 2001. According to the complaint, AWG had disposed of all its Leap stock by December 2001, and it was during this time that the plaintiffs purchased Leap stock on the public market. At the time of the June registration, the Leap stock was valued at $30.42 per share. The complaint states that during October through December 2001, when the plaintiffs were buying Leap stock, its value had dropped to between $14.00 and $23.00 per share. On August 14, 2002, Leap announced that it had lost a purchase price adjustment dispute with MCG PCS, Inc., which sold wireless licenses to Leap in 2000. As a result of the MCG award, Leap was forced to file for bankruptcy protection. At the time the lawsuit was filed, the stock was valued below $.30 a share. The plaintiffs filed suit against the Leap defendants and Qualcomm, alleging that Leap failed to disclose material facts about the MCG dispute in its communications with the plaintiffs and in various press releases and SEC filings, including the June 2001 registration statement. Both the Leap defendants and Qualcomm filed a motion to dismiss. The plaintiffs filed a “Rule 56(f) Affidavit.” The trial court entered an order denying Qualcomm’s motion on the grounds that “a dispute of material fact” existed, but the order made no mention of the plaintiffs’ Rule 56(f) motion. |
| Summary of Opinion Analysis: | Issue 1: Arbitration This case involves the unique situation of non-signatories attempting to enforce an arbitration provision against other non-signatories. In addition, the plain language of the arbitration provision only extends to Leap and AWG as corporate entities. By the plain terms of the contract, it is evident that the parties simply did not agree to extend to nonsignatories the benefit of the arbitration clause, for they easily could have stated so. The contract clearly reads that disputes may be submitted to arbitration at the election of either Buyer or Seller. Because the defendants are neither the Buyer nor Seller, they are not entitled to enforce arbitration. Issue 2: Section 11 claims Section 11 of the Securities Act of 1933, now codified at 15 U.S.C. § 77k, provides a private damages action to any person who buys securities that were issued pursuant to a false or misleading registration statement. To state a valid Section 11 claim, a plaintiff must allege that he purchased a security issued pursuant to a registration statement that contained a material misstatement or omission. The defendants argue that the plaintiffs lack standing to bring their Section 11 claims because they cannot prove that the Leap stock they purchased on the public market was issued pursuant to Leap’s June 15, 2001 Registration Statement that contained the alleged material misstatements and omissions. To have standing to assert a Section 11 claim, a plaintiff need not have purchased the stock in the initial public offering covered by the registration statement. Rather, the plaintiff must merely be able to trace the purchase of his securities to the registration statement that allegedly violated section 11. The plaintiffs have adequately alleged in their complaint that the Leap Stock they purchased is traceable to the June 15, 2001 Registration Statement filed by Leap. Plaintiffs have not been required to explain how their shares can be traced; general allegations that plaintiff purchased ‘pursuant to’ or traceable to false registration statement have been held sufficient to state a claim. The plaintiffs alleged in their complaint that the June 15, 2001 Registration Statement filed by Leap was false and misleading because it failed to disclose the risks associated with its purchase price adjustment dispute with MCG PCS, Inc. An omission is considered material if there is a substantial likelihood that its disclosure would have been viewed by the reasonable investor as having significantly altered the total mix of information made available. With regard to Leap’s alleged failure to disclose the risk of dilution and the amount of money or number of shares that Leap would have to deliver to MCG if it was unsuccessful in the adjustment dispute, it is a fact issue whether such information was not adequately disclosed. Although Leap disclosed that a purchase price adjustment might force it to pay double the purchase price, the purchase price was not disclosed. For those reasons, the plaintiffs have sufficiently alleged a material omission in the Registration Statement. Regarding Leap’s failure to adequately disclose that a potential issuance of shares in connection with the dispute with MCG could violate Leap’s lending covenants, the plaintiffs have alleged a material omission. Because the plaintiffs have alleged sufficient facts to survive a motion to dismiss, the motion was properly denied by the trial court. Issue 3: Section 15 claims The plaintiffs seek to hold the defendants liable for the allegedly misleading June 15, 2001 Registration Statement on the ground that the defendants controlled Leap at the time the Statement was filed. Pursuant to 17 C.F.R. § 230.405(f), the term ‘control’means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. The plaintiffs’ complaint alleges in detail how each defendant had control over Leap. Taking all of the allegations in the complaint as true, the plaintiffs have stated a valid Section 15 claim against all of the defendants sufficient to survive a motion to dismiss. Issue 4: State law claims The plaintiffs also assert claims under the Mississippi Securities Act against the Leap defendants for making material misrepresentations and omissions in connection with the sale of Leap stock. The plaintiffs claim that Leap violated section 75-71-717(a)(2). The plaintiffs allege in their complaint that Leap made multiple written and oral communications which contained material misstatements and omissions of material facts regarding Leap’s business operations, including but not limited to the financial implications of the purchase price adjustment dispute with MCG, and that they relied on these communications in deciding to purchase Leap stock. The plaintiffs claim that Leap not only failed to adequately disclose the dispute with MCG in the June 15, 2001 Registration Statement, but also in its quarterly and annual reports filed with the SEC during 2001 and 2002. The plaintiffs also claim that Leap’s misstatements and omissions of material fact were the proximate cause of the damages they incurred in connection with their purchases of Leap stock. The complaint adequately pleaded a cause of action under both Section 75-71-717(a)(2) and fraud. The issue of causation and whether the disclosures were sufficient are questions of fact for the jury, and the plaintiffs adequately pleaded that the defendants acted with the intent required to support a cause of action for fraud. |
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