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YANG v. ODOM

June 3, 2003

PEDRO YANG, CAROL JACKSON, AND PETER S. KELSCH, ON BEHALF OF THEMSELVES AND ALL PERSONS SIMILARLY SITUATED, PLAINTIFFS,
v.
STEVEN A. ODOM, MARK GERGEL, HENSLEY E. WEST, MARTIN D. KIDDER AND STEPHEN J. CLEARMAN, DEFENDANTS. JAMES BARBERIAN, AND JOSEPH AND KAREN KINOSIAN, ON BEHALF OF THEMSELVES AND ALL PERSONS SIMILARLY SITUATED, PLAINTIFFS, V. STEVEN A. ODOM, MARK GERGEL, HENSLEY E. WEST, MARTIN D. KIDDER AND STEPHEN J. CLEARMAN, DEFENDANTS.



The opinion of the court was delivered by: Joel A. Pisano, District Judge

OPINION

I. INTRODUCTION

The instant consolidated actions arise out of allegations that Steven A. Odom, Mark Gergel, Hensley A. West, Martin D. Kidder, and Stephen J. Clearman ("Defendants"), in their capacities as officers and/or directors of World Access, Inc., a publicly held telecommunications company headquartered in Atlanta, Georgia,*fn1 were "control persons" of that corporation and caused it to commit multiple incidences of securities fraud. Plaintiffs Pedro Yang, Carol Jackson, Peter S. Kelsch, James Barberian, Joseph Kinosian and Karen Kinosian, on their own behalf and as a class action pursuant to Fed.R.Civ.P. 23 assert four causes of action against Defendants, alleging violations of Section 10(b) and Section 20(a) of the Exchange Act, 15 U.S.C. § 78j(b) and 78t(a), Rule 10b-5, and Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77(k) and 77(o).

Presently before this Court is Defendants' Motion to Dismiss on the following grounds: (1) the applicable statute of limitations has expired; (2) the filing of this action is in violation of the "first-filed" rule; and (3) venue is improper. In the alternative, Defendants move for a transfer of venue to the Northern District of Georgia. The Court has federal question jurisdiction pursuant to 28 U.S.C. § 1331. The motion was opposed, and the Court decides the motion without oral argument as permitted by Fed.R.Civ.P. 78. After considering the parties' written submissions, and for all the reasons discussed below, the Court grants Defendants' motion to dismiss on the basis of the statute of limitations. Finding Plaintiffs' claims time-barred, the Court declines to address Defendants' other grounds for dismissal or their request for change of venue.

II. BACKGROUND

For the limited purpose of this motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court accepts as true the facts alleged in the amended complaint and all reasonable inferences drawn from those facts. See Hayes v. Gross, 982 F.2d 104, 106 (3d Cir. 1992); see also infra II. Rule 12(b)(6) Standard. Accordingly, the facts recited below are taken from Plaintiff's Class Action Complaint, and do not represent this Court's factual findings.

Plaintiffs Pedro Yang, a New Jersey resident, Carol Jackson, a Washington resident, and Peter S. Kelsch, a California resident, are the proposed class representatives in the Yang action. They seek to represent a class of themselves and all other persons or entities who:

(i) acquired securities of World Access, Inc. ("WAXS") in the merger of NACT Telecommunications, Inc. ("NACT") into WAXS, which closed on October 29, 1998 . . . (ii) acquired securities of WAXS in the merger of Telco Systems, Inc. ("Telco") into WAXS, which closed on November 30, 1998 . . . or (iii) purchased securities of WAXS in the open market during the period April 29, 1997 through February 11, 1999 who were damaged by defendants' violations of the federal securities laws.
(Compl. ¶ 1).*fn2

Plaintiffs claim that during the class period, Defendants "issued materially false and misleading statements and omitted to disclose material information concerning WAXS's products, revenues, earnings, inventory, and sales practices. . . ." (Compl. ¶ 2). Plaintiffs further allege that throughout the class period, Defendants "engaged in a common course of conduct that operated as a fraud on the integrity of the market for WAXS securities." (Compl. ¶ 3). This conduct allegedly included issuing press releases, financial statements, and other corporate documents that failed to disclose that one of WAXS's products, a telephone switching product known as the "CDX Switch" was a "non-functional development-stage prototype." (Compl. ¶ 3).

Plaintiffs make a series of allegations relating to WAXS's CDX Switch. They claim that the company sold defective switches, continued to record revenue in connection with the non-functioning switches, and otherwise conducted business improperly in light of the non-functioning nature of this key product. (Compl. ¶ 3). They also allege that Defendants misrepresented that WAXS was not losing business due to financial conditions in Asia during 1997-1998, materially overstated WAXS's sales, revenues, assets, inventory and earnings, materially understated corporate expenses, and failed to disclose the reasons the company's inventory had ballooned. (Compl. ¶ 4).

Plaintiffs charge that as a result of these actions, the market price of WAXS securities traded at artificially inflated levels throughout the class period. (Compl. ¶ 7). Finally, Plaintiffs allege that Defendants' fraud resulted in announced earnings substantially less than the previous quarter, and far less than analysts' expectations. (Compl. ¶ 6).

Similar allegations have also been made in ongoing securities litigation taking place before the Honorable Orinda D. Evans, Chief Judge for the United States District Court for the Northern District of Georgia, entitled In re World Access, Inc. Securities Litigation, 1:99 CV 43 (ODE) (the "Georgia litigation"). That litigation was first filed in January 1999 as a putative class action, but the court has denied motions for class certification on two separate occasions: first by rejecting the parties' stipulated class certification by Order dated July 30, 2001, and then rejecting Plaintiffs' renewed motion for class certification by Order dated July 1, 2002. In its July 1 Order, the court denied certification with prejudice based on the inadequacy of the class representatives. Pls' Ex. H. Plaintiffs then moved for reconsideration of the July 1 Order, which was denied on August 9, 2002. Plaintiffs filed a petition with the United States Court of Appeals for the Eleventh Circuit for interlocutory review of the denial of class certification pursuant to Fed.R.Civ.P. 23(f). That petition was denied on September 17, 2002. Pls' Ex. J. Following the denial of class certification, certain individual plaintiffs continued the litigation. The record reveals that the Georgia litigation has been thus far a massive undertaking by that court, with a docket comprised of several hundred entries.

The instant case is comprised of two actions. The first, filed by Plaintiffs Pedro Yang, Carol Jackson and Peter S. Kelsch was filed on December 17, 2002, bearing the docket number 02-CIV-5968 (JAP). The second, filed on February 14, 2003 by Plaintiffs James Barberian and Karen Kinosian, with allegations virtually identical to the Complaint filed in Yang, bears docket number 03-CIV-725 (JAP). The Court consolidated both cases by Order dated March 18, 2003.

Defendants claim that the instant actions are impermissibly repetitive of the Georgia litigation, and are furthermore barred by the one-year statute of limitations for federal ...


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