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In re Neustar Secs. Litig.

United States District Court, E.D. Virginia, Alexandria Division

January 27, 2015

IN RE NEUSTAR SECURITIES LITIGATION

For Oklahoma Firefighters Pension and Retirement System, on behalf of itself and all others similarly situated, Plaintiff: Elizabeth Anne Aniskevich, LEAD ATTORNEY, Cohen Milstein Sellers & Toll PLLC (DC), Washington, DC.

For Neustar, Inc., Lisa A. Hook, Steven J. Edwards, Paul S. Lalljie, Defendants: John Marcus McNichols, Williams & Connolly LLP (DC), Washington, DC.

For Indiana Public Retirement System, Movant: Elizabeth Anne Aniskevich, Steven Jeffrey Toll, Cohen Milstein Sellers & Toll PLLC (DC), Washington, DC.

MEMORANDUM OPINION

James C. Cacheris, UNITED STATES DISTRICT COURT JUDGE.

This matter is before the Court on Defendants' Neustar, Inc. (" Neustar" ), Lisa A. Hook (" Hook" ), Paul S. Lalljie (" Lalljie" ), and Steven J. Edwards (" Edwards" )[1] (collectively " Defendants" ) Motion to Dismiss. [Dkt. 30.] For the following reasons, the Court will grant the motion.

I. Background

This case concerns the bidding process to win a lucrative government contract. Neustar, a communications data processing company, is the Local Number Portability Administrator (" LNPA" ). (Am. Compl. [Dkt. 23] ¶ 1, 21.) Number portability allows telephone customers to retain their phone number if they switch telephone service providers. ( Id.) Neustar, as the LNPA, manages the Number Portability Administration Center (" NPAC" ), a large central data registry that includes essentially all of the wireline and wireless telephone numbers in the United States and allows numbers to be transferred from one service provider to another. ( Id.) Neustar's predecessor won the only open-bidding process for this contract. ( Id. ¶ 37.) As such, it has been the sole LNPA since the NPAC was created in 1997. ( Id.) Neustar's contract has been extended three times. ( Id.) The current extension is set to expire in July 2015. ( Id. ¶ 71.)

The counter-party to the NPAC contract is North American Portability Management LLC (" NAPM" ), which represents all of the telecommunications service providers in the United States. ( Id. ¶ 30.) The Federal Communications Commission (" FCC" ) has plenary authority over number portability, but is not a party to the LNPA contract. ( Id. ¶ 34.) Rather, the FCC has delegated authority to the North American Numbering Council (" NANC" ), which then reviews and oversees NAPM's management of the NPAC contracts. ( Id.)

In 2010, the FCC put the wheels in motion to solicit requests for proposals (" RFPs" ) to select the next LNPA. ( Id. ¶ 43.) As relevant here, the RFPs were due on April 5, 2013. ( Id. ¶ 50.) On April 17, 2013 NAPM unexpectedly announced that, with the FCC's approval, it was extending the deadline for the submission of proposals to April 22, 2013. ( Id.) Neustar released a press release on the deadline extension the next day. ( Id. ¶ 101.)[2] In the press release, Edwards, senior vice president of Data Solutions, stated:

Neustar successfully submitted its proposal on April 5, 2013, which was the deadline previously announced by the NAPM. The RFP process has been a matter of public record since May 2011, was subject to a robust public comment process, and the deadline for submission of responses was published 60 days in advance of the filing deadline. The process was designed to promote competition and provided interested parties with sufficient time to meet the submission requirements. Neustar filed its response in a timely manner and in accordance with the RFP submission requirements. We remain confident in the strength of our proposal and the value to be gained by the industry and consumers if we are awarded the contract to continue in July 2015 as the local number portability administrator.

( Id. ¶ 102) (emphasis in original). Telcordia, a division of Ericsson, submitted its bid on April 22. ( Id. ¶ 52.)

On April 24, Neustar wrote to the FCC regarding the RFP deadline extension, which it filed on the agency's public docket. ( Id. ¶ 55; Pl.'s Opp. [Dkt. 37] at 4.) Neustar stated that extending the deadline after it had already submitted its bid " perversely favor[ed] bidders unable to meet the deadline" and " raises the risk that aspects of its confidential bid have been disclosed to other bidders prior to the extended deadline, including potentially through inadvertent disclosure, which would seriously prejudice Neustar." ( Id.) The decision, Neustar argued, " gives rise to concerns about the ability of one or more bidders to obtain favorable action based on undisclosed communications with the NAPM or with regulators." ( Id. ¶ 56.)

Hook, Neustar's president and CEO, disclosed the April 24 letter to the FCC in her opening remarks on the May 2 first quarter earnings conference call,[3] " emphasizing our concern that extending the deadline was inconsistent with the industry's and the FCC's commitment to manage a transparent and timely RFP process." ( Id. ¶ 111.) She then stated " we are confident in the strength of our proposal and it remained unchanged after the deadline extension." ( Id.) Later in the call, Hook stated that Neustar " delivered a strong proposal to renew the NPAC contract." ( Id.) She closed the call by reiterating that Neustar " submit[ted] a compelling proposal to renew the NPAC contract." ( Id.) On the same day as the call, Neustar released a press release on its 2013 first quarter financial results. ( Id. ¶ 108.) In the press release, Hook stated: " We submitted our proposal for the NPAC contract in early April, and we remain confident in our ability to provide world class [sic] service to the communications industry." ( Id. ¶ 109.)

On July 23, 2013 NAPM announced a delay in the LNPA selection timeline. ( Id. ¶ 58.) NANC would submit its recommendation to the FCC by November, and the FCC would make a final selection in January 2014. ( Id.) Seven days later, on July 30, Hook acknowledged this delay on Neustar's second quarter earnings call, but stated that " [w]e remain confident that our NPAC proposal is thorough, compelling and supported by the proven track record of value we provide to our clients and consumers and businesses we serve." ( Id. ¶ 117.)

Soon thereafter, NAPM, unsatisfied with the April bids, asked Telcordia and Neustar to submit their best and final offers (" BAFO" ). ( Id. ¶ 60.) The deadline was in September, and both companies met the deadline. ( Id. ¶ 61.) However, on October 21, 2013, Neustar privately wrote to NAPM, delivering an unsolicited second BAFO and asking NAPM to consider it in place of its September bid. ( Id. ¶ 63.)

On October 30, Hook reiterated her confidence in Neustar's ability to continue as the LNPA. In the third quarter earnings press release, she stated: " We have continued to position ourselves for a successful NPAC renewal." ( Id. ¶ 122.) On the third quarter earnings call, she told participants that " [w]e continue to believe that our capabilities and outstanding track record set us apart from other bidders for the next NPAC contract." ( Id. ¶ 123.) Just a few short days later, on November 3, Neustar privately renewed its request to submit a second BAFO. ( Id. ¶ 67.)

Still without an answer, Hook wrote a letter to the FCC and NAPM dated January 15, 2014, asking them to consider Neustar's second BAFO. ( Id. ¶ 74.) Hook followed the letter with a call to FCC Chairman Tom Wheeler on January 21. ( Id.) On January 23, Neustar disclosed the call and first letter in a redacted letter filed on the FCC's docket. ( Id.) Public viewers of the letter only saw the redaction notice. ( Id.) One day later, NAPM rejected Neustar's request to consider the second BAFO. ( Id. ¶ 80.)

On January 29, Neustar issued three press releases after the close of trading: (1) one announcing its financial results for both year end and the fourth quarter of 2013; (2) one announcing an update on the LNPA selection process; and (3) one announcing a share repurchase program. ( Id. ¶ 129.) The LNPA update press release disclosed that:

[t]hroughout the NPAC administrator selection process, Neustar has fully responded to each deadline and request. In April 2013, Neustar submitted an initial proposal according to the process and subsequently responded to the North American Portability Management LLC's (NAPM) request for a revised submission. In October 2013, the company requested the opportunity for all bidders to submit additional revised proposals. Together with that request, the company also submitted a revised proposal. On January 24, 2014, the company was notified that its October 2013 proposal would not be considered.

( Id. ¶ 130.) Hook stated in the press release that " [w]e believe that given our track record in innovating to meet the industry's needs, as well as our exceptional stewardship of the NPAC, we are the logical choice to be the local number portability administrator over the next contract period." ( Id. ¶ 131.)

That same day, Neustar hosted a conference call to discuss its financial results and the status of the NAPM contract selection process. Defendants revealed for the first time the existence of the October BAFO, its attempts to have the FCC and NAPM re-open bidding to consider it, and that it had been " returned unopened," i.e., not considered. ( Id. ¶ 132.) When asked by an analyst why the second proposal was necessary, Hook answered:

I think that we can all sharpen our pencils on overall value. As I said in my prepared remarks, multiple rounds are always important in complex negotiations. We think that there should be particular attention paid here to transition, costs and risk for all members of the industry, as well as a focus on the transition to IP, which is becoming more and more urgent. Any transition wouldn't necessarily disrupt that innovation.

( Id. ¶ 133.) The price of Neustar stock dropped by almost twenty percent, from $43.75 at the close of trading on January 29 to $35.11 per share at the close of trading January 30.[4] ( Id. ¶ 139.)

On February 12, 2014 Neustar filed a formal petition asking the FCC to submit additional bids. ( Id. ¶ 87.) One month later, Neustar wrote to NANC asking it to delay its recommendation, offering $50 million credit on the existing LNPA contract. ( Id. ¶ 91.) On April 16, Neustar released a press release on its first quarter earnings for 2014. ( Id. ¶ 140.) In the release, Hook stated that " [w]e are competing vigorously in the LNPA vendor selection process, and will continue to advocate strongly that we are the logical choice to remain as administrator, which we believe is beneficial to the industry and consumers alike." ( Id. ¶ 140.) That same day, Neustar held a conference call on its first quarter financial results and the status of the NAPM contract renewal process. During the call, Hook stated:

[w]e have participated in the LNPA vendor selection process, confident that an objective appraisal of our qualifications to continue managing the NPAC and the value of our proposal should place us in a strong position for a renewal of the contract. We continue to advocate that an additional round of bidding is necessary to evaluate objectively qualified vendors, and to ensure that the NPAC Contract will be awarded to the vendors that offers [sic] the best value proposition to the industry and to American consumers.

( Id. ¶ 142.) Lalljie, Neustar's senior vice president and chief financial officer, stated on the call that " we have made it abundantly clear that we are the logical choice to provide this service. We've been doing it with excellence for 17-plus years, and we fully expect that we will continue to do this into the future." ( Id. ¶ 143.)

On June 6, 2014, it was inadvertently disclosed that NANC recommended Telcordia's bid for the NAPM contract to the FCC. ( Id. ¶ 92.) Neustar disclosed this in a press release on June 9, 2014, the first business day after the information was leaked. ( Id. ¶ 93.) The stock lost another eight percent in value.

Oklahoma Firefighters Pension and Retirement System filed suit in this Court on July 15, 2014. [Dkt. 1.] On September 15, Indiana Public Retirement System (" Lead Plaintiff" ) moved to be appointed lead plaintiff and its attorneys lead counsel [Dkt. 2], which this Court granted. [Dkt. 11.] Lead Plaintiff filed the amended complaint, alleging three causes of action: (1) violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and Securities and Exchange Commission (" SEC" ) Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, against Neustar (Am. Compl. ¶ ¶ 193-204); (2) identical violations, as against the Individual Defendants ( Id. ¶ ¶ 205-216); and (3) violations of section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a), as against the Individual Defendants ( Id. ¶ ¶ 217-219). The proposed class period is from April 19, 2013 to June 6, 2014. ( Id. at 1.) Neustar and the Individual Defendants have moved to dismiss, arguing Lead Plaintiff has failed to ...


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