NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 11-1318

_____________

TALBOT BARNARD; DONALD B. BIGGERSTAFF; SUSAN BIGGERSTAFF; 

DAVID BOON; GREG BOSER; DEB BOSER; THOMAS BOVET, COL.; MARK 

HENDRYCH; ZHENGXU HE FANG; YING FANG; BIN LEE; THOMAS E. 

MARTIN; MIDDLEBAR MONASTERY, NON-PROFIT; JERSEY NIETUBYC; 

KATHERINE PERINO; BRIAN D. SPENCER; STEPHEN S. SPENCER; CHARLES J. 

TURK, KNOWN COLLECTIVELY AS “THE SPENCER COMMITTEE”,

Appellants,

v.

VERIZON COMMUNICATIONS, INC.; J.P. MORGAN CHASE BANK, N.A., 

INDIVIDUALLY AND AS AGENT

_______________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 10-cv-1304)

District Judge: Hon. Gene E.K. Pratter

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Submitted Under Third Circuit LAR 34.1(a)

November 9, 2011

Before: SCIRICA, SMITH, and JORDAN, Circuit Judges.

(Filed: November 14, 2011)

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OPINION OF THE COURT
2

_______________

JORDAN, Circuit Judge.

Former shareholders of the now-bankrupt corporation Idearc, Inc. (“Appellants”)

appeal an order of the United States District Court for the Eastern District of 

Pennsylvania granting separate motions to dismiss filed by Verizon Communications, 

Inc. (“Verizon”) and J.P. Morgan Chase Bank, N.A. (“JPMC”) (collectively, 

“Appellees”). Appellants argue that the District Court improperly dismissed their 

complaint and erroneously declined to consider Appellants‟ then-pending motion for 

summary judgment before doing so. For the reasons that follow, we will affirm.1

I. Background

A. Idearc’s Bankruptcy

Appellants are former investors in Idearc, Inc. (“Idearc”), a corporation that was 

formed as part of a 2006 spin-off transaction whereby Verizon divested its domestic print 

and Internet “Yellow Pages” directory publishing operation and formed Idearc for the 

purpose of continuing that operation as a separate business. In connection with the spinoff, J.P. Morgan Ventures Corporation and Bear, Stearns & Company agreed to exchange 

approximately $7 billion in Verizon debt for an equal amount of Idearc debt. JPMC

served as an administrative agent for the debt exchange. In addition to that $7 billion in 

debt, Idearc also incurred $2 billion in debt to Verizon as partial consideration for the 

 

1 Appellants have also filed several motions which amount to motions for 

summary reversal, as well as a motion “requesting judicial notice of res adjudicata 

decision affirming justiciability of post-bankruptcy security holder claims.” (Appellants‟ 

Oct. 17, 2011 Motion Requesting Judicial Notice.) These motions lack merit and warrant 

no further discussion, as we hope will be plain from the discussion which follows.
3

Yellow Pages business and the right to be the exclusive and official publisher of Verizon 

print directories. 

On March 31, 2009, less than three years after its spin-off from Verizon, Idearc 

filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern 

District of Texas. Appellants, who held shares of Idearc when the Chapter 11 petition 

was filed, actively participated in the bankruptcy proceedings. Among other things, 

Appellants sought to have Idearc‟s bankruptcy proceedings dismissed on the ground that 

the Idearc bankruptcy was part of a scheme orchestrated by Verizon for the purpose of 

reducing its liabilities while leaving Idearc‟s shareholders with crushing debt. 

The Bankruptcy Court denied Appellants‟ motion to dismiss and ultimately 

confirmed Idearc‟s Chapter 11 reorganization plan (the “Plan”), over Appellants‟ 

objections. Under the Plan, Idearc cancelled its existing common stock – including 

shares owned by Appellants – and issued new common stock to its secured and unsecured 

creditors. In addition, the Plan established a litigation trust to investigate and pursue any 

claims for the benefit of Idearc‟s bankruptcy estate and creditors.2 Following the Plan‟s 

confirmation, Appellants filed a notice of appeal3and motions that, if granted by the 

 

2

The litigation trustee has already filed one such action against Verizon and other 

defendants in the United States District Court for the Northern District of Texas. See

U.S. Bank Nat’l Ass’n v. Verizon Commc’ns Inc., No. 10-1842 (N.D. Tex.). That case is 

currently pending.

3

The United States District Court for the Northern District of Texas dismissed 

Appellants‟ appeal from the Bankruptcy Court‟s final judgment as equitably moot. 

Appellants then appealed that decision to the United States Court of Appeals for the Fifth 

Circuit, which affirmed the district court‟s order on October 17, 2011. See Spencer ad 
4

Bankruptcy Court, would have rescinded the confirmation order or stayed the Plan‟s 

implementation. Those motions were denied by the Bankruptcy Court on March 5, 2010. 

B. Proceedings in the District Court

Appellants filed this action on March 25, 2010 and subsequently amended their 

complaint twice, asserting claims for securities fraud, insider trading, common law fraud,

conversion, a Bivens claim for violation of federal constitutional rights, and a claim 

alleging violation of § 206 of the Communications Act, 47 U.S.C. § 206. Verizon and 

JPMC each filed a motion to dismiss Appellants‟ second amended complaint. Appellants 

opposed those motions and also filed a pre-discovery motion for summary judgment. 

After Appellants declined the District Court‟s invitation to file a third amended

complaint, the Court granted Appellees‟ motions and dismissed the second amended 

complaint in its entirety. The Court held that the securities fraud, insider trading, and 

common law fraud claims did not satisfy the applicable pleading standard; it rejected 

Appellants‟ conversion claim as a collateral attack on the Idearc bankruptcy; and it 

concluded that there was no legal basis for a claim under Bivens or the Communications 

Act. Finding that a curative amendment would be futile, inasmuch as Appellants had 

already filed two amended complaints and still failed to present a cognizable claim for 

relief, the District Court dismissed the second amended complaint with prejudice. In 

light of its ruling on the motions to dismiss, the Court denied Appellants‟ motion for 

summary judgment. 

 

hoc Equity Comm. v. Idearc, Inc. (In re Idearc, Inc.), No. 10-10858, 2011 WL 4910019, 

at *4 (5th Cir. Oct. 17, 2011).
5

Appellants timely appealed. 

II. Discussion4

Appellants argue that the District Court erred in dismissing their securities fraud, 

common law fraud, conversion, and Communications Act claims,

5

and in failing to 

consider their motion for summary judgment before doing so. We address each of those

contentions in turn.

A. Securities Fraud

Appellants allege that Verizon and JPMC violated section 10(b) of the Securities 

and Exchange Act, as well as Securities and Exchange Commission Rule 10b-5, by 

“planning, orchestrating and accomplishing the spin, listing and public distribution of the 

Verizon subsidiary, Idearc, that was defined „insolvent‟ ... when issued ... and ... failing to 

 

4

The District Court had jurisdiction pursuant to 28 U.S.C. § 1331 and 28 

U.S.C. § 1367. We have jurisdiction pursuant to 28 U.S.C. § 1291. Our review of a 

district court‟s dismissal for failure to state a claim is plenary. Sheridan v. NGK Metals 

Corp., 609 F.3d 239, 262 n.27 (3d Cir. 2010). “„Reviewing such an order, we accept as 

true all allegations in the plaintiff‟s complaint as well as all reasonable inferences that can 

be drawn from them, and we construe them in a light most favorable to the nonmovant.‟” Id. (quoting Monroe v. Beard, 536 F.3d 198, 205 (3d Cir. 2008)). Our task in 

doing so is to determine whether “the facts alleged in the complaint are sufficient to show 

that the plaintiff has a „plausible claim for relief.‟” Fowler v. UPMC Shadyside, 578 F.3d 

203, 211 (3d Cir. 2009) (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009)). 

However, while our review of an order dismissing a complaint is plenary, the decision to 

do so with prejudice is reviewed for abuse of discretion. Anderson v. Ayling, 396 F.3d 

265, 271 (3d Cir. 2005).

5

To limit the issues on appeal, Appellants have “agree[d] to the dismissal” of the 

insider trading and Bivens claims and have acknowledged that their assertion that they 

have a “Shareholder Direct Right of Action” is “not a separate cause of action, but is an 

allegation that the Decree in Bankruptcy affirmatively authorized . . . third-party direct 

action lawsuits against Verizon, including shareholder suits.” (Appellants‟ Opening Br. 

at 3.)
6

disclose in applicable registration statements their true intent, which was ... to simply offload debt, and transfer ownership of debt directly . . . from Verizon to the banks.” (J.A. 

at 58.) In particular, Appellants aver that Verizon and JPMC intentionally 

misrepresented Idearc‟s solvency by creating an “„illusion‟ of permanence” through the 

exclusive publishing agreement Verizon and Idearc entered into, through paying an initial 

dividend, and through withholding their “affirmative intent to permit a near term

recapitalization.” (Id. (emphasis omitted).) This, according to Appellants, created a 

“fraud upon the market artificially inflating the market for ... shares of Idearc.” (J.A. at 

59.)

To pursue a private right of action under section 10(b) and Rule 10b-5, a plaintiff

must allege (1) a material misrepresentation or omission; (2) scienter; (3) a connection 

with the purchase or sale of a security; (4) reliance on the misrepresentation or omission; 

(5) economic loss; and (6) a causal connection between the material misrepresentation or 

omission and the loss. McCabe v. Ernst & Young, LLP, 494 F.3d 418, 424 (3d Cir. 

2007). In doing so, the plaintiff must comply with the Private Securities Litigation 

Reform Act of 1995 (the “PSLRA”), which “imposes two exacting and distinct pleading 

requirements for securities fraud actions.” In re Aetna, Inc. Sec. Litig., 617 F.3d 272, 277 

(3d Cir. 2010). First, a complaint alleging that the defendant is liable by virtue of a 

material misrepresentation or omission must “specify each statement alleged to have been 

misleading, the reason or reasons why the statement is misleading, and, if an allegation 

regarding the statement or omission is made on information and belief, the complaint 

shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-
7

4(b)(1). Second, a complaint must “state with particularity facts giving rise to a strong 

inference that the defendant acted with the required state of mind.” Id. § 78u-4(b)(2)(A).

We agree with the District Court that Appellants‟ second amended complaint fails 

to state an actionable securities fraud claim under those standards. The pleading does not 

provide any facts from which one could ascertain whether either JPMC or Verizon, or 

both, made any actionable misrepresentations or omissions at all.

6

 The closest it comes 

to doing so is its reference to Verizon‟s 2007 annual statement (which Appellants read to 

indicate that Verizon felt Idearc might be subject to recapitalization) and Idearc‟s 2006 

prospectus (which allegedly omitted information concerning a tax sharing agreement). 

However, Appellants‟ reference to these statements fails to indicate how, if at all, the 

statements could be interpreted as material misrepresentations or omissions. As a result, 

the allegations fall far short of the particularized pleading required by the PSLRA. See 

15 U.S.C. § 78u-4(b)(1). The second amended complaint also contains no allegations

from which reliance and economic loss can be established because there is no indication 

as to how, when, or why Appellants purchased or sold Idearc stock. There is thus no way 

to ascertain how any misrepresentation or omission impacted Appellants‟ decisions to 

 

6 Correspondingly, the complaint fails to ascribe any given statement to either 

defendant particularly. Cf. Winer Family Trust v. Queen, 503 F.3d 319, 335-36 (3d Cir. 

2007) (“The PSLRA requires plaintiffs to specify the role of each defendant, 

demonstrating each defendant‟s involvement in misstatements and omissions.”).
8

purchase or sell securities. Accordingly, the District Court appropriately dismissed 

Appellants‟ securities fraud claim.7

B. Common Law Fraud

Appellants‟ common law fraud claim, rooted in the same factual allegations as 

their securities fraud claim, alleges that the spin-off was a massive fraud perpetrated by 

Verizon and JPMC to offload Verizon‟s debt onto Idearc. “„[T]o establish common law 

fraud [under Pennsylvania law], a plaintiff must prove: (1) misrepresentation of a 

material fact; (2) scienter; (3) intention by the declarant to induce action; (4) justifiable 

reliance by the party defrauded upon the misrepresentation; and (5) damage to the party 

defrauded as a proximate result.‟”8 Hunt v. U.S. Tobacco Co., 538 F.3d 217, 225 n.13

(3d Cir. 2008) (quoting Colaizzi v. Beck, 895 A.2d 36, 39 (Pa. Super. Ct. 2006)). 

 

7 Unlike Appellants‟ complaint, which appears to plead a securities fraud claim 

arising from a material misrepresentation or omission, Appellants‟ briefing suggests that 

their basis for relief is instead grounded in the fact that Idearc stock was a false security 

that should “not have been marketed at all.” (Appellants‟ Br. at 9.) However, while the 

Fifth Circuit has arguably countenanced a “fraud created the market” theory, see Shores 

v. Sklar, 647 F.2d 462, 468-70 (5th Cir. 1981) (concluding the plaintiff could state a 

claim if he could show that “(1) the defendants knowingly conspired to bring securities 

onto the market which were not entitled to be marketed, intending to defraud purchasers, 

(2) [the plaintiff] reasonably relied on the [securities‟] availability on the market as an 

indication of their apparent genuineness, and (3) as a result of the scheme to defraud, [the 

plaintiff] suffered a loss” (internal footnote omitted)), overruled on other grounds as 

recognized in Regents of Univ. of Cal. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 

372, 392 (5th Cir. 2007), we have emphatically rejected that theory, see Malack v. BDO 

Seidman, LLP, 617 F.3d 743, 756 (3d Cir. 2010) (“The fraud-created-the-market theory 

lacks a basis in common sense, probability, or any of the other reasons commonly 

provided for [it].”).

8 Appellants brought this action in Pennsylvania and assume that their state-law 

claims are subject to Pennsylvania law. See Felder v. Casey, 487 U.S. 131, 151 (1988) 

(explaining that a federal court exercising supplemental jurisdiction over a state-law 
9

As the elements of the tort and the factual allegations giving rise to the claim 

demonstrate, Appellants‟ common law fraud claim is substantially similar to Appellants‟ 

securities fraud claim under section 10(b) and Rule 10b-5.9 Moreover, while not 

identical to the pleading requirements applicable to federal securities fraud claims, 

common law fraud claims brought in federal court require the pleader to “state with 

particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). As explained

above, Appellants‟ factual averments of securities fraud are not sufficient to state a claim, 

and Appellants‟ common law fraud claim fails for much the same reason. It is simply 

inadequate to meet the applicable pleading standard. See GFL Advantage Fund, Ltd. v. 

Colkitt, 272 F.3d 189, 214 (3d Cir. 2001) (observing the similarities between federal 

securities fraud claims and Pennsylvania common law fraud claims, and holding that the 

plaintiff‟s “common law fraud claims fail for the same reasons his federal securities 

claims fail”).

C. Conversion

Appellants allege that JPMC converted Appellants‟ Idearc shares to their own

shares by receiving Idearc‟s shares through the Plan. As best can be gleaned from their 

 

claim should apply the forum state‟s substantive law). Neither side has contested that 

choice of law, and we accept it for purposes of our analysis.

9

The count in which Appellants‟ fraud claim appears is titled “Common Law 

Fraud and Undue Influence Claims,” (J.A. at 62), and Appellants‟ briefing suggests that 

Appellants consider undue influence to be a distinct claim for relief. (See Appellants‟ 

Opening Br. at 24.) However, as the District Court correctly observed, undue influence is 

generally a defense to a claim. Moreover, the relief Appellants evidently seek – reversing 

the pre-bankruptcy debt exchange – would inappropriately conflict with the Bankruptcy 

Court‟s order approving the Plan insofar as it assigned any claims to a litigation trust for 

the benefit of Idearc‟s bankruptcy estate and creditors.
10

pleadings, Appellants believe that JPMC achieved this by exerting illicit influence on the 

Bankruptcy Court to allow JPMC to become “simultaneously both a secured and an 

„unsecured‟ creditor” in order to receive an equity interest in Idearc under the Plan. (J.A. 

at 65.) Appellants‟ conversion claim is thus – as the District Court characterized it –

essentially a collateral attack on the final judgment of the Bankruptcy Court, and the 

District Court correctly dismissed it. See Chem. Leaman Tank Lines, Inc. v. Aetna Cas. 

& Sur. Co., 177 F.3d 210, 219 (3d Cir. 1999) (explaining the general rule that a final 

judgment has res judicata effect and may not be attacked collaterally).

D. Communications Act

Appellants allege that Verizon‟s allegedly fraudulent spin-off transaction violated 

§ 206 of the Communications Act. Section 206 provides a basis for liability where a 

common carrier injures another by an act or omission that violates the portion of the 

Communications Act regulating common carriers. 47 U.S.C. § 206. Appellants claim

that Verizon must be subject to liability under the Communications Act because the 

Idearc spin-off was a scheme that enabled Verizon to unlawfully acquire money which 

was then used to obtain federal licenses for Verizon‟s network.

10 This theory of liability 

is a painful stretch. Appellants‟ dressing up yet another version of their inadequate fraud 

 

10 Indeed, the only reference Appellants‟ complaint makes to any specific 

provision of the Communications Act besides § 206 states that the “debt off-loading spin 

transactions were necessary, integral and inseparable from the federal licensing and 

authority granted pursuant to the Federal Telecommunications Act [47 U.S.C. § 214] for 

building of Verizon‟s new and expanded systems in the Northeastern United States . . . as 

without the ridding of the debt, the building could not have occurred.” (J.A. at 67.) 

Appellants further assert in their briefing that “general fraud in the conduct of one‟s 

communications business can result in loss of license.” (Appellants‟ Opening Br. at 28.) 
11

claim in Communications Act clothing does not make it cognizable. We agree with the 

District Court that their allegations do not provide a basis for recovery under the 

Communications Act.

E. Dismissal With Prejudice

Ordinarily, a plaintiff must be afforded an opportunity to amend his or her 

complaint when it is dismissed for failure to state a claim. Phillips v. Cnty. of Allegheny, 

515 F.3d 224, 245 (3d Cir. 2008). However, a curative amendment need not be afforded 

where it “would be inequitable or futile.” Id. The District Court rightly concluded that a 

curative amendment would be futile in this case. Even after filing two amended 

complaints and being expressly invited by the District Court to file a third amended 

complaint, Appellants presented only claims that were well below the governing pleading 

standards. Under these circumstances, the District Court‟s determination that a curative 

amendment would be futile was not an abuse of discretion.11

III. Conclusion

For the foregoing reasons, we will affirm the judgment of the District Court.

 

11 Nor did the District Court err in denying Appellants‟ motion for summary 

judgment in light of the disposition of Appellees‟ motions to dismiss. Once the District 

Court determined that Appellants‟ complaint failed to state legally cognizable claims, 

Appellants‟ motion for summary judgment was moot.