Sprint Granted Summary Judgment in Securities Class Action

On December 17, 2010, the United States District Court for the District of Kansas granted summary judgment in favor of Cravath clients Sprint Nextel Corporation and its outside directors in State of New Jersey v. Sprint Corporation et al., a securities class action that has been pending since 2003. The State of New Jersey asserted claims for securities fraud against Sprint and certain of its former officers and directors under Sections 10(b) and 14(a) of the Securities Exchange Act of 1934. These claims were based on alleged false and misleading statements in Sprint’s 2001 and 2002 proxy statements and other filings; these filings stated that Sprint had entered into new employment agreements with its CEO and President at the time, William Esrey and Ronald LeMay, respectively, that were intended to ensure the long-term employment of the executives. Esrey and LeMay were terminated by Sprint in early 2003, and New Jersey alleged that their terminations were inevitable at the time of the earlier proxy statements because the executives had entered into tax shelters that were not sustainable and would result in devastating tax liabilities, making it impossible for them to continue to lead Sprint.

The court held that the challenged statements were not false or misleading, because at the time they were made Sprint’s board was not seriously considering terminating the executives but rather was working to provide them with additional compensation to prevent them from seeking employment elsewhere. The court also ruled that several of the State of New Jersey’s arguments against summary judgment were precluded by an earlier decision granting in part defendants’ motion to dismiss and were contrary to the narrow basis on which the State of New Jersey had been permitted to re-plead.

The Cravath team included partners Ronald S. Rolfe and Michael A. Paskin and associates Leslie W. Regenbaum, Sean K. Thompson, Nathan J. Berkebile and Jaime D. Sneider.