Houser v. CenturyLink

SUMMARY

August 22, 2024

2024COA96

No. 23CA1214, Houser v. CenturyLink — Civil Procedure —

Signing of Pleadings — Obligations of Parties and Attorneys —

Borrowing Plausibility — Reasonable Inquiry — Pleading

Grounded in Fact

In this case, a division of the court of appeals considers, as a

matter of first impression in Colorado, whether an attorney’s

inquiry is objectively reasonable under C.R.C.P. 11(a) if the attorney

copies confidential witnesses’ factual statements from a complaint

in another case without speaking to the confidential witnesses to

confirm their statements. After reviewing federal cases addressing

whether Fed. R. Civ. P. 11 prohibits copying confidential witness

statements in this manner, the division concludes that C.R.C.P.

11(a) does not require an attorney to speak with confidential

witnesses who are the source of factual allegations taken from a

complaint in another case before incorporating those allegations

The summaries of the Colorado Court of Appeals published opinions

constitute no part of the opinion of the division but have been prepared by

the division for the convenience of the reader. The summaries may not be

cited or relied upon as they are not the official language of the division.

Any discrepancy between the language in the summary and in the opinion

should be resolved in favor of the language in the opinion.

into the complaint in the attorney’s case; rather, the attorney can

satisfy the obligation to conduct a reasonable inquiry in other ways.

COLORADO COURT OF APPEALS 2024COA96

Court of Appeals No. 23CA1214

Boulder County District Court No. 18CV30556

Honorable Dea M. Lindsey, Judge

Dean Houser,

Plaintiff-Appellant,

v.

CenturyLink, Inc.; Glen F. Post, III; R. Stewart Ewing, Jr.; David D. Cole;

William A. Owens; Martha H. Bejar; Virginia Boulet; Peter C. Brown; W. Bruce

Hanks; Jeffrey K. Storey; Steven T. Clontz; Mary L. Landrieu; Gregory J.

McCray; Harvey P. Perry; Michael J. Roberts; Laurie A. Siegel; and Sunit S.

Patel,

Defendants-Appellees.

JUDGMENT REVERSED AND CASE

REMANDED WITH DIRECTIONS

Division III

Opinion by JUDGE BERNARD*

Dunn and Moultrie, JJ., concur

Announced August 22, 2024

Ranson & Kane PC, Jason P. Kane, Denver, Colorado; Bottini & Bottini, Inc.,

Francis A. Bottini, Jr., Albert Y. Chang, La Jolla, California, for Plaintiff-

Appellant

Wheeler Trigg O’Donnell LLP, Kathryn A. Reilly, Daniel N. Guisbond, Denver,

Colorado, for Defendants-Appellees

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.

VI, § 5(3), and § 24-51-1105, C.R.S. 2023.

1

¶ 1 Is it improper for plaintiffs in civil cases to incorporate factual

allegations contained in complaints from other cases into their own

complaints? For the purposes of this appeal, we will call this

process “borrowing plausibility.” The “borrowing” part of this

descriptor is obvious: an allegation in one complaint that is taken

from another. The “plausibility” part refers to the reason for the

borrowing: “[O]nly a complaint that states a plausible claim for

relief survives a motion to dismiss.” Warne v. Hall, 2016 CO 50, ¶ 9

(quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). So the

process of borrowing plausibility is designed to craft complaints

that will weather C.R.C.P. 12(b)(5) motions to dismiss for “failure to

state a claim upon which relief can be granted.”

¶ 2 Borrowing plausibility has prompted a disagreement among

federal courts. On one side of the debate, some courts have

concluded that borrowing plausibility is almost always improper.

See Marcus Alexander Gadson, Stolen Plausibility, 110 Geo. L.J.

291, 299-300 (2021). On the other side of the debate, some courts

think that, subject to some controls, borrowing plausibility can be

acceptable. See id.

2

¶ 3 This case requires us to address, for the first time in Colorado,

one aspect of borrowing plausibility. It arises from the 2017 merger

of defendant CenturyLink, Inc., which we shall call “the

corporation,” and Level 3 Communications, Inc. Plaintiff, Dean

Houser, whom we shall call “the shareholder,” filed a lawsuit

against the corporation on behalf of himself and a proposed class of

former Level 3 stockholders who acquired the corporation’s stock

through the merger.

¶ 4 As we will explain in more detail below, the original complaint

was dismissed, and the shareholder appealed. A division of this

court affirmed in part and reversed in part, remanding the case so

that the shareholder could file an amended complaint on one claim.

Houser v. CenturyLink, Inc., 2022 COA 37, ¶¶ 50-51 (Houser I).

¶ 5 On remand, the shareholder filed an amended complaint, and

the corporation filed a C.R.C.P. 12(b)(5) motion to dismiss it. The

motion argued that (1) the amended complaint included several

allegations copied from a different lawsuit against the corporation;

(2) these allegations were based on interviews with confidential

witnesses; (3) the shareholder’s attorney had not interviewed the

confidential witnesses; and (4) the shareholder’s complaint had,

3

therefore, violated C.R.C.P. 11, which states that “[t]he signature of

an attorney constitutes a certificate by him . . . that to the best of

his knowledge, information, and belief formed after reasonable

inquiry, it is well grounded in fact.” Although the motion did not

use the phrase “borrowed plausibility,” that concept was the

motion’s focus.

¶ 6 The trial court granted the corporation’s motion, and it

dismissed the amended complaint. The court ruled that, because

the shareholder’s counsel did not personally speak with “the

unnamed former employees who made allegations against [the

corporation] in the [other] complaint,” counsel had not conducted a

“reasonable inquiry” into the amended complaint’s factual basis for

the purposes of C.R.C.P. 11(a). The court then disregarded those

allegations and decided that the remaining allegations were

insufficient to state a claim.

¶ 7 The shareholder again appealed to this court.

¶ 8 We reverse and remand for further proceedings. In doing so,

we conclude that (1) if a plaintiff takes investigative steps, such as

those that the shareholder took in this case, the plaintiff may

borrow plausibility by incorporating allegations from confidential

4

witnesses cited in another complaint; and (2) C.R.C.P. 11(a) does

not require plaintiff’s counsel in such circumstances to speak

directly with the confidential witnesses.

I. Background

¶ 9 On December 15, 2016, the corporation and Level 3 filed a

joint preliminary proxy statement/prospectus in a registration

statement with the Securities and Exchange Commission, or “the

SEC.” Houser I, ¶ 4. The SEC declared that the final registration

statement, which incorporated the joint proxy

statement/prospectus, became effective on February 13, 2017. Id.

(When discussing these documents — the registration statement

and the proxy statement/prospectus — together, we will call them

“the offering documents.”) The merger closed on November 1, 2017.

Id.

¶ 10 In June 2018, the shareholder filed this putative class action

against (1) the corporation; and (2) certain of its officers and

directors, along with some officers of Level 3 — namely, Glen F.

Post, III, R. Stewart Ewing, Jr., David D. Cole, William A. Owens,

Martha H. Bejar, Virginia Boulet, Peter C. Brown, W. Bruce Hanks,

Jeffrey K. Storey, Steven T. Clontz, Mary L. Landrieu, Gregory J.

5

McCray, Harvey P. Perry, Michael J. Roberts, Laurie A. Siegel, and

Sunit S. Patel — whom we shall call “the individual defendants.” Id.

at ¶ 5. The original complaint asserted claims under sections 11,

12(a)(2), and 15 of the Securities Act of 1933, or “the Act.”

15 U.S.C. §§ 77k, 77l(a)(2), and 77o.

¶ 11 More specifically, the original complaint alleged that the

corporation and the individual defendants had made material

misstatements in, and had omitted material information from, the

offering documents. Among other claims, the complaint alleged

that, when the offering documents became effective, the corporation

had been engaged in widespread deceptive practices known as

“cramming,” which included charging customers for services that

they had not requested or authorized and charging them hidden

fees. Houser I, ¶ 23. According to the complaint, the corporation’s

senior management knew about the cramming, and despite their

legal obligation to disclose it, they had not done so. Plus they had

not disclosed that “a material amount of [the corporation’s] reported

revenues and earnings had been realized by improper conduct, and

thus that [its] revenues would decrease when customers switched to

6

a different carrier or forced [it] to cancel services that had not been

authorized.” Id.

¶ 12 The corporation filed a C.R.C.P. 12(b)(5) motion to dismiss the

original complaint. Among other things, the shareholder’s counsel

asked for leave to amend the complaint based on facts that had

come to light in other lawsuits related to the merger. Houser I,

¶¶ 6-7. The court granted the motion to dismiss, concluding that

the complaint had not alleged facts showing that the corporation’s

officers involved in the merger process knew, when the offering

documents became effective, about any cramming, the extent of any

cramming, or the potential effect of any cramming on the

corporation’s revenues. Id. at ¶ 24. It also denied the shareholder’s

motion for leave to amend the original complaint. Id. at ¶ 8. The

shareholder appealed these rulings.

¶ 13 The Houser I division affirmed the decision to dismiss the

shareholder’s original complaint. Id. at ¶ 51. But it reversed the

order denying the shareholder’s motion for leave to amend the

complaint “as it pertains to the omissions claim based on the

cramming theory,” id., ruling that the shareholder “should be

allowed to amend his complaint to include additional allegations

7

that [the corporation] failed to disclose the ‘cramming’ practices,” id.

at ¶ 46.

¶ 14 In reaching this result, the division acknowledged that “facts

relate[d] to the cramming theory alleged in the complaint, and

specifically to [the corporation’s] knowledge of the nature and extent

of the cramming practices and consequences when the [o]ffering

[d]ocuments became effective,” had come to light after the

shareholder had filed his original complaint. Id. at ¶ 50.

Specifically, the division noted that, in In re CenturyLink Sales

Practices & Securities Litigation, 403 F. Supp. 3d 712 (D. Minn.

2019), a Minnesota federal court had found those facts “sufficient to

state a claim even under a heightened pleading test.” Houser I,

¶ 50. The division therefore concluded that it could not “say as a

matter of law, at this juncture, that [the shareholder] would be

unable to state omissions claims under sections 11, 12(a)(2), and

15 [of the Act] with the addition of such facts.” Id. But the division

cautioned in a footnote addressing information from another

complaint that, “[t]o the extent [the shareholder] desires to use such

allegations on remand in an amended complaint, he must plead

them as facts, not as allegations by someone else, and must do so

8

only after reasonable inquiry as required by C.R.C.P. 11.” Id. at

¶ 28 n.9.

¶ 15 Five months after the division decided Houser I, the

shareholder filed the amended complaint that is the subject of this

appeal. His counsel began by detailing the scope of his inquiry,

stating that the allegations were

based upon personal knowledge as to [the

shareholder] and [the shareholder’s] own acts

and upon information and belief as to all other

matters based on the investigation conducted

by and through [the shareholder’s counsel],

which included, among other things, a review

of [SEC] filings by [the corporation], the

[corporation’s] press releases and earnings

calls, analyst reports and media reports about

the [corporation], review of public filings in the

related cases, including [In re CenturyLink],

and discussions with plaintiffs’ counsel in

those actions, and review of other publicly-

available information about [the corporation].

[The shareholder] believes that substantial

additional evidentiary support will exist for the

allegations set forth herein after a reasonable

opportunity for discovery.

¶ 16 Among the allegations that followed in the amended

complaint, several were copied or adapted from allegations in the In

re CenturyLink complaint, which had been based on interviews with

9

unnamed former employes of the corporation — the confidential

witnesses. The following examples are illustrative:

Shareholder’s Amended

Complaint

In re CenturyLink Complaint

Ҧ 65. According to one former

employee, cramming at [the

corporation] was ‘happening all

the time, all day, every day,’ and

the sales representatives who

engaged in these practices were

routinely rewarded, including by

being named as ‘Circle of

Excellence’ honorees.”

Ҧ 89. According to FE-11 [a

confidential witness and an

unnamed former employee],

cramming was ‘happening all

the time, all day, every day,’ and

that representatives who

engaged in these practices

included high sales performers

who the [corporation] named as

‘Circle of Excellence’ honorees.”

Ҧ 67. . . . [The corporation]

limited the number of credits or

refunds that sales employees

could offer to customers to

resolve billing disputes.

Specifically, credits of more

than $50 needed a supervisor’s

approval, which was frequently

withheld because supervisors

were rated on the amount of

credits that they approved. In

addition, the [corporation’s]

computer system made it

physically impossible to give

back credits for more than three

months’ worth of charges.”

Ҧ 85. . . . FE-12 [a confidential

witness and an unnamed

former employee] said that

retention specialists were

limited in the amount of

‘credits,’ or refunds, they could

offer customers to resolve billing

disputes. Specifically, credits

for more than $50 needed a

supervisor’s approval, and the

[corporation’s] computer

systems made it physically

impossible to give back credits

for more than three months’

worth of charges.”

¶ 17 The corporation filed its C.R.C.P. 12(b)(5) motion to dismiss

the amended complaint, arguing, as is relevant to this appeal, that

the allegations copied from the In re CenturyLink complaint “should

10

be ignored” because “[the shareholder] simply plagiarized” the

complaint in that case “without averring that he or his counsel

spoke with any of the [former employees] who provided the

underlying facts.” (The corporation raised other arguments, too,

including that the shareholder had failed to state a claim under

section 11 of the Act against one of the individual defendants, that

the shareholder had not established statutory seller status for the

individual defendants under section 12(a)(2) of the Act, and that the

shareholder had not established vicarious liability for the purposes

of section 15 of the Act.)

¶ 18 After a hearing on the motion to dismiss, the trial court agreed

with the corporation that the copied allegations should be ignored.

It decided that the shareholder had not followed the division’s

instruction in Houser I, which was that, to the extent the

shareholder wished to use the In re CenturyLink allegations in an

amended complaint, he “must do so only after reasonable inquiry as

required by C.R.C.P. 11.” Houser I, ¶ 28 n.9. The court reasoned

that

[the shareholder] has made no assertions in

either his [a]mended [c]omplaint or in his

testimony [during the hearing on the motion to

11

dismiss] that he spoke with the unnamed

former employees who made allegations

against [the corporation] in the [In re

CenturyLink] complaint. . . . The statements

by all of the former . . . employees [of the

corporation] made in the [In re CenturyLink]

complaint were given in interviews conducted

by various attorneys, none of whom are [the

shareholder’s] counsel. [The shareholder’s]

only arguments related to this matter are that

[his counsel] conducted “painstaking research

and review of the related lawsuits” and

“discussions with plaintiffs’ counsel in those

actions.” Those actions described by [the

shareholder’s] counsel are insufficient to

satisfy the reasonable inquiry standard.

¶ 19 After declining to consider the allegations it found to be “mere

copies of or slightly altered from another complaint,” the court

found that the shareholder’s “remaining allegations are insufficient

to establish a plausible omissions claim” under the Act. As a

result, it dismissed the amended complaint without addressing the

other arguments raised in the corporation’s C.R.C.P. 12(b)(5)

motion.

II. Analysis

¶ 20 The shareholder contends that the trial court erred in three

ways. First, the court should have considered the factual

allegations copied from the In re CenturyLink complaint. Second, it

12

should not have decided that the allegations remaining after the In

re CenturyLink allegations were removed were insufficient to state a

claim for relief. Third, it should have allowed him to file a second

amended complaint.

¶ 21 Because we agree with the shareholder’s first contention, we

need not consider his second and third contentions. We reverse the

trial court’s order dismissing the amended complaint, and we

remand this case to that court to consider the amended complaint

in its entirety. In doing so, we conclude that C.R.C.P. 11(a) does

not require an attorney to speak with confidential witnesses who

are the source of factual allegations taken from a complaint in

another case before incorporating those allegations into the

complaint in the attorney’s case; rather, as we explain below, the

attorney can satisfy the obligation to conduct a reasonable inquiry

in other ways.

A. Standard of Review

¶ 22 We review de novo a district court’s decision to dismiss a

complaint for failure to state a claim under C.R.C.P. 12(b)(5).

Jagged Peak Energy Inc. v. Okla. Police Pension & Ret. Sys., 2022

CO 54, ¶ 24. “Applying the same standard as the district court, we

13

accept all factual allegations in the complaint as true and view them

in the light most favorable to the non-moving party.” Id.

Dismissing a claim under C.R.C.P. 12(b)(5) is proper “only when the

facts alleged in the complaint cannot, as a matter of law, support

the claim for relief.” Id. (quoting N.M. v. Trujillo, 2017 CO 79, ¶ 18).

¶ 23 As we noted above, Warne, ¶¶ 9, 24, adopted a “plausibility”

standard for assessing C.R.C.P. 12(b)(5) motions. Under this

standard, “to survive a motion to dismiss for failure to state a claim

on which relief can be granted, a plaintiff must allege sufficient

facts that, if taken as true, show plausible grounds to support a

claim for relief.” Jagged Peak, ¶ 25.

¶ 24 The plausibility standard does not require a plaintiff to “‘plead

a prima facie case, [but the plaintiff] must at least set forth enough

factual allegations to plausibly support each of the . . . basic

elements’ of [the] claim.” Adams Cnty. Hous. Auth. v. Panzlau, 2022

COA 148, ¶ 51 (quoting Mandala v. NTT Data, Inc., 975 F.3d 202,

209 (2d Cir. 2020)).

B. Omissions Claims Under the Act

¶ 25 Because the division in Houser I, ¶ 51, granted the

shareholder leave to amend his complaint only “as it pertains to the

14

omissions claim based on the cramming theory,” we briefly review

the legal framework governing omissions claims under the Act.

¶ 26 “Sections 11 and 12(a)(2) impose strict liability for making

material misleading statements or omissions in a registration

statement (section 11) or in a prospectus or oral communication

(section 12(a)(2)).” Id. at ¶ 13. “In the case of an alleged omission,

a plaintiff must allege that the securities laws required the omitted

material fact to be included or that its absence rendered statements

in the registration statement or prospectus misleading.” Id. at ¶ 15.

A statement is material if “a reasonable investor would consider it

important in determining whether to buy or sell stock.” Id. at ¶ 18

(quoting Slater v. A.G. Edwards & Sons, Inc., 719 F.3d 1190, 1197

(10th Cir. 2013)).

¶ 27 Item 303 of SEC Regulation S-K, 17 C.F.R. § 229.303 (2023),

establishes a duty of disclosure in offering documents when a

“trend, demand, commitment, event or uncertainty is both

[1] presently known to management and [2] reasonably likely to

have material effects on the registrant’s financial condition or

results of operation.” Id. at ¶ 16 (quoting Slater, 719 F.3d at 1197).

Because sections 11 and 12(a)(2) prohibit “omission[s] in

15

contravention of an affirmative legal disclosure obligation,” In re

Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 360 (2d Cir.

2010), a defendant may be liable under either provision if it violates

Item 303’s disclosure obligation, Jagged Peak, ¶ 30.

¶ 28 Section 15, in turn, is a vicarious liability provision, under

which a “control person” can be liable if the control person’s

company is liable under section 11 or section 12(a)(2). Houser I,

¶ 19 n.8.

C. C.R.C.P. 11

¶ 29 In evaluating the adequacy of an attorney’s inquiry into the

factual basis of a pleading, Colorado courts apply an “objective

reasonableness standard.” In re Trupp, 92 P.3d 923, 930 (Colo.

2004). That is, an attorney violates C.R.C.P. 11(a) “by failing to

conduct an objectively reasonable inquiry prior to filing a signed

pleading.” Id.

¶ 30 No published decision in Colorado has addressed whether an

attorney’s inquiry is objectively reasonable under C.R.C.P. 11(a) if

(1) the attorney borrows plausibility by copying factual statements

made by confidential witnesses; (2) those factual statements are

borrowed from a complaint in another case; and (3) the attorney

16

has not spoken to those confidential witnesses to confirm their

statements.

¶ 31 But several federal courts have generally discussed the

propriety of borrowing plausibility under Fed. R. Civ. P. 11, the

federal counterpart to C.R.C.P. 11. Is Fed. R. Civ. P. 11 a close

enough analogue to C.R.C.P. 11 to allow us to look to those cases

for guidance? See, e.g., Ferraro v. Frias Drywall, LLC, 2019 COA

123, ¶ 15 (concluding that a Colorado court interpreting a Colorado

rule may rely on federal cases interpreting a substantially similar

federal rule).

¶ 32 There are some significant differences between C.R.C.P. 11

and Fed. R. Civ. P. 11. See, e.g., S.R.S., Inc. v. Southward, 2012

COA 19, ¶ 14. We recognize that, about thirty-two years ago, a

division of this court concluded that C.R.C.P. 11 and Fed. R. Civ. P.

11 were “essentially identical.” Maul v. Shaw, 843 P.2d 139, 141

(Colo. App. 1992). But Fed. R. Civ. P. 11 was amended in 1993,

and those amendments “significantly limit the applicability of

federal precedent.” 11 Debra Knapp et al., Colorado Practice Series,

Civil Procedure Forms & Commentary § 11:7 (3d ed. 2019).

17

¶ 33 In the area that is the focus of this appeal, however, there are

similarities between the two rules.

¶ 34 As we noted above, C.R.C.P. 11(a) states that an attorney’s

signature on a pleading certifies that a complaint is “well grounded

in fact” based on the “best of [the attorney’s] knowledge,

information, and belief formed after reasonable inquiry.” C.R.C.P.

11(a).

¶ 35 Fed. R. Civ. P. 11(a), (b), and (b)(3) state that an attorney

signing a pleading “certifies . . . to the best of [the attorney’s]

knowledge, information, and belief, formed after an inquiry

reasonable under the circumstances,” that “the factual contentions

have evidentiary support or, if specifically so identified, will likely

have evidentiary support after a reasonable opportunity for further

investigation.”

¶ 36 To summarize, although the language of the two rules is not

identical, both rules have a certification requirement concerning

factual allegations, and both rules state that part of what

certification means is that factual allegations are based on the best

of the attorney’s knowledge, information, and belief, formed after a

reasonable inquiry.

18

¶ 37 Like C.R.C.P. 11(a), Fed. R. Civ. P. 11 requires an attorney to

conduct an “objectively reasonable inquiry” into the pleading’s

factual basis. Holgate v. Baldwin, 425 F.3d 671, 677 (9th Cir.

2005). Courts assess objective reasonableness in light of “all the

circumstances of a case,” Cooter & Gell v. Hartmarx Corp., 496 U.S.

384, 401 (1990), focusing on the information available when the

pleading was filed and considering factors including time

constraints, the complexity of the subject matter, and the ease of

access to the requisite information, Lake v. Hobbs, 643 F. Supp. 3d

989, 996 (D. Ariz. 2022).

¶ 38 Because of these similarities, we will consider federal cases

addressing borrowed plausibility under Fed. R. Civ. P. 11.

D. Borrowing Plausibility: Federal Approaches

¶ 39 As we mentioned before, federal cases reflect two schools of

thought about whether Fed. R. Civ. P. 11 prohibits what happened

here: the shareholder’s counsel borrowed plausibility by copying

confidential witness statements, as well as other allegations, from

another complaint into the one he filed in this case.

¶ 40 In re Lehman Brothers Securities & ERISA Litigation, No. 10

Civ. 6637, 2013 WL 3989066, at *3 (S.D.N.Y. July 31, 2013)

19

(unpublished opinion), represents one of these schools. In that

case, the federal court dismissed the plaintiff’s complaint after

finding that the only allegations relating directly to the defendant’s

allegedly fraudulent practices were “based on confidential witness

statements originally recounted in a separate complaint filed by

separate counsel in a separate action.” Id. The court acknowledged

that the Second Circuit had not ruled on this exact issue and that

district courts had reached different conclusions as to whether it

was “appropriate for a plaintiff at the pleading stage to rely on

confidential witness statements recounted in other complaints.” Id.

at *4. But the court concluded that the plaintiff’s counsel had

violated Fed. R. Civ. P. 11:

In this [c]ourt’s opinion, it would be

inappropriate to give any weight to these

alleged confidential witness statements. There

is no suggestion that counsel in this action

has spoken with these confidential witnesses

or even knows who they are. Fed. R. Civ. P. 11

provides that by presenting a pleading to the

court, counsel certifies that to the best of his

or her “knowledge, information, and belief,

formed after an inquiry reasonable under the

circumstances: . . . the factual contentions

have evidentiary support.” When citing alleged

confidential witnesses in a complaint, the

certification means that counsel has spoken

20

with these confidential witnesses and knows

who they are.

Id. (footnote omitted).

¶ 41 In explaining its reasoning, the Lehman Brothers court

expressed concern over the potential for lawyers to behave

unethically. Although it acknowledged that “a plaintiff may rely in

its complaint on witness statements recounted in newspaper

articles and government reports,” it concluded that the probative

value of those sources is “much greater than that of confidential

witness statements recounted in another complaint” because

“[t]here is significant motive and opportunity for counsel in any case

to misuse or mischaracterize confidential witness statements in a

pleading.” Id.; see also Laurence A. Steckman & Joseph T.

Johnson, When May a Litigant Rely in Its Own Complaint on

Allegations from Another Complaint? — Lipsky v. Commonwealth

United Corp. and Its Progeny — Still an Unresolved Question,

32 Touro L. Rev. 351, 372-78 (2016).

¶ 42 Similarly, in VNB Realty, Inc. v. Bank of America Corp., No. 11

Civ. 6805, 2013 WL 5179197, at *4 (S.D.N.Y. Sept. 16, 2013)

(unpublished opinion), the federal court granted the defendants’

21

motion to dismiss after finding that allegations in the complaint

were “copied almost verbatim” from another complaint that relied

on “confidential sources . . . with whom [the plaintiff’s] counsel

obviously has not had direct contact.” As an initial matter, the

court noted that “[t]here is no evidentiary rule against plagiarism,”

and that it need not strike allegations copied from another

complaint merely because they were not counsel’s original work. Id.

But the court ruled that the plaintiff’s reliance on confidential

witness statements recounted in another complaint was

impermissible under Fed. R. Civ. P. 11 because the plaintiff did “not

contend that it has spoken with the confidential witnesses it quotes,

nor that it knows their identities or has taken any steps to

authenticate their statements.” Id. at *7.

¶ 43 By drawing its factual allegations from the statements of

confidential witnesses and other allegations in another complaint,

the court held, the plaintiff “is attempting to rely on the substance

of those allegations without being held responsible for certifying

that they are supported by some factual basis, or at least that the

witnesses did in fact make such statements.” Id. As in Lehman

Brothers, the VNB court explained that its ruling was motivated in

22

part by concern over lawyers’ potential unethical conduct: “Allowing

parties to rely on confidential witness statements drawn from

another complaint also has the potential to incentivize collusion

and raises the possibility of complaints that are stocked with

fabricated confidential witness statements placed in other

complaints.” Id. at *7 n.6.

¶ 44 Other courts have likewise concluded that Fed. R. Civ. P. 11

prohibits copying confidential witness statements from another

complaint. See, e.g., Amorosa v. Gen. Elec. Co., No. 21-CV-3137,

2022 WL 3577838, at *3 (S.D.N.Y. Aug. 19, 2022)(unpublished

opinion)(granting the defendants’ motion to dismiss where the

plaintiff’s complaint relied on statements of confidential witnesses

described in another complaint and the plaintiff, “by his own

admission, verified none of what he copied”); In re UBS AG Sec.

Litig., No. 07 Civ. 11225, 2012 WL 4471265, at *17 n.17 (S.D.N.Y.

Sept. 28, 2012)(unpublished opinion)(declining to consider

allegations “taken directly from uncorroborated allegations

embedded in a complaint in another action . . . for which counsel

has not conducted independent investigation”), aff’d sub nom. City

23

of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d

173 (2d Cir. 2014).

¶ 45 But this view, as we indicated above, is not universal. The

second, and contrary, school of thought is represented by cases

such as In re Teva Securities Litigation, 671 F. Supp. 3d 147 (D.

Conn. 2023). The federal court in that case rejected the defendants’

contention that, by copying allegations based on confidential

witness statements from another complaint in a related case, the

plaintiffs had failed to conduct a “reasonable investigation.” Id. at

191. Fed. R. Civ. P. 11, the court held, “does not require counsel to

certify that counsel has spoken with the confidential witnesses and

knows who they are.” Id. at 193. In distinguishing the defendants’

authorities, including some of the cases that we have cited above,

the In re Teva court noted three important considerations.

¶ 46 First, unlike in cases such as Amorosa, in which the plaintiff

“verified none of what he copied,” the In re Teva plaintiffs “indicated

that they did investigate the complaints upon which they relied.”

Id. at 192-93 (quoting Amorosa, 2022 WL 3577838, at *3).

¶ 47 Second, the plaintiffs had “attest[ed] in good faith” that their

allegations were based on information and belief considering the

24

investigation conducted by the plaintiffs’ attorney and that

“discovery will provide evidentiary support for allegations pled on

information and belief.” Id. at 193. Fed. R. Civ. P. 11, the court

held, “requires nothing more.” Id.

¶ 48 And third, the court presiding over the related case, from

which the allegations had been copied, had “already determined

that the confidential witness statements were sufficient to support a

properly pled complaint.” Id. at 194.

¶ 49 These considerations are echoed in other cases holding that

plaintiffs may utilize allegations of confidential witnesses copied

from other complaints. In Schwab Capital Trust v. Celgene Corp.,

No. CV 20-3754, 2021 WL 1085474, at *10 (D.N.J. Mar. 22,

2021)(unpublished opinion), for example, the federal court ruled

that the plaintiffs could rely on confidential witness statements

cited in another complaint even though, as the defendants argued,

the plaintiffs “do not even know who the [confidential witnesses]

are.” In declining the defendants’ invitation to follow Lehman

Brothers, the court noted that, “[c]ritically,” a court had “already

credited the information provided by [the] confidential witness” in

25

the complaint from which the witness statements had been copied.

Id.

¶ 50 In Homeward Residential, Inc. v. Sand Canyon Corp., No. 12

Civ. 5067, 2014 WL 12791757, at *7 (S.D.N.Y. Mar. 31,

2014)(unpublished opinion), vacated in part on other grounds,

No. 12 Civ. 5067, 2014 WL 4680849 (S.D.N.Y. Sept. 17, 2014), the

federal court held that the plaintiffs could rely on confidential

witnesses cited in another complaint because the plaintiffs had

undertaken their own investigation, although it did not include

speaking to the confidential witnesses, and they had attested that

the confidential witness statements were included “on information

and belief in their truth and on reasonable belief that further

inquiry and discovery from [the defendant] and others will provide

evidence of [their] truth.” Like the court in In re Teva, the

Homeward Residential court concluded that Fed. R. Civ. P. 11

required nothing more — specifically, it did not require “counsel to

certify that he has spoken with the confidential witnesses and

knows who they are.” Id.

¶ 51 Still other cases have reached the same conclusion on more

general grounds.

26

¶ 52 In 380544 Canada, Inc. v. Aspen Technology, Inc., 544 F.

Supp. 2d 199, 224 (S.D.N.Y. 2008), the court held that it was “of no

moment that the accounts of [confidential informants] are block-

quoted” from another complaint because (1) “[a] plaintiff is not

required to reveal the identity of confidential sources at the pleading

stage”; and (2) a court must accept allegations in a complaint “as

true, regardless of whether the allegations are taken from a

complaint in another case.” “Although the confidential informants

are not personally known” to the plaintiffs or their counsel, the

court held, “the fact that the informants’ accounts are derived from

an earlier pleading in a different case simply does not render the

instant pleading inadequate.” Id. at 225.

¶ 53 And in Waterford Township Police & Fire Retirement System v.

Smithtown Bancorp, Inc., No. 10-CV-864, 2014 WL 3569338, at *5

(E.D.N.Y. July 18, 2014)(unpublished opinion), after acknowledging

that courts “have taken different positions on the question” of

whether “plaintiffs may utilize allegations of confidential informants

drawn from other complaints,” the court held that it would consider

the copied allegations “[g]iven the ‘strong presumption against

27

striking portions of the pleadings.’” Id. (quoting In re Fannie Mae

2008 Sec. Litig., 891 F. Supp. 2d 458, 471 (S.D.N.Y. 2012)).

E. Application

¶ 54 Considering the facts of this case in light of the cases that we

have just discussed, we conclude that the shareholder’s counsel did

not violate C.R.C.P. 11 by copying allegations, including those from

confidential witness statements, from the In re CenturyLink

complaint without speaking to the witnesses. We reach this

conclusion for five reasons.

¶ 55 First, as in In re Teva and Homeward Residential, the

shareholder’s counsel undertook an independent investigation,

although the investigation did not include speaking with the

confidential witnesses. As the amended complaint explains,

counsel reviewed the corporation’s SEC filings, press releases, and

earnings calls, reviewed analyst and media reports about the

corporation, and — importantly — reviewed the public filings and

conferred with counsel in the related cases, including In re

CenturyLink. See Strougo v. Barclays PLC, 105 F. Supp. 3d 330,

343 (S.D.N.Y. 2015)(holding that the plaintiffs could copy

allegations from the complaint in another case if “counsel for

28

plaintiffs have indicated that they have reached out to attorneys [in

the other case] to verify the allegations in the [c]omplaint”). This

case is therefore distinguishable from cases such as Amorosa, in

which the plaintiff “verified none of what he copied,” 2022 WL

3577838, at *3, and VNB, in which the plaintiff had not “taken any

steps to authenticate” the statements of the confidential witnesses,

2013 WL 5179197, at *7.

¶ 56 Second, again as in In re Teva and Homeward Residential, the

shareholder attested in good faith that (1) the allegations in the

amended complaint were “based upon personal knowledge as to

[the shareholder] and [the shareholder’s] own acts and upon

information and belief as to all other matters based on the

investigation conducted by and through [the shareholder’s

counsel]”; and (2) the shareholder believed that “substantial

additional evidentiary support will exist for the allegations . . . after

a reasonable opportunity for discovery.” In our view, C.R.C.P. 11(a)

“requires nothing more.” In re Teva, 671 F. Supp. 3d at 193; see

also IBT Emp. Grp. Welfare Fund v. Compass Mins. Int’l, Inc., ___ F.

Supp. 3d ___, 2023 WL 8596108, at *8-9 (D. Kan. Dec. 12,

2023)(holding — after noting that “there is no binding Tenth Circuit

29

or Supreme Court opinion on the issue” — that a plaintiff who

copied allegations verbatim from an SEC consent order after an

investigation that included reviewing the company’s “SEC filings,

press releases, analyst and media reports, [and] other public

reports and information about the [c]ompany” had conducted “a

reasonable inquiry under the circumstances for the purposes of

[Fed. R. Civ. P. 11]”).

¶ 57 Third, as in In re Teva and Schwab Capital Trust, another

court has already determined that the confidential witness

statements that the shareholder copied into his complaint in this

case are sufficient to support a properly pled complaint. Indeed, as

the Houser I division observed, the federal court in In re CenturyLink

decided the facts in that case’s complaint related to the

corporation’s “knowledge of the nature and extent of the cramming

practices” were sufficient to state a claim even under the heightened

pleading test applicable to fraud cases. Houser I, ¶ 50.

¶ 58 Fourth, we think that the shareholder followed the Houser I

division’s remand instructions. Specifically, Houser I held that, to

survive a motion to dismiss, the shareholder must make allegations

sufficient “to show, above the speculative level, that [the

30

corporation’s] officers or executives were aware of [the cramming]

practices [and] the extent of those practices and the potential

negative effect on company revenue when the [o]ffering [d]ocuments

became effective.” Id. at ¶ 29. And the division explicitly

contemplated that the shareholder could make those allegations

“with the addition of . . . facts” from the In re CenturyLink

complaint. Id. at ¶ 50. We conclude that, under the facts of this

case and considering authority such as In re Teva, Schwab Capital

Trust, and Homeward Residential, the shareholder’s counsel’s

inquiry was objectively reasonable even though he did not speak

with the confidential witnesses. See In re Trupp, 92 P.3d at 930.

¶ 59 Fifth, in considering the reasoning of the federal cases, we are

not persuaded that the concerns expressed by the Lehman Brothers

and VNB courts regarding potential unethical behavior by attorneys

warrants raising the bar for plaintiffs to access the justice system.

See Gadson, 110 Geo. L.J. at 314 (“It is worrisome enough that in

precluding borrowed plausibility, courts could be forced to dismiss

meritorious complaints. It is perhaps even more worrisome that

some plaintiffs might be deterred from bringing meritorious claims

in the first place.”).

31

¶ 60 Should a plaintiff file a complaint “stocked with fabricated

confidential witness statements placed in [an]other complaint[],”

VNB, 2013 WL 5179197, at *7 n.6, Colorado law provides for

appropriate sanctions. Under section 13-17-102(2), (4), C.R.S.

2023, for example, a court shall award attorney fees “against any

attorney or party who has brought or defended a civil action, either

in whole or in part, that the court determines lacked substantial

justification,” meaning that the action was “substantially frivolous,

substantially groundless, or substantially vexatious.” We therefore

respectfully disagree with the Lehman Brothers court that there is

“significant motive” for counsel “to misuse or mischaracterize

confidential witness statements in a pleading.” 2013 WL 3989066,

at *4. But, acknowledging that such a possibility exists, we need

not raise the pleading standard to forestall it because the threat of

existing sanctions, such as the ones we just discussed, act as a

deterrent.

¶ 61 We are unpersuaded by the corporation’s remaining

assertions. We are aware that “the purpose of Rule 11 as a whole is

to bring home to the individual signer his personal, nondelegable

responsibility . . . to validate the truth and legal reasonableness of

32

the papers filed.” Pavelic & LeFlore v. Marvel Ent. Grp., 493 U.S.

120, 126 (1989)(construing Fed. R. Civ. P. 11); see also People v.

Wollrab, 458 P.3d 908, 915 (Colo. O.P.D.J. 2019). In this regard,

relying on cases such as Del Giudice v. S.A.C. Capital Management,

LLC, Civ. A. No. 06-1413, 2009 WL 424368, at *6 (D.C.N.J. Feb. 19,

2009)(unpublished opinion), and Attia v. Google LLC, No. 17-CV-

06037, 2018 WL 2971049, at *15 (N.D. Cal. June 13,

2018)(unpublished opinion), the corporation submits that “an

investigation requires counsel to personally investigate the veracity

of the allegations in the pleading. Counsel may not simply repeat

allegations made in other complaints and present them as their

own.” The corporation continues that the shareholder’s counsel did

not satisfy his nondelegable duty because he relied on the inquiry

conducted by the attorney in In re CenturyLink, who had spoken

with the confidential witnesses.

¶ 62 We disagree. Neither Del Giudice nor Attia is categorical. The

federal court in Del Giudice stated that “[a] filing attorney . . . may

not rely solely upon the inquiry conducted by another attorney, as

the Rule 11 duty of investigation is personal and non-delegable.”

2009 WL 424368, at *6 (emphasis added). And the federal court in

33

Attia observed that, “[g]iven the nondelegable duty imposed on

attorneys under Rule 11, courts routinely strike allegations that

rely exclusively on the analysis and investigation of different

attorneys in different actions.” 2018 WL 2971049, at *15 (emphasis

added).

¶ 63 As indicated above, the shareholder’s counsel took a variety of

steps to verify the allegations in the In re CenturyLink complaint

before filing the amended complaint; he did not solely or exclusively

rely on the inquiry of the attorney who had filed the In re

CenturyLink complaint. See Me. State Ret. Sys. v. Countrywide Fin.

Corp., No. 2:10-CV-0302, 2011 WL 4389689, at *20 (C.D. Cal. May

5, 2011)(unpublished opinion) (An attorney’s nondelegable duty

“means [p]laintiffs cannot rely on allegations from complaints in

other cases if the [p]laintiffs themselves have not investigated the

allegations.”)(emphasis added). And as a noted commentator on

Fed. R. Civ. P. 11 once observed, the Rule

by its terms does not require signing counsel

to have personally performed the inquiry.

What it does require is that signing counsel

have the requisite “knowledge, information,

and belief.” . . . The duty of inquiry therefore

should be regarded as nondelegable but

capable of being satisfied by the attorney’s

34

acquisition of the product of inquiry conducted

by others.

William W. Schwarzer, Sanctions Under the New Rule 11 – A Closer

Look, 104 F.R.D. 181, 186-87 (1985).

¶ 64 We are also aware that Houser I, ¶ 12, stated that “[a]llowing a

party to rely on allegations in a complaint in another case would be

inconsistent with C.R.C.P. 8(a)’s requirement that the complaint

contain a short and plain statement of the claim showing that the

plaintiff is entitled to relief.” As we have demonstrated when

analyzing C.R.C.P. 11(a), we conclude that the shareholder’s

amended complaint in this case is consistent with C.R.C.P. 8(a)

because it contained such a short and plain statement of the claims

based on allegations from the In re CenturyLink complaint.

¶ 65 Last, the corporation asserts the trial court decided, on

grounds other than its ruling concerning the allegations from the In

re CenturyLink complaint, that the shareholder failed to state claims

under sections 11, 12(a)(2), and 15 of the Act. But it is clear from

reading the court’s order that its ruling on each of these three

claims was based on eliminating the factual allegations copied from

the In re CenturyLink complaint.

35

• In ruling on the section 11 claim, the court wrote: “After

omitting [the shareholder’s] allegations which were mere

copies of or slightly altered from another complaint,” the

shareholder’s “remaining allegations are insufficient to

establish a plausible omissions claim under” section 11.

• In ruling on the section 12(a)(2) claim, the court wrote

that claim “fail[ed] for the same reasons” as the section

11 claim. This meant that the court analyzed the section

12(a)(2) claim after omitting the information in the

shareholder’s complaint taken from the In re CenturyLink

complaint.

• When dealing with the section 15 claim, the court

recognized that it was a vicarious liability claim. So,

“because the section 11 and section 12(a)(2) claims

fail[ed],” the section 15 claim “must also fail.” Again, the

section 11 and section 12(a)(2) claims failed only after the

court had omitted the information in the shareholder’s

complaint taken from the In re CenturyLink complaint.

¶ 66 We conclude that the trial court erred by deciding that the

shareholder had not conducted the reasonable inquiry required by

36

C.R.C.P. 11(a) concerning the factual allegations copied from the In

re CenturyLink complaint.

¶ 67 The judgment is reversed, and the case is remanded for

further proceedings consistent with this opinion. On remand, the

trial court shall, when ruling on the corporation’s C.R.C.P. 12(b)(5)

motion, consider (1) the shareholder’s complaint in its entirety,

including all the factual allegations copied from the complaint in In

re CenturyLink; and (2) the additional issues that the corporation

raised in its motion. We express no opinion on the merits of these

issues.

JUDGE DUNN and JUDGE MOULTRIE concur.