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Northern District Of Texas Dismisses Securities Fraud Class Action Against Telecommunications Company
06/24/2025On June 16, 2025, Chief Judge David C. Godbey of the United States District Court for the Northern District of Texas dismissed a putative securities class action against a telecommunications company (the “Company”) and several of its executives (the “Individual Defendants”) asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”) and Rule 10b-5. In re AT&T Sec. Litig., No. 3:24-CV-01196-N (N.D. Tex. June 16, 2025). Although the Court held that the complaint pleaded actionable misrepresentations, it held that plaintiffs impermissibly relied on “group pleading” and thus the complaint failed to give rise to a strong inference of scienter.
The telecommunications industry historically used lead-lined transmission cables, although they were no longer being used in new installations by the late 1970s. In July 2023, a major newspaper reported that the Company and other large telecommunications companies had left behind a network of lead-lined cables that had started to degrade and leach into the environment, potentially causing harm to individuals who live in the surrounding areas. The Company’s stock price fell the day after the story broke, and declined further, purportedly after additional reporting over the Company’s potential exposure for the lead cables. Plaintiffs alleged that the Company’s various statements about its efforts to retire its old lines were misleading as to the risks it faced from widespread and deteriorating network of lead-lined cables. Plaintiffs challenged statements across four categories: (1) statements that retiring the wirelines would reduce costs; (2) statements about the Company’s commitment to environmental stewardship; (3) statements about the Company’s commitment to employee safety; and (4) statements about risks to the Company’s business.
According to the Court, plaintiffs engaged in improper group pleading by relying on statements found in unsigned “issue briefs” found on the Company website that did not identify any individual speaker and thus could not support a strong inference of scienter for any defendant. The Court also observed that other allegations in the complaint attributed knowledge of various facts to a group or to nondefendant individuals—including lower-level employees—and thus did not raise an inference of scienter. While each Individual Defendant was alleged to have understood that the Company was retiring its use of copper wirelines and that some of the wirelines contained harmful lead, plaintiffs “fail[ed] to allege any facts showing the Individual Defendants were aware of any widespread environmental contamination risk or employee health issues that could reasonably result in material risk to the [Company].”
Despite holding that plaintiffs failed to plead scienter sufficiently, the Court held that certain challenged statements were actionable. In particular, the Court noted that statements concerning cost reduction expected from retiring the lines are actionable because they were not opinions and plaintiffs adequately pled “the complete chain of inferences necessary to connect the statements about cost savings to the alleged material liability from lead-lined cables.” The Court also found that plaintiffs sufficiently alleged falsity as to certain statements about the Company’s commitment to environmental stewardship with respect to how the Company disposed of hazardous waste and other regulated materials. However, the Court found that statements in the other categories of alleged misrepresentations either were not false or not material.
Because plaintiffs failed to plead a primary violation, the Court also dismissed the derivative control person liability claims under Section 20(a). The Court’s dismissal is without prejudice.
