                                              NOT PRECEDENTIAL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
                              _______________

                 Submitted Under Third Circuit LAR 34.1(a)
                            November 9, 2011

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

                        (Filed: November 14, 2011)
                             _______________

                        OPINION OF THE COURT
                                     _______________
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 spin-

off, 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.
                                              2
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 appeal3 and 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
                                              3
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).

                                              4
       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 non-
movant.‟” 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.)

                                              5
disclose in applicable registration statements their true intent, which was ... to simply off-

load 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-

                                              6
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.”).

                                             7
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
                                               8
       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.

                                             9
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.)

                                             10
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.

                                             11
