Qwest to pay $50 million
Telco settles suit alleging it failed to issue dividends

By Jeff Smith, Rocky Mountain News
Saturday, June 25, 2005

Qwest Communications has agreed to pay $50 million to settle a class-action lawsuit alleging the Denver telco breached its fiduciary duty by failing to pay a second-quarter dividend after the merger with U S West in 2000.

U S West stockholders as of the June 30, 2000, merger date will share in roughly two-thirds of the settlement proceeds under a plan that received preliminary approval Friday by Denver District Judge John Coughlin.

Court filings indicate that the plaintiffs' attorneys plan to request up to 30 percent of the settlement fund, plus up to $1.7 million for expenses.

Denver attorney Kip Shuman, one of the plaintiffs' attorneys, described the settlement as "excellent recovery" for the U S West stockholders.  "It was a hotly litigated case that almost reached trial, and we're very proud of the settlement we've gotten on behalf of the investors."

Said Qwest spokesman Robert Toevs:  "Although we agreed to settle, we deny the plaintiffs' allegations (of breach of fiduciary duty).  We believe that Qwest's conduct and the conduct of others involved in the case was legal and in the best interests of shareholders."

Toevs added Qwest decided to settle "to avoid the slim chance of a larger verdict and to avoid the further diversion of the company resources to a case like this."

Shuman and Toevs said they didn't know how many stockholders might be eligible to share in the settlement, but Friday's preliminary approval clears the way for notices to begin to be sent out.

The suit, initially filed by U S West shareholder Adele Brody in June 2000, stems from action the U S West board of directors took earlier that month to approve a second-quarter dividend of 53.5 cents.

As part of the merger agreement, however, Qwest and U S West had agreed to slash the dividend to just 5 cents annually, and the second-quarter dividend never was paid.

U S West shareholders almost immediately were skeptical of getting the dividend, and in late June 2000 unsuccessfully went to court to try to force Qwest to set aside $273 million for the dividend.

Former Chief Executive Joe Nacchio's explanation back then was that cutting-edge companies like Qwest should reinvest their cash in research and development and revenue-generating areas instead.

Besides Qwest, the suit also named as defendants a number of U S West and Qwest directors from that period, including Sol Trujillo and Nacchio.

The dividend settlement - about half of which will be covered by insurers - is the latest example of the company's effort to resolve a myriad of lawsuits from the Nacchio era.

Qwest also is in settlement discussions related to a massive class-action securities fraud case.

Nelson Phelps, executive director of the Association of U S West Retirees, said the dividend settlement will amount to only "pennies" per share, "but it's something."

"I believe they have to do their best to settle (these suits)," Phelps said.  "Until they get these legal settlements out of the way, it's just an additional burden upon the corporation."

Qwest recently put $750 million into a reserve for its "minimum" estimated liability related to litigation costs.  It settled with the Securities and Exchange Commission last fall for $250 million, but various private civil cases against the company and former officers are pending.

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