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Qwest exposed in claims
Telco may have to pay more in class-action suits
By Jeff Smith
Rocky Mountain News
Saturday, February 16, 2008

Qwest Communications warned this week that it might have to pay more money to settle shareholder class-action claims against former CEO Joe Nacchio and former CFO Robert Woodruff.

The Denver telco thought it had the matter behind it when U.S. District Judge Robert Blackburn approved a $400 million class-action settlement in the fall of 2006.

But the settlement excluded Nacchio and Woodruff, and both have since appealed.  A three-judge appellate panel in January ordered Blackburn to provide a "more extensive explanation" for why he decided it was fair to exclude Nacchio and Woodruff, leaving them exposed to further litigation.

Qwest said in a regulatory filing this week that it has asked the full 10th Circuit Court of Appeals to review the case.

The outcome of the case is uncertain, Qwest said, but "it could result in the payment of additional monies by us in connection with the indemnification claims" by Nacchio and Woodruff.

In court documents, attorneys for Nacchio and Woodruff argue Qwest is required to indemnify them for reasonable lawsuit costs.

The shareholder plaintiffs in the class-action suit, however, insisted that Nacchio and Woodruff personally contribute to any settlement.  They argued that Nacchio and Woodruff especially were responsible for Qwest's misdeeds and shouldn't be allowed to join a settlement in which only Qwest would pay.

Nacchio and Woodruff refused to pay into the settlement.

Qwest agreed to proceed with the settlement and has argued in a recent court filing that the settlement would be of "little value" if it were to pay hundreds of millions of dollars while remaining exposed to Nacchio's and Woodruff's potential liabilities.

The $400 million settlement called for Qwest to pay $390 million and former auditor Arthur Andersen $10 million.  Qwest has set aside the money in a separate account.

In a separate criminal proceeding, Nacchio was convicted in April of 19 counts of insider trading in connection with selling more than $50 million of Qwest stock in April and May 2001.

He was sentenced to six years in prison but is free pending appeal. He still faces a civil-fraud suit by the Securities and Exchange Commission. or 303-954-5155