Houser v. CenturyLink, Inc.
2024 COA 96. No. 23CA1214. Signing of Pleadings—Obligations of Parties and Attorneys—CRCP 11 Reasonable Inquiry—Pleading Grounded in Fact.
August 22, 2024
In 2017, CenturyLink, Inc. (the corporation) merged with Level 3 Communications, Inc. Houser, a shareholder, filed a complaint against the corporation on behalf of himself and a proposed class of former stockholders who acquired its stock through the merger. The complaint was later amended on remand following an earlier appeal. The corporation filed a CRCP 12(b)(5) motion to dismiss, arguing that the amended complaint violated CRCP 11 because it included allegations copied from a different lawsuit against the corporation (the In re CenturyLink complaint) that were based on interviews with confidential witnesses whom Houser’s attorney had not interviewed. The court ruled that, because Houser’s counsel did not personally speak with the former employees who made allegations against the corporation in the other complaint, counsel had failed to conduct a “reasonable inquiry” into the amended complaint’s factual basis for the purposes of CRCP 11(a). The court then disregarded those allegations and decided that the remaining allegations were insufficient to state a claim. The trial court granted the motion and dismissed the amended complaint.
On appeal, Houser argued that the court should have considered the factual allegations copied from the In re CenturyLink complaint. Colorado courts apply an “objective reasonableness standard” when evaluating the adequacy of an attorney’s inquiry into a pleading’s factual basis. Analyzing precedent construing Fed. R. Civ. P. 11, the court of appeals concluded that the CRCP 11(a) “reasonable inquiry” requirement does not mandate that an attorney speak with confidential witnesses who are the source of factual allegations in a complaint in another case before those allegations are incorporated into the complaint in the attorney’s case. Here, Houser’s counsel undertook an independent investigation of the allegations and made a proper good faith attestation. Further, (1) the federal court in In re CenturyLink decided the facts in that case’s complaint sufficiently stated a claim; (2) Houser followed the division’s remand instructions when amending his complaint; and (3) the threat of existing sanctions under Colorado law acts as a deterrent for counsel to misuse confidential witness statements in a pleading. Accordingly, Houser’s counsel did not violate CRCP 11 by copying allegations from the In re CenturyLink complaint without speaking to the witnesses. The trial court thus erred by deciding that Houser had not conducted the CRCP 11(a) reasonable inquiry concerning the factual allegations copied from the In re CenturyLink complaint.
The judgment was reversed and the case was remanded for further proceedings.