DENVER An appeals court has asked a judge to provide a detailed explanation of why he approved a settlement in a shareholder lawsuit accusing Qwest of securities fraud yet excluded former CEO Joe Nacchio and a former finance chief from the agreement.
The 10th U.S. Circuit Court of Appeals on Wednesday remanded the case to U.S. District Judge Robert Blackburn to determine whether the $400 million settlement of the class-action case was fair and adequate.
The ruling came in an appeal filed by Nacchio and former Chief Financial Officer Robert Woodruff, who argued they should have been included because Qwest Communications International Inc. was obligated to indemnify them for personal liabilities under their contracts.
"We are unwilling to guess at the path the district court followed in resolving serious legal issues, as opposed to factual matters," the appeals court judges wrote. "We need something to show how and on what basis the court analyzed Mr. Nacchio and Mr. Woodruff's objections."
Filed in 2001, the lawsuits accused Qwest, a number of former employees and accounting firm Arthur Andersen of improperly concealing information about revenue amid an accounting scandal that later forced the Denver-based telecommunications company to restate about $3 billion in revenue.
Attorneys for the shareholders and most of the defendants reached the partial settlement in November 2005 that covered all parties except Nacchio and Woodruff.
The two former executives said contract provisions called for Qwest to protect them from liability and that the settlement was unfair because they were excluded from the negotiations.
Blackburn dismissed their arguments and said the provisions of the settlement "are either legally required or are legally appropriate under the circumstances of this case."
The Securities and Exchange Commission has said fraud occurred at Qwest between April 1999 and March 2002, which allowed the company to improperly report revenue. An SEC lawsuit is pending against Nacchio, Woodruff and four other former executives.
Separately, Nacchio was convicted in April of insider trading stemming from the sale of $52 million worth of stock in 2001. Prosecutors said he knew the company was at financial risk at the time but didn't tell investors.
He has been sentenced to six years in prison but remains free on bond pending an appeal.