BORIS FELDMAN, State Bar # 128838
DOUGLAS J. CLARK, State Bar # 171499
MARK D. FLANAGAN, State Bar #130303
DAVID LANSKY, State Bar #199952
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (650) 493-9300

Attorneys for Defendants
ELECTRONICS FOR IMAGING, INC.,
DAN AVIDA, JEFFREY LENCHES,
FRED ROSENZWEIG and ERIC SALTZMAN

INTRODUCTION

FACTUAL BACKGROUND

ARGUMENT

I. THE COURT HAS THE AUTHORITY TO COMPEL PLAINTIFFS TO SEEK CLASS CERTIFICATION OR DROP THEIR CLASS ACTION ALLEGATIONS

II. THE COURT SHOULD CERTIFY THE PLAINTIFF CLASS BEFORE RULING ON THE MOTION TO DISMISS

CONCLUSION

American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974)

Copperstone v. TCSI Corp., No. C-97-3495 SBA, slip op. (N.D. Cal. Apr. 20, 1998)

Genna v. Digital Link Corp., No. C-96-20867-RMW slip op.
     (N.D. Cal. Apr. 13, 1998)

Head v. NetManage, No. C97-4385 CRB, slip op. (N.D. Cal. Sept. 8, 1998)

In re Diamond Multimedia Sys., Inc., No. 96-2644, 1997 WL 773733
     (N.D. Cal. Oct. 14, 1997)

Kilgo v. Bowman Transp., Inc., 789 F.2d 859 (11th Cir. 1986)

Koch v. Standard, 962 F.2d 605 (7th Cir. 1992)

McDonald v. General Mills, Inc., 387 F. Supp. 24 (E.D. Cal. 1974)

Ponce v. Housing Auth. of Tulare County, 389 F. Supp. 635 (E.D. Cal. 1975)

Schwarzchild v. Tse, 69 F.3d 293 (9th Cir. 1995)

Senter v. General Motors Corp., 532 F.2d 511 (6th Cir. 1976)

Wright v. Schock, 742 F.2d 541 (9th Cir. 1984)

Fed. R. Civ. P. 23

5 James W. Moore et al., Moore's Federal Practice § 23.64 (3d ed. 1997)

PLEASE TAKE NOTICE that on August 13, 1999 at 9:30 a.m., or as soon thereafter as counsel may be heard, in the Courtroom of the Honorable Charles A. Legge, located at 450 Golden Gate Avenue, San Francisco, California, defendants Electronics for Imaging, Inc. ("EFI"), Dan Avida, Jeffrey Lenches, Fred Rosenzweig and Eric Saltzman will move this Court for an Order compelling certification of the plaintiff class, pursuant to Federal Rules of Civil Procedure 23. This Motion is based on this Notice of Motion and Motion, the Memorandum of Points and Authorities, and the Declaration of David Lansky, together with exhibits, all pleadings and papers filed herein; and any oral argument of counsel or other matters that may be submitted.

Although Rule 23 of the Federal Rules of Civil Procedure requires certification of a class as soon as practicable, counsel for plaintiffs have refused to certify a class. They have refused even though (1) over a year ago, plaintiffs and their counsel sought and received this Court's approval to act as Lead Plaintiffs and Lead Counsel on behalf of the class proposed in their First Amended Complaint; (2) their Complaint alleges that this action meets all the requirements of Rule 23 of the Federal Rules of Civil Procedure for proceeding as a class action and asks that a class be certified; and (3) defendants have, more than once, offered to stipulate to conditional certification of the class.¹

The absence of a certified class places defendants in a "heads they win, tails we lose" situation. Until the Court certifies the plaintiff class, the absent class members are not bound by and therefore can avoid the Court's rulings. At the same time, however, defendants are bound by the Court's rulings. The U.S. Supreme Court has described this problem as "one way intervention," and held that Rule 23 of the Federal Rules of Civil Procedure is designed to prevent such fundamental unfairness. See American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 547 (1974). To avoid the effects of one way intervention and the risk that this Court may expend judicial resources deciding issues that may not bind the class, defendants have offered to stipulate to class certification, subject to a right to decertify. The timing of class certification is particularly important given that the Defendants Lenches' and Rosenzweig's Motion to Dismiss is being filed concurrently with this motion.

In numerous securities class actions, courts in the Northern District of California have recognized the problem of one way intervention and have ordered certification of a plaintiff class.² The circumstances here are the same. Certification of a class is practicable at this stage, will promote judicial economy, and will provide the most efficient resolution of this matter for the parties and the potential class members.

Plaintiffs filed this class action on December 31, 1997, alleging that EFI, Dan Avida, Jeffrey Lenches, Fred Rosenzweig and Eric Saltzman inflated the price of EFI common stock through misleading statements about EFI's business and financial prospects. On March 3, 1998, plaintiffs moved for appointment as lead plaintiffs and lead counsel on behalf of the class proposed in their Complaint. This Court approved their representation of the class as lead plaintiffs and lead counsel on April 9, 1998. On September 15, 1998, plaintiffs filed Lead Plaintiffs' Class Action Complaint For Violations of the Securities Exchange Act of 1934 (the "Complaint").

The Complaint states that it "is a class action on behalf of purchasers of Electronics for Imaging, Inc. ("EFI" or the "Company") stock between April 10, 1997 and December 11, 1997," and includes seven paragraphs and six sub-paragraphs of allegations purporting to establish the appropriateness of proceeding as a class action. Complaint, ¶¶ 1, 26-32. Although the Complaint requests the Court to declare this action to be a proper class action pursuant to Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure (Complaint, ¶ 50: 3-5), and although plaintiffs and their counsel sought and received this Court's approval for them to act as lead plaintiffs and lead counsel for the proposed class, plaintiffs have never moved to certify this case as a class action. On October 5, 1998, counsel for the defendants wrote to plaintiffs' counsel and offered to stipulate to the class defined in the Complaint. Lansky Decl. Ex. E. Plaintiffs ignored the offer. On November 10, 1998, counsel for the defendants again wrote to plaintiffs counsel offering to stipulate to conditional certification of a plaintiff class. Lansky Decl. Ex. F. Plaintiffs again disregarded defendants' offer. While defendants subsequently agreed to table class certification together with their motion to dismiss, a motion to dismiss and answer have now been filed.

I. THE COURT HAS THE AUTHORITY TO COMPEL PLAINTIFFS TO SEEK CLASS CERTIFICATION OR DROP THEIR CLASS ACTION ALLEGATIONS

Federal Rules of Civil Procedure 23(c)(1) and 23(d) give this Court the authority to compel plaintiffs either to seek class certification or eliminate their class allegations. Rule 23(c)(1) states in part that "[a]s soon as practicable after commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained." Fed. R. Civ. P. 23(c)(1) (emphasis supplied). Subdivision (c)(1) "requires the court to determine, as early in the proceedings as may be practicable, whether an action brought as a class action is to be so maintained." Fed. R. Civ. P. 23, Advisory Committee Notes, 1966 Amendment (emphasis supplied). Thus, the Court has not only the power but also the duty to make an early class certification decision. This decision "may be conditional, and may be altered or amended before a decision on the merits." Fed. R. Civ. P. 23(c)(1).

Rule 23(d) of the Federal Rules of Civil Procedure gives the Court broad authority to manage class actions. The subdivision "is concerned with the fair and efficient conduct of the action and lists some types of orders which may be appropriate." Fed. R. Civ. P. 23, Advisory Committee Notes, 1966 Amendment. The rule authorizes the Court to "make appropriate orders" about the course of the proceedings; the content, manner and timing of notice to the prospective class members; the imposition of conditions on representative parties or intervenors; amendments of the pleadings to eliminate therefrom all allegations as to representation of absent persons, and other procedural matters. Fed. R. Civ. P. 23(d). Together, subdivisions (c) and (d) give the Court broad discretion to manage class actions. See Kilgo v. Bowman Transp., Inc., 789 F.2d 859, 877-78 (11th Cir. 1986) (Rule 23(c)(1) "grants the trial court broad discretion in the initial certification and subsequent amendment of a class"); 5 James W. Moore et al., Moore's Federal Practice § 23.64 (3d ed. 1997) (courts "liberally apply [subdivision (d)(5)] to authorize any orders not otherwise listed in the rule that facilitate the fair and efficient conduct of the action").

This Court's broad discretion to manage class actions under Rule 23 means that the Court should determine class certification issues as soon as practicable, even if one or both of the parties resists. Fed. R. Civ. P. 23, Advisory Committee Notes, 1966 Amendment. See Senter v. General Motors Corp., 532 F.2d 511, 520-21 (6th Cir. 1976) (Rule 23(c)(1) is "mandatory" and obligates the court to decide the class action issue); McDonald v. General Mills, Inc., 387 F. Supp. 24, 38-39 (E.D. Cal. 1974) ("Although either plaintiff or defendants may move for a determination of appropriateness of a class action . . . the court has an independent obligation to decide the issue and need not wait for the parties to so move" (citation omitted)); Ponce v. Housing Auth. of Tulare County, 389 F. Supp. 635, 654 (E.D. Cal. 1975) (same). Subdivisions (c) and (d) give the Court broad discretion in determining how to fulfil this obligation. The Court may impose conditions on certification or, in its discretion, dismiss the class allegations. Fed. R. Civ. P. 23(c)(3), (4). This broad discretion granted under Rule 23 clearly encompasses the ability to require that plaintiffs either seek class certification by a particular date or amend their Complaint to drop their class claims.

Thus, this Court not only has the power, but also the duty to make an early class certification decision. Courts of this District have concluded as much in their recent decisions in Diamond Multimedia, Digital Link, Netmanage, and TCSI Corporation.³ Here, a motion for class certification is unnecessary because defendants have already offered to stipulate to a conditional class certification. The Court may order plaintiffs either to accept the stipulation or to drop the class action allegations.

II. THE COURT SHOULD CERTIFY THE PLAINTIFF CLASS BEFORE RULING ON THE MOTION TO DISMISS

The issue is not if but when a class should be certified. Judicial economy and fairness to all parties dictate that a class be certified before this Court rules on defendants' motion to dismiss. As the Court previously concluded in Diamond, certification at this stage of the case will ensure that all parties are bound by the Court's rulings, will prevent duplicative litigation, and will avoid potential unfairness to the defendants. Diamond, 1997 WL 773733, at *2.

The facts and procedural posture of this action and Diamond Multimedia, Digital Link, Netmanage, and TCSI Corporation are virtually identical. In each case, plaintiffs filed class actions in federal court and yet refused to accept defendants' stipulation to certify a federal class prior to the resolution of the motion to dismiss. The reasoning behind the Courts' Orders compelling certification in those cases applies in full force here.

As recognized by Judge Armstrong in Diamond, a ruling on defendants' motion to dismiss prior to class certification will bind only the named plaintiffs. See also Wright v. Schock, 742 F.2d 541, 544 (9th Cir. 1984) (finding that pre-class certification adjudication of the summary judgment motion was binding only on the named plaintiffs). "As a result, in the event of an adverse ruling on the motions to dismiss, members of the putative class will be able to refile identical claims against defendants in this or another Court." Diamond, 1997 WL 773733, at *2. Class members would therefore be free from the effects of res judicata and collateral estoppel. This result would give plaintiff class members two bites at the apple by allowing them to relitigate issues already decided by the Court. If the motion to dismiss were denied, however, the defendant would be bound by the result and could not relitigate the issue. "This scenario, often referred to as the problem of 'one way intervention', see Schwarzchild v. Tse, 69 F.3d 293, 295 (9th Cir. 1995) . . . is unfair to the defendants who 'no less than plaintiffs are entitled to the fruits of their victory.' See Koch v. Standard, 962 F.2d 605, 607 (7th Cir. 1992)." Diamond, 1997 WL 773733, at *2. Accordingly, Judge Armstrong "concur[red] with defendants that proceeding with the motions to dismiss in the absence of class certification would result in an inefficient use of scarce judicial resources and significantly prejudice the defendants." Id.

Rule 23's procedures -- class certification, notice, and opt-out procedures -- were specifically designed to prevent one way intervention by resolving class membership "as soon as practicable after the commencement" of the action. American Pipe, 414 U.S. at 547-49; see Fed. R. Civ. P. 23. The notice and opt-out procedures give potential class members an opportunity to decide either to be parties to the litigation who are bound by this Court's decision or to remain non parties or pursue their own separate action. American Pipe, 414 U.S. at 549. Certification thus prevents wasteful relitigation and provides the parties with certainty as to the effect of this Court's rulings. Diamond, 1997 WL 773733, at *2. In order to prevent the unnecessary expenditure of this Court's resources and the unfairness to defendants of one way intervention, this Court should order plaintiffs to either certify a class or to drop their class allegations.

For the foregoing reasons, defendants respectfully request this Court grant defendants' motion and order class certification and notice prior to ruling on defendants Lenches' and Rosenzweig's motion to dismiss plaintiffs' amended complaint.

¹ A motion to certify a class action in state court is currently pending. However, that motion presents substantially different considerations with respect to class certification.

² See, e.g., Head v. Netmanage, No. C 97-4385 CRB, slip op. (N.D. Cal. Sept. 8, 1998); In re Diamond Multimedia Sys., Inc., No. 96-2644 SBA, 1997 WL 773733 (N.D. Cal. Oct. 14, 1997); Copperstone v. TCSI Corp., No. C-97-3495 SBA, slip op. (N.D. Cal. Apr. 20, 1998); Genna v. Digital Link Corp., No. C-96-20867-RMW, slip op. (N.D. Cal. Apr. 13, 1998). Copies of these Orders are attached as Exhibits A, B, C, and D to the Declaration of David L. Lansky ("Lansky Decl.") filed concurrently herewith.

³ See Lansky Decl. Exhs. A, B, C, and D.