Fritz Companies, Inc. - CIVIL DOCKET FOR CASE #: 96-CV-2712

Stanford University Law School - Securities Class Action Clearinghouse

MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
HELEN J. HODGES (131674)
ARTHUR C. LEAHY (149135)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
- and -
ALISON M. TATTERSALL (149607)
222 Kearny Street, 10th Floor
San Francisco, CA 94108
Telephone: 415/288-4545

BARRACK, RODOS & BACINE
EDWARD M. GERGOSIAN (105679)
KRISTI A. SHELTON (179400)
600 West Broadway, Suite 1700
San Diego, CA 92101
Telephone: 619/230-0800

BERGER & MONTAGUE, P.C.
SHERRIE R. SAVETT
GARY E. CANTOR
1622 Locust Street
Philadelphia, PA 19103
Telephone: 215/875-3000

Co-Lead Counsel for Plaintiffs

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

In re FRITZ COMPANIES SECURITIES
LITIGATION
__________________________________________
This Document Relates To:
ALL ACTIONS.
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) Master File No.
C-96-2712-MHP
[filed Aug. 6, 1997]
CLASS ACTION
DATE: September 12, 1997
TIME: 10:30 a.m.
PLACE: The Honorable
Marilyn Hall Patel

NOTICE OF CROSS-MOTION AND CROSS-MOTION TO STRIKE CERTAIN EVIDENCE OFFERED BY DEFENDANTS ON THEIR MOTION TO DISMISS AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF

TO: ALL PARTIES AND THEIR RESPECTIVE COUNSEL OF RECORD

PLEASE TAKE NOTICE that on September 12, 1997, at 10:30 a.m. or as soon thereafter as the matter may be heard in the courtroom of the Honorable Marilyn Hall Patel, United States District Court, Northern District of California, 450 Golden Gate Avenue, San Francisco, California, plaintiffs will cross-move for an order striking Exhibit J to the Declaration of Tanya Herrera in Support of Defendants' Motion to Dismiss (the "Herrera Declaration").

I. INTRODUCTION

Contrary to Ninth Circuit law, defendants have improperly submitted copies of certain documents not specifically referred to in the complaint or subject to judicial notice. These documents, attached as exhibit J to the Herrera Declaration, (i) constitute evidence "outside the pleading" under Federal Rule of Civil Procedure 12(b)(6), (ii) are not subject to judicial notice, and (iii) constitute inadmissible hearsay. These documents cannot be considered in determining defendants' motion to dismiss.

II. BACKGROUND

On July 2, 1997, defendants filed a motion to dismiss the complaint. In support of their motion, defendants submitted the Herrera Declaration, which attached 10 exhibits. These exhibits include Exhibit J, which consists of copies of documents created by KPMG Peat Marwick which are neither referenced nor quoted in the complaint.

III. LEGAL ARGUMENT

The Ninth Circuit has consistently held that in deciding a motion to dismiss, the Court may not consider material outside of the complaint. Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994); see alsoFecht v. Price Co., 70 F.3d 1078, 1080 n.1 (9th Cir. 1995), cert. denied, __ U.S. __, 116 S. Ct. 1422 (1996). A document is not "outside" the complaint if the complaint specifically refers to the document and if its authenticity is not questioned. See Branch, 14 F.3d at 453.

In their motion to dismiss, defendants concede as much, acknowledging that the Court may only look at documents cited in the complaint. Defendants' Motion to Dismiss and Supporting Memorandum of Points and Authorities ("Defs' Brf.") at 24 n.16. Yet, Exhibit J to the Herrera Declaration is a copy of two KPMG Peat Marwick documents which are not specifically referred to, cited to or quoted from in the complaint. These documents are plainly outside the complaint, beyond the scope of defendants' motion, and may not be considered by the Court in determining defendants' motion to dismiss.

Judge Maxine Chesney recently refused to take judicial notice of accounting workpapers. In re Trimble Navigation Sec. Litig., No. C-95-4353 MMC, slip op. at 37 n.7 (N.D. Cal. April 28, 1997) (holding "[d]efendants seek to stretch Branch v. Tunnell past its breaking point, and the Court declines defendants' invitation to review the E&Y workpapers at this juncture") attached as Ex. F to the Declaration of Helen J. Hodges in Opposition to Defendants' Motion to Dismiss and in Support of Cross-Motion to Strike. See also In re Sun Microsystems, Inc. Sec. Litig., No. C-89-20351-RPA, 1990 U.S. Dist. LEXIS 18740, at *5-*6 (N.D. Cal. Aug. 20, 1990) (court refused to take judicial notice of defendants' SEC filings because to do so would convert motion to dismiss into one for summary judgment); Haltman v. Aura Sys., 844 F. Supp. 544, 550 (C.D. Cal. 1993) (unnecessary to take judicial notice of SEC documents on motion to dismiss).

In In re Wickes Cos. Sec. Litig., [1982-1983 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶99,055 (S.D. Cal. 1983), Judge Enright concluded that the use of an SEC filing in a 12(b)(6) motion was improper:

[Defendant] urges the court to compare the allegations of the complaint with the Form S-14 Registration Statement, which includes the Joint Proxy Statement and Prospectus. It requests that the court take judicial notice of the SEC filing.
* * *

Whether the statements contained in the prospectus were misleading is a question of fact. Even if this fact were uncontested, which it is not, the prospectus does not provide answers to the other allegations contained in the complaint. The prospectus does not demonstrate whether [defendant] had knowledge of the evidence or recklessly ignored evidence of the adverse impact of the proposed combination.

Id. at 95,002 (emphasis added).

Wickes is instructive. Here, without even a request for judicial notice, defendants ask the Court to read certain language in KPMG Peat Marwick's 1995 Control Overview Document and August 16, 1996 Restructuring Memo to draw inferences in their favor. Neither of these documents are quoted or specifically referred to in the complaint. Whether Fritz violated Generally Accepted Accounting Principles and whether defendants acted with scienter are crucial and hotly contested questions of fact. As the court held in Fecht, the question of "whether a public statement is misleading, or whether adverse facts were adequately disclosed is a mixed question to be decided by the trier of fact." 70 F.3d at 1081.⁽¹⁾

Moreover, these submissions are hearsay offered for the truth of their contents. Hearsay is a "statement, other than one made by the declarant while testifying at trial or hearing, offered in evidence to prove the truth of the matter asserted." Fed. R. Evid. 801(c). Unless otherwise excepted, hearsay is not admissible. Fed. R. Evid. 802.

Here, defendants seek to use the contents of the KPMG Peat Marwick workpapers to make the factual assertion that they did not act with scienter, a key factual issue in this action. See In re Apple Computer Sec. Litig., 886 F.2d 1109, 1113 (9th Cir. 1989) (scienter is a fact-specific issue which should ordinarily be left to the trier of fact).

IV. CONCLUSION

For all the foregoing reasons, the documents attached as Exhibit J to the Herrera Declaration should be stricken because they constitute documents outside the complaint, are inadmissible hearsay and are not subject to judicial notice.

DATED: August 5, 1997

Respectfully submitted,

MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
HELEN J. HODGES
ARTHUR C. LEAHY

______________________________
HELEN J. HODGES

600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058

MILBERG WEISS BERSHAD
HYNES & LERACH LLP
ALISON M. TATTERSALL
222 Kearny Street, 10th Floor
San Francisco, CA 94108
Telephone: 415/288-4545

BARRACK, RODOS & BACINE
EDWARD M. GERGOSIAN
KRISTI A. SHELTON
600 West Broadway, Suite 1700
San Diego, CA 92101
Telephone: 619/230-0800

BERGER & MONTAGUE, P.C.
SHERRIE R. SAVETT
GARY E. CANTOR
1622 Locust Street
Philadelphia, PA 19103
Telephone: 215/875-3000

Co-Lead Counsel for Plaintiffs

FRITZ\JMI03573.NOT

1. It is axiomatic that a judicially noticed adjudicative fact must be

one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.

Fed. R. Evid. 201(b) (emphasis added). In other words, for a fact to be judicially noticed, "indisputability is a prerequisite." Hennessy v. Penril Datacomm Networks, 69 F.3d 1344, 1354 (7th Cir. 1995). The power to judicially notice facts "is to be exercised by courts with caution. . . . Every reasonable doubt upon the subject should be resolved promptly in the negative." Brown v. Piper, 91 U.S. 37, 42-43 (1875). At this early stage in the litigation, with discovery stayed, plaintiffs in good faith refuse to concede the accuracy of these documents prepared by KPMG Peat Marwick.

DECLARATION OF SERVICE BY MAIL PURSUANT TO NORTHERN DISTRICT LOCAL RULE 23-3(c)(2)

I, the undersigned, declare:

1. That declarant is and was, at all times herein mentioned, a citizen of the United States and a resident of the County of San Diego, over the age of 18 years, and not a party to or interested in the within action; that declarant's business address is 600 West Broadway, Suite 1800, San Diego, California 92101.

2. That on August 5, 1997, declarant served the NOTICE OF CROSS-MOTION AND CROSS-MOTION TO STRIKE CERTAIN EVIDENCE OFFERED BY DEFENDANTS ON THEIR MOTION TO DISMISS AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF by depositing a true copy thereof in a United States mailbox at San Diego, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List and that this document was forwarded to the following designated Internet site at:

http://securities.milberg.com

3. That there is a regular communication by mail between the place of mailing and the places so addressed.

I declare under penalty of perjury that the foregoing is true and correct. Executed this 5th day of August, 1997, at San Diego, California.

______________________________
DANELLE L. McNERTNEY

12 Oct 1997
Source: Milberg Weiss web file