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
 
 

In Cooper the district court granted a motion to dismiss with prejudice based on its interpretation of the Ninth Circuit's en banc GlenFed opinion. The Ninth Circuit reversed, holding that the complaint adequately pled the falsity of defendants' statements. Using the standard set forth in GlenFed, and taking the complaint's allegations as true, the appellate panel stated:

The complaint alleges that [plaintiffs] purchased stock from Merisel, and that Merisel assured them (through its financial statements, its own positive statements, and optimistic projections mirrored in analysts' reports) that Merisel was in good shape due to its acquisition of Computerland, its reorganization overseas, and its positive sales figures. In fact, the Computerland acquisition had plunged Merisel deep into debt, its overseas operations continued to lose money, and it was improperly recognizing revenue from shipments of unordered goods and goods shipped on consignment to keep up the appearance of high sales; as a result, its second quarter earnings were disastrously low. Merisel's stock plummeted in value. Merisel's assurances took place at specified times during the class period, and the defendants knew they were false. Merisel's financial house, in other words, was built on a landfill. Because "falseness is clear from the facts that had existed all along and were later revealed," the complaint meets GlenFed I's requirements on this "skeletal analysis."

With respect to the sufficiency of plaintiffs' allegations that defendants' statements were false when made, the Ninth Circuit held that:

Applying Fecht's analysis here, the complaint alleges that the positive statements about the Computerland acquisition were false when made, because in truth the purchase created a debt that Merisel could not support. To ensure that a stock offering would ease its debt burden, Merisel misrepresented the state of its overseas operations and its overall prospects . . . . To keep its annual and quarterly reports positive, Merisel engaged, with Deloitte's help, in deceptive accounting practices. "For purposes of Rule 9(b), allegations of specific problems undermining a defendant' optimistic claims suffice to explain how the claims are false."

With respect to defendants' argument herein that plaintiffs' revenue recognition allegations are insufficiently specific, the Ninth Circuit in Cooper rejected exactly such an argument:

It is not fatal to the complaint that it does not describe in detail a single specific transaction (i.e., shipment) in which Merisel transgressed as above, by customer, amount, and precise method. . . . In Fecht, we found sufficiently particular allegations that newly opened Price Co. stores had low sales volumes, and that nine named stores (three in particular) were losing money. . . . Here, the complaint points to specific quarters and specific customers, and provides dollar figures for each quarter.

We hold that the complaint meets the particularity requirement of Rule 9(b). Overall, the complaint "'identifies the circumstances of the alleged fraud so that defendants can prepare an adequate answer.'" We decline to require that a complaint must allege specific shipments to specific customers at specific times with a specific dollar amount of improperly recognized revenue; "we cannot make Rule 9(b) carry more weight than it was meant to bear." . . . Because "we do not test the evidence at this stage," the complaint should go forward.

Like defendants here, in Cooper the defendants also submitted documentary evidence with their motion to dismiss, including transcripts of conference calls with analysts, declarations, and a faxed copy of internal projections. The Ninth Circuit refused to consider this evidence, holding:

In the complaint, plaintiffs make allegations about the conference calls, but do not expressly mention or refer to the transcripts, or even identify their existence. . . . Further, plaintiffs disputed the authenticity and accuracy of the transcripts in the district court, and objected to their use . . . . The transcripts therefore cannot be considered in ruling on the motion to dismiss.

FRITZ\BM000219.MIS

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 Francisco, over the age of 18 years, and not a party to or interested in the within action; that declarant's business address is 222 Kearny Street, 10th Floor, San Francisco, California 94108.

2. That on August 13, 1997, declarant served the PLAINTIFFS' SUPPLEMENTAL SUBMISSION OF AUTHORITY PURSUANT TO LOCAL RULE 7-3(e) by depositing a true copy thereof in a United States mailbox at San Francisco, 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

4. Declarant caused to be personally served a true copy of the above on the parties denoted on the attached Service List.

I declare under penalty of perjury that the foregoing is true and correct. Executed this 13th day of August, 1997, at San Francisco, California.
 

______________________________ JANETTE M. INGRAM

 

12 Oct 1997
Source: Milberg Weiss web file