Attorneys for Defendants
Lynn C. Fritz, John H. Johung,
Stephen M. Mattessich, Carsten
S. Andersen and Fritz Companies, Inc.

II. FACTS

III. LAW AND LOGIC COMPEL A STAY OF THIS PROCEEDING PENDING RESOLUTION OF THE IDENTICAL FEDERAL ACTIONS

A. A STAY OF THIS ACTION IS REQUIRED TO AVOID UNNECESSARY AND DUPLICATIVE LITIGATION THAT WILL CLOG AN ALREADY OVERBURDENED COURT SYSTEM

B. A STAY OF THIS ACTION IS ESSENTIAL TO AVOID "UNSEEMLY CONFLICTS" AND INCONSISTENT RESULTS

C. A STAY OF THIS PROCEEDING IS NECESSARY TO AVOID UNDUE HARASSMENT FROM DUPLICATIVE CLASS ACTION LITIGATION

A. THE FEDERAL COURT IS, BY DEFINITION, THE ONLY COURT THAT CAN RESOLVE ALL THE CLAIMS ASSERTED BY PLAINTIFFS

B. THE FEDERAL COURT PRESENTS NO COGNIZABLE DISADVANTAGE TO PLAINTIFFS

CASES

Bancomer, S.A. v. Superior Court, 44 Cal. App. 4th 1450 (1996)

Bank of New York v. Levy, 506 N.Y.S.2d 767 (2d Dep't 1986)

Barnes v. Peat, Marwick, Mitchell & Co.,
  344 N.Y.S.2d 645 (1st Dep't 1973)

Blue Chip Stamp v. Manor Drug Stores,
  421 U.S. 723 (1975)

Caiafa Prof'l Law Corp. v. State Farm Fire & Casualty Co.,
  15 Cal.App. 4th 800 (1993)

City and County of San Francisco v. Fair Employment & Housing Com.,
  191 Cal. App. 3d 976 (1987)

Farmland Irrigation Co. v. Dopplmaier,
  48 Cal. 2d 208(1957)

In re Glenfed, Inc. Securities Litigation,
  42 F.3d 1541 (9th Cir. 1994) (en banc)

Goodridge v. Fernandez, 505 N.Y.S.2d 144 (1st Dep't 1986)

Hack v. Fritz, et al., San Francisco Superior Court No. 980011

Lawrence v. Fritz, et al., U.S.D.C. No. C 96-2906 MMC (N.D. Cal.)

Leadford v. Leadford, 6 Cal. App. 4th 571 (1992)

Mirkin v. Wasserman, 5 Cal. 4th 1082 (1993)

Polk v. Fritz, et al., U.S.D.C. No. C 96-2712 MHP (N.D. Cal.)

Schneider v. Vennard, 183 Cal.App. 3d 1340 (1986)

Shiley, Inc., v. Superior Court, 4 Cal.App. 4th 126 (1992)

Simmons v. Superior Court, 96 Cal.App. 2d. 119 (1950)

Stangvik v. Shiley, Inc., 54 Cal. 3d 744 (1991)

Thomson v. Continental Ins. Co., 66 Cal. 2d 738 (1967)

Weiss v. Fritz, et al., U.S.D.C. No. C 96-2713 FMS (N.D. Cal.)

STATUTES AND RULES

15 U.S.C.
  § 78aa
  § 78j(b)

28 U.S.C. § 1367

California Rules of Court
  804

California Civil Code
  §§ 1709-1710

California Code of Civil Procedure
  §410.30(a)
  §418.10(a)(2)

California Corporations Code
  § 25400
  § 25500

Defendants Lynn C. Fritz, John H. Johung, Stephen M. Mattessich, Carsten S. Andersen and the Fritz Companies, Inc. ("defendants") respectfully submit this memorandum in support of their Motion to Stay this proceeding, as well as the companion filing in Hack v. Fritz, et al., San Francisco Superior Court No. 980011, and in response to plaintiffs' Notice of Related Cases pursuant to California Rule of Court 804.

"It is black letter law that, when a federal action has been filed covering the same subject matter as is involved in a California action, the California court has the discretion but not the obligation to stay the court action."

The California Supreme Court has held that this discretion should be exercised to stay "substantially identical" actions. Thomson v. Continental Ins. Co., 66 Cal. 2d 738, 746 (1967). Similarly, the appellate courts have insisted that a stay is required "to prevent two actions between the same parties involving the same subject matter from proceeding independently of each other." Simmons v. Superior Court, 96 Cal.App. 2d. 119, 124 (1950). A litigation stay in this case is not only compelled by the facts, but is expressly authorized pursuant to Code of Civil Procedure sections 410.30(a) (authorizing a stay whenever justice requires) and 418.10(a)(2) (authorizing litigation stays that promote convenience), as well as California Rule of Court 804 (permitting formal or informal coordination of related cases).

The threats posed by duplicative litigation are particularly pernicious in this case because all the complaints asserted against these defendants are shareholder class actions. The California Supreme Court has emphasized that these securities fraud claims "present a danger of vexatiousness different in degree and in kind from that which accompanies litigation in general." Mirkin v. Wasserman, 5 Cal. 4th 1082, 1107 (1993). Thus, because the present litigation imposes acute risks and burdens -- and because plaintiffs are not disadvantaged by proceeding in their pending federal action -- law and logic compel a stay of this case.

Each of these complaints purports to bring a nationwide class action on behalf of an identical group of Fritz shareholders. Each of the complaints names exactly the same defendants and alleges the same class period (except that the class period in Lawrence begins one day later than in the other four cases). Indeed, each of the complaints, relies on precisely the same factual claims, and the first four filings -- all of which were brought by the Milberg Weiss firm and signed by the same attorney -- contain substantive allegations that are verbatim duplicates of each other. See, Alderman Decl., Exs. A, B, and D.

Plaintiffs' "Notice of Related Actions" to this Court under California Rule of Court 804 acknowledges that the federal and state actions both "contain the same defendants and appear to be based on similar events and facts." August 16, 1996 Notice of Related Cases, p. 1. The only difference between the pending federal actions and the complaints filed in this Court is that the federal complaints assert solely section 10(b) claims under the 1934 Securities Exchange Act (which cannot be brought in state court), while the state court complaints bring claims under California Civil Code §§ 1709-1710 and Corporations Code §§ 25400 and 25500 (which are routinely asserted as pendent claims in federal court).

In the ongoing federal actions, plaintiffs have published a notice to potential class members and have sought to have their cases consolidated before a single judge. Alderman Decl. ¶2. Similarly, plaintiffs have asked this Court to assign their state court actions to a single judge "to avoid duplicative consumption of judicial and litigants' resources." See, Notice of Related Cases, p. 1. Ironically, the present complaint contends -- as do the federal actions -- that class treatment is appropriate because separate proceedings "would create a risk of inconsistent and varying adjudications." Compl. ¶15; See also, Alderman Decl. Ex. A, ¶16; Ex. B, ¶16. 

Under each of these doctrines, the need for a stay is determined by common sense considerations of: (a) the burden imposed upon "the already overtaxed resources of two courts . . . devoted to the resolution of a single dispute," Schneider v. Vennard, 183 Cal.App. 3d 1340, 1348 (1986); (b) the risk of "unseemly conflicts" between the state and federal courts, including inconsistent factual findings, discovery rulings, and motion or trial results, Caiafa Prof'l Law Corp. v. State Farm Fire & Cas. Co., 15 Cal. App. 4th at 806; and (c) the "threat of multiple and vexatious litigation" to defendants who could be forced to litigate simultaneously -- and unnecessarily -- two separate but duplicative class actions. Leadford v. Leadford, 6 Cal. App. 4th 571, 575 (1992).^4/

As shown below, the dispositive factors identified by the California courts all strongly favor the issuance of a stay in this case:

"[T]he court should consider the importance of discouraging multiple litigation designed solely to harass an adverse party, and of avoiding unseemly conflicts with the courts of other jurisdictions. It should also consider whether the rights of the parties can best be determined by the court of the other jurisdiction because of the nature of the subject matter, the availability of witnesses, and the stage to which the proceedings in the other court have already advanced."

A. A STAY OF THIS ACTION IS REQUIRED TO AVOID
UNNECESSARY AND DUPLICATIVE LITIGATION THAT
WILL CLOG AN ALREADY OVERBURDENED COURT SYSTEM

In Schneider v. Vennard, 183 Cal. App. 3d 1340 (1986), for example, plaintiffs similarly filed state and federal securities fraud actions based upon the same underlying conduct. In Schneider, as here, plaintiffs' state court complaint alleged violations of the California Corporations Code and their federal action alleged violations of Securities Exchange Act section 10(b). In Schneider, the court went well beyond the temporary stay that is sought here and dismissed all plaintiffs' class allegations in the state court proceeding.

In affirming dismissal, the Court of Appeal pointed to the obvious (and unnecessary) burdens that would be imposed upon the judicial system by duplicative litigation:

"It is undoubtedly preferable from the point of view of the judicial system to resolve the instant dispute by one class action rather than by duplicative class actions in two jurisdictions. If two class actions were allowed to proceed simultaneously, the already overtaxed resources of two courts will have been devoted to the resolution of a single dispute. Judicial economy and efficiency would not be served by allowing both actions to proceed as class actions.

This concern for needlessly duplicative litigation is compelling in the present case, where the burdens imposed by a securities class action are particularly onerous. It is widely recognized that these proceedings are among the most complex and taxing on the court system, and typically consume an inordinate share of judicial resources through discovery, class certification, dispositive motions and trial. See, e.g., In re Glenfed, Inc. Securities Litigation, 42 F.3d 1541, 1555 (9th Cir. 1994), en banc, Norris, J. concurring (discussing the "plague of burdensome and prolix complaints that have become fashionable in securities fraud cases today"). Indeed, in their Notice of Related Cases, plaintiffs have sought assignment of their state court actions to a single judge "to avoid duplicative consumption of judicial and litigants' resources." But while plaintiffs' request for a single assignment concedes the unique burdens imposed by this litigation, their avowed goal of promoting judicial economy can be achieved only by the coordination of this proceeding with the ongoing federal actions.

B. A STAY OF THIS ACTION IS ESSENTIAL TO AVOID
"UNSEEMILY CONFLICTS" AND INCONSISTENT RESULTS

• the adequacy of the duplicative pleadings
• the scope of overlapping discovery
• the truth or falsity of the same written and oral statements
• the materiality of the same statements
• the state of mind of the same defendants
• the cause of the decline in Fritz's stock price during the same period
• the compliance with GAAP requirements of the same financial information

For example, in City and County of San Francisco v. Fair Employment & Housing Com., 191 Cal. App. 3d 976, 993 (1987), the Court of Appeal recognized that "parallel proceedings in both federal and state forums [concerning racial discrimination in promoting firefighters] raise the real possibility of each forum ordering conflicting relief." The First District required that this Court defer to ongoing federal proceedings because "traditional concepts of comity and judicial restraint must guide the imposition of any remedy." Id. In words that readily apply here, the City and County of San Francisco court concluded that state court proceedings "should be deferred pending the outcome of the federal proceedings in order to avoid conflicting relief." Id.

Indeed, for many years, "the strong policy of comity was thought by the appellate courts to be a sufficient basis for converting what was otherwise a matter of discretion -- the propriety of a stay -- into a rule of law." Thompson v. Continental Ins. Co., 66 Cal. App. 2d at 747. While a stay of litigation pursuant to CCP section 410.30(a) or 418.10(a)(2) is now recognized to be discretionary, under the present circumstances the California appellate courts have emphasized that "it is difficult for us to see how the trial court could have exercised its discretion in any other way but to grant [the defendant's] request for a stay of the state court proceedings pending the outcome of the federal fraud action." Caiafa, 15 Cal. App. 4th at 807.

The plaintiffs in this case have listed a series of questions that they allege are common to all class actions. See Compl. ¶11. Not surprisingly, these questions are identical to those alleged to be the basis for their federal actions. See, Alderman Decl. Ex. A, ¶12; Ex. B, ¶12. While plaintiffs in this case allege that a class action is necessary to avoid the "risk of inconsistent and varying adjudications," Compl. ¶15, it is apparent that such "inconsistent or varying adjudications" are inevitable if this Court permits two such class actions to proceed simultaneously in two separate judicial systems.

C. A STAY OF THIS PROCEEDING IS NECESSARY TO
AVOID UNDUE HARASSMENT FROM DUPLICATIVE
CLASS ACTION LITIGATION

Both the state and federal Supreme Courts have observed that shareholder litigation (such as the present proceedings) often distorts the resolution of these claims on their merits. Mirkin, supra, quoting Blue Chip Stamps, supra. Because of the very significant burdens imposed by these cases, ."the very pendency of the lawsuit may frustrate or delay normal business activity of the defendant which is totally unrelated to the lawsuit." Id. In the present case, this already inordinate "danger of vexatiousness" has been doubled by plaintiffs' strategy of prosecuting multiple actions.

Both the pending federal and state actions seek recovery from the same defendants, for the same alleged wrongdoing, on behalf of the same plaintiffs. As discussed below, there is absolutely no disadvantage to plaintiffs in permitting the federal proceeding to go forward under the direction of their common counsel. However, because there would be very substantial prejudice to these defendants if they were required to litigate, and relitigate, two nationwide class actions in two forums, fundamental fairness requires a temporary stay of this action.

A. THE FEDERAL COURT IS, BY DEFINITION,
THE ONLY COURT THAT CAN RESOLVE ALL
THE CLAIMS ASSERTED BY PLAINTIFFS

By contrast, plaintiffs' claims under section 10(b) of the Securities Exchange Act can be only asserted in federal court. 15 U.S.C. § 78aa, section 27 (federal courts "have exclusive jurisdiction of violations of this title"). Thus, the federal court offers "broader relief" because it is the only forum that can decide all the claims asserted on behalf of these plaintiffs. Plaintiffs' decision to burden the judicial system and these defendants with duplicative class actions is transparently tactical because, as the Schneider court noted, "the pending federal class action provides plaintiffs with all the remedies available in state court. " 183 Cal.App. 3d at 1348.

Moreover, plaintiffs have no legitimate argument that they risk any refusal by the federal court to entertain their pendent state law claims. It is undisputed that "the staying court retains jurisdiction over the parties and the cause [and] can protect the interests of the California residents pending the final decision of the foreign court." Archibald v. Cinerama Hotels, 15 Cal. 3d 853, 857 (1976). As a result, any concerns that plaintiffs could possibly have with respect to their ability to assert California claims can always be brought back to this Court.

B. THE FEDERAL COURT PRESENTS NO
COGNIZABLE DISADVANTAGE TO PLAINTIFFS

Indeed, the burden imposed by duplicative litigation in this case would afflict not only the courts and defendants, but also plaintiffs themselves (if not their counsel). In any settlement of class actions, class counsel is normally awarded its fees and expenses out of the settlement proceeds. Thus, while plaintiffs' counsel might well be enriched by bringing multiple suits, the plaintiff class members would be forced to pay for this "unwarranted extravagance of simultaneous class actions." Schneider, 183 Cal.App. 3d at 1349.

Finally, it is predictable that plaintiffs will hypothesize some distinction between state and federal procedure and claim that they are disadvantaged by anything less than the simultaneous prosecution of identical allegations in separate courts. However, as the forum non conveniens case law makes clear, "the fact that California law would likely provide plaintiffs with certain advantages of procedural or substantive law cannot be considered as a factor in plaintiffs' favor." Shiley. Inc. v. Superior Court, 4 Cal.App. 4th 126, 133 (1992). Thus, because it is clear that the present case "may be more appropriately and justly tried elsewhere," it is irrelevant whether plaintiffs acknowledge that have brought parallel actions in the hopes of gaining some tactical advantage. See Stangvik, 54 Cal. 3d at 754-55 ("the fact that an alternate jurisdiction's law is less favorable to a litigant than the law of the forum should not be accorded any weight in deciding a motion for forum non conveniens provided that some remedy is afforded").

^1/ Because the complaint filed with this Court in Hack v. Fritz is identical to the present action, the arguments compelling a stay of this proceeding apply with equal force to Hack. Thus, the defendants in Hack -- who are also the defendants herein -- have filed separately a motion to stay that action, which is similarly supported by the Memorandum of Points and Authorities and Declaration of Alderman in support of the present motion.

^2/ Code of Civil Procedure section 418.10(a)(2) provides that California courts may "stay or dismiss the action on the ground of inconvenient forum."

^3/ Rule 804 also permits defendants to file a response to plaintiffs' Notice of Related Cases that "will be considered when the court determines what action may be appropriate to coordinate the cases formally or informally." Cal. Rule of Court 804(c). Rather than burden this Court with separate filings, defendants submit the present Memorandum both in support of their Motion to Stay and in response to plaintiffs' Rule 804 Notice.

^4/ See also, Simmons v. Superior Court, 96 Cal. App. 2d at 124 (the decision to stay proceedings is based upon "principles of wisdom and justice", to "prevent unnecessary litigation" and thus to "prevent two actions between the same parties involving the same subject matter from proceeding independently of one another").

^5/ The principle that a copycat state court proceeding should be stayed pending the resolution of a federal securities class action is widely recognized and enforced throughout the country. For example, in Barnes v. Peat, Marwick, Mitchell & Co., 344 N.Y.S.2d 645 (1st Dep't 1973), the appellate court affirmed a stay of state court proceedings pending resolution of the federal securities suits:

"The Federal Court has before it all of the defendants and all of the issues here asserted. The prosecution of this action and others that may conceivably be brought in state courts would necessarily involve going over the same grounds covered in the Federal actions and result in duplication of effort and a consequent waste of court time."

^6/ California law dictates that a non-resident plaintiff's choice of a state court forum is entitled to little, if any, deference. See Stangvik v. Shiley, Inc., 54 Cal. 3d at 755.
 

Source: Scanned paper copy of court-stamped document