ABBEY, GARDY & SQUITIERI, LLP
JILL S. ABRAMS
JAMES J. SEIRMARCO (194307)
212 East 39th Street
New York, NY 10016
Telephone: 212/889-3700

BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP
DANIEL L. BERGER
JEFFREY N. LEIBELL
1285 Avenue of the Americas
33rd Floor
New York, NY 10019
Telephone: 212/554-1400

Attorneys for Lead Plaintiffs and the Class
 
 

In re DIAMOND MULTIMEDIA SYSTEMS,  )    No. C-96-2644-SBA
INC. SECURITIES LITIGATION         )
___________________________________)    CLASS ACTION

                                   )
This Document Relates to:          )    DATE: June 8, 1999
                                   )    TIME: 11:30 a.m.
ALL ACTIONS.                       )    CTRM: Honorable Saundra
___________________________________)    Brown Armstrong
 
 

I. INTRODUCTION

II. BACKGROUND

III. ARGUMENT

IV. NOTICE TO THE CLASS

V. CONCLUSION
 

PLEASE TAKE NOTICE that on June 8, 1999 at 11:30 a.m. before the Honorable Saundra Brown Armstrong in the United States District Court for the Northern District of California, Oakland Division at 1301 Clay Street, Oakland, California 94612 plaintiffs will and hereby do move for an order dismissing this action without prejudice. The order will be based on this motion, the supporting memorandum of points and authorities, the documents on file and oral argument presented.

I. INTRODUCTION

The Court concurs that Milberg Weiss' desire to avoid duplicative litigation, if possible, is appropriate. To the extent that the same relief sought in this action can be afforded in state court, there arguably is little, if any, need to litigate this action.

Plaintiffs filed this federal court action for two simple reasons: (1) after the filing of the state court action, competing counsel filed claims in federal court which threatened to put the interests of the plaintiff class at risk if the parallel state and federal actions were not coordinated; and (2) the California Supreme Court, at that point, had not yet ruled that nationwide relief was available under California law. The California Supreme Court has now ruled that nationwide relief is available under California law. Accordingly, plaintiffs now seek an order approving plaintiffs' voluntary dismissal of this action pursuant to Federal Rules of Civil Procedure 41(a)(1) and 23(e), without prejudice.

Rule 41(a)(1) permits a plaintiff to dismiss an action, without prejudice, "at any time before service by the adverse party of an answer or of a motion for summary judgment, whichever first occurs." Since the defendants in this action have neither answered, nor moved for summary judgment, dismissal is appropriate under Rule 41(a)(1).

There is no question that Rule 41(a)(1) is expressly subject to the provisions of Rule 23(e), which requires court approval for the dismissal of any class action. But the purpose of Rule 23(e) is to ensure that the class will not be prejudiced by dismissal. Here the plaintiff class will not be prejudiced by dismissal. The remedy for securities fraud under California law is at least as broad as the federal remedy. In addition, the state court complaint is now at issue, having survived defendants' demurrer, in contrast to the federal complaint, which has yet to be tested. All defendants have answered the state court complaint; a nationwide class has been certified; and document and deposition discovery in the state court action are underway and have been the subject of numerous discovery disputes, motions and orders.⁽¹⁾ In addition, the state court action has resulted in several California Court of Appeals rulings and a landmark decision by the California Supreme Court regarding the availability of nationwide relief under the California Securities Laws.

Defendants' unwillingness to dismiss this action, notwithstanding the obvious logic of such an order, is hypocritical. These very defendants, and this same counsel in other actions, have complained ad nauseam -- albeit without basis -- that they are improperly being burdened by having to defend two actions simultaneously. They have repeatedly argued that they are being abused and harassed by the prosecution of dual state and federal lawsuits. They have insisted that simultaneous actions waste judicial and party resources. Yet now, when actually offered a chance to dismiss one of the two actions (indeed, the less advanced action) and to proceed in a single forum, they refuse the opportunity. Defendants' present objection to a dismissal directly contradicts their incessant protestations.

Plaintiffs respectfully request that the Court dismiss this action, without prejudice, pursuant to Rules 41(a)(1) and 23(e).

II. BACKGROUND

Defendants subsequently demurred and moved to strike portions of the state court complaint. Some of those demurrers were overruled, and some were sustained with leave to amend. Plaintiffs thereafter filed an amended complaint, to which defendants again demurred. Defendants' demurrer to the amended complaint was overruled, and defendants have answered the complaint.⁽³⁾ On July 22, 1998, the state court certified a nationwide class, and on January 4, 1999, the California Supreme Court confirmed that nationwide relief is available with respect to the California Corporations Code sections at issue.⁽⁴⁾

Substantial discovery has occurred and is occurring in the state court action. Plaintiffs have obtained substantial information supporting their claims and demonstrating defendants' misconduct, including evidence that Diamond's outside auditors had determined that Diamond's lack of inventory controls was so deficient as to amount to a reportable condition throughout the class period. Plaintiffs have also discovered that although the Company reported the "theft" of $3 million of inventory, there was no record that could identify what the "inventory" even consisted of. Further evidence of "outside director" defendant Chong-Moon Lee's involvement in the fraud also has emerged from discovery, enabling plaintiffs to adequately replead their state complaint as to defendant Lee.

In contrast, there has been no activity in the federal action. The federal complaint is not at issue, nor has the Court ruled on a motion to dismiss. No discovery has occurred because of the operation of the Private Securities Litigation Reform Act of 1995, Pub L. No. 104-67, 109 Stat. 737 (1995) ("PSLRA") and the Local Rules. The activity in the federal action has been limited to the appointment of lead plaintiffs on January 13, 1997, the filing of a consolidated amended complaint on March 7, 1997, the filing of motions to dismiss, which were taken off calendar, and the certification of a plaintiff class.

III. ARGUMENT

Rule 41. Dismissal of Actions

(a) Voluntary Dismissal: Effect Thereof.

(1) By Plaintiff; by Stipulation. Subject to the provisions of Rule 23(e), of Rule 66, and of any statute of the United States, an action may be dismissed by the plaintiff without order of court (i) by filing a notice of dismissal at any time before service by the adverse party of an answer or of a motion for summary judgment, whichever first occurs, or (ii) by filing a stipulation of dismissal signed by all parties who have appeared in the action. Unless otherwise stated in the notice of dismissal or stipulation, the dismissal is without prejudice . . . .

Rule 41(a)(1) granted [plaintiffs] an absolute right to dismiss [the defendant] without prejudice and without prior leave of court.

The [filing of notice] itself closes the file. There is nothing the defendant can do to fan the ashes of that action into life and the court has no role to play. This is a matter of right running to the plaintiff and may not be extinguished or circumscribed by adversary or court. There is not even a perfunctory order of court closing the file. Its alpha and omega was the doing of the plaintiff alone. He suffers no impairment beyond his fee for filing.

Here, the defendants have neither answered, nor have they filed a motion for summary judgment. Accordingly, with respect to Rule 41, as against the defendants' interests, plaintiffs have an absolute ability to dismiss the action as a matter of right.

Under Rule 41(a)(1), however, class actions are also subject to Rule 23(e). That Rule states:

Rule 23. Class Actions

(e) Dismissal or Compromise. A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.

The purpose of Rule 23(e), however, is not to protect the interests of defendants, but rather to "ensure that the representative plaintiff fulfills his fiduciary duty toward the absent class members." Diaz v. Trust Territory of Pacific Island, 876 F.2d 1401, 1408 (9th Cir. 1989). The district court "must inquire into the terms and circumstances of any dismissal or compromise to ensure that it is not collusive or prejudicial." Id. See also Austin v. Pennsylvania Department of Corrections, 876 F. Supp. 1437, 1455 (E.D. Pa. 1995) (Rule 23(e) intended to prevent detriment to absent class members); Anderberg v. Masonite Corp., 176 F.R.D. 682, 687, 688 (N.D. Ga. 1997) (purpose of Rule 23(e) is to protect interests of absent class members); Pipes v. American Sec. Ins. Co., 169 F.R.D. 382, 384 (N.D. Ala. 1996) (Rule 23(e) serves to protect absent class members); Blanchard v. Edgemark Financial Corp., 175 F.R.D. 293, 298, 299(N.D. Ill. 1997) (Rule 23(e) designed to protect interests of absent class members).

Here, there is absolutely no prejudice, whatsoever, to the interests of the absent class members. The principal purpose of Rule 23(e) is to prevent defendants from paying-off or bribing the named plaintiffs in return for the dismissal of the action, without consideration being paid to the class. No such danger exists here. Plaintiffs have not received any consideration, but will instead continue to pursue their claims in state court.

The law controlling the dismissal of this action is simple. Under Rule 41(a)(1), plaintiffs are entitled, as a matter of right, to dismiss this action. Because it is a class action, however, this Court has an obligation, under Rule 23(e), to ensure that the rights of the absent class members are not prejudiced. The absent class members will not be prejudiced if the dismissal is without prejudice and subject to the Court reopening the action in the unlikely event that the California Supreme Court decision is reversed by the U.S. Supreme Court.

IV. NOTICE TO THE CLASS

V. CONCLUSION

DATED: April 30, 1999

MILBERG WEISS BERSHAD
HYNES & LERACH LLP
ALAN SCHULMAN
MARK SOLOMON
 
 
 
 
 

______________________________
MARK SOLOMON
 

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

MILBERG WEISS BERSHAD
HYNES & LERACH LLP
JOHN K. GRANT
KIMBERLY C. EPSTEIN
222 Kearny Street, 10th Floor
San Francisco, CA 94108
Telephone: 415/288-4545

ABBEY, GARDY & SQUITIERI, LLP
JILL S. ABRAMS
JAMES J. SEIRMARCO
212 East 39th Street
New York, NY 10016
Telephone: 212/889-3700

BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP
DANIEL L. BERGER
JEFFREY N. LEIBELL
1285 Avenue of the Americas
3rd Floor
New York, NY 10019
Telephone: 212/554-1400

Attorneys for Lead Plaintiffs
and the Class
 

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 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 April 30, 1999, declarant served the PLAINTIFFS' NOTICE OF MOTION AND MOTION FOR VOLUNTARY DISMISSAL OF ACTION AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF 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

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 30th day of April, 1999, at San Francisco, California.

______________________________

PAMELA JACKSON

1. The state court has appointed a special discovery master to supervise discovery in the state court action.

2. Liso v. Huh, et al., Santa Clara Superior Court Case No. CV759012, and Rosenblatt, et al. v. Huh, et al., Santa Clara Superior Court Case No. CV759270, were filed on July 11, 1996. On August 14, 1996, the Santa Clara Superior Court ordered these actions consolidated (the "Consolidated State Action"). The Consolidated State Action is now known as Pass, et al. v. Huh, et al., Santa Clara Superior Court Case No. CV758927, consolidated with CV759012 and CV759270.

3. A fourth state court action, Simon, et al. v. Huh, et al., Santa Clara Superior Court Case No. CV766990, was filed on June 20, 1997. Plaintiffs anticipate that the Simon action will be consolidated with the other state court actions.

4. In addition to the state court actions alleging securities fraud, a separate suit, brought as a derivative action alleging breaches of fiduciary duty, The Lauren Group v. Huh, et al., Santa Clara Superior Court Case No. CV760270, has also been filed against certain of Diamond Multimedia Systems Inc.'s ("Diamond" or the "Compnay") officers and directors. In that action, a Special Litigation Committee, composed of purportedly independent members of Diamond's Board of Directors, has gathered some 62 boxes of documents relevant to the issues in both this and the state securities lawsuits.