Counsel for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
TABLE OF CONTENTS
TO: ALL PARTIES AND THEIR COUNSEL OF RECORD
PLEASE TAKE NOTICE that on February 16, 2001, at 9:00 a.m., or as soon thereafter as the matter may be heard, before the Honorable Ronald M. Whyte, United States District Court, Northern District of California, 250 South First Street, San Jose, California, plaintiffs will, and hereby do, move for an order striking all references to documents attached as Exhibits B-E to the Declaration of Scott A. Fink in Support of Motion of PricewaterhouseCoopers LLP to Dismiss ("Fink Decl."). Plaintiffs base this notice of motion and motion on the supporting memorandum of points and authorities herein, the pleadings on file in this action, oral arguments and such other matters as the Court may consider in hearing this motion.
Defendants improperly request that this Court take judicial notice of the following documents: the Securities and Exchange Commission's ("SEC") Complaint for Permanent Injunction and Other Legal and Equitable Relief ("SEC Complaint"), Fink Decl., Ex. B; Consent of Hybrid Networks, Inc. to Entry of Final Judgment of Permanent Injunction ("Consent Decree"), Fink Decl., Ex. C; Stipulation of Settlement, Fink Decl., Ex. D; and Final Judgment and Order of Dismissal ("Order of Dismissal"), Fink Decl., Ex. E. See Request for Judicial Notice of PricewaterhouseCoopers LLP ("Request for Judicial Notice").
Any consideration of these documents and the matters asserted therein is inappropriate. Hybrid's stipulation to the final Consent Decree should be excluded because it is being submitted to establish liability in violation of Fed. R. Evid. 408. Similarly, the SEC Complaint must be excluded for violating the indisputability requirement of Fed. R. Evid. 201. The SEC Complaint sets forth untested allegations about Hybrid Networks, Inc. ("Hybrid"). Hybrid has not had the opportunity to contest these allegations. Thus, if this Court were to take judicial notice of the SEC Complaint, it would be treating unchallenged allegations as fact. Finally, this Court should not take judicial notice of Hybrid's Stipulation of Settlement and this Court's Order of Dismissal because they are not referenced in the First Amended Complaint for Violation of Securities Laws ("First Amended Complaint"), and they raise issues of fact which cannot be resolved on a 12(b)(6) motion to dismiss. Cooper v. Pickett, 137 F.3d 616, 622-23 (9th Cir. 1998); Bonilla v. Oakland Scavenger Co., 697 F.2d 1297, 1301 (9th Cir. 1982).
As a result, plaintiffs object to defendant's request that this Court take judicial notice of Exs. B-E to the Fink Decl. and move to strike all references thereto and defendant's arguments in their motion to dismiss that rely upon such exhibits.(1)
Federal Rule of Evidence 408 provides: "Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim ... is not admissible to prove liability for or invalidity of the claim or its amount."(2) Courts have applied this rule to exclude evidence from SEC investigations in subsequent, related civil litigation. See, e.g., Option Resource Group, 967 F. Supp. at 849 ("Clearly, the Consent and Final Judgment ... and the Releases/settlements in the SEC proceeding ... must be excluded by the plain language of this rule."); Beck v. Cantor, Fitzgerald & Co., Inc., 621 F. Supp. at 1565 (E.D. Ill. 1985) (excluding all evidence of SEC investigation, SEC opinion and plaintiff's acquiescence in the SEC opinion).
Defendant asks this Court to take judicial notice of the Consent Decree to establish that individual employees overrode Hybrid's internal accounting controls and concealed accounting improprieties from PricewaterhouseCoopers LLP. Request for Judicial Notice at 1-2; Notice of Motion and Memorandum of Points and Authorities in Support of Motion of PricewaterhouseCoopers LLP to Dismiss at 3. Although the SEC investigated Hybrid's role in defrauding investors, it did not conduct a similar investigation to ascertain whether PricewaterhouseCoopers was also involved. Accordingly, drawing any inferences in defendant's favor from the Consent Decree would be improper. Under Fed. R. Evid. 408, Hybrid's admissions, made for the purpose of bringing the SEC's investigation to a close, cannot be used to prove its liability or to relieve PricewaterhouseCoopers of liability in the instant proceeding.
Moreover, if the Court were to take judicial notice of a factual finding simply because it was true in a previous action, it would render unnecessary the doctrine of collateral estoppel. GE Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1083 (7th Cir. 1997); Taylor v. Charter Med. Corp., 162 F.3d 827, 830 n.16 (5th Cir. 1998). In GE Capital, the court explained that a plaintiff could not be collaterally estopped by a determination from a case in which the plaintiff was neither a party nor in privity with the party. 128 F.3d at 1083. It therefore concluded, "we cannot allow a court to achieve through judicial notice what it cannot achieve thorough collateral estoppel." Id. The situation here is identical. Neither plaintiffs nor defendant were parties to the SEC's investigation of Hybrid. Accordingly, any findings of fact made in the Consent Decree should not be applied in this proceeding. See Affiliated Mfrs. v. Aluminum Co. of Am., 56 F.3d 521, 527 (3d Cir. 1995); Holloway v. Lockhart, 813 F.2d 874, 878-79 (8th Cir. 1987).
In sum, this Court should not take judicial notice of the Consent Decree to establish a fact tending to prove liability, because to do so would be improper under Fed. R. Evid. 408, Fed. R. Evid. 201(b) and the doctrine of collateral estoppel.
B. The SEC Complaint Should Be Stricken Because the Allegations Set Forth Therein Are Not Facts and Therefore Fail to Satisfy the Evidentiary Criteria for Judicial Notice of IndisputabilityDefendants also submit the SEC Complaint for judicial notice. See Request for Judicial Notice at 2. Federal Rule of Evidence 201(b) provides that a court may take judicial notice of an "adjudicative fact" only if the fact is not subject to reasonable dispute and either is generally known within the jurisdiction or is capable of accurate and ready determination. "'[T]he effect of taking judicial notice under Rule 201 is to preclude a party from introducing contrary evidence and, in effect, directing a verdict against him as to the fact noticed.'" GE Capital, 128 F.3d at 1083.
Defendant asks this Court to take judicial notice of the SEC Complaint because it "illustrates" certain "facts." Request for Judicial Notice at 2. Yet, by definition, allegations in a complaint are unproven and untested. Here, the court never made any factual findings with respect to the SEC's Complaint. Indeed, none of the "facts" referenced in defendant's Request for Judicial Notice were included in the Consent Decree, meaning that Hybrid still may dispute each of the SEC's allegations. Where a document is "subject to reasonable dispute," it fails to meet the criteria of judicial notice pursuant to Fed. R. Evid. 201(b).
However, if this Court chooses to take judicial notice of the SEC Complaint or Consent Decree, it should do so only for the limited purpose of recognizing the "judicial act" that these documents were filed. U.S. v. Jones, 29 F.3d 1549, 1553 (11th Cir. 1994) (ruling a court "may take notice of another court's order only for the limited purpose of recognizing the 'judicial act' that the order represents or the subject matter of the litigation" but not its substance); Liberty Mutual Ins. Co. v. Rotches Pork Packers, Inc., 969 F.2d 1384, 1388 (2d Cir. 1992) (holding that "A court may take judicial notice of a document filed in another court 'not for the truth of the matter asserted in the other litigation, but rather to establish the fact of such litigation and related filings.'") (quoting Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991)).
C. The Documents at Issue Should Be Stricken as Being Outside of the Complaint Because Their Contents Are Not Alleged in the ComplaintGenerally, a district court may not consider any material beyond the pleadings when ruling on a motion to dismiss. See Cooper, 137 F.3d at 622; Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994); Fecht v. Price Co., 70 F.3d 1078, 1080 n.1 (9th Cir. 1995); Bonilla, 697 F.2d at 1301. A document is "outside" the complaint if its contents are not "alleged" in the complaint. Cooper, 137 F.3d at 622.
In Cooper, the Ninth Circuit held that transcripts of conference calls which were offered by the defendant could not be considered on a motion to dismiss. The Cooper court explained that the complaint did "not expressly mention or refer to the transcripts, or even identify their existence." Id. at 623. As in Cooper, the First Amended Complaint does not expressly mention or refer to the Stipulation of Settlement and Order of Dismissal.(3) At this stage of litigation, considering the contents of pleadings from a separate, albeit related, case would be improper for ruling on the pleadings pursuant to Fed. R. Civ. P. 12(b)(6). While plaintiffs have referred to the procedural history and this Court may take judicial notice of such events, it would be improper to rely on the terms of the Stipulation of Settlement and Order of Dismissal. See §II.B, supra.
all the reasons stated above, plaintiffs respectfully request that this Court
strike Exs. B-E to the Fink Decl. and all references in defendant's motion to
dismiss, whether direct or indirect, to those exhibits.
DECLARATION OF SERVICE BY MAIL
PURSUANT TO NORTHERN DISTRICT LOCAL RULE 23-2(c)(2)
I, the undersigned, declare:
1. That declarant is and was, at all times herein mentioned, a citizen of the United States and employed in 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 100 Pine Street, 26th Floor, San Francisco, California 94111.
2. That on January 10, 2001, declarant served the NOTICE OF MOTION, MOTION AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS' MOTION TO STRIKE ALL REFERENCES TO EXHIBITS B-E TO THE DECLARATION OF SCOTT A. FINK IN SUPPORT OF DEFENDANT PRICEWATERHOUSECOOPERS LLP'S MOTION TO DISMISS 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:
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 10th day of January, 2001, at San Francisco,
1. A motion to strike is an appropriate mechanism by which "to call to courts'" attention questions about the admissibility of proffered materials. Monroe v. Board of Educ., 65 F.R.D. 641, 645 (D. Conn. 1975); see also Piva v. Xerox Corp., 654 F.2d 591, 596 (9th Cir. 1981).