MILBERG WEISS BERSHAD

HYNES & LERACH LLP

WILLIAM S. LERACH (68581)

TOR GRONBORG (179109)

600 West Broadway, Suite 1800

San Diego, CA 92101

Telephone: 619/231-1058

- and -

REED R. KATHREIN (139304)

JOHN K. GRANT (169813)

222 Kearny Street, 10th Floor

San Francisco, CA 94108

Telephone: 415/288-4545

Lead Counsel for Plaintiffs

In re SMART MODULAR TECHNOLOGIES, INC.

SECURITIES LITIGATION

__________________________________________

This Document Relates To:

ALL CASES.

__________________________________________

Master File No. C-98-20692-JW(PVT)

CLASS ACTION

DATE: May 10, 1999

TIME: 9:00 a.m.

CTRM: The Honorable James Ware

TO: ALL PARTIES AND THEIR RESPECTIVE COUNSEL OF RECORD

PLEASE TAKE NOTICE that on May 10, 1999, at 9:00 a.m. in the Courtroom of the Honorable James Ware, United States District Court, Northern District of California, San Jose Division, 280 South First Street, San Jose, California, plaintiffs will move for an order:

1. Striking Exhibits 1, 4, 6-8 to the Declaration of Pinaki Chakravorty in Support of Defendants' Motion to Dismiss ("Chakravorty Decl."); or

2. In the alternative, refusing judicial notice of the same documents under Federal Rule of Evidence 201.

MEMORANDUM OF POINTS AND AUTHORITIES

I. INTRODUCTION

Defendants have improperly submitted four Securities Exchange Commission ("SEC") filings and an analyst report with their motion to dismiss⁽¹⁾ and because those documents were not referenced in plaintiffs' Complaint⁽²⁾ it is black letter law that they cannot be considered on a motion to dismiss. Defendants submit this evidence to refute plaintiffs' allegations 1) that the Individual Defendants'⁽³⁾ $60 million in insider trading creates a strong inference of fraud, and 2) that defendants were aware that Smart Modular Technologies, Inc. ("Smart Modular" or the "Company") was in trouble. See Defendants' Notice of Motion, Motion and Memorandum of Law in Support of Motion to Dismiss Consolidated Complaint ("Defs' Mem.") at 11, 13-14. This attempt to disprove plaintiffs' allegations, allegations which must be accepted as true in this proceeding, is improper. Accordingly, the Court should strike these documents.⁽⁴⁾

The Ninth Circuit has repeatedly ruled that documents like those at issue, which are outside the Complaint, should not be considered on a motion to dismiss. See Cooper v. Pickett, 137 F.3d 616, 622 (9th Cir. 1997). Further, the documents at issue are not proper subjects for judicial notice because plaintiffs reasonably contest their veracity. See, e.g., Hennessy v. Penril Datacomm Networks, 69 F.3d 1344 (7th Cir. 1995). Finally, the Court should refuse to consider the documents at issue because they are being offered to prove the truth of matters asserted in them and therefore constitute inadmissible hearsay.

Defendants have submitted evidence to refute plaintiffs' allegations while an automatic stay of discovery constrains plaintiffs' investigation. Under ordinary circumstances, the submission of such evidence might convert defendants' motion to dismiss into a motion for summary judgment. However, it cannot do so here as plaintiffs are barred from countervailing discovery. Accordingly, this Court should strike any references to the documents at issue in defendants' moving papers or, in the alternative, decline to take judicial notice of filings outside the Complaint.

II. ARGUMENT

A. The Court Should Strike The Documents At Issue Because They Are Outside The Pleadings And Unreliable

Generally, a district court may not consider any material beyond the pleadings in ruling on a motion to dismiss. 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 v. Oakland Scavenger Co., 697 F.2d 1297, 1301 (9th Cir. 1992). A document is "outside" the complaint if its contents are not "alleged" in the complaint, or if its authenticity is questioned. Cooper, 137 F.3d at 622.

Plaintiffs neither quoted nor cited the documents at issue in the Complaint. The Court should therefore refuse to consider them for that reason alone. Id. Any other course of action would allow the defendants to circumvent the automatic stay of discovery imposed during the pendency of a motion to dismiss. When matters outside the pleadings are presented to and not excluded by the court, a Rule 12(b)(6) motion is to be treated as one for summary judgment. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir. 1989). Because plaintiffs have not been permitted discovery under the Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737 (1995) ("PSLRA") automatic stay, it would be highly prejudicial and improper to allow defendants to convert their motion to dismiss unilaterally into an unanswered motion for summary judgment. In re Network Equipment Technologies, Inc. Litig., 762 F. Supp. 1359, 1363 (N.D. Cal. 1991).

Defendants' authorities are inapposite. In Branch, 14 F.3d at 454, the documents at issue were referenced in the complaint and thus properly considered by the court. In this case, the documents at issue were not referenced in the Complaint. In Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir.), cert. denied, ___ U.S. ___, 199 S. Ct. 510 (1998), the court considered certain documents "essential" to plaintiffs' complaint which were not disputed by the parties. The documents in this case are neither essential nor undisputed. Finally, defendants cite In re Silicon Graphics Sec. Litig., 970 F. Supp. 746, 768 (N.D. Cal. 1997), which is currently on appeal in the Ninth Circuit. In that case, the court took judicial notice of forms filed with the SEC, but only because it determined that plaintiffs relied upon those particular forms in drafting the complaint. Id. at 758. The court took judicial notice of the documents under the "incorporation by reference doctrine" because plaintiffs' "insider trading allegations [could] be derived only from those publicly-filed documents." Id. at 758-59. Here, defendants have not established that plaintiffs relied on the documents at issue while drafting their Complaint. Accordingly, Silicon Graphics is inapplicable.

B. The Documents At Issue Are Not Proper Subjects For Judicial Notice Because Their Accuracy Is In Dispute

A judicially noticed 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). In other words, for a fact to be judicially noticed, "indisputability is a prerequisite." Hennessy, 69 F.3d at 1354. "Court[s] should not use judicial notice to generate an evidentiary record and then weigh evidence . . . to dismiss [a] complaint." Network Equipment, 762 F. Supp. at 1363. 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). There exists a reasonable doubt as to the veracity of the documents at issue. Accordingly, this Court should decline to take judicial notice of them.

1. Plaintiffs Reasonably Dispute The Accuracy Of Defendants' SEC Filings

Matters asserted in an SEC filing are not indisputable, and, therefore, not properly subject to judicial notice. Hennessy illustrates this point. In that case, the parties in a discrimination action hotly disputed the size of the defendant company. Under the 1991 Civil Rights Act statutory damages scheme, the bigger the company, the more it would have to pay. Hennessey, 69 F.3d at 1354. The plaintiff asked the court to take judicial notice of the defendant company's Form 10-K report, filed with the SEC, which clearly stated a specific number of company employees. The district court refused to notice that the company had as many employees as it reported in the Form 10-K. The Seventh Circuit affirmed, holding that "[i]n order for a fact to be judicially noticed, indisputability is a prerequisite." Id. (emphasis added). As the court explained, "we believe that the fact in question here was not capable of accurate and ready determination by resort" to an SEC filing. Id. at 1355 (emphasis added).⁽⁵⁾

The Hennessy panel's analysis is on point here. The filings at issue were submitted to the SEC by the defendants. Chakravorty Decl., Exs. 1, 4, 7, 8. They are therefore inherently suspect. As the courts have noted, officers and directors often disregard their filing obligations.⁽⁶⁾ Because defendants' SEC filings are reasonably disputed, this Court should decline to judicially notice them. Hennessy, 69 F.3d at 1355.

2. Plaintiffs Reasonably Dispute The Accuracy Of The Analyst Report At Issue

The analyst report defendants have submitted is unreliable and should not be judicially noticed. Chakravorty Decl., Ex. 6. Analysts rely on companies' officers and directors for much of their information. In this case, the gravamen of plaintiffs' Complaint is that the officers and directors of Smart Modular were making false and misleading statements to the market, including analysts. Complaint, e.g., ¶¶41, 43, 45-48. As such, plaintiffs reasonably dispute the veracity of the analyst report at issue and the Court should not take judicial notice of its contents.

C. The Documents At Issue Constitute Inadmissible Hearsay If Accepted For Their Truth

The matters asserted in the documents at issue are hearsay and therefore inadmissible. 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.

In this case, defendants have submitted the documents at issue in order to prove matters asserted therein. For example, Chakravorty Decl., Exs. 1, 4 and 7 contain assertions regarding the amount of Smart Modular stock the defendants purportedly owned and Smart Modular's purported earnings in certain quarters. Defendants attempt to use these documents in order to establish those assertions as facts. Defs' Mem. at 4, 11, 13-14. This constitutes inadmissible hearsay. Lovelace v. Software Spectrum, 78 F.3d 1015, 1018 (5th Cir. 1996) (SEC documents may be considered on a motion to dismiss only if not used to prove the truth of their contents).⁽⁷⁾

The documents at issue do not qualify for any hearsay exceptions. Records and reports may be admissible as exceptions to the hearsay rule if they are so-called "public" records. Fed. R. Evid. 803(8). However, this exception's "relative narrowness . . . is illustrated by its nonapplicability to nonfederal public agencies." Fed. R. Evid. 803, Note to Paragraph (8) (emphasis added). The exception is justified by the assumption that a public official will perform his or her duties properly. Id.

Defendants are not "public officials" as contemplated by Rule 803. Moreover, although SEC filings are "public" documents that corporate insiders must file, that status is not the equivalent of being "public" for hearsay purposes. As Judge Learned Hand explained almost 50 years ago, in the context of SEC "Offering Sheets" filled out by registered dealers:

Official in one sense of course they were, for the dealers had filed them in obedience to a regulation of the Securities and Exchange Commission; but not all documents required to be filed by law are competent evidence of all that they record. The [public records] exception is confined to transactions of which it is not only the duty of an official to make entry, but which must themselves have come within his knowledge in the course of his duties.

United States v. Grayson, 166 F.2d 863, 868 (2d Cir. 1948) (emphasis added, footnote omitted).

Judge Hand's analysis applies here. All of defendants' SEC filings were completed by non-"officials." As such, it would be improper for this Court to use defendants' SEC filings as evidence supporting dismissal of plaintiffs' allegations of fraud.⁽⁸⁾

III. CONCLUSION

For the foregoing reasons, plaintiffs respectfully request that this Court strike any reference in defendants' papers, whether direct or inferred, to Chakravorty Decl., Exs. 1, 4, and 6-8. Alternatively, plaintiffs respectfully request that the Court decline to take judicial notice of these documents.

DATED: April 14, 1999

MILBERG WEISS BERSHAD

HYNES & LERACH LLP

REED R. KATHREIN

JOHN K. GRANT

______________________________

JOHN K. GRANT

222 Kearny Street, 10th Floor

San Francisco, CA 94108

Telephone: 415/288-4545

MILBERG WEISS BERSHAD

HYNES & LERACH LLP

WILLIAM S. LERACH

TOR GRONBORG

600 West Broadway, Suite 1800

San Diego, CA 92101

Telephone: 619/231-1058

Lead Counsel for Plaintiffs

SMARTMOD\MOM00334.BRF

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 14, 1999, declarant served the NOTICE OF MOTION AND MOTION TO STRIKE EXHIBITS 1, 4, AND 6-8 SUBMITTED IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS OR, IN THE ALTERNATIVE, PLAINTIFFS' OBJECTION TO THE COURT'S TAKING JUDICIAL NOTICE OF SAME 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 14th day of April, 1999, at San Francisco, California.

______________________________

CATHERINE B. MARASIGAN

1. Exhibit 1: Prospectus for the Secondary Offering, dated September 11, 1997;

Exhibit 4: SEC Form 10-K for Smart Modular Technologies, Inc. for the fiscal year ended October 31, 1997;

Exhibit 6: Oppenheimer & Co., Inc. Report, dated November 3, 1997;

Exhibit 7: SEC Form 10-Q for Smart Modular Technologies, Inc. for the fiscal quarter ended January 31, 1998;

Exhibit 8: SEC Form 10-Q for Smart Modular Technologies, Inc. for the fiscal quarter ended July 31, 1997.

2. "Complaint" refers herein to the Consolidated Class Action Complaint for Violation of the Federal Securities Laws, filed November 30, 1998.

3. "Individual Defendants" are Ajay Shah, Lata Krishnan, Mukesh Patel, Alan Marten and David Mullin.

4. A motion to strike may be used "to call to courts' attention questions about the admissibility of proffered material." Monroe v. Board of Education, 65 F.R.D. 641, 645 (D. Conn. 1975); Piva v. Xerox Corp., 654 F.2d 591, 596 (9th Cir. 1981).

5. Courts within the Ninth Circuit have similarly been reluctant to take judicial notice of SEC filings on motions to dismiss. 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 re Wickes Cos. Sec. Litig., [1982-1983 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶99,055, at 95,002 (S.D. Cal. 1983)(use of an SEC filing on Rule 12(b)(6) motion was improper).

6. See, e.g., SEC v. Sands, 902 F. Supp. 1149, 1165 (C.D. Cal. 1995) (SEC granted summary judgment on CEO's failure to timely file a Form 4 report), aff'd sub nom. SEC v. First Pac. Bancorp., 142 F.3d 1186 (9th Cir. 1998); SEC v. Palmer Financial Corp., Civil Action No. 88-305-NHJ, 1988 U.S. Dist. LEXIS 9216, at *7 (D.D.C. Aug. 18, 1988) (defendants ordered to file "complete and accurate" Form 4s); SEC v. Shattuck Denn Mining Corp., 297 F. Supp. 470, 477 (S.D.N.Y. 1968) (court finds defendant failed to file proper Form 4 statements and make complete disclosure in similar statements actually filed).

7. Liberty Mutual Ins. Co. v. Rotches Pork Packers, Inc., 969 F.2d 1384, 1388-89 (2d Cir. 1992) (district court improperly took judicial notice of filed documents because it used them "to establish facts asserted therein"); State Farm Fire & Cas. Co. v. Westchester Inv. Co., 721 F. Supp. 1165, 1166 (C.D. Cal. 1989) (truth of argument contained in documents not judicially noticeable); United States v. Jones, 29 F.3d 1549, 1553 (11th Cir. 1994) (court may take judicial notice of another court's order only for the limited purpose of "recognizing" either the subject matter of the litigation or the judicial act that the order represents).

8. See also Grayson, 166 F.2d at 868-69 ("offering sheets" filed with SEC are hearsay); Standard Oil Co. v. Moore, 251 F.2d 188, 222 (9th Cir. 1957) (tax returns offered as proof of facts recited therein are hearsay); Greenbaum v. United States, 80 F.2d 113, 125 (9th Cir. 1935) (taxpayer's return is hearsay); Matthews v. United States, 217 F.2d 409, 413 (5th Cir. 1954) ("sugar reports" filed with IRS are inadmissible hearsay); Brown v. Sierra Nevada Memorial Miners Hosp., 849 F.2d 1186, 1189-90 (9th Cir. 1988) (reports submitted to public agency by outside consultants not within public records exception despite being used by public agency to make its own final report).