Lead Counsel for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
In re SMART MODULAR TECHNOLOGIES, ) Master File
No.
INC. SECURITIES LITIGATION
) C-98-20692-JW(PVT)
__________________________________)
) CLASS ACTION
This Document Relates To:
)
) DATE: June 14, 1999
ALL CASES.
) TIME: 9:00 a.m.
__________________________________) CTRM: The
Honorable James Ware
REPLY IN SUPPORT OF 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
TABLE OF CONTENTS
I. INTRODUCTION
II. ARGUMENT
A. The Documents At Issue Were Not Part Of The ComplaintIII. CONCLUSIONB. The SEC Filings Are Hearsay
C. The SEC Filings At Issue Do Not Meet The Requirements Of Federal Rule Of Evidence 201
Defendants' attempts to escape this conclusion are unavailing. First, defendants speculate that plaintiffs may have relied on the SEC filings at issue in drafting the Complaint.(2) That is irrelevant. The filings at issue are not referenced in the Complaint and may not be considered. Second, defendants contend that the SEC filings are not inadmissible hearsay. However, they are being submitted for the truth of the matters asserted therein and do not meet the requirements for any exception to the hearsay rule. They are therefore inadmissible. Finally, defendants argue that SEC filings are subject to judicial notice. The filings at issue in this case, however, were drafted by defendants, and plaintiffs reasonably dispute their accuracy. As such, they may not be judicially noticed.
While a court may not consider material beyond the pleadings in general, it may do so if the material in question is part of the complaint. Cooper v. Pickett, 137 F.3d 616, 622 (9th Cir. 1997). In order for a document to be part of a complaint, it must be cited, quoted or referenced in that complaint. Id. at 623. Defendants do not contend that the Complaint in this case cites, quotes or references the SEC filings at issue. Instead, defendants speculate that plaintiffs relied on the SEC filings at issue in drafting their Complaint. See Defendants' Memorandum of Points and Authorities in Opposition to Plaintiffs' Motion to Strike Exhibits 1, 4, and 6-8 Submitted in Support of Defendants' Motion to Dismiss ("Defs' Mem."). Such speculation is insufficient to justify considering these documents on a motion to dismiss.A. The Documents At Issue Were Not Part Of The Complaint
In Cooper, 137 F.3d 616, defendants submitted a declaration and attached certain projections which it claimed were the basis for allegations in the complaint. Id. The court stated "[t]he declaration `assumes' that the projections attached to it as an exhibit are those referred to in the complaint . . . .[However] [n]one of this is 'referenced' in the complaint." Id. at 623 (citation omitted). The court refused to consider the projections. Id.
In this case, the Complaint states that it is based upon, among other things, a review of Smart Modular Technologies, Inc.'s ("Smart Modular") SEC filings. ¶89.(3) However, the Complaint does not identify the SEC filings defendants have submitted to the Court. As demonstrated in Cooper, a document may not be considered part of a complaint unless it is specifically identified. The SEC filings at issue are therefore not part of the Complaint.(4)
Defendants attempt to distinguish Cooper as follows: "Cooper did not involve SEC filings that were expressly referenced in a plaintiff's complaint." Defs' Mem. at 3n.5. Neither does this case. The Complaint does not specifically mention any of the documents at issue, and the Court should refuse to consider them accordingly.
Defendants' authorities are inapposite. The court in Plevy v. Haggerty, No. 97-9200, 1998 WL 951694, at *3 (C.D. Cal. Aug. 21, 1998) considered documents submitted by defendants, stating "[a]ll of these exhibits are cited, quoted from, and/or referenced in the CAC." The documents at issue in this case were not, such that they were not part of the Complaint.
Plaintiffs have already distinguished the following cases in their opening brief: Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994); Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir.), cert. denied, U.S. , 119 S. Ct. 510 (1998); and In re Silicon Graphics Sec. Litig., 970 F. Supp. 746, 768 (N.D. Cal. 1997), appeal docketed No. 92-16240 (9th Cir. Nov. 19, 1997). 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 ("Pltfs' Mem.") at 3. Defendants have failed to address these distinctions. As such, plaintiffs respectfully refer the Court to the earlier discussion of these cases.
The SEC filings at issue constitute hearsay because defendants have submitted them for the truth of matters asserted therein, such as defendants' stock ownership and Smart Modular's earnings. Pltfs' Mem. at 6. Defendants' halfhearted attempts to establish exceptions to the hearsay rule are unavailing.B. The SEC Filings Are Hearsay
In Silicon Graphics, 970 F. Supp. 746, cited by defendants, the court considered the SEC filings at issue because it found that they were incorporated within the complaint. Id. at 758-59. The court merely noted in dicta that the SEC forms "may be admissible under the business and/or government records exceptions to the hearsay rule." Id. at 759 n.6 (emphasis added). A full analysis of these exceptions demonstrates that they do not apply in this case.
The business records hearsay exception does not apply because defendants have not made the required evidentiary showing of foundation. In order to invoke the business record exception to the hearsay rule, a party must establish that the document in question was prepared by a person with knowledge of its contents at or near the time of the incident recorded and that the record was kept in the ordinary course of a regularly conducted business. Fed. R. Evid. 803(6). If this evidentiary showing is not made, the document cannot be admitted. United States v. Arias-Villanueva, 998 F.2d 1491, 1503 (9th Cir. 1993). Here, defendants have not even attempted such an evidentiary showing.
Moreover, the business records exception does not apply if "the source[s] of information or the method of circumstances of preparation indicate lack of trustworthiness." Fed. R. Evid. 803(6). Because the documents at issue were prepared by the defendants, they are inherently untrustworthy and may not be admitted. See Matthews v. United States, 217 F.2d 409, 413-16 (5th Cir. 1954) (sugar transaction reports were neither business records nor public records because they were compiled at the behest of a government agency by a private party); Standard Oil Co. v. Moore, 251 F.2d 188, 222 (9th Cir. 1957) (tax returns neither public nor business records because they were prepared by a private party pursuant to a federal statute).
At pages 6 and 7 of their opening brief, plaintiffs have already demonstrated that the government records exception to the hearsay rule does not apply to the SEC filings at issue. Since defendants have not responded to this argument, plaintiffs respectfully refer the Court to that prior discussion.
Fed. R. Evid. 201(b) permits a court to take judicial notice of a fact that is not "subject to reasonable dispute in that it is . . . capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Because the SEC filings at issue were drafted by defendants, plaintiffs reasonably dispute their accuracy. Pltfs' Mem. at 5 & n.6. They are not, therefore, proper subjects for judicial notice.C. The SEC Filings At Issue Do Not Meet The Requirements Of Federal Rule Of Evidence 201
Defendants' authorities do not hold otherwise. In Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991), cited by defendants, the court considered SEC filings because "the documents are the very documents that are alleged to contain the various misrepresentations or omissions and are relevant not to prove the truth of their contents but only to determine what the documents stated." In this case, the documents do not contain the misrepresentations at issue and are being used to prove the truth of the their contents. In Mack v. South Bay Beer Distributors, 798 F.2d 1279, 1281-82 (9th Cir. 1986), the court judicially noticed state administrative hearing records concerning plaintiff's unemployment benefits application. The documents in this case were prepared by defendants, not a state administrative agency, and are thus reasonably disputed by plaintiffs. The court in Ronconi v. Larkin, [1998 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶90,212, at 90,887 (N.D. Cal. 1998) merely mentions SEC filings in dicta, but did not consider them in evaluating the motion to dismiss before the court. None of these cases support defendants' contention that the Court should consider the SEC filings at issue in deciding defendants' motion to dismiss.
DATED: May 28, 1999
Respectfully submitted,
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
TOR GRONBORG
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
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
Lead Counsel for Plaintiffs
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 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 May 28, 1999, declarant served the REPLY IN SUPPORT OF 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 28th day of May, 1999, at San Francisco, California.
______________________________
ANNA GUERRA
1. In their opposition, defendants do not dispute the impropriety of submitting Exhibit 6, an analyst report, on a motion to dismiss. Plaintiffs therefore address this reply only to the SEC filings in question.
2. "Complaint" refers herein to the Consolidated Class Action Complaint for Violation of the Federal Securities Laws, filed November 30, 1998.
3. All paragraph references ("¶") are to the Complaint, unless otherwise indicated.
4. Contrary to defendants' assertion, plaintiffs need not specify each document they relied upon in drafting the Complaint. Plaintiffs made no allegations based on information and belief, such that 15 U.S.C. §78u-4(b)(1)(B) does not apply. Further, that statute only requires plaintiffs to allege facts, not the sources of those facts.