MILBERG WEISS BERSHAD 
HYNES & LERACH LLP 
JEFFREY W. LAWRENCE (166806) 
CHRISTOPHER P. SEEFER (201197) 
EX KANO S. SAMS II (192936) 
100 Pine Street, Suite 2600 
San Francisco, CA 94111 
Telephone: 415/288-4545 
415/288-4534 (fax) 
- and - 
WILLIAM S. LERACH (68581) 
600 West Broadway, Suite 1800 
San Diego, CA 92101 
Telephone: 619/231-1058 
619/231-7423 (fax) 

WEISS & YOURMAN 
JOSEPH H. WEISS 
MOSHE BALSAM 
551 Fifth Avenue, Suite 1600 
New York, NY 10176 
Telephone: 212/682-3025 
212/682-3010 (fax) 

[Additional counsel appear on signature page.] 

[Proposed] Co-Lead Counsel for Plaintiffs 
 
 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA

I. Introduction

II. Summary of Pending Actions

III. This Court Should Consolidate These Related Actions for Purposes of Efficiency

IV. The PSLRA Requires that the Question of Consolidation Be Decided Prior to the Determination of the Appointment of Lead Plaintiff

V. This Court Should Order the Preservation of Documents

VI. Conclusion

TABLE OF AUTHORITIES

CASES
In re Equity Funding Corp. of Am. Sec. Litig., 
416 F. Supp. 161 (C.D. Cal.1976) 

Investors Research Co. v. United States Dist. Court for Cent. Dist., 
877 F.2d 777 (9th Cir. 1989) 

Perez-Funez v. District Director, Immigration & Naturalization Serv., 
611 F. Supp. 990 (C.D. Cal. 1984) 

STATUTES, RULES AND REGULATIONS

15 U.S.C. 
§78j(b) 
§78u-4(a)(3)(B) 
§78u-4(a)(3)(B)(ii) 

Federal Rules of Civil Procedure 
Rule 42 
Rule 42(a) 

17 C.F.R. 
§240.10b-5 
 
 

NOTICE OF MOTION AND MOTION

TO: ALL PARTIES AND THEIR ATTORNEYS OF RECORD 

PLEASE TAKE NOTICE that on May 10, 2001, at 2:00 P.M., or as soon thereafter as the matter may be heard in the Courtroom of the Honorable William H. Orrick, located at 450 Golden Gate Avenue, 19th Floor, San Francisco, CA 94102, Movants ⁽¹⁾ - William James Bell, Trustee; Thomson-CSF Ventures; Alexander Nehring and Westgreen Holdings LLC - will, and hereby do, move the Court for an Order consolidating ⁽²⁾ the following actions for all purposes under Rule 42 of the Federal Rules of Civil Procedure: 

Abbreviated Case Name                        Case No.                        Date

Cohn v. Critical Path, Inc., et al.           C-01-0551-WHO         02/02/01 
Plaintiff: Arnold Cohn ("Cohn") 

Sternheim v. Critical Path, Inc., et al.    C-01-0552-WHO         02/02/01 
Plaintiff: Renee Sternheim ("Sternheim") 

Wolfson v. Critical Path, Inc., et al.        C-01-0553-WHO         02/02/01 
Plaintiff: Morris Wolfson ("Wolfson") 

Thompson v. Critical Path, Inc., et al.    C-01-0554-WHO         02/02/01 
Plaintiff: Michael Lee Thompson ("Thompson") 

Kessler v. Critical Path, Inc., et al.         C-01-0555-WHO         02/02/01 
Plaintiff: Fred Kessler ("Kessler") 

Reynolds v. Critical Path, Inc., et al.       C-01-0565-WHO         02/02/01 
Plaintiff: Bill D. Reynolds ("Reynolds") 

Albstein v. Critical Path, Inc., et al.        C-01-0572-WHO         02/05/01 
Plaintiff: Andre W. Albstein ("Albstein") 

Almadotter v. Critical Path, Inc., et al.   C-01-0579-WHO         02/05/01 
Plaintiff: Wania Almadotter ("Almadotter") 

Callender v. Critical Path, Inc., et al.      C-01-0934-WHO         02/05/01 
Plaintiff: Gregory D. Callender ("Callender") 

Warner v. Critical Path, Inc., et al.          C-01-0935-WHO         02/06/01 
Plaintiff: William D. Warner ("Warner") 

Deskins v. Critical Path, Inc., et al.          C-01-0587-WHO         02/06/01 
Plaintiff: Howard Deskins ("Deskins") 

Booth v. Critical Path, Inc., et al.            C-01-0593-WHO         02/06/01 
Plaintiff: Robert T. Booth ("Booth") 

Rapoport v. Critical Path, Inc., et al.       C-01-0594-WHO         02/06/01 
Plaintiff: Evan Rapoport ("Rapoport") 

Cleveland v. Critical Path, Inc., et al.    C-01-0600-WHO         02/06/01 
Plaintiff: David W. Cleveland ("Cleveland") 

Chan v. Critical Path, Inc., et al.             C-01-0595-WHO         02/06/01 
Plaintiff: Donald Chan ("Chan") 

Nguyen v. Critical Path, Inc., et al.          C-01-0596-WHO         02/07/01 
Plaintiff: Nicholas Nguyen ("Nguyen") 

Fikejs v. Critical Path, Inc., et al.             C-01-0597-WHO        02/07/01 
Plaintiff: J. David Fikejs ("Fikejs") 

Wilson v. Critical Path, Inc., et al.           C-01-0605-WHO        02/07/01 
Plaintiff: Robert Wilson ("Wilson") 

Anderson v. Critical Path, Inc., et al.        C-01-0936-WHO         02/07/01 
Plaintiffs: Lester R. and Marilan F. 
Anderson ("Anderson") 

Krasner v. Critical Path, Inc., et al.          C-01-0620-WHO         02/08/01 
Plaintiff: Alex Krasner ("Krasner") 

Ginsberg v. Critical Path, Inc., et al.         C-01-0654-WHO        02/12/01 
Plaintiff: David Ginsberg ("Ginsberg") 

Bonner v. Critical Path, Inc., et al.            C-01-0657-WHO        02/12/01 
Plaintiff: James M. Bonner ("Bonner") 

Totino v. Critical Path, Inc., et al.             C-01-0671-WHO         02/13/01 
Plaintiff: Dominick Totino ("Totino") 

Jones v. Critical Path, Inc., et al.               C-01-0697-WHO         02/14/01 
Plaintiff: Chris Jones ("Jones") 

Grant, II v. Critical Path, Inc., et al.          C-01-0729-WHO         02/16/01 
Plaintiff: William J. Grant ("Grant") 

Chung v. Critical Path, Inc., et al.              C-01-0832-EDL           02/26/01 
Plaintiff: Duong Chung ("Chung") 

Roshgadol v. Critical Path, Inc., et al.        C-01-0893-WHO         03/01/01 
Plaintiff: Shlomo Roshgadol ("Roshgadol") 

Mitchell v. Critical Path, Inc., et al.           C-01-1007-WHO         03/09/01 
Plaintiff: Michael D. Mitchell ("Mitchell") 

Thomson-CSF Ventures v. Critical Path,
Inc., et al.                                                      C-01-1308-BZ             04/02/01 
Plaintiffs: Thomson-CSF Ventures and Larry E. 
Wallace ("Thomson-CSF Ventures") 

D&D Partnership LLC v. Critical Path,
Inc., et al.                                                      C-01-1309-BZ             04/02/01 
Plaintiff: D&D Partnership LLC ("D&D Partnership") 
 

This motion is brought on the grounds that these actions are substantially identical because each alleges claims for violations of §10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §78j(b), and Securities and Exchange Commission ("SEC") Rule 10b-5 promulgated thereunder, 17 C.F.R. §240.10b-5, based upon similar factual allegations against substantially the same defendants. The motion is also brought on the ground that consolidation of these cases will promote efficiency. 

This motion is based upon this notice of motion, the memorandum of points and authorities, the complete files and records in the 30 related actions, and upon such other written or oral argument as the Court may consider in deciding this motion. 

MEMORANDUM OF POINTS AND AUTHORITIES

I. Introduction

The 30 related securities fraud class action lawsuits, identified above and brought pursuant to §10(b) of the Exchange Act, 15 U.S.C. §78j(b) and SEC Rule 10b-5 promulgated thereunder, 17 C.F.R. §240.10b-5, are currently pending in this District. Movants seek to consolidate these related securities class actions pursuant to Rule 42(a) of the Federal Rules of Civil Procedure. Plaintiffs in each action assert substantially the same claims and raise substantially the same questions of fact and law. Plaintiffs in each of these cases allege securities fraud claims on behalf of a class of all persons who purchased or otherwise acquired the securities of Critical Path during the Class Period. ⁽³⁾ Thus, consolidation of these actions is appropriate. ⁽⁴⁾

II. Summary of Pending Actions

Critical Path touts itself as a leading provider of complete end-to-end Internet messaging and collaboration solutions for Internet service providers ("ISPs"), telecommunications providers, web hosting companies, web portals and corporations. 2. ⁽⁵⁾ The Company provides services and products, both on a hosted and licensed basis, that enables its customers to provide feature-rich e-mail, messaging, collaboration and directory services to their customers and employees. Id. Critical Path relied heavily on dot-com companies to purchase its products and grow its sales. Id. 

Where much of Critical Path's early sales growth was fueled by sales to more established Internet companies such as E*TRADE and ICQ, Inc. (a subsidiary of America Online ("AOL")) among others, by mid-2000 most of its growth was the result of sales to smaller, newer and less established dot-com companies. 3. Many of these companies were new and were suffering from a downturn in Internet-related funding that began in the spring of 2000. Id. By September 2000, the problems many of these companies were having raising money had reached crisis levels. Id. Defendants knew this development would severely impair Critical Path's ability to recognize certain revenue and to achieve revenue growth. Id. Company insiders, however, defendants in these actions, wanted to unload shares before the bottom fell out of Critical Path's stock price. Id. Thus, defendants made positive, but knowingly false statements about Critical Path's revenues, business and future revenues during October and November 2000. Id. As a result, Critical Path's stock traded at a high of $119-1/2 per share during the Class Period. 

In addition to having actual knowledge of the falsity of their statements, the individual defendants had a substantial motive as well as the opportunity to perpetrate the fraudulent scheme and course of business described in these actions; to sell over $21 million worth of their own Critical Path shares at prices as high as approximately $78 per share before Critical Path's true financial position was disclosed to the market. 4. Defendants continued to make public statements that the Company would be profitable in the fourth quarter 2000 which resulted in Critical Path's stock continuing to trade at artificially inflated levels. Id. Defendants took advantage of this continued inflation and either sold or filed to sell additional Critical Path stock. Id. 

On November 2, 2000, Critical Path issued a press release entitled, "Critical Path Provides Financial Guidance for Anticipated Fourth Quarter 2000 and Full Year 2001; Company Capitalizes on Infrastructure Opportunity to Drive to Profitability and Join Elite Group of Profitable New Economy Companies." Reynolds Complaint, 17. The press release went on to state: 

Reinhold brings almost 20 years of experience with technology companies' finance operations to Critical Path from PricewaterhouseCoopers. With extensive experience in accounting practices, public and private offerings, merger and acquisitions, and managing company growth, Reinhold will add to Critical Path's leadership bandwidth. Reinhold is the Managing Partner of PwC's Midwest Region Technology, Information/Communications and Entertainment (TICE) practice. He also serves on the leadership team for the entire U.S. TICE practice. 

"We are extremely excited to have Larry join the Critical Path leadership team. We selected Larry for three important criteria: experience managing growth and expanding margins, hands on leadership, and fit within the CP team and the dynamic market opportunity," said Doug Hickey, CEO of Critical Path. "In addition to our executive team, we have a deep bench of experience in our finance group and we're all committed to working with Larry through this pivotal quarter of profitability and beyond. We continue to be very bullish on both our short and long term prospects."

"Critical Path is defining the market for Internet messaging infrastructure solutions. It has an exciting and highly leverageable business model, a great leadership position, and its accomplishments to date speak for the team's quality of execution," said Larry Reinhold. 

"Critical Path's messaging infrastructure products and services continue to find high demand across geographies and customer segments," continued Hickey. "Our business model and financial controls are working, and we continue to eagerly anticipate Critical Path's turning the corner to profitability in the fourth quarter." For specific financial guidance, the company continues to refer investors to the previously stated guidance in a press release of November 2, 2000.

"Mark has been a valuable asset to Critical Path during this year of growth," continued Hickey. "As we emerge into the profitable phase, we will build on the fruits of Mark's tenure. He contributed to the creation of a company infrastructure that will scale to the next level of success. We thank him, and wish him the best in his future endeavors."

Id. Also on December 6, 2000, after the close fo the market, Critical Path held a conference call for analysts, money and portfolio managers, institutional investors and large Critical Path shareholders to discuss Critical Path's fourth quarter results, its business and its prospects. Reynolds Complaint, 19. During the call - and in follow-up conversations with analysts - Doug Hickey stated: 

• The Company would report a profitable fourth quarter of at least $0.01 and revenue of $55 million - its first profitable quarter ever; 

• The Company's CFO was resigning for personal reasons - not associated with any accounting problems with the Company; 

• The Company's fourth quarter and fiscal 2001 prospects were extremely bullish; 

• There would be no additional management changes in the near future; and 

• The Company was not being impacted by foreign exchange fluctuation - nor would it be - as the Company had a natural hedge against such risk as its Euro-denominated expenses offset any Euro-denominated revenue hits. 

Id. On January 18, 2001, after the market closed, Critical Path announced that the Company would report a loss in the fourth quarter 2000, as opposed to positive earnings which it had been touting for months, as well as a loss for the first quarter 2001. 5. Critical Path claimed that such losses were due to: (1) higher costs from the Company's acquisition of PeerLogic, Inc.; (2) dot-com customers going out of business; and (3) an accounting change that required the Company to defer $7 million in licensing revenue. Id. This announcement, which was itself false, directly contradicted what Critical Path had been telling the investing public in the prior six months. Id. 

This disclosure caused Critical Path's stock to plummet $11 per share, or 55%, from $20 per share to close at $9 per share on January 18, 2001, making it the second-largest percentage decliner in U.S. markets that day on volume of more than 38 million shares. 6. However, defendants still failed to make full disclosure of its financial problems as the stock of Critical Path continued to trade above $9 per share. Id. 

It was not until two weeks later on February 2, 2001, that the Company disclosed its financial fraud. 7. The Company was forced to announce over the PR Newswire that its Board of Directors formed a special committee to conduct an investigation into the Company's revenue recognition practices. Id. According to analysts' published reports and the Company's own press release, the Company had engaged in a number of transactions that put into question the Company's financial results. Id. Defendants admitted the Company's fourth quarter revenue of $52 million was "questionable." This information caused the stock to drop below $4 per share in pre-opening trading from its closing price of $10-1/16 on February 1, 2001. 48. The NASDAQ halted trading on the Company's stock and announced trading would remain halted until the Company satisfied the NASDAQ's request for additional information. Chung Complaint, 5. 

The Company admitted that fourth quarter 2000 results were "'materially misstated'" and further cautioned that its investigation has just begun. 46. The Board of Directors placed David Thatcher, the Company's President, and William Rinehart, the Vice President of worldwide sales on administrative leave. 47. 

On February 9, 2001, Critical Path announced the resignations of defendant Hickey, the Company's CEO and Thatcher and Rinehart, the two executives placed on administrative leave on February 1, 2001. ⁽⁶⁾ On February 15, 2001, the Company announced (1) fourth quarter 2000 revenues would be reduced $6.5 - $8.0 million (from $52 million announced on January 18, 2001), (2) the fourth quarter 2000 net loss would almost double from $11.5 million announced on January 18, 2001 to $19 - $21.5 million, and (3) that it now expected to restate third quarter 2000 financial results. On February 15, 2001, the NASDAQ resumed trading on Critical Path and its stock price immediately collapsed from $10 - 1/16 to $3 - 1/16. On February 22, 2001 it was reported that the Company was the subject of an informal investigation by the SEC. Analysts have downgraded the Company and have stated that Critical Path's financial controls had completely broken down, that they had no confidence in the Company's recently issued financial results or forward guidance and that it appeared there was an "outright fraud" and a concerted effort to "cook the books." On April 2, 2001, Critical Path announced that it would delay the filing of its Form 10-K until April 17, 2001. 

Defendants' misconduct has wiped out millions of dollars in market capitalization as Critical Path stock has fallen from its Class Period high of approximately $119-1/2 per share to a low of $4 per share as the truth about Critical Path, its operations and prospects began to reach the market. The Company has restated and substantially reduced fourth quarter revenues and earnings and announced it will also restate third quarter financial results. 

III. This Court Should Consolidate These Related Actions for Purposes of Efficiency

Consolidation pursuant to Rule 42(a) is proper when actions involve common questions of law and fact. ⁽⁷⁾

In re Equity Funding Corp. of Am. Sec. Litig., 416 F. Supp. 161, 175 (C.D. Cal.1976). This Court has broad discretion under this Rule to consolidate cases pending within this District. Investors Research Co. v. United States Dist. Court for Cent. Dist., 877 F.2d 777 (9th Cir. 1989); Perez-Funez v. District Director, Immigration & Naturalization Serv., 611 F. Supp. 990, 994 (C.D. Cal. 1984) ("A Court has broad discretion in deciding whether or not to grant a motion for consolidation, although, typically, consolidation is favored.") (citation omitted). 

Courts have recognized that class action shareholder suits, in particular, are ideally suited to consolidation pursuant to Rule 42(a) because their unification expedites pretrial proceedings, reduces case duplication, avoids the contacting of parties and witnesses for inquiries in multiple proceedings, and minimizes the expenditure of time and money by all persons concerned. See Equity Funding, 416 F. Supp. at 176. Consolidating multi-shareholder class action suits simplifies pretrial and discovery motions, class action issues, and clerical and administrative management duties. Moreover, consolidation will reduce the confusion and delay that may result from prosecuting these related class action cases separately. See id. 

IV. The PSLRA Requires that the Question of Consolidation Be Decided Prior to the Determination of the Appointment of Lead Plaintiff
 
 

The PSLRA provides, among other things, for consolidation of substantially similar actions. The PSLRA states in pertinent part: 

Thus, the PSLRA establishes a two-step process for resolving lead plaintiff and consolidation issues where more than one action on behalf of a class asserting substantially the same claims has been filed. The court "shall" first decide the consolidation issue and thereafter decide the lead plaintiff issue, "[a]s soon as practicable" after the consolidation motion has been decided. Id. 

Given that the selection of lead plaintiff and lead counsel is the necessary first step to prosecute the actions, Movants urge the Court to grant the consolidation motion as soon as practicable and consolidate these related actions under the lowest case number. A prompt determination is reasonable and warranted under Rule 42(a), given the common questions of fact and law presented by the actions now pending in this District. 

V. This Court Should Order the Preservation of Documents

Through this motion, Movants also request that the Court order the preservation of documents relating to this litigation in accordance with 15 U.S.C. §78u-4(b)(3)(C)(i), both prior to and after the filing of any motion to dismiss. In complex securities fraud cases involving companies with numerous employees, such an order is appropriate and will prevent the loss of key documents, whether through inadvertence or otherwise. 

VI. Conclusion

For the reasons stated above, and in order to promote judicial economy, Movants respectfully request that the Court consolidate the related actions identified herein, permit the filing of a consolidated complaint within 45 days from entry of the Court's Order granting this motion, and require the preservation of documents in this action. 
 

G:\CASES\CriticalPath\SGM80699.brf

DECLARATION OF SERVICE BY FACSIMILE
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 interest in the within action; that declarant's business address is 100 Pine Street, 26th Floor, San Francisco, California 94111. 

2. That on April 3, 2001, declarant served by facsimile the NOTICE OF MOTION, MOTION AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF FOR THE MOTION TO CONSOLIDATE RELATED ACTIONS to the parties listed on the attached Service List and this document was forwarded to the following designated Internet site at: 

http://securities.milberg.com

3. That there is a regular communication by facsimile between the place of origin and the places so addressed. 

I declare under penalty of perjury that the foregoing is true and correct. Executed this 3rd day of April, 2001, at San Francisco, California. 
 

_________________ 
SUSAN MILLER 

1. Movants consist of two institutional and two individual investors with substantial losses who purchased Critical Path, Inc. ("Critical Path" or the "Company") securities between December 8, 1999 and February 1, 2001 (the "Class Period"). 

2. The parties have submitted to the Court a [Stipulation] Pre-Trial Order No. 1 Regarding Consolidating Cases for All Purposes and Filing of Consolidated Complaint ("Stipulated Pretrial Order"). Movants' Proposed Order submitted herewith Granting Movants' Motion to Consolidate Related Actions is substantially identical to the Stipulated Pretrial Order. Four additional actions originally filed in state court have been removed by defendants. These cases are Gollomp v. Hayden, et al., Case No. C-01-0624-CW (filed February 8, 2001); Crilley v. Hayden, et al., Case No. C-01-0684-MEJ (filed February 13, 2001); Avery v. Rinehart, et al., Case No. C-01-0685-JL (filed February 13, 2001), and Krim v. Hickey, et al., Case No. C-01-0946-WHO (filed March 6, 2001). In at least one of those actions plaintiffs have moved for remand. If these cases are not remanded, they should also be consolidated. 

3. The 30 actions include nearly identical allegations against substantially the same defendants but over different class periods. Following consolidation, an amended complaint will be filed by the lead plaintiff appointed by the Court which will resolve any differences. 

4. Concurrently with the filing of this motion for consolidation, Movants have also filed a motion to be appointed lead plaintiff pursuant to §21D(a)(3)(B) of the Exchange Act and to approve lead plaintiff's choice of counsel. Under the Private Securities Litigation Reform Act of 1995 ("PSLRA"), the consolidation motion is to be heard by this Court prior to hearing the lead plaintiff motion. 15 U.S.C. §78u-4(a)(3)(B)(ii). 

5. Unless otherwise noted, all paragraph references ("") are to the Cohn complaint, filed on February 2, 2001. 

6. Movants will include relevant facts which occurred after the filing of the complaints in a consolidated amended complaint. 

7. Rule 42(a) allows this Court to order consolidation of separate actions: