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Plaintiffs' Response to Defendants' Request for Judicial Notice
Source: Milberg Weiss Date: 11/09/01 Time: 2:55 PM
MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH (68581) MARK SOLOMON (151949) DOUGLAS R. BRITTON (188769) 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax) - and - SANFORD SVETCOV (36561) SHAWN A. WILLIAMS (213113) 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax)
Lead Counsel for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA In re ORACLE CORPORATION ) Master File No. C-01-0988-MJJ SECURITIES LITIGATION ) ______) CLASS ACTION ) This Document Relates To: ) PLAINTIFFS' RESPONSE TO ) DEFENDANTS' REQUEST FOR ALL ACTIONS. ) JUDICIAL NOTICE ______) DATE: December 18, 2001 TIME: 9:30 a.m. PLACE: Courtroom 11 JUDGE: Honorable Martin J. Jenkins
TABLE OF CONTENTS
I. INTRODUCTION
II. ARGUMENT
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A. Incorporation Is Proper, Judicial Notice Is Not
1. Documents Referenced in the Complaint
2. Documents Filed with the SEC
3. Oracle's Stock Price History
4. Alleged Cautionary Statements
B. News Articles and Analyst Reports Not Referenced in the Complaint and Capable of Dispute Cannot Be Judicially Noticed or Considered Under the Incorporation Rule
III. CONCLUSION
PLAINTIFFS' RESPONSE TO DEFENDANTS' REQUEST FOR JUDICIAL NOTICE
I. INTRODUCTION
Defendants have asked the Court to take judicial notice of its Exhibits A to Z.(1) In the Ninth Circuit, and elsewhere, judicial notice of the truth of any disputed document submitted is not permitted. The content, but not the truth, of documents referenced in the Complaint may be considered under the incorporation rule. Documents not referenced in the Complaint may not be considered at all.
Under Rule 201, Federal Rules of Evidence, where the truth of the documents is disputed or capable of dispute, judicial notice would be reversible error. The Ninth Circuit has held that a district court may judicially notice "undisputed matters of public record," but not "disputed facts stated in public records." Lee v. City of Los Angeles, 250 F.3d 668, 688-90 (9th Cir. 2001) (emphasis by the Court).
In this case, plaintiffs allege that statements in some of the documents proffered by defendants for judicial notice are false or misleading. Other documents proffered by defendants are ambiguous and capable of dispute. It would be reversible error to take judicial notice of the "truth" of such documents. Lee, 250 F.3d at 688. Any ambiguity or dispute about the contents of such documents must be resolved "in plaintiffs' favor" at the motion stage. Lee, 250 F.3d at 690; see also Int'l Audiotext Network v. American Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (at motion stage, court will resolve "ambiguities" in plaintiffs' favor).
Although judicial notice of the truth of disputed or disputable documents is not permitted, the court can consider the entirety of a document when portions of it are referenced in the complaint, under the incorporation rule. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). The incorporation rule is designed to ensure that the court can assess the complaint allegations in context.
However, courts do not consider material outside the pleadings, particularly, as here, when the complaint does not specifically refer to it or when the accuracy or authenticity of the extraneous material is questioned. Branch, 14 F.3d at 454; Fecht v. Price Co., 70 F.3d 1078, 1080 n.1 (9th Cir. 1995). Indeed, "Court[s] should not use judicial notice to generate an evidentiary record and then weigh evidence ... to dismiss [a] complaint." In re Network Equip. Techs., Inc. Litig, 762 F. Supp. 1359, 1363 (N.D. Cal.
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1991).(2)
II. ARGUMENT
A. Incorporation Is Proper, Judicial Notice Is Not
As the cases cited by defendants recognize - but defendants seem to overlook - a judicially noticed fact "must be one not subject to reasonable dispute" because it can be determined from sources "whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1275-80 (11th Cir. 1999). Accordingly, the very cases cited by defendants hold that documents filed with the SEC "'should be considered only for the purpose of determining what statements the documents contain, not to prove the truth of the documents' contents.'" Bryant, 187 F.3d at 1277-78 (quoting Lovelace v. Software Spectrum, 78 F.3d 1015, 1018 (5th Cir. 1996)); accord Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991).(3)
Indeed, the Private Securities Litigation Reform Act ("PSLRA") is consistent with this limitation allowing consideration of statements referenced in the complaint only where the statements offered "are not subject to material dispute." 15 U.S.C. §78u-5(e); see also W. Schwarzer, A. Tashima & J. Wagstaffe, California Practice Guide: Federal Civil Procedure Before Trial §9:219, at 9-58 (TRG 2000) (public documents can be considered, "but not to prove the truth of their contents").
In Hennessy v. Penril Datacomm Networks, 69 F.3d 1344, 1354-55 (7th Cir. 1995), for example, a company's Report on Form 10-K filed with the SEC stated that it had 398 employees. The Seventh Circuit held that it would be improper to judicially notice this assertion as fact. Id. The court held that "[i]n order for a fact to be judicially noticed, indisputability is a prerequisite," and assertions in an SEC filing about the number of employees that a company has are not beyond dispute. Id. at 1354; accord Oran v. Stafford, 226 F.3d 275, 289 (3d Cir. 2000).
As Judge Orrick aptly ruled, when defendants seek "to challenge the accuracy of the allegations" in a complaint, judicial notice is improper at the motion-to-dismiss stage. In re Vantive Corp. Sec. Litig., 110 F. Supp. 2d 1209, 1213 n.8 (N.D. Cal. 2000). The defendants cite Vantive, but overlook Judge Orrick's denial of judicial notice of a transcript that plaintiffs disputed as inaccurate. The Ninth Circuit likewise holds that it is improper to judicially notice documents challenged as inaccurate. Cooper v. Pickett, 137 F.3d 616, 623 (9th Cir. 1998).
Applying the above principles, plaintiffs now address the various categories of documents offered by defendants.
1. Documents Referenced in the Complaint
The Court may consider the content of the documents referenced in the Complaint under the Branch incorporation rule, but cannot take judicial notice of the truth of such contents when the contents are disputed, capable of dispute, or ambiguous. Lee, 250 F.3d at 688-90. In particular, the transcripts of conference calls and speeches, in defendants' Exhibits I, J, S and Z cannot be judicially noticed as true, because the transcripts can be disputed as inaccurate. Cooper, 137 F.3d at 623.
Thus, Exhibits C, F-J, L, N, O, Q, S and Z, may not be judicially noticed as true, but may only be considered under the Branch incorporation rule. Excerpts do not, however, suffice. In their Request for Judicial Notice ("RJN"), defendants criticize the Complaint because it references only selected portions of
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certain documents. (RJN at 5:16) Defendants add that the Court must have the "full, unedited communication." (RJN at 5:17) Inconsistently, elsewhere in their RJN, defendants proffer "only relevant excerpts" of these documents. (RJN at 1 n.1) Defendants cannot have it both ways. Defendants must provide the Court and plaintiffs with a complete copy of Exhibit C. Any ambiguities or disputes about the contents of these exhibits or inferences drawn must be construed favorably to plaintiffs. Lee, 250 F.3d at 689-90; Audiotext, 62 F.3d at 72.
2. Documents Filed with the SEC
The Court may consider documents filed with the Securities and Exchange Commission ("SEC") that are referenced in or necessarily relied upon in a complaint, even if not directly mentioned, under the Branch incorporation rule. Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998). Judicial notice of the truth of such documents would, however, be improper under Lee because the contents are or can be disputed or are ambiguous and susceptible of conflicting inferences. Lee, 250 F.3d at 688-90. Moreover, even under the broader incorporation rule of Parrino, an SEC filing that is not referenced in the complaint nor necessarily relied upon, cannot be considered at all. 146 F.3d at 705-06. Only Exhibits D and Y are referenced. (¶¶122-23)
Thus, Exhibits A, B, E, and P cannot be judicially noticed, and indeed cannot be considered at all, even under the incorporation rule, because they are not cited or relied upon in the complaint. They are simply items of evidence outside the relevant class period. Defendants' RJN fails to demonstrate how these documents meet the Parrino standard. Accepting such documents would improperly convert the motion to dismiss to one for summary judgment. Fed. R. Civ. P. §12(b); Cooper, 137 F.3d at 623.
Exhibits D and Y can be considered under the incorporation rule, but defendants must supply a complete copy. Any ambiguities, disputes, or inferences about the contents of Exhibits D and Y must be viewed favorably to plaintiffs. Lee, 250 F.3d at 689-90.
3. Oracle's Stock Price History
Plaintiffs object to Exhibit R because they dispute its accuracy. The exhibit indicates only 14 million Oracle shares were traded on March 2, 2001. The complaint alleges, based on the Dow Jones Tradeline, that 221 million shares were traded. (¶¶6, 121) A copy of the Dow Jones Tradeline is attached as Exhibit 1. At the motion-to-dismiss stage, the complaint allegations must be accepted. Lee, 250 F.3d at 688-90.
4. Alleged Cautionary Statements
Plaintiffs object to consideration, let alone judicial notice, of the transcript and slides in Exhibits J and K. Without tape-recordings there is no assurance that these transcripts are accurate, that slides were even used, or that the alleged cautions were given in any meaningful way. Judge Orrick refused to judicially notice just such a transcript at the motion-to-dismiss stage because accuracy and authenticity was questioned. Vantive, 110 F. Supp. 2d at 1213 n.8. The Ninth Circuit agrees. Cooper, 137 F.3d at 622-23 (denying judicial notice of "disputed" matters); accord In re Mora, 199 F.3d 1024, 1026 n.3 (9th Cir. 1999) (denying judicial notice of "disputable" matters). Judicial notice and incorporation of Exhibits J and K should therefore be denied.
B. News Articles and Analyst Reports Not Referenced in the Complaint and Capable of Dispute Cannot Be Judicially Noticed or Considered Under the Incorporation Rule
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Plaintiffs object to judicial notice of news articles and analyst reports that are not referenced in the Complaint. At the motion-to-dismiss stage, judicial notice of such documents is improper because it would improperly convert the motion into one for summary judgment. Cooper, 137 F.3d at 623. Indeed, defendants fail to mention that the principal case upon which they rely involved judicial notice in connection with a motion for summary judgment following depositions and discovery. Ritter v. Hughes Aircraft Co., 58 F.3d 454, 458-59 (9th Cir. 1995). Judicial notice is also impermissible because the truth of the proffered documents is capable of dispute. The Court should refuse to judicially notice Exhibits M and T-X.
Moreover, because the articles and reports are not referenced in the Complaint, these exhibits cannot be considered at all, even under the incorporation rule. Branch, 14 F.3d at 454.
Rather than answer, defendants opted to move to dismiss the Complaint, thereby invoking the automatic discovery stay provision of the PSLRA. See 15 U.S.C. §78m-4(b)(3). In improperly seeking to place before the Court self-serving documents and contentions of purported "fact" well beyond the four corners of the Complaint, defendants attempt to gain an improper advantage to the undue prejudice of plaintiffs, attempting to hamstring plaintiffs with the automatic stay provision while simultaneously asking the Court to determine factual issues in the context of a strictly procedural motion. If the Court considers defendants' contentions of purported fact, equity requires that the discovery stay be lifted. The PSLRA expressly provides for lifting the stay under such circumstances to permit plaintiffs to take discovery. See 15 U.S.C. §78m-4(b)(3)(B) (stay may be lifted "to prevent undue prejudice").
Indeed, on a Rule 12(b)(6) motion, if "matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent." Fed. R. Civ. P. 12(c) (emphasis added). This includes "giving the party opposing the motion notice and an opportunity to conduct necessary discovery and to submit pertinent material." Kramer, 937 F.2d at 773 (emphasis added); Southmark Prime Plus, L.P. v. Falzone, 776 F. Supp. 888, 892 (D. Del. 1991) ("when the Court goes beyond the pleadings and judicially noticed facts ... the Court must convert the motion and give both sides ... an opportunity to supplement the factual record"). Therefore, if this Court considers the contested exhibits in determining defendants' motion, plaintiffs respectfully request an opportunity to conduct discovery.
III. CONCLUSION
For the foregoing reasons, judicial notice of the truth of defendants' Exhibits should be denied. The contents of some of these exhibits may be considered solely under the incorporation rule, but defendants must provide complete copies. Disputes or ambiguities in these documents must be viewed in plaintiffs' favor.
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DATED: November 9, 2001 MILBERG WEISS BERSHAD HYNES & LERACH LLP SANFORD SVETCOV SHAWN A. WILLIAMS
______SANFORD SVETCOV
100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax)
MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH MARK SOLOMON DOUGLAS R. BRITTON 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax)
Lead Counsel for Plaintiffs
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 employed in the City and 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 November 9, 2001, declarant served by facsimile the PLAINTIFFS' RESPONSE TO DEFENDANTS' REQUEST FOR JUDICIAL NOTICE 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 9th day of November, 2001, at San Francisco, California.
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______TAMARA J. LOVE
1. Exhibits A-E, P and Y (documents filed with the SEC); Exhibits F-H, L-O, Q and T-X (news articles and analyst reports); Exhibit R (Oracle stock price history); and Exhibits I-K, S and Z (purported transcripts of oral presentations and conference calls).
2. See also Hirata Corp. v. J.B. Oxford & Co., 193 F.R.D. 589, 593 (S.D. Ind. 2000) (courts "are admonished to be diligent in policing the line between those documents included as a part of the pleadings and those that constitute evidence [which], while presumably admissible and relevant at trial, nonetheless are not properly considered on a motion to dismiss").
3. The rule encompassed by Rule 201(b) is not designed to expand the use of judicial notice, but continues "the tradition ... of caution in requiring that the matter be beyond reasonable controversy." Fed. R. Evid. 201(b), Advisory Committee's Notes. Indeed, "taking evidence, subject to cross-examination and rebuttal, is the best way to resolve controversies involving disputes of adjudicative facts." Id. Notice of The Wall Street Journal Article in Support of Their Motion to Dismiss STORY:
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