Plaintiffs' Response to Individual Defendants' Request for Judicial Notice Source: Milberg Weiss Date: 11/15/01 Time: 9:36 AM MILBERG WEISS BERSHAD HYNES & LERACH LLP REED R. KATHREIN (139304 LESLEY E. WEAVER (191305 SYLVIA WAHBA (197612 JASON T. BAKER (212380 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 Lead Counsel for Plaintiffs In re NORTHPOINT COMMUNICATIONS GROUP, INC. SECURITIES LITIGATION This Document Relates To: ALL ACTIONS. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA Master File No. C-01-1473-WHA CLASS ACTION PLAINTIFFS' RESPONSE TO INDIVIDUAL DEFENDANTS' REQUEST FOR JUDICIAL NOTICE DATE: December 13, 2001 TIME: 8:00 a.m. COURTROOM: The Honorable William H. Alsup I. INTRODUCTION 1 of 6 8/15/02 7:07 PM
Defendants have asked the Court to take judicial notice of its Exhibits A-M. Of those, Exhibits A-C, E-G and I-L are documents filed with the Securities and Exchange Commission ("SEC". Some of the SEC filings are either expressly referenced in or necessarily relied upon by the Complaint. (1 (Exhibits B, C, E, I, J, K. The other SEC filings proffered, however, are not referenced in or necessarily relied upon by the Complaint. (Exhibits A, F, G, L. Exhibit D is an SEC Accounting Bulletin ("SAB" 101. Exhibit H is NorthPoint Communications Group, Inc.'s ("NorthPoint" state court civil complaint against Verizon. Exhibit M includes five NorthPoint press releases referenced in the Complaint. Plaintiffs have no objection to judicial notice of Exhibit D, SAB 101. But, as discussed below, judicial notice of the truth of defendants' other Exhibits is not permitted. Under Rule 201 of the Federal Rules of Evidence, judicial notice is improper where the truth of the documents is disputed or capable of dispute. 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 therefore be error to take judicial notice of the "truth" of such documents. Id. It is unclear, however whether defendants are asking the Court to take judicial notice of the truth of their Exhibits, or only seek judicial notice for a more limited purpose. They do not say. But, judicial notice of the truth would be inappropriate. Although judicial notice of the truth of disputed or disputable documents is not permitted, a court can consider the full text of a document under the incorporation rule when portions of it are either referenced in or necessarily relied upon by the complaint. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994; Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998. The incorporation rule is designed to ensure that the court can consider what the documents say to assess the complaint's allegations in context. The court cannot, however, consider any disputed, disputable or ambiguous contents of such documents as true. Any ambiguity or dispute about the contents of such documents must be resolved "in plaintiffs' favor" on a motion to dismiss. 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 dismissal stage, court will resolve "ambiguities" in plaintiffs' favor. On the other hand, courts cannot consider material not referenced in the complaint for any purpose when, as here, the accuracy or authenticity of the non-referenced documents is questioned. Branch, 14 F.3d at 454; Cooper v. Pickett, 137 F.3d 616, 623 (9th Cir. 1998 (it is improper to judicially notice documents capable of being challenged as inaccurate. 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. "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. 1991. Accordingly, with respect to the SEC filings and press releases that are referenced in the Complaint, namely Exhibits B, C, E, I, J, K and M, plaintiffs oppose judicial notice for the truth of their contents. Plaintiffs do not, however, object to limited consideration of these documents under the incorporation rule to place the allegations of falsity in context. Plaintiffs further object to judicial notice or consideration under the incorporation rule, of Exhibits A, F, G and L, even though these documents are SEC filings, because the documents are neither referenced in nor 2 of 6 8/15/02 7:07 PM
necessarily relied upon by the Complaint. Plaintiffs also object to judicial notice or any consideration whatever of NorthPoint's state court complaint against Verizon because that complaint only contains allegations, not undisputed facts, and thus judicial notice is not permitted. Moreover, no showing of relevancy has been made. Plaintiffs explain their objections in more detail below. II. ARGUMENT A. For Documents Referenced in or Necessarily Relied upon by the Complaint, Incorporation Is Proper, Judicial Notice Is Not A judicially noticed fact "must be one not subject to reasonable dispute" that 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. 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.'" Id. at 1277-78 (quoting Lovelace v. Software Spectrum, 78 F.3d 1015, 1018 (5th Cir. 1996. The principal case cited by defendants recognizes that judicial notice of the truth of the document is inappropriate. Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991. Defendants overlook that limitation in Kramer. Indeed, the Private Securities Litigation Reform Act of 1995 ("PSLRA" is consistent with this limitation. It allows consideration of cautionary statements offered only where they "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. The Ninth Circuit likewise holds that it is improper to judicially notice documents challenged as inaccurate. Lee, 250 F.3d at 688-90; Cooper, 137 F.3d at 623. 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. Although judicial notice is not permitted, a court may consider documents filed with the SEC that are referenced in or necessarily relied upon in a complaint, even if not directly mentioned, under the Branch incorporation rule. Parrino, 146 F.3d at 705-06. Based on the above principles, the Court should not judicially notice the truth of Exhibits B, C, E and M, but may consider what these documents say for the limited purpose of providing context for the allegations of the Complaint that reference these SEC filings and press releases. Similarly, the Court may give limited consideration under the incorporation rule to Exhibits I, J and K, defendants' Form-4 stock sale reports, because they are necessarily relied upon for the insider trading allegations of the Complaint. 3 of 6 8/15/02 7:07 PM
Such documents cannot, however be judicially noticed as true because their accuracy can be disputed and any such dispute must be resolved in plaintiffs' favor on a motion to dismiss. Lee, 250 F.3d at 690. B. Documents Filed with the SEC that Are Neither Cited nor Necessarily Relied upon in the Complaint Cannot Be Judicially Noticed or Considered at All Even under the Branch-Parrino incorporation rule, a document filed with the SEC that is neither referenced in nor necessarily relied upon by the complaint, cannot be considered at all. Parrino, 146 F.3d at 705-06. Thus, despite the fact that Exhibits A, F, G and L are documents filed with the SEC, they cannot be judicially noticed or considered under the incorporation rule, because they are neither referenced in nor necessarily relied upon in the complaint. Defendants' Request for Judicial Notice fails to demonstrate how these documents satisfy either the judicial notice rule or the incorporation rule. 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. C. NorthPoint's State Court Complaint Contains Mere Allegations Not Undisputed Facts and Therefore Cannot Be Judicially Noticed Judicial notice of NorthPoint's state-court complaint against Verizon, Exhibit H, is not permitted because the complaint contains allegations, not undisputed facts. Fed. R. Evid. 201(a. 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. The Court should refuse to judicially notice Exhibit H. 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. 78u-4(b(3. If the Court considers defendants' contentions of purported fact in Exhibit H, 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. 78u-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. Indeed, if the Court considers NorthPoint's state court complaint against Verizon, it should also judicially notice Verizon's state court complaint against NorthPoint (copy attached, because the Verizon allegations serve to corroborate the allegations in plaintiffs' Complaint. Fed. R. Evid. 201(a. III. CONCLUSION For the foregoing reasons, except for Exhibit D, SAB 101, judicial notice of the truth of all of defendants' Exhibits should be denied. The contents of Exhibits B, C, E, I, J, K and M may be considered solely under the incorporation rule. Disputes or ambiguities in these documents must be viewed in plaintiffs' favor. Exhibits A, F, G, H and L cannot be considered at all and should be disregarded. 4 of 6 8/15/02 7:07 PM
DATED: November 15, 2001 MILBERG WEISS BERSHAD HYNES & LERACH LLP REED R. KATHREIN LESLEY E. WEAVER SYLVIA WAHBA JASON T. BAKER I, the undersigned, declare: REED R. KATHREIN 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 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 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 November 15, 2001, declarant served by facsimile the PLAINTIFFS' RESPONSE TO INDIVIDUAL 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 15th day of November, 2001, at San Francisco, California. JERRY COHEN 5 of 6 8/15/02 7:07 PM
1. "Complaint" refers herein to Consolidated Complaint for Violation of the Securities Exchange Act of 1934. <he 6 of 6 8/15/02 7:07 PM