Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_02-cv-01486/USCOURTS-cand-4_02-cv-01486-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE JDS UNIPHASE CORPORATION

SECURITIES LITIGATION

 /

No. C 02-1486 CW

ORDER DENYING

LEAD PLAINTIFF'S

MOTION TO STRIKE

CERTAIN

AVERMENTS IN

DEFENDANTS'

ANSWERS AND

DENYING

DEFENDANTS'

MOTION FOR

PARTIAL JUDGMENT

ON THE PLEADINGS

Lead Plaintiff Connecticut Retirement Plans and Trust Funds

moves to strike certain averments in the answers, filed by

Defendant Kevin Kalkhoven and by Defendants JDS Uniphase

Corporation (JDS), Josef Straus, Anthony R. Muller and Charles

Abbe (JDS Defendants), to the second amended consolidated

complaint (SACC). Kalkhoven and the JDS Defendants separately

oppose the motions. The JDS Defendants also move for partial

judgment on the pleadings. Kalkhoven joins the motion, and Lead

Plaintiff opposes it. The matters were heard on July 15, 2005. 

Having considered the parties' papers, the evidence cited

therein and oral argument on the motions, the Court DENIES Lead

Plaintiff's motion to strike certain averments in Defendants'

answers and DENIES Defendants' motion for partial judgment on

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 1 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 2

the pleadings.

BACKGROUND

The following facts are alleged in the SACC. JDS

manufactures and supplies components of fiber-optic networks to

telecommunications and cable television system providers. 

Straus, Muller, Abbe and Kalkhoven are current and former

executive officers and directors of JDS. Kalkhoven's retirement

was announced in a press release on May 18, 2000, although he

continued to be employed full-time by JDS until July 31, 2000,

and part-time until July 31, 2001.

Lead Plaintiff purports to represent a class of persons and

entities that purchased or otherwise acquired securities of JDS

between October 28, 1999 and July 26, 2001. Lead Plaintiff

alleges that, during the class period, Defendants engaged in a

scheme to inflate artificially the price of JDS stock by

fraudulently recognizing revenue, falsely representing that

demand for JDS products was strong, and overstating the value of

its inventory by failing to write off excess inventory. Lead

Plaintiff further alleges that Defendants benefitted from this

scheme by selling stock at inflated prices and by using the

value of JDS stock to purchase other companies for less than

their worth.

Lead Plaintiff filed the complaint that initiated this

lawsuit on March 27, 2002. On October 11, 2002, Lead Plaintiff

filed the first amended consolidated complaint (FACC), which

alleged causes of action under the Securities Act of 1933

(Securities Act) and the Securities Exchange Act of 1934

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 2 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 3

(Exchange Act). Defendants moved to dismiss the FACC and, on

November 3, 2003, the Court issued an order denying Defendants'

motion to dismiss the Securities Act claims and granting the

motion to dismiss the Exchange Act claims. The Court granted

Lead Plaintiff leave to amend these claims. 

On January 9, 2004, Lead Plaintiff filed the SACC. The

SACC alleges that JDS, Straus, Muller and Kalkhoven violated

section 11 of the Securities Act; JDS violated section 12(a)(2)

of the Securities Act; Straus, Kalkhoven and Muller violated

section 15 of the Securities Act; JDS, Kalkhoven, Muller, Abbe

and Straus violated section 10(b) of the Exchange Act and Rule

10b-5 promulgated thereunder; Kalkhoven, Muller and Straus

violated section 14 of the Exchange Act and Rule 14a-9

promulgated thereunder; Kalkhoven, Muller, Straus and Abbe

violated section 20(a) of the Exchange Act; and Kalkhoven,

Muller, Straus and Abbe violated section 20A of the Exchange

Act.

On March 9, 2004, Defendants moved to dismiss the SACC. On

January 6, 2005, the Court granted the motion to dismiss one of

the Securities Act claims against Kalkhoven, and denied the

motion to dismiss the remaining claims. On February 28, 2005,

Kalkhoven and the JDS Defendants separately answered the SACC. 

On April 21, 2005, Lead Plaintiff moved to strike certain

averments in the JDS Defendants' answer. On May 20, 2005, Lead

Plaintiff moved to strike certain averments in Kalkhoven's

answer. On June 10, 2005, the JDS Defendants moved for partial

judgment on the pleadings.

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 3 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 4

LEGAL STANDARD

I. Motion to Strike

Federal Rule of Civil Procedure 12(f) states as follows: 

Upon motion made by a party before responding to a pleading

or, if no responsive pleading is permitted by these rules,

upon motion made by a party within 20 days after the service

of the pleading upon the party or upon the court's own

initiative at any time, the court may order stricken from

any pleading any insufficient defense or any redundant,

immaterial, impertinent, or scandalous matter.

Striking a party's pleading is an "extreme measure," and

Rule 12(f) motions are viewed with disfavor and are infrequently

granted. Stanbury Law Firm v. IRS, 221 F.3d 1059, 1063 (8th

Cir. 2000); see also Bureerong v. Uvawas, 922 F. Supp. 1450,

1478 (C.D. Cal. 1996).

II. Motion for Partial Judgment on the Pleadings

A motion for judgment on the pleadings, like a motion to

dismiss for failure to state a claim, addresses the sufficiency

of a pleading. Judgment on the pleadings may be granted when

the moving party clearly establishes on the face of the

pleadings that no material issue of fact remains to be resolved

and that the moving party is entitled to judgment as a matter of

law. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d

1542, 1550 (9th Cir. 1989). The court may consider, in addition

to the face of the pleadings, exhibits attached to the

pleadings, Durning v. First Boston Corp., 815 F.2d 1265, 1267

(9th Cir. 1987), and facts which may be judicially noticed. 

Mullis v. United States Bankr. Court, 828 F.2d 1385, 1388 (9th

Cir. 1987). 

In testing the sufficiency of a pleading, the well-plead

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 4 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 5

allegations of the non-moving party are accepted as true, while

any allegations of the moving party which have been denied are

assumed to be false. Hal Roach Studios, 896 F.2d at 1550. 

However, the court need not accept conclusory allegations. W.

Mining Counsel v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). The

court must view the facts presented in the pleadings in the

light most favorable to the non-moving party, drawing all

reasonable inferences in that party's favor, Gen. Conference

Corp. of Seventh Day Adventists v. Seventh-Day Adventist

Congregational Church, 887 F.2d 228, 230 (9th Cir. 1989), but

need not accept or make unreasonable inferences or unwarranted

deductions of fact. McKinney v. De Bord, 507 F.2d 501, 504 (9th

Cir. 1974).

DISCUSSION

I. Motions to Strike

A. Timeliness

Lead Plaintiff's motions to strike are not timely. Under

Federal Rule of Civil Procedure 12(f), a party must file a

motion to strike within twenty days after service of the

pleading. Here, Kalkhoven and the JDS Defendants each answered

the SACC on February 28, 2005. However, Lead Plaintiff did not

file its motions to strike certain averments in the JDS

Defendants' answer and Kalkhoven's answer until April 21, 2005

and May 20, 2005, respectively.

B. Kalkhoven's Answer

Lead Plaintiff seeks to strike averments in Kalkhoven's

answer in which Kalkhoven denies knowledge and information with

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 5 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 6

respect to certain events that occurred after his retirement

announcement on May 18, 2000. Lead Plaintiff argues that

information relating to these events is within Kalkhoven's

knowledge, and that the SACC's corresponding allegations should

therefore be deemed admitted by Kalkhoven under Federal Rule of

Civil Procedure 8(d).

Lead Plaintiff's argument is not well-taken. Whether or

not Kalkhoven had or should have had knowledge of companyrelated activities after his retirement announcement is a

question of fact; factual determinations are not appropriate in

a Rule 12(f) motion to strike.

Lead Plaintiff also seeks to strike (1) averments in which

Kalkhoven denies the SACC's characterization of language in

certain documents and emails, and (2) averments in which

Kalkhoven does not respond to allegations made against the JDS

Defendants.

Again, Lead Plaintiff's arguments are not well-taken. Lead

Plaintiff cites no authority from this circuit holding that

denials of a complaint's characterizations or representations of

documents are improper, nor does it cite Ninth Circuit authority

holding that a party must respond to allegations made against

other parties. Kalkhoven's answer gives Lead Plaintiff fair

notice of his positions relating to each averment in the SACC,

and that is all that is required at the pleading state of

litigation. Conley v. Gibson, 355 U.S. 41, 47-48 (1957).

For the foregoing reasons, and because the motion was not

timely filed, Lead Plaintiff's motion to strike certain

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 6 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 7

averments in Kalkhoven's answer must be denied.

C. JDS Defendants' Answer

Lead Plaintiff also moves to strike several responses in

the JDS Defendants' answer. These responses state that the JDS

Defendants lack knowledge or information to form a belief as to

the veracity of the allegations that various confidential

witnesses reported certain activities occurring at JDS

facilities around the country. Lead Plaintiff argues that these

denials are improper because the JDS Defendants must have known

about the alleged activities. Lead Plaintiff requests that the

corresponding allegations be deemed admitted by the JDS

Defendants pursuant to Federal Rule of Civil Procedure 8(d).

Again, Lead Plaintiff's motion seeks factual determinations

that are not appropriate in a Rule 12(f) motion. As the JDS

Defendants note, Lead Plaintiff's contention that they must have

known about the information giving rise to the allegations cited

by Lead Plaintiff requires determinations, without the benefit

of discovery, that (1) the allegations are true, and (2) the JDS

Defendants had access to the information that forms the basis of

the allegations, which is a central dispute in this litigation. 

Such factual determinations are premature at this point in the

litigation.

For the foregoing reasons, and because the motion was not

timely filed, Lead Plaintiff's motion to strike certain

averments in the JDS Defendants' answer must be denied.

II. Motion for Partial Judgment on the Pleadings

Defendants move for judgment on the pleadings on each cause

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 7 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 8

of action that Lead Plaintiff asserts under the Exchange Act. 

Defendants argue that the Supreme Court's ruling in Dura

Pharms., Inc. v. Broudo, __ U.S. __, 125 S. Ct. 1627 (2005),

renders Lead Plaintiff's Exchange Act claims deficient as a

matter of law because Dura rejected the SACC's theories of

economic loss and loss causation.

In Dura, the plaintiffs brought a securities fraud action

against the defendant, alleging that certain officers and

directors had made misleading public statements about, inter

alia, the company's drug profits. 125 S. Ct. at 1629-30. The

plaintiffs alleged economic loss based solely upon paying

artificially inflated prices for Dura securities. Id. at 1630. 

After the district court dismissed the complaint, the Ninth

Circuit reversed, ruling that the plaintiffs could allege

economic loss simply by alleging that they had paid artificially

inflated stock prices. Id. The Supreme Court reversed, ruling

that "an artificially inflated purchase price might mean a later

loss. But that is far from inevitably so." Id. at 1632. The

Court held that the plaintiffs, in alleging only that the stock

prices were inflated on the day that they were purchased, had

failed adequately to allege a theory of economic loss and loss

causation.

Defendants contend that the SACC's Exchange Act claims rely

upon the same theory of economic loss and loss causation as did

the Dura plaintiffs. That is not the case. In Dura, the

plaintiffs alleged economic loss based solely upon paying

inflated securities prices. The SACC alleges that Defendants

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 8 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 9

misrepresented the value of JDS's inventory, the value of its

goodwill, and the demand for its products, and that, on each

occasion in which JDS subsequently disclosed publicly the actual

financial situation as it related to these three indicators

among others, the company's stock price fell the following day

as a direct result of each disclosure. Thus, the SACC alleges

economic loss as a result of falling stock prices due to public

disclosures of economic indicators that had previously been

artificially inflated.

In support of its position, Lead Plaintiff cites In re Daou

Sys., Inc., __ F.3d __, 2005 WL 1431833 (9th Cir. June 21,

2005), decided after Dura, in which the Ninth Circuit ruled as

follows:

Plaintiffs' economic loss was not that they purchased stock

at inflated prices; rather, their economic loss was the

decline in their stock value that was the direct result of

Daou's misrepresentations. See Dura Pharms., 125 S. Ct. at

1631-32. Here, the TAC's assertions of a steep drop in

Daou's stock price following the revelation of Daou's true

financial situation are sufficient to enable the complaint

to survive a motion to dismiss under Federal Rule of Civil

Procedure 12(b)(6).

Thus, Lead Plaintiff adequately alleges that it suffered

economic loss as a result of Defendants' misrepresentations and

subsequent disclosures of JDS's true financial health.

For the foregoing reasons, Defendants' motion for partial

judgment on the pleadings on Lead Plaintiff's Exchange Act

claims must be denied.

CONCLUSION

Thus, the Court DENIES Lead Plaintiff's motion to strike

certain averments in the answer filed by the JDS Defendants

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 9 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 10

(Docket No. 248), DENIES Lead Plaintiff's motion to strike

certain averments in the answer filed by Kalkhoven (Docket No.

254), and DENIES Defendants' motion for partial judgment on the

pleadings (Docket No. 272).

IT IS SO ORDERED.

Dated: 7/21/05 /s/ CLAUDIA WILKEN 

CLAUDIA WILKEN

United States District Judge

Case 4:02-cv-01486-CW Document 288 Filed 07/21/05 Page 10 of 10