Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-03395/USCOURTS-cand-5_05-cv-03395-27/pdf.json

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

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 This disposition is not designated for publication and may not be cited. 1

Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

**E-Filed 7/30/07**

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

IN RE MERCURY INTERACTIVE CORP.

SECURITIES LITIGATION

Case Number C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO 1

DISMISS WITH LEAVE TO AMEND

[re: doc. nos. 130, 133, 134, 137, 139, 

147, 152]

I. BACKGROUND

1. Procedural Background

The initial complaint in this action was filed on August 19, 2005. On December 8, 2005,

in light of the filing of several related cases, the Court issued an order setting a briefing schedule

for competing motions for appointment as lead plaintiff. On May 5, 2006, the Court appointed

Mercury Pension Fund Group (“Lead Plaintiff”) to lead the litigation and approved its choice of

lead counsel. On June 7, 2006, the Court established a schedule for the filing of a consolidated

complaint and the briefing of any subsequent motions to dismiss. On September 8, 2006, the

instant consolidated class action complaint (“the Complaint”) was filed. The class is defined as

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 Defendants also have joined in various portions of each other’s motions. 2

 During the briefing of the instant motions, a dispute arose as to the unsealing of the 3

derivative complaint in a factually-related state court action. That dispute is not the subject of

the instant order.

2

Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

“all persons and entities who purchased or otherwise acquired Mercury securities between

October 17, 2000, and November 1, 2005, inclusive, and who were damaged thereby.” 

Complaint ¶ 352.

The Complaint names nine defendants: Mercury Interactive Corporation (“Mercury” or

“the Company”), Amnon Landan, Douglas Smith, Sharlene Abrams, Susan Skaer, Igal Kohavi,

Yair Shamir, Giora Yaron, and PricewaterhouseCoopers (“PWC”). The Complaint refers to

Landan, Smith, Abrams, and Skaer as the “Officer Defendants,” and to Kohavi, Shamir, and

Yaron as the “Compensation Committee Defendants.” It refers to the Officer Defendants and the

Compensation Committee Defendants as the Individual Defendants, and to the Individual

Defendants and Mercury as the Mercury Defendants. The Complaint asserts three claims: (1)

violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated

thereunder, against the Mercury Defendants; (2) violation of Section 20(a) of the Securities

Exchange Act, against the Officer Defendants and the Compensation Committee Defendants; and

(3) violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated

thereunder, against PWC. 

On November 17, 2006, seven separate motions to dismiss were filed by: (1) PWC; (2) 2

Abrams; (3) Skaer; (4) Smith; (5) Mercury; (6) Landan; and (7) the Compensation Committee

Defendants. Lead Plaintiff has filed two oppositions, the first to the motions filed by Mercury

and the Individual Defendants, and the second to the motion filed by PWC. The Court heard oral

argument on March 30, 2007. 

3

2. Factual Allegations

This action arises from the alleged backdating of stock options at Mercury Interactive

Corporation (“Mercury”). The Complaint contains the following allegations, which the Court

assumes to be true for the purposes of this motion.

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3

Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

 Mercury provides software and services to the business technology optimization

marketplace. Complaint ¶ 13. It is incorporated under Delaware law and is headquartered in

California. Id. Landan was Chairman of the Board of Mercury (“the Board”) from July 1999

until he resigned on November 2, 2005. Id. at ¶ 14. He was Chief Executive Officer from

February 1997 until his resignation, and a director from February 1996 until his resignation. Id. 

Smith was Chief Financial Officer and Executive Vice President from November 2001 until

November 2, 2005, when he resigned. Id. at ¶ 15. Previously, Smith was Executive Vice

President of Corporate Development. Id. Abrams was Chief Financial Officer and Vice

President of Finance and Administration from November 1993 until November 2001, when she

resigned. Id. at ¶ 16. Skaer was Vice President, General Counsel, and Secretary of Mercury

from November 2000 until November 2, 2005, when she resigned. Id. at ¶ 17. The

Compensation Committee Defendants were the only outside directors on the Board and the only

members of the Compensation and Audit Committees from October 1996 to July 2002. Id. at ¶

22. Kohavi and Shamir have been directors since 1994. Id. at ¶¶ 19-20. Each was a member of

the Compensation and Audit Committees from 1996 through June 2006. Id. Yaron has been a

director since 1996 and Chairman of the Board since November 2, 2005. Id. at ¶ 21. He was

chair of the Compensation Committee from 2002 through June 2006. Id. He was a member of

the Audit Committee from 1996 to 2002. Id. PWC was Mercury’s outside public auditor during

the class period. Id. at ¶ 24. 

Mercury has had at least four options plans: the 1989 Stock Option Plan and its

replacement, the 1999 Stock Option Plan; the 1994 Directors’ Plan; and the 1998 Employee

Stock Purchase Plan. Id. at ¶¶ 37-41. The 1989 Stock Option Plan, under which options no

longer are granted, permitted purchase at less than one hundred percent of the fair market value

for statutory stock option grants. Id. at ¶ 37. The 1998 Employee Stock Purchase Plan allows

purchase at less than one hundred percent of the fair market value. Id. at ¶ 41. The 1999 Stock

Option Plan and the 1994 Directors’ Plan require that the exercise price of options granted

thereunder be one hundred percent of fair market value on the date of the grant. Id. at ¶¶ 39, 41. 

In November 2004, the SEC launched an informal investigation into Mercury’s past stock

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28 Unlike the other press releases discussed herein, the August 29, 2005 press release is 4

not described in detail in the Complaint.

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Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

option grants. Id. at ¶ 45. In July 2005, the Company revealed that there were potential

problems with the dating and pricing of stock option grants and with the accounting for these

option grants. Id. The Board formed a Special Committee to investigate the Company’s stock

option practices. Id. at ¶ 46. In August 2005, the Special Committee concluded that the actual

grant dates of certain past stock option grants differed from the dates on which they should have

been granted. Id. The Special Committee found that on fifty-four separate occasions between

1994 and 2005, stock options reflected a grant date that differed from the date on which the

option actually had been granted. Id. at ¶ 48. In almost every such instance, the price on the

actual grant date was higher than the price on the originally stated date. Id. Of those fifty-four

grants, twenty-four were approved by the Compensation Committee. Id. The Special Committee

also found that option exercise dates were incorrectly reported, that some option documentation

was missing, and that a loan was made by Mercury to Landan without proper documentation. Id.

at ¶¶ 50, 52, 56. As a result, the Board concluded that Mercury’s financial statements from 2000

through the first quarter of 2005 no longer should be relied upon because they contained

misstatements of material facts and would need to be restated. Id. at ¶ 47. On August 29, 2005,

Mercury issued a press release stating that it had undertaken a restatement. Id. at ¶ 204. 

4

On October 4, 2005, Mercury issued a press release that described the pending

restatement but that did not disclose the full impact of the backdating on Mercury’s financial

position. Id. at ¶ 204. It also reported that the SEC inquiry had been converted into a formal

investigation. Id. Mercury’s stock price fell from $36.90 to a closing price of $31.61 on October

4, 2005. Id. at ¶ 351. On November 2, 2005, Mercury issued a press release stating that it had

identified forty-nine instances of improper backdating and that it had concluded that internal

controls had been inadequate. Id. at ¶ 206. Mercury also announced that it had accepted the

resignations of Landan, Smith, and Skaer, and stated:

Chief Executive Officer Amnon Landan, Chief Financial Officer Douglas Smith,

and General Counsel Susan Skaer were each aware of and, to varying degrees,

participated in the practices discussed above. Each of them also benefited [sic]

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Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

personally from the practices. While each of these officers asserts that he or she

did not focus on the fact that the practices and their related accounting were

improper, the Special Committee has concluded that each of them knew or should

have known that the practices were contrary to the options plan and proper

accounting. While the Special Committee is appreciative of and sympathetic to

the far-reaching demands of these executives’ positions during this critical period,

missing or overlooking a practice as basic and important as the proper granting of

options is not acceptable.

Id. Upon this full disclosure of the improper stock options practices, Mercury stock fell from its

November 1, 2005 closing price of $35.00 to $25.66 on November 2, 2005. Id. at ¶ 207. 

Mercury subsequently admitted that each of the financial statements issued from fiscal year 1992

through the end of the first month of fiscal year 2005 was materially false and misleading. Id. at

¶ 208. On July 3, 2006, Mercury filed a Form 10-K/A restating its consolidated financial

statements for 2002, 2003, and 2004. Id. at ¶ 59.

II. LEGAL STANDARD

1. Motion to Dismiss

For purposes of a motion to dismiss, the plaintiff’s allegations are taken as true, and the

Court must construe the complaint in the light most favorable to the plaintiff. Jenkins v.

McKeithen, 395 U.S. 411, 421 (1969). Leave to amend must be granted unless it is clear that the

complaint’s deficiencies cannot be cured by amendment. Lucas v. Department of Corrections,

66 F.3d 245, 248 (9th Cir. 1995). When amendment would be futile, however, dismissal may be

ordered with prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir. 1996). On a motion to

dismiss, the Court’s review is limited to the face of the complaint and matters judicially

noticeable. North Star International v. Arizona Corporation Commission, 720 F.2d 578, 581

(9th Cir. 1983); MGIC Indemnity Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986); Beliveau

v. Caras, 873 F.Supp. 1393, 1395 (C.D. Cal. 1995). However, under the “incorporation by

reference” doctrine, the Court also may consider documents which are referenced extensively in

the complaint and which are accepted by all parties as authentic, which are not physically

attached to the complaint. In re Silicon Graphics, Inc. Securities Litigation, 183 F.3d 970 (9th

Cir. 1999).

2. Heightened Pleading Standard Under Rule 9(b) and the PSLRA

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Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

Fed. R. Civ. P. 9(b) requires that “the circumstances constituting fraud . . . be stated with

particularity.” The Ninth Circuit has explained that a “plaintiff must include statements

regarding the time, place, and nature of the alleged fraudulent activities, and that mere conclusory

allegations of fraud are insufficient.” In re GlenFed, Inc. Securities Litigation, 42 F.3d 1541,

1548 (9th Cir. 1994). A plaintiff asserting fraud “must set forth an explanation as to why the

statement or omission complained of was false or misleading.” Id. (internal quotation marks

omitted); see also Yourish v. California Amplifier, 191 F.3d 983, 992-93 (9th Cir. 1999). The

Private Securities Litigation Reform Act (“PSLRA”) raises the pleading standard even further:

(1) Misleading statements and omissions

In any private action arising under this chapter in which the plaintiff alleges that

the defendant– 

(A) made an untrue statement of a material fact; or

(B) omitted to state a material fact necessary in order to make the statements

made, in the light of the circumstances in which they were made, not misleading;

the complaint shall specify each statement alleged to have been misleading, the

reason or reasons why the statement is misleading, and, if an allegation regarding

the statement or omission is made on information and belief, the complaint shall

state with particularity all facts on which that belief is formed.

(2) Required state of mind

In any private action arising under this chapter in which the plaintiff may recover

money damages only on proof that the defendant acted with a particular state of

mind, the complaint shall, with respect to each act or omission alleged to violate

this chapter, state with particularity facts giving rise to a strong inference that the

defendant acted with the required state of mind.

15 U.S.C. § 78u-4b(1)-(2).

III. DISCUSSION

1. Claim One: Violation of Section 10(b) and Rule 10b-5 Against the Mercury

Defendants

a. Elements of the Claim

Lead Plaintiff alleges that the Mercury Defendants violated Section 10(b) of the

Securities Exchange Act and Rule 10b-5 promulgated thereunder. Section 10(b) makes it

unlawful 

[t]o use or employ, in connection with the purchase or sale of any security

registered on a national securities exchange or any security not so registered . . . 

any manipulative or deceptive device or contrivance in contravention of such rules

and regulations as the Commission may prescribe as necessary or appropriate in

the public interest or for the protection of investors.

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28 Because the initial complaint was filed on August 15, 2005, the class period asserted in 5

the Complaint would have begun within five years of that date.

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Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

15 U.S.C. § 78j(b). Rule 10b-5 makes it unlawful for any person to use interstate commerce 

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material

fact necessary in order to make the statements made, in the light of the

circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would

operate as a fraud or deceit upon any person, in connection with the purchase or

sale of any security.

17 C.F.R. § 240.10b-5. In cases involving publicly-traded securities and purchases or sales in

public securities markets, the elements of an action under Section 10(b) and Rule 10b-5 are: (1)

a material misrepresentation or omission, (2) scienter, (3) a connection with the purchase or sale

of a security, (4) reliance, (5) economic loss, and (6) loss causation. Dura Pharmaceuticals, Inc.

v. Broudo, 544 U.S. 336, 341-42 (2005).

b. The Class Period and the Statute of Limitations

i. The Beginning of the Asserted Class Period

Mercury argues that the statute of limitations bars claims by investors who purchased

Mercury stock before September 8, 2001, five years prior to the filing of the Complaint. This

would exclude a portion of the asserted class because the class period asserted in the Complaint

includes purchasers of Mercury stock between October 17, 2000 and November 1, 2005. 

Complaint ¶ 352. In contrast, the initial complaint in this action asserted a class period that

includes purchasers of Mercury stock between December 1, 2004 and July 5, 2005. Initial

Complaint ¶ 119. The relevant statute of limitations provides: 5

[A] private right of action that involves a claim of fraud, deceit, manipulation, or

contrivance in contravention of a regulatory requirement concerning the securities

laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15

U.S.C. § 78c(a)(47)), may be brought not later than the earlier of – 

(1) 2 years after the discovery of the facts constituting the

violation; or

(2) 5 years after such violation.

28 U.S.C. § 1658(b). The five-year period of repose is not subject to tolling. See Durning v.

Citibank, In’l, 990 F.2d 1133, 1136-37 (9th Cir. 1993).

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Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

The class period asserted in the Complaint includes individuals who purchased Mercury

stock more than five years before the filing of the Complaint. However, Lead Plaintiff argues

that the Complaint relates back to the initial complaint in this action and that, accordingly, no

portion of the class period is time-barred. The Ninth Circuit has held that: 

An amendment adding a party plaintiff relates back to the date of the original

pleading only when: 1) the original complaint gave the defendant adequate notice

of the claims of the newly proposed plaintiff; 2) the relation back does not unfairly

prejudice the defendant; and 3) there is an identity of interests between the

original and newly proposed plaintiff.

In re Syntex Corp. Securities Litigation, 95 F.3d 922, 935 (9th Cir. 1996). The court found

identity of interests absent in Syntex because “[t]he claims of the proposed plaintiffs are different

because the newly proposed class members bought stock at different values and after different

disclosures and statements were made by Defendants and analysts.” Id. The court also cited its

earlier decision in Besig v. Dolphin Boating & Swimming Club, 683 F.2d 1271, 1278-79 (9th Cir.

1982), in which it had focused on the “central issue of th[e] litigation,” the “goals” of the

litigants, and the relief sought, in determining whether an identify of interests existed. Id.

Applying Syntex to the facts now before it, this Court concludes that an identity of

interests does not exist between the class members who purchased Mercury stock before

September 8, 2001 and those who purchased Mercury stock after that date. Class members who

purchased Mercury stock between October 17, 2000 and September 8, 2001 bought their stock at

a much higher price than did purchasers of Mercury stock after September 8, 2001: the

Complaint alleges that the share price averaged between $80/share and $100/share in the fourth

quarter of 2000 and between $20/share and $40/share during the fourth quarter of 2001. 

Complaint ¶¶ 222, 259. Accordingly, while the relief sought may be similar in kind, and may

have been triggered by the same disclosures of improper accounting, the quantum of relief sought

is vastly different in scale. Moreover, while they may have been similar in kind and effect,

different statements also were made as to the state of Mercury’s financials prior to the purchases

at issue. The Court does not hold that a difference in stock price by itself is enough to avoid

application of the relation-back doctrine, but Syntex does not allow the Court to ignore the

significant difference in stock price that is present here. Because the class should not include

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 Lead Plaintiff cites In re Network Associates, Inc. II Securities Litigation, 2003 WL 6

24051280 (N.D.Cal., Mar. 25, 2003) (unpublished). The court in that case emphasized that the

claims of the new class members were “based on the same underlying allegations as the original

class members” and “[m]ore importantly, all of the claims are based on the same . . . disclosure

and subsequent stock drop.” Id. at *7. The court read the reference to “disclosures and

statements” in Syntex as pertaining to the disclosures that caused the stock price drop, not to the

statements causing stock purchase and supporting the higher stock price. This reading avoids the

conclusion, decried by Lead Plaintiff, that the relation-back doctrine cannot apply in securities

class actions because the new plaintiffs always will have purchased the stock at a different price. 

While the Court might have reached a different conclusion in the instant case were the stock

prices roughly similar, the stock price difference in this action is sufficiently large to bar

application of the relation-back doctrine. The Court notes that at least one other court in this

district has reached a similar conclusion on similar facts. See In re Commtouch Software Ltd.

Securities Litigation, 2002 WL 31417998 (N.D.Cal. July 24, 2002) (unpublished) (finding lack

of identity of interests).

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Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

individuals or entities that purchased Mercury stock prior to September 8, 2001, the Complaint 6

will be dismissed with leave to amend. 

ii. The Statute of Limitations as to Claims Against Abrams

Abrams argues that the Complaint alleges no wrongful conduct by her after September 8,

2001. Lead Plaintiff responds that the Complaint alleges in fact wrongful conduct by Abrams in

the form of an earnings release dated October 16, 2001. However, the Complaint does not name

Abrams as a person responsible for that release. If Lead Plaintiff can assert that Abrams

committed a wrongful act during the class period, it should do so in an amended complaint.

c. Loss Causation

Mercury and Landan argue that the Complaint does not allege loss causation sufficiently. 

Mercury notes that the Complaint identifies five disclosures occurring on: July 5, 2005; July 28,

2005; August 8, 2005; October 4, 2005; and November 2, 2005. The analysis of each of the

disclosures is governed by the decisions of the Supreme Court in Dura Pharmaceuticals and of

the Ninth Circuit in In re Daou Systems, Inc. Securities Litigation, 411 F.3d 1006 (9th Cir.

2005). In Dura Pharmaceuticals, the Supreme Court held that the fact that a purchase price was

inflated, by itself, does not establish causation of economic loss. Instead, the Supreme Court

reaffirmed the principle that a securities plaintiff must allege both cause and loss. In Daou

Systems, the Ninth Circuit described the loss causation inquiry as considering whether “the

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ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

misrepresentations or omissions caused the harm.” Daou Sytems, 411 F.3d at 1025. In that case,

the court found a lack of loss causation: “if the improper accounting did not lead to the decrease

in Daou’s stock price, plaintiffs’ reliance on the improper accounting in acquiring the stock

would not be sufficiently linked to their damages.” Id. at 1026. The court concluded that a loss

suffered in an earlier period could not be considered causally related to the alleged fraudulent

conduct because that stock drop occurred when “the true nature of Daou’s financial condition

had not yet been disclosed.” Id. at 1027.

The theory of Lead Plaintiff’s case appears to be that multiple, individual disclosures

caused multiple, individual economic losses. Such a theory fits within the constraints articulated

by Dura Pharmaceuticals and Daou to the extent that it does not attempt to capture losses

attributable to other causes. By way of example, if a stock fell from $110/share to $10/share over

the course of a year, the total loss attributable to the full universe of causes would be $100/share. 

If, however, after three disclosures of wrongdoing during that overall descent, the stock price fell

from $80/share to $70/share, from $60/share to $50/share, and from $40/share to $30/share, and

those losses were attributable to the disclosed wrongdoing, a plaintiff would be able to plead loss

caused by the wrongdoing in the amount of $30/share, not $100/share. Any attempt to recover an

amount of loss including loss unattributable to the wrongdoing at issue would be barred under

Dura Pharmaceuticals and Daou. No Defendant has cited authority indicating that a plaintiff

only may recover for damages stemming from a single disclosure. While an earlier disclosure

may be relevant to reasonable reliance, an earlier disclosure does not necessarily strip a later

disclosure of its ability to cause loss. Accordingly, while it is not entirely clear that the claims in

the Complaint are limited to losses caused by the individual disclosures, Lead Plaintiff may

proceed on such a theory in an amended complaint. 

i. The July 5, 2005 Disclosure

Lead Plaintiff alleges that “[o]n July 5, 2005, Mercury disclosed that it had initiated an

internal investigation to determine whether it had been improperly accounting for stock option

grants, that the SEC had initiated an informal investigation into the matter, and that Mercury

would potentially need to restate its past financial statements.” Complaint ¶ 348. Lead Plaintiff

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Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

does not allege any specific drop in share price as a result of this disclosure. Accordingly, Lead

Plaintiff fails to plead loss causation with respect to the July 5, 2005 disclosure.

ii. The July 28, 2005 Disclosure

Lead Plaintiff alleges that “[o]n July 28, 2005, Mercury disclosed a ‘preliminary’

conclusion that the resulting restatement of earnings would likely be material and impact prior

year’s earnings. The price of Mercury stock dropped more than a dollar on this news, closing at

$39.15 or $1.11 lower than the previous day’s close.” Id. Mercury asserts that this alleged drop

is not what it appears to be, in that the disclosure came after the market already had closed for the

day and that when the market had the opportunity to digest the information the next day, the

stock price actually went up twenty-two cents. Lead Plaintiff argues that it is not appropriate to

consider such assertions at the pleading stage. While this argument is correct generally,

considering that leave to amend is required on other bases, Lead Plaintiff either should omit this

disclosure from an amended complaint or plead it with more contextual facts. It is not in the

interest of judicial economy to encourage artful pleading of claims that will be subject to

summary adjudication. 

iii. The August 8, 2005 Disclosure

Lead Plaintiff alleges that “[o]n August 8, 2005, the Company announced it would miss

the deadline for filing its second quarter 2005 Form 10-Q 2005 report with the SEC as a result of

the restatement. Mercury’s stock price dropped again to close $0.65 lower at $37.62.” Id. The

implication of these allegations is that the reported need to restate financials, which was caused

by the improper backdating, caused the decline in the price of Mercury’s stock. However, this

drop in share price does not appear to be statistically significant, and Lead Plaintiff seemed to

concede at oral argument that this disclosure did not form the basis of any economic loss. 

Accordingly, while Lead Plaintiff may include this disclosure in an amended complaint, the

Court notes its skepticism that such an allegation would survive a future motion to dismiss. 

iv. The October 4, 2005 Disclosure

Lead Plaintiff alleges that “[o]n October 4, 2005, in its press release reporting preliminary

3Q05 results, Mercury revealed that the SEC’s informal investigation had been converted to a

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(JFLC1)

formal investigation. On this news, Mercury’s stock price dropped $5.29, or 14.3%, from $36.90

to $31.61, although the full extent of the problems at Mercury still had yet to be revealed.” Id. at

¶ 351. However, the press release also included the disclosure that Mercury would record third

quarter 2005 revenue of $198-205 million, rather than the $205-215 million that previously had

been predicted. Id. at ¶ 204. The Complaint does not allege what portion of the loss is

attributable to the news regarding the SEC investigation as distinguished from the portion that is

attributable to the Company’s failure to hit revenue targets. As the Fifth Circuit observed in

Greenberg v. Crossroads Systems, Inc., 364 F.3d 657 (5th Cir. 2004), failure to establish that the

disclosure of the relevant wrongdoing played a significant role in a loss merits entry of summary

judgment for failure to show loss causation. This action remains at the pleading stage, however,

raising the question as to how specifically a securities plaintiff must plead loss caused by the

relevant disclosure, as opposed to loss caused by other simultaneous events. Because the

Complaint will be dismissed with leave to amend on other grounds, the Court need not answer

that question at this time. The Court notes that further specificity as to the loss caused by the

October 4, 2005 disclosure would increase the likelihood that an amended version of this aspect

of the Complaint will survive a future motion to dismiss. 

v. The November 2, 2005 Disclosure 

Lead Plaintiff alleges that “[w]hen the full extent of the options backdating scandal was

revealed on November 2, 2005, the market reacted swiftly and decisively with the price of

Mercury’s common stock plummeting 27% from its November 1 closing price of $35.00 to close

down $9.44 at $25.66 on November 2.” Complaint at ¶ 351. Mercury does not appear to contest

the pleading of loss causation as to this disclosure. Landan argues that the loss could have been

the result of other causes, but it reasonably may be inferred that these other causes (officer

resignations, delisting, delayed financial statements, and a poor outlook) all stem from the

underlying wrong. Accordingly, Landan’s challenge to the allegation that the November 2, 2005

disclosure of the scope of the backdating problem caused a share price drop of $9.44/share is

unpersuasive. 

However, Mercury also argues that Lead Plaintiff may not graft onto the November 2,

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 Mercury argues that because the November 2, 2005 disclosure announced that

7

intentional misconduct ended in April 2, 2002, Plaintiff cannot establish loss causation for any

intentional misconduct occurring after April 2, 2002. This argument is unpersuasive. While a

wrong must be disclosed and that disclosure must cause a loss for it to be actionable, Mercury

cites no authority indicating that such disclosure must be made in the terms of the relevant claims

for relief under federal securities law. Such a rule would create perverse incentives for

companies to frame their releases to investors in the most legally insulating manner. The

ultimate responsibility for determining whether an action was intentional or negligent does not lie

with the Company, but with the Court. Here, Mercury disclosed that a series of wrongful acts

had occurred and the market responded to that disclosure. The use of terms of art does not

foreclose potential liability. 

 Abrams’s argument regarding reliance depends in part on the assertion that the 8

Complaint alleges no actions in which she participated. Because leave to amend will be granted

in order that Lead Plaintiff may attempt to make such allegations, the Court does not consider

Abrams’s reliance arguments to the extent that they may be rendered moot by amendment.

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ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

2005 disclosure the effects of other disclosures made after the end of the class period. Mercury

argues that the Company’s improper accounting for options exercisable with promissory notes

was not revealed until July 2006, nine months after the close of the class period. Lead Plaintiff

appears to concede that this is correct, but states that events occurring after the close of the class

period remain relevant to scienter. Opposition to Mercury Motion 30 n.29. Lead Plaintiff should

ensure that any amended complaint is clear as to the relevance of such allegations and that it does

not attempt to support loss causation in an inappropriate manner.7

d. Reliance

Abrams and Landan argue that the Complaint contains insufficient allegations regarding 8

reliance. Lead Plaintiff argues that it has pled reliance adequately under both the fraud on the

market theory allowed under Basic Inc. v. Levinson, 485 U.S. 224 (1988). The Supreme Court

described the fraud on the market theory as follows:

The fraud on the market theory is based on the hypothesis that, in an open and

developed securities market, the price of a company’s stock is determined by the

available material information regarding the company and its business....

Misleading statements will therefore defraud purchasers of stock even if the

purchasers do not directly rely on the misstatements . . . . The causal connection

between the defendants’ fraud and the plaintiffs’ purchase of stock in such a case

is no less significant than in a case of direct reliance on misrepresentations. 

Basic Inc., 485 U.S. at 241-42 (citing Peil v. Speiser, 806 F.2d 1154, 1160-61 (3d Cir. 1986)). 

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 See Dura, 524 U.S. at 342-43 (“Other things being equal, the longer the time between

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purchase and sale, the more likely that this is so, i.e., the more likely that other factors caused the

loss.”).

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ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

The Supreme Court adopted a rebuttable presumption of reliance based on fraud on the

market theory and identified situations in which it might be rebutted:

Any showing that severs the link between the alleged misrepresentation and either

the price received (or paid) by the plaintiff, or his decision to trade at a fair market

price, will be sufficient to rebut the presumption of reliance. For example, if

petitioners could show that the “market makers” were privy to the truth about the

merger discussions here with Combustion, and thus that the market price would

not have been affected by their misrepresentations, the causal connection could be

broken: the basis for finding that the fraud had been transmitted through market

price would be gone. Similarly, if, despite petitioners’ allegedly fraudulent

attempt to manipulate market price, news of the merger discussions credibly

entered the market and dissipated the effects of the misstatements, those who

traded Basic shares after the corrective statements would have no direct or indirect

connection with the fraud. Petitioners also could rebut the presumption of reliance

as to plaintiffs who would have divested themselves of their Basic shares without

relying on the integrity of the market. For example, a plaintiff who believed that

Basic’s statements were false and that Basic was indeed engaged in merger

discussions, and who consequently believed that Basic stock was artificially

underpriced, but sold his shares nevertheless because of other unrelated concerns,

e.g., potential antitrust problems, or political pressures to divest from shares of

certain businesses, could not be said to have relied on the integrity of a price he

knew had been manipulated.

 

Basic, 485 U.S. at 248-49. 

The Court concludes that Lead Plaintiff is entitled at the pleading stage to a presumption

of reliance under the fraud on the market theory. The Court does not read Dura Pharmaceuticals

as limiting Basic Inc. The presumption of reliance created in Basic Inc. is based upon the

efficiency of markets, whereas the language highlighted by Landan in Dura Pharmaceuticals

refers to the severing of loss causation. While reliance, or transaction causation, and loss

9

causation are related, an extended period of time between purchase and sale does not necessarily

affect the underlying efficiency of the market. 

Because the Court concludes that Lead Plaintiff is entitled to a presumption of reliance

under Basic Inc., it need not consider Lead Plaintiff’s alternative argument that it can invoke a

reliance presumption under Affiliated Ute Citizens v. United States, 485 U.S. 224 (1988). The

Court notes that the filing of the initial complaint and its implicit suggestion that the market price

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 This argument is made jointly with the argument, discussed above, that the Complaint 10

fails to plead loss causation. It is discussed here to the extent that it is separate from the loss

causation argument.

 Landan’s argument is stronger in the contexts of loss causation and reliance. It 11

suggests that the class cannot have relied upon the stock price after the filing of the initial

complaint. It also implies that, since an earlier complaint was filed on the basis of a cause that

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ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

no longer could be trusted may be relevant to the reliance analysis if this action passes the

pleading stage and defendants seek to rebut the presumption.

e. Economic Loss

Landan argues that the Complaint fails to plead economic loss. Landan argues that the 10

Lead Plaintiff and other named plaintiffs sold their stock too early to be affected by the drop in

the stock price allegedly caused by the disclosure of the options backdating. Lead Plaintiff

disputes this assertion. In light of the dismissal of the Complaint with leave to amend, the Court

need not address the dates of the sales at issue. Lead Plaintiff should ensure that any amended

complaint alleges that sales of Mercury stock by the named plaintiffs occurred during the

appropriate period. 

Landan argues that no economic loss can be established on the basis of sales occurring

after the commencement of this lawsuit. In Dura Pharmaceuticals, the Supreme Court cited a

series of sources discussing the common law requirement that a plaintiff in an action based upon

fraudulent misrepresentation suffer economic loss before bringing suit. See Dura

Pharmaceuticals, 544 U.S. at 344 (citing e.g. M. Bigelow, Law of Torts 101 (8th ed. 1907)

(damage “must already have been suffered before the beginning of the suit”). However, the

Supreme Court did not address the question, presented by the facts alleged in the Complaint, as

to whether the filing of an initial complaint based upon an initial and incomplete disclosure of

wrongdoing precludes the filing of an amended complaint after a fuller disclosure has been made. 

Landan cites no authority prohibiting such an amendment. Instead, while Dura Pharmaceuticals

prohibits the filing of a complaint without any allegation of loss and loss causation, the Court

concludes that it does not bar the filing of an amended complaint alleging a greater loss for which

loss causation also can be pled. 

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occurred prior to such filing, any injury after that time must have been the result of other causes. 

In other words, if the initial complaint captured the loss caused by the misrepresentations at issue

in this action, the losses that occurred after the filing of the initial complaint must not have

caused by those misrepresentations. However, while these are interesting arguments that are

potentially compelling in other contexts, the Court concludes that they are premature at the

pleading stage. 

 The Compensation Committee Defendants also argue that the Complaint fails to allege 12

that they signed the large bulk of the financial statements at issue in this action. Lead Plaintiff

appears to concede that liability does not attach to those defendants for the bulk of the

misstatements, as it focuses upon five Form 10-K’s filed during the asserted class period that

were signed by the Compensation Committee Defendants. 

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ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

f. Scienter

The Ninth Circuit has explained:

[A] private securities plaintiff proceeding under the PSLRA must plead, in great

detail, facts that constitute strong circumstantial evidence of deliberately reckless

or conscious misconduct. . . . [A]lthough facts showing mere recklessness or a

motive to commit fraud and opportunity to do so may provide some reasonable

inference of intent, they are not sufficient to establish a strong inference of

deliberate recklessness. In order to show a strong inference of deliberate

recklessness, plaintiffs must state facts that come closer to demonstrating intent,

as opposed to mere motive and opportunity. Accordingly, . . . particular facts

giving rise to a strong inference of deliberate recklessness, at a minimum, is

required to satisfy the heightened pleading standard under the PSLRA.

In re Silicon Graphics Inc. Securities Litigation, 183 F.3d 970, 974 (9th Cir. 1999). Each

defendant argues that the Complaint alleges its scienter inadequately. 

i. The Compensation Committee Defendants

The Compensation Committee Defendants, each of whom served as an outside director

during the relevant period, argue that the Complaint fails to allege sufficient facts regarding

scienter as to those financial statements signed by them. This argument is well taken. The 12

Complaint contains insufficient allegations of fact giving rise to the inference that the

Compensation Committee Defendants acted knowingly or with deliberate recklessness in

approving backdated options. Instead, the Complaint alleges that those defendants signed

incorrect financial statements and that the “Special Committee found that questions should have

been raised in the minds of the Compensation Committee members from 1998 to 2002 –

including Kohavi, Shamir and Yaron – as to whether grants they approved were properly dated.”

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Complaint ¶ 247. While their alleged conduct throughout this period, and particularly their

alleged failure to recognize or pursue warning signs, may have been negligent, the allegations of

the Complaint are insufficient to create a strong inference of knowledge or deliberate

recklessness as required by Silicon Graphics. 

ii. The Officer Defendants

The Complaint alleges that the Company lacked effective internal controls during the

period of the backdating, and that the Special Committee concluded that Landan, Smith, and

Skaer knew or should have known that the Company’s accounting practices violated GAAP and

that those defendants knew or should have known about the backdating practices. One court in

this district has concluded that similar allegations are sufficient to establish scienter. See In re

McKesson HBOC, Inc. Sec. Litig., 126 F.Supp.2d 1248 (N.D.Cal. 2000). In light of its decision

to dismiss the Complaint with leave to amend on other grounds, and considering that the

question of scienter appears close, particularly as to Landan and Skaer, the Court concludes that

it should not attempt to resolve this question without the benefit of the anticipated amendment. 

Accordingly, in addition to the amendments discussed elsewhere in this order, an amended

complaint should include all specific allegations relevant to the scienter of Landan, Smith,

Abrams, and Skaer.

iii. Mercury

As Mercury argues, to the extent that the Complaint fails to plead scienter with respect to

any of the individual defendants, it also fails to plead scienter with respect to Mercury. See In re

Apple Computer, Inc., Securities Litigation, 243 F.Supp.2d 1012, 1023 (N.D.Cal. 2002) (“A

defendant corporation is deemed to have the requisite scienter for fraud only if the individual

corporate officer making the statement has the requisite level of scienter, i.e., knows that the

statement is false, or is at least deliberately reckless as to its falsity, at the time that he or she

makes the statement.”). Accordingly, a claim against Mercury in an amended complaint will be

subject to dismissal if Lead Plaintiff fails to allege scienter by one of the individual defendants. 

g. Scheme Liability

Rule 10b-5(b) pertains to “untrue statement[s] of a material fact” or the omission of such

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a fact. The bulk of the Complaint focuses on such untrue statements, with approximately one

hundred and fifty paragraphs dedicated to that purpose. See Complaint ¶¶ 59-205. However,

Lead Plaintiff also alleges that the Mercury Defendants “carried out a plan, scheme and course of

conduct” that caused violations of Rule 10b-5(a) & (c). See Id. at ¶¶ 362-63. Lead Plaintiff

alleges that the scheme was carried out by:

(1) intentionally selecting a more favorable price for option grants that had

previously been granted at a higher price; (2) failing to adhere to the legal terms of

promissory notes used by employees to exercise stock options, evidenced by

interest and principal forgiveness, subsequent modifications to the length and

collateral of the notes, and additional principal added to the note without

additional collateral; (3) failing to properly account for stock-based compensation

to certain individuals who held consulting, transition or advisory roles with the

Company either preceding or following their full-time employment with the

Company; and (4) reporting false exercise dates for options whereon the price of

Mercury stock was substantially lower on the reported exercise date than on the

date the option was actually exercised.

Id. at ¶ 34. 

The Ninth Circuit has explained that:

Participation in a fraudulent transaction by itself, however, is insufficient to

qualify the defendant as a “primary violator” if the deceptive nature of the

transaction or scheme was not an intended result, at least in part, of the

defendant’s own conduct. We hold that to be liable as a primary violator of §

10(b) for participation in a “scheme to defraud,” the defendant must have engaged

in conduct that had the principal purpose and effect of creating a false appearance

of fact in furtherance of the scheme. It is not enough that a transaction in which a

defendant was involved had a deceptive purpose and effect; the defendant’s own

conduct contributing to the transaction or overall scheme must have had a

deceptive purpose and effect.

Simpson v. AOL Time Warner Inc., 452 F.3d 1040, 1048 (9th Cir. 2006). Because the Complaint

contains insufficient allegations that the various defendants’ contributions to the overall scheme

had a deceptive purpose and effect, the scheme allegations will be dismissed. Lead Plaintiff

stated at oral argument that the scheme allegations were part of a “belts and suspenders”

approach in the Complaint. While Lead Plaintiff is not precluded by this order from including

scheme allegations in an amended complaint, the Court notes its skepticism that Lead Plaintiff

will be able to state a separate claim for scheme liability and directs Lead Plaintiff not to include

redundant allegations in any amended complaint. 

h. Challenges to the Class Definition

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Case No. C 05-3395 JF (PVT)

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Landan challenges the class definition asserted in the Complaint, arguing that there must

be individualized determinations as to who should be included in the class. Landan Motion 10-

11. The Court concludes that this challenge is premature. In light of its conclusion that the

Complaint should be dismissed with leave to amend, the Court notes that an amended complaint

may address any deficiencies in the class definition.

2. Claim Two: Violation of Rule 20(a) Against the Mercury Defendants

Section 20(a) provides:

Every person who, directly or indirectly, controls any person liable under any

provision of this chapter or of any rule or regulation thereunder shall also be liable

jointly and severally with and to the same extent as such controlled person to any

person to whom such controlled person is liable, unless the controlling person

acted in good faith and did not directly or indirectly induce the act or acts

constituting the violation or cause of action.

15 U.S.C. § 78t(a). “To establish ‘controlling person’ liability, the plaintiff must show that a

primary violation was committed and that the defendant ‘directly or indirectly’ controlled the

violator.” Paracor Finance, Inc. v. General Elec. Capital Corp., 96 F.3d 1151, 1161 (9th Cir.

1996). As discussed above, Lead Plaintiff has failed to state a claim for a primary violation of

the securities laws. However, it is possible that it will do so in an amended pleading. 

Accordingly, the Section 20(A) claim will be dismissed with leave to amend.

3. Claim Three: Violation of Section 10(b) and Rule 10b-5 Against PWC

PWC moves to dismiss the claim against it on the basis that the Complaint does not plead

scienter adequately. This Court has explained in a previous action that when asserting a claim

under Section 10(b) against a public auditor, “ a plaintiff must demonstrate that ‘the accounting

practices were so deficient that the audit amounted to no audit at all, or an egregious refusal to

see the obvious, or to investigate the doubtful, or that the accounting judgments which were

made were such that no reasonable accountant would have made the same decisions if confronted

with the same facts.’” In re Redback Networks, Inc., 2006 WL 1805579, *6 (N.D.Cal. Mar. 20,

2006) (citing In re Software Toolworks, Inc., 50 F.3d 615, 627 (9th Cir. 1994)). Accordingly,

this motion turns on the question as to whether PWC was deceived by the individuals who

backdated options or whether PWC knew about the backdating or allowed it to occur by acting

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 PWC argues that the asserted fact that the investigation into the backdating at Mercury 13

cost over seventy million dollars means that it could not have been expected to discover the

backdating. This argument ignores the obvious possibility that PWC’s wrongdoing contributed

to the expense of discovering the fraudulent activities.

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(JFLC1)

recklessly. As discussed below, the Court concludes that while it may be able to do so in an

amended complaint, Lead Plaintiff has not pled facts supporting a strong inference of knowledge

or recklessness. Accordingly, this claim will be dismissed with leave to amend.13

Lead Plaintiff argues that PWC’s alleged failure to heed six “red flags” is powerful

evidence of scienter. However, the failure to heed these purported “red flags,” even taken

together, does not amount to deliberate recklessness or the failure to provide any audit at all. 

First, while Mercury discovered upon investigation that what appeared to be recourse notes in

fact were not treated as such, Lead Plaintiff alleges no facts indicating that PWC knew or should

have known of Mercury’s alleged misconduct at the time it occurred. Second, the fact that

options were granted on a broad range of dates within the year may have represented a deviation

from past practice, but it does not suggest by itself that PWC was deliberately reckless in its

audit. Third, Lead Plaintiff alleges no facts indicating that PWC knew of long delays between

‘grant dates’ and the approval of the grants, and, at least as currently alleged, PWC’s failure to

check a sufficient number of option grants amounts to negligence rather than deliberate

recklessness. Fourth, it is unreasonable to describe PWC as reckless for failing to connect a

decline in option grants after the passage of the Sarbanes-Oxley Act with the backdating of

options, particularly in light of the possibility of other explanations for such a decline. Fifth,

even if PWC had discovered an improper loan to Landan, it is not clear that such a discovery

would have led it to discover the improper backdating of stock options. Finally, the fact that

PWC inherited a client that previously had taken a charge due to a mistake in backdating did not

by itself put PWC on notice that illegal backdating might be occurring at Mercury.

If proved, PWC’s alleged failure to exercise due care and exhibit a proper degree of

professional skepticism, to evaluate Mercury’s internal controls properly, and to gather sufficient

evidence to support its unqualified endorsements of Mercury’s financial statements all reflect

poorly on the quality of work performed by PWC. However, while such actions may amount to

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negligence, they do not rise to the level of deliberate recklessness. Nor does the scope of the

restatement rendered necessary by the backdating alter the insufficient character of the other

allegations. Instead, the allegations against PWC amount to a series of allegations about

improprieties at Mercury and a conjecture that PWC must have known about it. As currently

pled, this is the type of “fraud by hindsight” theory barred by the PSLRA. See Silicon Graphics,

183 F.3d at 488. 

IV. ORDER

Good cause therefor appearing, IT IS HEREBY ORDERED that the motions to dismiss

are GRANTED with leave to amend. Any amended complaint shall be filed within thirty days of

the issuance of this order.

DATED: 7/30/07

__________________________________

JEREMY FOGEL

United States District Judge

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Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

Copies of Order served on:

Joel H. Bernstein jbernstein@labaton.com 

Asim M. Bhansali amb@kvn.com, efiling@kvn.com, gap@kvn.com, pwm@kvn.com 

Peter Arthur Binkow info@glancylaw.com, pbinkow@glancylaw.com 

Jayson E. Blake jeb@millerlawpc.com, aad@millerlawpc.com 

Sara B. Brody sara.brody@hellerehrman.com, Cecilia.Chan@hellerehrman.com,

Gary.Padilla@hellerehrman.com,

Sebastian.Jerez@hellerehrman.com,

terri.newman@hellerehrman.com 

Lucy Edmond Buford lbuford@orrick.com, jknight@orrick.com 

Howard S. Caro hcaro@hewm.com, benjamin.diggs@hellerehrman.com,

gary.padilla@hellerehrman.com, SFDocCal@hewm.com 

Michael Cecchini mcecchini@gibsondunn.com, jhess@gibsondunn.com 

Cecilia Y. Chan cecilia.chan@hellerehrman.com 

John D. Cline jcline@jonesday.com, adlangenbach@jonesday.com,

cyip@jonesday.com, tmdanowski@jonesday.com 

Erica L. Craven elc@lrolaw.com, amw@lrolaw.com 

Aaron H. Darsky adarsky@schubert-reed.com 

Alan I. Ellman aellman@labaton.com, cchan@labaton.com 

Jeffrey S. Facter jfacter@shearman.com, jae.ko@shearman.com,

rcheatham@shearman.com 

Scott A. Fink sfink@gibsondunn.com, bhonniball@gibsondunn.com 

Michael M. Goldberg info@glancylaw.com 

Louis J Gottlieb lgottlieb@glrslaw.com 

Azadeh Gowharrizi azadeh.gowharrizi@shearman.com 

Alicia G. Huffman alicia.huffman@shearman.com, rcheatham@shearman.com,

ron.cheatham@shearman.com 

Benedict Y Hur bhur@kvn.com, efiling@kvn.com, gpeterson@kvn.com 

Russel N. Jacobson Rjacobson@labaton.com 

Willem F. Jonckheer wjonckheer@schubert-reed.com 

Nicole Acton Jones nicole.jones@hellerehrman.com,

harriette.louie@hellerehrman.com 

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Case No. C 05-3395 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

(JFLC1)

Christopher J. Keller ckeller@labaton.com, cchan@labaton.com 

Jan Nielsen Little jnl@kvn.com, efiling@kvn.com, srg@kvn.com 

K.C. Maxwell , Esq kcmaxwell@jonesday.com 

E. Powell Miller epm@millerlawpc.com, asl@millerlawpc.com 

Patrick David Robbins probbins@shearman.com, rcheatham@shearman.com 

Michael H. Rogers mrogers@labaton.com 

Adam Richard Sand , Esq invalidaddress@invalidaddress.com 

Michael Adam Schwartz , Esq mschwartz@wolfpopper.com 

David R. Scott drscott@scott-scott.com 

Michael Todd Scott tscott@orrick.com, elee@orrick.com 

Arthur L. Shingler , III ashingler@scott-scott.com, ssawyer@scott-scott.com 

C. Brandon Wisoff bwisoff@fbm.com, calendar@fbm.com, mzappas@fbm.com 

Notice has been delivered by other means to:

Conor R. Crowley 

Goodkind Labaton Rudoff & Sucharow LLP

100 Park Avenue

New York, NY 10017

Donald Delaney 

100 Park Avenue

New York, NY 10017

Glenn E. Mintzer 

One Charled Center

100 N. Charles Street

Baltimore, MD 21201

Public Employees' Retirement System of Mississippi

c/o Schubert & Reed LLP,

Three Embarcadero Center, Suite 1650

San Francisco, CA 94111

Andrew T. Solomon 

Sullivan & Worcester, LLP

1290 Avenue of the Ameicas

New York, NY 10104

Robin Wechkin 

Heller Ehrman LLP

701 Fifth Avenue

Suite 6100

Seattle, WA 98104

Case 5:05-cv-03395-JF Document 334 Filed 07/30/07 Page 23 of 23