Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_04-cv-04908/USCOURTS-cand-5_04-cv-04908-20/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

1

 SBA, SBH, and SBC are collectively referred to as “Softbank.”

2

 (Defendant UTStarcom’s Objections to Fourth Amended Consolidated Complaint,

hereafter, “UTStarcom Objections,” Docket Item No. 237; Defendant Softbank’s Objections to the

Fourth Amended Consolidated Complaint, hereafter, “Softbank Objections,” Docket Item No. 239.) 

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re UTStarcom, Inc. Securities Litigation

 /

NO. C 04-04908 JW 

ORDER OVERRULING DEFENDANTS’

OBJECTIONS TO PLAINTIFFS’

FOURTH AMENDED COMPLAINT

I. INTRODUCTION

This is a putative securities fraud class action brought on behalf of investors who acquired

UTStarcom, Inc. (“UTStarcom” or the “Company”) securities between February 21, 2003 and

October 12, 2007 (the “Class Period”), against UTStarcom and certain of its officers and directors,

as well as, Softbank Corporation (“SBC”), Softbank America, Inc. (“SBA”), and Softbank Holdings,

Inc. (“SBH”)1

 (collectively, “Defendants”). In their Fourth Amended Complaint, Plaintiffs allege

Defendants, inter alia, violated §§ 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934

(“the Exchange Act”). 

Presently before the Court are Defendants’ Objections to Plaintiffs’ Fourth Amended

Complaint.2 The Court found it appropriate to take the matter under submission without oral

Case 5:04-cv-04908-JW Document 242 Filed 07/24/08 Page 1 of 8
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

 (Plaintiffs’ Fourth Amended Complaint for Violations of the Securities Laws ¶ 28,

hereafter, “4AC,” Docket Item No. 234.) 

2

argument. See Civ. L.R. 7-1(b). Based on the papers submitted to date, the Court OVERRULES

Defendants’ Objections.

II. BACKGROUND

A. Factual Background

In a Fourth Amended Complaint filed on May 14, 2008, Plaintiffs allege as follows:

Lead Plaintiffs are Locals 302 and 612 of the International Union of Operating

Engineers-Employers Construction Industry Retirement Trust and Erwin DeBruycker.3

 Lead

Plaintiffs purchased UTStarcom securities during the Class Period and suffered losses as a

result of Defendants’ actions. Defendant UTStarcom is an Alamenda, California based

company that designs, manufactures, and sells wireless, “limited mobility”

telecommunications systems. (4AC ¶ 2.) Individual Defendants Hong Liang Lu, Michael J.

Sophie, Ying Wu, and Thomas J. Troy were directors, officers, or high-ranking employees of

UTStarcom during the Class Period. (Id. ¶ 3.) Softbank was UTStarcom’s largest

shareholder and third largest customer during the Class Period, and has signification

influence over UTStarcom’s management and affairs. (Id.) SBC is a Japanese corporation

and SBA and SBH are Delaware corporations which are wholly owned by SBC.

From February 21, 2003 to August 9, 2006, UTStarcom reported false financial

information via press releases, in company conference calls, and to the Securities and

Exchange Commission (“SEC”). (Id. ¶ 66.) In these communications, UTStarcom

overstated its revenue and net income, understated stock option compensation expenses, and

failed to account for employee stock option grants. (Id. ¶ 71.) Further, the exercise prices of

stock options were not the market values of the stock on the dates of the grants, and the

Sarbanes-Oxley certifications made by UTStarcom employees were false and misleading. 

(Id.) 

Case 5:04-cv-04908-JW Document 242 Filed 07/24/08 Page 2 of 8
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

Defendants never made a complete corrective disclosure regarding the false and

misleading statements that concealed adverse financial information. (Id. ¶ 396.) However,

partial disclosures were made from 2003 to 2007 that revealed some of the previously

concealed problems and some of the impact of those misstatements on UTStarcom’s

financial condition. (Id.) These partial disclosures caused UTStarcom’s stock to decline

disproportionately to the NASDAQ Composite. (Id. ¶ 397.) UTStarcom has restated its

financial statements three times and admitted it improperly recognized revenue and failed to

record millions in stock compensation expenses. (Id. ¶ 22.)

Softbank had access to the adverse, undisclosed information described in the

Complaint and deliberately ignored it. (Id. ¶ 408.) Since Softbank was a controlling entity

in publicly-held UTStarcom, it had a duty to disseminate promptly and accurately truthful

information with respect to the Company’s financial condition. (Id. ¶ 409.) 

The SEC has initiated multiple investigations of UTStarcom. (Id. ¶ 23.) The SEC

found UTStarcom had been on notice since at least March 2003 of significant internal control

weaknesses, including the use of side letters and contract amendments precluding revenue

recognition that were not forwarded by sales offices to the contract and finance departments. 

(Id. ¶ 81.) The SEC further found that UTStarcom improperly and prematurely recognized

$400 million in revenue based on these side agreements. (Id. ¶ 83.) On May 1, 2008, the

SEC announced it had filed suit against UTStarcom based on the company’s false financial

reports and recurring internal control deficiencies. (Id. ¶¶ 23, 79.) The SEC and the United

States Department of Justice are also investigating possible violations of the Foreign Corrupt

Practices Act. (Id. ¶¶ 23, 105.) 

On the basis of the allegations outlined above, Plaintiffs allege three causes of action: (1)

Violation of § 10(b) of the Exchange Act and Rule 10b-5 against UTStarcom and the Individual

Defendants; (2) Violation of § 14(a) of the Exchange Act and Rule 14a-19 against UTStarcom and

the Individual Defendants; and (3) Violation of § 20(a) of the Exchange Act against the Individual

Defendants and Softbank.

Case 5:04-cv-04908-JW Document 242 Filed 07/24/08 Page 3 of 8
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

B. Procedural History

The first Complaint in this case was filed on November 17, 2004. (See Docket Item No. 1.) 

The Complaint was 25 pages long. The Court then consolidated several related cases and appointed

Lead Plaintiffs. Lead Plaintiffs filed a Consolidated Complaint on July 1, 2005. (See Docket Item

No. 66.) The Consolidated Complaint was 86 pages long. With Defendants’ consent, Plaintiffs filed

a First Amended Consolidated Complaint on July 26, 2005. (See Docket Item No. 70.) The First

Amended Consolidated Complaint became 211 pages long. Plaintiffs then sought leave to file a

Second Amended Complaint and submitted their Proposed Second Amended Complaint for

consideration. The Court granted Plaintiffs leave to amend over Defendants’ opposition. (See

Docket Item No. 118.) 

On May 25, 2007, Plaintiffs filed the Third Amended Complaint. (hereafter, “3AC,” Docket

Item No. 186.) The Third Amended Complaint was 178 pages long, with an additional 124 pages of

exhibits. The Court dismissed the Third Amended Complaint because it violated a page limitation

set by the Court and because it was difficult to read and comprehend due to extensive use of crossreferencing. (Docket Item No. 232.) In granting leave for the Plaintiffs to file a Fourth Amended

Complaint, the Court instructed Plaintiffs to comply with the previous orders of the Court regarding

the form of their Complaint and required Defendants to file an objection, if any, as to form of the

Fourth Amended Complaint once filed. (See Docket Item No. 232.)

On May 14, 2008, Plaintiffs filed a Fourth Amended Complaint. Presently before the Court

are Defendants’ timely filed objections to the Fourth Amended Complaint.

III. DISCUSSION

Defendants object to the form of the Fourth Amended Complaint on the grounds that it (1)

violates the Court’s rulings concerning the structure of the Complaint, and (2) impermissibly adds

allegations of backdating and expands the class period. (UTStarcom Objections at 1, 7; Softbank

Objections at 1-3.) The Court proceeds to address each of issue in turn.

//

Case 5:04-cv-04908-JW Document 242 Filed 07/24/08 Page 4 of 8
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

A. The Structure of the Fourth Amended Complaint

The Court set several requirements for the structure of Plaintiffs’ Complaint in this case. In

its March 1, 2006 Order, the Court set a maximum page limit of 150 pages. In its March 20, 2007

Order, the Court required that the Complaint contain, inter alia, the following headings and

allegations: (1) Each alleged false or misleading statement, including the date of the statement and

the identity of the statement’s author; (2) The facts which revealed that the statement was false or

misleading; (3) Scienter, including the factual basis for scienter; and (4) Loss causation, including

the date, nature, and extent of the loss. In its May 14, 2008 Order, the Court prohibited the use of

extensive cross-referencing in the Complaint.

The Fourth Amended Complaint is 154 pages long. However, four of those pages are a

caption page, a table of contents, and a certificate of service. Under the Civil Local Rules, the

caption, table of contents, and certificate of service do not subtract from the number of permissible

pages, lines, or words for a filing. See Civ. L.R. 7-4. Thus, the text of the Fourth Amended

Complaint is 150 pages, which is a length that complies with the Court’s Orders. 

With respect to the statements used to support Plaintiffs’ § 10(b) claim, the Fourth Amended

Complaint alleges (1) the false or misleading statements, including the date of the statements and the

identity of the statements’ authors; (2) the facts which revealed that the statements were false or

misleading; (3) scienter, including the factual basis for scienter; and (4) loss causation, including the

date, nature, and extent of the loss. (See, e.g., 4AC §§ 66-141.) The sections of the Fourth

Amended Complaint addressing these issues are reasonably organized and avoid the excessive

cross-referencing which the Court had previously raised as an issue. Whether these allegations are

adequate to withstand a motion to dismiss is not before the Court. Thus, without assessing the

merits of these allegations, it is clear that Plaintiffs’ have complied with the Court’s Orders

regarding the structure of the Complaint. 

Accordingly, Defendants’ objections that the Fourth Amended Complaint violates the

Court’s Orders concerning the structure are OVERRULED.

Case 5:04-cv-04908-JW Document 242 Filed 07/24/08 Page 5 of 8
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

B. Additional Allegations in the Fourth Amended Complaint

Defendants contend that the Fourth Amended Complaint also impermissibly adds allegations

of backdating and expands the class period; thus, the Court should sustain Defendants’ objections

because these amendments violate prior Orders of the Court. (UTStarcom Objections at 1.) 

It is undisputed that Plaintiffs have added allegations of backdating in amending their

Complaint which were not present in the any of the individual actions prior to consolidation or in the

Consolidated Complaint filed on July 1, 2005. However, it is also clear that Plaintiffs first alleged

backdating in their Third Amended Complaint – not in the Fourth Amended Complaint. (See, e.g.,

3AC ¶ 4.) Prior to the addition of the backdating allegations in the Third Amended Complaint, there

was no order issued by the Court which precluded Plaintiffs from adding such allegations. It was

only after the Third Amended Complaint was filed that the Court even addressed the issue of

backdating, in that instance, by declining to relate a case against UTStarcom which alleged

backdating claims. (November 30, 2007 Order, Docket Item No. 225.) Regardless, the Court did

not prohibit the addition of further allegations of backdating when it dismissed the Third Amended

Complaint with leave to amend. 

Plaintiffs have added additional allegations which relate to backdating in their Fourth

Amended Complaint. (4AC ¶¶ 58-63, 66, 76, 83, 79-90, 96-98, 103, 157, 161-70, 259, 288-89, 313,

326, 341, 344, 366-68, 370, 377, 385.) Whether these allegations are transactionally related to the

allegations in Plaintiffs’ previous Complaints, or should have been added through a supplemental

complaint rather than an amendment, is an issue more appropriately addressed in a motion to strike. 

However, it is worth noting that the Ninth Circuit advises leniency with procedural rules when an

amendment adds allegations relating to events that occurred after the initial pleading was filed. See

Cabrera v. City of Huntington Park, 159 F.3d 374, 382 (9th Cir. 1998) (finding that a plaintiff’s

erroneous characterization of a corrected pleading as an amended complaint as opposed to a

supplemental pleading was immaterial).

In the Third Amended Complaint, the asserted Class Period was from February 21, 2003 to

October 6, 2005. (3AC ¶ 1.) In the Fourth Amended Complaint, the Class Period begins on the

Case 5:04-cv-04908-JW Document 242 Filed 07/24/08 Page 6 of 8
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

same date but ends on October 12, 2007. (4AC ¶ 1.) By making this amendment, Plaintiffs have

extended the Class Period by two years. However, as above, the Court never issued an order

restricting the Class Period to certain dates. (See May 14, 2008 Order.) The question of whether the

Fourth Amended Complaint was appropriately amended to include the extended Class Period should

be addressed in a motion to strike the backdating allegations. Regardless of whether Defendants file

such a motion, the Court finds that Plaintiffs’ additional allegations do not directly violate any Court

Orders.

Accordingly, Defendants’ objections that the additional allegations violate the Court’s

Orders are OVERRULED.

IV. CONCLUSION

The Court OVERRULES Defendants’ Objections to Plaintiffs’ Fourth Amended Complaint.

Dated: July 24, 2008 

JAMES WARE

United States District Judge

Case 5:04-cv-04908-JW Document 242 Filed 07/24/08 Page 7 of 8
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

THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN DELIVERED TO:

Amanda Lenore Kosowsky amanda.kosowsky@cwt.com

Amie Danielle Rooney rooneya@sullcrom.com

Bahram Seyedin-Noor bnoor@wsgr.com

Boris Feldman boris.feldman@wsgr.com

Bryan Jacob Ketroser bketroser@wsgr.com

Cheryl Weisbard Foung cfoung@wsgr.com

Christopher J. Keller ckeller@labaton.com

Christopher Paul Seefer chriss@csgrr.com

Elizabeth Pei Lin elin@milberg.com

Eric J. Belfi ebelfi@labaton.com

Gregory A Markel gregory.markel@cwt.com

Inna Zatulovsky izatulovsky@morganlewis.com

Jason de Bretteville debrettevillej@sullcrom.com

Kimberly C. Epstein e_file_sf@csgrr.com

Lionel Z. Glancy info@glancylaw.com

Mark Punzalan mpunzalan@finkelsteinthompson.com

Marvin L. Frank mfrank@murrayfrank.com

Michael John Lawson michael.lawson@morganlewis.com

Michael M. Goldberg info@glancylaw.com

Patricia I. Avery pavery@wolfpopper.com

Patrick J. Coughlin PatC@csgrr.com

Philip Howard Gordon pgordon@gordonlawoffices.com

Rachele R. Rickert rickert@whafh.com

Robert Andrew Sacks sacksr@sullcrom.com

Ronit Setton ronit.setton@cwt.com

Scott Christensen Hall halls@sullcrom.com

Shirley H. Huang shirleyh@csgrr.com

Stephanie L. Dieringer sldieringer@hulettharper.com

Sylvia Sum SSum@csgrr.com

Terry T. Johnson tjohnson@wsgr.com

Vincent P. Finigan vfinigan@morganlewis.com

William S. Lerach e_file_sd@lerachlaw.com

Dated: July 24, 2008 Richard W. Wieking, Clerk

By: /s/ JW Chambers 

Elizabeth Garcia

Courtroom Deputy

Case 5:04-cv-04908-JW Document 242 Filed 07/24/08 Page 8 of 8