IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

MAKOR ISSUES & RIGHTS, LTD., )

CHRIS BROHOLM, RICHARD LEBRUN, )

et al., )

Plaintiffs, )

) Case No. 02 C 4356

v. )

) Honorable Judge Amy J. St. Eve

TELLABS, INC., MICHAEL J. BIRCK, )

RICHARD C. NOTEBAERT, et al., )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Court Judge:

Before the Court is Defendants Tellabs, Inc. (“Tellabs”), Michael J. Birck, Brian J.

Jackman, Richard C. Notebaert, and Joan A. Ryan’s (collectively “Defendants”) Motion for

Summary Judgment. Defendants seek summary judgment on each of the remaining claims set

forth in Plaintiffs Makor Issues & Rights, Ltd., Chris Broholm, and Richard Lebrun, et al.’s

(collectively “Plaintiffs”) Second Amended Consolidated Class Action Complaint

(“Complaint”). For the following reasons, the Court grants in large part and denies in part

Defendants’ motion for summary judgment and grants in part and denies in part Defendants’

Motion to Strike.

BACKGROUND

I. Procedural History

This case has a long procedural history. In June 2002, Plaintiffs filed a putative class

action lawsuit on behalf of various individuals and persons who purchased common stock of

Defendant Tellabs between December 11, 2000 and June 19, 2001 pursuant to § 10(b) of the

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Securities and Exchange Act of 1934 (“Section 10(b)”) and SEC Rule 10b-5, 17 C.F.R. §

240.10b-5 (“Rule 10b-5”). The Court has jurisdiction over this matter pursuant to 15 U.S.C. §

78aa and 28 U.S.C. §§ 1331 and 1337, and venue is proper in this district pursuant to 28 U.S.C.

§ 1391(b). (R. 336-1, ¶ 4.)

Initially, the Court granted Defendants’ motion to dismiss Plaintiffs’ complaint in its

entirety, but permitted Plaintiffs to amend. See Johnson v. Tellabs, Inc., 262 F. Supp. 2d 937,

939 (N.D. Ill. 2003) (Johnson I). Shortly thereafter, Plaintiffs filed the operative Complaint,

which contained additional factual allegations. (See R. 63-1; see also Johnson v. Tellabs, Inc.,

303 F. Supp. 2d 941, 945 (N.D. Ill. 2004) (Johnson II)). After determining that the Complaint

failed to properly plead an underlying 10b-5 violation, and reasoning that the remaining

allegations were dependent on an underlying 10b-5 violation, the Court granted Defendants’

motion to dismiss each count of the Complaint, with prejudice. Johnson II, 303 F. Supp. 2d at

971. On appeal, the Seventh Circuit affirmed in part and reversed in part, holding that Plaintiffs

sufficiently had pled claims under § 10(b) against Defendants Tellabs and Notebaert and

properly had pled control person liability claims under § 20(a) against both Notebaert and Birck. 

See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 437 F.3d 588, 603-05 (7th Cir. 2006) (Makor I).

The Court of Appeals took no position on Plaintiffs’ § 20(a) insider trading claim against

Defendant Birck. Id. at 605 (“No party in this litigation has provided more than cursory briefing

of this issue, and therefore we take no position on its resolution, leaving it for further factual and

legal development during the course of the litigation.”), modified by 2006 U.S. App. LEXIS

17252 (7th Cir. 2006). The Supreme Court reversed the Seventh Circuit’s interpretation of the

scienter requirement of a § 10(b) claim and remanded the case for further review consistent with

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the Supreme Court’s clarifications. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499,

2509 (2007) (Makor II). On remand from the Supreme Court, the Seventh Circuit adhered to its

prior decision in Makor I and remanded the case to this Court. Makor Issues & Rights, Ltd. v.

Tellabs Inc., 513 F.3d 702, 705 (7th Cir. 2008) (Makor III). 

On February 25, 2008, the parties filed a Joint Status Report identifying their positions

regarding the remaining claims and defenses in the case. The parties reported that, as it currently

stood, the Complaint alleged: (i) Section 10(b) and Rule 10b-5 claims against Notebaert and

Tellabs, (ii) Section 20(a) control person liability claims against Notebaert, Birck, Jackman, and

Ryan, and (iii) Section 20(a) insider trading claims against Birck. The parties agreed that the

four categories of alleged misrepresentations that remained at issue in the lawsuit were: (i)

statements regarding Tellabs’s financial results for fourth quarter 2000 and full year 2000, (ii)

statements regarding the TITAN 5500, (iii) statements regarding the TITAN 6500 system, and

(iv) Tellabs’s projections of earnings and revenues during 2001. (R. 149-1, Joint Status Report

at 2-4.)

On May 23, 2008, after Defendants filed a renewed motion to dismiss, the Court

dismissed Plaintiffs’ § 20(a) claim for insider trading against Birck for failure to state a claim

under 15 U.S.C. § 78t-1(a). See Makor Issues & Rights, Ltd. v. Tellabs Inc., 2008 WL 2178150,

2008 U.S. Dist. LEXIS 41539, *7 (N.D. Ill. May 23, 2008). On June 17, 2008, Defendants filed

their answer and defenses to the Complaint. (R. 195-1.) On February 23, 2009, the Court

granted Plaintiffs’ motion for class certification, appointment of class representatives, and

appointment of class counsel. (R. 256-1, Memorandum Opinion and Order.) The Court entered

an order certifying a class consisting of: “All persons who purchased the common stock of

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Defendant Tellabs during the period from December 11, 2000 through June 19, 2001, inclusive

(the ‘Class Period’). Excluded from the Class are Defendants; the subsidiaries and affiliates of

Tellabs; the officers and directors of Tellabs or its subsidiaries or affiliates, at all relevant times;

members of the immediate family of any excluded person; the legal representatives, heirs,

successors, and assigns of any excluded person; and any entity in which any excluded person has

or had a controlling interest.” Id. at 26. The Court also appointed Makor Issues & Rights, Ltd.

Lead Plaintiff pursuant to 15 U.S.C. § 78(u)-4. Chris Broholm, Richard LeBrun, David Leehey

and Patricia Morris (now deceased) are additional named Plaintiffs. The named Defendants are

Tellabs, Michael J. Birck, Richard C. Notebaert, Brian Jackman and Joan Ryan.

On October 16, 2009, Plaintiffs filed a Notice of Intent Not to Pursue Certain Allegations

Further in this Action (“Notice of Intent”). (R. 284-1, Notice of Intent.) Plaintiffs indicated their

intention not to pursue certain allegations of misrepresentation based on statements concerning

the TITAN 6500 under § 10(b) and Rule 10b-5 promulgated thereunder. Id. at 1-2. On October

22, 2009, Defendants moved the Court to dismiss all allegations concerning allegedly false or

misleading statements regarding the TITAN 6500 and to enter judgment in their favor. (R. 288-

1, Motion to Dismiss.) The Court found that Defendants failed to establish that dismissal and

judgment were warranted on the TITAN 6500 claims, but held that Plaintiffs were barred from

pursuing the § 10(b) allegations of misrepresentation concerning the TITAN 6500. (R. 311-1,

Minute Entry, p. 3.)

As a result of this procedural history, three categories of alleged misrepresentations

remain at issue in this lawsuit: (i) statements regarding Tellabs’s financial results for fourth

quarter 2000 and full year 2000, (ii) statements regarding the TITAN 5500, and (iii) Tellabs’s

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projections of earnings and revenues during 2001. Defendants now seek summary judgment on

each of these claims contained in the Complaint.

II. Northern District of Illinois Local Rule 56.1

When determining summary judgment motions, the Court derives the background facts

from the parties’ Local Rule 56.1 statements. Specifically, Local Rule 56.1 assists the Court by

“organizing the evidence, identifying undisputed facts, and demonstrating precisely how each

side propose[s] to prove a disputed fact with admissible evidence.” Bordelon v. Chicago Sch.

Reform Bd. of Trs., 233 F.3d 524, 527 (7th Cir. 2000). Local Rule 56.1(a)(3) requires the

moving party to provide “a statement of material facts as to which the moving party contends

there is no genuine issue.” Cracco v. Vitran Exp., Inc., 559 F.3d 625, 632 (7th Cir. 2009). “The

opposing party is required to file ‘a response to each numbered paragraph in the moving party’s

statement, including, in the case of any disagreement, specific references to the affidavits, parts

of the record, and other supporting materials relied upon.’” Id. (citing N.D. Ill. R.

56.1(b)(3)(B)). In addition, Local Rule 56.1(b)(3)(C) requires the nonmoving party to present a

separate statement of additional facts that require the denial of summary judgment. See Ciomber

v. Cooperative Plus, Inc., 527 F.3d 635, 643-44 (7th Cir. 2008). Pursuant to the Local Rules, the

Court will not consider any additional facts proposed in the nonmoving party’s Local Rule

56.1(b)(3)(B) Response, but instead must rely on the nonmovant’s Local Rule 56.1(b)(3)(C)

statement of additional facts when making factual determinations. See id. at 643; Cichon v.

Exelon Generation Co., L.L.C., 401 F.3d 803, 809 (7th Cir. 2005) (“Local Rule 56.1 requires

specifically that a litigant seeking to oppose a motion for summary judgment file a response that

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contains a separate ‘statement ... of any additional facts that require the denial of summary

judgment.’”) (internal citation omitted).

Moreover, the purpose of Rule 56.1 statements is to identify the relevant evidence

supporting the material facts, not to make factual or legal arguments, see Cady v. Sheahan, 467

F.3d 1057, 1060 (7th Cir. 2006), and thus the Court will not address the parties’ arguments made

in their Rule 56.1 statements and responses. Also, the requirements for responses under Local

Rule 56.1 are “not satisfied by evasive denials that do not fairly meet the substance of the

material facts asserted.” Bordelon, 233 F.3d at 528. Further, the Court may disregard statements

and responses that do not properly cite to the record. See Cichon, 401 F.3d at 809-10. Finally,

“hearsay is inadmissible in summary judgment proceedings to the same extent that it is

inadmissible in a trial.” Eisenstadt v. Centel Corp., 113 F.3d 738, 742 (7th Cir. 1997). With

these standards in mind, the Court turns to the parties’ Local Rule 56.1 statements.

III. Evidentiary Objections

Both Plaintiffs and Defendants contend that portions of the opposing parties’ statements

of material facts are deficient and fail to comply with Local Rule 56.1 The Court will address

each of these arguments in turn.

A. Defendants’ Motion to Strike Portions of Plaintiffs’ Response to Their

Statement of Facts

In their Motion to Strike Portions of Plaintiffs’ Response to Defendants’ Statement of

Facts and to Deem Certain Facts Admitted (“Motion to Strike”), Defendants first argue that

Plaintiffs have provided evasive answers to paragraphs, or portions of paragraphs, 7-8, 14-15,

20-21, 29, 31-33, 35, 37, 38-41, 43, 47-48, 53-55, 64, 66, 68, 70, 73, 79-80, 82, 92 and 102 of

Defendants’ Rule 56.1 Statement. (R. 342-1, Defendants’ Motion to Strike, pp. 3-5, Ex. A.) 

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Specifically, Defendants argue that in each of these instances, Plaintiffs fail to admit or deny the

facts alleged, and instead provide evasive responses or fail to respond entirely to the facts at

issue. Defendants are correct that, in many instances, Plaintiffs have failed to respond to the

facts alleged, but instead improperly dispute characterizations in the statement of facts. In

response to paragraphs 7-8, for example, in which Defendants assert facts regarding the alleged

“bottoms-up” process, Plaintiffs dispute that Tellabs based its guidance on a “bottoms-up”

process. Plaintiffs cite facts that they assert demonstrate that Tellabs followed, at least in part, a

top-down process and deny that Tellabs employed a “bottoms-up” process. Plaintiffs, however,

fail to admit or deny the facts that support Defendants’ contentions regarding the “bottoms-up”

process. (R. 336-1, ¶¶ 7-8). While it is clear that Plaintiffs are disputing that Tellabs followed a

“bottoms-up” process, Plaintiffs’ response to Defendants’ Rule 56.1 statement is not the proper

forum for presenting arguments or additional facts. See Ciomber, 527 F.3d at 643-44 (a court

will not consider any additional facts proposed in a nonmoving party’s Local Rule 56.1(b)(3)(B)

Response, but instead must rely on the nonmovant’s Local Rule 56.1(b)(3)(C) Statement of

Additional Facts when making factual determinations). Although the Court will not belabor a

point by point analysis of each of Defendants’ objections, where Plaintiffs failed to specifically

admit or deny a particular fact, the Court has deemed the fact admitted.

Defendants also argue that in each instance where Plaintiffs responded to Defendants’

statement of facts without a corresponding record cite, the facts should be deemed admitted. 

Specifically, in response to a large number of facts, see ¶¶ 13, 28-29, 34, 37-38, 40, 42-44, 46,

48-49, 53-56, 82, 84-85, 88-89 and 102-104, Plaintiffs, rather than providing a cite to the record

in order to dispute a particular fact, instead cite to paragraphs contained in their statement of

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additional facts. This is contrary to both the letter and spirit of Local Rule 56.1. As the Seventh

Circuit has explained:

The requirements of such rules are not onerous, but they are exacting. Local Rule

56.1 makes explicit the responding party’s burden of controverting the movant’s

position with adequate citations to the record. . . . [W]e have often repeated, that a

party contesting summary judgment has a responsibility under such rules to “highlight

which factual averments are in conflict as well as what record evidence there is to

confirm the dispute.” It is reasonable to assume that just as a district court is not

required to “scour the record looking for factual disputes,” it is not required to scour

the party’s various submissions to piece together appropriate arguments. A court

need not make the lawyer’s case.

Little v. Cox’s Supermarkets, 71 F.3d 637, 641 (7th Cir. 1995) (internal citations omitted). Here,

directly contrary to Local Rule 56.1’s requirement that a party make “specific references to the

affidavits, parts of the record, and other supporting materials relied upon,” Plaintiffs’ response

requires the Court to turn to its statement of facts and take the further step of verifying the

citations contained therein. Most problematic, in many instances, Plaintiffs have cited as many

as ninety paragraphs of their statement of facts to support a denial of a fact proffered by

Defendants. See, e.g., R. 354-1, Pls.’ Resp. to ¶ 55 (citing 75 paragraphs), ¶ 56 (same), ¶ 84

(citing 33 paragraphs), ¶ 85 (same), ¶ 103 (citing 90 paragraphs). Due to the large volume of

citations to Plaintiffs’ statement of facts, many of the cited facts do not in fact contradict the

facts posed by Defendants. Indeed, it is unclear why Plaintiffs chose not to cite to the

evidentiary materials and other parts of the record in support of some of their denials given that,

in many instances throughout their response to Defendants’ statement of facts, Plaintiffs

appropriately complied with the strictures of Local Rule 56.1. While Plaintiffs argue that

Defendants have cited no case law prohibiting a party from cross-referencing its statement of

additional facts, the text of Local Rule 56.1(b)(3)(C) is exceedingly clear and requires “specific

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references to the affidavits, parts of the record, and other supporting materials relied upon.” 

Plaintiffs have failed to adhere to this Rule. Again, the Court will not belabor a point by point

analysis of Plaintiffs’ 104 responses, but has deemed admitted any statements to which Plaintiffs

have not appropriately responded with citation to supporting evidentiary materials.

Additionally, Plaintiffs have cited to their own statement of facts where they present

improper legal arguments. In paragraph 55 of their statement of facts, for example, Defendants

present evidence that as a result of a forecast review, Tellabs’s finance department recommended

to Notebaert that Tellabs revise its public guidance downward for 2001. (R. 354-1, Pl.’s Resp. to

¶ 55.) In response, Plaintiffs argue that the revised guidance was unachievable and unrealistic

despite the fact that Defendants do not make any assertions regarding the content of the guidance

in ¶ 55 of their statement of facts. Accordingly, in this and many other instances, Plaintiffs’

responses citing to their statement of facts are improper for the further reason that the responses

contain improper legal arguments. See Cady, 467 F.3d at 1060.

Finally, while the deficiencies in Plaintiffs’ response to Defendants’ statement of facts

required admission of many of the facts proffered by Defendants, “the court did not turn a blind

eye to the facts elsewhere available, though it is permitted to do so by non-compliance with the

local rule.” Little v. Cox’s Supermarkets, 71 F.3d 637, 641 (7th Cir. 1995). Indeed, in many

instances it appears that while Plaintiffs failed to provide evidence that would specifically

contradict a fact proposed by Defendants, in their own statement of additional facts Plaintiffs

have presented facts that must be considered in conjunction with the facts presented by

Defendants. Though while the Court need “not scour the record . . . to make [Plaintiffs]

arguments,” Jackson v. Xerox Corp., 349 F. Supp. 2d 1119, 1123 (N.D. Ill. 2004), Plaintiffs have

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cured some of their deficient responses by presenting evidence in their statement of additional

facts which is supported by proper evidentiary citations. In addition, while Defendants criticize

Plaintiffs’ citations subsequent to multiple sentences, where Plaintiffs’ intention for a single

citation to apply to multiple preceding sentences is clear, the Court has not deemed the facts

admitted for Plaintiffs’ failure to use string citations.

For the foregoing reasons, the Court grants in part and denies in part Defendants’ Motion

to Strike.

B. Plaintiffs’ Evidentiary Objections

Plaintiffs similarly raise a series of objections to the evidence submitted by Defendants in

support of their motion for summary judgment. Plaintiffs contend that certain documents relied

on by Defendants are inadmissible as business records, Defendants’ Exhibits 95-97 are

inadmissible hearsay, and portions of the affidavits of both Pfefferele and Notebaert are

inadmissible. Because Defendants have demonstrated that each of these materials is proper

evidence in support of their motion for summary judgment, the Court will not strike the

evidence.

1. Business Records

Plaintiffs first argue that the Court should strike the documents listed in the appendices to

the declarations of Charles W.L. Kennedy and Todd Camm because they are not proper business

records. Plaintiffs specifically object to the following exhibits as inadmissible as business

records: Exs. 2, 3, 12, 18, 20-22, 36-38, 40, 46, 49-50, 55-57, 59-62, 64-67, 69, 75-77, 82-86,

89, 99 and 117. (R. 354-1.)

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The Federal Rules of Evidence prohibit the admission of hearsay evidence – statements

made out of court that are offered to prove the truth of the matter asserted. Fed. R. Evid. 801-

802. Federal Rule of Evidence 803(6) sets out an exception to the rule against hearsay for

business records. Under Rule 803(6), the following is excepted from the bar on hearsay:

A memorandum, report, record, or data compilation, in any form, of acts, events,

conditions, opinions, or diagnoses, made at or near the time by, or from information

transmitted by, a person with knowledge, if kept in the course of a regularly

conducted business activity, and if it was the regular practice of that business activity

to make the memorandum, report, record or data compilation, all as shown by the

testimony of the custodian or other qualified witness . . . , unless the source of

information or the method or circumstances of preparation indicate a lack of

trustworthiness.

Fed. R. Evid. 803(6); United States v. Given, 164 F.3d 389, 394 (7th Cir. 1999) (“A party

establishes a foundation for admission of business records when it demonstrates through the

testimony of a qualified witness that the records were kept in the course of regularly conducted

business activity, and that it was the regular practice of that business to make such records.”). 

Plaintiff argues that the Kennedy and Camm declarations fail to demonstrate the

procedures under which any of the documents referenced in their affidavits were created. (R.

329-1, Pls.’ Opp’n at 32-34.) “While Rule 803(6) does not require that the qualified witness be

the person who prepared the record, see United States v. Moore, 923 F.2d 910, 915 (1st Cir.

1991), or that the witness have personal knowledge of the entries in the records, see United

States v. Lawrence, 934 F.2d 868, 870 (7th Cir. 1991), the business records exception does

require that the witness have knowledge of the procedure under which the records were created.” 

Collins v. Kibort, 143 F.3d 331, 337-338 (7th Cir. 1998). Plaintiffs are correct that the Kennedy

and Camm declarations fail to include any detail regarding the procedure under which the

records referenced in the appendices to their declarations were created. (R. 301-1, Exs. 4, 5.) 

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Defendants, however, have supplemented their evidentiary submissions with the affidavits of the

individuals who authored the documents in question or have personal knowledge of the creation

of the documents and the job responsibilities of the author(s) of the document. (R. 351-1, Exs.

131, 150-58.) The declarations of Christine Pfefferle, Brian Jackman, Michael Birck,

Maryangela Daum, Robert Pullen, James Roche, Joan Ryan, Tom Scottino, George Stenitzer,

and Mark Striepling contain sufficient information from knowledgeable witnesses regarding the

procedures under which the exhibits referenced in the Kennedy and Camm declarations -- with

the exception of Exhibit 137 -- were created.1 Specifically, the following affidavits submitted by

Defendants establish that the vast majority of exhibits objected to by Plaintiffs are admissible as

business records: (i) Pfefferle: Exs. 20, 24, 27-29, 41, 46-50, 53, 55-56, 59-61, 66, 75-77, 83,

85, 88-90, 128 and 147-148; (ii) Birck: Exs. 30 and 36; (iii) Daum: Ex. 84; (iv) Pullen: Exs. 31,

52 and 99; (v) Roche: Ex. 117; (vi) Ryan: Exs. 12, 21, 37, 39-40, 42, 65, 67 and 82; (vii)

Scottino: Exs. 105-107, and various transcripts of Tellabs’s investor relations teleconferences,

including Exs. 22 and 64; (viii) Stenitzer: Tellabs’s press releases and annual reports, including

Exs. 2-3, 38, 62 and 69; and (ix) Streipling: Ex. 86.

Defendants, however, have failed to establish that Exhibit 137 is admissible as a business

record. Exhibit 137, a document produced by Terra Nova Financial in response to a subpoena, is

a third-party document. Defendants have not demonstrated that Exhibit 37 is a business record,

including failing to establish that the document was incorporated into Defendants’ business

1 Plaintiffs also “note” that Exhibit 57 is not admissible, but admit the facts supported by Exhibit 57. 

Given that Exhibit 58 provides support for the same facts and Plaintiffs do not challenge the admissibility

of Exhibit 58, the Court need not address Plaintiffs’ objection to the admissibility of Exhibit 57

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records, and therefore Defendants have not demonstrated that it is admissible under Rule

803(6).2

2. Hearsay Objections to Exhibits 95-97 and 99

Plaintiffs assert that Defendants’ Exhibits 95-97 and 99 are not admissible evidence. See

R. 354-1, Resp. to ¶ 91. Exhibits 95 and 96 are reports prepared by industry analysts regarding

Tellabs’s reported results. (R. 301-15, Exs. 95-96.) Because Plaintiffs fail to offer any argument

or cite any legal authority to demonstrate the inadmissability of these documents, it is unclear

why Plaintiffs claim these exhibits are inadmissible. Moreover, if Plaintiffs claim the documents

are inadmissible hearsay, Defendants offer the documents not for the truth of the matters

asserted, but instead to show how industry analysts used and understood the term “end user.” 

Exhibit 97 is a March 14, 2001 email from Cathie Kozik to a group of Tellabs’s employees

2 A document prepared by a third party may qualify as another business entity’s business record under Rule

803(6) if that entity integrated the third-party record into its records and relied upon it in its day-to-day

operations. The proponent also must satisfy the other requirements of Rule 803(6). See, e.g., Brawner v.

Allstate Indem. Co., 591 F.3d 984, 987 (8th Cir. 2010) (“Several other courts have held that a record created

by a third party and integrated into another entity’s records is admissible as the record of the custodian entity,

so long as the custodian entity relied upon the accuracy of the record and the other requirements of Rule

803(6) are satisfied. . . . We agree with these courts. . . .”); United States v. Adefehinti, 510 F.3d 319, 326

(D.C. Cir. 2007) (“[A] record of which a firm takes custody is thereby ‘made’ by the firm within the meaning

of the rule (and thus is admissible if all the other requirements are satisfied).”); Air Land Forwarders, Inc.

v. United States, 172 F.3d 1338, 1342-44 (Fed. Cir. 1999) (“This court has not previously addressed the

question of the foundation testimony necessary to admit documents produced by third parties not before the

court under Rule 803(6) where those documents have been incorporated into another business entity’s

records. Other courts of appeal have addressed this situation in a number of cases and have generally held

that a document prepared by a third party is properly admitted as part of the business entity’s records if the

business integrated the document into its records and relied upon it.”); United States v. Duncan, 919 F.2d 981,

986 (5th Cir. 1990) (holding that medical records from hospital were the business records of the insurance

company and explicitly recognizing that “there is no requirement that the [business] records be created by

the business having custody of them”); see also Columbia First Bank, F.S.B. v. United States, 58 Fed. Cl.

333, 339 (Fed. Cl. 2003) (third-party documents can be admitted as business records if they meet the other

Rule 803(6) requirements and are “shown to have been received and incorporated, to have been relied upon,

and to have indicia of trustworthiness”). Satisfaction of those requirements supplies sufficient indicia of

reliability to permit admission of documents prepared by third parties pursuant to Rule 803(6). 

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regarding statements made by Sprint executives regarding growth in demand for certain Sprint

services. (R. 351-15, Ex. 97.) Plaintiffs claim that Exhibit 97 is inadmissible hearsay. (R. 354-

1, Resp. to ¶ 92.) Defendants offer Exhibit 97, however, not for the truth of the matters asserted,

but instead for the effect those statements had on Tellabs. Jewett v. Anders, 521 F.3d 818, 827

(7th Cir. 2008) (statements “offered to demonstrate the effect of [the] information on person who

heard statement to explain person’s actions are not inadmissible hearsay”)

Plaintiffs also contend that Exhibit 99 is inadmissible hearsay because Defendants did not

properly demonstrate that the document is a business record pursuant to Rule 803(6). (R. 354-1,

Resp. to ¶ 46; R. 329-1, pp. 32-34.) Exhibit 99 is a presentation prepared by Robert W. Pullen

entitled “The Optical Networking Group.” (R. 301-16, Ex. 99.) As of the date the document

was created, Pullen was the Senior Vice President of the Optical Networking Group at Tellabs. 

(R. 351-1, Ex. 152, ¶ 2). While Plaintiffs contend that the relevant statement in the slide is

unsubstantiated and conclusory, Pullen averred that he created the document and had direct

personal knowledge of its contents, and asserted that it was the regular practice of Tellabs to

create and maintain such documents in the course of its regularly conducted business. Exhibit 99

is therefore admissible. See Fed. R. Evid. 803(6); United States v. Given, 164 F.3d 389, 394 (7th

Cir. 1999) (“A party establishes a foundation for admission of business records when it

demonstrates through the testimony of a qualified witness that the records were kept in the

course of regularly conducted business activity, and that it was the regular practice of that

business to make such records.”).

3. Pfefferle and Notebaert Declarations

In a footnote, Plaintiffs argue that the supporting declarations submitted by Pfefferle and

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Notebaert are self-serving, conclusory and fail to cite to supporting deposition testimony or

documentary evidence, and that the Court should therefore disregard them. Rule 56(e)(1) of the

Federal Rules of Civil Procedure sets forth requirements for affidavits submitted at the summary

judgment stage:

A supporting or opposing affidavit must be made on personal knowledge, set out

facts that would be admissible in evidence, and show that the affiant is competent to

testify on the matters stated. If a paper or part of a paper is referred to in an affidavit,

a sworn or certified copy must be attached to or served with the affidavit. The court

may permit an affidavit to be supplemented or opposed by depositions, answers to

interrogatories, or additional affidavits.

Fed.R.Civ.P. 56(e)(1). “While personal knowledge may include inferences and opinions, those

inferences must be substantiated by specific facts.” Vakharia v. Little Co. of Mary Hosp. &

Health Care Ctrs., 62 Fed. Appx. 122, 125 (7th Cir. 2003); Drake v. 3M, 134 F.3d 878, 887 (7th

Cir. 1998) (“Rule 56 demands something more specific than the bald assertion of the general

truth of a particular matter, rather it requires affidavits that cite specific concrete facts

establishing the existence of the truth of the matter asserted.”).

Contrary to Plaintiffs’ assertions, neither Pfefferle’s nor Notebaert’s affidavit contains

conclusory, unsubstantiated claims. In Pfefferle’s affidavit, she averred that during the relevant

time period she was Director of Product Management and Quality of the Optical Networking

Group and, beginning in 2001, Director of Global Forecasting. (R. 301-1, Ex. 8, ¶¶ 3-4.) 

Pfefferle provided detailed information regarding Tellabs’s “bottoms-up” process for collecting

information on expected revenues and expenses in 2001. Id. at ¶¶ 6-8. Indeed, she specifically

explained that the various product units supplied information to her or the finance department 

after speaking directly with Tellabs’s sales force and its customers, and that the finance

department and employees responsible for forecasting spoke directly with operating unit heads

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and sales personnel to better understand the bases for the “bottoms-up” projections. Id. at ¶ 9. 

Because the process she describes is directly within her duties as head of forecasting, Pfefferle

has made statements within her personal knowledge and there is no requirement that she cite to

other portions of the record to support her affidavit. See Fed. R. Civ. P. 56(e). Notebaert’s

declaration is also directly based on his own personal knowledge. (R. 301-1, Ex. 9) Specific

cites to evidentiary materials are therefore not mandated. 

Finally, Plaintiffs’ argument that the Court should strike the declarations of Pfefferle and

Notebaert because they are “self-serving” is without merit. While the Court may strike 

self-serving affidavits not supported by the record in the context of a motion for summary

judgment, Ozlowski v. Henderson, 237 F.3d 837, 840 (7th Cir. 2001), here the record reflects

that both Pfefferele’s and Notebaert’s affidavits are based on their personal knowledge. Due to

their personal knowledge of the issues, these affidavits are properly before the Court. See Payne

v. Pauley, 337 F.3d 767, 772 (7th Cir. 2003).

IV. Relevant Facts

A. Background

Tellabs is a global supplier of optical networking, broadband access, and voice-quality

enhancement solutions to telecommunications carriers and internet service providers. (R. 324-1,

¶ 1.) Throughout the Class Period, Tellabs’s common shares were actively traded on the

NASDAQ National Market under the symbol “TLAB.” Id. In 2000, Tellabs’s Optical

Networking Group accounted for approximately 64% of sales. Id. Statements regarding the

sales of the Optical Networking Group form the basis for the majority of the allegations

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contained in the Complaint. The TITAN 5500, Tellabs’s principal seller in this category, was

the Company’s “flagship” product. Id.

Richard C. Notebaert was Chief Executive Officer, President, and a member of Tellabs’s

Board of Directors throughout the Class Period. (R. 324-1, ¶ 2.) Defendants Joan Ryan, Chief

Financial Officer, Brian Jackman, President of Global Systems and Technology, and other senior

executives reported directly to Notebaert on a regular basis. Id. Notebaert kept himself

informed about Tellabs’s performance, products, sales, operations, inventory levels, and industry

and market conditions. Id. at ¶ 3. Notebaert also attended meetings at which the participants

looked at Tellabs’s revenue forecasts, reviewed Tellabs’s press releases prior to their release,

reviewed and signed the 2000 Annual Report to shareholders, spoke on behalf of the company at

its investor relations teleconferences, and dealt directly with Tellabs’s customers. Id. Notebaert

left Tellabs in June 2002. Id. at ¶ 2. A co-founder of Tellabs, Michael J. Birck was President

and CEO from 1975 until September 2000, when he became Chairman of the Board of Directors. 

(R. 324-1, ¶ 4.) Throughout his tenure as Chairman, Birck remained actively involved in the

company’s management. Id. After Notebaert resigned, Birck resumed his role as President and

CEO. Id. Currently, he is Executive Chairman of Tellabs. Brian Jackman joined Tellabs as

Director of Marketing in 1982. (R. 324-1, ¶ 5). During the Class Period, he was President of

Global Systems and Technology and was responsible for all product planning, product

management, and research and development worldwide. Id. He also was a member of Tellabs’s

Board of Directors. Id. Jackman left Tellabs in August 2001, shortly after the end of the Class

Period. Id. Joan E. Ryan was Chief Financial Officer of Tellabs during the Class Period until

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she left the Company in February 2003. (R. 324-1, ¶ 6.) According to Notebaert, he and Ryan

“talked a lot . . . [a]bout everything.” Id.

The Court appointed Makor Issues & Rights, Ltd. (“Makor Issues”), Richard LeBrun and

Nolan Howell as class representatives in this lawsuit.3

 (R. 324-1, ¶ 7.) LeBrun purchased 300

Tellabs shares on February 2, 2001 and sold those shares on March 12, 2001. (R. 330-22, Ex.

1161.) Howell purchased 600 shares on May 30, 2001 and 700 shares on June 11, 2001. Id.

Makor Issues bought 1000 shares on March 30, 2001 and sold those shares that same day. The

remainder of Makor Issues’ trades in Tellabs stock during the class period occurred after April

18, 2001. Id.

B. Tellabs’s Forecast and Planning Process

Tellabs employed a series of internal methods for forecasting quarterly and yearly sales

revenue and tracking Tellabs’s actual sales as compared to those forecasts. Tellabs engaged in

an annual budgeting and planning process. (R. 336-1, ¶ 7.) As the first step in the process,

product houses, sales teams, marketing, finance, and senior executives participated in a strategic

planning exercise during which the company set preliminary targets for revenue, margins, and

spending for the upcoming year. Id. Following the strategic exercise, each operating unit

conducted a “bottoms-up” forecasting process. (R. 301-1, Ex. 8, ¶ 8; R. 301-1, Ex. 10; pp.

123-28.) During the “bottoms-up” process, each operating unit gathered information about

expected demand for Tellabs’s products by talking directly to the members of Tellabs’s sales

2

 Plaintiffs also assert in their statement of facts that the stock that the class representatives purchased was

“artificially inflated by Defendants’ wrongdoing.” (R. 324-1, ¶ 7.) This type of legal argument is not proper

in a Rule 56 statement and the Court will accordingly not address it. See Cady, 467 F.3d at 1060. For the

same reason, the Court will also not consider the legal arguments Plaintiffs make in ¶¶ 11, 12, 17, 48, 59 and

61 of the statement of facts. The Court will consider, however, properly supported factual assertions

contained in those paragraphs.

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force about what they had heard from their customers regarding impending sales. (R. 336-1, ¶

8.) After gathering this information, each operating unit totaled the data and supplied the

information regarding expected revenues and expenses to the finance department. Id. 

To facilitate this process, in January 2001, Tellabs reorganized its marketing department

and appointed Christine Pfefferle, previously responsible for forecasting for the Optical

Networking Group for two years, Director of Global Forecasting. (R. 336-1, ¶ 9.) As part of the

reorganization, Pfefferle became responsible for the newly formed Global Forecasting

Organization. Id. Prior to the formation of this organization, the Tellabs employees responsible

for forecasting had reported their results to the individual product houses. Id. Under the

reorganized group, these employees reported their results directly to Pfefferle. Id.

After the operating units provided the expected sales information to the finance

department, the finance department aggregated and reviewed the information. (R. 336-1, ¶ 10.) 

The finance department and employees responsible for forecasting also had discussions with and

made factual inquires of operating unit heads or sales personnel as needed to better understand

the “bottoms-up” projection. Id. at ¶ 11. To confirm the accuracy of the projections, the finance

department and employees responsible for forecasting also compared the “bottoms-up”

information to the historical information, market data, and other available sources of information

in order to identify any potential issues and to see whether additional follow up was needed. Id.

When new or additional data became available, the employees revised the draft operating plan

accordingly. Id. The information provided by the operating units became the foundation for a

draft operating plan submitted to the executive leadership team. Id. at ¶ 10. After several drafts,

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the executive leadership team agreed to a final operating plan and presented the final operating

plan to the Board of Directors. Id. at ¶ 10.

In addition to this “bottoms-up” forecasting process, Tellabs employed a series of

internal checks called forecast sanity checks to track Tellabs’s actual sales as compared to its

forecasts derived from the “bottoms-up” process. Since the mid-1990s, Tellabs’s finance

department has issued forecast sanity checks at least weekly. (R. 301-1, ¶ 12.) During the last

week of the quarter, updated reports are issued and distributed daily. (R. 301-1, ¶ 12.) Joan

Ryan, head of finance, testified that she was responsible for ensuring the accuracy of the checks. 

Id. The weekly forecast sanity checks, inter alia, tracked bookings to date for each product line

and calculated what percentage of the quarter’s forecasted total bookings needed to be made in

order for Tellabs to meet its forecast. (R. 336-1, ¶ 77; R. 301-6, Ex. 48; R. 354-1, Resp. to ¶ 77.) 

The forecast sanity checks compared the “percent yet to book” with an historical average of the

“percent yet to book” for the same week in the quarter over the previous five years. (R. 336-1, ¶

77; R. 301-1, Ex. 7, p. 76.) Tellabs calculated the historical average based on its performance

during the previous three to five years. (R. 301-1, ¶ 12.)

The parties dispute the usefulness of the forecast sanity checks in predicting sales figures

for each quarter. (R. 324-1, ¶ 105; R. 345-1, Resp. ¶ 105.) Notebaert, Jackman, Ryan and other

senior management personnel regularly received and reviewed the reports. (R. 301-1, ¶ 12.) 

Jackman testified that it was his “standard practice” to review the weekly forecast sanity checks

and that he “found the document to be useful in looking at historical trends . . . .” Id. Ryan

testified that the forecast sanity checks were only one data point that Tellabs considered when

addressing sales, and that, during the Class Period, historical trends were becoming less and less

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predictive of the forecast. (R. 301-3, Ex. 18, p. 318; R. 324-1, ¶ 103.) Rich Tatara, Marketing,

testified that his group would rely more heavily on information that they received directly from

the sales team and that, as of 2001, Tellabs was seeing its customers holding their business until

the end of the quarter. (R. 301-2, Ex. 16, p. 191.) The forecast sanity checks were also

presented and discussed at management team meetings in connection with the forecast. (R. 301-

1, ¶ 13.) One Tellabs employee explained: “So it was kind of a progress report, if you will, an

indicator of where the company stood versus the goal.” Id. According to Birck, the Forecast

Sanity Check “was done along the way to make sure that there was a correlation between reality

and forecast.” Id. 

Forecast sanity checks had some limitations. With respect to sales, forecast sanity checks

only included information regarding orders that Tellabs had already received. (R. 336-1, ¶ 78;

R. 554-1, Resp. to ¶ 78.) Forecast sanity checks did not include any “bottoms-up” information

on possible orders that the sales force believed would come in later in the quarter. (R. 336-1, ¶

78.) In addition, Pfefferle testified that the historical averages reported by the forecast sanity

checks did not fully reflect the “hockey stick” trend, discussed in more detail below, which was

more pronounced in fourth quarter 2000, and which Ryan testified was becoming more

pronounced from the first to the third quarter as well. (R. 336-1, ¶ 79; R. 354-1, Resp. to ¶ 79;

R. 301-3, Ex. 18, p. 82.) Because the forecast sanity checks averaged bookings over a five-year

period, they did not capture this change in the bookings trend. (R. 336-1, ¶ 79.) 

C. Pre-Class Period Events

A number of Tellabs’s employees raised concerns regarding slow sales of the TITAN

5500, the company’s flagship product, prior to the commencement of the Class Period. An

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internal October 9, 2000 report showed that, “Titan 5500 demand was weak going into the last

few weeks of the quarter . . . .” (R. 301-1, Ex. 1056, TEL 291602.) While revenues for the

TITAN 5500 for the third quarter 2000 -- $482.9 million -- exceeded the July 13, 2000 forecast

of $470 million, they did not meet the September 13, 2000 or September 22, 2000 revised

forecasts of $490 million or 487.6 million. Id. at TEL 291601. In an October 16, 2000 email,

John Brots, Vice President, Global Manufacturing, wrote that, “532L revenues look terrible and

the 5500 revenue is not much better.” (R. 301-1, Ex. 1057, TEL 291637.) Brots testified during

his deposition that he was referring to first quarter of 2000 and that he was concerned that

Tellabs would be back-end loaded that quarter, a strain on manufacturing capacity. (R. 351-1,

Ex. 127, p. 115.) In a November 1, 2000 memorandum to the North American Sales

organization, Pferrerle also highlighted slow TITAN 5000 sales and stated that, “We had

originally forecasted that we would need a large number of 5514DD’s and 5517A’s for the

3Q00. Unfortunately, demand was low and left us with a large inventory position on these key

TITAN 5000 modules. It would be good for the corporation if we could move these before year

end.” (R. 301-1, Ex. 1058, TEL 346263.) In an email dated December 9, 2000 to Ryan and

Jackman, John Kohler, Tellabs’s Senior Vice President, Global Business Operations, stated,

“[t]he 4th quarter continues to present significant challenges to our team. As of today . . . we

need $142.5 million in TITAN 5500 Bookings to reach our goal.” (R. 324-1, ¶ 11.) Finally,

Tatara testified that, “in late 2000, 2001 we started to see the start-up telephone operating

companies, largely 

known as competitive local exchange carriers, CLECs, start to run into financial problems,

leading us to be concerned about their creditworthiness.” Id.

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Despite these various concerns, overall sales of optical networking products, which

included the TITAN 5500, were up 62.5% over the prior year for third quarter 2000, and up 49%

over the prior year for fourth quarter 2000. (R. 301-5, Ex. 38, TEL 657032, R. 301-1, Ex. 2,

671554.) The forecast sanity check for the week ending December 8, 2000, just prior to the

beginning of the Class Period, showed the percentage of TITAN 5500 sales yet to book for the

quarter was 15.4% below the historical average (25.4% vs. 10.0%). (R. 324-1, ¶ 13.) The

percentage of total product sales yet to book was 9.8% below the historical average (19.6% vs.

9.8%). Id.

D. Industry Players and Market Conditions in 2000-2001

Some of Tellabs’s customers were experiencing lessened demand for Tellabs’s products

in mid-late 2000. SBC was one of Tellabs’s largest customers during the Class Period. (R. 324-

1, ¶ 9.) Jim Joling, the Tellabs’s employee responsible for managing the SBC account, testified

that SBC’s planning organization advised him that SBC intended to reduce spending at the end

of 2000 and into first quarter 2001. Id. When asked which individual he notified at Tellabs’s of

this reduction, Joling responded, “I can’t recall, but I – my history would’ve been to generate an

email or memo” to the respective heads of divisions at Tellabs. (R. 301-1, Ex. 1008, p. 142.) 

Joling also testified that he had conversations with SBC representatives regarding overcapacity

concerns on their network during first quarter 2001 and that those discussions “always centered

around what particular project would have to be delayed or canceled, what long-term plans

would have to be changed because of the lack of funding.” Id. at p. 144. In addition, Nancy

Sayer of Verizon, Tellabs’s largest customer, also recounted that Verizon’s demand started

leveling out from mid-2000 to the end of 2000. (R. 301-1, Ex. 38, p. 38.) Sayer did not recall if

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she relayed this information to Tellabs. Id. In fact, for three weeks in fourth quarter 2000 and

eleven weeks in first quarter 2001, the forecast sanity checks showed that the percentage of

TITAN 5500 sales yet to be booked for the quarter was greater than Tellabs’s historical average. 

(R. 301-1, Exs. 1214. 1171-1211.) 

E. Tellabs’s December 11, 2000 Guidance

On the first day of the Class Period, December 11, 2000, Tellabs hosted an analyst

conference. (R. 336-1, ¶ 5.) During that conference, Tellabs provided a forecast of 30% growth

in revenue and earnings per share for 2001. Id. Notebaert does not recall the meeting or making

a statement regarding 30% growth at the meeting. (R. 301-1, Ex. 1156, Resp. to Interrogatory

No. 3, p. 19.) Tellabs based this guidance on data that Tellabs had begun assembling in the early

fall of 2000 during its annual budgeting and planning process. The guidance was the result of

the “bottoms-up” forecasting process. (R. 336-1, ¶¶ 8-13.)

When Notebaert joined Tellabs as its CEO in September 2000, the process for developing

the 2001 operating plan was already under way. (R. 336-1, ¶ 14.) At that time, Tellabs’s finance

department had the responsibility for coordinating the preparation of the “bottoms-up” forecasts

and working with the operating units to consolidate that information. Id. Tellabs employees,

however, did keep Notebaert informed as to the progress of the operating plan. Furthermore,

once the heads of each of the operating units and the finance department had come to an

agreement on the plan for 2001, they presented the plan to Notebaert as the consensus of the

other executives.4

 Id. The December 7, 2000 iteration of the 2001 operating plan forecasted

4

 Plaintiffs dispute the allegations regarding Notebaert’s involvement in the forecasting process and dispute

that the forecasting process was a “bottoms-up” process. (R. 324-1, ¶ 100.) In each instance where Plaintiffs

make this allegation, however, they rely on deposition testimony from sales personnel who testified that more

senior employees or executives pushed them to make sales. LaDuca testified that Tellabs would tell him what

“his number” or quota was and that Tellabs based this number on his prior year’s performance. (R. 330-1,

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36% revenue growth. Id. at ¶ 12. Accordingly, the guidance figures Tellabs presented on

December 11, 2000 were the result of a consensus recommendation presented to Notebaert by

his CFO, the finance department, the employees responsible for revenue forecasting for each

product line, and his executive team. Id. at ¶ 15. Notebaert testified that he personally believed

that the build-up of the operating plan as of December 2000 supported Tellabs’s public guidance

for 2001 of 30% growth. Id. Joan Ryan, Tellabs’s CFO, also testified that as of December 11,

2001, based on the result of the planning process, she believed that Tellabs would achieve at

least 30% growth in both earnings and revenue in 2001. Id. at ¶ 13.

When distributing the 2001 operating plan targets, Notebaert expressed that the targets 

were “‘expected’, if not minimum,” requirements for the 2001 operating plan. (R. 301-2, Ex.12.) 

Indeed, several Tellabs sales personnel testified that executives informed them of their revenue

targets. (R. 325-1, Ex. 1010, p. 234-35; R. 325-1, Ex. 1008, p. 125.) 

F. Tellabs’s January 23, 2001 Guidance

Plaintiffs only identify one piece of evidence between Tellabs’s December 11, 2000

guidance and the reiteration of that guidance on January 23, 2001. On January 11, 2001, Birck

forwarded to Notebaert, Jackman, and Ryan a UBS Warburg analysis lowering estimates for the

telecom equipment sector, commenting: “In our case, I believe they have a reasonable viewpoint

-- for now. While we may not see as much diminished demand as some of our contemporaries,

this is going to be a trying year -- for a while, anyway.” (R. 301-1, ¶ 17.)

Ex. 1010, pp. 234-25). Joling testified that Notebaert pulled him into his office and told him what kinds of

numbers he wanted Joling to deliver. (R. 330-1, Ex. 1008, p. 125.) The cited testimony, however, does not

contradict the existence of a “bottoms-up” forecasting process. Instead, the sales personnel merely assert that

Tellabs provided them with a sales quota or revenue goal. Id.; see also R. 354-1, Resp. to ¶¶ 8, 14-15,

21, 38 and 53.

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Tellabs announced its fourth quarter and full year 2000 results in a January 23, 2001

press release, issued before the market opened, and an accompanying analyst call later that

morning. (R. 336-1, ¶ 16; R. 324-1, ¶ 18.) The earnings release stated that Tellabs had 38

consecutive quarters of year-over-year growth, including fourth quarter 2000, and 30% annual

growth in sales and earnings from 1995-1999. (R. 336-1, ¶ 6.) According to the press release:

“Strength in Tellabs’s core business drove record sales and earnings in the fourth quarter of

2000.” (R. 324-1, ¶ 18.) For fourth quarter 2000, Tellabs achieved sales of $1.018 billion,

which represented year-over-year growth of 42%. (R. 336-1, ¶ 16.) Tellabs also achieved

earnings per share of 56 cents for the quarter, or growth of 44% year-over-year. Id. Tellabs’s

Optical Networking Group, which housed the TITAN 5500 product line, reported sales of $641

million during the fourth quarter, an increase of 49% year-over year. Id. In total, Tellabs’s

fourth quarter 2000 represented its best quarter in history. Id. For the full fiscal year 2000,

Tellabs posted net sales of $3.3 billion, an increase of 43% over 1999. Id. Tellabs’s new income

grew by 33% to $669 million and its earnings per share also grew by 33%. Id. Optical

networking products, including the TITAN 5500, accounted for about 63% of all fourth quarter

sales. (R. 324-1 ¶ 18.) 

At the January 23, 2001 teleconference, during which Notebaert, Jackman, and Ryan

spoke, Tellabs reiterated the 30/30 (revenue/earnings per share) guidance. (R. 336-1, ¶ 17; R.

324-1,¶ 18.) Such teleconferences were open to the public and also could be heard through a

simultaneous live webcast at www.tellabs.com, or through a taped replay. (R. 324-1, ¶ 18.) The

guidance presented on January 23, 2001 was lower than Tellabs’s 2001 internal operating plan,

finalized on January 11, 2001, which forecasted 35% revenue and 31% earnings growth for full

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year 2001. (R. 336-1, ¶ 17.) Tellabs also reported that it began 2001 with a backlog, orders or

letters of intent that had been placed with Tellabs but scheduled to ship in 2001, of $439 million. 

(R. 336-1, ¶ 18.) The backlog was Tellabs’s largest year-end backlog ever and 70% higher than

its backlog entering 2000. Id. In reiterating Tellabs’s previous forecast of 30% growth in

revenues and earnings, Ryan stated: “We are targeting revenue growth slightly higher than our

30/30 financial mantra or approximately $4.4 billion with full year growth by our product

group,” “[f]rom an earnings perspective, we expect to deliver another 30% increase in 2001 . . .

,” and “Tellabs’s 30/30 model is very much intact and we are comfortable with these targets.” 

Id. Birck also testified that the 30/30 forecast was “realistic, yet aggressive” and that 30 percent

growth over the prior year “is a fairly challenging thing to do.” (R. 301-1, Ex. 1003, p. 87.) 

Plaintiffs’ expert, Professor Linda Allen, found that “[t]hese optimistic statements propped up

[Tellabs’s] stock price.” (R. 324-1, ¶ 18.) On January 23, 2001, the price of Tellabs shares rose

$5.375 to close at $58.875. Id.

G. Tellabs’s March 7, 2001 Revised Guidance

The day after Tellabs issued its January 23, 2001 guidance, Tellabs’s Board of Directors

met. (R. 324-1, ¶ 19.) Notebaert, Birck, Jackman, and Ryan were all present. Id. The Audit

Committee reported: “There are . . . a number of items to watch carefully on a going-forward

basis as the economy slows. Specifically, the accounts receivables, inventory levels and

customer financing arrangements merit special focus.” (R. 301-1, Ex 1063.) Indeed, Birck

testified that as early as January 24, 2001, the Board discussed “industry concerns.” (R. 301-1,

Ex. 1152, p. 1203, 1209.) Also on January 24, 2001, in an email to Notebaert, Birck, Jackman,

and Ryan, among others, attaching the most recent weekly forecast sanity check (for the week

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ending January 19, 2001), Stephanie Glowacki of the finance department reported: “The

achievement of the Q1 ’01 forecast is dependent on an additional book & ship of $294.0M for

TITAN 5500, $56.6M for MAS, $28.0M for Cablespan, and $28.0M for Echo/Coherent OEM.

The scheduled shipments as of Week 3 for these products areas are below the historical averages

. . . .” (R. 301-1, ¶ 19.) The same day, Kohler wrote to Jackman, Ryan, Gustafsson, and

McCarthy: “Sales in the current quarter are extremely slow.” Id.

As they had in prior quarters, Tellabs executives tracked the progress of sales in first

quarter 2001. (R. 336-1, ¶ 19.) Throughout January, Tellabs’s forecasting organization

continued to forecast more than 30% year-over-year growth for the quarter, as well as the full

year. Id. at ¶ 20. In response to an inquiry from Kohler regarding slow sales, on January 25,

2001, Steve McCarthy, Tellabs’s Senior Vice President of Global Marketing, requested that

Tellabs’s Global Forecasting Organization update their first quarter forecast. Id. at ¶ 20. In

response, Pfefferle provided him with an updated forecast using the most recently available

information from the product houses.5

 Id. Like the process for developing the initial operating

plan, the process for updating the forecast was primarily a “bottoms-up” process. The

forecasting group worked with the sales force and product houses, who in turn worked with

customers to identify and track potential sales opportunities. Id. Once a sales opportunity was

identified, an employee placed the opportunity into a tracking system, referred to as the

“pipeline.” Id. For each sales opportunity, the pipeline listed the name of the customer,

5 Plaintiffs dispute that Pfefferle provided McCarthy with an updated forecast based on an email in which

Pfefferle stated that she was providing McCarthy with a “first cut” for potential first quarter revenue changes

based solely on conversations with the products groups. (R. 301-4, Ex. 24.) While the email states that

Pfefferle and her team have not reviewed the entire 2001 year forecast, nothing in the email suggests that

Pfefferle did not subsequently provide McCarthy with an updated forecast as she asserts in her affidavit. (R.

301-1, Ex. 8, ¶ 13.)

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anticipated product, revenue amount, estimated date for purchase order, and responsible

salesperson. Id. The salesperson would also classify the opportunity based on his or her

confidence that the opportunity would turn into an actual order by assigning it a confidence level

of 80%-100%, 60%-79%, or less than 60%. Id. As additional information became available

throughout the quarter, Tellabs’s employees would make changes to the pipeline figures. Id.

At the end of January, it was clear that January sales were slower than Tellabs had hoped. 

(R. 336-1, ¶ 23.) January, however, was traditionally a slow sales month as Tellabs held its

annual meeting which took much of the sales force away from their work and Tellabs’s

customers were typically still setting their budgets. Id. On February 6, 2001, commenting to

Notebaert, Birck, Jackman, and others on the forecast sanity check for the week ending February

2, 2001, which showed the percentage of TITAN 5500 sales yet to book was 13.6% below

Tellabs’s historical average (52.6% vs. 39.0%) and the percentage of all product sales yet to

book was 13.1% below the historical average (48.4% vs. 35.3%), Ryan stated:

For your information, bookings to date that will translate into revenue for Q1 are

alarmingly slow, and slower than for any quarter in recent memory. The scheduled

bookings rate for Q1 comes closest to that of 4Q 1998, but is still lower than for that

period. That means we are booking at a rate below any of the quarters in 2000, and

we know how difficult and hair-raising all those periods were for making our

revenue target. I suppose I don’t need to say it (but I will anyway), WE NEED

BOOKINGS NOW!!!!

(R. 324-1, ¶ 21.) Notebaert acknowledged “[i]t was a concern” to him, as well, that Tellabs was

performing below historical levels. Id. Three days later, on February 9, 2001, Ryan wrote

Notebaert:

January results will be available late Monday. First read is that they are not good --

slow revenue, high cost of goods. We may have even lost money for the month.

There is a formal meeting which you are invited to on Thursday to discuss January

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results and revised Q1 forecast. At this point, the forecast for revenue looks to be

below our Board forecast by about $20-$30M, with various upsides/downsides.

(R. 324-1, ¶ 22.)

While sales were slow in January, Tellabs’s quarterly sales were typically more heavily

concentrated in the last month or few weeks of each quarter. (R. 336-1, ¶ 24.) Tellabs’s

employees referred to this trend as the “hockey-stick” effect, referring to the picture created

graphically by the timing of sales. Id. Jackman testified that the “hockey stick” trend varied in

its severity and timing from quarter to quarter. (R. 330-22, Ex. 1152; R. 324-1, ¶ 103.) In

addition to being an intra-quarter phenomenon, the “hockey stick” effect was also a seasonal

phenomenon, as sales were slower in first quarter and significantly higher in the fourth quarter. 

(R. 336-1, ¶ 25.) The “hockey stick” trend had become more pronounced in the periods leading

up to fourth quarter 2000. (R. 301-3, Ex. 18.) Nine days before the end of the third quarter

2000, for example, Tellabs had not brought in sufficient sales to meet its sales forecast for the

quarter. (R. 336-1, ¶ 26.) Ultimately, however, Tellabs reached record-breaking sales for the

quarter. Id. Similarly, in fourth quarter 2000, midway through the quarter Birck noted that

making the fourth quarter’s guidance would require “a scramble” and John Kohler, Senior Vice

President of Global Operations, noted that the fourth quarter “presented significant challenges to

out team.” Id. Ultimately, however, Tellabs exceeded its fourth quarter forecast with its largest

quarter for revenues in its history. Id.

In early 2001, Tellabs scheduled a meeting for February 15 to review January results and

the first quarter forecast to “formally discuss how we get back on track.” (R. 336-1, ¶ 27.) At

the February 15, 2001 forecast review meeting, which Notebaert attended, the participants

discussed several “action items.” Id. The participants tasked Pfefferle and Don Jones, head of

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North American Sales, to “[o]utline all opportunities for 1Q for TITAN 5500.” Id. Notebaert

and other Tellabs executives directed the Tellabs forecasting organization to determine whether

Tellabs’s current forecast remained achievable and realistic. Id. at ¶ 28. Notebaert made this

request because if the forecast needed to be revised, he wanted to let the market know sooner

rather than later, thereby defusing any build up of expectations. Id.

Also on February 15, 2001, Notebaert instituted a hiring freeze as a “preventive action

relative to the overall economy.” (R. 336-1, ¶ 29; R. 324-1, ¶ 23.) A “Suggested Spending

Optimization Plan,” dated February 19, 2001 assigned “immediate” action tasks to Notebaert,

Ryan, Jackman, and others, including: “[f]reeze hiring,” “[s]everely restrict temporary

employees,” “[s]tretch merit increase from 12 months to 15 months,” “[e]liminate all overtime,”

“[m]andate 3% cut across the board,” “[d]ismiss all special-project consultants,” “[s]everely

reduce travel and entertainment,” “[n]o seminars, non-essential internal training,” “[r]estrict new

orders for supplies,” “[r]e-evaluate ‘all-expenses-paid’ cellular phone and pager programs,”

“[n]o new PCs or upgrades,” “[r]eview advertising timing and extent,” “STC only critical lab

equipment,” and “[c]ritically review, then re-justify necessity of $167M facility additions in

2001.” (R. 324-1, ¶ 23.) Notebaert referred to these actions as “preventive costs constraints”

and a “triage on the costs.” (R. 301-1, Ex. 1014, p. 218-19.) Furthermore, the forecast sanity

check for the week ending February 16, 2001 indicated that the percentage of all product sales

yet to book for the quarter had fallen to 21.6% below the historical average (42.9% vs. 21.3%). 

(R. 324-1, ¶ 24.) The percentage of TITAN 5500 sales yet to book was 21.5% below the

historical average (46.0% vs. 24.5%). Id. 

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During this time period, certain portions of the telecommunications industry and the

economy in general were beginning to exhibit signs of a slow down.6 Id. While they paid

attention to the economy and reacted with caution to developments in the economy, Tellabs

executives also believed that Tellabs was in a product niche that would better protect it from

economic difficulties. (R. 336-1, ¶ 29.)

Typically, Tellabs’s finance organization, headed by CFO Ryan, distributed a Monthly

Executive Financial Summary to senior management, including Notebaert, Birck, Jackman and

Ryan about two weeks after the end of the first and second months of each quarter. (R. 324-1, ¶

25.) McCarthy confirmed that, “[i]t’s one of the documents that we used in the course of doing

business.” Id. Among other things, the Monthly Executive Financial Summaries regularly

reported inventory turns. Id. Jackman testified that lower inventory turns could have one of

several meanings, including ramping up inventories in anticipation of later orders or slow sales. 

(R. 301-1, Ex. 1007, p. 114.). The January 2001 Financial Summary, which was distributed in

mid-February and which Jackman recalled receiving, reported: “Monthly results fall short of

forecasts: Soft orders prevented level-loading[] of TITAN 5500 . . . ,” “[r]evenues below plan

due primarily to lower than expected optical networking sales,” “January revenue below forecast

due to soft bookings (5500) and credit/demand issues,” “78% of revenue required to ship and

meet revenue recognition guidelines in February and March -- significantly higher than historical

levels,” and “TITAN 5500 bookings were at the lowest level since July, 2000.” (R. 324-1, ¶ 25.) 

Ballatine testified that it was a regular practice to review the results of the period at a meeting

6

 Plaintiffs dispute that the slowdown was only just beginning citing to Dr. Brody’s report in support of their

denial. (R. 354-1, Resp. to ¶ 29.) The Court, however, has stricken Dr. Brody’s opinion in this regard. 

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with Birck or Notebaert, and that Ryan typically attended those meetings as well. (R. 301-1, Ex.

1002, p. 282.) 

On February 19, 2001, Notebaert informed the Tellabs’s Board of Directors, in a letter to

Birck, of the disappointing January results. (R. 336-1, ¶ 30.) The letter stated:

Attached to this letter are the financials for January. As you look at them you will

note that revenues were very soft, at 58% of plan. This is the whole story for the

month and does not portend well for the quarter. Making our revenue plan in the

current environment will be a challenge.

Revenues came in at 176 million, down 136 million against our plan of 312 million.

Of additional concern is that our product bookings and product backlog are down

142 million and 67 million respectively compared to October of 2000. The area of

biggest concern is ONG [Optical Networking Group] with a 97.5 million shortfall

against plan. Sales of our Titan 5500 and 532L have been very slow so far in the

quarter. . . .

Operating expenses were about on. Of course with revenues off and expenses on,

our margin was lower than plan by 3.4% or 34.6 million. We broke even for the

month. We have taken aggressive preventative action on expenses in case our sales

efforts fall short. Headcount and all discretionary expenses are being constrained.

(R. 324-1, ¶ 26.) Birck testified that, even prior to receiving the letter, he was generally aware

that revenues for January were very soft and that the figures did not portend well for the quarter. 

(R. 324-1, ¶ 26.) 

The forecast sanity check for the week ending February 23, 2001 reported that the

percentage of total forecasted sales yet to book for the quarter was 18.7% behind Tellabs’s

historical average (34.7% vs. 16.0%), while the percentage of forecasted 5500 sales yet to book

was 20.2% below the historical average (40.6% vs. 20.4%). (R. 324-1, ¶ 27.) These forecast

sanity checks were a catalyst for the “deep” dive into the forecast during late February and early

March 2001. (R. 336-1, ¶ 80.) On February 23, 2001 Bro Ballantine, Vice President of

Financial Planning and Analysis, wrote to Richard Tatara, Vice President of Product Marketing,

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Pfefferle, Ryan and others: “As we discussed in today’s meeting there have been many changes

in the economic climate, our industry and our business since we completed the . . . three year

planning exercise last October. In fact there has been so much change that the 3 year projections

are in many cases obsolete and require some updating.” (R. 324-1, ¶ 28; R. 351-1, Ex. 142, p.

31.) According to Tatara: “[T]he industry was starting to experience results being reported by

various organizations that were shaking the confidence that growth would continue to be as

robust as we had expected.” (R. 324-1, ¶ 28.) He also said, “There was, you know, a climate

that was suggesting that the robust growth we had seen in the three years prior to this time

perhaps wasn’t going to continue with the same vigor that it -- that it had in the previous year.” 

(R. 324-1, ¶ 103.) Three days later, on February 26, 2001, in an email to Don Jones, Vice

President, North American Sales, Pfefferle wrote: “We really need to work on trying to get some

orders in asap . . . . We have to book $8.2M a day for the next 25 days and ship $12.1M. It’s

looking real tight.” (R. 324-1, ¶ 29.) The next day, February 27, 2001, Anders Gustafsson,

President, Global Sales, expressed similar concern: “We are now 2 months into our first quarter

and our bookings have not ramped up as expected . . . . I am getting increasingly concerned that

we are going to be cutting it very tight.” Id. In that same email, he also stated that, “I believe we

can still make our forecast and further strengthen our credibility with investors.” (R. 330-17, Ex.

1073.)

In connection with Notebaert’s request for a reexamination of the existing forecast, on

February 26, 2001, Pfefferle prepared a “gap report” to show how first quarter sales were

performing compared to the forecast. (R. 336-1, ¶ 32.) The Global Forecasting Organization

typically prepared gap reports on at least a monthly basis to identify bookings that Tellabs had

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achieved to date in the quarter and to calculate the “gap” to achieving the forecast. Id.7

 The

“gap” represented the revenue that Tellabs needed to book in order for the quarter to meet the

forecast. Id. The gap reports also aggregated the sales opportunities reported by the sales force

as in the “pipeline” and listed this amount as an “upside” to the quarter. Id. The February 26,

2001 gap report showed that Tellabs still needed to achieve approximately $205 million in

TITAN 5500 sales to meet its internal forecast of $500 million for the quarter. Id. The report

also showed that the sales force had identified more than $207 million in sales opportunities to

“close the gap.” Id.8 These opportunities included those with a confidence level lower than

60%, and the report did not weigh opportunities with a level as low as 60% any differently than

an opportunity with a confidence level of 80%-100%. (R. 301-6, Ex. 46; R. 324-1, ¶ 99.) 

Indeed, $51 million of the identified sales opportunities were assigned a confidence level of less

than 60%. Id.

Pfefferle and her team also calculated an “adjusted gap” which derived from adding

actual bookings only to those sales opportunities assigned a confidence level of at least 60%. (R.

336-1, ¶ 33.) The adjusted gap also included $10 million in “pull-ins” from future quarters. (R.

301-6, Ex. 46; R. 324-1, ¶ 99.) The adjusted gap report reflected that Tellabs’s “tactical plan to

close the gap” included “[a]ggressively canvassing sales & marketing for upside opportunities”

and “[a]ctively pursuing customer permission to pull in orders from 2Q w/o impacting customer

sat [sic].” Id.; R. 324-1, ¶ 99. Ryan testified that the adjusted gap for the TITAN 5500 “looked

7 Some gap reports contained distribution lists, but others did not. (R. 324-1, ¶ 104; R. 351-1, Exs. 147-48.)

8

 Quoting Pfefferle’s testimony from the Brieger trial, Plaintiffs respond that the gap reports were based on

nothing more than a “gut feel.” (R. 354-1, Resp. to p. 32; R. 324-1, ¶ 99). Pferrerle, however, only testified

that the assignment of a confidence level to a potential sale was based on a “gut feel,” and did not testify that

the entire gap report was derived on this basis. (R. 330-22, Ex. 1152, p. 1480.)

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very reasonable” compared to fourth quarter 2000 and that “looking at what we had achieved in

the past, talking with sales, talking with sales management, and talking with marketing, we all

felt that the gap would be closed.” (R. 301-3, Ex. 18, p. 340; Ex. 17, p. 1480.)

On February 27, 2001, Birck publicly stated at a Goldman Sachs investors conference

that Tellabs “[wa]sn’t immune to the overall spending slowdown and that January had been a

soft month for orders . . . .” Birck’s statement promptly hit the news wires and Tellabs’s stock

price dropped 9% over the next three days. (R. 336-1, ¶ 31.) After this announcement, Tellabs

continued to track its sales. At the end of February 2001, Brian Jackman contacted sales and

marketing personnel and inquired whether they had seen any slowness in demand. (R. 301- 2,

Ex. 14, p. 386.) Notebaert testified that Jackman went through Don Jones and Anders

Gustafsson, sales and marketing executives. (R. 301-3, Ex. 19, p. 968.) The sales personnel told

Jackman that they were not experiencing any slowness in demand (R. 301-2, Ex. 14, p. 386), and

Jackman passed this information on to Notebaert. (R. 301-3, Ex. 19, p. 481.) In addition to

tracking potential future sales, Tellabs also continued to track actual sales booked to date per

quarter in the forecast sanity check reports prepared by the finance department. (R. 336-1, ¶ 35.) 

The March 2, 2001 forecast sanity check indicated that Tellabs had yet to book 30% of its first

quarter forecast, 19.4% below the historical average of 10.6%. Id.; R. 324-1, ¶ 30. The

percentage of projected TITAN 5500 sales yet to book for the quarter was 37.9%, 23.5% below

Tellabs’s historical average of 14.4%. Id. As a point of comparison, the December 1, 2001

forecast sanity check indicated that Tellabs had yet to book 27.2% of its fourth quarter forecast, a

quarter in which Tellabs ultimately exceeded its fourth quarter bookings necessary to meet its

fourth quarter plan. Id.

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On March 2, 2001, Tellabs’s finance department asked Pfefferle to prepare yet another

updated forecast for the quarter to give to Notebaert and Ryan on Monday, March 5, 2001 for

“decision-making” purposes. (R. 301-2, Ex. 17, p. 1485-86.) Notebaert testified that the

executives wanted the forecast “to see where we were on accomplishing the goals for the

quarter.” (R. 301-3, Ex. 18, p. 980-81.) Pfefferle accordingly prepared another gap report which

identified a gap to forecast for the TITAN 5500 of approximately $183 million, with identified

sales opportunities of $194 million. Id. The adjusted gap for the TITAN 5500, which only

included potential sales assigned a confidence lever higher than 60%, was $31 million. (R. 301-

6, Ex. 50.) The adjusted gap again contained $10 million in “pull-ins” from future quarters. Id. 

The March 5, 2001 gap report also reflected that Tellabs’s “tactical plan to close [the] gap” still

included “[a]ggressively canvassing sales & marketing for upside opportunities” and “[a]ctively

pursuing customer permission to pull in orders from 2Q w/o impacting customer sat [sic].” Id. 

From February 26, 2001 to March 5, 2001 the adjusted gap for the TITAN 5500 had been

reduced $8.4 million. (R. 301-6, Exs. 46, 50.) Due to the reduction in the TITAN 5500 gap in

that time period, Pfefferle testified that she was even more confident that, consistent with past

experience, all signs indicated that Tellabs would close the remaining gap. (R. 336-1, ¶ 37.) 

Accordingly, Pfefferle and her team continued to forecast that Tellabs would achieve 30%

growth in TITAN 5500 sales in the first quarter of 2001 over the prior year. Id.

 With regard to other products, however, with input from the finance department,

Pfefferle concluded that the products were not on track to hit their forecasted revenue targets for

first quarter 2001. (R. 336-1, ¶ 38.) It was clear, for example, that Tellabs would not recognize

expected revenue from sales of the TITAN 6500 due to Sprint’s requirement for a longer testing

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period and that sales opportunities for the Cablespan product were not materializing at the

expected rate. Id. Nonetheless, as result of the feedback Pfefferle received from speaking with

the sales force and others, Pfefferle believed that, as of March 5, 2001, Tellabs would still

achieve at least 30% revenue and earnings growth for the full year. Id. Overall, however,

because the recognizable revenue for the TITAN 6500 and the Cablespan product were not

tracking to plan, the forecasting organization concluded that the overall first quarter revenue

projections should be lowered slightly. (R. 336-1, ¶ 39.) The forecasting organization

communicated this information to senior management. Id.

Subsequent to this re-analysis, and in order to account for the change in the Cablespan

forecast and deferred revenue recognition of TITAN 6500 shipments, Notebaert and his senior

executive team decided to hold an analyst call on March 7, 2001 for the purpose of lowering the

Company’s guidance for the quarter. (R. 336-1, ¶ 40.) On March 5, 2001, Brian Jackman, Joan

Ryan, Anders Gustafsson, Vice President of Global Sales, and John Kohler attended a forecast

review meeting. (R. 336-1, ¶ 41.) The same day, Notebaert held a staff meeting for all of the

senior executives. Id. Also prior to the March 7, 2001 call, Notebaert went to Pfefferle’s office

to review the March 5, 2001 gap report with her and to gauge her confidence in the data and in

Tellabs’s ability to hit the revised forecast. (R. 336-1, ¶ 42.) Pfefferle told Notebaert that, based

on her analysis and “conversations with the salespeople, the marketing people, the product

house, all of us felt comfortable we could achieve the objective.” Id. Then, on March 7, 2001,

prior to the conference call, Notebaert held a meeting with Joan Ryan, Brian Jackman, and John

Springer, Tellabs’s Director of Investor Relations, to discuss the upcoming press release and

conference call. (R. 336-1, ¶ 43.) During the meeting, Notebaert confirmed that everyone felt

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comfortable that Tellabs would achieve the revised guidance figures that Tellabs planned to

announce later that day. Id. Based on the thorough re-examination of the forecast conducted by

Pfefferle and his conversations with Pfefferle, Jackman, Ryan and others, Notebaert believed that

the guidance issued on March 7, 2001 was reasonable and based on the best available

information. Id. Birck testified that, by March 7, 2001, he was “less confident than I had been at

the beginning of the year” that Tellabs could meet the 30% growth target, but that he “wouldn’t

say that by any means it was an impossible sort of thing.” (R. 330-1, Ex. 1003, p. 218.) He also

testified that he believed that “everybody realized that [the guidance] represented the best

information that we had at that time, but it . . . involved some -- some forecasting or judgment

with regard to the future . . . . I don’t know of anyone who thought this wasn’t, at that time, a

fair appraisal of prospects of the company.” (R. 351-1, Ex. 125, p. 357.)

On March 7, 2001, Tellabs lowered its guidance for first quarter revenue from a range of

$865 million to $890 million to a range of $830 million to $865 million, and also projected full

year guidance in a range of $4.35 billion to $4.4 billion. (R. 301-7 , Ex. 51, TEL 669439.) In

addition, Tellabs projected earnings per share in the range of 35 cents to 38 cents, compared with

prior guidance of 39 cents per share. (R. 324-1, ¶ 31.) According to Tellabs, the new guidance

stemmed from continuing below-trend growth in its Cablespan business and a delay in

recognizing revenue from the TITAN 6500 series. (R. 330-3, Ex. 1022, TEL 668682.) In the

March 7, 2001 press release, Tellabs asserted that, “[g]rowth in Tellabs’ core optical networking

business [i.e., the 5500] remains strong.” (R. 324-1, ¶ 31.) The press release quoted Notebaert

as stating: “[W]e continue to target 30 percent growth in revenue and earnings for the year.” Id.

That same day, after the close of trading, Tellabs hosted a teleconference regarding the

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first-quarter guidance. (R. 324-1, ¶ 32.) Notebaert, Jackman, and Ryan met before the call to

discuss what they were going to say. Id. Notebaert, Jackman, and Ryan presented jointly on

behalf of Tellabs. Notebaert opened the call by stating: “Let me start by saying that our

business is quite healthy and, in fact, most of the fundamental trends we talked about on our

January call are intact. That is, let me be more detailed, demand for our core optical products or

core networking products remains strong. . . . [W]e still expect revenue and EPS growth for the

quarter to exceed 30%. . . . We now project revenue for the year in the $4.3 billion or $4.35

billion to $4.4 billion range and EPS of $2.13 to $2.17. In summary, demand for our products

remains strong. . . . Tellabs will meet the adjusted revenue and earnings targets.” Id. Ryan

stated: “We expect optical networking to grow 35-40% [in the first quarter compared to the

previous year].” Id. In addition, reflecting Notebaert’s comments, Ryan projected for the full

year: “Hence, our new range for 2001 EPS is $2.13 to $2.17 on revenue of $4.35 billion to $4.4

billion.” Id.

During the question and answer session of the call, an analyst asked if Tellabs was seeing

“any weakness” in the TITAN 5500. (R. 336-1, ¶ 44.) Brian Jackman, Tellabs’s President of

Global Operations, responded by saying: “We are not. We’re still seeing that product continue

to maintain its growth rate; it’s still experiencing strong acceptance. We are in the process of

turning [up] a large number of frames we shipped in the fourth quarter and this is continuing to

grow as usual. I think that is pretty much on plan.” (R. 336-1, ¶ 44.) Jackman testified that he

based this response on the fact that Tellabs had forecasts from the sales organization that Tellabs

would still make the plan for the 5500. (R. 301-2, Ex. 13, p. 147.) Another analyst asked, “Any

concerns relative to the market place in general? We see companies like Nortel and Cisco

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lowering their expectations. I am assuming you guys are not seeing any of those factors

impacting your business that might be impacting those guys.” (R. 330-3, Ex. 1023, TEL

669442.) Notebaert responded that: “We just lowered our expectations. With our customer base

and the product niche we have our problems may be different. . . . We haven’t gotten any

indication from any of our major customers of a downturn in this segment we are in and in our

niche.” Id.

The next day, March 8, 2001, Tellabs shares rose $2.75 to close at $48.4375. (R. 324-1,

¶ 34.) Dr. Allen opined that the stock price reaction on March 8, 2001 demonstrated “that the

market interpreted the net effect of the March 7th news release to be positive information.” (R.

330-14, Ex. 1053, p. 16.) Dr. Lehn, however, opined that the stock price reaction did not

demonstrate that the market interpreted the net effect of the March 7, 2001 news release to be

positive information. (R. 301-11, Ex. 70, pp. 5, 22-23.) Also on March 8, in a company-wide

email, Notebaert announced the company was delaying salary increases scheduled for April 1,

2001 by three months. (R. 324-1, ¶ 35.)9

H. April 6, 2001 Revised Guidance

After the March 7, 2001 announcement, Tellabs continued to track its sales and revenue. 

On March 9, 2001, in an email designated “Importance: High” sent to Steve McCarthy, Senior

9

 Plaintiffs also assert that from the forecast sanity checks, Notebaert and the other Defendants knew that “in

the remaining weeks of the first quarter 2001, they had much more to sell to meet their forecast, in a

dramatically slowing market, than they had to do in previous years when the economy was booming. They

also knew the fourth quarter 2000 goals had been met only by offering ‘unnatural’ pricing deals and pulling

forward tens of millions of dollars of sales from subsequent quarters.” (R. 324-1, ¶ 103.) In support of these

statements, however, Plaintiffs point to Exhibits 1171-1198, all of the forecast sanity checks, and Exhibit

1214, the summary of the forecast sanity checks. Standing alone, these documents do not support Plaintiffs’

contentions. The Court will also not consider Plaintiffs’ statement that “Defendants simply had no basis to

believe the Company would continue to enjoy the same 30% growth it had experienced when the

telecommunications industry was expanding,” for which Plaintiffs provided no evidentiary support. (R. 324-

1, ¶ 103.)

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Vice President, Global Marketing, regarding TITAN 5500 sales Pfefferle wrote: “Here is my

most important issue in Global Forecasting - need to rapidly increase orders coming in-house

from NA for TITAN 5500. We have identified (as of today) $161M in unbooked opportunities

for 1Q01. This business needs to happen for us to meet our revised expectations to Wall Street!” 

(R. 324-1, ¶ 36.) That same day, at an internal corporate overview meeting with employees,

Notebaert, focusing on Tellabs’s CABLESPAN product, explained: 

The economy, in general, is not doing as well as it was six months ago. “Hello.” All

you have to do is read the paper. Now that means that cable companies are not going

to expand into other cities. They are going to flush out what they have. What does

that translate to Tellabs? It translates that we will do about 60 percent of what we

expected just in January. In the first quarter, if you look at what customers are

saying, that is what is happening. As an organization, we expected to build a certain

amount of product, and now the customer is saying about 60 percent, in that range. 

That is some softness.

(R. 330-17, Ex. 1076, TEL 081954.) The forecast sanity check for the week ending March 9,

2001 showed that the percentage of the total forecast yet to book was above Tellabs’s historical

average notwithstanding that Tellabs had just reduced first quarter guidance. (R. 324-1, ¶ 38.) 

Thus, the percentage of all products yet to book was 20.1% above the historical average (27.0%

yet to book vs. 6.9%), while the percentage of the TITAN 5500 yet to book was 22.5% above the

historical average (33.5% yet to book vs. 11.0%). Id. Indeed, Tellabs’s March 5, 2001 gap

report showed an adjusted gap for the TITAN 5500 of more than $31.6 million, while the March

12, 2001 gap report showed an even larger adjusted gap of almost $41.1 million. (R. 324-1, ¶

40.) 

In a March 13, 2001 email to all Tellabs employees, Marc Ugol, Senior Vice President,

Human Resources, wrote: “While demand for our new and existing products remains strong,

revenue is not developing at the levels we had planned this year. Accordingly, we need to focus

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on reducing our costs in order to maintain our financial strength.” (R. 324-1, ¶ 39.) Ryan

responded: “I was surprised to see in your memo to employees that you included the forward

looking statement below: ‘. . . Revenue is not developing at the levels we had planned this year.’

This is at odds with the external message that was communicated last week on our preannouncement call, in which we basically re-iterated our 30/30 guidance for the full year. In

fact, Dick [Notebaert] opened the call by saying that our ‘business remains quite healthy.’” Id.

The Monthly Executive Financial Summary for February 2001, distributed on

March 15, 2001 to Notebaert, Birck, Jackman, Ryan, and other senior management

revealed, inter alia: “56% of additional revenues need to meet Q1 forecast,” “P2 [February

2001] revenue shortfall due to across the board weakness in ONG [Optical Networking Group]

and BA product sales,” “February revenue continues to be below forecast due to soft bookings

(5500/532L) and credit/demand issues for DXX/Cablespan,” “56% of revenue required to ship

and meet revenue recognition guidelines in March,” “TITAN 5500 bookings for the 2nd

consecutive period continue to be at the lowest level since July, 2000,” “February revenue falls

short in NA forecast due to soft orders (TITAN 5500) . . . ,” and “[forecast] reductions due to:

5500 & 532L - slow bookings.” By mid-March 2001, McCarthy testified that there were

frequent internal discussions regarding Tellabs’s “soft bookings.” (R. 324-1, ¶ 44.)

While overall sales for the Optical Networking Group increased in first quarter 2001,

demand for the TITAN 5500 remained low. For first quarter 2001, Tellabs reported year-overyear growth for the Optical Networking Group, which included the TITAN 5500, of 22%. (R.

330-31, Ex. 1214.) For the week ending March 9, 2001 (Week 10 of the quarter), TITAN 5500

sales were 27% less than they were for the same week in 2000 ($19.2 million vs. $26.5 million). 

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(R. 324-1, ¶ 41.) For the week ending March 16, 2001 (Week 11 of the quarter), TITAN 5500

sales were 21% less than they were for the same week in 2000 ($24.1 million vs. $30.5 million). 

Id. The March 16, 2001 forecast sanity check also showed that the percentage of all sales yet to

book (15.3%) remained 11.8% above the historical average and the TITAN 5500 sales yet to

book to achieve the forecast (20.4%) were 13.3% above the historical average. (R. 324-1, ¶ 45.) 

On March 16, 2001, Anders Gustafsson, Vice President of Global Sales, wrote an email

to Notebaert, Ryan, Jackman, Birck, and others giving a “positive update” on first quarter sales

and stating, “I am very encouraged with this progress, and I believe we will make the adjusted

revenue target.” (R. 336-1, ¶ 45.) Also on March 16, 2001, Don Jones emailed the North

American sales force and stated that recent “big wins . . . have really put us in the hunt” to meet

the first quarter forecast. Id. On March 19, 2001, Notebaert held a staff meeting during which

Don Jones presented an updated sales forecast, $835 to $845 million, which was in line with

Tellabs’s revised guidance. (R. 301-9, Ex. 58, p. 1678.) At the same meeting, Joan Ryan

presented an updated forecast from Tellabs’s finance department predicting that the first

quarter’s total revenue would come in at between $830 and $860 million, almost precisely the

range of the revised guidance provided on March 7, 2001. Id.

There was some evidence in early 2001 that customer demand was decreasing. Rick

LaDuca, Vice President for the Verizon account, in an email dated March 21, 2001 with the

subject “Revenue Alert” sent to various persons in sales and marketing and copied to Notebaert,

reported on a conversation he had had with a representative of Verizon: “When I told him what

our expectations were of business from Verizon this year, he laughed and said we’d be lucky to

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see half of that.” (R. 324-1, ¶ 46; R. 351-1, Ex. 120, pp. 146-47). LaDuca also testified that this

response may have been nothing more than the representative’s “gut opinion” and that he did not

recall what number he gave to the representative that resulted in this comment. Id. Nancy Sayer

of Verizon also testified: “[I]n 2000, our demand started leveling out. So, it was decreased from

what it had been previously.” (R. 330-2, Ex. 1017, p. 38.)

Soon thereafter, the picture changed and it became clear that customer demand was

decreasing. In the last two weeks of the first quarter, customers began to request that Tellabs

push out the shipping dates of approximately $83 million in firm or expected orders for the

TITAN 5500 that were originally scheduled to ship in the quarter. (R. 336-1, ¶ 47.) Notebaert,

referring to the requests to push out orders, stated that, “it was like somebody threw a switch. 

Totally unexpected.” Id. Ryan testified that the “push-out” “was more substantial that we’d

seen before in the past.” (R. 301-3, Ex. 18, p. 246.) If the $83 million of orders or letters of

intent had shipped as expected, Tellabs would have achieved its revised guidance for the quarter. 

(R. 336-1, ¶ 47.) As first quarter 2001 closed, it became apparent to Tellabs that although

revenue had increased significantly year-over-year from the first quarter of 2000, Tellabs would

not meet the March 7, 2001 revised guidance. (R. 336-1, ¶ 48.)

Tellabs’s “Period 3, 2001 Close Highlights,” prepared in early April after the

period closed at the end of March, reported, for the last four weeks of first quarter 2001, inter

alia: “Total revenue is $380.9M which is $68.9M below forecast/$222.5M below P12

[December 2000]. Revenues are down due to slow down in customer spending specifically for

the 5500, revenue deferrals for TITAN 5500 & Echo, and delayed Cablespan sales” and that

“ONG [Optical Networking Group] is below forecast by $63.4M ($68.8M TITAN 5500 offset by

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$5.4M 53X/532L) primarily due to soft orders and install revenue deferrals.” (R. 324-1, ¶ 47.) 

As a result, on April 4, 2001, Notebaert’s direct reports met to discuss the steps necessary to

align expenses with revenues. (R. 336-1, ¶ 53.) At the meeting, Steve McCarthy was assigned

to oversee the compilation of a new “2Q and Full Year Product-Level Revenue Plan” upon

which all direct reports to the CEO would agree. Id. Pfefferle and other members of the

forecasting organization, under the direction of McCarthy, assembled the updated revenue plan. 

Id. Similar to the process that took place in the fall of 2000, the team based the updated revenue

plan on information gathered from the sales teams, product houses, and other operating units, all

of which provided the most up-to-date information on expected demand based on what they were

hearing from Tellabs’s customers. Id.

Tellabs held a forecast meeting on April 5, 2001 to discuss updating the second quarter

and full year forecasts. (R. 336-1, ¶ 82.) As of that date, Tellabs had not settled on a revised

forecast for the full year 2001. Id. As a result of the meeting, Tellabs developed a series of

forecast scenarios with the most pessimistic scenario forecasting total revenues of $3.6 billion

for the year, with $834.8 million in revenues for second quarter 2001. Id. Using a process

similar to the one used to develop the original 2001 Operating Plan, Pfefferle and her team then

gathered “bottoms-up” information from Tellabs’s sales force concerning expected demand for

Tellabs’s products in order to determine the most realistic scenario. Id.

Pfefferle and her organization also conducted a “post-mortem” on the first quarter

forecast “to say what happened and what we need to do differently.” (R. 336-1, ¶ 54.) Pfefferle

identified that TITAN 5500 revenue had grown 22% year-over-year and that “[a]necdotal

information from key accounts indicates that fundamental drivers are still strong.” Id. Pfefferle

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also noted that Tellabs had shipped a large number of TITAN 5500s in the first quarter and that

these systems represented a “great annuity program in 2001 and beyond.” Id. The TITAN

5500s were a “great annuity plan” because an important source of TITAN 5500 revenue was

orders of additional port cards from customers who already had purchased the TITAN 5500

system from Tellabs. Id. Shipments of the TITAN 5500 thus created not only revenue from

immediate sales, but future revenue streams as well due to customer demand for additional port

cards. Id.

As a result of this updated forecast review, and subsequent to approval from each of the

officers who were direct reports to the CEO, the finance department recommended to Notebaert

that Tellabs revise its public guidance to a range of $3.6 to $3.7 billion for 2001. (R. 336-1, ¶

55.) Internally, marketing and product houses had set a “stretch target” of $3.9 billion. (R. 301-

11, Ex. 67, TEL 804903.) During the time leading up to April 18, 2001, no one expressed any

doubts to Notebaert that Tellabs would not achieve its revised guidance or that the revised

guidance was based on incorrect of faulty information.10 (R. 336-1, ¶ 55.)

Recognizing that Tellabs would not make its guidance, Notebaert wanted to inform the

public of the development as soon as possible, rather than waiting for the scheduled

announcement of actual first quarter results. Id. (R. 301-1, Ex. 9, ¶ 9.) Notebaert therefore

directed that an investors conference be scheduled for April 6, 2001 in order to pre-announce

Tellabs’s estimated first quarter results. Id. On the April 6, 2001 call, Tellabs reduced its

guidance for the first quarter to $772 million. (R. 336-1, ¶ 49; R. 324-1, ¶ 48.) According to

10 Plaintiffs improperly dispute this fact with citation to over 70 paragraphs from their statement of additional

facts. (R. 354-1, Resp. to ¶ 55.) The Court may disregard statements and responses that do not properly cite

to the record. See Cichon, 401 F.3d at 809-10. 

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Tellabs: “The revised guidance stems from reduced and deferred spending by major

communications carriers late in the quarter.” (R. 324-1, ¶ 48.) During an analyst teleconference

call that Tellabs hosted that same morning, Notebaert also stated: “Clearly, the environment has

resulted in near term caution in the pace at which customers are deploying equipment. Our

customers are exercising a high degree of prudence over every dollar spent. Let me balance this

a bit and say that everything we hear from the customers indicates that our end user demand for

services continues to grow.” Id. Notebaert also stated: “The good news there is that the orders

weren’t cancelled. It was just do it after the end of the quarter.” Id. During the April 6, 2001

call, Tellabs did not offer any guidance for the second quarter or full year. (R. 336-1, ¶ 50.) In

response to a question regarding guidance for future quarters, Ryan responded, “We are

currently evaluating that. We just closed the books last night and what we are giving today are

flash results but we will be discussing that and full year guidance when we talk on the 18th.” Id.

Also on April 6, 2001, Tellabs shares fell $7 to close at $33.75. (R. 324-1, ¶ 49.) Dr.

Allen opines that previously unrevealed information disclosed on April 6, 2001 constituted a

partial disclosure. (R. 330-14, Ex. 1053, p. 19.) Dr. Lehn disputes this characterization and

opines that Dr. Allen has not established that Plaintiffs suffered any economic loss. (R. 301-11,

Ex. 70, pp. 4-5, 16-20.)

I. Tellabs’s April 18, 2001 Revised Guidance

Soon thereafter, in an April 18, 2001 teleconference and press release, Tellabs announced

its actual first quarter results, as well as a plan for a reduction in force. (R. 336-1, ¶ 51.) Tellabs

also announced first quarter total revenue of $772 million, which matched the April 6, 2001

revised guidance. Id. Tellabs missed its original goal of 30% growth, and the results

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demonstrated year-over-year revenue growth of 21%. Id. Tellabs’s Optical Networking Group,

which housed the TITAN 5500, brought in $482 million worth of revenue in the first quarter,

which represented 22% year-over-year growth with respect to that product line. Id.

In its April 18, 2001 press release, Tellabs also announced that it was lowering its

guidance for the full year 2001. (R. 336-1, ¶ 52.) Tellabs forecasted that revenue for the year

would fall between $3.6 billion and $3.7 billion, instead of its original expectations for the year

of $4.4 billion. Id. Tellabs’s new guidance represented a 6% to 9% increase of the full year

2001 revenues. (R. 345-1, Resp. to ¶ 51.) This revised guidance was the result of another

“bottoms-up” review of Tellabs’s quarterly and full year forecasts. (R. 336-1, ¶ 53.)11 In the

press release, Tellabs stated that, “[i]n light of reduced and deferred spending by major

telecommunications carriers,” the company was eliminating salary increases for the year,

instituting a pay-cut for all corporate officers, “align[ing] manufacturing capability with demand

expectations,” terminating the SALIX next-generation-switching product effort, and

consolidating “excess” facilities. (R. 324-1, ¶ 50.) Tellabs also announced that it would reduce

its workforce by about 550 people, or 6% of its total workforce, that it had eliminated 450

temporary or contract positions, and that it would not fill 1,100 open positions. Id. Tellabs also

indicated that it planned to restructure and make other one-time charges in the second quarter in

the range of $150 million to $225 million for costs associated with reducing its workforce,

consolidation of excess facilities, related fixed asset disposals, asset impairment, and excess

inventory. Id. The actual charges Tellabs eventually recorded in second quarter 2001 were

11 Plaintiffs dispute this proffered fact, but fail to offer any evidentiary support for their denial. See R. 354-1,

Resp. to ¶ 53. The Court may disregard statements and responses that do not properly cite to the record. See

Cichon, 401 F.3d at 809-10. 

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larger, totaling approximately $262 million, an amount Ryan characterized as “huge.” Id. Also

during the analyst teleconference, with regard to sales of the TITAN 5500, Jackman stated:

“What we did see was in the absolute number of brand new systems a slight decrease against the

comparable quarter. We are also seeing another kind of mix because of the fact that we now

have these 2000 and 3000 port systems available. We are seeing a very, very large increase on a

comparable basis in the number of what we refer to as core expansions, which is almost like

selling a new system.” (R. 330-3, Ex. 1027, TEL 669464.)

J. Period After April 18, 2001 Revised Guidance

During the period after April 18, 2001, Tellabs’s sales showed more pronounced

weaknesses. (R. 301-11, Ex. 68, TEL 655218-19.) The April 2001 Monthly Executive

Financial Summary, which circulated among Tellabs’s executives in mid-May, reported, inter

alia: “[m]onthly results fall short of forecast,” “[c]ontinued soft bookings,” “84% of revenues

left to go to achieve Q2 expectations,” “P4 [April 2001] Revenue shortfall due to across the

board weakness in all product groups,” “Titan 5500 sales only 35% of plan,” “April revenue

below forecast due to continued soft bookings,” “[l]owest revenues since October 1998,”

“[l]owest bookings since May 1998,” and “75% of revenue required to ship and meet revenue

recognition guidelines in May and June - significantly higher than historical levels.” (R. 324-1,

¶ 52.) Moreover, in a May 17, 2001 letter to Birck, Notebaert reported:

Revenues are 33% below January and the lowest first month of a quarter since

October 1998. We are seeing further revenue softness halfway through May. At this

point we will not attain our quarter guidance for revenue or earnings. Revenues are

$50 million off forecast and 41% of plan. Bookings are at the lowest level since May

of 1998. The primary driver of this shortfall was slow Titan 5500 sales.

* * *

Inventory turns at 2.5 were the lowest since the company started. This resulted from

low sales and fulfillment of prior parts orders. We are currently running our builds

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at 30% below forecast to try to burn off inventory. Cash flow and investment

income were positive.

* * *

All in all, this quarter is extremely tough for us, however, there is light at the end of

the tunnel. Titan 6500 stays strong and Titan 6100 has had a second major customer

select it. These revenues will ramp towards the end of the year. Our challenge is the

second and third quarter.

(R. 301-1, Ex. 1081, TEL 661353.)

The May 2001 Monthly Executive Summary reported: “[m]onthly results continue to be

below forecast,” “[s]oft bookings continue,” “P5 [May 2001] Sales 66% below plan due to

reduced spending by major communication carriers and customer returns,” “Optical Networking

sales were main driver, down 90% from plan,” “Titan 5500 only 9% of plan,” “[w]eekly

bookings of $17.7M for 5500/532L needed to meet revised Q2 forecast (avg. is $12.7M),” “[a]ll

regions experienced weakness in May,” and “[forecast] reductions due to: 5500/532L -

continued soft bookings and a gap in identified opportunities . . . .” (R. 324-1, ¶ 54.)

By the middle of June, Tellabs’s executives realized that Tellabs would not achieve the

revised revenue guidance issued during the April 18, 2001 call for the second quarter or the full

year. (R. 301-1, Ex. 68, TEL 655218-19.) On June 19, 2001, following a special meeting of

Tellabs’s Board of Directors, Tellabs announced that it now expected second quarter revenue to

be around $500 million and refrained from giving any guidance beyond the second quarter

because of the unpredictability that Tellabs was encountering. Id.; R. 324-1, ¶ 87. This revenue

reflected a reduction of approximately $300 million. (R. 324-1, ¶ 87.) Tellabs also reduced

projected earnings per share from $0.29 to breakeven (before restructuring and other charges). 

Id. Tellabs further announced that, “[t]he dramatic changes affecting the landscape of the

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telecommunications marketplace have continued to impact Tellabs.” (R. 324-1, ¶ 87.)12 In an

analyst call that same day, Notebaert stated, in part: “While it is clear that the entire telecom

equipment industry has been dealing with the impact of dramatic cutbacks in carrier spending

and general economic uncertainty throughout 2001, the impact of these forces on orders for our

products has become more pronounced during the second quarter. We have dealt with these

issues in the access portion of our product portfolio since late last year.” (R. 330-3, Ex. 1030,

TEL 655218.) With respect to the TITAN 5500, Notebaert acknowledged: “there have been a

lot of products in our . . . industry . . . -- great products like the 5500 where things have just

slowed.” Id. at TEL 655224.

The next day, June 20, 2001, Tellabs shares fell $5.16 to close at $16.04, almost 36

million shares. (R. 324-1, ¶ 89.) According to Dr. Allen:

Analyst reports show the contemporaneous adverse market reaction to the TLAB

disclosures. For example, the Raymond James June 20th equity analyst report (on

page 1) noted, “The weakness in the quarter can be attributed to the company’s

Optical Networking segment performance, driven primarily by disappointing Titan

5500 sales and slower-than-expected rollout of its next generation 6000 series

product.” Further, WR Hambrecht’s June 20th report (page 1) stated: “Tellabs’s

major revenue and earnings shortfall announced yesterday after the market close

reflects our well chronicled concerns regarding the erosion of the company’s core

Titan 5500 in advance of any new product traction from the company’s acquisitions

or internally developed Titan 6000 family of products. While the current carrierspending environment certainly hastened this transition, we continue to believe this

dynamic is central to Tellabs’s long-term prospects.” These material disclosures

were new revelations to the market, as evidenced by the Salomon Smith Barney June

19th analyst report (page 1): “Opinion: While the Preannouncement Was Not

Shocking, The Severity of Tellabs Business Erosion Was[.] After the market close,

Tellabs pre[-]announced significantly weaker than expected 2Q01 results. . . . Thus,

the news does not come at a complete surprise. What was shocking for us, however,

12 Plaintiffs also contend that Tellabs made these announcements “having known the truth for months” and

that its statement regarding the telecommunications market were contrary to previous statements. Plaintiffs,

however, provide no evidentiary support for these contentions and the Court will therefore not consider these

statements. See Cichon, 401 F.3d at 809-10.

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was the degree of the shortfall. We did not anticipate the severity of the fall-off in

Tellabs’s business.”

Id. 

On July 18, 2001, Tellabs announced its second quarter 2001 results:

Tellabs today announced second-quarter sales of $516 million . . . Revenues were

$801 million in the second quarter 2000. Before restructuring and other charges,

diluted earnings per share were 2 cents . . . Second-quarter net income amounted to

$10 million. In the year-ago quarter, diluted earnings per share were 39 cents, and

net income was $163 million. . . . Including restructuring and other charges, Tellabs

reported a loss of 43 cents per share for the quarter.

* * *

Optical Networking – For the second quarter 2001, sales of optical networking

equipment were $221 million. . . . Last year, second-quarter optical networking sales

were $528 million.

(R. 324-1, ¶ 90.) TITAN 5500 sales in second quarter 2001 were only $188.1 million as

compared with $467.7 million the previous year -- a drop of almost 60%. As a result of second

quarter 2001 results, Tellabs changed its forecasting analysis. (R. 330-2, Ex. 1015, p. 348.)

For the full year 2001, Tellabs reported net sales of $2,199.7 million and a net

loss of $182 million as compared to net sales of $3,387.4 million and net earnings of $730.8

million for 2000 -- a decline of more than 35% in net sales and about 125% in net earnings. (R.

324-1, ¶ 91.) In 2002, Tellabs reported an even larger net loss of $313.1 million. Id. Tellabs’s

2001 Annual Report, released in early 2002, confirmed that, in April 2001, Tellabs had begun a

series of layoffs, ultimately reducing its worldwide workforce by about 27%. Id. Tellabs closed

manufacturing plants in Ireland and Texas, consolidated product development and other

functions from 30 facilities into 20, and cut expenses dramatically. Id. Notebaert and Birck’s

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letter to stockholders stated: “Early in 2001, as our customers reduced capital spending and

expressed caution about the future, Tellabs began a deep process of self-examination.” Id.

13

K. Tellabs’s Inventory

Inventory turns measure the rate of turnaround of Tellabs’s inventory, with a lower

number signifying slower turnaround. (R. 324-1, ¶ 55.) Notebaert testified that “[i]nventory

turns are an important facet of the financials of the company” and that in May 2001 he was

concerned that inventory turns were low. (Id.; R. 345-1, Resp. ¶ 55.) Tellabs’s Senior Vice

President, Global Business Operations, John Kohler explained: “Consume the inventory, the

inventory turns go up. If the inventory is not consumed, the inventory turns will go down.” (R.

324-1, ¶ 55.) Inventory turns were among the “Trended Key Management Ratios” that the

Monthly Executive Financial Summary, circulated among senior management, regularly

reported. (R. 324-1, ¶ 56.) In addition to declining sales, however, inventory turns may decrease

due to a variety of factors. Jackman testified that lower inventory turn numbers could mean that

the company is “ramping up inventories in anticipation of later orders” or that sales are low. (R.

330-1, Ex. 1007, p. 114.) Ryan testified that declining inventory turns could be a good or bad

sign, and that declining inventory turns in late 2000 and early 2001 were due to “new product

introduction” and “field trial activities,” as well as build up of TITAN 6500 and 6100 inventory 

(R. 351-1, Ex. 119, p. 71-72, 133-34). Ryan also testified that Tellabs increased its supply of

certain parts due to shortages in first quarter 2000. Id.

Total inventory turns for the TITAN 5500 were lower in fourth quarter 2000 than they

were in earlier periods. (R. 330-31, Ex. 1215.) Inventory turns for both the TITAN 5500 and

13 Plaintiffs allege that this statement was “belated,” but offer no evidentiary support for that contention. 

The Court will accordingly disregard this characterization. See Cichon, 401 F.3d at 809-10.

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total worldwide inventory turns decreased from first quarter 2001 through third quarter 2001. Id.

In addition, inventory turns for the TITAN 5500 dropped during the Class Period. Specifically,

inventory turns for the TITAN 5500 were as follows in 2000 and 2001: second quarter 2000 (6.9,

7.3, and 8.5), third quarter 2000 (7.0, 6.4, and 6.7), fourth quarter 2000 (4.9, 4.1, and 6.7), first

quarter 2001 (5.4, 5.2, and 4.8), second quarter 2001 (3.5, 2.6, and 1.7), third quarter 2001 (1.5,

1.8 and 1.9), and October of fourth quarter 2001 (1.9). (R. 330-17, Ex. 1084, Ex. 1213). 

According to Tellabs, a “more normal level” of inventory turns is six. (R. 324-1, ¶ 56.)

In a report to the Audit Committee dated January 19, 2001, Tellabs’s auditor Ernst &

Young stated:

During fiscal 2000, the inventory balance increased approximately 130% over the

1999 inventory balance. While this increase is partially due to required stockpiling

of certain parts that are in short supply, inventory buildup for new product

introductions and planned increased sales levels, it appears the Company is carrying

higher levels of inventory than may be required which increases the risk of inventory

obsolescence.

We recommend the Company perform a detailed analysis of its inventory balances

by product line against projected sales levels and adjust inventory levels accordingly.

(R. 330-18, Ex. 1085, TEL 011008.) Tellabs management responded:

We have compared inventory levels against projected sales forecast by product as

recommended. We have incorporated this analysis into our monthly reporting

process. The recent analysis revealed three areas that need closer review. Formal

teams have been created to review Cablespan, SALIX, and Titan 5500 inventory

levels. . . . Recently we have experienced long lead times on certain parts that create

a supply pipeline which can be difficult to turn off given actual demand is lower than

expected.

Id.

On January 20, 2001, Ryan wrote John Kohler: “[T]here has been such a

continuous sharp increase in inventories (and decrease in turnover) in each quarter this year [i.e.,

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2000].” (R. 324-1, ¶ 58.) On March 4, 2001, Ryan wrote Notebaert, Jackman, and others,

referring to “higher ‘investments’ in inventories (which increased by 500% in 2000, and 300% in

January 2001).” And, in an April 22, 2001 email to McCarthy, Pfefferle, Tatara, Kohler, and

others, Ryan commented: “our inventory has multiplied faster than rabbits” and “we are

potentially facing a $90-160M excess inventory write-off.” Id. In a May 17, 2001 letter to Birck

regarding April 2001 financial results, Notebaert wrote, “[i]nventory turns at 2.5 [for April 2001]

were the lowest since the company started. This resulted from low sales and fulfillment of prior

parts orders.” Id.

L. Fourth Quarter and Full Year 2000 Financial Statements

With regard to Tellabs’s fourth quarter 2000 and full year 2000 financial statements,

Plaintiffs point to a number of transactions to argue that Tellabs engaged in “unnatural” deals

and channel stuffing.14 As general support for these practices, Plaintiffs first point to a

November 21, 2000 memorandum from Pfefferle to Tatara, Vice President Product Marketing,

regarding “Potential Opportunities to Increase 4Q Revenue” in which Pfefferle made “some

suggestions for you to consider to increase 4Q revenue opportunities.” (R. 324-1, ¶ 60.) 

Pfefferle specifically suggested that marketing personnel offer to help sales push particular

products due to abundant supply, offer extended terms to customers facing budgetary constraints

as a last resort offer, and offer sales discounts to incentive sales. Id. Plaintiffs also point to the

deposition testimony of various Tellabs employees. Edy Norek, Tellabs’s Associate Marketing

Manager, testified there was “an edict” from “[u]pper management” “to try to push modules on

13 As discussed in more detail below, the Court has not addressed facts regarding some of Tellabs’s

customers -- specifically, Pacific Bell, Sprint, Qwest and Walker -- because the Seventh Circuit previously

affirmed the district court’s dismissal of Plaintiffs’ channel stuffing claims based on allegations of fictitious

sales, back-dated orders, and “creative” incentives.

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the customer, whether they needed it or not.” (R. 330-1, Ex. 1013, pp. 91-92.) Joling also

testified that Notebaert suggested selling some of the equipment that SBC was expected to

purchase in first quarter 2001 to Telcobuy in fourth quarter 2000 (R. 330-1, Ex. 1008, pp. 114-

15.)

A number of Tellabs employees testified that Tellabs did not ship unordered products to

customers. Richard LaDuca testified that Verizon would provide a purchase order to Tellabs for

every system Verizon purchased before Tellabs shipped the product. (R. 301-4, Ex. 26, p. 104.) 

John Kohler testified that Tellabs did not ship or invoice any goods that had not yet been

ordered. (R. 301-5, Ex. 33, pp. 72-73; see also R. 301-3, Ex. 18, p. 509.) Indeed, Tellabs’s

guidelines on revenue recognition required a “[p]roperly approved purchase order” or a signed

contract before Tellabs could recognize revenue on a sale. (R. 336-1, ¶ 62; R. 301-12, Ex. 75,

TEL 362171.) Specifically, Tellabs’s standard revenue recognition policy, issued on February

28, 2001, stated: “Revenue recognition is not dependent upon Customer Acceptance, as the

Demonstrated acceptance criteria have been satisfied. Product revenue is recognized upon

transfer of title (other than a security interest) and risk of loss to the customer. This usually

occurs upon shipment or delivery, depending upon the shipping terms of the contract. Revenue

for services is recorded upon completion of the services.” (R. 330-18, Ex. 1090.) Tellabs’s

2000 Annual Report also explains: “Product revenue is recognized when all significant

contractual obligations have been met, including the terms of the shipment, and collection of the

resulting receivable is reasonably assured.” (R. 324-1, ¶ 62.)

Plaintiffs also highlight that, in first quarter 2001, returns of all products totaled $3.4

million, including $2.158 million returns of the TITAN 5500. (R. 336-1, ¶ 63.) These returns

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totaled less than the returns in the same quarter during 2000, even though revenue in fourth

quarter 2000 was 42% higher than in fourth quarter 1999. Id. Returns of the TITAN 5500 in

first quarter 2001 were also lower than returns in the previous two quarters. Id.

Plaintiffs also highlight a series of specific transactions, detailed in the following

sections, which they contend reflect “channel stuffing” or unnatural deals. Despite the returns

Tellabs accepted and the transactions detailed below, Tellabs’s CFO signed off on its 2000

financial statements. In addition, an independent auditor, Ernst & Young, LLP, issued an

opinion that Tellabs’s balance sheets as of December 29, 2000 presented fairly, in all material

respects, the consolidated financial position of Tellabs as of December 29, 2000. (R. 301-1, Ex.

3, TEL 258062.)

1. Telcobuy

Telcobuy was a “value added reseller” during the Class Period. (R. 336-1, ¶ 66.) As

such, Telcobuy would purchase products from Tellabs and then resell those products to its

customer, SBC. Id.

An un-executed letter dated October 16, 2000 documents a draft agreement under which

Tellabs would agreed to extend payment terms for Telcobuy on orders that Telcobuy placed on

behalf of SBC during fourth quarter 2000. (R. 330-18, Ex. 1094.) Denise Feigh, who supervised

sales to value added resellers such as Telcobuy, testified that the draft agreement was a proposal

from Tellabs to Telcobuy to purchase TITAN 5500 systems for resale to SBC, not port modules

(“PICS”). (R. 351-1, Ex. 122, pp. 181-84, 195-96, 209.) One of the terms of the proposed

agreement was that “Telcobuy.com must have a valid purchase order from SBC.” (R. 330-18,

Ex. 1094.) Feigh explained that while agreements for TITAN 5500 systems generally required a

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purchase order from the end-customer (because a large piece of equipment such as a TITAN

5500 system could not be delivered without, for example, specifications as to size, location, and

timing of installation), agreements for PICs did not. (R. 351-1, Ex. 122, pp. 181-84, 195-96,

209.)

In addition, on December 19, 2000, Telcobuy placed an order for $50.4 million of

TITAN 5500 PICS from Tellabs. (R. 324-1, ¶ 65; R. 336-1, ¶ 68.) As part of that deal, Tellabs

gave Telcobuy price discounts totaling 8% and 80-day payment terms. (R. 324-1, ¶ 65; R. 301-

14, Ex. 83, TEL 817019.) Telcobuy issued a purchase order for the $50.4 million in products. 

(R. 301-14, Ex. 83.) The amount ordered by Telcobuy in December 2000, which was intended

to fill SBC’s requirements during first quarter 2001, was based on an historical analysis of the

amount and mix of modules ordered by SBC in previous years. (R. 336-1, ¶ 68.) Joling testified

that he considered “the size of the discounts unusual in the normal course of business.” (R. 324-

1, ¶ 65.) He also stated that this was “a major purchase” “that would have been several months

worth of product that SBC may have used.” Id.

15 He further explained that “Tellabs gave them

[Telcobuy] enticements to take a large amount of inventory based on historical usage patterns

from SBC under the hope that it would be sold.” (R. 324-1, ¶ 65.) According to Joling,

Notebaert personally “directed” him to proceed with the order so that Tellabs could recognize

additional revenue in 2000. Id. At the time it made the deal, Tellabs was aware that SBC was

deferring spending until 2001. (R. 330-18, Ex. 1099.)

15 Plaintiffs also assert that Joling testified that Tellabs was aware that Telcobuy did not have a valid

purchase order, but the deposition testimony Plaintiffs rely on refers to the sale of TITAN 5500 systems, not

TITAN PICS. (R. 330-1, Ex. 1008, p. 71; R. 351-1, Ex. 122, pp. 181-84.)

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In 2001, however, the “Southwestern Bell” segment of SBC did not place orders for the

modules at the expected rate. (R. 336-1, ¶ 68; R. 324-1, ¶ 69.) Although Tellabs shipped the

$51 million order to Telcobuy in December, by February 2001, Telcobuy had shipped less than

$2 million of inventory to SBC. (R. 324-1, ¶ 66.) On February 23, 2001, Denise Feigh,

Manager Global Sales Operations, wrote Gustafsson, urging him to assist Telcobuy: “Please

support our cause on delivering on a promise (we will help Telcobuy move the port modules)

that was made to a partner when they helped us at a critical time.” Id. Tellabs attempted to

assist Telcobuy to sell these modules, including by working with other geographic portions of

SBC that were purchasing the TITAN 5500, in an effort to clean up the accounts receivables. 

(R. 336-1, ¶ 68.) In May 2001, Tellabs agreed to allow Telcobuy to return $12 million of

the $50 million order of mostly TITAN 5500 equipment, despite the fact that Telcobuy’s credit

did not allow a right of return. Id.; R. 324-1, ¶ 66, 69. In an email prior to the return, Joling

stated that “[i]t is my opinion that we should take back the Telcobuy 6.1 deal. SBC did not come

through on this earlier commitment and we should no longer hold Telcobuy to this. Under

normal situations we would not have run this through Telcobuy without a firm SBC [purchase]

order.” (R. 330-18, Ex. 1097, TEL 654604.) There is no indication in Joling’s email, however,

that Tellabs violated any contractual provision relating to purchase orders. On May 18, Tellabs

accepted return of $12 million of port modules “that were shipped out in December of 2000 that

a) [do] not have an SBC purchase order for, or b) [are] outside the SBC forecast through

November 2001.” (R. 324-1, ¶ 69.) In addition, on June 1, 2001, Tellabs recorded returns from

Telcobuy for full credit, totaling $28,632,968 (one return for $23,338,398 and another for

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$5,294,570). Id. These returns related to the product shipped to Telcobuy in fourth quarter 2000

(on December 21, 2000) and first and second quarters 2001 (on March 30 and April 4, 2001). Id.

Feigh testified that Tellabs always had a purchase order before shipping product and that

the agreements between Telcobuy and Tellabs did not provide Telcobuy a right of return. (R.

336-1, ¶ 69.) Joling testified that Telcobuy did not tell him that Tellabs had shipped Telcobuy

product that Telcobuy did not want and that Tellabs gave Telcobuy “enticements,” or discounts,

to buy TITAN 5500 modules which Telcobuy intended to resell to SBC. (R. 336-1, ¶ 70.)

In addition, Tellabs gave Telcobuy discounts of 1% and 3% on certain orders in first

quarter 2001 that had the effect of causing revenue that Tellabs had expected from SBC in later

quarters of 2001 to be booked in first quarter 2001. (R. 324-1, ¶ 67.) Moreover, on March 27,

2001, Steve McCarthy wrote to Mike Mayszak, Group Manager, Business Management,

Regional Bell Operating Companies, about a deal with Telcobuy for a $7 million TITAN

modules order. He cautioned:

My opinion is that we are setting a dangerous precedent by cutting another end of

quarter deal with Telcobuy. By doing this 2 quarters in a row we now have

established a pattern of behavior that will be used against us in the future. 

Ultimately, if we need this as the last $7M to make the quarter then we go as far as

we did last quarter for the $50M which was an additional 6% discount over their

contract discount of 2%.

(R. 324-1, ¶ 68.) The same day, during a phone conversation with Mayszak and Jim Roche,

Manager of the Telcobuy account, Joling stated he “didn’t think it was appropriate to add an

additional 7 million to an inventory that was already swollen . . . .” Id.16

16 Plaintiffs contend that this deal closed at the end of March 2001, but the evidence cited only reflects that

Tellabs was “trying” to get the opportunity to close at that time. (R. 330-18, Ex. 1106.)

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Dawn Pawlowski, Tellabs’s revenue recognition manager, reviewed the December 2000

Telcobuy transaction and found that it was in conformance revenue recognition requirements. 

She conditioned her approval on a series of statements including that Telcobuy did not have a

contractual right to return equipment. (R. 301-14, Ex. 86.) Pawlowski did, however, indicate

that a net ninety day payment “seems a little long,” but left the issue to the judgment of Andrea

Rebmann and Mark Striepling, Tellabs’s credit managers. Id. Pawlowski was aware that

Telcobuy was relying on SBC for resources to pay for the product. Id. Pawlowski and

Striepling were responsible for making the determination about revenue recognition, and

Notebaert was not involved in any respect in making this determination. Id. 

2. Verizon

During a strike at Verizon in the summer of 2000, Verizon asked Tellabs to lend 

employees to Verizon to help fill out planning documents. (R. 336-1, ¶ 64.) Joling, a former

Tellabs employee who was the head of sales for SBC, testified that Tellabs used channel stuffing

as a strategy and that a co-worker who worked under LaDuca on the Verizon account told him

that Tellabs employees “went into Verizon and actually wrote the engineering documents and

the purchase orders for the Tellabs equipment while they were on strike.” (R. 336-1, ¶ 65; R.

330-1, Ex. 1008, p. 103.) Joling, however, also testified that he had no connection to the

Verizon sales account and that he has no personal knowledge of Tellabs employees writing

purchase orders for Verizon. Id. He further testified that he did not necessarily believe that

purchase orders were sent to Verizon that Verizon never signed off on. (R. 301-1, Ex. 1008, p.

189.) Indeed, Verizon had authorized the activities of the Tellabs employees assisting Verizon

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and had approved all purchase orders within Verizon before Verizon sent them to Tellabs to fill.

(R. 336-1, ¶ 64.)

In addition, in October 2000, with Notebaert’s knowledge, Tellabs concluded an

arrangement with Verizon that allowed Verizon to resubmit as turnkey orders, which were not to

be invoiced until 2001, up to $10 million of orders that Verizon had already placed. (R. 324-1, ¶

72.) Rick LaDuca, Verizon Account Manager, explained that turnkey “is a contract amendment

that states that we will not invoice them until 2001.” Id. In other words, turnkey is simply an

extended payment term. Id. In exchange, Verizon committed to place an additional $75 million

to $100 million in new, non-turnkey orders, which were to be invoiced in late December 2000

“SO THAT VERIZON ISN’T REQUIRED TO PAY UNTIL NEXT YEAR,” although Tellabs

would recognize the revenue in fourth quarter 2000. Id. In an October 23, 2000 email, LaDuca

acknowledged: “THE AGREEMENT TO INVOICE LATE IN DECEMBER WAS A VERBAL

AGREEMENT BETWEEN MYSELF AND CHUCK DUNSEY [Verizon] AS A VEHICLE TO

GET ADDITIONAL BUSINESS IN 4Q. OTHERWISE VERIZON WOULD WAIT UNTIL

2001 TO PLACE THE ORDERS!!” Id. Tellabs sought to avoid pushing out sales slated for

shipment in September to fourth quarter 2000 to avoid those sales becoming part of the turnkey

deal. (R. 330-19, Ex. 1113.) Tellabs and Verizon also discussed a November 2000 deal, but

there is no evidence that the deal ever occurred. (R. 330-19, Ex. 1119.)

In March 2001, Tellabs made a commitment to Verizon to provide a $3 million credit for

future services in exchange for Verizon’s placing $20 million of purchase orders for TITAN

5500 products for shipment in first quarter 2001, rather than second or third quarter 2001. (R.

324-1, ¶ 75.) Ultimately, Verizon purchased only $11 million of equipment, and Tellabs reduced

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the credit to $2 million. Id. This caused revenue that Tellabs had expected from Verizon in later

quarters of 2001 to be booked in first quarter 2001. (R. 345-1, Resp. ¶ 75.) Tatara wrote: “the

actual equipment that was associated with the $11M in 1Q orders will now not be installed until

2002 ...” (R. 330-19, Ex. 1125.) In addition, a Special Deal, Credit and Revenue Recognition

Authorization Summary for first quarter 2001 listed a $13 million “approved special deal” with

Verizon. (R. 330-19, Ex. 1126.) It is unclear whether the special deal, however, is associated

with the March 2001 agreement, and McCarthy testified that the document was a list of deals

that did not materialize during first quarter 2001, though some materialized later. (R. 351-1, Ex.

118, pp. 151-52.)

Notes from an April 27, 2001 meeting reveal Verizon’s concerns regarding the fact that

Tellabs had shipped products to Verizon well before Verizon’s installation dates. (R. 330-19,

Ex. 1129.) The meeting notes indicate that Tellabs shipped products to Verizon when there was

no connection between the installation date and the ship date, and that in some cases the site was

not ready for installation or installation crews were not available. Id. Verizon thus informed

Tellabs that it would not accept equipment deliveries without a firm delivery date. Id. In order

to rectify the problem, meeting notes reflect that Tellabs intended to discuss speeding up the

installation process with Verizon and that Tellabs would develop an internal process to manage

Verizon orders and installations.17 On April 30, 2001, LaDuca emailed a summary of issues

impacting Tellabs’s “ability to generate revenue at Verizon.” (R. 324-1, ¶ 78.) LaDuca

indicated that one of Verizon’s concerns was Tellabs’s track record of installing systems. (R.

330-19, Ex. 1130, TEL 387546.) Another issue was Tellabs’s strategy of shipping systems in

17 In addition, in two instances, Tellabs also mistakenly shipped products to two other customers who had

put holds on their orders. (R. 330-19, Exs. 1127-1128.) 

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third and fourth quarter 2000 because Verizon “believe[d] that [Tellabs was] too aggressive in

shipping systems well in advance of our installation start date. They are reviewing their position

on this, but I suspect that in the absence of a compelling win-win deal, we will not be able to

duplicate our 4Q00 heroics.” Id.

V. TITAN 5500 Statements

During the March 7, 2001 analyst call, an analyst asked Tellabs: “The TITAN 5500, can

you give us an update on how that flagship product is doing? I am assuming based on the size of

number cuts that you are not seeing any weakness there at all.” Brian Jackman responded: “We

are not. We are still seeing the product continue to maintain its growth rate and is still

experiencing strong acceptance. We are in the process of turning [up] a large number of frames

we shipped in the fourth quarter and this is continuing to grow as usual. I think that is pretty

much on plan.” (R. 336-1, ¶ 84.) Jackman testified that he based his statement on forecasts from

the sales organization which revealed that Tellabs still expected to make the plan for the TITAN

5500 and “customer’s expectations that they were still to take a fair number of frames.” Id.

Indeed, during the second half of February 2001, Jackman approached the sales and marketing

executives to ask if they were seeing any weakness in demand and they responded that they were

not. (R. 301-2, Ex. 14, p. 386; R. 301-3, Ex. 19, p. 967-68.) Based on this information, Jackman

testified that he believed that the slowdown in the industry was not affecting Tellabs in the same

way as some of its competitors, either because it was in a protected niche or because it was

taking market share from competitors. (R. 336-1, ¶ 85.)

Two weeks later, on March 14, 2001, Tellabs distributed its Annual Report to investors

(R. 336-1, ¶ 87.) In the Annual Report, Tellabs included a “Q&A” section in which Birck and

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Notebaert answered questions that were frequently asked by investors and that Tellabs believed

would be of interest to investors. Id. One of the questions asked was, “Your core business is

built on the TITAN 5500 – are you worried that this product has peaked?” The Annual Report

stated in response:

No. In 2000, TITAN 5500 revenues grew 56%, its best year so far. Although we

introduced this product nearly 10 years ago, it’s still going strong because we keep

adding new capabilities so it can do more and more for our customers. For example,

last year we introduced a new TITAN 5500 system with 50% more capacity – enough

to handle 1 million simultaneous Internet sessions. Now customers want an even

larger TITAN 5500 system. That’s why we believe there are many years of life ahead

for this highly successful product.

Id; R. 324-1, ¶ 43. Pfefferle asserts that while sales of the TITAN 5500 were slower than hoped

for in January, as of mid-February 2001, no one was forecasting a decline in TITAN 5500 sales

in 2001 due to the January results alone. (R. 301-1, Ex. 8, ¶ 14.) As of April 18, 2001, when

Tellabs revised downward its full year guidance, it was still predicting 10%-15% year-over-year

growth for all optical networking products. (R. 301-10, Ex. 64, TEL 669457.) 

Finally, on the April 6, 2001 conference call, Notebaert stated:

In just the last few weeks, however, we experienced a more controlled order flow

from our larger customers than we originally anticipated. Clearly the environment

has resulted in near term caution in the pace at which customers are deploying

equipment. Our customers are exercising a high degree of prudence over every

dollar spent. Let me balance this a bit and say that everything we hear from the

customers indicates that our end user demand for services continues to grow. 

Fortunately for Tellabs, our TITAN family of products helps our carrier customers

meet this demand in a cost effective way, which is the major reason we are still able

to grow total revenue 20% year-over-year even in this environment.

(R. 336-1, ¶ 90.) Industry analysts used the term “end user” to refer to customers of Tellabs’s

service providers, its core customer base. (R. 301-15, Ex. 95, TEL 660322, Ex. 696, TEL

766103.) In mid-March 2001, the Senior Vice President of Large Business Sales reported to

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Tellabs’s Chief Information Officer that he expected frame relay services provided by Sprint to

its customers, i.e. end users, to grow by 25% in 2001, IP by 40%, ATM by 50%, and private line

by 5%. (R. 301-15, Ex. 97, TEL 803364-65.) On March 28, 2001, Worldcom filed a Form 8-K

in which it also stated that it was continuing to predict growth in its provision of local and long

distance private lines, frame relay, ATM, and Internet services, including dial-up. (R. 301-15,

Ex. 98, pp. 6-12.) Worldcom did not provide forecasts regarding the portion of the market share

it could capture with respect to each of these sectors. Id. An Optical Networking Group report

dated March 5, 2001 reflects that these services “fuel the growth for Tellabs’s optical networking

products.” (R. 301-16, Ex. 99, TEL 017486.)

In addition, several major service providers reported in their first quarter results at the

end of April that end user demand for their services grew over the prior year. (R. 336-1, ¶ 93.) 

SBC, for example, reported that its “core data transport products, including SONET, DS3s, and

ATM, also showed strong first-quarter growth that was driven by enterprise customers whose

increased use of sophisticated applications requires significantly more bandwidth.” Id. AT&T

reported that its Frame Relay, ATM, and IP services grew approximately 40% in the first quarter

over the prior year. Id. Verizon reported that it, “ended the quarter with data circuits in service

equivalent [DS0 equivalent] to 49.1 million voice-grade access lines, up 58.7 percent from first

quarter 2000. These data circuits combined with 62.9 million voice-grade access lines to give

Verizon 112 million total access line equivalents in service at the end of the quarter, 19.8 percent

more than at the end of the first quarter 2000.” Id. Qwest stated that demand for its

services “remains robust.” Id. Tartara also testified that, as of July 2001, “we believed at that

time that the end-user use of the Internet and growth in data would continue in an unrestricted

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manner, and therefore, the TITAN 5500 revenues would continue in an unrestricted manner.” 

(R. 301-17, Ex. 104, p. 1119.)

Furthermore, analysts also observed at that time that service providers were indicating

that end user demand was continuing to grow. (R. 336-1, ¶ 94.) On January 23, 2001, AG

Edwards reported that demand for high-speed T1 and DS3 circuits continued to grow at 30-40%. 

Id. As of April 6, 2001, according to AG Edwards, those growth indications had not changed:

“Carriers have indicated that they are still experiencing strong growth for T1 services.” Id. 

Similarly, on March 8, 2001, Gruntal & Co. noted the existence of “strong end user demand for

communications services, namely data networking.” Id.

At the time that Mr. Notebaert made the challenged statements contained in the 2000

Annual Report and on April 6, 2001, he asserts that he fully believed they were entirely accurate,

not misleading in any way, and accurately reflected the best information and advice available to

him. (R. 301-1, Ex. 9, ¶¶ 8, 10.) Other Tellabs executives prepared the statements in the Annual

Report, and other senior executives reviewed and vetted both statements in advance. None of

these executives raised any issues with Notebaert regarding these statements. Id.18

VI. Statements Not at Issue

Pursuant to the Court’s December 9, 2009 minute order, Plaintiffs are “barred from

pursuing the allegations of misrepresentation relating to the following statements concerning the

TITAN 6500 under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5

promulgated thereunder”:

18 Plaintiffs improperly dispute this fact with citation to 84 paragraphs from their statement of additional

facts. (R. 354-1, Resp. to ¶ 102.) The Court may disregard statements and responses that do not properly

cite to the record. See Cichon, 401 F.3d at 809-10.

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a. Tellabs’s December 11, 2000 press release: “The TITAN 6500 system is

available now.”

b. Defendant Notebaert’s statement during the March 7, 2001 analyst

conference call: “Interest and demand in the 6500 continues to grow. . . . We

continue to ship . . . 6500 through the first quarter. We are satisfying very

strong demand and growing customer demand.”

c. Defendant Notebaert’s statement during the April 6, 2001 analyst conference

call in response to a question whether Tellabs was still on track to recognize

6500 revenue in the second quarter: “[T]he 6500 is showing strength . . . we

should hit our full manufacturing capacity in May or June to accommodate

the demand we are seeing. Everything we can build, we are building and

shipping. The demand is very strong.”

(R. 311-1, 12/09/2009 Minute Entry, p. 3.)

VII. Loss Causation

Plaintiffs have retained Professor Linda Allen to render her opinion regarding, in part, 

loss causation. (R. 336-1, ¶ 58.) Professor Allen opined that the evidence demonstrates loss

causation in connection with Tellabs’s disclosures on April 6, 2001 and June 19, 2001. (R. 330-

14, Ex. 1053, p. 12.) Defendants’ damages expert, Professor Kenneth Lehn, opined that

Plaintiffs’ expert did not established loss causation. (R. 301-11, Ex. 70, ¶ 26.) In formulating

his opinion, the materials Professor Lehn relied upon included publicly available information

compiled by staff at Cornerstone Research. (R. 330-18, Ex. 1101, p. 34.) Professor Lehn found

no indication that it ever became known to the market that Tellabs’s fourth quarter financial

statements were misstated or that Tellabs’s stock price declined as a result of such market

knowledge. (R. 336-1, ¶ 57.) In addition, Tellabs never restated its fourth quarter or full year

2000 financial statements, or otherwise indicated that its reported financial results were

materially misleading. Id.

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 In forming her opinions regarding loss causation, Professor Allen identified “at least

three components to the alleged misstatements,” including statements regarding the TITAN

5500, statements regarding the TITAN 6500, and Tellabs’s 2001 forecasts. (R. 301-12, Ex. 72,

pp. 12-13.) Professor Allen also stated that, “[p]art of the alleged misstatements involve

inflation of sales figures and forecasts through illegitimate sales practices and ‘channel stuffing’

of [the TITAN 5500].” Id. at p. 13, n.15. Professor Allen does not explicitly assert in her report

whether she has taken a fraud-on-the market or a materialization of risk approach to her analysis. 

(R. 330-14, Ex. 1053.) In her deposition, Professor Allen testified that she was not aware

whether Plaintiffs had alleged that any public disclosure would have revealed that there was any

accounting issues with respect to Tellabs’s reported financial results. (R. 301-12, Ex. 73, p.

131.) Professor Allen opined that, with respect to Tellabs’s June 19, 2001 guidance, “the

previously undisclosed information released by Tellabs on June 19, 2001 involved both

[Tellabs’s] sales revenue shortfalls in its existing product line (e.g., the TITAN 5500 flagship

product) and delays in sales of new products such as the TITAN 6500.” (R. 330-14, Ex. 1053, p.

20.)

Professor Lehn contends that he did not find any corrective disclosure related to the

shipping of unordered goods in fourth quarter 2000 on April 6, 2001 or June 19, 2001, or any

other date and that Professor Allen failed to connect the April 6, 2001 and June 19, 2001

disclosures to the allegations before the triers of fact. (R. 301-11, Ex. 70, ¶¶ 29, 49.) He also

asserts that Professor Allen’s statements regarding Tellabs’s January 23, 2001 statements,

including that the fourth quarter financial results “propped up” Tellabs’s stock price, are without

merit because she fails to demonstrate that the fourth quarter 2000 financials were incorrect and

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she fails to distinguish between analysts’ reactions to Tellabs exceeding expectations in fourth

quarter 2000 and reactions to affirmation of the 2001 forecast. Id. at ¶ 55.

VIII. Facts Relating to the Brieger Case

In Brieger v. Tellabs, Inc., 629 F. Supp. 2d 848 (N.D. Ill. 2009) (Kennelly, J.), plaintiffs

Don Brieger, Harry Schultz, Robert Becker, and Alan Burstin, on behalf of themselves and a

certified class, sued defendants Tellabs, Inc., Tellabs Operations, Inc., Richard C. Notebaert,

Michael J. Birck, Brian J. Jackman, Debra Ragusa, Michael C. Smiley, and Joan E. Ryan for

alleged breaches of fiduciary duties under the Employee Retirement Income Security Act, 29

U.S.C. §§ 1109 & 1132 (“ERISA”). Id. at 851. The Brieger named plaintiffs are different than

the named Plaintiffs in the case before this Court. See id.; R. 256-1, 2/23/2009 Memorandum

Opinion and Order. The Brieger class, however, involved “[a]ll persons who were participants

or beneficiaries of the Tellabs, Inc. Profit Sharing and Savings Plan at any time between

December 11, 2000 and July 1, 2003 and whose accounts included investments in Tellabs stock.” 

Id. While the defendants in the cases are not identical (R. 324-1, ¶ 92), all of the Defendants in

the present case were also defendants in the Brieger action. Id.; 629 F. Supp. 2d 848, 851 (N.D.

Ill. 2009).

One of the plaintiffs’ claims in the Brieger action was that Tellabs “engaged in troubling,

improper practices in an attempt to conceal the problems with the TITAN 5500,” including

“overloading customers with shipments of unwanted products and falsifying purchase orders.” 

(R. 336-1, ¶ 96) (citing Brieger v. Tellabs, Inc., Case No. 06-1882 (N.D. Ill.), Answer, Docket

Entry 82, Ex. 109 at ¶ 129). In a Rule 30(b)(6) deposition, which was later designated for

admission at trial, but not admitted, the Brieger plaintiffs questioned Verizon regarding whether

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the company was aware of Tellabs ever “shipping product without having a proper order for that

product.” The witness responded: “No, I’m not.” (R. 336-1, ¶ 97) (citing Tyd Dep., Ex. 110 at

57-58.) The Brieger plaintiffs argued at trial, based on certain internal Tellabs emails, that

Tellabs’s fourth quarter 2000 financial statements were misstated because Tellabs had shipped

unordered product to Verizon during the fourth quarter. (R. 336-1, ¶ 97) (citing Defendants’

Proposed Findings of Fact and Conclusions of Law, Ex. 111, ¶ 96 and Brieger Trial Tr., Ex. 112

at 1900-01 (arguing that emails established that Tellabs’s fourth quarter financial statements

were falsely inflated)). In this regard, the Brieger plaintiffs relied upon one of the very same

emails that Plaintiffs rely upon in this case to support their contention that Tellabs shipped

unordered product to customers—namely, the October 17, 2000 email from Rick LaDuca to

Notebaert stating that during a strike at Verizon, Verizon asked Tellabs employees to generate

planning documents. (R. 336-1, ¶ 97) (citing Brieger Trial Tr., Ex. 112 at 1900; Notebaert

Brieger Trial Test., Ex. 19 at 859-60).

Plaintiffs admit that the plaintiffs in Brieger, like Plaintiffs in this case, also challenged

Tellabs’s 2001 guidance as having been false, starting with the guidance given at the analysts

conference on December 11, 2000, and continuing through at least June 19, 2001. (R. 336-1, ¶

98) (citing Brieger v. Tellabs, Inc., Case No. 06-1882 (N.D. Ill.), Docket Entry 82, Ex. 109 at ¶¶

124-25, 141-42; Defendants’ Proposed Findings of Fact and Conclusions of Law, Ex. 111 at ¶¶

92-128, 132; Brieger Trial Tr., Ex. 112 at 1903-08).

Finally, the Brieger plaintiffs, again like Plaintiffs in this case, specifically challenged as

having been false: (1) Brian Jackman’s March 7, 2001 statement regarding the TITAN 5500

product sales that, “We’re still seeing that product continue to maintain its growth rate; it’s still

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experiencing strong acceptance,” and (2) the statement in Tellabs’s 2000 Annual Report, in

which Notebaert and Birck responded to a frequently asked question, “Are you worried that [the

TITAN 5500] has peaked,” by stating, “No.... Although we introduced the product nearly 10

years ago, it’s still going strong.” (R. 336-1, ¶ 99) (citing Brieger v. Tellabs, Inc., Case No. 06-

1882 (N.D. Ill.), Docket Entry 82, Ex. 109 at ¶¶ 131, 141; Plaintiffs’ Amended Proposed

Findings of Fact and Conclusions of Law, Ex. 113 at ¶¶ 110, 112).

In their second amended consolidated complaint, the Brieger plaintiffs did not

specifically challenged Notebaert’s April 6, 2001 statement regarding “end user demand.” (R.

330-21, Ex. 1151.) At trial, however, counsel for the Brieger plaintiffs asked Notebaert whether

he made the April 6, 2001 statement, “Everything we hear from our customers indicates that our

end user demand for services continues to grow.” (R. 301-3, Ex. 19, pp. 914-15.) In addition,

the Brieger plaintiffs alleged that the defendants concealed decreasing demand for the TITAN

5500. (R. 330-21, Ex. 1151, ¶¶ 123-32.)

LEGAL STANDARD

Summary judgment is proper when “the pleadings, the discovery and disclosure materials

on file, and any affidavits show that there is no genuine issue as to any material fact and that the

movant is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c); see Knight v.

Wiseman, 590 F.3d 458 (7th Cir. 2009). A genuine issue of material fact exists if “the evidence

is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). In

determining summary judgment motions, “facts must be viewed in the light most favorable to the

nonmoving party only if there is a ‘genuine’ dispute as to those facts.” Scott v. Harris, 550 U.S.

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372, 127 S. Ct. 1769, 1776, 167 L. Ed. 2d 686 (2007). The party seeking summary judgment has

the burden of establishing the lack of any genuine issue of material fact. Celotex Corp. v.

Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). “Thus, to survive

summary judgment, the nonmoving party must present evidence sufficient to establish a triable

issue of fact on all essential elements of its case.” Lewis v. CITGO Petroleum Corp., 561 F.3d

698, 702 (7th Cir. 2009); see Rozskowiak v. Vill. of Arlington Heights, 415 F.3d 608, 612 (7th

Cir. 2005) (the nonmoving party must present “evidence on which the jury could reasonably find

for the nonmoving party.”).

ANALYSIS

There are three remaining § 10(b) claims against Notebaert based on three categories of

alleged misrepresentations remaining at issue in this lawsuit: (i) statements regarding Tellabs’s

financial results for fourth quarter 2000 and full year 2000, (ii) Tellabs’s projections of earnings

and revenues during 2001, and (iii) statements regarding the TITAN 5500. There are also §

10(b) claims against Tellabs which are vicariously based on Notebaert and Jackman’s § 10(b)

liability. Makor II, 513 F.3d 702, 708 (7th Cir. 2008.) Defendants seek summary judgment on

each of these claims.

Section 10(b) of the Securities Exchange Act makes it “unlawful for any person, directly

or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails,

or of any facility of any national securities exchange . . . [t]o use or employ, in connection with

the purchase or sale of any security . . . 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.” 15 U.S.C. § 78j(b). 

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Pursuant to Rule 10b-5, promulgated by the SEC, it is unlawful:

(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 CFR § 240.10b-5. “In a typical § 10(b) private action a plaintiff must prove (1) a material

misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the

misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the

misrepresentation or omission; (5) economic loss; and (6) loss causation.” Stoneridge Inv.

Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008) (citing Dura Pharms., Inc. v.

Broudo, 544 U.S. 336, 341-342, 125 S. Ct. 1627, 161 L. Ed. 2d 577 (2005)); Pugh v. Tribune

Co. 521 F.3d 686, 693 (7th Cir. 2008.)19 The Court will address each category of

misrepresentations in turn.

I. Fourth Quarter and Full Year 2000 Financial Statements

Plaintiffs’ claims regarding Defendants’ fourth quarter and full year 2000 financial

statements derive from allegations that Defendants inflated their revenue by engaging in channel

stuffing. The parties dispute, however, which of Plaintiffs’ claims regarding channel stuffing

survived Defendants’ initial motion to dismiss. This dispute is easily resolved because the

18 Defendants are not challenging the materiality of any of the statements in the case and admit that the

market for Tellabs’s common stock was efficient during the Class Period. (R. 324-1, ¶ 97; R. 345-1, Resp.

¶ 97.) 

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Seventh Circuit made explicit that only Plaintiffs’ channel stuffing claims regarding unordered

product survived the motion to dismiss:

Although the amended complaint alleges that Tellabs inflated its fourth quarter

numbers through the use of fictitious sales, back-dated orders, and “creative”

incentives, the only allegation that the plaintiffs pleaded with sufficient

particularity is the charge that Tellabs flooded its downstream customers with

unordered TITAN 5500s. This practice, known as channel stuffing, creates a shortterm illusion of increased demand between the time when the company sends the

extra product down the line and the time when the distributors return the unwanted

excess. According to the plaintiffs’ confidential sources, Tellabs had to lease extra

storage space in January and February 2001 to accommodate the large number of

returns.

While there maybe legitimate reasons for attempting to achieve sales earlier via

channel stuffing, providing excess supply to distributors in order to create a

misleading impression in the market of the company’s financial health is not one of

them. The complaint relies on several confidential sources to support the channel

stuffing allegation. For example, one source informed class counsel that Verizon’s

chairman had asked Tellabs to stop providing Verizon, Tellabs’s largest customer,

with products that Verizon did not request or require. Given the consistency and

specificity of the plaintiffs’ channel stuffing allegations, the district court found, and

we agree, that the amended complaint provided sufficient detail of channel stuffing

to overcome the PSLRA’s material falsity hurdle.

Makor I, 437 F.3d at 598 (7th Cir. 2006) (emphasis added). This ruling is the law of the case. 

See Marseilles Hydro Power LLC v. Marseilles Land & Water Co., 481 F.3d 1002, 1004 (7th

Cir. 2007).

Plaintiffs attempt to draw a distinction between statements in the Court’s ruling on the

motion to dismiss referring to Tellabs’s “over-inventorying” of customers and the Seventh

Circuit’s pronouncement that the only allegations that survived are that Tellabs flooded its

customers with “unordered” products. This is a distinction without a difference. The Court

made clear that when “Tellabs over-inventoried it[s] customers” it “provided customers with

products that the customers did not want.” Johnson v. Tellabs, Inc., 303 F. Supp. 2d 941, 959

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(N.D. Ill. 2004). The Court also noted that Plaintiffs had sufficiently alleged that Tellabs

engaged in channel stuffing activities when the company “did not even have an agreement with

the ultimate purchaser of the product” and nonetheless shipped products “although customers did

not need the products.” Id. Plaintiffs misconstrue both courts’ rulings and contend that Tellabs

inflated fourth quarter revenues by “pulling forward at least $130 million of sales . . . before

Tellabs’s customers would have otherwise made such purchases in the ordinary course.” (R.

329-1, Pls.’ Opp’n., p. 38.) Plaintiffs further assert that “[b]ecause such accelerated sales were

induced by Tellabs, and not by the customer in the ordinary course, they were tantamount to

shipping unordered product” and that there is much evidence that Tellabs “shipped product

before the customer needed or expected it.” Id.

Both the Seventh Circuit and this Court’s opinion make clear, however, that the

allegations regarding pulling sales forward, accelerating sales, or incentivizing sales did not

withstand the motion to dismiss. The only claims that survived are the detailed claims regarding

Tellabs shipping unordered products or products that the customers did not want. With respect

to these narrow channel stuffing claims, the Court grants summary judgment for two

independent reasons. First, there is no evidence in the record to create a genuine issue of

material fact as to whether Tellabs ever shipped “unwanted” or “unordered” product to its

customers. Second, Plaintiffs have failed to create a genuine issue of material fact with respect

to loss causation.

A. Evidence of Channel Stuffing

Plaintiffs have presented no evidence sufficient to create a genuine issue of material fact

as to whether Tellabs was shipping “unwanted” or “unordered” products to its customers. 

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Specifically, Plaintiffs have also failed to point to any evidence supporting that Tellabs shipped

unordered or unwanted product to Verizon or Telcobuy.20

1. Verizon

With regard to Verizon, Plaintiffs highlight a series of incidents to support their channel

stuffing claims: (i) Tellabs’s involvement with Verizon during a Verizon strike in the summer of

2000, (ii) an October 2000 turnkey agreement between Tellabs and Verizon, (iii) a March 2001

deal regarding credit for future services to Verizon in exchange for purchase orders, and (iv)

communications between Tellabs and Verizon regarding the timing of Tellabs’s shipping and

installation dates. The Court will address each transaction in turn.

First, Plaintiffs point to a former Tellabs employee who testified that Tellabs used

channel stuffing as a strategy. The employee’s testimony derived from his interactions with

Verizon during a strike at Verizon in the summer of 2000. Tellabs assisted Verizon during this

strike by lending employees to Verizon. While the former Tellabs employee testified that

Tellabs used channel stuffing as a strategy, he also testified that he had no connection to the

Verizon sales account and that he has no personal knowledge of Tellabs employees writing

purchase orders for Verizon. In fact, he testified that he did not necessarily believe that Tellabs

sent purchase orders to Verizon that Verizon did not approve. Moreover, the undisputed record

reflects that Verizon had authorized the activities of the Tellabs employees assisting Verizon and

had approved all purchase orders within Verizon before Verizon sent them to Tellabs to fill.

19 Plaintiffs rely heavily on evidence regarding sales to Pacific Bell, Sprint, Quest and Walker. The evidence

regarding these customers -- when viewed in the light most favorable to Plaintiffs -- shows that Tellabs

merely offered Pacific Bell extended payment terms, pulled-in Sprint orders in fourth quarter 2000, offered

discounts to Qwest, and accepted a large return from Walker. Based on the Seventh Circuit’s ruling in this

regard and the fact that Plaintiffs do not even argue that Tellabs ever shipped unordered product to these

customers, the Court need not address the transactions with these customers. 

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Second, in October 2000, Tellabs made an agreement with Verizon involving turnkey

orders to bring in additional business in fourth quarter 2000. Specifically, Tellabs allowed

Verizon to resubmit up to $10 million of orders it had already placed as turnkey orders. The

record shows that these turnkey orders, however, were simply an extended payment term which

provided that Tellabs would not invoice Verizon until 2001. In return for this payment term,

Verizon committed to placing additional orders with Tellabs. With regard to these turnkey

orders, there is no evidence in the record that Tellabs shipped unordered product to Verizon.

Third, Plaintiffs point to a March 2001 deal in which Tellabs made a commitment to

Verizon to provide a $3 million credit for future services. In exchange, Verizon placed $20

million of purchase orders for TITAN 5500 products for shipment in first quarter 2001, rather

than the second or third quarter 2001. The evidence regarding this transaction again merely

shows that this agreement caused revenue that Tellabs expected from Verizon in later quarters of

2001 to be booked in first quarter 2001, not that Tellabs shipped unordered product to Verizon. 

Finally, Plaintiffs highlight correspondence between Tellabs and Verizon showing that

Verizon was dissatisfied with the timing of Tellabs’s shipping and installation dates. The

evidence relied on by Plaintiffs does show that Tellabs had shipped products to Verizon well

before the date Verizon intended to install the products and that, as a result, Verizon informed

Tellabs that it would not accept equipment deliveries without a firm delivery date. Once again,

however, there is no indication in the record that Tellabs shipped unordered product to Verizon,

and instead the record reflects that Verizon was dissatisfied with Tellabs’s actions in shipping

products that Verizon had ordered from Tellabs prior to Verizon’s installation dates.

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In sum, the Verizon transactions referenced by Plaintiffs -- even when viewed in the light

most favorable to Plaintiffs -- merely highlight a series of sales techniques employed by Tellabs

during the Class Period that Tellabs hoped would increase sales or move sales forward into

earlier quarters. Additionally, and critical to Defendants’ motion, none of the facts presented by

Plaintiff with respect to these customers indicate any evidence of Tellabs shipping “unwanted”

or “unordered” products to Verizon.

2. Telcobuy

With respect to Telcobuy, Plaintiffs highlight two transactions to support their channel

stuffing claims. With respect to the first transaction, there is no evidence in the record that the

October 2000 transaction ever occurred. While one of the terms of the proposed October 2000,

agreement was that Telcobuy must have a valid purchase order from SBC, Feigh, who

supervised sales to Telcobuy, explained that the draft October 2000 agreement was a proposal

from Tellabs to Telcobuy to purchase TITAN 5500 systems, not PICS. Indeed, Plaintiffs point to

only one executed transaction with Telcobuy, in an attempt to demonstrate that “Defendants

actually did ship unordered product.” (R. 329-1, Pls.’ Opp’n, p. 39.) Plaintiffs contend that the

evidence in the record demonstrates that Tellabs shipped product to Telcobuy intended for an

end-consumer, SBC, even though Telcobuy had no valid purchase order with SBC. The only

executed agreement to which Plaintiffs point, however, demonstrates that Defendants offered

Telcobuy a series of discounts and extended payment terms to induce sales, and that Tellabs

permitted Telcobuy to return software after it learned that, contrary to a verbal representation

that it had received from SBC, that SBC would not be upgrading its TITAN 5500 systems with a

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new feature package. This evidence does not raise an issue of fact regarding the channel stuffing

allegations remaining in the case.

Specifically, on December 19, 2000, Telcobuy placed an order for $50.4 million of

TITAN 5500 PICS from Tellabs. The evidence shows that Tellabs gave Telcobuy price

discounts and extended payment terms as part of that deal. While testimony from Tellabs’s

employees reveals that the discounts were “unusual in the normal course of business” (R. 324-1,

¶ 65), there is no evidence that Tellabs shipped unordered or unwanted products to Telcobuy. 

Instead, the uncontested evidence in the record reflects that after SBC failed to place orders with

Telcobuy for the modules at the expected rate in 2001, Tellabs agreed to assist Telcobuy to sell

the modules and also to allow Telcobuy to return $12 million of the $50 million order of mostly

TITAN 5500 equipment. Telcobuy’s agreement with Tellabs did not allow it a right of return,

but Tellabs accepted the products nonetheless. In sum, the evidence merely demonstrates that

Defendants offered Telcobuy a series of discounts and extended payment terms to induce sales

and that Tellabs permitted Telcobuy to return software after it learned, contrary to a verbal

representation that it had received from SBC, that SBC would not be upgrading its TITAN 5500

systems with a new feature package. 

Thus, there is simply no evidence in the record that would allow a reasonable jury to

conclude that Tellabs ever shipped “unwanted” or “unordered” products to its customers. No

one at either Verizon or Telcobuy supported Plaintiffs’ allegations in this regard. This reason

alone is sufficient to grant summary judgment on Plaintiffs’ fourth quarter and full year 2000

claims, but there is a further reason as well.

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B. Loss Causation

In order to survive summary judgment on their fourth quarter and full year 2000 claims,

Plaintiffs also must demonstrate loss causation. Dura Pharms., 544 U.S. at 341-342, 125 S.Ct. at

1631. The Supreme Court has defined loss causation in the § 10(b) context as “a causal

connection between the material misrepresentation and the loss.” Id. In order to succeed on a §

10(b) claim, Plaintiffs must allege and prove that Defendants’ alleged misrepresentations

proximately caused Plaintiffs’ losses. See Ray v. Citigroup Global Mkts., Inc., 482 F.3d 991,

994 (7th Cir. 2007). The Seventh Circuit has recognized “several ways in which a plaintiff

might go about proving loss causation.” Ray, 482 F.3d at 995. “The first is sometimes called the

materialization of risk standard. Caremark takes that approach, requiring the plaintiff to prove

that it was the very facts about which the defendant lied which caused its injuries. The second

approach is the ‘fraud-on-the-market’ scenario, which the Supreme Court discussed in Dura.

Under that theory, plaintiffs must show both that the defendants’ alleged misrepresentations

artificially inflated the price of the stock and that the value of the stock declined once the market

learned of the deception.” Id. (quotations omitted).

Plaintiffs argue that they can demonstrate loss causation via the materialization of risk

standard. Plaintiffs contend that Defendants’ channel stuffing activities masked declining

demand and artificially inflated sales at the expense of later reporting periods and that,

eventually, Tellabs’s problems were so pronounced that it was not able to hide them. In support,

Plaintiffs point to Dr. Allen’s opinion that Tellabs’s disclosures on April 6, 2001 and June 19,

2001 released information to the market about Defendants’ fraudulent activity. Plaintiffs further

contend that “[i]t does not matter that Tellabs’ [April 2001 and June 2001] corrective

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announcements . . . did not admit the Company’s fourth quarter 2000 financial statements were

misstated, or that Tellabs never formally restated its financial statements.” (R. 329-1, Pls.’

Opp’n, p. 36.) Relying primarily on a non-controlling case -- In re Motorola Sec. Litig., 505 F.

Supp. 2d 501, 538 (N.D. Ill. 2007) -- Plaintiffs argue that the risk Defendants sought to conceal

materialized causing Tellabs’s stock to decline in price.

Courts applying the Supreme Court’s analysis in Dura at the summary judgment stage

have stated that the Dura analysis provides “that a disclosure sufficient to satisfy loss causation

can occur in ways other than an announcement that points directly to a previous representation

and proclaims its falsity.” Id. at 540. Plaintiffs, however, misleadingly quote only a portion of

the Motorola court’s ruling. The Motorola court held: 

[A] securities fraud plaintiff is not necessarily precluded from establishing loss

causation where a corrective disclosure does not, on its face, specifically identify or

explicitly correct a previous representation, or expressly disclose the particular

fraudulent scheme the plaintiff alleges. In this case, the fact that Motorola’s

February 23 Warning did not mention Telsim, or refer on its face to Telsim or vendor

financing, is not necessarily fatal. The court acknowledges that the standard cannot

be so lax that every announcement of negative news becomes a potential “corrective

disclosure.” As Defendants correctly point out, courts have held that an earnings

warning, standing alone, is not a “corrective disclosure” because the resulting share

price decline does not necessarily dissipate the particular price inflation caused by

the alleged fraud. . . . Nevertheless, if a plaintiff shows, as Lead Plaintiff claims to

have done here, that significant aspects of the still-concealed fraud in fact provided

the catalyst for an anticipated failure to meet earnings forecasts, then the share price

decline following an earnings warning might indeed dissipate the fraudulent price

inflation; in such circumstances, there is no good reason why the earnings warning

should not serve as a disclosure in which “the relevant truth begins to leak out.” See

Dura Pharm., 544 U.S. at 342.

Motorola, 505 F. Supp. at 546. Significantly, however, the Motorola court continued:

In the court’s view, this evidence does not link the still-concealed Telsim

information to the earnings warning and thus to the decline in Motorola share prices

on February 23, 2001. The evidence Lead Plaintiff cites shows that Defendants were

aware of significant problems with Telsim on February 23. . . . But absent from the

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record is any evidence that these concerns actually motivated the February 23

Warning. At most, the evidence indicates that Motorola issued the earnings warning

at the same time that Defendants were aware of problems with Telsim that might

impact its earnings; there is no evidence suggesting that the earnings warning was

issued because of those concerns. The latter is required; mere temporal proximity

does not establish causation. See Schiller & Schmidt, Inc. v. Nordisco Corp., 969

F.2d 410, 415 (7th Cir. 1992) (to prove damages, “[p]ost hoc ergo propter hoc will

not do”). Despite extensive discovery in this action, Lead Plaintiff has offered no email correspondence, document, or testimony indicating that Motorola or its senior

executives issued the earnings warning on February 23, 2001 in anticipation of an

earnings shortfall that was due in particular to an expected loss of Telsim-related

income, rather than to Motorola’s stated reasons: economic conditions, business

weakness, and inventory corrections. Without such evidence, the causal link

between the concealed Telsim information and the share price decline on February

23 is simply too tenuous to satisfy loss causation.

Id. at 547. As in Motorola, Plaintiffs have not pointed to any evidence that Tellabs issued the

April 6, 2001 and June 19, 2001 announcements regarding revenue concerns due to the

company’s alleged channel stuffing activities.

The court’s analysis in In re Oracle Corp. Secs. Litig., 2009 WL 1709050, 2009 U.S.

Dist. LEXIS 50995 (N.D. Cal. June 16, 2009), is also instructive. In Oracle, the plaintiffs

argued that Oracle’s representation that one of its products was fully functional led to

“unrealistically high earnings expectations, which were corrected when the market recognized

the true state of Oracle’s flagship product on March 1, 2001.” Id. at *37-*38. The court,

however, found that there was no evidence that on March 1, 2001 Oracle “revealed previously

concealed information about [the product] or that analyst reports about the March 1

announcement linked the miss in Oracle’s applications earnings to previously concealed

deficiencies with [the product.]” Id. at *52. Accordingly, the Court found that the “[p]laintiffs’

only possible theory for loss causation is that the earnings miss itself revealed the truth about

[the product] to the market, but plaintiffs cite no case in which an earnings miss alone was

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sufficient to prove loss causation.” Id. The court therefore concluded that “plaintiffs have not

identified evidence that could lead a juror to conclude that defendants’ alleged

misrepresentations about [the product] were a ‘substantial cause’ of the decline in value of

Oracle’s stock” and accordingly granted summary judgment for the defendants on the issue of

loss causation. Id.

Similarly, Plaintiffs have pointed to no evidence, either in Dr. Allen’s report or

otherwise, to demonstrate that there is a causal connection between the channel stuffing

allegations and the decline in share value after Tellabs’s April 6, 2001 and June 19, 2001

announcements. The portions of Dr. Allen’s report cited by Plaintiffs merely express Dr. Allen’s

opinion that Tellabs’s April 6, 2001 and June 19, 2001 disclosures released previously

undisclosed information regarding declining sales. (R. 330-14, Ex. 1053, pp. 17-21.) Dr. Allen

does not connect Tellabs’s alleged channel stuffing activities as related to fourth quarter 2000

revenues with these disclosures. While the Court agrees that Plaintiffs need not demonstrate that

the corrective disclosures specifically corrected a previous representation or disclosed the

alleged fraudulent scheme, in order to demonstrate loss causation Plaintiffs must show a “link”

between the concealed information and the motivation to make the disclosure. Motorola, 505 F.

Supp. at 546-47; see also, In re Dell Inc., Securities Litig., 591 F. Supp. 2d 877, 909 (W.D. Tex.

2008) (“The disappointing earnings or expected earnings statements identified by the Plaintiffs

fail to reveal the falsity of any of Dell’s prior representations, and therefore do not qualify as a

corrective disclosure”); In re Rhodia S.A. Sec. Litig., 531 F. Supp. 2d 527, 545 (S.D.N.Y. 2007)

(“disclosure of financial losses generally - even if those financial losses are a result of the

specific concealed fact - is not sufficient” to demonstrate loss causation).

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Viewing the evidence in the light most favorable to Plaintiffs, Plaintiffs have not

produced evidence from which a reasonable jury could conclude that Defendants’

misrepresentations and omissions regarding its channel stuffing practices caused Plaintiffs’

losses. The Court accordingly grants Defendants’ motion for summary judgment with respect to

Plaintiffs’ fourth quarter and full year 2000 claims.

II. Tellabs’s 2001 Guidance

Plaintiffs also challenge the forward-looking guidance that Tellabs issued on December

11, 2000, March 7, 2001, and April 18, 2001. With respect to liability for “forward-looking

statements -- predictions or speculations about the future” -- the Private Securities Litigation

Reform Act (“PSLRA”) requires a party to show “‘actual knowledge’ of falsity,” “not merely

indifference to the danger that a statement is false.” 15 U.S.C. § 78u-5(c)(1)(B)(ii); Makor II,

513 F.3d 702, 705 (7th Cir. 2008); see also Slayton v. Am. Express Co., 604 F.3d 758, 773 (2d

Cir. 2010) (plaintiffs must show that a forward-looking statement “was . . . made or approved by

[an executive officer] with actual knowledge by that officer that the statement was false or

misleading”); Institutional Investors Group v. Avaya, Inc., 564 F.3d 242, 274 (3d Cir. 2009)

(“Since [§ 78u-5] specifies an ‘actual knowledge’ standard, the scienter requirement for forwardlooking statements is stricter than that for statements of current fact. Whereas liability for the

latter requires a showing of either knowing falsity or recklessness, liability for the former

attaches only upon proof of knowing falsity.”); Emplrs. Teamsters Local Nos. 175 & 505

Pension Trust Fund v. Clorox Co., 353 F.3d 1125, 1133 (9th Cir. 2004) (holding that actual

knowledge is required to impose liability for forward-looking statements); Theoharous v. Fong,

256 F.3d 1219, 1225 (11th Cir. 2001) (With respect to forward-looking statements, “the plaintiff

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must prove that the defendant made the statement with ‘actual knowledge’ that it was ‘false or

misleading.’”).21

While Plaintiffs refer to both Notebaert and “other senior management” when discussing

Tellabs’s liability for its 2000 and 2001 guidance, the PSLRA makes clear that, “there is no

liability if the plaintiff fails to prove that the statement (i) if made by a natural person, was made

with actual knowledge that the statement was false or misleading, or (ii) if made by a business

entity, was made by or with the approval of an executive officer of that entity with actual

knowledge by that officer that the statement was false or misleading.” Southland Sec. Corp. v.

INSpire Ins. Solutions Inc., 365 F.3d 353, 372 (5th Cir. 2004); see also Makor II, 513 F.3d at 708

(“[t]o establish corporate liability for a violation of Rule 10b-5 requires ‘look[ing] to the state of

mind of the individual corporate official or officials who make or issue the statement.’”) As

noted above, Notebaert is the only corporate officer whose § 10(b) liability has not been

determined in this litigation. Indeed, Plaintiffs do not argue that any other executive officers

made or approved Tellabs’s guidance with actual knowledge that the guidance was false or

misleading. The relevant inquiry is accordingly whether Notebaert had actual knowledge at the

time Tellabs issued the guidance that the statements were false or misleading. See Emplrs.

Teamsters Local Nos. 175 & 505 Pension Trust Fund v. Clorox Co., 353 F.3d 1125, 1134 (9th

Cir. 2004) (“[I]f the challenged statement is forward-looking, ‘the plaintiffs must have alleged

21 Plaintiffs appear to question the actual knowledge requirement set forth by the PSLRA. To support this

argument, however, Plaintiffs misleadingly quote a portion of this Court’s decision in Tellabs I. Contrary

to Plaintiffs’ representation, the Court’s decision also made clear that “[u]nder the PSLRA, a forward-looking

statement is actionable against a person only where it ‘was made with actual knowledge by that person that

the statement was false or misleading.’” Tellabs I, 303 F. Supp. 2d 941, 954 (N.D. Ill. 2004) (quoting 15

U.S.C. § 78u-5(c)(1)(B)(i)). Moreover, at oral argument on the motion for summary judgment, Plaintiffs

agreed that actual knowledge is the appropriate standard under the PSLRA.

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facts that would create a strong inference that the defendants made the forecasts with “actual

knowledge . . . that the statements [were] false or misleading” at the time made.’”) (internal

citations omitted); cf. Lorillard Tobacco Co. v. A&E Oil, Inc., 503 F.3d 588, 592 (7th Cir. 2007)

(highlighting distinction between “actual knowledge” and “willful blindness or failure to

investigate” which constitute mere knowledge under federal counterfeiting statute); Culver v.

McRoberts, 192 F.3d 1095, 1098-1100 (7th Cir. 1999) (in a suit for negligence brought pursuant

to state statute and common law, “[i]n order to establish actual knowledge by [an individual],

Plaintiff must prove [individual’s] knowledge under a subjective standard, not an objective

one”); Martin v. Consultants & Admrs., 966 F.2d 1078, 1086 (7th Cir. 1992) (noting that, with

regarding to knowledge of an ERISA violation, “actual knowledge must be distinguished from

constructive knowledge”). While Plaintiffs failed to specifically address Notebaert’s knowledge

on each date on which Tellabs issued the relevant guidance, the Court will address the evidence

regarding whether Notebaert had actual knowledge of the truth of Tellabs’s forecasts on

December 11, 2000, January 23, 2001, March 7, 2001, and April 18, 2001 in turn.

A. December 11, 2000 Guidance

On the first day of the Class Period, December 11, 2000, Tellabs provided a forecast of

30% growth in revenue and earnings per share for 2001. The Court has stricken the expert report

of Dr. Arthur Brody who opined on what conclusions Tellabs should have drawn regarding its

guidance based on publicly available information at the time. (R. 373, Memorandum Opinion

and Order.) Plaintiffs therefore must rely on other evidence such as Tellabs’s internal

documents and communications to establish that Notebaert had actual knowledge that the

guidance issued on December 11, 2000 was false or misleading. Plaintiffs, however, do not

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identify any communications, written or oral, to Notebaert prior to December 11, 2000. Instead,

Plaintiffs make broad statements without citing any supporting evidence and argue that Tellabs’s

forecasting process was not a true “bottoms-up” process and that therefore, by implication,

Notebaert knew that the December 11, 2000 guidance, which Tellabs based on this forecasting

process, was false or misleading. Plaintiffs have failed to raise a genuine issue of material fact

regarding Notebaert’s actual knowledge.

The uncontroverted testimony from a variety of Tellabs’s employees detailed Tellabs’s

“bottoms-up” forecasting process which resulted in Tellabs’s December 11, 2000 guidance. 

During the “bottoms-up” process, each operating unit gathered information about expected

demand for Tellabs’s products by talking directly to both Tellabs’s sales force and to some of

Tellabs’s major customers. The sales force provided direct information from customers. After

gathering this information, each operating unit totaled the data and supplied the information

regarding expected revenues and expenses to the finance department or Christine Pfefferle.

Plaintiffs’ objection to the existence of a “true” “bottoms-up” process rests on the

deposition testimony of two sales persons and an October 26, 2000 memorandum from 

Notebaert. One of these employees testified that Tellabs would provide him a sales quota based

on his prior year’s performance. The other sales employee, Jim Joling, testified that on one

occasion Notebaert pulled him into his office and told him the kinds of numbers he wanted

Joling to deliver. Viewing this evidence in the light most favorable to Plaintiffs, the testimony

reveals that executives stressed the importance of meeting sales targets to sales personnel but

still does not contradict the “bottoms-up” manner in which Tellabs forecasted sales. Rather than

testifying regarding Tellabs’s revenue or sales forecast, the sales employees merely testified

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regarding sales quotas. Indeed, there is no evidence demonstrating any correlation between the

sales personnel’s testimony and the December 11, 2000 guidance. Moreover, Notebaert’s

statement in an October 26, 2000 memorandum that the targets were “‘expected,’ if not

minimum, requirements for the 2001 operating plan” is besides the point of whether Tellabs used

its “bottoms-up” forecasting process to create its guidance. Even more significantly, the

uncontroverted evidence shows that Notebaert relied on the “bottoms-up” forecast when issuing

the December 11, 2000 guidance and that the guidance figures Tellabs presented on December

11, 2000 were the result of a consensus recommendation presented to Notebaert by his CFO, the

finance department, the employees responsible for revenue forecasting for each product line, and

his executive team. Plaintiffs have not made any argument to the Court regarding how the sales

personnel’s testimony or the October 26, 2000 memorandum reflect any actual knowledge on the

part of Notebaert that the December 11, 2000 guidance was false. Indeed, even if Plaintiffs

could demonstrate that Notebaert did not rely on the “bottoms-up forecast,” which they have not,

there is no issue of fact regarding Notebaert’s actual knowledge of falsity. Plaintiffs have

presented no evidence to raise a question of material fact regarding the PSLRA’s burden of

showing that Notebaert actually knew that the December 11, 2000 statements were false or

misleading. See Makor II, 513 F.3d at 705 (7th Cir. 2008); see also Eisenstadt v. Allen, 113 F.3d

1240, 1997 WL 211313, *4 (9th Cir. 1997) (granting summary judgment on a § 10(b) securities

claim where the record established that company’s internal forecasts had accurately predicted its

earnings and revenues for quarters prior to the start of the class period and “[s]uch historical

accuracy gave [the company] a reasonable basis to rely on its fourth and first quarter

predictions” despite other internal forecasts that were less optimistic). There is simply no

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evidence in the record by which a reasonable jury could find that Notebaert actually knew that

the December 11, 2000 guidance was false or misleading. The Court accordingly grants

Defendants’ motion for summary judgment with regard to the December 11, 2000 guidance.

B. January 23, 2001

During a January 23, 2001 teleconference, Tellabs announced its fourth quarter and full

year 2000 results and reiterated its 30/30 guidance for 2001. In their response to the motion for

summary judgment, Plaintiffs argue that Defendants’ repetition of its 30/30 guidance on January

23, 2001 is at issue in this case. Plaintiffs, however, conceded at oral argument that the

Complaint does not refer to the January 23, 2001 forecast. Plaintiffs cannot raise a claim

regarding Tellabs’s January 23, 2001 guidance more than eight years since they instituted this

lawsuit. Plaintiffs’ claim as to the January 23, 2001 guidance is therefore waived. Warren v.

Solo Cup Co., 516 F.3d 627, 629 (7th Cir. 2008) (holding that a plaintiff waived a claim raised in

response to defendant’s motion for summary judgment where plaintiff failed to raise the claim in

her complaint).

Even if the Court were to reach Plaintiffs’ claim premised on Tellabs’s January 23, 2001

guidance, it fails on the merits as well. Plaintiffs only identify one piece of evidence between

Tellabs’s December 11, 2000 guidance and the reiteration of that guidance on January 23, 2001

in support of the actual knowledge requirement. Specifically, on January 11, 2001, Birck

forwarded to Notebaert, Jackman, and Ryan a UBS Warburg analysis lowering estimates for the

telecom equipment sector, commenting: “In our case, I believe they have a reasonable viewpoint

-- for now. While we may not see as much diminished demand as some of our contemporaries,

this is going to be a trying year -- for a while, anyway.” (R. 301-1, ¶ 17.) The addition of this

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single email alone to the arguments regarding Tellabs’s December 11, 2000 guidance does not

result in a triable issue of fact as to whether the January 23, 2001 guidance is actionable. While

Birck’s email expresses his awareness of general economic concerns in the telecommunications

industry and that he shared this concern with Notebaert, this email alone does not suggest that

Birck was implying that Tellabs would not reach its guidance. Nor does the email create an

issue of fact as to whether Notebaert actually knew that Tellabs could not achieve the guidance it

announced on January 23, 2001. Indeed, the 2001 Operating Plan finalized on January 11, 2001,

forecasted 35% revenue and 31% earnings growth for full year 2001, figures higher than the

30/30 guidance presented on January 23, 2001. In short, even if the Court were to reach the

merits of this claim, Plaintiffs have failed to raise a triable issue as to whether Tellabs’s January

23, 2001 guidance is actionable.

C. March 7, 2001

On March 7, 2001, Tellabs announced downward revised guidance for first quarter 2001,

but reiterated its full year 30% growth rate guidance. With regard to this guidance, both parties

have adduced significant evidence pertaining to the state of Tellabs’s projections and sales and

Notebaert’s knowledge of these figures. Even viewing all of the evidence in the light most

favorable to Plaintiffs, as the Court must, the evidence at most demonstrates that there were

competing forecasts and figures known by Notebaert at the time that Tellabs issued the March 7,

2001 guidance. The Court first turns to the relevant evidence in the record.

As of January 2001, Tellabs was aware that it needed to consider the impact of the

economic downturn on its own performance. Indeed, Tellabs and Notebaert were aware of slow

sales in January 2001 and Notebaert acknowledge that these figures were concerning to him. In

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a February 19, 2001 letter regarding January sales, Notebaert informed Birck that making the

revenue plan would be a “challenge.” In the face of slow sales, however, the undisputed

evidence also shows that Notebaert tasked the forecasting organization with determining whether

Tellabs’s current forecast was achievable and realistic. In connection with Notebaert’s request

for a reexamination of the existing forecast, on February 26, 2001, Pfefferle prepared an

“adjusted gap report” to show how first quarter sales were performing compared to the forecast. 

The gap report showed that Tellabs had identified sales sufficient to “close the gap” and meet its

forecast, though those opportunities included sales with confidence levels as low as 60% and

included “pull-ins” from later quarters. While a number of Tellabs employees testified that some

of these deals were “unnatural,” the record also demonstrates that such sales tactics were a

routine practice for Tellabs.

After Notebaert assigned the forecasting task, throughout February and into early March,

the weekly forecast sanity checks continued to demonstrate that “sales yet to book” percentages

were often significantly lower than historical averages. The uncontroverted evidence also

shows, however, that these forecast sanity checks did not account for the “hockey-stick” effect

Tellabs historically experienced at the end of each quarter. Thus, on March 2, 2001, Pfefferle

prepared another updated forecast for the quarter. Plaintiffs have failed to offer any evidence

suggesting that Notebaert did not expect to have the hockey stick benefit. Due to the reduction

in the TITAN 5500 gap that Tellabs had made at that point in the quarter and their “bottoms-up”

forecasting, Pfefferle and her team continued to forecast that Tellabs would achieve 30% growth

in the first quarter of 2001 over the prior year. As a result of her updated forecast, however,

Pfefferle also concluded that other products, including the TITAN 6500 and Cablespan products,

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were not on track to hit their forecasted revenue targets for first quarter 2001. Nonetheless, as a

result of the feedback Pfefferle received from speaking with the sales force and others, Pfefferle

informed Notebaert that she believed based on her thorough review of the numbers and her

discussions with the sales force that, as of March 5, 2001, Tellabs would still achieve at least

30% revenue and earnings growth for the full year. In light of their findings, the forecasting

organization concluded that Tellabs should lower only the overall first quarter revenue

projections slightly. They provided these conclusions to Notebaert and Ryan. In sum, there is

no evidence or even suggestion that Pfefferle was told what results to reach. Instead, the

evidence shows that she developed her own views based on a detailed analysis and

communicated those views to management. 

On March 7, 2001, prior to announcing these results, Notebaert reviewed the gap report

with Pfefferle and gauged her confidence in Tellabs’s ability to hit the revised forecast. It is

undisputed that Pfefferle told Notebaert that based on her analysis and contact with the sales

teams, her department felt confident that Tellabs could reach the forecast. Notebaert also

confirmed on March 7, 2001 that Joan Ryan, Brian Jackman, and John Springer all felt

comfortable that Tellabs would achieve the revised guidance. Notebaert himself has averred that

he believed that the guidance issued on March 7, 2001 was reasonable and based on the best

available information.

Viewing the evidence in the light most favorable to Plaintiffs, it is clear that Notebaert

was aware that sales of some products, including the TITAN 5500, were slow and that the

forecast sanity checks indicated that Tellabs was not performing as well as it had historically. 

The uncontroverted evidence, however, also shows that these data indicators were among many

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considerations Tellabs reviewed in revising the forecast. Merely adducing evidence of

information contradictory to the statements at issue does not demonstrate that the corporate

officer actually knew that the statements were false or misleading. In In re Bristol-Myers Squibb

Sec. Litig., 2005 WL 2007004, 2005 U.S. Dist. LEXIS 18448 (D.N.J. Aug. 17, 2005), for

example, the plaintiffs challenged a series of forward-looking statements by the defendants that

the defendant company would succeed in advancing the drug Vanlev as a “blockbuster” drug to

treat heart failure. Id. at *50-*51. To support their claim that the defendants had actual

knowledge that their statements were false, the plaintiffs pointed to, inter alia, evidence

demonstrating that some employees did not believe that Vanlev would succeed as a blockbuster

drug for heart failure and that at least one form of internal forecast showed that the drug would

not achieve “blockbuster” status. Id. at *59-*61. The defendants, however, produced evidence

that a different internal projection demonstrated that Vanlev did have the potential for

“blockbuster” status. Id. at *59. Addressing the impact of conflicting internal views, the court

noted:

Viewing this evidence at its most damaging to Defendants, the most that it proves is

that there were individuals at BMS who did not think that Vanlev could be a

blockbuster for the treatment of heart failure. When considered in context, alongside

Defendants’ evidence that others at BMS thought that Vanlev could be a blockbuster

for the treatment of heart failure, this e-mail does not permit the inference that

speakers believing one side over the other were reckless in relying upon that belief.

Id. at *60. Despite the fact that internal forecasts reflected both the possibility that Vanlev may

or may not achieve blockbuster status, ultimately the court granted the defendants’ motion for

summary judgment on those claims. The Court concluded that the “[d]efendants have produced

evidence sufficient to show that they reasonably believed that Vanlev could be a blockbuster for

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the treatment of heart failure alone. Plaintiff has failed to show that Defendants had actual

knowledge to the contrary.” Id. at *63.

Similarly, as described above, Plaintiffs have been unable to demonstrate that Tellabs did

not routinely rely on its “bottoms-up” forecasting process or that Tellabs had no reason to rely on

the historical “hockey-stick” effect that occurred at the end of most quarters. While the evidence

demonstrates that Notebaert was aware of conflicting indicators, these conflicting indicators are

not enough alone to raise a genuine issue of material fact. The relevant inquiry is not whether

Notebaert reasonably assessed these indicators, or even whether Notebaert was reckless in his

assessment. The sole question before the Court is whether there is a genuine issue of material

fact as to whether Notebaert actually knew that the March 7, 2001 guidance was false. Makor II,

513 F.3d at 705. Because the record is replete with forecasts and documents that support the

March 7, 2001 revised guidance, the uncontroverted evidence shows that Notebaert relied on

these indicators, and Plaintiffs have pointed to no evidence that establishes that Notebaert knew

that these indicators were false, Plaintiffs cannot create a genuine issue of material fact regarding

the March 7, 2001 guidance.

Additionally, while not decided under the “actual knowledge” standard, the court’s

analysis in In re Oracle Corp. Sec. Litig., 2009 WL 1709050, *29 -*30 (N.D. Cal. 2009), is also

instructive. In Oracle, at the summary judgment stage, the parties disputed whether figures

contained in a series of “flash reports” “confirmed or undermined [Oracle’s] 3Q01 public

guidance concerning anticipated revenues.” The court noted that while the flash reports

indicated negative growth in two of three divisions, the plaintiffs did not explain why this

negative growth necessarily should have alerted Oracle that it would miss its third quarter 2001

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guidance, particularly in light of positive information regarding a third division’s growth. Id. at

*29. In addition, the court stated that, “[m]ore fundamentally, plaintiffs’ focus on the flash

reports does not take into account the hockey-stick effect. Given that Oracle was known to earn

the vast majority of its quarterly revenue in the final weeks of a given quarter, it is not apparent

that the results from the first or second months of the quarter are good indicators of how the

quarter would turn out.” Id. at *29-30. The court accordingly held that there was “no factual

dispute as to whether the reports of Oracle’s performance in December 2000 and January 2001

contained information that seriously undermined the 3Q01 forecast.” Id. at *30; see also Stavros

v. Exelon Corp., 266 F. Supp. 2d 833, 849 (N.D. Ill. 2003) (dismissing claim for failure to

demonstrate defendant’s actual knowledge of falsity where “allegations of adverse market

conditions, economic weakness and declining energy prices” did not permit the court to “infer

from these facts that Defendants actually knew that the projection would not be met” because the

company performed well in 2001, its second quarter earnings exceeded projections, and third

quarter results were disappointing due to a constellation of factors). Likewise, in the present

case, it is mere speculation on the part of Plaintiffs to contend that Notebaert should have

second-guessed the forecasting projections made by other employees or doubted the assurances

of his senior management. There is no evidence in the record regarding his actual knowledge in

this respect.

Indeed, in a district court case where the court denied summary judgment on a forwardlooking statement subject to the actual knowledge standard, the evidence the plaintiffs presented

was far more damaging than the evidence cited by Plaintiffs in this case. In Weiss v. Mentor

Graphics Corp., 1999 WL 985141, 1999 U.S. Dist. LEXIS 17026 (D. Or. 1999), the plaintiff

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contended that the defendant company’s announcements by two corporate officers between June

30, 1996 and August 25, 1996 that it would meet its sales projections in third quarter 1996 in

part because it had a large backlog of orders entering the quarter was misleading. The plaintiff

argued “that it is false to represent that Mentor Graphics would meet its Q3 1996 projections

because of backlog since no amount of backlog will guarantee meeting projections.” Id. at *10. 

Notwithstanding the question of the impact of the backlog, the court explained that the evidence

showed that, “[f]rom June 30 to August 25, the time period in which [the corporate officers]

assured [plaintiff] that Mentor would make its Q3 1996 Plan, Mentor Graphics’ internal

documents showed that the company would be materially below plan. The earnings per share

forecasts in July and August 1996 were not optimistic and senior management told the Board of

Directors in early August in the Executive Summary that Mentor Graphics was unlikely to reach

plan in Q3 1996.” Id. at *17. The defendant argued that the internal earnings per share forecasts

were not reliable, in part, due to the “hockey-stick” trend that the company’s sales typically

followed and instead pointed the court to an econometric forecast. Id. The evidence showed,

however, that the company did not issue that forecast until August 1, 1996, one day after the

company confirmed to analysts that third quarter 1996 results would be close to second quarter

1996 results. Id. In addition, internal documents showed that for the four quarters preceding

third quarter 1996, the forecasts were above actual results. Id. Thus, the court held that,

“Plaintiffs have presented sufficient circumstantial evidence to raise a factual issue as to the

significance to attach to Mentor Graphics internal documents and whether [the corporate

officers] actually knew of information that undermined their blanket assurance that Mentor

Graphics would achieve its numbers.” Id. at *19.

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The evidence in this case is more similar to that in Oracle and Bristol-Myers Squibb than

Weiss. Like in Bristol-Myers Squibb and Oracle, in the face of competing internal forecasts,

including forecast sanity checks, “bottoms-up” forecasting, and gap reports, Defendants chose to

rely more heavily on the “bottoms-up” forecasts and gap reports. Plaintiffs have pointed to no

evidence that indicates that Notebaert knew that his reliance on the gap reports and “bottoms-up”

forecasting would lead to misleading or false guidance. Indeed, unlike Weiss, Defendants have

presented significant evidence regarding Notebaert’s consideration of the relevant information. 

In Weiss, the defendant merely made a “blanket assurance” regarding its projections and only

pointed to a forecast that the company issued after it had already confirmed its results to

analysts. Unlike Weiss, Plaintiffs have pointed to no such evidence to undermine Defendants’

business decisions. Plaintiffs attempt to discredit the evidence relied on by the forecasting team

by claiming that the hockey-stick effect varied from year to year, that there was an economic

slowdown in the telecommunications industry, and that internal gap reports included sales with a

confidence level as low as 60%. Defendants, however, do not deny these facts. Instead, the

evidence demonstrates that Pfefferle and Notebaert considered these factors and still reached the

conclusion that Tellabs would meet its 30% forecast. Given that Plaintiffs have not

demonstrated that the indicators on which Notebaert based his projections were false or

unreliable, Plaintiffs have not presented sufficient evidence from which a reasonable jury could

conclude that Notebaert knew that the March 7, 2001 guidance was false. See also Emplrs.

Teamsters Local Nos. 175 & 505 Pension Trust Fund v. Clorox Co., 353 F.3d 1125, 1134 (9th

Cir. 2004) (dismissing complaint under the PSLRA regarding where declarations failed to set

forth facts “that strongly imply that [corporate officer] made the statement in deliberate or

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conscious disregard of information that the transaction would not immediately add earnings per

share to [company’s] results”). The Court accordingly grants summary judgment for Defendants

on this claim.

D. April 18, 2001 Guidance

On April 18, 2001, Tellabs revised its full year 2001 guidance downward. Plaintiffs

conclusorily assert that, “[t]here is also much proof from which a jury could find Notebaert and

the others knew, by April 18, 2001, even 9% to 12% growth could not be achieved.” (R. 329-1,

Defs.’ Opp’n, p. 49). Although Defendants addressed the April 18, 2001 guidance in their

opening memorandum, Plaintiffs fail to cite to any evidence in the record or develop any

arguments regarding the April 18, 2001 guidance in their response in opposition to the motion

for summary judgment. (R. 329-1, Pls.’ Opp’n, pp. 49-52.) Plaintiffs have accordingly waived

this argument and the Court grants summary judgment for Defendants on this claim. See Bryant

v. Gardner, 587 F. Supp. 2d 951, 965 (N.D. Ill. 2008) (citing De La Rama v. Ill. Dep’t of Human

Servs., 541 F.3d 681, 688 (7th Cir 2008) (“[u]nsupported and undeveloped arguments are

waived”)).

Moreover, even if the Court were to reach the merits of this claim, Plaintiffs have not

created a genuine issue of material fact with respect to the April 18, 2001 guidance. The

uncontroverted evidence shows that Tellabs’s downward revised April 18, 2001 guidance was

the result of an in-depth, “bottoms-up” review of its forecasts. Internal documents subsequent to

the March 7, 2001 announcement demonstrate that, as in prior quarters, Tellabs continued to

track its sales and revenue. The record also shows that Tellabs was aware of the slowing

economy and that revenue was not developing as Tellabs expected during this time period. 

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Indeed, while overall sales for the Optical Networking Group increased in first quarter 2001,

demand for the TITAN 5500 remained low. In fact, while sales forecasts in mid-March 2001

demonstrated that Tellabs could potentially meet the first quarter forecast, there was some

evidence in early 2001 that customer demand was decreasing. Moreover, at the end of the

quarter, customers requested that Tellabs push out the shipping dates of approximately $83

million in firm or expected orders for the TITAN 5500 that were originally scheduled to ship in

the quarter. The record shows that as first quarter 2001 closed, it became apparent to Tellabs

that although revenue had increased significantly year-over-year from first quarter 2000, Tellabs

would not meet the March 7, 2001 revised guidance.

Once again, however, prior to issuing revised guidance, Pfefferle and other members of

the forecasting organization assembled an updated revenue plan. The uncontroverted evidence

shows that the team based the updated revenue plan on information gathered from the sales team,

product houses, and other operating units, all of which provided the most up-to-date information

on expected demand based on what they were hearing from Tellabs’s customers. As a result of

this updated forecast review, and subsequent to approval from each of the officers who were

direct reports to the CEO, the finance department recommended to Notebaert that Tellabs revise

its public guidance to a range of $3.6 to $3.7 billion for 2001. Plaintiffs have not identified any

evidence to contradict Notebaert’s testimony that, during the time leading up to April 18, 2001,

no one expressed any doubts to him that Tellabs would not achieve its revised guidance or that

the revised guidance was based on incorrect or faulty information.

In short, even if the Court were to reach the merits of Plaintiffs’ claim with respect to

Tellabs’s April 18, 2001 guidance, Plaintiffs have failed to present any evidence that Notebaert

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had any actual knowledge that the downward revised guidance was false or misleading. See In

re Bristol-Myers Squibb Sec. Litig., 2005 WL 2007004, 2005 U.S. Dist. LEXIS 18448, *60. 

Once again, Plaintiffs have pointed to no evidence in the record to indicate that Notebaert knew

that his reliance on the “bottoms-up” forecasting would lead to misleading or false guidance. 

Indeed, unlike Weiss, 1999 WL 985141, 1999 U.S. Dist. LEXIS 17026, Defendants have

presented significant evidence regarding Notebaert’s consideration of available and relevant

information prior to the issuance of the April 18, 2001 guidance. Given that Plaintiffs have not

demonstrated that the information on which Notebaert based his projections was false or

unreliable, Plaintiffs have not presented sufficient evidence from which a reasonable jury could

conclude that Notebaert knew that the April 18, 2001 guidance was false. This is an independent

reason to grant summary judgment regarding Plaintiffs’ claim in this respect.

III. TITAN 5500 Statements

Defendants also seek summary judgment on Plaintiffs’ claims that Defendants made

three false or misleading statements regarding the TITAN 5500 during the Class Period. “In a

typical § 10(b) private action, a plaintiff must prove (1) a material misrepresentation or omission

by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and

the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5)

economic loss; and (6) loss causation.” Pugh, 521 F.3d at 693. In Makor II, the Seventh Circuit

explained:

Rule 10b-5 forbids a company or an individual “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.” 17 C.F.R. § 240.10b-5(b). But liability requires proof of the

defendant’s “scienter,” which is to say proof that he either knew the statement was

false or was reckless in disregarding a substantial risk that it was false. A popular

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definition of recklessness in this context is “an extreme departure from the standards

of ordinary care . . . to the extent that the danger was either known to the defendant

or so obvious that the defendant must have been aware of it.” This looks like two

criteria--knowledge of the risk and how big the risk is--but as a practical matter it is

only one because knowledge is inferable from gravity (“the danger was either known

to the defendant or so obvious that the defendant must have been aware of it”). 

When the facts known to a person place him on notice of a risk, he cannot ignore the

facts and plead ignorance of the risk.

Makor II, 513 F.3d at 704 (internal citations omitted).

Pursuant to the Seventh Circuit’s ruling in Makor I, 437 F.3d 597, 603, the following

three statements remain at issue:

1. Brian Jackman’s March 7, 2001 response to an analyst’s question about whether

Tellabs was seeing “any weakness” with the TITAN 5500: “We are not. We are

still seeing the product continue to maintain its growth rate and is still

experiencing strong acceptance. We are in the process of turning [up] a large

number of frames we shipped in the fourth quarter and this is continuing to grow

as usual. I think that is pretty much on plan.” (R. 336-1, ¶ 84.)

2. Notebaert and Birck’s March 14, 2010 response in Tellabs’s Annual Report to a

question about whether the TITAN 5500 “had peaked”: “No . . . it’s still going

strong.” (R. 324-1, ¶ 43.)

3. Notebaert’s statement on the April 6, 2001 conference call: “[E]verything we hear

from the customers indicates that our end user demand for services continues to

grow.” Id.

 Defendants argue that the first statement is not actionable and further that none of the

three statements were false or misleading or made with the requisite scienter. The Court will

address the disputed elements of Plaintiffs’ § 10(b) claims with respect to each of the three

statements in turn. 

A. March 7, 2001 Statement that the TITAN 5550 Was Not Experiencing Any

Weakness

Plaintiffs first challenge Jackman’s response during a March 7, 2001 teleconference to an

analyst’s question about whether Tellabs was seeing “any weakness” with the TITAN 5500 that: 

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“We are not. We are still seeing the product continue to maintain its growth rate and is still

experiencing strong acceptance.” (R. 336-1, ¶ 84.) In their briefs, the parties dispute whether

this statement is actionable. In their Complaint, Plaintiffs inaccurately attributed this statement

to Notebaert. After the appeal of the Court’s ruling on the initial motion to dismiss, the Seventh

Circuit held that Plaintiffs had sufficiently pled their § 10(b) claim in this context because

Plaintiffs had sufficiently alleged that Notebaert acted with the requisite scienter. Makor II, 513

F.3d at 711. Plaintiffs now assert that they can proceed with their claim based on this statement

by Jackman because: (i) the statement is attributable to Notebaert as a primary violator because

the teleconference was a “joint official presentation on behalf of Tellabs by Notebaert, Jackman,

and Ryan,” and/or (ii) Tellabs is liable for official statements made by Jackman. (R. 329-1, Pls.

Opp’n, p. 42.) Plaintiffs, however, cannot proceed with this claim as attributable to Notebaert

because the Supreme Court has made clear that aiding and abetting is not actionable under Rule

10b-5. As Defendants concede, however, Plaintiffs can proceed against Tellabs for official

statements made by Jackman. The Court will address Plaintiffs’ arguments regarding liability

for the March 7, 2001 statement in turn.

1. Notebaert’s Liability for Jackman’s March 7, 2001 Statement

With regard to the claim against Notebaert based on Jackman’s statement, the Third

Circuit’s recent opinion in Schiff is persuasive. In that ruling, the Third Circuit highlighted that

numerous courts have concluded that in order for an officer to be liable for an official statement,

the statement must have been actually made by that officer:

[T]he plain language of § 10(b) and corresponding Rule 10b-5 do not contemplate

the general failure to rectify misstatements of others. See, e.g., SEC v. Tambone, 597

F.3d 436, [445] (1st Cir. 2010) (en banc) (“Reading ‘make’ to include the use of a

false statement by one other than the maker would extend primary liability beyond

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the scope of conduct prohibited by the text of Rule 10b-5(b).”); Wright v. Ernst &

Young LLP, 152 F.3d 169, 175 (2d Cir. 1998) (“[A] secondary actor cannot incur

primary liability under [§ 10(b)] for a statement not attributed to that actor at the time

of its dissemination.”); Shapiro, 123 F.3d at 720, 123 F.3d at 720 (“[A] defendant

must actually make a false or misleading statement in order to be held liable under

Section 10(b). Anything short of such conduct is merely aiding and abetting, and no

matter how substantial that aid may be, it is not enough to trigger liability under

Section 10(b).”); see also In re Rent-Way Sec. Litig., 209 F. Supp. 2d 493, 504 (W.D.

Pa. 2002) (relying on the text of Rule 10b-5(b) to conclude that a defendant that “was

not the maker of the . . . statements . . . cannot be responsible for omissions in

statements that it itself did not make”); Wafra Leasing Corp. v. Prime Capital Corp.,

192 F. Supp. 2d 852, 867 (N.D. Ill. 2002) (explaining that 10b-5(b)’s text

“demonstrates that a defendant is liable only for those omissions that make his own

statements misleading”) (emphasis in original)). Moreover, in Central Bank, the

Supreme Court determined that the scope of § 10(b) does not encompass aiding and

abetting liability because the statute “prohibits only the making of a material

misstatement (or omission) or the commission of a manipulative act.” Central Bank

of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 177, 114 S.

Ct. 1439, 128 L. Ed. 2d 119 (1994). Consequently, incorporating into the statute an

obligation to rectify others’ misstatements (though lacking even the aiding and

abetting mens rea requirement of the initial statement made) would be illogical in

light of the Supreme Court’s holding.

U.S. v. Schiff, 602 F.3d 152, 167 (3rd Cir. 2010).

The First Circuit’s opinion in S.E.C. v. Tambone, 597 F.3d 436, 447 (1st Cir. 2010), is

also instructive and consistent with the Supreme Court’s holding in Central Bank, 511 U.S. 164. 

In Tambone, the plaintiff SEC argued that individual defendants “made” false statements of

material fact within the meaning of Rule 10b-5 by using prospectuses to sell mutual funds,

allowing the prospectuses to be disseminated, and referring clients to them for information. Id.

at 440. The First Circuit, however, found that the SEC’s interpretation of the word “make” was

in tension with the Supreme Court’s holding in Central Bank and that a securities professional

cannot be said to “make” a statement in violation of Rule 10b-5 by using statements to sell

securities. The court noted that its ruling comported with the “the distinction between primary

and secondary violators” made in Central Bank and that “[r]eading ‘make’ to include the use of a

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false statement by one other than the maker would extend primary liability beyond the scope of

conduct prohibited by the text of Rule 10b-5(b).” Id. at 445-46. Specifically, the court held that,

“[i]f Central Bank is to have any real meaning, a defendant must actually make a false or

misleading statement in order to be held liable [as a primary violator] under section 10(b). 

Anything short of such conduct is merely aiding and abetting.” Id. at 447 (citing Shapiro v.

Cantor, 123 F.3d 717, 720 (2d Cir. 1997)); see also Boim v. Quranic Literacy Inst., 291 F.3d

1000, 1018 (7th Cir. 2002) (noting that the Supreme Court in Central Bank “found that the

statute prohibited only the making of a material misstatement (or omission) or the commission of

a manipulative act” and “[b]ecause the statute did not proscribe giving aid to a person who

commits a manipulation or deceptive act, the Court declined to extend liability to aiders and

abettors”).

Conversely, Plaintiffs rely on In re SmarTalk Teleservices, Inc. Sec. Litig., 124 F.Supp.2d

527 (S.D. Ohio 2000). In that case, the plaintiffs alleged in their complaint that the four

defendants “made numerous false statements in press releases and in conference calls with

analysts during the relevant time frame.” Id. at 543. The defendants argued that the plaintiffs

did not allege which of the four defendants made the statements. Id. The court, however,

concluded that “the [p]laintiffs’ allegations are sufficient to put the alleged speakers on notice of

the statements attributed to them.” Id. The court also stated, in dicta and without citation to

legal authority that, “[i]n any case, a high ranking company official cannot sit quietly at a

conference with analysts, knowing that another official is making false statements and hope to

escape liability for those statements. If nothing else, the former official is at fault for a material

omission in failing to correct such statements in that context.” Id. Plaintiffs also rely on Barrie

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v. Intervoice-Brite, Inc., in which the Fifth Circuit cited to the reasoning of In re SmarTalk and

held:

Where it is pled that one defendant knowingly uttered a false statement and the other

defendant knowingly failed to correct it, even if it is not alleged which defendant

made the statement and which defendant did not correct it, the fraud is sufficiently

pleaded as to each defendant. This is not inconsistent with the plain language of

subsection (1) of 15 U.S.C. § 78u-4(b), and accords with common sense and the

policy considerations underlying the heightened pleading requirements.

409 F.3d 653, 656 (5th Cir. 2005).

The First Circuit’s detailed analysis in Tambone, 597 F.3d at 447, is more persuasive

than the cases relied on by Plaintiffs for several reasons. First, the decisions in In re SmarTalk

and Barrie held that the plaintiffs sufficiently pled their § 10(b) claims notwithstanding that the

plaintiffs failed to attribute the relevant statements to a particular defendant. Indeed, neither

court addressed the viability of such a claim past the pleading stage. As the Third Circuit

recently recognized, Barrie and In re SmarTalk “dealt only with the heightened notice pleading

standard for fraud in a civil case under the [PSLRA]” and concluded “that sufficient facts were

pled with particularity in the complaint ‘to put the alleged speakers on notice of the statements

attributed to them.’” Schiff, 602 F.3d at 163. More significantly, as the court in Tambone

concluded, permitting Plaintiffs to proceed on a claim against Notebaert for a statement made by

Jackman would be in tension with the Supreme Court’s holding in Central Bank, 511 U.S. 164,

and the plain language of § 10(b). Accordingly, Plaintiffs cannot proceed on their Section 10(b)

claim that Notebaert is responsible for Jackman’s alleged false and misleading statement.

2. Tellabs’s Liability for Jackman’s March 7, 2001 Statement

Plaintiffs also contend that Tellabs may be liable for the March 7, 2001 official statements that

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Jackman made on its behalf.22 At oral argument on the motion for summary judgment, counsel

for Defendants withdrew their argument that a § 10(b) claim could not go forward against

Tellabs on the basis of Jackman’s statement and conceded that, pursuant to principles of agency

law, if Jackman made the statement with scienter then Tellabs could be liable for the statement. 

Indeed, the Seventh Circuit has held that agency law applies in the context of a § 10(b) claim. 

See Makor I, 437 F.3d at 603 (“Since Notebaert was acting within the scope of his position as

CEO, his alleged knowledge of the falsity of his statements can be imputed to the corporate

entity Tellabs.”) Considering the evidence in the light most favorable to Plaintiffs, there is a

genuine issue of material fact regarding Jackman’s March 7, 2001 statement in response to an

analyst’s question about whether Tellabs was seeing “any weakness” with the TITAN 5500 that:

“We are not. We are still seeing the product continue to maintain its growth rate and is still

experiencing strong acceptance.” (R. 336-1, ¶ 84.)

Highlighting conflicting internal forecasts, financial summaries and forecast sanity

checks, the parties dispute whether Jackman’s March 7, 2001 was misleading. Jackman testified

that he based the March 7, 2001 statement on the “bottoms-up” sales forecast that he received

from the sales organization. At this time, Pfefferle and the forecasting organization were

forecasting that Tellabs would achieve 30% growth in TITAN 5500 sales in first quarter 2001. 

Plaintiffs, however, assert that Jackman’s statement was misleading because Jackman knew that

demand for the TITAN 5500 was slowing. Indeed, the forecast sanity checks for the period

leading up to March 7, 2001, which Jackman testified he regularly reviewed, showed that for

eleven weeks in first quarter 2001 the percentage of TITAN 5500 sales yet to be booked for the

21 The specific statement made by Jackman on March 7, 2001 subject to Plaintiffs’ § 10(b) claim is different

than the statements contained in Tellabs’ March 7, 2001 forward-looking guidance.

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quarter was greater than Tellabs’s historical average. In addition, the monthly executive

financial summary distributed in February, which Jackman recalled receiving, reported that

monthly January results fell short of forecasts and that there were soft bookings of the TITAN

5500. The monthly executive financial summary also showed that bookings for the TITAN 5500

were at the lowest levels since July of 2000 and that sales had been slow for two periods. While

Tellabs’s forecasting group was not forecasting a decline in TITAN 5500 sales at this time,

viewing the evidence known to Jackman relating to slow sales of the TITAN 5500 in the light

most favorable to Plaintiffs, there is genuine question of material fact regarding whether, in light

of this information, Jackman’s March 7, 2001 statement was misleading. See, e.g, In re

Bristol-Myers Squibb Sec. Litig., 2005 WL 2007004, 2005 U.S. Dist. LEXIS 18448, at *109-10

(D.N.J. Aug. 17, 2005) (holding that a jury could infer that defendants’ statements identifying

commonly reported side-effects associated with a new drug without mentioning a side effect that

was the “subject of substantial attention and concern at [defendant]” were materially

misleading).

B. March 14, 2010 Statement that the TITAN 5500 Business “Was Still Going

Strong”

In Tellabs’s Annual report, issued March 14, 2001, one of the questions that Tellabs

responded to was: “Your core business is built on the TITAN 5500 – are you worried that this

product has peaked?” Notebaert and Birck answered:

No. In 2000, TITAN 5500 revenues grew 56%, its best year so far. Although we

introduced this product nearly 10 years ago, it’s still going strong because we keep

adding new capabilities so it can do more and more for our customers. For example,

last year we introduced a new TITAN 5500 system with 50% more capacity – enough

to handle 1 million simultaneous Internet sessions. Now customers want an even

larger TITAN 5500 system. That’s why we believe there are many years of life ahead

for this highly successful product.

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Id; R. 324-1, ¶ 43. Plaintiffs contend that in light of internal documents showing slow sales early

in the quarter as compared to sales predicted by Tellabs’s forecasts, the statement that sales were

“still going strong” was misleading. Indeed, in a February 19, 2001 report to Birck, Notebaert

acknowledged that sales of the TITAN 5550 had been very slow in the quarter. In addition, the

monthly executive financial summary circulated on March 15, 2001 showed that bookings for

the TITAN 5500 were at the lowest levels since July of 2000, and that sales had been slow for

two periods. Moreover, the forecast sanity checks showed that for eleven weeks in first quarter

2001 the percentage of TITAN 5500 sales yet to be booked for the quarter was greater than

Tellabs’s historical average. Defendants maintain that the statement was not misleading because

the question was focused on the TITAN 5500’s potential for negative growth rate, and not

whether sales were “going strong” relative to Tellabs’s forecast. Pfefferle asserts in her affidavit

that while sales of the TITAN 5500 were slower than hoped for in January, as of mid-February

2001, no one was forecasting a decline in TITAN 5500 sales in 2001 due to the January results

alone. 

While the Court agrees that it is important to consider the context of the answer, the fact

that the question asked whether the product had “peaked” necessarily implicates both historical

and future sales of the TITAN 5500. There is a genuine issue of material fact, however, as to

how much information the question called for, and whether Notebaert acted with scienter in

responding that the product was “still going strong.” In other words, while the answer may have

addressed the broader issue of whether the TITAN 5500 would see a negative growth rate, there

is a question of material fact as to whether Defendants’ failure to disclose recent slow sales of

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the TITAN 5500 rendered the answer misleading.23 See Kaufman v. Motorola, Inc., 1999 WL

688780, 1999 U.S. Dist. LEXIS 6303 (N.D. Ill. Apr. 7, 1999) (holding that, with respect to

statements that the defendant was experiencing a significant increase in demand for its products,

plaintiffs established a genuine issue of material fact because they presented “evidence tending

to show that Motorola employees actually knew and were concerned about rising inventory

levels at the time the 10-Q Form was submitted”).

Defendants’ reliance on Backman v. Polaroid Corp., 910 F.2d 10, 16 (1st Cir. 1990), is

not persuasive. In Backman, the plaintiffs challenged statements in the defendants’ annual report

as misleading because although the defendants disclosed that a particular product’s effect on

earnings was negative, the defendants did not disclose that the product was a “commercial

failure.” Id. at 16. The court stated that while a voluntary disclosure must be complete and

accurate, “[t]his . . . does not mean that by revealing one fact about a product, one must reveal all

others that, too, would be interesting, market-wise, but means only such others, if any, that are

needed so that what was revealed would not be ‘so incomplete as to mislead.’” Id. “Disclosing

that Polavision was being sold below cost was not misleading by reason of not saying how much

below. Nor was it misleading not to report the number of sales, or that they were below

expectations.” Contrary to the facts in Backman, there were indicators available to Defendants

22 Indeed, the parties’ contrary characterizations of the context of the question reaffirm that resolution of this

issue is not proper at the summary judgment stage. Defendants assert that the question implicated “whether

the company expected an absolute decline in sales going forward” and that the response “focused on the fact

that sales continued to grow despite the product being ten years old.” (R. 299-1, Defs.’ Mot., p. 46.) 

Plaintiffs contend that the response was an “assurance[] as to the Company’s then-current circumstances.” 

(R. 329-1, Pls.’ Opp’n, p. 47.) Indeed, Defendants’ assertion that the question concerned “not whether sales

of the TITAN 5500 were ‘going strong’ relative to Tellabs’ first quarter 2001 forecast, but rather whether they

were ‘going strong’ despite the fact that the TITAN 5000 was a ten-year old product” is not supported by the

record. (R. 351-1, Defs.’ Reply, p. 42.) Instead, given the somewhat ambiguous nature of the question, there

is a material question of fact as to the extent of information that the answer to the question required in order

not to be misleading. 

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showing that sales of the TITAN 5500 were slow, but Defendants did not disclose that fact in

response to a question regarding whether the product had “peaked.” As the court in Backman

stated, “[w]e could agree that if management knew at the time of the report that Polavision was a

commercial failure, to say simply that its earnings were negative might well be found to be a

material misrepresentation by half-truth and incompleteness.” Id. Plaintiffs have therefore

established that there is a question of fact regarding whether TITAN 5500 slow sales were

relevant to the question of whether the product had “peaked.” The Court therefore denies

Defendants’ motion for summary judgment with regard to this statement.

C. April 6, 2001 Statement That “End-User” Demand Continued to Grow

On the April 6, 2001 conference call, Notebaert stated:

Last month we talked and we highlighted the issues we were seeing in the cable

access market. There we saw our MSO customers shifting their focus from

expanding their addressable market by building new infrastructure to increase

profitability by signing up more customers in the places where they have the

infrastructure in place. That trend continued during the whole quarter right down to

the end. In just the last few weeks, however, we experienced a more controlled order

flow from our larger customers than we originally anticipated.

Clearly the environment has resulted in near term caution in the pace at which

customers are deploying equipment. Our customers are exercising a high degree of

prudence over every dollar spent. Let me balance this a bit and say that everything

we hear from the customers indicates that our end user demand for services continues

to grow. Fortunately for Tellabs, our TITAN family of products helps our carrier

customers meet this demand in a cost effective way, which is the major reason we

are still able to grow total revenue 20% year-over-year even in this environment. 

While the US market has been challenging we continue to see pockets of strength

globally, particularly in Latin America.

(R. 336-1, ¶ 90; R. 301-12, Ex. 73, TEL 669446-47.) Plaintiffs contend that the statement about

end user demand “clearly was intended to give cause for optimism” about Tellabs’s performance

and that the statement was therefore misleading in light of all that Notebaert knew regarding

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Tellabs’s performance. Plaintiffs, however, have failed to establish a genuine issue of material

fact regarding whether this statement was misleading or made with the requisite scienter.

The undisputed evidence shows that the term “end user” refers to customers of service

providers, Tellabs’s core customer base, and that end user demand was in fact growing at the

time Tellabs made the statement. Plaintiffs maintain that “even if Internet, telephone, and

wireless users’ demand was still growing, it was deceptive for Notebaert to suggest that it would

mean additional business for Tellabs.” (R. 329-1, Pls.’ Opp’n, p. 48.) There is no indication in

Notebaert’s answer, however, that he intended his comment to reflect the demand of Tellabs’s 

direct customers. Indeed, the full context of his answer reveals that Notebaert expressly

disclosed that Tellabs was experiencing weakened demand from its own customers. There is

accordingly no evidence from which a reasonable jury could conclude that Notebaert’s statement

was misleading. The Court accordingly grants summary judgment for Defendants with respect

to this statement. 

IV. Collateral Estoppel With Respect to the Brieger Class

Defendants seek summary judgment on the claims of the members of the class in the

companion ERISA case against Tellabs, Brieger v. Tellabs, Inc., Case No. 06-cv-1882 (N.D.

Ill.).24 “Collateral estoppel (also called ‘issue preclusion’) refers to the simple principle that

‘later courts should honor the first actual decision of a matter that has been actually litigated.’” 

Chicago Truck Drivers, Helpers & Warehouse Union Pension Fund v. Century Motor Freight,

125 F.3d 526, 530 (7th Cir. 1997) (internal citations omitted). Collateral estoppel ensures that

23 While the Court need not add address Defendants’ collateral estoppel argument as it applies to the claims

on which the Court has granted summary judgment, collateral estoppel provides an independent basis for

granting summary judgment against the Brieger plaintiffs with respect to certain claims.

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“once an issue is actually and necessarily determined by a court of competent jurisdiction, that

determination is conclusive in subsequent suits based on a different cause of action involving a

party to the prior litigation.” Id. For a ruling to have collateral estoppel effect, “four elements

must be met: ‘(1) the issue sought to be precluded must be the same as that involved in the prior

litigation, (2) the issue must have been actually litigated, (3) the determination of the issue must

have been essential to the final judgment, and (4) the party against whom estoppel is invoked

must be fully represented in the prior action.’” H-D Mich., Inc. v. Top Quality Serv., 496 F.3d

755, 760 (7th Cir. 2007) (citing Meyer v. Rigdon, 36 F.3d 1375, 1379 (7th Cir. 1994)). 

“Although the party asserting estoppel has the burden of showing that the claim was actually

litigated and decided, ‘proof is not limited to the formal record of the prior action, and may

involve elaborate processes of inference in order to determine whether a particular issue has been

decided.’” Gilldorn Sav. Ass’n v. Commerce Sav. Ass’n, 804 F.2d 390, 394-395 (7th Cir. 1986).

A. Claims Regarding Shipment of Unordered Products

With respect to Plaintiffs’ fourth quarter and full year 2000 channel stuffing claims,

Plaintiffs contend that collateral estoppel is not applicable because (i) Judge Kennelly did not

make any express findings with respect to the channel stuffing allegations present in this case

that Tellabs over-inventoried customers to falsely portray growing revenues, and (ii) Defendants

have not shown that the issue was fully litigated in Brieger. The record from the Brieger case,

however, demonstrates that the issue is the same as that involved in the present litigation and that

the issue was fully litigated during the Brieger trial.

The Brieger complaint, as well as the guidance and arguments presented at trial, establish

that the issues are the same and were actually litigated. The Brieger complaint alleged that

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Tellabs “engaged in troubling, improper practices in an attempt to conceal the problems with the

TITAN 5500” including “overloading customers with shipments of unwanted products and

falsifying purchase orders.” (R. 336-1, ¶ 96) (citing Brieger v. Tellabs, Inc., Case No. 06-1882

(N.D. Ill.), Answer, Docket Entry 82, Ex. 109 at ¶ 129). Indeed, the evidence adduced during

discovery in Brieger demonstrates that the plaintiffs relied on some of the same evidence

presented by Plaintiffs in the present case, namely internal Tellabs emails regarding Tellabs

shipping allegedly unordered products to Verizon, to show that the defendants breached their

fiduciary duties by making material misrepresentations and omissions. Moreover, the Brieger

plaintiffs argued at trial, based on these emails, that Tellabs’s fourth quarter 2000 financial

statements were misstated because Tellabs had shipped unordered product to Verizon during the

fourth quarter. Thus, Defendants have demonstrated that the issue is the same as in the prior

action and that the issue was actually litigated. While Plaintiffs have presented evidence of

additional transactions in the present case to support their channel stuffing claim, this does not

preclude the application of collateral estoppel. See Perry v. Sheahan, 222 F.3d 309, 318 (7th

Cir. 2000) (“Only facts arising after the complaint was dismissed--or at least after the final

opportunity to present the facts to the court--can operate to defeat the bar of issue preclusion.”)

Moreover, while the Brieger opinion did not specifically address whether Tellabs had

shipped unordered product, Defendants have demonstrated that the determination of the issue

was essential to the final judgment. In his written opinion after trial, Judge Kennelly addressed

“[plaintiffs’ contentions] that defendants made misrepresentations to them and to the public in

general regarding Tellabs’s business and that they failed to disclose information that plaintiffs

needed in order to make informed decisions about the allocation of their contributions to the

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Plan.” Brieger v. Tellabs, Inc., 629 F. Supp. 2d 848, 857 (N.D. Ill. 2009). Judge Kennelly

specifically held that, “defendants did not make any material misrepresentations to plaintiffs. 

Defendants certainly made a number of predictions about Tellabs and the telecommunications

industry that turned out to be wrong. But the evidence does not demonstrate that defendants

misrepresented either the facts or their expectations when they made those statements.” Id. at

865. Given that the Brieger plaintiffs put allegations regarding misstatements about unordered

products at issue in their complaint and the parties addressed the issue at trial, Judge Kennelly

necessarily determined that defendants had not made any material misrepresentations in this

regard. See La Preferida, Inc. v. Cerveceria Modelo, S.A. de C.V., 914 F.2d 900, 907 (7th Cir.

1990) (“[T]he court in the second action may look beyond the earlier judgment and may

‘examine the pleadings and the evidence in the prior action. And if the rendering court made no

express findings on issues raised by the pleadings or the evidence, the court may infer that in the

prior action a determination appropriate to the judgment rendered was made as to each issue that

was so raised and the determination of which was necessary to support the judgment.’”). As the

Seventh Circuit explained in Gilldorn:

Although the party asserting estoppel has the burden of showing that the claim was

actually litigated and decided, “proof is not limited to the formal record of the prior

action, and may involve elaborate processes of inference in order to determine

whether a particular issue has been decided.” 18 C. Wright, supra, § 4405, at 38. 

Although the Texas court did not make findings of fact in support of its decision nor

explicitly consider each of the bases for the motion, the court implicitly rejected all

four grounds in denying the motion. Had any one of the grounds been sufficient, a

contrary result would have been unavoidable. Thus, by denying the dismissal motion

the Texas court necessarily decided all four issues in Commerce’s favor.

804 F.2d at 394-395. Similarly, because the alleged misrepresentations regarding Tellabs

shipping unordered product were at issue, the Brieger court necessarily determined that issue in

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Tellabs’s favor in granting judgment for the defendants. Defendants have accordingly

demonstrated that, even if Plaintiffs’ channel-stuffing claims survived summary judgment, which

they do not, collateral estoppel is applicable to the unordered products claims with respect to the

members of the Brieger class.

B. Claims Regarding Tellabs’s 2001 Guidance

Plaintiffs argue that collateral estoppel is not applicable with respect to the claims

relating to Tellabs’s 2001 guidance because the Brieger complaint did not specifically address

the 30% forecast. Plaintiffs admitted in their response to Defendants’ statement of materials

facts that the plaintiffs in Brieger challenged Tellabs’s 2001 guidance as having been false,

starting with the guidance given at the analysts conference on December 11, 2000, and

continuing through at least June 19, 2001. The Court, however, has reviewed the evidentiary

support for Defendants’ contention and Defendants have not met their burden of demonstrating

that the issue of Tellabs’s 2001 guidance issued on December 11, 2001, January 23, 2001, March

7, 2001, and April 18, 2001 was actually litigated in Brieger.

Indeed, while the Brieger complaint refers to specific examples of statements made by

Tellabs when issuing its guidance on some of these dates, the Brieger complaint does not

specifically address the overall guidance provided by Tellabs on any of these particular dates. 

While the trial record reflects that the Brieger defendants adduced some evidence regarding

Tellabs’s 30/30 guidance on December 11, 2001 and January 23, 2001, given that the Brieger

plaintiffs failed to identify these representations in their complaint, the Court cannot conclude

that the Brieger court’s ruling necessarily determined that the guidance issued on those dates did

not constitute misrepresentations. See Gilldorn, 804 F.2d at 394-395. Indeed, while Judge

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Kennelly’s opinion addressed the March 7, 2001 guidance, there is no evidence before the Court

demonstrating that the Brieger court addressed the issue of the full year 2001 guidance issued on

March 7, 2001 that is at issue in this case:

More generally, plaintiffs point to a number of statements about Tellabs’ prospects

that they claim gave employees a false sense of optimism about Tellabs’ future. One

example is the revised earnings guidance Tellabs provided on March 7, 2001,

lowering the first quarter 2001 revenue forecast, but stating that the company would

still do well that quarter. This was supported with further statements about growth

in 5500 sales. Plaintiffs compare that announcement to the February 19, 2001 letter

from Notebaert to Birck, which appeared to paint a gloomier picture, including slow

5500 sales in the early part of 2001, as well as sanity check reports that showed

slower sales. Defendants’ statements were not misrepresentations. Though their

predictions eventually proved wrong, at the time defendants made them, they were

based on a significant backlog of orders, forecasts made by Pfefferle’s department,

and communications with customers. These facts, as well as the nature of Tellabs’

products, led defendants to believe that Tellabs was in a unique position to weather

the storm and even grow despite general industry and market conditions.

Brieger, 629 F. Supp. 2d at 859 (N.D. Ill. 2009). Thus, while the Court need not reach the issue

because Plaintiffs’ claims relating to Tellabs’s 2001 guidance do not survive summary judgment,

Defendants have failed to demonstrate that collateral estoppel bars the Brieger plaintiffs’ claims

with respect to Tellabs’s 2001 guidance.

C. March 7 and March 14 Statements Regarding the TITAN 5500

The Brieger plaintiffs, again like the plaintiffs in this case, specifically challenged as

having been false: (1) Brian Jackman’s March 7, 2001 statement in response to an analyst

question about whether Tellabs was experiencing any weakness in TITAN 5500 product sales

that, “We’re still seeing that product continue to maintain its growth rate; it’s still experiencing

strong acceptance”; and (2) the March 14, 2001 statement in Tellabs’s 2000 Annual Report, in

which Notebaert and Birck responded to a frequently asked question “Are you worried that [the

TITAN 5500] has peaked,” by stating, “No.... Although we introduced the product nearly 10

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years ago, it’s still going strong.” (R. 336-1, ¶ 99) (citing Brieger v. Tellabs, Inc., Case No. 06-

1882 (N.D. Ill.), Docket Entry 82, Ex. 109 at ¶¶ 131, 141; Plaintiffs’ Amended Proposed

Findings of Fact and Conclusions of Law, Ex. 113 at ¶¶ 110, 112)). Once again, Judge

Kennelly’s ruling after weighing the evidence from both sides that “defendants did not make any

material misrepresentations to plaintiffs” established that the Brieger court necessarily

determined whether these statements constituted misrepresentations. Brieger, 629 F. Supp. 2d at

865.

Indeed, the only objection Plaintiffs have to Defendants’ argument is that collateral

estoppel should not apply because, during the Brieger trial, the parties mistakenly proceeded

under the assumption that Tellabs’s 2000 Annual Report was issued in mid-February 2001 when

it was actually issued in mid-March 2001. Plaintiffs contend that this mistake is significant

because Tellabs’s situation grew worse over time. In Montana v. United States, the Supreme

Court held that “changes in facts essential to a judgment will render collateral estoppel

inapplicable in a subsequent action raising the same issues.” 440 U.S. 147, 159 (1979). While

there is conflicting evidence in the Brieger trial record regarding the date that Tellabs issued its

2000 Annual Report, the date on which Tellabs issued its 2000 Annual Report has not changed 

since the date of the Brieger trial. Accordingly, although Plaintiffs’ claims premised on the

March 7, 2001 and March 14, 2001 statements survive summary judgment, collateral estoppel

bars the Brieger plaintiffs from pursuing the claims regarding the statement made by Jackman on

March 7, 2001 or the statement made by Notebaert and Birck on March 14, 2001.

V. Section 20(a) Control Person Liability

Claims under § 20(a) of the Securities Exchange Act of 1934 are “derivative, requiring

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proof of a separate underlying violation of the Exchange Act.” Tellabs I, 437 F.3d at 605

(citations omitted); see 15 U.S.C. § 78t(a). Plaintiffs’ claims based on Tellabs’s fourth quarter

and full year 2000 financial statements, Tellabs’s 2001 guidance, and Notebaert’s April 6, 2001

statement regarding end user demand do not survive summary judgment. Therefore, Plaintiffs’ §

20(a) claims against Notebaert, Ryan, Jackman, and Birck based on those claims must also be

dismissed. See Pugh, 521 F.3d at 698 (dismissal of § 10(b) and Rule 10b-5 claim mandates 

dismissal of § 20(a) claim). Because Plaintiffs’ claims premised on Jackman’s March 7, 2001

statement that the TITAN 5500 “was continuing to maintain its growth rate” and the Notebaert

and Birck’s March 14, 2001 statement in Tellabs’s Annual Report that the TITAN 5500 was

“still going strong” survive summary judgment, however, Plaintiffs’ § 20(a) claims deriving

from those statements also survive. Id.

CONCLUSION

For the foregoing reasons, the Court grants in large part and denies in part Defendants’

motion for summary judgment and grants in part and denies in part Defendants’ Motion to

Strike. DATED: August 13, 2010 ENTERED

___________________________________

 AMY J. ST. EVE

United States District Court Judge

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