RONALD S.W. LEW, District Judge.
Following pretrial proceedings, pursuant to Rule 16, F.R.Civ.P. and L.R. 16, IT IS ORDERED:
The parties to this matter are Plaintiff California State Teachers' Retirement System ("Plaintiff" or "CalSTRS") and Defendant Stuart H. Wolff ("Defendant" or "Mr. Wolff"). Mr. Wolff has been served and has appeared. All other parties named in the pleadings are now dismissed. The pleadings which raise the issues are the Second Amended Consolidated Complaint and Mr. Wolff's Answer thereto.
On September 29, 2003, the Honorable Marsha J. Pechman certified a class defined as follows:
On November 17, 2004, the Honorable Ronald S.W. Lew granted "Defendant PWC's motion for an order establishing a subclass of Dismissed Defendants."
Federal subject matter jurisdiction exists pursuant to 28 U.S.C. §§ 1331 and 1337 and § 27 of the Exchange Act, 15 U.S.C. § 78aa. The claims asserted herein arise under and pursuant to §§ 10(b) and 20(a) of the Securities and Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder by the Securities and Exchange Commission ("SEC").
Venue is appropriate in the Central District of California pursuant to § 27 of the Exchange Act and § 28 U.S.C. 1391(b). Defendant resides in this District and a substantial part of the events or omissions allegedly giving rise to the claims occurred in this District.
Plaintiff proposes a total of a
Mr. Wolff estimates that the trial of this complex securities class action will take approximately 15-20 trial days in total.
Mr. Wolff objects to Plaintiff's proposal to place an unreasonable and artificial limit on the time for trial, particularly where this "proposal" represents a last-minute change from an earlier estimate of approximately 8 days for plaintiffs' case in chief. Plaintiffs' proposal is nothing more than an effort to curtail Mr. Wolff's defense and prevent a fair trial of this case on the merits. This case covers a 2-year time frame and, according to plaintiffs, 121 corporate transactions, complex accounting issues and multiple public statements over that 2-year time frame. The parties have identified a minimum of 20 witnesses, including several expert witnesses, and hundreds of potential exhibits. A related criminal trial covering less than half the time period at issue here, and a more limited number of transactions and statements, required 40 trial days. Plaintiffs have resisted all efforts at settlement of this case and have insisted on a trial; they must at least be required to make it a fair one.
The trial is to be a jury trial.
The following facts are admitted and require no proof:
1. CalSTRS is the third largest public pension fund in the United States. CalSTRS administers retirement, disability and survivor benefits for California's public school educators in grades kindergarten through community college. CalSTRS serves approximately 686,855 members and benefit recipients. CalSTRS is administered by a 12-member Retirement Board and employs 540 employees.
2. CalSTRS purchased 431,123 total shares of Homestore common stock from May 4, 2000 to December 21, 2001, and invested a total of $13,361,336.03. This stock was purchased through the NASDAQ.
1. Stuart H. Wolff was a founder of Homestore and served as Homestore's CEO and Chairman of its Board of Directors from approximately November 1996 to January 2002.
Note that Mr. Wolff does not agree to the above statement of CalSTRS' "admitted facts," at least part of which will be the subject of a pre-trial motion.
The following facts, though stipulated, shall be without prejudice to any evidentiary objection:
1. Homestore is the largest Internet-based provider of residential real estate listings and related content in the world. During the years 2000-2001, Homestore maintained its principal place of business in Westlake Village, California.
2. During the years 2000-2001, Homestore stock traded on the NASDAQ under the symbol "HOMS," and now trades on the NASDAQ under the symbol "MOVE."
3. During the years 2000-2001, Homestore filed Form 10-Ks, Form 10-Qs, and other documents with the Securities & Exchange Commission.
(a) Plaintiff, on behalf of the certified Class, plans to pursue the following claims against Wolff:
(b) Elements Required To Establish Plaintiff's Claims
To prove a primary violation under Section 10(b), plaintiff must establish, by a preponderance of the evidence, the following six elements:
Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-342 (2005); see also In re Homestore.com, Inc. Sec. Litig., 347 F.Supp.2d 769, 783-788 (C.D. Cal. 2004) (discussing elements and application).
Section 20(a) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78t(a), § 20(a), provides:
A violation of Section 20(a) is established where there is: (1) a primary violation of federal securities laws; and (2) the Defendant exercised actual power or control over the primary violator. Howard v Systems, Inc., 228 F.3d 1057 (9
Mr. Wolff asserts that the elements of the plaintiffs' claims are:
In cases involving publicly traded securities and purchases or sales in public securities markets, the basic elements of a private claim for damages under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 include:
The nature and parameters of each of these basic elements, in turn, require the plaintiff to establish certain subsidiary matters and also limit the nature of proof which satisfies these elements, which Mr. Wolff will address when proposing jury instructions.
To establish a violation of Section 20(a) of the Securities Exchange Act of 1934, a plaintiff must prove, at least:
1. The "controlled" person is primarily liable for a violation of Section 10(b), meaning that the plaintiff must prove each of the elements of a Section 10(b) violation by the "controlled" person;
2. The defendant exercised actual power or control over the underlying primary violation, which means that the defendant exercised a significant degree of day-to-day operational control over the conduct constituting the violations, amounting to the power to dictate another person's conduct — general control over a company is not enough; in an accounting case, this means that the defendant exercised specific control over the preparation and release of the financial statements; and,
3. The defendant acted with the requisite culpable state of mind.
(c) Evidence Relied Upon By Plaintiff To Prove Its Claims Against Wolff Plaintiff asserts that it can establish violations of Section 10(b) and 20(a) through evidence of some or all of the following:
(a) In addition to contesting each of the elements of plaintiffs' claims (and Mr. Wolff disputes that plaintiffs can legally or factually establish violations of Section 10(b) and 20(a) through evidence of the matters set forth above), defendant Wolff plans to pursue the following defenses:
First Defense: Lack of Standing to Sue.
Second Defense: Lack Of Reliance By Plaintiffs.
Third Defense: Statutory Safe Harbor for Forward-Looking Statements.
Fourth Defense: Statements Bespeak Caution.
Fifth Defense: Reliance on Accounting and Legal Experts.
Sixth Defense: Intervening Causation.
Seventh Affirmative Defense: In Pari Delicto and Unclean Hands
Eighth Affirmative Defense (20(a) Claim): Adverse Interest Doctrine.
Ninth Affirmative Defense (20(a) Claim): Good Faith.
Tenth Affirmative Defense: Apportionment of Fault.
Eleventh Affirmative Defense: Satisfaction of Claim/Reduction Based on Prior Settlements.
Twelfth Affirmative Defense: Waiver and Release.
Thirteenth Affirmative Defense: Statute of Limitations.
(b) The elements required to establish Defendant Wolff's affirmative defenses are:
It is plaintiffs' burden to demonstrate their standing to sue; therefore, lack of standing is not an affirmative defense and Mr. Wolff does not accept the burden of proof on this issue. However, by motion prior to the trial and/or at an appropriate time following the failure of plaintiffs' proof, Mr. Wolff expects to address at least the following matters:
1. Each individual plaintiff bears the burden to establish a purchase of Homestore stock after the dissemination of a particular alleged misrepresentation, or the plaintiff will not have standing to bring a claim based on that alleged misrepresentation.
2. In order to assert an insider trading claim, a plaintiff must have bought or sold stock contemporaneously with the defendant's sales or purchases of the stock.
Reasonable and justifiable reliance is an element of plaintiffs' claims against defendant Wolff; therefore, lack of reliance by plaintiffs is not an affirmative defense and Mr. Wolff does not accept the initial burden of proof on this issue. However, to the extent that plaintiffs can establish an entitlement to a presumption of reliance (and Mr. Wolff contends that they cannot in this case), then Mr. Wolff would have the right to rebut that presumption. Thus, for example, if plaintiffs establish the prerequisites for the so-called "fraud on the market" presumption of reliance (which Mr. Wolff contends they cannot), Mr. Wolff may make "[a]ny showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff" and such a showing "will be sufficient to rebut the presumption of reliance."
The controlling statute provides that an issuer of securities or a person acting on behalf of such issuer shall not be liable with respect to any forward-looking statement, whether written or oral, if and to the extent that the forward-looking statement is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement. If the forward-looking statement is oral, such as during a conference call, the identification of these factors may be made by reference to readily available documents that contain them. 15 U.S.C. § 78u-5(c)(1)(A)(i);
Mr. Wolff contends that, as reflected in the legislative history of the controlling statute and as found by the court at the trial of the case in
As with the statutory safe harbor, under the "bespeaks caution" doctrine, forward-looking statements and projections are immune from liability when accompanied in the market by cautionary language, which affects the reasonableness of a plaintiff's reliance on and the materiality of the forward-looking statements and projections.
Under the "bespeaks caution" doctrine, the cautionary language need not be in the same document as the challenged forward-looking statement.
As with the statutory safe harbor, Mr. Wolff contends that it is plaintiffs' burden to prove in the first instance that such cautionary statements were not made. Mr. Wolff will request that the jury instructions in this case properly reflect plaintiffs' burden on this issue.
It is plaintiffs' burden to prove the element of scienter in this case, and Mr. Wolff does have the burden of proof with respect to this element. However, Mr. Wolff is entitled to show and will request a jury instruction in accordance with the law which establishes that reliance on accounting experts to prepare financial statements in conformity with GAAP is inconsistent with intent to defraud.
Similarly, reliance on attorneys with respect to legal duties is inconsistent with intent to defraud.
It is plaintiffs' burden to prove the element of causation in this case (
A plaintiff's action may be barred where the plaintiff, through his actions, bears at least substantially equal responsibility for the alleged violations, and preclusion of the suit will not significantly interfere with effective enforcement of the securities laws and protection of the public.
The adverse interest doctrine bars a claim against a corporate entity for the acts or omissions of its officers and employees who acted in furtherance of their own interests at the expense of the company.
Under Section 20(a), a controlling person may not be held liable for the controlled person's securities violations where "the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action." 15 U.S.C. § 78t(a).
Good faith in the context of a Section 20(a) may be established by showing that the defendant "maintained and enforced a reasonable and proper system of supervision and internal control."
"Inducement" is "[t]he act or process of enticing or persuading another person to take a certain course of action." Black's Law Dictionary 779 (7th ed. 1999). "Mere suggestion or the offering of an opportunity to commit a crime is not conduct amounting to inducement"; what is required is "repeated and persistent solicitation or persuasion which overcomes the [perpetrator's] reluctance."
Under the controlling statute, only a defendant who is specifically found by the trier of fact to have committed a knowing violation of the securities laws may be subject to joint and several liability for that violation. 15 U.S.C. § 78u-4(f)(2)(A). Unless a knowing violation is found, a defendant may be "liable solely for that portion of the judgment that corresponds to the percentage of responsibility of that [defendant]." 15 U.S.C. § 78u-4(f)(2)(B).
These issues must be the subject of special interrogatories with respect to each alleged misstatement and each person claimed by any party (including Mr. Wolff) to have caused or contributed to the loss allegedly incurred by the plaintiff with respect to that misstatement, including persons who have entered into settlements. For each such person the trier of fact must determine whether the person violated the securities laws, whether the person did so knowingly, and the percentage of responsibility of such person, measured as a percentage of the total fault of all persons who caused or contributed to the alleged loss. 15 U.S.C. § 78u-4(f)(3). In determining the percentage of responsibility, the trier of fact shall consider the nature of the conduct of each person and the nature and extent of the causal relationship between the conduct of each such person and the alleged damages. 15 U.S.C. § 78u-4(f)(3)(C).
According to the controlling statute, where a person has settled claims by a plaintiff relating to an alleged loss, any verdict or judgment against a non-settling party (in this case, Mr. Wolff) with respect to that alleged loss must be reduced by the greater of "(i) an amount that corresponds to the percentage of responsibility of that [settled] person; or (ii) the amount paid to the plaintiff by that [settled] person." 15 U.S.C. § 78u-4(f)(7)(B). In addition, each individual plaintiff is limited by law to recovery of actual damages; therefore, each plaintiff could only recover from Mr. Wolff to the extent that the plaintiff has not already been compensated for such damages from other sources.
Waiver is the intentional or voluntary relinquishment of a known right. Waiver results from the unilateral act or conduct of the party against whom is it asserted, and no act of the party in whose favor it is made is necessary to complete it.
To the extent that any plaintiff failed to commence an action within one year after notice of matters about which they now complain, such plaintiff's claims are barred by the applicable statute of limitations.
(c) In brief, the key evidence Defendant Wolff relies on for each affirmative defense will be the deposition and trial testimony of the witnesses identified on his witness list, the pleadings and papers on file in this action, and the documents identified on the parties' joint exhibit list. Mr. Wolff expects that this evidence, and/or plaintiffs' failure of proof, will demonstrate at least the following:
1. To the extent that plaintiffs fail to meet their burden of proof on each of the elements of their claims with respect to particular alleged false statements or omissions, and any other part of the case nevertheless survives, Mr. Wolff expects to seek corresponding limits on the temporal scope of the class and/or to challenge claims for recovery made by individual shareholders following any judgment.
2. Based on CalSTRS' stock records, Mr. Wolff contends that CalSTRS cannot establish that it traded Homestore stock contemporaneously with Mr. Wolff, and observes that no class or subclass of alleged contemporaneous traders has ever been certified in this case. It is Mr. Wolff's position, therefore, that such a claim cannot properly be pursued against Mr. Wolff at the trial in this case.
In addition to reliance, plaintiffs bear the burden of proving the materiality of the alleged misstatements and omissions for which they seek to impose liability on Mr. Wolff. Mr. Wolff expects that the evidence (including testimony by his expert witness, Professor Meir Statman) will show that, even if plaintiffs could carry their burden to establish that Homestore's stock traded in an efficient market (which Mr. Wolff contends they cannot), plaintiffs cannot also show that any alleged misstatements were material to the market. By failing to carry their burden on materiality with respect to a given statement, plaintiffs also sever any "fraud on the market" linkage between the statement and Homestore's stock price.
In addition, as reflected, for example, in the agreements by which they obtained their stock and in Homestore's SEC filings, certain entities that acquired Homestore stock during the time frame in question obtained the stock in negotiated, non-market transactions that were not dependent upon whether and how the then-existing market price for the stock incorporated the information that plaintiffs contend was misstated to the market in general. Indeed, certain such entities (such as AOL and Cendant Corporation) were also participants in the transactions at issue in this case and were defendants that settled with plaintiffs in this lawsuit; those entities cannot now also be plaintiffs in this case. To the extent that an entity obtained stock in a non-market transaction, and/or participated in the transactions that are at issue in the case, Mr. Wolff contends that they could not be found to have reasonably and justifiably relied on the stock market's pricing of Homestore stock in accordance with the "fraud on the market" doctrine.
Furthermore, Mr. Wolff would be entitled to contest each individual class member's alleged reliance on the integrity of the stock price in order to rebut the presumption of the so-called "fraud on the market" doctrine. If necessary, this would most properly be contested in a post-trial claims process, when each individual plaintiff's claim could be evaluated and challenged.
Mr. Wolff contends that, to the extent that plaintiffs assert that Mr. Wolff should be liable for any forward-looking statements made by him or otherwise in any of Homestore's public statements (including, but not limited to, statements about various business transactions and/or financial projections), Mr. Wolff cannot be liable by virtue of the meaningful cautionary statements and "risk factors" that accompanied the forward-looking statements in the marketplace. Mr. Wolff expects that the evidence will show that such meaningful cautionary statements and "risk factors" that warned that future results might differ from the substance of the Company's forward-looking statements and projections were included, for example, in each of Homestore's public statements, including SEC filings, press releases, and conference calls, during the time period in question.
Mr. Wolff contends that, to the extent that plaintiffs assert that Mr. Wolff should be liable for any forward-looking statements made by him or otherwise in any of Homestore's public statements (including, but not limited to, statements about various business transactions and/or financial projections), Mr. Wolff cannot be liable by virtue of the meaningful cautionary statements and "risk factors" that accompanied the forward-looking statements in the marketplace. Mr. Wolff expects that the evidence will show that such meaningful cautionary statements and "risk factors" that warned that future results might differ from the substance of the Company's forward-looking statements and projections were included, for example, in each of Homestore's public statements, including SEC filings, press releases, and conference calls, during the time period in question.
Mr. Wolff expects that the testimony of the witnesses designated on both parties' witness lists and the exhibits, including emails and other documents produced by Homestore and PricewaterhouseCoopers LLP ("PwC"), will establish the following:
This case is about accounting. There is nothing facially or inherently improper or illegal about any of the transactions at issue in this case. The basic subject matter of the case concerns whether and by how much Homestore reported overstated revenues derived from these fourteen transactions for the periods in question.
The question of whether Homestore properly accounted for its revenues cannot be answered without an educated comprehension both of the relevant accounting principles and the relevant facts unique to each transaction.
Stuart Wolff had no knowledge, training or experience with respect to any relevant accounting principles. Mr. Wolff had no training or experience generally in the management or operation of a business. Mr. Wolff's education and training is in the sciences; he holds a PhD in Engineering, and his pre-Homestore work experience was almost entirely science- or technology-related.
It was understood by Homestore's board of directors and by Mr. Wolff that Homestore would develop a strong management team to make up for Mr. Wolff's lack of operational business experience. This would (and did) include, for example, a strong Chief Operating Officer ("COO") who would have oversight with respect to the Company's day-to-day operations, including accounting and finance. Throughout Mr. Wolff's tenure as Homestore's CEO, the Company had a COO with operational business experience, including at least two who were CPAs (including, during 2001, former CFO John Giesecke).
Mr. Wolff was advised by his mentor on Homestore's board of directors to build a management team he could trust and rely on and adapt his own role as CEO according to his own personal strengths and weaknesses. Mr. Wolff did just that. He focused on corporate strategy, competition issues, and new products, while leaving to others the day-to-day operational details of the Company, particularly with respect to accounting and finance.
Homestore built and maintained an adequate internal control structure, as attested contemporaneously by the Company's outside auditors and the Board of Directors' Audit Committee (on which Mr. Wolff did not serve). For example, as Homestore grew, Mr. Wolff approved the growth of the Company's Finance Department to include a large team of experienced accounting professionals, including several CPAs with experience at the big-four accounting firm PricewaterhouseCoopers LLP ("PwC") and/or respected companies like The Walt Disney Company.
Stuart Wolff concurred in the hiring of PwC as Homestore's outside audit firm, based at least in part upon presentations made by PwC that touted PwC's expertise and experience with respect to the accounting issues most germane to high-technology companies like Homestore, as well as the recommendation of the Company's then-Chief Financial Officer ("CFO"), John Giesecke. Ultimately, the Audit Committee approved Homestore's retention of PwC as the Company's outside audit firm.
Stuart Wolff understood and expected that the Finance Department communicated regularly and often with PwC concerning the appropriate structure and accounting for Homestore's business transactions. Mr. Wolff was also aware that each quarter PwC and the Finance Department discussed Homestore's financial reporting in depth with the Company's Audit Committee.
Stuart Wolff did not communicate regularly or directly with PwC. Communication with PwC was the province and responsibility of the Finance Department and the Audit Committee.
The accounting principles relevant to Homestore's transactions during the class period were complicated, changing, and not easy to understand.
Homestore's Finance Department, and particularly Joe Shew and John Giesecke, were vested with the authority and control within the Homestore organization to structure the Company's financial transactions to abide by Generally Accepted Accounting Principles ("GAAP"), and to make decisions regarding recognition of revenue in order to abide by GAAP.
Stuart Wolff did not participate in the day-to-day function of the Finance Department or participate in making accounting decisions and preparing financial statements. Mr. Wolff reasonably relied upon his COO, CFO, the Finance Department, PwC, and the Company's Audit Committee to ensure that Homestore's revenues were reported in accordance with GAAP and Homestore's financial statements were prepared in accordance with GAAP.
Stuart Wolff did not negotiate or structure any of the transactions at issue in this case. As a general matter, Mr. Wolff did not participate in the negotiation or approval of all transactions generated through Homestore's Business Development Department or Strategic Alliances Group. He was not aware of all relevant facts pertaining to the transactions at issue in this case.
Stuart Wolff did not participate in the preparation or review of Homestore's financial statements, and he did not participate in the preparation or review of the Company's SEC filings. The investor relations and SEC reporting functions within the Finance Department, along with the Legal Department, PwC, and outside counsel, were responsible for the preparation of Homestore's SEC filings and press releases. Mr. Wolff reasonably relied upon them to ensure the accuracy and completeness of these documents. Specifically, Mr. Wolff relied upon PwC, outside counsel, the Finance and Legal Departments, and the Audit Committee, when Homestore released its financial results including, but not limited to, the results for each quarter of 2000 and for the first three quarters of 2001. Furthermore, statements in Homestore's public communications that were allegedly attributed to Mr. Wolff were prepared and vetted by others, including the Finance/IR group, PwC, the Legal Department, and outside counsel.
To the extent that a plaintiff did suffer any alleged loss in this case, Mr. Wolff expects that the evidence will show that such injury or loss was proximately caused by other persons or events, including but not limited to the acts of former defendants in this case and/or changes in Homestore's stock price unrelated to any alleged misrepresentations or omissions alleged in this case.
Plaintiffs' own allegations in this case, as reflected in their complaints and in oppositions to motions to dismiss and motions for summary judgment (and the Court's rulings on such motions) identify the members of the so-called "Dismissed Defendants" subclass as either alleged violators of the securities laws or, at a minimum, essential willing participants in the alleged wrongdoing. To the extent that these parties remain in the case (and Mr. Wolff contends that they should not), then if plaintiffs were to establish the elements of their claims in this case, they will have established them at least equally as to those parties.
Mr. Wolff contends that, to the extent that plaintiffs were able to establish the elements of a Section 10(b) claim against another Homestore officer, such as one of the other officers originally named as a defendant in this case, the evidence will show that such officer was acting in furtherance of his own interests against that of the Company's.
Mr. Wolff contends that plaintiffs will not be able to establish the prima facie elements of a Section 20(a) claim. Moreover, Mr. Wolff expects that the testimony of the witnesses designated on the parties' witness lists, and exhibits including emails and other documents produced by Homestore and PwC will demonstrate that, with Mr. Wolff's approval and support, Homestore developed a reasonable and proper system of supervision and internal control with respect to its financial reporting, public communications, and SEC filings. Mr. Wolff also expects that this evidence will also show that he did not induce any other person's alleged violation of the securities laws (e.g., through repeated and persistent solicitation or persuasion which overcomes the perpetrator's reluctance).
Mr. Wolff contends that, to the extent that plaintiffs can prove the elements of their claims (which Mr. Wolff contends they cannot), for example, on the basis that any of Homestore's revenues may have been recognized in contravention of GAAP, the evidence from the testimony of the witnesses on the parties' witness lists and exhibits including emails and other documents produced by Homestore and PwC will show that responsibility and fault for any such mistakes rests with persons other than Mr. Wolff including, but not limited to, members of the Finance Department (such as Mr. Giesecke, Mr. Shew, Mr. DeSimone, and Mr. Kalina), the Audit Committee, other Homestore employees who engaged in allegedly questionable activities (such as Peter Tafeen, Sophia Losh, Clayton Chan, Thomas Vo, and Jessica McClellan, among others), and third parties such as PwC, AOL, Cendant, and L90, among others.
Plaintiffs in this case have obtained cash settlements in this case in the approximate amount of $47,340,125.64, plus 20 million shares of Homestore stock which were collectively worth $82 million on the day the Court approved Homestore's settlement (based on the closing price on that day). In addition, Merrill Lynch paid $1,875,000 to Homestore shareholders in settlement of securities claims brought against it in the case of
Cendant Corporation, a defendant and previously a purported member of the "Dismissed Defendants" subclass in this case, expressly represented in court filings that, as part of its settlement in this case, it would not participate in any verdict or judgment against Mr. Wolff.
Furthermore, in settling their claims against Time Warner in this case, plaintiffs specifically released Time Warner, its predecessors, and its present and former shareholders. This release is set forth in the Stipulation and Agreement of Settlement between plaintiffs in this case and Defendant Time Warner, Inc., and, without qualification, in the notice of pendency of the settlement provided to class members and in the claims forms signed by members of the plaintiff class who submitted such forms in response to this settlement. By his own testimony, the testimony of his financial advisor, and/or exhibits constituting illustrative copies of Mr. Wolff's retirement account statements, Mr. Wolff will establish that he was a shareholder of AOL Time Warner.
Mr. Wolff contends that the purported claims of at least certain purported members of the class must be barred by the statute of limitations. Simply by sake of example, plaintiffs contend that certain parties (such as AOL (which, for other reasons, Mr. Wolff contends cannot be a member of the class)) participated in transactions with Homestore more than one year prior to the commencement of this lawsuit.
There are no third parties in this action.
All of the claims and defenses identified above remain to be tried.
All discovery is complete.
All disclosures under F.R.Civ.P. 26(a)(3) have been made. The joint exhibit list of the parties has been filed herewith under separate cover as required by L.R. 16-5. All exhibits may be admitted without objection, except those exhibits listed below:
Plaintiff's objections are separately stated and attached hereto as Exhibit A.
Wolff's objections are separately stated and attached hereto as Exhibit B.
Witness lists of the parties have heretofore been filed with the Court. Only the witnesses identified in those lists will be permitted to testify (other than solely for impeachment). Each party intending to present evidence by way of deposition testimony has marked such depositions in accordance with L.R. 16-2.7. For this purpose, the following depositions shall be lodged with the Clerk as required by L.R. 32-1:
Plaintiff designates the following witnesses whose testimony may be presented by deposition and previous trial testimony:
1. John Giesecke
2. William Kelvie
3. Joseph Shew
4. Peter Tafeen
5. Stuart Wolff
6. Adam Zurofsky
Defendant Wolff designates the following witnesses whose testimony may be presented by deposition testimony:
1. Barbara Alexander
2. John Althoff
3. Jennifer Campos
4. John Costello
5. Gordon Davidson
6. Robert Fisher
7. John Giesecke
8. Paul Gompers
9. Katherine Graham
10. Joe Hanauer
11. Phillip Harkins
12. Teri N. Hollander
13. Norman Jacobs
14. Christian Jester
15. Bill Kelvie
16. Paul Kepple
17. Allan Kleidon
18. Kenneth Klein
19. Allan Merrill
20. Robert Page
21. Clifford Pike
22. Walter Rush
23. Mary Elizabeth Shelton Rose
24. Joseph Shew
25. Michelle Stalick
26. Jack Sum
27. Richard Withey
28. Stuart Wolff
29. Adam Zurofsky
Pursuant to L.R. 32-1, 51-5 and this Court's Local Rule 10, Plaintiff's will submit specific objections to deposition testimony on January 25, 2011. Plaintiff objects to the presentation of testimony by deposition of the following witnesses:
•
•
•
• In addition Plaintiff objections to the use of deposition testimony for any witness within the subpoena power of this Court.
Defendant Wolff objects to the presentation of testimony by deposition and/or prior trial testimony of the following witnesses:
Reserving the right to object to specific questions and/or responses from any deposition or other trial testimony offered by plaintiffs, Defendant Wolff objects to plaintiffs' presentation in their case in chief of testimony by deposition and other trial testimony of the following witnesses — in their entirety — on the ground that, while unavailable to Mr. Wolff (who may therefore use deposition testimony in support of his case), these witnesses are not unavailable to plaintiffs because the witnesses personally (or through Homestore) agreed in Court-approved and Court-supervised settlements to cooperate with plaintiffs in this case (including the provision of testimony at trial if requested by plaintiffs):
The following motions in limine are contemplated by Plaintiff:
The following motion practice, including motions in limine, is presently contemplated by Defendant Wolff:
1. Motion to decertify the subclass of so-called "Dismissed Defendants" and/or exclude therefrom AOL Time Warner, David Colburn, Eric Keller, Cendant Corporation, Richard Smith, L90, Inc., and all other individuals and entities associated with them;
2. Motion to exclude from the plaintiff class all persons who received a distribution from the settlement with Time Warner;
3. Motion to preclude CalSTRS and the class from asserting any claims against Mr. Wolff based on alleged "insider trading" and/or presenting evidence thereon;
4. Joint or Stipulated Petition/Request of the parties for a writ of habeas corpus or similar relief, permitting Mr. Wolff to appear and testify at the trial of this action (and to appear in civilian clothing without indicia of incarceration);
5. Motion to exclude the March 29, 2002 Investigation Report of the Audit Committee of Homestore.com, Inc., all Exhibits and Appendices thereto, as well as all assertions and conclusions set forth therein (and to prevent references to the same);
6. Motion to exclude Homestore's financial restatement of revenues and otherwise, including all documents setting forth or referring to such restatement (and to prevent references to the same);
7. Motion to exclude the plea agreement of Stuart H. Wolff, as well as all statements made and papers filed in relation to such plea agreement (and to prevent references to the same and to Mr. Wolff's incarceration);
8. Motion to exclude the all pleadings, papers, and testimony from past criminal and SEC proceedings against Mr. Wolff, including the consent/settlement agreement and final judgment in the SEC proceeding (and to prevent references to the same);
9. Motion to exclude the purported expert testimony of Alfred Osbourne;
10. Motion to exclude the purported expert testimony of Ruben Davila;
11. Motion to exclude the purported expert testimony of Carla Hayn;
12. Motion to exclude the purported expert testimony of Jane Nettesheim;
13. Motion to exclude evidence and testimony of alleged "aggregate damages" and to require proof of dollar-per-share damages;
14. Motion to exclude evidence and testimony of the so-called "constant-percentage" method of calculating damages;
15. Motion to exclude evidence and testimony of Lead Plaintiff's individual alleged "losses" until after trial;
16. Motion to exclude cumulative expert testimony (e.g., Nettesheim/Hayn and Osbourne/Davila);
17. Motion to exclude legal conclusions from expert testimony;
18. Motion to exclude Joseph Shew's "Notes";
19. Motion to exclude evidence of Stuart Wolff's stock sales and financial condition;
20. Motion to exclude criminal information/complaints, guilty pleas, and court transcripts related to such pleas, and SEC complaints and settlements against and by former Homestore personnel (and to prevent references to the same);
21. Motion to exclude references to past assertions of the Fifth Amendment by Mr. Wolff and other witnesses;
22. Motion to exclude references to accounting or corporate "scandals" such as Enron, Worldcom, Madoff, etc.;
23. Motion to exclude evidence or references to insurance or indemnity;
24. Motion to exclude speculation concerning SPD, LLC and Translations.com;
25. Motion to exclude evidence of and references to Lead Plaintiff as a pension fund for teachers, or other references to plaintiffs as "teachers";
26. Motion to prevent references to plaintiffs as "victims";
27. Motion to confine plaintiffs' evidence and arguments to the 14 transactions identified by plaintiffs in response to an earlier scheduling order;
28. Motion to exclude references to laws and regulations enacted after 11/14/01, such as the Sarbanes-Oxley Act; and,
29. Request for special written interrogatories and special verdict.
In addition, Mr. Wolff reserves the right to bring other and additional motions depending on the nature of plaintiffs' proof and/or future events, such as a motion to decertify the class in whole or in part based on plaintiffs' failure of proof; motion for judgment as a matter of law; motion for vacating or for reduction of any verdict on any grounds including, but not limited to, prior settlements in favor of plaintiffs; motion to establish an appropriate post-trial claims process, if necessary, taking into account Mr. Wolff's rights under the law to address issues relevant to individual plaintiffs' alleged reliance and damages.
Defendant Wolff believes that judicial economy and efficiency will be best served by bifurcating and trying first the issue of whether Homestore's stock traded in an "efficient market" during all or any part of the time period between January 1, 2000 through December 21, 2001.
The efficient market issue is one that plaintiffs must prove in order to establish whether they may proceed with a rebuttable presumption of reliance, or whether they must prove reliance on an individual basis.
Therefore, if plaintiffs are unable to prove that Homestore's stock traded in an "efficient market" during all or part of the time frame in question here (and, contrary to plaintiffs' assertion, this analysis is not limited solely to the so-called "
Mr. Wolff proposes to bifurcate the trial into two phases, splitting the issue of whether there was an "economically efficient market" from the rest of the trial. This plan would result in an extensive duplication of evidence, the addition of burdensome and unnecessary costs, create a risk of inconsistent results, and greatly prolong the length of the trial.
Mr. Wollf's plan would, for example, require the parties to present duplicative expert testimony regarding stock price evidence during both proposed phases. Wolff's "efficient market" phase would entail an analysis of the five factors outlined in Cammer v. Bloom, 711 F.Supp. 1264 (D.N.J.1989) ("Cammer Factors"). The Cammer Factors require Plaintiffs to provide "empirical facts showing a cause and effect relationship between unexpected corporate events or financial releases and an immediate response in the stock price." In re 2TheMart.com, Inc. Sec. Litig., 114 F.Supp.2d 955, 963-964 (C.D. Cal. 2000).
Regardless of the outcome of this preliminary stage, Wolff would additionally present stock market evidence in support of a
The foregoing admissions having been made by the parties, and the parties having specified the foregoing issues of fact and law remaining to be litigated, this pretrial conference order shall supersede the pleadings and govern the course of the trial of this cause, unless modified to prevent manifest injustice.
IT IS SO ORDERED.
