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1 LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 2 SANFORD SVETCOV (36561) 100 Pine Street, Suite 2600 3 San Francisco, CA 94111 Telephone: [phone] (fax) [e-mail] 5 and SAMUEL H. RUDMAN 6 ROBERT M. ROTHMAN (Pro Hac Vice) RUSSELL J. GUNYAN 7 58 South Service Road, Suite 200 Melville, NY 11747 8 Telephone: [phone] (fax) 9 [e-mail] [e-mail] 10 [e-mail] 11 Lead Counsel for Plaintiff and the Class 12 GREEN WELLING LLP ROBERT S. GREEN (136183) 13 235 Pine Street, 15th Floor San Francisco, CA 94104 14 Telephone: [phone] (fax) 15 Liaison Counsel for Plaintiff and the Class 16 UNITED STATES DISTRICT COURT 17 NORTHERN DISTRICT OF CALIFORNIA 18 In re PORTAL SOFTWARE, INC. ) Master File No. C-03-5138-VRW 19 SECURITIES LITIGATION ) ) CLASS ACTION 20 ) ) PLAINTIFFS REQUEST FOR JUDICIAL This Document Relates To: 21 ) NOTICE OF NEW AND ADDITIONAL ) PORTAL DOCUMENTS FOR ALL ACTIONS. 22 ) INCORPORATION IN FOURTH ) CONSOLIDATED AMENDED 23 COMPLAINT 24 25 26 27 28 DATE: March 23, 2006 TIME: 2:00 p.m. COURTROOM: 6, Hon. Vaughn R. Walker
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1 I. 2
INTRODUCTION Plaintiffs respectfully request that the Court take judicial notice of new and additional Portal
3 Software, Inc. (Portal or the Company) documents that are attached to the accompanying 4 Declaration of Sanford Svetcov dated 2/08/06, as plaintiffs Exhibits (Pl. Ex.) 1 through 6, as 5 follows: 6 1. Portals Form 8-K, dated 11/28/05, Form 8-K/A dated 12/23/05, and Form 8-K/A
7 (Amendment No. 2) filed 12/30/05. (Pl. Ex. 1) 8 9 10 2. 3. 4. Bloomberg Daily Stock Prices for Portal from 1/01/03 to 1/13/06. (Pl. Ex. 2) Transcript of Portals 8/19/03 conference call discussing 2Q04 results. (Pl. Ex. 3) Pertinent excerpts from Portals Form 10-Q for 3Q04 (ending 10/31/03), filed with
11 the SEC on 12/15/03. (Pl. Ex. 4) 12 5. Pertinent excerpts from Portals Schedule 14A Proxy Statement for the Companys
13 1/28/04 annual meeting filed with the SEC on 12/22/03. (Pl. Ex. 5) 14 6. The Product Brief from Portals website describing the rating function of its
15 Infranet Software. (Pl. Ex. 6) 16 II. 17 The court may take judicial notice of public records in considering a Fed. R. Civ. P. 12(b)(6) 18 motion to dismiss. MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986); In re 19 Copper Mountain Sec. Litig., 311 F. Supp. 2d 857, 863 (N.D. Cal. 2004). 20 The documents offered for judicial notice are either Portals filings with the Securities and 21 Exchange Commission (SEC) (Pl. Exs. 1, 4, 5), Portals stock prices compiled by Bloomberg (Pl. 22 Ex. 2), or Portals own statements. (Pl. Exs. 3, 6) Portal cannot challenge the authenticity of these 23 documents. They should be judicially noticed. Copper Mountain, 311 F. Supp. 2d at 863. 24 As with evidence generally, the matter to be judicially noticed must be relevant to the issues 25 in the case. See, e.g., Dippin Dots, Inc. v. Frosty Bites Distrib., LLC, 369 F.3d 1197, 1204 (11th 26 Cir. 2004); Vallot v. Central Gulf Lines, Inc., 641 F.2d 347, 351 (5th Cir. 1981). Each of the 27 documents offered is relevant to support the allegations of accounting fraud, as follows: 28
PLAINTIFFS RJN OF NEW AND ADDITIONAL PORTAL DOCS FOR INCORPORATION IN FOURTH CONSOLIDATED AMENDED COMPLAINT - C-03-5138-VRW
THE DOCUMENTS ARE RELEVANT AND THE PROPER SUBJECT OF JUDICIAL NOTICE AT THE PLEADING STAGE
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1.
Plaintiffs Exhibit 1 is Portals latest adventure in accounting futility. It consists of
2 the Companys Form 8-K disclosures and issued press releases on 11/28/05, 12/23/05 and 12/30/05. 3 Post-Class Period admissions are relevant because such later-emerging facts serve to support 4 inferences about an earlier situation. Plotkin v. IP Axess Inc., Etc., 407 F.3d 690, 698-99 (5th Cir. 5 2005). Nursing Home Pension Fund, Local 144 v. Oracle Corp., 380 F.3d 1226, 1232-33 (9th Cir. 6 2004). Portals admissions in the Form 8-Ks not only concede post-Class Period accounting 7 violations from which solid inferences may be drawn that its accounting problems arose during the 8 Class Period, but as will be seen, Portal also explicitly admits Class Period revenue accounting 9 deficiencies. (See (b) and (c) below.) 10 (a) In the 11/28/05 Form 8-K, Portal announced it would again restate its first
11 quarter 2005 (1Q05) (ending 1/30/05) results, and also restate its 2Q05 and 3Q05 results to record 12 a total increase in net loss of $1.5 million. (Pl. Ex. 1: Portal 11/28/05 press release at 2) But in the 13 12/30/05 Amendment, Portal corrected the total increase in net loss to $1.8 million, claiming 14 typographical errors. (Pl. Ex. 1: Portal Form 8-K/A (Amendment No. 2) at 2) In explaining the 15 restatements, Portal acknowledged that its quarterly 2005 financial statements should no longer be 16 relied upon because of errors in: 17 18 19 20 21 22 accounting for revenue on certain multi-element contracts in violation of SOP 97-2 where vendor specific objective evidence (VSOE) of fair value for consulting services was not present; accounting for deferred costs on certain long-term, large, fixed price services contracts; accounting for international withholding and payroll taxes by over-accrual or improper accrual, a continuing issue Portal previously disclosed on 6/30/05.
23 (Pl. Ex. 1: Portal Form 8-K, dated 11/28/05 at 2) These accounting errors are of the same type 24 alleged in the Fourth Consolidated Amended Complaint (Amended Complaint). (94-96, 25 99(b)(c)(d), 105-107, 112, 125-26)1 In addition, Portal announced that its 4Q05 revenue would be 26 27 28
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All paragraph references () Are to the Amended Complaint, unless otherwise indicated.
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1 reduced $6.2 million due to its violation of accounting rule Statement of Position (SOP) 97-2, 2 applicable to license agreements with undelivered components. (Pl. Ex. 1: Portal 11/28/05 press 3 4 5 6 7 of the 2005 restatements on Portals prior period financial results. (Pl. Ex. 1: Portal Form 8-K/A, filed 12/23/05 at 3) Portal responded in the 12/23/05 Form 8-K/A that it is currently evaluating release at 2) As a result, the net loss for 4Q05 would increase by $5 million. (Id.) (b) On 12/13/05, Portal received a letter from the SEC inquiring about the impact
8 whether its accounting for certain services contracts based upon material weaknesses previously 9 disclosed could have impacted its quarterly financial statements in fiscal 2004. (Id. at 4) Portal 10 said the restatements related to errors in calculating deferred costs on large, fixed price consulting 11 12 inappropriate costs, and errors relating to foreign payroll and tax accruals. (Id.) Thus, Portal 13 14 15 acknowledged accounting errors during the Class Period. (c) Portal further acknowledged that restatements for 1Q06 and 2Q06 were being services contracts resulting from use of an incorrect methodology and producing inaccurate and
16 calculated and would be reported at a later date, as would additional FY05 restatements. (Pl. Ex. 1: 17 Portal 11/28/05 press release at 2) The Company disclosed that the material weaknesses in internal 18 controls previously revealed in the Form 10-Q for 3Q05 (ending 10/29/04), filed on 4/25/05, and 19 20 that its outside auditors have not completed audits of FY05 results nor commenced their review of 21 22 the first three quarters of fiscal 2006 results. (Pl. Ex. 1: Portal Form 8-K/A, filed 12/23/05 at 5) As repeated in 6/20 and 8/31/05, press releases were continuing. (Id. at 3) Portal also acknowledged
23 a result, Portal conceded it might further adjust results for the first three quarters of FY05 and 24 also further restate the results reported for the previous periods i.e., during the Class Period. 25 (Id.) Again, Portal admits errors during the Class Period. 26 27 28
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2.
Plaintiffs Exhibit 2 is the chart of Bloomberg Daily Stock Prices for Portal from
2 1/01/03 to 1/13/06. This document is relevant to confirm and corroborate the allegations of stock 3 4 5 6 7 discuss the Companys 2Q04 (ending 8/01/03) financial results. The transcript is relevant to the allegations in the Amended Complaint that Portal improperly recognized revenue during the Class price movement alleged in the Amended Complaint. (92, 98, 102, 108, 113) 3. Plaintiffs Exhibit 3 is a transcript of Portals 8/19/03 conference call with analysts to
8 Period (5/20/03-11/13/03) on contracts that had not been signed, as defendant John Little admitted. 9 (144) The new witness, a former Portal Vice President of Services provided corroboration. S/he 10 said that Portal had publicly announced that it had a deal with Vodaphone Japan, when in fact, the 11 12 signed. (79-80) The 8/19/03 transcript is relevant to corroborate the witness statement that Portal 13 14 had publicly stated, falsely, that Vodaphone the Japan deal was completed and revenue recorded witness stated from his/her position of direct involvement in the negotiations, that no contract was
15 (improperly) during the Class Period, as follows: 16 17 (i) (ii) Defendant Little announced our recent win at Photo Phone Japan. (Pl. Ex. 3 at 2) Chief Operating Officer Glenn Weinkoop confirmed, As John [Little] has indicated,
18 this quarter we added Vodaphone Japan . . . as a new win . . . (Id. at 3) 19 20 closed, defendant Bain responded: Yes, there was revenue in the second quarter, but we cant 21 22 23 provide any details regarding the arrangement. (Id. at 7) 4. Plaintiffs Exhibit 4 contains pertinent excerpts from Portals Form 10-Q for 3Q04 (iii) In response to an analyst inquiry whether the J-Phone deal hit the quarter just
24 (ending 10/31/03) filed with the SEC on 12/15/03. This document is relevant because portions of it 25 are cited in the Amended Complaint to reveal the extent and reasons for Portals missed projections. 26 27 28
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(10-12, 111-12, 130-31, 136, 144-45)
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5.
Plaintiffs Exhibit 5 contains pertinent excerpts from Portals Schedule 14A Proxy
2 Statement filed with the SEC on 4/14/04. This document is relevant to plaintiffs 10(b) and 20(a) 3 4 5 6 7 him oversight and monitoring control of Portals accounting. (Pl. Ex. 5: Proxy at 2, 5, 19) 6. Plaintiffs Exhibit 6 is a Product Brief from Portals website describing the rating claims against defendant Patterson as it describes his role as a Director from 1996 through 2003, his status as Portals third largest shareholder, and his membership on the audit committee, providing
8 functions of the Companys core software product Infranet. This document is relevant to rebut the 9 defendants assertion in their motion to dismiss (MTD) that the term rate was not defined. 10 (MTD 3) 11 12 motion to dismiss that defendants post-Class Period admissions of serious and continuing 13 14 accounting deficiencies, together with other evidence alleged in the Amended Complaint, support In sum, these documents are relevant to support the arguments in plaintiffs opposition to the
15 reasonable and strong inferences that the accounting deficiencies arose during the Class Period. 16 III. 17 18 THE CONTENT OF THE JUDICIALLY NOTICED DOCUMENTS SHOULD BE INCORPORATED IN THE AMENDED COMPLAINT AND CONSTRUED IN PLAINTIFFS FAVOR In addition to taking judicial notice, case law in this Circuit and elsewhere recognizes that the
19 court may consider new and additional documents and their contents as incorporated in the pending 20 complaint. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994); In re Cylink Sec. Litig., 178 F. 21 Supp. 2d 1077, 1080-81 (N.D. Cal. 2001). The rationale is that it is more practical to consider the 22 new documents to resolve the pending Fed. R. Civ. P. 12(b)(6) motion than to require an 23 amendment to the complaint. In re Royal Ahold N.V. Sec. & ERISA Litig., 351 F. Supp. 2d 334, 24 386-87, nn.44, 46 (D. Md. 2004); see also R. Wright & A. Miller, Federal Practice & Procedure: 25 Civil 1476, at 59 (2005 Supp.). 26 Such documents, when incorporated as support for the Amended Complaint, must be
27 construed in the light most favorable to plaintiffs. Lee v. City of Los Angeles, 250 F.3d 668, 688-90 28 (9th Cir. 2001); International Audiotext Network v. American Tel. & Tel., Co., 62 F.3d 69, 72 (2d
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1 Cir. 1995); In re Cree, Inc. Sec. Litig., 333 F. Supp. 2d 461, 470 (M.D.N.C. 2004). Any attempt by 2 defendants to use such documents to inject disputed facts is impermissible at the motion to dismiss 3 stage. Factual challenges to a plaintiffs complaint have no bearing on the legal sufficiency of the 4 allegations under Rule 12(b)(6). Lee, 250 F.3d at 688; see also Republican Party v. Martin, 980 5 F.2d 943, 952 (4th Cir. 1992). It would be error to assume the existence of facts that favor 6 defendants based on evidence outside plaintiffs pleadings. Lee, 250 F.3d at 688; Adams v. Kinder7 Morgan, Inc., 340 F.3d 1083, 1101 (10th Cir. 2003) (The PSLRA did not, however, purport to 8 move up the trial to the pleadings stage.). 9 IV. 10 CONCLUSION For the foregoing reasons, the Court should take judicial notice of plaintiffs Exhibits 1-6 and
11 consider them as incorporated in the Amended Complaint. 12 DATED: February 8, 2006 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
PLAINTIFFS RJN OF NEW AND ADDITIONAL PORTAL DOCS FOR INCORPORATION IN FOURTH CONSOLIDATED AMENDED COMPLAINT - C-03-5138-VRW
LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP SANFORD SVETCOV
/s/ Sanford Svetcov SANFORD SVETCOV 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: [phone] (fax) LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP SAMUEL H. RUDMAN ROBERT M. ROTHMAN RUSSELL J. GUNYAN 58 South Service Road, Suite 200 Melville, NY 11747 Telephone: [phone] (fax) Lead Counsel for Plaintiff and the Class
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T:\CasesSF\Portal Software Fed\MIS00027533.doc
GREEN WELLING LLP ROBERT S. GREEN (136183) 235 Pine Street, 15th Floor San Francisco, CA 94104 Telephone: [phone] (fax) Liaison Counsel for Plaintiff and the Class
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1 DECLARATION OF SERVICE BY E-FILING 2 3 4 I, the undersigned, declare: 1. That declarant is and was, at all times herein mentioned, a citizen of the United States
5 and employed in the City and County of San Francisco, over the age of 18 years, and not a party to 6 or interested party in the within action; that declarants business address is 100 Pine Street, 7 Suite 2600, San Francisco, California 94111. 8 2. That on February 8, 2006, declarant served by e-filing pursuant to N.D. of Cal.
9 General Order No. 45, Electronic Case Filing Guidelines Sec. IX the PLAINTIFFS REQUEST 10 FOR JUDICIAL NOTICE OF NEW AND ADDITIONAL PORTAL DOCUMENTS FOR 11 INCORPORATION IN FOURTH CONSOLIDATED AMENDED COMPLAINT to the parties 12 listed on the attached Service List and this document was forwarded to the following designated 13 Internet site at: 14 15 http://securities.lerachlaw.com/ I declare under penalty of perjury that the foregoing is true and correct. Executed this 8th
16 day of February, 2006, at San Francisco, California. 17 18 19 20 21 22 23 24 25 26 27 28 /s/ Tamara J. Love TAMARA J. LOVE
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PORTAL SOFTWARE, INC. SEC. (04-0566) Service List - 2/7/2006 Page 1 of 2 Counsel For Defendant(s) Boris Feldman Nina F. Locker Peri B. Nielsen Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304-1050 650/493-9300 650/493-6811(Fax) Counsel For Plaintiff(s) Christopher T. Heffelfinger Michael W. Stocker Joseph J. Tabacco, Jr. Berman DeValerio Pease Tabacco Burt & Pucillo 425 California St., Suite 2025 San Francisco, CA 94104-2205 415/433-3200 415/433-6382(Fax) Steven J. Toll Daniel S. Sommers Cohen, Milstein, Hausfeld & Toll, P.L.L.C. 1100 New York Ave., N.W., Suite 500 Washington, DC 20005-3964 202/408-4600 202/408-4699(Fax) Mel E. Lifshitz Joseph R. Seidman, Jr. Bernstein Liebhard & Lifshitz, LLP 10 East 40th Street New York, NY 10016 212/779-1414 212/779-3218(Fax)
Peter A. Binkow Lionel Z. Glancy Michael M. Goldberg Glancy Binkow & Goldberg LLP 1801 Avenue of the Stars, Suite 311 Los Angeles, CA 90067 310/201-9150 310/201-9160(Fax) Robert S. Green Green Welling LLP 595 Market Street, Suite 2750 San Francisco, CA 94105 415/477-6700 415/477-6710(Fax)
Solomon B. Cera Joseph M. Barton Gold Bennett Cera & Sidener LLP 595 Market Street, Suite 2300 San Francisco, CA 94105 415/777-2230 415/777-5189(Fax)
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PORTAL SOFTWARE, INC. SEC. (04-0566) Service List - 2/7/2006 Page 2 of 2 Christopher J. Keller Jonathan M. Plasse Labaton Sucharow & Rudoff LLP 100 Park Avenue, 12th Floor New York, NY 10017-5563 212/907-0700 212/818-0477(Fax) Jonathan M. Stein Lerach Coughlin Stoia Geller Rudman & Robbins LLP 197 S. Federal Highway, Suite 200 Boca Raton, FL 33432 561/750-3000 561/750-3364(Fax) Sanford Svetcov Lerach Coughlin Stoia Geller Rudman & Robbins LLP 100 Pine Street, Suite 2600 San Francisco, CA 94111-5238 415/288-4545 415/288-4534(Fax) Samuel H. Rudman Robert M. Rothman David A. Rosenfeld Lerach Coughlin Stoia Geller Rudman & Robbins LLP 58 South Service Road, Suite 200 Melville, NY 11747 631/367-7100 631/367-1173(Fax) Jeffrey M. Norton Robert I. Harwood Wechsler Harwood LLP 488 Madison Avenue, 8th Floor New York, NY 10022 212/935-7400 212/753-3630(Fax)
Marc Topaz Schiffrin & Barroway, LLP 280 King of Prussia Road Radnor, PA 19087 610/667-7706 610/667-7056(Fax)