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LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP
PATRICK J. COUGHLIN (111070)
CHRISTOPHER P. SEEFER (201197)
100 Pine Street, Suite 2600
San Francisco, CA 94111
Telephone: 415/288-4545
415/288-4534 (fax)
PatC@lerachlaw.com
ChrisS@lerachlaw.com
– and –
WILLIAM S. LERACH (68581)
DARREN J. ROBBINS (168593)
655 WEST BROADWAY, SUITE 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
BillL@lerachlaw.com
DarrenR@lerachlaw.com
Lead Counsel for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
In re LEAPFROG ENTERPRISES, INC.
SECURITIES LITIGATION
This Document Relates To:
ALL ACTIONS.
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No. C-03-05421-RMW
CLASS ACTION
ALICE CUPPLES AND WILLIAM
SULLIVAN’S OPPOSITION TO THE
MOTION TO APPOINT PARNASSUS AS
LEAD PLAINTIFF AND TO APPROVE
PARNASSUS’ SELECTION OF LEAD
COUNSEL
DATE: November 18, 2005
TIME: 9:00 a.m.
COURTROOM: The Honorable
Ronald M. Whyte
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TABLE OF CONTENTS
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I. INTRODUCTION ...............................................................................................................1
II. ARGUMENT.......................................................................................................................4
A. By Vigorously Prosecuting the Case and Conferring Substantial Benefits
to the Class, Cupples, Sullivan and Their Counsel Have Shown They Are
the “Most Capable of Representing the Interests of the Class” and Should
Continue to Serve as Lead Plaintiff and Lead Counsel ...........................................4
B. This Court Has Indicated that Cupples and Sullivan Should Continue to
Prosecute the Case as Lead Plaintiff ........................................................................4
C. Hicks Agrees that Lead Plaintiff and Lead Counsel Have Conferred
Substantial Benefits to the Class and that They Should Continue to
Represent the Class ..................................................................................................5
D. Parnassus Has Shown It Will Not Adequately Represent the Interests of
the Class by Asking This Court to Remove Lead Plaintiff and Lead
Counsel Who Have Conferred Substantial Benefits to the Class by
Vigorously Prosecuting the Case .............................................................................6
E. Lead Plaintiff and Lead Counsel Have Continued Their Investigation and
Have Discovered Additional Information Since the Filing of the
Consolidated Complaint that Will Benefit the Class .............................................10
III. CONCLUSION..................................................................................................................13
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TABLE OF AUTHORITIES
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CASES
Greenberg v. Bear Stearns & Co.,
80 F. Supp. 2d 65 (E.D.N.Y. 2000) .....................................................................................8
In re Cavanaugh,
306 F.3d 726 (9th Cir. 2002) ..................................................................................... passim
In re Lucent Techs., Inc. Sec. Litig.,
221 F. Supp. 2d 472 (D.N.J. 2001) ........................................................................2, 3, 9, 10
In re Oxford Health Plans, Inc. Sec. Litig.,
182 F.R.D. 42 (S.D.N.Y. 1998) ...........................................................................................7
In re Oxford Health Plans, Inc. Sec. Litig.,
191 F.R.D. 369 (S.D.N.Y. 2000) .........................................................................................8
Staton v. Boeing Co.,
327 F.3d 938 (9th Cir. 2003) ...............................................................................................5
STATUTES, RULES AND REGULATIONS
15 U.S.C.
§78u-4(a)(3) .........................................................................................................................3
§78u-4(a)(3)(i) ........................................................................................................... passim
§78u-4(a)(3)(ii) .......................................................................................................... passim
H.R. Conf. Rep. No. 104-369 (1995)...............................................................................................8
Federal Rules of Civil Procedure
Rule 23 ....................................................................................................................... passim
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I. INTRODUCTION
On March 31, 2005, this Court determined Alice Cupples and William Sullivan (“Cupples
and Sullivan” or “lead plaintiff”) were the “most capable of adequately representing the interests of
the class” under the Private Securities Litigation Reform Act (“PSLRA”) (15 U.S.C. §78u-
4(a)(3)(B)(i)-(ii)) and In re Cavanaugh, 306 F.3d 726 (9th Cir. 2002) and appointed them as lead
plaintiff. Since that appointment they have conferred substantial benefits to the class by conducting
an extensive investigation, preparing a detailed Consolidated Class Action Complaint for Violations
of the Federal Securities Laws (“Consolidated Complaint”) and issuing numerous document
preservation subpoenas in order to assure critical evidence is maintained. In fact, there has been no
showing – or even an allegation – that Cupples and Sullivan do not continue to meet the adequacy
requirements of Rule 23. Given the unique circumstances of this case it would disrupt and delay the
case, and impose excessive, unnecessary and additional costs – all to the detriment of the class – by
appointing a new lead plaintiff who would have to spend months learning information already
developed.
Despite all of this, the Parnassus Fund and the Parnassus Equity Income Fund (collectively,
“Parnassus”) have asked this Court to remove lead plaintiff and lead counsel, to appoint Parnassus as
the sole lead plaintiff in this case and to approve Parnassus’ selection of new lawyers as lead counsel
on the grounds that Parnassus has suffered larger losses in the later period of the case than Cupples
and Sullivan. But neither the PSLRA nor Cavanaugh addresses the current situation. In
Cavanaugh, the Ninth Circuit set out the three-step process for the initial selection of a lead plaintiff.
Cavanaugh, 306 F.3d at 729-31. It did not address the issue here – whether a court-appointed lead
plaintiff who met (and continues to meet) the adequacy requirements of Rule 23 and has conferred
substantial benefits to the class by vigorously prosecuting the case should be removed when the
court has ordered a second lead plaintiff selection process. Here, the Court has already complied
with Cavanaugh and the PSLRA by appointing Cupples and Sullivan as lead plaintiff and approving
their selection of counsel as lead counsel. The issue is whether that should change.
As explained herein, lead plaintiff and lead counsel should continue to prosecute the case
because (1) they have already conferred substantial benefits to the class by vigorously prosecuting
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the case, (2) they have developed unparalleled knowledge and expertise of the facts of this case, (3)
there has been no showing or even an allegation that they do not continue to meet the adequacy
requirements of Rule 23, and (4) it would disrupt and delay the case and impose additional,
excessive and unnecessary costs – all to the detriment of the class – by appointing a new lead
plaintiff who would have to spend months learning information already developed.
Indeed, the district court in In re Lucent Techs., Inc. Sec. Litig., 221 F. Supp. 2d 472 (D.N.J.
2001), faced with virtually identical facts as those present here, rejected Parnassus’ request to
remove the originally appointed lead plaintiff and to appoint it as the sole lead plaintiff for a separate
case or a subclass of the consolidated action. Instead, the district court ordered the originally
appointed lead plaintiff to continue to prosecute the consolidated action and appointed Parnassus as a
co-lead plaintiff.
Lead plaintiff believes this Court has recognized the uniqueness of the current circumstances
when it indicated that removal of Cupples and Sullivan was not required – or warranted – by stating
it would consider pragmatic suggestions for allocating lead plaintiff responsibilities advanced by the
parties during this second lead plaintiff selection process, including appointing Parnassus as co-lead
plaintiff for the entire case or for only the post February 10, 2004 portion of the case. July 27, 2005
Order at 1-3. That is precisely what the court did in Lucent. 221 F. Supp. 2d at 482-83, 488.
Mr. Hicks also believes Cupples and Sullivan should continue to serve as lead plaintiff. He
joined in the motion filed by Cupples and Sullivan and recognized that “lead plaintiff and lead
counsel have conferred substantial benefits to the class by conducting an extensive investigation,
preparing the consolidated complaint and by issuing numerous document preservation subpoenas.”
Memorandum of Points and Authorities of Ted Hicks in Support of Alice Cupples and William
Sullivan’s Motion to Continue Serving as Lead Plaintiff and to Have Their Selection of Counsel
Continue to Serve as Lead Counsel (“Hicks’ Mem.”) at 2. In addition, Hicks recognized that given
the unique circumstances of this case, the overriding purpose of the PSLRA – appointing the
member of the class “most capable of adequately representing the interests of class members” – can
only be served by reappointing Cupples and Sullivan as lead plaintiff. Id.
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Previously, Parnassus also recognized that Cupples and Sullivan should continue as lead
plaintiff. As this Court noted in its July 27, 2005 Order, Parnassus initially suggested that Cupples
and Sullivan remain as lead plaintiff and that it be appointed co-lead plaintiff for the entire class
period or for the post February 10, 2004 portion of the class period. July 27, 2005 Order at 1-3. In
addition, although Parnassus seeks to take over the entire case in its motion to be appointed lead
plaintiff, Parnassus did not dispute the substantial benefits conferred to the class by lead plaintiff and
lead counsel or that the class would be harmed by the delay and additional costs that will result if
lead plaintiff and lead counsel are removed.
Now, ignoring the reasonable result achieved in Lucent, Parnassus has abandoned its
suggestions for allocating lead plaintiff responsibilities that this Court, Cupples and Sullivan, Mr.
Hicks and Parnassus itself have recognized as pragmatic solutions to the unique circumstances of
this case. Parnassus now asks this Court to remove lead plaintiff and lead counsel and to appoint it
as the sole lead plaintiff and to approve its selection of new lawyers as lead counsel because its
losses are greater. But this Court should not ignore the posture of this case. The overriding purpose
of the PSLRA is to appoint a lead plaintiff that is the most capable of adequately representing the
interests of the class. See 15 U.S.C. §78u-4(a)(3)(B)(i). This Court already ruled Cupples and
Sullivan were the most capable of adequately representing the interests of the class. Their vigorous
prosecution of the case over the past two years confirms they should continue to serve as lead
plaintiff. By asking this Court to appoint it as lead plaintiff and to approve its selection of new
lawyers for the class – and to displace lead plaintiff and lead counsel who have vigorously
prosecuted the case and conferred substantial benefits to the class – Parnassus seems to be ignoring
the interests of the class and putting its own interests first. This attempt should be rejected just as the
Lucent court rejected it in 2001.
Accordingly, Cupples and Sullivan respectfully request this Court to issue an order that
confirms their appointment as lead plaintiff and their selection of Lerach Coughlin Stoia Geller
Rudman & Robbins LLP (“Lerach Coughlin”) as lead counsel.
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II. ARGUMENT
A. By Vigorously Prosecuting the Case and Conferring Substantial
Benefits to the Class, Cupples, Sullivan and Their Counsel Have
Shown They Are the “Most Capable of Representing the Interests of
the Class” and Should Continue to Serve as Lead Plaintiff and Lead
Counsel
In their opening brief, Cupples and Sullivan explained that they are the most capable of
representing the interests of the class and should be reappointed lead plaintiff. Cupples and Sullivan
should be reappointed because (1) this Court ruled they were the most capable of representing the
class when it appointed them lead plaintiff on March 31, 2005, (2) they have already conferred
substantial benefits to the class by vigorously prosecuting the case, (3) there has been no showing –
or even an allegation – that they no longer meet the adequacy requirements of Rule 23, (4) no other
movant has the knowledge developed by Cupples and Sullivan through their extensive investigation
and preparation of the Consolidated Complaint.
In addition, disrupting the litigation by appointing a new lead plaintiff whose chosen counsel
will have to spend months learning information already developed would be highly prejudicial to the
class and would impose further delay and excessive, unnecessary and additional costs. In light of the
foregoing, any movant that would ask this Court to remove Cupples and Sullivan as lead plaintiff,
and appoint it as lead plaintiff and to approve its selection of new lawyers for the class would
demonstrate that it is not the most adequate plaintiff to continue the prosecution of the case.
B. This Court Has Indicated that Cupples and Sullivan Should Continue
to Prosecute the Case as Lead Plaintiff
Lead plaintiff and lead counsel believe this Court has already recognized that it would be ill
advised to remove and replace them given the unique circumstances of this case and that neither the
PSLRA nor Cavanaugh require it. In its July 27, 2005 Order, this Court stated that it would consider
pragmatic suggestions for allocating lead plaintiff responsibilities advanced by the parties during the
lead plaintiff selection process, including suggestions initially made by Parnassus to (1) appoint
Parnassus as co-lead plaintiff and its counsel as co-lead counsel or (2) appoint Parnassus and
Cupples and Sullivan as lead plaintiffs for their respective portions of the class period. July 27, 2005
Order at 1-3.
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This Court issued the July 27, 2005 Order after Cupples and Sullivan explained in their
motion for reconsideration that they expanded the class period alleged in the Consolidated
Complaint and pled the case in more detail as a result of their extensive investigation, and that the
amendments were to be expected of lead plaintiffs vigorously prosecuting a case. Staton v. Boeing
Co., 327 F.3d 938, 957, 960 (9th Cir. 2003) (Rule 23(a)(4) requires “representative plaintiffs and
their counsel [to] prosecute the action vigorously,” “class counsel ultimately owe their fiduciary
responsibility to the class as a whole”). Indeed, no one else has the knowledge of the facts
developed by lead plaintiff and lead counsel, and it would penalize interested and diligent plaintiffs
who had vigorously prosecuted the case if the reward for that work is removal from the case.
C. Hicks Agrees that Lead Plaintiff and Lead Counsel Have Conferred
Substantial Benefits to the Class and that They Should Continue to
Represent the Class
Mr. Hicks joined in the motion filed by Cupples and Sullivan and also believes they should
continue to serve as lead plaintiff and that Lerach Coughlin should continue to serve as lead counsel.
In his joinder, Mr. Hicks expressly stated that (1) his counsel had reviewed the Consolidated
Complaint and was satisfied it more than adequately represents the interests of all class members, (2)
his counsel believed lead plaintiff and lead counsel had conferred substantial benefits to the class by
conducting an extensive investigation, preparing the Consolidated Complaint and issuing numerous
document preservation subpoenas, (3) no other potential movant has the knowledge that lead
plaintiff and lead counsel have already developed, and (4) disrupting the litigation by appointing a
new lead plaintiff whose chosen counsel will have to spend months learning information already
developed would be highly prejudicial to the class and would impose further delay and excessive,
unnecessary and additional costs.
Like Cupples and Sullivan, Mr. Hicks recognizes that the expertise developed by lead
plaintiff and lead counsel and the benefits of maintaining a continuity of representation must be
given more weight than another movant’s losses when determining what member of the class is the
“most capable of adequately representing the interests of class members.”
In addition, Hicks stated that it would be appropriate to appoint him as an additional lead
plaintiff if the Court determined that additional lead plaintiffs should be appointed. Hicks’ Mem. at
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2. As this Court noted in its July 27, 2005 Order, appointing additional lead plaintiffs may be a
pragmatic solution to allocating lead plaintiff responsibilities. July 27, 2005 Order at 1-3. As Mr.
Hicks’ motion makes clear, however, replacing lead plaintiff and lead counsel is not a pragmatic
alternative and would actually harm the class.
D. Parnassus Has Shown It Will Not Adequately Represent the Interests
of the Class by Asking This Court to Remove Lead Plaintiff and Lead
Counsel Who Have Conferred Substantial Benefits to the Class by
Vigorously Prosecuting the Case
In its July 27, 2005 Order, this Court noted that Parnassus initially made several pragmatic
suggestions for allocating lead plaintiff responsibilities that would result in Cupples and Sullivan
continuing to serve as lead plaintiff and Parnassus being appointed co-lead plaintiff for the entire
class period or for just the post February 10, 2004 portion of the class period. July 27, 2005 Order at
1-3. Further, in its opening motion, Parnassus did not dispute that lead plaintiff and lead counsel
have vigorously prosecuted the case and conferred substantial benefits to the class by conducting an
extensive investigation, issuing numerous document preservation subpoenas and preparing the
Consolidated Complaint. Although not expressly addressed in its opening brief, Parnassus implicitly
acknowledged that lead plaintiff and lead counsel have vigorously prosecuted the case and conferred
substantial benefits to the class by recognizing that the Consolidated Complaint prepared and filed
by lead plaintiff and lead counsel will be the operative complaint in this matter. Memorandum in
Support of Motion for Appointment of Lead Plaintiffs, and for Approval of Selection of Lead
Counsel at 2-3.1
But Parnassus has now abandoned the suggestions for allocating lead plaintiff responsibilities
that this Court, Cupples and Sullivan, Mr. Hicks and Parnassus itself have recognized as pragmatic
solutions to the unique circumstances of this case. Instead, Parnassus now asks this Court to remove
lead plaintiff and lead counsel and to replace them with Parnassus and its lawyers. Parnassus
1 In its certification, Parnassus stated that it reviewed the Consolidated Complaint prepared by
lead plaintiff and lead counsel that was filed on June 17, 2005.
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contends it is the presumptively most adequate plaintiff because it is the movant with the largest
financial interest in the relief sought and because it satisfies the requirements of Rule 23.
Neither the PSLRA nor Cavanaugh requires a court to remove and replace a court-appointed
lead plaintiff when a subsequent lead plaintiff selection process has been ordered by the court and a
competing movant claims larger losses. In Cavanaugh, the Ninth Circuit explained the PSLRA’s
three-step process for the initial selection of lead plaintiff. Cavanaugh, 306 F.3d at 729-31. But the
Ninth Circuit did not address the situation present in this case, i.e., whether a court-appointed lead
plaintiff who continues to meet the adequacy requirements of Rule 23 and has conferred substantial
benefits to the class by vigorously prosecuting the case should be removed when the court has
ordered a subsequent lead plaintiff selection process. In fact, this Court indicated that Cavanaugh
does not require the removal of Cupples and Sullivan as lead plaintiff when it stated it would
consider the possibility of appointing Parnassus lead plaintiff for only the post February 10, 2004
portion of the class period and the other pragmatic suggestions advanced by the parties. July 27,
2005 Order at 3. Further, removing Cupples and Sullivan would be improper because there has been
no showing or even an allegation that they no longer satisfy the adequacy requirements of Rule 23.
Cavanaugh, 306 F.3d at 741 (lead plaintiff can be removed “only after a finding that they are
inadequate”).
In addition to not being required by the PSLRA or Cavanaugh, it would actually harm the
class to remove lead plaintiff and lead counsel and to appoint Parnassus as lead plaintiff simply
because Parnassus has incurred larger losses. The Court has already appointed Cupples and Sullivan
as lead plaintiff and approved their selection of lead counsel. Lead plaintiff and lead counsel have
been vigorously prosecuting the case for almost two years and have developed unparalleled
knowledge and expertise. At this stage of the litigation, the overriding statutory purpose of the
PSLRA – determining what member or members of the plaintiff class are “most capable of
adequately representing the interests of class members” – requires an analysis that goes beyond
simple arithmetical comparisons. See, e.g., In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D.
42, 49 (S.D.N.Y. 1998) (“The rebuttable presumption created by the PSLRA which favors the
plaintiff with the largest financial interest was not intended to obviate the principle of providing the
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class with the most adequate representation and in general the Act must be viewed against
established principles regarding Rule 23 class actions.”).
Moreover, the fact that Parnassus is willing to remove lead plaintiff and lead counsel
demonstrates that it does meet the adequacy requirements of Rule 23 and is therefore not the
presumptively most adequate plaintiff. Cavanaugh, 306 F.3d at 730 (presumptive lead plaintiff is
“‘the one who has the largest financial interest in the relief sought by the class’” and “‘otherwise
satisfies the requirements of Rule 23’”) (citation omitted). As explained in Cupples and Sullivan’s
opening brief, and in Mr. Hicks’ joinder, any movant that would ask this Court to appoint it as lead
plaintiff and to approve its selection of new lawyers – and to displace lead plaintiff and lead counsel
who have vigorously prosecuted the case and conferred substantial benefits to the class – would
demonstrate that it is not the most adequate plaintiff to continue the prosecution of the case.
At this stage of the litigation, appointing a new lead plaintiff whose chosen counsel will have
to spend months learning information already developed would unavoidably cause further delay and
increase costs to the class. See In re Oxford Health Plans, Inc. Sec. Litig., 191 F.R.D. 369, 381
(S.D.N.Y. 2000) (“[T]he substitution of a new Lead Plaintiff at this stage of the litigation is likely to
cause dislocation and delay. Designating another law [firm] as Lead Counsel either in addition to
the existing Lead Counsel or in substitution of any of them, would seem to promise more delay and
unjustifiable additional expense . . . .”); Greenberg v. Bear Stearns & Co., 80 F. Supp. 2d 65, 70
(E.D.N.Y. 2000) (“To disturb the litigation by appointing a subclass of lead plaintiffs absent any
convincing evidence that they would otherwise be prejudiced, would undoubtedly create further
delays and costs in this litigation.”). To permit this would run counter to one of the PSLRA’s stated
purposes to “minimize costs.” H.R. Conf. Rep. No. 104-369, at 32 (1995).
The Ninth Circuit has stated that the presumptive lead plaintiff has the “responsibility to
select counsel who he believes will best serve his own interests and the interests of the class.”
Cavanaugh, 306 F.3d at 734 (emphasis added); see also Senate Report No. 104-98, at 691 (1995)
(“the Committee does not intend to disturb the court’s discretion under existing law to approve or
disapprove the lead plaintiff’s choice of counsel when necessary to protect the interests of the
plaintiff class”) (emphasis added). Moreover, the Ninth Circuit has stated that the choice of counsel
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may be relevant in determining whether the presumptive lead plaintiff meets the typicality and
adequacy requirements of Rule 23. Cavanaugh, 306 F.3d at 732. Parnassus knows that removing
lead plaintiff and lead counsel will harm the class for the reasons described above. Thus, by asking
this Court to remove and replace lead plaintiff and lead counsel Parnassus has shown that it is not
acting in the best interests of the class and, consequently, that it does not meet the adequacy
requirements of Rule 23.
In Lucent, 221 F. Supp. 2d 472, Parnassus and its counsel tried unsuccessfully to prevent the
court-appointed lead plaintiff and lead counsel from prosecuting a portion of the class period alleged
in the consolidated complaint. In Lucent, lead plaintiff and lead counsel were appointed on April 27,
2000 and filed a consolidated complaint on November 3, 2000 that alleged a class period of October
26, 1999 to January 6, 2000 (“Lucent I”). Lucent, 221 F. Supp. 2d at 478. After the consolidated
complaint was filed Lucent disclosed that it had improperly recognized almost $1 billion of revenue
in 4Q00. Id. As a result, numerous complaints were filed that alleged a class period of July 20,
2000 to December 21, 2000 (“Lucent II”) and lead plaintiff filed an amended consolidated complaint
that extended the class period to December 21, 2000. Lucent, 221 F. Supp. 2d at 478.
Parnassus and its counsel asked the court to keep the Lucent I and Lucent II cases separate
(based on their assertion that Lucent II involved different allegations, different class periods and
different defendants) and to appoint a separate lead plaintiff and lead counsel for Lucent II. Lucent,
221 F. Supp. 2d at 478. The court denied that request because it found that both actions involved
common questions of fact and law and that the interests of economy and efficiency counseled against
severance. Id. at 482. Thus, the originally appointed lead plaintiff continued to serve as lead
plaintiff in the consolidated action that encompassed the Lucent I and Lucent II actions.
In addition, Parnassus and its counsel asked the court to establish a subclass to represent the
Lucent II plaintiffs based on their assertion that there was a conflict between the Lucent I and Lucent
II actions because the Lucent II case was stronger. Lucent, 221 F. Supp. 2d at 482-83. The court
noted that a conflict had to be significant enough to preclude the lead plaintiff from adequately
representing a single, consolidated class and denied the request to establish a subclass because the
purported conflict was based on an unsupported, and therefore “merely theoretical,” assertion that
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Lucent II was stronger. Lucent, 221 F. Supp. 2d at 483 Indeed, the court noted that Parnassus’
counsel did not know how easy or difficult it would be to prove the Lucent II claims, or for the
Lucent I plaintiffs to prove theirs, because they had not done any investigation into the facts of either
the Lucent I allegations or the allegations in their own complaints. Lucent, 221 F. Supp. 2d at 483.
The court did, however, appoint Parnassus as co-lead plaintiff because (1) it appeared
additional representation might benefit the class and provide flexibility, if needed, in the future, (2)
Parnassus had the largest losses of the competing Lucent II movants, and (3) the presumption of
adequacy was not challenged. Lucent, 221 F. Supp. 2d at 483, 488.
The circumstances in this case are even more compelling than those in Lucent that the court
found insufficient to preclude the lead plaintiff from adequately representing a single consolidated
class. Indeed, in this case, unlike Lucent, Parnassus does not contend there is any conflict that would
preclude Cupples and Sullivan from adequately representing the class. Parnassus does not dispute
that lead plaintiff and lead counsel have adequately represented the class by vigorously prosecuting
the case or that lead plaintiff and lead counsel will continue to do so. Mr. Hicks believes lead
plaintiff and lead counsel have adequately represented the class and that they should continue to
prosecute the case. Thus, there is no basis to remove lead plaintiff and lead counsel and, as
explained above, doing so would harm the class.
Cupples, Sullivan, and Mr. Hicks – and until now, Parnassus – each advanced the
suggestions this Court found to be pragmatic for allocating lead plaintiff responsibilities, including
(1) reappointing lead plaintiff and reapproving lead plaintiff’s selection of Lerach Coughlin as lead
counsel and (2) appointing additional lead plaintiffs and lead counsel if the Court believes it would
benefit the class. Parnassus has abandoned its previous suggestion to be appointed co-lead plaintiff
and now seeks to take over the entire case. For the reasons noted above, such action would hurt the
class and demonstrates Parnassus does not meet the adequacy requirements of Rule 23.
E. Lead Plaintiff and Lead Counsel Have Continued Their Investigation
and Have Discovered Additional Information Since the Filing of the
Consolidated Complaint that Will Benefit the Class
Lead plaintiff and lead counsel have continued their investigation and have discovered
additional information showing defendants knew their statements about Mattel Inc.’s (“Mattel”)
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competing PowerTouch product and LeapFrog Enterprises, Inc.’s (“LeapFrog” or the “Company”)
distribution and supply chain operations were false and misleading. As alleged in the Consolidated
Complaint, defendants’ trial testimony and pleadings filed in the patent infringement suit against
Mattel show they knew (1) LeapFrog was losing million of dollars in sales to the PowerTouch when
they represented to investors that lost sales was only a potential risk, and (2) LeapFrog failed to ship
four million LeapPads in 3Q03 due to the distribution and supply chain problems when they
represented to investors that there were “no impediments” to meeting the Company’s guidance for
3Q03 and that LeapFrog was “ready to keep our customers in stock as we move forward in this
critical third period.” See, e.g., ¶¶44-126, 140, 143, 145, 149.2
Pleadings filed in the patent infringement suit subsequent to the filing of the Consolidated
Complaint further confirm defendants’ knowledge. After the jury was unable to reach a verdict
prompting the court to declare a mistrial, LeapFrog and Mattel filed post trial briefs, proposed
findings of facts and responses to the other party’s two filings that disclosed additional evidence
showing defendants knew their statements were materially false and misleading.
For example, defendant James Curley’s deposition testimony – which Mattel cited in its
proposed findings of fact and conclusions of law – confirm the allegations that the defendants knew
their representations in July 2003 that there were no impediments to reporting sales and earnings in
line with the Company’s reiterated guidance were false and misleading. ¶¶44-60, 140. Specifically,
Curley testified that (1) LeapFrog was unable to ship the ordered amounts of product to either Target
or Toys R Us, (2) LeapFrog lost 1.2 million orders to Target in 3Q03 because it was unable to ship,
and (3) LeapFrog lost 2.8 million orders to Toys R Us in 3Q03 because of product unavailability.
Curley’s testimony confirms the allegations of lost sales that are based on the testimony of Timothy
Bender during the patent infringement trial, information provided by several former LeapFrog
employees and Michael Wood’s admissions during the Company’s October 22, 2003 conference
call. ¶¶53-55.
2 All paragraph references (“¶”) are to the Consolidated Complaint filed June 17, 2005, unless
otherwise indicated.
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In addition, testimony shows that the distribution and supply chain problems continued in
2003 and 2004 when the defendants represented that the distribution and supply chain problems that
caused LeapFrog to report disappointing 3Q03 results had been fixed and that LeapFrog’s operating
results could suffer if the Company was unable to meet tight shipping schedules and fill retail orders
or if the Company failed to develop and maintain management systems and resources sufficient to
manage growth. ¶¶61-86, 154, 158, 160, 166-67, 171, 177, 180, 183, 186, 190. Specifically,
defendants Curley and Bender testified that LeapFrog began actively searching for a supply chain
expert after the Company missed product shipments in 2004 due to supply chain problems. Curley
testified that problems with the implementation of a new distribution center and new supply chain
system in 2004 caused interruptions in shipments and untimely shipments and that as a result
LeapFrog’s top four customers – Target, Toys R Us, Wal-Mart and K-Mart – complained they were
not getting shipments when they wanted them. Curley also testified that LeapFrog delayed the
installation of supply chain software until 2004 and incurred millions of dollars in expenses to (1)
hire 100 additional people to staff the distribution center, (2) hire outside consultants to help
LeapFrog develop a longer term solution to fix the distribution and supply chain problems and (3)
implement and install the supply chain software.
Curley’s deposition testimony corroborates the allegations defendants knew the distribution
and supply chain problems continued in 2003 and 2004 that were based on information provided by
several former LeapFrog employees, the suit between LeapFrog and Commodity Logistics West,
Inc., and the defendants’ admissions after the Class Period. ¶¶61-86.
In short, lead plaintiff and lead counsel have continued to adequately represent the class as a
whole by discovering additional information through their continuing investigation that will
substantially benefit the class because it confirms defendants knowingly or recklessly made
numerous false and misleading representations and omissions about the Company’s distribution and
supply chain operations and the impact of the PowerTouch on LeapFrog’s sales.
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III. CONCLUSION
Based on the foregoing, Cupples and Sullivan respectfully request that this Court confirm
their appointment as lead plaintiff pursuant to §21D(a)(3)(B) of the Securities Exchange Act of 1934
and their selection of Lerach Coughlin as lead counsel.
DATED: October 28, 2005 Respectfully submitted,
LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP
PATRICK J. COUGHLIN
CHRISTOPHER P. SEEFER
/s/
CHRISTOPHER P. SEEFER
100 Pine Street, Suite 2600
San Francisco, CA 94111
Telephone: 415/288-4545
415/288-4534 (fax)
LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP
WILLIAM S. LERACH
DARREN J. ROBBINS
655 WEST BROADWAY, SUITE 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
Lead Counsel for Plaintiffs
T:\CasesSF\LeapFrog\BRF00025407.doc
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DECLARATION OF SERVICE BY FACSIMILE
PURSUANT TO NORTHERN DISTRICT LOCAL RULE 23-2(c)(2)
I, the undersigned, declare:
1. That declarant is and was, at all times herein mentioned, a citizen of the United States
and employed in the City and County of San Francisco, over the age of 18 years, and not a party to
or interested party in the within action; that declarant’s business address is 100 Pine Street,
Suite 2600, San Francisco, California 94111.
2. That on October 28, 2005, declarant served by facsimile the ALICE CUPPLES
AND WILLIAM SULLIVAN’S OPPOSITION TO THE MOTION TO APPOINT
PARNASSUS AS LEAD PLAINTIFF AND TO APPROVE PARNASSUS’ SELECTION OF
LEAD COUNSEL to the parties listed on the attached Service List and this document was
forwarded to the following designated Internet site at:
http://securities.lerachlaw.com/
3. That there is a regular communication by facsimile between the place of origin and
the places so addressed.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 28th
day of October, 2005, at San Francisco, California.
/s/
CAROLYN BURR
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Service List - 10/27/2005
Page 1 of 3
(03-0393)
LEAPFROG (LEAD)
Counsel For Defendant(s)
Boris Feldman
Leo P. Cunningham
Daniel W. Turbow
650 Page Mill Road
Palo Alto, CA 94304-1050
650/493-9300
650/493-6811(Fax)
Wilson Sonsini Goodrich & Rosati, P.C.
Counsel For Plaintiff(s)
Todd S. Collins
1622 Locust Street
Philadelphia, PA 19103
215/875-3000
215/875-4604(Fax)
Berger & Montague, P.C.
Kurt B. Olsen
2121 K Street, N.W., Suite 800
Washington, DC 20037
202/261-3553
240/683-8349(Fax)
Klafter & Olsen LLP
Samuel H. Rudman
David A. Rosenfeld
200 Broadhollow Road, Suite 406
Melville, NY 11747
631/367-7100
631/367-1173(Fax)
Lerach Coughlin Stoia Geller Rudman &
Robbins LLP
Patrick J. Coughlin
Christopher P. Seefer
100 Pine Street, Suite 2600
San Francisco, CA 94111-5238
415/288-4545
415/288-4534(Fax)
Lerach Coughlin Stoia Geller Rudman &
Robbins LLP
Case5:03-cv-05421-RMW Document170 Filed10/28/05 Page18 of 20
Service List - 10/27/2005
Page 2 of 3
(03-0393)
LEAPFROG (LEAD)
William S. Lerach
655 West Broadway, Suite 1900
San Diego, CA 92101
619/231-1058
619/231-7423(Fax)
Lerach Coughlin Stoia Geller Rudman &
Robbins LLP
Arthur L. Shingler III
401 B Street, Suite 307
San Diego, CA 92101
619/233-4565
619/233-0508(Fax)
Scott + Scott, LLC
David R. Scott
Neil Rothstein
108 Norwich Avenue
Colchester, CT 06415
860/537-5537
860/537-4432(Fax)
Scott + Scott, LLC
Courtesy Copy
Joseph J. Tabacco, Jr.
Christopher T. Heffelfinger
425 California St., Suite 2025
San Francisco, CA 94104-2205
415/433-3200
415/433-6382(Fax)
Berman DeValerio Pease Tabacco Burt & Pucillo
Catherine A. Torell
Elizabeth Berney
150 East 52nd Street, 13th Floor
New York, NY 10022
212/838-7797
212/838-7745(Fax)
Cohen, Milstein, Hausfeld & Toll, P.L.L.C.
Case5:03-cv-05421-RMW Document170 Filed10/28/05 Page19 of 20
Service List - 10/27/2005
Page 3 of 3
(03-0393)
LEAPFROG (LEAD)
Steven J. Toll
Matthew K. Handley
1100 New York Ave., N.W., Suite 500
Washington, DC 20005-3964
202/408-4600
202/408-4699(Fax)
Cohen, Milstein, Hausfeld & Toll, P.L.L.C.
Case5:03-cv-05421-RMW Document170 Filed10/28/05 Page20 of 20
