In Re Salesforce.com, Inc. Securities Litigation 04-CV

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In Re Salesforce.com, Inc. Securities Litigation 04-CV Powered By Docstoc
					                 1   Robert S. Green, State Bar No. 136183
                     GREEN WELLING LLP
                 2   235 Pine Street, 15th Floor
                     San Francisco, CA 94104
                 3   Telephone: (415) 477-6700
                     Facsimile: (415) 477-6710
                 4
                     Liaison Counsel for Plaintiffs
                 5
                     David Kessler
                 6   Andrew Zivitz
                     Trevan Borum
                 7   SCHIFFRIN & BARROWAY, LLP
                     280 King of Prussia Road
                 8   Radnor, PA 19087
                     Telephone: (610) 667-7706
                 9   Facsimile: (610) 667-7056
            10       Lead Counsel for Plaintiffs
            11       Boris Feldman, State Bar No. 128838
                     Nina F. Locker, State Bar No. 123838
            12       John P. Stigi III, State Bar No. 208342
                     Claudia N. Main, State Bar No. 212200
            13       Gwen Parker, State Bar No. 228780
                     WILSON SONSINI GOODRICH & ROSATI
            14       650 Page Mill Road
                     Palo Alto, CA 94304-1050
            15       Telephone: (650) 493-9300
                     Facsimile: (650) 493-6811
            16
                     Attorneys for Defendants
            17       SALESFORCE.COM, INC., MARC R.
                     BENIOFF, and STEVE CAKEBREAD
            18
            19                                       UNITED STATES DISTRICT COURT
            20                                 NORTHERN DISTRICT OF CALIFORNIA
            21       _________________________________________
                                                                      )   Master File No. C-04-3009-JSW
            22       IN RE SALESFORCE.COM, INC.                       )
                     SECURITIES LITIGATION                            )   JOINT CASE MANAGEMENT
            23       _________________________________________        )   STATEMENT AND [PROPOSED]
                                                                      )   ORDER
            24       This Document Relates To:                        )
                                                                      )
            25       ALL ACTIONS                                      )
                                                                      )   Date:    April 15, 2005
            26                                                        )   Time:    1:30 p.m.
                                                                      )   Judge:   Honorable Jeffrey S. White
            27       _________________________________________        )   Dept:    Courtroom 2, 17th Floor
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4-8-05 CMS.wpd       JOINT CASE MANAGEMENT STATEMENT AND [PROPOSED] ORDER
                     Master File No. C-04-3009-JSW
                 1           The parties to the above-entitled action jointly submit this Case Management Statement
                 2   and Proposed Order and request the Court to adopt it as its Case Management Order in this case.
                 3                                    DESCRIPTION OF THE CASE
                 4   1.      Brief Description of the Basis for Jurisdiction
                 5           The claims asserted in the Consolidated Amended Class Action Complaint (“CAC”) arise
                 6   under and pursuant to Sections 10(b) and 20(a) of the Exchange Act, (15 U.S.C. §§ 78j(b) and
                 7   78t(a)), and Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5). Accordingly, this
                 8   Court has jurisdiction over the subject matter of this action pursuant to § 27 of the Exchange Act
                 9   (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.
            10               Venue is proper in this Judicial District pursuant to § 27 of the Exchange Act, 15 U.S.C.
            11       § 78aa and 28 U.S.C. § 1391(b). Many of the acts and transactions alleged in the CAC,
            12       including the preparation and dissemination of materially false and misleading information,
            13       occurred in substantial part in this Judicial District.
            14       2.      Brief Description of the Case
            15               On February 22, 2005, Lead Plaintiff filed a Consolidated and Amended Class Action
            16       Complaint (“CAC”) on behalf of all purchasers of the Company’s common stock between June
            17       23, 2004 and July 21, 2004. The individual defendants are the Company’s Chairman and Chief
            18       Executive Officer, Marc Benioff, and its Chief Financial Officer, Steve Cakebread. The CAC
            19       asserts claims for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act
            20       of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated
            21       thereunder.
            22               (a)     Lead Plaintiff’s Description of the Claims
            23               Salesforce.com provides on-demand customer relationship management solutions and
            24       delivers integrated and scalable enterprise applications for companies of all sizes. On or about
            25       December 18, 2003, the Company announced an intention to make an initial public offering
            26       (“IPO”) of its stock. Between December 2003 and June 2004, the Company filed eight
            27       amendments to the original registration statement. (The complete set of related filings shall be
            28
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                     Master File No. C-04-3009-JSW                                                                       1
                 1   collectively referred to herein as the “Prospectus.”) On or about June 23, 2004, salesforce.com
                 2   made its IPO. Prior to the IPO, the initial pricing was scheduled to be between $7.50 to $8.50
                 3   per share. By the time of the IPO on June 23, 2004, the initial offering price of the Company’s
                 4   stock had been raised to $11.00 per share and, on the first day of trading, the stock jumped 56
                 5   percent to close at $17.20.
                 6           On July 21, 2004, one month after the completion of the IPO, defendants for the first time
                 7   disclosed that, since February 1, 2004, they had expected the Company’s four year tread of
                 8   increasing year-over-year earnings per share to end in fiscal year 2005. Specifically, defendant
                 9   Cakebread stated, inter alia, that the Company expected revenues in the range of $160 to $165
            10       million and net income of $0.00 to $0.03 per share, and that defendants had “been using this
            11       guidance internally since Feb. 1.” The next day, the Company’s stock price dropped 28.8
            12       percent from $16.06 to close at $11.43 per share.
            13               The CAC alleges that the Prospectus was incomplete and false and misleading because
            14       defendants, inter alia, (1) failed to disclose that they had generated and “used” internal
            15       information since February 1, 2004, which led them to expect that the Company’s four trend of
            16       increasing earnings per share would cease in fiscal 2005; (2) misrepresented that they had taken
            17       “future prospects” into account when pricing the IPO because the price rose from $7.50 to
            18       $11.00; and (3) stated that the Company’s “current business and future prospects are difficult to
            19       evaluate” and such “may increase the risk of your investment,” yet withheld actual evaluations
            20       from investors.
            21               The CAC further alleges that defendants’ failure to disclose that information in the
            22       Prospectus rendered the Prospectus incomplete and false and misleading for, inter alia, two
            23       reasons. First, failure to disclose this information was a violation of 17 C.F.R. § 229.303,
            24       Instruction 3, which requires disclosure of, inter alia, known trends and uncertainties “that
            25       would cause reported financial information not to be necessarily indicative of future operating
            26       results or of future financial condition.” Second, defendants had a duty to disclose the
            27
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                     Master File No. C-04-3009-JSW                                                                       2
                 1   information so as to render the affirmative statements contained in the Prospectus complete and
                 2   not misleading.
                 3           (b)     Defendants’ Description of Their Defenses
                 4           As mentioned above, on July 21, 2004, the Company provided securities analysts with
                 5   guidance for fiscal year 2005 financial results. This was the first time the Company provided
                 6   guidance for that fiscal year. The same day, Reuters published an article reporting that, inter
                 7   alia, three analysts polled by Reuters had expected revenue of $175 million and net income of
                 8   $0.05 to $0.06 per share. Reuters subsequently published revisions to that article, which
                 9   disclosed that, among other things, the analysts had based their projections only on publicly
            10       available information and that the Company had not previously discussed its internal forecast
            11       because it had been in an SEC-mandated “quiet period.”
            12               On February 17, 2005, the Company announced its actual results for fiscal year 2005.
            13       Revenues in fiscal year 2005 were $176 million, 84% higher than fiscal year 2004 revenues and
            14       $1 million higher than the high end of the forecasted range. Diluted EPS were $0.07, 75%
            15       higher than fiscal year 2004 diluted EPS and $0.01 higher than the high end of the forecasted
            16       range. The Company’s stock price has traded above July 22, 2004 levels since August 17, 2004,
            17       and closed on April 6, 2005 at $15.27.1
            18
                             1
            19                 Plaintiffs object to the inclusion of the actual fiscal 2005 financial results on two
                     grounds. First, the information is not contained in the CAC and was disclosed 6 months after the
            20       close of the Class Period. Additionally, the information has no relevance to the truth or falsity of
                     the statements contained in the Prospectus at the time they were made, i.e., June 23, 2004.
            21       Defendants maintain that the actual fiscal year 2005 financial results are not only relevant to this
                     action, but dispositive. Those results (which were released before plaintiffs filed the CAC)
            22
                     prove incontrovertibly that there was no “trend” of diminished growth in fiscal 2005. If the
            23       so-called negative trend did not exist, it could not have been a "known trend" within the meaning
                     of Item 303 of Regulation S-K. Furthermore, because salesforce.com’s fiscal year 2005 EPS did
            24       not decline from fiscal 2004, plaintiffs cannot prove their allegations that "defendants knew how
                     revenues and earnings were trending for fiscal year 2005 when they issued the Prospectus" (CAC
            25       ¶ 89), that "defendants tracked and, thus, knew its own EPS would fall in 2005" (id. ¶ 91) or that
            26       defendants “knew [prior to the IPO] that Salesforce’s Fiscal Year 2005 EPS would decline for
                     the first time in four years.” Id. ¶ 93. The Company’s actual results for fiscal 2005 also confirm
            27       that forecasting the Company’s future results was difficult and uncertain, precisely as the
                     Company warned. Finally, defendants note that the description of the case required to be
            28
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                     Master File No. C-04-3009-JSW                                                                     3
                 1           Defendants will argue, inter alia, that (1) they had no legal duty to disclose internal
                 2   guidance for fiscal year 2005 prior to the IPO, and in fact had a legal duty to refrain from
                 3   divulging that information; (2) the nondisclosure of an alleged trend or internal expectation of
                 4   declining earnings from fiscal year 2004 to fiscal year 2005 was not misleading to investors
                 5   because earnings actually increased from fiscal year 2004 to fiscal year 2005; (3) the internal
                 6   forecast for fiscal year 2005 did not represent a downward departure from an upward trend in
                 7   operational earnings for fiscal year 2002 through fiscal year 2004; (4) the CAC does not meet the
                 8   Reform Act’s heightened requirements for specifying the reason or reasons the statements were
                 9   misleading and pleading particularized facts giving rise to a strong inference that defendants
            10       acted with an intent to mislead investors or with deliberate recklessness as to whether investors
            11       would be misled by the alleged omission.
            12               A parallel shareholder derivative action based upon the same allegations is currently
            13       pending in the California Superior Court, San Francisco County. That case is currently in
            14       discovery. The SEC has not commenced any investigation or proceeding relating to these
            15       matters.
            16       3.      Brief Description of the Principal Legal Issues Which the Parties Dispute
            17               Defendants contend that the following are principal legal issues which the parties dispute:
            18               A.      Whether defendants had a legal duty under to disclose internal guidance for fiscal
            19                       year 2005 prior to the IPO.
            20               B.      Whether the nondisclosure of an alleged trend or internal expectation of declining
            21                       earnings from fiscal year 2004 to fiscal year 2005 was misleading to investors
            22                       when earnings actually increased from fiscal year 2004 to fiscal year 2005. (See
            23                       footnote 1, supra.)
            24
            25
            26
                     included in this case management statement is not limited to matters alleged in the complaint,
            27       but includes all information that is relevant to the case or defenses.
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                     Master File No. C-04-3009-JSW                                                                       4
                 1           C.      Whether the CAC pleads the essential elements of falsity and scienter for a claim
                 2                   under Section 10(b) and Rule 10b-5 in accordance with the heightened pleading
                 3                   requirements of the Private Securities Litigation Reform Act of 1995 (the
                 4                   “Reform Act”), Pub. L. No. 104-67, 109 Stat. 737 (1995).
                 5           D.      Whether the CAC states a claim for “controlling person” liability under Section
                 6                   20(a) of the Exchange Act in the absence of a viable Section 10(b) claim against
                 7                   the allegedly “controlled” entity.
                 8           E.      Whether the action may be certified as a class action under Rule 23(a) and
                 9                   23(b)(3) of the Federal Rules of Civil Procedure.
            10               F.      Whether any amendment of the CAC can cure what defendants believe are its
            11                       insurmountable factual and legal deficiencies.
            12                                             PROCEDURAL HISTORY
            13               4.      Brief Description of the Procedural History
            14                       On July 29, 2004, Plaintiff Richard Evans filed a complaint, Case No. C-04-
            15       3102, in this action. On September 1, 2004, this Court entered an order consolidating all
            16       related cases into In re Salesforce.Com Securities Litigation, Master File No. C-04-3009 JSW.
            17       On December 22, 2004, this Court entered an order appointing Chuo Zhu as Lead Plaintiff. On
            18       February 22, 2005, Plaintiff filed the CAC. The defendants are Salesforce.com, the Company’s
            19       Chairman and Chief Executive Officer, Marc Benioff, and its Chief Financial Officer, Steve
            20       Cakebread.
            21               Additionally, through correspondence Lead Plaintiff advised Defendants that their core
            22       allegation is that Defendants "expected" earnings per share to decline for the first time in four
            23       years, not that Defendants "knew" earnings per share would decline. The parties will meet and
            24       confer over the proper procedural method of correcting allegations in the complaint that refer to
            25       knowledge. If unable to agree, Plaintiff will seek the Court's guidance on this issue.
            26
            27
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                     Master File No. C-04-3009-JSW                                                                       5
                 1                                                 DISCOVERY
                 2           5.      Brief Description of the Scope of Discovery to Date
                 3                   To this date, discovery has not taken place in this action. All discovery and
                 4   initial disclosures are stayed automatically pursuant to the Reform Action, 15 U.SC. § 78u-
                 5   4(b)(3)(B), until after resolution of defendants’ expected motion to dismiss the CAC.
                 6           6.      Plan of the Discovery Each Party Intends to Pursue
                 7                   Upon resolution of any response by defendants to the CAC, Plaintiff will serve
                 8   appropriate discovery requests upon the defendants.
                 9                                           PRE-TRIAL MOTIONS
            10               7.      Brief Description of the Motions Each Party Intends to Pursue Before Trial
            11                       Defendants intend to file a motion to dismiss the CAC with prejudice on the
            12       grounds stated above.
            13                       Defendants also may file a motion pursuant to Rule 11 of the Federal Rules of
            14       Civil Procedure requesting that the Court, as the remedy for the Rule 11 violation, dismiss the
            15       CAC without leave to amend.
            16                       Plaintiff intends to move for class certification after the resolution of the motion
            17       to dismiss.
            18                       Plaintiff may file a motion to lift the PSLRA discovery stay.
            19                       Plaintiff also reserves his right to file a motion pursuant to Rule 11 of the
            20       Federal Rules of Civil Procedure requesting that the Court sanction defendants, in the event
            21       that defendants file the aforesaid Rule 11 motion.
            22                       Depending upon the resolution of the aforementioned motions, the parties may
            23       make additional motions before trial.
            24                                                  RELIEF SOUGHT
            25               8.      Brief Description of the Relief Sought
            26                       As plead in the CAC, plaintiff requests compensatory damages in favor of
            27       plaintiff and the other class members against all defendants, jointly and severally, for all
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                     Master File No. C-04-3009-JSW                                                                          6
                 1   damages sustained as a result of defendants’ wrongdoing.
                 2                                   ALTERNATIVE DISPUTE RESOLUTION
                 3           9.      ADR Efforts to Date and ADR Plan for the Case
                 4                   This action is still at the preliminary stages. The parties have not filed a
                 5   Stipulation and Proposed Order Selecting an ADR process because the parties are not pursuing
                 6   ADR at this time.
                 7                                            MAGISTRATE JUDGE
                 8           10.     Assignment of the Case to a Magistrate Judge to Conduct All Further
                 9                   Proceedings.
            10                       None of the parties consents to the assignment of a magistrate judge for trial or
            11       other proceedings.
            12                                                  TRIAL SCHEDULE
            13               11.     Request for a Trial Date
            14                       Defendants have not filed a response to the CAC and expect to move to dismiss
            15       the CAC. Because this action is still at the preliminary stages, it is premature at this time to:
            16       (i) propose deadlines and court dates; (ii) estimate the length of trial or approximate number of
            17       witnesses, experts and exhibits; or (iii) consider the feasibility of bifurcation of issues or other
            18       expedited means of presenting evidence at trial.
            19                                        SERVICE LIST FOR ALL COUNSEL
            20               12.     Service List
            21                       Attached to this Joint Case Management Statement is a service list of all
            22       counsel.
            23                                         CLASS ACTION INFORMATION
            24               13.     The Specific Paragraphs of FRCivP 23 under which the action is
            25                       maintainable as a class action.
            26                       Plaintiff alleges that the action is maintainable as a class action under FRCivP
            27       23(a) and (b)(3).
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                     Master File No. C-04-3009-JSW                                                                          7
                 1           14.       A Description of the Class or Classes in Whose Behalf the Action is
                 2                     Brought.
                 3                     This action is a class action on behalf of purchasers of the common stock of
                 4   Salesforce between June 23, 2004 and July 21, 2004, seeking to pursue remedies under the
                 5   Securities Exchange Act of 1934.
                 6           15.       The Facts that Show that Plaintiff is Entitled to Maintain the Action Under
                 7                     FRCivP 23(a) and (b).
                 8                     Plaintiff asserts that he is entitled to maintain the action under FRCivP 23(a) and
                 9   (b) as follows:
            10                         (i)     The members of the class are so numerous that joinder of all of the
            11                                 members is impracticable.
            12                         (ii)    A class action is superior to other available methods for fair and efficient
            13                                 adjudication of this controversy. The disposition of the class members’
            14                                 claims in a class action will provide substantial benefits to the parties
            15                                 and to the Court.
            16                         (iii)   Prosecution of individual actions would create the risk of inconsistent
            17                                 adjudications.
            18                         (iv)    Plaintiff’s claims are typical of those of the class. Common questions of
            19                                 law predominate, including:
            20                                 (a)    Whether the federal securities laws were violated by defendants’
            21                                        acts as alleged in the CAC;
            22                                 (b)    Whether statements made by defendants to the investing public
            23                                        during the Class Period misrepresented material facts about the
            24                                        business, operations and management of Salesforce; and
            25                                 (c)    To what extent the members of the Class have sustained damages
            26                                        and the proper measure of damages.
            27
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                     Master File No. C-04-3009-JSW                                                                            8
                 1           16.      A Proposed Date for the Court to Consider Whether the Case can be
                 2                    Maintained as a Class Action.
                 3                    The parties are not prepared to address this issue because at the time of the filing
                 4   of this joint case management statement, defendants have not filed a response to the CAC.
                 5                                          RECUSAL INFORMATION
                 6           17.      Parties That Have a Financial Interest or an Interest That Could Be
                 7   Affected by the Outcome of the Proceeding.
                 8                    Salesforce.com, March Benioff and Steve Cakebread.
                 9
            10               Dated:                                         GREEN WELLING LLP
            11
            12                                                              By:     ROBERT S. GREEN
                                                                                    Robert S. Green
            13
                                                                            235 Pine Street, 15th Floor
            14                                                              San Francisco, California 94104
                                                                            Telephone: (415) 477-6700
            15                                                              Facsimile: (415) 477-6710
            16                                                              Liaison Counsel for Plaintiffs
            17                                                              David Kessler
                                                                            Andrew Zivitz
            18                                                              Trevan Borum
                                                                            SCHIFFRIN & BARROWAY, LLP
            19                                                              280 King of Prussia Road
                                                                            Radnor, PA 19087
            20                                                              Telephone: (610) 667-7706
                                                                            Facsimile: (610) 667-7056
            21
                                                                            Lead Counsel for Plaintiffs
            22
            23
            24
            25
            26
            27
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4-8-05 CMS.wpd       JOINT CASE MANAGEMENT STATEMENT AND [PROPOSED] ORDER
                     Master File No. C-04-3009-JSW                                                                           9
                 1                                                      Boris Feldman, State Bar No. 128838
                                                                        Nina F. Locker, State Bar No. 123838
                 2                                                      John P. Stigi III, State Bar No. 208342
                                                                        Claudia N. Main, State Bar No. 212200
                 3                                                      Gwen Parker, State Bar No. 228780
                                                                        WILSON SONSINI GOODRICH &
                 4                                                        ROSATI
                                                                        650 Page Mill Road
                 5                                                      Palo Alto, CA 94304-1050
                                                                        Telephone: (650) 493-9300
                 6                                                      Facsimile: (650) 493-6811
                 7                                                      By:    JOHN P. STIGI III
                                                                               John P. Stigi III
                 8
                                                                        Attorneys for Defendants
                 9                                                      SALESFORCE.COM, INC., MARC R.
                                                                        BENIOFF, and STEVE CAKEBREAD
            10
            11
            12                                                     ORDER
            13                        The Joint Case Management Statement and Proposed Order is hereby adopted
            14       by the Court as the Case Management Order for the case and the parties are ordered to comply
            15       with this Order. Further, the Court reschedules the April 15, 2005, Case Management
            16       Conference to __________________, 2005.
            17
            18               Dated:                              ______________________________
                                                                 The Honorable Jeffrey S. White
            19                                                   United States District Judge
            20
            21
            22
            23
            24
            25
            26
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                     Master File No. C-04-3009-JSW                                                                  10
                 1                                     CERTIFICATE OF SERVICE
                 2            I, Leslie R. Cuesta, hereby declare as follows:
                 3            I am employed by Green Welling, A Limited Liability Partnership, 235 Pine Street,
                 4   15th Floor, San Francisco, California 94104. I am over the age of eighteen years and am not a
                 5   party to this action. On April 8, 2005, I served the within document(s):
                 6            JOINT CASE MANAGEMENT STATEMENT AND [PROPOSED] ORDER
                 7   by electronic transmission of a Notice of Electronic Filing via the United States District Court,
                 8   Northern District of California's Electronic Case File program the above listed document(s) to
                 9   the email address(es) registered in the case on this date.
            10       John P. Stigi III (jstigi@wsgr.com)             Darren J. Check (dcheck@sbclasslaw.com)
                     WILSON SONSINI GOODRICH &                       Sean M. Handler (shandler@sbclasslaw.com)
            11         ROSATI                                        SCHIFFRIN & BARROWAY, LLP
                     650 Page Mill Road                              280 King of Prussia Road
            12       Palo Alto, CA 94304-1050                        Radnor, PA 19087
                     Telephone: (650) 493-9300                       Telephone: (610) 667-7706
            13       Facsimile: (650) 493-6811                       Facsimile: (610) 667-7056
            14       Counsel for Defendants                          Lead Counsel for Plaintiffs and the Class
            15
            16                In compliance with Civil L.R. 23-2, service is also made via electronic mail to a
            17       Designated Internet Site that is identified by its physical and electronic addresses set forth
            18       below.
            19                                       Securities Class Action Clearinghouse
                                                      Stanford University School of Law
            20                                                 Crown Quadrangle
                                                           Stanford, CA 94305-8612
            21                                        Email: jcarlos@law.stanford.edu
            22                I declare under penalty of perjury under the laws of the State of California that the
            23       above is true and correct, executed April 8, 2005, at San Francisco, California.
            24
            25                                               LESLIE R. CUESTA
                                                             Leslie R. Cuesta
            26
            27
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                     Master File No. C-04-3009-JSW