exhibit 2 - SAP Lawsuit Portal

Robert A. Mittelstaedt (SBN 060359) 

Jason McDonell (SBN 115084) 

2 Elaine Wallace (SBN 197882) 

JONES DAY 

3 555 California Street, 26 th Floor 

San Francisco, CA 94104 

4 Telephone: (415)626-3939 

Facsimile: (415) 875-5700 

5 ramittelstaedt@jonesday.com 

jmcdonell@jonesday.com 

6 ewallace@jonesday.com 

7 Tharan Gregory Lanier (SBN 138784) 

Jane L. Froyd (SBN 220776) 

8 JONES DAY 

1755 Embarcadero Road 

9 Palo Alto, CA 94303 

Telephone: (650) 739-3939 

10 Facsimile: (650) 739-3900 

tglanier@jonesday.com 

11 jfroyd@jonesday.com 

12 Scott W. Cowan (Admitted Pro Hac Vice) 

Joshua L. Fuchs (Admitted Pro Hac Vice) 

13 JONES DAY 

717 Texas, Suite 3300 

14 Houston, TX 77002 

Telephone: (832) 239-3939 

15 Facsimile: (832) 239-3600 

swcowan@jonesday.com 

16 jlfuchs@jonesday.com 

17 Attorneys for Defendants 

SAP AG, SAP AMERICA, INC., and 

18 TOMORROWNOW, INC. 

19 UNITED STATES DISTRICT COURT 

20 NORTHERN DISTRICT OF CALIFORNIA 

21 OAKLAND DIVISION 

22 ORACLE USA, INC., et aI., 

23 

24 

25 

26 

27 

28 

V. 

SAP AG, et aI., 

SVI-84814vI 

Case4:07-cv-01658-PJH Document875 Filed09/16/10 Page1 of 2 

Plaintiffs, 

Defendants. 

Case No. 07-CV-1658 PJH (EDL) 

DECLARATION OF THARAN 

GREGORY LANIER IN SUPPORT OF 

REPLY IN SUPPORT OF 

DEFENDANTS' MOTION TO EXCLUDE 

EX]>ERT TESTIMONY OF PROFESSOR 

DOUGLAS G. LICHTMAN 

Date: September 30, 2010 

Time: 2:30 p.m. 

Courtroom: 3, 3rd Floor 

Judge: Hon. Phyllis 1. Hamilton 

DECLARATION or THARAN GREGORY LANIER ISO REPLY 

ISO DEFENDANTS' MOTION TO EXCLUDE LICHTMAN 

Case No. 07-CY-1658 P,lH (EDL)

I, THARAN GREGORY LANIER, declare as follows: 

2 I am a partner in the law firm ofJones Day, 1755 Embarcadero Road, Palo Alto, 

3 California 94303, and counsel of record for Defendants SAP AG, SAP America, Inc. (together, 

4 "SAP"), and TomorrowNow, Inc. ("TN") (collectively, "Defendants") in the above-captioned 

5 matter. I am a member in good standing ofthe state bar of California and admitted to practice 

6 before this Court. I make this declaration based on personal knowledge and, if called upon to do 

7 so, could testify competently thereto. 

8 1. Attached as Exhibit 1 is a true and correct copy ofA&M Records, Inc. v. Napster, 

9 Inc., Nos. C 99-05183, C000074 MHP, 2000 WL 1170106 (N.D. Cal. Aug. 10,2000). 

10 2. Attached as Exhibit 2 is a true and correct copy of Charter Nat 'I Bank v. Charter 

11 One Fin., Inc., No. 01 C 0905, 2001 U.S. Dist. LEXIS 13919 (N.D. Ill. Aug. 31,2001). 

12 

.... 

,). Attached as Exhibit 3 is a true and correct copy of F.B. T Prods. LLC v. Aftermath 

13 Records, No. CV 07-3314 PSG (MANx), 2009 U.S. Dist. LEXIS 5981 (C.D. Cal. Jan. 20, 2009). 

14 4. Attached as Exhibit 4 is a true and correct copy of Gable v. Nat 'I Broad. Co., No. 

15 CV 08-4013 SVW (FFMx), 2010 U.S. Dist. LEXIS 77772 (C.D. Cal. Feb. 22,2010). 

16 5. Attached as Exhibit 5 is a true and correct copy of Mannick v. Kaiser Found. 

17 Health Plan, Inc., No. C 03-5905 PJH, 2006 U.S. Dist. LEXIS 38430 (N.D. Cal. June 9, 2006). 

18 6. Attached as Exhibit 6 is a true and correct copy ofSecurities and /ixchange 

19 Commission v. Leslie, No. C 07-3444, 2010 U.S. Dist. LEXIS 76826 (N.D. Cal. July 29, 2010). 

20 7. Attached as Exhibit 7 is a true and correct copy of Ticketmaster Corp. v. 

21 

22 

23 

24 

25 

26 

27 

28 

Tickets. com, Inc., No. CV 99-07654 HLI-I (VBKx), 2003 WL 25781901 (C.D. Cal. Feb. 10, 

2003). 

I declare under penalty of perjury under the laws of the United States and the State of 

California that the foregoing is true and correct. Executed this 16th day of September, 2010 in 

Palo Alto, California. 

SVI-84814vl 

Case4:07-cv-01658-PJH Document875 Filed09/16/10 Page2 of 2 

- 1 - 

/s/ Tharan Gregory Lanier 

Tharan Gregory Lanier 

DECLARATION OF THARAN GREGORY LANIER ISO REPLY 

ISO DEFENDANTS' MOTION TO EXCLUDE LICHTMAN 

Case No. 07-CY-1658PJH (EDL)

Case4:07-cv-01658-PJH Document875-1 Filed09/16/10 Page1 of 11 

EXHIBIT 1

Only the Westlaw citation is currently available. 

United States District Court, N.D. California. 

A & M RECORDS, INC., et al, Plaintiff(s), 

v. 

NAPSTER, INC., Defendant(s). 

Jerry LEIBER, individually and doing business as 

Jerry Leiber Music, et al, Plaintiff(s), 

v. 

NAPSTER, INC., Defendant(s). 

No. C9905183MHP, C000074MHP. 

Aug. 10, 2000. 

Named Expert: Jay, Fine, Fader, Hall, Lessig, Tygar 

MEMORANDUM AND ORDER RE ADMISSIB- 

ILITY OF EXPERT REPORTS 

PATEL, Chief J. 


Not Reported in F.Supp.2d, 2000 WL 1170106 (N.D.Cal.) 

(Cite as: 2000 WL 1170106 (N.D.Cal.)) 

*1 On July 3, 2000, in conjunction with its opposition 

to plaintiffs' motion for a preliminary injunction, 

defendant Napster, Inc. (“Napster”) filed a 

motion to exclude the reports of plaintiffs' experts, 

Dr. E. Deborah Jay (“Jay Report”) and Michael 

Fine (“Fine Report”). Defendant objected separately 

to the expert report of Dr. David J. Teece 

(“Teece Report”). Plaintiffs filed a brief opposing 

the exclusion of the Jay and Fine Reports on July 

13, 2000. Plaintiffs also objected to three of defendant's 

expert reports-those of Dr. Peter S. Fader, Dr. 

Robert Hall, Professor Lawrence Lessig, and Dr. 

J.D. Tygar (“Fader Report,” “Hall Report,” “Lessig 

Report,” and “Tygar Report,” respectively). 

Plaintiffs request the exclusion of the first three reports 

in their entirety and object to certain portions 

of the Tygar Report. 

After considering the parties' arguments, and for the 

reasons set forth below, this court now enters the 

following memorandum and order. 

LEGAL STANDARD 

I. Federal Rules of Evidence 

Page 1 

Both the relevant case law and the parties' briefs 

make reference to three Federal Rules of Evidence- 

Rules 104, 403, and 702. Rule 104, governing general 

questions of admissibility, states: 

Preliminary questions concerning the qualification 

of a person to be a witness, the existence of a 

privilege, or the admissibility of evidence shall 

be determined by the court, subject to the provisions 

of subdivision (b) [pertaining to conditional 

admissions]. In making its determination it is not 

bound by the rules of evidence, except those with 

respect to privileges. 

The trial judge initially must determine if the expert 

is proposing to testify to scientific or other specialized 

knowledge that “will assist the trier of fact to 

understand or determine a fact in issue.” Daubert v. 

Merrell Dow Phamaceuticals, Inc., 509 U.S. 579, 

591, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). 

Rule 403 provides that, “[a]lthough relevant, evidence 

may be excluded if its probative value is substantially 

outweighed by danger of unfair prejudice, 

confusion of the issues, or misleading the jury or by 

considerations of undue delay, waste of time, or 

needless presentation of cumulative evidence.” 

Rule 702 applies to testimony by experts and states 

that: 

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works. 

If scientific, technical, or other specialized knowledge 

will assist the trier of fact to understand the 

evidence or to determine a fact in issue, a witness 

qualified as an expert by knowledge, skill, experience, 

training, or education may testify thereto 

in the form of an opinion or otherwise. 

In its landmark Daubert opinion, the Supreme 

Court held that Rule 702 does not embody the requirement 

that an expert opinion is inadmissible un-

less it is “ ‘generally accepted’ as reliable in the relevant 

scientific community.” Daubert, 509 U.S. at 

584 (rejecting the test articulated in Frye v. United 

States, 293 F. 1013, 1014 (1923)); see id. at 597. 

II. Daubert Gatekeeping Obligations 

*2 In Daubert, the Supreme Court held that the 

Federal Rules of Evidence-particularly Rule 702give 

the trial court the duty of ensuring that expert 

testimony is “relevant to the task at hand” and has a 

reliable basis in the knowledge and experience of 

the relevant discipline. Daubert, 509 U.S. at 597. 

To determine the relevance and reliability of scientific 

evidence, the Daubert Court said, the trial 

judge must undertake a flexible inquiry, focusing 

on the principles and methodology used, rather than 

the conclusions reached. See id. at 594-95. Several 

factors may bear on a judge's gatekeeping determination. 

These factors, include, but are not limited to, 

whether (1) the “theory or technique ... can be (and 

has been tested);” (2) the theory or technique “has 

been subjected to peer review and publication;” (3) 

the technique has a “known or potential rate of error;” 

(4) there are “standards controlling the technique's 

operation;” and (5) the theory or technique 

enjoys “general acceptance” within a “relevant scientific 

community.” Id. at 592-94. The Supreme 

Court emphasized that it did not intend to create a 

“definitive checklist or test.” Id. at 594; Kumho 

Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 150, 

119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). 

In Kumho Tire, the Supreme Court extended 

Daubert principles to the testimony of engineers 

and other technical experts who are not scientists. 

See Kumho Tire, 526 U.S. at 141. It held that the 

gatekeeping obligation Daubert imposed on trial 

courts applies to all expert testimony. See Kumho 

Tire, 526 U.S. at 147. 

DISCUSSION 




I. Defendant's Objections 

A. Jay Report 


Page 2 

Dr. E. Deborah Jay is the President and Chief Executive 

Officer of Field Research Corporation, which 

plaintiffs retained “to conduct a survey with a random 

sample of college and university students in 

order to identify persons who use Napster to download 

music.” Jay Rep. at 1. Jay focused exclusively 

on college students because journalistic articles discussed 

college students using Napster. See Heather 

Mewes Dec., Exh. A (Jay Dep.) at 18:4-12, 

22:2-13. The survey purported to track the reasons 

survey respondents used Napster, see Jay Rep. at 

13-14, and the impact of Napster on their music 

purchases. See id. at 15-16. 

Defendant challenges the admissibility of the Jay 

Report on the ground that the survey was fatally under-inclusive 

because it only surveyed college or 

university students without obtaining data on the 

extent of Napster use outside colleges and universities. 

In her deposition, Jay admitted that she 

did not analyze non-college Napster use or have 

any information about it. See id. at 24:15-25, 

25:1-2. She did not know the median age of Napster 

users. See id. at 17:25-18:1. Jay also stated that she 

could project her results to the universe of college 

users, but declined to project them to Napster users 

as a whole. See id. at 24:15-25:9. 

*3 Defendant contends that the proper universe for 

determining lost sales or injury to plaintiffs is all of 

plaintiffs' customers, not merely those who currently 

attend college or university. According to 

Napster, “if Napster users other than college students 

were increasing sales sufficient to offset any 

purported loss among college students ..., Plaintiffs' 

claim of harm would evaporate.” Def.'s Mot. to Exclude 

Jay Rep. at 2. 

In opposing defendant's motion to exclude the Jay 

Report, plaintiffs primarily argue that (1) defendant's 

criticisms of the report are invalid, and (2) objections 

to survey methodology affect the weight, 

rather than the admissibility of evidence. FN1 Ac-




cording to plaintiffs, Napster executives themselves 

have opined that college students constitute the target 

demographic and the largest portion of Napster 

users. See Pl.'s Opp. to Def.'s Mot. to Exclude Jay 

Rep. at 3 (citing Fanning Dep. at 303:9-11, Brooks 

Dep. at 145:10-12, and Richardson Dep. at 

246:13-14). Plaintiffs contend that, because college 

students represent an important segment of both 

Napster users and the record-buying public, survey 

results showing a linkage between college Napster 

use and a decline in college record sales is probative 

of plaintiffs' harm. 

FN1. Plaintiffs also contend that Napster's 

motion is improper because it violates this 

court's rule prohibiting separate motions to 

strike. See Rules of the Hon. Marilyn Hall 

Patel, at Addendum I. The court considers 

this argument disingenuous and will disregard 

it because plaintiffs have also filed 

separate motions to strike the opinions of 

Drs. Fader, Hall, and Tygar and Professor 

Lessig. 

Identification of the relevant target population or 

universe constitutes one of the first steps in designing 

a survey; the researcher must design that universe 

carefully. See Reference Manual on Scientific 

Evidence 235 (Fed. Judicial Ctr.1994). Although 

Jay appears to have chosen her target population 

from only a portion of the Napster user base, depositions 

of Napster executives corroborate the media 

reports upon which she relied. For example, Elizabeth 

Brooks testified, “We believes [sic] ourselves 

to have a high college demographic, and beyond 

that to be primarily [ages] 12 to 24.” Julia Greer 

Reply Dec. (Brooks Dep.) at 145:10-12 Defendant 

has failed to produce persuasive evidence that college 

or university students do not constitute a significant 

percentage of Napster users. Even if a statistic 

cited by defendant's expert Dr. Peter S. Fader 

were to be believed, college students still account 

for about a quarter of Napster's users. See Dec. of 

David Lisi (Fader Rep.) 49. The court recognizes 

the Jay Report for what it is-a report that looks at 


Page 3 

only one segment of the Napster user population. 

That segment is significant, and the court finds 

evidence of lost sales attributable to college use to 

be probative of irreparable harm for the purposes of 

the preliminary injunction motion. 

Defendant misreads Ninth Circuit case law on the 

impact of Daubert on methodological flaws in surveys. 

The Ninth Circuit has stated that 

“[c]hallenges to survey methodology go to the 

weight given the survey, not its admissibility.” 

Wendt v. Host Int'l, Inc., 125 F.3d 806, 814 (9th 

Cir.1997) (holding that exclusion of survey about 

trademark confusion was not abuse of discretion). 

Far from providing that methodological flaws 

render a survey inadmissible, the court in Southland 

Sod Farms v. Stover Seed Co., 108 F.3d 1134 (9th 

Cir.1997), specifically stated: “Unlike novel scientific 

theories, a jury should be able to determine 

whether asserted technical deficiencies undermine a 

survey's probative value.” Id. at 1143 n. 8; see also 

Lewis Galoob Toys, Inc. v. Nintendo of America, 

Inc., 780 F.Supp. 1283, 1296 (N.D.Cal.1991), aff'd, 

964 F.2d 965 (9th Cir.1992) (holding that alleged 

under-inclusiveness of survey in copyright infringement 

action affected “the weight of the survey, not 

its admissibility”), cert. denied, 507 U.S. 985, 113 

S.Ct. 1582, 123 L.Ed.2d 149 (1993). 

*4 Defendant cites several district court cases outside 

the Ninth Circuit for the proposition that methodological 

flaws in surveys render them inadmissible 

under Daubert and Kumho Tire. See e.g ., Winning 

Ways, Inc. v. Holloway Sportswear, Inc., 913 

F.Supp. 1454, 1467 (D.Kan.1996) (holding that under-inclusiveness 

of survey rendered it inadmissible); 

Toys “R” Us, Inc. v. Canarsie Kiddie Shop, 

Inc., 559 F.Supp. 1189, 1204 (E.D.N.Y.1983) 

(stating that failure to satisfy one or more criteria 

for trustworthiness of surveys, including definition 

of the proper universe, may lead to exclusion of the 

survey). These cases do not constitute controlling 

authority, and the court may disregard them. Here, 

the choice of the universe is but one potential flaw 

in a survey that otherwise comports with the applic-

able standards. 

The Jay Report is probative of irreparable harm and 

will be admitted. The court need not opine whether 

the report is probative of damages, as that issue has 

not yet ripened. 

B. Fine Report 




Plaintiffs engaged Michael Fine-the Chief Executive 

Officer of Soundscan-to determine the effect of 

online sharing of MP3 files. See Fine Rep. at 1. 

They seek to introduce his report as evidence of irreparable 

harm, not to establish a specific amount 

of monetary damages. See Pl. Opp. to Def.'s Mot. to 

Exclude Fine Rep. at 5. 

Fine's study examined retail music sales trends in 

three types of stores in the United States: (1) all 

stores located within one mile of any college or 

university on a list acquired from Quality Education 

Data; FN2 (2) all stores located within one mile of 

any college or university on a list of colleges and 

universities that have banned Napster use; FN3 (3) 

all stores within one mile of any college or university 

listed among the “Top 40 Most Wired Colleges 

in 1999,” according to Yahoo Internet Life. 

FN4 Researchers working on the Fine Report used 

Soundscan Point of Sale data to compare music 

sales totals from the latter two categories with (1) 

national totals and (2) sales from the first category, 

“All College Stores.” The report tracked retail sales 

in the first quarter (“Q1”) of 1997, 1998, 1999, and 

2000. Napster was not online until the final data 

point, Q1 2000. See Def.'s Mot. to Exclude Fine 

Rep. at 5; Mewes Dec., Exh. B (Fine Dep.) at 

24:1-8. 

FN2. 4,454 schools and 2099 stores. See 

Fine Rep. at 5. 

FN3. 67 schools and 48 stores. See id. Fine 

admits that he did not check to see why the 

schools banned Napster. See Mewes Dec., 

Exh, B (Fine Dep.) at 58:8-10. 


Page 4 

FN4. 40 schools and 44 stores. See Fine 

Rep. at 5. Fine concedes that he did not 

verify the accuracy of the Yahoo Internet 

Life report. See Mewes Dec., Exh. B (Fine 

Dep.) at 17:15-17. 

After examining the data, Fine concluded that 

“on-line file sharing has resulted in a loss of album 

sales within college markets .” Fine Rep. at 1. 

While national sales grew “significantly and consistently” 

in the quarters he studied, sales at stores 

near colleges or universities declined, with sales in 

the “Top 40 Most Wired Colleges” and 

“Napster-banned” subsets showing an even sharper 

decline than those in the “All College Stores” category. 

Fine's conclusions were not limited to Napster, 

but rather assessed the effects of online file 

sharing in general. See id.; Pl.'s Opp. to Def.'s Mot. 

to Exclude Fine Rep. at 7. 

*5 Defendant argues that the Fine Report should be 

excluded because it employed a flawed methodology. 

First, the report failed to consider all causal 

factors in the decline of retail music sales. Specifically, 

it did not account for the possible effects of Internet 

record sales on sales in retail stores. Defendant 

contends that the fact that the report shows a decline 

in retail sales beginning in Q1 1999-before 

Napster came into existence-demonstrates that 

some factor besides Napster caused a decline in 

music sales in retail stores. Second, Fine compared 

weighted national sales numbers with raw numbers 

from the three college-related categories. Defendant 

maintains that this method of comparing the college 

sub-populations with national sales was invalid. 

Moreover, Soundscan's proprietary database is not 

subject to peer review. Thus, according to defendant, 

Fine's research results must be excluded pursuant 

to Daubert and Kumho Tire. 

Plaintiffs respond that Fine had valid, practical 

reasons for excluding Internet sales data. First, because 

he could not determine the location of Internet 

purchasers, he could not adjust the data for sales 

at college stores (which were identified geographically) 

to include Internet sales. Second, plaintiffs




claim that Internet sales volume is de minimis compared 

to retail sales. Internet sales purportedly account 

for only one percent of national sales, if sales 

by Amazon.com are excluded. See Pl.'s Opp. to 

Def.'s Mot. to Exclude Fine Rep. at 6 n. 4. Third, 

Fine excluded Internet sales from all his comparisons. 

As to defendant's other objections, plaintiffs note 

that Fine averred that the use of weighted national 

sales data was necessary because Soundscan does 

not have contracts with every retail outlet. His results 

were computed as percentages, rather than actual 

dollar values. According to Fine, the use of 

percentages means that weighting has no absolutely 

no effect on the results. See Mewes Dec., Exh. B 

(Fine Dep.) at 42:4-14. Finally, plaintiffs dispute 

defendant's assertion that the Fine Report is inadmissible 

under Daubert and Kumho Tire because 

the proprietary nature of the Soundscan database 

makes it unavailable for peer review. 

The court finds some aspects of the Fine Report 

troubling-especially the fact that its shows a decline 

in retail sales prior to the launching of Napster. 

This limitation, combined with Fine's decision not 

to track Internet music sales, reduces the study's 

probative value. The court nevertheless declines to 

exclude the Fine Report. The primary case upon 

which defendant relies, McGlinchy v. Shell Chemical 

Co., 845 F.2d 802 (9th Cir.1988), involved the 

exclusion of expert studies that posed a great 

danger of misleading a jury about the proper 

amount of damages . In contrast, plaintiffs offer the 

Fine Report to aid the court in determining whether 

they have suffered irreparable harm. Although the 

Fine Report may not be probative of the exact 

amount of damages, the court does not confront that 

question now. 

*6 The Ninth Circuit has expressed confidence in a 

jury's ability to decide whether asserted technical 

deficiencies undermine the probative value of nonscientific 

expert studies. See Southland Sod Farms, 

108 F.3d at 1143 n. 8. Certainly then, the court can 

determine the proper weight to give the Fine Re- 

port. The danger of confusion is reduced because 

the Fine Report does not make claims beyond the 

limits of its methodology; Fine admits that his conclusions 

encompass all music file-sharing, not just 

that facilitated by Napster. 

The court also rejects defendant's contention that 

the proprietary nature of the Soundscan's software 

system mandates exclusion under Daubert. Soundscan 

is widely used in the recording industry to 

track music sales, and plaintiff apparently made the 

software available to defendant to run its own tests. 

Although publication or some other form of peer 

review is a pertinent consideration, the Supreme 

Court specifically noted that this factor is not dispositive 

of reliability. See Daubert, 509 U.S. at 

594. Accordingly, this court declines to exclude the 

Fine Report, insofar as it is offered to show irreparable 

injury. 

C. Teece Report 


Page 5 

Defendant objects to the entire Teece Report under 

the Daubert standard, Rule 702, and Rule 403. 

Plaintiffs engaged Teece to analyze the way that 

Napster, Inc. benefits from value creation for Internet 

companies; whether plaintiffs have suffered or 

are likely to suffer harm in their existing and 

planned businesses due to defendant's activities; 

and the importance of intellectual property protection 

to the United States' economy. See Teece Rep. 

at 2. 

The court finds no fault with Teece's expert qualifications. 

Teece earned a Ph.D. in Economics from 

the University of Pennsylvania in 1975. See id. at 1. 

He is currently a professor at the Haas School of 

Business and Director of the Institute for Management 

Innovation and Organization at the University 

of California, Berkeley. See id. He also directs an 

international economics consulting firm that he cofounded 

in 1988. See id. 

Teece examined depositions and documents produced 

in conjunction with this litigation, as well as

outside studies and media reports. His conclusions 

were drawn from consideration of Napster, Inc.'s 

internal documents. Although the Teece Report has 

not undergone peer review, it is not the type of document 

that is ordinarily subject to such scrutiny. 

See Daubert, 509 U.S. at 594 (stating that peerreview 

factor is not dispositive). The Teece Report 

comports with the standards that professional economists 

generally follow. Accordingly, defendant's 

objections to it are overruled. 

II. Plaintiffs' Objections 

A. Fader Report 




A tenured Associate Professor of Marketing at the 

Wharton School of the University of Pennsylvania, 

Dr. Peter S. Fader specializes in using data generated 

by new information technology, such as the Internet, 

to assist companies in developing marketing 

strategies. See Lisi Dec. (Fader Rep.) 1-2. He 

considers himself an expert on consumer surveys. 

See Greer Dec. of July 13, 2000, Exh. 1 (Fader 

Dep.) at 28:18-20. However, he admitted in his deposition 

that he has never before prepared a consumer 

survey for litigation and he is unfamiliar 

with the standards set forth by federal courts for the 

reliability of such surveys. See id. at 20:8-9, 

35:14-18. 

*7 The Fader Report concludes that Napster is beneficial 

to the music industry because MP3 music 

file-sharing stimulates more compact disc sales 

than it displaces. See Lisi Dec. (Fader Rep.) 6-8. 

Fader relied on three types of evidence to reach this 

conclusion: (1) analysis of media reports, surveys, 

and other reports prepared and authored by other 

people; (2) a survey, conducted by Greenfield Online, 

over which Fader exercised some supervisory 

control; and (3) Fader's analysis and criticism of the 

Jay and Fine Reports. 

The centerpiece of the Fader Report is the Greenfield 

Online survey, which Fader purportedly designed 

and oversaw. See id. 65. He cited the 


Page 6 

Greenfield survey as evidence that Napster use is 

associated with overall increases-rather than decreases-in 

CD purchases. See Lisi Dec. (Fader 

Rep.) 67. The Greenfield Online profile describes 

the company as “the pioneer in using the Internet 

for marketing research.” Id. Exh. C 1. However, 

in his deposition, Fader stated that his knowledge 

of Greenfield's purported expertise came from representations 

that Greenfield itself made. See Greer 

Dec., Exh. 1 (Fader Dep.) at 226:19-25, 227:1-2. 

Greenfield maintains a proprietary database of over 

500,000 registered panel members. To choose a 

survey sample from this panel, Greenfield relied on 

Forrester Research Inc.'s Year 2000 Benchmark 

survey of 80,000 offline and online individuals in 

the United States. See Lisi Dec. (Fader Rep.), Exh. 

C 2. The Forrester Benchmark survey was used to 

assign a sample weight to panel members. See id. 

Fader admitted under oath that he had never seen 

the Forrester Benchmark survey, nor does he know 

how it was conducted. See Greer Dec. (Fader Dep.) 

at 236:17-25, 237:1-2, 241:19-23, 242:1-2. 

After choosing its sample, Greenfield sent an invitational 

letter to a “randomly-selected, Internetrepresentative 

sample of 35,000 panel members” 

who were not informed about the purpose of the 

survey. See Lisi Dec. (Fader Rep.), Exh. C 2. 

While the Fader Report states that letter recipients 

“did not receive any incentive to participate,” id., 

Greenfield offers potential members of its larger 

panel chances to win sweepstakes and other incentives 

to join. See Greer July 13, 2000 Dec., Exh. 1 

(Fader Dep.) at 245:18-22. Fader never reviewed a 

copy of the invitation letter. See id. at 244:8-9. 

Of the 12,940 persons who completed the survey 

questionnaire, 8,517 were included in the Fader Report 

according to age, residence, familiarity with 

downloading MP3 files, and completion of the entire 

survey. See Lisi Dec. (Fader Rep.), Exh. C 3. 

Fader admitted at his deposition that he does not 

believe survey responses were validated to insure 

that the person who answered the questions was the 

one to whom the survey was sent. See Greer July




13, 2000 Dec ., Exh. 1 (Fader Dep.) at 254-24-25, 

255:1-3. 

Plaintiffs object to the Greenfield survey on the 

ground that it was not conducted according to recognized 

standards governing the reliability of surveys 

offered as evidence in litigation. The greater 

problems, in this court's view, are that Fader played 

a minimal role in overseeing the administration of 

the survey, and his report contains almost no tables 

or other objective data about the survey respondents 

and their answers. Defendant admitted at the preliminary 

injunction hearing that Exhibit 7 to the 

Fader Report constitutes the only objective, statistical 

breakdown of the Greenfield survey, aside 

from Fader's own characterization of the results. 

This lack of data prevents the court from conducting 

its own impartial review of the survey pool and 

responses. Furthermore, Fader contracted the work 

on the Greenfield survey to a company about which 

he knew relatively little and did not review key 

documents, such as the invitation letter or the Forrester 

Benchmark survey. In short, his claim to 

have designed and overseen the Greenfield survey 

appears exaggerated, and the generality of his report 

renders it of dubious reliability and value. 

*8 Aside from the Greenfield study, Fader primarily 

relied on newspaper and magazine articles that 

he did not write or research and studies that he did 

not conduct. For example, to support his contention 

that college students do not constitute the majority 

of Napster users, he cited two reports: the Pew Internet 

& American Life Project, Internet Tracking 

Report (“Pew Report”), June 8, 2000; and Cyberdialogue, 

Inc., Cybercitizen Entertainment Continuous 

Advisory Service: CyberBits Trend Report, No. 

1, 2000. See Lisi Dec. (Fader Rep.) 49. He admitted 

in his deposition that he does not know how the 

Pew Report selected its participants or whether it 

followed proper survey methodologies. See Greer 

July 13, 2000 Dec. (Fader Dep.) at 136:15-24, 

160:16-22. The “chorus of data refuting plaintiffs' 

finding of substantial negative impact on music 

purchasing” also turns out to be a handful of studies 

and surveys conducted by others. See Lisi Dec. 

(Fader Rep.) 36-45. Fader appears to have limited 

knowledge of how these surveys were conducted. 

For instance, he conceded in his deposition that 

he had not seen the interview instructions for a 

1999 survey by Digital Mogul and CENTRIS, nor 

could he vouch for its methodological rigor. See 

Greer July 13, 2000 Dec. (Fader Dep.) at 

141:17-25, 142:10-16. 

Given these limitations, the court finds that Fader 

cannot attest credibly that the surveys upon which 

he relied (including the Greenfield survey) conformed 

to accepted survey principles. Nor is the 

court willing to rely on opinions based on information 

reported in newspapers and magazines. Although 

plaintiffs' motion to exclude the Fader Report 

is denied, the court chooses not to rely on 

Fader's findings in determining the issues of fair 

use and irreparable harm. 

B. Lessig Report 


Page 7 

Plaintiffs challenge the Lessig Report because they 

believe it constitutes inadmissible legal opinion. 

Lawrence Lessig is a Professor of Law at Stanford 

Law School. See Lisi Dec. (Lessig Rep.) 2. He 

has written extensively in the field of Internet regulation, 

see id. 3, but he is not formally trained in 

computer science or computer programming. See 

id. 6. He states that the expertise he brings to this 

case lies “in understanding the relationship between 

law and technology.” Id. His report expresses the 

view that this court should follow the Supreme 

Court's approach of considering the practical effect 

of legal regulation on Internet technology before 

wielding its injunctive power. See id. 10-11. 

The Ninth Circuit does not allow attorneys to testify 

about the applicable law. See Aguilar v. International 

Longshoreman's Union Local No. 10, 966 

F.2d 443, 447 (9th Cir.1992). Treatises also opine 

that expert legal testimony is inadmissible. See Mc- 

Cormick on Evidence § 12, at 31 (E. Cleary's Lawyer, 

3d ed.1984); VII Wignmore on Evidence §

1952, at 81. The Lessig Report merely offers a 

combination of legal opinion and editorial comment 

on Internet policy. Therefore, this court grants 

plaintiffs' motion to exclude it. 

C. Hall Report 




*9 Dr. Robert E. Hall is a tenured Professor of Economics 

at Stanford University and a Senior Fellow 

at the Hoover Institution. See Lisi Dec. (Hall Rep.) 

1. The parties do not dispute Hall's qualifications 

as an expert in economics. Defendant offers the 

Hall Report to show that Napster will not reduce 

plaintiffs' profits in the near future, whereas 

“shutting down” Napster with a preliminary injunction 

creates a significant probability that Napster 

will lose most of its value. See id. 6. Hall reasons 

that Napster promotes more sales than it displaces. 

See e.g., id. 31. 

Plaintiffs challenge the Hall Report on two broad 

bases. First, they contend that Hall failed to consider 

evidence that was inconsistent with his position. 

Specifically, he disregarded the Jay Report, ignored 

relevant data in studies by the University of 

Southern California and Rolling Stone magazine, 

and attacked aspects of the Fine Report showing 

that music sales near college campuses were lower 

than the national average. Plaintiffs cite Concord 

Boat Corp. v. Brunswick Boat Corp., 207 F.3d 

1039, 1056-57 (8th Cir.2000) to show that other 

courts have criticized Hall for ignoring inconvenient 

evidence. Plaintiffs also point to passages in 

Hall's deposition indicating that he neglected to 

consider the Jay Report, which he obtained and 

even cited, and that in retrospect, he thought his 

analysis of the USC Study was “not completely 

fair.” Pl.'s Mot. to Exclude Hall Rep. at 6-7 & n. 4. 

Second, plaintiffs contend that the Hall Report is irrelevant, 

insofar as it discusses the potential hardship 

created by “shutting down” Napster. Plaintiffs 

note that they do not seek to preliminarily enjoin all 

of Napster's activities-for example, they do not object 

to the chat room, the New Artist Program, the 

news feature, or the instant messaging. 

The court agrees that Hall relied too heavily on outside 

studies that favored defendant without performing 

any analysis of the Jay Report. However, 

these shortcomings are not grave enough to warrant 

exclusion of his expert opinion. Insofar as the Hall 

Report assumes the requested injunction would put 

defendant out of business, it tends to corroborate 

plaintiffs' argument that Napster has no legitimate 

non-infringing uses. Since this conclusion benefits 

plaintiffs, they would be wise not to object too 

strenuously to admission of the Hall Report. 

D. Tygar Report 

Page 8 

Dr. J.D. Tygar is a tenured Professor of Engineering 

and Computer Science at the University of California, 

Berkeley. He is an expert in software engineering, 

computer security, and cryptography. See 

Lisi Dec. (Tygar Rep.) at 1. He offers conclusions 

about, inter alia, Napster's ability to detect and prevent 

infringement. Plaintiffs make individual objections 

to the conclusions offered in his report. 

1. Conclusion 1: Comparability of Napster Software 

to Cassette Decks 


In Conclusion 1 of his report, Tygar likens Napster 

to cassette decks, VCRs, digital audio tape recorders 

and other devices because of its ability to reproduce 

music. Plaintiffs challenge this opinion on the 

grounds of relevance and lack of foundation in 

either empirical evidence or expertise. The court 

sustains this objection. The instant litigation is not 

confined to Napster's software, but encompasses the 

entire system that defendant Napster, Inc. operates. 

The court has indicated previously that it considers 

Napster's search engine to be part of the Napster 

system. See A & M Records, Inc v. Napster, 2000 

WL 57136, at *6 (N.D.Cal. May 12, 2000). As 

plaintiffs note, cassette decks do not perform search 

functions. Tygar's deposition testimony reveals that 

he did not conduct any tests to determine whether 

cassette decks or the other devices he mentioned




are capable of performing critical Napster functions 

like searching and indexing. Many of them clearly 

do not perform such tasks. Accordingly, Conclusion 

I will be struck in its entirety. 

2. Conclusion 2: Applicability of 17 U.S.C. Section 

512(a) 

*10 In Conclusion 2, Tygar opines that Napster is 

similar to “existing file sharing techniques” like the 

search engines Lycos and Alta Vista, email, and the 

World Wide Web-among others. He further states 

that he believes Napster qualifies for the safe harbor 

in 17 U.S.C. section 512(a). See Lisi Dec. 

(Tygar Rep.) at 26. Tygar's opinions in Conclusion 

2 conflict with this court's ruling on defendant's 

motion for summary adjudication. See A & M Records, 

Inc v. Napster, 2000 WL 57136, at *7-8 

(N.D.Cal. May 12, 2000). There, the court expressly 

held that section 512(a) does not cover Napster 

because, unlike protected Internet service providers, 

Napster does not act as a mere conduit for 

file sharing. See id. 

Lay persons may not offer expert testimony about 

the content of the law. See, e.g., United States ex 

rel Oliver v. Parsons Co., 195 F.3d 457, 462 (9th 

Cir.1999), cert. denied, __U.S.__, 102 S.Ct. 2657 

(2000); Crow Tribe of Indians v. Racicot, 87 F.3d 

1039, 1045 (9th Cir.1996). Such testimony is especially 

inappropriate when it conflicts with past rulings 

of the court. Therefore, Conclusion 2 is inadmissible. 

3. Conclusion 3: Access to Copyright Information 

and Ability to Obtain Authorization from Copyright 

Owners 

According to Conclusion 3, Napster cannot distinguish 

copyrighted material restricted by the owner 

from either uncopyrighted material or copyrighted 

material for which the owner or the law permits 

free distribution. Tygar further opined that it would 

be “technically infeasible” to require Napster to obtain 

information from the rights-holder before 

Page 9 

providing access to the material. See Lisi Dec. 

(Tygar Rep.) at 28. At his deposition, Tygar clarified 

that, by “Napster,” he meant the computer program, 

rather than the defendant company. See Greer 

July 13, 2000 Dec. (Tygar Dep.). at 84:3-10. 

Plaintiffs first challenge Tygar's opinion regarding 

Napster's ability to identify copyrighted material on 

the ground that it does not reflect “good science” 

under Daubert. They object that Tygar did not interview 

Napster employees or conduct any empirical 

research about rights-checking. See id. at 

172:14-25, 173:1-2. He also failed to confer with 

his peers in the field of computer science. See id. at 

172:6-13, 175:11-14. At his deposition, he characterized 

his research as qualitative, rather than 

quantitative. See id. at 175:9-10. 

Plaintiffs also argue that Tygar's opinion on Napster's 

ability to obtain information about copyrights 

must be excluded because it is not the product of 

his expertise as a computer scientist. According to 

plaintiffs, Tygar does not understand (and hence 

cannot offer opinions about) how other copyright 

users like radio and television stations obtain authorizations. 

Tygar does not discuss these other 

channels of distribution, however. As plaintiffs 

note, he generally limits his conclusions to the capabilities 

of the Napster computer program. 

*11 The court overrules plaintiffs' objection to the 

extent that Conclusion 3 discusses whether the 

Napster system can determine if a given MP3 file 

has been pre-authorized for distribution. Tygar's 

failure to give a more detailed explanation of how 

he analyzed the Napster service bothers the court; 

however, given his expert qualifications, this shortcoming 

does not warrant excluding his report. 

However, speculation on pages 32 and 33 about the 

ability of humans to check for pre-authorization lies 

beyond the scope of Tygar's expertise and must be 

excluded. 

4. Conclusion 4: Napster's Ability to Check Authorizations 

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.


Page 10 



Plaintiffs object to this conclusion because it does 

not encompass other methods of checking authorizations 

“both on the Internet and in the real world.” 

Pl.'s Mot. to Exclude Tygar Rep. at 8. However, 

Conclusion 4 is limited to the ability of the Napster 

computer program to check authorizations. This lies 

within Tygar's expertise as a computer scientist. 

The court therefore overrules plaintiffs' objection. 

5. Conclusion 5: Authorization Would Change the 

Web to a “Centralized Utility” 

Conclusion 5 merely amounts to editorial comment 

on Internet policy. It does not appear to be based on 

any research or expertise. Because it does not aid 

the trier of fact, it will be excluded. 

6. Conclusion 6: Watermarking Could Carry Rights 

Information with a Recording 

Plaintiffs object that Conclusion 6 is irrelevant because 

the preferred watermarking standard is not an 

issue in this case. The court disagrees. Because 

Napster has raised acquiescence and waiver as defenses, 

Tygar's expert opinion about the recording 

industry's failure to develop technologies to protect 

its copyrights has relevance. The court overrules 

plaintiffs' objection. 

7. Conclusion 7: Napster's Ability to Tell Whether a 

Use of the System is Infringing 

Here, Tygar speculates about possible legitimate 

uses of the Napster system. While this opinion is 

relevant to defendant's fair use defense, neither a 

lay person nor an attorney may presume to instruct 

the court in the law. Accordingly, Conclusion 7 is 

inadmissible. 

CONCLUSION 

For the foregoing reasons, defendant's motion to 

exclude the Jay Report and the Fine Report is 

DENIED. The court also DENIES plaintiffs' motion 

to exclude the Fader Report and the Hall Report, 

but GRANTS plaintiffs' motion to exclude the 

Lessig Report. Plaintiffs' motion to exclude the Tygar 

Report is GRANTED as to Conclusions 1, 2, 5, 

7, and the portion of Conclusion 3 on pages 32-33 

that deals with humans' ability to check for preauthorization. 

The court deems the remainder of the 

Tygar Report to be admissible. 

IT IS SO ORDERED. 

N.D.Cal.,2000. 

A & M Records, Inc. v. Napster, Inc. 

Not Reported in F.Supp.2d, 2000 WL 1170106 

(N.D.Cal.) 

END OF DOCUMENT 

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.


EXHIBIT 2

LEXSEE 2001 U.S. DIST. LEXIS 13919 

CHARTER NATIONAL BANK and TRUST, Plaintiff, v. CHARTER ONE 

FINANCIAL, INC., CHARTER ONE BANK, FSB and ST. PAUL FEDERAL 

BANK FOR SAVINGS, Defendants. 

No. 01 C 0905 

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF 

ILLINOIS, EASTERN DIVISION 

DISPOSITION: [*1] Motion for a Preliminary 

Injunction brought by Charter National Bank & Trust 

denied. Defendant's motion to disqualify the testimony of 

Professor Douglas Lichtman granted. 

COUNSEL: For CHARTER NATIONAL BANK & 

TRUST, plaintiff: Alan R. Lipton, Richard B. Polony, 

Hinshaw & Culbertson, Chicago, IL. 

For CHARTER NATIONAL BANK & TRUST, 

counter-defendant: Alan R. Lipton, Richard B. Polony, 

Hinshaw & Culbertson, Chicago, IL. 

JUDGES: Wayne R. Andersen, United States District 

Judge. 

OPINION BY: Wayne R. Andersen 

OPINION 


MEMORANDUM, OPINION AND ORDER 

This case is before the Court on the Motion for a 

Preliminary Injunction brought by plaintiff Charter 

National Bank & Trust. After consideration of our 

original order granting in part a temporary restraining 

2001 U.S. Dist. LEXIS 13919; 65 U.S.P.Q.2D (BNA) 1684 

August 31, 2001, Decided 

September 4, 2001, Docketed 

order, several days of testimony, hundreds of exhibits and 

hundreds of pages of legal briefs, we deny plaintiff's 

motion. 

BACKGROUND 

Page 1 

On May 15, 2001, we entered a Memorandum, 

Opinion and Order in which we granted in part and 

denied in part plaintiff's motion for a temporary 

restraining order. This case involves a trademark dispute. 

Plaintiff, Charter National Bank & Trust, currently 

operates three branches in Hanover Park, Hoffman 

Estates [*2] and Schaumburg, Illinois. Defendant, 

Charter One, is a large interstate bank, chartered 

federally, which operates approximately 70 branches in 

the Chicago area. 

Plaintiff argues that is has acquired common law 

rights in the mark "charter." Therefore, we attempted to 

determine the date it began using the mark. Although we 

requested a specific time line, plaintiff was unable to 

demonstrate the exact date upon which it began using the 

name Charter Bank and Trust of Illinois at the Hanover 

Park facility. The parties agree that plaintiff began using 

that mark sometime in 1986. Since 1987, it has displayed 

a large sign in front of the Hanover Park branch with the 

words "Charter Bank". In 1993, it acquired the Hoffman 

Estates and Schaumburg branches. Since 1993, those


2001 U.S. Dist. LEXIS 13919, *2; 65 U.S.P.Q.2D (BNA) 1684 

branches have displayed large signs with the words 

"Charter Bank". Although plaintiff never registered it's 

mark, it claims to have acquired a common law right in 

the term "Charter Bank" because it has continuously 

operated banking establishments using that mark since 

1987. 

However, plaintiff has changed its legal name 

several times. It originally operated under the name 

Hanover Park State Bank. In 1986, it began using the [*3] 

mark "Charter Bank and Trust of Illinois." In 1993, 

Charter Bank and Trust of Illinois was acquired by the 

First National Bank of Hoffman Estates. The combined 

entity began to use the mark "Charter Bank and Trust, 

N.A." In 1996, plaintiff began using the mark "Charter 

National Bank & Trust." During the preliminary 

injunction hearing we heard testimony that customers 

have referred to the entity as "Charter Bank" from 1987 

to the present. 

Defendant, Charter One, operates on a national scale. 

It filed a federal registration for the mark "Charter One" 

before the United States Patent and Trademark Office on 

October 10, 1990. It has continuously operated under that 

trade name since its registration. Charter One made its 

first foray into the Chicago market by acquiring St. Paul 

Federal Bank for Savings in 1999. Between the 

acquisition and January 2001, it operated St. Paul's 

fifty-eight Chicago locations under the trade name "St. 

Paul." In January of 2001, defendant announced that it 

was changing its name in the Chicago market from St. 

Paul to Charter One Bank. 

On February 6, 2001, counsel for plaintiff Charter 

National Bank and Trust sent a letter to Charter One 

demanding that it cease [*4] using the mark "charter" 

because his client asserted common law rights as the 

senior user in Chicago area. Because Charter One 

continued use its name, plaintiff filed the instant lawsuit 

on February 8, 2001, seeking injunctive relief. While this 

court was analyzing the motion for a temporary 

restraining order, defendant agreed to refrain from 

displaying the mark "Charter One" on the outside of 

branches in a geographic area surrounding Charter 

National Bank and Trust's three branches. On May 15, 

2001, we granted in part and denied in part plaintiff's 

motion for a temporary restraining order. We held that 

plaintiff had shown a reasonable likelihood of success on 

the merits based on its submission of evidence of 

brochures, advertisements, signs and evidence of actual 

confusion. Therefore, we entered a TRO which 

prohibited Charter One from "operating any type of bank 

facility using the word 'charter' on any outdoor signs 

within the geographic area between Lake Cook Road, on 

the north, I290, I355/Illinois 53, on the east, North 

Avenue, on the south, and the Fox River, on the west." 

DISCUSSION 

Page 2 

In order to determine whether to grant a preliminary 

injunction, we must find that [*5] the moving party has 

demonstrated: (1) a reasonable likelihood of success on 

the merits, and (2) no adequate remedy at law. Mil-Mar 

Shoe Co., Inc. v. Shonac Corp., 75 F.3d 1153, 1156 (7th 

Cir. 1996). If the moving party successfully establishes 

those criteria, then we consider: (3) the irreparable harm 

the non-moving party will suffer if the injunction is 

granted balanced against the irreparable harm the moving 

party will suffer if the injunction is denied, and (4) the 

effect our action will have on the public interest. Id. "If it 

is plain that the party seeking the preliminary injunction 

has no case on the merits, the injunction should be 

refused regardless of the balance of the harms." Green 

River Bottling Co. v. Green River Corp., 997 F.2d 359, 

361 (7th Cir. 1993). 

Trademarks are generally classified into five 

categories of increasing distinctiveness: (1) generic, (2) 

descriptive, (3) suggestive, (4) arbitrary and (5) fanciful. 

Two Pesos Inc. v. Taco Cabana, Inc., 505 U.S. 763, 

767-68, 120 L. Ed. 2d 615, 112 S. Ct. 2753 (1992). 

Defendant contends that "charter", as applied to banking 

services, is generic. In order to proceed [*6] to the next 

step in our analysis, plaintiff must convince this court 

that it has a reasonable likelihood of showing that 

"charter" is at least descriptive because generic marks 

receive no trademark protection. Id. Plaintiff contends 

that the term "charter" is at least entitled to the protection 

accorded to suggestive marks. Plaintiff bears the burden 

of showing that its mark can be protected because it has 

failed to federally register its mark. Technical Publishing 

Co. v. Lebhar-Friedman, Inc., 729 F.2d 1136, 1139 (7th 

Cir. 1984). After extensive analysis, we have determined 

that use of the term "charter" to denote banking services 

is either generic or descriptive use and, therefore, we will 

examine both classifications. 

A generic term is one that is commonly used to name 

or designate a kind of good. Liquid Controls Corp. v. 

Liquid Control Corp., 802 F.2d 934 (7th Cir. 1986). A 

generic term specifies the type of thing in common



parlance. Gimix, Inc. v. JS & A Group, Inc., 699 F.2d 

901, 905 (7th Cir. 1983). A descriptive mark describes 

the ingredients, qualities or characteristics of the good or 

service. Id. The difference [*7] between "generic" and 

"descriptive" terms is the degree of distinctiveness and 

their relative ability to serve as a source-identifier of 

particular goods and services. Mil-Mar, 75 F.3d at 1158. 

However, plaintiff contends that its mark is at least 

suggestive. The Seventh Circuit has applied a test to 

determine whether a mark is descriptive or suggestive. "If 

the mark imparts information directly, it is descriptive. If 

it stands for an idea which requires some operation of the 

imagination to connect it with the goods, it is suggestive." 

A. Seidel, S. Dalroff, and E. Gonda, Trademark Law and 

Practice § 4.06, at 77 (1963)(quoted in The Money Store 

v. Harriscorp Finance, Inc., 689 F.2d 666, 673-74 (7th 

Cir. 1982); Sands, Taylor & Wood Co. v. Quaker Oats 

Co., 978 F.2d 947, 952 (7th Cir. 1992). The question we 

must consider is how much imagination, if any, is 

necessary to connect charter with banking services. 

The parties have submitted a myriad of definitions 

beginning with plaintiff's counsel's recitation of a portion 

of the Magna Carta in his closing. Webster's International 

defines a charter as "1: written instrument or contract [*8] 

(as a deed) executed in due form, 2a: an instrument in 

writing from the sovereign power of a state or country 

granting or guaranteeing rights, franchises, or privileges 

b: an instrument in writing creating and defining the 

franchises of a city, university, company, or other public 

or private corporation. Webster's Third New International 

Dictionary 378 (3rd ed. 1993). Webster's Collegiate 

contains the identical definition. Webster's Ninth New 

Collegiate Dictionary 228 (9th ed. 1990). 

What we must decide is whether the term "charter" 

requires so much imagination to link it to a bank that the 

term should be protected. All parties agree that banks 

must be chartered by either the state or federal 

government. Illinois law refers to "national charter banks 

and banks organized in other states" as categories of 

banks. 205 ILCS 5/13; 20 Ill. Reg. 1939. The United 

States Code refers to "chartered bank" as a category of 

bank throughout the code. See 12 U.S.C.A. § 29, 12 

C.F.R. § 263.81(d), 12 U.S.C.A. § 266, 12 U.S.C.A. § 

1841, 12 U.S.C.A. § 2902, 12 U.S.C.A. 3106 [*9] (a)(C), 

12 U.S.C.A. 1817. Furthermore, defendant has conducted 

a variety of searches including a Lexis-Nexis search and 

a search of Yellow Pages over the world wide web. 

Page 3 

Through the Lexis search, defendants have unearthed a 

large number of articles describing "charter" banks as a 

type of bank. The sources on these articles run the gamut 

from popular news periodicals, like the Fresno Bee and 

the Tulsa World, to more specific business periodicals 

like Texas Banking. However, given the large number of 

popular press references to "charter" banks that defendant 

was able to unearth, it is clear that a portion of the public 

understands the descriptive quality of the term "charter." 

After an examination of the on-line Yellow Pages, a 

search submitted by defendant of "charter" on the U.S. 

Trademark Electronic Search System ("TESS"), and a 

Dun & Bradstreet report on "charter national" submitted 

by defendant, it is clear to this court that "charter" is a 

term used frequently to describe banks and other 

businesses. Although we do not believe that it takes no 

imagination to connect charter with a bank, the fact that 

many banks use charter coupled with the legal necessity 

[*10] of obtaining a charter before operating as a bank 

shows that it does not require much imagination to 

connect the two ideas. While not as generic a term as 

"bank", "charter", in this context, describes the fact that 

the bank is licensed by the government. Because the mark 

"imparts information directly it is descriptive." Sands, 

978 F.2d at 952. Therefore, it is clear to this Court that 

the plaintiff has no reasonable likelihood of establishing 

that "charter" is suggestive as applied to banking 

services. 

The decision of whether "charter" is descriptive or 

generic is much closer. Since "charter" is commonly used 

by other banks, the popular press, and statute, to denote a 

type of bank, it is a term which designates a kind of 

service. Mil-Mar, 75 F.3d at 1157, Johnny Blastoff v. Los 

Angeles Rams Football Co., 188 F.3d 427, 438 (7th Cir. 

1999). We believe that the term may be generic and, 

therefore, unprotectable. However, we will analyze this 

issue assuming that "charter" is descriptive. 

In order to protect a descriptive mark, the plaintiff 

must establish that the mark has acquired a secondary 

meaning. Mil-Mar, 75 F.3d at 1157. [*11] Secondary 

meaning refers to the manner in which a consumer 

identifies a business by reference to a trademark. 

Vaughan Mfg. Co. v. Brikam Int'l, Inc., 814 F.2d 346, 

348 (7th Cir. 1987). 

We must consider several factors to decide whether 

secondary meaning has been acquired or established: (1) 

the amount and manner of advertising; (2) the sales



volume; (3) the length and manner of use; (4) consumer 

testimony; and (5) consumer surveys. Platinum Home 

Mortgage Corp. v. Platinum Financial Group, Inc., 149 

F.3d 722, 728 (7th Cir. 1998). Plaintiff has presented 

very little in the way of evidence in any of the five above 

categories. 

Eugene Ognibene, the president of Charter National 

Bank & Trust, testified that the bank advertised in the 

following ways: (1) sending direct mail to customers and 

non-customers (it would buy advertising lists to find the 

non-customers); (2) print advertising in the Yellow 

Pages, the Daily Herald and the Northwest Suburban 

edition of the Chicago Tribune; (3) statement stuffers to 

current customers; and (4) advertisements on its 

webpage. All these forms of advertising referred to the 

plaintiff as "Charter National Bank and Trust", [*12] 

some referred to it as "Charter National", some referred 

to plaintiff simply as "Charter", and only the webpage 

referred to plaintiff as "cn-bank". Ognibene testified that 

Charter National Bank and Trust typically budgets $ 

180,000 a year for advertising and typically spends the 

entire sum. That sum is insufficient to convince this 

Court that the public at large would associate the mark 

"charter" with plaintiff. Ognibene further testified that the 

bank consciously attempted to spread the budget out over 

the entire Chicago metropolitan area. It is this court's 

opinion that the use of such a relatively small sum to 

cover an area as large and heavily populated as Chicago 

is plainly insufficient to show that the recognition of the 

plaintiff exists above the general static accompanying a 

consumer's life in an active advertising market like 

Chicago. 

The second factor we must consider is sales volume. 

Ognibene testified that Charter National Bank & Trust 

has about 15,000 customers. Over 150,000 individuals 

live in Hoffman Estates, Schaumburg and Hanover Park. 

Approximately 8 million individuals reside in the 

Chicago metropolitan area. Even if all of plaintiffs 

customers resided in Hoffman [*13] Estates, 

Schaumburg and Hanover Park and we were attempting 

to determine whether plaintiff had achieved a secondary 

meaning in those geographical areas, we would be hard 

pressed to do so based on its sales volume. Over 81% of 

Charter National Bank & Trust's deposit customers, by 

far the bulk of its business, live within four miles of one 

of the three branches. We cannot conclude that 15,000 

customers is enough to show a secondary meaning has 

been established in the minds of Chicago banking 

consumers. 

Page 4 

The third factor is the length and the manner of use. 

Sometime in 1986, the plaintiff began using a variation 

on the mark "charter." Plaintiff is currently on its third 

version of its official name using "charter." It started as 

"Charter Bank & Trust of Illinois" then moved to 

"Charter Bank & Trust, N.A." and, finally, is currently 

using "Charter National Bank & Trust." On 

advertisements, plaintiff uses "Charter National Bank & 

Trust", "Charter National", "Charter", and "cn-bank." The 

use of multiple identifying marks lessens the likelihood 

that members of the public have developed an 

identification between plaintiff and the mark "charter." 

Plaintiff has been using some form of the mark [*14] 

"charter" for almost fifteen years and we did hear 

testimony that bank customers commonly refer to banks 

using the first or first and second word of the title, but 

plaintiff would have to show a longer period of consistent 

use in advertisements and relations with the public for 

this factor to weigh in it's favor. 

The fourth and fifth factors are consumer testimony 

and consumer surveys. Plaintiff has presented no 

consumer testimony or survey evidence. However, 

plaintiff has presented evidence of actual customer 

confusion. Since the inception of this litigation, plaintiff 

has instructed its employees to keep a log of instances in 

which it has been confused with Charter One Bank. 

Those logs have been filed with the court. Examples of 

confusion run from individuals walking in and thinking 

that Charter National Bank & Trust is Charter One to 

other banks mistaking the two institutions. Plaintiff has 

documented several hundred instances of what it terms 

"actual confusion." 

Testimony, by some of the individuals responsible 

for compiling the logs, has shown that in virtually all 

instances, the consumer or other bank knew it was 

searching for Charter One, but mistakenly contacted 

Charter National [*15] Bank & Trust. 172 of those 

instances of confusion occurred over the phone. 130 of 

the instances of confusion occurred by customers actually 

entering one of Charter National Bank & Trust's 

branches. Of that 130, 123 of the walk-ins occurred at the 

Hanover Park Branch. Defendant has argued that the 

confusion is generated by the fact that we have ordered it 

to cover its sign across the street from that location. 

This confusion is not of the kind or scope which 

could convince this Court that Charter National Bank &



Trust has acquired a secondary meaning. These 

customers are looking for Charter One, they know they 

are looking for Charter One, and testimony showed that 

several were disappointed or even angry when they 

realized that plaintiff was not associated with Charter 

One. If anything, this evidence shows that defendant has 

acquired a secondary meaning in the minds of consumers 

and when consumers think of the mark "charter", they 

associate it with Charter One Bank, not plaintiff. Plaintiff 

cannot show that it has lost a single customer because of 

confusion generated by the similarity of names. We have 

heard testimony that all of plaintiff's customers know the 

bank, in fact, most customers [*16] are known by name 

by the receptionist. Therefore, the only confusion is 

generated by individuals who know they are looking for 

Charter One and mistakenly believe that plaintiff is 

somehow connected to Charter One. This type of 

confusion cannot be used by plaintiff to show that it has 

acquired a secondary meaning in the mind of consumers 

because, by definition, this type of confusion proves that 

plaintiff's existence has not been noticed by the 

consumers who are confused. 

After a careful analysis of the factors which we must 

consider in order to determine whether Charter National 

Bank & Trust can show that it has acquired a secondary 

meaning, we hold that it has not shown a reasonable 

likelihood of success on the merits. In its final filing, 

Charter National Bank & Trust informed the court, for 

the first time since the inception of this litigation, that it 

intended to complete a survey. Perhaps that evidence 

could tip the scale, but at this point, based on the 

evidence before the court, plaintiff cannot show that 

"charter" has achieved a secondary meaning in the minds 

of consumers which identifies with its products and 

services. Therefore, even if "charter" is a descriptive and 

not [*17] generic mark, plaintiff does not have a 

reasonable likelihood of success on the merits because it 

cannot show that it has acquired a secondary meaning. 

A final issue that arose as part of the preliminary 

injunction hearing is whether Douglas Lichtman is 

qualified to testify as an expert under the standards 

established by Daubert and its progeny under Federal 

Rule of Evidence 702. Daubert v. Merrell Dow Pharm., 

Inc., 509 U.S. 579, 125 L. Ed. 2d 469, 113 S. Ct. 2786 

(1993); Kumho Tire Co. v. Carmichael, 526 U.S. 137, 

143 L. Ed. 2d 238, 119 S. Ct. 1167 (1999); General 

Electric Co., v. Joiner, 522 U.S. 136, 139 L. Ed. 2d 508, 

118 S. Ct. 512 (1997). As a trial court, we must function 

Page 5 

as a "gatekeeper" with respect to the screening of expert 

testimony in order to assure the reliability and relevancy 

of expert testimony. Kumho, 526 U.S. at 147. In the 

instant case, defendant has challenged Professor 

Lichtman's credentials to testify about trademark law. 

Since June of 1998, Professor Lichtman has been 

employed as an assistant professor of law at the 

University of Chicago. From June of 1997 through May 

of 1998, he was [*18] employed as a Fellow at Yale Law 

School. His academic credentials are impressive. He was 

graduated from Yale Law School in 1997 as an Olin 

Fellow in Law, Economics and Public Policy and as a 

Coker Teaching Fellow in Constitutional Law. He 

attended Duke University and was graduated first in his 

class with a B.S.E. in Electrical Engineering and 

Computer Science. He has published seven works, on 

subjects including telecommunications law, patents and 

jury reform. None of the works that Professor Lichtman 

has published focuses on trademark law, but he is 

currently researching a project that has a focus in 

trademark law. Furthermore, the classes that he has 

taught while an assistant professor at the University of 

Chicago contain a trademark component. During the 

preliminary injunction hearing, Professor Lichtman 

testified that he considers himself an expert able to testify 

about trademark law, patent law, and law involving 

emerging technology. Professor Lichtman has never done 

any practical work on a trademark. He has never drafted a 

trademark application, defended a trademark or 

prosecuted a trademark. 

Professor Lichtman is not currently qualified to 

testify as an expert on trademark law. [*19] Courts have 

recognized that expertise may be acquired through 

practical experience, academic experience or simply 

through observing the work of others. DePaepe v. 

General Motors Corp., 141 F.3d 715, 719 (7th Cir. 

1998); Wetherill v. University of Chicago, 565 F. Supp. 

1553, 1563-64 (N.D. Ill. 1983)(Shadur, J.). However, 

Professor Lichtman has no special qualification over the 

average lawyer in the field of trademark. He testified that 

he is qualified as an expert because "I am incredibly well 

read in the area, read all relevant law, read a lot of the 

relevant cases, read a lot of the commentary, try to 

understand what the next issues will look like, try to 

understand the policies that caused us to design the law 

the way we did, their strengths and weaknesses. The 

details of practicing trademark law, that is not what I do." 

Essentially, Professor Lichtman is asking this Court to

certify him as an expert because he has done what any 

motivated lawyer could do, namely, study precedent. 

There is no special or unique perspective, other than his 

intelligence, which Professor Lichtman can bring to the 

court. It is difficult to reconcile Professor Lichtman's 

[*20] lack of overall experience with his claim to be an 

expert in so many wideranging areas of the law. Given 

that none of his published work involves trademark law 

and that trademark law only comprises a small subset of 

larger topics which he teaches, we cannot find Professor 

Lichtman qualified as an expert. 

However, we have considered his legal arguments. In 

our opinion, he advanced no arguments that could not 

have been presented to this court as legal argument in a 

brief or memorandum. As our opinion makes clear above, 

we rejected Professor Lichtman's analysis that, using the 

imagination test, "charter" is a suggestive mark. 

CONCLUSION 



The Motion for a Preliminary Injunction brought by 

Charter National Bank & Trust is denied because plaintiff 

cannot show a reasonable likelihood of success on the 

merits. Defendant's motion to disqualify the testimony of 

Professor Douglas Lichtman is granted. 

It is so ordered. 

Wayne R. Andersen 

United States District Judge 

Dated: August 31, 2001 

Page 6 

[Other docket entry] Enter MEMORANDUM, 

OPINION AND ORDER: The motion for a 

preliminary injunction brought by Charter National 

Bank & Trust is denied because plaintiff cannot show 

a reasonable [*21] likelihood of success on the 

merits. Defendant's motion to disqualify the testimony 

of Professor Douglas Lichtman is granted. It is so 

ordered. 

[For further detail see order attached to the original 

minute order.]


EXHIBIT 3


F.B.T. Productions, LLC, et al. v. Aftermath Records, et al. 

Case No. CV 07-3314 PSG (MANx) 

UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF 

CALIFORNIA 

COUNSEL: [*1] Attorneys Present for Plaintiff(s): Not 

Present. 

Attorneys Present for Defendant(s): Not Present. 

JUDGES: The Honorable Philip S. Gutierrez, United 

States District Judge. 

OPINION BY: Philip S. Gutierrez 

OPINION 

CIVIL MINUTES - GENERAL 

Proceedings: (In Chambers) Order Denying Plaintiffs' 

Motion for Summary Judgment and Defendants' 

Motion for Partial Summary Judgment 

Before the Court are Plaintiffs' Motion for Summary 

Judgment and Defendants' Motion for Partial Summary 

Judgment. The Court finds the matters appropriate for 

decision without oral argument. Fed. R. Civ. P. 78; Local 

R. 7-15. After considering the moving and opposing 

papers, the Court hereby DENIES the motions. 

I. Background 


Plaintiffs F.B.T. Productions, LLC ("FBT") and 

Em2M, LLC ("Em2M") are entities that receive royalties 

payable for the use and exploitation of master recordings 

2009 U.S. Dist. LEXIS 5981 

January 20, 2009, Decided 

January 20, 2009, Filed 

by Marshall B. Mathers III, better known as the rapper 

Eminem. Defendants are Aftermath Records 

("Aftermath"), a joint venture, and its owners, Interscope 

Records ("Interscope"), UMG Recordings, Inc. ("UMG"), 

and Ary, Inc. ("Ary"). The primary question presented by 

this case is what royalty is due Plaintiffs when a 

consumer downloads an Eminem song to her computer or 

purchases an [*2] Eminem ringtone for her mobile 

phone. 

A. The Eminem Agreements 

Page 1 

In approximately 1995, Jeff and Mark Bass signed 

Eminem to an exclusive record deal with FBT, their 

production company. On March 9, 1998, FBT entered 

into an agreement ("the 1998 Agreement") to furnish 

Eminem's recordings to Aftermath. The 1998 Recording 

Agreement contains two royalty provisions. First, 

paragraph 4(a) sets a royalty for "full-price records sold 

in the United States" that varies between 12 and 20% (the 

"Records Sold" provision). 1 Hoffman Decl. Ex. A P 

4(a)(i). "Records" are defined as "all forms of 

reproductions, whether embodying sound alone or sound 

together with visual images, manufactured or distributed 

primarily for home use." Id. at P 16(e). 

1 According to Defendants, the artist's basic 

royalty rate varies with the artist's popularity. 

Hoffman Decl. P 4. The 1998 Agreement provides 

for "escalations," meaning that the royalty rate


increases as certain sales targets are met. Id.; see 

also Hoffman Decl. Ex. A 4(a)(i). 

Second, paragraph 4(c)(v) of the 1998 Agreement 

states that "[o]n masters licensed by us . . . to others for 

their manufacture and sale of records or for any other 

uses, your royalty shall be [*3] an amount equal to fifty 

percent (50%) of our net receipts from the sale of those 

records or from other uses of the masters" ("the Masters 

Licensed" provision). Id. at P 4(c)(v). A "master" is 

defined as "a recording of a sound, without or with visual 

images, which is used or useful in the recording, 

production or manufacture of records." Id. at P 16(d). 

In 2000, the parties to the 1998 Agreement entered 

into a novation that established a direct contractual 

relationship between Eminem and Aftermath ("the 2000 

Novation"). Plfs' UF P 28. The 2000 Novation 

transferred the obligation to provide Aftermath with 

Eminem's recording services from FBT directly to 

Eminem. FBT became a "passive income participant," 

retaining a right to royalty income from Eminem's 

recordings. Plfs' UF P 29; Dfts' UF P 2. Aftermath agreed 

to render separate accountings to FBT and Eminem, and 

the 2000 Novation specified the royalty share of each. 

Plfs' UF P 30. 

In 2003, Aftermath and Eminem entered into a new 

recording contract, which terminated the 1998 Agreement 

("the 2003 Agreement"). Plfs' UF P 37. Plaintiffs retained 

the right to royalties from Eminem's recordings under the 

2003 Agreement. Plfs' UF P 41. The [*4] structure of the 

2003 Agreement was similar to the 1998 Agreement, but 

included an increased advance and higher royalties 

reflecting Eminem's rise to stardom. Plfs' UF PP 38-39. 

Like the 1998 Agreement, the 2003 Agreement set forth 

two royalty rates, one for "records sold," Hoffman Decl. 

Ex. D P 5(a)(i), and one for "masters licensed . . . to 

others for their manufacture and sale of records or for any 

other uses," Id. at P 5(c)(v). 

In November 2004, the parties entered into the "2004 

Amendment," which altered the 2003 Agreement to 

increase the advance for an upcoming LP, the fraction of 

FBT's passive income participation, and certain royalty 

rates. Plfs' UF PP 56, 58. 

B. UMG's Agreements with Third Party Digital Media 

Providers 

Since approximately 2001, UMG has entered into 

2009 U.S. Dist. LEXIS 5981, *2 

Page 2 

agreements with various third parties granting those 

entities rights to distribute music to consumers over the 

internet in various forms, including permanent 

downloads. Plfs' UF P 86. Permanent downloads are 

digital copies of recordings that, once downloaded, 

remain permanently on an end-user's computer, iPod, or 

other hardware device. Plfs' UF P 73. 2 Apple's iTunes 

music store, which launched in 2003, quickly became 

[*5] the largest source of legal permanent downloads. 

Plfs' UF PP 69-70. 

2 In contrast, the "streaming" of music allows a 

user to listen to a song online, but no copy is 

created on her local machine. Plfs' UF PP 76, 78. 

A consumer can only listen to a streamed song 

contemporaneously with its transmission; it is not 

possible to listen to the song again without 

reconnecting to the provider. Plfs' UF P 79. 

"Conditional downloads" are a form of download 

restricted such that a user must maintain a 

subscription to a given service in order to 

continue to listen to the downloaded songs. Plfs' 

UF P 80. 

In approximately 2003, UMG began entering into 

contracts with major cellular telephone network carriers, 

including Sprint, Nextel, Cingular, and T-Mobile, to 

provide UMG recordings for use on mobile phones as 

mastertones. Plfs' UF PP 120-21. "Mastertones" is a term 

that refers to more than one type of digital media; most 

commonly, mastertones are short clips of a song that play 

on a cellular phone to signal an incoming call. Plfs' UF P 

82. Typically, the user permanently downloads the 

mastertone onto her mobile device. Plfs' UF P 83. 

Another form of mastertones play for a third party who 

calls the purchaser; [*6] they are stored on a central 

server and "streamed" to the caller. Plfs' UF P 84. 

In 2005, FBT and Eminem hired an accounting firm 

to audit Defendants' accounting records for the period 

beginning January 1, 2002 and ending June 30, 2005. 

Plfs' UF P 191. The audit revealed that UMG was paying 

Plaintiffs royalties for permanent downloads and 

mastertones based on the rate set forth in the "Records 

Sold" provision of the Eminem Agreements. Plfs' UF P 

192. Based on Plaintiffs' belief that royalties on 

permanent downloads and mastertones should be paid at 

the higher rate set forth in the "Masters Licensed" 

provision, the auditor calculated that Defendants had 

underpaid Plaintiffs by at least $ 650,000. Plfs' UF P

192-93. Defendants responded to the audit report in a 

letter dated May 8, 2007, contesting the determination 

that certain royalties had been underpaid. Plfs' UF P 196; 

Dfts' SGI P 196. 

On May 21, 2007, Plaintiffs filed a complaint for 

breach of contract and declaratory judgment based on 

Defendants' alleged underpayment of royalties for digital 

uses of Eminem's recordings. On March 6, 2008, 

Plaintiffs filed a second lawsuit for breach of contract and 

declaratory judgment, also claiming [*7] that Defendants 

had failed to properly account and pay royalties due to 

Plaintiffs. See F.B.T. Productions, LLC, et al. v. 

Aftermath Records, et al., No. CV 08-1563 PSG (CWx) 

(Docket No. 1). The Court consolidated the two actions 

on May 19, 2008 and ordered Plaintiffs to file an 

amended complaint. Plaintiffs did so and later filed a 

second amended complaint ("SAC"), which asserted two 

counts for breach of contract and a third count for 

declaratory relief. 

Plaintiffs now move for summary judgment on all 

claims. Defendants move for partial summary judgment 

on the first and third causes of action. 

II. Legal Standard 


Federal Rule of Civil Procedure 56(c) establishes 

that summary judgment is proper only when "the 

pleadings, the discovery and disclosure materials on file, 

and any affidavits show that there is no genuine issue as 

to any material fact and that the movant is entitled to 

judgment as a matter of law." Fed. R. Civ. P. 56(c). The 

moving party has the burden of demonstrating the 

absence of a genuine issue of fact for trial. See Anderson 

v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S. Ct. 

2505, 91 L. Ed. 2d 202 (1986). If the moving party 

satisfies the burden, the party opposing the [*8] motion 

must set forth specific facts showing that there remains a 

genuine issue for trial. See id. at 257. 

A non-moving party who bears the burden of 

proving at trial an element essential to its case must 

sufficiently establish a genuine dispute of fact with 

respect to that element or face summary judgment. See 

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 

2548, 91 L. Ed. 2d 265 (1986). Such an issue of fact is a 

genuine issue if it reasonably can be resolved in favor of 

either party. See Anderson, 477 U.S. at 250-51. If the 

moving party seeks summary judgment on a claim or 

defense for which it bears the burden of proof at trial, the 

2009 U.S. Dist. LEXIS 5981, *6 

moving party must use affirmative, admissible evidence. 

Admissible declarations or affidavits must be based on 

personal knowledge, must set forth facts that would be 

admissible evidence at trial, and must show that the 

declarant or affiant is competent to testify as to the facts 

at issue. See Fed. R. Civ. P. 56(e). 

III. Discussion 

Page 3 

A. Royalties Due on Permanent Downloads and 

Mastertones (Counts 1 and 3) 

Plaintiffs' first cause of action seeks damages 

resulting from Defendants' alleged breach of contract 

with respect to the payment of royalties [*9] due on 

permanent downloads and mastertones of Eminem's 

recordings. SAC P 38. Plaintiffs' third cause of action 

seeks a declaration that Defendants are obligated to pay 

royalties equal to fifty percent (50%) of Defendants' net 

receipts "from the licensing by Defendants or Defendants' 

Licensees of the Eminem Masters to Music Download 

Providers and Mastertone Providers." SAC PP 54-56. 

Because both counts necessitate a determination of the 

royalty due on these digital uses, the Court will treat the 

first and third causes of action together for the purpose of 

summary judgment. 

Two provisions in the Eminem Agreements are 

central to the instant dispute. First, the "Records Sold" 

provision in the 1998 and 2003 Agreements sets a royalty 

for "full-price records sold in the United States" that 

varies between 12 and 20%. Hoffman Decl. Exs. A P 4(a) 

and D P 5(a). Second, the "Masters Licensed" provision 

provides that "[o]n masters licensed by us . . . to others 

for their manufacture and sale of records or for any other 

uses, your royalty shall be an amount equal to fifty 

percent (50%) of our net receipts from the sale of those 

records or from other uses of the masters." Hoffman Decl. 

Exs. A P 4(a)(v) [*10] and D P 5(c)(v). To date, 

Aftermath has paid Plaintiffs royalties for permanent 

downloads and mastertones of Eminem recordings under 

the Records Sold provision. Plaintiffs contend that they 

are entitled to summary judgment because the Eminem 

Agreements unambiguously require Defendants to 

account for royalties on permanent downloads and 

mastertones under the "Masters Licensed" provision. 

Defendants argue that Plaintiffs' proffered construction is 

not a reasonable reading of the contract language and that 

summary judgment should be granted for Defendants on 

this basis.


Under California law, when the meaning of the 

words in a contract is disputed, the Court must 

provisionally consider all extrinsic evidence that is 

relevant to show whether the contractual language is 

reasonably susceptible to either of the competing 

interpretations advanced by the parties. Pac. Gas & Elec. 

Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 

33, 39, 69 Cal Rptr. 561, 442 P.2d 641 (1968); Wolf v. 

Sup. Ct., 114 Cal. App. 4th 1343, 1351, 8 Cal. Rptr. 3d 

649 (2004). This is the case even if the contract appears 

unambiguous on its face, because "the fact that the terms 

of an instrument appear clear to a judge does not preclude 

[*11] the possibility that the parties chose the language of 

the instrument to express different terms." Pac. Gas, 69 

Cal. 2d at 39. "Extrinsic evidence can include the 

surrounding circumstances under which the parties 

negotiated or entered into the contract; the object, nature 

and subject matter of the contract; and the subsequent 

conduct of the parties." Cedars-Sinai Med. Ctr. v. 

Shewry, 137 Cal. App. 4th 964, 980-81, 41 Cal. Rptr. 3d 

48 (2006). Whether a contract is ambiguous is a matter of 

law. Maffei v. Northern Ins. Co., 12 F.3d 892, 898 (9th 

Cir. 1993). If the Court determines that the contractual 

provision in question is ambiguous, summary judgment is 

inappropriate because the differing views of the parties' 

intent will raise genuine issues of material fact. Id. 

Summary judgment is appropriate only if the contract is 

unambiguous. Nat'l Union Fire Ins. Co. v. Argonaut Ins. 

Co., 701 F.2d 95, 97 (9th Cir. 1983). 

The Eminem Agreements do not expressly state 

whether royalties on permanent downloads and 

mastertones are to be calculated under the Records Sold 

provision or the Masters Licensed Provision. 

Furthermore, neither Plaintiffs nor Defendants have 

submitted evidence of the negotiating parties' discussions, 

[*12] drafts, or other contemporaneous expressions of 

intent as to how permanent downloads and mastertones 

were to be treated under the Agreements. 3 Accordingly, 

the Court must look to the nature of the contract and the 

surrounding circumstances to interpret the contractual 

language. Wolf, 114 Cal. App. 4th at 1357; Gen. Motors 

Corp. v. Sup Ct., 12 Cal. App. 4th 435, 442, 15 Cal. Rptr. 

2d 622 (1993). 

3 Plaintiffs and Defendants have submitted 

deposition testimony of various individuals who 

offer their understanding of which provision of 

the Eminem Agreements applies to permanent 

downloads and mastertones. However, the parties 

2009 U.S. Dist. LEXIS 5981, *10 

Page 4 

have not shown that (1) each of those individuals 

was involved in negotiating or drafting the 

Agreements and (2) that the individual's 

understanding was expressed during negotiations. 

Indeed, it is undisputed that the parties did not 

discuss the treatment of digital uses during the 

negotiation of the 2003 Agreement. Plfs' UF P 50. 

The parties' undisclosed intent or understanding is 

irrelevant to contract interpretation. Cedars-Sinai, 

137 Cal. App. 4th at 980 (citation omitted). 

Plaintiffs argue that the plain language of the 

Masters Licensed provision, which states: "[o]n [*13] 

masters licensed by us . . . to others for their manufacture 

and sale of records or for any other uses, your royalty 

shall be an amount equal to fifty percent (50%) of our net 

receipts from the sale of those records or from other uses 

of the masters," applies to all "licenses" of Eminem 

recordings to third parties. Plaintiffs maintain that the 

relationship between UMG and third-party permanent 

download and mastertone providers are "licenses" within 

the legal meaning of that term. Therefore, according to 

Plaintiffs, the Eminem contracts entitle them to a 50% 

royalty on these digital uses. 

Plaintiffs have submitted evidence which would 

support a finding that at least some of the agreements 

between Defendants and third-party permanent download 

providers are licenses. "The distributor of a copyrighted 

product's intent to regain possession is strong evidence 

that the produce was licensed, not sold, to the recipient." 

UMG Recordings, Inc. v. Augusto, 558 F. Supp. 2d 1055, 

1060 (C.D. Cal. 2008). For example, Plaintiffs have 

submitted an agreement between UMG and Apple 

Computer, Inc. Busch Decl. Ex. 20. The agreement 

indicates that UMG may withdraw any of its sound 

recordings from the iTunes [*14] online music store, id. 

at P 1(b), which is indicative of a license, not a sale. The 

iTunes agreement provides recurring benefits for UMG, 

the copyright holder, which also suggests that the 

agreement constitutes a license. See id. at 1061 

("Generally, licenses provide recurring benefits for the 

copyright owner."). For each song or album sold, Apple 

agrees to pay a certain amount to UMG. Busch Decl. Ex. 

20 P 2(a). Thus, under the 2002 iTunes agreement, Apple 

appears to lack many of the critical rights of ownership, 

such as the right to perpetual possession and freedom 

from obligations to UMG. This suggests that the 

agreement was a license. See UMG Recordings, 558 F. 

Supp. 2d at 1062.


Plaintiffs state that Defendants have produced 

approximately 80 such agreements, which are "similar in 

terms of the rights granted to the third parties and their 

general structure." Plfs' Opp. 8:25-26. Defendants contest 

this assertion, however, arguing that they have produced 

over 500 third-party agreements that vary and cannot be 

generalized as to their grant of rights. Dfts' SGI PP 86-87. 

4 Therefore, the Court cannot conclude that all of the 

permanent download agreements are licenses. 

4 Plaintiffs also [*15] argue that by 2003, UMG 

had entered into agreements with Apple and other 

digital providers, so it knew that the Masters 

Licensed provision would apply to permanent 

downloads. However, Defendants correctly point 

out that there is no evidence that the negotiators 

of the Eminem contracts had read or were aware 

of the relevant third party digital provider 

contracts. 

Furthermore, Defendants dispute that the parties 

intended the term "license" in the Eminem Agreements to 

have a copyright law definition. Under California law, 

"[t]he words of a contract are to be understood in their 

ordinary and popular sense, rather than according to their 

strict legal meaning; unless used by the parties in a 

technical sense, or unless a special meaning is given to 

them by the usage, in which case the latter must be 

followed." Cal. Civ. Code § 1644. According to 

Defendants, the parties intended for the Masters Licensed 

provision to apply only to "ancillary uses" of the master 

recordings. Defendants define "ancillary uses" as 

transactions ancillary to the record company's main 

business of selling records, such as licensing an Eminem 

song for use in a movie or for inclusion in a compilation 

album. Dfts' Opp. [*16] 4:10-15. However, there is no 

limiting provision in the Masters Licensed Provision or 

elsewhere in the Eminem Agreements that indicates that 

the Masters Licensed provision only applies to 

"ancillary" uses or income. Defendants point to a 

sentence in the 2000 Novation which states: 

[I]t is agreed that the foregoing fractions 

of the applicable royalty rate shall also be 

applied to any advances or fees payable to 

Artist in connection with any ancillary 

uses of each master recording recorded by 

Artist pursuant to the Agreement after the 

Delivery of LP 2 and prior to the Delivery 

of LP 7 . . . . 

2009 U.S. Dist. LEXIS 5981, *14 

Page 5 

Hoffman Decl. Ex. C P 7(e). Based on the record before 

it, it is not clear to the Court that this sentence is 

modifying, limiting, or referring to the Masters Licensed 

Provision. Defendants insist that the reference to royalties 

on "ancillary uses" must refer to the Masters Licensed 

provision; however, this reference is not clear from the 

plain language of the contract, and Defendants have not 

convinced the Court that this section of the Novation 

must refer to the Masters Licensed Provision. 

Next, both parties argue that industry custom 

supports their interpretation of the Eminem Agreements. 

Plaintiffs [*17] assert that the "purpose" of a "masters 

licensed" provision is "to provide for a higher royalty rate 

when the record company licences the master recordings 

to third parties because in such situations the record 

company does not incur the expensive incremental cost 

associated with manufacturing, packaging and 

distributing the physical records associated with a release 

by a third party." Plfs' UF P 23. Plaintiffs also maintain 

that this type of language in a recording contract usually 

serves as a "catch all" provision intended to apply to all 

licensed uses of the master recordings not specifically 

provided for in the contract. Plfs' UF P 24. Defendants 

fervently dispute this assertion, contending that 

provisions such as the Masters Licensed section typically 

apply only to compilation records and incorporation into 

movies, TV shows, and commercials. Dfts' SGI PP 23-24. 

The Court finds that neither party has conclusively 

established that "custom and practice" mandates a 

particular interpretation of the Masters Licensed 

provision. Instead, the parties' conflicting evidence 

creates a triable issue of fact. 5 

5 The Court notes that much of Plaintiffs' expert 

testimony appears to be inadmissible, [*18] as it 

sets forth an opinion on the proper interpretation 

of the Eminem Agreements. See generally Menell 

Decl. An expert may testify to industry custom 

and usage with respect to particular contract 

terms, but may not offer an opinion on the 

ultimate contract interpretation issue. Morrow v. 

Los Angeles Unified Sch. Dist., 149 Cal. App. 4th 

1424, 1444-45, 57 Cal. Rptr. 3d 885 (2007). 

Defendants also contend that Plaintiffs' proffered 

understanding of the Eminem Agreements ignores a key 

provision of the 2004 Amendment. This provision states: 

"Sales of Albums by way of permanent download shall


be treated as USNRC Net Sales for the purpose of 

escalations, provided that the sales price concerned falls 

within a top line sales price category applicable to such 

method of sale." Hoffman Decl. Ex. E. P 2(a). Plaintiffs 

argue that the 2004 Amendment's treatment of downloads 

is only relevant for the purpose of calculating units 

toward escalation targets. However, Defendants point out 

that referring to downloads as "sales of albums" would be 

nonsensical if, as Plaintiffs contend, downloads are never 

"sold" but merely licensed. Plaintiffs' response is that the 

Masters Licensed provision explicitly [*19] references 

"the manufacture and sale of records" by third parties. 

Therefore, the 2004 Amendment's provision does not 

conclusively resolve the ambiguity. 6 

6 Additionally, the Court notes that this 

provision does not address mastertones. 

Defendants maintain that the "Records Sold" 

provision unambiguously applies to permanent 

downloads and mastertones because these are forms of 

"records." It is undisputed that the 1998 and 2003 

Agreements define a "record" as "all forms of 

reproductions, whether embodying sound alone or sound 

together with visual images, manufactured and 

distributed primarily for home use." Dfts' UF P 4. 

Furthermore, the Agreements give Aftermath the right to 

sell "records" "in any [or] all forms of media now known 

and hereinafter developed." Hoffman Decl. Ex. A 8 at P 

40. Thus, Defendants maintain that their interpretation is 

more consistent with the contracts' expansive grant of 

rights to Defendants to distribute "records" embodying 

the Eminem master recordings. 

Finally, Defendants also point to the fact that 

Plaintiffs never objected to Defendants' payment of 

royalties under the Records Sold provision until the 

auditor raised the issue in 2006. Construction given to 

[*20] a contract by acts and conduct of parties with 

knowledge of the contract terms and before a controversy 

arises is relevant to contract interpretation. S. Pac. Trans. 

Co. v. Sante Fe Pac. Pipelines, Inc., 74 Cal. App. 4th 

1232, 1242, 88 Cal. Rptr. 2d 777 (1999). Therefore, this 

evidence of Plaintiffs' conduct is also relevant to show 

their intent. 

"The purpose of the law of contracts is to protect the 

reasonable expectations of the parties." ASP Props. 

Group v. Fard, Inc., 133 Cal. App. 4th 1257, 1268, 35 

Cal. Rptr. 3d 343 (2005) (citation omitted). Here, there is 

no direct evidence of objective manifestations of the 

2009 U.S. Dist. LEXIS 5981, *18 

Page 6 

parties' intent at the time the Eminem Agreements were 

negotiated, and the Agreements do not explicitly indicate 

under which royalty provision permanent downloads and 

mastertones are to be treated. Indeed, it is undisputed that 

parties did not discuss the treatment of downloads and 

mastertones while negotiating the most recent version of 

the contract. Plfs' UF P 50. Based on the conflicting 

extrinsic evidence before the Court, the contracts are 

reasonably susceptible to more than one interpretation. 

Therefore, Plaintiffs' and Defendants' reasonable 

expectations regarding [*21] royalties due on permanent 

downloads and mastertones when they entered into the 

Eminem Agreements remain triable issues of material 

fact. See Wolf, 114 Cal. App. 4th at 1359-60. 

Accordingly, the motions for summary judgment must be 

DENIED. 

B. Underpayment due to Misallocation of Costs (Count 

2) 

Plaintiffs' remaining cause of action alleges that 

Defendants have underpaid royalties due Plaintiffs in the 

amount of $ 159,332. SAC PP 45-47. Plaintiffs claim that 

they are entitled to summary judgment on this claim 

because Defendants admitted this underpayment in 

writing on May 8, 2007. SAC P 47. 

Defendants correctly point out that Plaintiffs have 

not fully explained the basis for this claim. Plaintiffs' 

Statement of Uncontroverted Facts in support of their 

motion for summary judgment claims that in a letter 

dated May 8, 2007, Defendants "admitted an 

underpayment to F.B.T. of $ 159,332 stemming from 

incorrect allocation of costs as between Eminem and 

Plaintiffs." Plfs' UF PP 196, 2. However, in that letter, 

Defendants disputed the auditor's determination that 

Defendants had misallocated producer royalties, 

expressly maintaining that no adjustment was necessary 

under this provision of the Eminem [*22] Agreements. 

Dfts' SGI P 2; See Busch Decl. Ex. 33 P 16. According to 

Defendants, the $ 159,332 figure represents an "interim 

net figure calculated as part of Aftermath's audit 

response, which netted Plaintiffs' claim against some, but 

not all, of Defendants' counterclaims seeking recovery of 

certain overpayments." Dfts' SGI P 2; see also Busch 

Decl. Ex. 33, p.5-6.; Ex. 41 (Hu Dep.) 29:16-30:20. 

Furthermore, as Defendants correctly argue, it is 

unclear whether $ 159,332 is the entirety of Plaintiffs' 

second cause of action. The SAC introduces the second 

claim for breach of contract with the statement, "For


example and without limitation, Defendants have violated 

the terms of the Agreements as set forth in the following 

paragraphs." SAC P 45 (emphasis added). The following 

paragraphs describe Defendants' alleged misallocation of 

producer royalties as between Plaintiffs and Eminem. Id. 

PP 46-49. However, because Plaintiffs did not limit their 

second cause of action to this specific breach, Plaintiffs 

may be improperly moving for summary judgment as to 

part of a claim without notice to Defendants. 

In summary, Plaintiffs have failed to show that there 

2009 U.S. Dist. LEXIS 5981, *22 

is no genuine issue of material fact [*23] for trial on their 

second cause of action. Therefore, the motion for 

summary judgment as to the second claim is DENIED. 

IV. Conclusion 

For the foregoing reasons, Plaintiffs' motion for 

summary judgment and Defendants' motion for partial 

summary judgment are DENIED. 


Page 7


EXHIBIT 4


MARK GABLE a/k/a MARK PIZZUTI, Plaintiff, v. NATIONAL 

BROADCASTING COMPANY ("NBC"), a California corporation, GREGORY 

THOMAS GARCIA, an individual, 20th CENTURY FOX FILM CORPORATION, 

a corporation, 20th CENTURY FOX HOME ENTERTAINMENT AND DOES 1 

through 10, inclusive, Defendants. 

CV 08-4013 SVW (FFMx) 

UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF 

CALIFORNIA 

COUNSEL: [*1] For Mark Gable, an individual, 

Plaintiff: Christopher T Aumais, LEAD ATTORNEY, 

Girardi and Keese, Los Angeles, CA; Natasha L Hill, 

Steven T Lowe, LEAD ATTORNEYS, Lowe Law, Los 

Angeles, CA; Thomas V Girardi, LEAD ATTORNEY, 

Girardi and Keese LLP, Los Angeles, CA. 

For National Broadcasting Company ("NBC"), a 

California corporation, Gregory Thomas Garcia, an 

individual, 20th Century Fox Film Corporation, a 

corporation, 20th Century Fox Home Entertainment, 

Defendants: Eric J German, Robert H Rotstein, LEAD 

ATTORNEYS, Mitchell Silberberg and Knupp LLP, Los 

Angeles, CA; Jill Pavian Rubin, LEAD ATTORNEY, 

Mitchell Silberberg and Knupp, Los Angeles, CA. 

JUDGES: STEPHEN V. WILSON, UNITED STATES 

DISTRICT JUDGE. 

OPINION BY: STEPHEN V. WILSON 

OPINION 


ORDER GRANTING DEFENDANTS' MOTIONS FOR 

SUMMARY JUDGMENT [21] [43] [JS-6] 

2010 U.S. Dist. LEXIS 77772 

February 22, 2010, Decided 

February 22, 2010, Filed 

I. INTRODUCTION 

Defendants NBC Universal, Inc., Gregory Garcia, 

Twentieth Century Fox Film Corporation, and Twentieth 

Century Fox Home Entertainment LLC (collectively 

"Defendants") move for summary judgment against 

Plaintiff Mark Gable ("Gable" or "Plaintiff"). Plaintiff 

claims that the television show My Name is Earl ("Earl") 

was copied from Plaintiff's screenplay Karma! 

Defendants argue that Plaintiff cannot [*2] show that 

Defendants had access to Plaintiff's screenplay or that the 

two works are substantially similar; thus, summary 

judgment should be granted. 

For the following reasons, the Court GRANTS 

Defendants' Motions for Summary Judgment. 

II. FACTS 

A. Background 

Page 1 

In late 1994, Plaintiff Gable wrote Karma!, a 

dramatic screenplay about a dirty cop's journey toward 

redemption. (Plaintiff's Statement of Genuine Issues 

["PSGI"] 3-5 [Docket No. 54].) Gable registered the 

screenplay with the Writer's Guild of America on March


10, 1995. (Id. 6.) On September 20, 2004, he registered 

Karma! with the United States Copyright Office. (Id. 7.) 

In April 1995, Gable, with the help of his girlfriend 

Cindy Cramer, sent Karma! to four talent/literary agents 

and two friends working in the entertainment industry. 

(Id. 13-15.) Relevant to the current matter, Plaintiff sent 

the script to David Gersh, a talent agent at The Gersh 

Agency ("TGA"). (Id. 14.) Gersh had not solicited the 

script and claims to have never heard of it. (Defendants' 

Statement of Uncontroverted Facts ["DSUF"] 2, 5 

[Docket No. 22].) Plaintiff did not receive a response 

from TGA. (PSGI 25.) Plaintiff has produced no 

documentary evidence supporting [*3] his claim that he 

sent Karma! to TGA. 

In 1995, TGA consisted of approximately 20 to 25 

agents. (PSGI 32.) One of the agents at TGA during this 

period was Ken Neisser. (Id.) Neisser, a literary agent, 

represented Defendant Gregory Garcia, the subsequent 

creator of Earl. (Garcia Decl. 6.) Neisser represented 

Garcia from 1993 until mid-2000, when Garcia left TGA 

for another agency. (Garcia Decl. 7.) 

In the spring of 2000, Garcia left TGA and obtained 

representation from Creative Artists Agency ("CAA"). 

(Id.) Garcia maintains that he conceived of the idea for 

Earl three years later, in the summer of 2003. (Id. 10.) 

Garcia stated that by the late summer/early fall of 2003, 

he had drafted portions of the pilot episode for Earl and 

began pitching the concept to various persons working in 

the television industry. (Id. 16.) In the fall of 2004, 

representatives from NBC Universal ("NBCU") 

expressed interest in Earl, and told Garcia that if he could 

find an actor to play the title character, "NBC would 

greenlight the project." (Id. 17.) After a lengthy casting 

process, the actor Jason Lee agreed to play Earl in the 

spring of 2005. (Id. 17.) The pilot for Earl first aired on 

September 20, 2005. [*4] (Id. 3.) The show is currently 

in its fourth season. (Id.) 

In or about September 2005, Plaintiff watched Earl 

on NBC. Plaintiff contends that he was immediately 

struck by the similarities between Karma! and Earl. After 

viewing several episodes, Plaintiff formed the belief that 

the creator of Earl had infringed upon Plaintiff's 

copyrighted screenplay, Karma!. 

B. Overview ofKarma! 

Karma! depicts the journey of Frankie Augustus, a 

2010 U.S. Dist. LEXIS 77772, *2 

dirty cop, who through the help of a guardian angel called 

"Angel Man," creates good karma for himself and his 

unborn son by making amends for bad acts in his past. 

Frankie is a sarcastic forty-year-old Italian American 

with no moral compass. The opening scenes of Karma! 

depict Frankie taking bribes from a drug dealer, his 

subsequent arrest, prison time, and release. 

After his release, Frankie is in dire straights. Behind 

on his rent, he attempts to steal money from a blind street 

performer, and eventually picks the pocket of a man on 

the subway. Disgruntled with the small amount of money 

in the stolen wallet, Frankie thumbs through the wallet to 

find a picture of an angel. Frankie stares at it, and states: 

A picture of an angel, well that's 

appropriate. Anyone [*5] with a buck and 

some chump change, better have an angel 

to pray too [sic], huh? . . . Yea! Well Mr. 

Guardian angel where are you now?! I 

stole your buddies [sic] wallet right under 

his nose and you're nowhere to be found. 

Shit! I'm hip to your shit!! . . . You ever 

hear of angel dust? That's what's you're 

gonna be. Actually I wouldn't mind a hit 

of that right now. A little numbness would 

do me some good. 

Page 2 

(Decl. of Jill Rubin, Exh. D., pg. 82-83 [Karma! 

screenplay].) As Frankie speaks, he attempts to light the 

picture on fire, but it will not ignite. Instead, Frankie 

looks at the picture and sees the angel shaking his finger 

at Frankie. Frankie responds by throwing the picture into 

the wind. The wind carries the picture away over the 

river, but then carries it back and drops it on Frankie's 

shoulder. An angel then appears before Frankie. 

The script refers to the angel as "Angel Man" and 

describes him as follows: "[The angel] look's [sic] like a 

young man about 27 years old. With opalescent skin, and 

white hair, resembling an albino, and a slender physique, 

clothed in blue gun metal. There's a solid gold sword 

hanging from his waist." (Id. at 83.) Angel Man warns 

Frankie that he has "fallen [*6] off the path like a stray 

dog" and asks Frankie to meet him in front of Frankie's 

mother's grave at twelve midnight the next night. (Id.) 

The next night, Frankie goes to his mother's grave. It 

is pouring down rain, and the cemetery is empty. When 

Angel Man appears, he closes his eyes and makes a


prayer with his hands, which instantly stops the rain. 

Angel Man also brings dying flowers back to life with the 

wave of his hand. Then, Angel Man tells Frankie that he 

has come to help Frankie save the soul of his unborn son. 

Frankie, being single, thinks Angel Man has the wrong 

person. However, Angel Man tells Frankie that Frankie 

had sex with a girl named Betty Alonzo who is now 

pregnant with his child. Angel Man then warns Frankie: 

Your sons soul [sic] is at stake here! 

Your sons soul [sic] is coming into this 

world with your karma along with his 

Mothers [sic]. And I don't think I have to 

tell you . . . Your karmas [sic] not gonna 

be up for any awards this year! 

(Id. at 89.) Angel Man then "creates a cloud of mist." 

(Id.) "A picture forms within the cloud revealing Frankies 

[sic] unborn son at the age of ten years old. It's obviously 

Frankies son [sic] he looks just like Frankie. Seemingly 

[*7] destined to follow Frankies [sic] footsteps his son is 

brandishing a stolen 38 odd special in front of his 

friends." (Id.) 

Frankie asks what he can do to save his son's soul. 

Angel Man responds with three instructions: (1) "make 

amends with the people you've really hurt in the past," (2) 

"get your life together, stop stealing, stop taking drugs, 

and get a straight job as soon as possible," and (3) "in the 

very near future you're going to come into some wealth, 

use it wisely." (Id. at 91.) 

After his meeting with Angel Man, Frankie begins to 

follow Angel Man's instructions. Frankie refuses to take 

drugs, calls a friend and admits stealing money from her, 

and then visits an ex-girlfriend to confess that he had an 

affair with her sister while they were dating. Frankie then 

goes to Times Square where he sees a man drop his 

wallet. Frankie picks up the wallet, and instead of 

stealing it, he gives the wallet back to the man. The man 

then introduces himself to Frankie, and offers him a job 

as a bartender. 

Frankie then purchases a lottery ticket and a 

scratcher from a liquor store. 1 Frankie wins three 

hundred dollars from the scratcher. Frankie flashes back 

to Angel Man telling him to use it [*8] wisely. 

Accordingly, Frankie buys teenagers some candy that 

they were about to steal, and revisits the blind street 

performer, this time putting money into his tin instead of 

2010 U.S. Dist. LEXIS 77772, *6 

taking it out. 

Page 3 

1 The lottery ticket is of the kind where the 

customer picks numbers, and then the winning 

numbers are called later that night. The scratcher 

is a ticket where the customer takes a coin and 

scratches off a covering to reveal whether money 

is won. 

As the screenplay continues, Frankie again runs into 

the blind street performer, but this time the street 

performer has been shot. After Frankie assists the blind 

man, the blind man turns into Angel Man. Angel Man 

assures Frankie that he is on the right path, and tells 

Frankie that "God believes he can resurrect all of his sons 

who have fallen." Angel Man tells Frankie that wealth 

will still follow. 

In another scene, it appears that Angel Man is 

watching Frankie's progress. Frankie is walking down a 

deserted alley at night and hears a cat's meow coming 

from a row of trash cans. Frankie searches through the 

cans and finds an abandoned kitten. He rescues the kitten 

and takes it home to his friend, Tori Ann. Angel Man 

watches the entire scene, smiling. 

Throughout [*9] this period, Frankie is staying with 

Toni Ann, a drug-using struggling model. Tori Ann is 

13-years younger than Frankie and becomes his love 

interest. Tori Ann observes the changes that Frankie is 

making in his life, and eventually, she decides to turn her 

life around too. She tells Frankie that she is going to 

clean up her act, stop selling drugs, get a job, and join a 

recovery program. Frankie tells Tori Ann how proud he is 

of her, and they make love passionately. 

Eventually, Frankie is approached by a drug dealer 

named James Randson. James demands that Frankie act 

as a drug courier for one of his shipments. Frankie takes 

this opportunity to redeem himself as a police officer. 

Frankie visits his old lieutenant at the police station, and 

offers to go undercover to clear his name by bringing in 

the bust. 

Before leaving for the drug deal, Frankie learns that 

he has won two million dollars from the lottery. 

Undeterred, Frankie follows through as an undercover 

officer. The drug deal does not go as originally planned, 

but Frankie successfully arrests the drug dealers by 

himself. Upon leaving the bust, Frankie visits his brother, 

Augustus, a priest who had earlier told Frankie of an

orphanage [*10] that had burnt down. Frankie offers to 

give one million dollars to rebuild the orphanage. 

Frankie returns to Toni Ann's apartment and is 

immediately attacked by James and his bodyguards. 

James enters the apartment and shoots Frankie three 

times. Toni Ann bursts from the closet shooting back at 

the intruders. As James gets a straight shot at Toni Ann, 

Angel Man appears and wraps his wings around her, 

blocking all the bullets. Toni Ann then fires her gun and 

kills James. Toni Ann rushes to Frankie, but is too late. 

Frankie tells Tori Ann that he will always love her, and 

the scene fades to black. Then, Frankie appears with 

white wings and clothed like Angel Man. Angel Man tells 

Frankie that he's earned his wings back and that it is time 

to "cross over." The screenplay concludes with Frankie as 

an angel standing watch over Toni Ann as she sleeps. 

C. Overview of Earl 


The pilot episode of Earl begins with a family 

pulling up to a convenience store as the main character, 

Earl Hickey ("Earl"), enters the store. The family waits 

until Earl leaves the convenience store for fear of going 

in at the same time as Earl. When Earl exits, the family 

enters, only to have Earl break into the family's car. 

[*11] Throughout this whole opening, Earl narrates that 

he is the type of guy who will pretty much steal anything 

that is not nailed down. 

Earl then goes on to narrate his relationship with the 

other characters in the show. As he introduces the 

characters, we see flashbacks of the instances he is 

narrating. First, Earl introduces Joy, who Earl drunkenly 

married during a one night stand in Las Vegas. Earl 

describes himself as being so drunk that he did not notice 

that Joy was actually six months pregnant when they 

were married. Earl explains that a few years later, Joy 

became pregnant again. Initially, Earl believed Joy was 

carrying his child; however, when the child is born, Earl 

sees that the child is partially African American. As Earl 

and Joy are both white, Earl realizes that the child, named 

Earl Jr., is not his own. Earl also introduces Randy, his 

dimwitted brother. Joy, Randy and Earl all hang out at 

Ernie's crab shack. At the crab shack, they are served by 

Darnell, who Earl calls "Crabman." 

Earl narrates that three weeks prior, he bought a 

scratcher lottery ticket, and won $100,000. The audience 

sees a flashback of Earl celebrating his win, and then 

immediately getting hit by a car. [*12] Lying on the 

2010 U.S. Dist. LEXIS 77772, *9 

Page 4 

asphalt, Earl sees his lottery ticket fly away. While 

recuperating in the hospital, Joy divorces Earl and 

announces that Darnell, "Crabman," is actually Earl Jr.'s 

father. 

Lying alone in the hospital, Earl watches the Carson 

Daly Show. On the show, the guest asks Daly how he has 

such a good life. Daly responds: "What goes around 

comes around, and that's how I try to live my life. You do 

good things and good things happen to you, you do bad 

things and it'll come back to harm you. It's karma." 

Once Earl is out of the hospital, Earl and Randy 

check into a motel, where they make friends with the 

maid, Catalina. Earl adopts Daly's theory of karma, and 

puts it into action. Earl explains: "If I want a better life, I 

need to be a better person." Accordingly, Earl makes a 

list of everything bad he has ever done. He explains that 

"I just won a hundred thousand dollars in the lottery and 

was immediately hit by a car. I almost died because 

something good happened to me that I didn't deserve. 

That karma stuff is going to kill me, unless I make up for 

everything on that list." 

On the list are specific acts, such as "peed in the back 

of a cop car," as well as general bad habits, such as [*13] 

"harmed and killed innocent people with second hand 

smoke." Earl decides that the first wrong he is going to 

make amends for is his picking on Kenny James in 

elementary school. Earl's idea is to find Kenny, do 

something nice for him, and then cross him off the list. 

As Earl describes his new theory of life, the very 

$100,000 scratcher that flew away from Earl when he 

was hit by the car flies back to him. Earl responds: "Son 

of a bitch- it's working." 

Earl and Randy then turn to finding Kenny. As Earl 

reminisces about tormenting Kenny, we see flashbacks of 

Earl bullying Kenny by kicking Kenny in the groin on a 

kickball field. Back in the present, Earl decides to watch 

Kenny for a few days. Earl concludes that Kenny is 

lonely, and that Earl will help Kenny by finding him a 

companion. Eventually, Earl and Randy find out that 

Kenny is gay. In response, Earl and Randy run from 

Kenny, and Earl states that he does not have to help 

Kenny because he is homosexual. However, when they 

reach their hotel room, they find Joy. Joy has ransacked 

the room looking for the lottery money. As Earl and 

Randy enter the room, Joy hits them on the head with a 

telephone.

Earl interprets Joy's breaking into his [*14] room as 

a sign from karma that he cannot give up on Kenny just 

because he is gay. Earl eventually helps Kenny find 

companionship by taking Kenny to a gay bar in the city. 

At the end of the episode, Kenny tells Earl that he was 

scared to be who he really was, but that he no longer is 

scared because of Earl's kindness. Kenny states: "When 

we were kids, you took away my confidence, but today 

you gave it back . . . You can cross me off your list." 

Thereafter, each episode follows a similar formula 

with Earl choosing one item off his list, and setting out to 

amend for his actions. Each episode starts out with the 

same narration: 

You know the kind of guy who does 

nothing but bad things, and then wonders 

why his life sucks. Well, that was me. 

Every time something good happened to 

me, something bad was always waiting 

around the corner. Karma. That's when I 

realized I had to change. So I made a list 

of everything bad I've ever done. And one 

by one I'm going to make up for all my 

mistakes. I'm just trying to be a better 

person. My name is Earl. 

Episodes in the first season include: Earl making 

amends for faking his own death to get out of a 

relationship by telling the woman that he is still alive; 

[*15] Earl making up for teasing people with accents by 

teaching English to immigrants; Earl redeeming himself 

for burning down a barn at a local camp for wayward 

boys; and Earl helping Joy win a beauty pageant in order 

to make up for an award Earl once broke. As Earl works 

through the items on his list, he often commits additional 

wrongs, adding them to his seemingly never-ending tally. 

III. ANALYSIS 

A. Legal Standard 


Rule 56(c) requires summary judgment for the 

moving party when the evidence, viewed in the light most 

favorable to the nonmoving party, shows that there is no 

genuine issue as to any material fact, and that the moving 

party is entitled to judgment as a matter of law. See Fed. 

R. Civ. P. 56(c); Tarin v. County of Los Angeles, 123 

F.3d 1259, 1263 (9th Cir. 1997). 

2010 U.S. Dist. LEXIS 77772, *13 

The moving party bears the initial burden of 

establishing the absence of a genuine issue of material 

fact. See Celotex Corp v. Catrett, 477 U.S. 317, 323-24, 

106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). That burden 

may be met by "'showing' - that is, pointing out to the 

district court - that there is an absence of evidence to 

support the nonmoving party's case." Id. at 325. Once the 

moving party has met its initial burden, Rule 56(e) 

requires the nonmoving [*16] party to go beyond the 

pleadings and identify specific facts that show a genuine 

issue for trial. See id. at 323-34; Anderson v. Liberty 

Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 

2d 202 (1968). "A scintilla of evidence or evidence that is 

merely colorable or not significantly probative does not 

present a genuine issue of material fact." Addisu v. Fred 

Meyer, 198 F.3d 1130, 1134 (9th Cir. 2000). Only 

genuine disputes - where the evidence is such that a 

reasonable jury could return a verdict for the nonmoving 

party - over facts that might affect the outcome of the suit 

under the governing law will properly preclude the entry 

of summary judgment. See Anderson, 477 U.S. at 248; 

see also Arpin v. Santa Clara Valley Transp. Agency, 261 

F.3d 912, 919 (9th Cir. 2001) (the nonmoving party must 

identify specific evidence from which a reasonable jury 

could return a verdict in its favor). 

B. Copyright Infringement 

Page 5 

To establish copyright infringement, Plaintiff must 

show that he owns a valid copyright in Karma!, and that 

Defendants copied protected expressions from it. See 

Kouf v. Walt Disney Pictures & Television, 16 F.3d 1042, 

1044 n.2 (9th Cir. 1994). For the purposes of summary 

judgment, Defendants do not dispute [*17] that Plaintiff 

owns a copyright in Karma! Thus, the only question 

before the Court is whether Defendants copied protected 

expressions from the work. 

To prove copyright infringement, Plaintiff must 

show that Defendants copied protected elements of 

Karma! either through evidence of direct copying or 

through a showing that Defendants had "access" to 

Plaintiff's copyrighted material and that the two works at 

issue are "substantially similar." See Funky Films, Inc. v. 

Time Warner Entertainment Co., L.P., 462 F.3d 1072, 

1076 (9th. Cir. 2006); Three Boys Music Corp. v. Bolton, 

212 F.3d 477, 481 (9th Cir. 2000). Here, Plaintiff does 

not allege direct copying by Defendants; rather Plaintiff 

contends that Garcia had access to Karma! through TGA, 

and that the works are substantially similar.

The required elements of access and substantial 

similarity are related - that is, the plaintiff's burden of 

proof on each element rests partly on the strength of his 

showing on the other element. Thus, in rare cases, a 

plaintiff can prove copying even without proof of access 

"if he can show that the two works are not only 

substantially similar, but are so strikingly similar as to 

preclude the possibility of [*18] independent creation." 

Meta-Film Assocs., Inc. v. MCA Inc., 586 F. Supp. 1346, 

1355 (C.D. Cal. 1984) (citing 3 Nimmer on Copyright § 

13.01[B] and Ferguson v. Nat'l Broadcasting Co., Inc., 

584 F.2d 111, 113 (5th Cir. 1978)). In such instances, 

access will be inferred from the "striking" similarities 

between the works. Id. This rule only applies, however, 

where "as a matter of logic, the only explanation [for the 

similarities] between the two works must be 'copying 

rather than . . . coincidence, independent creation, or prior 

common source.'" 4-13 Nimmer on Copyright § 13.02[B] 

(2009) (citations omitted). 

Conversely, under the "inverse ratio rule" recognized 

by the Ninth Circuit, courts "require a lower standard of 

proof of substantial similarity when a high degree of 

access is shown." Three Boys Music, 212 F.3d at 485. 2 

To benefit from this rule, Plaintiff must offer proof of 

access which is greater than or "more compelling than 

that which is offered in the usual copyright case." Idema 

v. Dreamworks, Inc., 162 F. Supp. 2d 1129, 1176 (C.D. 

Cal. 2001) (holding that the inverse ratio rule did not 

apply because "the general unavailability of plaintiffs' 

works, especially those that were [*19] unpublished, 

other than by way of their alleged 1994 and 1995 

submissions to [defendants] makes 'access' to plaintiffs' 

copyrighted works somewhat less than might be available 

in a large number of cases.") (emphasis in original). 

Conversely, where plaintiff's theory of access is based 

solely on "speculation, conjecture or inference," plaintiff 

cannot demonstrate the high degree of access necessary 

to invoke the inverse ratio rule. Rice v. Fox Broadcasting 

Co., 330 F.3d 1170, 1178 (9th Cir. 2002); see id. Finally, 

in Ninth Circuit cases applying the inverse ratio rule, 

generally the defendant concedes that he or she had 

access to plaintiff's copyrighted work; and this 

"concession of access . . . [is] a prominent factor in [the 

court's analysis]." Rice, 330 F.3d at 1178 (citing to Shaw 

v. Lindheim, 919 F.2d 1353, 1361-62 (9th Cir. 1990) and 

Metcalf v. Bochco, 294 F.3d 1069, 1075 (9th Cir. 2002)). 

3 


2 It should be noted that the inverse ratio rule 

2010 U.S. Dist. LEXIS 77772, *17 

1. Access 4 

Page 6 

only works in one direction - that is, while a 

strong showing of access will result in a lower 

threshold showing of substantial similarity, a 

weak showing of access does not require a greater 

showing of similarities between the plaintiff's and 

[*20] defendant's works. Three Boys Music, 212 

F.3d at 486 ("We have never held, however, that 

the inverse ratio rule says a weak showing of 

access requires a stronger showing of substantial 

similarity.") 

3 Even in cases in which the inverse ratio rule 

applies, it is not clear just how much less the 

showing of substantial similarity need be, given 

the high degree of access shown. In Shaw, the 

Ninth Circuit applied the inverse ratio rule where 

defendants conceded access to plaintiff's script. 

919 F.2d at 1361-62. However, the court merely 

held that the high degree of access was "a factor 

to be considered in favor of [plaintiff]." Id. at 

1362. In contrast, Metcalf v. Bochco, 294 F.3d 

1069 (9th Cir. 2002), suggests that the plaintiff 

receives a greater benefit from the inverse ratio 

rule. In Metcalf, where the writer of the infringing 

work admitted that he received and read three 

versions of plaintiff's work and passed it on to the 

star actor in the infringing work, the court found 

that "[plaintiffs'] case is strengthened 

considerably by [defendant's] concession of 

access to their works." 294 F.3d at 1075. The 

court stated that if the trier of fact were to believe 

that the defendants read the [*21] scripts, "it 

could easily infer that the many similarities 

between plaintiffs' script and defendants' work 

were the result of copying, not mere coincidence." 

Id. 

Although the exact effect of the inverse ratio 

rule is unclear, in this case, plaintiff has not 

introduced sufficient evidence of access to invoke 

the inverse ratio rule (see infra section III.B.1); 

thus, the Court need not resolve this issue. 

4 Plaintiff does not argue that Earl and Karma! 

are so strikingly similar so as to allow plaintiff to 

prevail without a showing of access. Indeed, for 

the reasons discussed infra section III.B.2, the 

Court holds that the works are not strikingly 

similar.


To prove access, Plaintiff must show that the 

Defendants had a "reasonable opportunity" or "reasonable 

possibility" of viewing Plaintiff's work prior to the 

creation of the infringing work. Three Boys Music, 212 

F.3d at 482; Baxter v. MCA, Inc., 812 F.2d 421, 423 (9th 

Cir. 1987). Reasonable access requires more than a "bare 

possibility," and "may not be inferred through mere 

speculation or conjecture." Three Boys Music, 212 F.3d 

at 482. "In order to support a claim of access, a plaintiff 

must offer 'significant, affirmative and [*22] probative 

evidence.'" Jorgensen v. Epic/Sony Records, 351 F.3d 46, 

51 (2d Cir. 2003) (affirming summary judgment against 

the plaintiff on the issue of access where the plaintiff 

produced "no reasonable documentation that he actually 

mailed [tapes of the allegedly infringed work]") (citing 

Scott v. Paramount Pictures Corp., 449 F. Supp. 518, 520 

(D.D.C. 1978)). 

Access is often proven through circumstantial 

evidence in one of two ways: "(1) a particular chain of 

events is established between the plaintiff's work and the 

defendant's access to that work . . . or (2) the plaintiff's 

work has been widely disseminated." Idema, 162 F. 

Supp. 2d at 1175 (citing to Three Boys Music, 212 F.3d 

at 482). Here, Plaintiff does not contend that his 

screenplay was widely distributed; instead, Plaintiff 

attempts to prove access by establishing a chain of events 

linking Plaintiff's screenplay with Defendants' work. 

Specifically, Plaintiff argues that the creator of Earl, 

Garcia, had access to Karma! through Plaintiff's 

submission of the screenplay to TGA in mid-1995. 5 

Plaintiff offers his own declaration and that of his 

girlfriend Cindy Cramer, who assisted him with the 

mailing, as evidence that Plaintiff [*23] mailed Karma! 

to Gersh at TGA in the spring of 1995. However, Plaintiff 

has produced no documentary evidence of the mailing. 

Further, there is no evidence that Plaintiff received any 

response from TGA or that Gersh or anyone at TGA 

otherwise acknowledged receipt. This lack of 

documentation regarding the mailing weighs in favor of 

granting summary judgment. See Jorgensen, 351 F.3d at 

52 (affirming summary judgment where the plaintiff "did 

not maintain a log of where and when he sent his work, 

or keep receipts from certified mailings to establish a 

chain of access") (internal citations omitted); see also 

Rice, 330 F.3d at 1178. Both Gersh and Neisser deny 

ever receiving or reading any submission from Plaintiff, 

including Karma! (Gersh Decl. P 5; Neisser Decl. P 5.) 

2010 U.S. Dist. LEXIS 77772, *21 

Page 7 

5 Plaintiff also stated in his declaration that he 

sent Karma! to Creative Artists Agency ("CAA") 

in 1995, but he did not state who it was sent to. 

(Gable Decl. P 13.) Although Garcia became a 

client of CAA in 2000, Plaintiff does not argue 

that Garcia received access to Karma! through 

CAA, and has offered no evidence to support such 

a theory. 

Assuming, however, that TGA received the 

screenplay, Plaintiff argues that once Gersh [*24] 

received Karma!, it is reasonable that Garcia, as a client 

of TGA, would have access to it. Plaintiff offers two 

theories in support of this proposition. First, Plaintiff 

argues that Gersh may have given Garcia access to the 

screenplay directly, as Gersh's name was listed on 

Garcia's contract with TGA as one of Garcia's key 

contacts. Second, Plaintiff argues that there is a 

reasonable possibility that Gersh or someone else at TGA 

gave Plaintiff's screenplay to Neisser, another agent at 

TGA and the literary agent for Garcia, who then could 

have passed it on to Garcia. Plaintiff does not present any 

evidence that Gersh or Neisser had any contact with 

Garcia after Garcia left TGA in 2000; thus, Plaintiff's 

theory of access assumes that Garcia must have been 

given access to Karma! several years before Garcia 

claims to have created Earl. 6 

6 While Plaintiff presents evidence of Garcia's 

different explanations as to how he came up with 

the idea for Earl, Plaintiff does not appear to 

dispute when Garcia created Earl - i.e., sometime 

in 2003. In short, there is no evidence to refute 

Garcia's testimony that he created Earl in 2003. 

The Court holds that Plaintiff's evidence of access is 

far too [*25] weak to trigger the inverse ratio rule. 7 In 

Rice v. Fox Broadcasting Company, the Ninth Circuit 

rejected application of the inverse ratio rule under 

analogous facts. 330 F.3d 1170 (9th Cir. 2003). In Rice, 

Robert Rice claimed that Fox Broadcasting Company had 

infringed on Rice's work, The Mystery Magician, when 

Fox developed a series of television specials about magic 

("Specials"). Id. at 1173. Rice claimed that he sent two 

copies of his work and a pitch sheet for a proposed 

programming idea to Fox's Senior Vice President of 

Specials and Alternative Programming, Michael Darnell, 

who was an active participant in developing the 

infringing work. Id. at 1178. Rice also claimed that the 

defendants were aware of The Mystery Magician because


Rice gave copies of the work to his agent at ICM, who in 

turn sent a copy of the video to Fox. Id. Lastly, Rice 

claimed that when he would visit his own agent at ICM, 

he "would often chat with Steve Wohl, a fellow agent at 

ICM, and that Wohl repeatedly told Rice that he 'loved' 

the idea behind the Mystery Magician and that it would 

be a 'smash hit.'" Id. Rice reasoned that "[b]ecause Wohl 

was Bruce Nash's agent, . . . [and] Nash . . . was an active 

participant [*26] along with Darnell in developing the 

Specials," Nash had access to The Mystery Magician. Id. 

7 Plaintiff does not argue that the inverse ratio 

rule applies. 

The Ninth Circuit rejected Rice's claims. First, 

regarding the alleged transmission to Michael Darnell, 

the Court discounted this evidence because there was "no 

copy of the purported pitch and [plaintiff] never received 

a response from Fox." Id. Second, as to "the complicated 

thread involving Marks, Wohl, Nash and Darnell," the 

court noted that Rice had no evidence that Wohl 

"provided The Mystery Magician to Nash, Darnell or 

anyone else at either Nash Entertainment or Fox." Id. As 

such, the Ninth Circuit found that Rice's claims were 

"based on speculation, conjecture, and inference which 

are far less than the 'high degree of access' required for 

application of the inverse ratio rule." Id. 

Similarly, here, there is no evidence that: (1) Plaintiff 

ever received a response from Gersh or anyone at TGA; 

(2) that Neisser had access to the script himself (either 

through Gersh or otherwise), or (3) that anyone at TGA 

transferred the script to Garcia. Finally, there is no 

concession of access here by Defendants. As such, 

Plaintiff's chain of [*27] events is too speculative to 

trigger the inverse ratio rule. 

Further, Plaintiff cannot create a triable issue of 

access merely by showing "bare corporate receipt" of his 

work by an individual who shares a common employer 

with the alleged copier. Jorgensen, 351 F.3d at 52-53; 

Meta-Film, 586 F. Supp. at 1358. Instead, to avoid 

summary judgment, a plaintiff must show that he 

submitted his work to an intermediary who is in a 

position to transmit the plaintiff's work to the creators of 

the infringing work. Meta-Film, 586 F. Supp. at 1355-56. 

The intermediary can be a person who (1) has 

supervisory responsibility for the allegedly infringing 

project, (2) contributed ideas and materials to it, or (3) 

worked in the same unit as the creators. Id.; see, e.g., De 

Acosta v. Brown, 146 F.2d 408, 410 (2d Cir. 1944) 

2010 U.S. Dist. LEXIS 77772, *25 

Page 8 

(sufficient evidence of access presented where plaintiff 

submitted her work to a literary agent who thereafter was 

consulted by the defendant as to research details 

regarding the infringing work). At a minimum, however, 

"the dealings between the plaintiff and the intermediary 

and between the intermediary and the alleged copier must 

involve some overlap in subject matter to permit an 

inference [*28] of access." Meta-Film, 586 F. Supp. at 

1358 (citing Kamar Int'l Inc. v. Russ Berrie and Co., 657 

F.2d 1059 (9th Cir. 1981) and Russ Berrie & Co. v. Jerry 

Elsner Co., Inc., 482 F. Supp. 980, 989 n.7 (S.D.N.Y. 

1980)). In sum, the plaintiff must show a sufficient nexus 

between "the individual who possesses knowledge of a 

plaintiff's work and the creator of the allegedly infringing 

work." Id. at 1357. 

For example, in Jorgensen, the Second Circuit 

affirmed summary judgment as to some defendants on the 

issue of access where the plaintiff could not produce 

documentary evidence to show that he mailed out his 

work, and presented no evidence that those who did 

receive his work had any relationship with the creators of 

the allegedly infringing work. 351 F.3d at 52-53. 

Similarly, in Meta-Film, the court granted summary 

judgment on access where the plaintiff showed his work 

to a director who was under contract with the defendant 

studio and worked on the studio lot, but could not 

demonstrate any connection between the director and the 

studio's allegedly infringing project. 586 F. Supp. at 

1356-59. As the court explained, "countless unsolicited 

scripts are submitted to numbers of individuals on studio 

[*29] lots everyday." Id. at 1357-58. "Under these 

circumstances, it is clearly unreasonable to attribute the 

knowledge of any one individual-especially a 

non-employee- to every other individual just because 

they occupy offices on the same studio lot." Id. The court 

in Meta-Film also rejected plaintiff's theory that access 

was shown by the fact that the director to whom she 

submitted her work had dealings with an executive 

involved in producing the infringing work. Id. at 1358. 

The court found that the executive did not make any 

creative contributions to the infringing work and the 

meetings between the two men had nothing to do with 

either plaintiff's work or the infringing work. Id. Thus, 

access could not be inferred from those meetings. 

Finally, in Jones v. Blige, the Sixth Circuit affirmed 

summary judgment on the issue of access where plaintiff 

demonstrated that she had sent her work to Andy 

McKaie, a Senior Vice President at Universal, and the


allegedly infringing artists, Mary J. Blige and Andre 

Young, had a recording contract and a distribution joint 

venture, respectively, with Universal. 558 F.3d 485, 

491-92 (6th Cir. 2009). The court held: "While it is true 

that both Young and Blige [*30] dealt with Universal in 

certain respects, there is no evidence that either they or 

anyone else involved in the creation of [the allegedly 

infringing work] had any contact with McKaie or his 

division . . . ." Id. at 492. 

Here, Plaintiff cannot establish more than bare 

corporate receipt. As noted above, Plaintiff has not 

introduced any documentary evidence to support the 

claim that Plaintiff sent Karma! to Gersh at TGA, or that 

the screenplay ever actually reached Gersh. However, 

even generously assuming that Plaintiff's submission 

reached Gersh, there is no evidence that Gersh had any 

contact with Garcia. It was Neisser, not Gersh, who 

represented Garcia at TGA. (PSGI 28; Neisser Decl. P 2; 

Garcia Decl. P 6.) Although Gersh's name was listed on 

Garcia's contract, Gersh testified that he did not have any 

dealings with Garcia, and there is no evidence that the 

two ever spoke. (Gersh Decl. P 7.) Further, there is no 

evidence that Gersh had any supervisory responsibility 

for Earl or any involvement in the creation of the series. 

These facts clearly cut against a finding of access. 

Nonetheless, Plaintiff argues that Gersh may have 

passed the script along to Neisser, who then may have 

passed [*31] it along to Garcia. 8 Neisser testified in his 

deposition that he spoke to Gersh on a regular basis and 

that "TGA was a relatively small . . . place." (PSGI 73 

[Neisser Depo. 50:22-25; 89:22-89:8].) The evidence 

demonstrates that 20 to 25 agents worked at TGA in 

mid-1995. (PSGI 32.) However, there is no evidence that 

Gersh and Neisser ever worked on any projects together. 

(See PSGI 32-35.) Neisser worked in the "television lit" 

department, which was relatively autonomous, and Gersh 

did not oversee that department or attend its regular 

meetings. (Pl. Compendium Exh. K [Neisser Depo., at 

89:2-19], Exh. J [Gersh Depo., at 46:16-47:16, 49:5-16].) 

Nonetheless, Neisser testified that TGA had weekly 

meetings of all the Los Angeles agents, which Gersh 

sometimes attended. (PSGI 35 [Neisser Depo. at 43:5-21, 

89:2-90:2].) Finally, Neisser gave vague testimony that 

he had meetings with "all three Gershes 9 about what was 

going on in the department, about the business" and that 

they "talked all the time." (PSGI 73.) 10 In sum, viewing 

the record in the light most favorable to Plaintiff, there is 

evidence that Gersh, the person allegedly with knowledge 

2010 U.S. Dist. LEXIS 77772, *29 

Page 9 

of Plaintiff's script, had some meetings or [*32] 

discussions with Neisser, who in turn had a connection 

with Garcia. 

8 Alternatively, Plaintiff appears to argue 

(without citation to any relevant authority) that 

because TGA, the entity, received Plaintiff's 

screenplay, access can be shown by the fact that 

Garcia had an agency relationship with TGA. 

(Opp'n at 23.) Thus, Plaintiff argues that Garcia's 

access was not through an intermediary in this 

case because an entity, TGA, with legal authority 

to represent Garcia received the work. (Id.) 

Plaintiff's argument makes little sense. TGA, 

as an entity, cannot give Garcia access to Karma!. 

The case law discussing access addresses whether 

actual persons are in a position vis-A-vis the 

creator to allow for reasonable access. Access is 

not a metaphysical concept, it requires a 

reasonable possibility that the actual creator(s) has 

seen (or heard or read) the work which is 

allegedly infringed. Thus, TGA cannot have 

access "on Garcia's behalf." Further, Plaintiff's 

argument is contradicted by the rule that bare 

corporate receipt does not impute knowledge of 

such receipt to all persons affiliated with the 

corporation. 

9 The "three Gershes" refer to David Gersh, Bob 

Gersh, and Phil Gersh. Neisser considered [*33] 

all of them to be his bosses at TGA. (Pl. 

Compendium Exh. J [Gersh Depo. at 24:5-17].) 

10 Gersh's deposition testimony, in some 

respects, differs with Neisser's testimony. 

Specifically, Gersh testified that TGA had weekly 

"staff meetings" of the agents, but he could not 

recall what year those staff meetings began. (Pl. 

Compendium Exh. K [Gersh Depo. at 44:5-13].) 

It is not clear whether these are the "all agent 

meetings" that Neisser was referring to. Gersh 

also testified that all meetings in the mid-1990s 

were informal, and that he met with Neisser "very 

rarely" - generally, once every 3 or 4 months - 

during that time period. (Id. at 46:6-13.) Finally, 

Gersh testified that he had little, if any, 

connection with the department Neisser worked 

in, and "wouldn't really have any reason to have 

any discussion with him other than a social how 

are you kind of thing." (Id. at 46:10-24.)


For purposes of summary judgment, the 

Court must view the evidence in the light most 

favorable to the non-moving party, Plaintiff, in 

this case. Thus, while the Court does not find 

Neisser and Gersh's testimony to be flatly 

inconsistent, as Plaintiff contends, the Court 

accepts Neisser's testimony for the purposes 

[*34] of this motion. 

The Court holds that this connection is far too 

attenuated and speculative to support an inference of 

access. Although Gersh and Neisser clearly spoke to one 

another, Plaintiff has not offered any evidence that Gersh 

and Neisser ever had discussions about Karma! or Earl or 

about any other projects that Garcia was working on. 

Further, there is no showing that Neisser had any 

involvement or influence in the creation of Earl. Thus, 

there is no evidence that discussions between Gersh and 

Neisser involved any overlap in the subject matter of 

discussions between Neisser and Garcia. See Meta-Film, 

586 F. Supp. at 1358. 

In some respects, Plaintiff's theory of access is even 

more attenuated than that offered in Meta-Film. In 

Meta-Film, the plaintiff submitted a script called "Frat 

Rats" to a movie director, Badham, who specifically 

acknowledged receipt and admitted to reading the script. 

Id. at 1352. Badham had several meetings with an 

executive at Universal named Ned Tanen about an 

unrelated project. Id. at 1353. Plaintiff speculated that 

during these meetings, Badham may have given "Frat 

Rats" to Tanen or told him about it. See id. Tanen, in 

turn, was instrumental in bringing [*35] the allegedly 

infringing work, "Animal House" to Universal, but there 

was no evidence that Tanen had creative input in Animal 

House. Id. at 1353. The Court found that Plaintiff's 

submission to Badham, "as a matter of law, cannot 

sustain a finding of access." Id. at 1359. 

Here, unlike the director in Meta-Film, Gersh did not 

acknowledge receipt of Karma!. Even assuming he had, 

however, all Plaintiff can show is that, like Badham and 

Tanen, Gersh and Neisser had meetings about certain 

projects and discussed unspecified "business." There is 

no evidence that they ever discussed Plaintiff's screenplay 

or any of Garcia's work, and there is nothing in the record 

indicating that Gersh or Neisser had creative influence in 

any of Garcia's projects, much less Earl. 11 (See Garcia 

Decl. P 2.) Thus, Plaintiff's theory of access fails as a 

matter of law. 

2010 U.S. Dist. LEXIS 77772, *33 

Page 10 

11 The timing of events also casts doubt on the 

element of access. Although Plaintiff transmitted 

his screenplay to TGA before Earl was created, 

eight years passed between Plaintiff's submission 

and the time Garcia claims to have created Earl. 

Further, there is no evidence that Garcia had any 

continuing contact with Neisser (or Gersh) after 

he left [*36] TGA in 2000. Thus, in order for 

Plaintiff's theory of access to be possible, either 

Gersh or Neisser must have given Garcia access 

to Karma! before Garcia left TGA in 2000, and 

several years before the creation of Earl. While 

this is certainly not fatal to Plaintiff's claim, see 

Three Boys Music, 212 F.3d 477 (9th Cir. 2000), 

it weighs against the plausibility of Plaintiff's 

alleged chain of connections. 

Before addressing substantial similarity, the Court 

will address one further argument regarding access. Here, 

the parties vigorously dispute whether TGA had any 

formal policy regarding the submission of unsolicited 

scripts in 1995, when Plaintiff allegedly submitted 

Karma! to Gersh. Gersh and Neisser both declared that, 

in 1995, TGA had a policy of not considering unsolicited 

screenplays; instead, such screenplays would be returned 

to the sender or discarded. (Neisser Decl. P 3; Gersh 

Decl. P 2.) They also declared that their personal 

practices were not to consider unsolicited screenplays, 

but to return or discard them. (Neisser Decl. P 4; Gersh 

Decl. P 4.) Plaintiff launched several objections to these 

declarations, and noted that no written TGA policy about 

unsolicited materials had [*37] been produced. (PSGI 

42; Pl. Evidentiary Objections [Docket 53].) Finally, 

Plaintiff also submitted the declaration of expert witness 

Eric Sherman ("Sherman") regarding the custom and 

practice of agencies in the mid-1990s relating to 

unsolicited submissions. Plaintiff argued that, given 

industry practice, it was highly likely that someone at 

Gersh read Karma! (Opp'n at 28; Sherman Decl. P 8.) 

Plaintiff's argument fails for several reasons. First, 

regardless of whether TGA had an agency-wide policy 

relating to unsolicited scripts, Neisser and Gersh both 

clearly testified that it was their personal practice not to 

consider unsolicited scripts. (Pl. Compendium Exh. K 

[Neisser Depo. at 52:10-24, 54:1-11, 90:17-92:9]; Suppl. 

Rubin Decl. Exh. 3 [Neisser Depo. at 96:4-24, 98:8-19]; 

Pl. Compendium Exh. J [Gersh Depo. at 26:11-27:24]; 

Suppl. Rubin Decl. Exh. 4 [Gersh Depo. at 20:24-24, 

29:25-30:21].) Further, the undisputed evidence


demonstrates that Neisser and Gersh instructed their 

assistants not to accept unsolicited scripts. (Id.) Plaintiff 

has presented no evidence that Gersh or Neisser ever read 

an unsolicited script. 

Second, the Court rejects the declaration of Plaintiff's 

expert, Sherman, [*38] as it does not meet the 

requirements of Federal Rule of Evidence 702. See 

Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 

579, 597, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993). 

Sherman declares that he has worked in the entertainment 

industry for 40 years. (Sherman Decl. P 2.) He has taught 

classes on, and authored books on, the television and film 

business. (Id.; see Pl. Compendium Exh. L [Sherman's 

Curriculum Vitae].) Finally, Sherman has acted as a 

consultant to "clients in the entertainment industry," and 

in that capacity, has contacted different Los Angeles 

talent agencies on "hundreds" of occasions regarding 

submitting scripts to persons represented by those 

agencies. (Sherman Decl. P 3.) Based on this experience, 

Sherman offers testimony as to the custom of talent 

agencies regarding unsolicited submissions in the 

mid-1990s. Sherman opines that, in 1995, the agencies 

had "widely divergent policies concerning 'unsolicited 

submissions.'" (Id. P 4.) Further, "these policies were far 

from uniform and by no means rigorously applied in 

1995." (Id.) Sherman also opines, however, that "the 

custom and practice in the entertainment industry (circa 

mid-90's)" is that agents would read unsolicited 

submissions if the following [*39] criteria were met: "(a) 

when it has a provocative or catchy title; (b) the 

appearance and/or packaging of the submission is 

appealing; (c) the name of the author is a familiar name 

in the industry; (d) the first ten pages are compelling; or 

(e) the genre is one in which there is a particular need at 

the time." (Id. P 5.) Sherman states that, in his opinion, 

Karma! met four of these five criteria, and therefore 

likely was read by someone at the Gersh agency. (Id. P 

8.) 

Sherman's expert testimony is not reliable. Sherman 

first tells the Court that there was no standard practice in 

the industry regarding unsolicited scripts - i.e., the agency 

policies were "widely divergent" - but then declares that 

agents generally read unsolicited scripts when some 

combination of 5 criteria were met. Sherman cannot 

purport to testify as to a custom and practice without first 

establishing that such a practice existed. See United 

States v. Fredette, 315 F.3d 1235, 1239-40 (10th Cir. 

2003) (expert's experience regarding the industry 

2010 U.S. Dist. LEXIS 77772, *37 

Page 11 

standard for rebate programs gave him "no special 

insight" into defendant's rebate program where the expert 

admitted that defendant's program was different than any 

he had encountered [*40] before), Louie v. British 

Airways, Ltd., Case No. A01-0329, 2003 U.S. Dist. 

LEXIS 24750, 2003 WL 22769110, at * 10-11 (D. Alaska 

2003) (expert affidavit could not establish that 

defendants' failure to warn violated industry standards 

where there was no evidence that such a standard existed 

at the relevant time period); see also, 25 C.J.S. Customs 

and Usages § 45 ("Proof of matters pertaining to custom 

is not admissible before the existence of the custom has 

been established by the evidence."). Here, Sherman has 

completely undermined his own-conclusion regarding 

industry practice. 

Further, Sherman offers no support for the 5 criteria 

he provided; he never explains where such criteria come 

from or why he believes that talent agents used those 

criteria in the mid-1990s. Sherman does not identify a 

single agency he dealt with in the relevant time period, 

and he offers no testimony related to TGA's practices. 12 

Thus, Sherman has not identified the principles and 

methods that he used to form his opinion, making it 

impossible for the Court to evaluate whether such 

methods are reliable. See Fed. R. Evid. 702; In re Canvas 

Specialty, Inc., 261 B.R. 12 (C.D. Cal. 2001). Finally, 

Sherman's opinion that Karma! met four of [*41] the five 

criteria he proposed is entirely unsupported and 

conclusory. He has not offered any evidence regarding 

how a literary agent would apply these criteria, nor has he 

offered any examples of instances where his clients' 

unsolicited scripts were reviewed for these reasons. 

Sherman's personal opinion that the title of Plaintiff's 

work is "catchy," that the first 10 pages are compelling, 

and soon, is not based on specialized knowledge and does 

not assist the trier of fact. Fed. R. Evid. 702, advisory 

committee notes (an expert relying primarily on 

experience must "explain how that experience leads to 

the conclusion reached . . . and how that experience is 

reliably applied to the facts"); Fredette, 315 F.3d at 1240. 

The Court therefore disregards Sherman's testimony. 13 

Claar v. Burlington Northern R.R., 29 F.3d 499, 502-503 

(9th Cir. 1994) (trial court may exclude from its summary 

judgment consideration proffered expert testimony that is 

not reliable). 

12 Sherman's testimony about the practices of 

agents at Creative Artists' Agency (CAA) is 

irrelevant. Plaintiff has not argued that Garcia


received access to Plaintiff's script through CAA. 

Thus, the policies of other agencies are only 

[*42] relevant to the extent that they indicate a 

standard in the industry and therefore can support 

a conclusion about TGA. However, Sherman 

admitted there was no standard industry practice 

regarding unsolicited scripts among the Los 

Angeles talent agencies in the mid-1990s. 

13 It is important to note, however, that even had 

the Court accepted Sherman's opinion, it would 

not change the outcome. At best, Sherman's 

opinion merely supports a finding that it was 

likely that "someone" at TGA, likely Gersh, read 

Karma!. Nonetheless, for the reasons stated 

above, Plaintiff has not established that this 

"someone" was an intermediary under Meta-Film. 

In sum, even generously assuming that Plaintiff's 

submission of Karma! actually reached Gersh, the record 

is insufficient to allow a reasonable jury to infer that 

Garcia had access to Karma. Thus, summary judgment 

for Defendants is appropriate. 

Finally, even if the weak evidence of access were 

sufficient to create a triable issue of fact, Plaintiff would 

still have to present evidence allowing reasonable minds 

to conclude that Karma! and Earl are substantially 

similar. As discussed below, Plaintiff has failed to meet 

this burden. 

2. Substantial Similarity 

In [*43] addition to access, the issue of substantial 

similarity provides an independent ground for granting 

summary judgment. To determine whether two works are 

substantially similar, the Ninth Circuit applies a two-part 

test consisting of extrinsic and intrinsic components. 

Rice, 330 F.3d at 1174. The extrinsic test involves an 

objective comparison of the two works. The Court must 

consider "whether [the works] share a similarity of ideas 

and expression as measured by external, objective 

criteria." Swirsky v. Carey, 376 F.3d 841, 845 (9th Cir. 

2004). The extrinsic test requires an "analytic dissection" 

of the works, and is often aided by expert testimony. Id. 

The intrinsic component of the substantial similarity 

test is subjective and depends solely on the response of 

the ordinary lay observer. Berkic v. Crichton, 761 F. 2d 

1289, 1292 (9th Cir. 1985). "To that extent, expert 

testimony or the comparison of the individual features of 

the works is inappropriate in applying the intrinsic test." 

2010 U.S. Dist. LEXIS 77772, *41 

Page 12 

Id. Instead, the trier of fact "ordinarily decides whether 

the 'total concept and feel' of the two works is 

substantially similar." Id.; Kouf v. Walt Disney Pictures 

& Television, 16 F.3d 1042, 1045 (9th Cir. 1994). 

"For [*44] summary judgment, only the extrinsic 

test is important." Kouf, 16 F.3d at 1045. "A plaintiff 

who cannot satisfy the extrinsic test necessarily loses on 

summary judgment, because a jury cannot find 

substantial similarity without evidence on both the 

extrinsic and intrinsic tests." Id. Further, because the 

intrinsic test relies on the subjective judgment of the 

ordinary person, it must be left to the jury. Swirsky, 376 

F.3d at 845. Thus, the Court's analysis on summary 

judgment is limited to the extrinsic test. 

Where literary works (films, screenplays, television 

series, etc.) are at issue, the extrinsic test is an objective 

evaluation of "the articulable similarities between the 

plot, themes, dialogue, mood, setting, pace, characters, 

and sequence of events." Id. In applying the test, the 

Court must distinguish between protectable and 

unprotectable material, because a party claiming 

infringement may not rely on expressions from 

unprotected elements. Rice, 330 F.3d at 1174. For 

example, general plot ideas are not protectable and 

cannot give rise to a copyright infringement claim. See 

Berkic, 761 F.2d at 1293 ("General plot ideas are not 

protected by copyright law; they remain forever [*45] 

the common property of artistic mankind."). Further, the 

doctrine of scenes a faire "holds that expressions 

indispensable and naturally associated with the treatment 

of a given idea 'are treated like ideas and are therefore not 

protected by copyright.'" Rice, 330 F.3d at 1175 (quoting 

Apple Comp. Inc. v. Microsoft Corp., 35 F. 3d 1435, 

1444 (9th Cir. 1994)). Accordingly, the extrinsic test 

examines "not the basic plot ideas for stories, but the 

actual concrete elements that make up the total sequence 

of events and the relationships between the major 

characters." Berkic, 761 F.2d at 1293. 

Summary judgment on the issue of substantial 

similarity is appropriate "if no reasonable juror could find 

substantial similarity of ideas and expression." Funky 

Films, 462 F.3d at 1077 (quoting Kouf, 16 F.3d at 1045). 

Although summary judgment is not highly favored on the 

issue of substantial similarity in copyright cases, 

"substantial similarity may often be decided as a matter 

of law." Id. (quoting Sid & Marty Krofft Television 

Prods. Inc. v. McDonald's Corp., 562 F.2d 1157, 1164


(9th Cir. 1977)). Indeed, the Ninth Circuit "ha[s] 

frequently affirmed summary judgment on the issue of 

substantial similarity." [*46] Shaw v. Lindheim, 919 F.2d 

1353, 1355 (9th Cir. 1990). 

As discussed below, the Court concludes that no 

reasonable jury could find Earl and Karma! to be 

substantially similar. 

I. Evidence Considered 

The Court engaged in detailed review of the works at 

issue. Specifically, the Court read the Karma! screenplay 

by Mark Gable (Docket No. 21-6), watched the pilot 

episode for Earl, and watched all 24 episodes of the first 

season of Earl. The Court also watched 5 select episodes 

of the second season of Earl. Notably, Plaintiff (and 

Plaintiff's expert) only compared Karma! with episodes 

from the first and second seasons of Earl when analyzing 

the alleged similarities between the works. Thus, the 

Court focused on those episodes of Earl which Plaintiff 

contends demonstrate a substantial similarity with 

Karma! See Sony Pictures Entertainment, Inc. v. 

Fireworks Entertainment Group, Inc., 156 F. Supp. 2d 

1148, 1157 (C.D. Cal. 2001) ("It is the copyright 

plaintiff's burden to identify the elements for [the 

extrinsic test] comparison.") The Court also considered a 

chart that Plaintiff created, which presents a side-by-side 

comparison of those portions of the two works that 

Plaintiff contends are similar. [*47] (Gable Decl., Exh. G 

[hereinafter "Plaintiff's Comparison Chart"]; Suppl. 

Gable Decl., Exh. A.) 

a. Expert Testimony 

In addition to the works themselves, Plaintiff relies 

on the expert report of David Nimmer ("Nimmer") to 

establish substantial similarity. Nimmer's expert report 

contains approximately 20 paragraphs of comparisons 

between the objective elements of Karma! and Earl. The 

report also contains a lengthy legal analysis of Ninth 

Circuit case law, and concludes by responding to the 

expert report offered by Defendants' expert, Jeff Rovin. 

Nimmer ultimately opines that: "Based on my review of 

Ninth Circuit case law, the facts at bar present a situation 

in which substantial similarity presents a triable issue of 

fact - a reasonable factfinder could conclude, based on all 

the circumstances, that defendants actionably copied 

from plaintiff's screenplay." (Nimmer Decl. P 27.) 

Defendants object to the testimony offered by 

2010 U.S. Dist. LEXIS 77772, *45 

Page 13 

Nimmer on several grounds. First, Defendants argue that 

Nimmer, while certainly an expert in the field of 

copyright law, is not qualified to offer a literary analysis 

in this case. Further, Defendants object that Nimmer's 

report contains inadmissible legal conclusions, [*48] and 

challenge Nimmer's methodology. 

The Court agrees that Nimmer's expert report is not 

admissible. Pursuant to Federal Rule of Evidence 702, a 

witness may offer an expert opinion only if he or she 

draws on some special "knowledge, skill, experience, 

training or education to formulate that opinion." Fed. R. 

Evid. 702. However, "the opinion must be an expert 

opinion (that is, an opinion informed by the witness' 

expertise) rather than simply an opinion broached by a 

purported expert." Jones v. Lincoln Elec. Co., 188 F.3d 

709, 723 (7th Cir. 1999) (citing to United States v. 

Benson, 941 F.2d 598, 604 (7th Cir. 1991)) (emphasis 

added). Thus, to determine whether a proposed expert is 

qualified, the court must examine whether the witness's 

qualifying training, experience, or specialized knowledge 

is sufficiently related to the subject matter upon which 

the witness offers an opinion. See United States v. Chang, 

207 F.3d 1169, 1172 (9th Cir. 2000) ("To qualify as an 

expert, a witness must have knowledge, skill, experience, 

training or education, relevant to such evidence or fact in 

issue."); In re Canvas Specialty Inc., 261 B.R. 12, 19 

(C.D. Cal. 2001) ("It is not enough that the proposed 

expert [*49] have expertise in an area of knowledge. The 

expertise must be relevant to the determination of the 

facts in issue."); Jones, 188 F.3d at 723 ("Whether a 

witness is qualified as an expert can only be determined 

by comparing the area in which the witness has superior 

knowledge, skill, experience, or education with the 

subject matter of the witness's testimony."). The 

proponent of the expert bears the burden of 

demonstrating that the expert is qualified. United States v. 

87.98 Acres of Land More or Less in the County of 

Merced, 530 F.3d 899, 904-05 (9th Cir. 2008); Baker v. 

Urban Outfitters, Inc., 254 F. Supp. 2d 346, 353 (S.D.N.Y 

2003). 

Here, Plaintiff has not demonstrated that Nimmer is 

qualified to render an expert opinion on the issue of 

substantial similarity between two literary works. 

Nimmer's experience, training, and education establish 

that Nimmer undoubtedly is an expert in the field of 

copyright law. He is a graduate of Yale Law School, and 

a partner at the Los Angeles-based firm of Irell & 

Manella. He specializes in and teaches copyright law and


is the current author of the preeminent copyright treatise 

Nimmer on Copyright, which is often cited by appellate 

courts, including [*50] the Supreme Court. Over the past 

three decades, Nimmer has published numerous books 

and dozens of articles on copyright law, spoken at many 

copyright law conferences, and taught seminars to federal 

judges on the issue of substantial similarity in copyright 

law. Given this extensive background, there can be no 

question that Nimmer is well-qualified to perform a legal 

analysis regarding copyright claims. However, as 

discussed below, an expert cannot offer his legal opinion 

as to whether a triable issue of fact exists regarding 

copyright infringement; such an analysis is the exclusive 

province of the Court. 

Instead, the relevant issue on summary judgment, 

and indeed the subject matter upon which Nimmer seeks 

to opine, is whether there is substantial similarity in the 

objective elements of theme, plot, dialogue, characters, 

sequence of events, mood, pace, and setting between 

Karma! and Earl. In short, Nimmer was tasked with 

performing a literary analysis of two fiction works. 

However, Nimmer offers little explanation as to how his 

legal expertise qualifies him to compare a screenplay and 

a television series on the eight criteria mentioned. 

Notably absent from Nimmer's report and declarations 

[*51] is any indication that Nimmer has experience, 

knowledge, training, or education in the literary field - for 

example, there is no evidence that Nimmer has ever 

worked as a film critic, a publisher, an English professor, 

an editor or director, that Nimmer writes fiction works, or 

even that Nimmer is an avid movie buff or 

television-watcher. While the Court recognizes that the 

task of comparing two fiction works is not highly 

technical, and indeed requires no specific training, to 

offer an expert literary analysis there must be some 

indication that Nimmer has, in one capacity or another, 

watched, read, written, compared and/or analyzed literary 

works. 14 See e.g., Stewart v. Wachowski, 574 F. Supp. 

2d 1074, 1106 n.130 (C.D. Cal. 2005) (expert was an 

English professor who had previously testified in several 

matters regarding substantial similarity); West v. Perry, 

No. 2:07CV200, 2009 U.S. Dist. LEXIS 63422, 2009 WL 

2225569, at *5 (E.D. Tex. 2009) (among other 

qualifications, expert had a film degree, was an 

accomplished screenwriter, and had worked as a screen 

credit arbitrator for the Writer's Guild of America); A 

Slice of Pie Productions, LLC v. Wayans Bros. 

Entertainment, 487 F. Supp. 2d 33, 41 (D. Conn. 2007) 

[*52] (expert had extensive experience teaching, 

2010 U.S. Dist. LEXIS 77772, *49 

Page 14 

evaluating, studying, and writing about screen writing). 

No such evidence exists here. 

14 The Court is using the term "literary works" 

loosely to relate to the type of works at issue in 

this case - a screen play and a television series - 

and their analogs such as motion pictures and 

books. In other words, the Court uses the term to 

refer to those works in which substantial 

similarity analysis would be based on the 

elements of theme, plot, characters, sequence of 

events, dialogue, mood, setting, and pace. The 

Court recognizes that, under the Copyright Act, a 

movie or television series would fall into the 

category of an audiovisual work, whereas a book 

or screenplay would be categorized as a literary 

work. 17 U.S.C. § 102(a)(1), (a)(6). 

Further, Nimmer's prior experience as an expert 

witness or consultant, with perhaps one or two 

exceptions, is not relevant to the literary analysis offered 

in this case. Nimmer lists several cases in which he 

previously offered expert testimony regarding the 

substantial similarity of works such as technical 

drawings, architectural plans, bingo cards, instructions 

for the use of pesticides, and computer software. [*53] 

(Supp. Nimmer Decl. PP 7-10.) Nimmer does not explain 

the specific analysis he performed; however, his 

assignments in those cases did not involve fiction works 

such as television shows, plays, movies, or books. Thus, 

this prior experience does not inform the literary analysis 

offered here. 15 There are two instances in which Nimmer 

may have performed a similar analysis as that offered 

here, although given the vague descriptions of these 

assignments, it is difficult to know for certain. First, 

Nimmer declares that he assisted a publisher in 

overturning an injunction in a copyright case involving a 

comparison between Margaret Mitchell's Gone with the 

Wind and Alice Randall's The Wind Done Gone. But 

Nimmer fails to describe the issue that he was asked to 

analyze or the opinion he ultimately rendered in that case. 

16 (Id. P 11.) Nimmer also notes one assignment, in Time 

Warner Entertainment Co. v. Continental Casualty Co., 

Case No. 02-01885 R (C.D. Cal.), where he was asked to 

compare a revised screenplay with the motion picture 

Contact and concluded that the unlicensed, protectable 

expression from the screenplay that was used in the film 

gave rise to a valid copyright claim. (Id. P 6.) [*54] 

While this prior experience appears relevant, the fact that 

Nimmer testified as an expert once before in a case


involving literary works is not a sufficient basis, without 

more, to accept his testimony here. 17 

15 Nimmer argues in his report that he has "long 

championed the view that the same tools to 

address substantial similarity in traditional 

domains, such as plays, should be deployed to 

perform the comparable substantial similarity 

analysis in the newer domain of computer 

software." (Supp. Nimmer Decl. P 10 [citing to 4 

Nimmer on Copyright § 13.03[F]].) Nimmer may 

very well be correct that a general approach in 

which the court first excludes non-protectable 

elements (such as stock elements or elements 

dictated by function or genre) and then analyzes 

the remaining objective elements of a work is a 

useful framework for both traditional works as 

well as computer software. However, this does 

not change the fact that the specific eight criteria 

used to analyze the objective elements of 

traditional works, like plays - plot, theme, 

characters, etc. - are simply not applicable to 

works such as computer software or technical 

drawings. Thus, to the extent that Nimmer is 

suggesting that a [*55] witness qualified to 

compare the objective components of two 

computer software programs for substantial 

similarity would, by virtue of that expertise, be 

qualified to analyze the similarities between a 

novel and film, the Court flatly disagrees. 

16 The Court is familiar with the Eleventh 

Circuit's opinion overturning the injunction in 

Suntrust Bank v. Houghton Mifflin Co., 268 F.3d 

1257 (11th Cir. 2001), and notes that there were 

critical copyright issues in Suntrust Bank that are 

not relevant to the present case - for example, 

whether the allegedly infringing work was entitled 

to fair use protection as a parody. 

17 Having reviewed the docket in Time Warner 

Entertainment Co., of which the Court takes 

judicial notice, it appears that the opposing party 

did not object to Nimmer's qualifications as an 

expert; thus, the issue of Nimmer's literary 

expertise (or lack thereof) was not addressed. 

In sum, Nimmer's specialized knowledge of 

copyright law and his legal expertise does not qualify him 

as a literary expert. See, e.g., Gen. Battery Corp. v. 

Gould, Inc., 545 F. Supp. 731, 750 n.24, 759 n.30 (D. 

Delaware 1982) (patent lawyer, although knowledgeable 

2010 U.S. Dist. LEXIS 77772, *54 

Page 15 

about the patent office procedure, was [*56] not 

qualified to give an expert opinion on infringement where 

he was not skilled in the relevant art of the patented 

products); United States v. Chang, 207 F.3d 1169, 

1172-73 (9th Cir. 2000) (witness who was "extremely 

qualified" in international finance was not qualified to 

render an opinion on the authenticity of a securities 

certificate where he had no training in identification of 

counterfeit securities); In re Canvas Specialty, Inc., 261 

B.R. 12, (C.D. Cal. 2001) (Witness not qualified where 

witness was an architect but had not demonstrated how 

his training as an architect gave him the necessary 

expertise to determine whether metal cabanas met 

contract requirements or had structural defects). As such, 

Nimmer's opinions as to the points of similarity between 

Karma! and Earl are not admissible. 

Finally, the remaining portion of Nimmer's report, in 

which Nimmer instructs the Court as to Ninth Circuit law 

and concludes that "a triable issue of fact exists" is not 

admissible. (Nimmer Decl. PP 26-38.) It is well 

established that, "an expert may not state his or her 

opinion as to legal standards, nor may he or she state 

legal conclusions drawn by applying the law to the facts." 

33A Fed. [*57] Proc., L. Ed. § 80:283 (West 2009); 

Aguilar v. Int'l Longshoremen's Union Local No. 10, 966 

F.2d 443, 447 (9th Cir. 1992); Nationwide Transport 

Finance v. Cass Information Systems, Inc., 523 F.3d 

1051, 1059-60 (9th Cir. 2008); McHugh v. United Serv. 

Auto. Ass'n, 164 F.3d 451, 454 (9th Cir. 1999); see also, 

Joseph M. McLaughlin, et al., Weinstein's Federal 

Evidence § 702.03[3] (2d ed. 2009). Such opinions 

invade on the province of the judge. See Burkhart v. 

Washington Metro. Area Transit Auth., 112 F.3d 1207, 

1213, 324 U.S. App. D.C. 241 (D.C. Cir. 1997). Here, 

portions of Nimmer's report read much like a third legal 

brief. Nimmer analyzes five Ninth Circuit copyright 

cases, "weigh[s] [the two works] against [his] 

comprehensive review of Ninth Circuit jurisprudence," 

and concludes that a triable issue of fact exists. (Nimmer 

Decl. P 38.) This opinion constitutes a legal conclusion 

and is not admissible. 

For these reasons, the Court excludes Nimmer's 

expert report. Nonetheless, even had the Court considered 

the report, it would not have altered the substantial 

similarity analysis below. To the extent that Nimmer's 

report offers objective points of comparison between the 

two works, most (if not all) of those [*58] comparisons 

were also noted in Plaintiff's Comparison Chart, which


the Court has considered. Further, although expert 

testimony comparing literary works is generally accepted 

in the Ninth Circuit, the Court finds that such testimony 

is only marginally helpful in cases such as this, where the 

works are targeted at a general audience and deal with 

subject matter readily understandable by ordinary 

persons. 18 Thus, the Court's analysis is largely based on 

the Court's own extensive review of the works. Finally, 

contrary to Plaintiff's arguments otherwise, 19 the mere 

existence of dueling expert reports does not necessarily 

create a triable issue of fact. Numerous cases have found 

in favor of defendants on the issue of substantial 

similarity despite the existence of expert testimony 

offered by plaintiffs. See, e.g., Rice, 330 F.3d at 1180 

(affirming summary judgment for defendants where the 

parties' each submitted expert reports); Olson v. Nat'l 

Broadcasting Co., Inc., 855 F.2d 1446, 1451, 1453 (9th 

Cir. 1988) (affirming the district court's grant of 

judgment notwithstanding the verdict after Plaintiff 

offered expert testimony at trial that sought to 

demonstrate similarity between the works); [*59] Brown 

Bag Software v. Symantec Corp., 960 F.2d 1465 (9th Cir. 

1992) (affirming summary judgment for defendants 

where plaintiff presented expert testimony on the issue of 

substantial similarity). 

18 Expert testimony is far less critical in a case 

like this than it is in a case where specialized 

knowledge is required to dissect the objective 

components of the copyrighted work. See, e.g., 

Brown Bag Software, 960 F.2d at 1473-74 

(relying on expert testimony to identify the 

objective points of comparison among different 

computer software programs); Swirsky v. Carey, 

376 F.3d 841, 847-48 (9th Cir. 2004) (relying on 

expert testimony comparing the objective 

elements - pitch, melodies, baselines, tempo, 

chords, structure, and harmonic rhythm - of 

musical works); Chiate v. Morris, Case No. 

90-55428, 1992 U.S. App. LEXIS 20330, 1992 WL 

197591, *5 (9th Cir., Aug. 17, 1992) (finding that 

expert testimony by a musicologist is crucial to 

proving objective similarity of songs); see also 

DOWD, COPYRIGHT LITIGATION HANDBOOK § 

15:27 (2d ed. 2009) (noting that expert testimony 

is often helpful in cases involving computer 

programs and functional objects, but will "seldom 

be necessary" to determine substantial similarity 

between literary [*60] works). Indeed, several 

other courts have cast doubt on whether expert 

2010 U.S. Dist. LEXIS 77772, *58 

Page 16 

testimony regarding substantial similarity is ever 

helpful in a case involving the comparison of two 

literary works. See e.g., Nicolas v. Universal 

Pictures Corp., 45 F.2d 119, 123 (2d. Cir. 1930); 

Stromback v. New Line Cinema, 384 F.3d 283, 

295 (6th Cir. 2004); Kindergartners Count Inc. v. 

Demoulin, 249 F. Supp. 2d 1214, 1232 (D. Kan. 

2003). As stated above, the Ninth Circuit 

generally takes a broader view, and often finds 

that expert testimony is appropriate regarding the 

objective substantial similarity of literary works. 

See Olson, 855 F.2d at 1449; Sid & Marty Krofft 

Television Productions, Inc., 562 F.2d 1157, 1164 

(9th Cir. 1977). Nonetheless, several Ninth 

Circuit cases have recognized the limitations of 

expert testimony in this area. See Rice v. Fox 

Broadcasting Co., 330 F.3d 1170, 1179 (9th Cir. 

2003) (upholding the district court's decision to 

disregard the parties' expert reports where the 

court engaged in an extensive analysis of the 

alleged similarities in expressive elements of the 

works and "neither expert opinion [was] very 

relevant to the conclusions drawn by the court"); 

Olson, 855 F. 2d at 1450-51 [*61] (holding that 

the district court's decision to discount expert 

testimony was appropriate where the expert 

deemphasized dissimilarities between the works 

and compared scenes a faire); Shaw v. Lindheim, 

919 F.2d 1353, 1357 (9th Cir. 1990) (viewing the 

expert report with caution where it focused on 

random similarities in the works). 

19 At the summary judgment hearing, Plaintiff's 

counsel argued that Swirsky v. Carey, 376 F.3d 

841 (9th Cir. 2004), held that if experts from both 

parties disagree on the issue of substantial 

similarity, the case should be submitted to the 

jury. This is a misreading of Swirsky. In Swirsky, 

the Ninth Circuit was discussing the general 

summary judgment standard, not the testimony of 

experts, when it noted that if plaintiff "presented 

indicia of a sufficient disagreement concerning 

the substantial similarity of [the] two works, then 

the case must be submitted to a trier of fact." Id. 

at 844. Swirsky was quoting Brown Bag Software 

v. Symantec Corp., 960 F.2d 1465, 1472 (9th Cir. 

1992), which in turn quoted from Anderson v. 

Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. 

Ct. 2505, 91 L. Ed. 2d 202 (1986), a seminal 

Supreme Court case setting out the standard for 

ruling on summary judgment motions [*62]


generally. Thus, when read in context, the portion 

of Swirsky quoted above simply restates the 

standard for evaluating a summary judgment 

motion - that is, if the evidence presented 

indicates that reasonable minds could differ as to 

which party should prevail, the case must go to 

the jury. However, where no reasonable jury 

could conclude that the two works are 

substantially similar, summary judgment on the 

issue of substantial similarity is appropriate, 

notwithstanding dueling expert reports. See Flynn 

v. Surnow, No. CV 02-9058-JFW (PLAx), 2003 

U.S. Dist. LEXIS 26973, 2003 WL 23411877, *4 

(C.D. Cal., Dec. 9, 2003) (citing to Narell v. 

Freeman, 872 F.2d 907, 910 (9th Cir. 1989). 

Defendants also submitted an expert report in this 

case. Defendants' expert, Jeff Rovin, has spent his entire 

adult life as a professional writer. (Rovin Decl. P 3, pg. 5, 

Appx. 4.) He has authored 124 books, both fiction and 

non-fiction, including several books analyzing films and 

television series - e.g., The Films of Charleston Heston, 

The Fabulous Fantasy Films, The Great Television 

Series. (Id., Appx. 4.) Among other relevant experience, 

Rovin was a writer on two television series and a 

consultant on three others, provided DVD commentary 

[*63] on three recent films, and has written monthly film 

columns in several magazines for years. (Id.) His 

magazine publications include Fascinating Facts from 

the Bible (1995-2001) and The Weekly Worlds News 

(2005-2007) which regularly published stories about 

angels, fate, and other aspects of religious phenomenon. 

Rovin's expert report establishes that he has extensive 

knowledge of films and books related to karma, fate, and 

related topics. Based on this experience, the Court 

concludes that Rovin has significant knowledge and 

experience in the literary field to render an opinion on 

whether the expressive elements of Karma! and Earl are 

substantially similar. Indeed, Plaintiff has not challenged 

Rovin's qualifications as an expert. 

While Rovin's expert report is admissible, the Court 

did not rely on it to conclude that no reasonable jury 

could find the works to be substantially similar. Many of 

the dissimilarities between Karma! and Earl that Rovin 

addresses are apparent from a review of the works 

themselves, and do not require a trained literary eye. 

Thus, as stated above, the Court relied primarily on its 

own review of the works in coming to the conclusion that 

no triable issue of fact [*64] exists as to substantial 

2010 U.S. Dist. LEXIS 77772, *62 

similarity. Furthermore, while expert testimony can be 

useful when examining whether the alleged similarities 

between two works constitute scenes-a-faire, see 

GOLDSTEIN ON COPYRIGHT § 16.4.2 (3d ed. 2006), the 

Court notes that comparisons to prior art are only helpful 

to the extent that they are genre-specific. That is, an 

unprotectable scenes-a-faire is an element of a story that 

is standard in a particular genre or that derives from the 

basic plot idea - e.g., a saloon shoot-out might be a 

standard element in an action film set in the old west. 

Rice, 330 F.3d at 1175. Here, it is not helpful to simply 

point out that certain past works also included a particular 

element; rather, to demonstrate that the element is not 

protectable, it must be shown that such an element is 

standard or indispensable in literary works centered 

around the themes of karma or redemption. See Fleener 

v. Trinity Broadcasting Co., 203 F. Supp. 2d 1142, 

1150-51 (C.D. Cal. 2001). Thus, to the extent that 

Rovin's comparisons to prior art are not 

genre-or-theme-specific, the Court has discounted those 

instances in its analysis. 

With those considerations in mind, the Court turns to 

the objective [*65] analysis of Karma! and Earl. 

ii. Objective Analysis 

a. Theme 

Page 17 

At an abstract level, both Karma! and Earl involve 

the central themes of karma and redemption. The ideas of 

righting past wrongs and good things happening to good 

people are general storylines that have been around for 

thousands of years. These ideas, standing alone, are not 

protectable. See Olson v. Nat'l Broadcasting Co., 855 

F.2d 1446, 1450 (9th Cir. 1988) (the general idea of a 

group action-adventure series in which Vietnam veterans 

do good deeds and are portrayed in a positive light is not 

protectable); Berkic v. Crichton, 761 F.2d 1289, 1293 

(9th Cir. 1985) (finding that the basic plot idea of a 

young professional who courageously investigates and 

exposes a criminal organization that kills persons to sell 

their vital organs is not protectable). 20 

20 While the Court has rejected the report of 

Plaintiff's expert, David Nimmer, the Court notes 

in passing that Nimmer agreed that the theme of 

turning bad karma into good karma and the 

concept of making amends were not protectable. 

(Supp. Rubin Decl., Exh. 1 [Nimmer Depo. at 

97:24-98:21, 120:5-7].)


Moreover, the manner in which the themes of karma 

and redemption are expressed in [*66] each work is 

different. In Plaintiff's screenplay, the notion of karma 

has an obvious religious underpinning. At the beginning 

of the screenplay, Frankie's brother, who is a priest, tells 

Frankie: "you look like you've been out in the desert for 

forty days and forty nights! And the devils [sic] got the 

best of you." (Rubin Decl., Exh. D, at 85.) Frankie is then 

visited by an angel, who meets him at the Cemetery of 

the Blessed Virgin. The angel has divine powers; he stops 

the rain from falling and brings dying flowers back to 

life. The angel also can fly, and transforms himself into 

other beings, such as the blind homeless person and a 

white dove. The angel tells Frankie that he must take 

certain steps to save the soul of his unborn son, and when 

Frankie attempts to bargain with the angel, the angel tells 

him "it's not up to me anyway." (Id. at 91.) Later in the 

screenplay, Frankie asks the angel why he has chosen to 

guide Frankie, and the angel responds, "God believes he 

can resurrect all of his sons who have fallen." (Id. at 125.) 

As the screenplay progresses, Frankie turns his life 

around and begins to have faith in the power of God. For 

example, at the pivotal moment in the screenplay [*67] 

where Frankie goes undercover and successfully foils a 

major drug deal, his former Lieutenant tells Frankie that 

he did "real good." Frankie responds, "Yea, by the good 

grace of God." (Id. at 179.) (emphasis in the original). 

When the Lieutenant incredulously respond, ". . . God? 

As I recall, you never really believed in that sort of 

thing," Frankie responds, "Yea, well you could say I was 

baptized in that river." (Id.) (emphasis in the original). At 

the end of the screenplay, when Frankie dies, he turns 

into an angel. Frankie asks Angel Man about his wings, 

and Angel Man tells him, "You fell from grace, but 

you've earned them back." (Id. at 186.) The screenplay 

concludes with Frankie, now an angel, watching over 

Tori Ann. (Id. at 187-88). 

In sum, the religious overtone in Karma! is seen 

throughout the screenplay. Frankie's fall is "a fall from 

grace," and it is through his good works and his eventual 

acceptance of God that Frankie is redeemed. Frankie 

lives on after death, as an angel who watches over those 

he loves. 

In Earl, karma is not a religious concept, nor does 

Earl go through any type of faith-based transformation. 

Earl learns about Karma from Carson Daly, a Hollywood 

celebrity, [*68] during a televised interview. Daly is not 

a celestial being, he does not direct Earl to take any 

2010 U.S. Dist. LEXIS 77772, *65 

actions; indeed, he is not even speaking specifically to 

Earl. Daly never again appears in Earl, and does not 

"guide" or watch over Earl. Instead, Earl decides on his 

own to adopt Daly's karmic philosophy. In Earl, like in 

Karma!, the notion of karma is personified - Earl talks to 

"karma" in several episodes as though he were speaking 

to a person and implores karma to help him out of certain 

situations. However, the force of karma is not embodied 

in a celestial being, nor does it have a religious 

undertone. Unlike in Karma!, Earl is not saved "by the 

grace of God," he does not adopt any religious 

convictions, and he does not experience a religious 

rebirth. 

Thus, while both works share similar unprotectable 

themes, the expression of those themes is markedly 

different. 

b. Plot 

Page 18 

The story of redemption naturally begins with 

someone who needs to be redeemed, and ends with that 

same person doing good acts and making up for past 

wrongs. In this manner, both Earl and Frankie can quite 

easily be compared to Scrooge in Charles Dickens's A 

Christmas Carol. All three characters start as bad people, 

have [*69] a realization that their actions affect their 

future, and subsequently decide to lead better lives by 

making up for past wrongs. Again, this basic plot idea is 

not copyrightable. Berkic, 761 F.2d at 1293. 

Beyond these general plot ideas, and the fact that in 

both works the main character wins the lottery (discussed 

below), there is little in common between Earl and 

Karma! Earl is a small town low-life who steals, lies and 

bullies people on a regular basis. Although Frankie also 

steals once he is out of prison, Frankie is not just a 

low-life, but a disgraced detective who took bribes from 

criminals and associates with dangerous drug dealers. 

Further, the incarnation of each character's bad 

karma is markedly different. In Earl, karma retaliates for 

Earl's bad acts in random ways. For instance, when Earl 

undeservedly wins the lottery, he is hit by a car. Earl is 

motivated to do good deeds primarily to avoid karma's 

retribution against him. In Karma!, on the other hand, 

Angel Man tells Frankie that his bad karma will affect the 

life of his unborn son. Thus, Frankie is motivated to 

improve his own life, as well of the lives of others, 

including his son.


Each character has a vastly different [*70] karmic 

realization. Earl begins to believe in karma when, upon 

having a good thing happen to him, winning the lottery, 

he is immediately hit by a car. The accident not only 

leaves Earl in the hospital with nearly his whole body in a 

cast, but also makes Earl lose the lottery ticket. Upon 

hearing Carson Daly's speech about karma, Earl decides 

that he is being punished for all of his bad deeds and 

decides to right his life. In contrast, Frankie's karmic 

realization revolves completely around Angel Man. 

Angel Man shows Frankie an image of Frankie's unborn 

son, and convinces Frankie that he must amend his past 

wrongs and straighten out his life in order to save the soul 

of his unborn child. As such, Frankie's revelation is 

starkly different from that of Earl. 

After these markedly different realizations, both 

characters turn to making amends for their past deeds. 

Earl creates a list of everything he has ever done wrong, 

and begins to work at crossing each and every mistake off 

the list. Just by starting, Earl's lottery ticket is carried 

back to him by the wind. Thus, Earl becomes convinced 

of karma's power. In each episode, Earl aims to amend a 

specific past wrong with the goal of crossing [*71] it off 

his list. In contrast, Frankie never creates any list of the 

bad things he done. 21 Instead, Frankie seemingly amends 

his wrongs as opportunities arise -for example, when 

Frankie sees a man drop his wallet, he returns it. 

Frankie's efforts to turn his life around culminate in his 

valiant attempt to clear his name as a police officer by 

going undercover and busting a large drug deal. When 

Frankie is successful, the newspaper runs a front-page 

story heralding Frankie's transformation with the 

headline: "X-bad cop, makes good." (Rubin Decl., Exh. 

D, pg. 183.) There is no counterpart to this plot point in 

Earl. Instead, Earl's journey toward redemption is 

seemingly never-ending; although he makes up for a 

specific wrong in each episode, he often makes mistakes 

and has to add new items to the list. 

21 Plaintiff argues that, like Earl, Frankie does 

have a list. Plaintiff refers to the "list" of the three 

things Angel Man told Frankie to do - (1) make 

amends for past wrongs; (2) clean up your life; 

and (3) use the money you come into wisely. This 

is not a point of similarity. First, Angel Man does 

not give Frankie a physical list. In Earl, the 

physical list - i.e. the piece of paper [*72] that 

Earl wrote his misdeeds on - is central to the 

show. Other characters refer to it, Earl is 

2010 U.S. Dist. LEXIS 77772, *69 

Page 19 

constantly taking the list out of his pocket to add 

or delete items, and it is the barometer of how 

well Earl is doing in his life. Thus, the fact that 

there is no physical list in Karma! is an important 

difference. Further, even if Angel Man's 

three-part agenda could be characterized as a 

"list", it is not a list of wrongs for which Frankie 

needs to amend. Indeed, only one item on Angel 

Man's "list" relates to righting past wrongs, and it 

does not delineate the specific wrongs Frankie 

must correct. 

Plaintiff stresses that both works have the main 

character win a lottery ticket, and both characters use the 

lottery winnings to remedy past misdeeds. However, the 

lottery winnings are different amounts of money and play 

different roles in each work. Most notably, Earl's winning 

the lottery leads to Earl's karmic realization. In winning 

the lottery, Earl enthusiastically celebrates his winnings 

and gets hit by a car. When he loses the lottery ticket in 

the accident, this triggers Earl's realization that bad things 

happen to him because he is a bad person. In short, it is 

the loss of the lottery [*73] ticket that sets Earl's 

redemption in motion. Once Earl begins do good deeds, 

the lottery ticket immediately returns to him and 

convinces Earl of karma's power. Further, Earl's lottery 

winnings are only $100,000, not enough to change Earl's 

life significantly, but enough to enable Earl to spend his 

days crossing wrongs of his list, instead of getting a job. 

In Karma!, Frankie has his karmic realization before 

he comes into any money. In fact, it is Angel Man's 

promise of money in the future that motivates Frankie to 

do good deeds. Frankie initially wins $300 from a 

scratcher and uses that money to pay the blind man, buy 

candy for teenagers, and pay back-owed rent. Even after 

the initial win, however, Frankie asks Angel Man if he is 

going to come into wealth. Thus, Frankie is always 

looking forward to the reward of money, which entices 

him to stay on the straight and narrow. Unlike Earl, 

Frankie does not win any substantial amount of money 

until the end of the screenplay, when he wins two million 

dollars. Further, while Earl uses his lottery winnings to 

redeem his own past wrongs, Frankie uses the bulk of his 

winnings - a million dollars - to rebuild an orphanage that 

has no relationship [*74] to Frankie's past misdeeds. 

Beyond the karmic arc and the lottery tickets, 

Plaintiff lists roughly a dozen other plot points that 

Plaintiff contends make the works substantially similar.


Much of this list is made up of random similarities that 

have no qualitative significance to the works - for 

example, Plaintiff argues that in both works there is an 

"old oriental bum," and that in both works, the main 

character expresses appreciation for his brother. The 

Ninth Circuit has repeatedly held that "such lists of 

similarities . . . are inherently subjective and unreliable," 

and a court should be "particularly cautious where, as 

here, the list emphasizes random similarities scattered 

throughout the works." Litchfield v. Spielberg, 736 F.2d 

1352, 1356 (9th Cir. 1984) (summary judgment granted 

where there was no substantial similarity in the sequence 

of events, mood, dialogue or characters, and plot 

similarities existed "only at the general level for which 

plaintiff cannot claim copyright protection"); see also, 

Olson, 855 F.2d at 1450 n.3; Kouf, 16 F.3d at 1046; 

Shaw, 919 F.2d at 1362. These minor elements, scattered 

throughout the works, are not probative of similarity. 

Other instances [*75] that Plaintiff relies on simply 

are not similar. For example, Plaintiff notes that in 

Karma!, Tori Ann wants to have sex with Frankie, but he 

tells her she will regret it, while in Earl, Earl and Joy 

have sex and Earl states that it was a big mistake. In the 

abstract, these events sound similar, but in context, the 

differences between these two scenes are overwhelming. 

In Karma!, Frankie tells Tori Ann that they should not 

have sex because Tori Ann is high on drugs. Up until that 

point in the story, Frankie and Tori Ann have had a 

completely plutonic relationship. Frankie wants to sleep 

with Tori Ann, but not when Tori Ann is out of control 

and not thinking clearly. Thus, Frankie resists her in that 

moment, making it all the more special when the two 

make love later in the screenplay. In Earl, Earl and Joy 

were previously married. After their divorce, Earl gives 

into temptation and has sex with Joy while helping her 

plan her wedding to Crabman. Earl feels guilty for 

betraying his friend Crabman, and confesses to him, 

telling Crabman that it was a big mistake. Crabman 

forgives Earl and Joy and goes through with the wedding. 

These storylines are not similar: In Karma!, Frankie does 

the [*76] right thing, resists temptation, and later falls in 

deeply in love with Tori Ann, whereas in Earl, Earl does 

the wrong thing, gives into temptation and betrays a 

friend, later having to apologize. 

As another example, Plaintiff points out that both 

Earl and Frankie return a man's wallet as an act of good 

karma. But the idea of a low-life thief stealing a wallet is 

hardly protectable, and the concrete expression of making 

2010 U.S. Dist. LEXIS 77772, *74 

Page 20 

amends for the theft is different in each work. Earl finds 

the specific person from whom he stole the wallet, 

whereas when Frankie sees that he has the opportunity to 

steal another man's wallet, he decides to do the right thing 

and return the wallet to the owner. Thus, Earl is making 

amends against the original person he hurt, whereas 

Frankie is simply deciding not to steal again. 

Finally, Plaintiff's list focuses on several 

unprotectable stock elements or scenes-a-faire that are 

scattered throughout the works. For example, Plaintiff 

notes that both Earl and Frankie spend time in prison, and 

after turning their lives around, both characters repay 

money to those from whom they stole, and at some point, 

both men get a job. These storylines are driven by the 

basic plot idea [*77] of turning one's life around. The 

concept of a bad person spending time in prison, and then 

trying to clean up their act by making restitution and 

getting a job are unprotectable scenes-a-faire in a story 

about redemption. See, e.g., Walker v. Time Life Films, 

Inc., 784 F.2d 44, 50 (2d Cir. 1986) (In two works 

depicting the experience of policemen in New York's 

crime-laden 41st Precinct, scenes of a policeman 

murdered at close range, cockfights, drunks, stripped 

cars, prostitute, rats, unsuccessful foot chases of fleeing 

criminals, and demoralized officers were stock scenes 

commonly linked to the genre of the works); Berkic, 761 

F.2d at 1293 (holding that no protection may be afforded 

to "situations and incidents which flow naturally from a 

basic plot premise"). Similarly, Plaintiff points out that in 

both works, a piece of paper floats back to the main 

character starting the idea of karma. In Karma!, Frankie 

throws a picture of an angel into the wind, and it 

mysteriously comes back to him. Similarly, the winning 

lottery ticket returns to Earl carried by the wind. 

However, the visual effect of a piece of paper magically 

floating back to someone is not a protectable expression. 

The [*78] effect is commonly used in works that involve 

themes of serendipity and fate. 22 

22 These two scenes are also contextually 

dissimilar. In Karma!, Frankie is trying to get rid 

of the picture of the angel. He first tries to burn it, 

and then throws it toward a river, but the wind 

immediately carries it back to him. This event 

starts Frankie's karmic realization. In Earl, Earl 

loses a $100,000 lottery ticket - something he 

desperately would want to hold on to, not get rid 

of - when he is struck by a car. It is not until 

several scenes later, when Earl has already had his


karmic epiphany and has started his journey 

toward redemption, that the wind carries the ticket 

back to him. 

Although there are some general similarities between 

the works, the similarities pale in comparison to the 

significant differences between the works. In this way, 

the present case is similar to Funky Films, Inc. v. Time 

Warner Cable, 462 F.3d 1072 (9th Cir. 2006). In Funky 

Films, the plaintiff alleged that defendants' television 

series infringed upon plaintiff's screenplay. Both works 

depicted family-run funeral homes where the father died 

leaving the family's two sons to run the funeral home. Id. 

at 1077. Both works [*79] included the return of the 

prodigal son, a competitive bid by a rival business that 

does not succeed, and one son changing his religious 

affiliation to get business. Id. The Ninth Circuit found 

that "[a]t first blush, these apparent similarities in plot 

appear significant; however, an actual reading of the two 

works reveals greater, more significant differences and 

few real similarities at the levels of plot, characters, 

themes, mood pace, dialogue, or sequence of events." Id. 

at 1078. The court noted that events in both works that 

appeared similar were, in context, qualitatively different - 

e.g., in plaintiff's work, the father's death sparked a series 

of murders, whereas the father's death in defendants' 

work did not - and that while both works explored the 

same themes, they did so in very different ways. Id. at 

1078-80. The Ninth Circuit concluded that: 

At a very high level of generality, both 

works share certain plot similarities: the 

family-run funeral home, the father's 

death, and the return of the 'prodigal son,' 

who assists his brother in maintaining the 

family business. But general plot ideas are 

not protected by copyright law; they 

remain forever the common property of 

artistic [*80] mankind. Beyond that, the 

stories do not share any detailed sequence 

of events. 

Id. at 1081 (internal citations and quotation marks 

omitted). Thus, the Court affirmed summary judgment in 

favor of defendants on the issue of substantial similarity. 

Id. at 1081; see also Walker v. Time Life Films, Inc., 784 

F.2d 44, 49-50 (2d Cir. 1986) (finding that "at the most 

general level, the movie and the book tell the same story" 

- that of policemen battling the hostile environment of 

2010 U.S. Dist. LEXIS 77772, *78 

New York's 41st Precinct - however, "differences in plot 

and structure far outweigh this general likeness."). 

As in Funky Films, both Karma! and Earl! share the 

basic plot of a low-life embracing karma, winning the 

lottery, and straightening out his life. While the 

overarching theme of each story is similar, the concrete 

expression of how karma is portrayed, the characters' 

karmic realizations, the efforts taken to redeem past 

wrongs, and the end results are wholly dissimilar. 

Notably, many of the most significant elements of 

Karma!'s plot do not have any counterpart in Earl - for 

example, the guiding role of Angel Man, the unborn child 

who stands to inherit Frankie's karma, the idea of a fallen 

cop getting back his [*81] integrity and "clearing his 

name" through undercover police work, the drug dealer 

antagonist, the love story with Toni Ann and her decision 

to turn her life around, and most significantly, Frankie's 

death and subsequent transformation into an angel. 

Moreover, as discussed below, the sequence of events in 

the two works bears little resemblance. As such, no 

reasonable jury could find that the plots of the two works 

is substantially similar. 

Plaintiff nonetheless urges the Court to adopt the 

analysis in Metcalf v. Bochco, 294 F.3d 1069 (9th Cir. 

2002). In Metcalf, the Ninth Circuit held that although 

individual elements of a work may not be protectable, 

"[t]he particular sequence in which an author strings a 

significant number of unprotectable elements can itself be 

a protectable element." 294 F.3d at 1074 (emphasis 

added). In Metcalf, however, the sequence of 

unprotectable elements went far beyond the basic plot. 

The Ninth Circuit found the similarities between the 

works "striking". Id. at 1073. The Ninth Circuit noted: 

[Both works] are set in overburdened 

county hospitals in inner-city Los Angeles 

with mostly black staffs. Both deal with 

issues of poverty, race relations and urban 

blight. [*82] The works' main characters 

are both young, good-looking, muscular 

black surgeons who grew up in the 

neighborhood where the hospital is 

located. Both surgeons struggle to choose 

between the financial benefits of private 

practice and the emotional rewards of 

working in the inner city. Both are 

romantically involved with young 

professional women when they arrive at 

Page 21


the hospital, but develop strong attractions 

to hospital administrators. Both new 

relationships flourish and culminate in a 

kiss, but are later strained when the 

administrator observe a display of physical 

intimacy between the main character and 

his original love interest. Both 

administrators are in their thirties, were 

once married but are now single, without 

children and devoted to their careers and 

to the hospital. In both works, the 

hospital's bid for reaccreditation is 

vehemently opposed by a Hispanic 

politician. 

Id, at 1073-74. In sum, the works had "the same 

setting in the same location and city . . . dealt with 

identical issues, had similar looking characters in 

identical professions, facing identical challenges" and had 

an "identical" sequence of events. Identity Arts v. Best 

Buy Enterprise Servs., No., 05-4656 PJH, 2007 U.S. Dist. 

LEXIS 32060, 2007 WL 1149155, at *27 (N.D. Cal., Apr. 

18, 2007) [*83] (summarizing the facts in Metcalf). The 

Ninth Circuit concluded that "the similarities proffered by 

the [plaintiffs] are not protectable when considered 

individually; they are either too generic or constitute 

'scenes a faire,' . . . . [h]owever, the presence of so many 

generic similarities and the common patterns in which 

they arise" allowed the plaintiff to satisfy the extrinsic 

test for purposes of summary judgment. Id. at 1074 

(emphasis added). 

Metcalf does not apply to the present case. In 

Metcalf, unlike this case, the "generic similarities" were 

voluminous, nearly identical, and occurred in the same 

pattern. Here, in contrast, many of the elements Plaintiff 

points out are not similar when viewed in context, and 

those that do bear some commonality - e.g., lottery 

winnings, prison time, paying off debts - do not occur in 

the same sequence. Plaintiff has not pointed to any 

common pattern of unprotected elements in Karma that 

also appears in Earl in the sort of magnitude 

contemplated by Metcalf. See Zella v. Scripps Co., 529 F. 

Supp. 2d 1124, 1138 (C.D. Cal. 2007) (noting that "many 

courts have been reluctant to expand [the concept [*84] 

of finding copyright protection for a pattern of 

unprotected elements in literary works] beyond the 

clear-cut case in Metcalf," and granting summary 

judgment for defendants where plaintiff "cobbled 

2010 U.S. Dist. LEXIS 77772, *82 

together" a list of generic elements that did not form a 

specific pattern); Flynn v. Surnow, No. CV 02-9058-JFW 

(PLAx), 2003 U.S. Dist. LEXIS 26973, 2003 WL 

23411877, *9 (C.D. Cal., Dec. 9, 2003) (rejecting a 

Metcalf argument where the similarities "are randomly 

scattered throughout the works and have no concrete 

pattern . . . in common"); Identity Arts, 2007 U.S. Dist. 

LEXIS 32060, 2007 WL 1149155, at *28 (declining to 

apply Metcalf where the works shared only a few 

"striking similarities" and, broadly speaking, a similar 

sequence of events; "the cumulative weight" of the 

alleged similarities paled in comparison to that in 

Metcalf). 23 

23 Metcalf is also distinguishable because in 

Metcalf the defendants conceded access to 

plaintiffs' work; thus, the inverse ratio rule 

applied. 294 F.3d at 1075. The Ninth Circuit held 

that this concession "strengthened considerably" 

plaintiffs' case. Id. In Rice v. Fox Broadcasting 

Co., 330 F.3d 1170, 1179 (9th Cir. 2003), the 

Ninth Circuit explicitly declined to apply Metcalf 

to a case in which no concession of [*85] access 

was made. The court held: "[H]ere we are not 

presented with the same pattern of generic 

similarities as in Metcalf. And even more 

important, our decision in Metcalf was based on a 

form of inverse ratio rule analysis: the plaintiff's 

case was 'strengthened considerably by 

[defendants'] concession of access to their works'. 

. . . Here, there is no such concession of access as 

most of [plaintiff's] claims are based purely on 

speculation and inference." Id. at 1179 (internal 

citations omitted). As in Rice, here, there is no 

concession of access and the inverse ratio rule 

does not apply; thus, for this reason as well, 

Metcalf is not applicable. 

c. Sequence of Events 

Page 22 

Beyond the fact that both works contain a karmic 

realization, followed by the main character making 

amends for previous bad acts, the sequence of events in 

Karma! and Earl are considerably different. Karma! starts 

with Frankie's arrest and imprisonment, and proceeds, 

with guidance of Angel Man, to Frankie's redemption, his 

winning of the lottery, the clearing of his name, and his 

eventual death. Earl, in contrast, wins the lottery before 

his karmic realization. After winning, Earl gets hit by a 

car and loses the lottery [*86] ticket, only to have it

come back to him once he begins amending his past 

wrongs. Subsequently, each episode depicts Earl working 

through items on his list. 

For the most part, Karma! proceeds chronologically. 

Frankie has one flashback when he wins the $300 

scratcher ticket in which he sees Angel Man saying "use 

it wisely," and one flash-forward when Angel Man shows 

Frankie the future image of his unborn son. In contrast, 

Earl uses frequent flashbacks to depict the points in time 

when Earl committed the initial wrong. 

As such, the Court concludes that the sequences of 

events are not similar. 

d. Characters 


Both Karma! and Earl have leading male characters 

with flawed moral characters. There are some similarities 

between Earl and Frankie in that both start out as 

generally bad people and make attempts to turn their lives 

around; however, these character traits derive directly 

from the general themes of karma and redemption, which 

are not protectable. Beyond those idea-driven 

characteristics, Earl and Frankie are not similar. 

Frankie is an Italian-American and in his forties. He 

is a gritty character, filthy and prone to sarcasm. Before 

his redemption, Frankie is a serious criminal. As a cop, 

[*87] Frankie took bribes from a young 

African-American drug dealer. Frankie uses drugs, and 

knows several habitual drug users and dealers. 

Earl, on the other hand, is a white male in his thirties, 

but is a redneck type of character. Although Earl is 

unseemly, he is upbeat and friendly. He is generally 

well-liked by the other characters, and is often portrayed 

as the leader of his rag-tag crew of his friends. Earl is a 

petty thief, not a serious criminal. His prior bad acts 

range from blundering crimes - such as robbing a bank 

with a squirt gun - to petty mischiefs like making fun of 

persons with accents and rigging a high school football 

game. Earl does not use drugs. Unlike Frankie, Earl does 

not have a religious awakening. 

Plaintiff also compares Toni Ann and Joy. Toni Ann 

is 27 and attractive. She is a habitual drug user and 

dealer, and a struggling model. Tori Ann is sarcastic and 

tough, but has a good heart, and eventually turns her life 

around. 

2010 U.S. Dist. LEXIS 77772, *86 

Page 23 

Like Tori Ann, Joy is also in her twenties, is 

attractive, and has a sarcastic attitude. Other those general 

character traits, however, the women have little in 

common. 24 Joy is not a habitual drug user or dealer, nor 

is she a struggling model. [*88] Joy is a mother of two 

who lives in a trailer park and runs a nail salon out of her 

trailer. Unlike Tori Ann, Joy is an irredeemable character. 

She is manipulative and selfish, and often looks out for 

herself at the expense of others. 

24 These character traits - young, attractive, and 

sarcastic - are not protectable. Indeed, "young, 

attractive, and sarcastic" could be used to describe 

half of the women appearing on television and in 

films today. 

The role Tori Ann and Joy play in the works and 

their relationships with the main characters are extremely 

different. In Karma!, Tori Ann and Frankie start off as 

friends and gradually build a romantic relationship. At 

the end of the screenplay, the two are deeply in love and 

are portrayed as soul mates. Tori Ann respects and looks 

up to Frankie, who is much older than her, and is so 

inspired by Frankie's decision to turn his life around that 

she too embarks on her own journey of redemption. 

Frankie tells Tori Ann that he will share his lottery 

winnings with her so they can build a better life together. 

After his death, Frankie spends his days in the afterlife 

looking over Tori Ann. Angel Man tells Frankie that Tori 

Ann will soon join them in [*89] heaven. 

Joy, on the other hand, is far from Earl's soul mate. 

Joy and Earl got married while extremely drunk in Las 

Vegas. At the time they were married, Joy was already 

pregnant with another man's child, and soon thereafter 

she cheats on Earl, has a child with Crabman, and leaves 

Earl. Joy is a nuisance and an antagonist to Earl. Unlike 

Tori Ann, she is not inspired by Earl's good deeds; 

instead, she often works against Earl and pokes fun at his 

list and his efforts at redemption. Moreover, unlike in 

Karma!, where Frankie wants to share his lottery 

winnings with Tori Ann, Earl often takes pains to hide his 

lottery winnings from Joy, who is on a constant quest to 

steal Earl's money for herself. 

Plaintiff's argument that both Tori Ann and Joy know 

how to use a firearm actually demonstrates the significant 

difference between the two characters. While it is true 

that both women use a gun, Tori Ann uses the gun to try 

and save Frankie's life by shooting at Frankie's rival, 

James Randson. Joy, in contrast, uses the gun to try and

kill Earl so as to inherit his lottery winnings. In sum, the 

roles that Tori Ann and Joy play in each work and their 

relationships with the main characters bear [*90] nothing 

in common. 

The supporting cast in each work is not similar. 

Although both Frankie and Earl have brothers, Frankie's 

brother, Augustus, is an enlightened priest and a minor 

character in the screenplay. Earl's brother Randy, in 

contrast, is a prominent character who serves as Earl's 

dim-witted sidekick throughout the show. Unlike 

Augustus, Randy appears to have no religious 

convictions. Further, Shrimp and Crabman (a.k.a Darnell) 

are nothing alike. Shrimp is a crude, unintelligent "punk 

kid" who plays the partner-in-crime to a local drug 

dealer. In contrast, Crabman is a quiet and gentle friend 

of Earl's. He is extremely intelligent and possesses a near 

Zen-like calmness. Apart from being African-American 

and perhaps the same age, Crabman is nothing like 

Shrimp. 

Finally, there are several critical characters in 

Karma! that have no counterpart in Earl - most notably, 

Angel Man, Frankie's unborn son, and James Randson. 

e. Setting 


Although both works take place in the present, the 

geographic and physical settings of Earl and Karma! are 

different. Earl is set in a suburban town named Camden. 

In the first episode, Earl makes reference to the fact that 

they have to drive into "the city." [*91] Karma!, in 

contrast, takes place in slums of New York City. 

The physical settings are also different. In Karma!, 

the scenes are often set in dark and threatening locations, 

such as the subway, a deserted alley at night where 

Frankie is chased by a menacing dog, James Randson's 

house which is furnished with gothic paintings and filled 

with drug dealers, and the landfill where Frankie busts 

the climatic drug deal. The physical settings are for the 

most part gritty, dark, and somber, and reflect the 

dramatic mood of the screenplay. 

In Earl, on the other hand, the physical settings are 

not ominous or threatening. Earl and Randy live in a 

cheap but comfortable motel, and Joy lives in a kitschy 

trailer park. Each setting has quirky characteristics that 

are set up for laughs - for example, in the motel where 

Earl lives, the maid rinses out plastic cups to be reused by 

guests; at the Crabshack - a local eatery where Earl and 

2010 U.S. Dist. LEXIS 77772, *89 

his friends hang out - Randy plays the "claw" videogame 

machine to win a live mouse instead of one of the stuffed 

animals; at Joy's trailer park, recliners are only allowed 

on the front lawn if they match the color of the trailer. 

The settings in Earl are used to reinforce [*92] the 

light-hearted, silly mood of the series. There are no 

unique physical settings in Karma! that also appear in 

Earl. 25 

25 Plaintiff notes that both works have scenes 

that take place in a bar/restaurant. However, a bar 

or restaurant is not a unique copyrightable setting. 

Plaintiff notes that both works use rock music from 

the 1970s and 1980s in the background. However, the 

works do not use the same songs. Moreover, while the 

rock songs used in Plaintiff's work all relate to either the 

theme of karma or to religious themes - thereby 

reinforcing the religious undertones of the work - the 

rock songs used in Earl are not thematically similar to 

one another (e.g., compare Cindy Lauper's "Time After 

Time" and Lynyrd Skynyrd's "Steps"). Finally, the use of 

modern rock music in a work set in the present day is not 

a copyrightable expression. 

f. Mood and Pace 

Page 24 

Earl is paced as a television show, with half-hour 

long episodes. Each episode is structured in the same 

basic manner with Earl choosing which wrong he is 

going to remedy, and then taking the necessary steps to 

see it through. Earl also narrates each episode with 

flashbacks to the points in time in which he committed 

the initial bad act. [*93] The events in the first season 

occur over the span of several years' time, as Joy has an 

infant in the pilot episode (Crabman's baby), and in a 

later episode (Barn Burner), Joy's kids appear to be the 

age of school children. Further, some of Earl's flashbacks 

bring the audience back to a time where Earl was a young 

child. 

Karma!, on the other hand, is paced as a full-length 

feature film with the action reaching a crescendo at the 

end of the film. The entire screenplay unfolds over a 

matter of days, or at most weeks. There is only one 

flashback, and unlike in Earl, none of the characters act 

as a narrator. 

Earl is a comedy. The mood of the series is light and 

cheerful. The main character is witty and sarcastic and 

often finds himself in humorous situations. While in

some episodes, Earl attempts to remedy what would 

ordinarily be considered a serious wrong - for example, 

faking his own death - the events are always presented in 

a light-hearted and humorous way. 

Karma! is written as a dramatic action film with a 

few humorous moments. The little humor in Karma! 

comes from Frankie's sarcasm, but the situations 

themselves are not comical. Frankie's past wrongs are not 

made light of; instead [*94] they have the potential to 

ruin the life of his unborn child. For the most part Karma! 

is a serious depiction of Frankie's spiritual awakening and 

his redemption. 

g. Dialogue 


To support a claim of substantial similarity based on 

dialogue, the plaintiff must demonstrate "extended 

similarity of dialogue." Olson v. National Broadcasting 

Co., 855 F.2d 1446, 1450 (9th Cir. 1998). Ordinary 

words and phrases are not entitled to copyright 

protection, nor are "phrases or expressions conveying an 

idea typically expressed in a limited number of 

stereotyped fashions." Narell v. Freeman, 872 F.2d 907, 

911-12 (9th Cir. 1989). Here, the works have no similar 

dialogue. 

Plaintiff's work is riddled with street slang that 

echoes the rough and gritty nature of the characters and 

New York City generally. For example, when Frankie 

first sees the picture of the angel, he exclaims, "well Mr. 

Guardian angel where are you now?! I stole your buddies 

[sic] wallet right under his nose . . . . Shit! I'm hip to your 

shit!!" (Rubin Decl., Exh. D, pg. 82). Other examples 

include when street kids tell Frankie, "Look holmes! 

You're messin' with the wrong mother . . ." (Id. at 106.) 

or when James Randolph tells Sonny, "It's [*95] my 

money that . . . financed your bitches. . . . Good work 

Dawgs." (Id. at 169.) This hard-core street vernacular is 

unique to Plaintiff's work; it has no counterpart in Earl. 

Rather, the dialogue in Earl is principally sarcastic and 

witty. Every serious thought is followed up with a 

humorous quip, geared toward keeping the mood of the 

series light. The dialogue in the two works is not similar. 

Plaintiff points to several alleged similarities in 

dialogue; however, when the works are examined, these 

similarities prove to be nonexistent or insubstantial. For 

example, Plaintiff notes that in both works a supporting 

character tells Frankie and Earl that they are forgiven for 

a past misdeed. Although each character uses some 

2010 U.S. Dist. LEXIS 77772, *93 

Page 25 

variation of the word "forgive," this is a standard, 

ordinary word that is not entitled to copyright protection. 

Similarly, Plaintiff notes that in one scene, Frankie says 

"I'll be damned," while Earl says "Damn." These 

expressions are not the same, nor do they have the same 

meaning; regardless, these short phrases are not 

copyrightable. Third, Plaintiff points out that in Karma!, 

Frankie yells at Angel Man when he is frustrated with his 

journey to redemption, and Earl [*96] yells toward the 

sky at "karma" when he neglects his list and bad things 

happen to him. But the two characters do not use the 

same language, nor are the scenes otherwise similar. 

Finally, Plaintiff notes that each work contains 

several references to Catholicism. However, none of the 

references include the same words. More importantly, the 

references to Catholicism play different roles in each 

work. As discussed above, in Karma!, religion is an 

important backdrop for Frankie's transformation. The 

religious references demonstrate that Frankie initially 

does not believe in God, but as the story progresses, he 

begins to have faith in the power of God, and eventually 

enters the afterlife as an angel. As Frankie himself 

relates, Frankie turns his life around by the "grace of 

God." 

In Earl, on the other hand, the religious references 

are comedic and used to draw laughs. For example, most 

of the religious references Plaintiff points to occur in the 

episode "Quit Smoking." In that episode, Earl let his 

friend Donny take the fall for Earl's botched bank 

robbery, and when Donny goes to prison, he finds 

religion. Once Donny is released, Earl goes to Donny's 

house to make amends, and discovers that [*97] his 

former criminal friend is now a religious zealot. Donny's 

faith is portrayed as over-the-top and ridiculous - for 

example, Donny has a large tattoo of Jesus on his chest, 

and peers through the collar of his shirt to ask Jesus for 

advice. Donny also asks Earl if he would like to see that 

tattoo of Moses parting the red sea on Donny's buttocks, 

and Donny's mother has Earl read to her from a 

4-foot-thick Bible with enlarged print. In a later episode 

also featuring Donny, Donny says, "Oh, I want Jesus to 

see this," and unbuttons his shirt to reveal the tattoo. The 

remaining religious references are also used for comedic 

effect - e.g., Randy dresses as a nun, and Earl's father 

tells door-to-door missionaries that "for the last time, we 

already have a lord." Earl himself does not appear to be 

religious, nor does he take Catholicism seriously. In 

short, unlike in Plaintiff's work, the religious references

in Earl are not serious, and they bear no relation to Earl's 

karmic realization or his journey to be a better man. 

IV. CONCLUSION 


For the reasons stated above, the Court holds that 

Plaintiff has not introduced sufficient evidence, beyond 

pure speculation and conjecture, to establish a [*98] 

triable issue of fact regarding Defendants' access to 

Plaintiff's screenplay. Additionally, even assuming 

arguendo that there is a triable issue regarding access, no 

reasonable jury could conclude that Karma! and Earl are 

2010 U.S. Dist. LEXIS 77772, *97 

substantially similar. For these reasons, the Court 

GRANTS Defendants' Motions for Summary Judgment. 


DATED: 2/22/10 

/s/ Stephen V. Wilson 

STEPHEN V. WILSON 

UNITED STATES DISTRICT JUDGE 

Page 26


EXHIBIT 5


JOHN MANNICK, Plaintiff, v. KAISER FOUNDATION HEALTH PLAN, INC., et 

al., Defendants. 

No. C 03-5905 PJH 


CALIFORNIA 

SUBSEQUENT HISTORY: Reconsideration denied by, 

Motion granted by, Objection overruled by Mannick v. 

Kaiser Found. Health Plan, Inc., 2006 U.S. Dist. LEXIS 

57173 (N.D. Cal., July 31, 2006) 

PRIOR HISTORY: Mannick v. Kaiser Found. Health 

Plan, Inc., 2005 U.S. Dist. LEXIS 40405 (N.D. Cal., Dec. 

16, 2005) 

COUNSEL: [*1] For John Mannick, Plaintiff: Paul L. 

Rein, Law Offices of Paul L. Rein, Oakland, CA; J. Gary 

Gwilliam, Gilliam Ivary Chiosso Cavali & Brewer, 

Oakland, CA; Julie McLean, Patricia Barbosa, Law 

Offices of Paul L. Rein, Oakland, CA. 

For Kaiser Foundation Health Plan Inc., Kaiser 

Foundation Hospitals, Defendants: Janine Simerly, 

Francis J Torrence, Jennifer Svanfeldt, Kari Erickson 

Levine, Seyfarth Shaw LLP, San Francisco, CA. 

JUDGES: PHYLLIS J. HAMILTON, United States 

District Judge. 

OPINION BY: PHYLLIS J. HAMILTON 

OPINION 


ORDER GRANTING DEFENDANTS MOTION 

2006 U.S. Dist. LEXIS 38430 

June 9, 2006, Decided 

June 9, 2006, Filed 

FOR SUMMARY JUDGMENT AND DENYING 

PLAINTIFFS MOTION FOR SUMMARY 

JUDGMENT 

The parties cross-motions for summary judgment 

came on for hearing before this court on May 31, 2006. 

Plaintiff appeared by her counsel Patricia Barbosa, Paul 

Rein, and J. Gary Gwilliam. Defendants appeared by 

their counsel Kari Erickson Levine and Janine Syll 

Simerly. Having read the parties papers and carefully 

considered their arguments and the relevant legal 

authority, and good cause appearing, the court hereby 

GRANTS defendants motion and DENIES plaintiffs 

motion as follows 

BACKGROUND 

Page 1 

This is a disability access case, alleging violations of 

federal and state [*2] law. Plaintiff John Mannick suffers 

from advanced-stage multiple sclerosis, and requires the 

use of a wheelchair for locomotion. His left arm and both 

legs are immobile. In January 2003 he developed a viral 

infection that threatened to cause him to lose the use of 

his right arm -- his last functioning limb. He was 

hospitalized from January 2, 2003, through January 8, 

2003, in the medical-surgical ward at Kaiser Oakland 

Main Hospital ("Kaiser Oakland"). 

Kaiser Oakland is one of the oldest hospitals run by


defendants Kaiser Foundation Health Plan, Inc. and 

Kaiser Foundation Hospitals ("Kaiser" or "defendants"). 

The low-rise part of Kaiser Oakland was constructed in 

1956, and the hospital tower was completed in 1970. The 

hospital is currently licensed for 346 beds. 

In 1994 the California Legislature passed Senate Bill 

1953, an amendment to the 1983 Hospital Facilities 

Seismic Safety Act. S.B. 1953 required all hospitals in 

California to retrofit, rebuild, or close their general acute 

care inpatient hospital buildings by 2008 (subsequently 

extended to 2013) if the buildings did not meet strict new 

seismic safety standards. Because of the age of the Kaiser 

Oakland buildings, Kaiser determined [*3] that the 

seismic upgrades would be difficult or impossible to 

accomplish, and would also be prohibitively expensive. 

Kaiser initially determined to build a new hospital in 

Emeryville and close the Oakland facility. Kaiser 

purchased property in Emeryville and developed 

architectural plans, but abandoned that plan when the 

City of Oakland objected to Kaiser locating the hospital 

outside of Oakland. 

In 1996, Kaiser decided it would permanently close 

Kaiser Oakland hospital in three years. Kaiser began 

formulating plans for its hospitalized patient population 

to use available beds in other community hospitals, and 

for particular populations to be transferred to specific 

hospitals. Kaiser entered into an agreement with Alta 

Bates Hospital to utilize its available beds for Kaiser 

Oaklands women and children in-patient populations, and 

also arranged for Kaiser Oaklands pediatric intensive care 

service to be transferred to Childrens Hospital. Kaiser 

hoped to be able to transfer Kaiser Oaklands remaining 

pediatric services and its general adult services 

population to Summit Hospital, but that plan failed. In 

2000, Kaiser began planning associated with building a 

replacement hospital and keeping [*4] Kaiser Oakland 

open until the new facility was completed. 

As of January 2003, there were no patient rooms 

with wheelchair-accessible bathrooms and showers in 

Kaiser Oaklands medical-surgical wards (5th to 10th 

floors). At some point while plaintiff was hospitalized, 

his catheter (which he uses 24 hours a day) failed. He 

wanted to take a shower, but was unable to roll his 

wheelchair into the shower in the bathroom adjoining his 

room. The nurses offered to give him a bed bath, but he 

insisted on a shower. Hospital aides took him to a roll-in 

shower located in the old 4th floor maternity ward, where 

2006 U.S. Dist. LEXIS 38430, *2 

Page 2 

they helped him shower. Plaintiff was not satisfied, 

however, because he felt that the showers shelf-type 

bench was too narrow and slippery for safety. 

Plaintiff filed this action on December 31, 2003, 

alleging denial of access to public facilities in violation of 

Title III of the Americans With Disabilities Act, 42 

U.S.C. § 12181, et seq. (access to public accommodations 

and services operated by private entities); California 

Civil Code § 54 and § 54.1 (access to public 

accommodations by physically disabled persons); and 

California Health & Safety Code §§ 19955 , et seq. [*5] 

(access to public accommodations by physically 

handicapped persons); and seeking injunctive relief and 

damages. 

Plaintiff alleges that Kaiser discriminated against 

him by failing to provide him with an accessible patient 

room, and by failing to transfer him to a facility that had 

an accessible patient room. Plaintiff asserts that while the 

room he was given at Kaiser Oakland had a bathroom 

with a toilet and a shower, neither were 

wheelchair-accessible, and that the hospitals offer of a 

portable commode and bed-baths (by nurses) or a 

dangerous and inadequate shower in the old maternity 

ward instead of an accessible toilet and shower was 

discriminatory because it was based solely on his 

disability. He also asserts that the patient drop-off 

parking area was inadequately configured; and that there 

was inadequate disabled and van-accessible parking, and 

inadequate paths of travel from the parking areas to the 

hospital. 

The case was referred to a magistrate judge for 

settlement. The parties initially agreed to forego all 

formal discovery during the settlement discussions. 

Following a series of six settlement conferences, the 

parties submitted a proposed consent decree to the court 

[*6] on September 16, 2005. The proposed consent 

decree addressed only the issue of injunctive relief, not 

the issue of liability or the claims for damages or 

attorneys fees. 

On September 19, 2005, Kaiser filed a notice of 

substitution of counsel. On September 20, 2005, the court 

signed the consent decree. Pursuant to the consent decree, 

Kaiser agreed to perform extensive construction and 

restructuring to provide accessible bathrooms and 

showers in patient rooms on each of Kaiser Oaklands five 

patient floors.

Specifically, Kaiser agreed to create 75 accessible 

parking spaces, including 10 van-accessible spaces; 

accessible paths of travel from parking spaces to hospital 

entrances; accessible hospital entrances, with signage; 3 

fully accessible patient rooms, one to be completed by the 

end of 2005; and 3 fully accessible showers/restrooms for 

use by disabled patients assigned to rooms that are not 

otherwise fully accessible. Kaiser also agreed to evaluate 

the needs of disabled patients and to give them the option 

of transferring to another Kaiser facility for the term of 

their hospitalization, pending construction of the 

accessible rooms. 

The consent decree provides that defendants "do [*7] 

not admit liability to the allegations in Plaintiffs 

Complaint filed in this action," and that "[t] he parties 

have reached an agreement of the claims asserted by 

Plaintiff for the purpose of resolving this lawsuit without 

the need for protracted litigation, and without the 

admission of any liability." Consent Decree P 2. 

Additional relevant provisions of the consent decree are 

as follows: 

In order to avoid the costs, expense, and 

uncertainty of protracted litigation, the 

parties to this consent decree agree to 

entry of this Order to resolve all claims 

regarding the injunctive relief raised in the 

Complaint filed with the Court on 

December 31, 2003. Accordingly, they 

agree to the entry of this Order without 

trial or further adjudication of any issues 

of fact or law concerning plaintiffs claims 

for injunctive relief. 

Consent Decree P 4. 

This order shall be a full, complete, and 

final disposition and settlement of 

Plaintiffs claims against Defendants for 

injunctive relief that have arisen out of the 

subject Complaint. The parties agree that 

there has been no admission or finding of 

liability or violation of the ADA and/or 

California civil rights laws, and this [*8] 

Consent Decree should not be construed as 

such. Moreover, this Consent Decree 

cannot be used as evidence by Plaintiff to 

prove the damages portion of his case. 



2006 U.S. Dist. LEXIS 38430, *6 

The parties have not reached an 

agreement regarding Plaintiffs claims for 

statutory, actual, treble and personal injury 

damages in this matter, and for Plaintiffs 

claims for attorneys fees, litigation 

expenses and costs. These issues shall be 

the subject of further negotiation, 

litigation, or motion to the Court. 


[E] ach of the parties to this Consent 

Decree . . . releases and forever discharges 

each other Party . . . from all claims, 

demands, actions, and causes of action of 

whatever kind or nature, presently known 

or unknown, arising out of or in any way 

connected with this Lawsuit. 


Except for all obligations required in this 

Consent Decree, the parties intend that this 

Consent Decree apply to all conditions 

that existed at the subject facilities and all 

such further loss with respect to the 

Lawsuit, except those caused by the 

parties subsequent to the execution of this 

Consent Decree. Therefore, except for all 

such [*9] obligations required in this 

Consent Decree, this Consent Decree shall 

apply to and cover any and all claims, 

demands, actions and causes of action by 

the parties to this Consent Decree with 

respect to the Lawsuit, whether the same 

are known, unknown or hereafter 

discovered or ascertained. . . . 


Page 3 

On October 7, 2005, Kaisers new counsel filed a 

motion to stay the action and compel arbitration. That 

motion was denied on December 16, 2005. On February 

16, 2006, Kaiser filed another substitution of counsel. 

Each side now seeks summary adjudication on 

liability. Kaiser seeks summary adjudication on the 

question whether the Kaiser Oakland was obligated to 

provide plaintiff with a wheelchair accessible bathroom 

and shower. Plaintiff seeks summary judgment on all 

issues of liability.

DISCUSSION 

A. Legal Standard 


Summary judgment is appropriate when there is no 

genuine issue as to material facts and the moving party is 

entitled to judgment as a matter of law. Fed. R. Civ. P. 

56. Material facts are those that might affect the outcome 

of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 

242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). [*10] 

A dispute as to a material fact is "genuine" if there is 

sufficient evidence for a reasonable jury to return a 

verdict for the nonmoving party. Id. 

A party seeking summary judgment bears the initial 

burden of informing the court of the basis for its motion, 

and of identifying those portions of the pleadings and 

discovery responses that demonstrate the absence of a 

genuine issue of material fact. Celotex Corp. v. Catrett, 

477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 

(1986). Where the moving party will have the burden of 

proof at trial, it must affirmatively demonstrate that no 

reasonable trier of fact could find other than for the 

moving party. On an issue where the nonmoving party 

will bear the burden of proof at trial, the moving party 

can prevail merely by pointing out to the district court 

that there is an absence of evidence to support the 

nonmoving partys case. Id. If the moving party meets its 

initial burden, the opposing party must set forth specific 

facts showing that there is some genuine issue for trial in 

order to defeat the motion. See Fed. R. Civ. P. 56(e); 

Anderson, 477 U.S. at 250. 

"To show the existence [*11] of a genuine issue, . . . 

[a plaintiff] must produce at least some significant 

probative evidence tending to support the complaint." 

Smolen v. Deloitte, Haskins & Sells, 921 F.2d 959, 963 

(9th Cir. 1990) (quotations omitted). The court must view 

the evidence in the light most favorable to the 

non-moving party. United States v. City of Tacoma, 332 

F.3d 574, 578 (9th Cir. 2003). The court must not weigh 

the evidence or determine the truth of the matter, but only 

determine whether there is a genuine issue for trial. Balint 

v. Carson City, 180 F.3d 1047, 1054 (9th Cir. 1999). If 

the nonmoving party fails to show that there is a genuine 

issue for trial, "the moving party is entitled to judgment 

as a matter of law." Celotex, 477 U.S. at 323. Regardless 

of whether plaintiff or defendant is the moving party, 

each party must "establish the existence of the elements 

essential to [its] case, and on which [it] will bear the 

burden of proof at trial." Id. at 322. 

2006 U.S. Dist. LEXIS 38430, *9 

B. Title III of the ADA 

Page 4 

Plaintiffs ADA claims arise under Title III of the 

ADA, which prohibits discrimination against disabled 

individuals [*12] in any place of public accommodation. 

42 U.S.C. § 12182(a); Bird v. Lewis & Clark College, 

303 F.3d 1015, 1020 (9th Cir. 2002). Liability is imposed 

upon "any person who . . . operates a place of public 

accommodation" that discriminates against an individual 

on the basis of disability. Id. Aside from attorneys fees, 

the only remedy available to a private litigant under Title 

III of the ADA is injunctive relief. 42 U.S.C. § 

12188(a)(1); see also Wander v. Kaus, 304 F.3d 856, 858 

(9th Cir. 2002). 

In enacting the ADA, Congress adopted two systems 

for regulating building accessibility -- one to apply to 

facilities designed and constructed for occupancy before 

January 26, 1993, and one to apply to newly constructed 

or altered facilities. See 42 U.S.C. § 12183(a)(1) and § 

12182(b)(2)(A)(iv). Congress also directed the 

Department of Justice (DOJ) to issue regulations 

implementing Title III. 42 U.S.C. § 12186(b). The DOJ 

regulations are at Part 36 of 28 C.F.R. 

Only newly-constructed or altered facilities must 

comply [*13] with the ADA Accessibility Guidelines 

("ADAAG"), which were incorporated into the DOJ 

regulations as Appendix A of 28 C.F.R. Part 36. See 28 

C.F.R. § 35.151(c). When a facility is deemed "altered," 

the altered portion of the facility must be made accessible 

"to the maximum extent feasible." The infeasibility 

exception "applies to the occasional case where the 

nature of an existing facility makes it virtually impossible 

to comply fully with applicable accessibility standards. . . 

." 28 C.F.R § 36.402(c). 

The demand upon preexisting facilities that are not 

deemed altered is much less stringent. Existing facilities 

must remove architectural barriers to access only where 

such removal is "readily achievable." See 42 U.S.C. § 

12182(b)(2)(A)(iv). The term "readily achievable" means 

"easily accomplished and able to be carried out without 

much difficulty or expense." 42 U.S.C. § 12181(9); see 

also 28 C.F.R § 36.304(a) (preexisting facilities must 

remove barriers to accessibility only "where such 

removal is readily achievable, i.e., easily [*14] 

accomplishable and able to be carried out without much 

difficulty or expense"). The applicable regulations 

mandate that a public accommodation shall remove 

architectural barriers where such removal is readily


achievable and provide examples of steps to remove 

barriers, such as repositioning shelves, rearranging tables, 

chairs, vending machines, display racks, and other 

furniture, and widening doors. See 28 C.F.R. §§ 

36.304(a), (b). 

In determining whether an action is readily 

achievable, factors to be considered include -- 

(A) the nature and cost of the action 

needed under this chapter; 

(B) the overall financial resources of 

the facility or facilities involved in the 

action; the number of persons employed at 

such facility; the effect on expenses and 

resources, or the impact otherwise of such 

action upon the operation of the facility; 

(C) the overall financial resources of 

the covered entity; the overall size of the 

business of a covered entity with respect 

to the number of its employees; the 

number, type, and location of its facilities; 

and 

(D) the type of operation or 

operations of the covered entity, including 

the composition, [*15] structure, and 

functions of the workforce of such entity; 

the geographic separateness, 

administrative or fiscal relationship of the 

facility or facilities in question to the 

covered entity. 

42 U.S.C. § 12181(9)(A)-(D). 

Where an entity can demonstrate that the removal of 

a barrier is not readily achievable, discrimination also 

includes the failure to make such facilities available 

through alternative methods if such methods are readily 

achievable. 42 U.S.C. § 12182(b)(2)(A)(v). 

Although existing facilities are not required to 

comply with the ADAAG (unless they have been 

altered), the ADAAG nevertheless provides guidance for 

determining whether an existing facility contains 

architectural barriers. Parr v. L&L Drive-Inn Restaurant, 

96 F.Supp. 2d 1065, 1086 (D. Haw. 2000). However, 

deviations from the ADAAG are not necessarily 

determinative in establishing barriers to access. See 28 

2006 U.S. Dist. LEXIS 38430, *14 

C.F.R. Part 36, App. A, ADAAG 2.2. 

C. State Law Claims 

Page 5 

Plaintiffs state law claims arise under California 

Health & Safety Code § 19955, et seq., and the California 

Disabled Persons Act [*16] ("CDPA"), California Civil 

Code §§ 54, et seq. The purpose of § 19955 is to ensure 

that places of public accommodation constructed with 

private funds adhere to the accessibility standards in 

California Government Code § 4450. Government Code 

§ 4450 requires that all buildings constructed with public 

funds be accessible to and usable by the physically 

handicapped. It also directs the State Architect to develop 

standards for making buildings accessible to persons with 

disabilities. 

Under Government Code § 4450 and Health & 

Safety Code §§ 19955, et seq., affirmative conduct on the 

part of a public accommodation is required only for 

construction of new facilities or for the repair or 

alteration of existing facilities (constructed prior to July 

1, 1970), and then only to the area of specific alteration 

or repair. Cal. Health & Safety Code § 19955; Marsh v. 

Edwards Theatres Circuit, Inc., 64 Cal. App. 3d 881, 

888, 134 Cal. Rptr. 844 (1976), superceded by statute on 

another ground, see Hankins v. El Torito Rest., Inc., 63 

Cal. App. 4th 510, 521, 74 Cal. Rptr. 2d 684 (1998). 

Access guidelines with which public [*17] 

accommodations must comply are detailed in Title 24 of 

the California Code of Regulations. However, Title 24 

does not require that facilities constructed prior to July 1, 

1970, comply with its regulations unless and until the 

building is altered, and the Title 24 requirements apply 

only to the area of specific alteration. Cal. Code Regs. 

Title 24 § 1134B.1, 2. Moreover, the accessibility 

requirements of Title 24 are not triggered when a place of 

public accommodation makes an "[a] lteration solely for 

the purpose of removing barriers undertaken pursuant to 

[Title III of the ADA] or the accessibility requirements of 

[Title 24]." Cal. Code Regs. Title 24 § 1134B.2.1, 

Exception 3.6. 

Under the CDPA, "[i] ndividuals with disabilities or 

medical conditions have the same right as the general 

public to the full and free use of the streets, highways, 

sidewalks, walkways, public buildings, medical facilities, 

including hospitals, clinics, and physicians offices, public 

facilities and other public places." Cal. Civ. Code § 54(a). 

Further, "[i] ndividuals with disabilities shall be entitled

to full and equal access, as other members of the general 

public, to [*18] accommodations . . . places of 

accommodation, amusement, or resort, and other places 

to which the general public is invited." Cal. Civ. Code § 

54.1(a)(1). As of 1997, the CDPA incorporates by 

reference an individuals rights under the ADA. Cal. Civ. 

Code §§ 54(c), 54.1. Thus, a violation of the ADA also 

constitutes a violation of the CDPA. See Pickern v. Best 

Western Timber Cove Lodge Marina Resort, 194 F.Supp. 

2d 1128, 1130 (E.D. Cal. 2002). 

Unlike the ADA, however, the CDPA provides for 

the recovery of monetary damages, in the amount of three 

times the actual damages, but in no case less than $ 

1,000.00, "for each offense." Cal. Civ. Code § 54.3. A 

plaintiff need not prove actual damages in order to 

recover the minimum statutory amount; he only must 

establish that he was denied equal access on a particular 

occasion. Donald v. Cafe Royale, Inc., 218 Cal. App. 3d 

168, 180-81, 266 Cal. Rptr. 804 (1990). Moreover, there 

is no requirement under the CDPA that the plaintiff show 

intentional discrimination in order to recover damages. 

Org. for the Advancement of Minorities v. Brick Oven 

Rest., 406 F. Supp. 2d 1120 1129-30 (S.D. Cal. 2005); 

[*19] Donald, 218 Cal. App. 3d at 177-80. 

D. Defendants Motion 


Plaintiff asserts that Kaisers failure to provide at 

least one accessible patient room, at least one accessible 

bathroom, and at least one accessible shower as of the 

time he was a patient at Kaiser Oakland is a violation of 

Title III of the ADA as a matter of law. Defendants seek 

summary judgment on the claim that Kaiser violated the 

ADA and state law by failing to provide plaintiff with an 

accessible bathroom and shower in his patient room. 

To establish a prima facie case of violation of Title 

III of the ADA, a plaintiff must show that (1) he or she 

has a disability, (2) the business is a "public 

accommodation," and (3) that the plaintiff was denied full 

and equal treatment because of his or her disability. Parr, 

96 F.Supp. 2d at 1070. In the present case, there is no 

dispute that plaintiff is disabled, and that Kaiser Oakland 

is a place of public accommodation. The question is 

whether plaintiff was denied equal treatment because of 

his disability. 

To prevail in a claim of discrimination based on an 

architectural barrier, a plaintiff must show in addition that 

(1) the existing facility [*20] presents an architectural 

2006 U.S. Dist. LEXIS 38430, *17 

Page 6 

barrier prohibited under the ADA, and (2) the removal of 

the barrier is "readily achievable." Id. The plaintiff bears 

the burden of proving the existence of an architectural 

barrier and suggesting a method of removing the barrier 

that is readily achievable, or "easily accomplishable and 

able to be carried out without much difficulty or 

expense." 42 U.S.C. § 12181(9), § 12182(b)(2)(A)(iv); 

see also Pickern v. Holiday Quality Foods Inc., 293 F.3d 

1133, 1135 (9th Cir. 2002); Hubbard v. Twin Oaks 

Health and Rehab. Ctr., 408 F.Supp. 2d 923, 929 (E.D. 

Cal. 2004). If plaintiff satisfies this burden, the burden 

then shifts to the defendants, who bear the ultimate 

burden of proving that the suggested method of removal 

is not readily achievable. 42 U.S.C. § 12182(b)(2)(A)(v); 

Colorado Cross Disability Coalition v. Hermanson 

Family Ltd. Partnership I, 264 F.3d 999, 1002-03 (10th 

Cir. 2001); Hubbard, 408 F.Supp. 2d at 929. The parties 

do not dispute the existence of architectural barriers in 

Kaiser Oakland. The question [*21] is whether the 

removal of those barriers was "readily achievable." 

Defendants provide a brief history of Kaisers 

response to the passage of the ADA, 1 detailing the 

creation of a task force to implement Kaisers plan for 

ADA compliance. Edward Denton ("Denton"), the chair 

of the task force and a registered architect, states in a 

declaration that the planning team surveyed all of Kaisers 

hospital space, and determined that the estimated cost to 

remove all identified barriers in Kaisers Northern 

California facilities would be in excess of $ 23 million. 

Kaiser then prioritized all its remediation work, and 

focused on removing what it considered the "significant 

impediments" to accessibility. Kaiser also met with the 

disabled community to obtain their input and agreement 

regarding the best use of resources to remove the barriers 

that significantly impeded access. 

1 The ADA became effective on July 26, 1992. 

See Pub.L. No. 101-336, Title I, § 108, 104 Stat. 

337 (1990). 

According to Denton, who was employed [*22] by 

Kaiser Permanente in various capacities from 1983 to 

1998, Kaiser Oakland completed a number of these 

prioritized projects, starting in 1995. Kaiser employees 

Bettie Coles ("Coles" -- a Vice President and Area 

Manager responsible for the operation of Kaiser 

Oaklands medical center, including the hospital tower, 

and three other East Bay medical centers) and Judy L. 

Rowe ("Rowe" -- a licensed architect responsible for all


non-replacement Hospital "capital projects" 2 over $ 

25,000 in the East Bay) state in their declarations that 

Kaiser determined that the removal of patient 

toilet/shower barriers in Kaiser Oakland was not readily 

achievable due to extensive restructuring required and the 

substantial impact on hospital operations as a result of the 

loss of patient beds. Because the hospital facility was 

scheduled for replacement by 2012, the Kaiser Facilities 

Services Capital Projects Group team determined that the 

extensive restructuring required to make patient rooms 

accessible was not readily achievable. 

2 According to Rowe, hospitals in California 

cannot undertake any construction unless they 

first obtain a permit from the Office of Statewide 

Healthcare Planning -- "OSHPD." The term 

"capital projects" refers to such construction 

projects. 

[*23] Kaiser was sued in 2000 by Disability Rights 

Advocates ("DRA"), regarding issues relating to the 

height of examining tables and the accessibility of scales 

and other medical equipment in all Kaiser hospitals. 

According to Shari Samuels ("Samuels"), who worked 

for Kaiser from 1995 through July 2005 in various 

capacities, and who was the ADA Program Manager 

responsible for overseeing Kaisers efforts to comply with 

the settlement agreement reached in the DRA case, 

Kaiser worked with DRA during this period to implement 

a realistic barrier removal plan. 

In the present motion, defendants argue that because 

Kaiser Oakland was constructed prior to the passage of 

the ADA, the question whether Kaiser had a legal 

obligation in 2003 to provide plaintiff with an accessible 

bathroom necessarily requires an analysis of whether 

there was any "trigger" (construction in or alteration to 

the patient rooms in the medical-surgical ward) prior to 

plaintiffs stay in January 2003 that obligated Kaiser to 

make bathrooms and showers wheelchair accessible, and 

whether the barrier removal required to provide plaintiff 

with these accessible facilities was "readily achievable." 

Defendants contend that the evidence [*24] shows that 

there was no such "trigger," and that the alteration of the 

patient rooms to create accessible bathrooms and showers 

was not readily achievable. 

Defendants assert that simple alterations in one 

portion of a facility do not automatically make the entire 

facility subject to the new construction standards. They 

note that under 28 C.F.R. § 36.402(b)(1), normal 

2006 U.S. Dist. LEXIS 38430, *22 

Page 7 

maintenance, roofing, painting, asbestos removal, or 

changes to mechanical or electrical systems do not 

qualify as "alterations" unless they affect the usability of 

the building or facility. 

Defendants provide evidence showing that as of 

January 2002, the patient rooms in the medical-surgical 

wards at Kaiser Oakland had not undergone any 

alteration or modification that triggered new construction 

standards under federal or state law. Rowe, who reviewed 

all plans dating back to the original construction date of 

1970, verified that none of those plans involved 

construction, alteration, or repair of patient rooms on the 

medical-surgical floors, which would have triggered 

Kaisers obligation to provide plaintiff with an accessible 

toilet or shower during his January 2003 hospitalization. 

According [*25] to Rowe, of the three construction 

projects completed to date in the hospital tower, the first 

project involved conversion of an undersized labor room 

and associated spaces on the 4th and 5th floors; the 

second project involved construction, alteration, and 

structural repair of a number of patient rooms on the 4th 

and 5th floor of the maternity ward, which began in April 

2003 (after plaintiffs hospitalization) and was completed 

in 2004; and the third project involved creating a fully 

accessible patient room pursuant to the consent decree 

entered in the present litigation. 

Defendants provide additional supporting evidence 

on this point from Henry Scott ("Scott"), who was 

employed by Kaiser from 1987 until he retired in 1997, 

and who was the Title 24 Project Inspector for Kaiser 

Oakland from 1992 until 1997; and from Herb Clore 

("Clore"), who has been employed by Kaiser as an 

inspector since 1985, and who was the Lead Inspector of 

Record at Kaiser Oakland from 1989 through 1992. Both 

Scott and Clore state that as to the period each worked at 

Kaiser Oakland, there was no renovation of any patient 

room. 

Defendants also argue that it is plaintiffs burden to 

show that barrier removal is [*26] readily achievable 

under the ADA and California law. Defendants contend 

that plaintiff has not met his burden, and that the 

undisputed evidence shows that the creation of a fully 

accessible patient room was not readily achievable 

because it was too difficult and costly. 

In her declaration, Rowe discusses in detail the work 

necessary to create the accessible patient room that


defendants agreed to construct in accordance with the 

September 20, 2005, consent decree. Rowe states that in 

order to create the extra space necessary in the bathroom 

for an accessible shower in a patient room, it was 

necessary to enlarge the patient room, which required 

taking space from adjacent rooms. In addition, work had 

to be done on the ceiling of the room under construction 

as well as the ceiling of the room below because of the 

anchorage required to the necessary above-ceiling 

modifications, such as lights, ductwork, and HVAC. As 

well, the below-floor work involved plumbing 

modifications and noise disruption. The total cost of the 

work exceeded $ 600,000. 

Defendants also argue that the removal of barriers 

was not readily achievable based on the impact on 

hospital operations occasioned by the attendant [*27] 

loss of licensed patient beds. Rowe explains that during 

the period of construction of the one completed 

accessible room, four licensed patient beds were rendered 

temporarily unusable. In addition, the remodeling 

permanently eliminated one patient bed. According to 

Coles, the loss of any hospital beds is particularly 

significant at Kaiser Oakland because the hospital runs a 

high occupancy rate. Thus, Coles asserts, any loss of beds 

negatively impacts the operations of the hospital. 

With regard to the discrimination claim, defendants 

assert that they did not discriminate against plaintiff 

because bed baths and bedside commodes are common 

"facilitations" for disabled patients. They note that under 

42 U.S.C. § 12182(b)(2)(A)(iv)-(v) and 28 C.F.R. § 

36.305(a), where a public accommodation demonstrates 

that a particular barrier removal is not "readily 

achievable," a place of public accommodation must make 

its services and facilities available through alternative 

methods, if those methods are readily achievable. They 

note in addition, however, that under 42 U.S.C. § 

12182(b)(2)(A)(ii)-(iii), policies and procedures [*28] 

need not be modified, and auxiliary aids need not be 

provided, if doing so would "fundamentally alter" the 

services or accommodations being offered or would 

result in an undue burden. 

Defendants argue that the hospital provides bed baths 

as an alternative "facilitation" to barrier removal. They 

provide evidence showing that bed baths are a standard 

medical means of washing numerous patients -- not only 

those who are disabled under the definition set forth in 

the ADA -- and as such, are part of standard nursing 

2006 U.S. Dist. LEXIS 38430, *26 

Page 8 

practices. Similarly, they provide evidence showing that 

Kaiser provides bedside commodes as an alternative 

"facilitation" to many non-disabled patients, such as those 

who are unstable in the bathroom and will be safer if 

lifted onto a bedside commode. 

With regard to the alleged "transfer" policy, 

defendants contend that they did not transfer patients 

from Kaiser Oakland to other hospitals because of a lack 

of facilities to treat those patients, as plaintiff claims. 

Moreover, defendants assert, that no patient, including 

plaintiff, has ever requested a "transfer" away from 

Kaiser Oakland and that patients physician. Coles states 

in her declaration that patients were moved to [*29] 

other hospitals as part of the attempt to close Kaiser 

Oakland and build another hospital in lieu of completing 

the required seismic upgrades. Coles explains that 

arranging the transfer of a patient such as plaintiff to 

another facility would be difficult, and that any such 

transfer would have to be evaluated on a case-by-case 

basis. Defendants note that under 28 C.F.R. § 36.304 and 

App. B at § 36.304, it is best left to the public 

accommodation to determine whether any particular 

alternative facilitation is appropriate under the given 

circumstances, and argue that plaintiff was not entitled to 

the "facilitation" of his own choosing -- such as a transfer 

-- without any input from the hospital. 

In opposition to the motion, plaintiff asserts that 

defendants have admittedly spent millions of dollars to 

alter and renovate facilities at Kaiser Oakland. Plaintiff 

argues that these alterations and renovations obligated 

Kaiser to remove barriers in the patient rooms and to 

provide at least one fully accessible toilet and roll-in 

shower for patient use. Specifically, plaintiff contends 

that the 1993 renovations to the 4th/5th floor maternity 

ward triggered the [*30] obligation to provide access for 

all patients -- in the patient rooms and in parking, 

entrances, and paths of travel to the newly renovated 

patient rooms. 

Plaintiff asserts that defendants cannot demonstrate 

that renovation to at least one patient room was not 

readily achievable under the ADA, because Kaiser has 

more than $ 25 billion in assets, and operates 30 hospitals 

in California. Plaintiff also claims that defendants have 

demonstrated conclusively that barrier removal is feasible 

and "readily achievable" by entering into a consent 

decree in which they agree to remove barriers in three 

patient rooms and to construct fully accessible restrooms


and roll-in showers. Plaintiff also asserts that defendants 

failed to remove readily achievable "minor" barriers in 

the patient room, by, for example, modifying door 

handles. thresholds, and doors. 

Plaintiff disputes defendants claim that providing 

three accessible patient rooms would seriously impact 

hospital operations, based on the high occupancy rate at 

Kaiser Oakland, and based on the fact that most of the 

rooms are three-bed rooms. Plaintiff contends that the 

impact could be minimized by staggering the work 

(presumably meaning that [*31] Kaiser could work on 

one room at a time). 

With regard to the discrimination claim, plaintiff 

argues that he was "confined to bed" during his 

hospitalization solely as a result of defendants 

discrimination-based policies. He claims that the hospital 

did not have a usable lift to move him from his bed to his 

wheelchair, and that he had to get his wife to go home 

and get a sling so the lift would work. He argues that 

what defendants refer to as "standard operating 

procedures" -- use of portable commode or bed pan 

instead of regular toilet, and bed baths instead of access 

to shower -- are really "lesser facilities" and unequal 

treatment, which violate the ADA. 

Plaintiff asserts that defendants established a policy 

that is discriminatory on its face by classifying all 

mobility-disabled patients as "bed-bound" and "confined 

to bed" solely based on their disability, for the purpose of 

depriving them of accessible toilets and roll-in showers. 

He argues that defendants "nursing care" policy for 

disabled patients (use of bed baths and bedside 

commode) was disability-based discrimination and was 

not based on an evaluation of the plaintiffs individual 

needs. 

The court finds that defendants [*32] motion must 

be GRANTED. Kaiser Oakland was a "pre-existing 

facility," and the undisputed evidence provided by 

defendants shows that there was no alteration or 

remodeling of the patient rooms that triggered an 

obligation to provide an accessible patient room on one 

of the medical-surgical floors. The 1993 remodeling of 

the 4th/5th floor labor/delivery rooms did not trigger any 

obligation with regard to the patient rooms on the 

medical-surgical floors. Moreover, even if it had, the 

undisputed evidence shows that a renovation of a 

medical-surgical patient room to include a fully 

accessible bathroom was not "readily achievable," given 

2006 U.S. Dist. LEXIS 38430, *30 

Page 9 

the cost of the renovation and the impact on hospital 

operations. 

Defendants have established that the actual and 

direct cost of modifying one patient room to create an 

accessible bathroom is in excess of $ 600,000, which is 

far from a small expense. They have also shown that the 

extensive work required for such modification would 

have a significant impact on hospital operations. The fact 

that defendants agreed in the consent decree to do the 

work does not establish that defendants had any liability 

under the ADA for not doing the work prior to plaintiffs 

[*33] hospitalization, as the consent decree by its terms 

cannot be used to establish liability. 

The court finds further, however, that it is not 

necessary for defendants to establish that the creation of 

an accessible patient room was not "readily achievable," 

because plaintiff has not met his burden of showing that 

barrier removal was readily achievable. The amount of 

Kaisers overall financial resources is only one of the 

factors to be considered. Moreover, the "revenue" figure 

cited by plaintiff is not relevant for an analysis under the 

"readily achievable" standard because it is a total gross 

figure and does not account for expenses such as 

employee salaries, capital expenditures, and hospital 

costs. 

Plaintiff has failed to incorporate the other factors 

into the calculus, such as the expense and difficulty of 

removing the barriers, the impact of barrier removal on 

Kaisers ability to provide medical care to its patients, and 

whether the existing facilitys alterations were made 

solely for the purpose of removing accessibility barriers. 

Plaintiff attempts, in the declaration of his consultant 

Arthur Shorr filed in opposition to defendants motion, to 

rebut the statements of defendants [*34] witnesses 

regarding the impact of the barrier removal on hospital 

operations. However, Shorr is an outside consultant, who 

doesnt work at Kaiser and lacks the personal knowledge 

of defendants witnesses, and his effort is directed at 

discounting the methodology used by defendants 

witnesses -- for example, what percentage occupancy is 

usual at Kaiser Oakland, and what effect the loss of a 

certain number of patient beds would have on hospital 

operations -- rather than being positively directed at 

establishing that barrier removal would be "readily 

achievable." 

In view of plaintiffs failure to meet his burden of

coming forward with evidence to show that creating an 

accessible patient room was readily achievable, 

defendants are under no obligation to prove the 

affirmative defense that barrier removal is not readily 

achievable. See Colorado Cross, 264 F.3d at 1002-07. 

Nor has plaintiff established that Kaisers alternative 

"facilitation" is discriminatory. Although plaintiff claims 

that it is Kaisers policy to define all disabled individuals 

as "confined to bed," the evidence shows that every 

patient that comes into Kaiser receives an 

"interdisciplinary care plan," which [*35] involves an 

assessment, on admission, of a patients needs by a nurse. 

Coles explains that the medical needs of every patient are 

determined through this care plan, and that it is the 

medical needs of the patient that dictate whether the 

patient will use a commode, a bed pan, or the toilet, or 

will be given a bed bath. 

The evidence shows that all patients are treated 

equally, in that each is evaluated based on his or her 

mobility, and may then be confined to bed based on that 

assessment. Based on this mobility assessment, plaintiff 

was categorized a "total assist" patient with respect to 

hygiene needs, and a "high injury risk" because of his 

limited mobility. Because of this, he was not medically 

permitted to use the toilet. 

Nor was Kaisers failure to transfer plaintiff to 

another facility discriminatory. First, there is no evidence 

that plaintiff ever requested a transfer. Second, there is no 

evidence that Kaiser Oakland had a "policy" of 

transferring patients to other facilities. What plaintiff 

interprets as such a policy was simply part of Kaisers 

plan to move its patient populations to other facilities in 

preparation for the demolition of Kaiser Oakland. Third, 

defendants have [*36] provided evidence showing that 

transfers, in general, are difficult and not "readily 

achievable." 

Plaintiffs argument regarding removal of barriers to 

paths of travel is outside the scope of defendants motion. 

E. Plaintiffs Motion 


Plaintiff seeks summary judgment on his claim that 

Kaiser discriminated against him by failing to provide 

him with an accessible patient room, by offering him a 

bed bath and a portable commode instead of a fully 

accessible bathroom, and by failing to transfer him to 

another facility; and his claim that Kaiser violated the 

2006 U.S. Dist. LEXIS 38430, *34 

Page 10 

ADA and state law by failing to provide at least one fully 

accessible patient room. This motion is DENIED, 

because the defendants motion on the same issues has 

been granted. 

Plaintiff also contends that Kaiser violated the ADA 

and state law by failing to provide an accessible roll-in 

shower in the remodeled bathroom on the 4th floor 

maternity ward, and by failing to remove architectural 

barriers, in connection with parking, building entrances, 

and paths of travel. Plaintiff claims that Kaiser made 

millions of dollars worth of renovations and alterations to 

Kaiser Oakland between 1992 and 2002, but failed to 

provide accessible parking, [*37] entrances, or paths of 

travel. 

Plaintiff asserts, based on an analysis by his 

consultant Robert Johnson ("Johnson" -- a forensic 

economist), that Kaisers overall 2003 financial resources 

were in excess of $ 25 billion, with net income (after 

taxes and expenses) of more than $ 1 billion. Based on 

these facts regarding Kaisers financial condition, and 

based on Johnsons opinion that Kaiser could easily afford 

the renovation, plaintiff argues that the removal of the 

barriers was "readily achievable." 

Plaintiff also argues that the Kaiser defendants 

denied plaintiff "full and equal access" to their public 

facilities in violation of Civil Code § 54.1 as a matter of 

law by constructing and altering their public facilities 

without providing accessible parking, entrances, and 

paths of travel. He asserts that although defendants have 

altered and renovated their medical facilities and parking 

lots many times since 1982, the two largest patient 

parking garages and the parking lot for hospital discharge 

do not, as of the time of this motion, provide the disabled 

with a fully compliant van-accessible parking space. 

Plaintiff claims that evidence shows that Kaiser 

undertook alteration and construction [*38] at Kaiser 

Oakland at a cost in excess of $ 8 million dollars between 

1992 and 2002, but made no provisions for accessible 

parking and paths of travel. Plaintiff also asserts that the 

evidence shows that Kaiser undertook a $ 9 million 

construction upgrade project in several departments in the 

hospital and surrounding medical buildings in 1995, and 

also made alterations or renovations to the Howe Street 

garage in 1995, all of which plaintiffs expert claims 

triggered access not only to the altered areas, but to the 

public restrooms, entrances, parking, and paths of travel 

to the altered areas. Plaintiff contends that Kaiser made a


"business decision" not to construct the required 

accessibility upgrades at the time of the 

renovation/alteration to the building, and even went so far 

as to mislead the inspectors from the State. 

In opposition, defendants argue that pursuant to the 

terms of the consent decree, plaintiff waived all barrier 

claims (claims for injunctive relief) that were not raised 

in the complaint or were not identified in the consent 

decree. 3 Thus, defendants assert, plaintiff is barred from 

using the consent decree to establish that any barrier 

removal was "readily achievable, [*39] " and is also 

barred from attempting to expand the scope of his 

complaint by complaining about additional barriers that 

he did not previously raise. 

3 Defendants contend that the following barriers 

mentioned by plaintiff in his moving papers, and 

identified by plaintiffs accessibility expert Peter 

Margen in his declaration, were not raised in the 

complaint and were not identified in the consent 

decree as items to be completed: 1) alleged 

inaccessible lifts and examination tables in the 

emergency room; 2) alleged inaccessible patient 

discharge areas, parking, and path of travel issues 

for buildings other than the hospital; 3) alleged 

inaccessible public restrooms in the hospital; and 

4) Kaisers allegedly discriminatory policy of 

transferring ob/gyn patients and pediatric patients 

to non-Kaiser facilities. 

Defendants argue that the only issue that remains in 

this action is liability for and damages stemming from the 

claims actually raised in the complaint, and which are 

subject to the remediation set forth in Attachment [*40] 

A to the consent decree. Thus, with regard to the removal 

of path-of-travel barriers, defendants argue that the only 

issues before the court are ones identified in the consent 

decree -- the accessible parking spaces in the Howe Street 

parking structures and the MacArthur/Broadway 

building; the policy for parking fees for disabled parking; 

the policy re paths of travel for accessible parking spaces; 

and the McArthur Blvd. entrance to the hospital. 

With regard to the van accessible parking, 

defendants note that plaintiffs own expert Peter Margen 

("Margen") states in his declaration that the Howe Street 

garage vehicular entrance has a vertical clearance of 610" 

at one entrance and 70" at the other, while the ADA 

requires an 82" clearance for vans. Thus, defendants 

contend, fully compliant accessible spaces cannot be 

2006 U.S. Dist. LEXIS 38430, *38 

Page 11 

created in this garage, and the barrier removal is therefore 

not "readily achievable." 4 

4 There are apparently van-accessible parking 

spaces in parking facilities other than the Howe 

Street garage. 

[*41] With regard to the issue of accessible path of 

travel from the parking lots to the hospital, defendants 

contend that plaintiffs argument rests on the mistaken 

assumption that every construction or renovation project 

undertaken in the hospital -- e.g., alterations to the 

pharmacy, the radiology department, and various medical 

departments such as orthopedics and cardiology -triggered 

path-of-travel obligations. However, defendants 

contend, the relevant inquiry is whether the alterations 

are sufficiently extensive and in a location that triggers an 

obligation to make the external paths of travel to the 

hospital fully accessible. 

Defendants argue that plaintiff has failed to establish 

the areas of remodel for several projects identified by 

Margen, or that all of these projects involved alterations 

or renovations to the hospital building. They also argue 

that plaintiff has not accounted for alterations made 

solely for the purpose of removing accessibility barriers, 

noting that under Cal. Code Regs, Title 24, 1134.B.2.1, 

ADA alterations are expressly excluded from triggering 

such obligations. 

With regard to the construction of a roll-in shower in 

the 4th floor maternity ward, defendants [*42] argue that 

plaintiff has provided no evidence that the shower was 

not ADA-compliant, and that the evidence of their expert 

shows that it was. 

In reply, plaintiff argues that the evidence shows that 

defendants made alternations to the hospitals maternity 

ward in 1993 that triggered an accessible shower; and 

that defendants made alternations to the parking lot and 

related facilities that triggered a van-accessible parking 

space and fully accessible paths of travel. 

Plaintiff argues that defendants failed to remove any 

of the barriers in the patient rooms, the parking lots, the 

patient discharge areas, or the paths of travel, and have 

failed to demonstrate that any particular barrier removal 

was "not readily achievable" under Title III standards. 

For example, he argues that defendants have provided no 

evidence that they evaluated the patient rooms in the 

hospital and remedied "readily achievable" barriers such


as door hardware, thresholds, or narrow doors. In 

addition, he claims that defendants agreement in the 

consent decree to remove the barriers demonstrates that 

such removal was "readily achievable" under Title III 

standards. He also contends that defendants violated the 

ADA and [*43] Cal. Code of Regulations Title 24 by 

altering the hospital and related facilities without making 

path-of-travel upgrades. 

The court finds that plaintiffs motion with regard to 

the 4th floor shower and with regard to barrier removal in 

parking areas and paths of travel must be DENIED. 

First, plaintiff provides no evidence that the 4th floor 

shower was not fully compliant. By contrast, defendants 

provide a declaration from their expert Marcus Hibser 

("Hibser"), a registered architect. Hibser states that the 

as-built drawings for the remodel of the 4th/5th floor 

maternity ward show that the shower was in accordance 

with ADA and Title 24 requirements. He also visited the 

hospital and examined the shower, and states that it 

appeared consistent with its "as-built" condition. 

As for the claim with regard to the parking areas and 

paths of travel, plaintiffs evidence is inconclusive. 

Margen identifies numerous construction projects that 

occurred in the hospital and its parking facilities over the 

years, and also identifies what he claims to be barriers 

and paths-of-travel issues in the parking areas, patient 

discharge areas, and hospital entrances. Plaintiff seems to 

be suggesting that any [*44] one of these construction 

projects would have been sufficient to trigger the 

obligation to add van-accessible parking and accessible 

paths of travel throughout the facility. However, he 

provides no authority for the proposition that this 

requirement would have been triggered by any 

construction at all (as opposed to construction in a 

specific area). 

Health & Safety Code § 19955 states that the 

requirement to upgrade existing facilities applies only 

when repair or alteration is made to such facilities, and 

then "[t] his requirement shall only apply to the area of 

specific alteration, structural repair, or addition, and shall 

not be construed to mean that the entire building or 

facility is subject to this [requirement]." See Marsh, 64 

Cal. App. 3d at 888. Plaintiff, however, has not 

established that the alleged deficient paths of travel are in 

the same specific area as certain alterations or repairs. 

Moreover, even if we assume for the sake of 

2006 U.S. Dist. LEXIS 38430, *42 

argument that some of these construction projects did 

trigger the requirement to clear paths of travel, plaintiff 

has not established exactly what defendants were 

required to do to remove the barriers, and has not 

provided [*45] evidence showing that those alternations 

would have been "readily achievable." It is not clear that 

plaintiff can establish liability for failure to remove 

barriers to paths of travel; nevertheless, defendants not 

having moved on this ground, the issue remains to be 

tried. 

Finally, with regard to the issue of van-accessible 

parking, it appears from the evidence provided by 

plaintiff that fully compliant van-accessible parking is not 

possible, given the vehicular clearances in the two 

entrances into the garage. Certainly it appears not 

"readily achievable." Triable issues of fact remain with 

respect to this part of plaintiffs motion. 

F. Objections to Evidence 

1. Defendants Objections to Plaintiffs Evidence 

(filed with defendants opposition) 

Defendants object to the admission of the 

declarations of plaintiffs experts Robert Johnson and 

Peter Margen. 

a. Declaration of Robert Johnson 

Page 12 

Defendants assert that the declaration of plaintiffs 

expert Robert Johnson must be disregarded as a whole, 

because Johnsons opinions go to the ultimate issue in the 

case -- whether barrier removal is "readily achievable" as 

a matter of law. 

Plaintiff asked Johnson to give an opinion as to 

whether [*46] the providing of one accessible hospital 

room at Kaiser Oakland as of January 2003 was "easily 

accomplishable and able to be carried out without much 

difficulty or expense." Johnson states in his declaration 

that "providing a single accessible patient room at Kaiser 

Oakland Hospital prior to January 2, 2003, would have 

been easily accomplishable and able to be carried out 

without much difficulty or expense, pursuant to the 

factors to be considered by the Court under the readily 

achievable provisions of the ADA." 

Defendants assert that expert testimony -- such as 

Johnsons -- that consists of legal conclusions cannot 

possibly assist the trier of fact in understanding the


evidence or in determining a fact in issue. See Fed. R. 

Evid. 702 (expert testimony admissible only if it will 

assist trier of fact in either understanding the evidence or 

determining a fact in issue). Defendants assert further that 

Johnsons testimony is irrelevant, immaterial, speculative, 

prejudicial, and inadmissible to prove that barrier 

removal was readily achievable. 

Defendants also contend that Johnsons testimony 

reflects an incorrect application of the applicable law, 

[*47] because he concludes that barrier removal is 

"readily achievable" based solely on the amount of 

Kaisers financial resources. Defendants note that the 

ADA requires the court to consider a number of factors, 

not just the financial resources of the public 

accommodation. Defendants also assert that Johnson has 

no construction background, and lacks all the facts, and is 

therefore not even qualified to express an opinion on 

what is "readily achievable" with regard to Kaiser 

Oakland. 

In response, plaintiff argues that Johnson is a 

qualified and experienced economist, whose 

qualifications defendants do not dispute. Plaintiff claims 

that it is not proper to object that an expert opinion goes 

to the ultimate issue in the case, arguing that under 

Federal Rule of Evidence 704, "testimony in the form of 

an opinion or inference otherwise admissible is not 

objectionable because it embraces an ultimate issue to be 

decided by the trier of fact." Plaintiff also disputes that 

Johnsons opinions are "legal conclusions." Plaintiff 

asserts that it is entirely proper for expert witnesses to 

give opinions that apply facts to the legal standard of the 

case. Plaintiff also [*48] submits that Johnson examined 

documents produced by defendants during discovery, and 

that he formed his opinion based on defendants financial 

ability to provide accessible facilities at Kaiser Oakland. 

Plaintiff claims that this is not an impermissible legal 

conclusion. 

The court finds that the objection must be 

SUSTAINED, to the extent that Johnsons opinions go to 

the ultimate issue of whether barrier removal is "readily 

achievable" as a matter of law. Plaintiff is correct that 

defendants have not provided a basis for a number of 

their objections, and in asserting that Rule 704(a) 

provides that opinion testimony is not objectionable 

simply because it embraces an ultimate issue to be 

decided by the trier of fact. However, defendants 

objection is based on Johnsons opinions with regard to 

2006 U.S. Dist. LEXIS 38430, *46 

ultimate legal conclusions, not ultimate factual issues. 

Testimony as to ultimate issues is not permitted when it 

consists of legal conclusions or opinions. Marx & Co. v. 

Diners' Club, Inc., 550 F.2d 505, 508-10 (2d Cir. 1977) 

cited in Traumann v. Southland Corp., 858 F.Supp. 979, 

985 (N.D. Cal. 1994)). 

Expert testimony is admissible when it will assist the 

[*49] trier of fact in understanding the evidence or 

determining a disputed issue of fact. See Fed. R. Evid. 

702; U.S. v. Hankey, 203 F.3d 1160, 1168 (9th Cir. 

2000). However, "resolving doubtful questions of law is 

the distinct and exclusive province of the trial judge." 

United States v. Brodie, 858 F.2d 492, 497 (9th Cir. 

1988), overruled on other grounds, U.S. v. Morales, 108 

F.3d 1031 (9th Cir. 1997). Accordingly, federal courts 

typically prohibit experts from interpreting the law for the 

court or from advising the court about how the law 

should apply to the facts of a particular case. Testimony 

"which articulates and applies the relevant law . . . 

circumvents the [fact finders] decision-making function 

by telling it how to decide the case." Specht v. Jensen, 

853 F.2d 805 (10th Cir. 1988). 

Here, the conclusion that barrier removal was 

"readily achievable" is a legal conclusion for the court to 

reach, based on a consideration of the relevant factors. 

b. Declaration of Peter Margen 

Page 13 

Defendants assert that the declaration of Peter 

Margen must be disregarded as a whole because Margens 

[*50] opinions go to the ultimate issue in the case -whether 

barrier removal was "readily achievable." 

Plaintiff asked Margen to give an opinion "as to the 

accessibility of certain public facilities at the Kaiser 

Hospital in Oakland . . . and to evaluate applicable state 

and federal laws and regulations for disabled access 

standards in places of public accommodation." Margen 

states in his declaration that Kaiser "triggered" ADA and 

state accessibility requirements by conducting certain 

alterations, constructions, and renovations, and is 

therefore in violation of those laws. He also concludes 

that particular barrier removals are "readily achievable." 

Defendants assert that Margens declaration is 

objectionable as a whole because it constitutes 

impermissible legal conclusion with regard to whether 

barrier removal was "readily achievable" (as discussed 

with reference to the Johnson Declaration).


Defendants also argue that Margens testimony with 

regard to whether Kaiser Oakland had any accessible 

patient rooms is based on inaccurate facts and constitutes 

impermissible legal opinion, and also is not based on 

personal knowledge as Margen did not review all the 

patient rooms; arguing that Margens [*51] testimony that 

bed pans and bed baths are not an accommodation that 

complies with the purposes and intent of the ADA is an 

impermissible legal opinion; arguing that Margens 

statements that Kaiser undertook renovations worth 

millions of dollars without providing required disabled 

access, that required corrections to the parking would not 

have been "too expensive or difficult for a party that has 

the financial resources of defendants," and that "all" the 

construction projects at Kaiser Oakland would have 

triggered path-of-travel upgrades, constitute 

impermissible legal opinion, are based on inaccurate 

facts, lack foundation, and are irrelevant. 

Defendants object further to Exhibits 2, 3, and 5-8 to 

the Margen Declaration, arguing that they are not 

admissible. They assert that Exhibit 2 (site map of Kaiser 

Oakland complex) has not been properly authenticated; 

that Exhibit 3 (Margens expert report) contains 

impermissible legal opinion and is speculative; that 

Exhibit 5 (construction project authorization forms) 

contains documents that are not relevant to the issues 

raised in the motion); that Exhibit 6 (unsigned internal 

memorandum re 1995 renovation project) is not relevant 

to any issue [*52] raised in plaintiffs motion; that 

Exhibit 7 (certificate of substantial completion) has not 

been properly authenticated; and that Exhibit 8 (architects 

plan for 2003 renovation of maternity ward) is not 

relevant to any issue raised in plaintiffs motion. 

In response, plaintiff makes the same arguments as 

he did with regard to the Johnson Declaration -- that 

Margen is a qualified expert, and that it is permissible for 

an expert to render an opinion that goes to the ultimate 

issue in a case. 

With regard to the objections to the exhibits, plaintiff 

responds that the documents were provided by defendants 

in discovery, and were authenticated by the declaration of 

plaintiffs counsel Julie McLean, who states that plaintiff 

obtained them in discovery. Plaintiff contends that these 

objections should be overruled because defendants did 

not object to the McLean Declaration. 

For the reasons stated above with regard to Johnson, 

defendants objection to Margens conclusion that the 

2006 U.S. Dist. LEXIS 38430, *50 

barrier removal was "readily achievable" is 

SUSTAINED, as is the objection to the statement that 

bed pans and bed baths are not an accommodation that 

complies with the purposes and intent of the ADA, and 

the objection [*53] to the statements that required 

corrections to the parking would not have been "too 

expensive or difficult for a party that has the financial 

resources of defendants," and that "all" the construction 

projects at Kaiser Oakland would have triggered 

path-of-travel upgrades. The objections to Exhibits 5, 6, 

and 8 are SUSTAINED, as plaintiff has not responded to 

those objections. The objections to Exhibits 2 and 7 are 

OVERRULED. See Maljack Prods., Inc. v. GoodTimes 

Home Video Corp., 81 F.3d 881, 889 n.12 (9th Cir. 1996) 

(documents produced by a party in discovery deemed 

authentic when offered by a party-opponent), cited in Orr 

v. Bank of Am., NT & SA, 285 F.3d 764, 777 n.20 (9th 

Cir. 2002). 

2. Plaintiffs Motions to Exclude Defendants 

Witnesses and Objections to Evidence (filed with 

plaintiffs opposition) 

a. Plaintiffs Motion to Exclude Witnesses 

Page 14 

Plaintiff claims that defendants originally disclosed 

six witnesses on April 22, 2004, and that they did not 

supplement the disclosure until April 18, 2006, when 

they added 40 previously undisclosed witnesses. Plaintiff 

also claims that defendants did not allow access to two 

storage facilities full of thousands [*54] of crucial 

documents until April 20 and 21, 2006. Plaintiff claims 

that defendants had previously refused to produce these 

documents, claiming that the documents were irrelevant 

or that production would be overly burdensome. 

Plaintiff asserts that these last-minute disclosures 

have prejudiced his ability to prepare his own summary 

judgment motion or to oppose defendants motion. 

Plaintiff seeks an order excluding all 40 newly-disclosed 

witnesses from testifying in connection with motions or 

at trial, and striking all declarations by those witnesses 

filed in connection with these motions for summary 

judgment. Plaintiff also seeks an order excluding any 

"previously withheld" documents. 

As stated at the hearing, a motion to exclude 

evidence as a discovery sanction must be brought within 

the applicable time limits as a separate motion, as 

provided under Federal Rule of Civil Procedure 37 and 

the Civil Local Rules of this court. Because plaintiffs


motion does not comply with those rules, the motion is 

DENIED. 

b. Plaintiffs Objections to Evidence 

Plaintiff argues that portions of the declarations of 

Bettie Coles, Judy Rowe, Edward Denton, Herb [*55] 

Clore, Henry Scott, Shari Samuels, and Nitasha Lal, all of 

which were filed in support of defendants motion, are 

inadmissible because they constitute "incompetent expert 

testimony." The objections are OVERRULED. The court 

finds that the testimony of each of these witnesses was 

made on personal knowledge. 

For example, Coles, as Vice President of Operations 

for Kaiser Oakland, has personal knowledge of the date 

the buildings were constructed, personal knowledge of 

the subsequent alterations to and remodeling of the 

buildings, and personal knowledge of Kaiser Oaklands 

efforts to comply with the ADA and Title 24. Similarly, 

Rowe, by virtue of her managerial position, has personal 

knowledge of the duties of the people who reported to 

her, personal knowledge of construction projects 

completed in compliance with the ADA, and personal 

knowledge of the process of remodeling a single patient 

room to install an accessible bathroom. Both state based 

on their own personal knowledge that there was no 

construction in or alteration to any of the patient rooms in 

the medical-surgical wards during the time they worked 

at Kaiser Oakland. Samuels also testifies based on 

personal knowledge, and authenticates [*56] documents 

that were produced to plaintiff. 

3. Plaintiffs Objections to Defendants Use of 

Previously Undisclosed Witnesses and Evidence and 

Objection to Evidence (filed with plaintiffs reply) 

a. Plaintiffs Objections to Use of Previously 

Undisclosed Witnesses and Evidence 

This is essentially a repeat of the plaintiffs motion to 

exclude witnesses, and is OVERRULED for the reasons 

stated above. 

b. Plaintiffs Objections to Evidence Raised by 

Defendants in their Opposition to Plaintiffs Motion 

Plaintiff argues that the declarations of defendants 

witnesses are filled with inadmissible evidence and 

should be stricken by the court. 

i. Declaration of Bettie Coles in Support of 

2006 U.S. Dist. LEXIS 38430, *54 

Defendants Opposition 

Page 15 

Plaintiff objects to the Coles declaration filed in 

support of defendants opposition to plaintiffs motion. He 

again argues that Coles is being offered as a lay witness, 

not an expert, and that the declaration should be stricken 

as "incompetent expert testimony," and as lacking in 

personal knowledge. For the reasons stated above, this 

objection is OVERRULED. 

ii. Declaration of Kari Levine in Opposition to 

Plaintiffs Motion 

Plaintiff contends that PP 1-9 of the declaration of 

defendants counsel [*57] Kari Levine -- this is the 

Levine opposition declaration -- should be stricken 

because it contains inappropriate legal argument 

regarding the substance of the pleadings in the case, the 

settlement agreement, and the legal significance of such 

documents. Plaintiff does not provide any specifics. 

Plaintiff argues that PP 10-38 of the Levine 

declaration contains self-serving, inaccurate, and 

inadmissible hearsay testimony regarding the history of 

discovery in this case. Plaintiff claims that "Ms. Levines 

history is incomplete and misleading," but provides no 

specifics, except to complain that Levine included her 

own letters to plaintiffs counsel, but not plaintiffs 

counsels response. Plaintiff also asserts that as Levine 

and the Seyfarth firm only began representing defendants 

in February 2006, she can have no personal knowledge 

regarding any discovery events prior to that time. These 

objections are OVERRULED. Plaintiff has provided no 

specifics regarding how the declaration is inaccurate or 

misleading. 

iii. Exh. T to the Levine Declaration in Opposition to 

Plaintiffs Motion 

Plaintiff objects to the admission of Exh. T to the 

Levine declaration. This is plaintiffs second objection 

[*58] to the same Bettie Coles declaration filed in 

support of defendants motion, discussed above. This 

objection is OVERRULED. 

4. Plaintiffs Objections to Defendants Use of New 

Arguments and New Evidence in Support of Defendants 

Reply on Defendants Summary Judgment Motion (filed 

one week after the filing of the reply briefs) 

In what amounts to a surreply, filed without leave of


court, plaintiff argues that defendants introduced a new 

theory in their reply -- that there was a fully accessible 

shower built in the 4th floor labor/delivery area when 

those rooms were remodeled in 1993, and that the shower 

to which plaintiff was taken was therefore fully 

accessible. Plaintiff claims that previously defendants 

have always argued that they had no legal obligation to 

provide an accessible shower to plaintiff and that they 

instead offered him a bed bath, and that even though the 

shower they took him to was not accessible, there was no 

ADA violation. 

Plaintiff asserts that now, with the declaration of 

defendants expert Marcus Hibser filed with defendants 

reply, defendants have come up with this entirely new 

theory, which is that the maternity floor shower was 

accessible. Plaintiff argues [*59] that defendants should 

not be permitted to raise this new theory in a reply brief, 

and also asserts that Hibsers opinion is not reliable based 

on his review of the "as-built" plans, not on any viewing 

of the shower itself. Thus, according to plaintiff, because 

Hibser never saw the shower, he cannot honestly say, as 

he does in his declaration, that the roll-in shower 

constructed in 1993 "is the exact roll-in shower in which 

[p] laintiff was showered during his hospitalization stay." 

Plaintiff also asserts that the plans Hibser reviewed show 

the existing conditions prior to the renovations, and then 

2006 U.S. Dist. LEXIS 38430, *58 

show the proposed changes, but do not show what was 

actually built. 

In addition, plaintiff claims that when his counsel 

requested the opportunity to examine the shower with 

plaintiffs expert in December 2003, they were told that 

the whole area was being remodeled again, and that the 

shower had been "gutted" and no longer existed in its 

previous state. Plaintiff asserts that defendants reply brief 

states that the same shower has been in existence since 

1993, and that the Hibser declaration "suggests" the 

same, and argues that it is not fair that his counsel were 

denied the opportunity to [*60] see the shower. 

As stated at the hearing, this "objection" constitutes 

an improper argument raised in response to a reply brief 

without leave of court. Accordingly, the objection is 

OVERRULED, and the surreply is stricken, as is 

defendants response to the surreply. 


Dated: June 9, 2006 

PHYLLIS J. HAMILTON 


Page 16


EXHIBIT 6



SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. MARK LESLIE, et 

al., Defendants. 

Case Number C 07-3444 


CALIFORNIA, SAN JOSE DIVISION 

COUNSEL: [*1] For Securities And Exchange 

Commission, Plaintiff: Richard Hong, LEAD 

ATTORNEY, Alvin David Williams, U.S. Securities and 

Exchange Commission, Washington, DC; Jeffrey B. 

Finnell, Melissa A. Robertson, Scott W. Friestad, 

Secirities And Exchange Commission, Washington, DC; 

Richard B. Skaff, US Securities & Exchange 

Commission, Division Of Enforcement, Washington, DC. 

For Mark Leslie, Defendant: Douglas R. Young, William 

Patrick Keane, LEAD ATTORNEYS, Farella Braun & 

Martel LLP, San Francisco, CA; Anthony Paul 

Schoenberg, Farella Braun + Martel LLP, San Francisco, 

CA. 

For Kenneth E. Lonchar, Defendant: Danielle P. Van 

Wert, Robin A LinsenmayerColeman, Susan Diane 

Resley, Orrick, Herrington & Sutcliffe LLP, Menlo Park, 

CA; Elizabeth Cincotta McBride, Orrick Herrington, 

Menlo Park, CA; Rebecca Felice Lubens, Orrick, 

Herrington & Sutcliffe LLP, San Francisco, CA. 

For Paul A. Sallaberry, Defendant: Jahan Pierre Raissi, 

LEAD ATTORNEY, Greg S. Farano, Joseph Vincent 

Mauch, Robert E. Schaberg, Shartsis Friese LLP, San 

Francisco, CA. 

JUDGES: JEREMY FOGEL, United States District 

Judge. 

2010 U.S. Dist. LEXIS 76826 

July 29, 2010, Decided 

July 29, 2010, Filed 

OPINION BY: JEREMY FOGEL 

OPINION 

Page 1 

ORDER 1 (1) DENYING MOTION TO SEVER; (2) 

GRANTING IN PART AND DENYING IN PART 

DEFENDANTS' MOTIONS TO EXCLUDE EXPERT 

[*2] TESTIMONY; (3) GRANTING IN PART AND 

DENYING IN PART DEFENDANTS' MOTIONS FOR 

SUMMARY JUDGMENT AND PARTIAL SUMMARY 

JUDGMENT; AND (4) GRANTING SUMMARY 

JUDGMENT IN FAVOR OF LONCHAR AND 

SALLABERRY WITH RESPECT TO THE SEC'S 

REQUEST FOR DISGORGEMENT 

1 This disposition is not designated for 

publication in the official reports. 

[re doc. nos. 183, 186, 191, 192, 197, 200, and 206] 

The United States Securities Exchange Commission 

("SEC") brings this civil action against Defendants Mark 

Leslie ("Leslie"), Kenneth Lonchar ("Lonchar"), and Paul 

Sallaberry ("Sallaberry"). 2 Defendants are former 

officers, directors, or executives of Veritas Software 

Corporation ("Veritas"), a California corporation with 

common stock registered with the SEC during the period 

at issue herein. 3 The SEC asserts six claims for relief: (1) 

fraud in connection with the offer or sale of Veritas stock,


in violation of § 17(a) of the Securities Act; 4 (2) fraud in 

connection with the purchase or sale of Veritas stock, in 

violation of § 10(b) of the Exchange Act and Exchange 

Act Rule 10b-5; 5 (3) record-keeping violations of § 

13(b)(5) of the Exchange Act and Exchange Act Rule 

13b2-1; 6 (4) internal control violations of § 13(b)(5) 

[*3] of the Exchange Act and Exchange Act Rule 

13(b)(2)(B); 7 (5) lying to auditors, in violation of 

Exchange Act Rule 13b2-2; 8 and (6) aiding and abetting 

reporting violations of §§ 13(a) and 13(b)(2)(A) of the 

Exchange Act and Exchange Act Rules 12b-20, 13a-1, 

13a-11, 13a-13 and 13b2-1. With the exception of the 

fourth claim, which is asserted against Lonchar only, 

each of these claims is brought against all Defendants. 

2 Michael Cully and Douglas Newton, who were 

named in the SEC's original complaint, have 

settled and no longer are parties to this action. 

3 Veritas was acquired by Symantec Corporation 

on July 2, 2005. 

4 15 U.S.C. § 77q(a) (Securities Act Section 

17(a)). 

5 15 U.S.C. § 78j(b) (Exchange Act Section 

10(b)) and 17 C.F.R. § 240.10b-5 (Exchange Act 

Rule 10b-5). 

6 15 U.S.C. § 78m(b)(5) (Exchange Act Section 

13(b)(5)) and 17 C.F.R. § 240.13b2-1 (Exchange 

Act Rule 13b2-1). 

7 15U.S.C. § 78m(b)(5) (Exchange Act Section 

13(b)(5)). The SEC also alleges that Lonchar 

aided and abetted violations of 15 U.S.C. § 

78m(b)(2)(B) (Exchange Act Section 

13(b)(2)(B)). 

8 17 C.F.R. § 240.13b2-2 (Exchange Act Rule 

13b2-2) 

The SEC seeks an order that Defendants be: (1) 

permanently enjoined from directly or indirectly [*4] 

violating various provisions of the Exchange Act and 

Exchange Act Rules; 9 (2) ordered to disgorge ill-gotten 

gains including pre-judgment and post-judgment interest; 

(3) ordered to pay a civil penalty; and (4) prohibited from 

acting as officers or directors of any issuer that has a 

class of securities registered pursuant to § 12 of the 

Exchange Act or that is required to file reports pursuant 

to § 15(d) of the Exchange Act. 10 

9 The SEC also seeks to restrain Defendants 

from directly or indirectly violating: § 17(a) of the 

Securities act; § 10(b) of the Exchange Act and 

2010 U.S. Dist. LEXIS 76826, *2 

Exchange Act Rule 10b-5; Exchange Act Rules 

13b2-1 and 13b2-2; §§ 13(b)(5) and 13(b)(2)(B) 

of the Exchange Act; and §§ 13(a) and 

13(b)(2)(A) of the Exchange Act and Exchange 

Act Rules 12b-20, 13a-1, 13a-11 and 13a-13. 

10 The SEC also requests that the Court grant 

such other relief as it deems just and appropriate. 

Each defendant has filed a separate motion for 

summary judgment or partial summary judgment. Leslie 

moves to sever certain claims alleged against Lonchar 

only. Lonchar and Sallaberry move to exclude the 

testimony of the SEC's experts. The SEC opposes all of 

the motions. The Court heard oral argument on March 11, 

[*5] 2010. 

I. BACKGROUND 

Unless otherwise indicated, the following facts are 

undisputed for the purpose of the instant motions. 

Disputed facts will be identified as is relevant. 

A. Defendants' job titles 

Leslie served as the Chief Executive Officer 

("CEO") of Veritas from 1990 to 2000. He was 

co-chairman of the board of directors from 1997 until 

1999, when he became chairman. He resigned as CEO on 

December 31, 2000, but continued to serve on the board 

of directors until May 31, 2004. Lonchar, a Certified 

Public Accountant, was the Chief Financial Officer 

("CFO") of Veritas from April 1997 until October 2002. 

Sallaberry was the executive vice president of worldwide 

field operations for Veritas from January 2000 until 

January 2003, when he became executive vice president 

of sales strategy. 

B. The AOL transaction 

Page 2 

Defendants are alleged to have violated securities 

laws by misrepresenting the nature of a business 

transaction between Veritas and America Online 

("AOL"). During the summer of 2000, Veritas and AOL 

began negotiating a license for Veritas software products 

("the license") as well as certain service, consulting and 

training commitments. Initially, Veritas offered AOL a 

license for a fee [*6] of $ 64 million. Early in these 

negotiations, AOL proposed that Veritas purchase online 

advertising, but Veritas declined. In September 2000, the 

parties agreed to a fee of $ 30 million for the license. At 

that price, the license would have been the largest


transaction in the history of Veritas. On September 29, 

2000, after AOL had signed the agreement but before the 

agreement had been signed by Veritas, AOL's Terry 

Laber called Leslie to propose changes to the license and 

a new advertising agreement. Leslie directed Sallaberry 

to call AOL's Jay Rappaport to address Laber's latest 

proposals. Rappaport and Sallaberry negotiated a $ 20 

million increase in the price of the license, bringing the 

total price to $ 50 million. They also negotiated an 

arrangement whereby Veritas would purchase $ 20 

million of AOL's online-advertising services. Leslie, 

Sallaberry, and Lonchar discussed the agreement, and 

Lonchar directed Sallaberry to document the transactions 

in two separate contracts. Following this discussion with 

Lonchar, Sallaberry signed both contracts (collectively, 

"the AOL transaction"). The license provided for 

payment within thirty days from the date of invoice, and 

the advertising [*7] agreement required payment within 

thirty days of the contract date. Sallaberry and AOL 

agreed orally that the payments would be made 

simultaneously. On December 1, 2000, both AOL and 

Veritas made their respective payments for the license 

and the advertising purchase. Lonchar later booked the 

bulk of the $ 50 million as revenue beginning in the 

fourth quarter of 2000, recognizing the rest of the 

payment as service revenue from the fourth quarter of 

2000 through 2002. 

On October 2, 2000, Leslie sent an email to the 

entire membership of Veritas's board of directors 

(including the internal audit committee) stating that, "We 

closed a $ 30 million deal with AOL (which will be taken 

to revenue in Q4). However, at the eleventh hour we got 

a request from AOL to gross up the deal by $ 20 million 

and take back an equal amount of dollars in paid 

advertising to AOL." In response to that email, Steven 

Brooks, a member of the board of directors and audit 

committee chairman, sent an email to Leslie, stating that, 

"[O]n the AOL deal, can we make doubly sure that EY 

[Ernst & Young] are on board with our revenue 

recognition in the barter context? A fair amount of SEC 

controversy surrounds the topic." [*8] Brooks 

subsequently sent Leslie a second email concerning the 

revenue recognition of "the recent large transaction," and 

Leslie forwarded this email to Lonchar. The email 

discussed the "two separate transactions notion," and 

stated "It will not hurt to be extra cautious, since as you 

know better than I, a single revenue recognition taint can 

utterly destroy a stock." 

2010 U.S. Dist. LEXIS 76826, *6 

In December 2000, independent auditors from Ernst 

& Young reviewed the AOL licensing agreement. In 

January 2001, upon learning that the licensing agreement 

and the advertising purchase had been signed on the same 

day, the auditors reviewed the AOL transaction a second 

time. The auditors interviewed Leslie, Lonchar, and 

Sallaberry, seeking further information. Sallaberry 

directed his department to prepare documentation for 

Ernst & Young to support the value of the license. Leslie 

and Lonchar signed a management representation letter 

concerning the accuracy of the information provided to 

Ernst & Young. Following the audit, Ernst & Young 

provided an unqualified audit report with respect to the 

2000 financial statements. In 2001, Leslie and Lonchar 

signed and approved public disclosure of these financial 

results, including [*9] the 2000 Form 10-K. 

In 2002, auditors from Ernst & Young reviewed the 

AOL transaction a third time because the auditors 

discovered that the price of the license had increased by $ 

20 million on the day the agreement was signed. As a 

result of this review, Ernst & Young indicated that it 

would withdraw its earlier unqualified audit report unless 

Veritas restated the financials related to the AOL 

transaction. On November 15, 2002, Veritas disclosed 

that the SEC had subpoenaed its records related to the 

AOL transaction. On January 17, 2003, Veritas 

announced that it would restate its financial disclosures 

for the license agreement and the advertising purchase 

(the "2003 restatement"). Between September 29, 2000 

and January 17, 2003, Defendants sold shares of Veritas 

on the open market. 

The SEC also alleges that Lonchar engaged in 

"smoothing violations" relating to Veritas's financials that 

resulted in a financial restatement in 2004 ("the 2004 

restatement"). Because Lonchar moves for partial 

summary judgment only with respect to the claims related 

to the AOL transaction, the facts related to the 

"smoothing violations" need not be discussed here. 

II. MOTION TO SEVER 

Leslie moves pursuant to [*10] Fed. R. Civ. P. 21 to 

sever the claims relating to the AOL transaction from the 

claims related to the 2004 restatement. Sallaberry and 

Lonchar join in the motion. 

A. Legal standard 

Page 3 

The "determination of a Rule 21(b) motion involves

the sound discretion of the trial court . . . ." United States 

v. Testa, 548 F.2d 847, 856 (9th Cir. 1977). See also Rice 

v. Sunrise Express, Inc., 209 F.3d 1008, 1016 (7th Cir. 

2000) (citing Hebel v. Ebersole, 543 F.2d 14, 17 (7th Cir. 

1976); United States v. O'Neil, 709 F.2d 361, 367 (5th 

Cir. 1983)) ("It is within the district court's broad 

discretion whether to sever a claim under Rule 21."). "As 

long as there is a discrete and separate claim, the district 

court may exercise its discretion and sever it." Rice, 209 

F.3d at 1016. However, "an attempt to separate an 

essentially unitary problem" is an "abuse of discretion." 

Spencer, White & Prentis, Inc. v. Pfizer, Inc., 498 F.2d 

358, 362 (2d Cir. 1974). 

The application of Rule 21 involves considerations of 

convenience and fairness. It also "presupposes basic 

conditions of separability in law and logic." Id. "[T]he 

Court will consider the following factors in making such 

a decision: (1) whether the claims arise [*11] out of the 

same transaction or occurrence; (2) whether the claims 

present some common questions of law or fact; (3) 

whether settlement of the claims or judicial economy 

would be facilitated; (4) whether prejudice would be 

avoided if severance were granted; and (5) whether 

different witnesses and documentary proof are required 

for the separate claims." Morris v. Northrop Grumman 

Corp., 37 F. Supp. 2d 556, 580 (E.D.N.Y. 1999). In 

addition, "the court typically will deny a request that 

comes so late in the litigation that it will delay the case or 

prejudice any of the parties to the action." City of 

Syracuse v. Onondaga County, 464 F.3d 297, 308 (2d 

Cir. 2006) (citing to 7 WRIGHT, MILLER & KANE, 

FEDERAL PRACTICE AND PROCEDURE § 1688.1 at 

510 (West 2001)). 

B. Unitary problem 


The SEC contends that severance would be an abuse 

of discretion because the two sets of allegations represent 

a "unitary problem." However, the instant case is unlike 

Spencer. That case involved a contract dispute in which 

the defendant counterclaimed under the same contract 

that underpinned the plaintiff's claims. Resolution of the 

claim and the counterclaim required interpretation of the 

same contract, and the success [*12] of one party's claim 

would necessitate the failure of the other party's claim. 

Under the circumstances, the Second Circuit found that 

severing the claims from the counterclaim was an abuse 

of discretion. Here, as discussed below, the claims related 

to the AOL transaction can be resolved in their entirety 

2010 U.S. Dist. LEXIS 76826, *10 

without affecting the 2004 restatement claims. 

C. Whether the claims arise out of the same 

transaction or occurrence 

The SEC's complaint involves allegations relating to 

a transaction with AOL as well as allegations relating to 

the 2004 restatement of Veritas's public financial 

statements. In connection with the AOL transaction, all 

Defendants are alleged to have violated securities laws by 

misrepresenting the nature of the transaction. With 

respect to the 2004 restatement, only Lonchar is alleged 

to have violated securities laws. 

The SEC's basic allegations relating to the AOL 

transaction are as follows: all Defendants either were 

intimately involved in creating the transaction or at least 

knew all its details of the deal by October 2000. In 

January 2001, all Defendants had discussions with 

Veritas's outside auditors regarding the transaction, and 

all Defendants intentionally or recklessly [*13] provided 

the auditors with misleading statements or complete 

misstatements. As a result of the information provided by 

Defendants, the auditors improperly accounted for $ 20 

million in revenue for the transaction, which artificially 

inflated Veritas's stock price. 

The SEC's basic allegations relating to the 2004 

restatement are as follows: Lonchar "smoothed" Veritas's 

financials for the years 2000 to 2003 by manipulating the 

accrued liability balances, recognizing revenue from 

professional services after the revenue had been earned, 

and by artificially inflating deferred revenue figures. The 

SEC does not allege that Leslie or Sallaberry was 

involved in this conduct. 

D. Common questions of law or fact 

Page 4 

The factual issues relating to the two sets of claims 

are not common, and the factual allegations concerning 

the AOL transaction do not overlap with the allegations 

concerning the 2004 restatement. The accounting rules 

that govern the AOL transaction and the rules that govern 

the conduct underlying the 2004 restatement also have 

little overlap, except for basic accounting fundamentals. 

The SEC argues that the legal issues largely are common 

because it alleges that Lonchar's conduct related [*14] to 

the 2004 restatement violated five of the same statutes 

that all three defendants allegedly violated in connection 

with the AOL transaction. However, this is not the type 

of legal overlap about which the Court typically would be


concerned: the factual predicates underlying the 

violations are different, and the Court will not be required 

to resolve significant questions of law in isolation from 

those facts. 

E. Whether settlement of the claims or judicial 

economy would be facilitated 

Lonchar contends that severance will facilitate 

settlement; however, he bases that contention on his 

opinion that the 2004 restatement claims are weak and by 

alluding to his hope that the SEC will not pursue those 

claims if severance is granted. The SEC disputes both of 

Lonchar's contentions, and the Court has considerable 

doubt that severance will increase the chance of 

settlement in this long-running and bitterly contested 

litigation. 

As to judicial economy, severance certainly would 

shorten the time in trial for Leslie and Sallaberry, but it 

likely would lengthen the time in trial for Lonchar and 

the SEC. The SEC asserts that the trial as currently 

planned will last twenty days but that severance would 

[*15] increase trial time to thirty days. The SEC argues 

that severance would result in a large amount of 

redundancy in pretrial and post trial motions, although it 

is not obvious to the Court that severance would create 

any new issues for the parties to dispute. At the same 

time, there is little doubt that severance necessarily would 

result in at least some redundancy, such as empaneling 

two separate juries and blocking off two separate periods 

of time for trial. 

F. Prejudice to the defendants 

Defendants contend that they will be unduly 

prejudiced if severance is not granted. They are 

concerned about two separate forms of prejudice. First, 

Leslie and Sallaberry fear that the jury will be 

psychologically prejudiced against them because of the 

additional allegations surrounding Lonchar. However, as 

just discussed, the two sets of allegations are not related 

to the same conduct. Careful jury instructions should be 

effective to ensure that the jury can separate out the two 

sets of allegations and the alleged conduct that is relevant 

to each. 

Second, Defendants fear that the jury will be 

confused if evidence regarding both sets of allegations is 

presented at the same time. They contend that all [*16] 

of the transactions involved are complex and governed by 

2010 U.S. Dist. LEXIS 76826, *14 

different, highly technical accounting rules. Additionally, 

they contend that evidence common to the two sets of 

allegations may be presented in a disjointed fashion, 

leading to even more confusion. Again, careful jury 

instructions should ensure that the confusion is alleviated 

because, as pointed out by the Defendants themselves, the 

two sets of claims involve conduct that is particular to 

each claim. The Court also has considerable discretion 

with respect to the order of proof at trial. 

G. Witnesses and documentary evidence 

The SEC contends that it will present many common 

witnesses and a significant quantity of common 

documentary evidence with respect to the two sets of 

allegations. It claims that eighteen witnesses have 

information relevant to both sets of allegations, including 

Leslie, and that it will call both of its experts to opine on 

each set of allegations. Leslie disputes the SEC's 

representation as to the number of common witnesses 

involved, arguing that only seven of fifty-four witnesses 

appear to have knowledge relevant to both sets of claims. 

The SEC also asserts that it will present, as evidence with 

respect both [*17] sets of allegations, financial 

statements and public disclosures from 2000 to 2003; the 

same management representation letters and 

Sarbanes-Oxley certifications; and the same audit papers 

from both Ernst & Young and KPMG. Defendants 

contend that different parts of the documents are relevant 

to the different sets of allegations. 

G. Timing of the motion 

Leslie moved for severance on December 18, 2009, 

shortly after the close of discovery. At that time, a trial 

date of May 14, 2010 had been in place for 

approximately six months. That now has been vacated 

and the Court is engaged in a major criminal trial. In light 

of this development, severance would not cause 

significant delay. 

H. Disposition 

Page 5 

While the conduct relevant to the AOL transaction is 

unrelated to the conduct relevant to the 2004 restatement, 

the Court concludes that considerations of convenience 

and fairness do not weigh in favor of severance. Because 

of the significant number of common witnesses and 

documents, severance would not result in judicial 

economy, and Defendants have not demonstrated that 

they will be unfairly prejudiced unless a severance is

granted. Accordingly, the motion will be denied. 

III. MOTIONS TO EXCLUDE EXPERT [*18] 

TESTIMONY 

Defendants Lonchar and Sallaberry move to exclude 

the testimony of Dr. Lee J. Seidler and Jeffery L. Davis, 

the SEC's expert witnesses. Leslie joins in the motions. 



Before allowing an expert to testify, the Court has a 

responsibility to determine whether the expert's opinion 

rests on a reliable foundation and is relevant to the issue 

before the Court. See Kumho Tire Co., Ltd. v. 

Carmichael, 526 U.S. 137, 141, 119 S. Ct. 1167, 143 L. 

Ed. 2d 238 (1999); Daubert v. Merrell Dow 

Pharmaceuticals, Inc., 509 U.S. 579, 597, 113 S. Ct. 

2786, 125 L. Ed. 2d 469 (1993). Fed. R. Evid. 702 

provides that: 

If scientific, technical, or other 

specialized knowledge will assist the trier 

of fact to understand the evidence or to 

determine a fact in issue, a witness 

qualified as an expert by knowledge, skill, 

experience, training, or education, may 

testify thereto in the form of an opinion or 

otherwise, if (1) the testimony is based 

upon sufficient facts or data, (2) the 

testimony is the product of reliable 

principles and methods, and (3) the 

witness has applied the principles and 

methods reliably to the facts of the case. 

A district court has broad latitude in deciding both how to 

measure reliability and the ultimate reliability 

determination. Kumho, 526 U.S. at 142. [*19] The 

Court's focus at all times must be on the principles and 

methodology at issue, not the expert's conclusions. See id. 

at 152; Daubert, 509 U.S. at 595. 

B. Daubert challenges to the SEC's accounting 

expert, Dr. Lee J. Seidler. 

The SEC offers Dr. Lee J. Seidler as an accounting 

expert who will provide opinions on the concept of 

accounting materiality, generally accepted accounting 

principles ("GAAP"), and the accounting treatment of 

both the AOL transaction and the conduct underlying the 

2004 restatement. Lonchar and Sallaberry move to 

2010 U.S. Dist. LEXIS 76826, *17 

exclude Seidler's testimony under Daubert. Lonchar 

argues that Seidler's opinion is unreliable, that it will not 

be helpful to the jury, and that Seidler lacks proper 

qualifications to testify in this matter. Sallaberry makes 

similar arguments. He also argues that the probative 

value of Seidler's opinion is substantially outweighed by 

its unfairly prejudicial effect. 

1. Seidler's methods are reliable 

Lonchar argues that Seidler's opinion is unreliable 

because he employed a "partisan methodology" and his 

opinion is based on insufficient evidence. Sallabery also 

asserts that Seidler's methodology regarding materiality is 

unreliable because it is based on [*20] unexplained and 

unsubstantiated subjective belief. 

a. Seidler's methodology is proper 

Page 6 

Seidler's expert report explains his principles and 

methods. (Lonchar's Mot. to Exclude Seidler, Ex. 3 

("Seidler report") at 8-13.) Seidler describes the concept 

of materiality, referring to the Financial Accounting 

Standards Board and Montgomery's Auditing, among 

other sources. (Id. at 8-11.) Seidler discusses GAAP, 

again referring to accounting authorities. (Id. at 12-13.) 

Seidler then describes the AOL transaction, referring 

frequently to accounting authorities throughout the 

discussion. Seidler also describes the transactions related 

to the 2004 restatement, again referring to accounting 

authorities throughout the discussion. Neither Lonchar 

nor Sallaberry attacks directly any of the authorities cited, 

and the Court has no reason to believe that the authorities 

are unreliable. Nor do Defendants allege that Seidler 

misapplied the principles cited. 

Sallaberry argues that Seidler's materiality opinion 

impermissibly relies upon "unexplained, unsubstantiated 

subjective beliefs." To the contrary, Seidler discusses 

specifically the concept of accounting materiality with 

support from accounting authorities, [*21] including 

widely accepted definitions of quantitative and qualitative 

materiality. (Id. at 8-11.) He discusses the quantitative 

effects of the accounting for both the AOL transaction, 

(id. at 14), and the 2004 restatement (id. at 23-24). The 

rest of his report describes the circumstances of the 

accounting, which he defines as relevant to qualitative 

materiality. The report leaves no doubt that the opinion 

on materiality flows from the application of the 

accounting authorities that Seidler describes.


Sallaberry cites several cases in support of his 

argument. See IMA North America, Inc. v. Maryln 

Nutraceuticals, Inc., No. CV-06-344-PHX-LOA, 2008 

U.S. Dist. LEXIS 109623, at *21 (D. Ariz. Oct. 17, 2008) 

(excluding an expert from providing testimony on the 

value of a machine sale when the expert did not include 

value for the warranty, spare parts, and service that were 

included undisputedly with the sale and where his stated 

methodology conflicted explicitly with the method he 

actually applied); In re Software Tool Works Sec. Litig., 

50 F.3d 615, 628 (9th Cir. 1995) (excluding an expert 

who opined on the defendants' knowledge without factual 

support); In re Worlds of Wonder Sec. Litig., 35 F.3d 

1407, 1425-26 (9th Cir. 1994) [*22] (excluding the same 

expert from In re Software Tools because he concluded 

that the defendants acted with scienter despite a factual 

record "that conclusive rebut[ted] any inference of 

scienter"). In re Software Tools has some relevance here, 

as the Court agrees that Seidler's opinion with respect to 

the subjective intentions of the parties is inappropriate. 

However, Seidler's opinion with respect to materiality is 

at least arguably supported by evidence in the record. The 

Court cannot say that Seidler's opinion is conclusively 

rebutted by the record or that Seidler failed to consider 

undisputed critical details. 

Sallaberry's reliance on SEC v. Mangan, 598 F. 

Supp. 2d 731, 737 (W.D.N.C. 2008), also is misplaced. 

The district court in Mangan concluded that an opinion 

on materiality was insufficient in light of the fact that an 

unbiased market of reasonable investors had determined 

that the information in dispute was immaterial. The 

question at issue was whether a reasonable investor 

would have found the information important. Here, 

Seidler is opining on whether the information was 

sufficiently important from an accounting perspective. 

Moreover, in the Ninth Circuit, the reaction of the [*23] 

market is not dispositive of the issue of legal materiality. 

See No. 84 Employer-Teamster Joint Council Pension 

Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 934 

(9th Cir. 2003) (rejecting a bright-line rule due to 

inherent distortions in the real-world market). Rather, a 

change is stock price, or lack thereof, is merely one factor 

to examine. 

b. The evidence upon which Seidler relied is 

proper 

The bulk of Lonchar's objection to Seidler's 

testimony involves the factual basis of Seidler's opinion. 

2010 U.S. Dist. LEXIS 76826, *21 

Page 7 

Lonchar alleges that Seidler blindly accepted the SEC's 

version of the facts and ignored any and all evidence that 

contradicted that version. Lonchar also claims that 

Seidler did not review all of the evidence and instead 

relied upon the SEC's recommended consultant to gather 

factual information for him. 

Seidler testified at his deposition that, when an issue 

was in dispute, he requested evidence to support the 

SEC's version of the facts. If there was evidence to 

support the SEC's contention, Seidler accepted that 

contention for purposes of his report. (Seidler Deposition, 

Lonchar's Mot. to Exclude, Ex. 7 at 547:17-23.) It is true 

that some facts in this case are in dispute, but "[w]hen, 

[*24] as here, the parties' experts rely on conflicting sets 

of facts, it is not the role of the trial court to evaluate the 

correctness of facts underlying one expert's testimony." 

MicroChemical, Inc. v. Lextron, Inc., 317 F.3d 1387, 

1392 (Fed. Cir. 2003). Defendants may cross-examine 

Seidler to attack the underlying factual premises of his 

report. 

Indeed, Seidler admits that he did not review all of 

the documentary evidence. However, "[f]ailing to review 

all relevant evidence is not a ground for excluding [an 

expert's] testimony; rather, it provides subject matter for 

cross-examination. In short, Defendants' arguments go to 

the weight of the expert's testimony rather than 

admissibility." SEC v. Johnson, 525 F. Supp. 2d 70, 

75-76 (D.D.C. 2007). Defendants also assert that Seidler 

failed to review "crucial" witness testimony that 

contradicts the factual premise of his report, but again 

Defendants may bring this fact to the jury's attention on 

cross-examination. 

Lonchar contends that Seidler relied improperly on 

evidence gathered by others. When Seidler was engaged 

by the SEC, the SEC recommended that Seidler use a 

consultant to help gather information. The SEC retained 

RSM McGladrey for this [*25] purpose. (SEC's Opp'n to 

Lonchar's Mot. to Exclude, Ex. 3 at 24:18-22.) Seidler 

testified that he did not receive input from the SEC while 

he was writing his opinion. (Id. at 106:24-107:4.) In 

addition, when opining with respect to some of the 

circumstances underlying the 2004 restatement, Seidler 

appears to have relied largely on the data collected in the 

KPMG Restatement Issue Summary. (Seidler report at 23 

n.66.) An expert opinion may be based on data collected 

by others. Southland Sod Farms v. Stover Seed Co., 108 

F.3d 1134, 1142 (9th Cir. 1997). If the Defendants


dispute the data that was collected, they may raise the 

issue on cross-examination 

2. Portions of Seidler's opinion are not helpful to the 

jury 

Lonchar also argues that Seidler's opinions will not 

be helpful to the jury because Seidler's report makes both 

credibility determinations and legal determinations. The 

argument essentially is an attack upon the quality of the 

evidence upon which Seidler relied. "[T]his is yet another 

criticism of [the expert] favoring [p]laintiff's view of the 

facts. It is not grounds for exclusion that he evaluated the 

credibility of evidence in reaching his conclusions." 

Johnson, 525 F. Supp. 2d at 76 n.6. 

However, [*26] Seidler's opinion with respect to 

legal concepts and conclusions of law are excludable. 

"[T]he use of expert testimony is not permitted if it will 

usurp either the role of the trial judge in instructing the 

jury as to the applicable law or the role of the jury in 

applying that law to the facts before it." United States v. 

Duncan, 42 F.3d 97, 101 (2d Cir. 1994). Seidler begins 

his discussion of materiality by explaining materiality 

from an accounting perspective. (Seidler report at 8.) 

However, he later discusses legal materiality by 

providing actual citations to several judicial opinions on 

the subject. (Id. at 8-9.) Seidler also quotes Securities 

Exchange Rule 13b2-2 in its entirety. (Id. at 19.) This 

aspect of his opinion usurps the role of the trial judge and 

is inappropriate. Seidler also makes references to 

"fraudulent" conduct and the intentions of the parties. (Id. 

at 5, 14.) This determination is within the sole province 

of the jury. Moreover, Seidler makes references to 

whether the auditors were misled or whether certain 

statements were misleading. (Id. at 5 n.2.) The auditors 

may testify as to whether they were misled, and it is for 

the jury to determine whether Defendants' [*27] 

statements in fact were misleading. See Johnson, 525 F. 

Supp. 2d at 78 (excluding an expert who opined on the 

intent of the defendant and whether the auditors were 

misled). The SEC argues that "fraudulent" may have a 

different meaning in accounting literature than in legal 

circumstances. Even if that is true, the risk of undue 

prejudice from Seidler's use of that legal term would 

substantially outweigh its minimal probative value. See 

Fed. R. Evid. 403. 

Seidler's report on occasion is argumentative and 

includes references to facts irrelevant to his conclusions, 

such as a reference to Lonchar's educational credentials, 

2010 U.S. Dist. LEXIS 76826, *25 

(Seidler report at 7), and speculation as to whether 

Sallaberry knew about the manner in which Lonchar 

allegedly was recognizing professional service revenues 

in connection with the 2004 restatement, (id. at 24). 

Accordingly, these aspects of Seidler's opinion also will 

be excluded. 

3. Seidler is adequately qualified 

Page 8 

Lonchar and Sallaberry argue that Seidler should not 

be permitted to testify as an expert because he is not 

qualified to opine on the transactions at issue. Defendants 

acknowledge Seidler's impressive credentials, but they 

point out that he lacks experience [*28] relating to 

software licensing transactions. Lonchar relies upon 

United States v. Chang, 207 F.3d 1169, 1172-73 (9th Cir. 

2000), where a district court properly excluded a putative 

expert who was "extremely qualified" in international 

finance from offering expert testimony relating to the 

authenticity of a "Certificate of Payback Balance." The 

putative expert "had expert knowledge regarding the 

history of, and purpose for, the issuance of obligations 

like the Certificate," but had no formal training in the 

identification of counterfeit securities. Id. Chang clearly 

is distinguishable: the instant case involves accounting 

related to business transactions, and Seidler has more 

than ample formal training in applying accounting 

principles to business transactions. 

Lonchar also calls the Court's attention to Diaz v. 

Johnson Matthey, Inc., 893 F. Supp. 358, 372 (D.N.J. 

1995), a case in which the court excluded the testimony 

of a pulmonologist who had never treated a patient with a 

platinum allergy from testifying as an expert as to that 

specific allergy. The pulmonologist had read only a few 

papers on the allergy for purposes of the litigation and 

had demonstrated his lack of familiarity [*29] with those 

papers in his testimony. Lonchar points out that Seidler 

admittedly is not familiar with certain accounting rules 

that relate to software licenses and non-monetary 

transactions -- specifically SOP 97-2, APB 29, and TPA 

5100.47 -- or the term "concurrent transactions." 

The standard of qualification as an expert witness 

under Rule 702 is not particularly high. See Hangarter v. 

Provident Life & Accident Ins. Co., 373 F.3d 998, 1016, 

1016 n.12 (9th Cir. 2004) (noting that qualification 

requires "minimal foundation" and that the court was 

unaware of precedent that found it to be an abuse of 

discretion to admit an expert with general knowledge in a 

field from testifying as to more specific issues). It is

undisputed that Seidler has experience applying 

accounting rules to business transactions, and his report 

applies well-known accounting principles to the 

transactions at issue. Lonchar does not claim that any of 

these principles are invalid or have been misapplied. The 

fact that Seidler has not applied the particular rules 

desired by Lonchar is not a basis for excluding Seidler's 

testimony. 

4. The probative value of Seidler's opinion is not 

substantially outweighed by the danger [*30] of 

unfair prejudice 

Sallaberry argues that, notwithstanding the foregoing 

discussion, Seidler's entire opinion should be excluded 

under Fed. Rule Evid. 403 because the probative value of 

the opinion is substantially outweighed by the danger of 

unfair prejudice. However, the Court is not persuaded 

that Seidler's opinion is "highly subjective and 

unsubstantiated." As discussed above, Seidler's 

conclusions flow from the accounting principles 

described. Sallaberry also argues that the jury will 

confuse Seidler's discussion of accounting materiality 

with legal materiality, and indeed Seidler's discussion of 

legal materiality for the most part is subject to exclusion. 

That said, the balance of Seidler's discussion of 

accounting materiality is proper. Careful jury instructions 

should ensure that the jury will be able to distinguish 

between the two concepts of materiality. 

5. Disposition 


Accordingly, Seidler may testify at trial. However, 

he may testify regarding only the appropriate portions of 

his expert report. He may not testify as to legal concepts, 

the legal interpretation of case law and statutes, or 

whether specific conduct was fraudulent, intentional, or 

misleading in the legal sense. 

C. [*31] Motions to exclude the expert testimony of 

Jeffrey L. Davis 

The SEC offers Jeffrey L. Davis as a rebuttal expert 

to Defendants' expert Thomas Peter Berquist, who 

offered an opinion with respect to the importance of the 

2003 restatement to reasonable investors. Sallaberry 

moves to exclude Davis as an expert witness under 

Daubert. Lonchar moves under Fed. R. Civ. P. 26(a) to 

exclude portions of Davis's testimony that refer to the 

2004 restatement. Because Davis was not disclosed on 

the date designated for initial expert disclosures, Davis 

2010 U.S. Dist. LEXIS 76826, *29 

may offer testimony only to rebut the testimony of other 

experts. Lonchar argues that no defense expert offered an 

opinion that these aspects of Davis's opinion would 

"rebut." 

1. Davis's report 

Page 9 

Davis opines as to whether both the 2003 and 2004 

restatements were important to investors. (Lonchar's Mot. 

to Exclude Davis, Ex. A ("Davis report") at P 6.) In 

forming his opinions, Davis performed an "event study," 

which is "a statistical regression analysis that examines 

the effect of an event on a dependent variable, such as a 

corporation's stock price. For securities-fraud purposes, 

the 'event' analyzed is the disclosure of the alleged fraud 

to the market." [*32] In re Apollo Group, Inc. Sec. Litig., 

509 F. Supp. 2d 837, 844-45 (D. Az. 2007). Davis 

examined Veritas's stock price in relation to six different 

events: 

. November 15, 2002: the date on which the market 

first had the opportunity to react to Veritas's Form10-Q 

that disclosed, among other things, that the SEC had 

subpoenaed records relating to the AOL transaction 11 

. January 17, 2003: the date on which Veritas 

announced that it would restate its financials related to 

the AOL transaction 

. March 17, 2003: the date on which Veritas issued 

the 2003 restatement that restated the financials of the 

AOL transaction 

. March 18, 2003: the day after the 2003 restatement 

was issued 

. March 15, 2004: the date on which Veritas 

announced it would restate its financials related to the 

"smoothing violations" 

. March 16, 2004: the day after Veritas announced 

the 2004 restatement 

(Davis report at P 11-14.) Davis used a statistical 

model of the daily price of Veritas stock for three 

separate time periods to filter out factors unrelated to the 

disclosures just described. (Id. at P 16.) Davis performed 

twenty-seven regression analyses: nine for each time 

period. (Id. at P 18.) He assumed that a company's stock 

[*33] price incorporates all publicly available information 

quickly and that information is material if it causes a 

statistically significant change in the stock price. (Id. at

PP 21-22.) 


11 Veritas released the Form 10-Q on November 

14, 2002, after the market had closed. (Davis 

Report at P 11.) 

Davis concluded that the disclosure on November 

14, 2002 was material, (id. at P 21), but that neither the 

disclosure on January 17, 2003 nor the disclosure on 

March 17, 2003 was important to investors. (Id.) He 

reasoned that the market understood that Veritas would 

need to restate its financials based on the November 14, 

2002 disclosure, and that accordingly the effects of the 

2003 restatement already had been priced into the stock. 

Davis also concluded that the disclosure on March 15, 

2004 was material, despite the fact that there was no 

significant change in the price of Veritas stock that day. 

(Id. at 22.) He noted that there was a significant change in 

the price the next day, and opined that the disclosure was 

not priced into the stock until that day because the March 

15, 2004 trading day was only a half day. 

2. Sallaberry's Daubert challenge 

Sallaberry claims that Davis's opinion is unreliable 

for [*34] two reasons. First, he argues that Davis's 

conclusion surrounding the November 14, 2002 

disclosure is illogical because that disclosure did not 

reveal the alleged misrepresentations of the named 

defendants. Second, he contends that Davis's conclusion 

is unreliable because it did not filter out other negative 

information contained in the disclosure. 

a. The information revealed by the November 14, 

2002 disclosure 

Sallaberry relies heavily on Metzler Inv. GMBH v. 

Corinthian Colleges, Inc., 540 F.3d 1049 (9th Cir. 2008). 

In that case, the defendants operated a large, national 

system of for-profit vocational colleges. The plaintiffs 

alleged widespread fraud in enrollment practices 

designed to maximize Title IV funding in the form of 

financial aid to students. The plaintiffs asserted loss 

causation based either of two events: (1) a news story 

about a government investigation and sanction resulting 

from admissions fraud at one campus in California or (2) 

an earnings announcement that disclosed both "higher 

than anticipated attrition" and "voluntary compliance" 

with the California Attorney General's requests for 

information regarding admissions practices. The court 

found that neither event could [*35] support an inference 

2010 U.S. Dist. LEXIS 76826, *33 

of the disclosure of widespread admissions fraud. 

The news article about the government investigation 

and sanction noted specifically that the investigation 

"[did] not affect the status of other Corinthian schools." 

Id. at 1064. The defendants operated a system of 

eighty-eight schools. Id. The court reasoned that the 

disclosure could not have alerted investors that there was 

widespread admissions fraud in the defendants' 

operations, and that at most, the disclosure of admissions 

fraud at one campus revealed only the risk of admissions 

fraud at other campuses. Id. at 1064-65. 

The earnings announcement disclosed several facts, 

including that the defendants had missed their revenue 

forecast, that they had revised their earnings forecast 

downward for the next year, that attrition rates were 

higher than expected, and that enrollment had increased 

forty-nine percent overall. Id. at 1065. The plaintiffs 

argued that the disclosure regarding attrition was a 

euphemism for enrollment fraud. The court again 

disagreed, concluding that the plaintiffs' inference was 

implausible given that enrollment had increased to such a 

large extent. The court reasoned that it was far more 

plausible [*36] that the stock price fell because the 

defendants had missed their earnings forecast. Id. at 

1065. The court observed that no case supported "the 

notion that loss causation is pled where a defendant's 

disclosure reveals a 'risk' or 'potential' for widespread 

fraudulent conduct." Id. at 1064. 

Sallaberry argues that Metzler is controlling, with the 

obvious concession that the SEC need not show loss 

causation. He contends that because the Form 10-Q dated 

November 14, 2002 did not reveal the "truth" of an 

alleged misrepresentation or fraud, Davis could not 

conclude reliably that the market priced in any 

restatement relating to the AOL transaction or form a 

reliable opinion as to the materiality of the 2003 

restatement based on a stock price movement on 

November 14, 2002. 

The Form 10-Q dated November 14, 2002 states that: 

In response to subpoenas issued by the 

Securities and Exchange Commission in 

the investigation entitled In the Matter of 

AOL/Time Warner, we are furnishing 

information to the SEC, including 

information relating to the transactions we 

entered into with AOL in September of 

Page 10


2000. We are cooperating with the SEC's 

investigation. 

The transaction involved a $ 50 

million software [*37] license and 

services sale to AOL and a $ 20 million 

advertising services purchase from AOL. 

We recognized $ 37 million of revenue in 

the fourth quarter of 2000 and have been 

recognizing the remaining $ 13 million as 

revenue over the three-year support 

period. The $ 20 million of advertising 

expense was recorded over the five 

quarters during which AOL provided 

advertising services to us, beginning in the 

fourth quarter of 2000 and ending in the 

fourth quarter of 2001. We are currently 

reviewing our accounting treatment for 

these transactions, focusing on the $ 20 

million of advertising services expenses 

and $ 20 million of the revenue. 

(Mauch Decl. in support of Sallaberry's Mot. to Exclude 

("Mauch Decl."), Ex. 3 at 70.) The SEC argues that the 

Form 10-Q does assert the "truth" of the alleged 

misrepresentations. Davis reviewed a news article dated 

November 14, 2002 that discussed the fact that AOL 

already was involved in criminal and civil investigations 

regarding advertising deals such as the one disclosed by 

Veritas. (Davis report, Ex. 2, Document 13; Williams 

Decl. ISO SEC's Opp'n to Lonchar's Mot. to Exclude 

Davis, Ex. 7 (providing a copy of the article).) The Form 

10-Q also was [*38] rather specific, focusing on the $ 20 

million figure. The SEC contends that this information 

permits the logical inference that Veritas overstated $ 20 

million in revenue from the AOL transaction. 

The Court is persuaded that the instant case is 

distinguishable from Meltzer. The market had knowledge 

that AOL was under investigation for its accounting with 

respect to advertising deals of this nature. The market 

also knew that AOL had restated its financials in 

connection with similar deals. (See Williams Decl. ISO 

SEC's Opp'n to Lonchar's Mot. to Exclude Davis, Ex. 7.) 

The November 14, 2002 disclosure permits the 

reasonable inference that Veritas -- a counter-party to one 

of those AOL advertising deals -- also would restate its 

financials. By focusing on the $ 20 million figure, the 

November 14, 2002 disclosure provided sufficient 

information for the market to understand the amount of a 

2010 U.S. Dist. LEXIS 76826, *36 

Page 11 

future restatement. Defendants may cross-examine Davis 

vigorously to persuade the jury that his opinion is 

incorrect, but the opinion meets the minimum threshold 

for reliability. 

b. Filtering for other information contained in the 

November 15, 2002 disclosure 

Sallaberry also objects that Davis did not filter [*39] 

out the effect of other negative information contained in 

the Form 10-Q. If other information in the Form 10-Q 

could be responsible for the statistically significant 

change in stock price on November 15, 2002, then 

Davis's conclusion that the AOL accounting disclosure 

was material might not be reliable. While Davis testified 

that he did not read the entire Form 10-Q, he contends 

that he nonetheless accounted sufficiently for any 

confounding variables by looking at news articles from 

November 15, 2002. (Davis Deposition, SEC's Opp'n to 

Lonchar's Mot. to Exclude Davis, Ex. 4 at 161:9-15.) He 

claims that the news articles focused mainly on the AOL 

transaction and that nothing in the news articles 

suggested that anything else of importance happened with 

respect to Veritas on that day. (Id.) 

Sallaberry argues that a more appropriate filtering 

mechanism would have been to read analyst reports 

rather than news reports. Sallaberry attaches several news 

articles to his moving papers. (See Garrett Decl. in 

Support of Sallberry's Reply to Mot. to Exclude ("Garrett 

Decl."), Exhs. 1-9; Mauch Decl., Exhs. 8-13.) He 

contends that the news articles cannot serve as a reliable 

filter because they do [*40] not reveal the certainty of a 

financial restatement, they discuss issues other than the 

AOL transaction, there is "important information" in the 

Form 10-Q that is not referenced in any article, and the 

interests of the authors are not aligned necessarily with 

the interests of reasonable investors. While each of these 

arguments appropriately may be raised on 

cross-examination, they do not show that Davis's opinion 

should be excluded entirely. Although the articles do not 

suggest the certainty of a restatement, many of them 

discuss the SEC's investigation in a negative light, 

referencing the fact that AOL restated similar 

transactions. (See Garrett Decl. Exhs. 1, 2, and 5.) While 

the articles do discuss other issues, they do not do so in a 

manner that appears to be negative. Sallaberry's assertion 

that there was "important information" that was not 

referenced in any article is peculiar: if the information 

was important to the market, it necessarily would have


been the subject of discussion. Finally, the Court is 

satisfied that news reporters discuss information 

disclosed in quarterly reports because they believe that 

the information might be of interest to reasonable 

investors. 

Sallaberry [*41] cites several district court decisions 

in support of his argument. See In re Xcelera.com Sec. 

Litig., NO. 00-11649-RWZ, 2008 U.S. Dist. LEXIS 77807, 

2008 WL 7084626, at *2 (D. Mass. Apr. 25, 2008) 

(excluding an expert who did not consider the impact of 

other disclosures despite news reports with significant 

negative discussion of these other disclosures), In re 

Omnicom Group, Inc. Sec. Litig., 541 F. Supp. 2d 546, 

554 (S.D.N.Y. 2008) (granting summary judgment 

because the plaintiffs could not prove loss causation with 

an expert's opinion that used an event study which, 

among other things, failed to account for important 

confounding factors identified in or created by news 

reports), In re Executive Telecard Sec. Litig., 979 F. 

Supp. 1021, 1026 (S.D.N.Y. 1997) (excluding an expert 

witness that did not consider the effect of a company's 

proposed spin-off even though "there were significant 

shareholder concerns 'about the wisdom of the proposed 

spinoff'"), and In re Oracle Sec. Litig., 829 F. Supp. 

1176, 1181 (N.D. Cal. 1993) (faulting an expert who, 

among other things, did not use an event study to "more 

accurately [] isolate the influence of information specific 

to Oracle which defendants allegedly have distorted"). 

[*42] However, most of those cases focus on the fact that 

the experts failed to consider information that other 

sources clearly had identified as relevant. 

Sallaberry refers the Court to an analyst report by US 

Bankcorp, which references several other negative 

factors, including increasing competition, lower demand 

for the type of products that Veritas sells, a current sales 

force poll, lack of growth, and margin compression. 

(Mauch Decl. Ex. 14.) The report also refers to the AOL 

transaction as "water under the bridge." (Id.) The authors 

believed that "the current risk is that there were other 

unnatural acts" in connection with the AOL transaction. 

(Id.) The Court notes that the report is dated November 

26, 2002, and accordingly is not necessarily strong 

evidence of what investors thought was important on 

November 15, 2002. Moreover, while the US Bankcorp 

report is negative, the additional information contained in 

that report is not as critical as that at issue in the cases 

relied upon by Sallaberry. While Sallaberry certainly may 

argue to the jury that Davis did not reliably filter out 

2010 U.S. Dist. LEXIS 76826, *40 

other confounding variables that would have affected the 

stock price on November 15, 2002, he has not [*43] 

shown that Davis' opinion is so unreliable that it must be 

excluded. 

2. Lonchar's Rule 26 Challenge 

Page 12 

Lonchar contends that Davis's opinion with respect 

to the 2004 restatement must be excluded because it does 

not rebut testimony of Defendants' experts. The SEC 

claims that the opinion in dispute is rebuttal to the 

Berquist report offered by Defendants. Berquist 

summarized his opinion as addressing the question, 

"[w]ould a reasonable investor have considered the 

restatement of VERITAS' financial statements in March 

2003 . . . to be important to a decision to buy or sell the 

stock of VERITAS?" (Lonchar's Mot. to Exclude Davis, 

Ex. B ("Berquist report") at 7.) Lonchar argues that 

Davis's references to the materiality of the 2004 

restatement thus are inappropriate. 

In response, the SEC asserts that Davis's opinion 

with respect to the impact of the 2004 restatement rebuts 

the central premise of the Berquist report. Berquist opines 

that the 2003 restatement was not material because it did 

not meaningfully impact Veritas's earnings per share 

("EPS") estimate. (Berquist report at 13.) Instead of 

focusing on EPS estimates, Davis's analysis focuses on 

statistically significant changes in share price. [*44] 

(Davis report at P 10.) The SEC argues that 

demonstrating the impact of the 2004 restatement on 

Veritas's share price rebuts Berquist's central premise that 

effects on EPS estimates are the only significant measure 

of materiality. The Court concludes that this argument is 

seriously flawed. Berquist explicitly did not analyze the 

effect of 2004 restatement on Veritas's EPS estimates. 

Davis thus cannot know whether analyzing the effect of 

the 2004 restatement under his method would reach a 

different conclusion than analyzing those effects under 

Berquist's method. 

The SEC also argues that although Berquist never 

opined on the subject of the 2004 restatement, Lonchar 

has offered an accounting expert who does offer an 

opinion on that subject. That expert, J. Duross O'Bryan, 

does discuss the materiality of the accounting underlying 

the 2004 restatement. However, O'Bryan, like Seidler, is 

an accounting expert. Unlike Davis, O'Bryan did not 

discuss materiality from the perspective of a "reasonable 

investor." Though O'Bryan does not define specifically 

his working concept of materiality, he appears to refer to

accounting materiality only, and his report focuses 

extensively on the application [*45] of GAAP. (See 

Lonchar's Reply in Support of Mot. to Exclude Davis, 

Ex. B at P 17.) 

3. Disposition 

Davis may testify at trial because he has met the 

minimum threshold for reliability. However, he may 

testify with only with respect to the 2003 restatement; his 

testimony with respect to the 2004 restatement will be 

excluded pursuant to Rule 26. 

IV. MOTIONS FOR SUMMARY JUDGMENT 

All Defendants move for summary judgment 

regarding the SEC's claims related to the AOL 

transaction. Defendants argue that there is insufficient 

evidence in the record to support an inference of the 

mental states required by the various claims or that any of 

their alleged misstatements were material. Separately, 

Sallaberry argues that the evidence cannot support a 

finding that he was involved in making misstatements 

and preparing Veritas's records. 



A motion for summary judgment should be granted 

if there is no genuine issue of material fact and the 

moving party is entitled to judgment as a matter of law. 

Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 

477 U.S. 242, 247-48, 106 S. Ct. 2505, 91 L. Ed. 2d 202 

(1986). The standard applied to a motion seeking partial 

summary judgment is identical to the standard applied to 

a motion [*46] seeking summary judgment of the entire 

case. See Urantia Foundation v. Maaherra, 895 F.Supp. 

1335, 1335 (D. Ariz. 1995). The moving party bears the 

initial burden of informing the Court of the basis for the 

motion and identifying the portions of the pleadings, 

depositions, answers to interrogatories, admissions, or 

affidavits that demonstrate the absence of a triable issue 

of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 

323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). 

If the moving party meets this initial burden, the 

burden shifts to the non-moving party to present specific 

facts showing that there is a genuine issue for trial. Fed. 

R. Civ. P. 56(e); Celotex, 477 U.S. at 324. A genuine 

issue for trial exists if the non-moving party presents 

evidence from which a reasonable jury, viewing the 

evidence in the light most favorable to that party, could 

2010 U.S. Dist. LEXIS 76826, *44 

resolve the material issue in his or her favor. Anderson, 

477 U.S. 242, 248-49, 106 S. Ct. 2505, 91 L. Ed. 2d 202; 

Barlow v. Ground, 943 F.2d 1132, 1134-36 (9th Cir. 

1991). It is not this Court's task to "scour the record in 

search of a genuine issue of triable fact." Keenan v. Allan, 

91 F.3d 1275, 1279 (9th Cir. 1996) (internal citations and 

quotations omitted). The non-moving party has the 

responsibility [*47] to identify with reasonable 

particularity the evidence which precludes summary 

judgment. See id. 

B. Requisite mental states 

The SEC's claims require a showing of various 

mental states. To establish a claim under Section 17(a)(1) 

and Rule 10b-5, the SEC must prove that the Defendants 

acted with scienter. S.E.C. v. Leslie, No. C 07-3444, 2008 

U.S. Dist. LEXIS 79790, 2008 WL 3876169, at *5 (N.D. 

Cal. Aug. 19, 2008). However, scienter is not required to 

establish liability under Sections 13b2-1 and 13b2-2. 12 , 

13 S.E.C. v. Leslie, No. C 07-3444 JF, 2008 U.S. Dist. 

LEXIS 69540, 2008 WL 4183939, at *1 (N.D. Cal. Sept. 

9, 2008). To establish a claim under Section 17(a)(2) and 

(a)(3), the SEC must prove that Defendants acted 

negligently. SEC v. Phan, 500 F.3d 895, 908 (9th Cir. 

2007). To establish a claim for any aiding and abetting 

violation, the SEC must establish that Defendants 

actually knew of the primary violation and their own role 

in furthering it. Leslie, 2008 U.S. Dist. LEXIS 79790, 

2008 WL 3876169 at *7. Finally, to establish a claim 

under Section 13(b)(5) for failing to implement a system 

of internal accounting controls, the plain language of the 

statute requires that a defendant act "knowingly." 15 

U.S.C.A. § 78m(b)(5). 

12 17 C.F.R. 240.13b2-1 provides that "No 

person [*48] shall directly or indirectly, falsify or 

cause to by falsified, any book, record or account 

subject to section 13(b)(2)(A) of the Securities 

Exchange Act." 

13 17C.F.R. 240.13b2-2(a) provides that: "No 

director or officer of an issuer shall, directly or 

indirectly: 

(1) Make or cause to be made a 

materially false or misleading 

statement to an accountant in 

connection with; or 

(2) Omit to state, or cause 

another person to omit to state, any 

Page 13


material fact necessary in order to 

make statements made, in light of 

the circumstances under which 

such statements were made, not 

misleading, to an accountant in 

connection with: 

(i) Any audit, 

review or 

examination of the 

financial statements 

of the issuer 

required to be made 

pursuant to this 

subpart; or 

(ii) The 

preparation or filing 

of any document or 

report required to be 

filed with the 

Commission 

pursuant to this 

subpart or 

otherwise. 

1. Acting with scienter when providing a misstatement 

The SEC alleges that Defendants provided 

misstatements to Veritas's outside auditor, Ernst & 

Young, resulting in the improper accounting treatment of 

the AOL transaction. Additionally, the SEC alleges that 

Lonchar is responsible for misstatements in Veritas's 

public [*49] filings. "A projection or statement of belief 

is a 'factual' misstatement actionable under § 10(b) if (1) 

the statement is not actually believed, (2) there is no 

reasonable basis for the belief, or (3) the speaker is aware 

of undisclosed facts tending seriously to undermine the 

statement's accuracy." Kaplan v. Rose, 49 F.3d 1363, 

1375 (9th Cir. 1994). 

At least with respect to the Section 17(a)(1) and Rule 

10b-5 claims, the SEC must show that the Defendants 

acted with scienter when providing a material 

misstatement. 14 Gebhart v. SEC, 595 F.3d 1034, 1040 

(9th Cir. 2010) (citing Ponce v. SEC, 345 F.3d 722, 729 

(9th Cir. 2003)). Scienter is defined as a "mental state 

2010 U.S. Dist. LEXIS 76826, *48 

embracing intent to deceive, manipulate or defraud." 

Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12, 96 

S. Ct. 1375, 47 L. Ed. 2d 668 (1976). Scienter also may 

be established by a showing of reckless conduct that 

consists of "a highly unreasonable act, or omission, that is 

an 'extreme departure from the standards of ordinary care, 

and which presents a danger of misleading buyers or 

sellers that is either known to the defendant or is so 

obvious that the actor must have been aware of it.'" 

S.E.C. v. Dain Rauscher, Inc., 254 F.3d 852, 856 (9th 

Cir. 2001) [*50] (quoting Hollinger v. Titan Capital 

Corp., 914 F.2d 1564, 1568-69 (9th Cir. 1990) (en 

banc)). "Scienter may be established, therefore, by 

showing that the defendants knew their statements were 

false, or by showing that defendants were reckless as to 

the truth or falsity of their statements." Gebhart, 595 F.3d 

at 1041 (citing Ponce, 345 F.3d at 729-30). "Summary 

judgment is generally inappropriate when mental state is 

an issue, unless no reasonable inference supports the 

adverse party's claim." Vucinich v. Paine, Webber, 

Jackson & Curtis, Inc., 739 F.2d 1434, 1436 (9th Cir. 

1984). 

14 This subsection discusses whether 

misstatements were made with scienter. The 

materiality of any misstatements is discussed 

below at subsection IV.B. 

a. The 2003 restatement is not sufficient evidence 

of scienter in and of itself 

Standing alone, the 2003 restatement is not sufficient 

evidence that Defendants made misstatements or acted 

with scienter. "'[T]he mere publication of inaccurate 

accounting figures, or a failure to follow GAAP, without 

more, does not establish scienter.'" In re Software 

Toolworks, Inc. v. Painewebber, Inc., 50 F.3d 615, 627 

(9th Cir. 1995) (quoting In re Worlds of Wonder Sec. 

Litig, 35 F.3d 1407, 1412 (9th Cir. 1994), [*51] 

superseded by statute on other grounds, Private 

Securities Litigation Reform Act, 15 U.S.C. § 

78u-4(b)(2), as recognized in Copperstone v. TCSI Corp., 

No. C 97-3495 SBA, 1999 WL 33295869, at *14 n.13 

(N.D. Cal. Jan. 14, 1999)). 

b. Omission of the negotiation history 

Page 14 

The SEC points out that Defendants did not inform 

Ernst & Young of the negotiation history of the AOL 

transaction, specifically the "eleventh hour" price change. 

However, the SEC has not presented any evidence that


the Ernst & Young auditors asked Defendants for such 

information. The SEC contends that the auditors did ask 

questions "regarding the background, the business 

purpose for the arrangement." (Calvello Deposition, 

SEC's Opp'n to MSJ, Ex. 38 at 63:20-25.) However, two 

of the auditors testified that they did not ask Defendants 

about the negotiating history and that they would not 

have expected Defendants to have informed them about 

that history. (See Calvello Deposition, Leslie's MSJ, Ex. 

PP at 134:19-135:23 (Calvello testifying that he did not 

ask about the negotiation history, that he did not expect 

Veritas to inform him of that history, and that he did not 

think that it was important at that time); Cherrstrom 

Deposition, [*52] Leslie's MSJ, Ex. CCC at 276:11-25 

(Cherrstrom testifying that he did not ask Leslie about the 

negotiating history).) The auditors spoke to several 

Veritas employees who knew about the eleventh-hour 

price change, and the negotiating history was not 

discussed in any of those meetings. The SEC has not 

cited any record that could support the inference that 

Defendants knew that the negotiating history was 

relevant to the revenue recognition of the AOL 

transaction. Without that evidence, the SEC cannot show 

that the Defendants misled the auditors solely by not 

informing them of the negotiating history. 

c. Mark Leslie 

The SEC alleges that Leslie, in his contacts with 

Veritas's external auditors, misrepresented that (1) there 

were valid business reasons for the advertising purchase 

and that Veritas needed the advertising, (2) the license 

and the advertising purchase were separate agreements 

that were not contingent upon each other, and (3) the 

license and the advertising purchase each were fairly 

priced. 

i. Leslie's knowledge of the AOL transaction 

The SEC has presented evidence that Veritas 

management had approved a software licensing 

agreement with AOL for $ 30 million. (Kelly 

Investigative [*53] Testimony, SEC's Opp'n to MSJ, Ex. 

42 at 37:2-4.) This would have been the largest 

transaction in Veritas's history up to that point. (Saunders 

Deposition, SEC's Opp'n to MSJ, Ex. 8 at 292:22-292:3.) 

AOL's Terry Laber signed the agreement at the $ 30 

million price on September 29, 2000. (Laber 

Investigative Testimony, SEC's Opp'n to MSJ, Ex. 108 at 

139:18-21.) Before Veritas signed the agreement, Laber 

called Leslie. (Kelly Investigative Testimony, SEC's 

2010 U.S. Dist. LEXIS 76826, *51 

Opp'n Ex. 42 at 117:7-17.) Leslie described Laber as 

asking Leslie if he could "do me a favor." (Id. at 

117:17-19.) Laber asked Leslie to restructure the deal to 

increase the price of the software license and to add an 

advertising component. (Id. at 117:22-24.) Leslie, 

describing the deal to Veritas's board of directors, said 

that "at the eleventh hour we got a request from AOL to 

gross up the deal by $ 20 million and take back an equal 

amount of dollars in paid advertising to AOL." (SEC's 

Opp'n to MSJ, Ex. 30.) 

ii. Valid business reasons and the need for 

advertising 

In January 2002, Leslie spoke with Ernst & Young 

about the AOL transaction. Jeffrey Calvello, one of the 

Ernst & Young auditors, has testified as follows: 

Q: During that [*54] discussion, did Mr. 

Leslie represent that the two agreements 

were entered into for separate and valid 

business reasons? 

A: Yes. 

Page 15 

(Calvello Investigative Testimony, SEC's Opp'n to MSJ, 

Ex. 56 at 70:17-20.) Leslie also told Kenneth Cherrstrom, 

another Ernst & Young auditor, that Veritas needed to 

enter into the advertising deal for its brand recognition 

campaign. (Cherrstrom Investigative Testimony, SEC's 

Opp'n Ex. 47 at 63:15-18.) 

The SEC alleges that Veritas did not want or need 

AOL advertising. On September 21, 2000, eight days 

before the agreement was signed, Laber was copied on an 

email from another AOL employee discussing the status 

of an advertising deal with Veritas. (SEC's Opp'n to MSJ, 

Ex. 11.) The email states: "status of ad deal -- he said 

they weren't close, and that Veritas was talking about 

doing ads after Jan. 1" and that "there were no hard 

figures on the table, but suggested $ 1M or so." (Id. 15 ) 

On September 1, 2000, Gary Florence, a Veritas sales 

representative who was involved in the AOL transaction, 

told AOL's John Najarian that Leslie "strongly 

questioned whether the market segments reached via 

AOL/Netscape were in line with our objectives." (SEC's 

Opp'n to MSJ, Ex. [*55] 9.) Mark Griffiths, Veritas's 

director of corporate marketing, referred to the deal in an 

internal email as "a consequence of the sales transaction 

that occurred. I think that all marketing people agree that 

this is not something we would have done." (SEC's Opp'n


to MSJ, Ex. 116 at VAOL0100974. 16 ) Cynthia Martin, 

Veritas's director of marketing and communications, 

answered in the affirmative when asked if she believed it 

was a "stupid deal." (Martin Investigative Testimony, 

SEC's Opp'n to MSJ, Ex. 98 at 87:5-6.) She disapproved 

of the deal because "it was a lot of money spent off our 

strategy, our advertising strategy." (Id. at 87:8-9. 17 ) 

Leslie had knowledge of that strategy because he 

participated in Veritas's branding council. (Leslie's MSJ 

at 4:13-19.) 

15 Leslie objects to this and most of the other 

evidence discussed in this paragraph as hearsay. 

The SEC contends that it can produce witnesses at 

trial who can testify from personal knowledge as 

to the contents of this email. This representation is 

sufficient for purposes of a motion for summary 

judgment. See Fraser v. Goodale, 342 F.3d 1032, 

1036 (9th Cir. 2003) (finding that "[i]t would be 

sufficient if the contents of the [evidence] [*56] 

are admissible at trial, even if the [evidence] itself 

may be inadmissible"). 

16 Leslie objects to this evidence as speculation. 

However, Griffiths may testify as to what he, as 

the director of corporate marketing, would or 

would not have done. 

17 Leslie objects to Martin's testimony, arguing 

that she is speculating as to the advertising 

strategy because she did not participate in the 

branding council. In the light most favorable to 

the SEC, Veritas's director of marketing and 

communications would have personal knowledge 

of the company's advertising strategy. 

Leslie presents evidence that he believed that Veritas 

did have a strong business interest in the advertising 

component of the deal. Griffiths testified at his deposition 

that he had a conversation with Leslie "about trying to 

find a partnership with a large online organization that we 

could develop that would allow us to have a better 

presence in the online space." (Griffiths Deposition, 

Leslie's MSJ, Ex. S at 46:3-7.) Leslie was CEO, a 

member of the branding council, and had discussions 

with Griffith -- the director of corporate marketing -specifically 

about advertising with AOL. (Id.) 

Nonetheless, viewed in the light most favorable [*57] to 

the SEC, this evidence creates only a genuine issue of 

material fact with respect to Leslie's state of mind. 

Although Leslie and Griffiths discussed advertising with 

AOL, Griffith stated specifically that he disapproved of 

2010 U.S. Dist. LEXIS 76826, *55 

this specific advertising purchase. Based on the evidence, 

a reasonable jury could find that Leslie did not believe 

that Veritas desired advertising of this magnitude from 

AOL. 

iii. Separate or contingent agreements 

The SEC contends that Leslie also misrepresented 

the contingent nature of the license and advertising 

purchase. Calvello has testified as follows: 

Q: And the next sentence, "Furthermore, 

Veritas management have represented that 

AOL's commitment to pay the software 

license and service fees was from that 

separate arrangement's initiation, never 

contingent on the company entering into 

the advertising purchase agreement", do 

you see that sentence? 

A: Yes, I do. 

Q: Okay. Did Mr. Leslie make that 

representation to you during your meeting 

with he and Mr. Lonchar? 

A: Yes. 

(Calvello Investigative Testimony, SEC's Opp'n to MSJ, 

Ex. 56 at 71:5-14.) Leslie denies making such a 

statement, but this creates only a dispute of material fact 

as to whether this conversation [*58] occurred as 

recounted by Calvello. Leslie claims that he does not 

understand what "contingent" means to an accountant. It 

is true that the ordinary meaning of the word varies 

depending on the context. For example, "contingent" can 

mean "happening or coming by chance; not fixed by 

necessity or fate; accidental, fortuitous", (Oxford English 

Dictionary (2d ed. 1989)), or it can mean "that does not 

exist of itself, but in dependence on something else," 

(id.). However, given the context of Calvello's question, 

there is a reasonable inference that Calvello was referring 

to the latter definition. 

Viewed n the light most favorable to the SEC, the 

evidence supports the inference that Leslie understood 

that the license was dependent upon the advertising 

purchase. Leslie has testified that: 

A: I believe that at the juncture where 

our proposal had been made at $ 30 

Page 16


million, had nothing else changed, we 

would not have been able to generate a 

shallower discount. But something else 

changed. 

. . . 

Q: So what had changed? 

A: They wanted us to do advertising. 

And the deal moved to a different level of 

authority in the company. And those two 

things said together, "Gee, you can do a 

bigger deal here." 

(Leslie [*59] Investigative Testimony, SEC's Opp'n to 

MSJ, Ex. 39 at 95:13-24.) The reference to a "shallower 

discount" refers to the price of Veritas's software license. 

A deeper discount would allow AOL to pay a lower 

price. Conversely, a shallower discount would require 

AOL to pay a higher price. This statement, together with 

Laber's request for a "favor," reasonably supports an 

inference that Leslie understood that the $ 50 million 

price of the licensing agreement depended upon the 

purchase of advertising. 

iv. Fair value of the agreements 

Leslie signed both a representation letter to Ernst & 

Young and the Form 10-K filed for 2000. (See SEC 

Opp'n to MSJ, Exhs. 83 and 106.) The representation 

letter stated that both the license and the advertising 

purchase, valued at $ 50 million and $ 20 million, 

respectively, were recorded at "fair value within 

reasonable limits." (Id., Ex. 106 at 2.) The Form 10-K 

publicly disclosed the license as a $ 50 million deal and 

the advertising agreement as a $ 20 million deal. (Id., Ex. 

106.) The SEC does not offer any evidence that could 

support an inference that Leslie understood what "fair 

value" would mean to an accountant. Because Veritas 

originally proposed the [*60] license to AOL at a price 

of $ 64 million, the $ 50 million price does not appear to 

be objectively unreasonable or unfair. Nonetheless, Leslie 

described the deal as an "eleventh hour . . . gross up" by $ 

20 million, (SEC's Opp'n to MSJ, Ex. 30), and he directed 

Sallaberry to pay sales commissions on $ 30 million 

rather than $ 50 million, (Sallaberry Deposition, SEC's 

Opp'n to MSJ, Ex. 19 at 228:5-229:12). Viewed in the 

light most favorable to the SEC, the latter evidence could 

support an inference that Leslie did not believe that the 

license was valued fairly at $ 50 million, even under a 

2010 U.S. Dist. LEXIS 76826, *58 

layperson's understanding of the concept. 

iv. Evidence of scienter 

Page 17 

As discussed previously, scienter may be established 

by showing that Leslie knew his statement was false or 

by showing he was reckless as to the truth or falsity of his 

statement. Gebhart, 595 F.3d at 1041. The evidence 

permits the inference that Leslie knew that the accounting 

regarding the AOL transaction was sensitive. On October 

3, 2000, Steven Brooks, a member of Veritas's board of 

directors and audit committee chairman, sent an email to 

Leslie, asking, "[O]n the AOL deal, can we make doubly 

sure that EY [Ernst & Young] are on [*61] board with 

our revenue recognition in the barter context? A fair 

amount of SEC controversy surrounds the topic." (SEC 

Opp'n to MSJ, Ex. 31.) Brooks again emailed Leslie on 

October 5, 2000, discussing "the recent large transaction" 

and the "two separate transactions notion." (SEC's Opp'n 

to MSJ, Ex. 32.) Brooks stated that "[i]t will not hurt to 

be extra cautious, since as you know better than I, a 

single revenue recognition taint can utterly destroy a 

stock." (Id.) Kenneth Cherrstrom subsequently informed 

Leslie that the accounting for the transaction would 

depend on Ernst & Young's analysis. (Cherrstrom 

Deposition, SEC Opp'n Ex. 57 at 299:12-15.) Regardless 

of whether he understood the term "barter context," 

Brooks' emails were sufficient to alert Leslie that revenue 

recognition for the AOL deal was controversial. 

Cherrstrom's testimony also permits the inference that 

Leslie knew that the information he provided to Ernst & 

Young would affect the revenue recognition for the AOL 

transaction. Viewed in the light most favorable to the 

SEC, the evidence reasonably supports an inference that 

Leslie knew that he had made a misrepresentation to 

Ernst & Young, that the revenue recognition [*62] of the 

AOL transaction was controversial, and that his 

statements could affect the revenue recognition of the 

largest transaction in Veritas's history. 

Leslie's arguments to the contrary are insufficient to 

disrupt this chain of permissible inferences. Leslie points 

to evidence tending to show that the license was valued 

fairly at $ 50 million (or at least that he believed it to be) 

and that he understood that the deals were not contingent. 

This serves only to create a dispute of material fact. 

Leslie contends that he openly described the details of the 

AOL transaction to Veritas's board of directors and audit 

committee, whose members also were likely to discuss 

the transaction with Ernst & Young. Even this, however,


would not excuse Leslie personally from making 

misrepresentations to Ernst & Young. 

Leslie relies on SEC v. Todd, No. 03CV2230, 2007 

U.S. Dist. LEXIS 38985, 2007 WL 1574756, at *5 (S.D. 

Cal. May 30, 2007), in which the SEC alleged that a CEO 

had hidden the relatedness of two transactions. The court 

in that case found that the SEC could not show scienter 

because the CEO had disclosed all of the details of the 

transaction to the company's board of directors. However, 

the CEO in Todd did not have direct [*63] contact with 

the outside auditors who were reviewing the transaction. 

He also relies on SEC v. Goldfield Deep Mines, Co., 758 

F.2d 459, 467 (9th Cir. 1985) and SEC v. Coffman, No. 

06CV00088, 2007 U.S. Dist. LEXIS 61347, 2007 WL 

2412808, at *14 (D. Co. Aug. 21, 2007) for the 

proposition that the SEC cannot show scienter because he 

relied on the opinions of others. He contends that he did 

not determine the accounting for the AOL transaction, 

and that both internal and external reviewers determined 

what rules to apply and how to apply them. Again, it is 

Leslie's direct statements to the Ernst & Young auditors 

that support the SEC's claim. The fact that others 

approved the accounting did not relieve Leslie of his 

responsibility to provide accurate answers in response to 

Ernst & Young's inquiry. 

Defendants argue collectively that they did not have 

any motive to make misrepresentations to Ernst & Young 

because Veritas was exceeding investor expectations 

even without the AOL transaction. This certainly is 

relevant evidence with respect to their intent, but "[t]he 

SEC is not required to prove scienter at trial through 

evidence of motive." SEC v. KPMG LLP, 412 F. Supp. 2d 

349, 382 (S.D.N.Y. 2006). To hold otherwise 

"inappropriately [*64] makes the scienter issue one of 

'what did the defendant want to happen' as opposed to 

'what could the defendant reasonably foresee as a 

potential result of his action.'" Id. (quoting AUSA Life Ins. 

Co. v. Ernst & Young, 206 F.3d 202, 221 (2d Cir. N.Y. 

2000)). See also Siracusano v. Matrixx Initiatives, Inc., 

585 F.3d 1167, 1182 (9th Cir. 2009) (citing Tellabs, Inc. 

v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324, 127 S. 

Ct. 2499, 168 L. Ed. 2d 179 (2007) ("The Supreme Court 

has stated, however, that, '[w]hile it is true that motive 

can be a relevant consideration, and personal financial 

gain may weigh heavily in favor of a scienter inference, 

we agree with the Seventh Circuit that the absence of a 

motive allegation is not fatal.'"). Even without evidence 

of motive, the SEC's evidence permits the inference that 

2010 U.S. Dist. LEXIS 76826, *62 

Leslie knew that his statements to Ernst & Young would 

affect the revenue recognition of the AOL transaction, 

thereby permitting the inference that Leslie foresaw that 

Ernst & Young would be misled. 

d. Kenneth Lonchar 

Page 18 

The SEC alleges essentially that Lonchar, in his 

interactions with Ernst & Young, misrepresented that (1) 

the transactions were separate and negotiated by separate 

individuals, (2) Veritas needed [*65] the AOL 

advertising to strengthen brand recognition, and (3) that 

the transactions were valued fairly in SEC filings, a 

management representation letter to Ernst & Young, and 

Veritas's internal records. Finally, the SEC alleges that 

Lonchar failed to disclose an oral agreement that 

modified the written payment terms of the AOL 

transaction. 

i. Lonchar's knowledge of the AOL Transaction 

Lonchar was involved in Defendants' discussion of 

AOL's proposal to increase the licensing fee and to enter 

into an advertising agreement. Leslie testified that Laber 

called him to propose the advertising deal. Leslie then 

directed Sallaberry to contact Jay Rappaport at AOL. 

(Leslie Investigative Testimony, SEC Opp'n to MSJ, Ex. 

39 at 88:9-11.) Sallaberry has testified that, after speaking 

with Rappaport, he met with Leslie and Lonchar in 

person. (Sallaberry Investigative Testimony, SEC Opp'n 

to MSJ, Ex. 48 at 52:18-22.) Sallaberry then "relay[ed] to 

them the conversation we just had [the conversation with 

Rappaport.]" (Id. at 53:13-14.) According to Leslie, 

Sallaberry "outlined the $ 20 million shallower discounts 

to increase the revenue by $ 20 million and advertising of 

$ 20 million." (Leslie Investigative [*66] Testimony, 

SEC Opp'n to MSJ, Ex. 39 at 89:8-11.) While Sallaberry 

discussed Laber's proposal to increase the price of the 

license by $ 20 million, neither Leslie, Lonchar, nor 

Sallaberry discussed whether the terms of the license 

would change as a result of that price increase. Sallaberry 

asked Lonchar how to structure the overall transaction, 

and Lonchar told him to make two separate contracts and 

that each party should pay cash. (Sallaberry Investigative 

Testimony, SEC Opp'n to MSJ, Ex. 48 at 66:1-10.) Leslie 

testified at his deposition that Lonchar was present at a 

meeting on October 2, 2000, and that he "[doesn't] 

believe that there was anything that [he] had knowledge 

of that wasn't expressed in that meeting." (Leslie 

Deposition, SEC Opp'n to MSJ, Ex. 29 at 361:7-12.) The 

SEC presents evidence tending to show that Leslie knew


of the last-minute change in price, and the same evidence 

permits the inference that Lonchar also knew these 

details. 

After the written agreement was signed, there was a 

dispute as to when AOL needed to pay Veritas for the 

license. Under the written terms of the agreement, Veritas 

was required to pay $ 20 million to AOL within thirty 

days of signing the agreement. [*67] (Lonchar's Reply in 

Support of Mot. for Partial SJ, Ex. 15 at 175.) Because 

the agreement was signed on September 29, 2000, 

Veritas's payment was due under the terms of the 

agreement by October 29, 2000. The written terms also 

provided that AOL was to pay within thirty days of the 

invoice. (Id.) AOL had refused to pay before December 

1, 2000, which concerned Veritas employees. (SEC's 

Opp'n to MSJ, Ex. 79.) On November 14, 2000, Veritas 

had not yet paid AOL for the advertising purchase, and 

Sallaberry copied Lonchar on an email to Michael Cully 

in which Sallaberry said, "Jay Rappaport and I agreed to 

do a simultaneous wire transfer." (SEC's Opp'n to MSJ, 

Ex. 79.) It appears that Vertias and AOL exchanged 

payments on December 1, 2000. (SEC's Opp'n to MSJ, 

Ex. 80.) 

ii. Separate transactions negotiated by separate 

individuals 

The SEC offers the deposition of Ernst & Young 

auditor David Price to support its contention that Lonchar 

misrepresented the contingent nature of the transaction. 

Price has testified that "I recall Mr. Lonchar indicating 

that his belief was no, they were two separate transactions 

negotiated by separate individuals in the company for 

separate business purposes." (Price [*68] Investigative 

Testimony, SEC's Opp'n to MSJ, Ex. 46 at 31:18-21.) 

The SEC also has presented evidence tending to show 

that Lonchar understood that the transactions were not 

separate. Lonchar knew that Sallaberry was involved in 

the negotiation of both contracts because Lonchar 

participated in a discussion with Leslie and Sallaberry 

about the details of the AOL transaction and how to 

structure it. Lonchar also knew of the simultaneous 

payment provision, that the price of the license had 

increased at the eleventh hour to correspond exactly to 

the price of the advertising purchase, and that the price of 

the licensing agreement increased without changes to the 

terms of the license. Defendants argue that the actual 

terms of the advertising agreement were not set on 

September 29, 2000 but actually were negotiated later by 

2010 U.S. Dist. LEXIS 76826, *66 

other Veritas employees. However, viewed in the light 

most favorable to the SEC, Lonchar's statement still was 

misleading, as it omitted the fact that Sallaberry was 

involved in negotiating the terms of both the license and 

the advertising purchase on September 29, 2000. 

iii. The need for advertising 

The SEC has not presented evidence that suggests 

that Lonchar was familiar [*69] with Veritas's 

advertising needs. Lonchar was the CFO of Veritas and 

would not necessarily have been aware of Veritas's 

marketing plans. Though Lonchar may have told the 

auditors that Veritas had a need for $ 20 million in 

advertising, the SEC's evidence does not suggest that (1) 

he did not actually believe the statement, (2) there was no 

reasonable basis for such a belief, or (3) Lonchar was 

aware of undisclosed facts tending seriously to 

undermine the statement's accuracy. 

iv. Fair value of the contracts 

Page 19 

Lonchar recorded the AOL transaction as a $ 50 

million license and a $ 20 million advertising purchase. 

(SEC's Opp'n to MSJ, Ex. 81.) He also signed a 

management representation letter that stated that both the 

license and the advertising purchase were recorded at 

"fair value" at $ 50 million and $ 20 million, respectively. 

(SEC's Opp'n to MSJ, Ex. 106 at 2.) Lonchar signed 

Veritas's Form 10-K for the 2000, and in August 2002, he 

certified the accuracy of Veritas's financial statements 

from 2001 and parts of 2002 pursuant to Sarbanes-Oxley. 

(See SEC's Opp'n to MSJ, Exhs. 62, 83, and 94.) The 

SEC alleges that all of this conduct was misleading. 

Lonchar "has held a Certified Public Accountant 

[*70] license in Idaho, but that license is inactive." 

(Lonchar's Answer at P 6.) To qualify as a CPA, an 

individual must pass the Uniform Certified Public 

Accountant Examination. It is not clear whether the 

concept of "fair value" was tested at the time Lonchar sat 

for the examination. In 2006, the Financial Accounting 

Standards Board ("FASB") published Financial 

Accounting Standards No. 157 ("FAS 157"), entitled 

"Fair Value Measurements." FAS 157 attempted to 

provide a definition for "fair value" and a framework for 

measuring fair value under GAAP. See Statement of 

Financial Accounting Standards No. 157, P 2 (Fin. 

Accounting Standards Bd., September 2006). The FASB 

noted that, "[p]rior to this statement, there were different 

definitions of fair value and limited guidance for applying


those definitions in GAAP." Id. The SEC has not 

presented evidence with respect to Lonchar's 

understanding of the term "fair value." As discussed 

above, Veritas initially proposed the license at $ 64 

million, (Leslie's MSJ, Ex. L at 6), and the SEC's 

evidence does not show either that Lonchar believed that 

$ 50 million was not a "fair" value of the license or that 

he had reason to doubt that the price was [*71] not 

"fair." Also, the SEC has not presented evidence with 

respect to Lonchar's knowledge of Veritas's advertising 

needs, and thus it cannot demonstrate that Lonchar did 

not actually believe that the advertising was worth $ 20 

million, that he lacked a reasonable basis for such a 

belief, or that he was aware of undisclosed facts tending 

seriously to undermine that statement's accuracy. 

v. Evidence of recklessness 

The SEC presents evidence that suggests that 

Lonchar was aware of the controversy surrounding these 

deals. Leslie received an email from Brooks asking that 

he be "extra cautious" with the revenue recognition of 

"the recent large transaction" because "a single revenue 

recognition taint can utterly destroy a stock." (SEC's 

Opp'n to MSJ, Ex. 32.) On October 5, 2000, Leslie 

forwarded this email to Lonchar. (Id.) In addition, 

Cherrstrom told Lonchar that unless Veritas could 

provide support for the fair value of the software license 

or the advertising purchase, the license would be 

recorded at $ 30 million with zero value assigned to the 

advertising. (Cherrstrom Investigative Testimony, SEC's 

Opp'n to MSJ, Ex. 47 part 1 at 50:23-51-7.) This 

evidence permits an inference that Lonchar [*72] knew 

that his statements to the auditors could influence the 

accounting of the AOL transaction. Given that this was 

the largest transaction in the history of Veritas, this 

evidence also permits the inference that the danger of 

misleading buyers or sellers was so obvious that Lonchar 

must have been aware of it. 

e. Paul Sallaberry 

The SEC alleges that Sallaberry misled the Ernst & 

Young auditors by (1) telling the auditors that the 

licensing agreement was not conditioned upon the 

advertising purchase, (2) denying involvement in 

negotiating the advertising purchase, and (3) representing 

that the $ 50 million price of the licensing agreement was 

reasonable. 

i. Sallaberry's knowledge of the AOL transaction 

2010 U.S. Dist. LEXIS 76826, *70 

As discussed above, the SEC presents evidence that 

Sallaberry negotiated the price of both the licensing 

agreement and the advertising purchase. (Leslie 

Investigative Testimony, SEC Opp'n to MSJ, Ex. 39 at 

89:1-13.) Sallaberry already was aware of the proposed $ 

30 million license. 18 On September 29, 2000, Sallaberry 

spoke with Jay Rappaport about a price increase for the 

license and the advertising purchase. (Id. at 89:1-3.) 

Sallberry communicated these terms to Leslie, including 

the $ [*73] 50 million price of the licensing agreement 

and the $ 20 million for advertising. (Id. at 89:5-13.) In 

addition, as discussed above, Sallaberry agreed to a 

simultaneous payment term that was not included in the 

written contract. (See SEC's Opp'n to MSJ, Ex. 79 

(showing Sallaberry's awareness of the simultaneous 

payment provision) and Lonchar's Reply in Support of 

Partial SJ, Ex. 15 at 175 (Ernst & Young auditor 

Cherrstrom stating that he was unaware of the 

simultaneous payment term, indicating that it was not 

included in the written contract).) When he was informed 

that Veritas might offer AOL a $ 100,000 discount if 

AOL paid before December 1, 2000, Sallaberry insisted 

that AOL pay in accordance with the simultaneous 

payment term instead. (SEC's Opp'n to MSJ, Ex. 79.) 

18 Sallaberry must have known of the $ 30 

million proposal because his approval of a deal at 

that price was necessary. (Gary Florence 

Deposition, SEC's Opp'n to MSJ, Ex. 3 at 

145:17-21.) An executable agreement for a $ 30 

million license already had been provided to AOL 

before Sallaberry and Rappaport negotiated the 

price increase. (See Laber Investigative 

Testimony, SEC's Opp'n to MSJ, Ex. 108 at 

139:18-21 (Laber testifying [*74] that he 

physically signed the $ 30 million licensing 

agreement on September 29, 2000 because he 

didn't think Veritas would agree to the advertising 

deal).) In order for Veritas to have provided AOL 

with an executable contract, Sallaberry must have 

approved the deal at $ 30 million. 

ii. Whether the licensing agreement was 

conditioned on the advertising agreement 

Sallaberry spoke with Ernst & Young auditor David 

Price. Price provided the following testimony during the 

SEC's investigation: 

A: Well, I indicated before we asked Mr. 

Page 20


Sallaberry a similar question as we asked 

Mr. Lonchar and Mr. Cully, was the 

software sales transaction contingent upon 

or connected with the advertising 

arrangement. 

Q: And what did Mr. Sallaberry say? 

A: He indicated no. 

(Price Investigative Testimony, SEC's Opp'n to MSJ, Ex. 

46 at 53:17-22.) Sallaberry negotiated the license and the 

advertising purchase together and agreed to the 

simultaneous payment provision, supporting an inference 

that he understood that the agreements were contingent. 

Defendants dispute the implications of this evidence, but 

this only creates a dispute of material fact. Viewed in the 

light most favorable to the SEC, the evidence suggests 

that [*75] Sallaberry understood that the licensing deal 

was contingent upon the advertising purchase. 

iii. Involvement in the negotiation 

As discussed above, the SEC has proffered evidence 

tending to show that Sallaberry was involved in 

negotiating at least the price of both the license and the 

advertising purchase. (Leslie Investigative Testimony, 

SEC Opp'n to MSJ, Ex. 39 at 89:1-13.) Price has testified 

as follows: 

Q: [D]id he comment on his role of the 

negotiations of advertising? 

A: No, he did not. He indicated he 

was not involved. 

Q: [H]e made that definitive 

statement, "I wasn't involved in that 

negotiation?" 

A: In fact, yes. We asked him whether 

he was involved and he indicated no. 

Q: Did he say who was? 

A: As I recall, he indicated the 

marketing department was involved in the 

transaction. 


46 at 49:18-50:2.) Price also has testified that "Mr. 

Sallaberry said that the software license contract was 

2010 U.S. Dist. LEXIS 76826, *74 

negotiated separately." (Price Deposition, SEC's Opp'n to 

MSJ, Ex. 37 at 169:17-18.) Sallaberry contends that 

people in the marketing department were involved in 

negotiating the actual terms of the advertising that AOL 

was to offer. While this may [*76] be true, there also is 

evidence that Sallaberry was involved in negotiating the 

price of the advertising purchase on September 29, 2000. 

Viewing the evidence in the light most favorable to the 

SEC, Sallaberry's statement that he was not involved in 

the negotiations was misleading. 

iv. Fairness of the price 

Page 21 

Sallaberry indicated to Ernst & Young that the $ 50 

million price of the licensing agreement, which 

represented a forty-two percent discount of the typical 

price of the software, was fair. (Sallaberry Investigative 

Testimony, SEC's Opp'n to MSJ, Ex. 48 at 240:5-11 

(Sallaberry discussing his conversation with Ernst & 

Young, recalling that "we talked about was 42 percent a 

fair discount").) Sallaberry, who has no training in 

accounting principles, argues that he believed 

subjectively that $ 50 million was a fair price for the 

software license. The evidence suggests that Sallaberry 

knew that the price of the license had increased without 

any changes to its terms. (Sallaberry Investigative 

Testimony, SEC's Opp'n to MSJ, Ex. 48 at 82:10-83:14 

(Sallaberry and Rappaport agreed to the $ 20 million 

advertising purchase, but there were still some 

"outstanding issues" to work out).) Sallaberry [*77] also 

knew that Veritas had paid commissions to the sales team 

on the AOL transaction and that the commissions were 

based on the $ 30 million price. (Sallaberry Deposition, 

SEC's Opp'n to MSJ, Ex. 19 at 228:12-13.) 

Nonetheless, the SEC has not pointed to evidence 

that suggests that Sallaberry (1) did not believe that the 

license was worth $ 50 million, (2) lacked a reasonable 

basis for such a belief, or (3) was aware of undisclosed 

facts tending seriously to undermine the statement's 

accuracy. The $ 50 million price appears reasonable in 

the context of Veritas's initial offer for the license at $ 64 

million. (Leslie's MSJ, Ex. L at 6). Moreover, Sallaberry 

directed his sales team to collect, prepare, and submit 

documents to support the $ 50 million purchase price. 


46 at 145.) The SEC has not shown that this 

documentation contained inaccuracies or misleading 

statements. While Sallaberry knew that the commissions 

were paid based on the $ 30 million price, that decision


was made by Leslie, (Sallaberry Deposition, SEC's Opp'n 

to MSJ, Ex. 19 at 229:7-12), and this fact alone is 

insufficient to support a reasonable inference that 

Sallaberry [*78] lacked a reasonable basis for his belief 

or was aware of facts that seriously undermined the 

accuracy of his statement. 

v. Evidence of recklessness 

Before September 29, 2000, Sallaberry had 

experience with deals similar to the AOL transaction. On 

September 26, 2000, when asked a question regarding an 

agreement with Disney that included both a license and 

an advertising purchase, Sallaberry responded that, "[I]'m 

worried about rev rec [revenue recognition] if we commit 

to advertising in the contract." (SEC's Opp'n to MSJ, Ex. 

21.) When discussing the potential AOL transaction with 

Leslie and Lonchar before it was signed, Sallaberry asked 

Lonchar how to structure the deal to "make sure that [he] 

did it correctly from a revenue recognition perspective, 

you know, the right way to do a legitimate business deal." 

(Sallaberry Investigative Testimony, SEC's Opp'n to 

MSJ, Ex. 48 at 57:3-6.) This evidence permits the 

inference that Sallaberry knew that revenue recognition 

for deals of this nature was controversial. If Sallaberry 

did make misrepresentations to Ernst & Young, the 

danger of misleading buyers or sellers was so obvious 

that Sallaberry must have been aware of it. Sallaberry's 

argument [*79] that he was relying on the advice of 

others cannot excuse any misstatements that he made 

personally to the Ernst & Young auditors. Although 

Sallaberry asserts that he is not familiar with accounting 

rules, the SEC's evidence suggests that he knew the 

details of the AOL transaction and recklessly made 

statements that conflicted with his knowledge of the 

transaction. 

2. Actual knowledge of violations for aiding and 

abetting liability 

In order to prevail on its claims for aiding and 

abetting, the SEC must show that the Defendants had 

actual knowledge of the primary violations and their own 

role in furthering the violations. . While the evidence 

discussed above may be sufficient to support a finding 

that Defendants acted with scienter when making certain 

misrepresentations, the evidence is insufficient to 

establish that Defendants knew that recording the license 

at $ 50 million and the advertising purchase at $ 20 

million in fact was improper. The accounting rules are 

undeniably complex, and the SEC has not directed the 

2010 U.S. Dist. LEXIS 76826, *77 

Page 22 

Court's attention to any evidence showing that 

Defendants not only knew of the relevant accounting 

principles but also knew how to apply them [*80] 

correctly. 

3. Knowingly failing to implement a system of internal 

accounting controls 

The SEC asserts that Lonchar knowingly failed to 

implement a system of internal controls under Exchange 

Act Section 13(b)(5) and aided and abetted violations of 

Exchange Act Section 13(b)(2)(B). The SEC has not 

identified the specific controls that were insufficient or 

that are needed. See SEC v. Berry, 580 F. Supp. 2d 911, 

924-25 (N.D. Cal. 2008) (dismissing a claim for internal 

control violations for not stating what controls were 

insufficient or circumvented). Moreover, the SEC has not 

pointed to evidence that could suggest that Lonchar 

knowingly failed to implement a system of internal 

controls. While the evidence may show that Lonchar 

acted recklessly and could have suspected that a system 

of internal controls was necessary, the evidence does not 

suggest that Lonchar knew that he had failed to 

implement a system of internal controls. Courts routinely 

have found that certain sections of Rule 13(b) do not 

require scienter. See S.E.C. v. McNulty, 137 F.3d 732, 

740 (2d Cir. 1998). However, while McNulty and the 

cases cited therein address 17 C.F.R. §§ 240.13b2-1 and 

240.13b2-2, the cases do not address [*81] the plain 

language of Section 13(b)(5), which requires "knowingly 

circumvent[ing] or knowingly fail[ing] to implement a 

system of internal accounting controls." 15 U.S.C.A. § 

78m(b)(5). Even in the light most favorable to the SEC, 

the evidence in the record does not support a finding that 

Lonchar acted knowingly. The SEC's allegation that 

Lonchar aided and abetted violations of Exchange Act 

Section 13(b)(2)(B) fails for similar reasons. The SEC 

has not demonstrated that Lonchar knew of the primary 

violations. 

4. Evidence of scienter is sufficient to support the 

remaining claims 

As discussed above, the SEC's evidence permits the 

inference that Defendants acted with scienter when 

making certain misstatements. This same evidence is 

sufficient to support the SEC's claims for violations of 

Rule 13b2-2 for making misleading statements to an 

accountant. Each Defendant knew that the Ernst & 

Young auditors were engaged in the process of evaluating 

Veritas's revenue recognition with respect to the AOL

transaction, and there is evidence that Defendants 

recklessly made misstatements to the auditors. These 

misstatements also are sufficient to support the mental 

state required by the SEC's claims [*82] under Rule 

13b2-1 for falsifying a record. Defendants each had 

contact with the auditors and were aware that their 

statements to the auditors could affect the Veritas's 

revenue recognition records. 19 Finally, the evidence also 

is sufficient to support a finding of negligence in 

connection with the SEC's claims under Section 17(a)(2) 

and (a)(3). Because the evidence is sufficient to support a 

finding that Defendants acted with scienter, it follows 

that the same evidence would support the conclusion that 

Defendants acted negligently. 

19 To the extent that the SEC also asserts that 

Defendants' conduct violated Section 13(b)(5), 

which makes it a violation to "knowingly falsify 

any book, record, or account", these claims fail. 

As with the SEC's allegations regarding internal 

accounting controls, Section 13(b)(5) plainly 

requires that a defendant act "knowingly". Even in 

the light most favorable to the SEC, the evidence 

does not support a finding that Defendants knew 

that their misstatements would result in the 

falsification of a record. This is a different 

standard than that in Rule 13b2-1, which at most 

requires recklessness. SEC v. Jorissen, 470 F. 

Supp. 2d 764, 771 ( E.D. Mich. 2007) [*83] 

(quoting S.E.C. v. Orr, No. 04-74702, 2006 U.S. 

Dist. LEXIS 11447, 2006 WL 542986 at *16 (E.D. 

Mich. Mar. 6, 2006) (Roberts, J.) for the 

proposition that "'[p]laintiff must ... show that the 

defendant acted unreasonably' for liability under 

Rule 13b2-1"). 

B. Materiality 


"Materiality depends on the significance that a 

reasonable investor would assign to the withheld or 

misrepresented information." U.S. v. Reyes, 577 F.3d 

1069, 1075 (9th Cir. 2009) (citing Basic Inc. v. Levinson, 

485 U.S. 224, 240, 108 S. Ct. 978, 99 L. Ed. 2d 194 

(1988)). "To be material, 'there must be a substantial 

likelihood that the disclosure of the omitted fact would 

have been viewed by the reasonable investor as having 

altered the 'total mix' of information made available.'" Id. 

(quoting Basic, 485 U.S. at 231-32). "In a securities fraud 

action, '[m]ateriality and scienter are both fact-specific 

issues which should ordinarily be left to the trier of fact,' 

2010 U.S. Dist. LEXIS 76826, *81 

although 'summary judgment may be granted in 

appropriate cases.'" Kaplan v. Rose, 49 F.3d 1363, 1375 

(9th Cir. 1994) (citation omitted). Claims under Section 

17(a)(1) and (a)(2), Section 10(b)(5) and Rule 10b-5, and 

Rule 13b2-2 explicitly require a showing that the 

misstatement was material. 

Defendants make two arguments as [*84] to why the 

misstatements were immaterial. First, they contend that 

the SEC cannot show that the error in the accounting of 

the AOL transaction would have been important to a 

reasonable investor's purchasing decisions. Second, they 

argue that either Ernst & Young's original accounting for 

the transaction was correct or the misrepresentations did 

not affect the way in which Ernst & Young originally 

accounted for the transaction. As an initial matter, the 

SEC argues that a restatement always is material because 

"under Generally Accepted Accounting Principles 

('GAAP'), a restatement issues only when errors are 

material." SEC v. Kelly, 663 F. Supp. 2d 276, 284 

(S.D.N.Y. 2009). However, information that is 

quantitatively and qualitatively material to an accountant 

under GAAP principles is not necessarily information 

that is important to a reasonable investor. 

1. Importance to a reasonable investor 

In March 2003, Veritas restated its financials in 

connection with the AOL transaction. Defendants argue 

that the effect of the restatement is immaterial as a matter 

of law. Veritas filed a Form 8-K regarding the 

restatement which described the following: 

. For the year 2000: 

. Revenue decreased from [*85] $ 1,207 

million to $ 1,190 million (1.4%) 

. Net losses increased from $ 620 

million to $ 627 million (1.1%) 

. For the year 2001: 

. Operating expenses decreased from $ 

1,812 million to $ 1,799 million (0.7%) 

. Net losses decreased from $ 651 

million to $ 643 million (1.2%) 

. For nine months of 2002: 

. Revenue decreased from $ 1,101 

million to $ 1,100 million (0.1%) 

Page 23


. Net income, previously reported at $ 

107 million, decreased by less than $ 1 

million (0.9%). 

. "The restatement ha[d] no effect on the Company's cash 

position" 

(Sallaberry's MSJ, Ex. 65 at 4.) 

The SEC's accounting expert, Dr. Seidler, provides a 

decidedly different picture of the effects of the 2003 

restatement on Veritas's financials in the fourth quarter of 

2000: 

. Total revenues decreased $ 19.2 

million (five percent) 

. Licensing revenues decreased by six 

percent 

. Net losses increased by $ 8.1 million 

(six percent) 

(Seidler report at 14.) Seidler concluded that, from an 

accounting perspective, the changes were quantitatively 

material because the effects exceeded the five percent 

threshold established by the accounting authority 

Montgomery's Auditing. (Id. at 9.) Seidler also concluded 

that the changes were qualitatively material [*86] 

because of the circumstances of the restatement, focusing 

on the allegations that management had misled the 

auditors. (Id. at 7.) It is important to highlight two aspects 

of Seidler's opinion. First, the opinion speaks only to 

accounting materiality: that is, whether the change in the 

treatment of the AOL transaction was material to an 

accountant, not with respect to whether it was important 

to a reasonable investor. Evidence of accounting 

materiality may be relevant to the question of legal 

materiality, but is not dispositive. Second, while both the 

Form 8-K and Seidler's report comment on the effects on 

the restatement, it is clear that these documents are 

comparing two different things. The Form 8-K looks at 

2000 as a whole, while Seidler only looks to the fourth 

quarter of that year. 

The SEC also offers the expert report of Mr. Davis, 

who opines on the importance of the restatement to 

reasonable investors. On November 14, 2002, Veritas 

disclosed that the SEC had subpoenaed its records related 

to the AOL transaction. It also disclosed the amounts in 

question. Based on news articles from November 15, 

2010 U.S. Dist. LEXIS 76826, *85 

2002, Davis concluded that there was sufficient 

information to cause reasonable investors [*87] to 

conclude that Veritas would restate the AOL transaction. 

Davis performed an event study and concluded that the 

restatement of the AOL transaction was material because 

there was a statistically significant decrease in the share 

price on November 15, 2002. 20 

20 The November 14, 2002 disclosure was 

released after the market closed. 

Predictably, Defendants' experts characterize the 

situation differently. Mr. O'Bryan opines on the 

correctness of the original accounting for the AOL 

transaction, but he does not appear to offer an opinion on 

the effect of the restatement to reasonable investors. Mr. 

Berquist has offered such an opinion. Berquist concludes 

that the restatement was not material because it did not 

impact meaningfully Veritas's earnings per share ("EPS") 

or its ability to exceed the First Call EPS estimate. 21 

Berquist states that he considered "Pro Forma EPS," 

which excludes onetime expenses such as those for 

acquisitions, restructuring, stock options, and 

amortization of intangible assets, and found that Veritas's 

restatement of the AOL transaction had the following 

effects: 

. The 2000 Pro Forma EPS decreased 

from $ 0.60 to $.059 (1.67%) 

. The 2001 Pro Forma EPS increased 

from [*88] $ 0.67 to $ 0.69 (2.90 %) 

. The First Call EPS estimate for 

Veritas's December 2000 Pro Forma EPS 

was $ 0.17 

. The December 2000 Pro Forma EPS 

decreased from $ 0.19 to $ 0.18 (5.26%) 

(Berquist's report at 7, 9.) 

Page 24 

21 First Call is a third-party service that averages 

and reports the EPS estimates of various sources. 

"As a general rule, summary judgment is 

inappropriate where an expert's testimony supports the 

nonmoving party's case." In re Apple Computer 

Securities Litigation, 886 F.2d 1109, 1116 (9th Cir. 

1989) (citing Bieghler v. Kleppe, 633 F.2d 531, 534 (9th 

Cir.1980). However, insignificant misstatements are not


material as a matter of law. See Parnes v. Gateway 2000, 

122 F.3d 539, 547 (8th Cir. 1997) (finding that "a 

reasonable investor, faced with a high-risk/high-yield 

investment opportunity in a company with a history of 

very rapid growth, would not have been put off by" a 

two-percent overstatement of assets); In re Westinghouse 

Sec. Litig., 90 F.3d 696, 715 (3d Cir. 1996) (finding a 

misstatement of 1.2% of assets for one quarter to be 

immaterial); In re Duke Energy Corp. Sec. Litig., 282 F. 

Supp. 2d 158, 161 (S.D.N.Y. 2003) (finding a 

misstatement of 0.3% of total revenues for a two-year 

[*89] period to be immaterial); In re Segue Software, Inc. 

Sec. Litig., 106 F. Supp. 2d 161, 171 (D. Mass. 2000) 

(finding a misstatement of 2.6% of the company's sales 

for the year to be too insignificant and non-systemic to be 

material); In re Convergent Technologies Second Half 

1984 Securities Litigation, C-85-20130-SW, 1990 WL 

606271, at *10-11 (N.D. Cal. Jan. 10, 1990) (finding a 

misstatement of less than 1.5% of net operating revenues 

for the quarter to be immaterial because the company 

exceeded investor expectations by $ 0.04 per share for the 

quarter and then recognized a "huge one time loss" of $ 

0.28 per share); Pavlidis v. New England Patriots 

Football Club, Inc., 675 F.Supp. 688, 692 (D.Mass. 

1986) (finding an increase of less than one percent in the 

yearly operating revenue to be "trivial" and 

"immaterial"). 

Given the specific facts of this transaction, the Court 

is reluctant to conclude as a matter of law that the 2003 

restatement was not material. The SEC and Defendants 

each have experts to support their positions. At the time, 

the AOL transaction was the largest transaction in 

Veritas's history. A misstatement of that transaction by 

forty percent could be important to a reasonable [*90] 

investor. The bulk of the transaction affected the fourth 

quarter of 2000, and reasonable investors often are 

concerned both with yearly and quarterly results. 

2. The original accounting for the AOL transaction 

Mr. O'Bryan opines that Ernst & Young's original 

accounting for the AOL transaction was correct. Dr. 

Seidler has submitted "opposition" to O'Bryan's report, in 

which he disagrees with O'Bryan's conclusion. Resolution 

of the experts' disagreement is best left to the trier of fact. 

See In re Apple Computer Securities Litigation, 886 F.2d 

at 1116. 

Defendants also argue that their statements to Ernst 

& Young cannot be material because Ernst & Young 

2010 U.S. Dist. LEXIS 76826, *88 

Page 25 

discredited the alleged misstatements in any event. Ernst 

& Young noted that Veritas's management had 

represented that the software licensing agreement was not 

contingent on the advertising purchase. (SEC's Opp'n to 

MSJ, Ex. 76 at 2.) However, the auditors also stated that 

"because of the proximity of execution of both 

arrangements between the parties, we have considered 

these two transactions to be linked and part of a single 

exchange." (Id.) Defendants argue that, even if they had 

told Ernst & Young that the deals were contingent, the 

[*91] original accounting treatment would not have 

changed. 

In evaluating the AOL deal as a "linked" transaction, 

Ernst & Young attempted to justify the value of either 

"leg" of the transaction. If the value of one leg could be 

justified, Ernst & Young would approve of the value of 

the other leg as well. (Price Deposition, Lonchar's Mot. 

for Partial SJ, Ex. 24 at 134:22-135:2.) In this instance, 

after questioning Defendants in 2001, Ernst & Young 

initially determined that valuing the license was too 

difficult because the terms of the license provided AOL 

with unlimited access to certain Veritas software. 

(Cherrstrom Deposition, Lonchar's Mot. for Partial SJ, 

Ex. 4 at 17:8-10.) Instead, Ernst & Young focused on the 

advertising leg of the transaction. Based on the 

information provided by Veritas and Defendants, Ernst & 

Young concluded that $ 20 million appeared to be a fair 

value of the advertising. In 2002, Ernst & Young became 

aware that the price of the license had increased by $ 20 

million on the day the agreements were signed. Knowing 

this information, Ernst & Young sought information that 

would justify that price increase. It concluded that the $ 

20 million price increase was not accompanied [*92] by 

changes to the license that could have justified the 

increase. (Cherrstrom Investigative Testimony, SEC's 

Opp'n to MSJ, Ex. 47 at 95:9-16.) Accordingly, Ernst & 

Young withdrew its support for the original accounting of 

the AOL transaction. 

The evidence permits the inference that the contents 

of Defendants' alleged misrepresentations were material. 

A reasonable investor could attach importance to whether 

or not the license and the advertising purchase were 

contingent because the answer to that question was at the 

heart of Ernst & Young's accounting treatment for a $ 50 

million transaction. Defendants' argument does not 

demonstrate that the alleged misstatements were 

unimportant to reasonable investors, but rather that 

certain misstatements did not reach reasonable investors.


While the evidence supports an inference that Defendants 

misrepresented the contingent nature of the AOL 

transaction, Ernst & Young discredited those statements. 

When Ernst & Young discredited the alleged 

misstatements, the contents of the statements did not 

reach the market or affect the decisions of reasonable 

investors. Ernst & Young's opinion with respect to the 

accounting changed not because of its discovery [*93] of 

Defendants' alleged misrepresentations with respect to 

the contingent nature of the transactions, but because of 

its discovery that the price of the license increased by $ 

20 million on the day the agreement was signed. While 

this was important because the license and the advertising 

purchase were linked transactions, the SEC has not 

demonstrated that the auditors asked questions regarding 

the negotiation history when they performed the pre-2002 

audits. 

A private plaintiff suing under Rule 10b-5 must 

demonstrate reliance on the alleged misstatement and loss 

causation, i.e., that the misstatement is the proximate 

cause of the injury. In this instance, Defendants' contend 

that their alleged misstatements were discredited and 

therefore neither affected the audit nor reached the 

market. However, the SEC need not show reliance or loss 

causation. Gebhart, 595 F.3d at 1041 n.8 ("In a private 

securities fraud action, the plaintiff generally must prove 

five elements: (1) a material misrepresentation or 

omission of fact; (2) scienter; (3) a connection with the 

purchase or sale of a security; (4) transaction and loss 

causation; and (5) economic loss. [Citation.] Our focus 

here is on the elements [*94] that the SEC must 

establish. The fourth and fifth elements of a private claim 

are therefore inapplicable."); see also Stoneridge Inv. 

Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 

128 S. Ct. 761, 769-70, 169 L. Ed. 2d 627 (2008) (while 

"[n]o member of the investing public had knowledge, 

either actual or presumed, of respondents' deceptive acts 

during the relevant times," "[i]t is true that if business 

operations are used, as alleged here, to affect securities 

markets, the SEC enforcement power may reach the 

culpable actors."). 

C. Record keeping violations 

The SEC alleges that Defendants violated Rule 

13b2-1, which provides that "[n]o person shall directly or 

indirectly, falsify or cause to by falsified, any book, 

record or account subject to section 13(b)(2)(A) of the 

Securities Exchange Act." 17 C.F.R. 240.13b2-1. While 

2010 U.S. Dist. LEXIS 76826, *92 

the evidence supports an inference that Lonchar and 

Sallaberry made misstatements to the auditors, it does not 

support an inference that the alleged misstatements 

affected Veritas records. Indeed, the only inference 

supported by the evidence as to Lonchar and Sallaberry is 

that they made misleading statements with respect to 

whether the license and the advertising purchase were 

negotiated [*95] separately or contingent upon each 

other. As discussed above, Ernst & Young discredited 

any such representations and treated the transactions as 

linked. Thus, the alleged misstatements were not 

incorporated into Veritas's financial records. Any 

inaccuracies in the original accounting therefore cannot 

be the result of these misstatements. 

Leslie, however, is situated differently. The evidence 

does support an inference that Leslie acted with scienter 

when making misstatements that did affect the audit. 

While all Defendants represented that the license was 

valued fairly at $ 50 million, only evidence against Leslie 

supports the inference that he believed that it was not 

valued fairly. He described the deal as a "gross up" and 

decided to pay commissions on $ 30 million rather than $ 

50 million. In addition, there is evidence in the record 

that could support an inference that Leslie did not believe 

that Veritas desired to purchase this magnitude of 

advertising from AOL. Because the auditors were 

searching for the fair value of either leg of the AOL 

transaction, a misstatement regarding the fair value of the 

license or Veritas's interest in the AOL advertising could 

have affected the audit [*96] and therefore Veritas's 

records. 

D. Sallaberry's responsibility for the 

misrepresentations 

1. False Statements 

Sallaberry argues that he cannot be liable under 

Section 17(a)(2) or Rule 10b-5 because he did not make a 

statement in connection with Veritas's public filings or 

sign the management representation letter connected with 

Ernst & Young's audit for 2000. Under Rule 10b-5, it is 

unlawful for any person, "by the use of any means or 

instrumentality of interstate commerce, or of the mails or 

of any facility of any national securities exchange, 

(a) To employ any device, scheme, or 

artifice to defraud, 

(b) To make any untrue statement of a 

Page 26


material fact or to omit to state a material 

fact necessary in order to make the 

statements made, in the light of the 

circumstances under which they were 

made, not misleading, or 

(c) To engage in any act, practice, or 

course of business which operates or 

would operate as a fraud or deceit upon 

any person,blockquotepara>in connection 

with the purchase or sale of any security." 

17 C.F.R. 240.10b-5. Sallaberry rightly concedes that an 

actor who did not issue a public statement still may be 

liable if there was "substantial participation or intricate 

involvement [*97] in the preparation of fraudulent 

statements . . . even though that participation might not 

lead to the actor's actual making of the statements." 

Howard v. Everex Sys., 228 F.3d 1057, 1061 n.5 (9th Cir. 

2000). Sallaberry contends that he did not participate 

substantially in making any statement. In fact, the only 

public statements identified by the SEC cannot support a 

claim against Lonchar or Sallaberry in any event. The 

evidence against Lonchar and Sallaberry supports only 

the inference that they misled the auditors with respect to 

whether the license and the advertising purchase were 

separately negotiated or contingent agreements. As 

discussed above, the auditors rebuffed any such 

representations, and the public statements and records did 

not incorporate them. 

However, the SEC's claims against Lonchar and 

Sallaberry are not necessarily predicated on public 

statements. Instead, the SEC alleges that Lonchar and 

Sallaberry made misleading statements to Ernst & Young 

in connection with an audit that was sure to affect the 

valuation of Veritas shares. As discussed above, the SEC 

need not demonstrate that any investors relied on the 

statements or even that the misstatements caused any loss 

[*98] in particular. If Lonchar or Sallaberry made an 

untrue statement of material fact in connection with the 

purchase or sale of a security, they may be liable for a 

violation of Rule 10b-5. The publication of the statement 

appears to be irrelevant in an SEC enforcement action. 

Sallaberry relies on In re Cylink Secs. Litig., 178 F. 

Supp. 2d 1077, 1084 (N.D. Cal. 2001), in which the court 

concluded that a defendant who instructed his sales force 

to solicit a deal for which revenue was incorrectly 

recognized was not liable because there was no allegation 

2010 U.S. Dist. LEXIS 76826, *96 

that he was involved in the process of revenue 

recognition or the issuance of financial statements. The 

SEC presents evidence that Sallaberry was involved in 

the process of revenue recognition and had direct contact 

with outside auditors who were trying to valuate the AOL 

transaction. The other cases upon which Sallaberry relies 

are distinguishable. See In re Gilead Scis. Secs. Litig., 

No. C 04-0100 SI, 2009 U.S. Dist. LEXIS 95072, 2009 

WL 3320492 (N.D. Cal. Oct. 13, 2009) (ultimately 

dismissing a complaint because it failed to allege with 

any specificity how the defendant was substantially 

involved with the statement and no allegation could 

support a finding of scienter), [*99] SEC v. Fraser, 2009 

WL 2450508, 2009 U.S. Dist. LEXIS 70198, 2009 WL 

2450508, at *8 (D. Ariz. Aug. 11, 2009) (dismissing a 

complaint for failing to allege the nature of the 

defendant's involvement in reviewing and discussing 

SEC filings, including whether the defendant suggested 

what the forms should state, or that any such suggestion, 

if it occurred, was heeded), and SEC v. Berry, 580 F. 

Supp. 2d 911, 922 (N.D. Cal. 2008) (finding that "[t]he 

SEC's conclusory pleadings that [the defendant] 

'reviewed' and 'discussed' various filings is insufficient to 

plead (with particularity) [the defendant's] role in the 

purported fraud"). The SEC offers evidence that provides 

specific details of Sallaberry's participation in the revenue 

recognition process. See McGann v. Ernst & Young, 102 

F.3d 390, 394 (9th Cir. 1996) (parenthetically quoting 

Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1226 

(10th Cir. 1996) for the proposition that accountants may 

be liable under anti-fraud laws if they "make a false or 

misleading statement (or omission) that they know or 

should know will reach potential investors"). The 

evidence is sufficient to create a genuine issue of material 

fact with respect to whether Sallaberry or Lonchar acted 

[*100] with scienter when making misstatements directly 

to Ernst & Young. 

2. Scheme liability 

Page 27 

In the alternative, the SEC argues that Sallaberry 

may be held liable under Section 17(a)(2) and Rule 10b-5 

under a scheme liability theory. An actor is liable for 

participation in a scheme to defraud if the actor "engaged 

in conduct that had the principal purpose and effect of 

creating a false appearance of fact in furtherance of the 

scheme." Simpson v. AOL Time Warner Inc., 452 F.3d 

1040, 1048 (9th Cir. 2006), vacated on other grounds sub 

nom. Avis Budget Group, Inc. v. Cal. State Teachers' Ret. 

Sys., 552 U.S. 1162, 128 S.Ct. 1119, 169 L. Ed. 2d 945


(2008). However, the alleged conduct must be more than 

a reiteration of the misrepresentations that underlie the 

misstatement claims. SEC v. Lucent Techs., Inc., 610 F. 

Supp. 2d 342, 361 (D.N.J. 2009) (citation omitted). Here, 

the SEC must point to evidence that Sallaberry engaged 

in conduct outside of his interactions with Ernst & 

Young. 

The SEC alleges that Sallaberry engaged in a scheme 

to inflate the revenue recognition of the AOL transaction. 

It argues that two of Sallaberry's actions had the principal 

purpose and effect of creating a false appearance of fact 

in furtherance of that [*101] scheme. First, in August 

2002, the San Jose Mercury News contacted Veritas and 

asked for comments on the AOL transaction. Sallaberry 

was aware of this inquiry. (Sallaberry Deposition, SEC's 

Opp'n to MSJ, Ex. 19 at 287:7-12.) The statement given 

to the San Jose Mercury News stated that: "Unlike some 

companies, VERITAS does not engage in 'swap' or 

'barter' transactions. In all of the transactions you allude 

to, the revenue for VERITAS was paid in cash and the 

pricing to customers was on normal commercial terms." 

(SEC's Opp'n to MSJ, Ex. 87 at VAOL 0002082.) 

Sallaberry testified that he was familiar with the term 

"barter transaction" and defined it as a transaction in 

which "you are selling something to someone and when 

they're buying something from you." (Sallaberry 


59:24-25.) Sallaberry testified that he was instructed by 

Lonchar to make two separate contracts and that each 

party should pay cash. (Sallaberry Investigative 

Testimony, SEC Opp'n to MSJ, Ex. 48 at 66:1-10.) The 

SEC has not presented evidence with respect to the 

"normal commercial terms" for similar licenses of Veritas 

software. Accordingly, there is insufficient evidence 

[*102] in the record to support an inference that 

Sallaberry's statement to the San Jose Mercury News was 

a misrepresentation of the transaction. 

In August 2002, Veritas launched an internal review 

of the AOL transaction in light of the newly-enacted 

Sarbanes-Oxley regulations. Sallaberry spoke with 

William Kelly ("Kelly"), a lawyer with Veritas's outside 

counsel at Davis Polk & Wardwell. Kelly recalls that: 

[H]e indicated that he was aware that 

the, you know, the transaction terms had 

changed at the end, that they had changed 

as a result of a conversation that had 

happened with Mark Leslie and not with 

2010 U.S. Dist. LEXIS 76826, *100 

him, and that he was not directly involved 

in the discussion with AOL. And so, he 

basically just said he didn't know what 

happened in the conversation. 

(Kelly Investigative Testimony, SEC's Opp'n to MSJ, Ex. 

42 at 120:18-24.) Sallaberry's statement to Kelly appears 

to be a misrepresentation. Leslie was involved in the 

conversation with AOL, but, according to both men, so 

was Sallaberry. A fact finder could infer that the principal 

purpose of Sallaberry's statement to Kelly was to create a 

false impression of the AOL transaction in furtherance of 

the misstatements made to Ernst & [*103] Young in 

2001. 

E. Application of the time bar of 28 U.S.C. § 2462 to 

the SEC's prayer for relief 

Leslie and Sallaberry argue that the SEC's request for 

civil monetary penalties and application of the director 

and officer bar are untimely pursuant to 28 U.S.C. § 

2462. This Court previously concluded that "§ 2462 does 

apply to SEC actions." Leslie, 2008 U.S. Dist. LEXIS 

79790, 2008 WL 3876169 at *8 (citing 28 U.S.C. § 

2462). "An action seeking civil penalties under § 2462 

'shall not be entertained unless commenced within five 

years from the date when the claim first accrued.'" Id. 

"Under § 2462, a claim accrues on the date that a 

defendant allegedly violated the statute and not on the 

date plaintiff discovered, or should have discovered, the 

alleged violation." 2008 U.S. Dist. LEXIS 79790, [WL] at 

*9 (citing to FEC v. Williams, 104 F.3d 237, 240 (9th Cir 

1996)). 

1. Civil penalties 

The SEC nonetheless argues that civil penalties are 

not time-barred, for two reasons. First, it contends that it 

brought its action within five years of the last actions 

taken by Leslie and Sallaberry in furtherance of the 

fraudulent scheme. Second, it claims that the statute of 

limitations is tolled by fraudulent concealment on the part 

of Leslie and Sallaberry. 

a. Fraudulent [*104] scheme 

Page 28 

The SEC argues that Leslie and Sallaberry engaged 

in a fraudulent scheme to inflate the share price of 

Veritas. The Court ruled previously that "the latest 

unlawful act alleged in the complaint with respect to the 

AOL transaction occurred in 2000 and 2001, when


Veritas initially booked the transaction and when it first 

published financial statements reflecting the improperly 

booked transactions. Later financials reflecting the 

improperly booked transactions are simply a continuing 

ill-effect of the initial alleged violation and do not 

constitute separate violations." Leslie, 2008 U.S. Dist. 

LEXIS 79790, 2008 WL 3876169 at *9. The SEC 

contends that Leslie's latest unlawful acts actually are his 

sales of Veritas stock between February 14, 2001 and 

July 15, 2002. Similarly, the SEC contends that 

Sallaberry's latest unlawful acts are his stock sales 

between May 2, 2001 and February 13, 2002. Both 

allegations are included in the SEC's amended complaint. 

Because Sallaberry entered into to a seven-month tolling 

agreement with the SEC, the SEC argues that its original 

complaint filed on July 2, 2007 was filed within the 

five-year statute of limitations. 

The SEC relies upon SEC v. Kelly, 663 F.Supp.2d 

276, 287-88 (S.D.N.Y. 2009), [*105] which discusses the 

"continuing violation doctrine." That doctrine applies 

when "a violation, occurring outside of the limitations 

period, is so closely related to other violations, not 

time-barred, as to be viewed as part of a continuing 

practice such that recovery can be had for all violations." 

Id. (internal citations omitted). However, the application 

of the doctrine to Section 2462 has been questioned. 

Leslie, 2008 U.S. Dist. LEXIS 79790, 2008 WL 3876169 

at *9 n.14 (citing SEC v. Jones, No. 05 Civ. 7044(RCC), 

2006 U.S. Dist. LEXIS 22800, 2006 WL 1084276, at *4 

(S.D.N.Y. April 25, 2006). To the extent that the doctrine 

applies, "it may not be predicated on the continuing 

ill-effects of the original violation; rather, it requires 

continued unlawful acts." Leslie, 2008 U.S. Dist. LEXIS 

79790, 2008 WL 3876169 at *9. Leslie and Sallaberry 

argue that any artificial inflation in stock price in 2002 

was merely the continuing ill-effect of the original 

violations that accrued in 2001. 

While the inflation of the stock price may have been 

a continuing effect of any original violations, the issue is 

whether subsequent sale of stock is a new violation, 

occurring outside the limitations period, that is closely 

tied with the original violations. Under any scheme to 

inflate stock [*106] price, actually selling stock would 

appear to be the ultimate goal and thus closely tied to the 

original violation. Arguably, the sale of stock at an 

artificially inflated price adds to any preexisting ill-effect 

in that it injures the new purchasers of the stock who paid 

the artificially inflated price. However, selling stock on 

2010 U.S. Dist. LEXIS 76826, *104 

Page 29 

the market is not a face-to-face transaction, and the new 

purchaser would have been injured even if Leslie and 

Sallaberry had not sold their stock. The new purchasers 

likely would have purchased someone else's stock for the 

same price on the open market. Any purchase while the 

share price was inflated artificially thus is nothing more 

than the continuing ill-effect of the original violations. 

b. Tolling on the basis of fraudulent concealment 

The SEC directs the Court's attention to SEC v. 

Kearns, 691 F. Supp.2d 601, 613 (D.N.J. 2010) 

(following the Seventh Circuit and purportedly the Ninth 

Circuit to hold that "claims bound by the limitations 

period in § 2462 but sounding in fraud are equitably 

tolled until the date of discovery, so long as the SEC 

pursued its claim with due diligence"). In Williams, 104 

F.3d at 240, the Ninth Circuit followed 3M Co. v. 

Browner, 17 F.3d 1453, 1461, 305 U.S. App. D.C. 100 

(D.C. Cir.1994) [*107] in rejecting the "discovery rule," 

an approach in which claims for relief under 28 U.S.C. § 

2462 begin to accrue only when the plaintiff knows or 

has reason to know of the injury that is the basis of the 

action. 22 However, the Ninth Circuit also held that the 

period may be equitably tolled when three conditions are 

met: "fraudulent conduct by the defendant resulting in 

concealment of the operative facts, failure of the plaintiff 

to discover the operative facts that are the basis of its 

cause of action within the limitations period, and due 

diligence by the plaintiff until discovery of those facts." 

Id. at 240-41. The Court does not read Williams as 

providing for tolling of the limitations period whenever a 

claim sounds in fraud. The Court declines to follow 

Kearns to the extent that it is inconsistent with Ninth 

Circuit precedent. 

22 The Court recognizes that Williams and 

Browner did not involve fraud under securities 

laws. However, this Court and others have found 

that the reasoning of Browner applies in securities 

cases. See Leslie, 2008 U.S. Dist. LEXIS 79790, 

2008 WL 3876169 at *9 n.13 (concluding that the 

discovery rule is "unworkable, outside the 

language of the statue, inconsistent with judicial 

interpretations [*108] of § 2462 . . . and 

incompatible with the functions served by the 

statue of limitations in penalty cases.") (quoting 

Browner, 17 F.3d at 1460). 

"The Commission may prove the concealment 

element by demonstrating 'either that [Defendants] took


affirmative steps to prevent [discovery of the fraud] or 

that the wrong itself was of such a nature as to be 

self-concealing.'" SEC v. Jones, 476 F. Supp. 2d 374, 382 

(S.D.N.Y. 2007) (citing New York v. Hendrickson Bros., 

Inc., 840 F.2d 1065, 1083 (2d Cir. 1988) (marks in the 

original). Though the issue was raised in Leslie's and 

Sallaberry's moving papers, the SEC's opposition papers 

make no attempt to argue that the fraud was 

self-concealing. Instead, it contends that Leslie and 

Sallaberry took affirmative steps to prevent the discovery 

of the fraud. In particular, the SEC alleges that both 

Leslie and Sallaberry acted to "conceal the AOL 

transaction and its fraudulent nature" from the San Jose 

Mercury News in August 2002. It also alleges that 

Sallaberry took affirmative steps in August 2002 to 

conceal the fraud by misleading Veritas's outside counsel, 

Kelly, who was conducting an internal review of the 

AOL transaction. 

With respect to the allegations [*109] involving the 

San Jose Mercury News, as discussed above, the 

allegations against Sallaberry are insufficient to create a 

material dispute as to whether Sallaberry attempted to 

mislead the San Jose Mercury News. In addition, the 

SEC's opposition is entirely devoid of factual allegations 

that Leslie actually misled the San Jose Mercury News. 

With respect to the allegations involving Kelly, 

Sallaberry points out that equitable tolling in the Ninth 

Circuit requires "fraudulent conduct by the defendant 

resulting in concealment of the operative facts." 

Williams, 104 F.3d at 240 (emphasis added). Sallaberry 

contends that none of his actions actually resulted in the 

concealment of operative facts. It was the price change 

that was the key piece of information to the auditors, and 

Kelly testified that he knew of the price change, 

irrespective of representations by Sallaberry. (See Kelly 


124:15-125:1) (describing that Lonchar told him that the 

price moved from $ 30 million to $ 50 million).) 

2. The director and officer bar 

"The Ninth Circuit has not addressed the point of 

whether a director and officer bar constitutes a penalty 

for purposes [*110] of section 2462" but "the weight of 

authority [ ] holds either that (1) injunctive relief such as 

a director and officer bar is equitable and not subject to 

any statute of limitations, [citations], or (2) that the 

question is one for decision on a developed record, based 

upon whether the evidence indicates that the relief is 

2010 U.S. Dist. LEXIS 76826, *108 

Page 30 

necessary to prevent future wrongdoing, rather than 

merely to punish the defendant [citations]." Leslie, 2008 

U.S. Dist. LEXIS 69540, 2008 WL 4183939 at *3. In its 

previous ruling, the Court was "convinced that the second 

approach -- which turns on a case-specific inquiry into 

the nature of the requested injunctive relief -- is the wiser 

one." Id. Under that approach, the determination of 

whether the director and officer bar is equitable or 

punitive "turns on (1) the likelihood of recurrence of 

violations, and (2) the possible collateral consequences of 

issuing an injunction." Id. 

Leslie and Sallaberry argue that the likelihood of 

recurrence is low. Leslie retired as CEO of Veritas on 

December 31, 2000 and resigned from the board of 

directors on May 31, 2004. Leslie subsequently was 

named as a defendant in a Brocade shareholder derivative 

suit, but the claims against him were dismissed. 

Otherwise, [*111] Leslie has not been accused of 

wrongdoing apart from the present action. He continues 

to serve as a director of various companies. Sallaberry 

contends that, outside of the instant allegations, he has 

never been involved in questionable conduct and that his 

twenty-five year sales record otherwise is unblemished. 

Both Leslie and Sallaberry also argue that the 

possible collateral consequences of an injunction are 

high. Leslie contends that a director and officer bar would 

stigmatize him and affect his ability to both pursue 

professional opportunities and charitable and 

philanthropic endeavors. Sallaberry claims that an 

injunction would stigmatize him and impair his ability to 

work with companies in Silicon Valley. Relying on SEC 

v. First Pacific Bancorp, 142 F.3d 1186, 1194 (9th Cir. 

1998), the SEC contends that the court should not 

consider the effects of the bar on a defendant's charitable 

and philanthropic endeavors. However, the Ninth 

Circuit's analysis in that case appears to be highly 

fact-driven and is not a categorical ban on considering 

such activities. 

The SEC does not dispute the factual showing 

offered by Leslie and Sallaberry, instead citing to [*112] 

SEC v. Mercury Interactive, No. C 07-2822 JF (RS), 

2008 U.S. Dist. LEXIS 107706, 2008 WL 4544443, at *4 

(N.D. Cal. Sept. 30, 2008), a case in which this Court 

declined a motion to dismiss the SEC's request for a 

director and officer bar. However, Mercury Interactive 

was decided on a motion to dismiss, when the factual 

record had not been developed. The instant case is in an

entirely different posture, and the Court does have the 

benefit of a fully-developed record. As this Court noted 

previously, "the question is one for decision on a 

developed record, based upon whether the evidence 

indicates that the relief is necessary to prevent future 

wrongdoing, rather than merely to punish the defendant." 

Leslie, 2008 U.S. Dist. LEXIS 69540, 2008 WL 4183939 

at *3. The SEC's assertion, in a footnote, that "such a 

review should wait until trial, as there are genuine issues 

of material fact" is wholly insufficient to withstand 

Leslie's and Sallaberry's motions for summary judgment 

on this point. Accordingly, the Court determines that in 

this case the director and officer bar would be a penalty. 

F. Disgorgement 


"Under certain limited circumstances a district court 

may issue summary judgment on its own motion." 

Portsmouth Square, Inc. v. Shareholders Protective 

Comm., 770 F.2d 866, 869 (9th Cir. 1985). [*113] Most 

commonly, "[s]ua sponte summary judgment is 

appropriate where one party moves for summary 

judgment and, after the hearing, it appears from all the 

evidence presented that there is no genuine issue of 

material fact and the non-moving party is entitled to 

judgment as a matter of law." Id. (citing Cool Fuel, Inc. 

v. Connett, 685 F.2d 309, 311 (9th Cir. 1982)). A district 

court also may grant summary judgment sua sponte in 

other situations, such as in the context of a final pretrial 

conference: 

If the pretrial conference discloses that 

no material facts are in dispute and that the 

undisputed facts entitle one of the parties 

to judgment as a matter of law, a summary 

disposition of the case conserves scarce 

judicial resources. The court need not 

await a formal motion, or proceed to trial, 

under those circumstances. 

Id. In this instance, the parties have engaged in 

voluminous discovery, Defendants' moving papers 

challenge the fundamental aspects of the SEC's claims 

against them, and the parties appear to have submitted all 

of the relevant evidence they are capable of mustering. 

Where a district court grants summary judgment in 

the absence of a formal motion, the party against whom 

judgment [*114] is entered is "entitled to reasonable 

notice that the sufficiency of his or her claim will be in 

2010 U.S. Dist. LEXIS 76826, *112 

Page 31 

issue." Id. (citing Townsend v. Columbia Operations, 667 

F.2d at 849; Portland Retail Druggists Assoc. v. Kaiser 

Foundation Health Plan, 662 F.2d 641, 645 (9th Cir. 

1981)). "Reasonable notice implies adequate time to 

develop the facts on which the litigant will depend to 

oppose summary judgment, id. (citing Portland Retail, 

662 F.2d at 645), and "the party against whom judgment 

was entered [must have] had a full and fair opportunity to 

develop and present facts and legal arguments in support 

of its position" Id. (citing Cool Fuel, 685 F.2d at 312). 

While the instant motions do not address specifically the 

SEC's prayer for disgorgement, resolving the issues that 

are raised in the instant motions also resolves the SEC's 

request for disgorgement with respect to certain 

Defendants. Discovery closed on December 16, 2009, 

and the SEC has disputed vigorously the arguments 

raised by Defendants. Accordingly, the Court will 

address sua sponte the SEC's request for disgorgement. 

"The district court has broad equity powers to order 

the disgorgement of 'ill-gotten gains' obtained through the 

violation [*115] of the securities laws." First Pac. 

Bancorp, 142 F.3d at 1191 (citing SEC v. Clark, 915 

F.2d 439 (9th Cir. 1990)). "Disgorgement is designed to 

deprive a wrongdoer of unjust enrichment, and to deter 

others from violating securities laws by making 

violations unprofitable." Id. (citing Hateley v. SEC, 8 

F.3d 653, 655 (9th Cir. 1993); SEC v. Rind, 991 F.2d 

1486, 1491 (9th Cir. 1993)). As discussed above, even if 

the SEC demonstrates that Defendants violated securities 

laws in connection with their statements to the Ernst & 

Young auditors, the SEC has not presented evidence that 

supports an inference that Lonchar or Sallaberry 

improperly affected the audit. The evidence supports only 

an inference that Lonchar and Sallaberry misrepresented 

the contingent nature of the AOL transaction. Despite the 

alleged misrepresentations, Ernst & Young treated the 

transactions as linked. To the extent that the original 

accounting was incorrect and improperly inflated 

Veritas's share value, this was a result of Ernst & Young's 

failure to ask Lonchar and Sallaberry questions about the 

negotiation history and not the result of 

misrepresentations with respect to whether the 

transactions were linked. Because [*116] their conduct 

was not the cause of the inflation in the value of Veritas 

shares, Lonchar and Sallaberry could not have received 

any unjust enrichment as a result of that inflation in share 

value. The amount ordered to be disgorged at least must 

be a reasonable approximation of the profits causally 

connected with the violation. First Pac. Bancorp, 142

F.3d at 1192 n.6 (citing First Jersey, 101 F.3d at 1475). 

Because there is no evidence that Lonchar or Sallaberry 

have received profits in connection with their alleged 

misrepresentations, disgorgement is inappropriate. 

Again, however, Leslie is situated differently. The 

evidence permits the inference that Leslie acted with 

scienter when providing misstatements regarding the fair 

value of the license and Veritas's need for the AOL 

advertising. The auditors were searching for the fair value 

of either leg of the AOL transaction, and it is conceivable 

that the outcome of the audit was affected by either of 

these misstatements. If the error in the original 

accounting resulted in an improper inflation of Veritas's 

share value, Leslie may have been unjustly enriched as a 

result. 

V. DISPOSITION 


Good cause therefor appearing: 

(1) Defendants' motion [*117] to sever 

will be denied; 

(2) Defendants' motion to exclude Dr. 

Seidler's testimony will be granted in part 

and denied in part. Seidler may testify at 

trial regarding accounting materiality, but 

not at to legal concepts and case law, 

statutes, or whether specific conduct was 

fraudulent, intentional, or misleading; 

(3) Sallaberry's motion to exclude 

Davis's testimony will be denied. 

Lonchar's motion to exclude portions of 

Davis's report will be granted. Davis may 

testify at trial regarding the 2003 

2010 U.S. Dist. LEXIS 76826, *116 

restatement but not the 2004 restatement; 

(4) Defendants' motions for summary 

judgment and partial summary judgment 

will be granted in part and denied in part. 

The motions will be granted with respect 

to the SEC's third claim for relief against 

Lonchar and Sallaberry (record-keeping 

violations under Rule 13b2-1), its fourth 

claim for relief with against Lonchar 

(internal control violations under Section 

13(b)(5)), and its sixth claim for relief 

against all Defendants (aiding and abetting 

reporting violations of Exchange Act §§ 

13(a) and 13(b)(2)(A) and Exchange Act 

Rules 12b-20, 13a-1, 13a-11, 13a-13 and 

13b2-1). Leslie's and Sallaberry's motions 

related to the SEC's prayer for civil 

penalties [*118] and the director and 

officer bar also will be granted; and 

(5) Summary judgment is granted in 

favor of Lonchar and Sallaberry with 

respect to the SEC's prayer for 

disgorgement. 

IT IS SO ORDERED 

DATED: 7/29/2010 

/s/ Jeremy Fogel 

JEREMY FOGEL 


Page 32


EXHIBIT 7


Not Reported in F.Supp.2d, 2003 WL 25781901 (C.D.Cal.) 

(Cite as: 2003 WL 25781901 (C.D.Cal.)) 

Only the Westlaw citation is currently available. 

United States District Court, 

C.D. California. 

TICKETMASTER CORP. 

v. 

TICKETS.COM, INC. 

No. CV 99-07654 HLH (VBKx). 

Feb. 10, 2003. 

Named Expert: Mark A. Lemley 

Steven E. Sletten (Gibson, Dunn & Crutcher, LLP), 

Robert E. Cooper, Joseph M. Freeman, Robert H. 

Platt (Manatt, Phelps & Phillips, LLP), Mark S. Lee 

, Chad S. Hummel, for Plaintiffs. 

William Taylor (Brobeck, Phleger & Harrison), 

Howard Holderness, James L. Miller, Heather B. 

Nolan, for Defendants. 

PROCEEDINGS: TICKETMASTER'S NOTICE 

OF MOTION AND MOTION TO EXCLUDE 

EXPERT TESTIMONY OF MARK A. LEM- 

LEY, FILED 1/13/03 

HARRY L. HUPP, District Judge. 

*1 Arlene Chavez, Deputy Clerk. 

Cynthia L. Mizell, Court Recorder. 

ORDER (also, if applicable, findings and memorandum 

opinion): 

The motion of plaintiff Ticketmaster Corporation 

(hereafter TM) to exclude on Daubert grounds the 

expert testimony of Professor Mark A. Lemley 

(hereafter Lemley) on behalf of defendant Tickets.Com 

(hereafter TX) is denied, subject to the exceptions 

set forth below. 

The essence of TM's motion is that Lemley cannot 


Page 1 

testify on the workings of the internet because he is 

not a technically trained computer expert, but is, instead, 

a mere law professor. Further, the objection 

is that certain of his opinions are now moot (in 

view of the dismissal of certain of plaintiff's 

claims) and that there are certain legal opinions 

contained in Lemley's report which are in the sole 

province of the court, not that of an expert witness. 

Lemley has expressed certain opinions as to the 

possibility of confusion from TX using factual material 

derived from the TM web pages. However, 

the recent dismissal of the Lanham Act claims 

makes such opinions irrelevant because of mootness 

and will be excluded from Lemley's testimony. 

Likewise, any other items solely directed toward 

the dismissed claims will, of course, be excluded. 

Lemley has also expressed certain legal opinions in 

his statement. Those items identified as legal opinions 

will be excluded as being within the sole 

province of the court. The court does not mean that 

Lemley is incompetent to express such opinions. 

Indeed, he may be more competent to express them 

than is the court. However, in our system, the sole 

source of the law for the jury is the judge, not the 

expert witness. For example, Lemley notes that in 

the course of acquiring factual material from the 

TM internal web pages, the “spider” program momentarily 

takes a “copy” of the TM interior web 

page onto the TX computer. Lemley explains how 

and why this is done in the process of obtaining 

facts from the TM interior web page. He also expresses 

the legal opinions that the factual material 

is not subject to copyright protection and that the 

momentary copying is “fair use” of taking the copy 

in order to obtain the non-protected facts. The description 

of how the process works is within the expertise 

of Lemley. The opinion that factual material 

is not protected and that the momentary copy is 

“fair use” (as expressed preliminarily by the court 

in connection with the preliminary injunction motion) 

is for the court and may not be stated by Professor 

Lemley to the jury, no matter how capable he


Not Reported in F.Supp.2d, 2003 WL 25781901 (C.D.Cal.) 

(Cite as: 2003 WL 25781901 (C.D.Cal.)) 

is of expressing it to the court if he were counsel in 

the case. There are numerous such legal opinions 

contained in Lemley's statement, and they will be 

excluded by the court from testimony of the witness. 

The court requests that Professor Lemley and 

counsel for TX do a preliminary job of removing 

these legal conclusions before pretrial and serve the 

result to plaintiff. 

The balance of the motion is denied. Lemley has 

shown extensive study and research into the operation 

of the internet. His voluminous publications on 

the subject in journals of high repute show his 

background and the impressive extent of his knowledge 

of how the internet works and the issues regarding 

the working of various aspects of the internet. 

One does not have to be a computer expert to 

have gained the knowledge from a different perspective 

than plaintiff's experts of how the various 

techniques used by the parties work. Thus, Lemley 

has the background and experience to describe how 

information is retrieved by one computer from the 

web page of another, how the URL works, how to 

use the URL to gain access to a web page, how 

linking is used to ease the work of transferring from 

one web page to another, the protocols used to construct 

web addresses, the difference between static 

and dynamic web pages and the problems connected 

with each, how dynamic web pages are constructed, 

modified, and accessed, how spiders work 

and retrieve information from publically available 

web sites, how security functions can work, how 

conditions of access and their various forms can be 

used, including the passive warning versus the affirmative 

key stroke to denote acceptance of conditions, 

the use and technique of “deep” linking to interior 

web pages, and how the same is used by 

search engines, the difference between purely factual 

information and the method of expression of the 

same, and the like. While Lemley has opinions on 

the legal effect of these facts, which he may not express, 

he shows that he has the experience and 

background to describe what is taking place in 

terms understandable to a jury (or even to a judge). 

*2 Accordingly, Professor Lemley's years of background 

and experience with the internet qualify him 

to describe the workings of the items at issue in this 

case whether or not he could actually write the 

computer program for a spider, which is not what 

the case is about in any event. 

C.D.Cal.,2003. 

Ticketmaster Corp. v. Tickets.com, Inc. 

Not Reported in F.Supp.2d, 2003 WL 25781901 

(C.D.Cal.) 

END OF DOCUMENT 


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