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Case 1:11-cv-00733-WHP Document 140 Filed 03/09/12 Page 1 of 7



individually and on behalf of all others
similarly situated,














Case 1:11-cv-00733-WHP Document 140 Filed 03/09/12 Page 2 of 7

Lead Plaintiff submits this supplemental memorandum, pursuant to a February 27, 2012

Order of the Court (Docket No. 124), in support of a motion to strike certain documents that

defendant BAC, the Executive Defendants, and the Underwriter Defendants submitted in support

of their motions to dismiss, a schedule of which challenged documents is attached as Exhibit 1 to

the declaration of Jeffrey A. Barrack.

By letter dated February 15, 2012, Lead Plaintiff requested a pre-motion conference,

pursuant to the Court’s Individual Practices, concerning a proposed motion to strike certain

documents that Defendants submitted. See Exhibit 2, Barrack Decl. BAC and the Executive

Defendants responded by letter dated February 23, 2012 (Exhibit 3, Barrack Decl.), offering a

variety of rationalizations to justify their citations to documents outside the record on their

motion to dismiss. None of their justifications is well-founded here.

First, BAC and the Executive Defendants seek to justify their citations to the challenged

documents by arguing that it is appropriate to consider documents outside the record in

determining the legal sufficiency of Lead Plaintiff’s scienter allegations because, they claim,

they must be judged based upon the “inherently comparative” inquiry required by the plausibility

test of a claim under Section 10(b) of the Securities Exchange Act of 1934. Tellabs, Inc. v.

Makor Issues & Rights, Ltd., 551 U.S. 308, 323 (2007). However, BAC and the Executive

Defendants refer to only two of the 36 challenged documents in asserting that the complaint does

not adequately plead scienter. See excerpts of J.P. Morgan Form 10-Q dated November 9, 2010,

and excerpts of Wells Fargo Form 10-Q dated November 5, 2010 (Musoff Exhibits CC, DD),

referenced at p. 21 of the BAC and Executive Defendants’ opening memorandum in support of

their motion to dismiss. These two documents, however, were filed with the Securities and

Exchange Commission after the class period. Moreover, there is nothing linking anything in


Case 1:11-cv-00733-WHP Document 140 Filed 03/09/12 Page 3 of 7

those extrinsic documents to the states of the Defendants’ minds during the class period.

Accordingly, these two documents are not properly presented for consideration. As the Second

Circuit has warned:

Judicial notice of a disputed fact should not ordinarily be taken as the basis for
dismissal of a complaint on its face .… The better course is to conduct an
evidentiary hearing at which the plaintiff may have its “day in court,” and,
through time-honored methods, test the accuracy of defendants’ submissions and
introduce evidence of its own.

Oneida Indian Nation of New York v. State of New York, 691 F.2d 1070, 1086 (2d Cir. 1982).

Second, Defendants cite to the remaining 34 challenged documents in an attempt to

contravene the allegations of the complaint by arguing that the concealed facts were already

known to the market (BAC Mem. at 5, 7-10) and constituted “storm warnings” that triggered the

running of the statute of limitations. Underwriter Defs. Mem. at 3-4, 11-15. But these

challenged documents may not be considered on the motions to dismiss because they are not

referred in the complaint, and are not the proper subject of judicial notice. Tellabs, 551 U.S. at

322-23. Moreover, “storm warnings” contentions are generally not suitable for resolution on a

motion to dismiss. Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161,168 (2d Cir. 2005). What

Defendants are seeking here is to tell their version of the facts through their motions to dismiss,

which is not allowed. Cosmas v. Hassett, 886 F.2d 8, 13 (2d Cir. 1989). Defendants will have a

time to tell their version, but now is not the time.

Defendants cite two prospectus supplements of BAC-affiliated trusts in an attempt to

rebut the allegation that the Defendants never mentioned MERS in an SEC filing until after the

Class Period. ¶106. See Bongiorno Exs. P and Q (and Musoff Exs. K and L). However, there

are several reasons why these extraneous documents fail to exonerate Defendants or support their

motions to dismiss. First, while MERS is mentioned in the proffered prospectus supplements,


Case 1:11-cv-00733-WHP Document 140 Filed 03/09/12 Page 4 of 7

they do not contain statements by BAC or by the Executive Defendants. Second, the prospectuses

were directed to mortgage backed securities purchasers, not to class period purchasers of BAC

stock, who, of course, had no reason to believe that the prospectuses applied to them. And third,

although the isolated paragraphs that Defendants cite from one of the more than 300-page

prospectuses refer to MERS as a “relatively new practice,” there is no disclosure of the material

adverse risks BAC faced from its reliance on MERS, which Defendants were forced to admit at

the end of the class period. Compare Bongiorno Ex. P, Musoff Ex. K, (at S-29), with ¶ 155

(“one of the issues was you needed to take title in your own name prior to foreclosure out of

MERS”), and ¶ 167 (BAC’s Form 10-K for the period ending December 31, 2010, filed after the

end of the class period, admitting that the MERS risk is associated with a “break in the chain of

title”). Defendants dispute these allegations, which they are entitled to do. But the disputed

facts and conflicting interpretations must allow the Lead Plaintiff, “through time-honored

methods, [to] test the accuracy of the defendants’ submissions and introduce evidence of its

own.” Oneida Indian Nation, 691 F.2d at 1086, 1093 (finding error in judicial notice of disputed

extrinsic materials) (citing Alvary v. United States, 302 F.2d 790, 794 (2d Cir. 1962) (“error for

the trial judge to take judicial notice of text books that were not a part of the record”). In short,

under very analogous circumstances, courts have rejected motions to dismiss predicated upon

such truth on the market defenses. See, e.g., In re Countrywide Financial Corp. Sec. Litig., 588

F.Supp.2d 1132, 1159-60 (C.D. Cal. 2008) (“Where a market appears to have all the ordinary

hallmarks of efficiency but a complaint still plausibly alleges the market was fooled, it is

preposterous to argue at the pleadings stage that a ‘reasonable investor’ should have been on

inquiry notice.”).


Case 1:11-cv-00733-WHP Document 140 Filed 03/09/12 Page 5 of 7

Defendants also cite to hearsay news articles, press and commentary, and complaints

about MERS and the financial crisis, in attempting to construct an argument that investors were

informed of the facts that Lead Plaintiff alleges were concealed. Underwriters’ Mem. at 4, 11-15

(contending that Section 11 claim is untimely because of purported “storm warnings”); BAC

Defs. Mem. at 5-8 (contending that MERS was disclosed). However, as discussed in Lead

Counsel’s February 15 letter (Barrack Decl., Ex. 2 at 2-3), these challenged documents contain

hotly disputed facts that cannot be determined on a Rule 12(b)(6) motion without transforming it

into a motion for summary judgment. Moreover, the disputed facts in these documents do not

satisfy the requirements for judicial notice because “they are not usually common knowledge,

nor are they derived from an unimpeachable source.” International Star Class Yacht Racing

Ass’n v. Tommy Hilfiger U.S.A., Inc., 146 F.3d 66, 70 (2d Cir. 1998); see Fed.R.Evid. 201(b).

Most of the challenged documents are offered either to rebut allegations that Defendants’

statements were untrue and they omitted material information or to show that the complaint was

not timely. As to the former they are excludable hearsay. Alvary, 302 F.2d at 794. As to the

latter, the Second Circuit instructs that storm warnings are intensely factual and are generally not

appropriate for resolution on a motion to dismiss. Lentell, 396 F.3d at 168; cf. Pina v.

Henderson, 752 F.2d 47, 50 (2d Cir. 1985); see Advisory Committee Note, Fed. R. Evid. 201(b)

(noting that the practice of taking judicial notice “has been one of caution in requiring that the

matter be beyond controversy”). Consideration of the challenged documents to determine

disputed ultimate factual questions is not appropriate. See Trans World Airlines, Inc. v. Hughes,

308 F. Supp. 679, 683-84 (S.D.N.Y.1969), modified on other grounds, 449 F.2d 51 (2d

Cir.1971), rev'd on other grounds, 409 U.S. 363 (1973) (“The more critical an issue is to the

ultimate disposition of the case, the less appropriate judicial notice becomes.”).


Case 1:11-cv-00733-WHP Document 140 Filed 03/09/12 Page 6 of 7

The fallacy of Defendants’ citations to these documents is demonstrated by considering

other public statements referred to in the complaint. For example, if, as Defendants argue,

investors already knew facts that the complaint alleges were concealed, investment analysts

would not have asked the following question during the October 19, 2010 earnings conference

call at the end of the class period: “Could you just kind of give us your view of whether this

[foreclosure issue] is a big deal, not a big deal, not as big a deal as the press presented, et

cetera?” Ex. 4 (at 14-15), Barrack Decl. (emphasis added). In response, Moynihan admitted, for

the first time that “one of the issues was you needed to take title in your own name prior to

foreclosure out of MERS,” and that “[t]he issue of foreclosure is a big deal…” Id.; see ¶¶155,

315. Defendants’ use of the challenged documents to support their truth on the market and

statute of limitations arguments is untenable here, given the drops in BAC’s stock price

following the corrective disclosures at the end of the class period pleaded in the complaint (¶¶

147-163, 309-317).

The challenged documents set forth in Exhibit 1 may not be considered on Defendants’

motions to dismiss because they were not referenced in the complaint, are hearsay and are not a

proper subject of judicial notice. Accordingly, they should be stricken from the motions.

Dated: March 9, 2012

A. Arnold Gershon
William J. Ban
Michael A. Toomey
425 Park Avenue, 31st Floor
New York, NY 10022
Telephone: (212) 688-0782
Facsimile: (212) 688-0783



Case 1:11-cv-00733-WHP Document 140 Filed 03/09/12 Page 7 of 7


/s/ Jeffrey A. Barrack

Leonard Barrack
Gerald J. Rodos
Mark R. Rosen
M. Richard Komins
Jeffrey A. Barrack
Chad A. Carder
3300 Two Commerce Square
2001 Market Street
Philadelphia, PA 19103
Telephone: (215) 963-0600
Fax: (215) 963-0838

Attorneys for Lead Plaintiff Pennsylvania
Public School Employees’ Retirement
System and Lead Counsel for the Class

Steven Skoff
Assistant Counsel
Pennsylvania Public School Employees’
Retirement System
5 North Fifth Street, 5th Floor
Harrisburg, PA 17101
Telephone: (717) 720-4912
Fax: (717) 783-8010

Sarah Yerger
Senior Deputy Attorney General
Civil Litigation Section
Office of Attorney General
15th Floor Strawberry Square
Harrisburg, PA 17120
Telephone: (717) 705-2503
Fax: (717) 772-4526

Attorneys for Lead Plaintiff
Pennsylvania Public School Employees’
Retirement System