exhibit 2 - SAP Lawsuit Portal

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
Case4:07-cv-01658-PJH Document875-6 Filed09/16/10 Page5 of 33
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