United States District Court, N.D. California
ORDER RE: GOTHAM CITY RESEARCH LLC’S MOTION FOR
RECONSIDERATION Re: Dkt. No. 23
JACQUELINE SCOTT CORLEY UNITED STATES MAGISTRATE JUDGE
Plaintiffs
filed this action to compel third-party Gotham City Research,
LLC (“Gotham”) to respond to deposition and
document subpoenas. On June 6, 2016, the Court granted
Plaintiffs’ motion in part and denied it in part. (Dkt.
No. 21.) Now pending before the Court is Gotham’s
motion for leave to file a motion for reconsideration. Gotham
contends that the Court erred as a matter of fact and law in
concluding that Gotham was required to respond to
Plaintiffs’ subpoena. (Dkt. No. 23.) The Court in its
discretion DENIES the motion.
DISCUSSION
The
subpoenas at issue arose out of a putative securities class
action pending in the United States District Court for the
District of Minnesota. See Beaver County Employers
Retirement Fund v. Tile Shop Holdings, Inc., No.
14-cv-786-ADM-TNL (D. Minn.). Plaintiffs initiated the
Minnesota lawsuit following the publication of a negative
report about defendant Tile Shop Holdings, Inc. (“Tile
Shop”) by Gotham, an investor who shorted Tile Shop
stock. Both Plaintiffs and Defendants served third-party
subpoenas on Gotham seeking documents and depositions. When
Gotham failed to comply with the subpoenas, the parties filed
separate actions to compel Gotham’s compliance, which
were subsequently consolidated. See Beaver County
Employers Retirement Fund v. Tile Shop Holdings, Inc.,
No. 16-80062 (Plaintiffs’ action); Beaver County
Employers Retirement Fund v. Tile Shop Holdings, Inc.,
No. 16-80076 (Defendants’ action). The Court thereafter
denied Defendants’ motion to compel compliance and
granted Plaintiffs’ motion in part.[1] (Dkt. No. 21.)
With respect to Plaintiffs’ motion, the Court rejected
Gotham’s objections to the subpoenas based on trade
secrets and undue burden and rejected Gotham’s claim
that the information sought was protected by the journalist
privilege. Gotham was ordered to identify its source for the
information in its report which indicated that Tile Shop
employee Fumitake Nishi, who was also the Tile Shop
CEO’s brother-in-law, owned Beijing Pingxiu
(“BP”), Tile Shop’s largest supplier.
Gotham now seeks leave to file a motion for reconsideration
of this Order.
A party
seeking leave to file a motion for reconsideration must show
either: (1) “at the time of the motion for leave, a
material difference in fact or law exists from that which was
presented to the Court”; (2) “[t]he emergence of
new material facts or a change of law occurring after the
time of such order;” or (3) a “manifest failure
by the Court to consider material facts or dispositive legal
arguments” previously presented to the court. N.D. Cal.
Civ. L. R. 7-9(b), “No motion for leave to file a
motion for reconsideration may repeat any oral or written
argument made by the applying party in support of or in
opposition to the interlocutory order which the party...seeks
to have reconsidered.” N.D. Cal. Civ. L.R. 7-9(c).
“A motion for reconsideration should not be granted,
absent highly unusual circumstances, unless the district
court is presented with newly discovered evidence, committed
clear error, or if there is an intervening change in the
controlling law.” 389 Orange St. Partners v.
Arnold, 179 F.3d 656, 665 (9th Cir. 1999).
Gotham
argues that (1) there is a material difference between the
facts understood by the Court and the actual facts; (2) the
Court failed to consider certain material facts; and (3) the
Court made a legal error with respect to application of the
journalist privilege. None of these arguments are availing.
A.
The Court Correctly Stated the Facts
Gotham
first argues that there is a material difference between the
facts as understood by the Court and the true facts because
Gotham reports newsworthy information even when it holds no
financial position in the subject company’s shares. In
support of this, and the rest of its arguments, Gotham offers
a supplemental declaration from Daniel Yu, Gotham’s
founder, publisher, and editor. (Dkt. No. 23-1.) Mr.
Yu’s supplemental declaration attests that “if I
determined that a company Gotham was investigating had
disclosed materially false information (or failed to disclose
material information), and Gotham did not hold a short
position in the shares of the company’s stock, Gotham
would still likely issue a report.”
(Id. at ¶ 2 (emphasis added).) While this
statement is certainly more equivocal than Mr. Yu’s
prior declaration wherein he stated simply that “[i]f
Gotham believes that a company’s reported financial
information or business information is materially misleading,
then Gotham takes a short position in the company’s
stock before issuing its report, ” it does not actually
state that Gotham has issued reports where it did
not hold a short position. (Dkt. No. 11-2 at ¶ 6.)
Further,
the example cited in Mr. Yu’s declaration-that Gotham
chose not to issue a report about a company called Hanergy
because the Financial Times published an in-depth analysis of
the story before Gotham did thus eliminating the
“newsworthiness” of Gotham’s report-could
just as easily have been because Gotham was scooped and its
story lost relevance (and investment opportunity) when the
Financial Times reported it first. Likewise, that Gotham
tweets about companies in which it does not have a financial
interest is immaterial; there are numerous reasons businesses
maintain a Twitter profile that are unrelated to the
distribution of newsworthy information. Gotham did not and
has not said that it has ever published a report without
first having taken a short position in the targeted
company’s stock. There are thus no material factual
omissions or misstatements in the Court’s Order.
B.
The Court Considered the Material Facts in the
Record
Next,
Gotham argues that the Court mistakenly concluded that Gotham
possesses dispositive undisputed evidence regarding the
Tile’s Shop’s knowledge of Nishi’s
ownership of BP. Not so. The Court rejected Gotham’s
argument that information regarding how Gotham knew Nishi
owned BP was cumulative of information that Plaintiffs
otherwise had in their possession indicating that the Tile
Shop and its executive should have known of Nishi’s
relationship with BP. Because it was unclear how Gotham knew
that Nishi owned BP, it was possible that Gotham learned this
information from a source that could also provide
dispositive- not speculative-evidence regarding the
Tile’s Shop’s knowledge. In Mr. Yu’s new
declaration, he for the first time reveals the source of
Gotham’s knowledge regarding BP’s ownership;
namely, a tweet that prompted Gotham to do internet research
and obtain Chinese financial documents which confirmed
BP’s ownership. (Dkt. No. 23-1 at ¶ 4.) This
information moots Gotham’s motion as it has now
revealed the very information the Court ordered it to
disclose.
C.
The Court Applied the Correct Legal Standard
Finally,
Gotham argues that the Court misapplied the Ninth
Circuit’s holding in Shoen v. Shoen, 5 F.3d
1289, 1292 (9th Cir. 1993), and the Second Circuit’s
holding in In re Fitch, Inc., 330 F.3d 104
(2d Cir. 2003), in concluding that the journalist privilege
did not apply here. Not so. The Court held that Gotham had
not met its burden of demonstrating that the qualified
journalist privilege applied because the record indicated
that before Gotham issued a report, it took a short position
on the targeted company’s stock such that its interest
in publishing was based on its ability to make a profit from
the subsequent drop in the target company’s share
price. There was, and still is, no evidence that Gotham has
not always done the two things together-take a short position
and publish a report. Gotham’s arguments regarding
Fitch are likewise unavailing and merely rehash
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