United States District Court, N.D. California
IN RE FACEBOOK, INC. SHAREHOLDER DERIVATIVE PRIVACY LITIGATION This Document Relates To ALL ACTIONS
ORDER DENYING PLAINTIFFS' MOTION TO LIFT
DISCOVERY STAY Re: Dkt. No. 114
Haywood S. Gilliam, Jr. United States District Judge.
before the Court is Plaintiffs' motion to lift the
Private Securities Litigation Reform Act
(“PSLRA”) discovery stay. See Dkt. No.
114-1 (“Mot.”). The Court finds this matter
appropriate for disposition without oral argument and the
matter is deemed submitted. See Civ. L.R. 7-1(b).
After careful consideration, the Court
DENIES Plaintiffs' motion to lift the
Court assumes familiarity with the facts and briefly recounts
the factual and procedural history relevant to the present
motion. Plaintiffs bring this consolidated shareholder
derivative action against nominal Defendant Facebook and
individual Defendants for claims related to Facebook's
data privacy protection policies and practices, in the wake
of the revelation that Cambridge Analytica misappropriated
millions of Facebook users' information for use in
political campaigns. See Dkt. No. 56
(“Compl.”) ¶¶ 1-15. Before filing the
operative complaint, Plaintiffs did not make a demand on the
Board, nor did they make a books and records demand under
§ 220 of Delaware General Corporation Law. See
id. ¶ 378.
2018, the Court held that the PSLRA automatic discovery stay
applied to this case, because the derivative complaint
asserted federal claims under the Securities Exchange Act.
Dkt. No. 65. The Court rejected Plaintiffs' argument that
they would suffer undue prejudice if the Court did not lift
the PSLRA discovery stay. Id. at 2. Two months
later, Plaintiff Natalie Ocegueda made a books and records
demand under § 1601 of the California Corporations Code
in California State Superior Court (“State Court
Action”). See Dkt. No. 93-3. Defendants filed
a motion to stay the inspection of Facebook's corporate
books and records, which the Court granted in February 2019.
See Dkt. No. 111. In doing so, the Court found that
the Securities Litigation Uniform Standards Act of 1998
(“SLUSA”) permitted the Court to stay discovery
proceedings in the State Court Action, and that the relevant
considerations weighed in favor of doing so. Id. at
March 22, 2019, the Court granted Defendants' motions to
dismiss and dismissed all of Plaintiffs' derivative state
claims without prejudice to reassertion in the Delaware Court
of Chancery. Dkt. No. 113. The Court upheld the
enforceability of an exclusive forum selection clause, making
the Delaware Court of Chancery the exclusive forum for a
derivative action. Id. at 7-12. But because the
Delaware Court of Chancery did not have jurisdiction over
Plaintiffs' federal securities claims, the Court
separately addressed those claims and found that Plaintiffs
failed to plead demand futility under FRCP 23.1. Id.
at 12-22. The Court therefore dismissed the federal
securities claims, but gave Plaintiffs an opportunity to
amend their complaint to plead particularized allegations
demonstrating that demand was futile. Id. at 25.
then filed this motion requesting that the Court lift the
PSLRA discovery stay in light of its order granting
Defendants' motions to dismiss. See generally
Mot. According to Plaintiffs, “circumstances [ ]
changed” in the less than two months between the
Court's order staying the State Court Action and the
filing of their motion, which purportedly warrants lifting
the PSLRA discovery stay. Id. at 1.
initial matter, the Court notes that Plaintiffs are not clear
as to the contours of the relief they seek. Their motion
claims to request “limited relief from the stay of
discovery under the [PSLRA]” to “aid in pleading
demand futility.” Mot. at 1. Under this theory,
Plaintiffs seek “[m]any, if not all, of the requested
records” that were “produced by Facebook to
plaintiffs in related litigation, including substantially
similar derivative actions and inspection demand enforcement
proceedings in the Delaware Court of Chancery.”
Id. at 2. But Plaintiffs also contend that they have
an independent right to the “specified corporate
records of Facebook” requested in the State Court
Action, which the Court already stayed under the SLUSA.
See Mot. at 14; Dkt. No. 111. Notably, Defendants
argue that the documents requested in the State Court Action
are different than and go “far beyond anything that has
been produced by Facebook to any shareholder.” Dkt. No.
118 (“Opp.”) at 8. Thus, it is not entirely clear
to the Court what specific materials Plaintiffs seek.
Further, Plaintiffs are inconsistent as to whether they are
relying on Delaware or California law for the proposition
that they have an independent right to a books and records
inspection, even with a PSLRA stay in place.
effort to avoid confusion, the Court separates
Plaintiffs' apparent theories and analyzes each one
independently. For the reasons discussed below, the Court
finds that regardless of the theory on which Plaintiffs
purport to proceed, they have failed to establish that the
Court should lift the PSLRA discovery stay so that they can
obtain either documents produced by Facebook to other
litigants, or the documents requested in their State Court
Documents Produced in Other Proceedings
Court first addresses what it construes as Plaintiffs'
request to lift the PSLRA discovery stay so that they can
obtain documents produced to “a half-dozen other
Facebook stockholders.” See Mot. at 10.
the PSLRA, “all discovery and other proceedings shall
be stayed during the pendency of any motion to dismiss,
unless the court finds upon the motion of any party that
particularized discovery is necessary to preserve evidence or
to prevent undue prejudice to that party.” 15 U.S.C.
§ 78u-4(b)(3)(B); SG Cowen Sec. Corp. v. U.S. Dist.
Court for N. Dist. of CA, 189 F.3d 909, 912-13 (9th Cir.
1999) (“[D]iscovery should be permitted in securities
class actions only after the court has sustained the legal
sufficiency of the complaint.”). While the Ninth
Circuit has not directly addressed the applicability of the
PSLRA automatic discovery stay to derivative actions, courts
in this circuit have found that the PSLRA does stay discovery
in derivative actions alleging violations of federal
securities laws. See, e.g., In re Asyst Techs., Inc.
Derivative Litig., No. C-06-04669 EDL, 2008 WL 916883,
at *2 (N.D. Cal. Apr. 3, 2008); In re Countrywide Fin.
Corp. Derivative Litig., 542 F.Supp.2d 1160, 1179-80
(C.D. Cal. 2008); In re Marvell Tech. Group, Ltd. Deriv.
Litig., No. C-06-03894 RMW, 2007 WL 1545194, at *2 (N.D.
Cal. May 29, 2007); In re Altera Corp. Deriv.
Litig., No. C 06-03447 JW, 2006 WL 2917578 (N.D. Cal.
Oct. 11, 2006); Melzer v. CNET Networks, Inc., No. C
06-03817 WHA, 2006 WL 3716477, at *2 (N.D. Cal. Dec. 15,
Plaintiffs essentially repackage the arguments from their
first motion seeking to lift the PSLRA discovery stay. They
again argue that they will suffer undue prejudice because
they are at an “increasing information disadvantage in
relation to other interested parties” to whom
Defendants “already produced documents and
information.” Mot. at 6-9; see also Dkt. No.
60 at 4-6 (prior motion arguing that Plaintiffs would be at a
disadvantage “if denied access to documents produced to
other plaintiffs and government ...