Opinion
Civil No. 01cv649 K (AJB)
May 20, 2003
Order Granting Lead Plaintiff's Motion for Protective Order [Doc. No. 147]
Lead Plaintiff, Florida State Board of Administration ("FSBA") moves the Court for a protective order regarding Defendants' second notice of deposition pursuant to Fed.R.Civ.P. 30(b)(6) and subpoena duces tecum served therewith. Defendants have filed an opposition, and FSBA has filed a reply. This motion is appropriate for submission on the papers and without oral argument pursuant to Local Rule 7.1(d)(1), and the May 20, 2003 hearing is VACATED. FSBA's motion is GRANTED.
Background
The underlying facts are set forth more fully in Judge Keep's November 1, 2001, May 8, 2002, and October 4, 2002 Orders, appointing FSBA as lead plaintiff in this case, granting Defendants' first motion to dismiss under Fed.R.Civ.P. 12(b)(6), and denying Defendants' motion to dismiss under Fed.R.Civ.P. 11 and 12(b)(6) respectively. In short, this is an action for securities fraud in which the Plaintiff's allege that during the class period Defendants intentionally issued false and misleading statements to inflate Applied Microcircuits Corp. ("AMCC") stock prices, and engaged in insider trading of AMCC stock. Plaintiff FSBA is an institutional investor of the pension funds of the State of Florida, and is represented by the law firm of Barrack, Rodos Bacine. On November 5, 2001, Judge Keep appointed FSBA as lead plaintiff in this case, and appointed Barrack, Rodos Bacine as lead Plaintiffs' counsel. Judge Keep noted that FSBA was the presumptively most adequate plaintiff in this case pursuant to 15 U.S.C. § 78u-4 (a)(3)(B)(iii)(I)(bb), given its losses in excess of $5.3 million (over five times the amount of loss suffered by the two individual plaintiffs alternatively proposed as class representatives). Judge Keep also found it appropriate to exempt ESBA from the professional plaintiff provision of is U.S.C. § 78u-4(a)(3)(B)(vi) in this case in light of Congress's preference for institutional investors serving as lead plaintiffs in securities class actions and FSBA's considerable expertise as well as its willingness and ability to serve as lead plaintiff Judge Keep noted that "prosecuting securities litigation is part of what FSBA does to fulfill its fiduciary duties to look after the public money in its care," that "FSBA has a general counsel and corporate counsel department which can oversee and control the litigation," and that "such experience will well equip FSBA to oversee this litigation." [Doc. No. 49, p. 4].
Defendants issued its first notice to depose FSBA pursuant to Fed.R.Civ.P. 30(b)(6) on February 28, 2003 [Galdston Decl., Exhibit 4]. Subsequent to service of that notice, on April 1, 2003, Plaintiff's filed their initial motion for class certification. The first Rule 30(b)(6) deposition of FSBA took place on April 24, 2003. During a break in that deposition counsel for Defendants notified ESBA's counsel that he also sought to depose FSBA on the issue of its adequacy to represent the class pursuant to Fed.R.Civ.P. 23(a)(4), and asked that a witness be prepared on this subject as well. FSBA's counsel refused to prepare another witness at that point regarding the adequacy issue. The initial motion for class certification was subsequently withdrawn without prejudice to permit Defendants time to conduct discovery relevant to that motion.
As such, on May 1, 2003, Defendants served a second deposition notice pursuant to Fed.R.Civ.P. 30(b)(6). That second notice seeks deposition testimony by FSBA in the following ten areas:
1. FSBA's knowledge and approval of the consolidated complaint filed in the above captioned action, including, without limitation, FSBA's knowledge of the allegations made therein.
2. FSBA's policies, procedures, and guidelines governing litigation, including, without limitation, securities class action litigation.
3. FSBA's direction and control of the above captioned litigation.
4. FSBA's prior experience serving as a class representative.
5. FSBA's fiduciary duties and obligations with regard to the funds for which FSBA is a trustee and with respect to the potential class members FSBA seeks to represent in the above captioned litigation.
6. The factors considered and reasons for FSBA's decision to seek to serve as class representative in the above captioned litigation.
7. Investigations of, or lawsuits brought by or against ESBA or any trustee, officer or senior manager concerning management and/or oversight of the funds for which FSBA is a trustee.
8. The factors considered and reasons for FSBA's selection and retention of its present counsel in the above captioned action.
9. The operation and functionality of FSBA's electronic mail ("e-mail") system, including the software, hardware, and back-up methodology employed.
10. The identity, purpose and function of FSBA's computer systems, file servers, and software applications.
[Declaration of Benjamin Galdston, Exhibit 1]. FSBA argues that this second deposition notice seeks information that is both irrelevant and privileged, and that compliance with this notice would be unduly burdensome and expensive in light of the initial order by Judge Keep appointing FSBA as lead plaintiff as well as discovery previously provided by FSBA in this case. Defendants contend that the information sought by way of its second Rule 30(b)(6) notice to FSBA is directly relevant to the question of FSBA's adequacy to represent the interests of absent class members pursuant to Fed.R.Civ.P. 23(b)(4).
Discussion
"Parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party. . . . Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." Fed.R.Civ.P. 26(b)(1). Even if the information sought is relevant, the court may limit the frequency or extent of use of otherwise permissible discovery methods where it determines that the discovery sought is cumulative or duplicative, that the party has had ample opportunity to discover the information sought, or that the burden or expense of the proposed discovery outweighs its likely benefit. Fed.R.Civ.P. 26(b)(2). In addition, the court may grant a protective order to limit or prohibit discovery altogether where necessary "to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense. . . ." Fed.R.Civ.P. 26(c). As the party seeking to limit discovery, FSBA has the burden of making a particularized showing of the need for such an order. Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975).
FSBA argues that the discovery sought by Defendants through its second Rule 30(b)(6) notice is unduly burdensome and expensive, and that the information sought is irrelevant, duplicative of other discovery already provided, and privileged. In opposition to FSBA's motion, Defendants argue that the information sought by way of its second Rule 30(b)(6) notice to FSBA is relevant to FSBA's adequacy to represent the absent class members in this action pursuant to Fed.R.Civ.P. 23(a)(4). In resolving the question of whether FSBA adequately represents the interests of the class under Fed.R.Civ.P. 23(a)(4), there are two questions to be addressed: "(a) do the named plaintiffs and their counsel have any conflicts of interest with other class members and (b) will the named plaintiffs and their counsel prosecute the action vigorously on behalf of the class?" In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 462 (9th Cir. 2000) (citing Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998)). Upon review, this Court concludes that the ten topics listed by Defendants in their second Rule 30(b)(6) notice to FSBA go far beyond seeking information relevant to the adequacy inquiry.
Defendants also argue initially that the information is relevant with regard to the requirement that the Plaintiffs demonstrate that common questions of law or fact predominate pursuant to Fed.R.Civ.P. 26(b)(3). With regard to the ten individual topic areas in their notice, however, Defendants do not explain how the information they seek would be relevant to the Rule 23(b)(3) inquiry.
As to Topic Nos. 1, 2, 3, 4, and 8, Defendants argue that information such as FSBA's knowledge and approval of the complaint and the exercise of direction, control and oversight of the litigation is directly relevant to FSBA's adequacy to serve as class representative in this case. Defendants cite two cases in support of the proposition that such information is directly relevant to the adequacy inquiry — Larson v. Dumke, 900 F.2d 1363, 1367 (9th Cir. 1990) and Berger v. Compaq Computer Corp., 257 F.3d 475, 483 (5th Cir. 2001). Neither of these citations persuade this Court that the proposed discovery is justified. First, Larson was a case in which the Ninth Circuit addressed the question of when an individual shareholder is properly appointed as class representative in a derivative action under Fed.R.Civ.P. 23.1. The Ninth Circuit has never adopted a more extensive inquiry as in Larson to determine whether an institutional investor in a securities fraud action such as this one adequately represents the interests of the class pursuant to Fed.R.Civ.P. 23(a)(4). As the Eleventh Circuit has noted, there is a distinction between shareholder derivative actions under Rule 23.1 and class actions under Rule 23:
A derivative suit poses inherent conflicts between those minority shareholders who are bringing the suit and the majority shareholders whose administration is being challenged either directly or indirectly. . . . In contrast, a class suit by definition serves to benefit the members of the class. Consequently, a different degree of participation might well be required of a named plaintiff in a Rule 23.1 derivative than of a named plaintiff in a Rule 23 class action.Kirkpatrick v. J.C. Bradford Co., 827 F.2d 718, 728 n. 7 (11th Cir. 1987). Thus, this Court is not persuaded by Defendants' citation to Larson that the discovery under Topic Nos. 1, 2, 3, 4, and 8 is justified.
Second, Berger was a case in which the Fifth Circuit held that there was a heightened standard for judging the adequacy of a class representative under the Private Securities Litigation Reform Act, and discussed how that heightened standard applied to require a more in-depth inquiry by the district court into the relationship between the class representative and its counsel. Berger, 257 F.3d at 479-80. This Court notes, however, that the Fifth Circuit, in its order denying a petition for rehearing en banc, backed off its more stringent language, noting as follows:
We have not, however, created an additional requirement under rule 23(a)(4) that, after completing the process of selecting the lead plaintiff and lead counsel, a court may grant class certification only if the putative class representative possesses a certain level of experience, expertise, wealth or intellect, or a level of knowledge and understanding of the issues beyond that required by our long-established standards for rule 23 adequacy of class representatives.Berger v. Compaq Computer Corp., 279 F.3d 313, 313-14 (5th Cir. 2002) (on denial of pet. for rehg. en banc); see also In re Theragenics Corp. Sec. Litig., 205 F.R.D. 687, 696 (N.D. Georgia 2002) (noting that even after Berger the well established legal standard for judging the adequacy of a class representative in the Eleventh Circuit involves an inquiry into the adequacy of counsel and does not require any particular degree of individual involvement by the named plaintiffs in the prosecution of the legal claims). In addition, the Ninth Circuit has explicitly rejected the approach of the Fifth Circuit in Berger. In re Cavanaugh, 306 F.3d 726, 736-37 (9th Cir. 2002). In Cavanaugh, the Ninth Circuit noted that the Private Securities Litigation Reform Act did not in any way alter the requirements of Rule 23, and instead explicitly adopted its language with regard to the typicality and adequacy requirements. Id. at 738-39 (citing 15 U.S.C. § 78u-4 (a)(3)(B)(iii)(II). As such, this Court is persuaded that the traditional adequacy inquiry, set forth by the Ninth Circuit in In re Mego, 213 F.3d 454 (9th Cir. 2000) controls and that the wide-ranging discovery sought by Defendants via Topic Nos. 1, 2, 3, 4, and 8 of its second Rule 30(b)(6) notice to ESBA is irrelevant.
As to Topic Nos. 5, 6, and 7 of Defendants' second Rule 30(b)(6) notice to FSBA, this Court also concludes that Defendants are somewhat off base as to their theory of relevance, and that ample information relevant to the conflict of interest inquiry has already been produced by FSBA. Defendants are correct that the question of whether there are any conflicts between the class and its counsel, or between the class representative and the unnamed plaintiffs, is the proper subject of inquiry in determining adequacy under Fed.R.Civ.P. 23(a)(4). In re Mego, 213 F.3d at 462; Hanlon, 150 F.3d at 1020. Under appropriate circumstances, courts have previously barred FSBA from serving as lead plaintiff in securities litigation class actions. For example, in In re Enron Corp. Sec. Litig., 206 F.R.D. 427, 444 (S.D. Tex. 2000), the court noted in denying FSBA's bid to be appointed lead plaintiff that FSBA was uniquely involved with the defendant because of its use of Alliance as an investment fund, which was also under investigation. In Arnson v. McKesson HBOC, Inc., 79 F. Supp.2d 1146 (N.D. Cal. 1998), the court also denied FSBA's bid to become lead plaintiff, due to a concern about its ability to control the litigation given its role as lead plaintiff in other cases, but also noted that there were other qualified institutional investors to take the lead role. See also In re Telxon Corp. Sec. Litig., 67 F. Supp.2d 803, 820-21 (N.D. Ohio 1999) (barring FSBA from serving as lead plaintiff because it failed to comply with notice requirements, was not the presumptively most adequate plaintiff, and there were other institutional investors who could take the lead plaintiff role); EZRA Charitable Trust v. Rent-Way, Inc., 136 F. Supp.2d 435 (W.D. Pa. 2001) (FSBA denied lead plaintiff role because it was not the presumptively most adequate plaintiff).
FSBA has already produced ample discovery, however, from which Defendants can argue a conflict of interest barring FSBA from serving as lead plaintiff. In its sworn certification filed as required by the Private Securities Litigation Reform Act, FSBA has listed each action in which it has served as lead plaintiff, and has provided a listing of its transactions in the securities of AMCC during the class period [Galdston Decl., Exhibit 7]. ESBA has also provided interrogatory responses identifying all class action securities litigation in which it was a named plaintiff in the last three years, all cases in which it moved for class certification, and all entities that provided portfolio investment services with regard to AMCC securities in the last three years [Galdston Decl., Exhibit 14]. ESBA has produced numerous documents going directly to the issue of its holdings in AMCC securities, and has given deposition testimony on similar subjects [FSBA's Points and Authorities in Support of Motion for Protective Order, pp. 9-11]. As such, this Court concludes that any marginal relevance of the cumulative and duplicative information called for by Topic Nos. 5, 6, and 7 of Defendants' second Rule 30(b)(6) notice to FSBA is outweighed by the burden and expense of reconvening a second deposition.
As to Topic Nos. 9 and 10, regarding the existence and location of potentially relevant documents and the document retention policies of FSBA, these may be relevant inquiries. It appears from the moving and opposition papers filed by the parties, however, that these topics are not directly relevant to the pending class certification issues, but instead go to the existence of documentation regarding the merits of this action. It is not altogether clear from a review of the parties' papers the extent to which testimony regarding FSBA's e-mail and computer databases has previously been provided, or the extent to which counsel specifically discussed the need for further information in this regard. It is also not clear whether this information was called for under the prior Rule 30(b)(6) notice to FSBA. As such, the Court will grant FSBA's motion for protective order at this time, without prejudice to Defendants renewing their request for this information after resolution of the class certification motion, and after counsel have met and conferred with regard to these particular issues.
Conclusion
For the reasons set forth herein, this Court concludes that the information sought by Defendants by way of their second notice of deposition to FSBA under Fed.R.Civ.P. 30(b)(6) is either irrelevant to the pending class certification motion or that the marginal relevance of duplicative and cumulative information is outweighed by the burden and expense of convening a second deposition. Therefore, FSBA's motion for protective order [Doc. No. 147] is GRANTED.
IT IS SO ORDERED.