Opinion
No: 99cv0454-BTM (LSP)
August 13, 2001
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR RECONSIDERATIONo
Plaintiffs have submitted by letter brief a Motion for Reconsideration. For the reasons outlined below, the Motion is GRANTED in part and DENIED in part.
PROCEDURAL BACKGROUND
On June 1, 2001, Plaintiffs submitted by letter brief a Motion to Compel which sought all documents relating to any communication to/from the Securities Exchange Commission or other regulatory agency. (See Mot. to Compel Ex. A). On June 8, 2001, Defendants opposed the motion and on June 15, 2001, Plaintiffs replied. On June 29, 2001, at the Court's request, Defendants submitted a supplemental opposition and on July 6, 2001, Plaintiffs submitted a supplemental reply. The Court issued its Order on July 10, 2001, Denying Plaintiffs' Motion to Compel finding an insufficient nexus between the claims and defenses alleged in the case and Plaintiffs' request for discovery.
Presently before the Court is Plaintiffs' Motion for Reconsideration. On August 10, 2001, the Court held a hearing on the motion. After considering Plaintiffs' Motion, Defendants' Opposition, Plaintiffs' Reply and oral arguments, Plaintiffs' Motion for Reconsideration is Granted in part and Denied in part.
DISCUSSION
1. Plaintiffs' Motion for Reconsideration
A. Applicable Law
Plaintiffs argue that pursuant to Fed.R.Civ.P. 60(b) and Civ. L. R. 7.l(i)(l), "reconsideration in this case is appropriate as new or different circumstances, previously not shown, are clarified in Plaintiffs' Motion for Reconsideration, and as Plaintiffs respectfully contend that the initial decision was manifestly unjust or that the Court committed clear error," citing School Dist. No. 1J Mulmomah, Or., 5 F.3d at 1263. (Pls.' Reply to Mot. for Recons. at 1).
Defendants maintain that Civ. L. R. 7.1(i)(1) requires a party making a motion for reconsideration to identify what new or different facts and circumstances exist that did not exist at the time of the prior application citing Parker v. United States, 1996 WL 756966 at *7 (S.D.Cal. 1996). Defendants further maintain that as "there are absolutely no new facts or circumstances that did not exist" when the Plaintiffs brought the original Motion to Compel, the Court "should not reconsider this issue simply because Plaintiffs are unhappy with its previous ruling," citing Harrison v. Sofamar/Danek Group Inc., 1998 WL 1166044 at *2 (S.D. Cal. 1998). (Def.'s Opp'n to Pls.' Mot. for Recons. at 2). Defendants argue that the Motion for Reconsideration should be denied on this basis alone. (Id.) Lastly, Defendants contend that Rule 60(b) "allows a party to seek relief from an order, but only if the district court (1) is presented with newly discovered evidence; (2) committed clear error or the initial decision was manifestly unjust; or (3) there is an intervening change in controlling law." (See Def.'s Opp'n to Pls.' Mot. for Recons. n. 1). Both parties misstate the applicability of the law to the instant motion.
While the Federal Rules of Civil Procedure do not expressly provide for motions for reconsideration, a party can seek reconsideration under Rules 59(e) and 60(b). In re Arrowhead Estates Dev, Co., 42 F.3d 1306, 1311 (9th Cir. 1994), as amended (May 23, 1995). Rule 59(e) allows a party to file a motion to alter or amend a judgment within 10 days after entry of judgment. Fed.R.Civ.P. 59(e). Reconsideration under Rule 59(e) is appropriate "if the district court (1) is presented with newly discovered evidence, (2) committed clear error or the initial decision was manifestly unjust, or (3) if there is an intervening change in the controlling law." School Dist. No. 1J, Multnomah County, Or. v. AC and S, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993). A Rule 59(e) motion "should not be granted absent highly unusual circumstances." 389 Orange St. Partners v. Arnold, 179 F.3d 656, 665 (9th Cir. 1999).
Civil Local Rule 7.1(i), however, allows parties to file motions for reconsideration as discussed below.
Rule 60(b) provides the Court can relieve a party from an order for any of the following reasons: "(1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation from the judgment." Fed.R.Civ.P. 60(b). Relief under this rule rests within the Court's discretion. Robb v. Norfolk Western Ry. Co., 122 F.3d 354, 357 (7th Cir. 1997); see Carter v. United States, 973 F.2d 1479, 1489 (9th Cir. 1992). A party can obtain relief under Rule 60(b) "only upon an adequate showing of exceptional circumstances." Richards v. Aramark Servs., Inc., 108 F.3d 925, 927 (8th Cir. 1997) (internal quotations omitted).
Civil Local Rule 7.1(i)(1) allows a party to apply for reconsideration "[w]henever any motion or any application or petition for any order or other relief has been made to any judge and has been refused in whole or in part." Subsection 3 of that rule requires a party to show "what new or different facts and circumstances are claimed to exist which did not exist, or were not shown, upon such prior application." Civ. L. R. 7.l(i)(1)(3). The Ninth Circuit has recently held that the requirements of Fed.R.Civ.P. 59 and 60 apply only to motions attacking final appealable orders." See United States v. Martin, 226 F.3d 1042, 1048, n. 8 (9th Cir. 2000), cert denied, 121 S.Ct. 1671 (2001). Where reconsideration of a non-final order such as in the instant case is sought, the court has "inherent jurisdiction to modify, alter or revoke it." Id. at 1049. Accordingly, the holding of School Dist No. 1J, as discussed above, which involved a motion to reconsider an order granting summary judgment, is inapposite. In the instant case, the applicable standard is that of Local Rule 7.1(i)(1). While Plaintiffs contend that the Court's decision denying the Motion to Compel was manifestly unjust or in clear error, Plaintiffs need not meet that standard. Nevertheless, the Court must address the merits of the Motion to Compel in conjunction with the instant motion according to Local Rule 7.1(i)(1).
B. Whether Reconsideration in Warranted
(1) Request No: 26
Request No. 26, as propounded, seeks "[a]ll documents relating to any communication to/from the Securities Exchange Commission ("SEC") or other regulatory agency." (See Pls.' Mot. to Compel, Ex. A, at 9) In the Motion to Compel, Plaintiffs indicated they were entitled to these communications because they are unquestionably relevant under the broad scope of discovery and are neither privileged nor burdensome to produce. Defendants opposed on the basis that the documents Plaintiffs sought are not relevant to the litigation at hand.
Defendants maintain that they have already produced to Plaintiffs all Safeskin documents and correspondence prepared between January 1, 1997 and May 17, 1999 (the applicable discovery period), that were provided to the SEC.
(a) Relevance
Fed.R.Civ.P. 26(b)(1) sets forth the scope of admissible discovery:
(b) Discovery Scope and Limits. Unless otherwise limited by order of the court in accordance with these rules, the scope of discovery is as follows:
(1) In General. Parties may obtain discovery regarding any matter, not privileged, that is relevant to claim or defense of any party . . . Relevant information need not be admissible at trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.
Rule 26(b)(1) is interpreted broadly; "information is "relevant to the subject matter' if it might reasonably assist a party in evaluating the case, preparing for trial or facilitating settlement thereof. William W. Schwarzer, et al., Federal Civil Procedure Before Trial, § 11:21 (2000). See also Hickman v. Taylor 329 U.S. 495, 506-507 (1947). As Rule 26 indicates, discovery need not be admissible at trial, so long as it is reasonably calculated to lead to evidence that is. Recent amendments to Rule 26(b)( I) which became effective December 1, 2000, did not alter the scope of discovery to a great extent. However, if the discovery sought is relevant to the subject matter of the action, yet not relevant to a particular claim or defense of a party, a court order is now required before that discovery may be obtained.
In the Motion to Compel, while Plaintiffs maintained the documents sought were "unquestionably relevant under the broad scope of discovery," the bulk of Plaintiffs' arguments indicated that Plaintiffs sought all documents relating to any communication to/from the SEC or other regulatory agency to ensure that Defendants had produced all documents related to the SEC investigation. To bolster their arguments, Plaintiffs relied on several cases that neither addressed the relevancy of the documents sought nor convinced the Court that the documents sought were in fact relevant to the claims or defenses asserted in the case. For example, Plaintiffs pointed to the authority of In re Steinhardt Partners, L.P. v. Steinhardt Partners, L.P., 9 F.3d 230, 236 (2d Cir. 1993), for the proposition that "defendants' submission of legal memorandum and exhibits prepared by counsel to the SEC in response to its investigation of company's alleged security devices constituted waiver of privilege and defendant ordered to produce copy of same to Plaintiffs." (See Mot. to Compel, at 5).
Plaintiffs indicated that "since January 2001, Defendants have produced approximately 500 boxes of documents culled out of a substantially larger universe of purported Safeskin documents currently maintained in Kimberley-Clark Corp.'s Knoxville, Tennessee records storage facility." (Mot. to Compel at 3). Plaintiffs further maintained that "Plaintiffs review of these documents establishes that no documents relating to any communications with the SEC have been produced while, at the same time, Defendants admit that there were numerous such communications." (Id.) Plaintiffs indicated that "such communications would likely identify the types of documents and information the SEC requested and the Defendants' responses thereto," and would "further assist the parties in identifying whether the apparently missing documents were in fact prepared by the company on a regular basis and whether or not any of these documents were also provided to the SEC." (Id. at 4).
In the Motion for Reconsideration, Plaintiffs again point to In re Steinhardt, for the proposition that "[p]laintiffs authority in support of its Motion to Compel promotes a finding that the Sec or other regulatory agency documents at issue are discoverable and should be produced and that courts have consistently rejected objections to the production of documents reflecting communications involving regulatory agencies where such documents were exchanged in the course of an agency's investigatory actions." (Mot. for Recons. at 6).
In re Steinhardt involved a class action suit alleging manipulation of the market for treasury notes. In re Steinhardt, 9 F.3d at 230. In that case, Steinhardt identified a memorandum in response to a discovery request, that was prepared by its attorneys that was previously submitted to the SEC. Id. Steinhardt declined to produce the memorandum claiming the attorney work product privilege. Id. Plaintiffs moved to compel production and the district court granted the motion to compel finding that the prior disclosure of the memorandum to the SEC waived the claim for work product protection. In Steinhardt filed a writ of mandamus to prevent discovery and the United States Court of Appeals for the Second Circuit denied the writ. Id. In so doing, the Court of Appeals found that at the time of the submission of the memorandum to the SEC. Steinhardt and the SEC were adversaries. Id. at 236. As such, the Court of Appeals opined that Steinhardt's voluntary submission to the SEC waived the protections of the work product privilege as to future civil litigants seeking the memorandum. Id.
To the best of the Court's knowledge, at no time during the instant dispute have Defendants asserted a privilege of any kind. Instead, Defendants argued that the information sought was not relevant. While Plaintiffs argued in the Motion to Compel and here again in the Motion for Reconsideration that courts have consistently rejected objections to the production of documents reflecting communications involving regulatory agencies where such documents were exchanged in the course of an agency's investigatory actions, Plaintiffs failed to offer authority in the Motion to Compel to indicate to the Court that the documents sought are relevant to the instant litigation.
The instant suit is a securities class action on behalf of all persons who purchased the common stock or publicly traded options of Safeskin Corporation during the period of February 18, 1998 to March 11, 1999 (the "class period"). (See Consol. Am. Compl. at 4). Plaintiff allege that Defendants issued false and misleading financial statements and press releases concerning Safeskin's business prospects, expansion and product demand. Plaintiffs further allege that the statements made during the class period implicitly and/or expressly depicted sufficient demand to occupy burgeoning capacity and an undiminished growth rate that were materially false and misleading because the company knew that capacity was over built, margins were collapsing, a commodity business was evolving and that the aura of prosperity was perpetuated in part to allow Defendants to unload shares at inflated prices. (See generally Consol. Am. Compl.)
In the Opposition to the Motion to Compel, Defendants asserted that the SEC inquiry focused on trading in the shares of Safeskin stock between March 1 and March 11, 1999 and not in matters relating to revenue recognition or the restatement and revision of third and fourth quarter 1998 results. (Opp'n. to Pls.' Mot. to Compel at 2). Defendants further claimed that although the complaint alleges that the four individual defendants engaged in insider trading, none of those defendants traded stock during the ten day period covered by the SEC inquiry. (Id.) Thus, Defendants maintained that the SEC investigation is unrelated to Safeskin's accounting practices or to the subject matter of this litigation. (Id.) Lastly, Defendants contended that (1) the theory that Plaintiffs can use these communications to confirm Defendants' representation that all documents and information provided to the SEC have in fact been produced and (2) the theory that production of all communications will assist the parties in identifying whether the apparent missing documents were in fact prepared by the company on a regular basis and whether or not any of the documents were also provided to the SEC, are not sound bases for an order compelling production.
¶¶ 42-43 of the fifty-two page Consolidated Amended Complaint allege insider trading by the individual Defendants during the putative class period (February 1998-March 1999), which Plaintiffs assert support a strong inference of scienter.
At the request of the Court, both parties submitted further briefing as to the relevancy of the documents sought. Therein, Plaintiffs argued that "the very fact that the SEC.. instituted an investigation to determine whether their existed unusual trading patterns is, in and of itself, an adequate basis to support Plaintiffs' entitlement to these documents." (See Pls.' Supp. Resp. to Defs.' Supp. Statement at 1). Plaintiffs further argued that the possible existence of unusual trading in Safeskin stock in the ten days immediately prior to the March 11, 1999 close of the class period is relevant particularly because of the time frame in which such trading may have occurred. (Id.). Plaintiffs indicated that if, for example, "other members of the sales force of Safeskin, though not named as Defendants in this suit, sold substantial shares of stock or shortened the stock during this period, it would clearly lead to the identity of potential witnesses who may have been privy to the very information which Plaintiffs allege was purposely withheld from the investing public." (Id).
In their supplemental brief, Defendants indicated that the SEC inquiry related to the ten days immediately leading up to the March 11, 1999, announcement that the first quarter 1999 and fiscal year 1999 results would fall below analyst expectations and that the SEC however, only became involved well after the May 17, 1999, discovery cut-off date. (Def's Supp. Statement at 2). Defendants further reiterated that the only portions of Plaintiffs' Complaint that relate to the SEC inquiry concern trading by individual Defendants supporting a strong inference of scienter, none of whom traded during the subject period of the SEC investigation. (Id.) On July 10, 2001, the Court Denied Plaintiffs' Motion to Compel finding an insufficient nexus between the claims and defenses alleged in the case and Plaintiffs' request for discovery.
In the instant motion, Plaintiffs submit a clarification with regard to Defendants assertion that Plaintiffs are required to prosecute their own case. (See Def.'s Opp'n to Pls.' Mot. to Compel at 3). Specifically, Plaintiffs argue that when, as is the case here, there is a pending or recent investigation by the SEC, the SEC will likely resist subpoenas for the records of a party subject to the investigation. (Mot. for Recons. at 3). Plaintiffs argue that "the basis for such reluctance rests, in part, upon a policy for non- disclosure; "that facts not be publicly disclosed in advance of a possible criminal proceeding, unless and until facts are made a matter of public record in a proceedings brought before the Commission or in the courts."' Id. (citing in re Four Seasons Sec. Law Litig., 54 F.R.D. 527, 529 (W.D. Okla. 1972); Securities and Exchange Commission, 36th Annual Report, p. 95). Plaintiffs contend that the SEC's investigation of Safeskin appears to remain open and that any attempt by Plaintiffs to obtain the documents from the SEC directly will be unsuccessful.
In the Opposition, Defendants indicate that Plaintiffs' argument in this regard "is premised upon a distortion of Defendants' position." (Opp'n. to Mot. for Recons. at 2). Specifically, Defendants assert that they were "merely point[ing] out that plaintiffs themselves ha[ve] broad discovery powers, through comprehensive document requests, depositions, interrogatories and the like," and Plaintiffs were perfectly capable of prosecuting their case using the underlying Safeskin business records provided to the SEC, but were not entitled to later communications with the SEC not material to the specific allegations. (Id.)
Lastly, in the instant motion, Plaintiffs argue relevancy. In so doing Plaintiffs maintain that the communications sought are likely to tell a story of the events at issue and/or provide information relating to witnesses or documentation. (Mot. for Recons. at 5). Plaintiffs indicate that the nexus between the claims and defenses alleged in the case and the request for discovery is based upon the discovery of information during the class period, and facts attendant to Defendants' prior knowledge of the events and circumstances leading up. to the surprise announcement on March 11, 1999, regarding the negative future impact of anticipated slowed sales and high inventory. (Id.) Plaintiffs further maintain that because there are questions with regard to Defendants conduct, and whether they omitted or failed to disclose material information, the documents sought are relevant. (Id.) Lastly, Plaintiffs assert (1) the documents are believed to be limited in number, (2) are identifiable and known to the Defendants, and (3) the documents are subject to the confidentiality order in this case and should therefore be discoverable.
In the opposition Defendants do not counter the relevancy argument so as not to "burden the Court with issues previously explored and decided," except to point out that Plaintiffs still appear to be operating under the misconception that the SEC investigation covered Safeskin's accounting practices. (Opp'n to Pls.' Mot. for Recons. at 2).
At the hearing on the Motion for Reconsideration, Attorney Stuart Sarnoff likened the instant motion to Defendants' previous motion to compel the identification of sources identified in the pleadings. While the Court appreciates Mr. Sarnoff's comments, the Court finds the two motions distinguishable on several basis. Most importantly, in bringing the motion to compel, Defendants had access to the information sought but prayed for a more refined list of identities within those already provided. In the instant case, Plaintiffs seek access to information contained in existing documents, the subject matter of which is unknown.
As discussed above, reconsideration may be appropriate as a result of new or different facts and circumstances which did not exist or were not shown in the prior application. Here, Plaintiffs offered clarification with regard to their potential inability to obtain the documents sought directly from the SEC. However, Plaintiffs argument to this end is based on speculation as Plaintiffs have yet to seek the documents directly from the SEC.
Motions for Reconsideration are not vehicles permitting the unsuccessful party to reiterate arguments previously presented. Merozoite v. Thorp 52 F.3d 252, 255 (9th Cir. 1995); Costello v. United States Gov't 765 F. Supp. 1003, 1009 (C.D. Cal. 1991); Diebitz v. Arreola, 834 F. Supp. 298, 302 (D. Wis. 1993). The Court's concerns with preserving dwindling resources and promoting judicial efficiency are particularly pertinent in the Southern District of California which is currently facing a state of judicial emergency. See Costello, 765 F. Supp at 1009. However, practically speaking, the Court agrees to some degree with Plaintiffs' assertion that "the very scope of the investigation itself is subject to discovery so as to better determine its relevancy to this case." (Pls.' Reply to Mot. for Recons. n. 3 at 2). Thus far, at the request of the parties and in light of delays with production of discovery and with the authority of District Court Judge "Moskowitz, the Court has extended the deadlines previously set in this case by several months. With that in mind, the Court is not interested in entertaining any further delays in the progress of this litigation. Accordingly, the Court will conduct an in camera review of the documents sought to determine the relevancy of the requested documents to the subject litigation.
CONCLUSION
Based herein, Plaintiffs' Motion for Reconsideration is therefore GRANTED in part and DENIED in part. The Court will conduct an in camera review of the documents sought to determine the relevancy of the requested documents to the subject litigation. Defendants shall submit the disputed documents to the chambers of the undersigned no later than August 30, 2001.