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THOMAS A. ZACCARO (SB# 183241)
(thomaszaccaro@paulhastings.com)
PAUL, HASTINGS, JANOFSKY & WALKER LLP
515 South Flower Street, Twenty-Fifth Floor
Los Angeles, CA 90071-2228
Telephone: (213) 683-6000
Facsimile: (213) 627-0705
CHRISTOPHER H. McGRATH (SB# 149129)
(chrismcgrath@paulhastings.com)
MORGAN J. MILLER (SB# 207896)
(morganmiller@paulhastings.com)
KIMBERLEY A. DONOHUE (SB# 247027)
(kimberleydonohue@paulhastings.com)
PAUL, HASTINGS, JANOFSKY & WALKER LLP
4747 Executive Drive, 12th Floor
San Diego, CA 92121
Telephone: (858) 458-3000
Facsimile: (858) 458-3005
Attorneys for Defendants
Semtech Corporation, Jason L. Carlson,
and Mohan R. Maheswaran
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
IN RE SEMTECH CORPORATION
SECURITIES LITIGATION
CASE NO. 2:07-cv-07114-CAS (FMOx)
MEMORANDUM OF POINTS AND
AUTHORITIES OF DEFENDANT
SEMTECH CORPORATION IN
OPPOSITION TO PLAINTIFF’S
MOTION FOR REVIEW OF
MAGISTRATE JUDGE OLGUIN’S
ORDER DENYING PLAINTIFF’S
MOTION TO COMPEL DISCOVERY
REQUESTED IN THE SUBPOENA
ISSUED BY PLAINTIFF TO ERNST
& YOUNG LLP
Date: February 22, 2010
Time: 10:00 a.m.
Ctrm.: 5, 2nd Floor
Judge: Hon. Christina A. Snyder
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TABLE OF CONTENTS
Page
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I. INTRODUCTION........................................................................................... 1
II. STATEMENT OF THE ISSUES.................................................................... 4
III. BACKGROUND............................................................................................. 4
A. Procedural Posture ................................................................................ 4
B. Factual Background .............................................................................. 4
IV. ARGUMENT .................................................................................................. 8
A. Standard Of Review.............................................................................. 8
B. Judge Olguin Correctly Ruled In Applying Selective Waiver To
The Production Of Protected Materials Under Confidentiality
Agreements To The SEC And USAO .................................................. 9
1. The Special Committee Had No Effective Choice But To
Cooperate With The Government’s Requests ..........................11
2. The Special Committee And The Government Shared A
Common Interest Sufficient To Maintain The Attorney-
Client And Work Product Privileges ........................................14
3. Semtech Preserved The Protections By Entering Into
Confidentiality Agreements With The SEC And USAO .........15
C. Judge Olguin Correctly Ruled That Filing Protected Materials
Under Seal Did Not Constitute A Waiver ..........................................17
1. The Protective Order And Filing Of The Morrison Report
Under Seal Preclude Waiver.....................................................17
2. The Semtech Derivative Litigation Was Settled Before
Briefing On The Motion Was Ever Completed........................19
V. CONCLUSION .............................................................................................24
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Page
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CASES
Bowne, Inc. v. AmBase Corp.,
150 F.R.D. 465 (S.D.N.Y. 1993)........................................................................14
Cook v. Yellow Freight Sys., Inc.,
132 F.R.D. 548 (E.D. Cal. 1990)........................................................................23
DeFazio v. Wallis,
459 F. Supp. 2d 159 (E.D.N.Y. 2006).................................................................. 8
Diversified Indus., Inc. v. Meredith,
572 F.2d 596 (8th Cir. 1977) ..............................................................................10
Estate of Gonzalez v. Hickman,
2007 WL 3231956 (C.D. Cal. Apr. 18, 2007)...................................................... 8
Farber v. Publ. Svc. Co. of New Mexico,
1991 WL 208460 (D.N.M. Apr. 4, 1991)............................................................. 3
Foltz v. State Farm Mut. Aut. Ins. Co.,
331 F.3d 1122 (9th Cir. 2003) ................................................................19, 20, 21
Foltz v. State Farm Mut. Aut. Ins. Co.,
Case No. 94-06293-HO (D. Or.) ............................................................19, 20, 21
Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc.,
332 F.3d 976 (6th Cir. 2003) ..............................................................................23
Grimes v. City & County of San Francisco,
951 F.2d 236 (9th Cir. 1991) ................................................................................ 9
Guth v. Loft, Inc.,
5 A.2d 503 (Del. 1939).......................................................................................12
Handgards, Inc. v. Johnson & Johnson,
413 F. Supp. 926 (N.D. Cal. 1976),
aff’d, 2005 WL 1403508 (C.D. Cal. May 10, 2005) ..........................................15
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TABLE OF AUTHORITIES
(continued)
Page
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Harrington v. Scribner,
2009 WL 1032858 (E.D. Cal. Apr. 16, 2009) ..............................................1, 8, 9
In re Broadcom Corp. Sec. Litig.,
2005 WL 1403513 (C.D. Cal. Apr. 7, 2005)......................................................15
In re Cardinal Health Inc. Sec. Litig.,
2007 WL 495150 (S.D.N.Y Jan. 26, 2007).................................................passim
In re Cont’l Ill. Sec. Litig.,
732 F.2d 1302 (7th Cir. 1984) ............................................................................18
In re First Am. Corp. ERISA Litig.,
258 F.R.D. 610 (C.D. Cal. 2009) ......................................................................... 8
In re Grand Jury Subpoena Dated July 13, 1979,
478 F. Supp. 368 (E.D. Wis. 1979) ................................................................9, 15
In re KLA-Tencor Corp. S’holder Deriv. Litig.,
2008 WL 2073936 (N.D. Cal. May 14, 2008) ...................................................22
In re McKesson HBOC, Inc. Sec. Litig.,
2005 WL 934331 (N.D. Cal. Mar. 31, 2005) ..............................................passim
In re Natural Gas Commodity Litig.,
2005 WL 1457666 (S.D.N.Y. June 21, 2005)................................................2, 16
In re Oracle Sec. Litig.,
2005 U.S. Dist. LEXIS 46931 (N.D. Cal. Aug. 5, 2005)...................................18
In re Perrigo Co.,
128 F.3d 430 (6th Cir. 1997) ....................................................................3, 17, 22
In re Steinhardt Partners, L.P.,
9 F.3d 230 (2d Cir. 1993) ...................................................................................14
In re Subpoena Duces Tecum,
738 F.2d 1367 (D.C. Cir. 1984) .........................................................................16
In re Syncor Erisa Litig.,
229 F.R.D. 636 (C.D. Cal. 2005) .......................................................................16
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TABLE OF AUTHORITIES
(continued)
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Johnson v. Hui,
811 F. Supp. 479 (N.D. Cal. 1991).....................................................................22
Joy v. North,
692 F.2d 880 (2d Cir. 1982), cert denied,
460 U.S. 1051, 103 S. Ct. 1498 (1983) ..............................................................18
Kamakana v. City & County of Honolulu,
447 F.3d 1172 (9th Cir. 2006) ............................................................................19
Kaplan v. Wyatt,
484 A.2d 501 (Del. 1984)...................................................................................22
Kaplan v. Wyatt,
499 A.2d 1184 (Del. 1985).................................................................................22
Lawrence E. Jaffe Pension Plan v. Household Int’l, Inc.,
244 F.R.D. 412 (N.D. Ill. 2006) ...................................................................10, 16
Maruzen Co. v. HSBC USA, Inc.,
2002 WL 1628782 (S.D.N.Y. Jul. 23, 2002) .....................................................16
McCarthy v. Middle Tenn. Elec. Membership Corp.,
466 F.3d 399 (6th Cir. 2006) ..............................................................................22
Modesto Irrigation Dist. v. Gutierrez,
2007 WL 763370 (E.D. Cal. Mar. 9, 2007) .......................................................14
Nassirpour v. FDIC,
2008 WL 5412432 (C.D. Cal. Dec. 29, 2008) ..................................................... 1
Osband v. Woodford,
290 F.3d 1036 (9th Cir. 2002) .............................................................................. 8
Picard Chem. Inc. Profit Sharing Plan v. Perrigo Co.,
951 F. Supp. 679 (W.D. Mich. 1996).............................................................3, 23
Regents of the University of California v. Superior Court,
165 Cal. App. 4th 672 (Cal. Ct. App. 2008).......................................................13
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TABLE OF AUTHORITIES
(continued)
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Rivera v. NIBCO, Inc.,
364 F.3d 1057 (9th Cir. 2004) .............................................................................. 9
Ross v. Abercrombie & Fitch Co.,
2008 WL 1844357 (S.D. Ohio 2008) .......................................................3, 18, 22
Saito v. McKesson HBOC, Inc.,
2002 WL 31657622 (Del. Ch. Nov. 13, 2002),
aff’d, 870 A.2d 1192 (Del. 2005) .......................................................................16
Seven For All Mankind, LLC v. GenX Clothing, Inc.,
2006 WL 5720346 (C.D. Cal. 2006) .................................................................... 8
Transamerica Computer Co., Inc. v. Int’l Bus. Mach. Corp.,
573 F.2d 646 (9th Cir. 1978) ........................................................................11, 22
United States v. Am. Tel. & Tel. Co.,
642 F.2d 1285 (D.C. Cir. 1980) .........................................................................14
United States v. Bergonzi,
216 F.R.D. 487 (N.D. Cal. 2003) .......................................................................16
United States v. Bergonzi,
403 F.3d 1048 (9th Cir. 2005) ..................................................................2, 10, 15
United States v. Contra Costa County Water Dist.
678 F.2d 90, 92 (9th Cir. 1982),
overruled on other grounds by Jaffe v. Redmond, 518 U.S. 1 (1996) ...............23
United States v. Reyes,
239 F.R.D. 591 (N.D. Cal. 2006) .......................................................................16
United States v. Stein,
435 F. Supp. 2d 330 (S.D.N.Y. 2006),
aff’d, 541 F.3d 130 (2d Cir. 2008) .....................................................................13
Weinberger v. UOP, Inc.,
457 A.2d 701 (Del. 1983)...................................................................................12
Wilson v. Airborne, Inc.,
2007 WL 5010297 (C.D. Cal. Oct. 23, 2007) ...................................................... 1
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Wolpin v. Philip Morris, Inc.,
189 F.R.D. 418 (C.D. Cal. 1999) ......................................................................... 8
Zapata Corp. v. Maldonado,
430 A.2d 779 (Del. 1981)...................................................................................22
Zitin v. Turley,
1991 WL 283814 (D. Ariz. 1991) ......................................................................18
STATUTES, RULES AND REGULATIONS
28 U.S.C.
§ 636(b)(1)(A) ...................................................................................................... 8
Federal Rules of Civil Procedure
Rule 72(a) ............................................................................................................. 8
Local Rules of the U.S.D.C. (C.D. Cal.)
Rule 7-3 ................................................................................................................ 1
Rule 37-2 ..................................................................................................4, 5, 6, 7
OTHER AUTHORITIES
MOORE’S FEDERAL PRACTICE § 72.11[1][a] (3d ed. 2009) ......................................... 8
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Defendant Semtech Corporation (“Semtech” or the “Company”) respectfully
submits this Memorandum of Points and Authorities in Opposition to Plaintiff’s
Motion for Review of Magistrate Judge’s Order Denying Plaintiff’s Motion to
Compel Discovery Requested in the Subpoena Issued by Plaintiff to Ernst & Young
LLP (“Pl. Rev. Mot.”). 1
I. INTRODUCTION
By this motion, Plaintiff impermissibly seeks to invade judicially sanctioned
attorney-client and work product privileges belonging to Semtech, rather than
independently litigate its own allegations of securities fraud. As the Honorable
Magistrate Judge Fernando M. Olguin recognized in his carefully reasoned twelve-
page discovery order issued January 11, 2010,2 and consistent with ample
applicable precedent, Plaintiff is not entitled to shortcut the discovery process and
obtain privileged Special Committee and Special Litigation Committee materials
relating to the Company’s internal analysis of its historical option grant processes
where Semtech took every reasonable step necessary to preserve those privileges
and confidentiality. Because Judge Olguin’s discovery ruling is ably supported by
relevant precedent and is not “contrary to law”3 nor error, the Order should be
affirmed, and Plaintiff’s attempt to “shop” for a different outcome here should be
denied.
1 As a threshold matter, Plaintiff’s failure to comply with Local Rule 7-3
precludes consideration of this motion. Local Rule 7-3 requires a moving party “to
contact opposing counsel to discuss thoroughly, preferably in person, the substance
of the contemplated motion and any potential resolution” and to include a statement
to that effect in the motion. Courts in this district have denied subsequent motions
simply for failure to include the required statement. See, e.g., Nassirpour v. FDIC,
No. 08-7164, 2008 WL 5412432, at *3 (C.D. Cal. Dec. 29, 2008); Wilson v.
Airborne, Inc., No. 07-770, 2007 WL 5010297, at *2 (C.D. Cal. Oct. 23, 2007).
2 See Order Re: Discovery Motion dated January 11, 2010 (Docket No. 156)
(the “Order”).
3 A magistrate judge’s legal conclusions are contrary to law only where they
fail “to apply or misapply[y] relevant statutes, case law or rules of procedure.”
Harrington v. Scribner, 2009 WL 1032858, at *1 (E.D. Cal. Apr. 16, 2009).
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In the underlying motion to compel, Plaintiff made a number of arguments in
its attempt to bypass the privilege, but now has abandoned all but two of these
theories. First, Plaintiff argues that production of the Special Committee materials
under confidentiality agreements to the Securities and Exchange Commission
(“SEC”) and U.S. Attorney’s Office for the Southern District of New York
(“USAO”) constitutes a waiver of the privilege and work product protections.4
Unfortunately for Plaintiff, as Judge Olguin recognized, in view of the strong public
policies encouraging cooperation of companies with the government, many courts
have held that where confidentiality agreements are used, such productions do not
constitute a waiver. See Order at 7:7-9:10 (carefully analyzing body of relevant
precedent); see also, e.g., In re McKesson HBOC, Inc. Sec. Litig., 2005 WL
934331, at *9 (N.D. Cal. Mar. 31, 2005) (“taking into consideration the benefit to
the public of permitting disclosure of work product to the government” disclosure
to government pursuant to a confidentiality agreement did not waive privilege).5
While the Ninth Circuit has not ruled on the application of the “selective waiver”
doctrine, it has recognized the probability that a corporation can “selectively waive”
the attorney-client privilege by “disclos[ing] the results of an internal investigation
to an investigating government agency without waiving attorney-client privilege or
work product protection as to the outside world.” United States v. Bergonzi, 403
F.3d 1048, 1050 (9th Cir. 2005); see also Order at 8:17-26.
Plaintiff’s sole remaining argument is that filing of the Special Litigation
Committee report under seal and pursuant to a protective order in this Court in
connection with a motion to terminate prior pending derivative litigation constitutes
4 See Pl. Rev. Mot. at 7-8.
5 Numerous other federal court decisions are consistent with McKesson. See,
e.g., In re Cardinal Health Inc. Sec. Litig., 2007 WL 495150, at *9 (S.D.N.Y Jan.
26, 2007) (company’s confidentiality agreement with the SEC precluded waiver of
work product protections); In re Natural Gas Commodity Litig., 2005 WL 1457666,
at *8 (S.D.N.Y. June 21, 2005) (same); see additional authorities infra at pp. 15-17.
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a waiver.6 Judge Olguin’s Order correctly found that such filing under seal in
connection with the derivative case motion did not render these materials available
to a third-party plaintiff in this action. Order at 9:11-12:9; see, e.g., In re Perrigo
Co., 128 F.3d 430, 440 (6th Cir. 1997) (ruling that production of a special litigation
committee report pursuant to a protective order and filing under seal did not act as a
waiver to “plaintiffs in a hostile securities action”); Ross v. Abercrombie & Fitch
Co., 2008 WL 1844357, at *2 & *5 (S.D. Ohio 2008) (where special litigation
report was filed under seal, the court ruled that “the report remains privileged and
therefore not subject to discovery by the private securities plaintiffs”). First,
because judicial review of these materials is mandatory for any judicial
consideration of this type of derivative case motion, courts have recognized that
such compelled filings do not constitute a waiver.7 Second, Plaintiff’s reliance on
authorities concerning the public’s right to access materials which are dispositive to
an adversarial judicial determination is misplaced. As Judge Olguin recognized, the
motion to terminate the derivative litigation was never even opposed, fully briefed
or argued nor advanced for ruling by this Court – as the parties took the motion off
calendar prior to the opposition filing and proceeded to settle the case without any
decision on the motion.8 As Judge Olguin observed, the motion thus was in no way
dispositive to the case because it was never briefed by the derivative plaintiff nor
submitted for a ruling. See Order at 11:7-11:18. For all of these reasons and as
detailed more fully herein, Judge Olguin’s Discovery Order was consistent with
6 See Pl. Rev. Mot. at 9-11.
7 See Picard Chem. Inc. Profit Sharing Plan v. Perrigo Co., 951 F. Supp. 679,
687 (W.D. Mich. 1996) (denying class action plaintiffs access to special litigation
committee report from an earlier derivative action); see also Farber v. Publ. Svc.
Co. of New Mexico, 1991 WL 208460, at *1 (D.N.M. Apr. 4, 1991) (protecting
special litigation committee materials and communications “on the basis of work
product or applicable privilege”).
8 See Order Taking Off Calendar The Semtech’s Motion To Terminate And
For Providing For Joint Status Report Regarding The Parties’ Progress Towards
Settlement (Docket No. 91) In re Semtech Corp. Derivative Litig., Case No. CV-
06-03510-CAS (FMOx) (“Semtech Deriv. Litig.”).
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well established precedent and should be affirmed.
II. STATEMENT OF THE ISSUES
1. Whether Judge Olguin was correct in holding that the compelled
production of privileged materials to the SEC and USAO under confidentiality
agreements with each government entity per McKesson did not constitute a waiver.
2. Whether Judge Olguin was correct in holding that the filing of
privileged materials under seal by this Court’s order as required in connection with
Semtech’s motion to terminate prior pending derivative litigation that was never
briefed nor ruled upon did not constitute a waiver.
III. BACKGROUND
A. Procedural Posture
The parties filed briefing on the Motion by Plaintiff to Compel Discovery
Pursuant to the Subpoena Issued by Plaintiff to Ernst & Young LLP; Joint
Stipulation of Parties Pursuant to Local Rule 37-2 (“Motion to Compel” or “Joint
Stip.”) on October 6, 2009, and Semtech filed supplemental briefing on October 11,
2009. (Docket Nos. 146, 153.)9 Judge Olguin took the matter under submission
and later entered the twelve-page Order denying Plaintiff’s motion to compel, and
quashing those challenged portions of the third party subpoena. (Docket No. 156.)
Plaintiff filed the present Motion for Review on January 25, 2010.
B. Factual Background10
On May 18, 2006, Semtech received a letter from the SEC notifying the
Company that it had initiated an investigation into Semtech’s historical stock option
practices. (Joint Stip. at 23.) A grand jury subpoena also was issued by the USAO
notifying the Company of its parallel investigation. Id. Federal and state court
9 All references to declarations herein refer to those declarations filed as
exhibits to the Joint Stip. (Docket No. 148.)
10 This Factual Background section includes only those facts relevant to the
Motion for Review. Semtech incorporates by reference the facts and background as
more fully articulated in the underlying Joint Stip. (Docket No. 146, at 22-28.)
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shareholder actions against Semtech and certain of its officers and directors
followed, including the instant action. Id.
Shortly after learning of the government inquiries, on or about June 7, 2006,
the Board of Directors charged the Audit Committee with undertaking an internal
investigation of Semtech’s stock option grant practices and related accounting. Id.
On June 9, 2006, the Audit Committee retained outside counsel, Fenwick & West
LLP (“Fenwick”), to assist in its investigation and report to the Audit Committee its
recommendations, findings and advice. Id. Fenwick retained Navigant Consulting,
Inc. (“Navigant”) to provide expert accounting advice and analysis in connection
with the investigation. Id. Thereafter, on July 12, 2006, the Board appointed a
committee comprised solely of independent directors (the “Special Committee”),
providing the Special Committee with the full authority and resources to continue
the investigation. Id. at 23-24. Fenwick’s investigation was undertaken in
anticipation of litigation; in fact, the related shareholder lawsuits and government
investigations were pending when Fenwick’s investigation began. Id. at 24.
Upon completion of its investigation, Fenwick issued a report to the Special
Committee with its findings and recommendations (the “Fenwick Report”). Id.
Ultimately, Fenwick’s interview memoranda, Navigant’s accounting analysis, and
other investigative work product formed part of the basis for the Fenwick Report.
Id.
Similar to the Special Committee’s investigation, the SEC and USAO
investigated the facts and circumstances surrounding Semtech’s historical stock
option grant practices. Id. The SEC and USAO demanded that the Special
Committee produce documents related to its investigation, specifically including
Fenwick’s work product. Id. The Special Committee notified the SEC and USAO
that it sought to protect attorney-client and work product privileges as to third
parties; however, it effectively had no choice but to acquiesce to the government’s
demand. Id. The policies of the SEC and USAO at the time were articulated in the
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SEC’s October 31, 2001 “Seaboard Report”11 and the Department of Justice’s
January 20, 2003 “Thompson Memorandum.”12 Id. at 24-25. These policies
effectively required the Special Committee to demonstrate its cooperation by
agreeing to produce materials otherwise protected by the attorney-client privilege or
attorney work product doctrine, under threat of indictment or increased sanctions by
the government. Id. at 25.
In determining to cooperate with the SEC and USAO, and predicated on the
common interests shared between the Special Committee and the government in
investigating and uncovering potential wrongdoing, the Special Committee utilized
the available safeguards to selectively disclose its work product to the government
by first entering into a confidentiality agreement with each agency. Id. The
agreements were consistent with the standard confidentiality and non-waiver
agreements routinely executed by the SEC and USAO, and provided that the
government would maintain the confidentiality of the documents and not assert that
the Special Committee’s production constituted a waiver of any attorney-client
privileges or attorney work product protections as to any third party. Id. These
agreements also expressed the mutual interests of the government and the Special
Committee in investigating and analyzing the events at issue. Id.
In response to the demands by the SEC and USAO, the Special Committee
produced the Fenwick Report, the Fenwick interview memoranda and compilations
of selected underlying documents identified by Fenwick attorneys. Id. These
documents were produced pursuant to the Special Committee’s agreements with the
SEC and USAO for confidential treatment. Id. at 26. The confidentiality
11 SEC “Report of Investigation Pursuant to Section 21(a) of the Securities
Exchange Act of 1934 and Commission Statement on the Relationship of
Cooperation to Agency Enforcement Decisions” (the “Seaboard Report”). Miller
Decl., Exhibit C.
12 Department of Justice memorandum regarding the “Principles of Federal
Prosecution of Business Organizations” (the “Thompson Memorandum”). Miller
Decl., Exhibit D.
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agreements precluded disclosure to third parties except to the extent necessary for
the two agencies to discharge their duties, a standard condition required by each
agency to enter into the agreements. Id. Neither the SEC nor USAO have notified
Semtech that it was a target or subject of the Grand Jury Subpoena. Id. Similarly,
there has been no indication to date that either the SEC or USAO intends to
prosecute Semtech or to seek disgorgement or penalties from Semtech. Id.
Consistent with the recommendations of the Special Committee, in October
2006, Semtech’s Board established a Special Litigation Committee of disinterested
directors to assess the claims in the shareholder derivative suits. Id. The Special
Litigation Committee retained Morrison & Foerster LLP (“Morrison”) to conduct
an investigation concerning the derivative claims and to report to the Special
Litigation Committee its recommendations, findings and advice. Id.
Morrison’s investigation included an analysis of the record previously
compiled by Fenwick and Navigant on behalf of the Special Committee, including
the Fenwick Report and Fenwick’s interview memoranda. Id. In addition,
Morrison conducted its own interviews of current and former Semtech employees
and directors, collected and reviewed documents relevant to the shareholder
derivative suits, and performed legal analysis concerning the derivative claims. Id.
On or about March 7, 2007, Morrison prepared a report of its investigation on
behalf of the Special Litigation Committee (the “Morrison Report”). Id. The
Morrison Report was accompanied by two binders of supporting exhibits and
reflected Morrison attorneys’ mental impressions, thoughts, and legal analysis of
the legal and factual issues presented in the investigation and related derivative
claims. Id. at 26-27. Neither the Morrison Report nor the work product of the
Morrison attorneys have been requested by or produced to the SEC or USAO. Id.
at 27.
On July 17, 2007, Semtech filed a Motion to Dismiss the Derivative
Complaints Pursuant to Rule 23.1 or in the Alternative Motion for Summary
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Judgment in the consolidated derivative litigation, In re Semtech Corporation
Derivative Litigation, Case No. CV-06-03510, which was pending in the United
States District Court for the Central District of California. In connection with the
motion, Semtech filed the Morrison Report and certain of the exhibits thereto,
including portions of the Fenwick Report and excerpts from certain of Fenwick’s
interview memoranda. These materials were filed under court-ordered seal and
pursuant to a protective order. (Docket No. 57.) Filing of these materials was
required under applicable Delaware law for the Court to adjudicate the motion.
This litigation was subsequently settled prior to any further briefing and hearing on
the motion. (Joint Stip. at n.12.)
IV. ARGUMENT
A. Standard Of Review
A district court should modify or set aside a magistrate judge’s non-
dispositive order only where it is “clearly erroneous or contrary to law.” 28 U.S.C.
§ 636(b)(1)(A); Fed. R. Civ. P. 72(a); see also Osband v. Woodford, 290 F.3d 1036,
1041 (9th Cir. 2002); Wolpin v. Philip Morris, Inc., 189 F.R.D. 418, 422-23 (C.D.
Cal. 1999). While a magistrate judge’s legal conclusions are reviewed de novo,
they are contrary to law only where they “fail[] to apply or misappl[y] relevant
statutes, case law, or rules of procedure.” Harrington, 2009 WL 1032858, at *1
(citing DeFazio v. Wallis, 459 F. Supp. 2d 159, 163 (E.D.N.Y. 2006)).13 District
13 District courts do not consider evidence that was not presented to a
magistrate judge in a non-dispositive motion. 28 U.S.C. sec. 636(b)(1)(A); In re
First Am. Corp. ERISA Litig., 258 F.R.D. 610, 624 (C.D. Cal. 2009) (“[P]arties
objecting to a magistrate judge’s order may not present affidavits containing
evidence not presented below.”); see also Estate of Gonzalez v. Hickman, 2007 WL
3231956, at *3 (C.D. Cal. Apr. 18, 2007) (identifying the distinction between
dispositive and non-dispositive rulings by magistrate judges for purposes of a
district court’s review, and holding that a district court may not consider new
information on review of a non-dispositive motion). As Judge Olguin specifically
emphasized in his Order (in bold text), failure to advance arguments or present facts
waives those arguments upon review by the District Court. Order at n.3 (citing
MOORE’S FEDERAL PRACTICE § 72.11[1][a] (3d ed. 2009); Seven For All Mankind,
LLC v. GenX Clothing, Inc., 2006 WL 5720346, at *3 (C.D. Cal. 2006)). This
Court should not, therefore, consider Exhibit B to the Pulliam Declaration as well
as the additional “facts” relating to the settlement of the derivative litigation or any
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courts give great deference to magistrate judges’ rulings on discovery motions, and
should not “simply substitute [their] judgment for that of the” magistrate judge.
Grimes v. City & County of San Francisco, 951 F.2d 236, 241 (9th Cir. 1991); see
also Rivera v. NIBCO, Inc., 364 F.3d 1057, 1063 (9th Cir. 2004) (a district court
“may not overturn [a magistrate judge’s] order simply because it might have
weighed differently the various interests and equities”). Clearly, Judge Olguin’s
ruling relied upon and is consistent with established precedent.
B. Judge Olguin Correctly Ruled In Applying Selective Waiver To
The Production Of Protected Materials Under Confidentiality
Agreements To The SEC And USAO
Judge Olguin did not fail to apply or misapply relevant statutes, case law or
rules of procedure. See Harrington, 2009 WL 1032858, at *1. As such, it is not
contrary to law. In finding Semtech did not waive the protections over the Fenwick
Report, Judge Olguin considered the arguments and authorities presented by both
Plaintiff and Semtech, considered other case law independent of that cited by the
parties, and carefully considered approaches to selective waiver taken by courts
across the nation. Order at 7-9.14
Although Plaintiff asserts that Judge Olguin’s application of selective waiver
to production of the disputed materials to the SEC and USAO was “a first for any
additional materials Plaintiff may improperly seek to submit with its reply brief.
See Motion for Review at 7, 22-23. It should also ignore Plaintiff’s novel legal
arguments, presented here for the first time. See id. at 14:4-14:16 (citing, for the
first time, authorities regarding application of selective waiver); 15:11-17:1
(asserting new policy arguments underlying selective waiver doctrine); 22:14-23:12
(arguing that the Court’s final approval of the settlement in derivative litigation
constitutes waiver).
14 Plaintiff also appears to challenge the Order on the newly argued ground that
public policy does not support the application of selective waiver to productions of
privileged materials to government entities. (Pl. Rev. Mot. at 14-16.) This new
argument should not be considered by this Court, as it was not presented below to
Judge Olguin. Regardless, the Order clearly addressed the public policies
underlying selective waiver in productions of documents to the government, and
deemed that selective waiver encourages cooperation in government investigations,
in the public interest. (Order at 8-9 (citing In re Grand Jury Subpoena Dated July
13, 1979, 478 F. Supp. 368, 372-73 (E.D. Wis. 1979); McKesson, 2005 WL
934331, at *10; Cardinal Health, 2007 WL 495150, at *9).)
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court in the Ninth Circuit,” Plaintiff is simply wrong and ignores the authority cited
by Judge Olguin and by Semtech in the Joint Stip. See McKesson, 2005 WL
934331, at *9, *10 (permitting disclosure to the government without waiver based
on “a distinction between disclosure to a private entity (resulting in waiver) and
disclosure to a government entity pursuant to a confidentiality agreement
(maintaining work product protection)”); see also Bergonzi, 403 F.3d at 1050
(recognizing the possibility that a corporation can “selectively waive” the attorney-
client privilege by “disclos[ing] the results of an internal investigation to an
investigating government agency without waiving attorney client privilege or work
product protection as to the outside world”). Moreover, this doctrine is well
developed in other jurisdictions. See Diversified Indus., Inc. v. Meredith, 572 F.2d
596, 611 (8th Cir. 1977) (en banc) (selective waiver approved where defendant
disclosed documents to the SEC “in a separate and nonpublic SEC
investigation”);15 Lawrence E. Jaffe Pension Plan v. Household Int’l, Inc., 244
F.R.D. 412, 430, 433 (N.D. Ill. 2006) (holding that, where defendants produced
documents to the SEC pursuant to a confidentiality agreement, “selective waiver
may be appropriate where the disclosing party took steps to preserve its privilege”);
Cardinal Health, 2007 WL 495150, at *9 (finding that a nonparty’s confidentiality
agreement with the SEC precluded waiver of the work product protection).
Semtech did not waive the protections over the Fenwick Report and related
materials by producing them to the SEC and USAO for several independent
reasons: (1) the Special Committee was effectively compelled to “cooperate”
consistent with the SEC and USAO guidelines at the time for determining whether
to charge a corporation, which expressly considered whether the corporation
15 In Diversified, the Eight Circuit upheld the selective waiver doctrine even in
the absence of a confidentiality agreement with the government agency. As
described supra, McKesson and numerous other courts have upheld the selective
waiver doctrine where the documents in question were produced pursuant to a
confidentiality agreement, such as the agreements reached here between Semtech
and the SEC and USAO.
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produced privileged materials; (2) the Special Committee and the SEC and USAO
shared a common interest in analyzing the evidence and identifying potential
wrongdoers; and (3) the Special Committee produced its attorneys’ work product to
the government pursuant to a confidentiality agreement.
1. The Special Committee Had No Effective Choice But To
Cooperate With The Government’s Requests
An involuntary or compelled production does not waive the attorney-client
privilege. Transamerica Computer Co., Inc. v. Int’l Bus. Mach. Corp., 573 F.2d
646, 650-52 (9th Cir. 1978) (recognizing that “disclosure of confidential material
constitutes a waiver of the attorney-client privilege only if it is voluntary and not
compelled”). The Special Committee’s production of Fenwick’s investigative work
product to regulators under extraordinary pressure to “cooperate” with their
investigations constituted an involuntarily disclosure, and does not result in a
waiver.
In 2006, at the time of the Special Committee’s production to the SEC and
USAO, federal prosecutors evaluated a corporation’s cooperation pursuant to the
SEC’s Seaboard Report and the DOJ’s Thompson Memorandum. Among other
factors, these guidelines effectively required corporations under investigation to
demonstrate their cooperation by agreeing to produce relevant materials irrespective
of privilege. Specifically, the Thompson Memorandum required criminal
prosecutors to consider “the willingness of a corporation to waive [the attorney-
client privilege and work product protection] when necessary to provide timely and
complete information” as a factor in evaluating the company’s cooperation. Miller
Decl., Exhibit C at § VI.B. The SEC’s Seaboard Report similarly provided that
production of privileged materials was a factor in evaluating a corporation’s level
of cooperation with its investigation. Miller Decl., Exhibit D at n.3. In practice,
companies under threat of being labeled uncooperative have no real choice but to
produce the requested documents to the government regardless of whether the
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documents are privileged. This is particularly true in the context of a special
committee in which a board member exercising his or her fiduciary duty to the
corporation is more likely to acquiesce to the government’s pressure to waive rather
than put the company at risk of increased government scrutiny. See Weinberger v.
UOP, Inc., 457 A.2d 701, 710 (Del. 1983) (quoting Guth v. Loft, Inc., 5 A.2d 503,
510 (Del. 1939)) (“‘[P]ublic policy . . . has established a rule that demands of a
corporate officer or director, peremptorily and inexorably, the most scrupulous
observance of his duty, not only affirmatively to protect the interests of the
corporation committed to his charge, but also to refrain from doing anything that
would work injury to the corporation . . . .’”).
The subsequent policies of the DOJ recognize the coercive nature of the
directives under the Thompson Memorandum.16 Following the lead of the DOJ, the
SEC revamped its guidelines in October 2008 in a revision of its Enforcement
Manual, which directed its staff not to ask a company to waive its privileges.
Miller Decl., Exhibit G at § 4.3. The Enforcement Manual now dictates that “the
staff should not ask a party to waive attorney-client or work product privileges and
is directed not to do so.” Id. The Enforcement Manual also provides that a
company’s decision to assert privilege “will not negatively impact [its] claim of
credit for cooperation.” Id. The sea change associated with the publication of the
Filip Memorandum and the SEC Enforcement Manual evidenced a significant
departure from the pressure to produce privileged documents that had been imposed
16 Following a deluge of criticism that the DOJ’s guidelines exerted undue
pressure on corporations to waive privilege, the DOJ replaced the Thompson
Memorandum with the December 12, 2006 Paul McNulty memorandum (the
“McNulty Memorandum”). Miller Decl., Exhibit E. The McNulty Memorandum
significantly reduced the pressure imposed on corporations to produce privileged
materials by limiting the “cooperation credit” that could be afforded to a company
for producing privileged documents. Miller Decl., Exhibit E at § VII.B.2.
Recognizing that the McNulty Memorandum did not go far enough, the latest
iteration of the DOJ’s guidelines, the August 28, 2008 Mark Filip memorandum
(the “Filip Memorandum”), mandates that federal prosecutors now may not even
request that a corporation produce privileged materials. Miller Decl., Exhibit F at §
9-28.710. These developments, however, post-dated the Special Committee’s
production to the government.
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on companies such as Semtech under the prior policies of the SEC and USAO
contemporaneous with Semtech’s production in 2006 to the government.
The California Court of Appeal’s recent decision in Regents of the University
of California v. Superior Court, 165 Cal. App. 4th 672 (Cal. Ct. App. 2008),
recognized the coerciveness of the policies under the Thompson Memorandum.
The Court of Appeal held that the corporate defendants’ production of privileged
material to a government agency operating under the Thompson Memorandum
constituted coercion under California law, and thus did not result in a waiver of the
privilege. Id. at 683.
[W]hen privileged documents have been disclosed either
in response to the request of a government agency or
inadvertently in the course of civil discovery, no waiver
of the privilege will occur if the holder of the privilege
has taken reasonable steps under the circumstances to
prevent disclosure. The law does not require that the
holder of the privilege take “strenuous or Herculean
efforts” to resist disclosure.
Id. In United States v. Stein, the Southern District of New York found that the
cooperation factor in the Thompson Memorandum required a corporation to comply
“because the government held the proverbial gun to its head.” 435 F. Supp. 2d 330,
336 (S.D.N.Y. 2006), aff’d, 541 F.3d 130 (2d Cir. 2008).
Here, the regulators demanded that the Special Committee produce
documents related to its investigation, specifically including privileged documents.
Stanton Decl. at ¶ 10. Against the backdrop of the Thompson Memorandum and
the Seaboard Report, the Special Committee was effectively required to produce the
requested documents to the regulators or risk increased scrutiny, delisting from the
market, and possible prosecution. Accordingly, the Special Committee’s
production was not voluntary and cannot be deemed a waiver of the attorney-client
privilege or work product protections.
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2. The Special Committee And The Government Shared A
Common Interest Sufficient To Maintain The Attorney-
Client And Work Product Privileges
Disclosure of work product to another person who has an interest in the
information but is not reasonably viewed as a “conduit” to a potential adversary is
not deemed to be a waiver of the attorney work product protections. McKesson,
2005 WL 934331, at *6 (quoting Bowne, Inc. v. AmBase Corp., 150 F.R.D. 465,
479 (S.D.N.Y. 1993)). If two parties share a common interest, a party does not
waive the work product protections by disclosing documents. United States v. Am.
Tel. & Tel. Co., 642 F.2d 1285, 1300 (D.C. Cir. 1980) (finding no waiver of work
product protections by sharing documents with the government due to the common
interest with the government “in developing legal theories and analyses of
documents”). A common interest can occur even when the parties’ interests are
adverse in “substantial respects.” See, e.g., Modesto Irrigation Dist. v. Gutierrez,
2007 WL 763370, at *15 (E.D. Cal. Mar. 9, 2007) (“The [common interest]
privilege does not require a complete unity of interests among the participants, and
it may apply where the parties’ interests are adverse in substantial respects.”).
The Special Committee and the SEC and USAO shared a common interest in
investigating and uncovering any potential wrongdoing associated with Semtech’s
stock option grants. See Cardinal Health, 2007 WL 495150, at *9 (denying
plaintiff’s motion to compel on the grounds that the government and a board
committee shared a “common interest in developing legal theories and analyzing
information” regarding potential financial irregularities) (internal citation omitted).
Courts have recognized that strong public policy considerations underlie the
application of the common interest doctrine between a board committee conducting
an internal investigation and the government, and thus work product should be
“protect[ed] . . . in these circumstances to encourage cooperation between the
private and public sectors acting with a common interest.” Id. (emphasis added)
(citing In re Steinhardt Partners, L.P., 9 F.3d 230, 236 (2d Cir. 1993) (adopting a
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case-by-case approach to the selective waiver doctrine, and recognizing the
applicability of the doctrine when the corporation and the government have a
common interest)). To date, the SEC and USAO have not brought any civil,
criminal, or administrative proceedings against Semtech or its board. Miller Decl.
at ¶ 10. Nor has either agency ever notified Semtech that it was a target or subject
of the Grand Jury Subpoena. Id. In the past forty-four months since Semtech was
notified of these investigations, the relationship between the government and
Semtech was cooperative and consistent with the common interests of the parties.
Id.
3. Semtech Preserved The Protections By Entering Into
Confidentiality Agreements With The SEC And USAO
Semtech maintains that the Special Committee’s production of the Fenwick
Report to the SEC and USAO did not constitute waiver. To the extent that
production would have constituted a waiver, however, the waiver was limited to the
government and not a waiver as to third parties. While the Ninth Circuit has not
ruled on the application of the “selective waiver” doctrine, it has recognized the
possibility that a corporation can “selectively waive” the attorney-client privilege
by “disclos[ing] the results of an internal investigation to an investigating
government agency without waiving attorney client privilege or work product
protection as to the outside world.” Bergonzi, 403 F.3d at 1050.17 This view is
consistent with the strong public policy considerations served by encouraging
companies to cooperate with government investigations without having to choose
between exercising good corporate citizenship and waiving privileges as to all
future adversaries. See, e.g., In re Grand Jury Subpoena, 478 F. Supp. at 372-73
17 Even assuming, arguendo, that the attorney-client privilege was waived,
which it was not, it does not follow that the attorney work product protection also
was waived. In re Broadcom Corp. Sec. Litig., 2005 WL 1403513, at *3 (C.D. Cal.
Apr. 7, 2005) (citing Handgards, Inc. v. Johnson & Johnson, 413 F. Supp. 926,
929-30 (N.D. Cal. 1976) (“Since protections afforded work product and attorney-
client communications address different goals, it does not follow that a waiver of
one automatically results in a waiver of the other.”), aff’d, 2005 WL 1403508 (C.D.
Cal. May 10, 2005).
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(“[V]oluntary cooperation with [the government] investigation would be
substantially curtailed if such cooperation were deemed to be a waiver of a
corporation’s attorney-client privilege.”); Saito v. McKesson HBOC, Inc., 2002 WL
31657622, at *10-11 (Del. Ch. Nov. 13, 2002) (invoking the selective waiver
doctrine with respect to an investigative report and related documents based on the
“strong public interest such a rule would serve”), aff’d, 870 A.2d 1192 (Del. 2005);
Cardinal Health, 2007 WL 495150, at *9 (finding no waiver of the work product
protection under a common interest theory).
Several courts have upheld the selective waiver doctrine in the context of a
confidentiality agreement between the parties, such as the agreements reached here
between the Special Committee and the SEC and USAO. See McKesson, 2005 WL
934331, at *9 (permitting disclosure to the government, without waiver, where
documents are produced pursuant to a confidentiality agreement, because disclosure
in this manner “[does] not undermine the underlying principles of the work product
doctrine”); Cardinal Health, 2007 WL 495150, at *9 (finding that a company’s
confidentiality agreement with the SEC precluded waiver of the work product
protections); In re Natural Gas Commodity Litig., 2005 WL 1457666, at *8 (same);
Lawrence E. Jaffe Pension Plan, 244 F.R.D. at 433 (same); Maruzen Co. v. HSBC
USA, Inc., 2002 WL 1628782, at *2 (S.D.N.Y. Jul. 23, 2002) (same); see also In re
Subpoena Duces Tecum, 738 F.2d 1367, 1375 (D.C. Cir. 1984) (finding that a party
can avoid waiver by “insist[ing] on a promise of confidentiality before disclosure to
the SEC”).18
18 Certain other California District Court cases considered but did not
adjudicate the merits of the selective waiver doctrine, finding the attorney-client
and work product privileges did not attach. See, e.g., In re Syncor Erisa Litig., 229
F.R.D. 636 (C.D. Cal. 2005) (finding no privilege ever attached to the documents in
the first instance); United States v. Bergonzi, 216 F.R.D. 487 (N.D. Cal. 2003)
(same). Plaintiff’s reliance on United States v. Reyes, 239 F.R.D. 591, 603 (N.D.
Cal. 2006) is similarly misplaced. Reyes involved an indicted former company
executive attempting to obtain his non-party employer’s investigative findings and
conclusions in order to prepare his criminal defense. Id. at 596. The court did not
permit the company to withhold this information from its former CEO. Id. The
relevant posture and legal duties in Reyes are thus fundamentally distinct from
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In McKesson, the Northern District of California held that disclosure of
privileged materials to the government pursuant to a confidentiality agreement was
only a “selective waiver” as to the government agency and not as to all future
adversaries. 2005 WL 934331, at *10. Judge Whyte found that “taking into
consideration the benefit to the public of permitting disclosure of work product to
the government,” it did not result in a broader waiver as to third parties. Id.
Under circumstances similar to those facing McKesson, the Special
Committee utilized the available protections to comply with the government’s
request, while minimizing the potential for disclosure to Semtech’s adversaries.
The confidentiality agreements reached with the SEC and USAO provided that the
government would maintain the confidentiality of the documents and would not
assert that the Special Committee’s production constituted a waiver of any attorney-
client privileges or work product protections. Stanton Decl. at ¶¶ 11-12.
“Permitting disclosure to the government under a confidentiality agreement [does]
not undermine the underlying principles of the work product doctrine.” McKesson,
2005 WL 934331, at *9 (“The work product privilege rests on the belief that . . .
promotion of adversary preparation ultimately furthers the truth-finding process.”)
(internal citation omitted). Accordingly, the Special Committee never waived the
privilege as to Plaintiff.
C. Judge Olguin Correctly Ruled That Filing Protected Materials
Under Seal Did Not Constitute A Waiver
1. The Protective Order And Filing Of The Morrison Report
Under Seal Preclude Waiver
As Judge Olguin recognized, filing the Special Litigation Committee report,
and related documents under seal pursuant to a protective order maintains the
confidentiality of the documents. Order at 10:26-11:7; see also Perrigo, 128 F.3d
at 440-41 (holding that production of a special litigation committee report pursuant
Semtech where this third-party plaintiff had no involvement with the underlying
facts nor is it being prosecuted.
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to a protective order, and filing of the report under seal, provided the parties in the
derivative case access to the protected materials, but did not act as a waiver which
would give confidential report information to the public domain, including
“plaintiffs in a hostile securities action”); Abercrombie, 2008 WL 1844357, at *4-5
(applying Delaware law to hold that privilege was not waived as to securities
plaintiffs who sought a special litigation committee report that was filed under seal
in a related derivative action); In re Oracle Sec. Litig., 2005 U.S. Dist. LEXIS
46931 (N.D. Cal. Aug. 5, 2005) (“The Court here does not base its holding on the
mere fact that the [special litigation committee] report and memoranda were filed in
the derivative action.”).19
Judge Olguin recognized that the authorities relied upon by Plaintiff:
finding waiver require something more than simply
attaching a Special Litigation Committee report to a
motion to terminate. See e.g., Joy v. North, 692 F.2d 880,
884 & 893-94 (2d Cir. 1982), cert denied, 460 U.S. 1051,
103 S. Ct. 1498 (1983) (protected documents attached to
summary judgment motion, which the court ruled on);
Zitin v. Turley, 1991 WL 283814, at *1 & *5 (D. Ariz.
1991) (same); In re Cont’l Ill. Sec. Litig., 732 F.2d 1302,
1314-16 (7th Cir. 1984) (company voluntarily offered the
report into evidence at a public hearing and had publicly
disclosed the report’s contents at that hearing); Oracle,
2005 U.S. Dist. LEXIS 46931, at *32-36 (company filed
protected documents in support of dispositive motion,
voluntarily disclosed documents to plaintiffs in other
actions, and allowed reference to contents of documents in
open court without objection or moving to seal).
Order at 11-12; Pl. Rev. Mot. at 20-22. Each of these cases required something
more, such as a ruling from the court on the dispositive motion or voluntary
disclosure of the materials to third parties without efforts to maintain them in
confidence. Judge Olguin correctly held that the motion to terminate was never
19 The Morrison Report’s filing in connection with the Motion to Terminate
was governed by protective order and made under seal pursuant to orders by this
Court. See Semtech Deriv. Litig., Docket No. 57.
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ripe for decision by this Court and found that Semtech took the necessary steps to
maintain the confidentiality of the Morrison Report.
2. The Semtech Derivative Litigation Was Settled Before
Briefing On The Motion Was Ever Completed
Plaintiff’s remaining argument relies entirely on the notion that the public
has a right of access to materials submitted in connection with a “dispositive”
motion. Pl. Rev. Mot. at 18-20. That argument has no application here as the
derivative case motion did not prove to be dispositive and the public policy
consideration never materialized. See Foltz v. State Farm Mut. Aut. Ins. Co., 331
F.3d 1122, 1135 (9th Cir. 2003) (“Foltz II”)20 (presumption in favor of public
access is rebutted if motion is non-dispositive).21
As Judge Olguin correctly held, Semtech’s motion to terminate was non-
dispositive, given that the parties settled the case before it was completely briefed
or this Court considered the motion, or had an opportunity to resolve any dispute.
(Order at 11.) “[T]he strong presumption of access to judicial records applies fully
to dispositive pleadings . . . because the resolution of a dispute on the merits,
whether by trial or summary judgment, is at the heart of the interest in ensuring the
public’s understanding of the judicial process and of significant public events.”
Kamakana v. City & County of Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006)
(citing Foltz II, 331 F.3d at 1135-36) (emphasis added; internal quotations and
citations omitted). This presumption in favor of public access to materials attached
to dispositive motions is based on the adversarial resolution of a dispute. Absent
resolution, however, a motion is not dispositive, and these policy interests are not
20 To avoid confusion, Semtech designates this case as “Foltz II,” as the
underlying district court decision, Foltz v. State Farm Mutual Automobile
Insurance Company, is also discussed herein and referred to as “Foltz I.”
21 Moreover, the presumption in favor of public access to materials filed in
support of a dispositive motion is not absolute. Foltz II, 331 F.3d at 1135. Where a
party seeking to seal materials attached to a dispositive motion from public access
provides compelling reasons for doing so, a court may order those materials sealed.
Id.
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implicated. In the Semtech Derivative Litigation, the derivative plaintiffs were
never obligated to nor did they file an opposition to the motion. After Semtech
filed the motion to terminate, the parties stipulated to taking the motion off calendar
while reaching a settlement. Semtech Deriv. Litig., Docket No. 91. Because this
Court was never in a position to rule on the motion, the policy interests underlying
the presumption in favor of public access never came into play. This is particularly
true in the context of a derivative plaintiff that purportedly stands in the shoes of
Semtech.
Plaintiff’s reliance upon Foltz II is misplaced and of no avail in challenging
the Order. Pl. Rev. Mot. at 19-20 (citing Foltz v. State Farm Mut. Aut. Ins. Co.,
Case No. 94-06293-HO (D. Or.) (“Foltz I”); Foltz II, 331 F.3d at 1122.) In fact, if
anything, the analysis underlying Foltz decisions bolsters Judge Olguin’s Order.
As a threshold matter, it should be recognized that Foltz I and II did not involve
special committee materials, or derivative litigation; instead they involved a third
party’s attempt to undo a global seal of the court’s docket in a business lawsuit, and
in particular materials relating to a summary judgment motion and a motion to
disqualify counsel. Foltz II, 331 F.3d at 1127, 1136, 1138. The summary judgment
materials were sealed on the basis they contained trade secret and confidential
business information. Id. at 1136. Significantly, the materials underlying the
motion to disqualify counsel were sealed because of their attorney-client privileged
nature. Id. at 1138.
While Plaintiff cites the Foltz decisions for the proposition that the court
ultimately unsealed the trade secret information (not the privileged material)
associated with the yet “unheard” summary judgment motion (Pl. Rev. Mot. 17-20),
plaintiff ignores fundamental differences between the proceedings there and in the
Semtech derivative action. First, the summary judgment motion in Foltz, unlike
Semtech, was ripe for adjudication by the Court and merely held in abeyance
pending an arbitration ruling. Indeed the Foltz I docket reveals that the Court
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ordered the motions for summary judgment back on calendar for hearing after the
ruling.22 They were not withdrawn by the parties and in that sense remained before
the court and “dispositive” to the case.23 Thus, Plaintiff’s suggestion that Semtech
and Foltz are “identical” is a non-starter.
The second key distinction overlooked by Plaintiff is that Foltz II rejected the
application to unseal privileged material. As the Ninth Circuit Court observed in
Foltz II, certain types of motions require parties “to produce attorney-client
communications and possibly work product that are traditionally protected from
disclosure. Neither the public nor collateral litigants have any apparent right to or
interest in such disclosure. This does not foreclose independent discovery in any
collateral litigation. We see no conceivable policy reason to serve up such
information on a silver platter.” Foltz II, 331 F.3d at 1138 (emphasis added). The
Foltz II court thus denied motions to unseal attorney-client privileged and work
product materials filed in support of a motion to disqualify opposing counsel on the
grounds that the motion required the filing of such documents. Id. Again, while
the Foltz II court unsealed other materials that were filed in connection with
motions for summary judgment, those materials were not attorney-client privileged
communications or work product. Id. at 1136 (unsealing “confidential financial
information, third-party medical records, personnel files, and trade secrets”).
Semtech was similarly required to file under seal the Morrison Report in
connection with its Motion to Terminate just as the party in Foltz II was required to
attach privileged materials to its motion for disqualification of opposing counsel.
When a company files a motion to terminate derivative litigation, Delaware law
requires the company to file “a thorough written record of the investigation and its
22 Foltz I, Case No. 94-06293-HO, Docket Nos. 401, 439.
23 Unlike the circumstances surrounding Semtech’s motion to terminate,
however, all the parties in Foltz I had fully briefed their positions on summary
judgment and submitted their arguments to the district court for adjudication and
resolution. (Foltz I, Case No. 94-06293-HO, Docket Nos. 300, 350.)
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findings and recommendations” in order to sustain its burden of proving the
independence and good faith of the special litigation committee, as well as the
reasonableness of its investigation. Zapata Corp. v. Maldonado, 430 A.2d 779, 788
(Del. 1981);24 see also Abercrombie, 2008 WL 1844357, at *3 (citing Perrigo, 128
F.3d at 441, for the proposition that “disclosure of the report . . . is essentially
involuntary, at least in the sense that once the corporation chooses to take
advantage of the statutory procedure and move to dismiss the derivative case, it
must . . . disclose it to the derivative plaintiffs”); Kaplan v. Wyatt, 484 A.2d 501,
506 (Del. 1984) (citing Zapata, 430 A.2d 779) (holding that a corporation’s motion
to terminate derivative litigation “must be supported by a thorough written record,”
which describes the special litigation committee’s investigation, findings, and
recommendation) (emphasis added). In the Ninth Circuit, such compelled
production is thus not a waiver. See Transamerica, 573 F.2d at 650-52
(recognizing that compelled production of confidential material does not constitute
a waiver of the attorney-client privilege).
Producing the special litigation committee report and supporting documents
is required by the unique nature of the judicially prescribed special litigation
committee process and does not amount to a voluntary waiver of protected
information such that plaintiffs in subsequent lawsuits may demand production of
24 Judge Olguin indicated that the parties did not address whether Delaware law
or Ninth Circuit law applies to this analysis. (Order at 10.) To clarify Semtech’s
position, Delaware law governs. See Johnson v. Hui, 811 F. Supp. 479, 483-84
(N.D. Cal. 1991) (applying Delaware law to a Delaware corporation’s motion to
terminate derivative litigation); Abercrombie, 2008 WL 1844357, at *2 (same); In
re KLA-Tencor Corp. S’holder Deriv. Litig., 2008 WL 2073936, at *1 (N.D. Cal.
May 14, 2008) (holding that, where nominal defendant KLA-Tencor was a
Delaware corporation, “[u]nder Delaware law – which is controlling here –
discovery in connection with a motion to terminate is ‘not by right, but by order of
the Court . . . . ‘“) (quoting Kaplan v. Wyatt, 499 A.2d 1184 (Del. 1985)).
Moreover, federal courts frequently look to Delaware for precedent relating to
corporate derivative litigation. See, e.g., McCarthy v. Middle Tenn. Elec.
Membership Corp., 466 F.3d 399, 408 (6th Cir. 2006) (characterizing plaintiffs’
claims as derivative under Delaware law because “Delaware’s judiciary are
recognized as specialists in the field of corporate law. Courts of other states
consider the decisions of Delaware courts on corporate matters to be instructive.”)
(internal quotation marks and citation omitted).
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that information. See Picard, 951 F. Supp. at 687 (noting that disclosure of a
special litigation committee report in a derivative action did not require disclosure
in subsequent class action since the class action plaintiffs had no need to rebut the
presumption that the special litigation committee acted in good faith and made a
reasonable investigation; furthermore, because production of the report was
compelled in the derivative action, there was no waiver of the attorney-client
privilege or work product protections). Because the Special Litigation Committee’s
disclosure of otherwise privileged documents to the Court and plaintiffs in the
derivative litigation was compelled by Delaware law, the Special Litigation
Committee’s production also falls within the compelled disclosure exception and
does not waive the privilege with respect to any other entities or individuals in
subsequent litigation, including this matter. Judge Olguin’s Order is thus fully
consistent with well-established precedent. Order at 9-12.25
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
25 Finally, Plaintiff argues unconvincingly that the approval of the derivative
settlement involved materials that it seeks to access here; however, it cites no
authority that extends the public right of access in the settlement context. (Pl. Rev.
Mot. at 22-23.) The authorities addressing the policies underlying the confidential
nature of settlement negotiations militate against access to those materials. See e.g.,
Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 980 (6th
Cir. 2003) (“Parties are unlikely to propose the types of compromises that most
effectively lead to settlement unless they are confident that their proposed solutions
cannot be used on cross examination, under the ruse of ‘impeachment evidence,’ by
some future third party.”); Cook v. Yellow Freight Sys., Inc., 132 F.R.D. 548 (E.D.
Cal. 1990) (citing United States v. Contra Costa County Water Dist., 678 F.2d 90,
92 (9th Cir. 1982) in denying discovery of settlement materials and articulating that
settlement negotiations are “motivated by a desire for peace rather than from a
concession of the merits of the claim”), overruled on other grounds by Jaffe v.
Redmond, 518 U.S. 1 (1996). Furthermore, Plaintiff failed to raise this argument in
front of Judge Olguin, precluding it from consideration now. See n.13, supra.
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V. CONCLUSION
For the reasons articulated above, this Court should deny Plaintiff’s motion
for review.
DATED: February 1, 2010
CHRISTOPHER H. McGRATH
MORGAN J. MILLER
KIMBERLEY A. DONOHUE
PAUL, HASTINGS, JANOFSKY
& WALKER LLP
By: /s/Christopher H. McGrath
CHRISTOPHER H. McGRATH
4747 Executive Drive, 12th Floor
San Diego, CA 92121
Telephone: (858) 458-3000
Facsimile: (858) 458-3005
THOMAS A. ZACCARO
PAUL, HASTINGS, JANOFSKY
& WALKER LLP
515 South Flower Street, Twenty-Fifth Floor
Los Angeles, CA 90071-2228
Telephone: (213) 683-6000
Facsimile: (213) 627-0705
Attorneys for Defendants
Semtech Corporation, Jason L. Carlson,
and Mohan R. Maheswaran
LEGAL_US_W # 63773139.2
Case 2:07-cv-07114-CAS-FMO Document 162 Filed 02/01/10 Page 31 of 31
