In re Tesla Inc. Securities Litigation

• Court: District Court, N.D. California
• Decided: November 26, 2019
• Docket: 3:18-cv-04865
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 IN RE TESLA, INC. SECURITIES Case No. 18-cv-04865-EMC

8 LITIGATION. ORDER RE JOINT DISCOVERY 9 LETTER 10 Docket No. 226 11

12 13 Currently pending before the Court is a discovery dispute. Lead Plaintiff asks the Court to 14 issue a subpoena to the SEC. Lead Plaintiff had been trying to secure certain information from the 15 SEC through a FOIA request but apparently changed course because (1) the administrative process 16 would take up to eighteen months to conclude and (2) the SEC agreed that the FOIA 17 administrative process could, in essence, be bypassed if Plaintiffs could get this Court to issue a 18 subpoena. Defendants oppose the request because the PSLA generally provides for a stay of 19 discovery pending resolution of a motion to dismiss. 20 The PSLRA provides as follows: “In any private action arising under this title, all 21 discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, 22 unless the court finds upon the motion of any party that particularized discovery is necessary to 23 preserve evidence or to prevent undue prejudice to that party.” 15 U.S.C. § 78u-4(b)(3)(B). 1 24 “The legislative history of the PSLRA indicates that Congress enacted the discovery stay in order 25 to minimize the incentives for plaintiffs to file frivolous securities class actions in the hope either 26

27 1 See also In re Carnegie Int'l Corp. Sec. Litig., 107 F. Supp. 2d 676, 679 (D. Md. 2000) (noting 1 that corporate defendants will settle those actions rather than bear the high cost of discovery, or 2 that the plaintiff will find during discovery some sustainable claim not alleged in the complaint.” 3 In re Worldcom Sec. Litig., 234 F. Supp. 2d 301, 305 (S.D.N.Y. 2002). 4 As Lead Plaintiff asserts, allowing the production of documents from the SEC would not 5 appear to impose any burden on Defendants. See Pension Tr. Fund for Operating Eng’r v. 6 Assisted Living Concepts, Inc., 943 F. Supp. 2d 913, 915 (E.D. Wis. 2013) (noting that “[c]ourts 7 have lifted stays with regard to certain documents already produced in other actions with 8 governmental agencies or others” – “partly because, where documents have already been collated 9 and produced to other entities, the burdens of discovery are far less substantial”). Nevertheless, 10 the PSLRA carves out exceptions from the discovery stay only in limited circumstances – i.e., 11 where “particularized discovery is necessary to preserve evidence or to prevent undue prejudice to 12 that party.” 15 U.S.C. § 78u-4(b)(3)(B); see Assisted Living, 943 F. Supp. 2d at 915-16 (although 13 noting that the burden of discovery is “far less substantial” where already produced in another 14 action, still going on to evaluate whether the discovery was needed to preserve evidence or prevent 15 undue prejudice). 16 Here, Lead Plaintiff makes no claim that the information sought from the SEC is necessary 17 to preserve evidence. Nor does Lead Plaintiff clearly assert that he would suffer undue prejudice 18 without the information from the SEC. The cases on which Lead Plaintiff relies are 19 distinguishable largely because, there, the courts articulated that production was needed so as to 20 prevent undue prejudice to the plaintiff. For example, in In re Worldcom Securities Litigation, 21 234 F. Supp. 2d 301 (S.D.N.Y. 2002), the court held that,

22 [b]ased upon the unique circumstances of this case, the documents requested by NYSCRF [the lead plaintiff] must be produced in order 23 to prevent undue prejudice to the interests of the putative investor class it represents. All of the investigations and proceedings 24 concerning WorldCom are moving apace. Without access to documents already made available to the U.S. Attorney, the SEC, 25 and in whole or in part to the WorldCom's Creditors Committee and the documents that will in all likelihood soon be in the hands of the 26 ERISA plaintiffs, NYSCRF would be prejudiced by its inability to make informed decisions about its litigation strategy in a rapidly 27 shifting landscape. It would essentially be the only major interested proceedings. This is especially troubling given the likelihood that 1 settlement discussions will begin in December and involve both the securities plaintiffs and the ERISA plaintiffs. The former would be 2 severely disadvantaged in those discussions if they are denied access to the documents they now request. If NYSCRF must wait until the 3 resolution of a motion to dismiss to obtain discovery and formulate its settlement or litigation strategy, it faces the very real risk that it 4 will be left to pursue its action against defendants who no longer have anything or at least as much to offer. 5 6 Id. at 305-06; see also Assisted Living, 943 F. Supp. 2d at 916 (noting that, in cases such as 7 WorldCom, “the courts were particularly concerned with the plaintiffs’ abilities to adequately 8 pursue settlement and other options when at an informational disadvantage compared to other 9 parties”); In re Rambus, Inc. Sec. Litig., No. C 06-4346 JF (HRL), 2007 U.S. Dist. LEXIS 38056, 10 at *9 (N.D. Cal. May 14, 2007) (stating that in WorldCom and another case, the courts essentially 11 “held that the securities fraud plaintiffs would be unduly prejudiced if they were the only parties 12 on the playing field without access to the documents”); In re FirstEnergy Corp. Sec. Litig., 229 13 F.R.D. 541, 545 (N.D. Ohio 2004) (“find[ing] that the plaintiffs in this action face a similar risk of 14 undue prejudice as the plaintiffs in WorldCom[;] [w]ithout discovery of documents already made 15 available to government entities, Plaintiffs would be unfairly disadvantaged in pursuing litigation 16 and settlement strategies”). 17 In the instant case, Lead Plaintiff may be at an informational disadvantage compared to, 18 e.g., the SEC; however, what was critical in WorldCom was the lead plaintiff’s informational 19 disadvantage in a rapidly changing legal landscape – i.e., because there were multiple other 20 proceedings being brought against the defendant. Here, while the SEC did bring suit against Tesla 21 and Mr. Musk, it appears that the both cases have now been resolved via consent judgments. Lead 22 Plaintiff, therefore, is not in the same situation as the lead plaintiff in WorldCom and other similar 23 cases. There is at this point no demonstrable urgency attendant to Lead Plaintiff’s request. 24 /// 25 /// 26 /// 27 /// 1 Accordingly, Lead Plaintiffs request for issuance of a subpoena is hereby DENIED, but 2 || without prejudice. 3 This order disposes of Docket No. 226. 4 5 IT IS SO ORDERED. 6 7 Dated: November 26, 2019 8 LL 9 ir ED M.C 10 United States District Judge 11 12

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