Lance Tuller v. Tintri, Inc. et al

Filing 78

ORDER by Judge Yvonne Gonzalez Rogers denying 69 Motion for Relief from the Stay and Maintaining Stay Against Non-Debtor Defendants. (fs, COURT STAFF) (Filed on 9/14/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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LANCE TULLER,
Plaintiff,

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vs.

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TINTRI, INC., ET AL.,
Defendants.

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United States District Court
Northern District of California

CASE NO. 17-cv-05714-YGR
ORDER DENYING MOTION AND
MAINTAINING STAY AGAINST NON-DEBTOR
DEFENDANTS
Re: Dkt. No. 69

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Plaintiffs bring this putative class action against defendants Tintri, Inc. (“Tintri” or

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“Debtor”) and Ken Klein, Ian Halifax, and Kieran Harty (collectively, the “Individual

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Defendants”), as well as various underwriters for alleged material misrepresentations related to

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Tinri’s June 30, 2017 initial public offering (the “IPO”) in violation of federal securities laws.1

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(See Dkt. No. 1; see also Dkt. No. 41 (“CA Compl.”).) On July 10, 2018, Tintri and the Individual

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Defendants filed a Notice informing the Court that Tintri had filed a voluntary Chapter 11 petition

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in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Action”). (Dkt. No.

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67 (“Bankruptcy Notice”).) On July 12, 2018, the Court stayed the instant lawsuit pending

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resolution of the Bankruptcy Action. (Dkt. No. 68.) Now before the Court is plaintiffs’ motion

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for relief from the stay solely with respect to the Non-Debtors. (Dkt. No. 69 (“Motion”).) Having

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carefully reviewed the papers submitted, and for the reasons set forth more fully below, the Court

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DENIES plaintiffs’ motion for relief from the stay with respect to their claims against the Non-

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Debtors.

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Underwriter defendants include: Morgan Stanley & Co.; Merrill Lynch, Pierce, Fenner
& Smith Inc.; Pacific Crest Securities, a division of KeyBlan Capital Markets Inc.; Needham &
Co., LLC. (collectively, the “Underwriter Defendants”). The Underwriter Defendants and the
Individual Defendants are referred to collectively herein as the “Non-Debtors.”

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I.

BACKGROUND
Plaintiff Tuller filed his complaint, individually and on behalf of all others similarly

situated, on September 18, 2017 alleging that Tintri and the Individual Defendants engaged in

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material misrepresentations related to Tinri’s June 30, 2017 IPO in violation of federal securities

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laws. (Dkt. No. 1.) On October 6, 2017, the Court issued an order relating this action to two

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similar lawsuits, Clayton v. Tintri, Inc., Case No. 17-cv-05683-YGR and Nurlybayev v. Tintri,

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Inc., Case No. 17-cv-05684-CRB. (Dkt. No. 17.) On December 13, 2017, the Court granted the

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motion of Henrick Thørring for appointment as lead plaintiff and approval of Glancy Prongay &

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Murray LLP as lead counsel. (Dkt. No. 35.) On February 2, 2018, lead plaintiff Thørring filed a

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consolidated class action complaint against Tintri, the Individual Defendants, and the Underwriter

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United States District Court
Northern District of California

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Defendants for alleged material misrepresentations regarding Tintri’s June 30, 2017 IPO in

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violation of federal securities laws. (See CA Compl.)

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On March 30, 2018, defendants’ filed two motions to dismiss, one by Tinri and the

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Individual Defendants (collectively, “Tintri Defendants”) (Dkt. No. 51 (“Tintri MTD”)) and

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another by the Underwriter Defendants (Dkt. No. 54 (“Underwriter MTD”)). These motions were

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set for hearing on August 14, 2018. (Dkt. No. 61.) On July 10, 2018, the Tintri Defendants filed a

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Notice informing the Court that Tinri had filed a voluntary Chapter 11 petition in the U.S.

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Bankruptcy Court for the District of Delaware (the “Bankruptcy Action”). (See Bankruptcy

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Notice.) Subsequently, on July 12, 2018, the Court stayed the instant lawsuit pending resolution

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of the Bankruptcy Action. (Dkt. No. 68.) Shortly thereafter, on July 30, 2018, lead plaintiff

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Henrick Thørring filed a motion for relief from the stay solely with respect to plaintiffs’ claims

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against the Non-Debtors.2 (Motion.)

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The Court is unpersuaded by Non-Debtors argument that plaintiffs’ motion constitutes a
request that the Court reconsider its order staying the instant action. The Court routinely stays
actions automatically upon receipt of notice of a bankruptcy filing. Accordingly, the Court will
evaluate plaintiffs’ motion as one to lift the automatic stay as to the Non-Debtors.
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II.

DISCUSSION
The automatic stay under Section 362(a)(1) of the U.S. Bankruptcy Code may be limited to

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debtor defendant(s) when special circumstances are not present. See Ingersoll-Rand Financial

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Corp. v. Miller Min. Co., Inc. 817 F.2d 1424, 1427 (9th Cir. 1987) (“In the absence of special

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circumstances, stays pursuant to section 362(a) are limited to debtors and do not include non-

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bankrupt co-defendants.”). Special circumstances arise where “there is such identity between the

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debtor and the third-party defendant that the debtor may be said to be the real party defendant and

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that a judgment against the third-party defendant will in effect be a judgment or finding against the

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debtor.” Duval v. Gleason, No. C-90-0242-DLJ, 1990 WL 261364, at *3 (N.D. Cal. Oct. 19,

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United States District Court
Northern District of California

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1990).3
Here, plaintiffs’ complaint addresses allegations of misconduct by all defendants without

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much, if any, particularization as to the specific role played by each defendant. (See, e.g., CA

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Compl. ¶ 155 (“Defendants sold 8,572,000 shares . . . pursuant to the Registration Statement.”);

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see also id. ¶ 158 (“In the Registration Statement, Defendants also misrepresented . . . .”); ¶162

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(“Further . . . Defendants misleadingly warned investors . . . .”). Stated differently, the complaint

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does not attribute the basis of the alleged misconduct, material misrepresentations made in the

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registration statement accompanying Debtor Tintri’s IPO, to specific defendants or groups of

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defendants such that one could parse between a determination as to the liability of the Non-

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Of the remaining opinions cited by plaintiffs, none are persuasive as none relate to class
actions for alleged securities fraud. See Ingersoll-Rand Financial Corp., 817 F.2d at 1427
(finding that the automatic stay did not apply to non-debtor’s appeal in an action by creditor for
deficiency judgment); Morici v. Hashfast Techs. LLC, No.: 5:14-cv-00087-EJD, 2014 WL
4983854, at *1 (N.D. Cal. Oct. 6, 2014) (granting motion to lift stay as to non-debtor defendant in
action for failure to timely delivery purchased goods); C.H. Robinson Worldwide, Inc. v. Portola
Farm & Food Distributors, Inc., No. SA-CV_1502073 CJC (JCGx), 2016 WL 8849023, at *1
(C.D. Cal. May 26, 2016) (same in action for violation of regulations pertaining to purchase and
sale of perishable agricultural goods); Acosta v. Valley Garlic, Inc., No: 1:16-cv-01156-AWI
(EPG), 2017 WL 3641761, at *5 n.1 (E.D. Cal. Aug. 24, 2017) (noting that proceedings against
non-debtor defendants continue in personal injury action arising from a car crash); Fed. Deposit
Ins. Corp. v. Appraisal Pac., Inc., No. 14-cv-0079-H-BLM, 2014 WL 12564365, at *1-2 (S.D.
Cal. Sept 17, 2014) (declining to apply stay to non-debtor defendants in action for breach of
contract); Teachers Ins. & Annuity Ass’n v. Butler, 803 F.2d 61, 65 (2d Cir. 1986) (finding that
bankruptcy court improperly extended automatic stay to non-bankrupt partners of debtor pursuant
to general equity powers under 11 U.S.C. Section 105 in Chapter 13 bankruptcy action, where
Section 362(a) does not apply).
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Debtors as compared to a determination as to the liability of the Debtor Tintri.
There can be no determination as to the liability of the Individual Defendants or

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Underwriter Defendants without first resolving whether Debtor Tintri has made a material

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misrepresentation in violation of the securities laws at issue. Thus, any “judgment against the

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[Non-Debtors] will in effect be a judgment or finding against [Debtor Tintri].” Duval, No. C-90-

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0242-DLJ, 1990 WL 261364, at *3. Accordingly, plaintiffs’ allegations present a special

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circumstance under which the automatic stay under Section 362(a)(1) of the U.S. Bankruptcy

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Code may apply to defendants other than the debtor. Id.; see also Ingersoll-Rand Financial Corp.,

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817 F.2d at 1427.
Moreover, a stay of the instant action as it applies to Non-Debtors is in the interest of

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United States District Court
Northern District of California

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efficiency and will avoid relitigation of the issues presented. See Mediterranean Enters., Inc. v.

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Ssangyong Corp., 708 F.2d 1458, 1465 (9th Cir. 1983) (holding that a “trial court may, with

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propriety, find it efficient for its own docket and the fairest course for the parties to enter a stay of

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action before it, pending resolution of independent proceedings which bear upon the case”)

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(internal citation omitted); see also Wordtech Sys., Inc. v. Integrated network Solutions, Inc., No.

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2:04-cv-01971-MCE-EFB, 2012 WL 6049592, at *9 (E.D. Cal. Dec. 5, 2012) (discretionarily

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staying action against non-bankrupt co-defendant where “a later trial of the claims against another

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defendant could involve the relitigation of most if not all of the issues litigated in the first

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proceeding” or where “it would be more efficient to stay the entire case . . . rather than to proceed

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. . . on a piecemeal basis”) (internal citations omitted).

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III.

CONCLUSION
For the reasons discussed above, the Court DENIES plaintiffs’ motion for relief from the

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stay with respect to their claims against the Non-Debtors.

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This Order terminates Docket Number 69.

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IT IS SO ORDERED.

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Dated: September 14, 2018
YVONNE GONZALEZ ROGERS
UNITED STATES DISTRICT COURT JUDGE

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