IN RE INTEL CORPORATION SHAREHOLDER DERIVATIVE LITIGATION

Filing 63

ORDER by Judge Yvonne Gonzalez Rogers denying as moot 57 Motion to Shorten Time to have motion heard; granting 58 State Plaintiffs' Motion to Intervene. The hearing on the motion, currently set for 11/6/2018 is hereby VACATED. (fs, COURT STAFF) (Filed on 11/2/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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CASE NO. 18-cv-01489-YGR

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IN RE INTEL CORPORATION SHAREHOLDER
DERIVATIVE LITIGATION

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ORDER GRANTING STATE PLAINTIFFS’
MOTION TO INTERVENE
Re: Dkt. No. 58

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Now before the Court is a motion, filed by proposed intervenor Joseph Tola, on behalf of

United States District Court
Northern District of California

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the plaintiffs in In re Intel Corporation Shareholder Derivative Litigation, Case No. 18-CIV-

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00170 (Hon. Richard H. DuBois) (the “State Action”), for an order allowing the plaintiffs in the

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State Action (“State Plaintiffs”) to intervene in the above-captioned case (the “Federal Action”)

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pursuant to Federal Rule of Civil Procedure 24 for the sole purpose of filing a limited opposition

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to defendants’ and nominal defendant’s (together, “Federal Defendants”) request for dismissal

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with prejudice of this Federal Action, (see generally Dkt. Nos. 52, 56). (Dkt. No. 58 (“MTI”).)

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The Court finds it appropriate to take the motion under submission without oral argument. See

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Fed. R. Civ. P. 78(b); Civ. L.R. 7-1(b).1 For the reasons set forth below, the court GRANTS State

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Plaintiffs’ Motion to Intervene.2

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I.

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BACKGROUND
Similar shareholder derivative actions were filed on behalf of Intel Corporation (“Intel”) in

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federal and state court arising from certain security vulnerabilities affecting Intel chips. The first

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shareholder derivative complaint related to the State Action was filed on January 11, 2018,3 and

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The hearing on the motion, currently set for November 6, 2018, is hereby VACATED.

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Because this Order decides State Plaintiffs’ motion to intervene, their motion for an
order shortening time to have that motion heard (Dkt. No. 57 (“MST”)) is DENIED AS MOOT.
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The first state shareholder derivative action was subsequently consolidated with two

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the first shareholder derivative complaint pertaining to the Federal Action was filed on March 8,

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2018.4 State Plaintiffs assert claims against certain officers and directors of Intel, for, inter alia,

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breach of fiduciary duty, insider trading, and violations of California Corporations Code section

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25042. (See generally Exh. 1 to Declaration of Mark C. Molumphy ISO State Plaintiffs’ MTI

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(“Molumphy MTI Decl.”), Dkt. No. 58-2.) Plaintiffs in the Federal Action (“Federal Plaintiffs”)

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assert claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment, also

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against certain of Intel’s officers and directors. (See generally Verified Stockholder Derivative

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Complaint for Breach of Fiduciary Duty, Waste of Corporate Assets, and Unjust Enrichment

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(“Fed. Deriv. Compl.”), Dkt. No. 1-1.)

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On August 8, 2018, this Court granted, with leave to amend, a motion to dismiss the

United States District Court
Northern District of California

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federal complaint for failure to plead demand futility. (Dkt. No. 44.) On August 24, 2018, the

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state court sustained a demurrer to the state complaint for failure to plead demand futility but

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granted State Plaintiffs leave to amend. (See Molumphy MTI Decl. Exh. 3, Dkt. No. 58-4.)

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The parties in the State Action subsequently stipulated to a one-month extension for the

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filing of an amended complaint, noting that “Plaintiffs’ counsel are currently in discussions with

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Intel’s counsel regarding the scope of a shareholder books and records demand, and Plaintiffs

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desire to resolve such issues prior to filing an amended complaint.” (See Molumphy MTI Decl.

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Exh. 4, Dkt. No. 58-5 at ECF p. 4.) The state court approved the stipulation, setting October 10,

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2018 as the deadline for State Plaintiffs to file an amended complaint. (Id.) Meanwhile, Federal

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Plaintiffs filed a notice of voluntary dismissal of the Federal Action without prejudice on

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September 14, 2018, in lieu of an amended consolidated complaint. (Dkt. No. 50.)

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On September 21, 2018, an Intel shareholder filed a petition for writ of mandate in the

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State Action, claiming that Intel had declined to provide an inspection of documents that had been

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requested pursuant to an inspection demand made by “State Plaintiffs, working with [the]

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other shareholder derivative actions in the state court.
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The first federal shareholder derivative action was subsequently consolidated with two
other shareholder derivative actions in this court.
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shareholder.” (MTI at 6; see also generally Molumphy MTI Decl. Exh. 5.) In the meantime,

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Federal Defendants objected to the notice of voluntary dismissal, arguing that the dismissal of the

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Federal Action should instead be with prejudice pursuant to Federal Rule of Civil Procedure

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41(a)(1)(B). (Dkt. No. 52.) This Court subsequently ordered full briefing on the issues raised in

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Federal Defendants’ objection. (Dkt. Nos. 53, 55.)
On October 2, 2018, the day after briefing was complete, State Plaintiffs filed the instant

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motion along with a motion for an order shortening time to have the motion to intervene heard.

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II.

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LEGAL STANDARD
To be entitled to intervention as of right, “(1) the motion must be timely; (2) the applicant

must claim a significantly protectable interest relating to the property or transaction which is the

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United States District Court
Northern District of California

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subject of the action; (3) the applicant must be so situated that the disposition of the action may as

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a practical matter impair or impede its ability to protect that interest; and (4) the applicant’s

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interest must be inadequately represented by the parties to the action.” Wilderness Soc’y v. U.S.

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Forest Serv., 630 F.3d 1173, 1177 (9th Cir. 2011) (internal quotation marks omitted). Courts

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considering Rule 24(a) motions are “guided primarily by practical and equitable considerations,

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and the requirements for intervention are broadly interpreted in favor of intervention.” United

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States v. Alisal Water Corp., 370 F.3d 915, 919 (9th Cir. 2004).

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Under the permissive intervention rule, “the court may permit anyone to intervene who:

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(A) is given a conditional right to intervene by a federal statute; or (B) has a claim or defense that

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shares with the main action a common question of law or fact.” Fed. R. Civ. P. 24(b)(1).

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“[P]ermissive intervention ‘requires (1) an independent ground for jurisdiction; (2) a timely

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motion; and (3) a common question of law and fact between the movant’s claim or defense and the

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main action.’” Freedom from Religion Found., Inc. v. Geithner, 644 F.3d 836, 843 (9th Cir. 2011)

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(quoting Beckman Indus., Inc. v. Int’l Ins. Co., 966 F.2d 470, 473 (9th Cir. 1992)). “Even if an

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applicant satisfies those threshold requirements, the district court has discretion to deny permissive

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intervention.” Donnelly v. Glickman, 159 F.3d 405, 412 (9th Cir. 1998). “In exercising its

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discretion, the court must consider whether the intervention will unduly delay or prejudice the

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adjudication of the original parties’ rights.” Fed. R. Civ. P. 24(b)(3).
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When ruling on a motion to intervene, “[c]ourts are to take all well-pleaded, nonconclusory

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allegations in the motion to intervene . . . and declarations supporting the motion as true absent

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sham, frivolity or other objections.” Southwest Ctr. For Biological Diversity v. Berg, 268 F.3d

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810, 820 (9th Cir. 2001). “District courts may often be able to determine whether a prima facie

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case [justifying intervention] is made out by reference to the proposed intervenor’s papers alone;

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however, [courts are not] foreclose[d] [from] consider[ing] . . . the pleadings and affidavits of

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opponents to intervention . . . .” Id.

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III.

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DISCUSSION
State Plaintiffs contend that they should be permitted to intervene in the Federal Action by

right pursuant to Federal Rule of Civil Procedure 24(a), or in the alternative, permissively

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United States District Court
Northern District of California

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pursuant to Rule 24(b). Because the Court finds that intervention by right is appropriate, the Court

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only discusses its reasoning under Rule 24(a).

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A.

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The determination as to whether a motion to intervene is timely is left to the court’s

Timeliness

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discretion. Dilks v. Aloha Airlines, 642 F.2d 1155, 1156 (9th Cir. 1981); see also Alisal Water

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Corp., 370 F.3d at 921. Courts weigh three factors in determining whether a motion to intervene

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is timely: “(1) the stage of the proceeding at which an applicant seeks to intervene; (2) the

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prejudice to other parties; and (3) the reason for and length of the delay.” Cal. Dep’t of Toxic

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Substances Control v. Commercial Realty Projects, Inc., 309 F.3d 1113, 1119 (9th Cir. 2002)

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(internal quotation marks omitted).

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Here, the Federal Action never advanced beyond the pleading stage, State Plaintiffs filed

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their motion “immediately” upon learning about Federal Defendants’ objection to Federal

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Plaintiffs’ dismissal without prejudice, and any delay (although it appears none exists) was

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reasonable under the circumstances and did not substantially prejudice the parties. (State

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Plaintiffs’ Reply ISO MST & MTI (“Reply”) at 11, Dkt. No. 62; see also Declaration of Mark C.

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Molumphy ISO MST ¶¶ 2–3.) That State Plaintiffs may have generally understood the preclusive

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effect in the State Action of a dismissal in the Federal Action does not mean that they

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contemplated that result absent a substantive ruling on the merits of Federal Plaintiffs’ claims.
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(See, e.g., Exh. 3 to Declaration of Maria Jhai ISO Opposition to State Plaintiffs’ MTI at 8, Dkt.

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No. 60-4 (“[If] the federal court find[s] that demand was not excused, it inevitably will produce an

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earlier preclusive judgment.”) (first emphasis supplied); id. at 10 (“[W]hen the demand futility

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issue is finally decided in federal court, the outcome will be binding immediately in [the state

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court] . . . .”) (emphasis supplied).) Indeed, the defendants in the State Action, who are

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represented by the same counsel as Federal Defendants, had agreed to an extended schedule

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regarding State Plaintiffs’ amended complaint and any corresponding demurrers.

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In light of the foregoing, the Court concludes that State Plaintiffs’ motion is timely under
the circumstances.

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B.

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United States District Court
Northern District of California

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“Rule 24(a)(2) does not require a specific legal or equitable interest,” and it is “generally

Protectable Interest

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enough that the interest is protectable under some law, and that there is a relationship between the

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legally protected interest and the claims at issue.” Wilderness Soc’y, 630 F.3d at 1179 (internal

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quotation marks omitted). The relationship requirement is met “if the resolution of the plaintiff’s

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claims actually will affect the applicant.” Donnelly, 159 F.3d at 410. The “interest” test is not a

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clear-cut or bright-line rule, because “[n]o specific legal or equitable interest need be established.”

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Greene v. United States, 996 F.2d 973, 976 (9th Cir. 1993). Instead, the “interest” test directs

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courts to make a “practical, threshold inquiry,” and “is primarily a practical guide to disposing of

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lawsuits by involving as many apparently concerned persons as is compatible with efficiency and

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due process.” Id. at 976, 979 (internal quotation marks omitted); see also Cty. of Fresno v.

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Andrus, 622 F.2d 436, 438 (9th Cir. 1980).

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State Plaintiffs contend that they have a protectable interest in “ensuring that the derivative

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claims are not dismissed with prejudice in this action, which could bar the claims from being

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asserted [in state court] under principles of res judicata and collateral estoppel that Defendants

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contend are applicable here.” (Reply at 8.) Federal Defendants counter that “derivative plaintiffs

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have no interest in their claims because they purport to represent the corporation, which is the real

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party in interest.” (Opposition to State Plaintiffs’ MTI (“Opp.”) at 2, Dkt. No. 60). Federal

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Defendants do not persuade. That a derivative plaintiff’s claim belongs to the corporation, as
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indicated by the cases cited by Federal Defendants (see Opp. at 2–3), does not mean that the

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derivative plaintiff has no interest in the same. Indeed, as owners of the corporation, shareholders

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have an interest in recovering damages suffered by the corporation. Cf. Rothenberg v. Sec. Mgmt.

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Co., Inc., 667 F.2d 958, 960 n.3 (11th Cir. 1982) (noting that even though “[a] shareholder

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receives no direct benefit from a derivative suit . . . [,]a shareholder will benefit indirectly from the

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increase in stock value that results from the recovery”); Portnoy v. Kawecki Berylco Indus., Inc.,

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607 F.2d 765, 767 (7th Cir. 1979) (“The underlying rationale of [derivative actions] is that

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because a shareholder will receive at least an indirect benefit (in terms of increased shareholder

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equity) from any corporate recovery, he has an adequate interest in vigorously litigating the
claim.”). The Court is thus persuaded by State Plaintiffs’ argument that “Intel and its shareholders

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United States District Court
Northern District of California

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have an interest in ensuring that the derivative claims are fully investigated and litigated on their

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merits to obtain the best possible recovery for Intel.” (Reply at 9 (emphasis in original).)

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Accordingly, State Plaintiffs have a legally protectable interest to support intervention.

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C.

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“If an absentee would be substantially affected in a practical sense by the determination

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made in an action, he should, as a general rule, be entitled to intervene.” Berg, 268 F.3d at 822

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(quoting Fed. R. Civ. P. 24 advisory committee notes) (alteration omitted). There is no

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requirement that the party seeking to intervene show “an absolute certainty” that its interests will

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be impaired in support of its request. Citizens for Balanced Use v. Mont. Wilderness Ass’n, 647

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F.3d 893, 900 (9th Cir. 2011).

Impairment of Interest

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State Plaintiffs contend that “[i]ntervention is necessary to ensure that the dismissal of the

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derivative suit is in the best interests of the corporation and the absent stockholders and to protect

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against prejudice to the corporation from discontinuance of a derivative suit . . . .” (Reply at 9

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(internal quotation marks omitted)). They note that “State Plaintiffs assert broader claims and

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remedies than the claims asserted in the Federal Action” and maintain that “with the benefit of an

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inspection demand, [they] will be better able to defeat pleading challenges directed at demand

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futility.” (MTI at 9.) Against this backdrop, State Plaintiffs argue that if the Federal Action is

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dismissed with prejudice, Intel and its shareholders will be substantially affected as the derivative
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claims may be “preclude[d], bar[red] or forever extinguish[ed].” (Reply at 9.)
The Court is persuaded that that the disposition of the Federal Action with prejudice may

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impair or impede State Plaintiffs’ ability to protect their and Intel’s interests and finds that this

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requirement for intervention is satisfied.

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D.

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In evaluating the adequacy of representation, courts consider three factors: “(1) whether

Inadequate Representation

the interest of a present party is such that it will undoubtedly make all of a proposed intervenor’s

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arguments; (2) whether the present party is capable and willing to make such arguments; and (3)

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whether a proposed intervenor would offer any necessary elements to the proceeding that other

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parties would neglect.” Arakaki v. Cayetano, 324 F.3d 1078, 1086 (9th Cir. 2003). “The ‘most

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United States District Court
Northern District of California

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important factor’ in assessing the adequacy of representation is ‘how the interest compares with

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the interests of existing parties.”” Citizens for Balances Use, 647 F.3d at 898 (quoting Arakaki,

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324 F.3d at 1086). “If an applicant for intervention and an existing party share the same ultimate

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objective, a presumption of adequacy of representation arises[,]” which can be rebutted by “a

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‘compelling showing’ of inadequacy of representation.” Id. (quoting Arakaki, 324 F.3d at 1086).

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State Plaintiffs contend that Federal Plaintiffs did not assert the same scope of claims that

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were asserted in the State Action and that their dismissal of the case demonstrates that Federal

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Plaintiffs are not willing to assert the same claims. In addition, State Plaintiffs argue that

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intervention will allow the Court to consider arguments that Federal Plaintiffs may “choose not to

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pursue or neglect as to impact of dismissal.” (MTI at 8.) Federal Defendants respond that while

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Federal Plaintiffs’ complaint lacks an express insider trading cause of action, it is nevertheless

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“replete with insider-trading allegations.” (Opp. at 4.) However, any facts in the complaint that

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may constitute insider trading are included as part of a breach of fiduciary duty cause of action,

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which is distinct from an insider trading cause of action. (See generally Fed. Deriv. Compl.)

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Federal Defendants additionally argue that State Plaintiffs’ “critici[sm]” of Federal Plaintiffs’

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“tactical decisions” does not render Federal Plaintiffs inadequate. (Opp at 4.) While the Court

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agrees as a general matter that disagreement as to litigation strategy would not be a sufficient basis

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to find Federal Plaintiffs inadequate, it disagrees that State Plaintiffs seek intervention because
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they “believe they can litigate better on Intel’s behalf” or “disagree with decisions by plaintiffs

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who filed in federal court.” (Opp. at 3, 1.) Rather, State Plaintiffs seek to protect the interests of

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Intel and its shareholders in ensuring that the derivative claims are fully investigated and litigated

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on their merits to obtain the best possible recovery for Intel. (See supra at 5.) This represents

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more than mere difference in litigation strategy, namely the fundamentally different points of view

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between State Plaintiffs and Federal Plaintiffs on the litigation as a whole.5
Accordingly, the Court finds that the fourth element for intervention as of right is satisfied.

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IV.

CONCLUSION
Based on the foregoing, the Court finds that State Plaintiffs have met the requirements for

intervention as a matter of right and GRANTS the motion to intervene for the “sole purpose of

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United States District Court
Northern District of California

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filing a limited opposition to [Federal Defendants’] request for dismissal with prejudice of this

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Federal Action[.]” (MTI at 2 (emphasis supplied).) This grant does not extend to any attempt to

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seek affirmative relief, such as a stay of the Federal Action. State Plaintiffs must file their

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opposition no later than Friday, November 16, 2018. Federal Defendants’ response thereto shall

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be due no later than Friday, November 30, 2018. Each brief shall not exceed twelve (12) pages.

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Once briefing is complete, to the extent necessary, the Court may set a hearing at which the parties

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in the Federal Action and State Plaintiffs would be heard on their respective positions regarding

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the dismissal of the Federal Action.

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This Order terminates Docket Numbers 57 and 58.

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IT IS SO ORDERED.

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Dated: November 2, 2018
YVONNE GONZALEZ ROGERS
UNITED STATES DISTRICT COURT JUDGE

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Federal Defendants’ cited cases are distinguishable in this regard as none involves a
voluntary dismissal that threatened the derivative claims from being pursued. (See Opp. at 4–5.)
As for Federal Defendants’ argument that “[t]he writ action is only a means of forestalling
final dismissal of the [S]tate [A]ction,” (Opp. at 5), it is speculative and the Court does not
consider it.
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