Hallisey v. Zuckerberg et al

Filing 111

ORDER by Judge Haywood S. Gilliam, Jr. GRANTING 93 MOTION TO STAY DISCOVERY.(ndrS, COURT STAFF) (Filed on 2/5/2019)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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IN RE FACEBOOK, INC.
SHAREHOLDER DERIVATIVE
PRIVACY LITIGATION

Case No. 18-cv-01792-HSG
ORDER GRANTING MOTION TO
STAY DISCOVERY

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Re: Dkt. No. 93

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United States District Court
Northern District of California

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I.

BACKGROUND
At the June 27, 2018 case management conference, the Court directed the parties to submit

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letter briefs regarding whether an automatic discovery stay applies under the Private Securities

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Litigation Reform Act (“PSLRA”). Dkt. No. 55. On July 19, 2018, following the parties’

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briefing, the Court granted the request of Defendant Facebook, Inc. (“Facebook”) to maintain a

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stay of discovery under the PSLRA, and denied Plaintiffs’ request to partially lift the stay. Dkt.

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No. 65.

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On August 22, 2018, Plaintiff delivered to Defendant a demand to inspect Facebook’s

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“books and records and minutes of proceedings of the shareholders” pursuant to section 1601 of

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the California Corporations Code. Dkt. No. 93-2 at 1. On September 14, 2018, Plaintiff filed a

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Verified Petition for Writ of Mandate in the action captioned Natalie Ocegueda v. Facebook, Inc.,

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Case No. 18CIV04936, presently pending in California State Superior Court (the “State Court

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Action”), requesting that the state court issue a writ commanding Facebook to make available the

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records described in Plaintiff’s August 22 demand. Dkt. No. 93-3.

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On October 18, 2018, Defendant Facebook, Inc. (“Facebook”) filed the motion currently

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pending in this case to stay the inspection of Facebook’s corporate books and records requested in

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the State Court Action. Dkt. No. 93. The Court finds this matter appropriate for disposition

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without oral argument and the matter is deemed submitted. See Civil L.R. 7-1(b).
II.

LEGAL STANDARD
Under the PSLRA, “all discovery and other proceedings shall be stayed during the

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pendency of any motion to dismiss, unless the court finds upon the motion of any party that

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particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that

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party.” 15 U.S.C. § 78u-4(b)(3)(B); SG Cowen Sec. Corp. v. U.S. Dist. Court for N. Dist. of CA,

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189 F.3d 909, 912–913 (9th Cir. 1999) (“[D]iscovery should be permitted in securities class

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actions only after the court has sustained the legal sufficiency of the complaint.”).
Section 101(a)(2) of the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”)

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“expressly permits a Federal court to stay discovery proceedings in any private action in a

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United States District Court
Northern District of California

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State court as necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” H.R.

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REP. 105-640, 17–18. As codified:

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Upon a proper showing, a court may stay discovery proceedings in
any private action in a State court, as necessary in aid of its
jurisdiction, or to protect or effectuate its judgments, in an action
subject to a stay of discovery pursuant to this paragraph.

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15 U.S.C.A. § 78u-4 (b)(3)(D).

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III.

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DISCUSSION
Plaintiff contends that the SLUSA does not authorize federal jurisdiction over discovery in

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the State Court Action because the SLUSA only applies to “a covered class action which is based

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on state law claims and alleges that defendant made a misrepresentation or omission or employed

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any manipulative or deceptive device in connection with the purchase or sale of a covered

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security.” Dkt. No. 100 at 3–4 (citing Fleming v. Charles Schwab Corp., 878 F.3d 1146, 1152

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(9th Cir. 2017)).

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Fleming addressed a different provision of the SLUSA not at issue here. See Fleming, 878

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F.3d at 1152 (citing 15 U.S.C.A. § 78bb(f)(1)). The SLUSA provision permitting federal courts to

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stay discovery in state court proceedings applies to “any private action in a State court,” and is not

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limited by the language of section 78bb(f)(1). See Newby v. Enron Corp., 338 F.3d 467, 473 (5th

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Cir. 2003) (“The discovery stay provision in Section 78u–4(b)(3)(D) [] states that it applies to ‘any
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private action in a State court.’ We see no reason why the discovery stay provision in § 78u–

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4(b)(3)(D) should not also apply to stays of discovery in any private, class or nonclass, action in

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state court.”). Section 78u-4 (b)(3)(D) therefore expressly authorizes this Court to stay discovery

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proceedings in the State Court Action. See 28 U.S.C.A. § 2283.
“In determining whether to stay state court discovery, relevant considerations include the

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risk of federal plaintiffs obtaining the state plaintiff's discovery, the extent of factual and legal

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overlap between the state and federal actions, and the burden of state-court discovery on

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defendants.” In re Dot Hill Sys. Corp. Sec. Litig., 594 F. Supp. 2d 1150, 1165 (S.D. Cal. 2008).
Here, each factor weighs in favor of staying discovery in the State Court Action. Ms.

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Ocegueda is both petitioner in the State Court Action and Plaintiff in this case, and is represented

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United States District Court
Northern District of California

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by the same counsel in both actions. See Dkt. No. 56 (Consolidated Complaint) at 1; Dkt. No. 93-

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3 at 1. Further, the state court petition states that the discovery is sought for the purpose of

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informing Plaintiff in this action. See Dkt. No. 93-3 ¶ 2. As for the last factor, Plaintiff contends

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that, because the documents requested were previously produced in other lawsuits, the burden to

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Facebook in producing those documents here would be minimal or nonexistent. Dkt. No. 100 at 5.

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But the sheer scope of Plaintiff’s discovery request places a substantial burden on Defendant. See

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Dkt. No. 93-2 ¶¶ 1–24 (listing twenty-four categories of documents subject to petition). The Court

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therefore finds that, during the pendency of Defendants’ motions to dismiss, Dkt. Nos. 69, 70, 71,

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a stay of discovery in the State Court Action is warranted.

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IV.

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CONCLUSION
For the foregoing reasons, the Court GRANTS Defendant’s motion to stay discovery in

the State Court Action.
IT IS SO ORDERED.
Dated: 2/5/2019
//~
______________________________________
HAYWOOD S. GILLIAM, JR.
United States District Judge

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