Roth v. Scopia Capital Management LP et al

Filing 45

MEMORANDUM OPINION AND ORDER. Plaintiff's application to compel production of defendants' trading records in the subject stock for the period from February 6, 2014 through June 30, 2016 is granted. Defendants are directed to produce the records no later than April 6, 2018. SO ORDERED. (Signed by Magistrate Judge Henry B. Pitman on 3/23/18) Copies transmitted to All counsel. (yv)

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ANDREW E. ROTH,

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16 Ci v . 618 2 (LT S ) ( HB P)

Plaintiff,

MEMORANDUM OPINION
AND ORDER

-againstSCOPIA CAPITAL MANAGEMENT LP,
et al.,
Defendants.

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PITMAN, United States Magistrate Judge:

By letter dated February 20, 2018, plaintiff seeks to
compel production of certain trading records for the period from
February 6, 2014 through June 30, 2016. 1

For the reasons set

forth below, plaintiff's application is granted. 2
This is an action brought pursuant to Section 16(b) of
the Securities Exchange Act, 15 U.S.C.
swing profits.

§

78p(b), to recover short

In pertinent part, the complaint alleges:

1

Plaintiff had also initially raised an issue concerning the
nature of the trading records defendants were producing.
It is
my understanding that counsel have come to an agreement resolving
that issue.
2

None of the letters submitted in connection with the
discovery dispute address herein have been filed with the Clerk's
Office. The letters will be filed contemporaneously with the
filing of this Opinion and Order.

18. Based on [certain filings with the SEC], the
Scopia Group purchased at least 1,003,501 share while a
greater than 10% beneficial owner between September 30,
2014 and December 31, 2014. The Scopia Group then sold
4,962,079 shares while a greater than 10% beneficial
owner between March 31, 2015 and June 30, 2015.
19. At all relevant times, the Scopia Group was a
greater than 10% beneficial owner based on the outstanding shares of the Company's Common Stock, as
reported by the Company. However, because the Scopia
Group violated its reporting requirements under Section
16(a) of the Exchange Act, it is not possible to determine the extent of the short-swing profits that the
Scopia Group garnered in violation of Section 16(b).
However, based on the share price of the Company's
Common Stock during the aforementioned periods, it is
all but certain that the Scopia Group garnered shortswing profits of as much as $10 million or greater.
(Complaint (Docket Item 1)

~~

18-19) .

Defendants have produced records showing their trades
in the subject stock for the period from March 30, 2014 through
June 30, 2015, but have refused to produce records for the period
between February 6, 2014 and March 30, 2014 and for the period
after June 30, 2015, primarily on the ground that there are no
accused trades in that period and that plaintiff is seeking
discovery with respect to claims that he has not asserted.
Defendants concede, however, that "hypothetically, a transaction
occurring on August 4, 2014 could be matched with a purchase or
sale occurring as early as February 6, 2014"

(Letter from Douglas

A. Rappaport, Esq., to the undersigned, dated Feb. 27, 2018 at
2) .

2

Much of the parties' arguments regarding this discovery
dispute has been focused on whether a claim for Section 16(b)
damages based on a transaction occurring March 30, 2014 would now
be time-barred.

Relying primarily on Egghead.com, Inc. v.

Brookhaven Capital Mgmt. Co., 179 F. Supp. 2d 330 (S.D.N.Y. 2002)
(Haight, D.J.), plaintiff claims that the statute of limitations
might be equitably tolled as a result of alleged deficiencies in
defendants' Section 16(a) disclosures.

Defendants respond by

claiming that Egghead.com was effectively overruled by the
Supreme Court's decision in Credit Suisse Sec.
Simmonds, 566 U.S. 221 (2012).

(USA) LLC v.

Defendants argue that the discov-

ery sought by plaintiff is inappropriate because any claim based
on a transaction occurring before March 30, 2014 would now be
time-barred.

With respect to claims based on transactions

occurring after June 30, 2015, defendants note that their transactions during this time period are already the subject of a
related action -- Sand v. Scopia Capital Mgmt. LP, 18 Civ. 1735
(LTS) (HBP) (S.D.N.Y.).
I note that this matter has been referred time for
general pre-trial supervision, not to issue a report and recommendation with respect to dispositive motions.

I also note that

the parties have submitted only letters, not briefs that address
the statute of limitations in a comprehensive manner.
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Finally, I

note that the Credit Suisse decision did not categorically hold
that equitable tolling is always inapplicable in a Section 16(b)
action, nor did it address when an amended complaint in a 16(b)
action will relate back.

These facts, in conjunction with the

procedural posture of the present application,

i.~.,

a discovery

dispute, counsel against issuing a decision that effectively
resolves what is or is not time barred.

Because Section 16(b)

claims based on transactions in February 2014 could, at least in
theory, be timely, I decline to deny the application on the
ground that it seeks information that could not be relevant to
any valid claim.
Defendants' second argument -- that plaintiff is
seekirig discovery concerning a non-existent claim -- fairs no
better.

Defendants are correct that a party is not ordinarily

entitled to pursue discovery to determine if the party has a
claim.

~.g.,

Hughes v. LaSalle Bank, N.A., 02 Civ. 6384

(MP) (HBP), 2004 WL 414828 at *1 (S.D.N.Y. Mar. 4, 2002)
D.J.).

(Pollack,

That axiom does not, however, accurately describe what

plaintiff is doing here.

Plaintiff has a viable claim; his

complaint has withstood defendants' motion to dismiss.
Scopia Capital Mgmt. LP, 16 Civ. 6182
(S.D.N.Y. July 28, 2017)

(Swain, D.J.)

Roth v.

(LTS) (HBP), 2017 WL 3242326
Rather, what plaintiff

is attempting to do through his discovery request is to uncover
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the full extent of his claim.

If the discovery in issue dis-

closed transactions that could provide a basis for expanded
Section 16(b) liability, plaintiff would not be asserting those
transactions as the bases for a separate Section 16(b) claim;
rather plaintiff would merely expand the scope of his existing
claim.
To the extent defendants assert burden, they have
failed to demonstrate that any incremental burden would be
undue.

The additional documents sought from 2014 cover only a

few weeks of trading, and the records sought for the period after
June 30, 2015 would have to be assembled and produced in connection with the Sand action, assuming that they have not already
been assembled for that action.
Accordingly, plaintiff's application to compel production of defendants' trading records in the subject stock for the
period from February 6, 2014 through June 30, 2016 is granted.
Defendants are directed to produce the records no later than
April 6, 2018.
Dated:

New York, New York
March 23, 2018
SO ORDERED

United States Magistrate Judge
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Copies transmitted to:
All Counsel

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