Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-07694/USCOURTS-cand-5_06-cv-07694-11/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 28:1332 Diversity-Stockholders Suits

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United States District Court

For the Northern District of California

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28 1 The only claim asserted on behalf of a class is for breach of contract. The

remaining claims (breach of the covenant of good faith and fair dealing; fraud and deceit;

negligent misrepresentation; and unjust enrichment) are asserted by the individual plaintiffs

only for themselves.

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

LARRY McINTOSH, YANGJIE CHENG,

PING CHEN, STEVE HAEFFELE, LEBIN

CHENG, VATSAL SONECHA and

JONATHAN WONG, individually and on behalf

of all those similarly situated,

Plaintiffs,

 v.

McAFEE, INC.,

Defendant. /

No. C06-07694 JW (HRL)

ORDER GRANTING IN PART AND

DENYING IN PART PLAINTIFFS’

MOTION TO COMPEL DISCOVERY

AND FOR MONETARY SANCTIONS

[Re: Docket No. 79]

Plaintiffs move for an order compelling defendant McAfee, Inc. (“McAfee”) to produce

documents and answer interrogatories. They also seek monetary sanctions pursuant to Fed. R.

Civ. P. 37(a)(5). McAfee opposes the motion. Upon consideration of the moving and

responding papers, as well as the arguments presented at the August 5, 2008 hearing, this court

grants the motion in part and denies it in part.

On December 15, 2006, plaintiffs filed this putative class action against McAfee, their

former employer, for alleged breach of contract.1

 They claim that McAfee breached the parties’

stock option agreements by not permitting the exercise of their stock options or the purchase of

*E-FILED 8/29/2008*

Case 5:06-cv-07694-JW Document 87 Filed 08/29/08 Page 1 of 7
United States District Court

For the Northern District of California

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28 2 Specifically, plaintiffs move to compel with respect to Interrogatories 3, 4 and

6-8 and Document Requests 1-6, 10-11 and 14-17.

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shares during an investigation by the Securities and Exchange Commission (“SEC”). McAfee

contends that it would have been a violation of securities laws to permit the exercise of stock

options during this so-called “blackout period” when McAfee was not current in its filings with

the SEC.

In January 2007, McAfee reportedly filed a Form 8-K with the SEC disclosing that its

Board of Directors passed resolutions (the “January 2007 resolutions”) amending the terms of

previously granted options and providing that (a) all former employees (with certain exceptions

that do not apply here) who held unexpired vested stock options on January 7, 2007 would be

given a 90-day extension of their post-termination exercise period at the end of the blackout;

and (b) once the blackout was lifted, former employees whose stock options expired before

January 7, 2007 would be paid cash in lieu of exercise based upon the average closing stock

price for the first 10 trading days after the end of the blackout period. McAfee says that it

regained current filer status with the SEC some twelve months later in December 2007.

The parties presently are before this court on a discovery dispute that arose in a

somewhat curious fashion. In January 2008, plaintiffs served their first set of discovery

requests, including the document requests and interrogatories at issue here.2

 (Ott Decl., Exs. B,

C and D). However, around this same time, the blackout was lifted and plaintiffs were allowed

to exercise their options or were paid cash in lieu of exercise. McAfee asserts that, because its

stock price had risen, plaintiffs reaped a windfall and received considerably more money than

the most they could have received had they exercised after their terminations during the

blackout period. The parties then began discussing possible settlement and dismissal of the

case. Indeed, at oral argument, the parties agreed that plaintiffs and the putative class got the

essential relief they sought in this lawsuit (or better). And, both sides also agree that this action

should be dismissed. Nevertheless, for the last several months, they have been wrangling over

plaintiffs’ claimed entitlement to attorney’s fees under the California statute codifying the

Case 5:06-cv-07694-JW Document 87 Filed 08/29/08 Page 2 of 7
United States District Court

For the Northern District of California

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3 The statute provides, in relevant part:

Upon motion, a court may award attorneys’ fees to a successful party

against one or more opposing parties in any action which has resulted

in the enforcement of an important right affecting the public interest if:

(a) a significant benefit, whether pecuniary or nonpecuniary, has been

conferred on the general public or a large class of persons, (b) the

necessity and financial burden of private enforcement, or of enforcement

by one public entity against another public entity, are such as to make

the award appropriate, and (c) such fees should not in the interest of

justice be paid out of the recovery, if any.

CAL. CODE CIV. PROC. § 1021.5.

4 McAfee also seeks summary judgment as to plaintiff’s individual claims for

relief. However, plaintiffs do not claim to need discovery as to those matters.

3

private attorney general doctrine, Cal. Code Civ. Proc. § 1021.5.3

 That is, the parties cannot

agree on how the case should be dismissed and what effect (if any) that dismissal should have

on plaintiffs’ claim for fees. Each side now contends that the other has taken unreasonable

positions that have forced the continued (and unnecessary) litigation of this matter.

McAfee moved for summary judgment on April 8, 2008. In essence, McAfee argues

that plaintiffs (a) have no breach of contract claim because they suffered no damages; and (b)

cannot prove that they are entitled to attorney’s fees.4

 For their part, on May 7, 2008, plaintiffs

filed a motion for an award of attorney’s fees and dismissal of the action with prejudice. They

also sought (unsuccessfully) to have McAfee’s summary judgment motion stayed until after

their motion for fees/dismissal was heard. Reportedly, the District Court will hear McAfee’s

summary judgment motion and plaintiffs’ motion for fees/dismissal at the same time.

The instant discovery motion followed about a month later on June 16, 2008. Plaintiffs

argue that, because McAfee insists on proceeding with its summary judgment motion on the

merits of their claims, they had no choice but to pursue the discovery they requested in January

2008. In particular, plaintiffs want discovery pertaining to the breach of contract claim

(including McAfee’s interpretation of the pertinent stock option agreements), as well as

discovery to show that all elements of a fee award exist under Graham v. Daimler Chrysler

Corp., 34 Cal.4th 553, 561 (2004) – i.e., whether (a) the lawsuit was a catalyst motivating the

defendants to provide the primary relief sought; (b) the lawsuit had merit and achieved its

Case 5:06-cv-07694-JW Document 87 Filed 08/29/08 Page 3 of 7
United States District Court

For the Northern District of California

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catalytic effect by threat of victory, not by dint of nuisance and threat of expense; and (c)

plaintiffs reasonably attempted to settle the litigation prior to filing the lawsuit.

McAfee argues that plaintiffs’ discovery motion should be denied on the following

grounds: (a) there are no merits-based issues remaining; (b) plaintiffs do not need discovery re

their requested attorney’s fees; and (c) plaintiffs withdrew the discovery at issue and, in any

event, it is too late to compel discovery now.

Taking McAfee’s last argument first, in this district, motions to compel discovery may

be brought up to seven court days after the close of discovery. See CIV. L.R. 26-2. The instant

motion was filed on the June 16, 2008 fact discovery cutoff and therefore is timely. While it

appears that plaintiffs previously offered to withdraw their discovery requests (and although

both sides now blame the other for the apparent breakdown in their negotiations), suffice to say

that the parties did not manage to agree on all terms for dismissal. McAfee argues that

plaintiffs have waived their right to the discovery because they waited until June to move to

compel discovery that was requested some six months earlier. Inasmuch as the parties spent

several of those intervening months negotiating possible settlement and dismissal, this court

does not find that the instant motion was unduly delayed.

The issues, then, are whether and what discovery really is needed, given the current

posture of these proceedings. As discussed above, both sides seem to agree that the only real

issue in dispute is whether plaintiffs are entitled to an award of attorney’s fees. Plaintiffs did

not file a Fed. R. Civ. P. 56(f) motion to seek more time to conduct discovery to oppose

McAfee’s summary judgment motion. Nor did they claim that they needed discovery to pursue

their own motion for fees/dismissal. Also, plaintiffs previously agreed to forego depositions. 

The time for taking depositions has passed, and plaintiffs are not moving to compel any now.

At the same time, however, it appears that the determination whether plaintiffs are

entitled to attorney’s fees will turn, to some degree, upon consideration as to whether their

claims have any merit. See Graham v. Daimler Chrysler Corp., 34 Cal.4th 553, 561 (2004). 

Since it appears that McAfee’s summary judgment motion will be addressed on the merits, this

court agrees that plaintiffs cannot simply ignore it. And, while plaintiffs have not convincingly

Case 5:06-cv-07694-JW Document 87 Filed 08/29/08 Page 4 of 7
United States District Court

For the Northern District of California

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28 5 No motion for class certification has been filed, and there seems to be no

dispute that no such motion will be filed now.

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demonstrated the relevance of discovery pertaining to putative class members,5

 this court

concludes that plaintiffs should be permitted discovery as to (a) whether there was a breach of

contract and (b) why defendant reached the January 2007 resolutions (i.e., its consideration of

and decisions leading to the adoption of those resolutions). (Indeed, at oral argument,

defendant acknowledged that documents leading to the adoption of those resolutions are

relevant.) Accordingly, this court rules as follows:

1. Plaintiffs’ motion for discovery of McAfee’s correspondence with the putative

class is DENIED. In any event, at oral argument, plaintiffs’ counsel acknowledged that the

most helpful letters are those which were exchanged with the named plaintiffs themselves.

2. Plaintiffs’ motion to compel documents responsive to Document Request No. 10

(“All insurance policies under which an insurance business might be liable to pay to you or on

your behalf all or part of the damages sought in the Complaint.”) and Document Request No. 17

(“All Documents that you may use to support your position that this action is not suitable to

class certification.”) is DENIED.

3. Plaintiffs’ motion to compel answers to Interrogatory Nos. 3 and 4 is DENIED. 

This court is unpersuaded as to plaintiffs’ stated need for the identification of persons most

knowledgeable.

4. As for Interrogatory Nos. 6-8 and Document Requests 1-6, 11 and 14-16,

plaintiffs’ motion to compel is GRANTED IN PART. The motion as to these requests is

granted only to the extent they call for non-privileged documents concerning, evidencing,

containing, pertaining to or relating to McAfee’s (a) interpretation of the pertinent stock option

agreements pertaining to the named plaintiffs and (b) consideration of and decisions leading to

the January 2007 resolutions. The motion as to these requests is otherwise DENIED.

5. McAfee shall serve its interrogatory answers and produce responsive documents

by September 12, 2008.

6. Plaintiffs’ request for monetary sanctions is DENIED.

Case 5:06-cv-07694-JW Document 87 Filed 08/29/08 Page 5 of 7
United States District Court

For the Northern District of California

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SO ORDERED.

Dated:

 

HOWARD R. LLOYD

UNITED STATES MAGISTRATE JUDGE

August 29, 2008

Case 5:06-cv-07694-JW Document 87 Filed 08/29/08 Page 6 of 7
United States District Court

For the Northern District of California

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5:06-cv-7694 Notice has been electronically mailed to: 

Benjamin B. Au bau@kvn.com, alm@kvn.com, apicar@kvn.com, efiling@kvn.com 

Joseph W. Cotchett jcotchett@cpmlegal.com 

Emily L. Maxwell , Esq emaxwell@graycary.com 

Mark Cotten Molumphy mmolumphy@cpmlegal.com, bgoldman@cpmlegal.com,

jacosta@cpmlegal.com, mmetzger@cpmlegal.com, oszeto@cpmlegal.com,

pskahan@cpmlegal.com 

Carter Winford Ott carter.ott@dlapiper.com, tee.thomas@dlapiper.com 

Elliot Remsen Peters epeters@kvn.com, aap@kvn.com, efiling@kvn.com 

David Allen Priebe david.priebe@dlapiper.com, stacy.murray@dlapiper.com 

Luanne R. Sacks luanne.sacks@dlapiper.com, kathleen.fischer@dlapiper.com 

John Robert Shuman , Jr bob.shuman@dlapiper.com, maurene.martin@dlapiper.com 

Robert James Slaughter rjs@kvn.com, efiling@kvn.com, kjb@kvn.com, mls@kvn.com 

Kelly L Sommerfeld ksommerfeld@cpsmlaw.com, jacosta@cpsmlaw.com

Counsel are responsible for distributing copies of this document to co-counsel who have

not registered for e-filing under the court’s CM/ECF program.

Case 5:06-cv-07694-JW Document 87 Filed 08/29/08 Page 7 of 7