Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-03514/USCOURTS-cand-5_06-cv-03514-3/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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1 Concurrently with the instant order, the court is issuing an order granting

plaintiffs’ motion for leave to file a belated reply brief.

2 The District Court has consolidated two derivative actions currently pending

in this district against the nominal defendant, Novellus Systems, Inc., under the Master File

No. C06-03514 RMW (HRL).

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re NOVELLUS SYSTEMS, INC.

DERIVATIVE LITIGATION

_______________________________________

This Document Relates To:

ALL ACTIONS

 /

Master File No. C06-03514 RMW (HRL)

ORDER GRANTING IN PART AND

DENYING IN PART PLAINTIFFS’

MOTION TO COMPEL INSPECTION

AND PRODUCTION

[Re: Docket No. 36]

Presently before this court is plaintiffs’ “Motion to Compel Inspection and Production.” 

Defendants opposed the motion. The matter has been fully briefed.1 The court deems the

motion suitable for determination without oral argument and the January 9, 2007 hearing is

vacated. See CIV. L.R. 7-1(b). Upon consideration of the moving and responding papers, the

court grants the motion in part and denies the motion in part.

This is a shareholders’ derivative action2 based upon allegations that defendants

improperly backdated Novellus stock option grants. At a September 8, 2006 case management

conference, the District Court ordered defendants to “complete initial disclosures within 21

days.” (Kulkarni Decl., Ex. B). Additionally, the court set a January 26, 2007 hearing date on

*E-FILED ON 1/5/07*

Case 5:06-cv-03514-RMW Document 56 Filed 01/05/07 Page 1 of 5
United States District Court

For the Northern District of California

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3 The court’s docket indicates that plaintiffs filed an amended consolidated

complaint on December 8, 2006, and the parties have recently stipulated to continue the

hearing on defendants’ anticipated motion to dismiss to March 2, 2007. (See Docket Nos. 47

and 50).

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defendants’ motion to dismiss and apparently ordered that there would be “[n]o further

discovery until after the Court rules on the motion to dismiss.” (See id.). To date, there has

been no ruling on any dispositive motion.3

As part of their Fed. R. Civ. P. 26(a) initial disclosures, defendants produced a CD

containing documents which, defendants apparently contend, show that the stock option grants

mentioned in the complaint were authorized. (See Kulkarni Decl., Ex. A). According to

plaintiffs, the CD contains over ten thousand TIF (tagged image file) documents, some of which

bear illegible fax lines or show irregularities in Novellus’ stock option grants (e.g., as to the

dates of signature pages on the purported authorizations). They now move to compel an

inspection of the document originals. Plaintiffs also move for an order compelling defendants

to make a further production of documents as part of their initial disclosures – namely, “all

documents reviewed in the course of their determination that there were no irregularities.” 

(Motion at 3:20-22).

Plaintiffs argue that their right to inspect the original documents is grounded in Fed. R.

Civ. P. 34. That rule authorizes a party to “serve on any other party a request . . . to inspect and

copy, any designated documents . . ..” FED.R.CIV.P. 34(a). Defendants maintain that Fed. R.

Civ. P. 34 does not apply here because the documents in question were produced as part of their

initial disclosures under Fed. R. Civ. P. 26(a), which, they argue, does not confer upon plaintiffs

a right of inspection.

By its terms, Fed. R. Civ. P. 26(a)(1) requires a party to provide, among other things, “a

copy of, or a description by category and location of, all documents, data compilations, and

tangible things that are in the possession, custody or control of the party and that the disclosing

party may use to support its claims or defenses, unless solely for impeachment.” FED.R.CIV.P.

26(a)(1)(B). Defendants are correct that the relevant portion of the rule does not expressly

provide for the inspection of disclosed documents. Nevertheless, this court sees no reason why

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United States District Court

For the Northern District of California

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plaintiffs should not be allowed to inspect the originals of an apparent handful of documents

which they claim are illegible or show facial irregularities as to signature dates and the like. 

Fairness would seem to require it. Permitting an inspection would not violate the District

Court’s apparent stay of any further discovery pending the resolution of defendants’ anticipated

motion to dismiss. Indeed, plaintiffs would only be examining the originals of documents that

have already been disclosed. At any rate, defendants do not show, or even argue, that an

inspection would impose an undue burden. Accordingly, plaintiffs’ motion to compel an

inspection of the originals of documents provided by defendants in their initial disclosures is

GRANTED.

However, plaintiffs’ motion to compel defendants to produce “all documents reviewed

in the course of their determination that there were no irregularities” as part of their initial

disclosures is DENIED. As discussed above, Fed. R. Civ. P. 26 requires a party to disclose only

those documents that it “may use to support its claims or defenses . . ..” See FED.R.CIV.P.

26(a)(1)(B). “A party is no longer obligated to disclose witnesses or documents, whether

favorable or unfavorable, that it does not intend to use.” FED.R.CIV.P. 26(a)(1) Advisory

Committee’s Note (2000 Amendments). Plaintiffs argue that the term “use” is to be broadly

construed. Indeed, the Advisory Committee Notes provide:

“Use” includes any use at a pretrial conference, to support a

motion, or at trial. The disclosure obligation is also triggered

by intended use in discovery, apart from use to respond to a

discovery request; use of a document to question a witness during

a deposition is a common example. The disclosure obligation

attaches both to witnesses and documents a party intends to use

and also to witnesses and documents the party intends to use if –

in the language of Rule 26(a)(3) – “the need arises.”

Id..

Here, however, defendants represent to the court that, subject to their obligation to

supplement their disclosures under Fed.R.Civ.P. 26(e), they have provided those documents

which “defendants believe they may use to support their claims or defenses, unless solely for

impeachment.” (Kulkarni Decl., ¶ 3). Plaintiffs contend that defendants’ initial disclosures are

hardly supportive of their claims or defenses. Further, they express incredulity that the current

production is all that defendants believe that they will “use.” As such, they argue that

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United States District Court

For the Northern District of California

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defendants must now be compelled to produce, as part of their initial disclosures, “all

documents reviewed in the course of their determination that there were no irregularities.” In

essence, plaintiffs’ motion is based upon their contention that defendants will be unable to

successfully defend this lawsuit with the documents provided in their initial disclosures. 

Suffice to say that each side will have an opportunity to present its arguments as to the evidence

at the appropriate time; and, the decision as to what is to be disclosed under Fed. R. Civ. P.

26(a) is not without risk. See FED.R.CIV.P. 26(a)(1) Advisory Committee’s Note (2000

Amendments) (“The obligation to disclose information the party may use connects directly to

the exclusion sanction of Rule 37(c)(1)”). Nevertheless, this court finds no grounds to compel

defendants to produce any further documents in connection with their initial disclosures; and, as

noted above, formal discovery apparently has been stayed by the District Court pending

resolution of defendants’ anticipated motion to dismiss.

Based on the foregoing, IT IS ORDERED THAT plaintiff’s motion to compel is

GRANTED IN PART AND DENIED IN PART as follows:

1. Plaintiffs’ motion to compel an inspection of the original documents comprising

defendants’ initial disclosures is GRANTED. The inspection shall occur at a date and time

mutually agreeable to all parties and shall, in any event, take place no later than January 31,

2007.

2. Plaintiffs’ motion to compel defendants to produce additional documents in

support of their initial disclosures is DENIED.

Dated:

 

HOWARD R. LLOYD

UNITED STATES MAGISTRATE JUDGE

January 5, 2007

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United States District Court

For the Northern District of California

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5:06-cv-3514 Notice will be electronically mailed to: 

Francis A. Bottini , Jr bottini@whafh.com 

Travis E. Downs , III travisd@lerachlaw.com, e_file_sd@lerachlaw.com 

Francis M. Gregorek gregorek@whafh.com 

Sunil R. Kulkarni skulkarni@mofo.com, msousa@mofo.com 

William S. Lerach e_file_sf@lerachlaw.com 

Betsy C. Manifold manifold@whafh.com 

Maria V. Morris mariam@lerachlaw.com, e_file_sf@lerachlaw.com 

Rachele R. Rickert rickert@whafh.com 

Shawn A. Williams shawnw@lerachlaw.com, e_file_sd@lerachlaw.com;

e_file_sf@lerachlaw.com; AelishB@lerachlaw.com; MoniqueW@lerachlaw.com;

TravisD@lerachlaw.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-03514-RMW Document 56 Filed 01/05/07 Page 5 of 5