Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-04346/USCOURTS-cand-5_06-cv-04346-10/pdf.json

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

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28 This disposition is not designated for publication and may not be cited. 1

Case No. C 06-4346 JF (HRL)

ORDER DENYING PLAINTIFFS’ MOTION TO LIFT PSLRA DISCOVERY STAY

(JFLC2)

**E-Filed 5/14/07**

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

IN RE RAMBUS, INC. SECURITIES

LITIGATION

This document relates to all actions.

Case Number C 06-4346 JF (HRL)

ORDER DENYING PLAINTIFFS’ 1

MOTION TO LIFT THE PSLRA

DISCOVERY STAY

[re doc. no. 88]

In this securities fraud case, Plaintiffs move to lift the discovery stay imposed by the

Private Securities Litigation Reform Act (“PSLRA”). The Court has considered the briefing of

the parties as well as the oral arguments presented at the hearing on May 2, 2007. For the

reasons discussed below, the motion will be denied. 

I. DISCUSSION

Plaintiffs move to lift the PSLRA discovery stay to conduct “particularized discovery,”

which they define as follows:

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Case No. C 06-4346 JF (HRL)

ORDER DENYING PLAINTIFFS’ MOTION TO LIFT PSLRA DISCOVERY STAY

(JFLC2)

a. The Audit Committee Report referenced in the Oct. 19, 2006, press release,

attached hereto as Exh. A to Longman Declaration, and any documents

appended to that report, or referenced therein;

b. Documents sufficient to identify which persons approved and received the

grants of options that were backdated;

c. All documents that have been, or are identified to be, produced to any

governmental investigatory body, and/or self-regulatory organization relating

to the backdating of options;

d. All documents the SLC reviewed in order to draft the SLC report; and

e. The report of the SLC when it becomes available.

Plaintiffs’ motion at p. 8. 

In essence, Plaintiffs assert that while they have drafted a complaint making out viable

claims for securities fraud arising from the backdating of stock options, Plaintiffs do not know

exactly who authorized the backdating. Plaintiffs want the requested discovery so that they can

allege claims against the wrongdoers before the statute of limitations expires. Claims brought

under the Securities and Exchange Act of 1934 must be brought “not later than the earlier of” (1)

two years after the discovery of the facts constituting the violation or (2) five years after such

violation. 28 U.S.C. § 1658(b). It appears to be an open question in this circuit whether

equitable tolling applies to the five-year period. At least some courts in other jurisdictions have

held that equitable tolling does not apply. See, e.g., In re Merrill Lynch & Co. Research Reports

Sec. Litig., 289 F. Supp. 2d 416, 426 and n.16 (S.D.N.Y. 2003).

Even assuming that the five-year limitations period is absolute, this Court concludes that

Plaintiffs have not demonstrated a basis for lifting the discovery stay. As an initial matter,

Plaintiffs’ list of requested discovery materials is not in fact “particularized,” especially item b. 

Moreover, even the arguably particularized items, such as a copy of the Audit Report, fall outside

the narrow exceptions to the discovery stay. The relevant statute, 15 U.S.C. § 78u-4(b)(3)(B),

reads as follows:

(B) Stay of discovery

In any private action arising under this chapter, all discovery and other

proceedings shall be stayed during the pendency of any motion to dismiss, unless

the court finds upon the motion of any party that particularized discovery is

necessary to preserve evidence or to prevent undue prejudice to that party.

Plaintiffs argue that lifting the stay is warranted under both the “preserve evidence” and “undue

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Case No. C 06-4346 JF (HRL)

ORDER DENYING PLAINTIFFS’ MOTION TO LIFT PSLRA DISCOVERY STAY

(JFLC2)

prejudice” prongs of the statute. With respect to the “preserve evidence” prong, Plaintiffs do not

point to any evidence or indication of spoliation in this case, but rather quote decisions

describing Rambus’ alleged spoliation of evidence seven or more years ago in other cases. See

Samsung Electronics Co., Ltd. v. Rambus, Inc., 439 F. Supp. 2d 524, 560 (E.D. Va. 2006)

(discussing Rambus’ document destruction in 1998, 1999 and 2000); Rambus, Inc. v. Infineon

Technologies AG, 220 F.R.D. 264, 284 (E.D. Va. 2004) (describing a 1998 “Shred Day”at

Rambus). This Court concludes that Rambus’ history of destroying documents many years ago

in patent infringement cases is insufficient to satisfy the “preserve evidence” prong for lifting the

discovery stay in this securities fraud case. Moreover, the only documents that arguably are

identified with particularity are documents that would not and as a factual matter could not be

destroyed in this litigation – the Audit Committee Report, documents produced to government

entities and the SLC Report.

With respect to the “undue prejudice” prong, Plaintiffs appear to be arguing that they will

be unduly prejudiced if they cannot discover who the wrongdoers are, and sue them, before the

statute of limitations runs. Plaintiffs argue that “[t]here could be no clearer case of ‘undue

prejudice’ to plaintiffs than to be precluded from seeking a recovery from a wrongdoer simply

because of that wrongdoer’s artful concealment of his role in the fraudulent scheme.” Mot. at p.

7. This argument flies directly in the face of Ninth Circuit authority. In SG Cowen Securities

Corp. v. District Court, 189 F.3d 909, 913 (9th Cir 1999), the court made clear that “as a matter

of law, failure to muster facts sufficient to meet the Act’s pleading requirements cannot

constitute the requisite ‘undue prejudice’ to the plaintiff to justify a lift of the discovery stay

under § 78u-4(b0(3)(B).” The court went on to explain that “[t]o so hold would contravene the

purpose of the Act’s heightened pleading standards.” Id. The court cited one of its earlier

decisions, Medhekar v. District Court, 99 F.3d 325, 328 (9th Cir. 1996), for the proposition that

“Congress clearly intended that complaints in these securities actions should stand or fall based

on the actual knowledge of the plaintiffs rather than information produced by the defendants after

the action has been filed.” Id. at 912.

Plaintiffs attempt to distinguish SG Cowen and Medhekar on the ground that the

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Case No. C 06-4346 JF (HRL)

ORDER DENYING PLAINTIFFS’ MOTION TO LIFT PSLRA DISCOVERY STAY

(JFLC2)

defendants in those cases were not demonstrated destroyers of evidence. This argument is

irrelevant to the undue prejudice prong. Plaintiffs also argue that, unlike the plaintiffs in SG

Cowen, Plaintiffs in the instant case actually have made out viable claims – they argue that they

are not engaged in a fishing expedition for evidence to make out such claims, but rather just need

to know who to assert their claims against. The Court is not persuaded that this is a meaningful

distinction. A fundamental element of any claim is the identity of the wrongdoer. The fact that

Plaintiffs are convinced that somebody did wrong in this case simply is not sufficient to get over

the hurdle of the discovery stay.

Plaintiffs cite a number of out-of-circuit district court cases in which the discovery stay

was lifted on undue prejudice grounds. In those cases, which include In re Enron Corp. Sec.

Litig., 2002 WL 31845114 (S.D.Tex. Aug. 16, 2002), and In re WorldCom, Inc. Sec. Litig., 234

F. Supp. 2d 301 (S.D.N.Y. 2002), the courts’ decisions rested in part on the fact that the

defendants already had produced the documents in question in governmental or other private

proceedings. The courts in essence held that the securities fraud plaintiffs would be unduly

prejudiced if they were the only parties on the playing field without access to the documents. 

Those cases are not controlling and appear to be contrary to the Ninth Circuit authority discussed

above. Moreover, the cases are factually distinguishable. There is no evidence of widespread

dissemination of documents to governmental or other entities in this case.

Accordingly, Plaintiffs’ motion will be denied. This ruling is without prejudice to

renewal of Plaintiffs’ motion in the event that subsequent production of documents in the

derivative action or in other actions arguably disadvantage Plaintiffs in the future.

II. ORDER

Plaintiffs’ motion to lift the PSLRA discovery stay is DENIED.

DATED: 5/14/07

__________________________________

JEREMY FOGEL

United States District Judge

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Case No. C 06-4346 JF (HRL)

ORDER DENYING PLAINTIFFS’ MOTION TO LIFT PSLRA DISCOVERY STAY

(JFLC2)

This Order was served on the following persons:

Mary E. Alexander malexander@maryalexanderlaw.com

Patrice L. Bishop service@ssbla.com

Timothy J. Burke service@ssbla.com

Justin S. Chang jchang@shearman.com

Douglas John Clark dclark@wsgr.com

Jeffrey S. Facter jfacter@shearman.com, rcheatham@shearman.com; jae.ko@shearman.com

William B. Federman wfederman@aol.com, law@federmanlaw.com; ngb@federmanlaw.com

Boris Feldman boris.feldman@wsgr.com, ncarvalho@wsgr.com; bhickman@wsgr.com

Anthony I. Fenwick anthony.fenwick@dpw.com, angela.quach@dpw.com; cdoyle@dpw.com

Donald P. Gagliardi dgagliardi@be-law.com, gsimmons@be-law.com

Martin N. Gelfand mgelfand@irell.com

Michael M. Goldberg info@glancylaw.com

Gary S. Graifman ggraifman@kgglaw.com

Erin Jane Holland eholland@wsgr.com,

John Charles Hueston jhueston@irell.com

Frank James Johnson frankj@johnsonbottini.com, brett@johnsonbottini.com,

frankb@johnsonbottini.com, emily@johnsonbottini.com

Willem F. Jonckheer wjonckheer@schubert-reed.com

Garland Aycuff Kelley gkelley@irell.com

Felix Shih-Young Lee flee@fenwick.com

Howard Theodore Longman tsvi@aol.com

Susan Samuels Muck smuck@fenwick.com, cgalvin@fenwick.com

Juan Carlos Orellana corellana@fenwick.com, bwalrod@fenwick.com;

DocketCalendarRequests@fenwick.com

Jay L. Pomerantz jpomerantz@fenwick.com, slim@fenwick.com

Darryl P. Rains drains@mofo.com, dgillis@mofo.com

Patrick David Robbins probbins@shearman.com, rcheatham@shearman.com

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Case No. C 06-4346 JF (HRL)

ORDER DENYING PLAINTIFFS’ MOTION TO LIFT PSLRA DISCOVERY STAY

(JFLC2)

Ignacio E. Salceda isalceda@wsgr.com, rlustan@wsgr.com

David Siegel dsiegel@irell.com

Jay Edward Smith js@gslaw.org, jlawton@gslaw.org

Dennis Stewart dstewart@hulettharper.com, office@hulettharper.com

Cheryl Thomae Viirand cheryl.viirand@dpw.com, susan.lee@dpw.com

Namita Wahi namita.wahi@dpw.com, ecf.ct.papers@dpw.com

Stephanie Laura Zeller szeller@mofo.com, mbarakah@mofo.com

Jill R. Zimmerman jill.zimmerman@dpw.com, nanci.salyer@dpw.com;

angela.quach@dpw.com

Michael L. Braunstein

Kantrowitz Goldhamer & Graifman

210 Summit Avenue

Montvale, NJ 07645

James H.R. Windels

Davis Polk & Wardwell

450 Lexington Avenue

New York, NY 10017

Case 5:06-cv-04346-JF Document 143 Filed 05/14/07 Page 6 of 6