Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-03894/USCOURTS-cand-5_06-cv-03894-5/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 28:1331 Fed. Question

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ORDER STAYING DISCOVERY—No. C-06-03894 RMW

JAH

United States District Court

For the Northern District of California

E-FILED on 5/29/07

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re MARVELL TECHNOLOGY GROUP

LTD. DERIVATIVE LITIGATION

This Documents Relates To:

 All Actions

No. C-06-03894 RMW

ORDER STAYING DISCOVERY

[Re Docket No. 18, 25]

The court previously instructed the parties to submit briefing on whether the discovery stay

provision of the PSLRA, 15 U.S.C. § 78u-4(b)(3)(B), applied to this particular collection of actions. 

For the reasons given below, the court finds the stay provision applies and stays discovery pending

resolution of defendants' motion to dismiss..

I. BACKGROUND

Starting on June 22, 2006, plaintiffs filed a series of derivative actions against Marvell

Technology Group, Ltd. and certain of its officers and directors. Pursuant to stipulations filed by the

parties, the court consolidated the actions. 

In connection with the October 6, 2006 case management conference, the parties in the

actions that had been consolidated at that time raised the issue of a stay pursuant to 15 U.S.C.

§ 78u-4(b)(3)(B). As the parties did not agree as to whether discovery should be stayed until

Case 5:06-cv-03894-RMW Document 58 Filed 05/29/07 Page 1 of 6
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 1

 Although plaintiffs mistyped "title" instead of "chapter," they do agree that the word refers to

"15 U.S.C. §78a et seq," i.e., the Securities Exchange Act of 1934. Pls.' Br. at 3.

ORDER STAYING DISCOVERY—No. C-06-03894 RMW

JAH 2

resolution of motions to dismiss by defendants, the court instructed the parties to file briefs on the

matter. 

II. ANALYSIS

Plaintiffs lead with an argument that the discovery stay provision by its own terms does not

apply to anything other than class actions. Plaintiffs are correct that 15 U.S.C. § 78u-4(a)(1)

provides that "[t]he provisions of this subsection shall apply in each private action arising under this

chapter that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure." 

From this, plaintiffs argue that the discovery stay of 15 U.S.C. § 78u-4(b)(3)(B) is applicable only in

class actions.

Considering 15 U.S.C. § 78u-4 as a whole, it appears to be six separate reform provisions

lettered (a) through (f). Subsection (a) is entitled "Private class actions" and covers such topics as

specified disclosures by named plaintiffs, appointment of lead plaintiffs, attorneys' fees, and

settlement of class actions. Subsection (b) is entitled "Requirements for securities fraud actions" and

deals with pleading untrue statements or material omissions and the stay of discovery under

consideration. The remaining four subsections, (c) through (f), are entitled "Sanctions for abusive

litigation," "Defendant's right to written interrogatories," "Limitation on damages," and

"Proportionate liability," respectively. 

Each subsection defines its own coverage. For subsection (a), it is "each private action

arising under this chapter[1] that is brought as a plaintiff class action pursuant to the Federal Rules of

Civil Procedure." For subsection (c), it is "any private action arising under this chapter." For

subsection (d), it is "any private action arising under this chapter in which the plaintiff may recover

money damages." For subsection (e), it is "any private action arising under this chapter in which the

plaintiff seeks to establish damages by reference to the market price of a security." For lengthy

subsection (f), the coverage would appear to be "a private action" involving "a violation of the

securities laws." 

Case 5:06-cv-03894-RMW Document 58 Filed 05/29/07 Page 2 of 6
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ORDER STAYING DISCOVERY—No. C-06-03894 RMW

JAH 3

 Subsection (b) defines its coverage differently for each of its three sub-parts. Sub-part (1)

covers "any private action arising under this chapter in which the plaintiff alleges that the defendant"

made a materially false statement or misleading omission; sub-part (2) covers "any private action

arising under this chapter in which the plaintiff may recover money damages only on proof that the

defendant acted with a particular state of mind," and sub-parts (3) and (4) cover "any private action

arising under this chapter." 

Thus, the "this subsection" referred to in 15 U.S.C. § 78u-4(a)(1) should be taken to be only

subsection (a); the limitation of a "plaintiff class action" does not extend beyond subsection (a). The

discovery stay of sub-part (b)(3) applies to "any private action arising under" the Securities

Exchange Act of 1934. 

Plaintiffs' citation to In re Tyco International, Ltd., Multidistrict Litigation, 2003 WL

23830479 (D.N.H. Jan. 29, 2003), is unavailing. There, the district court was handling pretrial

matters in three groups of related cases: securities, ERISA, and derivative actions. Id. at *1. The

allegations in the derivative actions were that "Tyco's directors and officers breached their fiduciary

duties by, among other things, failing to properly monitor Tyco's accounting practices and oversee

its financial well-being" and "that the directors and executives committed corporate waste and

grossly mismanaged the corporation." Id. There were apparently no violations of the Exchange Act

alleged in the derivative actions and therefore was no basis for staying the derivative actions under

15 U.S.C. § 78u-4(b)(3)(B). 

The derivative litigation in In re FirstEnergy Shareholder Derivative Litigation, 219 F.R.D.

584 (N.D. Ohio 2004), likewise involved allegations that the "the Company's board of directors

engaged in a pattern of neglect, failed to oversee the operations and financial reporting of the

Company, and failed to have basic systems in place to protect the assets of the Company." Id. at

585-86. The court stated that

The Lead Plaintiffs do not make any federal securities law claims. Rather, Lead

Plaintiffs constrain their claims to derivative claims brought into federal court

pursuant to diversity jurisdiction under 28 U.S.C. § 1332(a)(1). These claims fall

outside the PSLRA's discovery stay.

Id. at 586.

Case 5:06-cv-03894-RMW Document 58 Filed 05/29/07 Page 3 of 6
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 2

 The court therefore expresses no opinion as to whether the instant case does not present any

abuses of the sort that Congress perceived and designed the PSLRA to stop.

ORDER STAYING DISCOVERY—No. C-06-03894 RMW

JAH 4

The consolidated complaint here contains claims for violations of Exchange Act §§ 10(b),

14(a), and § 20(a), as well as related SEC Rule 10b-5. The PSLRA provision at issue provides:

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.

15 U.S.C. § 78u-4(b)(3)(B). Pursuant to this provision, the discovery stay is in effect until

resolution of the defendants' forthcoming motions to dismiss, unless plaintiffs can show the stay will

lead to destruction of evidence or cause them "undue prejudice." 

Plaintiffs argue that "the PSLRA's discovery stay provisions do not apply here because this

case does not represent any of the perceived abuses the PSLRA was designed to stop." Pls.' Br. at 5. 

However, Congress specified a stay for all privately-prosecuted Exchange Act cases and made

exceptions for evidence production and undue prejudice. Congress did not merely instruct courts to

stay discovery in cases in which courts perceived abuses.2

 Nor does the statute provide an exception

to the stay for the newsworthiness of a case, or, as plaintiffs put it, "the important public interests

surrounding option backdating." See id. at 6. That certain production may be a minimal burden to

the defendants because they have already compiled documents for their internal investigation does

not independently justify lifting a stay, though it could be considered as a factor when ruling on a

motion to lift a stay to prevent undue prejudice. See In re WorldCom Sec. Litig., 234 F. Supp. 2d

301, 306 (S.D.N.Y. 2002).

Some courts have found prejudice to plaintiffs where the 15 U.S.C. § 78u-4(b)(3)(B) stay

puts plaintiffs advancing claims under the Exchange Act at an informational disadvantage relative to

plaintiffs asserting different claims or government investigators. See Tyco, 2003 WL 23830479 at

*4; WorldCom, 234 F. Supp. 2d at 305-06; FirstEnergy, 219 F.R.D. at 544-45. Others have not. See

In re AOL Time Warner Sec. & "ERISA" Litig., 2003 WL 21729842 (S.D.N.Y. Jul. 25, 2003); In re

Vivendi Universal, S.A. Sec. Litig., 381 F. Supp. 2d 129, (S.D.N.Y. May 06, 2003). The Ninth

Circuit does not appear to have addressed the issue. Cf. SG Cowen Securities Corp. v. U.S. Dist. Ct.

Case 5:06-cv-03894-RMW Document 58 Filed 05/29/07 Page 4 of 6
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ORDER STAYING DISCOVERY—No. C-06-03894 RMW

JAH 5

for N. Dist. of Cal., 189 F.3d 909 (9th Cir. 1999) (inability to meet PSLRA pleading requirements

not "undue prejudice" for purpose of lifting stay).

The court need not, at least at this juncture, decide what level of disclosure to others, if any,

would constitute "undue prejudice" to the plaintiffs here and justify lifting the stay. The only

evidence before the court regarding government investigation is Marvell's July 5, 2006 Form 8-K,

which states that Marvell

has received a letter of informal inquiry from the Securities and Exchange

Commission requesting certain documents relating to the Company's stock option

grants and practices. [Marvell] has also received a grand jury subpoena from the

office of the United States Attorney for the Northern District of California requesting

substantially similar documents. [Marvell] intends to cooperate fully with both

requests.

Goodman Decl., Ex. 2. This statement in Marvell's SEC filing does not show that the plaintiffs

would be unduly prejudiced by a stay. This order is without prejudice, however, to a "motion of any

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

that party," pursuant to 15 U.S.C. § 78u-4(b)(3)(B). 

III. ORDER

For the foregoing reasons, the court stays all discovery until resolution of defendants'

motions to dismiss, though without prejudice to a motion by plaintiffs to lift the stay.

DATED: 5/29/07

RONALD M. WHYTE

United States District Judge

Case 5:06-cv-03894-RMW Document 58 Filed 05/29/07 Page 5 of 6
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ORDER STAYING DISCOVERY—No. C-06-03894 RMW

JAH 6

Notice of this document has been electronically sent to:

Counsel for Plaintiff:

Darren J. Robbins 

Travis E. Downs, III travisd@lerachlaw.com 

William S. Lerach e_file_sf@lerachlaw.com 

Edmund Wilson Searby esearby@mcdonaldhopkins.com 

Walter W. Noss wnoss@scott-scott.com 

Arthur L. Shingler, III ashingler@scott-scott.com 

David R. Scott drscott@scott-scott.com 

Denise V. Zamore dzamore@scott-scott.com 

Avin P. Sharma aps@classcounsel.com 

Robert S. Green RSG@CLASSCOUNSEL.COM 

William B. Federman wfederman@aol.com 

Counsel for Defendants:

Bruce A. Ericson bruce.ericson@pillsburylaw.com 

Andrew D. Lanphere alanphere@pillsburywinthrop.com 

Counsel are responsible for distributing copies of this document to co-counsel that have not

registered for e-filing under the court's CM/ECF program.

Dated: 5/29/07 /s/ MAG

Chambers of Judge Whyte

Case 5:06-cv-03894-RMW Document 58 Filed 05/29/07 Page 6 of 6