UNITED STATES DISTRICT COURT 

DISTRICT OF OREGON 

PORTLAND DIVISION 

LAWRENCE P. CIUFFITELLI, for himself 

and as Trustee of CIUFFITELLI REVOCABLE 

TRUST; GREG and ANGELA JULIEN; 

JAMES and SUSAN MACDONALD, as CoTrustees of the MACDONALD FAMILY 

TRUST; R.F. MACDONALD CO.; ANDREW 

NOW AK, for himself and as Trustee of the 

ANDREW NOW AK REVOCABLE LIVING 

TRUST U/A 2/20/2002; WILLIAM 

RAMSTEIN; and GREG WARRICK, for 

himself and, with SUSAN WARRICK, as CoTrustees of the WARRICK FAMILY TRUST, 

individually and on behalf of all others 

similarly situated, 

Plaintiffs, 

v. 

DELOITTE & TOUCHE LLP, 

EISNERAMPER LLP; SIDLEY AUSTIN 

LLP; TONKON TORP LLP; TD 

AMERITRADE, INC.; and INTEGRITY 

BANK & TRUST, 

Defendants. 

A COST A, Magistrate Judge: 

Page 1 - OPINION AND ORDER 

Case No. 3:16-cv-0580-AC 

OPINION AND ORDER 

Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 1 of 22
Introduction 

Defendants Deloitte & Touche LLP ("Deloitte") and EisnerAmper LLP ("EisnerAmper") 

(collectively, "the Accounting Firms") both move (ECF Nos. 139 and 143) for protective orders 

against Plaintiffs' Requests for Production, staying discovery until the co mi mies on the motions to 

dismiss filed by Deloitte, EisnerArnper, and other defendants. For the reasons that follow, the court 

GRANTS IN PART and DENIES IN PART both motions. 

Background 

1 The Lawsuit. 

Plaintiffs filed this securities fraud lawsuit against an international accounting firm and an 

international law firm, a national accounting firm, an Oregon law firm, a national stock trading firm, 

and a bank, alleging that each of them pmiicipated in and aided the Aequitas group of companies 

("Aequitas") sale of a group of securities (the "Disputed Securities") through material 

misrepresentations and omissions. (ECF No. I (Complaint), at if I; ECF No. 57 (First Amended 

Complaint), at if I.) Although Plaintiffs asse1i only a single claim for relief for violation of Oregon 

securities law (ECF No. 57, at ifif 189-194), they present their claim in a 52-page complaint that 

contains lengthy and detailed factual allegations; asserts scores of alleged failures to disclose, 

misrepresentations, and omissions; and includes a request for class certification. Plaintiffs contend 

that Defendants' alleged misrepresentations were "extensive and pervasive" and that Defendants "are 

jointly and severally liable to return to all Aequitas investors the money they paid for the securities, 

plus interest at the rate stated in the security or 9 percent, whichever is greater." (ECF No. 57, at ifif 

I, 2.) Plaintiffs asse1i their damages from Defendants' alleged actions exceed 13 million dollars 

(ECFNo. 57, atifif 8-14) and they seek class ce1iification of their claims (ECFNo. 57, at ifif 181-188) 

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Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 2 of 22
which, if granted, likely will increase the Defendants' potential liability many times greater than the 

named Plaintiffs' alleged damages. 

Collectively, the Defendants have filed seven motions to dismiss (ECF Nos. 74, 78, 80, 81, 

85, 95, and 113), asserting multiple reasons to suppmt their contention that Plaintiffs have failed to 

state a claim against each of them. The motions to dismiss assert Plaintiffs' complaint should be 

dismissed for legal and factual deficiencies. If granted based on some of the claimed legal 

deficiencies, Plaintiffs' claims against one or more of the Defendants could be dismissed with 

prejudice, but Plaintiffs likely would be allowed to attempt to cure factual deficiencies through an 

amended complaint. The motions to dismiss are pending and fully briefed, will be heard on 

December 21, 2016, and will be taken under advisement on that date. II. Th e Re g u e st e d 

Discovery. 

The parties disagree regarding the schedule for discovery prior to a ruling on the motions to 

dismiss. (Joint Repmt of Parties' F.R.C.P. 16(f) Conference, ECFNo. 94, at 2-9.) Plaintiffs served 

requests for production on the Accounting Firms under Federal Rule of Civil Procedure ("Rule") 26. 

Plaintiffs served on each of the two Accounting Firms a request for production of almost 40 pages, 

each request setting out more than 3 5 numbered paragraphs describing a different category of 

documents which Plaintiffs contend are relevant to the merits of their claims. (Deel. of Gavin 

Masuda in Support ofDeloitte & Touche LLP's Mot. for Protective Order ("Masuda Deel."), ECF 

No. 140, Ex. 2; Deel. of William P. FeJTanti in Suppmt ofEisnerAmper LLP's Mot. for Protective 

Order ("Ferranti Deel."), ECF No. 144, Ex. B.) Representative paragraphs from those requests are: 

\ \ \\ \ 

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Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 3 of 22
REQUEST FOR PRODUCTION NO. 5: 

All documents related to the technical training, educational background, professional 

experience and disciplinary history (if any) of all of the Deloitte personnel 

performing any services or audit functions for any Aequitas Company. 

REQUEST FOR PRODUCTION N0.7: 

All Workpapers and other documents relating to any review engagement, agreedupon procedures engagement, or any other type of engagement or assessment of any 

annual (other than the 2013 or 2014 audits), or any quarterly or other interim 

financial statements of any Aequitas Company, including (a) all documents 

concerning the steps and procedures performed in the course of any such assessment 

or review; and (b) all documents created, received, reviewed, examined, or 

referenced in connection with any such assessment or review. 

REQUEST FOR PRODUCTION N0.9: 

All Workpapers or other documents related to any audit, performance of risk 

assessment procedures or other review of any Aequitas Company's systems of 

internal controls over financial reporting, as that term is described in AU-C 315.04. 

This request specifically includes all work done in connection with the audit of any 

Aequitas Company's 2013 and 2014 financial statements, as well as any assessment, 

audit or other reviews unde1iaken after the completion of the audit of any Aequitas 

Company' 2013 and 2014 financial statements. 

REQUEST FOR PRODUCTION NO. 12: 

All Workpapers or other documents documenting or describing all procedures 

performed by Deloitte with respect to identifying and assessing the risks of material 

misstatement of the repmied financial statements (and Deloitte' s responses to such 

risks), in connection with Deloitte's audit ofthe 2013 and 2014 financial statements 

of any Aequitas Company. 

REQUEST FOR PRODUCTION NO. 15: 

All communications with, and documents produced to the Securities and Exchange 

Commission (or any non-U.S. regulator) in connection withDeloitte's audits or other 

services performed for any Aequitas Company. 

REQUEST FOR PRODUCTION N0.17: 

All Workpapers or other documents relating to any engagements performed for any 

Aequitas Company, other than the 2013 and 2014 audits, including but not limited 

to any Agreed-Upon Procedures ("AUP") engagements. 

REQUEST FOR PRODUCTION NO. 22: 

All documents reflecting any communications between You and any predecessor or 

successor auditor of any Aequitas Company. 

Page 4 - OPINION AND ORDER 

Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 4 of 22
REQUEST FOR PRODUCTION NO. 28: 

All docwnents comprising, evidencing, or reflecting any communications between 

You and any other Defendant relating to any of the Aequitas Companies. 

(ECF No. 140-1 (Deloitte request); ECF No. 144-2 (EisnerAmper request).' 

III. The Parties' Positions. 

The Accounting Firms contend that because Plaintiffs' requests for production encompass 

a large number of documents, the gathering, reviewing, and production of those documents would 

require substantial time and cost hundreds of thousands of dollars. They argue that the time and 

expense of full merits discovery is not warranted at this stage because their pending motions to 

dismiss, if granted, would render irrelevant some or all of that discove1y. For the same reason, the 

Accounting Firms argue full merits discovery while motions to dismiss are pending 1s 

dispropo1tionate to the needs of the case at this stage and thus improper under Rule 26(b)(l). 

Plaintiffs oppose the motion for a protective order but do not seek immediate responses to 

all of their requests for production. Instead, Plaintiffs propose a compromise: the Accounting Firms 

would produce audit workpapers2 for the years each firm acted as auditor to any Aequitas companies. 

Plaintiffs point out that even if the court granted the Accounting Firms' respective motions to 

dismiss in their entireties and the Accounting Firms no longer were parties to this lawsuit, these 

1 The excerpted paragraphs are taken from the Deloitte request, but each paragraph also 

appears in the EisnerAmper request verbatim, except for the defendant's name and changing the 

years EisnerAmper performed audit services. 

2 "Workpapers" is a term of art in accounting. As defined in the professional standards for 

accountants, workpapers are "the record of audit procedures perfmmed, relevant audit evidence 

obtained, and conclusions the auditor reached." Am. Inst. ofCPAs, Clarified Statements on Auditing 

Standards, AU-C § 230: Audit Documentation (2016), http://www.aicpa.org/research/standards/ 

auditattest/downloadabledocwnents/au-c-00230.pdf. Plaintiffs use this definition in their requests 

for production. See ECF No. 140-1, at 11 (Deloitte request); and ECF No. 144-2, at 11 

(EisnerAmper request). 

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Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 5 of 22
workpapers still would be discoverable as third-party evidence. See Fein v. Numex Corp., 92 F.R.D. 

94, 96-97 (S.D .N. Y. 1981) (allowing as "plainly relevant" third-paiiy discovery of audit workpapers 

in a case alleging material misrepresentations and omissions of a company's financial condition). 

Plaintiffs mgue that a pending motion to dismiss does not constitute good cause for a protective 

order against discovery of the workpapers only. See Twin City Fire Ins. Co. v. Employers Ins. of 

Wausau, 124 F.R.D. 652, 653 (D. Nev. 1989)("[A] pending Motion to Dismiss is not ordinarily a 

situation that in and of itself would warrant a stay of discovery."). 

At oral argument, Deloitte and EisnerAmper each opposed Plaintiffs' compromise position. 

Deloitte proposed instead the production of all "transaction level" documents in its possession 

showing details of the named Plaintiffs' purchases of Aequitas-company securities. EisnerAmper 

opposed production ofworkpapers from audits of all Aequitas companies - 88 in number (ECF No. 

139, at 5)- because not all of the Aequitas companies it audited issued Disputed Securities. The 

Accounting Firms contend and Plaintiffs do not dispute that EisnerAmper audited only six Aequitas 

entities and that only three of those entities issued Disputed Securities, nor do Plaintiffs dispute that 

Deloitte audited only twelve Aequitas entities of which only six issued Disputed Securities. There 

also is no dispute that Deloitte performed its audit services only in the two-yem period 2013-14, and 

EisnerAmper performed its audit services only in the two-yeai· period 2011-12. 

EisnerAmper raises an additional argument relevant to both motions for protective order. 

Citing Ministerie Roca Salida v. US. Dep 't of Fish and Wildlife, 288 F.R.D. 500 (D. Nev. 2013), 

EisnerAmper argues the comi should consider under Rule 1 the expense and additional litigation that 

would come from allowing discove1y to proceed while the motions to dismiss are pending. The 

Ministerie Roca Salida court examined cases from throughout the Ninth Circuit regai·ding stays of 

Page 6 - OPINION AND ORDER 

Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 6 of 22
discovery pending resolution of a dispositive motion. The court concluded that Rule 1 requires the 

court to consider whether justice is best served by allowing discove1y to proceed, or to delay or limit 

discoveiy to promote "the inexpensive determination of the case." Id at 502-04. EisnerAmper 

submits that if discove1y proceeds in this case a number of merits issues will arise in the context of 

discovery motions. At oral argument, EisnerAmper argued discove1y motions will arise even ifthe 

discove1y is limited to the workpapers of all Aequitas entities that EisnerAmper audited, because 

EisnerAmper also audited other Aequitas entities that did not issue the Disputed Securities. 

Legal Standard 

Rule 26 governs discovery in federal civil cases, the scope of which includes "any 

nonprivileged matter that is relevant to any pmiy' s claim or defense and proportional to the needs 

of the case." FED. R. Crv. P. 26(b )(1) (italics added). A court may issue a protective order "to 

protect a pmiy or person from annoyance, embarrassment, oppression, or undue burden or expense" 

upon a showing of good cause. FED. R. Crv. P. 26( c )(1 ). The pmiy seeking the protective order must 

establish "specific harm or prejudice will result if no protective order is graJtted." Foltz v. State 

Farm Mut. Auto Ins. Co., 331 F.3d 1122, 1130 (9th Cir. 2003)( citing Phillips ex rel. Estates of Byrd 

v. Gen. Motors Corp., 307 F.3d 1206, 1210-11 (9th Cir. 2002). Good cause is generally a "heavy 

burden." Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975). The court has "broad 

discretion ... to decide when a protective order is appropriate aJtd what degree of protection is 

required." Phillips, 307 F.3d at 1211 (citing Seattle Times Co. v. Rhinehardt, 467 U.S. 20, 36 

(1984)). 

Analysis 

L. Preliminary Matters. 

Page 7 - OPINION AND ORDER 

Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 7 of 22
A. The Purpose of the Accounting Firms' Motions. 

These are not typical protective order motions. Typically, a party seeks a protective order 

to prevent an opposing party from obtaining or disseminating documents and information that 

include privileged, confidential, propriety, or private subject matter, or to avoid producing 

documents and information not relevant to established claims or defenses. Here, the Accounting 

Firms do not seek protection for any of those reasons. Instead, they seek a stay of discove1y (with 

one exception, discussed below) because, they contend, their pending motions to dismiss are 

potentially dispositive and if granted would make unnecessary much or all of the discovery Plaintiffs 

seek. Because the Accounting Firms seek a stay of discovery, the court evaluates their motions 

against a standard different from the standard ordinarily applied to a motion for protective order. 

B. Discovery Stay Standards. 

Well-established standards exist for determining whether a protective order is wan-anted, but 

"[t]he Federal Rules of Civil Procedure do not provide any standards to be utilized with respect to 

stays of discovery when a potentially dispositive motion is pending." Davis v. Nevada, No. 3:13-

CV-00559-MMD-WGC, 2014 WL 1308347 (D. Nev. March31, 2014), citingSkellerupindus. Ltd 

v. City a/Los Angeles, 163 F.R.D. 598, 600-601 (C.D. Cal. 1995). No Ninth Circuit case provides 

a clear standard either. Davis, 2014 WL 1308347, at *l. See also DRK Photo v. McGraw-Hill 

Companies, Inc., No. CV12-8093-PCT-PRG, 2012 WL 5936681 (D. Ariz. Nov. 27, 2012)("The 

Ninth Circuit Court of Appeals has not announced a clear standard against which to evaluate a 

request or motion to stay discovery in the face of a pending, potentially dispositive motion.")( citation 

omitted). District courts in this circuit have rejected the general proposition that a pending 

dispositive motion justifies a stay of discove1y. See, e.g., Trade bay LLC v. eBay, Inc., 278 F.R.D. 

Page 8 - OPINION AND ORDER 

Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 8 of 22
597, 603 (D. Nev. 2011) ("The fact that a non-frivolous motion is pending is simply not enough to 

warrant a blanket stay ofall discovery."); Mlejneckyv. Olympus Imaging America, Inc., No. 2: IO-cv02630 JAM KJN, 2011 WL 489743, at *5-6 (E. D. Cal. Feb.7, 2011) (federal rules do not provide 

for discovery stay pending potentially dispositive motion); Turner Broadcasting System, Inc. v. 

Tracinda Cmp., 175 F.R.D. 554, 556 (D. Nev. 1997) ("[A] pending Motion to Dismiss is not 

ordinarily a situation that in and of itself would warrant a stay of discovery.") (quoting Twin City 

Fire Ins. v. Employers Insurance of Wausau, 124 F.R.D. 652, 653 (D. Nev. l 989));Skellerup Indus. 

Ltd. v. City of L.A., 163 F.R.D. 598, 600-01 (C.D. Cal. 1995) ("Had the Federal Rules contemplated 

that a motion to dismiss under Fed. R. Civ. P. 12(b)(6) would stay discovery, the Rules would 

contain a provision for that effect."). 

Although the Ninth Circuit has not articulated a controlling standard, dicta from the court's 

cases provides a measure of guidance. A discovery stay is appropriate ifthe district court is certain 

the plaintiff will be unable to make out a viable claim for relief. See, e.g., Little v. City of Seattle, 

863 F.2d, 681, 685 (9th Cir. 1988) ("Staying discovery when a comt is convinced that the plaintiff 

will be unable to state a claim for relief futthers the goal of efficiency for the comt and the 

litigants."); Wood v. McEwen, 644 F .2d 797, 801 (9th Cir. 1981 )(district co mt may "stay discovery 

when it is convinced that the plaintiff will be unable to state a claim for relief'). A discovery stay 

also may be appropriate if the pending dispositive motion does not raise fact issues. See, e.g., Jarvis 

v. Regan, 833 F.2d 149, 155 (9th Cir. 1987) (district comt did not abuse discretion in denying 

discovery when the complaint did not raise factual issues requiring discovery to resolve). If the 

pending motion raises dispositive procedural issues, the district comt may stay discovery. See, e.g., 

Wood, 644 F.2d at 801 (9th Cir. 1981) (acknowledging appropriateness of discovery stay where 

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Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 9 of 22
dispositive motions raise issues of jurisdiction, venue, or immunity). Restricting discovery stays to 

these limited circumstances is consistent with the Ninth Circuit's dictate that "[a] patiy seeking a 

stay of discovery catTies a heavy burden of making a 'strong showing' why discovery should be 

denied." Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975) (citation omitted). See 

also DRK Photo, 2012 WL 5936681, at *4 (denying discovery stay because plaintiff did not show 

an "immediate and cleat· possibility of success" on its motion for partial summary judgment, and 

therefore did not cal1'y its" 'heavy burden of making a strong showing' that discovery should be 

stayed"), quoting Tradebay, 278 F.R.D. at 601. 

Applying this guidance, district court decisions in this circuit have produced at least three 

different approaches for evaluating whether discovery should be stayed pending resolution of a 

potentially dispositive motion (see, e.g., Tradebay, LLC, 278 F.R.D. at 602-03 (identifying three 

different methods Ninth Circuit district courts have used to determine the appropriateness of a stay)). 

One of those three approaches is a case-specific inquiry framed by a set of relevant factors. In 

Skellerup Indus. Ltd v. City of L.A., 163 F.R.D. 598 (C.D. Cal. 1995), the court stated: 

"In considering whether a stay of all discove1y pending the outcome of a dispositive 

motion is warranted, a case-by-case analysis is required .... " Hachette Distribution, 

Inc. v. Hudson County News Company, 136 F.R.D. 356, 358 (E.D.N.Y. 1991). 

Factors the court should consider include: "[T]he type of motion and whether it is 

a challenge as a 'matter oflaw' or the 'sufficiency' of the allegations; the nature and 

complexity of the action; whether counterclaims and/or cross-claims have been 

interposed; whether some or all of the defendants join in the request for a stay; the 

posture or stage of the litigation; the expected extent of discove1y in light of the 

number of parties and complexity of the issues in the case; and any other relevant 

circumstances." Id. 

Skellerup Indus. Ltd, 163 F.R.D. at 601. Other district courts in the Ninth Circuit have cited 

Skellerup when analyzing the propriety of a discovery stay pending a potentially dispositive motion. 

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Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 10 of 22
See, e.g., Top Rankv. Haymon, Case No. CV 15-4961-JFW(MRWx), 2015 WL9952887 (C.D. Cal. 

Sept. 17, 2015) (citing Skellerup, granting stay in anti-trust case pending defendants' motion to 

dismiss); Raymondv. Sloan, Civ. No. 1:13-423-WBS,2014 WL4215378 (D. Idaho Aug. 25, 2014) 

(citing Skellerup, denying stay); and Vivendi, S.A. v. T-Mobile, USA, Inc., No. C06-1524JLR, 2007 

WL 1168819 (W.D. Wa. April 18, 2007)(citing Skellerup, granting in paii and denying in pmi 

discove1y stay). 

C. Proportionality. 

The 2015 mnendment to the Federal Rules of Civil Procedure 26(b)(l)requiring that 

discovery now must be "propmiionate to the needs of the case," necessarily affects the determination 

whether a discovery stay should be granted pending determination of a dispositive motion. The 2015 

mnendment calls for renewed consideration of the time and money litigants must expend on 

discovery, and for courts to impose " 'reasonable limits on discovery through the common-sense 

concept of proportionality.' " Roberts v. Clark Cty Sch. Dist., 312 F.R.D. 594, 603 (D. Nev. 2016), 

quoting Chief Justice's Year-End Report on the Federal Judiciary (2015), at 6. See also FED. R. 

CIV. P. 26(b)(l) adviso1y's committee note to 2015 amendment ("The present amendment restores 

the proportionality factors to their original place in defining the scope of discove1y."). Now, 

"lawyers must size and shape their discove1y requests to the requisites of a case." Roberts, 312 

F.R.D. at 603 (D. Nev. 2016), quoting Chief Justice's Year-End Report on the Federal Judiciary 

(2015), at 7. 

For Rule 26(b )(1 )'s proportionality mandate to be meaningful, it must apply from the onset 

of a case. Imposing propmiionality only after motion practice establishes the viability of the pmiies' 

claims or defenses would thwart that purpose. That is particularly so if full discovery proceeds 

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Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 11 of 22
where, as in this case, discovery likely would be extensive and voluminous because of the number 

of institutional parties, the complaint contains a claim that is complex both legally and factually, 

class certification is sought for a class potentially numbering well more than 1,000 members, the 

named plaintiffs allege their damages are many millions of dollars, and the court's ruling on the 

motions to dismiss could alter the facts and legal theory upon which the complaint is based. 

Therefore, with amended Rule 26(b )(1) now in place, the court must consider propmiionality when 

determining whether a stay of discove1y is appropriate pending resolution of a potentially dispositive 

motion. 

II. The Skellerup Factors. 

A. The type of motion and whether it is a challenge as a 'matter of law' or the 

'sufficiency' of the allegations. 

The pending motions to dismiss challenge both the legal viability and the factual premises 

of Plaintiffs' securities fraud claim. The alleged legal infirmities include the Disputed Securities 

were federal covered securities, and thus excluded from the registration requirements of Oregon 

securities law; federal law preempts Plaintiffs' claim; the conduct alleged does not constitute 

"participation" in or "material aid" of the sale of the Disputed Securities, which is an essential 

element of Plaintiffs' securities fraud claim; and the statute oflimitations bars action on the sale of 

at least some of the Disputed Securities. The alleged factual insufficiencies include the failure to 

plead facts sufficient to establish causation between alleged misrepresentations and the purchase of 

the Disputed Securities; an absence of allegations that the statements were false when made; the lack 

of facts identifying actionable omissions, and the absence of factual allegations that any of the 

Defendants possessed the requisite level of scienter under the Oregon statute. 

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Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 12 of 22
The pending motions to dismiss are potentially dispositive on Plaintiffs' claims against one 

or more of the Defendants or could result in Plaintiffs being required to amend their complaint to 

add facts to suppmi their fraud claim, or their resolution could manifest as a combination of those 

two outcomes. Whatever the outcome, neither the motions to dismiss nor Plaintiffs' claim appear 

frivolous or without merit. In fact, both the Plaintiffs' complaint and the Accounting Firms' motions 

to dismiss raise significant legal and factual issues under Oregon law which issues, when resolved, 

likely will affect the allegations in the First Amended Complaint. That result could affect, perhaps 

significantly, the scope of discovery. 

The court declines to follow the "preliminary peek" approach some courts have used to tie 

their stay decisions to the percentage likelihood a pending dispositive motion actually will succeed. 

See, e.g., Davis, 2014 WL 1308347, at *2 (comitakes a "preliminary peek" at the underlying motion 

to evaluate the "probable likelihood of success"); GTE Wireless, Inc. v. Qualcomm, Inc., 192 F.R.D. 

284, 286 (S.D. Cal. 2000) (court should "take a preliminary peek at the merits of the allegedly 

dispositive motion to see if on its face there appears to be an immediate and clear possibility that it 

will be granted"). First, this approach requires the court to evaluate within the context of a discovery 

motion the merits of a potentially dispositive motion, at best an imperfect procedural mechanism for 

making such a substantive evaluation. This creates a risk the comi will predetermine the merits of 

the motion to dismiss without having fully and deliberately considered the law and facts which bear 

on it. Second, a motion to dismiss ultimately could be dispositive of some or all of a pmiy' s claims 

or defenses even if on its face that outcome is not immediate and clear. The great majority of 

motions to dismiss raise legal or factual issues that must be thoughtfully considered, and many of 

those motions ultimately are granted at least in part. Thus, that granting dismissal is not clearly or 

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Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 13 of 22
immediately appropriate from the face of a dispositive motion should not determine whether 

discovery is stayed or proceeds. Third, as the court discussed above, proportionality now bears on 

the decision whether to stay discovery while a potentially dispositive motion is pending; the 

"preliminary peek" approach does not account for this factor. 

The better approach, consistent with this Skellerup factor, is to compare in the paiiicular case 

the arguments contained in the dispositive motion to the claims contained in the complaint it 

challenges. Only if a motion to dismiss appears on its face to be frivolous or without any merit 

should the court deny out-of-hand a discove1y stay request. Otherwise, the court should employ the 

compai·ison and apply its experience and common sense to detennine whether and to what extent the 

issues raised wan-ant a stay of discovery. This form of review is not a novel notion, as the Supreme 

Court has recognized that trial judges must draw upon and apply their experience in these ve1y 

situations. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) ("Determining whether a complaint 

states a plausible claim for relief will ... be a context-specific task that requires the reviewing court 

to draw on its judicial experience and conm10n sense."). 

Here, the Accounting Firms' challenges to Plaintiffs' First Amended Complaint are credible 

ones. Their motions advance both legal and factual challenges which raise complex legal issues and 

identify alleged absences of critical facts directly relevant to the statute's requirements. The 

arguments contained in the motions to dismiss are reasoned and supp01ied by pertinent authority, 

and the court must cai·efully analyze those ai·guments and the Plaintiffs' responses within the context 

of Rule 12(b)(6) standards. Comparing the motions and the First Amended Complaint, there is a 

reasonable possibility that the Accounting Firms' motions to dismiss will affect the content of 

Plaintiffs' First Amended Complaint. 

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B. The nature and complexity of the action. 

This is a securities fraud case based on dozens of alleged discrete acts and omissions, often 

subtle in nature. The case is complex because of the number of parties involved, the allegations of 

the conduct claimed to constitute fraud, the legal issues raised by the Plaintiffs' complaint and the 

Defendants' motions to dismiss, the potential for class certification, and the possible scope of 

discovery. Motion practice pe1iaining to each of those aspects is likely, as is the complexity of the 

issues that those motions will present. 

C. Whether counterclaims and/or cross-claims have been interposed. 

Because none of the Defendants have yet filed answers, no defenses, counterclaims or crossclaims have been asserted. However, the facts and legal theories alleged in the complaint and the 

arguments collectively raised by the Defendants' pending motions to dismiss make evident that the 

Defendants will assert defenses and affirmative defenses, and could assert cross-claims and 

counterclaims in their respective answers. 

D. Whether some or all of the defendants join in the request for a stay. 

The Accounting Firms are in agreement a stay should enter, as evidenced by their respective 

motions in which each requests that relief. Since they filed their motions, two other of the 

Defendants, Sidley Austin and TD Ameritrade, each have filed motions for a protective order 

seeking a stay of discovery, asse1iing reasons similar to those argued by the Accounting Firms. (ECF 

No. 160 (Sidley Austin motion), ECF No. 171 (TD Ameritrade motion).) Thus, four of the six 

named Defendants are in accord that discove1y should be stayed until the court rules on the pending 

motions to dismiss. Regarding the remaining two defendants, the co mi infers from the pmiies' Joint 

Report of Parties' F.R.C.P. 26(f) Conference (ECF No. 94) that, at least, neither oppose a discove1y 

Page 15 - OPINION AND ORDER 

Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 15 of 22
stay, as the Rule 26(f) Report contains no such indication. 

E. The posture or stage of the litigation. 

This case is still at an early stage and the time needed for its final resolution is best measured 

not in months but in yearly increments. Plaintiffs filed their lawsuit on April 4, 2016, against 

Deloitte, EisnerAmper, Sidley Austin, and Tonkon Torp, then filed their First Amended Complaint 

on May 19, 2016, to add two new defendants, Integrity Bank and TD Ameritrade. Five of the seven 

pending motions to dismiss had been filed by July 14, 2016, the date the parties filed their joint Rule 

26(f) report. Until the court rules on those motions, the Plaintiffs' allegations are not yet finally 

established, and among the possible outcomes from those motions is another iteration of the 

Plaintiffs' complaint. 

Once the complaint is settled and assuming at least some of Plaintiffs' case survives the 

Defendants' Rule 12(b)(6) challenges, class ce1iification must be addressed. The Plaintiffs' 

anticipated motion for class ce1iification must be briefed, argued, and decided. If a class is ce1iified, 

then notice to potential class members must issue and additional time for potential class members 

to respond will be necessary. 

Furthermore, discovery on class certification issues as well as on the merits of Plaintiffs' 

claim must be conducted and concluded. Given the number ofpmiies and factual issues in the case, 

and the discussion contained in the parties' Rule 26(f) Report, motion practice regarding discovery 

is likely and will extend the case's time line further still. 

Finally, the court anticipates one or more of the Plaintiffs or Defendants will file dispositive 

motions. Those motion must be briefed, argued, and decided. 

In sum, this case will require considerable time to reach a resolution. A stay of or restriction 

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on discovery at this early stage, in this context, will not add appreciably to the life span of this case. 

F. The expected extent of discovery in light of the number of parties and complexity of 

the issues in the case. 

The preceding discussion makes clear that discovery in this case will be extensive and timeconsuming. There are eleven plaintiffs and six defendants, and the factual allegations contained in 

the Plaintiffs' First Amended Complaint implicate documents pertaining to dozens of topics from 

dozens of sources, as well and scores of witnesses. Plaintiffs' production requests to the Accounting 

Firms confirm this assessment. Additionally, the Plaintiffs and Defendants consist of a half dozen 

parties on each side, located in different parts of the countiy. In turn, this means discovery will be 

conducted in multiple geographic locations. 

The record also makes clear that document discovery will include a great volume of 

electronically stored information. Email and database searches undoubtably will be requested and 

conducted by all patties. These tasks will require the patties to first propose, negotiate, and agree 

upon search terms, seat·ch protocols, and the sources to be searched-or seek the court's involvement 

to resolve their disputes over these topics. 

Also apparent is that as discove1y progresses the parties likely will find additional topics and 

witnesses of which they cun-ently unaware. Learning of the existence of new witnesses and 

uncovering new subject areas during discove1y occurs in almost every lawsuit. If it occurs here, as 

the court expects it will, then those additional discovery topics and witnesses likely will add to the 

time needed to conduct discovery and could compound the case's complexity. 

Accordingly, clear from the current record is that discovery also will require considerable 

time to conduct. The amount of time needed is difficult to predict at this early stage, but the issues 

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raised in the First Amended Complaint and the pending motions to dismiss combine with the abovereferenced factors to foretell a long discovery course. 

G. Any other relevant circumstances. 

Courts now must consider proportionality when determining the scope of discovery in a 

patiicular case, a consideration which falls within Skellerup 's "other relevant other circumstances" 

factor. In a complex case where pending motions to dismiss raise credible legal and factual issues, 

"the needs of the case" have not yet been finally established. Delaying discovery or limiting its 

scope until those issues are decided is appropriate and implements the 2015 Amendment's mandate 

for a renewed consideration of the time and money litigants must expend on discovery. 

Another relevant other circumstance is the risk that the merits of claims or defenses will be 

decided in the context of discovery motions, because the requests for production and motions to 

dismiss share common disputed issues. If full discovery proceeds now, the patties will dispute the 

relevancy of the discovery requests using as suppo1i for their respective positions the allegations in 

the complaint and the arguments raised in the pending motions. In fact this risk has been realized: 

Plaintiffs contended early on that full discovery should proceed because of"clear Oregon case-law 

precedent for Plaintiffs' claims" (Rule 26(f) Report (ECF No. 94), at 4), and the Accounting Firms 

responded "that discovery should not begin until after the pending motions to dismiss are resolved," 

because "the pending motions may significantly focus at1d impact the categories and scope of 

potentially discoverable information for any remaining claims." (ECF No. 139, at 7.) The comi 

should avoid making merits rulings when deciding discovery motions, which can be avoided here 

by limiting discovery's scope until the pending motions are decided. 

H Conclusion. 

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Applying the Skellerup factors to the Accounting Firms' protective order motions, the court 

concludes that Plaintiffs' requests for production are disproportionate to the needs of the case at this 

stage. Delaying discove1y in the disputed areas will promote the efficient and "inexpensive 

determination" of this case by clarifying the appropriate scope of Plaintiffs' claims and, thus, 

establishing the appropriate scope of discovery. See FED. R. Crv. P. I; Ministerie Roca Salida, 288 

F.R.D. at 502-04 (applying Rule I in determining the propriety of a protective order). This result 

is consistent with Rule 26(b )(1 )'s requirement that courts examine "whether the burden or expense 

of the proposed discove1y outweighs its likely benefit." Roberts, 312 F.R.D. at 603-04, quoting 

Chief Justice's Year-End Report on the Federal Judiciary (2015), at 6. 

Staying all discovery is not appropriate, however, and allowing limited discovety while the 

motions to dismiss are pending maintains the intent and purpose of the 2015 amendment. Although 

the pending motions to dismiss raise credible challenges to Plaintiffs' First Amended Complaint, it 

is far from certain that a successful motion to dismiss would be dispositive and could well result in 

Plaintiffs filing another amended complaint. The Accounting Firms explicitly acknowledged these 

possibilities at oral argument, and implicitly acknowledged them previously when they proposed to 

provide to Plaintiffs some of the discovery they sought. (See Rule 26(f) Report (ECF No. 94), at 7-

9.) 

Accordingly, staying all discove1y until the court resolves the pending motions to dismiss is 

not warranted. Limited, focused merits discovery will be allowed while the motions to dismiss are 

pending. 

\\\\\ 

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III. Ruling. 

The Accounting Firms' motions for protective order are GRANTED IN PART and DENIED 

IN PART, and they are to provide to Plaintiffs the following discove1y: 

\ \\ \ \ 

A. By Deloitte: 

1. Audit workpapers for the twelve Aequitas entities for which Deloitte 

provided audit services, including the six Aequitas entities that issued the 

Disputed Securities, for the years 2013-14. 

2. Transaction-level documents relating to the named Plaintiffs in Deloitte's 

possession, custody, or control. 

3. Requests for information sent by Deloitte to each of the twelve Aequitas 

entities for which Deloitte provided audit services, in preparation for 

providing audit services. 

4. Information sent to Deloitte from each of the twelve Aequitas entities for 

which Deloitte provided audit services, in response to Deloitte's requests for 

information. 

5. The names, job titles, and designated primmy office location of the auditors 

(to include CPAs and non-CPA accountants, if any) assigned to the audits of 

the twelve Aequitas entities for which Deloitte provided audit services. For 

any auditor no longer employed by Deloitte, also provide the title of the last 

job held and the designated primmy office location at the time the auditor 

separated from the company. 

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Case 3:16-cv-00580-AC Document 174 Filed 11/28/16 Page 20 of 22
B. By EisnerAmper: 

I. Audit workpapers for the six Aequitas entities for which EisnerAmper 

provided audit services, including the three Aequitas entities that issued the 

Disputed Securities, for the years 2013-14. 

2. Transaction-level documents relating to the named Plaintiffs in 

EisnerAmper's possession, custody, or control. 

3. Requests for information sent by EisnerAmper to each of the six Aequitas 

entities for which EisnerAmper provided audit services, in preparation for 

providing audit services. 

4. Information sent to EisnerAmper from each of the six Aequitas entities for 

which EisnerAmper provided audit services, in response to EisnerAmper' s 

requests for information. 

5. The names, job titles, the designated primaty office location of the auditors 

(to include CP As and non-CPA accountants, if any) assigned to the audits of 

the six Aequitas entities for which EisnerAmper provided audit services. For 

any auditor no longer employed by EisnerAmper, also provide the title of the 

last job held and the designated primaty office location at the time the auditor 

sepm·ated from the company. 

Except as described above, Deloitte and EisnerAmper need not respond to remainder of 

Plaintiffs' requests for production pending the court's ruling on the Accounting Firms' motions to 

dismiss. 

The information described above must be provided within forty-five (45) days of date of 

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entry of this Order, or within such other time as the parties agree or the court fmiher orders. 

Conclusion 

For the reasons described above, the Accounting Firms' motions (ECF Nos. 139 and 143) 

for protective order are GRANTED IN PART and DENIED IN PART. 

IT IS SO ORDERED. 

18H._, DATED this~ day ofNovember 

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