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© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

Only the Westlaw citation is currently available.

United States District Court,

S.D. California.

In re REMEC, INC. SECURITIES LITIGATION.

This Document Relates to: All Actions.

Civil No. 04cv1948 JLS (AJB).

May 30, 2008.

Jeff S. Westerman, Andrew Joseph Sokolowski,

Cheryl A. Williams, Elizabeth P. Lin, Jeff S. Westerman, Karen T. Rogers, Milberg LLP, Los Angeles,

CA, Lionel Z. Glancy, Glancy Binkow and Goldberg,

Los Angeles, CA, David William Mitchell, Coughlin

Stoia Geller Rudman & Robbins, Blake M. Harper,

Hulett Harper Stewart, San Diego, CA, for Plaintiffs.

Robert W. Brownlie, Heather Noelle Stone, Karen S.

Chen, Paul Anthony Reynolds, DLA Piper US LLP,

San Diego, CA, for Defendants.

Order Granting In Part And Denying In Part Defendants' Motion for Protective Orders [Doc. Nos. 114,

118 and 119]

ANTHONY J. BATTAGLIA, United States Magistrate Judge.

*1 Defendants', REMEC, Inc., Ronald E. Ragland and

Winston E. Hickman have filed motions for protective

orders seeking to limit the scope of third party subpoenas served on REMEC's financial advisor, Needham & Company LLC; Powerwave Technologies,

Inc., the purchaser of REMEC's Commercial Wireless

Division in 2005; and Chelton Microwave Corpor ation, the purchaser of REMEC's Defense & Space

Division in 2005. Plaintiffs' have opposed the motions

and Defendants have filed replies. Based upon the

reasons set forth below, Defendants' motions for protective orders are hereby GRANTED IN PART and

DENIED IN PART.

Background

In this case, the Plaintiffs' allege in their Fourth

Amended Complaint a violation of section 10(b) of the

Exchange Act and Rule 10b-5 promulgated thereunder, and a violation of section 20(a) of the Exchange Act. Plaintiffs' claim that between September

8, 2003 and September 8, 2004 (the “Class Period”),

REMEC: 1) failed to timely write down goodwill; 2)

delayed or failed to write down its excess and obsolete

inventory; 3) failed to properly account for the sale of

“Zero-Value Inventory”; and 4) used flawed assumptions in performing its goodwill impairment and inventory analyses, allegedly due in part to a lack of

adequate internal controls.

Discussion

Pursuant to the claims set forth in the Forth Amended

Complaint, Plaintiffs' served subpoenas on third parties Needham, Powerwave and Chelton. Defendants

move this Court for a protective order with regard to

these third party subpoenas on the grounds that the

subpoenas are over broad and irrelevant to the claims

and defenses alleged in this case. Plaintiffs oppose the

motions on the grounds that Defendants: 1) lack

standing to object to subpoenas served on these third

parties; and 2) have failed demonstrate good cause for

the protective orders.

I. Standing

The Plaintiffs oppose Defendants' motion on the

grounds that Defendants lack standing under Rule 26

to seek a protective order because the subpoenas do

not seek discovery from the Defendants and the Defendants have failed to make a claim of privilege or

alleged a specific prejudice or harm. Alternatively,

Defendants contend that a protective order pursuant to

Rule 26(c) is warranted because the discovery sought

by Plaintiff is not relevant to the claims or defenses in

this case. Defendants also contend that such broad

discovery will confuse the issues in this case and result

in further motion practice when the Plaintiffs attempt

to use such information in their case.

As a general proposition, a party lacks standing under

Federal Rules of Civil Procedure Rule 45(c)(3) to

challenge a subpoena issued to a non-party unless the

party claims a personal right or privilege with respect

to the documents requested in the subpoena. Nova
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Products, Inc. v. Kisma Video, Inc., 220 F.R.D. 238,

241 (S.D.N.Y.2004); In re Cree Inc. Securities Litigation, 220 F.R.D. 443 (M.D.N.C.2004). A party can

move for a protective order in regard to a subpoena

issued to a non-party if it believes its own interests are

jeopardized by discovery sought froma third party and

has standing under Rule 26(c) to seek a protective

order regarding subpoenas issued to non-parties which

seek irrelevant information.FN1 Several Courts within

the Ninth Circuit, including the Southern District of

California, have recognized this sound principle of

law.FN2 As such, this Court finds that Defendants have

standing to seek a protective order under Rule 26(c)

pursuant to the third party subpoenas issued to

Needham, Powerwave and Chelton.

FN1.See Auto-Owners Insurance Co. v.

Southeast Floating Docks, Inc., 231 F.R.D.

426, 429 (M.D.Flor.2005); Washington v.

Thurgood Marshall Acad., 230 F.R.D. 18, 22

(D.D.C.2005) (deeming a party's motion to

quash subpoenas issued to non-parties as a

motion for protective order under Rule

26(c)). See also Moon v. SCP Pool Corporation, 232 F.R.D. 633, 636-37

(C.D.Cal.2005).

FN2.See Portland Gen. Elec. Co. v. U.S.

Bank Trust Nat'l Assoc., 38 F.Supp.2d 1202,

1206 n. 3 (D.Or.1999), rev'd on other

grounds,218 F.3d 1085 (2000) (noting that

parties have standing to challenge third party

subpoenas under Rule 26(c)); Springbook

Lenders v. Northwestern Nat'l Ins. Co., 121

F.R.D. 679, 680 (N.D.Cal.1988) (same); Integra Lifesciences I. Ltd. v. Merck KgAa, 190

F.R.D. 556, 562 n. 3 (S.D.Cal.1999) (noting

party has standing to seek protective order

against third party discovery in violation of

court order)).

II. Relevance of the Requested Discovery

*2 Pursuant to Rule 26 of the Federal Rules of Civil

Procedure, parties may obtain discovery regarding any

matter that is not privileged, which is relevant to the

claim or defense of any party. Parties have no entitlement to discovery to develop new claims or defenses that are not identified in the pleadings.

Fed.R.Civ.P. 26(b)(1). As such, the more narrow

claim or defense standard applies unless good cause is

shown by the party seeking the discovery to broaden

the scope of discovery to the former subject matter

standard.

Plaintiffs' claim that between September 8, 2003 and

September 8, 2004 (the “Class Period”), REMEC: 1)

failed to timely write down a goodwill; 2) delayed or

failed to write down its excess and obsolete inventory;

3) failed to properly account for the sale of “Zero-Value Inventory”; and 4) used flawed assumptions

in performing its goodwill impairment and inventory

analyses, allegedly due in part to a lack of adequate

internal controls.

Plaintiffs' contend that third parties Needham, Powerwave and Chelton possess important evidence

regarding Defendants' fraud in concealing from investors the true business and financial condition of

REMEC, including its impaired goodwill during the

class period. Plaintiffs contend that REMEC purchased several companies before and during the class

period, booking goodwill in connection with those

transactions that comprised a significant portion of

REMEC's publicly disclosed goodwill during the class

period. At the end of the class period, REMEC disclosed a $62.4 million goodwill impairment charge,

writing off approximately 96% of the Company's total

recorded goodwill. Plaintiffs' argue that the information they seek is relevant valuation related documents

regarding REMEC's true financial condition, value

and possible asset impairment. Plaintiffs' contend that

documents regarding the purchase or sale of REMEC

or its assets, as well as merger agreements, retention

letters, and the like are both relevant and necessary in

understanding the scope and methodology of valuations.

With regard to the scope of the subject matter sought

in Plaintiffs' discovery requests, Defendants argue that

Rule 26(b)(1) limits discovery to non-privileged

matter that is relevant to any party's claim or defense,

and that discovery is limited to such information unless the Plaintiffs' can establish good cause as to why

they should be permitted to expand the scope of discovery beyond material relevant to the claims or defenses. Defendants' contend that their Rule 26(c) motion for protective order should be granted where the

information sought is not discoverable under Rule

26(b) (1).

As a preliminary matter, the Court finds that the
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Plaintiffs' have failed to demonstrate good cause for

the extended time periods set forth in these requests.

While there is arguably grounds for extending the

relevant time period beyond the class period of September 8, 2003 to September 8, 2004, Plaintiffs have

failed to demonstrate good cause to do so to the extent

requested. As such, the time periods set forth in these

requests shall be limited to from March 8, 2003 until

March 8, 2005, to allow for a six month period both

before and after the class period for the requests that

are found to be relevant as set forth below.

A. Plaintiffs' Subpoenas to Chelton and Powerwave

*3 The Plaintiffs' subpoenas to Chelton and Powerwave contain the same eight requests for production of

documents, however, the relevant time period designated for the Chelton requests was January 1, 2003

through January 1, 2006 and the relevant time period

designated for the Powerwave requests was June 1,

2004 through January 1, 2006.FN3

FN3. The Chelton and Powerwave transactions are not mentioned in the 161-page

Fourth Amended Complaint and all dates

relating to these transactions post-date the

goodwill impairment charge and the close of

the class period. The only transactions mentioned in the Fourth Amended Complaint

relate to Solitra, Himark, Spectrian, and Paradigm, which are all companies REMEC

acquired either before or during the class

period.

Upon review of the Plaintiffs' document requests to

Chelton and Powerwave, this Court finds Request

Nos. 3, 4, and 6 are overly broad and wholly unrelated

to the claims or defenses in this case. Request No. 3

seeks “All notes, presentations, memorandum, correspondence, communications and other documents

relating to [Chelton's or Powerwave's] interaction with

any REMEC officer, REMEC director, REMEC's

Board of Directors or any committees thereof. Request

No. 4 seeks “All documents [Chelton or Powerwave]

received from or provided to any of REMEC's financial advisors including, but not limited to, Needham

and Company, LLC.” Request No. 6 seeks “All

documents [Chelton or Powerwave] received from or

provided to REMEC.” These requests far exceed the

scope of the claims and defenses asserted in this case

and the Plaintiffs' have failed to demonstrate good

cause to expand the scope of discovery beyond the

boundaries set forth by Rule 26(b)(1). As such, the

Court hereby GRANTS Defendants motion for protective order with regard to Request Nos. 3, 4 and 6 to

Chelton and Powerwave.

Similarly, Request Nos. 1, 2, 5, 7 and 8 are also over

broad as they relate to the purchase or valuation of any

REMEC assets by Chelton or Powerwave and the

specific assets that are named in these requests are

outside the scope of the claims and defenses of this

case. Request No. 1 seeks: “All documents concerning

any communications regarding any potential or actual

merger, purchase or sale of any assets, or other corporate transactions between [Chelton or Powerwave]

and REMEC.” Request No. 2 seeks: “All documents

concerning all agreements relating to any potential or

actual merger, purchase or sale of any assets, or other

corporate transaction between [Chelton or Powerwave] and REMEC.” Request No. 5 seeks “All documents concerning [Chelton's or Powerwave's] purchase or acquisition of REMEC or any assets thereof [

].” Request No. 7 seeks “All documents concerning

any due diligence conducted on REMEC.” Request

No. 8 seeks “All documents concerning the valuation

of REMEC or any of its assets, in whole or in part,

including all analyses, presentations, reports, studies,

and comparisons.” These requests also far exceed the

scope of the claims and defenses asserted in this case.

The Court finds that the Plaintiffs' have failed to

demonstrate good cause to broaden the scope of discovery beyond the claims or defenses as set forth by

Rule 26(b)(1). As such, the Court hereby GRANTS

Defendants motion for protective order with regard to

Request Nos. 1, 2, 5, 7 and 8 to Chelton and Powerwave.

B. Plaintiffs' Subpoena to Needham

*4 Plaintiffs' served a third party subpoena on Needham, Defendant REMEC's financial advisor, contains

eleven (11) document requests with a time period

designated for these requests of January 1, 2001

through January 1, 2006. Plaintiffs contend that these

request are relevant because as REMEC's financial

advisor, Needham is likely to possess relevant documents regarding the true business and financial condition of REMEC and the value of these assets when

sold by REMEC. Alternatively, Defendants raise the

same arguments with regard to these requests, that

these requests seek information that is not relevant to
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the claims or defenses in this case and that the Plaintiffs' have failed to demonstrate good cause to expand

the scope of discovery set forth in Rule 26(b)(1).

Upon review of Plaintiffs' documents requests issued

to Needham, this Court finds Request Nos. 1, 2, 3, 7,

8, 10 and 11 are overly broad and beyond the scope of

the claims and defenses in this case. Request No. 1

seeks: “All documents concerning REMEC's engagement(s) or retention(s) of Needham as REMEC's

financial advisor including, but not limited to, all

documents created and/or used or otherwise received

from REMEC in such engagement or retention.” Request No. 2 seeks: “All documents concerning meetings, communications or correspondence between

Needham and REMEC, and REMEC officer or director, or REMEC's Board of Directors or any committees thereof.” Request No. 3 seeks: “All presentations, memorandum, analysis or reports You provided

to REMEC's Board of Directors or any committee

thereof.” Request No. 7 seeks: “All documents concerning REMEC's restructuring.” Request No. 8

seeks: “All documents concerning the liquidation and

dissolution of REMEC.” Request No. 10 seeks: “All

documents concerning all conferences and webcasts

hosted by Needham involving REMEC, including all

transcripts, notes, handouts, agenda and summaries.

Request No. 11 seeks: “All reports or presentations

created or issued by Needham concerning REMEC.

These requests far exceed the scope of the claims and

defenses asserted in this case and the Court again finds

that the Plaintiffs' have failed to demonstrate good

cause to broaden the scope of discovery beyond the

claims or defenses as set forth by Rule 26(b) (1). As

such, the Court hereby GRANTS Defendants motion

for protective order with regard to Request Nos. 1, 2,

3, 7, 8, 10 and 11 to Needham.

With regard to Request Nos. 4, 5, 6 and 9 to Needham,

these requests arguably seek some relevant information when limited to the shortened time period and

claims and defenses set forth above. Request No. 4

seeks: “All appraisals, analyses, valuations, financial

models, reviews and other documents concerning the

market value, enterprise value, or fair value of REMEC, its common stock, and/or any of its assets or

businesses, including documents reviewed, considered, created and/or used in preparing the foregoing,

and documents concerning the underlying assumptions used such as the discount rate, weighted cost of

capital, projections and forecasts, and numbers used to

perform any of the foregoing.” Request No. 5 seeks:

“All documents concerning REMEC's acquisition of

other companies, including but not limited to REMEC's acquisition of Pacific Microwave Corporation,

Paradigm Wireless Systems, Inc., Spectrian Corporation, Himark Telecom Group Limited, Solitra (also

known as ADC Mersum Oy) and/or any of their assets. This Request includes all documents relating to,

among other things, the valuation of and purchase

price paid for the acquired company and/or asset(s),

how the acquired company and/or asset(s) performed

in comparison to REMEC's business plan and objective, and the effect of the acquisition(s) on REMEC's

cash flow, revenue, gross margins, and earnings. Request No. 6 seeks: “All documents concerning any

potential or actual restructuring, potential or actual

merger, or potential or actual sale of any assets by

REMEC, including, but not limited to, REMEC's

merger with and/or sale of assets to Chelton Microwave, Veritek, Inc., Spectrum Controls and/or Spectrum Microwave, Inc., Powerwave Technologies, Inc.,

and Wireless Holdings. This Request includes all

documents relating to, among other things, the valuation of REMEC, REMEC's stock or REMEC's assets,

in whole or in part.” Request No. 9 seeks: “All documents concerning any due diligence you conducted

on REMEC or any corporate transaction involving

REMEC, including any restructuring, merger, acquisition, or sale of assets.”

*5 To the extent that these requests also seek information outside the scope of Rule 26(b)(1), the Court

finds that Plaintiffs' have failed to demonstrate good

cause warranting such expansive discovery. As such,

the Court hereby GRANTS IN PART and DENIES IN

PART Defendants' motion for protective order as to

Request Nos. 4, 5, 6 and 9.

Conclusion

For the reasons set forth above, the Court hereby

GRANTS Defendants motion for protective order

with regard to Plaintiffs' subpoenas and document

requests to Chelton and Powerwave and GRANTS IN

PART and DENIES IN PART Defendants motion for

protective order with regard to Plaintiffs' subpoenas

and document requests to Needham. Third Party

Needham is directed to produce all documents relevant to the claims and defenses in this case that are

responsive to Request Nos. 4, 5, 6 and 9 for the period
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from March 8, 2003 until March 8, 2005.

IT IS SO ORDERED.

S.D.Cal.,2008.

In re REMEC, Inc. Securities Litigation

Not Reported in F.Supp.2d, 2008 WL 2282647

(S.D.Cal.)

END OF DOCUMENT