1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 R. ANDRE KLEIN, et al., Case No. 20-cv-04439-JSC

8 Plaintiffs, ORDER RE: ADMINISTRATIVE 9 v. MOTION TO ENLARGE TIME FOR FILING AN AMENDED COMPLAINT 10 LAWRENCE J. ELLISON, et al., Re: Dkt. No. 74 Defendants. 11

12 13 Before the Court is Plaintiffs’ administrative motion to enlarge time for filing an amended 14 complaint.1 (Dkt. No. 74.)2 On May 24, 2021, the Court dismissed with leave to amend 15 Plaintiffs’ claims under Section 14(a) of the Securities Exchange Act and dismissed, without 16 prejudice to reassertion in the Delaware Court of Chancery, Plaintiffs’ state law claims. (Dkt. No. 17 72.) The Court granted Plaintiffs 30 days to file an amended complaint. (Id. at 15.) Plaintiffs 18 now wish to propound a shareholder inspection demand, pursuant to 8 Del. Code Ann. § 220, on 19 nominal defendants Oracle Corporation and Oracle America, Inc. (collectively “Oracle”) to gain 20 information that will aid in amending their Section 14(a) claims. Plaintiffs ask the Court to defer 21 the amended complaint filing deadline until 30 days following Oracle’s production of books and 22 records. Defendants oppose on the basis that the discovery stay in this action forecloses a books 23 and records demand. After carefully considering the parties’ briefing, the Court DENIES 24 25 1 All parties have consented to the jurisdiction of a magistrate judge pursuant to

636(c). (Dkt. Nos. 10, 12, 19.) Plaintiff Sherman filed her consent to magistrate judge jurisdiction in Sherman v. Ellison et al., No. 3:20-cv-05255-JSC (N.D. Cal. filed July 30, 2020), 27 Dkt. No. 7. 1 Plaintiffs’ motion for the reasons set forth below. 2 The Private Securities Litigation Reform Act (“PSLRA”) provides that, in “any private 3 action arising under” the federal securities laws, “all discovery and other proceedings shall be 4 stayed during the pendency of any motion to dismiss.” 15 U.S.C. § 78u–4(b)(3)(B). Such a stay 5 applies to shareholder derivative suits bringing federal securities claims, such as this one. In re 6 Facebook, Inc. S’holder Derivative Priv. Litig.,

, 652-53 (N.D. Cal. 2019) 7 (“While the Ninth Circuit has not directly addressed the applicability of the PSLRA automatic 8 discovery stay to derivative actions, courts in this circuit have found that the PSLRA does stay 9 discovery in derivative actions alleging violations of federal securities laws.”). The stay lasts until 10 “the court has sustained the legal sufficiency of the complaint.” SG Cowen Sec. Corp. v. U.S. 11 Dist. Ct. for N. Dist. of Cal.,

, 913 (9th Cir. 1999). 12 Plaintiffs’ insistence that a Section 220 demand is not discovery and therefore not 13 prohibited by the PSLRA discovery stay is of no moment. First, even if a Section 220 demand is 14 not discovery in this action, staying this action to allow such an inspection contradicts the spirit 15 and purpose of the PSLRA stay. See id. at 912 (“Congress clearly intended that complaints in 16 these securities actions should stand or fall based on the actual knowledge of the plaintiffs rather 17 than information produced by the defendants after the action has been filed.”). 18 Second, and most importantly, a stockholder has the right to inspect a Delaware 19 corporation’s books and records pursuant to Section 220 only if the stockholder demonstrates “a 20 proper purpose for making such a demand.” King v. VeriFone Holdings, Inc.,

, 1145 21 (Del. 2011). Using the Section 220 demand to circumvent the PSLRA stay is not a proper purpose 22 unless the following safeguards are present: “(1) the plaintiff [is] not currently involved in the 23 federal action, (2) the plaintiff’s counsel [is] not currently involved in the federal action, and (3) 24 the plaintiff agree[s] to enter a confidentiality agreement preventing him from sharing the 25 information obtained with the plaintiff or counsel in the federal action.” Beiser v. PMC-Sierra, 26 Inc.,

, at *3 (Del. Ch. Feb. 26, 2009). None of these safeguards is met: Plaintiffs 27 and counsel in this action are the same persons who seek to propound the Section 220 demand and 1 confidentiality agreement not to do so. See Facebook, 411 F. Supp. 3d at 654-56; cf. Paul v. 2 China MediaExpress Holdings, Inc.,

(Del. Ch. Jan. 5, 2012) (allowing Section 3 220 demand to proceed where the plaintiff was not a party to the federal securities suit and it was 4 || “unlikely that any form of ‘discovery’ [would] reach the federal plaintiffs,”

). Thus, 5 || extending Plaintiffs’ deadline to file an amended complaint to allow a Section 220 demand is 6 || futile as Plaintiffs’ proposed demand is improper under Delaware law and therefore not likely to 7 succeed. The cases that Plaintiffs cite are unhelpful as they do not involve a PSLRA discovery 8 stay and therefore an improper purpose for a Section 220 demand. See Oswald v. Humphreys, 9 |}

, at *3 (N.D. Cal. Nov. 7, 2016); King,

. Falat is similarly 10 || inapposite because it considered whether to grant leave to amend, not whether to defer the 11 amendment deadline. Falat v. Sacks,

(C.D. Cal. Apr. 8, 2021); Falat v. Sacks, 12 No. 8:20-cv-01782 (C.D. Cal. May 19, 2021), Dkt. No. 53. 13 As such, a Section 220 demand is not an appropriate basis to defer the amended complaint 14 || deadline. Plaintiffs’ administrative motion is DENIED. The amended complaint filing deadline, 3 15 stayed until this motion was resolved, is July 6, 2021. a 16 This Order disposes of Dkt. No. 74. IT IS SO ORDERED. || Dated: June 25, 2021

20 ne CQUELINE SCOTT CORLEY 21 United States Magistrate Judge 22 23 24 25 26 27 28