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Smilovits v. First Solar Inc.

United States District Court, D. Arizona

September 30, 2016

Mark Smilovits, et al., Plaintiffs,
First Solar Incorporated, et al., Defendants.


          David G. Campbell United States District Judge.

         Clifford Tindall, Britt Nederhood, Eng Kwang Tan, and Eric Feigin (“Derivative Plaintiffs”) move to lift the stay of the above-captioned action (“Securities Class Action”), intervene permissively under Rule 24(b), and unseal all court records filed in connection with the summary judgment motion filed by First Solar, Inc. (“First Solar”) and the individual defendants (collectively, “Defendants”). In the alternative, Derivate Plaintiffs move for access to the sealed records. The motion has been fully briefed (Docs. 410-412), and the Court concludes that oral argument will not aid its decision. For the reasons stated below, the Court will deny Derivative Plaintiffs' motion.

         I. Background.

         The Securities Class Action alleges that First Solar and various officers and directors committed securities fraud between 2008 and 2012 by failing to disclose the existence of an “LPM defect” and a “hot climate defect” in solar panels produced by the company. Doc. 93. The class plaintiffs allege that the failure to disclose these defects resulted in their purchasing First Solar stock at inflated prices and suffering financial losses when the defects eventually were disclosed. Id.

         On April 12, 2012, Derivative Plaintiffs filed a Derivative Action on behalf of First Solar against fourteen of its directors and officers (“Derivative Defendants”). The Derivative Action alleged that the defendants breached fiduciary duties owed to First Solar and violated various laws by failing to disclose the LPM and hot climate defects, resulting in “hundreds of millions of dollars in damages to First Solar's reputation, goodwill, and standing in the business community.” Tindall v. Ahearn, Case 2:12-cv-00769-DGC, Doc. (“Derivative Doc.”) 1, ¶ 1. Derivative Plaintiffs did not make a demand on the First Solar board of directors before filing the complaint, but instead alleged that any demand would be futile. Id. Later in 2012, Derivative Plaintiffs filed an amended complaint, again asserting that demand would be futile. Derivative Doc. 36.

         The Court stayed the Derivative Action pending resolution of the Securities Class Action. Derivative Doc. 45. The stay lasted more than three years, but was lifted by the Court in February 2016. Derivative Doc. 65. Once the stay was lifted, Derivative Plaintiffs filed a second amended complaint asserting claims for breach of fiduciary duty, insider trading, and unjust enrichment. Derivative Doc. 67. Derivative Defendants responded with a motion to dismiss, arguing that Derivative Plaintiffs had not shown demand futility as required by Federal Rule of Civil Procedure 23.1. Derivative Doc. 70. The Court agreed, and on June 30, 2106, dismissed the insider trading and unjust enrichment claims without leave to amend. In re First Solar Derivative Litig., No. CV-12-00769-PHX-DGC, 2016 WL 3548758 (D. Ariz. June 30, 2016). The Court dismissed the breach-of-fiduciary-duty claim with leave to amend and denied Derivative Plaintiffs' request to unseal evidence in the Securities Class Action, finding that “discovery should not be permitted to supplement allegations of demand futility - allegations that should reflect facts known to Plaintiffs when they elected not to make a demand on First Solar's board.” Id. at *14 (quoting Derivative Doc. 65 at 5).[1]

         Derivative Plaintiffs now seek to intervene in the Securities Class Action and obtain access to the sealed information, hoping to find support for their demand futility claim. Derivative Plaintiffs argue that the Court should allow permissive intervention because the requirements of Rule 24(b) are met. Doc. 410 at 5-6. They further argue that the Court should unseal the documents because the Derivative Defendants have not overcome the strong presumption favoring public access to court records. Id. at 8.

         Derivative Defendants argue that the common claim or defense requirement of Rule 24(b) has not been met. Doc. 411 at 6. They add that even if the Court finds all Rule 24(b) requirements satisfied, the Court should exercise its discretion to refuse intervention because granting the motion would contravene the important policy against derivative plaintiff access to discovery before satisfaction of Rule 23.1. Id. at 10.

         II. Legal Standard.

         Three conditions must exist to satisfy Rule 24(b): (1) an independent ground for jurisdiction, (2) a timely motion, and (3) a common question of law and fact between the movant's claim or defense and the main action. Beckman Indus., Inc. v. Int'l Ins. Co., 966 F.2d 470, 473 (9th Cir. 1992). Requirements one and two are not in dispute here.[2]The parties instead focus on whether there is a common question of law or fact between Derivative Plaintiffs' claim and the Securities Class Action. A district court may deny a motion for permissive intervention on discretionary grounds even if all three Rule 24(b) requirements are met. San Jose Mercury News, Inc. v. U.S. Dist. Court, 187 F.3d 1096, 1100 (9th Cir. 1999) (“motion for permissive intervention pursuant to Rule 24(b) is directed to the sound discretion of the district court”).

         III. Analysis.

         A. Commonality.

         As Derivative Plaintiffs correctly note, the commonality requirement is construed liberally when a party's sole purpose for seeking intervention is to modify a protective order. Beckman, 966 F.2d at 474 (“There is no reason to require such a strong nexus of fact or law when a party seeks to intervene only for the purpose of modifying a protective order”). Although the commonality requirement is relaxed in such cases, it is not eliminated. This Court has previously found that the commonality requirement survives Beckman and later cases. Bobolas v. Does, No. CV-10-2056-PHX-DGC, 2011 WL 304874, at *2 (D. Ariz. Jan. 28, 2011).

         In Beckman, the court found the commonality requirement satisfied when the intervenors, who were litigating claims in state court concerning the scope of an insurance policy, sought to intervene for the purpose of modifying a protective order in a federal case concerning the same policy. 966 ...

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