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Smilovits v. First Solar, Inc.

United States District Court, D. Arizona

December 9, 2019

Mark Smilovits, individually and on behalf of all others similarly situated, Plaintiffs,
v.
First Solar, Inc.; Michael J. Ahearn; Robert J. Gillette; Mark R. Widmar; Jens Meyerhoff; James Zhu; Bruce Sohn; and David Eaglesham,

          ORDER

          DAVID G, CAMPBELL SENIOR UNITED STATES DISTRICT JUDGE

         The parties have filed many motions in limine (“MILs”). The Court previously ruled on Plaintiffs' MILs 1 and 10. See Docs. 547 and 548. This order will rule on the remaining MILs.[1]

         Plaintiffs' MIL 2 (Doc. 492). Plaintiffs ask the Court to preclude Defendants from introducing: (1) an “intervening or superseding acts of third parties” defense, and (2) a “reliance on others” defense because Defendants failed to provide Plaintiffs information required by discovery requests. But these defenses have been withdrawn by Defendants and were stricken by the Court with Defendants' consent. Doc. 401 at 46-47. As a result, these affirmative defenses are not part of this case and will not be presented to the jury in argument or instructions. Plaintiffs' MIL does not ask that any other evidence be precluded, and therefore is denied as moot.[2]

         Plaintiffs' MIL 3 (Doc. 493). Plaintiffs seek to preclude Defendants from introducing: (1) a “truth-on-the-market” defense, and (2) a “safe harbor” or “bespeaks caution” defense because Defendants failed to provide Plaintiffs information required by discovery requests. These defenses have also been withdrawn by Defendants and were stricken by the Court with Defendants' consent. Doc. 401 at 46-47. As a result, these affirmative defenses are not part of this case and will not be presented to the jury in argument or instructions. Plaintiffs' MIL does not ask that any other evidence be precluded, and therefore is denied as moot.[3]

         Plaintiffs' MIL 4 (Docs. 474 (lodged sealed version), 494 (public redacted copy)). Plaintiffs ask the Court to preclude defendants from introducing evidence or testimony at trial that: (1) they received, considered, or relied on the advice of counsel during the Class Period; (2) lawyers reviewed or approved Defendants' public disclosures or insider sales of First Solar stock during the Class Period; or (3) Defendants relied on lawyers' involvement in any such review or approval processes during the Class Period. Plaintiffs contend that Defendants waived the advice-of-counsel defense by withholding thousands of documents on the basis of the attorney-client privilege, including documents related to disclosure issues, and by instructing witnesses not to disclose attorney-client communications in depositions. Defendants respond that they “will not assert an ‘advice of counsel' defense or present evidence about the content of legal advice.” Doc. 592 at 2.

         The Court rules as follows: (1) Defendants cannot present at trial any attorney-client communication they refused to disclose during discovery on privilege grounds. (2) There will be no advice-of-counsel defense. Such a defense will not be presented to the jury through argument or instructions. (3) The Court cannot conclude, however, that Defendants' refusal to disclose the contents of specific communications should preclude them from making any reference to counsel in their evidence and arguments at trial. The Court must draw precise lines during trial, but its current view is that Defendants may present evidence that counsel reviewed corporate disclosures and stock-sale plans or attended meetings, but may not present evidence that counsel approved the disclosures or plans or that Defendants relied on what the lawyers said about the disclosures or plans. Presenting evidence of lawyer approval or Defendant reliance while withholding the actual communications that constituted the approval or resulted in the reliance would be unfair to Plaintiffs. It would leave the impression that the lawyers provided unqualified approval of all that Defendants did, without actually disclosing what the lawyers said or did not say and without affording Plaintiffs the opportunity to know, test, or address the actual communications. Plaintiffs' MIL 4 is granted in part and denied in part as set forth above.

         Plaintiffs' MIL 5 (Docs. 475 (lodged), 495 (public)). Plaintiffs seek to preclude Defendants from introducing evidence, questions, or argument concerning Plaintiffs' experts' compensation in this case. Plaintiffs base this request on the fact that a defense expert refused to provide total compensation information. Defendants assert that Plaintiffs took the same position in a deposition, but the transcript does not support their position. See Doc. 594-2 at 4. The rule at trial will be the same for both parties. Unless the parties reach a different agreement, both sides will be limited to eliciting the following compensation information: (a) the hourly rate paid for the expert's time and the time of any of the expert's staff members, and (b) the total hours incurred by the expert and his or her staff members on this case. Experts should come to trial prepared to answer these questions - the Court will not accept an assertion that the expert does not know this information. With this order in place, the MIL is denied.

         Plaintiffs' MIL 6 (Doc. 496). Plaintiffs ask the Court to preclude Defendants' from calling Bernhard Beck to testify at trial because Defendants never disclosed him as required by Rule 26(a)(1)(A). Defendants do not dispute that they failed to disclose Mr. Beck under Rule 26(a)(1)(A) or in a supplement under Rule 26(e), but they oppose the motion.

         Defendants first assert that Rule 26 disclosure was not required because Mr. Beck's role as a key German customer of First Solar with involvement in the LPM issue was well known to Plaintiffs through the production of many documents, some of which are now listed on Plaintiffs' exhibit list. But none of these documents satisfied a primary purpose of Rule 26(a)(1)(A) - to inform Plaintiffs that Defendants might call Mr. Beck as a witness at trial. Plaintiffs are “entitled to rely on the ‘critical' purpose of Rule 26(a)(1)(A) - ‘to inform them which witnesses [] the disclosing party may use to support its claims or defenses.'” McCollum v. UPS Ground Freight Inc., 2013 WL 105225, at *1-2 (D. Ariz. Jan. 9, 2013) (citation omitted). This disclosure obligation continues throughout the litigation under Rule 26(e). A party who fails to timely identify a witness as required by Rule 26(a)(1)(A) “is not allowed to use that . . . witness to supply evidence . . . at a trial, unless the failure was substantially justified or is harmless.” Fed.R.Civ.P. 37(c)(1). Defendants have not shown that the failure to identify Beck as a potential witness was substantially justified.

         Defendants argue that they complied with Rule 26(a)(3) by disclosing Beck more than 30 days before trial. True, but Rule 26(a)(3) is a “pretrial” disclosure, not a discovery disclosure. It is made in preparation for trial and expressly states that it is “[i]n addition to the requirements in Rule 26(a)(1).” Fed.R.Civ.P. 26(a)(3)(A) (emphasis added). It neither trumps nor satisfies the Rule 26(a)(1)(A) disclosure obligation during discovery and the Rule 26(e) duty to timely supplement.[4] In this highly complex case, a September 13, 2019 disclosure, less than three months before trial and several years after the close of fact discovery, is not harmless. Plaintiffs may have known Beck's role in some events related to this case, but they did not know that Defendants might call him to testify and they lost the opportunity during discovery to depose him or inquire further concerning his anticipated testimony.

         Because Defendants failure to disclose Beck as required by Rule 26(a)(1)(A) was not substantially justified or harmless, Beck may not testify at trial. Fed.R.Civ.P. 37(c)(1). The MIL is granted.

         Plaintiffs' MIL 7 (Docs. 476 (lodged), 497 (public)). Plaintiffs seek to preclude Defendants from presenting evidence and argument regarding the impact of a purported 5% measurement tolerance on First Solar's 10-year performance warranty. Plaintiffs first note that Defendants admitted in their answer that First Solar warranted that solar modules installed in accordance with agreed-upon specifications will produce at least 90% of their initial nameplate power output rating during the first 10 years, and at least 80% during the following 15 years. Plaintiffs assert that this admission precludes Defendants from now contending that the warranty has a 5% measurement tolerance and that this tolerance means the warranty is not triggered until 85% power production.

         But the 5% measurement tolerance is in the warranty itself, immediately following the 90% and 80% warranties. See Doc. 598 at 2. Whether that measurement tolerance has the effect Defendants claim is a factual issue for trial. Defendant's answer, which mirrors the actual language from the warranty, does not foreclose an argument about how the 90% and 80% warranties are to be measured.

         Nor is the issue foreclosed by Defendants' withholding of privileged documents that might bear on the measurement tolerance issue. Plaintiffs do not contend that Defendants incorrectly claimed that the relevant documents are privileged. (If Plaintiffs believed the privilege was wrongly invoked, they should have raised the issue with the Court long ago.) Doc. 598 at 3-4. And if the documents are properly privileged, then withholding them does not foreclose the parties from litigating an issue on which they bear. Privileged communications often bear on factual issues in a dispute. Plaintiffs argue that Defendants cannot use the privilege as a sword and a shield, but Defendants are not using the privilege as a sword. They avow that they will not base their 5% measurement tolerance position on legal advice from counsel. Doc. 598 at 2.

         Finally, Plaintiffs suggest that the 5% measurement tolerance is a recently-raised defense, but, as noted above, the measurement tolerance is in the warranty itself. And Defendants identify documents and deposition testimony produced during discovery that reflect Defendants' measurement tolerance position. The MIL is denied.

         Plaintiffs' MIL 8 (Doc. 498). Plaintiffs seek to preclude Defendants from introducing evidence or argument at trial regarding the lack of a restatement or government investigation of First Solar's financial results. Plaintiffs assert that such evidence is irrelevant and would serve no purpose other than to mislead the jury about the legal standards for a civil securities fraud suit. The Court disagrees. While the lack of a restatement of the financials and an SEC investigation do not establish the absence of fraud as a matter of law, they are relevant facts in this case that the jury may consider in deciding whether Defendants made material misstatements or omissions with scienter. Plaintiffs, of course, are free to counter this evidence by showing that Defendants must approve any restatement of the financials and that the SEC might decline an enforcement action for any number of reasons. The Court does not conclude that the probative value of this evidence is substantially outweighed by the danger of unfair prejudice, jury confusion, or waste of time. Fed.R.Evid. 403. Plaintiffs may object or seek a clarifying instruction if they believe this or any other evidence is improper or unduly prejudicial at trial. The MIL is denied.

         Plaintiffs' MIL 9 (Docs. 477 (lodged), 499 (public)). Plaintiffs seek to preclude Defendants from introducing evidence of, or opinions or argument relating to, events that post-date the Class Period, including First Solar's post-Class Period stock price movements. The MIL sweeps too broadly and is an improper attempt to pre-try the case. Plaintiffs may object at trial to evidence they believe is irrelevant or inadmissible under Rule 403. The Court will be far better equipped to rule on specific evidence issues at that time.

         The only specific evidence Plaintiffs identify are the post-Class-Period prices of Defendants' stock. Plaintiffs suggest that any such evidence would be an indirect attempt to persuade the jury that Plaintiffs have not been damaged. But the Court will instruct the jury on the proper measure of damages, and Defendants note that their own damages expert, Dr. Kleidon, does not calculate damages using post-Class-Period share prices. Doc. 600 at 4. Defendants also note that they do not intend to argue that damages should be reduced by stock-price movements after the 90-day PSLRA period. Id. The Court will consider any objections or requests for clarifying instruction Plaintiffs assert during trial. This MIL is denied.

         Plaintiffs' MIL 11 (Docs. 478 (lodged), 501 (public)). Plaintiffs seek to preclude Defendants from offering evidence, argument, or testimony regarding a memorandum prepared by its independent auditor, PricewaterhouseCoopers, LLP (“PwC”), nearly a year after the Class Period ended. Plaintiffs argue that the evidence is an irrelevant, after-the-fact effort by PwC to justify its own auditing work, and that any testimony about the memorandum would constitute improper lay opinion evidence.

         The Court cannot conclude at this point that evidence regarding the memorandum should be excluded. Its relevancy or lack of relevancy will be clearer during trial. And whether testimony about the memorandum will be admissible under Rule 701 will also be clearer. The Court therefore denies the MIL. To avoid the possibility of unfair prejudice, however, Defendants are instructed not to mention the memorandum in their opening statement or in evidence without first raising this issue with the Court. This should be done at a time when the Court and the parties can discuss the evidence without keeping the jury waiting.

         Plaintiffs' MIL 12 (Docs. 479 (lodged), 502 (public)). Plaintiffs seek to preclude Defendants from offering evidence, argument, or opinions related to China's participation in the solar energy industry, asserting that such evidence is irrelevant and inadmissible under Rule 403. The Court denies the motion. The effect of Chineses competition on First Solar's business, market share, and stock price is relevant to loss causation - whether the stock price drops identified by Plaintiffs were due to Defendants' fraud or other market forces. The Court cannot conclude that the evidence will improperly waste time or confuse issues under Rule 403.

         Plaintiffs' MIL 13 (Docs. 480 (lodged), 503 (public)). Plaintiffs seek to preclude Defendants from arguing or introducing evidence that First Solar did not develop, or could not develop, a correlation between STBi and field power loss prior to April 1, 2008. This request is based on the assertion that Defendants did not produce documents created before April 1, 2008, and thereby precluded Plaintiffs from countering Defendants' assertion that the correlation was not possible until 2010. Plaintiffs cite only Defendants' initial discovery response in support of this argument. They do not assert that they ever raised this specific issue with Defendants, and they did not raise it with the Court despite the fact that the Court made itself available for discovery conference calls and held many with the parties. The Court's Case Management Order stated that, “[a]bsent extraordinary circumstances, the Court will not entertain fact discovery disputes after the deadline for completion of fact discovery.” Doc. 131 at 2. What is more, documents dated April 1, 2008 and later give Plaintiffs two years of information before the alleged correlation was developed in 2010, and yet Plaintiffs cite no such document to support their assertion that the correlation could have been made earlier. The MIL is denied.

         Plaintiffs' MIL 14 (Docs. 481 (lodged), 504 (public)). Plaintiffs seeks to preclude defense experts William W. Holder and John J. Huber from presenting overlapping and duplicative testimony. The Court's Scheduling Order states: “Each side shall be limited to one retained or specially employed expert witness per issue.” Doc. 438 at 1 n.1. The Court will not permit overlapping and duplicative expert testimony at trial. The Court cannot conclude at this time, however, that Plaintiffs' MIL should be granted. Defendants assert that they do not intend to present duplicative testimony, but instead require two experts to address the distinct GAAP and MD&A opinions of Plaintiffs' expert, Paul Regan. This issue may be addressed, if necessary, after Plaintiffs' expert has testified and in light of the testimony Defendants propose to elicit from their experts. The MIL is denied.

         Plaintiffs' MIL 15 (Docs. 482 (lodged), 505 (public)). Plaintiffs seek to preclude Defendants from offering evidence of, or argument relating to, the aggregate damages suffered by the Class. Plaintiffs contend that damages will be calculated on a per-share basis, not on an aggregate basis, and that any argument or evidence regarding aggregate class damages would be irrelevant and unfairly prejudicial. Defendants agree that damages will be calculated on a per-share basis and assert that they do not intend to present any aggregate damages figure estimating what the overall recovery would be for the Class. Defendants expect that the verdict form will ask jurors to decide per-share damages. In light of this agreement between the parties, the Court denies Plaintiffs' MIL as moot. Should any party conclude during trial that the aggregate class recovery should be mentioned in any way, counsel should raise the issue with the Court before mentioning it to the jury.

         The Court will not preclude the parties from presenting evidence or argument comparing LPM or hot climate-related costs (or lost revenue) to First Solar's loss in market value on relevant disclosure dates. That analysis is used by experts from both sides and provides an important basis for per-share loss calculations and comparisons between the experts' opinions.

         Plaintiffs' MIL 16 (Doc. 506). Plaintiffs seek to preclude Defendants from calling Plaintiffs to testify through live testimony or deposition or introducing class members' trading records at trial. Plaintiffs contend that this is a class action on behalf of all persons who purchased First Solar stock during the Class Period, proceeding on the fraud-on-the market theory of reliance, that the jury will be tasked with adjudicating Defendants' class- wide liability, and that Plaintiffs' transactions, conduct, or knowledge, like those of every other Class member, are only relevant to individualized issues.

         Defendants respond that they do not intend to introduce evidence about absent class members, but that they do intend to call the Lead Plaintiffs and their investment manager and introduce their investment documents. Defendants note, correctly, that the presumption of reliance created by the fraud-on-the-market theory is rebuttable. Basic v. Levinson, 485 U.S. 224, 245-47 (1988). They assert that the trial must address the claims of the Lead Plaintiffs, and that their testimony will be relevant to rebut the presumption of reliance.

         Of all the cases cited by the parties, the Court finds the discussion in In re Vivendi Universal, S.A. Securities Litigation, 765 F.Supp.2d 512 (S.D.N.Y. 2011), to be the most ...


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