United States District Court, S.D. New York
IN RE FACEBOOK, INC., IPO SECURITIES AND DERIVATIVE LITIGATION
Decided March 7, 2014
[Copyrighted Material Omitted]
For Co-Lead Plaintiffs and the Class: Steven B. Singer, Esq., John J. Rizio-Hamilton, Esq., BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP, New York, NY; Thomas A. Dubbs, Esq., James W. Johnson, Esq., Louis Gottlieb, Esq., Thomas G. Hoffman, Jr., Esq., LABATON SUCHAROW LLP, New York, NY.
For Facebook, Inc. and Individual Facebook, Defendants: Andrew B. Clubok, Esq., Brant W. Bishop, Esq., KIRLAND & ELLIS LLP, New York, NY; Susan E. Engel, Esq., Kellen S. Dwyer, Esq., Bob Allen, Esq., KIRLAND & ELLIS LLP, Washington, DC; Tariq Mundiya, Esq., Todd G. Cosenza, Esq., Sameer Advani, Esq., WILLKIE FARR & GALLAGHER LLP, New York, NY; Richard D. Bernstein, Esq., Elizabeth J. Bower, Esq., WILLKIE FARR & GALLAGHER LLP, Washington, DC.
For Underwriter, Defendants: James P. Rouhandeh, Esq., Charles S. Duggan, Esq., Andrew Ditchfield, Esq., DAVIS POLK & WARDWELL LLP, New York, NY.
OPINION & ORDER
ROBERT W. SWEET, U.S.D.J.
Pursuant to the transfer order from the United States Judicial Panel on Multidistrict Litigation (the " MDL Panel" ), entered on October 4, 2012, 41 actions stemming from the May 18, 2012 initial public
offering (" IPO" ) of Facebook, Inc. (" Facebook" or the " Company" ) are presently before this Court.
The instant motion relates to the consolidated securities action brought by Plaintiffs North Carolina Department of State Treasurer on behalf of the North Carolina Retirement Systems; Banyan Capital Master Fund Ltd.; Arkansas Teacher Retirement System; and the Fresno County Employees' Retirement Association; and the Named Plaintiffs' Jose G. Galvan and Mary Jane Lule Galvan (collectively, " Lead Plaintiffs" or " Plaintiffs" ) against Defendants Facebook, certain Facebook directors and officers (the " Individual Defendants" ), and underwriters of the IPO of Facebook (the " Underwriter Defendants" ) (collectively, " Defendants" or " Facebook Defendants" ). Defendants move the Court to amend and certify the Opinion and Order entered on December 12, 2013, In re Facebook. IPO Sec. & Derivative Litig., MDL No. 2389, 986 F.Supp.2d 487, 2013 WL 6665399 (S.D.N.Y. Dec. 12, 2013) (the " December 12 Opinion" or " Opinion" ), for interlocutory appeal pursuant to 28 U.S.C. § 1292(b), which denied Defendants' motion to dismiss the consolidated class action complaint (the " Consolidated Class Action Complaint" or " CAC" ) alleging federal securities claims (the " Securities Actions" ).
For the reasons set forth below, Defendants' motion is denied.
I. Prior Proceedings and Facts
On September 20, 2012, the MDL Panel held a hearing to determine whether the pending 41 filed actions should be transferred to the Southern District of New York. On October 4, 2012, the MDL Panel issued a transfer order, finding that the " Southern District of New York is an appropriate transferee district for pretrial proceedings in this litigation," reasoning that " [m]uch of the relevant discovery will be located in New York . . . ." In re Facebook. IPO Sec. & Derivative Litig., 899 F.Supp.2d 1374, 2012 WL 4748325, at *3 (2012). The cases were assigned to this Court for coordination or consolidation of the pretrial proceedings. Id.
Of the 41 actions presently before the Court due to the MDL Panel's transfer order, 30 of these actions allege violations of the Securities Act of 1933 (the " Securities Act" ) and the Securities Exchange Act of 1934 (the " Exchange Act" ) against movants and various underwriter defendants. On December 6, 2012, this Court issued an opinion, In re Facebook. IPO Sec. & Derivative Litig.,
288 F.R.D. 26 (S.D.N.Y. 2012), which consolidated the actions alleging violations of the Securities Act and Exchange Act Into the Securities Actions and Lead Plaintiffs were appointed. The class actions against the NASDAQ OMX Group Inc. and The NASDAQ Stock Market LLC (collectively " NASDAQ" ) alleging federal securities (the " NASDAQ Securities Actions" ) and negligence claims (the " NASDAQ Negligence Actions" ) (collectively, the NASDAQ Actions" ) were also consolidated. The cases alleging derivative claims (the " Derivative Actions" ) are currently not consolidated, with individual plaintiffs in the Derivative Actions having brought forth separate actions.
Lead Plaintiffs for the Securities Actions filed the Consolidated Class Action Complaint on February 28, 2013. The CAC alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act.
Defendants filed a motion to dismiss the Securities Actions on April 30, 2013. Defendants' motion was denied in the December 12 Opinion. Defendants filed a motion to amend and certify the December 12 Opinion for interlocutory appeal pursuant to 28 U.S.C. § 1292(b) on January 10, 2014. This motion was heard and marked full submitted on February 5, 2014.
II. The Applicable Standard
Section 1292(b) provides for certification of an order for interlocutory appeal when the court determines: " (1) that such order involves a controlling question of law (2) as to which there is a substantial ground for difference of opinion and (3) that an immediate appeal from [that] order may materially advance the ultimate termination of the litigation." 28 U.S.C. § 1292(b). The proponents of an interlocutory appeal have the burden of showing that all three of the substantive criteria are met. See Casey v. Long Island R.R., 406 F.3d 142, 146 (2d Cir. 2005). " These three prerequisites create a significant hurdle to certification, and the barrier is only elevated by the mandate that section 1292(b) be 'strictly limited' because 'only
exceptional circumstances [will] justify a departure from the basic policy of postponing appellate review until after the entry of a final judgment.'" McNeil v. Aguilos, 820 F.Supp. 77, 79 (S.D.N.Y. 1993) (Sotomayor, J.). " [E]ven where the three legislative criteria of section § 1292(b) appear to be met, district courts retain 'unfettered discretion to deny certification' if other factors counsel against it." Transp. Workers Union of Am., Local 100 v. NYC Transit Auth., 358 F.Supp.2d 347, 351 (S.D.N.Y. 2005) (internal citations omitted). Such unfettered discretion can be for " any reason, including docket congestion" and " the system-wide costs and benefits of allowing the appeal," Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21, 24 (2d Cir. 1990).
The Second Circuit has noted that " interlocutory appeals are strongly disfavored in federal practice," and movants cannot invoke the appellate process " as a vehicle to provide early review [even] of difficult rulings in hard cases," In re Adelphia Commc'ns Corp., Nos. 02-41729 (REG), 07 Civ. 9999(NRB), 2008 WL 361082, at *1 (S.D.N.Y. Feb. 7, 2008). District Courts must accordingly " exercise great care in making a § 1292(b) certification," Wausau Bus. Ins. Co. v. Turner Constr. Co., 151 F.Supp.2d 488, 491-92 (S.D.N.Y. 2001) (citing Westwood Pharm., Inc. v. Nat'l Fuel Gas Dist. Corp., 964 F.2d 85, 89 (2d Cir.1992)), ensuring that § 1292(b) " be strictly construed." Id. at 491 (internal quotations marks and citations omitted); see also In re Ambac Fin. Grp. Sec. Litig., 693 F.Supp.2d 241, 282 (S.D.N.Y. 2010) (certification of a non-final order pursuant to 28 U.S.C. § 1292(b) is an extraordinary procedure only granted in " exceptional circumstances." ); Lidle v. Cirrus Design Corp., No. 08 Cv. 1253 (BSJ) (HBP), 2010 WL 4345733, at *1 (S.D.N.Y. Oct. 29, 2010) (" [T]he power to grant an interlocutory appeal must be strictly limited to the precise conditions stated in the law. . . . [o]nly exceptional circumstances will justify a departure from the basic policy of postponing appellate review until after the entry of a final judgment." ).
III. Defendants' Fail To Satisfy The High Threshold Required For § 1292(b) Certification
Defendants contend that a certification for interlocutory appeal is appropriate with respect to two questions: (1) In the absence of an extreme departure from prior reported results, does Item 303 of Regulation S-K require an issuer to disclose the extent to which a known (and disclosed) trend allegedly appears to be affecting intra-quarter revenues; and (2) In the absence of an extreme departure from prior reported results, is a warning that a trend " may" affect future reported revenue misleading simply because the trend appears to be affecting intra-quarter revenues?
It is initially noted that the issues posed by Defendants relating to Item 303 are challenges that relate to the sufficiency of Plaintiffs' pleadings in the CAC, which " are not generally the appropriate subjects of interlocutory review, as 'a reversal [on interlocutory appeal] at most could lead only to a remand for repleading, with possibilities of further interlocutory appeals thereafter.'" In re Manhattan Inv. Fund Ltd., 288 B.R. 52, 56 (S.D.N.Y. 2002) (quoting Gottesman v. General Motors Corp., 268 F.2d 194, 196 (2d Cir. 1959)); see also Republic Tobacco Co. v. N. A. Trading Co., Inc., 381 F.3d 717, 728 (7th Cir. 2004) (interlocutory appeal is not intended as a " second bite at the apple" that allows the moving party to ...