13D to Judge: “ " Dear Judge Noreika: Purs
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Posted On: 09/01/2021 12:04:04 PM
13D to Judge:
“ " Dear Judge Noreika:
Pursuant to the Court’s Oral Order of today (D.I. 30), Defendants Rosenbaum, Beaty, Wilmes, Errico, Patterson, Staats, Yeager, and CCTV Proxy Group, LLC (collectively, “Defendants” or the “Investor Group”) hereby seek a protective order precluding Plaintiff CytoDyn Inc. (“CytoDyn”) from pursuing proposed non-party discovery directed at shareholder constituents absent good cause shown. CytoDyn never raised such discovery with the Court when seeking an expedited schedule which only addressed party discovery requests and included a commitment for “narrowly tailored discovery;” this discovery is unnecessary given the ability to obtain the relevant information from the parties themselves; and the discovery threatens to impose burdens and interfere with Defendants’ relationship with stockholders and irreparably prejudice the fairness and integrity of the proxy contest.
Factual Background. This case arises out of Defendants’ efforts to run a slate of candidates in a proxy contest against incumbent members of the Board of Directors of CytoDyn (the “Board”), who are facing re-election at the shareholder meeting scheduled for October 28, 2021. Defendants believe that the incumbent Board members directing this action are unlawfully acting to entrench themselves, including through abuse of the litigation processes.
On May 24, 2021, 24 CytoDyn shareholders, who overlapped with but are distinct from the Investor Group, filed an initial Schedule 13D (later timely amended) with the Securities and Exchange Commission (“SEC”) (the “13D Group”) because they represented a group with beneficial ownership of over 5% of CytoDyn shares, and they expressed strong dissatisfaction with the performance and direction of the Company. Thereafter, on June 30, 2021, in accordance with CytoDyn’s bylaws, the separate Investor Group through Rosenbaum, Beaty and Wilmes nominated Rosenbaum, Patterson, Errico, Staats and Yeager for Board seats.
In accordance with SEC rules, on July 20, 2021, the Investor Group filed a preliminary (not yet final) proxy statement with the SEC. In response to the preliminary proxy, CytoDyn filed the Complaint seeking preliminary injunctive relief primarily in the form of so-called corrective disclosures as well as expedited discovery. D.I. 1, 2, 4. While characterizing their Case 1:21-cv-01139-MN Document 32 Filed 08/31/21 Page 1 of 4 PageID #: 656 The Honorable Maryellen Noreika August 31, 2021 Page 2 GREENBERG TRAURIG, LLP Attorneys at Law www.gtlaw.com anticipated discovery requests as “narrowly tailored” and “targeted.” D.I. at 4, 7. CytoDyn specifically referred the Court to party document production and party depositions (D.I. 1-1, at 1) – without anywhere even mentioning non-party discovery. That same day, the Court ordered Defendants, within five days of service, to either (i) respond to the Motion for Expedited Discovery (which Defendants timely did), or (ii) respond to the discovery requests. D.I. 5. Also on August 5, CytoDyn sent document requests by email to corporate counsel for Defendants, as well as a list of proposed deponents limited to Defendants themselves.
While Defendants vigorously dispute CytoDyn’s allegations, in an effort to moot this action to avoid unnecessary distractions and expense (particularly given the resource advantages of CytoDyn), Defendants filed a supplemental preliminary proxy on August 12, 2021 (posted August 13, 2021) for review and comment by the SEC (the “Supplemental Disclosures”). We believe the Supplemental Disclosures, which were included in the final proxy, mooted CytoDyn’s claims and form the basis for the pending Motion to Dismiss. D.I. 14, 15, 21, 26.
As a result of the Supplemental Disclosures, on August 16, 2021 CytoDyn served amended document requests (the “Amended Document Requests”). On August 17, CytoDyn’s counsel informed Defendants’ counsel that it intended to take third party discovery of the “Gifting Persons” identified in the Supplemental Disclosures who provided financial backing to Defendants’ efforts. During a meet and confer on August 18, 2021, Defendants’ counsel stated that they did not represent the Gifting Persons. Despite this representation, on August 19, 2021, CytoDyn served ten deposition notices, which included deposition notices for three non-party Gifting Persons – Richard G. Pestell, Anthony Caracciolo and Russ Rosenbaum. The deposition notices were invalid as the proposed deponents are not parties to the action.
On August 24, the Court issued its Memorandum Order on CytoDyn’s Motion for Expedited Discovery and Expedited Proceedings (the “Order”), granting CytoDyn’s motion in part and allowing expedited discovery. Pursuant to the Order, Defendants will begin producing documents by September 3 with substantial completion by September 8, 2021. The Order addressed only CytoDyn’s party discovery requests and never authorized non-party discovery, as that issue was not raised by CytoDyn. Also on August 24, CytoDyn’s counsel indicated that they would be moving forward with subpoenas for the unauthorized third party depositions and left unclear the additional extent of non-party discovery that CytoDyn will seek.
No Basis For Requested Non-Party Discovery. The anticipated non-party discovery directed at the “Gifting Persons” (or other shareholder constituents) serves no legitimate purpose. Absent any good cause justification, it is clear that the discovery is aimed at burdening Defendants during their proxy contest, interfering with Defendants’ goodwill with constituents, and gaining intrusive insight into Defendants’ proxy contest activities.
Federal Rule of Civil Procedure 26 provides that “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action … the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” FRCP 26(b)(1) (emphasis added). Rule 26(c) further provides that “ he court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense....” FRCP 26(c). “Four factors guide the evaluation of good cause: ‘relevance, need, confidentiality and harm.’” Id. (quoting Mannington Mills, Inc. v. Armstrong World Industries, Inc., 206 F.R.D. 525, 529 (D. Del. 2002)). United States Gypsum Co. v. New NGC, Inc., 2018 WL 6790316, at 2* (D. Del. Aug. 23, 2018) (citation omitted) (quotation omitted).
Here, the balance of factors clearly justifies the requested protective order. This is particularly so because it relates to non-party discovery: “n the case of nonparty deponents, courts recognize that “[d]iscovery should be more limited to protect nonparty deponents from harassment, inconvenience or disclosure of confidential documents.” Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 2006 WL 2604540, at *2 (D. Del. Aug. 24, 2006) (citation omitted). The Court will limit the scope of discovery required from third parties, particularly if the discovery can be obtained from the parties, to “put the costs of litigation squarely on those actually engaged, forcing them to evaluate more closely the relative benefits and burdens of any given discovery request. Limits on third party discovery may ‘secure the just, speedy, and inexpensive determination’ of the case.” AbbVie Inc. v. Boehringer Ingelheim Int’l GMBH, 2018 WL 2337133, at *3 (D. Del. May 23, 2018) (citations omitted).
To begin with, CytoDyn’s threatened third party discovery directed at Gifting Persons is not necessary for CytoDyn’s claims regarding the adequacy of Defendants’ disclosures. Defendants are scheduled to produce documents shortly in compliance with the Court-ordered schedule. Although Defendants’ counsel requested Plaintiff explain why discovery from shareholders is then needed, nothing specific or concrete was provided. Indeed, any discovery relevant to the issues in this matter presumptively is in the hands of the Defendants, Plaintiff and the Board. As Defendants advised CytoDyn, it is not that a blanket protective order against any non-party discovery is being sought; rather, it is that given the expedited schedule, based on CytoDyn’s own statements covering only “narrow” party discovery, any non-party discovery should be agreed to by the parties or, if disputed, approved by the Court on good cause shown. CytoDyn should be held to its own contentions, which were reflected in the Order stating that “the tailoring of the discovery requests will minimize any burden to Defendants” (D.I. 25 at 2).
Absent the protective order, Defendants, in the midst of a proxy context, face the costs of unnecessary discovery imposed by an adversary with a far greater war chest. Defendants also face disruption of shareholder goodwill because CytoDyn seeks to impose burdens on shareholders with relationships to Defendants. This attempted interference with the process for the exercise of the shareholder franchise deserves close scrutiny. See, e.g., Coster, 2021 WL 2644094, at *9 (courts will also “closely scrutinize” Board acts “that impede a stockholder's exercise of a statutory right relating to the election of directors”).
We appreciate the Court’s expeditious consideration of this application. "
CYDY council's response is due to the court by EOD today in preparation for tomorrows CC to resolve this issue.”
“ " Dear Judge Noreika:
Pursuant to the Court’s Oral Order of today (D.I. 30), Defendants Rosenbaum, Beaty, Wilmes, Errico, Patterson, Staats, Yeager, and CCTV Proxy Group, LLC (collectively, “Defendants” or the “Investor Group”) hereby seek a protective order precluding Plaintiff CytoDyn Inc. (“CytoDyn”) from pursuing proposed non-party discovery directed at shareholder constituents absent good cause shown. CytoDyn never raised such discovery with the Court when seeking an expedited schedule which only addressed party discovery requests and included a commitment for “narrowly tailored discovery;” this discovery is unnecessary given the ability to obtain the relevant information from the parties themselves; and the discovery threatens to impose burdens and interfere with Defendants’ relationship with stockholders and irreparably prejudice the fairness and integrity of the proxy contest.
Factual Background. This case arises out of Defendants’ efforts to run a slate of candidates in a proxy contest against incumbent members of the Board of Directors of CytoDyn (the “Board”), who are facing re-election at the shareholder meeting scheduled for October 28, 2021. Defendants believe that the incumbent Board members directing this action are unlawfully acting to entrench themselves, including through abuse of the litigation processes.
On May 24, 2021, 24 CytoDyn shareholders, who overlapped with but are distinct from the Investor Group, filed an initial Schedule 13D (later timely amended) with the Securities and Exchange Commission (“SEC”) (the “13D Group”) because they represented a group with beneficial ownership of over 5% of CytoDyn shares, and they expressed strong dissatisfaction with the performance and direction of the Company. Thereafter, on June 30, 2021, in accordance with CytoDyn’s bylaws, the separate Investor Group through Rosenbaum, Beaty and Wilmes nominated Rosenbaum, Patterson, Errico, Staats and Yeager for Board seats.
In accordance with SEC rules, on July 20, 2021, the Investor Group filed a preliminary (not yet final) proxy statement with the SEC. In response to the preliminary proxy, CytoDyn filed the Complaint seeking preliminary injunctive relief primarily in the form of so-called corrective disclosures as well as expedited discovery. D.I. 1, 2, 4. While characterizing their Case 1:21-cv-01139-MN Document 32 Filed 08/31/21 Page 1 of 4 PageID #: 656 The Honorable Maryellen Noreika August 31, 2021 Page 2 GREENBERG TRAURIG, LLP Attorneys at Law www.gtlaw.com anticipated discovery requests as “narrowly tailored” and “targeted.” D.I. at 4, 7. CytoDyn specifically referred the Court to party document production and party depositions (D.I. 1-1, at 1) – without anywhere even mentioning non-party discovery. That same day, the Court ordered Defendants, within five days of service, to either (i) respond to the Motion for Expedited Discovery (which Defendants timely did), or (ii) respond to the discovery requests. D.I. 5. Also on August 5, CytoDyn sent document requests by email to corporate counsel for Defendants, as well as a list of proposed deponents limited to Defendants themselves.
While Defendants vigorously dispute CytoDyn’s allegations, in an effort to moot this action to avoid unnecessary distractions and expense (particularly given the resource advantages of CytoDyn), Defendants filed a supplemental preliminary proxy on August 12, 2021 (posted August 13, 2021) for review and comment by the SEC (the “Supplemental Disclosures”). We believe the Supplemental Disclosures, which were included in the final proxy, mooted CytoDyn’s claims and form the basis for the pending Motion to Dismiss. D.I. 14, 15, 21, 26.
As a result of the Supplemental Disclosures, on August 16, 2021 CytoDyn served amended document requests (the “Amended Document Requests”). On August 17, CytoDyn’s counsel informed Defendants’ counsel that it intended to take third party discovery of the “Gifting Persons” identified in the Supplemental Disclosures who provided financial backing to Defendants’ efforts. During a meet and confer on August 18, 2021, Defendants’ counsel stated that they did not represent the Gifting Persons. Despite this representation, on August 19, 2021, CytoDyn served ten deposition notices, which included deposition notices for three non-party Gifting Persons – Richard G. Pestell, Anthony Caracciolo and Russ Rosenbaum. The deposition notices were invalid as the proposed deponents are not parties to the action.
On August 24, the Court issued its Memorandum Order on CytoDyn’s Motion for Expedited Discovery and Expedited Proceedings (the “Order”), granting CytoDyn’s motion in part and allowing expedited discovery. Pursuant to the Order, Defendants will begin producing documents by September 3 with substantial completion by September 8, 2021. The Order addressed only CytoDyn’s party discovery requests and never authorized non-party discovery, as that issue was not raised by CytoDyn. Also on August 24, CytoDyn’s counsel indicated that they would be moving forward with subpoenas for the unauthorized third party depositions and left unclear the additional extent of non-party discovery that CytoDyn will seek.
No Basis For Requested Non-Party Discovery. The anticipated non-party discovery directed at the “Gifting Persons” (or other shareholder constituents) serves no legitimate purpose. Absent any good cause justification, it is clear that the discovery is aimed at burdening Defendants during their proxy contest, interfering with Defendants’ goodwill with constituents, and gaining intrusive insight into Defendants’ proxy contest activities.
Federal Rule of Civil Procedure 26 provides that “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action … the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” FRCP 26(b)(1) (emphasis added). Rule 26(c) further provides that “ he court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense....” FRCP 26(c). “Four factors guide the evaluation of good cause: ‘relevance, need, confidentiality and harm.’” Id. (quoting Mannington Mills, Inc. v. Armstrong World Industries, Inc., 206 F.R.D. 525, 529 (D. Del. 2002)). United States Gypsum Co. v. New NGC, Inc., 2018 WL 6790316, at 2* (D. Del. Aug. 23, 2018) (citation omitted) (quotation omitted).
Here, the balance of factors clearly justifies the requested protective order. This is particularly so because it relates to non-party discovery: “n the case of nonparty deponents, courts recognize that “[d]iscovery should be more limited to protect nonparty deponents from harassment, inconvenience or disclosure of confidential documents.” Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 2006 WL 2604540, at *2 (D. Del. Aug. 24, 2006) (citation omitted). The Court will limit the scope of discovery required from third parties, particularly if the discovery can be obtained from the parties, to “put the costs of litigation squarely on those actually engaged, forcing them to evaluate more closely the relative benefits and burdens of any given discovery request. Limits on third party discovery may ‘secure the just, speedy, and inexpensive determination’ of the case.” AbbVie Inc. v. Boehringer Ingelheim Int’l GMBH, 2018 WL 2337133, at *3 (D. Del. May 23, 2018) (citations omitted).
To begin with, CytoDyn’s threatened third party discovery directed at Gifting Persons is not necessary for CytoDyn’s claims regarding the adequacy of Defendants’ disclosures. Defendants are scheduled to produce documents shortly in compliance with the Court-ordered schedule. Although Defendants’ counsel requested Plaintiff explain why discovery from shareholders is then needed, nothing specific or concrete was provided. Indeed, any discovery relevant to the issues in this matter presumptively is in the hands of the Defendants, Plaintiff and the Board. As Defendants advised CytoDyn, it is not that a blanket protective order against any non-party discovery is being sought; rather, it is that given the expedited schedule, based on CytoDyn’s own statements covering only “narrow” party discovery, any non-party discovery should be agreed to by the parties or, if disputed, approved by the Court on good cause shown. CytoDyn should be held to its own contentions, which were reflected in the Order stating that “the tailoring of the discovery requests will minimize any burden to Defendants” (D.I. 25 at 2).
Absent the protective order, Defendants, in the midst of a proxy context, face the costs of unnecessary discovery imposed by an adversary with a far greater war chest. Defendants also face disruption of shareholder goodwill because CytoDyn seeks to impose burdens on shareholders with relationships to Defendants. This attempted interference with the process for the exercise of the shareholder franchise deserves close scrutiny. See, e.g., Coster, 2021 WL 2644094, at *9 (courts will also “closely scrutinize” Board acts “that impede a stockholder's exercise of a statutory right relating to the election of directors”).
We appreciate the Court’s expeditious consideration of this application. "
CYDY council's response is due to the court by EOD today in preparation for tomorrows CC to resolve this issue.”
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