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In re Twitter, Inc. Shareholder Derivative Litigation

United States District Court, D. Delaware

July 23, 2018

In re TWITTER, INC. SHAREHOLDER DERIVATIVE LITIGATION This Document Relates To ALL ACTIONS.

          REPORT AND RECOMMENDATION

          Mary Pat Thynge Chief U.S. Magistrate Judge

         I. INTRODUCTION

         This matter arises from plaintiffs Jim Porter, Ernesto Espinoza, and Francis Flemings' (collectively, “Plaintiffs”) Verified Consolidated Shareholder Derivative Complaint[1] against nominal defendant Twitter, Inc.. (“Twitter”) and defendants Richard Costolo, Anthony Noto, Jack Dorsey, Peter Fenton, David Rosenblatt, Marjorie Scardino, Evan Williams, Peter Chernin, and Peter Currie (collectively, “Defendants”), filed on April 19, 2017. The initial complaint was filed on October 24, 2016, followed by two other actions, with the three matters eventually consolidated and present operative complaint filed in the Northern District of California.[2] The case was transferred to the District of Delaware on January 8, 2018.[3] The complaint alleges the issuance of false and misleading proxy statements in violation of Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), breaches of fiduciary duties, unjust enrichment, corporate waste, and insider selling.[4] On March 14, 2018, Defendants filed a motion to stay the Verified Consolidated Shareholder Derivative Complaint pending resolution of a related securities action in the Northern District of California.[5] Presently before the court is Defendants' motion to stay. This Report and Recommendation addresses whether Defendants have sufficiently established that a stay is warranted. For the reasons stated below, Defendants' motion to stay is granted for the limited time period so indicated.

         II. BACKGROUND

         A. Parties

         Plaintiff Jim Porter is a shareholder of Twitter stock, which he has continuously held stock in the Company since November, 2013.[6]

         Plaintiff Ernest Espinoza is a current shareholder of Twitter stock, which he has continuously held since at least July, 2014.[7]

         Plaintiff Francis Fleming is a current shareholder of Twitter stock, which he has held continuously since January, 2014.[8] Plaintiffs Porter, Espinoza and Fleming are acting for the benefit of nominal defendant Twitter.

         Nominal defendant Twitter is a Delaware corporation with its principal executive offices located at 1355 Market Street, Suite 900, San Francisco, California 94103.[9]

         The remaining defendants are or have been either executive officers of Twitter and/or members of Twitter's board of directors within various time periods from 2006 to the present.[10]

         B. Background

         Twitter is a social networking platform that allows users to send and read short messages called “tweets.”[11] The platform is used globally for public self-expression and conversation in real time.[12] Twitter was founded in 2006 and made its initial public offering in 2011.[13] As Twitter uses advertising as its main source of revenue, new user growth and existing user engagement in the platform are key indicators of Twitter's financial health and success.[14]

         The Derivative Action was filed shortly after a securities action was filed in the Northern District of California on September 16, 2016 against Twitter and certain of its officers and/or directors.[15] That Northern District of California securities action (the “Securities Action”) alleges Twitter and certain officers/directors made false and misleading statements in press releases and filings with the Securities and Exchange Commission and in statements to media, analysts and investors.[16] The Securities Action complaint alleges that defendants' statements caused plaintiffs to purchase Twitter stock at artificially inflated prices, only to suffer a loss when the stock price dropped as a result of lower than expected earnings.[17]

         The Derivative Action complaint alleges similar false and misleading statements by Defendants.[18] Additionally, Plaintiffs allege certain Defendants caused Twitter to file misleading proxy statements in violation of Section 14(a) of the Exchange Act; Plaintiffs also allege that there were breaches of fiduciary duties, unjust enrichment, corporate waste, and insider selling.[19]

         The parties in this Derivative Action previously stipulated to a stay pending resolution of a motion to dismiss in the Securities Action.[20] The motion to dismiss in the Securities Action was granted in part and denied in part on October 16, 2017.[21]

         Defendants allege in their motion to stay that conflicts exist for Twitter regarding its positions in the two cases, the allegations in the actions are substantially similar, the Derivative Action is contingent on the outcome of the Securities Action, and a stay would simplify the issues and promote judicial economy while not prejudicing Twitter.[22]

         III. STANDARD OF REVIEW

         The decision to grant or deny a stay is within the court's broad range of discretionary powers.[23] The power of this court to stay proceedings “is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.”[24] The requester of a stay must “make out a clear case of hardship or inequity in being required to go forward, ” even if there is a possibility that the stay will damage the other party.[25]

         Courts typically consider three factors in deciding whether a stay is appropriate: 1) whether the granting of a stay would cause the non-moving party to suffer undue prejudice from any delay or allow the moving party to gain a clear tactical advantage over the non-moving party; 2) whether a stay will simplify the issues for trial; and 3) whether discovery is complete and a trial date set.[26] In considering these factors, courts should be mindful of the consequences of the stay on the non-moving party.[27]

         Where there is a request for one action to be stayed in favor of a separate action, courts do not require that the parties to both actions be the same or the issues identical.[28]

         IV. ANALYSIS

         Defendants' position is that a stay is appropriate as prosecution of this Derivative Action is antithetical to Twitter's defensive position in the Securities Action; as such, Twitter is forced to accuse its directors of violations of federal securities laws, while, at the ...


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