SUPERIOR COURT OF CALIFORNIA
COUNTY OF SANTA CLARA

IN RE ARLO TECHNOLOGIES, INC. SHAREHOLDER LITIGATION

Lead Case No. 2018-1-CV-339231

TENTATIVE RULING RE: MOTIONS TO STAY

The above-entitled action comes on for hearing before the Honorable Thomas E. Kuhnle on June 21, 2019, at 9:00 a.m. in Department 5. The Court now issues its tentative ruling as follows:

I. INTRODUCTION

This is a putative securities class action brought on behalf of persons and/or entities that purchased or otherwise acquired the common stock of defendant Arlo Technologies, Inc. pursuant and/or traceable to the company’s registration statement and prospectus issued in connection with the company’s August 3, 2018, initial public offering.

There are now two motions to stay before the Court. One motion is by defendants Arlo Technologies, Inc., Matthew McRae, Christine M. Gorjanc, Patrick C.S. Lo, Andrew W. Kim, Ralph E. Faison,
Jocelyn E. Carter-Miller, and Grady K. Summers (collectively, the “Arlo Defendants”). The other motion is by defendant Netgear, Inc.

The hearing on these motions was originally set for May 31, 2019. On May 29, 2019, the Court continued the hearing in light of the fact that an amended complaint would soon be filed in the federal action (Wong v. Arlo Technologies, Inc., et al., Case No. 5:19-cv-00372-BLF) that is the subject of Netgear’s motion to stay. The amended federal complaint has been filed and the Court will now rule on the motions.

II. LEGAL STANDARD

When an action is brought in a court of this state involving the same parties and the same subject matter as an action already pending in a court of another jurisdiction, a stay of the California proceedings is not a matter of right, but within the sound discretion of the trial court. In exercising its discretion the court should consider the importance of discouraging multiple litigation designed solely to harass an adverse party, and of avoiding unseemly conflicts with the courts of other jurisdictions. It should also consider whether the rights of the parties can best be determined by the court of the other jurisdiction because of the nature of the subject matter, the availability of witnesses, or the stage to which the proceedings in the other court have already advanced.

(Farmland Irrigation Company v. Dopplmaier (1957) 48 Cal.2d 208, 215, citing Simmons v. Superior Court (1950) 96 Cal.App.2d 119, 123-131 and Pesauera del Pacifico, S. de R. L. v. Superior Court (1949) 89 Cal.App.2d 738, 740-741); see also Caiafa Professional Law Corp. v. State Farm Fire & Casualty Co. (1993) 15 Cal.App.4th 800, 804.) An additional “critical factor” favoring a stay of a state court action in favor of a federal action is that the federal action is pending in California, not some other state. (Caiafa Professional Law Corp. v. State Farm Fire & Casualty Co., supra, 15 Cal.App.4th at p. 804.)

III. THE ARLO DEFENDANTS’ MOTION TO STAY

A. Request for Judicial Notice

Plaintiffs have submitted a request for judicial notice in connection with their opposition to the motion. It refers to “Exhibits 1-7” attached to the Declaration of James I. Jaconette in Support of Plaintiffs’ Memorandum of Points and Authorities in Opposition to the Arlo Defendants’ Motion to Stay. While the judicial notice itself does not “list[] the specific items for which notice is requested,” as required by California Rules of Court, rule 3.1113(l), the items are identified with specificity in Mr. Jaconette’s declaration. The Court can take judicial notice of these documents under Evidence Code section 452, subdivisions (d) and (h). Accordingly, the request for judicial notice is GRANTED.

B. Discussion

The Arlo Defendants assert there is ongoing litigation in Delaware (Sciabacucchi v. Salzberg, No. 2017-0931-JTL (Del. Ch.)) which concerns the enforceability of an exclusive federal forum provision , which is relevant to this case. The Arlo Defendants ask this Court to stay this action pending resolution by the Delaware Supreme Court of the forthcoming appeal in Sciabacucchi.

The Arlo Defendants contend an appeal of Sciabacucchi is imminent. Plaintiffs dispute this, arguing it could be a matter of years before any appeals are resolved. The Court agrees with Plaintiffs on this point. There is no guaranteed timeline for resolving Sciabacucchi and this Court cannot wait an indefinite period while Sciabacucchi or any other relevant case is on appeal. The fact that a different case on appeal might (or might not) affect this case is not a sufficient basis to stay this case for an unknown amount of time.

The Arlo Defendants’ motion to stay is DENIED.

IV. NETGEAR’S MOTION TO STAY

A. Improper Filings

As an initial matter, the Court notes Plaintiffs have filed two documents without authorization concerning Netgear’s motion to stay. First, Plaintiffs filed a “Supplemental Brief in Support of Plaintiffs’ Opposition to Defendant Netgear, Inc.’s Motion to Stay.” This is essentially a response to Netgear’s reply papers. Plaintiff also filed a “Reply in Support of Supplemental Brief Pursuant to Court’s Order Entered May 20, 2019.” This is a response to Netgear’s supplemental brief. In turn, Netgear filed a “Response to Plaintiff’s Reply in Support of Supplemental Brief.”
None of these documents is authorized under the law or by any Court order. Consequently, the Court will not consider these documents and they are struck.

B. Discussion

As stated previously, there is a federal action (Wong) that is very similar to this case and arises out of the same facts and circumstances. Netgear argues this case should be stayed while the federal action proceeds because the federal action encompasses more claims, involves a higher number of potential class members, and addresses more statements than the state case. The federal action also includes related claims for which federal courts have exclusive jurisdiction. Plaintiffs assert the federal amended complaint does not assert claims under section 12(a)(2) (because of a lack of standing), does not assert claims against certain defendants in this action, and will be subjected to heightened pleading standards.

The Consolidated Complaint in this action, filed on May 1, 2019, sets forth causes of action titled: (1) Violation of Section 11 of the 1933 Act; (2) Violation of Section 12(a)(2) of the 1933 Act; and (3) Violation of Section 15 of the 1933 Act.

The Federal Amended Complaint, dated June 7, 2019, sets forth counts titled: (1) Violations of Section 11 of the Securities Act; (2) Violations of Section 15 of the Securities Act; (3) Violations of Section 10(b) and Rule 10b-5; and (4) Violations of Section 20(a) of the Exchange Act.

The two cases arise out of essentially the same facts and involve most of the same parties. However, the state case has three defendants not named in the federal action – Ralph E. Faison, Jocelyn

E. Carter-Miller, and Grady K. Summers.

The state case is brought on behalf of a putative class of “persons and/or entities who purchased or otherwise acquired the common stock of Arlo in or traceable to the Company’s IPO. . . .” (Consolidated Complaint for Violation of the Securities Act of 1933, ¶ 54.) The federal action is brought on behalf of a putative class of “persons and entities who purchased or otherwise acquired Arlo common stock pursuant or traceable to Arlo’s false and misleading Registration Statement and prospectus [] issued in connection with Arlo’s August 2018 initial public offering [], as well as on behalf of all persons and entities who purchased common stock of Arlo during the period from and including August 3, 2018 through December 3, 2018. . . .” (Amended Complaint, ¶ 1.) Therefore, the federal putative class is broader than the putative class in the state action.

If this action moves forward at the same time as the federal case, additional resources will be expended, which could adversely affect putative class members. It is not in the putative class members’ interest for there to be duplicative litigation. Further, while the Court acknowledges the pleading standards between the two cases are not the same, many of the same issues will be litigated and there is a real possibility of conflicting rulings.

The scope of claims filed in the federal action are potentially broader than those filed in the state action. While the Section 12(a)(2) claim cannot be resolved in the federal case due to a lack of standing, there are counts in the federal case that are not part of this action (section 10(b) of the Securities Act and Rule 10b-5, and section 20(a) of the Exchange Act).

After balancing the appropriate factors, the Court GRANTS Netgear’s motion to stay. To serve the interest of judicial efficiency, and to avoid the possibility of unseemly conflicts, the federal court should resolve the claims set forth in that action and then, if anything remains to be adjudicated in this case, the stay should be lifted so this Court can address the remaining claims.

The Court will set a Case Management Conference for January 17, 2020, at 10:00 a.m. in Department 5 so the parties can provide an update regarding the status of the federal action.

The Court will prepare the final order if this tentative ruling is not contested.