In re Splunk Inc. Securities Litigation

Background

This discovery order addressed six requests for production served on the defendants and one subpoena request served on each of two nonparties. The underlying securities-fraud case concerns alleged statements by Splunk CEO Douglas Merritt and CFO Jason Child about continued investment in sales and marketing. After an earlier partial dismissal, the remaining allegations concerned statements made by Merritt and Child on three occasions in 2020.

The plaintiff alleged that Splunk had actually suspended marketing investments, stopped hiring sales staff, and ended its “new logo” unit. After Splunk disclosed its cutbacks on December 3, 2020, some investors sold stock, and Splunk’s stock price fell by 23 percent. The order did not decide the merits of the securities claims.

Requests for Production

- RFP 15: The court found the request overbroad because it covered documents from January 1, 2018, through the present, even though the class period was March 26, 2020, through December 2, 2020. It also found overbroad the portions seeking all documents about market access, market share, or total addressable market without a demonstrated connection to sales and marketing investments. Defendants had to respond to the remaining portions concerning the importance and effects of sales and marketing investments, New Logos, market visibility, and brand recognition, but only for documents and communications generated during the class period.

- RFP 19: The court found the request for documents about historical revenues, losses, and their causes overbroad. Defendants did not need to respond to the request as written, although the plaintiff could try to reformulate it.

- RFP 20: Defendants did not need to respond to the request about Splunk’s transition from a perpetual-licensing model to a term-licensing model. The court found that the plaintiff had not explained the request’s relevance to the sales-and-marketing allegations.

- RFP 24: Defendants had to respond to the request for documents and communications concerning Child’s statement that Splunk was in “the valley of death.” The court found that information about what Child knew, and when he knew it, could be relevant to scienter, meaning whether he knew or should have known that the statements were misleading.

- RFP 30: Defendants had to respond in part. They had to produce responsive documents concerning the departures of Susan St. Ledger and Carrie Palin, who oversaw Splunk’s sales and marketing efforts. The court found that the plaintiff had not persuasively explained the relevance of the departures of Merritt and Tim Tully, so the order did not require production concerning those departures.

- RFP 31: Defendants did not need to respond to the request for performance reviews and evaluations of executives, sales and marketing employees, and other employees. The court found that the plaintiff had not shown the requested material was relevant or proportional to the needs of the case, particularly because the request could cover thousands of employees over nearly six years.

Nonparty Subpoenas

The plaintiff subpoenaed St. Ledger and Palin, who shared counsel with the defendants. The court ordered both to comply with Subpoena Request No. 1. They had to produce text and other instant messages concerning the complaint’s allegations; the New Logo Team; sales and marketing investments and budgets; hiring, firing, or hiring freezes for sales personnel; relevant meetings; the COVID-19 pandemic and its effects on Splunk; withdrawn financial guidance; and Splunk’s financial performance and related financing decisions.

The court found the subpoena topics relevant and sufficiently tailored. It rejected objections that the requests were disproportionate, invasive, or improper because St. Ledger and Palin were nonparties. The messages were limited to specified business topics, and a stipulated protective order addressed privacy and public disclosure concerns. The subpoena period extended from November 1, 2019, through the present.

Disposition

Absent court permission, the defendants, St. Ledger, and Palin had to produce the documents ordered by December 16, 2022. The order was signed by Alex G. Tse, United States Magistrate Judge.