Altimeo Asset Management v. Qihoo 360 Technology Co. Ltd.

Background

Lead plaintiffs Altimeo Asset Management and ODS Capital LLC and defendants Qihoo 360 Technology Co. Ltd., Eric X. Chen, and Hongyi Zhou presented two discovery disputes. Discovery is the pretrial exchange of relevant, nonprivileged information between parties. The disputes concerned documents from a Cayman Islands appraisal lawsuit following Qihoo’s buyout and documents concerning Altimeo’s investment decisions in Qihoo.

Plaintiffs’ Request for Appraisal-Action Documents

The plaintiffs sought the entire record from the Cayman Islands appraisal lawsuit, including court filings, affidavits, judicial decisions, and expert reports. Qihoo agreed to produce approximately 70,000 documents that it had produced in that lawsuit but resisted producing the additional court materials. The plaintiffs argued that the materials could discuss an alleged plan to relist Qihoo and information relevant to Qihoo’s valuation. Qihoo argued that the request was excessive and that producing the materials could conflict with Cayman Islands rules.

The court held that the appraisal lawsuit and this case had overlapping subjects but different scopes. The appraisal lawsuit concerned the fair value of shares held by shareholders who did not tender their shares in the take-private transaction. This case concerns alleged misstatements and omissions about Qihoo’s eventual relisting plans and their effect on Qihoo’s stock price before the company went private.

The court enforced Qihoo’s agreement to produce the approximately 70,000 documents from its outgoing discovery in the appraisal lawsuit. It ruled that Qihoo generally did not need to produce additional court filings or other procedural materials from that lawsuit because those materials were not evidence and were not admissible or probative in this case. The court made one exception: Qihoo had to produce expert reports from the appraisal lawsuit that addressed Qihoo’s valuation because those reports could contain positions relevant to Qihoo’s trading price and valuation.

Defendants’ Request for Altimeo Documents

The defendants sought an order requiring Altimeo to search for and produce documents about its investment decisions in Qihoo even when those documents did not expressly name Qihoo. They sought information about Altimeo’s general understanding of potential relistings, valuations, regulatory risk, and market dynamics. The defendants argued that such information could bear on falsity, loss causation, and whether the plaintiffs were suitable class representatives. Loss causation is the connection between an alleged wrong and an investor’s loss.

The court rejected those arguments. It stated that Altimeo had already been directed to produce documents addressing its investment decision in Qihoo, but that its general understanding of market dynamics and the effect of regulatory developments on stock prices did not bear on falsity, loss causation, or class representation. The court therefore denied most of the defendants’ request.

The court made a narrow exception for earlier investor communications referred to in investor communications that had already been produced. It directed the defendants to identify those references and directed the plaintiffs to produce the referenced earlier communications, with redactions removing unrelated content. The court otherwise denied the defendants’ request.

Disposition

The order granted limited discovery concerning Qihoo’s prior production and valuation expert reports, directed limited production of earlier investor communications referenced in produced documents, and otherwise denied the parties’ discovery requests. Judge Paul A. Engelmayer signed the order on December 7, 2023.