In re Carvana Co Securities Litigation

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
United Association National Pension Fund, et
al.,
Plaintiffs,
v.
Carvana Company, et al.,
Respondents.
No. CV-22-02126-PHX-MTL
ORDER
Pending before the Court is Lead Plaintiffs’ Motion to Compel the Production of
Documents Improperly Withheld as Privileged by the Carvana Defendants (Doc. 301). The
issue is fully briefed, and the Court heard oral argument on the motion.
I. BACKGROUND
This putative securities class action alleges violations of the Securities Act and the
Exchange Act by Carvana and its founders, officers, directors, and underwriters. * The case
arises out of Carvana’s 2022 public offering. In their discovery responses, the Individual
Defendants say that they relied on counsel in their investigation related to the offering.
(Doc. 302.) Plaintiffs contend the Individual Defendants cannot use evidence of attorney
involvement beyond attorney retention to establish their due diligence or good faith
defenses while withholding attorney-client communications that speak to the integrity of
* Although Plaintiffs’ motion is directed at the Carvana Defendants, only the Individual
Defendants plan to assert the defenses at issue in the motion. (Doc. 323 at 7 n.2.) The
Individual Defendants are Ernest Garcia III, Mark Jenkins, Stephen Palmer, Michael
Maroone, Neha Parikh, Ira Platt, and Greg Sullivan. The Court will consider this motion
with respect to the Individual Defendants only.
Case 2:22-cv-02126-MTL Document 336 Filed 02/25/26 Page 1 of 6

- 2 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
those defenses. (Doc. 301 at 8-19.) Lead Plaintiffs move to compel the production of
attorney-client communications that underlie counsel’s involvement. (Doc. 301.) The
Individual Defendants oppose the motion, arguing that evidence of attorney involvement
supports their defenses without waiving attorney-client privilege. (Doc. 325.)
II. LEGAL STANDARD
Federal common law governs the applicability of the attorney-client privilege in
federal securities cases. See United States v. Ruehle, 583 F.3d 600, 608 (9th Cir. 2009).
“The attorney-client privilege protects confidential disclosures made by a client to an
attorney in order to obtain legal advice, as well as an attorney’s advice in response to such
disclosures.” Id. at 607 (citation modified). The party asserting privilege bears the burden
of proving the applicability of the privilege. In re Fischel, 557 F.2d 209, 211 (9th Cir.
1977). “The privilege only protects disclosure of communications; it does not protect
disclosure of the underlying facts by those who communicated with the attorney.” Upjohn
Co. v. United States, 449 U.S. 383, 395 (1981).
Attorney-client privilege may not be used as both a sword and shield. Chevron Corp.
v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir. 1992). “[T]his means that parties in litigation
may not abuse the privilege by asserting claims the opposing party cannot adequately
dispute unless it has access to the privileged materials.” Bittaker v. Woodford, 331 F.3d
715, 719 (9th Cir. 2003). A party asserting privilege implicitly waives privilege where (1)
“the party is asserting the privilege as the result of some affirmative act,” (2) “the asserting
party puts the privileged information at issue,” and (3) “allowing the privilege would deny
the opposing party access to information vital to its defense.” United States v. Amlani, 169
F.3d 1189, 1195 (9th Cir. 1999) (citation modified). “Implied waiver is based on the rule
that a litigant waives the attorney-client privilege by putting the lawyer’s performance at
issue during the course of litigation.” United States v. Sanmina Corp., 968 F.3d 1107, 1117
(9th Cir. 2020) (citation modified).
. . .
. . .
Case 2:22-cv-02126-MTL Document 336 Filed 02/25/26 Page 2 of 6

- 3 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
III. DISCUSSION
A. The Underwriter Defendants
As an initial matter, the Court will address the Underwriter Defendants’ response to
Plaintiffs’ motion. (Doc. 325.) Plaintiffs’ Motion is directed solely at the Carvana
Defendants, so there is no controversy for the Court to consider with respect to the
Underwriter Defendants. (Docs. 325 at 1, 327 at 12.) The Court will strike the Underwriter
Defendants’ response (Doc. 325).
B. The Individual Defendants’ Asserted Defenses
The Individual Defendants assert due diligence and good faith defenses, exceptions
to liability under Section 11, 5 U.S.C. § 77k(b)(3), and Section 20(a), 15 U.S.C. § 78t(a),
respectively. (Doc. 15) The question is whether the Individual Defendants may present the
fact of counsel’s participation to support these defenses without putting counsel’s
“performance at issue during the course of litigation.” Sanmina Corp., 968 F.3d at 1117.
1. Due Diligence Defense
To establish a due diligence defense, a defendant must demonstrate: (1) that the
defendant conducted a reasonable investigation and (2) that the defendant reasonably
believed the registration statement was accurate. Hunt v. PricewaterhouseCoopers LLP,
159 F.4th 603, 611 (9th Cir. 2025). Only the first prong is at issue, since the Individual
Defendants commit to offering evidence of attorney involvement for purposes of arguing
the “reasonable investigation” prong. (Doc. 323 at 13.) In evaluating whether conduct
constitutes a reasonable investigation, courts consider, among other things, “[r]easonable
reliance on officers, employees, and others whose duties should have given them
knowledge of the particular facts.” 17 C.F.R. § 230.176(f); see also In re Int’l Rectifier
Sec. Litig., No. CV91-3357-RMT, 1997 WL 529600, at *8 (C.D. Cal. Mar. 31, 1997)
(considering numerous factors, including the defendants’ familiarity with the company’s
operations and whether interviews were conducted with counsel). The investigation must
be objectively reasonable. See 15 U.S.C. § 77k(c). The Individual Defendants’ due
diligence defense is distinct from a reliance on counsel defense. (Doc. 323 at 13); see
Case 2:22-cv-02126-MTL Document 336 Filed 02/25/26 Page 3 of 6

- 4 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
United Food & Com. Workers Union v. Chesapeake Energy Corp., No. CIV-09-1114-D,
2012 WL 2370637, at *9 (W.D. Okla. June 22, 2012). The Individual Defendants’ assertion
of a due diligence defense does not require proof of reliance on counsel. Id.
The Individual Defendants admit that they relied on counsel for the asserted
“reasonable investigation” and as a basis for their “good faith belief.” (Docs. 302.) A “court
may focus on the ‘belief’ component of the statutory defense and, where counsel was
involved in the due diligence investigation, find a basis for a limited, implicit waiver of the
privilege.” Wang v. Zymergen (“Zymergen I”), No. 21-cv-06028-PCP, 2025 WL 416161,
at *1-2 (N.D. Cal. Feb. 6, 2025). The court did so in In re Charles Schwab Corp. Sec. Litig.,
No. 3:08-cv-01510-WHA, 2010 WL 11937102 (N.D. Cal. Feb. 23, 2010), the primary case
that Plaintiffs rely upon for the proposition that privilege is waived with respect to the due
diligence defense. The court found a waiver of privilege where attorney involvement was
offered to prove “subjective state of mind.” Id. at *1. But again, the Individual Defendants
will argue counsel’s participation to prove the “reasonable investigation” prong, not to
prove their belief in the accuracy of the offering materials. (Doc. 323 at 13.) In re Charles
Schwab does not apply to the present case where the Individual Defendants will not use
attorney participation to prove their belief.
The fact that attorneys participated in the due diligence process does not necessarily
implicate the substance or veracity of that participation. “[T]here is no automatic implied
waiver from asserting the due diligence defense where the assertion of privilege is narrowly
drawn to protect only communications of legal advice as distinguished from counsel’s non-
privileged participation in the due diligence process.” Wang v. Zymergen Inc. (“Zymergen
II”), No. 21-CV-06028-PCP (SVK), 2025 WL 579197, at *3 (N.D. Cal. Feb. 21, 2025),
reconsideration denied, No. 21-CV-06028-PCP (SVK), 2025 WL 2978393 (N.D. Cal. Oct.
22, 2025). In their discovery responses, the Individual Defendants admit that they relied on
counsel in their investigation and identify the counsel relied upon. (Doc. 302.) That
information, routinely disclosed in public filings pursuant to U.S.C. § 77aa(23), amounts
only to counsel’s non-privileged participation in the due diligence process. The Individual
Case 2:22-cv-02126-MTL Document 336 Filed 02/25/26 Page 4 of 6

- 5 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Defendants do not categorically waive privilege by introducing the fact of attorney
involvement to demonstrate the objective reasonableness of their investigation.
2. Good Faith Defense
The Individual Defendants assert a good faith defense, an exception to liability
under Section 20(a). 15 U.S.C. § 78t(a). The Individual Defendants must demonstrate that
they (1) “acted in good faith,” and (2) “did not directly or indirectly induce the act or acts
constituting the violation or cause of action.” Id. The Individual Defendants seek to submit
evidence of attorney participation to prove the first prong. (Doc. 323 at 15-16.) To
demonstrate that they acted in “good faith,” the Individual Defendants must show they
“maintained and enforced a reasonable and proper system of supervision and internal
control.” Hollinger v. Titan Corp., 914 F.2d 1564, 1576 (9th Cir. 1990).
The Individual Defendants plan to offer evidence at trial of attorney participation to
demonstrate a system of supervision and internal control. (Doc. 323 at 16-17.) As with the
due diligence defense, offering evidence of attorney involvement to demonstrate an
objective process is not the same as showing reliance on the substance of attorney
communications. Zymergen II, 2025 WL 579197, at *2; see also Smilovits v. First Solar,
Inc., 2019 WL 6698199 (D. Ariz. Dec. 9, 2019). The Court therefore finds that the
Individual Defendants do not waive attorney-client privilege by offering evidence of
attorney participation solely to demonstrate the reasonableness of their system of
supervision and internal control.
C. Evidence Beyond Participation
The Individual Defendants will not be permitted to submit evidence or present
argument beyond the fact of attorney participation. Nor may they offer evidence of attorney
participation for a purpose other than demonstrating the reasonableness of the Individual
Defendants’ investigation and system. For example, Plaintiffs point to an April 22, 2022,
email where Kirkland & Ellis attorneys state that they have “signed off” on the offering
memorandum. (Doc. 327 at 7.) Plaintiffs contend that “cross[ing] the line from ‘we retained
counsel’ to ‘counsel reviewed and signed off,’” places the substance of counsel’s
Case 2:22-cv-02126-MTL Document 336 Filed 02/25/26 Page 5 of 6

- 6 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
performance at issue. (Doc. 327 at 7.) That is what the court concluded in First Solar when
it found that the defendants were permitted to “present evidence that counsel reviewed
corporate disclosures and stock-sale plans or attended meetings,” but were not permitted
to “present evidence that counsel approved the disclosures or plans or that Defendants
relied on what the lawyers said about the disclosures or plans.” First Solar, 2019 WL
6698199, at *2. The Court adopts the same boundary outlined in First Solar.
IV. CONCLUSION
Accordingly,
IT IS ORDERED that Lead Plaintiff’s Motion to Compel (Doc. 301) is DENIED.
IT IS FURTHER ORDERED that the Clerk of Court must strike the Underwriter
Defendants’ response (Doc. 325).
Dated this 24th day of February, 2026.
Case 2:22-cv-02126-MTL Document 336 Filed 02/25/26 Page 6 of 6