Cognate Bioservices, Inc. et al v. Smith et al

Filing 214

REPORT AND RECOMMENDATIONS re 200 MOTION to Stay Discovery Pending Rulings on its Case Dispositive Motions. Signed by Magistrate Judge Timothy J. Sullivan on 9/23/2015. (nd2s, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
COGNATE BIOSERVICES, INC., et al.,

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Plaintiffs,

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v.

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ALAN K. SMITH, et al.,

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Defendants.

Civil No. WDQ-13-1797

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REPORT AND RECOMMENDATION
This

Report

and

Recommendation

addresses

Defendant

MacroCure

Ltd.’s

(“MacroCure”) Motion to Stay Discovery Pending Rulings on its Case Dispositive Motions
(“Motion”) (ECF No. 200).1 Plaintiffs Cognate BioServices, Inc., et al. (“Cognate”) oppose the
Motion. (See ECF No. 201.) Having considered the submissions of the parties (ECF Nos. 200205), I find that a hearing is unnecessary. See Loc. R. 105.6. For the reasons set forth below, I
respectfully recommend that MacroCure’s Motion be granted in part and denied in part.
I.

BACKGROUND
From 2003 until May 2010, Defendant Alan K. Smith (“Smith”) was employed as the

CEO of Cognate. (ECF No. 100 at 8.) While employed by Cognate, Smith negotiated a contract
between Cognate and MacroCure related to the development of an “immune cell wound-healing
product known as ‘CureXcell.’” (Id.) The relationship between Cognate and MacroCure to
develop CureXcell, however, did not come to fruition. Instead, after leaving Cognate, Smith
worked as a consultant for MacroCure on the development of CureXcell. (Id.) Cognate alleges
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On May 22, 2014, in accordance with 28 U.S.C. § 636 and Local Rule 301, Judge
Quarles referred this case to me for discovery and related scheduling matters. (ECF No. 35.)
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that while Smith worked as a consultant for MacroCure, he accessed Cognate’s computer
systems without authorization and copied Cognate’s proprietary materials, which he then
produced to MacroCure. (Id. at 9.)
The original complaint that Cognate filed on June 19, 2013 named two defendants: Smith
and Alan Smith Consulting, Inc.2 (ECF No. 1.) On May 27, 2014, Cognate sought leave to file an
amended complaint that, among other things, named MacroCure as a defendant. (ECF No. 36.)
On June 9, 2014, while Cognate’s motion for leave to file an amended complaint was pending,
the Court granted Cognate’s motion for the issuance of a letter of request pursuant to the Hague
Convention on the Taking of Evidence Abroad in Civil or Commercial Matters. (ECF Nos. 37 &
42.) The Court’s Letter of Request (ECF No. 42) sought the assistance of the Israeli Directorate
of Courts (the “Israeli court”) in obtaining certain discovery from MacroCure, which has its
principal place of business in Israel, related to Smith’s work for MacroCure. In general, the
Letter of Request seeks documents and information in the possession of MacroCure that are
likely to show whether Smith improperly accessed Cognate’s computer systems, misappropriated
Cognate’s proprietary materials, and communicated Cognate’s proprietary materials to
MacroCure. (See ECF No. 145.)
On March 17, 2015, Judge Quarles granted Cognate’s motion for leave to file an
amended complaint. (ECF Nos. 147 & 148.) MacroCure has filed “three case-dispositive
motions raising issues of subject matter jurisdiction (ECF No. 174), res judicata (ECF No. 173),
and personal jurisdiction (ECF No. 170).” (ECF No. 200-2 at 3.) MacroCure seeks a stay of
discovery until the Court has ruled on these motions.

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Throughout this Report and Recommendation, Smith and his company are referred to
collectively as the “Smith Defendants.”
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II.

STAY OF DISCOVERY
A.

Standard

Motions to stay discovery are “considered pursuant to Fed. R. Civ. P. 26(c) and case law
interpreting that rule.” Wymes v. Lustbader, No. WDQ-10-1629, 2012 WL 1819836, at *3 (D.
Md. May 16, 2012). Rule 26(c) provides that a “court may, for good cause, issue an order to
protect a party or person from annoyance, embarrassment, oppression, or undue burden or
expense, including one or more of the following: (A) forbidding the disclosure or discovery; [or]
(B) specifying terms, including time and place or the allocation of expenses, for the disclosure or
discovery.” Id. Thus, a party seeking to stay discovery must show good cause. Id.
In order to establish good cause to stay discovery, the moving party “must present a
‘particular and specific demonstration of fact’ as to why a protective order [staying discovery]
should issue.” Id. (quoting Baron Fin. Corp. v. Natanzon, 240 F.R.D. 200, 202 (D. Md. 2006)).
Specifically, the moving party must make “a specific factual showing that the interest of justice
and considerations of prejudice and undue burden to the parties require a protective order and
that the benefits of a stay outweigh the cost of delay.” Id. (citations omitted). The requirement to
show good cause is a “high hurdle” for the moving party, and the Court has “broad discretion . . .
to decide when a protective order is appropriate and what degree of protection is required.” Id.
(quoting Furlow v. United States, 55 F. Supp. 2d 360, 366 (D. Md. 1999)).
Courts commonly stay discovery pending resolution of dispositive motions, and such
stays can be “an eminently logical means to prevent wasting the time and effort of all concerned,
and to make the most efficient use of judicial resources.” Id. at 4 (quoting Natanzon, 240 F.R.D.
at 202)); see also Thigpen v. United States, 800 F.2d 393, 396-97 (4th Cir. 1986). In certain
instances, however, discovery stays can result in case management problems, a prolongation of

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the proceedings, and a duplication of the costs of counsel. Id. For these reasons, the Court must
carefully weigh the potential costs and benefits of a stay of discovery.
B.

Discussion

MacroCure makes a number of arguments in support of its Motion. First, it argues that its
motions to dismiss do not require the consideration of evidence that might be the subject of
discovery. MacroCure’s motions to dismiss for lack of subject matter jurisdiction and on res
judicata grounds, for instance, raise “purely legal challenges” to the sufficiency of Cognate’s
First Amended Complaint. (ECF No. 200-2 at 7-8.) MacroCure argues that while its motion to
dismiss for lack of personal jurisdiction depends on factual findings regarding “the extent and
limits of its contacts with Maryland,” that motion is already fully briefed. (ECF No. 203 at 5-6.)
In addition, to the extent that the Court finds that additional jurisdictional discovery is
appropriate, discovery directed at the jurisdictional issue would not be required for such a
finding. See Armstrong v. Nat'l Shipping Co. of Saudi Arabia, No. ELH-13-03702, 2015 WL
751344, at *3 (D. Md. Feb. 20, 2015) (citing Mylan Laboratories, Inc. v. Akzo, N.V., 2 F.3d 56,
64 (4th Cir. 1993) and Consulting Eng'rs Corp. v. Geometric Ltd., 561 F.3d 273, 276 (4th Cir.
2009)).
Cognate contends that MacroCure’s Motion is just another attempt by MacroCure to
delay the production of any discovery in this case. (ECF No. 201 at 7-9.) The discovery sought
from MacroCure, Cognate argues, is crucial to a fair determination of the motions to dismiss
pending before the Court, and also to its claims against the Smith Defendants even if the claims
against MacroCure are dismissed. (Id.) Cognate has submitted a declaration pursuant to Rule
56(d) in connection with its opposition to MacroCure’s motion to dismiss on res judicata
grounds, and has propounded discovery requests related to MacroCure’s contacts with Maryland

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and relationship with Smith in connection with its opposition to MacroCure’s motion to dismiss
for lack of personal jurisdiction. Cognate states through the declaration of its counsel that
additional facts needed to oppose summary judgment are still being developed through
discovery. An interruption in discovery at this point could “further complicate what has already
become a bifurcated litigation.” (ECF No. 201 at 8.) Furthermore, Cognate notes that even if one
of MacroCure’s motions to dismiss is successful, the discovery would still be relevant to
Cognate’s claims against the Smith Defendants.
MacroCure’s second argument is that Cognate’s discovery requests are unduly
burdensome, and “responding to [the] requests will require significant time and expense.” (ECF
No. 203 at 6.) MacroCure notes that the facts underlying Cognate’s claims took place over three
years ago, and many of MacroCure’s employees from that time are no longer current employees.
In addition, MacroCure generally states that it “does not have the resources on hand” to respond
to Cognate’s pending discovery requests, presumably because many of the documents and
persons with discoverable information are located in Israel.
Cognate characterizes its discovery requests to MacroCure as “narrowly tailored and
limited by date, subject matter, or both,” and “directly related” to its claims against MacroCure
and the Smith Defendants. (ECF No. 201 at 10.) In addition, Cognate suspects that MacroCure’s
recent interest in judicial efficiency is nothing more than another tactic to delay Cognate’s ability
to obtain discovery related to its claims. Cognate argues that MacroCure’s claim of undue burden
is “particularly troubling” with respect to the discovery Cognate has propounded about
MacroCure’s contacts with Maryland, a place that MacroCure has said it has “absolutely nothing
to do with.” (ECF No. 201 at 11.)

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Third, MacroCure argues that the potential prejudice to Cognate of a stay of discovery is
minimal. Cognate’s litigation against Smith has been ongoing for a number of years, first in a
separate state court proceeding and now in this Court. MacroCure states that if its motions are
denied, the Court will be required to amend the existing scheduling order, and “discovery will
unavoidably need to be significantly extended,” thereby providing Cognate with “enough time to
take the discovery they now seek.” (ECF No. 203 at 1.)
Cognate disagrees that a stay of discovery would result in “minimal additional prejudice
to Plaintiffs.” (ECF No. 201 at 7.) MacroCure’s “ongoing use of Plaintiffs’ proprietary
information is, by its very nature, causing continuing harm,” as it puts Cognate “at risk of
substantial financial harm and competitive disadvantage.” (Id.) Even though Cognate has already
endured a substantial delay in vindicating its claims, it characterizes any further delay in this
litigation as a significant prejudice.
C.

Local Rule 104.7

Cognate argues that MacroCure’s Motion should also be denied because it does not
comply with Local Rule 104.7, which is the Court’s local rule regarding discovery disputes. This
rule provides:
Counsel shall confer with one another concerning a discovery dispute and make
sincere attempts to resolve the differences between them. The Court will not consider
any discovery motion unless the moving party has filed a certificate reciting (a) the
date, time and place of the discovery conference, and the names of all persons
participating therein, or (b) counsel’s attempts to hold such a conference without
success; and (c) an itemization of the issues requiring resolution by the Court.

Loc. R. 104.7.
MacroCure states that two days before it filed the Motion, its counsel attempted to
contact counsel for Cognate by telephone, and left a voicemail message explaining its desire to
stay discovery pending a decision on its motions to dismiss. (ECF No. 200 at 1.) One hour later,
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Cognate’s counsel responded to MacroCure by email that Cognate would not agree to such a stay
of discovery. (Id.) Cognate asserts that MacroCure’s description of its efforts to resolve this
dispute with Cognate do not meet the certification requirement of Rule 104.7. Cognate implies
that MacroCure never actually attempted to resolve the dispute, and contacted Cognate only so
that its position could be set forth in the Motion. (ECF No. 201 at 13.) MacroCure has attempted
to cure the deficiency by attaching a Rule 104.7 certificate to its reply. (ECF No. 203-1.)
I find that MacroCure’s Motion does not comply with Rule 104.7’s certification
requirements, but I do not recommend that MacroCure’s Motion be denied on that basis.
MacroCure should have made sincere efforts to resolve its dispute with Cognate, in person or by
telephone, rather than exchanging voicemails and emails. If MacroCure made these efforts, the
parties may have been able to resolve this dispute through a reasonable compromise and without
judicial intervention. But given the history of discovery in this case, that is unlikely. Denying
MacroCure’s Motion on procedural grounds and requiring the parties to confer in person or by
telephone before resubmitting the Motion would only lead to additional delay. Unlike many
discovery disputes that involve numerous issues, the issue in MacroCure’s Motion is discrete and
the parties’ positions are well briefed. For these reasons, MacroCure’s Motion should not be
denied for failing to comply with Rule 104.7.
D.

Findings and Recommendations

I find that MacroCure has demonstrated that good cause exists to stay discovery, albeit on
a somewhat limited basis, until the Court rules on its motions to dismiss (ECF Nos. 170, 173 &
174). First, putting aside the question of whether the discovery requests that Cognate has
propounded on MacroCure to date are burdensome, no one could dispute that discovery in this
case has been complicated, contentious, and time-consuming. Regrettably, it is likely that the

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introduction of MacroCure as a defendant will only multiply the discovery problems for all of
the parties (and third-parties) to this litigation. The circumstances of this case are distinguishable
from those in Federal Ins. Co. v. Southern Lithoplate, Inc., No. 12-793, 2013 WL 4045924, at *1
(E.D.N.C. Aug. 8, 2013), which Cognate cites in its opposition (ECF No. 201 at 8). Here, a stay
of discovery will not cause additional case management problems of any significance because
discovery has already been bifurcated as to the parties. In addition, if MacroCure is successful in
obtaining the dismissal of the claims against it, a stay of discovery will result in a subastantial
conservation of the resources that the parties and of the Court in managing this case. This factor
weighs in favor of staying discovery.
Second, while much of the discovery that Cognate seeks from MacroCure may be related
to its opposition of MacroCure’s motions to dismiss, those motions are fully briefed. Judge
Quarles’s rulings on the motions do not depend on evidence that Cognate may be able to uncover
in discovery from MacroCure. If Judge Quarles finds that Cognate must be permitted to take
additional discovery before the Court rules on the motions to dismiss, he may direct that such
discovery proceed at that time. As such, I find that the discovery that Cognate seeks from
MacroCure is not necessary, at least in the strict sense, for it to oppose MacroCure’s motions to
dismiss. This factor also weighs in favor of staying discovery.
Third, I find that Cognate will be prejudiced by a stay of discovery. Cognate has made
diligent efforts to obtain discovery from MacroCure as well as third-parties, but has encountered
obstacles at every turn. While a stay of discovery pending Judge Quarles’s rulings on the
motions to dismiss may not be of an extended duration, it will nonetheless hinder Cognate’s

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ability to bring its claims against the Smith Defendants and MacroCure to a disposition.3 In
addition, to the extent that MacroCure is using Cognate’s proprietary information (as Cognate
alleges), the continued use of this information by MacroCure is a cause of continuing harm to
Cognate. This factor weighs against staying discovery.
After considering each of these factors, I find that MacroCure has made the necessary
showing for a stay of discovery. If the Court were to deny MacroCure’s Motion, much of the
discovery already conducted by the parties would likely be conducted again by MacroCure. This
would be a waste of the parties’ resources if Judge Quarles ultimately grants any of MacroCure’s
motions to dismiss, and the discovery taken by MacroCure proves to be of no use. At the same
time, while the Court assumes that Cognate will continue to suffer prejudice as this litigation is
prolonged, the marginal difference in the amount of prejudice that Cognate will suffer with a stay
of discovery is small when compared to the prejudice it would suffer without such a stay. In sum,
the interests of justice weigh in favor of staying discovery.
However, there is certain discovery to be taken from MacroCure that should not be
stayed. This includes (1) the discovery sought through the Hague Convention request to the
Israeli court; (2) any additional discovery that Judge Quarles allows to be taken in connection
with MacroCure’s motions to dismiss; and (3) the third-party and expert discovery discussed in
Cognate’s recent motion to amend the scheduling order (ECF No. 208).
As to the first category of discovery that I find should not be stayed, principles of comity
require that this Court not interfere with the proceedings of the Israeli court. The Israeli court has
endeavored to assist this Court in obtaining certain discovery from MacroCure that is essential to

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A stay of discovery would also result in prejudice to the Smith Defendants, who have
repeatedly stated their desire for a disposition of this case. Nonetheless, the Smith Defendants
consent to a stay of discovery. (ECF No. 200 at 2.)
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Cognate’s claims against the Smith Defendants. This discovery will remain essential to
Cognate’s claims regardless of whether MacroCure remains a defendant in this case. The Israeli
court has already made a substantial effort to assist this Court in obtaining discovery from
MacroCure. This Court should not interfere with its proceedings, which remain appropriate
considering the “situations of the parties before [this Court] as well as the interest the concerned
foreign state.” Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for S. Dist. of Iowa,
482 U.S. 522, 533 (1987). I recognize that the Court is not required to use the Hague Convention
procedures to obtain discovery from MacroCure now that MacroCure is a party subject to this
Court’s jurisdiction. See Societe Nationale Industrielle Aerospatiale, 482 U.S. 522 at 539-40
(noting that the “Hague Convention [does] not deprive the District Court of the jurisdiction it
otherwise possesse[s] to order a foreign national to produce evidence physically located within a
signatory nation”). Nonetheless, continued deference to the Israeli court in this matter will
advance Cognate’s interests in obtaining discovery that is essential to its claims against the Smith
Defendants while also showing “due respect for any special problem confronted by [MacroCure]
on account of its nationality or the location of its operations, and for any sovereign interest
expressed by a foreign state.” Id. at 546. For these reasons, I recommend that the Court make
clear that its requests to the Israeli court pursuant to the Hague Convention are not stayed.
The second category of discovery that should not be stayed is the discovery that Judge
Quarles finds is necessary for a fair consideration of MacroCure’s motions to dismiss. Because
this case has only been referred to me for discovery and related scheduling matters, it would be
inappropriate for me to opine on whether additional discovery should be permitted before the
Court rules on MacroCure’s motions. To the extent that Judge Quarles finds that certain

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jurisdictional discovery should be permitted before the Court rules on those motions, it should go
without saying that such discovery should not be stayed.
The third category of discovery that should not be stayed is the third-party and expert
discovery discussed in Cognate’s Motion to Amend the Schedule for Completing Third-Party
and Expert Discovery and Filing Dispositive Pretrial Motions (ECF No. 208). Specifically,
discovery should not be stayed with respect to (1) discovery from the third parties, including the
Red Cross; (2) any discovery between Cognate and the Smith Defendants that the parties have
previously agreed to conduct; and (3) expert discovery.4
III.

CONCLUSION
For the reasons set forth above, I recommend that the Court enter an order granting in

part and denying in part MacroCure’s Motion to Stay Discovery Pending Rulings on its Case
Dispositive Motions (ECF No. 200). I recommend that the Court stay discovery with respect to
MacroCure. I do not recommend that discovery be stayed in connection with (1) this Court’s
Hague Convention request to the Israeli court; (2) any discovery that the Court finds is necessary
in connection with its consideration of MacroCure’s motions to dismiss; and (3) the discovery
currently proceeding between Cognate and the Smith Defendants, including third-party and
expert discovery.

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The scheduling order governing this case (ECF No. 30) has been amended by a number
of other orders (see ECF Nos. 37, 109, 143, 152, 159, 178, 188 & 209). Under the current
schedule, third-party and expert discovery is to be complete by January 21, 2016. (ECF No. 109.)
While I do not recommend that expert discovery be stayed, this recommendation should not be
interpreted to mean that expert discovery must proceed in MacroCure’s absence. If MacroCure’s
motions to dismiss are denied, it seems that some expert discovery would have to be duplicated
if it was conducted without MacroCure’s participation. If, in light of this recommendation,
Cognate and the Smith Defendants wish to defer expert discovery until the resolution of
MacroCure’s motions to dismiss, they may request that the Court make this modification to the
schedule.
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Any objections to this Report and Recommendation must be served and filed within
fourteen (14) days, pursuant to Fed. R. Civ. P. 72 and Local Rule 301.5.

September 23, 2015
Date

/s/
Timothy J. Sullivan
United States Magistrate Judge

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