Carro v. Barra et al

Filing 20

ORDER DENYING 16 MOTION for Discovery filed by Daniel J Carro and setting a ( Scheduling Conference for 2/7/2017 10:00 AM before District Judge Robert H. Cleland) Signed by District Judge Robert H. Cleland. (LWag)

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
_________________________________________________________________
DANIEL J. CARRO,
Plaintiff,
v.

Case No. 16-10479

MARY T. BARRA, et al.,
Defendants.
/
ORDER DENYING PLAINTIFF’S MOTION FOR DISCOVERY AND SETTING
SCHEDULING CONFERENCE
Pending before the court is Plaintiff Daniel Carro’s “Motion for Discovery.” (Dkt.
#16.) Defendant General Motors Company (“GM”) has filed a response, (Dkt. #17), and
Plaintiff has filed a reply, (Dkt. #17). After reviewing the briefs, the court concludes that
a hearing is unnecessary. See E.D. Mich. LR 7.1(f)(2). For the following reasons, the
court will deny Plaintiff’s motion.
I. BACKGROUND
Plaintiff is a GM shareholder who, following the much-publicized ignition failures
in certain GM cars, sent a letter to GM’s Board of Directors (“Board”) on April 30, 2015,
demanding that they file suit against a number of GM directors and officers for not
having detected, publicized, and addressed the problem sooner, in violation of their
fiduciary duties. The Board responded that it would await the outcome of a motion to
dismiss in the Delaware Court of Chancery related to a shareholder derivative action
alleging similar underlying facts. On June 26, 2015, the Delaware court granted
dismissal, in part on the basis that the shareholders had not plead sufficiently particular

facts to meet the “futility of demand” requirement under Delaware Chancery Court Rule
23.1. In re Gen. Motors Company Derivative Litig., No. 9627, 2015 WL 3958724, at *17
(Del. Ch. June 26, 2015) (“I find that there is not a substantial likelihood of personal
liability on the part of a majority of the Board, excusing demand, and the Motion to
Dismiss should be granted for failure to comply with Rule 23.1.”). GM then informed
Plaintiff that it was again suspending consideration of the demand, because the
dismissal had been appealed.
Plaintiff then filed the instant complaint on February 10, 2016, in part alleging that
the Board’s response was not reasonable or made in good faith. (Dkt. #1, Pg. ID 5.) The
next day, the Delaware Supreme Court, sitting en banc, affirmed the lower court’s
holding in a short decision written by Chancellor Strine after a special argument
session. In re Gen. Motors Co. Derivative Litig., No. 392, 2015, 2016 WL 552651 (Del.
2016). On March 4, 2016, the Board informed Plaintiff through counsel that it would
reinitiate consideration of his demand, and on June 14, 2016, it sent a letter indicating
that the Board had decided not to pursue the requested litigation. On June 28, 2016,
Plaintiff requested reports referenced in the demand refusal letter, and a few days later
GM refused this request. Though the parties have not held a Rule 26(f) conference,
they filed a joint status report which requested that the court hold in abeyance all
deadlines for the pleadings until resolution of Plaintiff’s instant motion, which seeks the
same documents that GM declined to supply. (Dkt. #15.)
Plaintiff argues that he is entitled to discovery prior to the Federal Rule 26(f)
conference despite Federal Rule 26(d)(1)’s general prohibition on such discovery,
because “good cause” exists–the need for discovery outweighs the prejudice to the
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responding party. He argues that the Board’s “cursory refusal letter” contained a
description of “the contours of the Board’s investigation and diligence” which was
“shrouded” and “limit[ed his] ability to assess its compliance with the applicable
standards,” and that GM has continued to refuse to provide discovery. (Dkt. #16, Pg. ID
109.) Specifically, Plaintiff describes the information he seeks as regarding:
(a) the conduct of the Board in responding to plaintiff’s litigation demand;
(b) the underlying information considered by the decision-makers; and
(c) whether the Board acted free of material conflicts of interest.
(Id.) He argues that this information, though limited in scope, is crucial to understanding
whether the Board wrongfully denied his litigation request. He also asserts that no
undue prejudice will result from requiring GM to supply him this information.
GM contends that its response to Plaintiff’s demand letter was more than
“cursory.” It points to five single-spaced pages identifying in detail the specific
investigatory efforts made by GM and the top-flight law firms that it employed to this end
as materials reviewed by the Board. According to the letter, the Board concluded that
pursuing the suit was not in the company’s best interest because the likelihood of
meaningful recovery against the indemnified individual Defendants was low, and in any
case would negatively affect GM’s ability to purchase D&O insurance in the future and
thus to attract quality managerial talent. GM argues further that Delaware law places a
heightened pleading standard on derivative suits in the case of a refused demand letter,
and it does not allow such plaintiffs to take discovery merely in aid of drafting an
amended complaint to include a wrongful refusal claim–specifically, that no discovery
should issue until Plaintiff has survived a motion to dismiss. GM also argues that
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Plaintiff’s arguments as to Federal Rule 26(d) are inapplicable in this specific
circumstance. That is to say, what the “good cause” standard arguably permits, other
rules here prohibit. Finally, GM argues that Defendants’ cited case law did not apply
Delaware corporate law and is factually inapposite to the instant case.
In reply, Plaintiff contends that it is the Federal Rules of Civil Procedure, not
Delaware corporate law, which govern the question of whether he is due discovery at
this time. This, he argues, means that under the Federal Rules the court must use its
discretion in whether to grant discovery, which would be reasonable in this case.
II. STANDARD
Under Federal Rule of Civil Procedure 26(d)(1), “[a] party may not seek discovery
from any source before the parties have conferred as required by Rule 26(f), except . . .
when authorized . . . by court order.” Fed. R. Civ. P. 26(d)(1). “In deciding whether to
permit discovery in advance of the Rule 26(f) conference, the Court should evaluate
whether good cause exists.” McCluskey v. Belford High Sch., No. 09-14345, 2010 WL
2696599, at * 1 (E.D.Mich. June 24, 2010) (citations omitted). “The Court has discretion
to allow discovery before a case management conference and prior to a Rule 26(f)
conference if it believes that the discovery will advance the case toward resolution and
address critical issues.” Concerned Pastors for Soc. Action v. Khouri, No. 16-10277,
2016 WL 3055624, at *1 (E.D. Mich. May 31, 2016).

III. DISCUSSION
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The court will apply the Federal Rules of Civil Procedure to determine whether
discovery is warranted in this case. As cited above, Federal Rule 26(d)(1) provides
guidance on exactly this question. As the Supreme Court in
Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., explained:
The framework for our decision is familiar. We must first determine
whether [the Federal Rule] answers the question in dispute. If it does, it
governs–[state] law notwithstanding–unless it exceeds statutory
authorization or Congress's rulemaking power. We do not wade into Erie's
murky waters unless the federal rule is inapplicable or invalid.
559 U.S. 393, 398 (2010) (citations omitted). Federal Rule 26 answers the question in
dispute, and no suggestion has been made that it exceeds statutory authorization or
Congress’s rulemaking power. Thus, it governs.
Both parties rely heavily on authority from outside this jurisdiction to support their
positions, as it appears few courts in this circuit have had occasion to address this
precise question. However, Plaintiff’s argument that, absent early discovery, he would
face a “‘Catch-22’ procedural hurdle in Rule 23.1” was specifically rejected by an
Eastern District of Michigan Court in Levine v. Liveris when deciding a motion to
dismiss:
[Plaintiff] argues that the description of the investigation in the demand
rejection letter was conclusory and thus that he was placed in a
“Catch–22” whereby [Plaintiff] was required to plead particularized factual
allegations regarding the insufficiency of the investigation, but the Board
had refused to provide any information about the procedures used. . . . the
Delaware Supreme Court has explicitly rejected the argument that the
pleading standard of 23.1 should be lessened simply because plaintiffs
may have difficulty satisfying the standard without the benefit of discovery.
No. 16-11255, 2016 WL 6092731, at *11 (E.D. Mich. Oct. 19, 2016).

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Though that court was deciding a slightly different question, its reasoning is
persuasive when this court considers its exercise of discretion as to whether good
cause exists for the issuance of early discovery. Moreover, the response letter that the
Board supplied to Plaintiff was thorough. That Plaintiff was disappointed to have found
no smoking gun is not cause to upend the general presumption of Federal Rule 26(d)(1)
against early discovery nor to erode the heightened demand pleading requirement of
Federal Rule 23.1. Thus little benefit will follow from allowing discovery compared to the
prejudice of forcing Defendants to incur the expense.
The fact that denial of discovery comports with general procedure in Delaware as
well, and thus would not tend to encourage forum shopping, also counsels against
departure from the normal course in this case. See Shady Grove, 559 U.S. at 417 n.2
(2010) (“The Erie choice requires that the court consider ‘the twin aims of the Erie rule:
discouragement of forum-shopping and avoidance of inequitable administration of the
laws.’”) (citing Hanna v. Plumer, 380 U.S. 460, 468 (1965)). Because no good cause
exists for the court to grant Plaintiff early discovery, the court will deny Plaintiff’s motion.
Since the case has been held in abeyance without a scheduling order, the court directs
the parties to hold their Rule 26(f) conference and submit a joint proposed schedule by
January 20, 2017, with the court to hold a scheduling conference thereafter.
IV. CONCLUSION
IT IS ORDERED that Plaintiff’s Motion for Discovery (Dkt. #16) is DENIED.

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IT IS FURTHER ORDERED that the parties are directed to meet and confer with
Plaintiff to submit to the court a joint proposed scheduling order on or before Friday,
January 20, 2017.
IT IS FURTHER ORDERED that counsel for the parties shall attend a scheduling
conference at US District Court, Port Huron, Michigan, on Tuesday, February 7,
2017 at 10:00 a.m.
s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: January 10, 2017
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, January 10, 2017, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
[phone]

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