SHIFT4 Corporation v. Martin
Filing
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ORDER GRANTING Oral Motion of EPX to stay discovery. Discovery due by 2/13/2013. Motions due by 3/15/2013. Proposed Joint Pretrial Order due by 4/15/2013. Signed by Magistrate Judge Peggy A. Leen on 8/2/12. (Copies have been distributed pursuant to the NEF - ECS)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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SHIFT4 CORPORATION,
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Plaintiff,
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vs.
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CRAIG MARTIN, et al.,
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Defendants. )
__________________________________________)
Case No. 2:11-cv-01315-MMD-PAL
ORDER
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The court conducted a scheduling conference on July 10, 2012. Deanna Brinkerhoff appeared
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on behalf of the Plaintiff. James Shea and Trent Richards appeared on behalf of the Defendants. Fred
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Kessler appeared telephonically on behalf of the Defendants.
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BACKGROUND
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The court set this matter for hearing after receiving the parties’ Stipulation and Order to Extend
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Deadlines in the Scheduling Order (Dkt. #36). The stipulation did not comply with the requirements of
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LR 6-1(b) which requires that any stipulation to extend time shall inform the court of any previous
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extensions granted. The stipulation also failed to comply with LR 26-4 which requires that a stipulation
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to extend the deadline established by the discovery plan and scheduling order be filed twenty-one days
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before the expiration of the deadline. This stipulation was filed one day before the discovery cutoff.
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The rule is also explicit that “a request made after the expiration of the specified period shall not be
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granted unless the moving party, attorney, or other person demonstrates that the failure to act was the
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result of excusable neglect.”
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The Complaint (Dkt. #1) was filed August 15, 2011. Defendant Martin filed an Answer and
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Counterclaim (Dkt. #6) on September 22, 2011. When the parties did not submit a stipulated discovery
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plan and scheduling order as required by LR 26-1(e), the court entered a standard Scheduling Order
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(Dkt. #11) giving the parties the amount of time deemed presumptively reasonable by LR 26-1(e) to
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complete discovery. The original scheduling order established a March 20, 2012 discovery cutoff.
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Plaintiff and Defendant Martin submitted a Stipulation to Extend Time (Dkt. #15) on December 14,
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2011, which the court approved in an Order (Dkt. #16) entered December 19, 2011. The stipulation and
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order extended the discovery cutoff until June 20, 2012.
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On April 3, 2012, the district judge entered an Order (Dkt. #19) granting plaintiff’s motion to
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amend the complaint to add Defendant Phoenix Payment Systems, Inc. d/b/a Electronic Payment
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Exchange (“EPX”). Plaintiff did not file the amended complaint until May 1, 2012 (Dkt. #23). The
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district judge approved the parties’ stipulation to extend the deadline for EPX to respond to the
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complaint. Defendant EPX made its initial appearance on June 29, 2012, by filing a Motion to Dismiss
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(Dkt. #41).
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The parties’ stipulation and proposed order extending deadlines requests an additional nine
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months to complete discovery. The reason given for the extended time allowed is to enable Defendant
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Martin to schedule and take the depositions of Shift4's Rule 30(b)(6) designees. Counsel represented
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that Shift4 may need to produce as many as four deponents to cover the multiple topics contained in
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Martin’s deposition notice. The additional time was also requested because EPX was just added as a
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party to the case.
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During the hearing counsel for Plaintiff indicated that Plaintiff needed to complete the
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deposition of Mr. Martin and obtain discovery from EPX. The parties requested a nine-month
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extension of the discovery plan and scheduling order deadlines because counsel expected it would take
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some time for the district judge to decide the motion to dismiss the amended complaint once the motion
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is fully briefed. Plaintiff’s response to the amended complaint is due July 16, 2012, and counsel for
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Plaintiff acknowledged she did not need to conduct any discovery from EPX to respond to the motion.
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Counsel for EPX indicated that his client had only made its initial appearance on June 29, 2012, and
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had been unable to conduct any discovery. By contrast, Plaintiff received an initial discovery plan and
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two extensions of the discovery plan and scheduling order deadlines. During the extended time the
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court allowed, counsel for Plaintiff did not seek any non-party discovery from EPX. EPX is Defendant
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Craig Martin’s current employer. Plaintiff has asserted breach of contract claims and trade secret
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claims in the complaint and amended complaint. The complaint allegations are made “on information
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and belief” and EPX has no idea why it has been sued. The extended time was requested because EPX
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believes the motion to dismiss is meritorious and will result in a dismissal of the entire case. Under
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these circumstances, counsel intended to await the outcome of the motion to dismiss before engaging in
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expensive discovery.
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The court inquired whether counsel for EPX was effectively seeking a stay of discovery until
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after decision of the motion to dismiss, and counsel for EPX responded affirmatively. Counsel for
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Plaintiff opposes a stay of discovery on the grounds discovery stays are not the ordinary practice of this
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court. The court took the matter under advisement advising counsel for the parties that the motion to
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dismiss and Plaintiff’s response to the motion would be reviewed to address the merits of the parties’
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dispute concerning whether a stay is appropriate.
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On July 31, 2012, the parties submitted a Stipulation (Dkt. #50) which the district judge
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approved in an Order (Dkt. #51). The stipulation and order: (1) withdrew Shift 4's motion to dismiss
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counterclaim without prejudice; (2) withdrew EPX’s motion to dismiss without prejudice; (3) withdrew
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Shift 4's motion to amend without prejudice; (4) required Shift 4 to serve and file a revised second
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amended complaint on or before Friday, August 3, 2012; (5) provided that the revised second amended
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complaint would not add new parties or new claims; and (6) provided that Martin and EPX will answer,
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move or otherwise respond to the revised second amended complaint on or before Friday, August 17,
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2012. On August 1, 2012, the district judge also entered an Order (Dkt. #52) denying as moot
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Plaintiff’s motion to dismiss Defendant’s counterclaim.
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DISCUSSION
I.
Motion to Stay Standards.
The Federal Rules of Civil Procedure do not provide for automatic or blanket stays of discovery
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when a potentially dispositive motion is pending. Skellercup Indus. Ltd. v. City of L.A., 163 F.R.D.
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598, 600-01 (C.D. Cal 1995) (stating that if the Federal Rules contemplated a motion to dismiss under
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Rule 12(b)(6) would stay discovery, the Rules would contain such a provision, and finding that a stay of
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discovery is directly at odds with the need for expeditious resolution of litigation).
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Two published decisions in this district have held that ordinarily, a dispositive motion does not
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warrant a stay of discovery. Twin City Fire Insurance v. Employers of Wasau, 124 F.R.D 652, 653 (D.
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Nev. 1989); Turner Broadcasting System, Inc. v. Tracinda Corp., 175 F.R.D. 554, 556 (D. Nev. 1997).
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Both of these decisions held that to establish good cause for a stay, the moving party must show more
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than an apparently meritorious Rule 12(b)(6) motion. Id. Citing the Ninth Circuit’s decision in Wood
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v. McEwen, 644 F.2d 797, 801 (9th Cir. 1981) (per curiam), both of these decisions held that a district
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court may stay discovery only when it is convinced that the Plaintiff will be unable to state a claim for
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relief (emphasis added). Common situations in which a court may determine that staying discovery
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pending a ruling on a dispositive motion occur when dispositive motions raise issues of jurisdiction,
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venue, or immunity. Id.
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On the other hand, the Ninth Circuit has held that under certain circumstances, a district court
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abuses its discretion if it prevents a party from conducting discovery relevant to a potentially dispositive
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motion. See Alaska Cargo Transport, Inc. v. Alaska R.R., Corp., 5 F.3d. 378, 383 (9th Cir. 1993)
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(stating the district court would have abused its discretion in staying discovery if the discovery was
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relevant to whether or not the court had subject matter jurisdiction); Jarvis v. Regan, 833 F.2d 149, 155
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(9th Cir. 1987) (holding district court did not abuse its discretion in denying discovery when the
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complaint did not raise factual issues requiring discovery to resolve); Kamm v. Cal City Dev. Co., 509
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F.2d 205, 210 (9th Cir. 1975) (holding the propriety of a class action cannot be determined in some
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cases without discovery, and to deny discovery in such cases is an abuse of discretion); Doninger v.
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Pac. Nw. Bell, Inc., 564 F.2d 1304, 1313 (9th Cir. 1977) (stating that the better and more advisable
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practice is for the district court to allow litigants an opportunity to present evidence concerning whether
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a class action is maintainable, and such an opportunity requires “enough discovery to obtain the
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material”).
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The purpose of Federal Rule of Civil Procedure 12(b)(6) is to enable defendants to challenge the
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legal sufficiency of a complaint without subjecting themselves to discovery. Rutman Wine Co. v. E & J
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Gallo Winery, 829 F.2d 729, 738 (9th Cir. 1987). The Ninth Circuit has held that discovery at the
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pleading stage is only appropriate where factual issues are raised by a Rule 12(b) motion, and a pending
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Rule 12(b) motion to dismiss is sufficient cause for granting a protective order. Wagh v. Metris Direct,
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Inc., 363 F.3d 821, 829 (9th Cir. 2003), overruled on other grounds, Odom v. Microsoft Corp., 486
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F.3d 541, 551 (9th Cir. 2007) (en banc).
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Under Federal Rule of Civil Procedure 26(c), the court may limit the scope of disclosures or
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discovery on certain matters and prevent certain matters from being inquired into upon a showing of
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good cause or where “justice requires to protect a party or person from annoyance, embarrassment,
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oppression, or undue burden or expense.” Id. The district court has wide discretion in controlling
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discovery, and its rulings will not be overturned in the absence of a clear abuse of discretion. Little v.
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City of Seattle, 863 F.2d, 681, 685 (9th Cir. 1988). Staying discovery when a court is convinced that
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the plaintiff will be unable to state a claim for relief furthers the goal of efficiency for the court and the
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litigants. Id.
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It is well-established that a party seeking a stay of discovery carries the heavy burden of making
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a strong showing why discovery should be denied. Turner, 175 F.R.D. at 556 (citing Blankenship v.
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Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975)). A showing that discovery may involve some
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inconvenience and expense does not suffice to establish good cause for issuance of a protective order.
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Id.; Twin City, 124 F.R.D. at 653. Rather, a party seeking a protective order must show a particular and
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specific need for the protective order, and broad or conclusory statements concerning the need for
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protection are insufficient. Gray v. First Winthrop Corp., 133 F.R.D. 39, 40 (N.D. Cal. 1990).
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To summarize, the Ninth Circuit has held that a district court may enter a protective order
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staying discovery when a motion to dismiss for failure to state a claim on which relief may be granted is
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pending if the district court “is convinced that the plaintiff will be unable to state a claim for relief.”
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Wood v. McEwen, 644 F.2d at 801. The Ninth Circuit has also held that under certain circumstances, it
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is an abuse of discretion to deny discovery while a dispositive motion is pending. Finally, the Ninth
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Circuit has held that the purpose of a Rule 12(b)(6) motion is to enable a Defendant to challenge the
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legal sufficiency of a complaint without subjecting itself to discovery. The court’s research has not
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found a Ninth Circuit case announcing the factors a court should apply in deciding a motion to stay
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discovery while a dispositive motion is pending.
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Federal district courts in the Northern and Eastern Districts of California have applied a two-
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part test when evaluating whether discovery should be stayed. See, e.g., Mlenjnecky v. Olympus
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Imaging America, Inc., 2011 WL 489743 at *6 (E.D. Cal. Feb. 7, 2011) (collecting cases). First, the
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pending motion must be potentially dispositive of the entire case or at least dispositive of the issue on
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which discovery is sought. Second, the court must determine whether the pending potentially
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dispositive motion can be decided without additional discovery. In applying this two-factor test, the
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court deciding the motion to stay must take a “preliminary peek” at the merits of the pending
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dispositive motion to assess whether a stay is warranted. If the party moving to stay satisfies both
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prongs, a protective order may issue; otherwise, discovery should proceed. Id.
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Other courts in the Ninth Circuit have applied a more lenient standard in determining whether a
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motion to stay should be granted pending a resolution of a potentially dispositive motion. See, e.g.,
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GTE Wireless, Inc. v. Qualcom, Inc., 192 F.R.D. 284, 286 (S.D. Cal. 2000) (stating the court should
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“take a preliminary peek at the merits of the allegedly dispositive motion to see if on its face there
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appears to be an immediate and clear possibility that it will be granted.” Id. (citing Feldman v. Flood,
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176 F.R.D. 651, 652 (M.D. Fla. 1997) (emphasis in original).
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In still a third approach, a judge in the Central District of California has held the court should
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evaluate a request for a stay applying several factors on a case-by-case basis. See Skellercup, 163
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F.R.D. at 601. In Skellercup, the court adopted the approach taken in the Eastern District of New York
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decision, Hachette Distributing v. Hudson County News Co., 136 F.R.D. 356, 358 (E.D.N.Y. 1991).
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These decisions recognize that discovery should be stayed while a dispositive motion is pending “only
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when there are no factual issues in need of further immediate exploration, and the issues before the
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Court are purely questions of law that are potentially dispositive.” Hachette, 136 F.R.D. at 356. In
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determining whether a stay of discovery pending the outcome of a dispositive motion is warranted, a
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case-by-case analysis is required because the inquiry is necessarily fact-specific and depends on the
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particular circumstances and posture of each case. Id. These decisions suggest that the court should
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consider the following, non-exhaustive list of factors: the type of pending dispositive motion and
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whether it is a challenge as a matter of law or to the sufficiency of the complaint allegations; the nature
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and complexity of the action; whether counterclaims and/or cross-claims have been asserted; whether
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some or all of the defendants join in the request for a stay; the posture or stage of the litigation; the
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expected extent of discovery in light of the number of parties and complexity of the issues in the case;
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and any other relevant circumstances. Id.
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In evaluating the propriety of an order staying or limiting discovery while a dispositive motion
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is pending, this court considers the goal of Rule 1 of the Federal Rules of Civil Procedure which directs
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that the Rules shall “be construed and administered to secure the just, speedy, and inexpensive
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determination of every action.” Id. Discovery is expensive. This court is persuaded that the standard
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enunciated by Judges Reed and Hunt in Twin City and Turner should apply in evaluating whether a stay
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of discovery is appropriate while a dispositive motion is pending. A stay of all discovery should only
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be ordered if the court is “convinced” that a plaintiff will be unable to state a claim for relief. However,
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as the court in Mlenjnecky recognized, taking a “preliminary peek” and evaluating a pending dispositive
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motion puts a magistrate judge in an awkward position. 2011 WL 489743 at *6. The district judge will
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decide the dispositive motion and may have a different view of the merits of the underlying motion.
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Thus, this court’s “preliminary peek” at the merits of the underlying motion is not intended to prejudge
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its outcome. Rather, this court’s role is to evaluate the propriety of an order staying or limiting
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discovery with the goal of accomplishing the objectives of Rule 1. With Rule 1 as its prime directive,
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this court must decide whether it is more just to speed the parties along in discovery and other
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proceedings while a dispositive motion is pending, or whether it is more just to delay or limit discovery
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and other proceedings to accomplish the inexpensive determination of the case.
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The explosion of Rule 12(b)(6) motions in the wake of Bell Atlantic Corp v. Twombly, 550 U.S.
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544 (2007), and Ashcroft v. Iqbal, 129 S.C. 1937 (2009), has made speedy determinations of cases
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increasingly more difficult. Prohibiting or delaying all discovery will often cause unwarranted delay,
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especially if a pending dispositive motion challenges fewer than all of Plaintiff’s claims. The fact that a
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non-frivolous motion is pending is simply not enough to warrant a blanket stay of all discovery. With
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these principles in mind, the court took a “preliminary peek” at Defendant’s motion to dismiss.
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The court took a preliminary peek at EPX’s motion to dismiss the amended complaint, and
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Plaintiff’s response before the parties stipulated to withdraw it. The motion to dismiss wass based on
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Federal Rules of Civil Procedure 8(a)(2) and 12(b)(6). It argued that the amended complaint contains
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no meaningful factual allegations and consists largely of the names of various causes of actions with
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conclusory references to the elements of those claims. These threadbare allegations, it argued, fall far
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short of what is required to plead serious allegations of claims such as the trade secret misappropriation
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claim.
Plaintiff responded that the first amended complaint made certain allegations on information
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and belief because it is a permitted pleading practice when specific facts are uniquely within the
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Defendant’s knowledge. Plaintiff contended that it was not required to identify its trade secrets in the
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first amended complaint to put EPX on notice of what it alleges was misappropriated, and that it is not
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required to publicly disclose its trade secrets to plead a claim. Shift 4 maintained that the amended
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complaint properly plead legitimate claims and there was no basis for imposing a heightened pleading
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standard which the motion to dismiss sought to impose.
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The parties have now stipulated to withdraw the motion to dismiss and to allow the Plaintiff to
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file a second amended complaint which will not add new partes or new claims. The stipulation and
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order requires EPX to file a responsive pleading on or before Friday, August 17, 2012. Having
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reviewed and considered the motion to dismiss, especially in light of the parties’ stipulation and the
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district judge’s order, the court is not convinced that Shift 4 will be unable to state a claim for relief
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against EPX. The court will therefore deny EPX’s request for a stay of discovery and enter a discovery
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plan and scheduling order giving the parties 180 days, measured from the date EPX’s response to the
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second amended complaint is due.
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For the reasons stated,
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IT IS ORDERED that:
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1,
The oral motion of EPX to stay discovery is DENIED.
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2.
The following discovery plan and scheduling order deadlines shall apply:
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a.
Last date to complete discovery: February 13, 2013.
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c.
Last date to amend pleadings and add parties: November 15, 2012.
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d.
Last date to file interim status report: December 17, 2012.
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e.
Last date to disclose experts pursuant to Fed. R. Civ. P. 26(a)(2): December 17,
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2012.
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f.
Last date to disclose rebuttal experts: January 15, 2013.
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Last date to file dispositive motions: March 15, 2013.
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h.
Last date to file joint pretrial order: April 15, 2013. In the event dispositive
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motions are filed, the date for filing the joint pretrial order shall be suspended
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until 30 days after a decision of the dispositive motions.
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3.
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The disclosures required by Fed. R. Civ. P. 26(a)(3), and any objections thereto, shall be
included in the pretrial order.
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Applications to extend any dates set by this discovery plan and scheduling order shall, in
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addition to satisfying the requirements of LR 6-1, be supported by a showing of good
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cause for the extension. All motions or stipulations to extend discovery shall be
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received no later than 4:00 p.m., January 23, 2013, and shall fully comply with the
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requirements of LR 26-4.
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Dated this 2nd day of August, 2012.
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Peggy A. Leen
United States Magistrate Judge
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