AMC Fabrication Inc. v. KRD Trucking West, Inc. et al

Filing 49

ORDER Granting 37 Defendant's Motion to Stay Discovery and Disclosure Obligations. Signed by Magistrate Judge Carl W. Hoffman on 10/10/2012. (Copies have been distributed pursuant to the NEF - AC)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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AMC FABRICATION, INC.,

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Plaintiff,
vs.
KRD TRUCKING WEST, INC., et al.,
Defendants.

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2:12-cv-00146-LDG-CWH
ORDER

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This matter is before the Court on Defendant Kenneth S. Drenth’s Motion to Stay
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Discovery and Disclosure Obligations (#37), filed May 4, 2012; Plaintiff’s Response (#40), filed
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May 10, 2012; and Defendant’s Reply (#41), filed May 21, 2012.
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BACKGROUND
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The parties filed a proposed discovery plan and scheduling order on April 25, 2012. In a
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footnote, the parties set forth a dispute that arose during the Rule 26(f) conference regarding the
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discovery obligations, if any, of Defendant Kenneth Drenth (“Drenth”). Drenth, through his
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counsel, took the position that, until the Court determined whether it had personal jurisdiction
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over Drenth, he should not be required to participate in party-related discovery or make initial
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disclosures. Plaintiff disagreed. See Docket (#31) at n. 2. On May 2, 2012, the Court held a
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hearing on the proposed discovery plan. After hearing arguments from counsel, the Court
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indicated that it would enter a standard discovery order. The Court also requested that the parties
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brief the question of whether discovery should be stayed as against Drenth pending resolution of
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his motion to dismiss asserting that the Court does not have personal jurisdiction over him.
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The parties agree on the general governing law as it relates to requests to stay discovery
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pending resolution of Rule 12 motion to dismiss, but disagree on its application. Drenth argues
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(1) that a stay should be granted “because requiring [him] to participate in discovery would

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frustrate [his] jurisdictional defense” and (2) that the stay would cause no prejudice as the

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remaining parties are in possession of any relevant documents regarding the asserted claims.

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See Def.’s Mot. (#37) at 2:20-27. Plaintiff argues (1) that staying discovery based on a

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“jurisdictionally-based dismissal motion” is not automatic; (2) that, even if granted, the stay

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would not obviate Rule 26(a)’s initial disclosure requirements; (3) that a stay would simply make

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discovery tactically inconvenient by forcing Plaintiff to seek discovery through nonparty means;

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and (4) that, even if the stay is granted, Plaintiff should be able to conduct jurisdictional

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discovery.

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DISCUSSION
The parties agree regarding the standards governing requests to stay discovery pending

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resolution of a dispositive motion. Courts have broad discretionary power to control discovery.

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See e.g., Little v. City of Seattle, 863 F.2d 681, 685 (9th Cir. 1988). In Tradebay, LLC v. eBay,

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Inc., 278 F.R.D. 597 (D. Nev. 2011), the court undertook a detailed and thorough review of the

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state of the law as pertains to staying discovery when a dispositive motion is pending. The court

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determined that, in light of the directive in Rule 1 to construe the Federal Rules of Civil

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Procedure in a manner to “secure the just, speedy, and inexpensive determination of every

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action,” the preferred approach remains as was previously set forth in Twin City Fire Insurance

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v. Employers of Wausau, 124 F.R.D. 652 (D. Nev. 1989) and Turner Broadcasting System, Inc.

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v. Tracinda Corp., 175 F.R.D. 554 (D. Nev. 1997). Generally, a pending dispositive motion is

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not “a situation that in and of itself would warrant a stay of discovery.” See Turner Broadcasting,

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175 F.R.D. at 554, 555-6 (quoting Twin City, 124 F.R.D. at 653). However, preliminary issues

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such as jurisdiction, venue, or immunity are common situations that may justify a stay. See Twin

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City, 124 F.R.D. at 653.

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The party seeking a stay of discovery “carries the heavy burden of making a strong

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showing why discovery should be denied.” Tradebay, 278 F.R.D. at 601 (citing Turner

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Broadcasting, 175 F.R.D. at 556. An overly lenient standard for granting requests to stay would

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result in unnecessary delay in many cases. Courts generally insist on a particular and specific

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demonstration of fact as opposed to merely conclusory statements that a stay is warranted. Twin
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City, 124 F.R.D. at 653. Evaluation of a request for a stay often requires a magistrate to take a

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“preliminary peek” at a pending dispositive motion. This “preliminary peek” is not intended to

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prejudge the outcome, but to evaluate the propriety of a stay of discovery “with the goal of

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accomplishing the objectives of Rule 1.” Tradebay, 278 F.R.D. at 601 (citation omitted). That

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discovery may involve inconvenience and expense is not sufficient, standing alone, to support a

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stay of discovery. Turner Broadcasting, 175 F.R.D. at 556.

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Whether the Court has personal jurisdiction over Defendant Drenth is a critical

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preliminary question. However, it is not a question that mandates a stay of discovery. The Court

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retains its discretion to determine whether discovery should go forward. See Holiday Systems,

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Intern. of Nevada v. Vivarelli, Schwarz, and Associates, 2012 WL 3860824 (D. Nev) (finding

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that a magistrate judge does not abuse his discretion when he denies a stay based solely on a

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motion challenging personal jurisdiction). Nevertheless, it is the undersigned’s view that a

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pending motion challenging jurisdiction strongly favors a stay, or at minimum, limitations on

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discovery until the question of jurisdiction is resolved. See Liberty Media Holdings, LLC v.

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Letyagin, 2012 WL 3135671 *5 (D. Nev.) (“A defendant should not be required to engage in

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expensive and burdensome discovery in a court that has no jurisdiction over him.”) (citation

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omitted).

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“When a defendant moves to dismiss for lack of personal jurisdiction, the plaintiff bears

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the burden of demonstrating that the court has jurisdiction over the defendant.” Pebble Beach

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Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006). To meet this burden, a plaintiff must

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demonstrate that personal jurisdiction over a defendant is (1) permitted under the applicable

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state’s long-arm statute and (2) that the exercise of jurisdiction does not violate federal due

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process. Id. The Court must analyze whether personal jurisdiction exists over each defendant

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separately. Harris Rutsky & Co. Servs. v. Bell & Clements Ltd., 328 F.3d 1122, 1130 (9th Cir.

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2003). Generally, when determining personal jurisdiction the court accepts as true any

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uncontroverted allegations in the complaint and resolves conflicts between the facts contained in

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the parties’ evidence in the plaintiff’s favor. Glencore Grain Rotterdam B.V. v. Shivnath Rai

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Harnarain Co., 284 F.3d 1114, 1119 (9th Cir. 2002). However, for personal jurisdiction
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purposes, a court “may not assume the truth of allegations in a pleading which are contradicted

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by affidavit.” Alexander v. Circus Circus Enters., Inc., 972 F.2d 261, 262 (9th Cir. 1992)

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(quotation omitted).

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Subject matter jurisdiction in this matter is predicated on a federal question and, as such,

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“the exercise of personal jurisdiction over a non-resident defendant must be authorized by a rule

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or statute and consonant with the constitutional principles of due process.” Glencore Grain, 284

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F.3d at 1123. Because there is no applicable federal statute governing personal jurisdiction, the

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starting point is Nevada’ long-arm statute, which provides that a court may exercise personal

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jurisdiction over a defendant to the full extend permitted by due process. Id.; see also NRS

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14.065 (“A court of this state may exercise jurisdiction over a party to a civil action on any basis

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not inconsistent with the . . . Constitution of the United States.”). Federal law is controlling on

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the issue of due process under the United States Constitution. E.g., Data Disc, Inc. v. Sys. Tech.

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Assoc. Inc., 557 F.2d 1280, 1286 n.3 (9th Cir. 1977). Thus, analysis of personal jurisdiction

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under Nevada’s long-arm statute and the Constitution collapses and the Court considers only

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whether the exercise of jurisdiction over Drenth comports with due process.

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To satisfy federal due process standards, a nonresident defendant must have “minimum

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contacts” with the forum state such that the assertion of jurisdiction does not offend traditional

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notions of fair play and substantial justice. Pebble Beach Co., 453 F.3d at 1155 (citation

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omitted). A federal court may exercise either specific or general jurisdiction over a defendant.

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Helicopteros Nacionales de Columbia S.A. v. Hall, 466 U.S. 407, 414-15 (1984). To establish

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general jurisdiction a plaintiff must demonstrate that the defendant has sufficient contacts to

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“constitute the kind of continuous and systematic general business contacts that approximate

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physical presence.” Glencore Grain, 284 F.3d at 1124 (citations and quotations omitted). A

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nonresident defendant’s contacts with the forum state may permit the exercise of specific

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jurisdiction if: (1) the defendant has performed some act or transaction within the forum or

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purposefully availed himself of the privileges of conducting activities within the forum, (2) the

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plaintiff’s claim arises out of or results from the defendant’s forum-related activities, and (3) the

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exercise of jurisdiction is reasonable. Pebble Beach Co., 453 F.3d at 1155-56.
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The parties appear to agree that only specific jurisdiction is available here. The primary

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argument advanced by Defendant Drenth appears to be that exercising personal jurisdiction over

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him would be inappropriate because his contacts with Nevada have been solely “in his

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representative capacity for the Defendant Corporations.” See Def.’s Motion (#29) at 6:18-26.

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This defense, often referred to as the “fiduciary shield doctrine,” says that “a person’s mere

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association with a corporation that causes injury in the forum state is not sufficient in itself to

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permit that forum to assert jurisdiction over the person.” Davis v. Metro Prods., Inc., 885 F.2d

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515, 520 (9th Cir. 1989). Application of the doctrine is limited. Klein v. Freedom Strategic

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Partners, LLC, 595 F.Supp.2d 1152, 1158 (D. Nev. 2009). As noted in Klein, “although the

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Court cannot acquire personal jurisdiction over employees based on their employers’ forum

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activities, their status as employees does not somehow insulate them from jurisdiction.” Id. at

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1159 (citations and quotations omitted).

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This motion to stay (#37) creates a difficult situation. In the undersigned’s view the

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record is not clear and, based on the standards set forth above, the undersigned is not convinced

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that exercising personal jurisdiction over Defendant Drenth in his individual capacity is

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appropriate. Normally, “discovery should . . . be granted where pertinent facts bearing on the

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question of jurisdiction are controverted or where a more satisfactory showing of the facts is

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necessary.” Laub v. U.S. Dept. of Interior, 342 F.3d 1080, 1093 (9th Cir. 2003) (citation

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omitted) (emphasis added); see also Klein, 595 F.Supp.2d at 1160 (because jurisdictional

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discovery would parallel ongoing discovery on the merits of the case, “granting jurisdictional

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discovery separate from general discovery would be inefficient”). Nevertheless, how the

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undersigned sees the jurisdictional picture may be very different from how the assigned district

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judge will see the jurisdictional picture. And, ultimately, it is the assigned district judge who will

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make the ultimate determination on whether there is personal jurisdiction. Given this, the

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undersigned finds it more prudent to grant the requested stay and defer the question of whether

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jurisdictional discovery is necessary to the assigned district judge in his determination of the

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merits of Drenth’s motion to dismiss (#29). As a result, traditional party discovery should not go

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forward as against Drenth in his individual capacity (i.e., Rule 26(a) disclosures, Rule 33
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interrogatories, Rule 34 requests, or Rule 36 requests for admission). The Court agrees with

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Drenth that Plaintiff may seek discovery, including jurisdictional discovery, through the use of

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nonparty discovery methods. See Def.’s Mot. (#37) at n. 4.

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Based on the foregoing and good cause appearing therefore,

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IT IS HEREBY ORDERED that Defendant Kenneth S. Drenth’s Motion to Stay

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Discovery and Disclosure Obligations (#37) is granted.

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DATED this 10th day of October, 2012.

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C.W. Hoffman, Jr.
United States Magistrate Judge

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