LEG Q LLC v. RSR Corporation et al
MEMORANDUM OPINION AND ORDER: The Court GRANTS Respondents RSR Corporation, Revere Smelting & Refining Corporation, EB Holdings II, Inc., Quemetco, Inc., and Quexco, Inc.'s Expedited Motion for Stay Pending Resolution of Rule 72 Objection to Magistrates Order [Dkt. No. 44 ] and any compliance with the Court's August 31, 2017 Memorandum Opinion and Order Granting LEG Q LLC's Application for Judicial Assistance Pursuant to 28 U.S.C. § 1782 [Dkt. No. 32 ] is stayed pen ding the order from the Court resolving Respondents' Objection to the Magistrate's Memorandum Opinion and Order Granting LEG Q LLC's Application for Judicial Assistance Pursuant to 28 U.S.C. § 1782 and Brief in Support [Dkt. No. 43 ]. (Ordered by Magistrate Judge David L. Horan on 9/22/2017) (mcrd)
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
LEG Q LLC,
RSR CORPORATION, ET AL.,
MEMORANDUM OPINION AND ORDER1
LEG Q LLC (“LEG Q”) filed an Application for Judicial Assistance Pursuant to
28 U.S.C. § 1782, see Dkt. No. 1 (the “Application”), requesting leave under 28 U.S.C.
§ 1782 and Federal Rules of Civil Procedure 26, 30, and 45 to issue and serve (1)
subpoenas for the production of documents, information, or objects to Quexco, Inc., EB
Holdings II, Inc., Quemetco, Inc., RSR Corporation, and Revere Smelting & Refining
Corporation and (2) subpoenas for deposition testimony to Quexco, Inc., EB Holdings
II, Inc., Quemetco, Inc., RSR Corporation, and Revere Smelting & Refining
Under § 205(a)(5) of the E-Government Act of 2002 and the definition of “written
opinion” adopted by the Judicial Conference of the United States, this is a “written
opinion issued by the court” because it “sets forth a reasoned explanation for [the]
court’s decision.” It has been written, however, primarily for the parties, to decide
issues presented in this case, and not for publication in an official reporter, and should
be understood accordingly.
United States District Judge David C. Godbey referred this case to the
undersigned United States magistrate judge for determination under 28 U.S.C. §
636(b). See Dkt. No. 30.
The Court granted LEG Q LLC’s Application for Judicial Assistance Pursuant
to 28 U.S.C. § 1782 [Dkt. No. 1]; ordered that LEG Q LLC is authorized under 28
U.S.C. § 1782 and Federal Rules of Civil Procedure 26, 30, and 45 to issue – with a
return date of at least 28 days – and serve (1) subpoenas for the production of
documents, information, or objects to Quexco, Inc., EB Holdings II, Inc., Quemetco,
Inc., RSR Corporation, and Revere Smelting & Refining Corporation, substantially in
the form of Dkt. Nos. 1-1 to 1-5, respectively, and (2) subpoenas for deposition
testimony to Quexco, Inc., EB Holdings II, Inc., Quemetco, Inc., RSR Corporation, and
Revere Smelting & Refining Corporation, substantially in the form of Dkt. Nos. 1-6 to
1-10, respectively; and further ordered that the Federal Rules of Civil Procedure and
any applicable local rules will apply to discovery pursuant to this order and that
deposition testimony obtained pursuant to these subpoenas may be taken before any
certified court reporter authorized to take testimony and administer oaths in the State
of Texas. See Dkt. No. 32 (the “Order”).
Respondents RSR Corporation, Revere Smelting & Refining Corporation, EB
Holdings II, Inc., Quemetco, Inc., and Quexco, Inc. (“Respondents”) have filed an
objection or appeal of that non-dispositive order to Judge Godbey under Federal Rule
of Civil Procedure 72(a), 28 U.S.C. § 636(b)(1)(4), and Northern District of Texas Local
Rule 72.1, asserting that the order is clearly erroneous or contrary to law. See Dkt. No.
43 (the “Objection”).
Respondents have also filed an Expedited Motion for Stay Pending Resolution
of Rule 72 Objection to Magistrate’s Order. See Dkt. No. 44 (the “Stay Motion”).
Plaintiff LEG Q LLC filed a response, see Dkt. No. 46, and Respondents filed a reply,
see Dkt. No. 48.
Through the Stay Motion, Respondents request “that the Court stay discovery
in this matter pending the outcome of Respondents’ Objection” and assert that, “[i]n
short, Respondents (who are third parties to LEG Q’s purportedly forthcoming
shareholder derivative action in the United Kingdom) will be irreparably harmed if
forced to respond to LEG Q’s extremely burdensome discovery requests, unless the
Court maintains the status quo until ruling on Respondents’ Objection.” Dkt. No. 44
at 1. They further explain that, pursuant to the Order, “LEG Q served subpoenas on
Respondents with return dates of October 3, 2017. According to Federal Rule of Civil
Procedure 72(a) , Respondents may file an objection within fourteen days of the
Magistrate’s Order, and Respondents are filing their Objection concurrently with the
instant motion. Per Northern District of Texas Local Rule 72.1, LEG Q has twenty-one
days to respond to the Objection and Respondents have fourteen days to reply.
Accordingly, briefing of Respondents’ objections will likely not be ripe until October 19,
2017. If, however, discovery is not stayed pending a decision on Respondents’
Objection, the October 3 return date in the subpoenas will likely have passed before
Respondents’ Objection is even considered – effectively nullifying the District Judge’s
power to review the  Order. To avoid such a result, the Court should issue a
temporary stay of discovery pending review of Respondents’ Objection.” Id. at 2
Legal Standards and Analysis
According to Respondents, the United States “Supreme Court has recognized
four factors District Courts consider in determining whether to stay proceedings
pending a Court determination: ‘(1) whether the stay applicant has made a strong
showing that he is likely to succeed on the merits; (2) whether the applicant will be
irreparably injured absent a stay; (3) whether issuance of the stay will substantially
injure the other parties interested in the proceeding; and (4) where the public interest
lies.’” Dkt. No. 44 at 3 (quoting Nken v. Holder, 556 U.S. 418, 426 (2009)).
LEG Q points instead to the standard for staying discovery pending a motion to
dismiss or other motion in a pending case. See Dkt. No. 46 at 3 (citing Valenzuela v.
Crest-Mex Corp., No. 16-cv-1129-D, 2017 WL 2778104, at *5 (N.D. Tex. June 26, 2017);
Turner v. Nationstar Mortg. LLC, No. 3:14-cv-1704-L-BN, 2015 WL 12763510, at *2
(N.D. Tex. Mar. 6, 2015)).
The Court determines, as other courts have concluded, that the general, fourfactor test for a stay pending appeal governs the analysis of a request for a stay
pending an objection or appeal of a magistrate judge’s order resolving a non-dispositive
matter. See, e.g., Jenkins v. Robotec, Inc., Civ. A. No. 1:09cv150HSO-JMR, 2009 WL
5166252, at *1 (S.D. Miss. Dec. 29, 2009).
Respondents assert that “each of these factors is satisfied, and the final three
(equitable) factors weigh strongly in favor of a stay.” Dkt. No. 44 at 3.
As to the first factor, Respondents contend that the “Order erroneously granted
LEG Q’s request to issue extensive and burdensome subpoenas for documents and
testimony to the five Respondents even though permitting such discovery would run
counter to recently-adopted U.K. law.” Id. Respondents invoke the principle that,
“[w]hen considering the likelihood of success, ‘[w]hile the movant need not always show
a ‘probability’ of success on the merits, he must present a substantial case on the
merits when a serious legal question is involved and show that the balance of the
equities, (i.e. the other three factors) weighs heavily in the favor of granting the stay.’”
Id. (quoting O’Bryan v. McKaskle, 729 F.2d 991, 993 (5th Cir. 1984) (internal
According to Respondents, the “Order erroneously granted LEG Q’s request to
issue extensive and burdensome subpoenas for documents and testimony to the five
Respondents even though permitting such discovery would run counter to
recently-adopted U.K. law,” which “does not permit LEG Q to obtain discovery for use
in connection with a proposed shareholders’ derivative action unless and until LEG Q
makes a prima facie showing in support of its claims,” and “LEG Q has not done so.”
Id. Respondents contend that the Order nonetheless “permits LEG Q to circumvent the
prima facie requirement and prematurely obtain extensive document discovery and
five depositions” and “would result, in some instances, in LEG Q obtaining depositions
of the very individuals that are the target of the proposed shareholders’ derivative
action.” Id. at 3-4. They argue that “[t]he issue of whether Section 1782 should apply
in light of the U.K.’s prima facie requirement is one of first impression for this Court”
and that they “have shown a substantial case on the merits against LEG Q’s
Application” because, “[a]s detailed in Respondents’ Response to LEG Q’s Application
and in Respondents’ Objection (incorporated herein by reference and briefly
summarized), the discretionary factors weigh heavily against LEG Q’s Application.” Id.
LEG Q, in turn, points to the fact that “[t]he Order is subject to review under a
‘highly deferential standard’ that ‘requires the court to affirm the decision ... unless ‘on
the entire evidence [the court] is left with a definite and firm conviction that a mistake
has been committed.’” Dkt. No. 46 at 2 (quoting Blue v. Hill, 3:10-CV-2269-L, 2014 WL
2217334, at *2 (N.D. Tex. May 29, 2014)). According to LEG Q, “Respondents have
little hope of prevailing on their Objection, which merely recycles the legally and
factually deficient arguments they presented to the Magistrate in opposition to LEG
Q’s Section 1782 application and which is ‘written as if this court were ruling on” that
application “as a matter of first impression,’” and “Respondents come nowhere close to
showing reversible error.” Id. (quoting Jefferson-Pilot Life Ins. Co. v. Bellows, No.
3:02-cv-1992-D, 2003 WL 21501904, at *1 (N.D. Tex. June 24, 2003)).
In reply, Respondents assert that they “are likely to succeed on their Objection
because LEG Q’s § 1782 application conceals an attempt to circumvent foreign
proof-gathering restrictions created by the U.K. Companies Act, which is the third
discretionary factor the Court considers when examining a § 1782 application”; that
“LEG Q attempts – and in fact successfully convinced the Magistrate Judge – to
narrow the focus of the examination of the U.K. Companies Act to the second
discretionary factor, which places the burden on Respondents to provide ‘authoritative
proof’ that a foreign tribunal would reject evidence”; that “the second factor should
have little bearing on the decision because, as both parties have acknowledged, no U.S.
Court has addressed the situation where a party has sought or attempted to use § 1782
discovery in spite of the foreign proof-gathering restrictions in the U.K. Companies
Act”; and that, “[a]s detailed in Respondents’ Objection, Doc. No. 43, when properly
applied, the discretionary factors weigh heavily against the granting of LEG Q’s
Application. Therefore, Respondents are likely to prevail on their Objection.” Dkt. No.
48 at 1-2 (footnote omitted).
Even assuming that Respondents could show that a serious legal question is
involved as to whether Section 1782 should apply in light of the prima facie
requirement, Respondents acknowledge that their challenge to the Order granting the
Application turns on the weighing of four discretionary factors, which Judge Godbey
will consider on appeal under a deferential standard:
“When a party appeals a magistrate judge’s order, [it] must demonstrate
how the order is reversible under the applicable standard of review-de
novo for error of law, clear error for fact findings, or abuse of discretion
for discretionary matters.” Jefferson-Pilot Life Ins. Co. v. Bellows, 2003
WL 21501904, at *1 (N.D. Tex. June 24, 2003) (Fitzwater, J.). “The clearly
erroneous standard applies to the factual components of the magistrate
judge’s decision.” Lahr v. Fulbright & Jaworski, L.L.P., 164 F.R.D. 204,
208 (N.D. Tex. 1996) (Fitzwater, J.) (quoting Smith v. Smith, 154 F.R.D.
661, 665 (N.D. Tex. 1994) (Fitzwater, J.)) (internal quotation marks
omitted). “The district court may not disturb a factual finding of the
magistrate judge unless, although there is evidence to support it, the
reviewing court is left with the definite and firm conviction that a
mistake has been committed.” Id. (quoting Smith, 154 F.R.D. at 665)
(internal quotation marks and brackets omitted). “If a magistrate judge’s
account of the evidence is plausible in light of the record viewed in its
entirety, a district judge may not reverse it.” Id. (quoting Smith, 154
F.R.D. at 665) (internal quotation marks omitted). The legal conclusions
of the magistrate judge are reviewed de novo, and the district judge
“reverses if the magistrate judge erred in some respect in her legal
conclusions.” Id. (citing Smith, 154 F.R.D. at 665). “[T]he abuse of
discretion standard governs review of that vast area of ... choice that
remains to the [magistrate judge] who has properly applied the law to
fact findings that are not clearly erroneous.” Id. (quoting Smith, 154
F.R.D. at 665) (alteration and ellipsis in original) (internal quotation
The court reviews the magistrate judge’s discovery decision under
the abuse of discretion standard, and it does not substitute its own
judgment for that of the magistrate judge. See Nunn v. State Farm Mut.
Auto. Ins. Co., 2010 WL 2044477, at *4 (N.D. Tex. May 24, 2010)
(Fitzwater, C.J.) (“And in matters of discretion – and discovery decisions
are usually quintessential examples of the exercise of discretion – district
judges do not substitute their own judgment for that of the magistrate
judge.”); see also Hoffman v. L & M Arts, 2013 WL 655014, at *2 (N.D.
Tex. Feb. 21, 2013) (Fitzwater, C.J.) (reviewing discovery decision for
abuse of discretion).
Stanissis v. Dyncorp Intern. LLC, Nos. 3:14-cv-2736-D & 3:15-cv-2026-D, 2015 WL
5603722, at *1 (N.D. Tex. Sept. 23,2015).
The undersigned will not presume to predict or know how Judge Godbey will
resolve the Objection. But it is a close call whether Respondents have a substantial
case on the merits when the appeal decision will turn on this standard of review set out
Even if they do, a stay is not appropriate, by Respondents’ own lights, unless the
balance of the other three factors weighs heavily in the favor of granting the stay.
As to the second factor, there appears to be little disagreement that, absent a
stay, Respondents should be gathering and reviewing documents during the time that
their Objection is being briefed and considered. In this particular context, it is far from
clear that Respondents could fully recover the economic costs that they, as third
parties, would incur to comply with the Order while their Objection – which seeks to
relieve them of all discovery obligations whatsoever – is pending. This is not a situation
in which discovery involving Respondents is otherwise ongoing or required by the
Federal Rules or in which Respondents are simply challenging certain discovery
requests or rulings after the matter of whether any discovery requests are authorized
to be served at all has been conclusively resolved. Cf. Dkt. No. 46 at 10 (“Indeed, a stay
will only incent Respondents to raise baseless Rule 72 objections to any further
unfavorable rulings by the Magistrate – all for the sake of delaying compliance with
LEG Q’s legitimate disclosure efforts – and thereby embolden Respondents to
perpetuate a ‘Groundhog Day’ scenario in which the parties must brief the same
discovery matters one time to the Magistrate and then another time to the District
Court.”). Under these particular circumstances, the Court finds that the second factor
weighs heavily in favor of a stay.
The third factor likewise weighs in favor of a stay. Respondents correctly note
that “LEG Q would retain the option to seek discovery at any time should the Court
ultimately decide that Section 1782 judicial assistance is appropriate.” Dkt. No. 44 at
6. The Court is not persuaded that LEG Q “dithered in seeking Section 1782
assistance.” Dkt. No. 46 at 9. But neither is the Court persuaded that LEG Q will be
substantially injured by a stay pending resolution of the Objection because of “further
delay[ in] LEG Q’s pursuit of its derivative claims by staying discovery herein” – where
LEG Q does not explain how this discovery is so time-critical that its pursuit cannot
sustain a delay of several weeks or even a few months – or based on LEG Q’s
suggestion that “[t]he intended defendants in LEG Q’s derivative action are likely to
cite any delay in LEG Q’s prosecution of its claims as evidence that they are without
merit (regardless of whether that delay was engendered by Respondents’
stonewalling).” Id. The briefing and ruling on this stay request is a matter of public
record should LEG Q ever need to explain it to an English court. This factor, too,
weighs in favor of a stay.
Finally, notwithstanding any policy favoring Section 1782 applications generally,
the Court is persuaded that the fourth factor heavily favors a stay. As Respondents
explain, they “are third parties facing the burden of gathering voluminous amounts of
discovery for a potential case in a foreign country”; “[p]ublic interest clearly favors
protecting Respondents from being forced to suffer potentially unnecessary burdens
that the Court could subsequently determine to be unjustified”; and “[i]t would be
impossible to restore the status quo once Respondents have incurred the expense of
responding to LEG Q’s discovery requests.” Dkt. No. 44 at 7. The fourth factor also
weighs heavily in favor of a stay.
In sum, although the undersigned believes that the Order correctly resolves the
Application, the Court finds that, for purposes of this stay request, Respondents may
have a substantial case on the merits that involves a serious legal question and that
the balance of the other three factors weigh heavily in the favor of granting the stay
– in no small part because at issue in the Objection is whether, under Section 1782,
Respondents should be required to engage in any discovery at all.
The Court GRANTS Respondents RSR Corporation, Revere Smelting & Refining
Corporation, EB Holdings II, Inc., Quemetco, Inc., and Quexco, Inc.’s Expedited Motion
for Stay Pending Resolution of Rule 72 Objection to Magistrate’s Order [Dkt. No. 44]
and any compliance with the Court’s August 31, 2017 Memorandum Opinion and
Order Granting LEG Q LLC’s Application for Judicial Assistance Pursuant to 28
U.S.C. § 1782 [Dkt. No. 32] is stayed pending the order from the Court resolving
Respondents’ Objection to the Magistrate’s Memorandum Opinion and Order Granting
LEG Q LLC’s Application for Judicial Assistance Pursuant to 28 U.S.C. § 1782 and
Brief in Support [Dkt. No. 43].
DATED: September 22, 2017
DAVID L. HORAN
UNITED STATES MAGISTRATE JUDGE
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