Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Dorsey v. the Major Automotive Companies and Bruce Bendell

April 12, 2012

DORSEY R. GARDNER, ET AL. PLAINTIFFS,
v.
THE MAJOR AUTOMOTIVE COMPANIES AND BRUCE BENDELL, DEFENDANT.



The opinion of the court was delivered by: Roanne L. Mann, United States Magistrate Judge:

MEMORANDUM AND ORDER

Plaintiffs Dorsey R. Gardner and John Francis O'Brien, trustees of the Dorsey R. Gardner 2002 Trust (collectively, "plaintiffs"), move for an order compelling The Major Automotive Companies, Inc. ("Major") and a member of its Board of Directors, Bruce Bendell ("Bendell") (collectively, "defendants"), to produce documents and respond to interrogatories served by plaintiffs in their initial discovery requests. See Pl. Mot. to Compel Disc. (Nov. 1, 2011) ("11/1/11 Pl. Mot. to Compel"), Electronic Case Filing ("ECF") Docket Entry ("DE") #19. Defendants cross-move to stay discovery pending resolution of their motion, served by them on November 14, 2011, seeking judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure or dismissal of the complaint pursuant to Rule 12(b)(6) of the same. See Def. Mot. to Stay Disc. (Nov. 14, 2011), DE #27; Def. Mem. in Supp. of Mot. to Stay (Nov. 14, 2011), DE #27-1 ("11/14/11 Def. Mot. to Stay"); see also Def. Mem. in Supp. of Mot. for Judgment on the Pleadings (Nov. 14, 2011) ("11/14/11 Def. Mem."), DE #34-8.*fn1 Because the discovery motions essentially represent two sides of the same argument, and require the same threshold analysis, the Court analyzes them together.

For the reasons to follow, the Court grants defendants' motion to stay discovery during the pendency of their dispositive motion, and denies plaintiffs' motion to compel defendants to respond to plaintiffs' initial discovery requests.

BACKGROUND

The instant case arises out of an allegedly improper management buyout transaction of Major, a publicly traded company, effectuated by defendants. See Compl. (Apr. 5, 2011) ¶ 1, DE #1. The Complaint charges Major and Bendell, who is described as Major's "principal officer and majority shareholder," with "violations of Section 14(a) of the Securities Exchange Act of 1934 (the 'Exchange Act') and Securities and Exchange Commission ('SEC') Rule 14a-9 promulgated thereunder and [with] breaches of fiduciary duty." Id. In brief, plaintiffs allege that defendants (1) offered a misleading justification for the buyout transaction, which was designed to benefit Bendell at the expense of its minority public shareholders; (2) failed to create a special committee of disinterested or independent members to evaluate the fairness of the transaction for the benefit of minority shareholders; (3) failed to consider alternatives to the transaction; (4) withheld and failed to consider financial information from the eighteen months preceding the transaction (resulting in an artificially depressed valuation of the company); and (5) omitted from their proxy material information regarding Major's performance and true value, so as to mislead minority shareholders. See id. ¶¶ 5-6, 16-35.

According to plaintiffs, defendant Bendell (along with other, unnamed Board members) thereby breached his fiduciary duties of care, loyalty, and good faith and fair dealing, and negligently misrepresented the fair price of Major's stock, all in violation of Nevada state law. See Compl. ¶¶ 36-42, 52-58. In addition, plaintiffs complain that the material omissions in defendants' proxy materials violated federal securities laws, specifically, Section 14(c) of the Exchange Act and Rule 14a-9 promulgated thereunder. See id. ¶¶ 43-51; 15 U.S.C. § 78n(a); 17 C.F.R. 240.14a-9(a). In their Answer, defendants deny the allegations and assert a number of affirmative defenses. See Answer (May 25, 2011), DE #5.

The parties have already taken a number of steps in the discovery process in this case. The parties exchanged initial disclosures on July 14, 2011. See Defendants' Rule 26(a) Initial Disclosure Statement (July 14, 2011), DE #8; Plaintiffs' Rule 26(a) Initial Disclosure Statement (July 14, 2011), DE #9. Plaintiffs then served defendants with their document requests on August 2, 2011 and first set of interrogatories on August 3, 2011. See Decl. of Robert F. Brodegaard (Nov. 14, 2011) ("Brodegaard Decl.") ¶ 3, Exh. A to 11/14/11 Def. Mem., DE #27-2. Over the next several days, plaintiffs issued subpoenas to a series of non-parties,*fn2 pursuant to Rule 45(c) of the Federal Rules of Civil Procedure. See Brodegaard Decl. ¶ 4-5. On August 30, 2011, the parties agreed that defendants would respond to plaintiffs' initial discovery requests by September 16th, see Email from L. Varn to R. Brodegaard (Aug. 30, 2012), Exh. C to Decl. of Mark B. Rosen in Supp. of Mot. to Compel (Nov. 1, 2011), DE #20-3, and they filed a stipulation as to electronic discovery on September 19, 2011. See Stipulation Regarding Electronically Stored Information (Sept. 19, 2011), DE #13. Defendants did not respond to plaintiffs' discovery requests, but instead, in a letter docketed on September 21, 2011, requested a premotion conference regarding defendants' proposed motion for "judgment on the pleadings, dismissing the case in its entirety and, pending the Court's resolution of the motion, a stay of discovery." Def. Mot. for Pre-Mot. Conference (Sept. 21, 2011), DE #14; see also 11/14/11 Def. Mot. to Stay at 2 (citing Brodegaard Decl. ¶¶ 9-10); 11/1/11 Pl. Mot. to Compel at 1.

On November 14, 2011, following a premotion conference held on October 25, 2011, defendants served their motion for judgment on the pleadings pursuant to Rule 12(c) or, in the alternative, for dismissal for failure to state a claim under Rule 12(b)(6). See Notice of Def. Mot. for Judgment on the Pleadings or to Dismiss Compl. in its Entirety (Dec. 23, 2011) ("12/23/11 Notice"), DE #34; 11/14/11 Def. Mem., D.E. #34-8; Pl. Opp'n to Def. Mot. for Judgment on the Pleadings (Dec. 9, 2011), DE #34-9; Def. Reply Mem. in Supp. of Mot. for Judgment on the Pleadings or to Dismiss Compl. in its Entirety (Dec. 23, 2011), DE #34-10. The parties' fully submitted papers were filed on December 23, 2011. See 12/23/11 Notice. Defendants' dispositive motion is currently pending before the Honorable Frederic Block, the District Judge assigned to this case.

DISCUSSION

The parties' discovery-related cross-motions raise two distinct issues. First, the Court must determine whether the automatic stay provision of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4(b)(3)(B), mandates a stay of discovery pending the resolution of defendants' dispositive motion. Specifically, the parties dispute whether the PSLRA applies to post-answer motions for judgment on the pleadings and, if so, whether the stay should apply to any or all of plaintiffs' claims. Second, if the Court concludes that the automatic stay provisions of the PSLRA do not apply, then it must determine whether a stay is appropriate under Rule 26(c) of the Federal Rules of Civil Procedure.

Having concluded that the PSLRA automatic stay applies to each of plaintiffs' claims, the Court need not and does not reach the Rule 26(c) issue.

I. Application of Stay to Defendants' Motion for Judgment on the Pleadings

Plaintiffs first argue that a stay is inappropriate because the automatic stay provision of the PSLRA applies only to pre-answer motions to dismiss and not to post-answer motions for judgment on the pleadings. See 11/1/11 Pl. Mot. to Compel at 1, 3. Defendants counter that the automatic stay provision is applicable here because a motion for judgment on the pleadings, "[i]n essence, . . . is a motion to dismiss." See Def. Opp'n to 11/1/11 Pl. Mot. to Compel (Dec. 9, 2011), at 4, DE #29. This Court agrees with defendants.

The PSLRA was designed to deter frivolous securities litigation through stringent pleading requirements and an automatic stay of discovery pending the resolution of "any motion to dismiss." 15 U.S.C. ยง ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.