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Kirschner v. JP Morgan Chase Bank, N.A.

United States District Court, S.D. New York

January 15, 2020

J.P. MORGAN CHASE BANK, N.A., et al., Defendants.



         Before the Court is Defendants' request that, pending the District Court's decisions on their pending motion to dismiss, [1] “discovery in this action remain limited to the discovery taking place” in Kirschner v. JP Morgan Chase Bank, N.A., 17-51840-LSS (Bankr. D. Del.) (the “Delaware Action”). (ECF No. 94 at 3). In response, Plaintiff has proposed a protocol in which document discovery in this action “catches up” with the Delaware Action to permit party and non-party witnesses to proceed and to occur once in both actions. (Id. at 1). The Court construes Defendants' request as a request to stay discovery during the pendency of the motion to dismiss, and denies the motion for the reasons set forth below.

         I. Background

         Plaintiff is the trustee of a post-bankruptcy litigation trust, the beneficiaries of which purchased from Defendants debt instruments of a drug-testing company, Millennium Laboratories LLC, that were issued as part of an April 2014 $1.775 billion syndicated leveraged loan transaction. (ECF No. 94 at 1; see ECF No. 38 at 1-2). In November 2015, 19 months after the transaction closed, Millennium filed a bankruptcy petition. (ECF No. 38 at 2). The bankruptcy plan issued by the Bankruptcy Court created the trust on whose behalf Plaintiff brings claims against Defendants. (Id.)

         In the Delaware Action, the trust is suing on behalf of Millennium to recover as fraudulent conveyances $35 million in fees the Defendants (or their affiliates) received for underwriting the transaction. (ECF No. 94 at 1-2).

         On August 1, 2017, Plaintiff filed in New York State Supreme Court a complaint alleging against violations of several states' securities laws, as well as claims for negligent misrepresentation, breach of fiduciary duty, breach of contract, and breach of the implied covenant of good faith and fair dealing. (ECF No. 38 at 1). On August 21, 2017, Defendants removed the action to this Court, asserting as a basis for federal jurisdiction the Edge Act, 12 U.S.C. § 632. (ECF No. 1). On September 24, 2018, the District Court denied Plaintiff's motion to remand the action to New York State Supreme Court. (ECF No. 38).

         On April 4, 2019, the District Court held a preliminary conference to discuss a briefing schedule for Defendants' anticipated motions to dismiss and coordination of discovery with the Delaware Action. (ECF No. 57). During the conference, the District Court expressed its “preliminary view” that “it is unlikely that the motion to dismiss will be granted in its entirety, ” and directed that discovery in this action “proceed in tandem with the Delaware [Action].” (Id. at 5:6-9). The District Court noted that the overlap between the parties in the two actions and the fact that discovery was occurring in the Delaware Action “argues even more so to allow discovery proceed.” (Id. at 6:11-16). The threshold question raised in Defendants' motion to dismiss is whether a syndicated term loan is a security; if it is not, Defendants contend that Plaintiff's securities law claims must be dismissed. (Id. at 6:20-24; ECF No. 94 at 2).

         Following the conference, although a formal discovery schedule was not entered, Defendants agreed that documents produced in the Delaware Action should also be produced in this action, and to date, have produced to Plaintiff over 87, 000 documents from 35 custodians. (ECF No. 94 at 3). Pursuant to Bankruptcy Rule 2004, Plaintiff also received pre-complaint discovery that has been deemed to have been produced in this action. (Id.)

         The parties in the Delaware Action now appear poised to begin depositions. (See ECF No. 94). Plaintiff argues that, to avoid deposing the same witnesses twice, it needs documents relating to “(i) Millennium from custodians that were not searched for by the Delaware Defendants, and search terms that were not utilized by defendants . . .”, and (ii) Defendants' leveraged loan and high-yield businesses generally.” (ECF No. 94 at 2). In response, Defendants argue that discovery in this action should “remain limited to the discovery taking place in the Delaware Action” unless and until the District Court denies Defendants' motion to dismiss. (Id. at3).

         On January 10, 2020, this Court held a telephone conference with the parties regarding their respective positions on the continuation of discovery. (See ECF No. 95).

         II. Discussion

         A. Legal Standard

         “A motion to dismiss does not automatically stay discovery, except in cases covered by the Private Securities Litigation Reform Act.” Hong Leong Fin. Ltd. (Singapore) v. Pinnacle Performance Ltd.,297 F.R.D. 69, 72 (S.D.N.Y. 2013). Courts do not routinely stay discovery “simply on the basis that a motion to dismiss has been filed.” Moran v. Flaherty, No. 92 Civ. 3200 (PKL), 1992 WL 276913, at *1 (S.D.N.Y. Sept. 25, 1992); Mirra v. Jordan, No. 15 Civ. 4100 (AT) (KNF), 2016 WL 889559, at *2 (S.D.N.Y. Mar. 1, 2016) (“The pendency of a dispositive motion is not, in itself, an automatic ground for a stay.”) (internal citation omitted). On a showing of good cause, a district court “has considerable discretion to stay discovery” pursuant to Federal Rule of Civil Procedure 26(c). Integrated Sys. & Power, Inc. v. Honeywell Int'l Inc., No. 9 Civ. 5874 (RPP), 2009 WL 2777076, at *1 (S.D.N.Y. Sept. 1, 2009); accord Shulman v. Becker & Poliakoff, LLP, No. 17 Civ. 9330 (VM) (JLC), 2018 WL 4938808, at *2 (S.D.N.Y. Oct. 11, 2018); Rep. of Turkey v. Christie's, Inc., 316 F.Supp.3d 675, 677 (S.D.N.Y. 2018); In re: Platinum & Palladium Commodities Litig., No. 10 Civ. 3617 (WHP), 2010 WL 11578945, at *1 (S.D.N.Y. Nov. 30, 2010). Courts look to three factors in determining whether good cause exists to stay discovery pending a motion to ...

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