United States District Court, N.D. Ohio, Western Division
Jeffrey J. Helmick, United States District Judge.
case is before me on Lead Plaintiffs' motion to order
particularized discovery. (Doc. No. 80). Lead Plaintiffs also
filed a declaration in support of their motion. (Doc. No.
81). The HCR defendants filed an opposition (Doc. No. 82),
which the HCP defendants joined (Doc. No. 83). Lead
Plaintiffs replied. (Doc. No. 84). For the reasons that
follow, Lead Plaintiffs' motion is denied.
9, 2016, the Boynton Beach Firefighters' Pension Fund
filed a proposed class action complaint against Defendants
HCP, Inc.; HCR ManorCare, Inc.; Lauralee Martin; Timothy
Schoen; Paul A. Ormond; and Steven M. Cavanaugh. (Doc. No.
1). This case arises in part from allegations which formed
the basis of another lawsuit. See United States ex rel.
Ribik v. HCR ManorCare Inc., No. 1:09-cv-13 (E.D. Va.).
The Ribik parties completed discovery and briefed
the matter of summary judgment, submitting evidence for these
motions under seal. The Ribik defendants also filed
a motion for sanctions for expert discovery violations, which
was granted. The court subsequently excluded the report of
the expert at issue in the sanctions matter. Then on November
17, 2017, the government moved to dismiss its claims with
prejudice. The court granted the motion on November 27, 2017.
November 28, 2017, I appointed Société
Générale Securities Services GmbH and the City
of Birmingham Retirement and Relief System as Lead Plaintiffs
in this case. (Doc. No. 73). Lead Plaintiffs filed their
consolidated complaint on February 28, 2018. (Doc. No. 85).
And I ordered Defendants to file their motions to dismiss by
March 30, 2018, with responses and replies to follow. (Doc.
Plaintiffs now seek discovery of the sealed evidence
submitted relative to the summary judgment filings in
Ribik. (Doc. No. 80-1 at 5). They first contacted
the HCR defendants and asked them to turn over these
documents, offering to treat all such evidence as
confidential and offering to pay for production. (Doc. No.
81-4). Defendants refused. (Doc. No. 81-5). Lead Plaintiffs
now seek an order requiring the HCR Defendants to produce the
desired documents. (Doc. No. 80-1 at 5). Defendants oppose.
(Doc. Nos. 82 & 83).
Private Securities Litigation Reform Act imposes a stay on
discovery during the pendency of motions to dismiss, unless I
find “that particularized discovery is necessary to
preserve evidence or to prevent undue prejudice to” the
party requesting discovery. 15 U.S.C. § 78u-4(b)(3)(B).
The purpose of the discovery stay is to curb “the
filing of frivolous lawsuits aimed at forcing corporate
defendants to settle rather than bear the costs of discovery
and to preclude plaintiffs from engaging in fishing
expeditions to secure facts for a sustainable claim.”
In re FirstEnergy Corp. Sec. Litig., 229 F.R.D. 541,
543 (N.D. Ohio 2004).
no motions to dismiss have been filed, but Defendants have
expressed their intent to do so after Lead Plaintiffs file
the consolidated complaint. I have also set a briefing
schedule for those motions. (Doc. No. 79). Though a strict
reading of the plain language of the statute might suggest
the discovery stay should only apply while a motion to
dismiss is pending, the congressional intent behind the
statute justifies a broader reading. The intent was that
“discovery should be permitted in securities class
actions only after the court has sustained the legal
sufficiency of the complaint.” S. Rep. No. 104-98, at
14 (1995). I therefore find, as several of my colleagues have
also found, that the PSLRA's discovery stay provision
applies in this situation. See, e.g., In re
FirstEnergy, 229 F.R.D. at 543-44; In re DPL Inc.,
Sec. Litig., 247 F.Supp.2d 946, 948 n.4 (S.D. Ohio
2003); In re Carnegie Int'l Corp. Sec. Litig.,
107 F.Supp.2d 676, 683-84 (D. Md. 2000).
found the discovery stay applies, I now turn to the question
of whether the discovery Lead Plaintiffs seek falls under the
exception to the stay. Lead Plaintiffs claim the discovery
they seek qualifies under the exception, as it is both
particularized and is necessary to prevent undue prejudice.
(Doc. No. 80-1 at 9). They first claim their request is
particularized, in that they have identified “a narrow
and clearly defined collection of documents that already have
been reviewed and produced (and submitted to the court) in
another matter . . . .” (Id. at 10).
Defendants do not dispute this. I agree with Lead Plaintiffs
and find that the discovery they seek meets the particularity
requirement under the PSLRA. See Frank v. Dana
Corp., 2007 WL 1748887, at *2 (N.D. Ohio June 18, 2007)
(“A request for documents previously produced in
connection with related investigations is particularized
under the PSLRA.”).
Lead Plaintiffs claim they are entitled to the requested
evidence in the interest of avoiding unfair prejudice. (Doc.
No. 80-1 at 11). Their claimed source of unfair prejudice is
Defendants' repeated reliance on the Ribik
dismissal and certain statements made by the Magistrate Judge
at the discovery motion hearing “as a basis for
discrediting Lead Plaintiffs' claims, while
simultaneously shielding Lead Plaintiffs - and the Court -
from the actual facts underlying their assertions.”
(Id. at 11). Lead Plaintiffs also argue that
maintaining the discovery stay with respect to these
particular documents would not further the policies
underlying the PSLRA. (Id. at 12).
argue that they have yet to make any formal arguments using
the Ribik case to which Lead Plaintiffs are required
to respond. (Doc. No. 82 at 3). So Defendants characterize
Lead Plaintiffs' discovery request as a fishing
expedition meant to aid in finding a basis for this lawsuit.
(Doc. No. 82 at 8).
true that both the HCR and HCP defendants have cited to the
Magistrate Judge's comments and to the dismissal in
Ribik in correspondence with Lead Plaintiffs. (Doc.
Nos. 81-2 & 81-3). Defendants have sent letters to Lead
Plaintiffs, claiming that pursuant to Federal Rule of Civil
Procedure 11 they must dismiss the current case as meritless.
(Doc. Nos. 81-2 & 81-3). Defendants cited to the
Ribik dismissal and discovery hearing as evidence of
the lack of merit. (Doc. Nos. 81-2 & 81-3). And
Defendants have similarly claimed this case is meritless
during a telelphonic status conference with me.
do not agree that this unfairly prejudices Lead Plaintiffs at
this point in the litigation. Lead Plaintiffs seek to address
Defendant's Ribik-based assertions, but the time
for that is not now. Lead Plaintiffs only recently filed
their consolidated complaint, and there are currently no