Del Mar TIC I, LLC v. The Bancorp Bank

Background

Del Mar TIC I, LLC and Del Mar TIC II, LLC brought the action against The Bancorp Bank in New York state court on September 8, 2023. The Bank removed the case to the Southern District of New York on October 12, 2023. After the plaintiffs amended their complaint, the court denied the Bank’s first motion to dismiss as moot.

On December 22, 2023, the Bank filed a second motion to dismiss. That motion seeks dismissal of the entire amended complaint based on the terms of a contract between the parties and was fully briefed when the Bank requested a stay of discovery.

The discovery-stay motion

The Bank asked the court to pause discovery while the motion to dismiss was pending. The plaintiffs opposed the request, arguing that they needed meaningful information about their claims and that their anticipated discovery requests had been narrowed.

The court explained that filing a motion to dismiss does not automatically justify pausing discovery. Courts instead consider factors including the scope and burden of discovery, possible prejudice to the party opposing the pause, and the strength of the pending motion. Courts also consider whether the motion could dispose of the entire action.

Court’s reasoning

The court found that the possibility that the motion to dismiss could dispose of the entire action supported a stay. Although the court did not decide the motion to dismiss, it found after an initial review that the motion appeared to have a legal basis and was not unfounded.

The court also found that the proposed discovery was not insignificant. The plaintiffs sought, among other things, the Bank’s internal policies and procedures concerning withdrawals from a borrower’s tax and insurance escrow subaccount, documents and communications about placing an insurance policy related to the property, and documents and communications concerning use of the plaintiffs’ escrow account to pay insurance premiums under the Bank’s policy for the Del Mar Apartments. The court concluded that proceeding with such discovery while the motion to dismiss was pending could waste resources and impose an undue burden on the Bank.

As to prejudice, the plaintiffs argued that they needed discovery, while the Bank argued that a brief stay would not prejudice them. The court agreed with the Bank. It noted the case’s relatively short and active history and found that a slight delay would not significantly prejudice the plaintiffs. The court treated this factor as neutral.

Disposition

Judge Jennifer L. Rochon granted the Bank’s motion to stay discovery. Discovery is stayed until the court issues its opinion on the Bank’s motion to dismiss the amended complaint. The order did not rule on that motion to dismiss.