Brawer v. Egan-Jones Ratings Company

Background

Michael Brawer and Philip Galgano sued Egan-Jones Ratings Company and Sean Egan, alleging retaliation under the Dodd-Frank Wall Street Reform and Consumer Protection Act and New York Labor Law § 740. After the plaintiffs exhausted administrative remedies, the court allowed them to amend the complaint to add a retaliation claim under the Sarbanes-Oxley Act of 2002 and to add Wenrong Hu as a defendant.

Hu had served as Egan-Jones’s Director of Operational Development and Chief Operating Officer until she resigned on or about August 8, 2023. The plaintiffs alleged that she remained involved in the company’s operations after her resignation. The plaintiffs served Hu with 24 document requests. Hu sought a protective order under Federal Rule of Civil Procedure 26(c) staying discovery directed to her until resolution of her anticipated motion to dismiss. The plaintiffs conceded that they were not pursuing the Dodd-Frank and New York Labor Law claims against Hu, while the opinion states that the First Amended Complaint appeared to assert all three claims against her.

Legal standard

Under Rule 26(c), a court may issue a protective order for good cause to protect a person from undue burden or expense. The party seeking the order must make a particular, fact-specific showing. Courts considering a discovery stay pending a motion to dismiss generally examine the breadth and burden of discovery, possible prejudice to the opposing party, and the apparent strength of the anticipated dismissal motion.

Court’s analysis

The court found that Hu did not identify any specific discovery request to which she objected. Her claim that responding would require time and legal fees did not provide specific facts showing an undue burden. The court also reasoned that Hu could remain an important witness even if she were no longer a defendant, so a stay might not meaningfully reduce the discovery burden.

The court found that a stay would at least delay discovery that the plaintiffs said was important, including documents from Hu’s personal devices. Although the court noted that the plaintiffs’ lack of prejudice alone would not justify a stay, it considered the potential delay together with the other factors.

Finally, the court found that Hu had not made the required strong showing that the plaintiffs’ Sarbanes-Oxley claim against her was without merit. Hu argued that the claim was time-barred because she resigned before the relevant limitations period, but the plaintiffs plausibly alleged that she remained involved in Egan-Jones’s operations afterward. The court concluded that deciding the limitations issue would require a fact-intensive analysis and that Hu had not shown the claim was clearly time-barred.

Disposition

Judge Stewart D. Aaron denied Hu’s Letter Motion to stay discovery. The order did not decide Hu’s anticipated motion to dismiss.