City of Riviera Beach General Employees Retirement System v. Macquarie…

Background

This securities class action concerns allegations that the defendants made misleading statements or half-truths about the effect of a regulation limiting the use of No. 6 fuel oil on their business, which involved storing that fuel oil. Lead Plaintiff Moab Partners, L.P. moved to partially lift the Private Securities Litigation Reform Act’s (PSLRA) automatic discovery stay. The stay generally pauses discovery while a motion to dismiss is pending.

The proposed discovery included requests to the defendants, their related entities, and certain third parties. The subjects included No. 6 fuel oil; regulations concerning commodities stored by IMTT; compliance of Macquarie’s public filings; certifications in its financial statements; due diligence concerning a November 2016 offering; the Epic Acquisition; communications with financial analysts; and James Hooke’s resignation as Macquarie’s chief executive officer.

The defendants had moved to dismiss the consolidated amended class action complaint. This opinion addressed only the request to partially lift the discovery stay, not the pending motions to dismiss or the merits of the securities claims.

Legal standard

The PSLRA provides that discovery and other proceedings must be stayed while any motion to dismiss is pending unless the court finds that particularized discovery is necessary to preserve evidence or prevent undue prejudice. The court explained that particularized discovery must be directed to specific people and identify specific types of evidence. To show that discovery is necessary to preserve evidence, a party must make a specific showing that evidence is at risk of being lost imminently, rather than relying on speculation.

Court’s analysis

The court rejected Moab Partners’ argument that the stay should be lifted because some claims had survived earlier dismissal proceedings. The court held that the stay applies while a successive motion to dismiss is pending, even if earlier appeals had revived some claims. The court also held that delay caused by the automatic stay is not, by itself, the kind of undue prejudice that justifies lifting the stay.

The court found that the proposed requests were sufficiently particularized because they identified specific parties and discrete categories of documents relevant to the claims. However, it found no sufficient basis to lift the stay for production requests directed to the defendants. The defendants represented that Macquarie Infrastructure Corporation had preserved potentially relevant documents in its and IMTT’s possession, and the court concluded that Moab Partners’ speculation about possible preservation shortcomings was insufficient.

The court treated the third parties differently because they did not have the same obligation to preserve potentially relevant documents. It found that Moab Partners had shown a need to preserve evidence held by Alembic Global Advisors LLC; Blue Water Energy LLP; J.P. Morgan Chase & Co.; KPMG LLP; Oppenheimer & Co.; RBC Capital Markets, LLC; SunTrust Robinson Humphrey, Inc.; Wells Fargo Securities, LLC; and White Deer Energy.

Disposition

The court granted in part and denied in part Moab Partners’ motion. It denied the request to lift the discovery stay to serve requests for production. It granted the request to partially lift the stay so Moab Partners could serve document-preservation subpoenas on the nine listed third parties. Judge Vernon S. Broderick did not rule in this opinion on the pending motions to dismiss or on the underlying securities claims.