IN RE eHEALTH INC. SECURITIES LITIGATION

Background

The lead plaintiff requested an order requiring Defendants eHealth, Inc., Scott N. Flanders, Derek N. Yung, and David K. Francis to participate in discovery. The requested order would have required Defendants to meet and confer about a stipulated protective order for electronically stored information and produce documents responsive to the lead plaintiff’s 52 requests for production.

Defendants opposed the request based on the Private Securities Litigation Reform Act of 1995 (PSLRA). They argued that the PSLRA automatically stays, or pauses, discovery while their motions for judgment on the pleadings were pending. The court had previously granted in part and denied in part Defendants’ motion to dismiss, and Defendants later filed an answer. The lead plaintiff served the discovery requests and a draft electronic-information protocol, but Defendants declined to participate in discovery while their Rule 12(c) motions were pending.

Court’s analysis

The PSLRA provides that discovery and other proceedings must be stayed while a motion to dismiss is pending, unless the court finds that particularized discovery is necessary to preserve evidence or prevent undue prejudice. The court relied on Ninth Circuit authority stating that the stay is automatic and that no litigant may take steps to pursue discovery during the stay.

The court concluded that the PSLRA’s reference to a motion to dismiss also covers a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The court explained that Rule 12(c) motions and Rule 12(b)(6) motions are functionally similar because both test the sufficiency of the plaintiff’s allegations. The court also reasoned that the PSLRA’s purpose is to establish sufficient pleadings before the parties undertake costly discovery.

The lead plaintiff argued that Defendants’ motions were really improper requests for reconsideration of the earlier ruling that certain allegations were sufficient, and that the motions presented factual questions better addressed at summary judgment or trial. The court declined to prejudge the merits of the pending motions and found no compelling reason to treat them differently from motions that trigger the statutory stay. It also rejected the lead plaintiff’s policy argument that successive stays could create undue delay.

Ruling

The court held that Defendants’ motions for judgment on the pleadings triggered the PSLRA’s automatic discovery stay. The lead plaintiff could seek an order lifting the stay by showing that particularized discovery was necessary to preserve evidence or prevent undue prejudice, but the court found that the lead plaintiff had not made that showing. The court stated that the lead plaintiff had not made a particularized discovery demand or presented evidence of prejudice.

The court therefore denied the lead plaintiff’s request to compel discovery while Defendants’ motions for judgment on the pleadings were pending. Judge Jon Tigar issued the order.