Creeks v. Arotech Corporation
- George Daniels
- 1:19-cv-10044
- U.S. District Court · Southern District of New York
- 2
In Creeks v. Arotech Corporation, Judge Netburn denied without prejudice expedited discovery because the securities-law discovery stay applied.
Jacqueline D. Creeks's request for expedited discovery was denied without prejudice, and discovery in the case was stayed pending resolution of the defendants' anticipated motion to dismiss.
What happened
In Creeks v. Arotech Corporation, Jacqueline D. Creeks requested expedited discovery to prepare a motion for a preliminary injunction concerning a shareholder vote scheduled for December 17, 2019. The defendants had not yet answered and said they planned to ask the court to dismiss the complaint.
The court explained that the Private Securities Litigation Reform Act generally pauses discovery while a motion to dismiss is pending, including when defendants have indicated that they will file one. The exception applies when particular discovery is needed to preserve evidence or prevent unfair harm. The court found that Creeks had not adequately explained how the approaching shareholder vote would cause that kind of harm.
Sarah Netburn, United States Magistrate Judge, denied Creeks's motion for expedited discovery without prejudice. Discovery was stayed pending resolution of the defendants' anticipated motion to dismiss.
The detailed version
- Creeks v. Arotech Corporation · No. 1:19-cv-10044
- George Daniels
- Nov. 20, 2019
Background
Jacqueline D. Creeks filed the complaint on October 30, 2019. The defendants waived service, and the time to answer or move against the complaint had not expired. Creeks then asked for expedited discovery so she could prepare a motion for a preliminary injunction related to a shareholder vote scheduled for December 17, 2019. The defendants opposed the request and stated that they intended to move to dismiss the complaint in its entirety. Judge George B. Daniels referred the discovery request to Magistrate Judge Sarah Netburn.
Legal standard
Because the complaint alleged violations of securities laws, the Private Securities Litigation Reform Act applied. That law generally stays discovery and other proceedings while a motion to dismiss is pending. The court explained that the stay also applies when a defendant has indicated that it will file an initial motion to dismiss even though that motion has not yet been filed.
The law allows particularized discovery during the stay if it is necessary to preserve evidence or prevent undue prejudice. Creeks argued that the approaching shareholder vote would cause undue prejudice, but the court found that she made that argument without explanation. The court relied on decisions rejecting the risk of an uninformed shareholder vote, by itself, as sufficient undue prejudice when post-closing remedies are available. It also stated that preparing an anticipated preliminary-injunction motion is not a proper basis for finding undue prejudice.
Ruling
The court stayed discovery pending resolution of the defendants' motion to dismiss and denied without prejudice Creeks's motion for expedited discovery. The opinion does not state that the defendants had already filed the anticipated motion to dismiss.
Read the full 2-page opinion on CourtListener, the free public archive maintained by the Free Law Project.