Lu v. Cheer Holding Inc

Background

Kevin X. Lu, proceeding without a lawyer, sued Cheer Holding, Inc., formerly known as Glory Star New Media Group Holdings Limited. Lu is a shareholder of the company. He asserts claims for aiding and abetting a breach of fiduciary duty, negligence, and gross negligence based on an abandoned management buyout.

According to the complaint, controlling shareholders agreed to take the company private through a merger. The shareholders approved the proposed merger, but Lu alleges that the controlling shareholders never genuinely intended to complete it and improperly caused the company to terminate the merger agreement.

The case was originally filed in New York state court and was later removed to the Southern District of New York based on diversity of citizenship. Cheer Holding then moved to dismiss under Federal Rule of Civil Procedure 12(b)(2), arguing that the court lacked personal jurisdiction, and on forum non conveniens grounds, arguing that the Cayman Islands was the appropriate forum. That motion was fully briefed when this order was issued.

Discovery Dispute

The parties submitted competing proposed case-management plans because they disagreed about when discovery should begin. Lu had served interrogatories seeking information about communications concerning the company, its shareholders, and the proposed merger. At a conference, Lu agreed to defer discovery generally but maintained that Cheer Holding should answer those interrogatories. Cheer Holding opposed all discovery while its motion to dismiss was pending.

Court’s Analysis

Under Federal Rule of Civil Procedure 26(c), a court may stay discovery for good cause. Courts generally consider the scope of the requested discovery, the burden of responding, possible prejudice to the party opposing the stay, and the strength of the motion supporting the request.

The court found good cause for a stay. It concluded, without expressing an opinion about the eventual result, that Cheer Holding’s motion to dismiss presented substantial grounds for dismissal and challenged the complaint as a whole. If successful, the motion could dispose of the case in this court. The court also stated that Lu could refile his claims in another forum if the motion succeeded, but that the other forum would be outside the United States and could apply materially different discovery rules.

The court found that answering Lu’s interrogatories could require Cheer Holding to locate and identify hundreds of communications. Cheer Holding also represented that Chinese blocking statutes might apply, potentially requiring consultation with Chinese counsel and approval from Chinese government authorities. By contrast, the court found little apparent prejudice to Lu because his requested relief was monetary, he did not allege ongoing harm, and Cheer Holding had confirmed that it was preserving potentially responsive electronic communications.

Ruling

Judge Gary Stein granted Defendant’s request to stay discovery until the resolution of its pending motion to dismiss. The court declined to enter a scheduling order at that time. If Judge Ronnie Abrams denies the pending motion to dismiss, the parties must submit a joint letter within one week explaining how they believe the case should proceed. The court expressly did not rule on whether discovery should be stayed if Cheer Holding later files a motion for judgment on the pleadings. The Clerk was directed to close Cheer Holding’s motion pending at Docket No. 32.