Allegiant Travel Company v. R2 Solutions LLC

Opinion

1 UNITED STATES DISTRICT COURT

2 DISTRICT OF NEVADA

3 * * *

4 Allegiant Travel Company, Case No. 2:22-cv-00828-CDS-BNW

5 Plaintiffs, ORDER 6 v.

7 R2 Solutions LLC,

8 Defendant.

9 10 Before the Court is Defendant’s motion to stay discovery. ECF No. 44. Plaintiffs 11 responded (ECF No. 49-1), and Defendant replied (ECF No. 48). The Court held a hearing on 12 October 6, 2022. ECF No. 50. 13 I. Background 14 Plaintiff is seeking a declaratory judgment of non-infringement of seven patents owned by 15 Defendant. 16 Defendant moves to stay discovery pending the resolution of its motion to dismiss by 17 relying on the “preliminary peek test” and the undue burden discovery would create. Defendant 18 argues that the motion to dismiss is dispositive, that it can be decided without additional 19 discovery, and that arguments from it motion to dismiss support its belief that the case will not 20 move forward. Specifically, its argues that the Court does not have subject matter or personal 21 jurisdiction over this case and that it should decline to exercise jurisdiction under the Declaratory 22 Judgment Act. Defendant relies on several District of Nevada cases for the proposition that, in 23 cases where the court’s jurisdiction is challenged, the court need not be “convinced” that its 24 motion to dismiss will be granted to stay discovery. 25 Defendant also argues that having to comply with the Local Patent Rules is wasteful and 26 runs contrary to its position that there is no justiciable dispute. That is because the Rules would 27 require it to “accuse Allegiant of infringement,” and thereby “create a dispute where none exists.” 1 Plaintiff opposes the request. ECF No. 24. While Plaintiff agrees that Defendant’s motion 2 to dismiss may be dispositive and that no discovery is needed to decide it, it argues Defendant’s 3 motion has no merit. In addition, although Plaintiff argues Defendant waived any other good 4 cause it may have for the stay by not briefing it in its motion, Plaintiff takes the position no such 5 good cause exists. 6 Defendant’s reply focuses primarily on the existence of good cause to stay discovery. 7 II. Legal Standard 8 The Federal Rules of Civil Procedure do not provide for automatic or blanket stays of 9 discovery because a potentially dispositive motion is pending. Skellerup Indus. Ltd. v. City of 10 L.A., 163 F.R.D. 598, 600-01 (C.D. Cal. 1995). 11 A court may, however, stay discovery under Federal Rule of Civil Procedure 26(c). Fed. 12 R. Civ. P. 26(c)(1); Clardy v. Gilmore, 773 F. App’x 958, 959 (9th Cir. 2019) (affirming stay of 13 discovery under Rule 26(c)). The standard for staying discovery under Rule 26(c) is good cause. 14 Fed. R. Civ. P. 26(c)(1) (the court “may, for good cause, issue an order to protect a party or 15 person from annoyance, embarrassment, oppression, or undue burden or expense,” including 16 forbidding discovery or specifying when it will occur). 17 The Ninth Circuit has not provided a rule or test that district courts must apply to 18 determine if good cause exists to stay discovery. Salazar v. Honest Tea, Inc., No. 19 213CV02318KJMEFB, 2015 WL 6537813, at *1 (E.D. Cal. Oct. 28, 2015) (“The Ninth Circuit 20 has not provided guidance on evaluating a motion to stay discovery pending resolution of a 21 potentially dispositive motion, other than affirming that district courts may grant such a motion 22 for good cause.”); Mlejnecky v. Olympus Imaging Am., Inc., No. 2:10-CV-02630, 2011 WL 23 489743, at *6 (E.D. Cal. Feb. 7, 2011) (“The Ninth Circuit Court of Appeals has not announced a 24 clear standard against which to evaluate a request or motion to stay discovery in the face of a 25 pending, potentially dispositive motion.”). 26 The Ninth Circuit has, however, identified one scenario in which a district court may stay 27 discovery and one scenario in which a district court may not stay discovery. The Ninth Circuit has 1 to state a claim upon which relief can be granted. See Wood v. McEwen, 644 F.2d 797, 801 (9th 2 Cir. 1981) (“A district court may limit discovery ‘for good cause’, Rule 26(c)(4), Federal Rules of 3 Civil Procedure, and may continue to stay discovery when it is convinced that the plaintiff will be 4 unable to state a claim for relief.”); B.R.S. Land Invs. v. United States, 596 F.2d 353, 356 (9th Cir. 5 1979) (“A district court may properly exercise its discretion to deny discovery where, as here, it is 6 convinced that the plaintiff will be unable to state a claim upon which relief can be granted.”).1 7 The Ninth Circuit has also held that a district court may not stay discovery when discovery is 8 needed to litigate the dispositive motion. Alaska Cargo Transp., Inc. v. Alaska R.R. Corp., 5 F.3d 9 378, 383 (9th Cir. 1993) (district court would have abused its discretion in staying discovery if 10 the discovery was necessary to decide the dispositive motion); Kamm v. Cal. City Dev. Co., 509 11 F.2d 205, 210 (9th Cir. 1975) (same). 12 Based on this Ninth Circuit law, district courts in the District of Nevada typically apply a 13 three-part test to determine when discovery may be stayed.2 See, e.g., Kor Media Group, LLC v. 14 Green, 294 F.R.D. 579 (D. Nev. 2013). This Court will refer to this test as the “preliminary peek 15 test.” The preliminary peek test asks whether (1) the pending motion is potentially dispositive, (2) 16 the potentially dispositive motion can be decided without additional discovery, and (3) after the 17 court takes a “preliminary peek” at the merits of the potentially dispositive motion, it is 18 “convinced” that the plaintiff cannot state a claim for relief. Id. at 581. If all three questions are 19 answered affirmatively, the Court may stay discovery. Id. The point of the preliminary peek test 20 is to “evaluate the propriety of an order staying or limiting discovery with the goal of 21 accomplishing the objectives of Rule 1.” Tradebay, LLC v. eBay, Inc., 278 F.R.D. 597, 603 (D. 22 Nev. 2011). Rule 1 provides that the Federal Rules of Civil Procedure should be construed “to 23 secure the just, speedy, and inexpensive determination of every” case. Fed. R. Civ. P. 1. 24 25

26 1 The Court interprets both these Ninth Circuit cases as providing one scenario in which it is appropriate to stay discovery but not the only scenario. See also Jarvis v. Regan, 833 F.2d 149, 155 (9th Cir. 1987) (affirming stay of 27 discovery without discussing whether court was convinced plaintiff could not state a claim before entering stay); Rae v. Union Bank, 725 F.2d 478, 481 (9th Cir. 1984) (same); Clardy v. Gilmore, 773 F. App’x 958, 959 (9th Cir. 2019) 1 This Court, however, has found the preliminary peek test to be problematic because it is 2 often inaccurate and inefficient. 3 First, applying the preliminary peek test does not always lead to “accurate results” in 4 which the cases that will ultimately be dismissed are stayed and vice versa. This is so for two 5 primary reasons. In the District of Nevada, a magistrate judge applies the preliminary peek test 6 and decides whether discovery should be stayed; however, a district judge decides the dispositive 7 motion. These judges sometimes have different views on the merits of the dispositive motion, 8 leading to discovery being stayed in some cases it should not have been stayed in and vice versa. 9 See also Kevin J. Lynch, When Staying Discovery Stays Justice: Analyzing Motions to Stay 10 Discovery When A Motion to Dismiss Is Pending, 47 Wake Forest L. Rev. 71, 97 (2012) 11 (identifying same issue). Additionally, the test requires the magistrate judge to take a 12 “preliminary peek” (i.e., a superficial look) at the dispositive motion and be convinced that the 13 plaintiff cannot state a claim for relief before staying discovery. Kor Media, 294 F.R.D. at 583-84 14 (discovery stay inappropriate when there is only “a possibility” defendant will succeed on its 15 dispositive motion; “[g]enerally, there must be no question in the court’s mind that the dispositive 16 motion will prevail . . . .”). When the preliminary peek test is applied as written, it leads to 17 discovery being stayed in only the simplest, legally baseless cases. For most cases, and certainly 18 complex cases, it is impossible for the Court to do a “preliminary peek” and be convinced that the 19 plaintiff cannot state a claim. This is problematic because complex cases, in which discovery will 20 be extremely costly, are the types of cases where discovery stays may be particularly appropriate 21 while a dispositive motion is pending (to accomplish the goals of Rule 1). Nevertheless, the 22 preliminary peek test, applied as written, leads to most motions to stay discovery being denied. 23 Accordingly, the preliminary peek test is not well-suited for sorting which cases will be dismissed 24 (and thus should have discovery stayed) from those cases that will proceed (and thus should not 25 have discovery stayed). 26 Second, the preliminary peek test is inefficient. As just explained, if the preliminary peek 27 test is applied as written (i.e., the Court must be convinced after a superficial look at the 1 cases that will be dismissed (and should have discovery stayed) from those cases that will proceed 2 (and should not have discovery stayed). To improve the accuracy of the preliminary peek test 3 (and allow discovery stays in cases in which this Court believes the dispositive motion will be 4 granted), this Court has in the past engaged in a full analysis of the dispositive motion. This takes 5 considerable time and delays providing the parties with a decision on the motion to stay 6 discovery.3 It is also an inefficient use of judicial resources because both the magistrate judge and 7 the district judge fully analyze the same dispositive motion. And, even after all this effort, the 8 magistrate judge and district judge may still have different views on the merits of the dispositive 9 motion. See also Kevin J. Lynch, When Staying Discovery Stays Justice: Analyzing Motions to 10 Stay Discovery When A Motion to Dismiss Is Pending, 47 Wake Forest L. Rev. 71, 101 (2012) 11 (noting that having two different judges decide the dispositive motion and the motion to stay 12 discovery introduces burden and error into the preliminary peek test). In short, doing a full 13 analysis of the dispositive motion may improve the accuracy of the preliminary peek test but it 14 takes significant time, duplicates effort, delays providing the parties a decision on whether 15 discovery is stayed, and may still lead to discovery being inappropriate stayed or allowed to 16 proceed. 17 This Court believes a better analytical framework exists for determining when motions to 18 stay should be granted. As the Court previously discussed, the Court may grant motions to stay 19 discovery when a dispositive motion is pending if (1) the dispositive motion can be decided 20 without further discovery; and (2) good cause exists to stay discovery. See Alaska Cargo Transp., 21 5 F.3d at 383 (district court would have abused its discretion in staying discovery if 22 the discovery was necessary to decide the dispositive motion); Kamm, 509 F.2d at 210 (same); 23 Fed. R. Civ. P. 26(c)(1) (the Court “may, for good cause, issue an order to protect a party or 24 person from annoyance, embarrassment, oppression, or undue burden or expense,” including 25 forbidding discovery or specifying when it will occur). “The burden is upon the party seeking the 26 order to ‘show good cause’ by demonstrating harm or prejudice that will result from the 27 discovery.” Rivera v. NIBCO, Inc., 364 F.3d 1057, 1063 (9th Cir. 2004). As the Court will 1 discuss in more detail below, good cause may be established using the preliminary peek test, but 2 it may also be established by other factors, not related to the merits of the dispositive motion. 3 The Ninth Circuit has held that good cause to stay discovery may exist when the movant 4 can convince the Court that plaintiff cannot state a claim. See Wood, 644 F.2d at 801 (district 5 court may stay discovery when it is convinced that plaintiff will be unable to state a claim); B.R.S. 6 Land Invs., 596 F.2d at 356 (same). These cases remain valid authority, and litigants may still 7 move for a discovery stay under the preliminary peek test. However, as previously discussed, this 8 will only result in discovery stays in the simplest, legally baseless cases. 9 That said, good cause may exist based on other factors unrelated to the merits of the 10 dispositive motion. In many cases, the movant seeks a stay of discovery to prevent “undue burden 11 or expense.” See Fed. R. Civ. P. 26(c)(1). Accordingly, the movant must establish what undue 12 burden or expense will result from discovery proceeding when a dispositive motion is pending. 13 Movants are encouraged to be specific about the realistically anticipated costs of discovery (based 14 on factors such as the complexity of the claim(s) at issue, the number of claims asserted, the 15 number of parties involved in the litigation, the number of witnesses including experts, the 16 volume of documents at issue, etc.). Non-movants opposing a stay of discovery should discuss 17 their position on these same factors. Additionally, though parties opposing a motion to stay 18 discovery carry no burden to show harm or prejudice if discovery is stayed, they are encouraged 19 to discuss any specific reasons why a discovery stay would be harmful (e.g., the case is old and 20 evidence is getting stale, a witness is sick and may die before discovery begins, the public has an 21 interest in the speedy resolution of the issues presented, the claimant’s resources and ability to 22 wait for a judgment, etc.). Ultimately, guided by Rule 1 of the Federal Rules of Civil Procedure, 23 the Court is trying to determine “whether it is more just to speed the parties along in discovery 24 and other proceedings while a dispositive motion is pending, or whether it is more just to delay or 25 limit discovery and other proceedings to accomplish the inexpensive determination of the case.” 26 Tradebay, 278 F.R.D. at 603. 27 1 III. Analysis 2 The Court will not provide an in-depth analysis of its evaluation of the motion to dismiss 3 in this case. 4 The district judge will decide the dispositive motion and may have a different view of the merits of the underlying motion. Thus, this court’s “preliminary peek” at the 5 merits of the underlying motion is not intended to prejudge its outcome. Rather, 6 this court’s role is to evaluate the propriety of an order staying or limiting discovery . . . . 7 8 Tradebay, LLC v. eBay, Inc., 278 F.R.D. 597 (D. Nev. 2011). 9 Here, a “preliminary peek” at Defendant’s motion to dismiss does not convince the Court 10 that it lacks subject matter jurisdiction over this case.4 First, the Court is not convinced that 11 Plaintiff will be unable to meet the standard articulated in MedImmune, Inc. v. Genentech, 549 12 U.S. 118 (2007), given the factors that need to be considered to determine if there is a substantial 13 controversy between the parties. Nor is the Court convinced that exercising jurisdiction pursuant 14 to the Declaratory Judgment Act would be improper here. Lastly, the Court is not convinced it 15 lacks personal jurisdiction (although this largely depends on whether the Court considers the post- 16 agreement communications). 17 Next, the Court addresses Defendant’s argument that, in cases where a party seeks to stay 18 discovery based on an underlying challenge to the Court’s jurisdiction, the preliminary peek test 19 does not require that the court be “convinced” the moving party’s dispositive motion will be 20 granted. Even applying a more relaxed standard,5 the Court does not find that the “likelihood of 21 dismissal” in this case is such that it outweighs the considerations embedded in Rule 1, as 22 discussed more fully below. As a result, the application of a more relaxed standard does not make 23 any difference in this case. 24 25 26

27 4 The Court addresses the “preliminary peek test” given the extent to which the parties relied on it for their respective arguments. 5 1 Additionally, the Court finds that Defendant has not otherwise met its burden to show 2 good cause to stay discovery.6 First, it is not clear to the Court what undue burden Defendant will 3 face, especially considering Plaintiff’s (unchallenged) position that claim charts have already 4 been provided to Plaintiff during preliminary discussions between the parties. 5 Next, the Court disagrees with the notion that engaging in discovery would “create a 6 dispute where none exists.” If Defendant truly believed no dispute exists, then it would simply 7 agree to the declaratory relief Plaintiff seeks. Otherwise, Defendant should provide Plaintiff with 8 the needed information so this case can proceed. At bottom, engaging in the discovery process 9 will not create a dispute. It will, instead, force Defendant to take a position on the matter. And, in 10 this case, that is more just than waiting while a dispositive motion is pending. 11 IV. Conclusion 12 IT IS THEREFORE ORDERED that Defendant’s motion to stay discovery (ECF No. 13 44) is DENIED. 14 15 DATED: October 13, 2022

16 BRENDA WEKSLER 17 UNITED STATES MAGISTRATE JUDGE 18 19 20 21 22 23 24 25 26

27 6 The Court finds that Defendant did not waive arguments regarding good cause to stay discovery, as it sufficiently