Rule 26(c) motion to stay discovery – an underutilized tool to control ediscovery costs

February 13th, 2009 | By Steve Puiszis

Ellington Credit Fund, Ltd. v. Select Portfolio Servs., Inc., 2009 WL 274483 (S.D.N.Y. Feb. 3, 2009); Stone v. Lockheed Martin Corp., 2009 WL 267688 (D. Colo. Feb. 2, 2009).

Given the current economic climate, many retailers are offering two-for-one specials to boost sales. That same approach is warranted with this post since both the Select Portfolio and Lockheed Martin decisions address the same topic – Rule 26(c) Motions to Stay Discovery.

Under Rule 26(c), a court enjoys the discretion to stay discovery “for good cause.” In Landis v. North American Co., 299 U.S. 248, 254-55 (1936), the Supreme Court held that a motion to stay discovery pending determination of a dispositive motion is an appropriate exercise of a court’s discretion.

The district court in Select Portfolio explained that the factors relevant to a court’s determination of “good cause” under Rule 26 include:

• the pendency of dispositive motions, potential prejudice to the party opposing the stay,
• the breadth of discovery sought, and
• the burden that would be imposed on the parties responding to the proposed discovery.

In Lockheed Martin, the court noted that “a case-by-case analysis is required because such an inquiry is necessarily fact-specific and depends on the particular circumstances and posture of each case.” The plaintiff in Lockheed Martin sought to conduct extensive discovery that would result in undue burden and expense to all parties. The court ruled that a discovery stay under Rule 26(c) was appropriate because the defendant had a likelihood of prevailing on its pending motion to dismiss and no party would suffer substantial harm by a stay pending the court’s ruling on that motion.

In Select Portfolio, the party that had obtained the stay (and was opposed to lifting that stay) provided an affidavit showing that it implemented a litigation hold when the matter began. Accordingly, all potentially discoverable information was being preserved. The requesting party did not dispute the adequacy of those preservation methods. Given the requesting party’s broad discovery requests that would impose an undue burden on the responding party, the court concluded that the continuance of a discovery stay which had been entered six months earlier was appropriate.

Rule 1 of the Federal Rules of Civil Procedure, requires that the rules be “construed and administered to secure the just, speedy and inexpensive determination of every action and proceeding.” Defendants should make the argument that Rule 1’s mandate merits a Rule 26(c) discovery stay in appropriate circumstances. Generally, the pendency of a dispositive motion is a necessary predicate to obtaining a discovery stay. Moreover, to the extent that a defendant can demonstrate to the court’s satisfaction that a timely litigation hold was issued and that potentially relevant data is being preserved, the more likely it is that a district court would grant such a motion. Another important factor that improves the likelihood of obtaining a stay is the cost and burden of responding to broad discovery requests from the opponent.

There are some district court judges who will be reluctant to enter an order staying discovery under any circumstances. However, given the concerns over ediscovery costs, when an attorney is confident that his or her client has taken the necessary steps to properly preserve potentially relevant data, a motion to stay electronic discovery should be considered in tandem with the filing of a potentially dispositive motion. The Select Portfolio and Lockheed Martin decisions demonstrate that Rule 26(c) motions to stay are an underutilized tool that should not be overlooked as a way to avoid potentially unnecessary ediscovery costs.

However, be sure to discuss the issue of a stay with your client before you seek one. The client should be advised that if it is unable to produce relevant ediscovery if and when the stay is lifted, sanctions are likely to follow. A number of courts have imposed sanctions after counsel had represented to the court that a litigation hold had been issued and potentially relevant information was being preserved when in fact it was not.

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