
    In re SUNRISE SENIOR LIVING, INC. Derivative Litigation This Document Relates to all Actions.
    Civil Action No. 07-cv-00143-RBW.
    United States District Court, District of Columbia.
    Oct. 28, 2008.
    
      Paul J. Klassen, Gibson, Dunn & Crutcher LLP, Jeffrey Matthew King, John Maguire Dowd, Paul W. Butler, Elizabeth Catherine Lulla Peterson, James Eamonn Sherry, Akin Gump Strauss Hauer & Feld, LLP, George Henry Mer-nick, III, Hogan & Hartson, L.L.P., Washington, DC, Jon Myerr Talotta, Nathaniel Thomas Connally, III, Hogan & Hartson, LLP, McLean, VA, Philip Andrew Sechler, Scott Kensington Dasovich, Williams & Connolly, LLP, Washington, DC, for Defendants.
   MEMORANDUM OPINION

REGGIE B. WALTON, District Judge.

Currently before the court is the plaintiffs’ Motion to Partially Lift Discovery Stay (“Pis.’ Mot.”). The stay at issue was automatically imposed by the Private Securities Litigation Reform Act (“PSLRA”) 15 U.S.C. § 78u~4 (2000).

On behalf of Sunrise Senior Living, Inc. (“Sunrise”) and its shareholders, Brockton Contributory Retirement System (“Brock-ton”), Catherine Molner (“Molner”), and Robert Anderson (“Anderson”) (collectively the “plaintiffs”) initiated, in this now-consolidated case, separate stockholder-derivative suits on January 19, January 31, and February 5, 2007, against Sunrise, as a “nominal defendant,” certain former and current members of its Board of Directors (“the Board”), and some of its former and current executive officers (“the Executives”) as individual defendants. Complaint (“Compl.”) ¶ l. The plaintiffs’ separate suits were consolidated on May 11, 2007, as each of the individual plaintiffs’ claims arose “out of the same transactions and occurrences [and] involve[d] the same or substantially similar issues of law and fact.” Stipulation and [Proposed] Order Consolidating Cases for All Purposes and Appointing a Leadership Structure (“Stipulation”) [D.E. 19] at 5. Brockton, Molner, and Anderson were then appointed lead plaintiffs in the consolidated case. Id. On June 29, 2007, the plaintiffs filed their consolidated complaint against the defendants on behalf of the Sunrise shareholders, alleging “breaches of fiduciary duties, unjust enrichment, statutory and other violations of the law.” Compl. ¶ 1. On August 27, 2007, the defendants filed motions to dismiss the consolidated complaint. Rather than responding to those motions, on October 26, 2007, the plaintiffs sought to file an amended consolidated complaint to which the defendants objected. On March 28, 2008, the Court granted the plaintiffs’ request to file an amended consolidated complaint. On May 16, 2008, the plaintiffs filed the current motion.

Under the PSLRA, once a defendant moves for dismissal all discovery must be stayed “during the pendency of [the] motion to dismiss, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.” 15 U.S.C. § 78u-4(b)(3)(B); see also 15 U.S.C. § 77z-l(b)(l). The plaintiffs now ask the Court to lift the stay in this action so they may discover documents produced to the Securities and Exchange Commission (“SEC”) and documents produced in a parallel lawsuit pending in a Delaware state court (the “Delaware Action”). Memorandum of Point and Authorities in Support of Plaintiffs’ Motion (“Pis.’ Mem.”) at 1. Although the District of Columbia Circuit has not spoken on this issue, it has been addressed by several District courts. Upon review of these cases, the Court concludes that the circumstances of the instant case do not warrant lifting the stay.

I. Particularized Discovery

The PSLRA requires that the plaintiffs’ request for discovery seek “particularized discovery.” 15 U.S.C. § 78u-4(b)(3)(B). Here, the plaintiffs seek documents already produced both to the SEC and in the Delaware Action. Plaintiffs’ Omnibus Reply Memorandum in Further Support of Their Motion to Partially Lift Discovery Stay (“Pis.’ Reply”) at 1. They argue that their request is particularized because the

Plaintiffs’ requests are sufficiently particular for Defendants to easily copy and produce the documents requested. There is no ambiguity as to what documents are sought in Plaintiffs’ request for documents relating to the Special Committee’s findings that have been ordered to be produced by Sunrise in the Delaware Action. [In addition,] Plaintiffs’ demand for documents that Sunrise has produced to the SEC in the course of the SEC’s investigation is likewise sufficiently particularized.

Pis.’ Reply at 7 (internal quotation and citation omitted). The plaintiffs therefore reason that ordering production of the documents will not impose an undue burden on the defendants. Id.

The defendants argue in response that the plaintiffs’ contention that their discovery request is particularized is inaccurate because Sunrise has produced a significant amount of documents to the SEC, which “involv[e] issues different from those in dispute in this case.” Nominal Defendant Sunrise Senior Living, Inc.’s Memorandum in Opposition to Plaintiffs’ Motion to Partially Lift Discovery Stay (“Nom/ Def.’s. Opp’n”) at 12. “Therefore, in order to produce documents relating to the Plaintiffs’ claims, Sunrise would have to review (again) every document provided to the SEC, in order to identify irrelevant documents.” Id. Sunrise argues that it would be extremely expensive to engage in another review of those documents, and that in fact, the payment for such discovery expenses is exactly the type of expenditures that Congress sought to avoid in passing the PSLRA. Id.

A request for discovery is “particularized” when it “is necessary to preserve evidence or to prevent undue prejudice to [the moving] party.” 15 U.S.C. § 78u-4(b)(3)(B); accord Ross v. Abercrombie & Fitch Co., Nos. 2:05-cv-0819, 0848, 0860, 0879, 0893, 0913, 0959, 0964, 0998, 1084, • 2006 WL 2869588, at *2 (S.D.Ohio Oct. 5, 2006) (“[T]he focus of the statutory language is on the need either to preserve evidence in the case (presumably because, if the discovery were not permitted, such evidence would be destroyed) or to prevent undue prejudice to the plaintiff.”) (emphasis in original). Moreover, while courts often take into account the burden that would be imposed by the production if the automatic discovery stay is lifted, see, e.g., In re LaBranche Securities Litigation, 333 F.Supp.2d 178, 183 (S.D.N.Y.2004), the ease with which the defendant can produce the documents is not the standard for assessing whether a discovery request is particularized, see Ross, 2006 WL 2869588, at *2. Furthermore,

Although courts have considered the goals of the PSLRA and the burden of production on defendants in determining whether to lift stays of discovery, the mere fact that the PSLRA’s goals would not be frustrated by the lifting of the stay and the documents at issue already have been provided to the SEC and USAO is not sufficient to warrant lifting the stay.' According to express statutory language, the PSLRA’s discovery stay may be lifted only if a court finds that doing so is necessary to preserve evidence or prevent undue prejudice. [See] 15 U.S.C. § 78u-4(b)(3)(B). Counter to Plaintiffs’ contention, even where the goals of the PSLRA are not frustrated and a plaintiffs discovery request is limited to documents already produced to government regulators, courts have refused to lift the discovery stay if the narrow statutory exceptions of evidence preservation or undue prejudice have not been met.

380544 Canada, Inc. v. Aspen Technology, Inc., No. 07 Civ. 1204, 2007 WL 2049738, at * 2 (S.D.N.Y. July 18, 2007). Like the Court in Aspen, this Court finds that a stay under the PSLRA cannot be lifted absent a showing of undue prejudice or a need to preserve evidence, even if lifting the stay may cause little to no burden on a defendant to produce the requested documents. Id.

II. Preservation of Evidence

The PSLRA provides that an automatic discovery stay may be lifted if “particularized discovery is necessary to preserve evidence.” 15 U.S.C. § 78u-4(b)(3)(B). The plaintiffs argue that due to the age, almost ten years, of “the events giving rise to the plaintiffs claims ..., documents may be lost and recollections of events may continue to fade,” Pis.’ Mot. at 9, and they contend that the defendants on a prior .occasion violated a document.retention policy, Pis.’ Reply at 6. The plaintiffs’ argument fails because the concerns they raise do not coincide with the particular documents they are seeking. Congress intended for the stay to be lifted to allow access to evidence that is at risk of being destroyed or lost. See S.Rep. No. 104-98, at 12 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 691 (“The Committee recognizes, for example, that a motion to dismiss may remain pending for a period of time, and that the terminal illness of an important witness may necessitate the deposition of the witness prior to ruling on the motion to dismiss.”); see, e.g., In re Royal Ahold N.V. Securities & Erisa Litigation, 220 F.R.D. 246, 251 (D.Md.2004) (lifting discovery stay because “wide-ranging corporate re-organization” involving divestures of key- subsidiaries created “reasonable concern that documents may be lost despite [defendants] best efforts to preserve them”); accord Sarantakis v. Gruttadauria, No. 02 C 1609, 2002 WL 1803750, at *3 (N.D.Ill. Aug. 5, 2002) (noting that plaintiffs did not claim the evidence sought was “in immediate and/or probable peril”). As the defendants point out, “[the plaintiffs’] evidence-preservation argument is illogical because the documents that [the plaintiffs] are requesting have already been produced to someone else and thus, by definition, they have not been and could not be destroyed.” Sur-Reply in Opposition to Plaintiffs’ Motion (“Defs.’ Sur-Reply”) ¶ 3. The Court agrees, and accordingly must conclude that the plaintiffs have failed to demonstrate that it is necessary to preserve the particular documents which they seek to discover. This conclusion is further supported by the mandate in the PSLRA that while the discovery stay is in effect, the defendants must treat all materials relevant to the allegations set forth in the plaintiffs’ complaint “as if they were the subject of a continuing request for production of documents from an opposing party under the Federal Rules of Civil Procedure.” 15 U.S.C. § 78u-4(b)(3)(C)(i).

III. Prevention of Undue Prejudice

If necessity to prevent undue prejudice is demonstrated, particularized discovery is allowed under the PSLRA. 15 U.S.C. § 78u-4(b)(3)(B). Courts have found undue prejudice warranting the lifting of a discovery stay when the defendant is a simultaneous target of numerous civil and criminal actions that are not subject to the stay, In re Royal Ahold, 220 F.R.D. at 251-52; the subject of bankruptcy proceedings and the target of several government investigations and other civil actions, In re WorldCom Securities Litigation, 234 F.Supp.2d 301, 305 (S.D.N.Y.2002); or facing tens of millions of dollars in penalties and disgorgement, In re LaBranche, 333 F.Supp.2d at 183. In these cases, the courts determined that because multiple parties were vying for a piece of a limited pie, the plaintiffs would be at a serious disadvantage in planning their settlement and litigation strategies without access to the materials sought. See In re Royal Ahold, 220 F.R.D. at 252; In re WorldCom, 234 F.Supp.2d at 305-06; In re LaBranche, 333 F.Supp.2d at 184. But unlike the aforementioned cases, the circumstances of the instant case are far less volatile.

First, both this action and the Delaware Actions are derivative shareholder suits filed on behalf of the same corporation and any judgment secured in either will be awarded to the corporation. Thus, the plaintiffs have no viable argument of being unduly prejudiced in regard to the relief sought by the Delaware Action plaintiffs. Second, an SEC investigation occurring contemporaneously with private litigation is not at all an uncommon occurrence, and any stay of discovery inflicts a certain degree of prejudice. And it is unlikely that such contemporaneous investigations and their possible impact on parties in private litigation escaped the awareness of Congress. Nonetheless, the plain language of the PSLRA requires undue prejudice. 15 U.S.C. § 78u-4(b)(3)(B). This language in the face of what Congress was undoubtedly aware of when it enacted the PSLRA leads to the logical conclusion that Congress intended that the prejudice occasioned by the stay must exceed that resulting from routine SEC securities litigation. Accord Ross, 2006 WL 2869588, at *3. The plaintiffs here demonstrate that they suffer nothing more than such routine prejudice. Accordingly, “prevention] [of] undue prejudice” does not warrant lifting the discovery stay. 15 U.S.C. § 78u-4(b)(3)(B).

In summary, because the plaintiffs have neither demonstrated that particularized discovery is necessary to preserve evidence nor to prevent undue prejudice, the Court must DENY the Plaintiffs’ Motion to Partially Lift Discovery Stay.

SO ORDERED on this 28th day of October, 2008. 
      
      . For the factual and litigation background in this case see the Memorandum Opinion issued by this Court on May 1, 2008. [D.E.# 60]
     
      
      . The named individuals being sued are: David G. Bradley, Peter A. Klisares, Scott F. Meadow, Robert R. Slager, Tiffany L. Tomas-so, John F. Gaul, Carl Adams, David W. Fae-der, Larry E. Hulse, Timothy S. Smick, Brian C. Swinton, Christian B.A. Slavin, Craig R. Callen, Bradley B. Rush, Thomas B. Newell, Paul L. Klaassen, J. Douglas Holladay, Thomas J. Donohue, Ronald V. Aprahamian, William G. Little, and Teresa M. Klaassen. See Complaint (“Compl.”) ¶¶ 16-39.
     
      
      . Unless otherwise indicated, all citations to the U.S.Code are to the 2000 edition.
     
      
      . The Court in the Delaware Action ordered the production of documents “expressly and repeatedly” relied upon by the defendants in briefs supporting their motion to dismiss. Young v. Klaassan, 948 A.2d 1152, 1153-56 (Del.Ch.2008).
     
      
      . An Order consistent with the Court’s ruling accompanies this Memorandum Opinion.
     