Commercial Litigation and Arbitration

Post-Iqbal, Limited Discovery at Best Is Appropriate Pending Decision on 12(b)(6) Motion in Complex Cases

From Coss v. Playtex Prods., LLC, 2009 U.S. Dist. LEXIS 42933 (N.D. Ill. May 21, 2009), a consumer class action:

Antitrust cases are typical of the types of cases where discovery is so burdensome and costly to parties that a stay pending decision on a motion to dismiss may be appropriate. Bell Atlantic Corp v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1966-97 (2007). ***

The Court premised its holding in Bell Atlantic on the policy against a "plaintiff with a largely groundless claim be[ing] allowed to take up the time of a number of other people, with the right to do so representing an in terrorem increment of the settlement value." *** The Court explained that "when the allegations in a complaint, however true, [can] not raise a claim of entitlement to relief, 'this basic deficiency should . . . be exposed at the point of minimum expenditure of time and money by the parties and the court.'" *** The Court indicated that a district court was justified in insisting on some specificity in the pleading in an antitrust case before proceeding with potentially massive and expensive discovery….

Very recently, the Supreme Court clarified its holding in Bell Atlantic in Ashcroft v. Iqbal, No. 07-1015, 2009 U.S. LEXIS 3472 (March 18, 2009). The plaintiffs in Iqbal alleged that the defendant government officials discriminated against them based on their race, religion, or national origin…. Defendants filed a motion to dismiss asserting qualified immunity…. The Court held that Bell Atlantic’s interpretation of Rule 8 applied to complaints in all civil actions…. The Court stated that all complaints "must contain sufficient factual matter, accepted as true, to state a claim of relief that is plausible on its face." ... The Court further stated, "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." ... The Court described the plausibility standard as something less than the "probability standard," but stated that there must be "more than a sheer possibility that a defendant has acted unlawfully."

In so finding, the Court reiterated its policy against burdensome discovery in certain types of cases, stating, "[Federal Rule of Civil Procedure] 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." … Indeed, the Court commended the lower courts for staying discovery once the defendants raised the defense of qualified immunity. Id. at *40 (rejecting the "careful-case-management" approach to discovery in "suits where Government-officials defendants are entitled to assert the defense of qualified immunity); see also Crawford-El, 523 U.S. at *598.

After Bell Atlantic, the Seventh Circuit recognized the need to limit overly burdensome discovery in complex cases beyond the antitrust arena in which a motion to dismiss for failure to state a claim had been filed. See Limestone Dev. Corp. v. Village of Lemont, Illinois et al., 520 F.3d 797, 803 (7th Cir. 2008). In Limestone, Judge Posner explained that cases brought under the Racketeer Influenced and Corrupt Organizations Act (RICO), like those brought under antitrust laws, require discovery that is "likely to be more than usually costly." Limestone, 526 F.3d at 803. Consequently, Judge Posner indicated that burdensome discovery in RICO cases during the pendency of a motion to dismiss is inappropriate. Id. at 802-04.

More recently, Judge Posner found that discovery in cases brought under section 14(a) of the Securities Exchange Act can be so burdensome as to justify a stay during the pendency of a motion to dismiss. Beck v. Dobrowski et al., 559 F.3d 680 (7th Cir. March 20, 2009). Section 14(a), codified at 15 U.S.C. § 78n(a), and Rule 14a-9, codified at 17 C.F.R. § 240.14a-9, forbid material misrepresentations or omissions when soliciting a shareholder's proxy vote. The plaintiff in Beck brought suit on behalf of other shareholders directly, and on behalf of Equity Office Property Trust ("EO") derivatively, against the board members of EO after the conclusion of a bidding war for EO between two other companies. Id. at 681. In upholding the district court's dismissal for failure to state a claim, Judge Posner relied on Bell Atlantic…. He stated that "a defendant should not be burdened with the heavy costs of pretrial discovery that are likely to be incurred in a complex case unless the complaint indicates that the plaintiff's case is a substantial one." …

Post Iqbal, the policy against burdensome discovery in complex cases during the pendency of a motion to dismiss holds fast. Bell Atlantic, Limestone, and Beck still require district courts to carefully consider the potential discovery needed in complex cases. If the complex case is one susceptible to the burdensome and costly discovery contemplated by Bell Atlantic and Iqbal, the district court should limit discovery once a motion to dismiss for failure to state a claim has been filed. See DSMDesotech, 2008 U.S. Dist. LEXIS 87473, at *3 (holding that the principles underlying Bell Atlantic required a stay on discovery during the pendency of a motion to dismiss for failure to state a claim brought under antitrust laws); see also In re Sulfuric Acid Antitrust Litig., 231 F.R.D. 331 (N.D. Ill. 2005) (Cole, M..J.) (noting that stays on discovery are often appropriate when a motion to dismiss has been filed).


According to the above analysis, the court grants Defendant's motion to stay discovery in part. Expensive and burdensome discovery will not be compelled by the court prior to the district court ruling on the motion to dismiss. But, in the interest of moving the case forward, some limited discovery may be appropriate…. Parties should submit a proposed limited case management order in conformity with this opinion by May 28, 2009.

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