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Taylor v. Biglari

United States District Court, S.D. Indiana, Indianapolis Division

February 28, 2014

CHAD R. TAYLOR Derivatively on Behalf of Himself and All Others Similarly Situated, Plaintiff,
v.
SARDAR BIGLARI, PHILLIP L. COOLEY, KENNETH R. COOPER, WILLIAM L. JOHNSON, JAMES P. MASTRIAN, RUTH J. PERSON, BIGLARI HOLDINGS, INC. Nominal Defendant, Defendants.

ORDER ON PARTIES' DISCOVERY-REALTED MOTIONS

MARK J. DINSMORE, Magistrate Judge.

This matter comes before the Court on several discovery-related motions. Chad R. Taylor ("Plaintiff") moves to Compel the Production of Documents Withheld by Nominal Defendant Biglari Holdings, Inc. Under Claim of Privilege. [Dkts 49, 50]. Sardar Biglari, Biglari Holdings, Inc., Phillip L. Cooley, Kenneth R. Cooper, William L. Johnson, James P. Mastrian, and Ruth J. Peterson ("Defendants") move for Protective Order Limiting Plaintiff's Use of Information or Documents Produced in Response to Plaintiff's First Request for Production of Documents to Nominal Defendant Biglari Holdings, Inc. and for Protective Order to Stay Discovery. [Dkts. 59, 80.] Plaintiff and Defendants jointly move for Entry of a Scheduling Order. [Dkt. 82.] For the following reasons, the Court hereby GRANTS in part and DENIES in part the parties' various motions.

I. Background

This matter involves a shareholder derivative action, which Plaintiff commenced on June 3, 2013, alleging that the individual Defendants have acted and are acting to entrench Defendant Biglari Holdings, Inc. Over two months later, on August 16, 2013, Plaintiff filed a Motion for Preliminary Injunction, requesting that the Court enjoin the Defendants from enforcing allegedly entrenching elements of Defendant Biglari Holdings, Inc.'s rights offering, which was set to begin on August 27, 2013. The Court then granted Plaintiff's request for expedited discovery responses [dkt. 31] and granted Defendants' motion for extension of time to respond to Plaintiff's complaint [dkt. 39]. To expedite the flow of the requested discovery and to protect allegedly confidential material, the parties submitted a proposed Agreed Protective Order limiting the discovery's use to the motion for preliminary injunction, pending the Court's resolution of Defendants' motion for protective order limiting the use of such discovery. [Dkt. 43.] The Court entered the parties' Agreed Protective Order on August 30, 2013 [ id. ], and Defendants filed their motion to limit plaintiff's use of the discovered information on September 6, 2013 [dkt. 59]. Despite the protective order, Defendants continued to withhold certain requested information under a claim of privilege, and Plaintiff moved to compel the production of such documents on September 4, 2013. [Dkts. 49, 50.]

On September 12, 2013, before the resolution of Plaintiff's motion to compel, Judge Barker denied Plaintiff's motion for preliminary injunction "[w]ithout foreclosing the possibility that Plaintiff may succeed in further substantiating his allegations as to the merits of his claims as a whole" because Plaintiff did not meet the three-part test required to prove entitlement to injunctive relief. [Dkt. 69 at 20, 22.] In light of the Court's denial of preliminary injunction, Defendants moved to stay discovery altogether on September 27, 2013 pending the Court's resolution of Defendants' motion to dismiss, which had not yet been filed. [Dkt. 80.] With Defendants' deadline to move to dismiss Plaintiff's complaint fast approaching and with the knowledge that Plaintiff wishes to use discovered facts in an anticipated amended complaint, on September 30, 2013 the parties jointly moved for a scheduling order that requires to Court to rule on Defendants' motions for protective orders prior to Plaintiff's filing of an amended complaint, which Defendants would then move to dismiss. [Dkt. 82.] These interwoven, discovery-related motions and discussed herein.

II. Discussion

The general rule is that the district court has "broad discretion in discovery matters." Packman v. Chicago Tribune Co. , 267 F.3d 628, 646 (7th Cir. 2001) (citing Kalis v. Colgate-Palmolive Co., 231 F.3d 1049, 1056 (7th Cir. 2000)). However, Rule 23.1 sets forth certain requirements and limitations that curb such discretion in shareholder derivative litigation. See Fed.R.Civ.P. 23.1; Starrels v. First Nat. Bank of Chicago, 870 F.2d 1168, 1175-76 (7th Cir. 1989) (Easterbrook, J., concurring) ("Rule 23.1 and its parallel in Delaware practice require the court to determine at the pleading stage whether demand was necessary" so when "facts [suggesting demand futility] would come to light only with discovery, then demand is necessary and plaintiff may not litigate at all"). The Court balances its discretions and limitations in the following analysis.

A. Scheduling Order

In order "to promote judicial economy and resolve procedural issues, " Plaintiff and

Defendants have jointly moved for entry of a scheduling order regarding Plaintiff's anticipated amended complaint and Defendants' response. [Dkt. 82.] To date, Defendants have not yet filed a response to Plaintiff's June 3, 2013 complaint, so Plaintiff may amend his complaint as a matter of course. Fed.R.Civ.P. 15(a)(1)(B). Aware of Plaintiff's intention to amend his complaint, Defendants have elected to refrain from filing their responsive motion to dismiss until after Plaintiff amends his complaint, requesting that the Court schedule deadlines accordingly. [Dkt. 82.] A threshold issue currently preventing Plaintiff from amending his complaint is whether demand futility law prevents him from using the discovered facts in his amendment, which is addressed in Defendants' motion to limit the use of the discovery. [ Id. ] Because of these constraints, the parties request that:

- Defendants shall not be required to respond to Plaintiff's Complaint filed June 3, 2013.
- Plaintiff shall file an Amended Complaint within ten (10) days after resolution of the Discovery Motion [limiting the use of the discovery].
- Defendants shall have thirty (30) days to respond to the Amended Complaint.
- In the event Defendants move to dismiss the Amended Complaint, Plaintiff shall have thirty (30) days ...

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