The Delaware Court of Chancery has issued a ruling in the case of *Seetal Dodiya v. Michael E. Franklin et al.*, addressing a motion to stay the proceedings. Vice Chancellor Lori W. Will decided to partially grant the defendants’ motion, focusing on the timing of discovery and the preservation of evidence.
The Core Issue: Staying the Case or Staying Discovery?
The defendants in the case requested the court to either halt the entire lawsuit or, at a minimum, pause the discovery process. They argued that a ruling from the Delaware Supreme Court in another case, *Rutledge v. Clearway Energy Group LLC*, could significantly impact the legal standards at play in the Dodiya case. Alternatively, they wanted to wait for a decision on their motion to dismiss the case before proceeding with discovery.
The Court’s Decision: A Partial Stay
Vice Chancellor Will decided that a complete stay of the lawsuit was unnecessary. However, she agreed to stay the discovery process, but only until the court rules on the defendants’ motion to dismiss.
Why No Stay of the Entire Action?
The court found that the claims in the Dodiya case, specifically those related to violations of 8 Del. C. § 203 and conversion, would not be directly affected by the *Clearway* case. Section 203 deals with restrictions on business combinations, while conversion deals with the wrongful taking of property. The *Clearway* case, on the other hand, involved a challenge to 8 Del. C. § 144, which concerns self-dealing transactions by interested directors. The Court also noted that the parties had already agreed to a schedule for the motion to dismiss, and the defendants’ concerns about inefficiency were not persuasive given this agreement.
Why a Stay of Discovery?
The court has a standard practice of staying discovery while a motion to dismiss is pending. This is done to avoid the expenses and time-consuming nature of discovery if the case might be dismissed. The court found no special circumstances that would justify deviating from this practice, especially given the defendants’ obligations to preserve relevant information.
Preservation vs. Collection: A Key Distinction
A significant part of the ruling focused on the difference between preserving evidence and collecting it.
Preservation Obligations: What They Entail
The court emphasized that the defendants have a duty to preserve potentially relevant information. This includes taking reasonable steps to prevent the loss or destruction of evidence that might be important to the case. This requires identifying individuals who might have relevant information, sending out legal hold notices, and ensuring that data is protected.
Collection Obligations: What They Involve
Collection, on the other hand, is the active gathering and processing of information for review and potential production. This is a more resource-intensive process. It usually comes after the scope of discovery has been determined.
The Court’s Stance on Collection
The plaintiff’s counsel requested that the defendants immediately collect all electronically stored information (ESI) that had not yet been preserved. The court denied this request, stating that it was premature. The court explained that collection should typically occur after the parties have conferred on the scope of discovery, identified custodians, and established search parameters.
The Reasoning Behind the Decision
The court reasoned that starting collection too early could disrupt the orderly flow of discovery. It could lead to either gathering too much information (resulting in unnecessary storage and processing) or not enough (forcing parties to re-collect and re-process). The court concluded that proceeding with collection before the scope of discovery is determined would be inefficient, expensive, and a waste of effort.
What Happens Next?
The court has ordered a stay of discovery while the defendants’ motion to dismiss is pending. The defendants must continue to fulfill their preservation obligations. Once the court rules on the motion to dismiss, the parties will then likely move forward with the discovery process, including the potential for collection of relevant evidence, if the case continues.