Delaware Business Litigation Report

Court of Chancery Stays Discovery Applying The "Special Circumstances" Test

George D. Orloff, et al. v. Lloyd J. Shulman, et al., C.A. No. 852-N, 2005 WL 333240 (Del. Ch. Feb. 02, 2005). Minority shareholders of LLC brought a derivative suit for corporate waste and breach of fiduciary duties. Defendants filed a motion to stay discovery pending the resolution of a motion to dismiss. The court granted it. The Complaint alleges breach of fiduciary duties by individual acts of self aggrandizement by defendants at the expense of the minority and dissemination of incomplete and misleading information to the minority, to induce them to tender their shares at an unfair price. Defendants moved to dismiss and stay discovery on account of a first-filed New York action. Holding that there is no right to stay discovery when a dispositive motion is filed, the court further held that the movant bears the burden to show it is appropriate. The court explained that it must particularize each such judgment, evaluate the efficiency of allowing discovery, the cost ramifications and the significance of any likely risk of plaintiff injury. The court examined and applied the "special circumstances" test laid down by McCrory, 1991 WL 137145 (Del. Ch. 1991), and granted the stay pending resolution of the motion to dismiss. Authored by: Raj Srivatsan 302-888 6831 rsrivatsan@morrisjames.com Share