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Mar222013

Monk v. Johnson & Johnson: PSLRA Requires Stay of Discovery Pending a Second Motion to Dismiss

In Monk v. Johnson & Johnson, No. 10-4841 (FLW), 2013 WL 436514 (D.N.J. Feb. 5, 2013), the United States District Court for the District of New Jersey granted Defendant Johnson & Johnson's ("J & J") application to stay all discovery pending the outcome of J & J's Motion to Dismiss Plaintiff Monk's Second Amended Complaint.

 Monk brought a class action against Johnson, alleging that some former and some current officers and directors of J & J, and a J & J subsidiary, misrepresented and omitted material information to shareholders concerning quality control failures at the subsidiary drug manufacturing plants.

 Monk filed an amended complaint on March 11, 2011. J & J filed a Motion to Dismiss that was partially successful. Monk's Motion for Reconsideration was denied, but the court granted leave to file a Second Amended Complaint. Monk filed the second amended complaint on September 7, 2012. J & J moved to dismiss most of the claims in the Second Amended Complaint—including newly added claims and two of the three previous claims.

While J & J's Motion to Dismiss was pending, J & J sought a stay of discovery under the Private Securities Litigation Reform Act ("PSLRA"). The PSLRA discovery stay provision states: "In any private action arising under this chapter, all discovery and other proceedings shall be stayed during the pendency of any motions 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." J & J asserted that the PSLRA required a stay of all discovery, and it did not distinguish between first and second motions to dismiss or between motions to dismiss some or all of the complaint.

 J & J argued that both the claims from both complaints were closely related and that a stay would help to avoid extraneous discovery. Monk argued that a stay of discovery in connection with the first set of claims would generate delay and result in undue prejudice.

 The court disagreed with Monk. The court stated that because delay was inherent in every stay of discovery required by  PSLRA, mere delay did not create undue prejudice. The court agreed with J & J that Monk's previous claims and his new claims related to the same essential events, and that bifurcating the discovery would create confusion.

 Moreover, the court noted that PSLRA's expansive language suggested that discovery of all motions to dismiss must be stayed, even in light of an earlier denied motion to dismiss. The court justified its actions by clarifying that it had inherent authority to impose a stay of discovery to encourage efficiency.

The court granted J & J's application to stay all discovery pending the outcome of J & J's Motion to Dismiss.

 The primary materials for this case may be found on the DU Corporate Governance website.

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