Discretionary Stay of Discovery Pending Decision on Dispositive Motion

[EDRM Editor’s Note: The opinions and positions are those of Michael Berman.]

In MJ Enterprise Holdings, Inc. v. Spiffy Franchising, LLC, 2025 WL 775515 (D. Md. Mar. 10, 2025)(Austin, J.), Defendants moved to stay all discovery deadlines pending a resolution of their motion to compel arbitration and for a stay pending arbitration.  The motion to stay discovery was granted.

Plaintiffs alleged fraud and misrepresentation arising out of a business relationship.  Defendants answered and moved to stay, asserting that there was an arbitration clause in their franchise agreement. The Court wrote:

Upon the filing of Defendants’ answer, the Court entered an initial scheduling order, which authorized discovery to commence and set several deadlines, including a March 10, 2025 deadline for requests to modify the initial scheduling order.

MJ Enterprise Holdings, Inc. v. Spiffy Franchising, LLC, 2025 WL 775515 (D. Md. Mar. 10, 2025).

Defendants moved to stay discovery and asserted that “courts stay discovery pending a fully dispositive motion, finding that judicial economy, the balance of hardships and equitable interests, and the lack of undue prejudice on nonmovants weigh in favor of a stay.”

Plaintiffs responded that: they would be hampered in gathering “critical evidence” of fraudulent conduct by Defendants and others; discovery would not impose undue prejudice on Defendants; and, there is a public interest in resolving fraud claims.

The Court wrote that: “It is axiomatic that “district courts enjoy substantial discretion in managing discovery.” [cleaned up; citations omitted].  The power to stay is an inherent one based on the ability to control the docket.  The Court explained that:

Under Rule 26(c), the movant must demonstrate “good cause” to “protect a party or person from…undue burden or expense, including one or more of the following: (A) forbidding the disclosure or discovery; [or] (B) specifying terms, including time and place, for the disclosure or discovery.” Fed. R. Civ. P. 26(c)(1)(A)-(B). This requires not merely “stereotyped and conclusory statements” but “particular and specific demonstrations of fact as to why a protective order staying discovery should issue.”

Id.

It wrote that “good cause” is a “rather high hurdle,” adding that:

In this Circuit, district courts assess the following considerations when determining whether a stay is appropriate: “(1) the interests of judicial economy; (2) hardship and equity to the moving party if the action is not stayed; [and,] (3) potential prejudice to the non-moving party.” [citations omitted].

Id.

However: “A court should generally deny a stay of discovery if discovery is needed in defense of the motion, or if resolution of the motion will not dispose of the entire case.” [cleaned up; citations omitted].

The Court’s ruling was:

Based on the nature of the dispute and the current procedural posture, I find good cause to stay discovery pending the resolution of Defendants’ Motion to Compel Arbitration. As Judge Grimm observed in Wymes, “it is not uncommon” for courts to stay discovery pending resolution of dispositive motions….  Other courts in this Circuit have stayed discovery during the pendency of a motion to compel arbitration.  [citations omitted].

Id.

The Court’s reasoning was:

Therefore, while it is true that not every dispositive motion justifies a stay…, a motion that may resolve the entire action favors a stay on the basis of judicial economy.  Defendants’ Motion to Compel Arbitration is potentially dispositive. The Federal Arbitration Act “reflects ‘a liberal federal policy favoring arbitration agreements,’” directs claims to be subject to arbitration, and requires a stay of litigation in federal courts.…  To require discovery now, when the question of arbitrability is now pending, risks depriving the parties of the benefits of their bargain (assuming the Court finds the parties agreed on such benefit) and, instead, imposes undue and potentially duplicative expense…. Therefore, while a dispositive motion does not always justify a discovery stay, the case for staying discovery pending resolution of a motion to compel arbitration is particularly strong…because without a stay the advantages of arbitration—speed and economy—are lost forever.  [Emphasis added; cleaned up; citations omitted].

Id.

The Court “recognizes the [Plaintiffs’] valid interest in as speedy a resolution of this case as practicable. But that interest is hardly, if at all, any different from most cases not involving requests for immediate or preliminary injunctive relief.”  And, it added that: “Plaintiffs’ interest in proceeding now does not suggest prejudice that offsets any aforementioned hardship or judicial economy served by a stay.”  Further, as Plaintiffs admitted, the dispositive motion would “be decided in the near future,” so any delay by the stay would be brief.

Finally:

Plaintiffs express concern that evidence may be lost in the interim between now and a ruling on the Motion to Compel. The Federal Rules impose preservation and retention obligations, which are often accomplished with litigation holds and the like. See Fed. R. Civ. P. 37(e) (authorizing sanctions where a party “failed to take reasonable steps to preserve” electronically stored information)….   On the telephone conference, defense counsel represented that a litigation hold has been in place since summer 2023, a few months after this dispute arose and the parties agreed to pre-litigation mediation…. Therefore, the Court joins others who found such efforts mitigate concerns about preserving and pursuing evidence and, as a result, favor a temporary stay pending a dispositive motion filed early in the litigation.

Id.

In summary:

In the end, the undersigned finds that good cause for a stay exists here. Defendants filed a motion to compel arbitration of the entirety of the parties’ disputes; the Motion to Compel and for Stay occurred before discovery began; the Motion to Compel will be fully briefed in the coming weeks and thus resolved in the near future; Plaintiffs, the party opposing the stay, do not need discovery on the question of arbitrability; Defendants, the proponent of the stay, imposed a litigation hold shortly after Plaintiffs raised the dispute and sought pre-litigation mediation; the parties have been aware of the underlying disputes for almost two years; and denial of a stay would cause the parties to lose the benefits of arbitration, if that is the appropriate venue.  This finding does not reflect a belief that motions to compel arbitration always support a stay of all discovery.

Id.

In a note, the Court wrote that it would not take a “preliminary peek” at the merits of the dispositive motion.  While some courts do so, in order “to discern whether the dispositive motion is likely to succeed and thus supports a stay,” that practice had no precedent in the Fourth Circuit.

Assisted by GAI and LLM Technologies per EDRM GAI and LLM Policy.