The plaintiffs of In re: PHC, Inc. Shareholder Litigation (2014 WL 3867494) appealed the entry of summary judgment against their action challenging the company’s recent merger. After PHC announced a merger with another health care company, the stockholders sued for breach of fiduciary duties, aiding and abetting fiduciary breaches, and a disclosure violation. PHC removed the action to federal court and the plaintiffs agreed not to seek remand if PHC expedited discovery. The defendants produced limited information and attempted to stay discovery shortly after the period for remand expired. The court denied the stay and PHC filed a motion to dismiss. By this time the merger had been consummated and the court dismissed the claims against PHC, but not the individual claims. The defendants then moved for judgment on the pleadings, which the court denied, expressing the need for further discovery and anticipating a Rule 56(d) affidavit. One month later, when the defendants moved for summary judgment, the plaintiffs submitted a Rule 56(d) affidavit explaining the need for more discovery as the court predicted. However, the district court granted summary judgment without even addressing the affidavit.
The plaintiffs appealed to the First Circuit. Under Rule 56(d), a non-moving party can be granted additional time for discovery if it sets forth the specific reasons why it cannot adequately respond to summary judgment. For incomplete discovery, Rule 56(d) requires authoritativeness, timeliness, good cause, utility and materiality. The first two factors were satisfied as the plaintiffs timely filed an authoritative affidavit. Good cause was demonstrated though PHC’s repeated failure to respond to discovery and numerous attempts to prevent it. The stockholders established utility through the defendant’s admissions, as they identified relevant evidence within their control that they had not produced. Finally, the affidavit was material because the claims were fact based. The plaintiffs’ claims for breach of fiduciary duty could only be established by facts, the lack thereof which resulted in summary judgment; if discovery produced those facts, the discovery would be material to the plaintiffs’ claims and influence summary judgment.
The First Circuit vacated summary judgment and remanded for further consideration.