Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_17-cv-04992/USCOURTS-cand-5_17-cv-04992-1/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1961 Racketeering (RICO) Act

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

MONTEREY BAY MILITARY 

HOUSING, LLC, et al.,

Plaintiffs,

v.

AMBAC ASSURANCE CORPORATION, 

et al.,

Defendants.

Case No. 17-cv-04992-BLF 

ORDER DENYING DEFENDANTS’

MOTION FOR RELIEF FROM NONDISPOSITIVE PRETRIAL ORDER OF 

MAGISTRATE JUDGE

[Re: ECF 164]

Defendants Jefferies Mortgage Finance, Inc., Jefferies & Company, Inc., Jefferies LLC, 

Jefferies Group LLC, Danny Ray, Annandale Plantation, LLC (Colorado) and Annandale 

Plantation, LLC (South Carolina) (collectively, “Defendants”) seek relief from a nondispositive 

pretrial order issued by Magistrate Judge Nathanael M. Cousins, which denied Defendants’ 

motion for a protective order staying all discovery. The Court has considered Judge Cousins’ 

order, which was made orally on the record (ECF 162) and memorialized in the Civil Minutes 

(ECF 158), Defendants’ motion for relief (ECF 164), Plaintiffs’ opposition (ECF 176), and 

Defendants’ reply (ECF 177). For the reasons discussed below, the motion is DENIED.

 I. BACKGROUND

Plaintiffs filed this action in August 2017, alleging wide-scale fraud in the financing of 

military housing projects. They assert claims against numerous entities and individuals for 

violations of the federal Racketeer Influenced and Corrupt Organizations Act and under state law. 

On July 17, 2017, the Court issued an order (“Dismissal Order”) addressing five separate motions 

to dismiss Plaintiffs’ first amended complaint (“FAC”) for lack of personal jurisdiction and failure 

to state a claim under Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6), respectively. See

Dismissal Order, ECF 147. The Court dismissed all claims against all Defendants for lack of 

personal jurisdiction, except for claims asserted against Defendant Ambac Assurance Corporation 

Case 5:17-cv-04992-BLF Document 181 Filed 10/09/18 Page 1 of 5
2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

by the Monterey Bay Plaintiffs, and it dismissed all claims against all Defendants for failure to 

state a claim upon which relief may be granted. See id. 

At the hearing on the motions to dismiss, Defendants asked the Court to stay discovery. 

Because Defendants had argued that the FAC should be dismissed without leave to amend, the 

Court agreed to stay discovery pending issuance of its order on the then-pending motions to 

dismiss. MTD Hrg. Tr. 88:15-24, ECF 143. The Court stated that it would be unfair to require 

Defendants to respond to discovery requests if the case might be terminated, but that discovery 

should be opened if the case were going forward. Id. 

After issuance of the Dismissal Order, Plaintiffs sought what they characterized as 

“jurisdictional discovery” from Defendants. Defendants objected and brought a motion before 

Judge Cousins for a protective order staying all discovery, which was opposed by Plaintiffs. See

Joint Submission, ECF 148. Defendants argued to Judge Cousins that Plaintiffs are not entitled to 

any discovery, jurisdictional or otherwise, unless and until they state claims for relief which 

satisfy the plausibility standard articulated in Iqbal1and Twombly.

2 Alternatively, Defendants 

argued that even if Plaintiffs are entitled to jurisdictional discovery, the discovery at issue is merits 

discovery which clearly is precluded by Supreme Court and Ninth Circuit authority absent a viable 

pleading. 

After hearing approximately thirty minutes of argument, Judge Cousins denied 

Defendants’ motion in an oral ruling from the bench. See Discovery Hrg. Tr., ECF 162. Judge 

Cousins concluded that the undersigned had granted Plaintiffs leave to take jurisdictional 

discovery, and that “the heart of what’s being sought is jurisdictional discovery.” Discovery Hrg. 

Tr. 25:19-22, 26:3-4. Noting that he was ruling only on Defendants’ motion to stay all discovery, 

Judge Cousins observed that he had “not reviewed each of the individual requests to – and 

objections to see if there should be some further limiting or conferring.” Discovery Hrg. Tr. 

26:20-23. That ruling was memorialized in the Civil Minutes as follows: “Defendants’ motion 

 

1 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

2 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

Case 5:17-cv-04992-BLF Document 181 Filed 10/09/18 Page 2 of 5
3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

for a protective order staying all discovery denied for lack of good cause shown, as articulated on 

the record.” Civil Minutes, ECF 158. Judge Cousins ordered Defendants to produce responsive 

discovery by September 10, 2018, but the parties agreed that Defendants need not produce 

responsive documents pending this Court’s disposition of the motion for relief from Judge 

Cousins’ order. See Parties’ Joint Submission at 3 n.7, ECF 165.

 II. LEGAL STANDARD

A district court may refer nondispositive pretrial matters to a magistrate judge under 28 

U.S.C. § 636(b)(1)(A). The district court “may reconsider any pretrial matter under this 

subparagraph (A) where it has been shown that the magistrate judge’s order is clearly erroneous or 

contrary to law.” 28 U.S.C. § 636(b)(1)(A); see also Fed. R. Civ. P. 72(a). “The district court 

reviews the magistrate’s order for clear error,” and “may not simply substitute its judgment for 

that of the deciding court.” Grimes v. City & Cty. of San Francisco, 951 F.2d 236, 241 (9th Cir. 

1991).

 III. DISCUSSION

First, Defendants argue that Judge Cousins’ order is contrary to law, which in Defendants’ 

view precludes Plaintiffs from taking any discovery unless and until they state viable claims for 

relief. Second, Defendants argue that even if jurisdictional discovery is available after a Rule 

12(b)(6) dismissal, Judge Cousins clearly erred in concluding that Plaintiffs are seeking 

jurisdictional discovery rather than merits discovery. Finally, Defendants argue that Judge 

Cousins misinterpreted the undersigned’s comments at the hearing on the motions to dismiss as 

granting Plaintiffs leave to take jurisdictional discovery.

A. Judge Cousins’ Order is not Contrary to Law

Defendants’ first argument requires this Court to consider the interplay between two wellestablished lines of cases, one permitting jurisdictional discovery where the plaintiff has failed to 

demonstrate personal jurisdiction or subject matter jurisdiction, and the other precluding discovery 

where the plaintiff has failed to state a claim for relief. The Ninth Circuit has made clear that 

“[d]iscovery may be appropriately granted where pertinent facts bearing on the question of 

jurisdiction are controverted or where a more satisfactory showing of the facts is necessary.” 

Case 5:17-cv-04992-BLF Document 181 Filed 10/09/18 Page 3 of 5
4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Boschetto v. Hansing, 539 F.3d 1011, 1020 (9th Cir. 2008); see also Lang Van, Inc. v. VNG Corp., 

669 Fed. App’x 479, 480 (9th Cir. 2016) (vacating dismissal for lack of personal jurisdiction and 

remanding with direction to district court to permit jurisdictional discovery); Intercontinental 

Indus. Corp. v. Wuhan State Owned Indus. Holdings Co., 619 F. App’x 592, 594 (9th Cir. 2015), 

as amended on clarification (Aug. 19, 2015) (vacating dismissal for lack of subject matter 

jurisdiction and remanding with direction to district court to consider a narrowly tailored request 

for jurisdictional discovery). However, the Supreme Court and the Ninth Circuit have made 

equally clear that where a plaintiff has failed to state a plausible claim for relief, the plaintiff may 

not be granted leave to take discovery in order to cure the pleading defect. See Ashcroft v. Iqbal, 

556 U.S. 662, 686 (2009) (“Because respondent’s complaint is deficient under Rule 8, he is not 

entitled to discovery, cabined or otherwise.”); Mujica v. AirScan Inc., 771 F.3d 580, 593 (9th Cir. 

2014) (dismissal without leave to amend was appropriate under Iqbal where plaintiffs could not 

add facts showing requisite conduct absent discovery).

In Defendants’ view, the former line of cases applies only where lack of personal 

jurisdiction is the sole basis for dismissal. Where the complaint is dismissed not only for lack of 

personal jurisdiction, but also for failure to state a claim, Defendants contend that the Iqbal/Mujica

line of cases bars all discovery, including jurisdictional discovery. This Court is unaware of any 

cases applying Iqbal and Mujica to bar jurisdictional discovery.

3

 At least one district court has 

drawn a distinction between the two lines of cases, characterizing Iqbal and Mujica as barring “pre 

amendment plausibility discovery” and noting that Intercontinental and similar cases “granted 

jurisdictional discovery, not plausibility discovery.” Persian Gulf Inc. v. BP W. Coast Prod. LLC, 

225 F. Supp. 3d 1178, 1180 (S.D. Cal. 2016). Absent authority which clearly bars jurisdictional 

discovery when dismissal is granted with leave to amend under both Rule 12(b)(2) and Rule

12(b)(6), this Court concludes that Judge Cousins’ order denying a stay on all discovery is not 

 

3 While the plaintiffs in Mujica expressed a desire to take “jurisdictional discovery,” their claims 

were dismissed under Rule 12(b)(6) and the Ninth Circuit’s discussion focused on the Rule 

12(b)(6) standard articulated in Iqbal. See Mujica, 771 F.3d at 593. Mujica did not address the 

availability of jurisdictional discovery under the circumstances presented here, in which the 

complaint was dismissed for both lack of personal jurisdiction under Rule 12(b)(2) and failure to 

state a claim under Rule 12(b)(6).

Case 5:17-cv-04992-BLF Document 181 Filed 10/09/18 Page 4 of 5
5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

contrary to law. Based on the hearing transcript, it appears that Judge Cousins’ intent is to permit 

discovery regarding jurisdictional issues but prohibit plausibility discovery which would be barred 

by Iqbal and Mujica. 

B. Judge Cousins’ Order is not Clearly Erroneous

Defendants argue that even if Plaintiffs may seek jurisdictional discovery, Judge Cousins 

erred in failing to recognize that Plaintiffs are seeking merits discovery in the guise of 

jurisdictional discovery. The Court finds that Judge Cousins properly concluded that Plaintiffs are 

seeking jurisdictional discovery. Judge Cousins acknowledged that “jurisdictional discovery may 

overlap with merits discovery,” and he stated that he was “not getting into the granularity of the 

some of the requests.” Discovery Hrg. Tr. 26:5-15. However, Defendants sought a protective 

order barring all discovery, and Judge Cousins ruled that “at the protective order level, I’m 

denying that request.” Discovery Hrg. Tr. 26:20-23. That ruling is not clearly erroneous, and it 

affords Defendants the opportunity to raise objections to specific discovery requests before Judge

Cousins, if appropriate.

C. This Court did Grant Leave to Take Jurisdictional Discovery

Finally, Defendants argue that Judge Cousins erred in concluding that this Court granted 

Plaintiffs leave to take jurisdictional discovery. While jurisdictional discovery was not the focus 

of the colloquy between the Court and counsel at the hearing on the motions to dismiss, the Court 

granted Defendants’ request to stay discovery only until issuance of an order on the then-pending 

motions. The Court stated on the record that once the order issued, Plaintiffs could pursue 

discovery. MTD Hrg. Tr. 88:15-24, ECF 143. Accordingly, once the Dismissal Order was filed, 

Plaintiffs had this Court’s leave to seek jurisdictional discovery.

 IV. ORDER 

Defendants’ motion for relief from Judge Cousins’ nondispositive pretrial order is 

DENIED.

Dated: October 9, 2018 ______________________________________

BETH LABSON FREEMAN

United States District Judge

Case 5:17-cv-04992-BLF Document 181 Filed 10/09/18 Page 5 of 5