Defendants' Joint Motion to Stay Discovery — U.S. ex rel. Pietschner v. Petralia (E.D. Tex.)

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In the Eastern District of Texas, Sherman Division, in United States of America, ex rel. Paul Pietschner, defendants Kathryn Petralia, Robert Frohwein, and Spencer Robinson jointly move to stay discovery pending resolution of the venue and jurisdictional defenses in their individual Motions to Dismiss. They argue that venue is improper, that the Court lacks personal jurisdiction over the defendants, and that none of them reside in or have minimum contacts with Texas. They also argue that a stay would enhance judicial efficiency and that the Government would not be prejudiced, since it already has much of the discovery it would want. The certificate of conference states that the parties' discussions ended in an impasse on April 14, 2025, and that Plaintiffs oppose the motion.

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“Defendants' Joint Motion to Stay Discovery — U.S. ex rel. Pietschner v. Petralia (E.D. Tex.).” Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/71-ad57d9a2a7/, SHA-256 dff960b4dfdd8d597608d561e2361eab5e6be2fca873b4ec15f2219c13d5839c.

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Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 1 of 12 PageID #: 653

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

UNITED STATES OF AMERICA, ex rel.
PAUL PIETSCHNER,
Case No. 4:21-cv-110-SDJ
v.

KATHRYN PETRALIA, ROBERT
FROHWEIN, and SPENCER ROBINSON.

DEFENDANTS’ JOINT MOTION TO STAY DISCOVERY

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 2 of 12 PageID #: 654

Table of Contents

INTRODUCTION .......................................................................................................................... 1

BACKGROUND ............................................................................................................................ 1

LEGAL STANDARD ..................................................................................................................... 2

ARGUMENT FOR A TEMPORARY STAY ................................................................................ 3

I. Defendants’ Motions to Dismiss Present Compelling Challenges to Personal
Jurisdiction and Venue ............................................................................................ 3

II. A Stay Will Enhance Judicial Efficiency................................................................ 4

III. The Government Will Not Suffer Prejudice From A Stay ..................................... 5

IV. This Court Has Granted Temporary Stays of Discovery In Similar Cases............. 5

CONCLUSION ............................................................................................................................... 6

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 3 of 12 PageID #: 655

Table of Authorities
Cases Page(s)

Gardner v. Gary Sinise Found.,
No. 4:23-CV-99-SDJ, 2023 WL 5987397 (E.D. Tex. June 5, 2023).....................................3, 6

Ruhrgas AG v. Marathon Oil Co.,
526 U.S. 574 (1999) ...................................................................................................................3

Smith v. Potter,
400 F. App’x 806 (5th Cir. 2010) ..............................................................................................3

Spadafora v. Hotel Rsrv. Serv., Inc.,
No. 4:23-CV-735-SDJ, 2023 WL 11762558 (E.D. Tex. Dec. 29, 2023) ..........................3, 5, 6

Williams v. Tava Ventures, Inc.,
No. 4:24-CV-122-SDJ, 2024 WL 4024037 (E.D. Tex. May 14, 2024).........................2, 3, 4, 5

Other Authorities

Federal Rule of Civil Procedure 12(b) .....................................................................................1, 2, 3

Federal Rule of Civil Procedure 26 .................................................................................................2

iii

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 4 of 12 PageID #: 656

INTRODUCTION

Defendants Kathryn Petralia, Robert Frohwein, and Spencer Robinson (collectively

“Defendants”) respectfully move this Court to enter a short stay of discovery pending resolution

of the gating venue and jurisdictional defenses raised in their individual Motions to Dismiss (Dkt.

Nos. 65, 67, 68).1 As laid out in their individual Motions, venue is improper here and this Court

lacks personal jurisdiction over the Defendants—none of whom reside in or have minimum

contacts with Texas—making Defendants’, non-parties’, and this Court’s participation in

discovery both unnecessary and improper. Staying discovery is entirely within this Court’s

discretion. There is good cause to enter a short stay where, as here, there is a pending jurisdictional

motion that is likely to dispose of the entire case, and discovery will impose undue burden without

aiding the resolution of Defendants’ pending motions. Moreover, because of its broad power to

obtain pre-litigation discovery, the Government will not be prejudiced by a short stay through the

pleadings stage. For these reasons, as laid out more fully below, Defendants respectfully request

that the Court enter a short stay of discovery until it decides Defendants’ jurisdictional Motions to

Dismiss.

BACKGROUND

On March 11, 2025, Defendants filed a Joint Motion to Dismiss (Dkt. No. 66) and

individual Motions to Dismiss (“Motions to Dismiss”) (Dkt. Nos. 65, 67, 68) the United States of

America’s Complaint in Intervention (“Complaint”) (Dkt. No. 40) under Federal Rule of Civil

Procedure 12(b). In their individual Motions to Dismiss, which are currently pending before the

Court, Defendants argue that the Complaint should be dismissed for lack of personal jurisdiction

and improper venue under Rule 12(b)(2)-(3), as well as for failing to state a claim under Rule

1
By filing this Motion, Defendants do not waive, and expressly preserve, their objection to this
Court’s exercise of jurisdiction over them.

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12(b)(6). See Dkt. No. 65 at 6-10; Dkt. No. 67 at 2-9; Dkt. No. 68 at 9-16. The Government’s

opposition briefs are due on April 17, 2025, the Defendants’ reply briefs are due on May 9, 2025,

and any sur-replies are due on May 30, 2025. See Dkt. No. 64 at 2.

On March 25, 2025, the Court issued an Order Governing Proceedings, which requires the

parties to: (1) hold a Rule 26(f) attorney conference on or before April 16, 2025; (2) complete

their initial mandatory disclosures by April 28, 2025; (3) file their joint Rule 26(f) conference

report by May 2, 2025; and (4) attend the Rule 16 management conference on May 28, 2025. See

Dkt. No. 69 at 1. The parties held their Rule 26(f) conference on April 9, 2025 and will comply

with the Court-ordered deadline for the exchange of initial mandatory disclosures on or before

April 28, 2025. By way of this motion, Defendants seek to stay all discovery and deadlines, other

than the exchange of initial mandatory disclosures, until after a decision on their jurisdictional

Motions to Dismiss.

LEGAL STANDARD

The Court has “‘broad discretion and inherent power to stay discovery until preliminary

questions that may dispose of the case are determined.’” Williams v. Tava Ventures, Inc., No.

4:24-CV-122-SDJ, 2024 WL 4024037, at *1 (E.D. Tex. May 14, 2024) (quoting Fujita v. U.S.,

416 F. App’x 400, 402 (5th Cir. 2011)). The Court “may, for example, stay discovery for ‘good

cause’ under Federal Rule of Civil Procedure 26(c)(1).” Id. (staying discovery pending a decision

on defendant’s motion to dismiss for lack of personal jurisdiction). “Good cause may exist when

‘resolving a motion to dismiss might reduce or preclude the need for discovery or when further

discovery will impose undue burden or expense without aiding the resolution of the dispositive

motions.’” Id. (citations omitted).

While discovery stays in this circuit are “the exception rather than the rule,” courts here

repeatedly stay discovery in the specific context that this case presents: where there is a pending

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 6 of 12 PageID #: 658

motion to dismiss that raises a defense of lack of jurisdiction. Id. (citation omitted); see, e.g.,

Gardner v. Gary Sinise Found., No. 4:23-CV-99-SDJ, 2023 WL 5987397, at *1 (E.D. Tex. June

5, 2023) (granting motion to stay where defendant’s motion to dismiss “raise[d] significant

procedural and substantive challenges” including a challenge to subject-matter jurisdiction); Smith

v. Potter, 400 F. App’x 806, 813 (5th Cir. 2010) (affirming district court’s order staying discovery

where there was a pending motion to dismiss for lack of jurisdiction). Indeed, as this Court has

previously found, jurisdictional issues are “[o]f particular importance” and “should be determined

early.” Williams, 2024 WL 4024037, at *1; see also Ruhrgas AG v. Marathon Oil Co., 526 U.S.

574, 584 (1999) (“Personal jurisdiction . . . is an essential element of the jurisdiction of a district

court, without which the court is powerless to proceed to an adjudication.”) (cleaned up).

ARGUMENT FOR A TEMPORARY STAY

I. Defendants’ Motions to Dismiss Present Compelling Challenges to Personal
Jurisdiction and Venue

The Court may consider the strength of a motion to dismiss in deciding a motion to stay.

See Williams, 2024 WL 4024037, at *1; Spadafora v. Hotel Rsrv. Serv., Inc., No. 4:23-CV-735-

SDJ, 2023 WL 11762558, at *1 (E.D. Tex. Dec. 29, 2023); Gardner, 2023 WL 5987397, at *1.

Here, there is good cause for a stay pending the resolution of Defendants’ Motions to Dismiss

because Defendants assert significant threshold legal issues with the Complaint: lack of personal

jurisdiction and improper venue. As this Court well knows, Rules 12(b)(2) and 12(b)(3) require

dismissal if the Court lacks either personal jurisdiction over a defendant or venue is improper.

Each of the Defendants is a non-resident of Texas, and, unless and until the Court decides that this

case was properly brought before this Court (which it was not), it would be improper and

unnecessary for the parties to plan for and engage in discovery where none is needed to resolve

the legal issues raised in Defendants’ Motions.

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 7 of 12 PageID #: 659

Defendants present compelling arguments to dismiss based on the face of the Complaint,

and no discovery is required to resolve whether personal jurisdiction or venue are proper in this

Court. Across all three Defendants, each asserts that the government improperly seeks to establish

jurisdiction and venue by imputing Kabbage’s corporate actions in Texas to them where the

longstanding fiduciary shield doctrine precludes such imputation. See Dkt. No. 65 at 9; Dkt. No.

68 at 14-15; Dkt. No. 67 at 9 n.4. Moreover, in her Motion to Dismiss, Ms. Petralia argues that

the Court lacks personal jurisdiction over her because the Complaint contains no allegations that

Ms. Petralia was directly involved in any actions relating to Texas and therefore jurisdiction here

does not comport with due process. Dkt. No. 65 at 6-9. Ms. Petralia also asserts that venue is

improper because the Complaint does not allege that Ms. Petralia personally ever transacted

business in the Eastern District of Texas. See Dkt. No. 65 at 9-10. Mr. Frohwein similarly asserts

in his Motion to Dismiss that personal jurisdiction here is lacking because the Complaint contains

no allegations that Mr. Frohwein has any relationship with Texas or took any act in Texas related

to the claims at issue in this lawsuit. See Dkt. No. 68 at 12-13. Moreover, Mr. Frohwein asserts

that venue is improper because the Complaint fails to allege that Mr. Frohwein presently transacts

business or ever personally transacted business in Texas. Id. at 9-10. Finally, Mr. Robinson asserts

that personal jurisdiction is lacking because venue is improper. He asserts that the Complaint

merely alleges, in the past tense, that Defendants—via Kabbage—transacted business in the

district, fails to allege that Mr. Robinson purposely forged a substantial connection with Texas,

and fails to allege that Mr. Robinson personally conducted any business in Texas. Dkt. No. 67 at

6-9.

II. A Stay Will Enhance Judicial Efficiency

Good cause may exist for a stay where “resolving a motion to dismiss might reduce or

preclude the need for discovery.” Williams, 2024 WL 4024037, at *1 (citation omitted). Here, a

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 8 of 12 PageID #: 660

temporary stay of discovery is appropriate because it will serve judicial efficiency and economy

given that a favorable disposition of Defendants’ Motions to Dismiss based on lack of personal

jurisdiction or improper venue “‘might preclude the need for discovery altogether.’” See id.

(quoting Spadafora, 2023 WL 11762558, at *1). It would be a waste of the parties’ and the Court’s

resources to proceed with the discovery stage. The Court should therefore enter a stay so that the

parties can avoid the undue burden and expenses of needless discovery at this preliminary stage.

III. The Government Will Not Suffer Prejudice From A Short Stay

Finally, a temporary stay would not prejudice the government which, using its broad

investigative powers, already has much of the discovery it would want to litigate this case. On the

other hand, Defendants would suffer prejudice if compelled to participate in discovery at this stage,

at least because the parties expect to depose dozens of third parties, including former Kabbage

employees and current and former officials from the Small Business Administration and other

government agencies, which will require significant effort and resources on both sides.

Accordingly, this is a short-term request, and any claim of prejudice is properly mitigated by the

benefit of avoiding the expenditure of time and resources to engage in discovery that may

ultimately be superseded by the Court’s personal jurisdiction or venue ruling.

IV. This Court Has Granted Temporary Stays of Discovery In Similar Cases

This Court has granted motions to stay in similar circumstances. For example, in Williams,

this Court granted a motion to stay discovery pending the resolution of a motion to dismiss that

raised “significant challenges to Plaintiff’s complaint,” including for lack of personal jurisdiction,

failure to state a claim upon which relief can be granted, and improper service. 2024 WL 4024037,

at *1. In reaching its conclusion, this Court “note[d] that jurisdictional issues should be determined

early in the case.” Id. As in Williams, here too “the question of personal jurisdiction over [three]

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 9 of 12 PageID #: 661

defendants has been briefed and is ripe for determination without needing discovery.” Id. “[O]n

these grounds alone,” the Court should find good cause for a stay. Id.

Similarly, in Gardner, this Court granted a motion to stay discovery pending the resolution

of the defendant’s motion to dismiss. 2023 WL 5987397, at *1. There, as here, the defendant’s

dismissal motion raised a threshold jurisdictional issue as well as “weighty legal questions which

c[ould] be resolved without discovery.” Id. This Court concluded there was good cause to stay

discovery because the presence of proper jurisdiction was a predicate to assessing the merits of the

plaintiff’s claim. Id.

Likewise, in Spadafora, this Court found a stay was appropriate where the defendant’s

motion to dismiss “provide[d] substantial arguments for dismissal of many, if not all, of Plaintiffs’

claims.” 2023 WL 11762558, at *1. Similar to the present case, this Court noted that “[a] stay of

discovery is also appropriate given that the issues addressed in the motion to dismiss [were] largely

legal, rather than factual, in nature.” Id. Here too, Defendants present purely legal arguments for

dismissal that may be resolved without the benefit of discovery.

CONCLUSION

For the foregoing reasons, Defendants request that the Court grant this Motion and enter

an order staying discovery until after the Court rules on the venue and jurisdictional defenses raised

in their Motions to Dismiss.

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 10 of 12 PageID #: 662

Dated: April 14, 2025 Respectfully submitted,

/s/ Melissa R. Smith /s/ Alexander J. Chern
Melissa R. Smith Nicholas M. Mathews
Gillam & Smith LLP Alexander J. Chern
303 South Washington Ave. McKool Smith, PC - Dallas
Marshall, TX 75670 300 Crescent Court, Suite 1500
Telephone: (903) 934-8450 Dallas, TX 75201
Fax: (903) 934-9257 Telephone: (214) 978-4258
melissa@gillamsmithlaw.com Fax: (214) 978-4044
NMathews@mckoolsmith.com
Anjan Sahni (pro hac vice) AChern@mckoolsmith.com
Wilmer Cutler Pickering Hale and Dorr LLP
7 World Trade Center, 250 Greenwich Street Miranda Hooker (pro hac vice)
New York, NY 10007 Kate E. MacLeman (pro hac vice)
Tel: (212) 230-8800 Kara N. Czekai (pro hac vice)
Fax: (212) 230-8888 Goodwin Procter LLP
anjan.sahni@wilmerhale.com 100 Northern Avenue
Boston, Massachusetts 02210
Christopher E. Babbitt (pro hac vice) Telephone: (617) 570-1000
Michaela S. Wilkes Klein (pro hac vice) Fax: (617) 523-1231
Wilmer Cutler Pickering Hale and Dorr LLP MHooker@goodwinlaw.com
2100 Pennsylvania Avenue NW KMacLeman@goodwinlaw.com
Washington, DC 20037 KCzekai@goodwinlaw.com
Telephone: (202) 663-6000 Counsel for Robert Frohwein
Fax: (202) 663-6363
christopher.babbitt@wilmerhale.com /s/ Henry W. Asbill
michaela.wilkesklein@wilmerhale.com Henry W. Asbill (pro hac vice)
Christopher B. Mead (pro hac vice)
George P. Varghese (pro hac vice) Lisa H. Schertler (pro hac vice)
Wilmer Cutler Pickering Hale and Dorr LLP Paola Pinto (pro hac vice)
60 State Street Schertler Onorato Mead & Sears
Boston, MA 02109 555 13th Street NW Suite 500W
Telephone: (617) 526-6000 Washington DC 20004
Fax: (617) 526-5000 Telephone: 202-628-4199
george.varghese@wilmerhale.com Facsimile: 202-628-4177
Counsel for Kathryn Petralia hasbill@schertlerlaw.com
cmead@schertlerlaw.com
lschertler@schertlerlaw.com
ppinto@schertlerlaw.com
Counsel for Spencer Robinson

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 11 of 12 PageID #: 663

CERTIFICATE OF CONFERENCE

Pursuant to Local Rule CV-7(i), undersigned counsel certifies compliance with the meet

and confer requirement in Local Rule CV-7(h). Undersigned counsel met and conferred in good

faith with Kelly Phipps, Sarah Loucks, and Betty Young (counsel for the Government) and Julie

Bracker and Sarah Frazier (counsel for Relator) via teleconference on April 9, 2025 and via email

on April 11 & 14, 2025. The parties’ discussions conclusively ended in an impasse on April 14,

2025. Plaintiffs oppose the present Motion.

/s/ George P. Varghese
George P. Varghese

Counsel for Kathryn Petralia

/s/ Miranda Hooker
Miranda Hooker

Counsel for Robert Frohwein

/s/ Henry W. Asbill
Henry W. Asbill

Counsel for Spencer Robinson

Case 4:21-cv-00110-SDJ Document 71 Filed 04/14/25 Page 12 of 12 PageID #: 664

CERTIFICATE OF SERVICE

I hereby certify that on April 14, 2025, I caused the foregoing to be electronically filed

with the Clerk of the Court using the CM/ECF system, which sent notification of filing to all

attorneys of record.

/s/ Alexander J. Chern
Alexander J. Chern

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