“Plaintiffs’ counsel shouldn’t be allowed to circumvent the PSLRA’s discovery stay in federal actions by obtaining backdoor discovery in parallel state-court actions.”
—Cory Andrews, WLF General Counsel & Vice President of Litigation
Click HERE for WLF’s brief.
(Washington, DC)—Washington Legal Foundation (WLF) today asked the U.S. Supreme Court to vacate a decision of the Court of Appeal for the State of California, First Appellate District, in a securities class action with far-reaching implications. WLF’s amicus brief was prepared with the pro bono assistance of Lyle Roberts, George Anhang, and Stephen Janick of Shearman & Sterling LLP.
The Private Securities Litigation Reform Act of 1995 (PSLRA) stays discovery during the pendency of a motion to dismiss in “any private action” under the Securities Act of 1933. The discovery stay is a key component of Congress’s overall statutory scheme for private securities actions. Congress was concerned that plaintiffs bringing meritless securities suits were using abusive discovery as leverage to bolster their cases, avoid dismissal, and force settlements. Those policy concerns, and the accompanying mandatory discovery stay, apply equally no matter if a securities suit if filed in state or federal court.
The California court failed to apply the PSLRA’s mandatory discovery stay in this case. It held that the law’s discovery stay is procedural, not substantive, and so does not apply in state court. But as WLF explains it its amicus brief, the PSLRA’s plain language, overall statutory scheme, and animating public-policy concerns all confirm that the mandatory stay applies in all Securities Act cases, including those brought in state court. A contrary holding would permit plaintiffs to simply file parallel actions in state court to circumvent the discovery stay in federal court. As WLF shows, that is precisely what many plaintiffs’ counsel have been doing for years.