Wish Upon a Stay

In deciding whether to lift the PSLRA stay, Judge William H. Pauley III (S.D.N.Y.) (Clinton Class of ‘98) considered Plaintiffs “claim that because Defendants have previously produced much of the requested material to the SEC, Defendants could easily produce the same material to Plaintiffs.” But, he found that “this consideration is irrelevant,” as “there is no exception to the discovery stay for cases in which discovery would not burden the defendant.” Instead, “the proper inquiry under the PSLRA is whether the plaintiff would be unduly prejudiced by the stay, not whether the defendant would be burdened by lifting the stay.”

Lifting the stay DEE-NYED. Sorry — I can’t find a picture of Judge Pauley anywhere after spending an exhausting 32 seconds looking for one. You can send me one if you want, but of course I won’t get it until Friday night — and I do not post judicial pictures after Happy Hour.

You can read In re Smith Barney Transfer Litigation, issued June 26, 2006, at 2006 U.S. Dist. LEXIS 42646.

Nugget: “Plaintiffs’ have identified no “prejudice” beyond the routine delay arising from the PSLRA stay. Because no exceptional circumstances are present in this case, discovery will remain stayed as to Plaintiffs’ securities claims.”

Discovery Stay Overstaying Welcome

As reported right here at the Nugget, Plaintiffs won the motions to dismiss in the McDonald’s (NYSE MCD) securities class action last September. So why are Plaintiffs still fighting to lift the PSLRA discovery stay? Actually, it turns out that even though Plaintiffs won, Judge Blanche M. Manning (N.D. Ill.) took the unusual step of ordering Plaintiffs to amend their complaint. Why? Because she “considered certain facts not alleged in the complaint but raised instead by plaintiffs’ response to the motion to dismiss,” so she wanted them to include those facts in a revised complaint.

So here Plaintiffs are, six months later, trying to get Magistrate Judge Sidney I. Schenkier (N.D. Ill.) to lift the discovery stay. Judge Schenkier concluded “at bottom, plaintiffs’ argument is that the stay should not apply because the current motion to dismiss is meritless — a point they press vigorously in seeking to lift the stay. Certainly, plaintiffs’ argument about the strength of the original motion to dismiss would not be a basis to lift the stay before the motion is decided — and plaintiffs do not argue otherwise. Plaintiffs have not cited any authority to support the proposition that we may preview the outcome of a second motion to dismiss in deciding whether to lift the stay. Moreover, it is not our province to rule on the merits of defendants’ second motion to dismiss, which is pending before the district judge; and we therefore express no view as to the outcome of that motion.”

Result? The stay remains in place.

You can read Selbst V. McDonald’s, issued March 1, 2006, at 2006 U.S. Dist. LEXIS 8862.

Nugget: “The gist of plaintiffs’ argument before this Court is that defendants’ current motion to dismiss pending before the district judge is frivolous. However, we note that plaintiffs have not availed themselves of the procedural tools to raise that contention with the district judge: they have not sought sanctions on the ground that the motion to dismiss is being brought for an improper purpose or lacks a basis in law or fact, FED.R.CIV.P. 11(b), or that the motion “multiplies the proceedings in . . . [the] case unnecessarily and vexatiously.”

Judge Stops Trustee From Tossing Documents

So what are you, as the Lead Plaintiff, supposed to do when trapped under a PSLRA discovery stay, and a bankruptcy Trustee is about to get permission to destroy company documents that you want to get your hands on? Well, if you are the Lead Plaintiff in the IT Group securities class action, you move to lift the stay to get at the documents. And if you’re the Defendant? Well, you tell the Court that all it needs to do is issue a document preservation subpoena to the Trustee.

Who wins? This time, it’s Defendants, with Judge William L. Standish (W.D. Pa.) holding that that Plaintiffs’ proposal “would allow them to begin unrestricted discovery of 134,000 boxes of documents scattered throughout the United States,” and therefore Plaintiffs “have not established a clearly defined universe of documents, and could easily be off on a fishing expedition.” Wait a minute. Did he really say 134 thousand boxes? Boxes? Let’s calculate here, if there are 3000 pages in a box (assume no pesky clips if you please), that’s 402 million pages. If you stretched the boxes end to end, they would stretch for nearly 32 miles! Put the documents from the boxes end to end (sounds fun doesn’t it?), and the line would be 96,000 miles, or nearly four times around the earth. Oh, yes, Your Honor, we have really narrowed down our request. Anyway, seems no surprise that Judge Standish concluded “issuing a protective subpoena is the most expeditious and least disruptive way to proceed in this matter.”

You can read Payne v. DeLuca, issued December 20, 2005, at 2005 U.S. Dist. LEXIS 35891.

Nugget: “Despite Plaintiffs’ speculation that the Trustee would surreptitiously disregard a subpoena, the Court believes that the possibility of being held in contempt of court for failing to comply with the terms of a subpoena, coupled with the relatively light burden of complying for the short period of time envisioned, would encourage the Trustee to fully cooperate.”

Judge Takes Control of Electronic Discovery

Assigned to a Senior District Judge, and feeling a bit, well, unsure about the Court fully engaging in your electronic discovery issues? Well, cast your fears aside if you are in Judge Dominic J. Squatrito’s (D. Conn.) courtroom. You see, in the Priceline securities class action, the Judge had to deal with some complex electronic discovery issues, including how to handle 223 “backup tapes containing e-mail data from former employees.”

In a detailed order that lays out the electronic discovery plan, and throws around terms like “compression” and “production database servers” with ease, Senior Judge Squatrito held that “Defendants shall produce responsive information contained in stored data files to plaintiffs in TIFF or PDF form with Bates numbering and appropriate confidentiality designations, shall produce searchable metadata databases, and shall maintain the original data itself in native format for the duration of the litigation.” He also ruled that “cost-shifting shall be applied for in the method set forth in the proposed revisions to Rule 26(b)(2) and the Committee Note attendant thereto.”

For an earlier post about another discovery ruling by Judge Squatrito in the Priceline action, click here.

You can read In re Priceline, issued December 8, 2005, here or at 2005 U.S. Dist. LEXIS 33636.
Nugget: “The files on this snapshot are in native format and do not need to be restored, but, because the snapshot is a reproduction of the way files are stored on computer hardware by the computer system, the files are arranged in an essentially random configuration.”

Stay it Again Sammy

So picture you’re representing a Lead Plaintiff and you win the motion to dismiss. Your hard work has paid off, and you start drafting those document requests. However, six weeks later, the controlling appellate court issues a decision in an unrelated case. Who cares, right? Well, now you do, because Defendants have “renewed” their motions to dismiss, arguing that the new decision requires the dismissal of your claims. At the same time, they say that discovery must again be stayed pursuant to the PSLRA. That’s exactly what happened in the Salomon analyst litigation overseen by Judge Gerard E. Lynch (S.D.N.Y.).

Defendants got their stay, but were arguably their own worst enemy, as Judge Lynch noted that their “assertion that the law is well established that successive motions . . . do stay discovery under the PSLRA is, to say the least, overstated.” In fact, the court noted that the “three district court opinions” cited by Defendants are either “distinguishable, or are flatly misstated.” But lucky for them, Judge Lynch held that he “need not accept defendants’ argument in order to grant a stay.” Noting that the Second Circuit’s “intervening appellate decision” in Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005)) “advances new reasoning addressing a significant issue in the case,” “revisiting the Court’s analysis of the issue of loss causation” is warranted.

Thus, “in view of the policy of the PSLRA to deny discovery until a complaint has been authoritatively sustained by the court, it is appropriate to extend the stay under the present circumstances. Since that result is appropriate as an exercise of the Court’s discretion, there is no need to decide whether the filing of a successive motion, or even of any non-frivolous motion, after a court has already denied on the merits an earlier motion to dismiss would trigger an automatic stay under the PSLRA.”

You can read In re Salomon Analyst Litigation at 2005 U.S. Dist. LEXIS 3629.

Nugget: “To permit defendants indefinitely to renew the stay simply by filing successive motions to dismiss would be to invite abuse. Some judicial discretion to evaluate the desirability of a renewed stay appears to be necessary.”