Plaintiffs brought a shareholder derivative action, claiming the officers and directors of Asyst Technologies, Inc. (Asyst) violated federal and state securities law by backdating stock options and making false filings with the Securities and Exchange Commission. Following defendants’ motion to dismiss the complaint, plaintiffs moved for an order lifting the discovery stay imposed by the Private Securities Litigation Reform Act (PSLRA).
Under the PSLRA, discovery is automatically stayed “during the pendency of any motion to dismiss.” However, the statute allows the stay to be lifted if the Court finds that discovery is necessary to “preserve evidence” or to “prevent undue prejudice.” Plaintiffs argued that they required relief from the stay because they would otherwise face undue prejudice because “other agencies such as the Securities and Exchange Commission and the Department of Justice have investigated Asyst’s backdating conduct ‘while plaintiffs have been left with nothing other than the publicly available information.’” Plaintiffs claimed that it was unfair for them to be “left behind” while government agencies proceeded with their investigations.
The Court rejected the argument, holding that the plaintiffs had not shown that they would suffer the type of undue prejudice required under the PSLRA. While the Court recognized that the stay resulted in plaintiffs not being on “equal footing with the other investigative agencies,” it ruled that this alone did not constitute undue prejudice. In addition, the Court found that the cases plaintiffs cited, where the discovery stay had been lifted, were distinguishable. In those cases, unlike the present case, plaintiffs faced the potential dissolution or substantial depletion of the defendant company’s assets. (In re Asyst Technologies, Inc., 2008 WL 916883 (N.D. Cal. April 3, 2008))