Denying plaintiffs’ motion to lift the statutory stay on discovery mandated by the Private Securities Litigation Reform Act (PSLRA) pending resolution of a motion to dismiss securities fraud claims, the United States District Court for the Southern District of New York held that plaintiffs failed to identify “unique circumstances” that would permit the court to grant such relief. Under the PSLRA, discovery is stayed following the filing of a motion to dismiss unless it is necessary to preserve evidence or prevent undue prejudice. The plaintiffs sought relief from the stay of discovery to require defendants to produce to plaintiffs copies of documents they had produced to the Securities and Exchange Commission in an ongoing civil action against the same defendants. The plaintiffs argued that without such discovery they would suffer “undue prejudice” because they would be the only parties litigating against the defendants who were subject to the PSLRA discovery stay.
While recognizing that relief from the stay might be appropriate where, for example, the plaintiffs were subject to a Court-imposed deadline to pursue settlement or where there was reason to believe that the defendant’s assets would be depleted during the pendency of the stay, the Court ruled that neither these nor any other circumstances constituting undue prejudice had been shown. While the plaintiffs did demonstrate that the stay would delay them from collecting information to assist in settlement negotiations and from formulating litigation strategy, the Court ruled that such consequences were an inherent part of every stay of discovery under the PSLRA and, thus, did not constitute “undue prejudice.” (380544 Canada, Inc., v. Aspen Technology, Inc., 2007 WL 2049738 (S.D.N.Y. July 18, 2007))