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July 29, 2021 Practice Points

Supreme Court Agrees to Hear Securities Case Involving Application of the PSLRA’s Discovery-Stay Provision to Cases Filed in State Courts

The case will decide whether the PSLRA’s provision requiring a stay of discovery and other proceedings during the pendency of a motion to dismiss applies to securities class actions filed in state courts.

By Danielle S. Myers

Practitioners should be aware that on July 2, 2021, the Supreme Court granted a petition for a writ of certiorari in Pivotal Software, Inc. v. Tran, No. 20-1541 (S. Ct.).  The question presented by petitioners (defendants below) is “[w]hether the Reform Act’s discovery-stay provision applies to a private action under the Securities Act in state or federal court, or solely to a private action in federal court.”  The respondents (plaintiffs below) rephrased the question presented as “[d]oes the discovery-stay provision of the Private Securities Litigation Reform Act impose mandates on the procedures of state courts?”

By way of background, the Securities Act of 1933 expressly provides for concurrent jurisdiction in both state and federal court for violations of the Act.  And, in Cyan, Inc. v. Beaver Cnty. Emps. Ret. Fund, 583 U.S. __ (2018), the Supreme Court held that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) did not strip state courts of jurisdiction over class actions alleging violations of only the Securities Act of 1933.  As such, 1933 Act cases may be, and are, filed in both state and federal courts. The litigation at issue in Pivotal Software involves just such a case: alleged violations of the 1933 Act filed in California Superior Court.

In the underlying case, the trial court denied defendants’ motion to stay discovery, holding that the Stay Provision did not apply. Specifically, while the §77z-1(b)(1) of the PSLRA provides that “[i]n any private action arising under [the Securities Act of 1933], all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss,” the preceding section (§77z-1(a)(1)) expressly provides that “the provisions of this subsection shall apply to each private action arising under this subchapter that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure.”  Cases in state courts are, quite obviously, not brought pursuant to federal procedural rules.  Moreover, the trial court noted that if the PSLRA discovery stay provision applied to state and federal cases equally, SLUSA would not have included a permissive discovery stay provision.  Defendants sought a writ of mandate and stay from the California Court of Appeal, which it summarily denied without a written opinion.  The California Supreme Court did the same.

The U.S. Supreme Court will hear the Pivotal Software case in the October 2021 term.

Danielle S. Myers is a partner with Robbins Geller Rudman & Dowd LLP in San Diego.

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