On July 2, 2021, the United States Supreme Court granted a petition for
certiorari to review a decision by a California state court allowing plaintiffs to take discovery in a private action under the Securities Act of 1933 (the “Securities Act”).
Pivotal Software, Inc. v. Tran, No. 20-1541 (U.S. July 2, 2021). The issue presented by the petition is whether the Private Securities Litigation Reform Act’s (the “PSLRA”) discovery-stay provision—which provides that “[i]n any private action arising under” the Securities Act, “all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss”—applies in Securities Act cases filed in state court.
We covered the Northern District of California’s dismissal of a parallel federal putative securities class action for failure to adequately allege misrepresentation and scienter in a previous
post. The instant action brought in the California Superior Court advanced similar allegations as to Securities Act claims in connection with the company’s initial public offering. The state court permitted plaintiffs to seek discovery despite a pending motion to dismiss. The court indicated it believed the PSLRA provision’s lack of an express reference to state courts precluded its application in those courts. The court also relied on certain subsections of the PSLRA in reaching its conclusion that to apply the stay provision in state court would make a separate provision in the Securities Litigation Uniform Standards Act of 1998 (the “SLUSA”) redundant as a SLUSA provision already allows a court in certain actions to stay discovery in any private action in a state court. The court, citing the Supreme Court’s decision in
Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018), further held that given the “procedural nature” of the discovery-stay provision, the provision would only apply in federal court.
As petitioners observe, state courts have been split on whether the stay provision applies to state proceedings. Indeed, even New York state courts within the same county have reached different conclusions on this question. Petitioners further argue that the trial court’s decision contradicts the plain text of the PSLRA’s discovery stay, which applies “[i]n
any private action arising under” the Securities Act, and misreads
Cyan.
The importance of this question has of course grown with the increase of Securities Act class actions brought in state court after
Cyan, which held that state courts retained jurisdiction over covered class actions asserting claims under the Securities Act. As more Securities Act class actions continue to be brought in state court, the Supreme Court’s determination on this issue will likely have a far-reaching impact.
