Testing the Discovery Stay

The PSLRA provides that “all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.” Seven years after the passage of the PSLRA, the parameters for the exception to the discovery stay are still being established.

In In re Vivendi Universal, S.A., Sec. Litig., 2003 WL 21035383 (S.D.N.Y. May 6, 2003), plaintiffs moved for the discovery of documents already produced by the defendants to the DOJ, SEC, and two French regulatory agencies. Plaintiffs argued that a “partial lift on the stay of discovery is necessary because defendants are liquidating certain subsidiaries or affiliates of the Vivendi corporation, and there is a risk that documents may be lost with the transfer of control over portions of defendants’ business.” Based on defendants’ representations that (1) documents would not be destroyed and (2) they had retained copies of any documents previously produced to investigators, the court held that there was no basis for concluding that evidence needed to be preserved or that plaintiffs had shown “exceptional circumstances” warranting the lifting of the stay.

Holding: Motion to lift the stay on discovery denied.

Quote of note: “Although the Second Circuit has yet to make any pronouncement, district courts here and elsewhere have construed ‘undue prejudice’ to mean ‘improper or unfair treatment amounting to something less than irreparable harm.'”

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