The “Government Investigation” Exception

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.” A district court split has developed over whether this provision allows for the discovery, prior to a decision on a motion to dismiss, of documents that have been produced to government entities.

In In re LaBranche Sec. Litig., 2004 WL 1924541 (S.D.N.Y. Aug. 27, 2004), Senior Judge Sweet agreed with those courts holding that not allowing plaintiffs access to documents previously produced to government entities would cause “undue prejudice.” LaBranche had already settled with the SEC and NYSE and the court found that the plaintiffs needed the documents produced to those organizations “to make informed decisions about their litigation strategy in this rapidly shifting landscape.” The New York Law Journal has an article (via law.com – free regist. req’d) discussing the decision.

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