More On SLUSA And The Discovery Stay

As posted on The 10b-5 Daily last July, the D. of Conn. held in the Crompton securities class action that discovery should be stayed in a parallel state court derivative action pursuant to SLUSA. To obtain this stay, the defendants only needed to show “a likelihood that the federal Plaintiffs will obtain state Plaintiff’s discovery.”

In an interesting follow-up decision – In re Crompton Corp. Sec. Litig., 2005 U.S. Dist. LEXIS 23002 (D.Conn. Aug. 16, 2005) – the court also ordered the return of the discovery that had already been produced. Although the derivative plaintiff argued that it was beyond the federal court’s authority to force the return of the 2.5 million pages of electronic discovery in question, the court found that Congress had intended courts to apply the SLUSA stay provision “liberally.”

Quote of note: “In granting Defendants’ motion to stay discovery in [the derivative case], this Court sought to prevent the erosion of its jurisdiction during the pendency of the motion to dismiss in the federal securities class action suit. By refusing to return discovery produced to date, Plaintiff violates the letter and the spirit of the PSLRA and SLUSA, and thereby circumvents this Court’s determination to preserve its jurisdiction.”

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