A Little Of This, A Little Of That

Three unusual recent decisions addressing the PSLRA’s discovery stay, appeals from the denial of a motion to dismiss, and prolixity in complaints:

(1) While the primary securities class action against Time Warner was settled last year, a consolidated action consisting of suits by institutional investors that opted out of the main case continues on. Moreover, the plaintiffs in the consolidated action have access to the approximately 14 million documents that Time Warner produced in the primary securities class action and related state court litigation. In re AOL Time Warner, Inc. Sec. Litig., 2006 WL 1997704 (S.D.N.Y. July 13, 2006), the court addressed a “unique” request by the defendants to lift the PSLRA’s discovery stay to allow them to obtain discovery from the plaintiffs. Time Warner argued, and the court agreed, that the discovery stay should be lifted because “prohibiting Time Warner’s discovery of Plaintiffs while Plaintiffs are able to formulate their litigation and settlement strategy on the basis of the massive discovery Time Warner has already produced constitutes undue prejudice.”

(2) The denial of a motion to dismiss is not a final judgment in a securities class action and is normally not subject to appeal. Although a district court might certify an interlocutory appeal based on the existence of a novel and dispositive legal issue, whether the district court correctly found that the plaintiff met the heightened pleading standards of the PSLRA is not usually thought to meet that criteria. In Thompson v. Shaw Group, Inc., 2006 WL 2038025 (E.D. La. July 18, 2006), however, the district court certified its denial of the defendants’ motion to dismiss for appeal, finding that “reasonable minds might disagree on the issue of whether the Plaintiffs have satisfied their pleading burden under the heightened standards for securities claims.” The court noted that an immediate appeal was justified because “a ruling favorable to Defendants on this issue would render years of discovery, enormous expenses incurred by the parties, and a trial on the merits unnecessary.”

(3) The modern securities class action complaint can be a massive tome, primarily because of the need to meet the PSLRA’s heightened pleading standards. That said, not every court appreciates getting so much reading material. In In re Leapfrog Enterprises, Inc. Sec. Litig. 2006 WL 2192116 (N.D. Cal. Aug. 1, 2006), the court addressed a 147-page consolidated complaint that it believed was unnecessarily long. After clarifying the issues in the case at oral argument, the court granted leave to amend with the express condition that the amended complaint “not exceed fifty (50) pages in length.”