Applying The PSLRA

A mere fourteen years after the passage of the Private Securities Litigation Reform Act, litigation over the meaning of the various procedural provisions continues. Two recent cases highlight disputes over the role of the court in the selection of lead counsel and the scope of the exceptions to the mandatory discovery stay.

(1) Selection of Lead Counsel – In Cohen v. U.S. District Court for the N.D. of Cal., 2009 WL 3681701 (9th Cir. Nov. 5, 2009), the court addressed a writ of mandamus filed by the lead plaintiff in a securities class action. At issue was whether the district court had acted within its authority when it rejected the lead plaintiff’s proposed lead counsel and substituted lead counsel of the court’s own choosing.

The Ninth Circuit found that “[i]t would be difficult for the [PSLRA] to be more clear that it is lead plaintiff who selects lead counsel, not the district court.” While the district court had the “limited power to accept or reject the lead plaintiff’s selection,” it could go no further.

Holding: Remanded to district court to accept or reject lead plaintiff’s selection for lead counsel according to applicable standard. (Go to Securities Litigation Watch for more on the decision.)

(2) Mandatory 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.” Whether a plaintiff suffers undue prejudice if not provided with documents that have already been produced to a government agency or in other litigations has been a contentious issue.

In In re Bank of America Corp. Securities, Derivative, and ERISA Lit., No. 09 MDL 2058 (S.D.N.Y. Nov. 16, 2009), the court considered whether to lift the discovery stay in a case related to the merger of Bank of America and Merrill Lynch. The merger is also the subject of a Delaware derivative action, an SEC action, and numerous governmental investigations. The court found that the plaintiffs had sufficiently demonstrated undue prejudice because “[d]iscovery is moving apace in parallel litigation” and without access to the documents produced in those proceedings the plaintiffs would “be less able to make informed decisions about litigation strategy.

Holding: Motion granted to lift the discovery stay as to the documents already produced in related matters. (See The American Lawyer for a comprehensive write-up of the decision, including links to all of the court filings.)

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