Who Knew The Truth?

Should a securities class action defendant be able to get discovery from absent class members to support its defenses? In Garden City Employees’ Retirement System v. Psychiatric Solutions, Inc., 2012 WL 4829802 (M.D. Tenn. Oct. 10, 2012), the defendants issued subpoenas to 14 institutional investors in a case where the class had already been certified. In their motion for leave to conduct this discovery, the defendants contended that the discovery was necessary on “individual issues” and to further their “truth on the market defense.”

The court noted that, as a general matter, discovery of absent class members is disfavored. The defendants “bear the burden of showing necessity and the absence of any motive to take undue advantage of the class members.” In the instant case, the court concluded that mere “speculation” that absent class members might have invested even knowing of the alleged misstatements was insufficient to satisfy the defendants’ burden. Moreover, any discovery related to individual reliance on the alleged misstatements could be done after a trial on the common issues.

Holding: Motion for leave to conduct discovery of absent class members denied.

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