Publications

(Article from Securities Law Alert, May/June 2019) 

For more information, please visit the Securities Law Alert Resource Center

On May 15, 2019, the Connecticut Superior Court held that the Private Securities Litigation Reform Act’s discovery stay pending a motion to dismiss applies to state court actions asserting Securities Act claims. City of Livonia Retiree Health and Disability Benefits Plan v. Pitney Bowes, 2019 WL 2293924 (Conn. Super. Ct. 2019) (Lee,  J.). The court found that the relevant statute, 15 U.S.C. § 77z-1(b)(1), “is not ambiguous” and “its plain meaning compels the conclusion that [it] . . . applies to actions commenced in state court under the Securities Act, as well as such actions commenced in federal court.”

Section 77z-1(b)(1) provides that “[i]n any private action arising under this subchapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss . . . .” The court found that the phrase “[t]his subchapter” refers to the Securities Act, which “confers concurrent jurisdiction on state and federal courts.” The court further determined that the phrase “any private action arising under this subchapter” encompasses actions commenced in state court as well as federal court. The court found it significant that a different provision of the same statute— § 77z-1(a)(1) —specifically states that it “shall apply to each private action arising under this subchapter that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure.” The court reasoned that “[b]ecause 77z-1(b)(1) does not contain the same language, the inference is strong that it is not limited to actions . . . in federal court.”

The court also pointed out that in Cyan v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018), the Supreme Court observed that the safe harbor provisions set forth in 15 U.S.C. § 77z-2 “applied even when a [Securities] Act suit was brought in state court.”[1] The City of Livonia court noted that one provision of that statute, § 77z-2(c)(1), also uses the phrase “in any private action arising under this subchapter.” The court found that “[b]ecause the Supreme Court held that language identical to that at issue here applies to both state and federal actions commenced under the Securities Act, the inference is strong that Section 77-1(b)(1) was meant to apply to actions pending in state court as well as in federal court.” The court also considered it noteworthy that § 77z-2, “which the Supreme Court expressly held applies to state as well as federal actions, also contains [a provision providing for] a stay of discovery during the pendency of a motion relevant to a determination of the merits of the action.” See 15 U.S.C. § 77z-2(f) (providing for a discovery stay pending a motion for summary judgment).

Finally, the court rejected plaintiffs’ contention that “state law should govern whether a stay of discovery is to be granted because it is a procedural issue and not a substantive one.” The court explained that it is “bound by the decision in Cyan approving the application to a state court action of a provision of the Securities Act that stays discovery during the pendency of a substantive pretrial motion.”