Partner Michael H. Rogers and Associate Stephen C. Boscolo examine the scope of the Private Securities Litigation Reform Act (PSLRA) discovery stay and the avenues for fact-finding available to securities plaintiffs before defeating a motion to dismiss in the article, “Staying the Course: What Fact-Finding a Plaintiff Can Conduct During the PSLRA Discovery Stay,” published by New York Law Journal.

Under the PSLRA, discovery is generally stayed pending resolution of a motion to dismiss, limiting plaintiffs’ ability to obtain information through formal litigation procedures.  As Michael and Stephen explain, however, “the PSLRA discovery stay does not bar all types of fact-finding.”  The authors discuss three categories of fact-finding that courts have permitted during the stay: informal investigations, statutory public-record requests, and discovery requests involving willing third parties.

Michael and Stephen highlight decisions illustrating how courts distinguish permissible investigation efforts.  In In re Tyco International Ltd. Securities Litigation, the court affirmed plaintiffs’ ability to conduct voluntary witness interviews, explaining that “neither logic, tradition, the constitution[,] nor the PSLRA prohibit interviewing prospective witnesses.”

The authors also examine the limits of statutory requests, where plaintiffs can obtain information under public records regulations.  In American Bank v. City of Menasha, the court held that a public-records request did not constitute discovery under the PSLRA.  Whereas, in In re Facebook, Inc. Shareholder Derivative Privacy Litigation, the court stayed claims seeking nonpublic corporate documents through a California books-and-records statute.  Other requests may face restrictions under the governing statute itself, underscoring the distinction between seeking public records and pursuing nonpublic corporate information.

Turning to voluntarily cooperating third parties, Michael and Stephen discuss Takiguchi v. MRI International, Inc., where the court rejected a motion for contempt arising from a plaintiff’s subpoena to the Securities and Exchange Commission (SEC), which was cooperating in investigating the defendant.  The decision illustrates the narrow circumstances in which some courts have permitted requests involving formal court procedures during the stay.

Drawing these decisions together, the authors identify a practical question for assessing whether fact-finding constitutes “discovery” barred by the PSLRA: “Is the plaintiff compelling information other than public records using the authority and processes of a court?”  Their analysis explains how plaintiffs can continue investigating their claims while observing the stay’s restrictions.