California State Court Applies Discovery Stay in Securities Act Claim

A recent decision, if widely adopted, could spare companies from unnecessary discovery costs in claims that may not survive a threshold pleadings challenge.

Key Points:

..State courts across the country have reached conflicting conclusions on whether the Private Securities Litigation Reform Act’s (PSLRA) automatic stay of discovery pending a ruling on a complaint’s legal sufficiency applies to cases filed in state court.

..Breaking from the majority approach among California courts, a San Mateo County Superior Court conducted a thorough statutory interpretation analysis and concluded that the PSLRA requires a stay of discovery in state court.

..If state courts were to reach consensus on this conclusion — or if the US Supreme Court were to adopt it - securities plaintiffs would possess less leverage to coerce settlements by filing in state court and forcing companies to engage in early discovery.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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