S.D.N.Y. Granted Plaintiffs’ Request to Lift Discovery Stay in Waldman v. Wachovia Corp.

In Waldman v. Wachovia Corp., 2009 WL 86763 (S.D.N.Y. Jan. 12, 2009), the Court found that maintaining a discovery stay with regard to documents already produced to state and federal authorities would unduly prejudice plaintiffs because the documents could be determinative of plaintiffs’ decision whether to continue pursuing the case.

This case addressed the issue of when a discovery stay reaches the point of undue prejudice.

The PSLRA states that “in any private action arising under [federal securities law], 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.” 15 U.S.C. § 78u-4(b)(3)(B).

The Court reasoned that a discovery stay “may be lifted only when the request is sufficiently particularized and when maintenance of the stay would either generate an impermissible risk of the destruction of evidence or create undue prejudice.” 2009 WL 86763, 1 (S.D.N.Y. 2009). A principal purpose of the PSLRA discovery stay, according to the court, is to eliminate the cost of discovery before the potential merit of a case is assessed at the motion to dismiss phase. In this case, there was a settlement reached between defendants and the SEC which afforded compensation to the plaintiff class. The documents at issue, according to plaintiffs, would affect their decision of whether or not to continue pursuing the case in light of the settlement. The Court balanced the burden to defendants against the potential prejudice to plaintiffs, and found that “the balance favors plaintiffs, based on the lack of any cost to defendants to produce those documents and plaintiffs’ unusual need for an early review of crucial records.” Id. at 2.

Thus, the court granted, in part, plaintiffs’ motion to lift the PSLRA discovery stay.

...continue