The United States District Court for the Central District of California recently declined to issue subpoenas commanding non-parties to a securities fraud action to preserve evidence after a motion to dismiss had been filed. Under the Private Securities Litigation Reform Act of 1995 ("PSLRA"), all discovery is stayed upon the filing of a motion to dismiss, unless the moving party makes a showing that particularized discovery is necessary to preserve evidence or to prevent undue prejudice. The PSLRA also requires all parties that have been served in the underlying securities action to preserve evidence pending resolution of a motion to dismiss. The PSLRA, however, is silent as to the obligations of non-parties to preserve evidence once a motion to dismiss is filed.
After a motion to dismiss their complaint was filed, the plaintiffs in In Re Fluor Corporation Securities Litigation sought leave of court to issue preservation subpoenas to non-parties, noting that such subpoenas were consistent with the intent underlying the PSLRA's discovery stay, i.e., "to preserve the status quo." The court disagreed, holding that "preserving the status quo does not encompass efforts by plaintiffs to reach out, during the stay of discovery, to third parties, not already on notice of the litigation, to inform them of the proceedings and place specific requirements on them." Rather, the court observed that the PSLRA "only imposes responsibilities on parties to the lawsuit, with actual notice of the allegations contained in the complaint" to preserve evidence pending a motion to dismiss.
Given the absence of express statutory authority to issue the requested subpoenas, the Court then addressed whether the plaintiffs had met the statutory exceptions to the PSLRA's automatic stay of discovery. The Court held that the plaintiffs had failed to identify with sufficient specificity the non-parties intended to be served with the subpoenas and had failed to demonstrate exceptional circumstances that would justify a departure from the PSLRA's mandatory stay of discovery. According to the Court, plaintiffs' claims of fading memories and unsupported allegations of possible loss or destruction of evidence was insufficient to warrant issuance of the non-party subpoenas.
In re Fluor Corp. Sec. Litig., Fed. Sec. L. Rep. (CCH) § 90,420 (C.D.Cal. Jan. 15, 1999).