Overnight, Dechert LLP, on behalf of Schering-Plough, filed a letter in MDL 1938, the Vytorin/Zetia Marketing, Sales Practices, and Products Liability consolidated litigation, arguing essentially that no discovery should occur in that case, until the motions to dismiss now pending in the securities action, and any other related action (could that possibly mean the Organon Qui Tam action?), are decided.
[This all becomes very interesting since Arent Fox has effectively given all these various bunches of plaintiffs an avenue to take early discovery in the Organon Qui Tam case — as I earlier noted — a week or so before Lowenstein, Sandler replaced Arent, Fox as Schering’s counsel of record in the Organon matter.]
In doing so, Dechert quotes cases interpreting the Private Securities Litigation Reform Act for the proposition that ERISA case discovery may be stayed while a pending securities law motion to dismiss is pending — as well as any discovery based on a state law claim or theory, in order to effectuate the intent of Congress in enacting the PSLRA, and the subsequent amendments to it. Take a look at this, from Dechert’s letter, at Page 5 (click to enlarge):
Now, what Dechert LLP wholly-fails to mention, in its letter to United States Magistrate Mark Falk, is that the express language of the PSLRA, at 15 U.S.C. § 78z-1(b)(1), provides that “in any private action arising under this subchapter, 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. . . .“
In short, unless Dechert demonstrates that the current litigation was filed to thwart the stay provisions of the PSLRA, discovery in the MDL Case No. 1938 may well move forward.
ANOTHER fact Dechert fails to mention is that Cain v. Hassan, et al. is pending. It is a purported shareholders’ derivative suit, and the express terms of PSLRA, at 15 U.S.C. § 15 U.S.C. § 77p(f)(2)(B) specifically exempt shareholders’ derivative actions from these automatic stay provisions.
So, it would seem that, in order to “preserve evidence” — chiefly, the now-fading memories of the involved officers, directors and underwriters — the Magistrate Falk, or the court itself — in the person of Judge Cavanaugh — ought to find Dechert’s letter unpersuasive. But don’t trust me — read the cases, and you’ll agree. Quoting from Romero v. Career Education Corporation, Civil Action No. 793-N (Delware 2005), a memorandum opinion, now:
. . . .At the motion to dismiss stage where all inferences must be drawn in plaintiff’s favor, I am not convinced that [plaintiff]’s purpose is to circumvent the PSLRA’s proscriptions. The purposes identified in support of [plaintiff]’s May 26 Demand, for example, include investigating whether the [defendant] Board or officers breached their fiduciary duties by “actively participating in, or failing to make a good faith effort to detect, investigate, prevent and correct, violations of the Ethics Codes.” It is certainly conceivable that any resulting claim for violation of fiduciary duties under Delaware law would be entirely different from the pending federal claims against [defendant] or its agents. . . .
Footnote 16: 15 U.S.C. § 77p(f)(2)(B); City of Austin Police Ret. Sys. v. ITT Educ. Serv., Inc., 2005 WL 280345, slip op. at *10 & n.2 (S.D. Ind. Feb. 2, 2005) (“[T]he PSLRA and SLUSA were not intended to protect corporate management from shareholder derivative claims. Those are left to state law.”). . . .
So, the-above letter, from Dechert, seems to have earned the sharholders. . . nothing, inasmuch as all the money Schering-Plough spent to have it researched, and drafted will lead no effect whatsoever.
And as I said yesterday — that is also a waste of scarce judicial resources. Unfortunate.