Jiang v. Avaya Holdings Corp.

Background

This proposed securities class action was brought by Oliver Jiang and the City of Pittsburgh Comprehensive Municipal Pension Trust Fund on behalf of people who purchased or otherwise acquired Avaya Holdings Corp. securities between May 10, 2022, and December 15, 2022. The complaint names James M. Chirico, Jr., and Kieran J. McGrath as defendants. The opinion states that Avaya filed for Chapter 11 bankruptcy in February 2023 and that Jiang later voluntarily dismissed his claims against Avaya.

The amended complaint alleges that Chirico and McGrath made misleading public statements about Avaya’s transformation into a software and services company, its expected revenue and earnings, and its recurring revenue. It further alleges that Avaya’s stock price fell nearly 97 percent during the class period and that the company made corrective disclosures between July and December 2022.

Two related cases were filed against Chirico and McGrath in North Carolina state court by Avaya lenders and purchasers of Avaya convertible notes. Those complaints quoted or reproduced internal Avaya emails. The plaintiffs in this case believed that Avaya had provided those documents to the state-court plaintiffs. The opinion also states that certain state-court plaintiffs had rights under Avaya’s bankruptcy reorganization plan to appoint a majority of Avaya’s board directors. Avaya had made document productions to plaintiffs in the state-court cases before discovery there was stayed.

Motion and parties’ positions

The Private Securities Litigation Reform Act requires discovery to be stayed while a motion to dismiss is pending unless the court finds that particularized discovery is necessary to preserve evidence or prevent undue prejudice. The plaintiffs did not argue that discovery was needed to preserve evidence. They sought documents that Avaya had provided to the state-court plaintiffs, including documents produced before or during those cases, and argued that access was needed to place the plaintiffs in both proceedings on an equal footing.

The defendants opposed the request. They argued that the request was not sufficiently particularized and that the plaintiffs had not shown undue prejudice. The plaintiffs also argued that any recovery in this case would likely be limited to funds available under Chirico’s and McGrath’s directors-and-officers insurance policies, creating possible competition with the state-court plaintiffs for a limited pool of funds.

Court’s analysis

The court held that the discovery requests were sufficiently particularized. It described them as seeking a closed, identifiable set of documents that Avaya had provided to the state-court plaintiffs, rather than all documents that might be produced in those proceedings. The court concluded that no more detailed description was required under the circumstances.

The court nevertheless found that the plaintiffs had not shown undue prejudice. Discovery in the state-court cases was also stayed while motions to dismiss were pending, so discovery was not moving ahead there in a way that would cause the plaintiffs in this case to fall substantially behind. The court also concluded that the plaintiffs’ concerns about litigation strategy, settlement decisions, possible competition for insurance proceeds, and speculative future settlements did not establish an imminent risk of the type of unfair harm required to lift the stay. The court distinguished cases involving court-ordered settlement discussions or settlements that had already occurred.

Disposition

The court denied plaintiffs’ motion to lift or modify the Private Securities Litigation Reform Act discovery stay. The stay remains in place, and the Clerk of Court was directed to terminate the motion listed as Docket No. 79. The opinion states that the parties were briefing defendants’ motions to dismiss; it does not decide those motions.