In Re PG&E Corporation Securities Litigation

Background

The case concerns securities claims involving PG&E Corporation and Pacific Gas and Electric Company, collectively referred to in the opinion as PG&E, and other defendants, including certain PG&E officers and directors and underwriters. PG&E filed for bankruptcy during the litigation. The bankruptcy automatically stayed the district-court proceedings as to PG&E, and the plaintiffs were required to pursue their securities claims against PG&E in bankruptcy court. The district-court case continued against the remaining defendants.

The Private Securities Litigation Reform Act (PSLRA) generally requires discovery to stop while a motion to dismiss is pending in a covered private securities action. The claims against PG&E in bankruptcy court had passed the bankruptcy court’s equivalent of a motion to dismiss, while the district-court defendants’ motions to dismiss remained pending. As a result, discovery was moving forward in bankruptcy court but was stayed in the district-court case.

During the bankruptcy proceedings, the plaintiffs issued a subpoena seeking documents from the underwriter defendants. Because those underwriters were parties in the district-court case but not parties in the bankruptcy case, they asked the district court for a protective order enforcing the PSLRA discovery stay. The request would effectively have required the district court to quash the subpoena issued in the bankruptcy proceedings.

Court’s analysis

The parties discussed Federal Rule of Civil Procedure 45 and the PSLRA as possible sources of authority. Rule 45(d) authorizes the court for the district where subpoena compliance is required to enforce, modify, or quash a subpoena. The underwriter defendants stated that they were not relying on Rule 45, and the court therefore did not treat their motion as invoking Rule 45 authority.

The PSLRA permits a court to stay discovery in a private action in state court when necessary to protect the court’s jurisdiction or judgments, including when the action is already subject to a PSLRA discovery stay. The court held that this authority does not extend to proceedings in a federal bankruptcy court. The court rejected the argument that policy concerns supporting discovery restrictions in state court should apply equally to federal bankruptcy proceedings, explaining that policy cannot override the statutory text.

The court stated that any argument that the PSLRA stay should limit discovery in the bankruptcy proceedings must be presented to the bankruptcy court. It held that it did not have power to unilaterally extend the stay into parallel federal proceedings.

Rulings

The court denied the motion for a protective order seeking to enforce the PSLRA stay against the bankruptcy-court subpoena. The court also denied the plaintiffs’ cross-motion to transfer the issue to the bankruptcy court under Rule 45(f). The opinion did not decide the merits of the underlying securities claims.