Tobias Holdings, Inc. v. Bank United Corp.
Plaintiff has brought a federal securities fraud action alleging violations of section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5, along with state common law claims for fraud, breach of contract, conspiracy, and tortious interference, with federal jurisdiction over the state claims based on diversity of citizenship. Defendants moved to dismiss the Amended Complaint. The central legal question is whether the automatic stay of discovery provisions of the Private Securities Litigation Reform Act of 1995 (PSLRA), which applies to federal securities claims, also stays discovery for plaintiff's non-fraud state law claims when jurisdiction over such claims is based on diversity. The court, after examining statutory construction and legislative history, concludes that an unduly broad application of the PSLRA's automatic stay would penalize plaintiffs and encourage inefficient duplication of effort by forcing separate state court actions for common law claims. Therefore, the court held that the PSLRA cannot prohibit discovery on non-fraud common law claims arising under diversity jurisdiction, and discovery relating to these claims shall proceed forthwith.