Forum selection has long been an art form for litigators. The right forum can provide significant advantages, such as favorable case law, a specific judge, or a sympathetic jury pool—the Eastern District of Texas famously had one of the country’s busiest patent dockets for years, a phenomenon often attributed to its reputation for plaintiff-friendly juries.
Good advocates choose their forum based on the particular circumstances of each case. But as a rule of thumb, plaintiffs often prefer state courts while defendants typically prefer federal fora. In securities class actions, one of the potential advantages of filing in state court is the possibility of discovery prior to adjudication of defendants’ motions to dismiss.
Discovery is a costly process and can put pressure on defendants to settle a case early—even if the case’s merits are uncertain. To alleviate this pressure, the Private Securities Litigation Reform Act (“PSLRA”) includes a provision that stays discovery until after the motions to dismiss are decided. Defendants are spared the burdens of discovery until after the judge determines that the case involves a plausible claim.
The discovery stay provision clearly applies in federal court, where most securities class actions are litigated. But it’s less clear whether the provision applies to state court proceedings. To address this question, the Supreme Court recently granted certiorari in Pivotal Software Inc. v. Tran, No. 20-1541 (U.S. July 2, 2021).
The procedural background in Pivotal Software illustrates the conflict: similar cases were filed in both state and federal court, and the plaintiffs agreed to stay the state action while the federal case was pending. The federal case was dismissed, which ordinarily would have prevented plaintiffs from obtaining any discovery. But instead of amending the federal complaint, the plaintiffs sought discovery in state court. The judge permitted it, reasoning that the PSLRA’s discovery stay was a procedural device that did not apply to state cases. As a result, the defendants were exposed to the costs of discovery even after a federal judge decided the plaintiffs had failed to state a claim.
The petition for certiorari also highlighted the lack of consensus among state courts. It identified cases from New York, Connecticut, Massachusetts, and California that applied the discovery stay provision, as well as several cases from New York and California reaching the opposite conclusion. All the cases were from state trial courts, and the petition noted that no appellate court had reviewed the issue. Without any binding precedent on the books, the question of the provision’s applicability falls to individual state trial judges, with inconsistent results.
State securities filings are less common than they used to be, so Pivotal Software is unlikely to lead to a seismic shift in the securities litigation landscape. Nevertheless, a decision will provide some much-appreciated consistency for litigants. And as the only securities case currently on the Court’s merits docket for the upcoming term, it’s worth keeping an eye on.
 15 U.S.C. § 77z-1(b)(1).
 Cornerstone Research, Securities Class Action Filings – 2021 Midyear Assessment, 12 (2021), https://www.cornerstone.com/Publications/Reports/Securities-Class-Action-Filings-2021-Midyear-Assessment.