Three years ago, the United States Supreme Court confirmed in Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018) that claims brought under the Securities Act of 1933 (the “Securities Act”) are subject to “concurrent jurisdiction,” meaning they can be asserted either in federal or state court and that a state court action cannot be removed to federal court. On the last day of this past term, the Supreme Court announced that it has now accepted certiorari in Pivotal Software, Inc. v. Tran in which it will address the follow-up question of whether the automatic stay of discovery in Securities Act cases applies when those cases are filed in state court.

The Private Securities Law Reform Act (the “PSLRA”), which amended the Securities Act (as well as the Securities Exchange Act of 1934), contains some provisions that apply just when Securities Act claims are filed in federal court and some that also apply when the claims are filed in state court. An important provision of the PSLRA is Section 77z-1(b)(1), which provides in pertinent part that “[i]n any private action arising under this subchapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss.” Various state courts, especially in New York and California (where Securities Act claims are often filed), have divided over the question of whether PSLRA Section 77z-1(b)(1) applies to state court-filed claims. This issue has become more pronounced since the Supreme Court’s decision in Cyan, which resulted in more Securities Act filings in state courts.

In Pivotal, investor plaintiffs brought securities actions in both California state and federal courts relating to representations made in connection with an initial public offering. At first, the state court plaintiffs voluntarily stayed their action while a motion to dismiss was pending in federal court, where that action was stayed pursuant to the PSLRA stay. After the federal court case was dismissed, the state court allowed discovery to proceed even though the defendants also moved to dismiss the state court action. Defendants also sought a stay of discovery, arguing that the plain meaning of the statute dictates that the stay applies “in any private action” wherever filed. The California state court, however, denied defendants’ motion, concluding that the PSLRA’s automatic stay was a “procedural” provision that did not explicitly direct stays in state court. The California appellate courts denied requests to review this decision.

Defendants petitioned the United States Supreme Court to take the case on grounds that state trial courts are sharply divided on the question of whether the PSLRA’s automatic stay applies to Securities Act claims filed in state court. The petition also underscored that the issue “consistently evades appellate review” because state appellate courts refuse to review the trial court determinations and the issue does not arise in federal actions. Although the state court plaintiffs decided, after the certiorari petition was filed, voluntarily to stay discovery pending the state court motion to dismiss, the United State Supreme Court nonetheless decided to grant the petition and will issue a decision later in the 2021/2022 term.

The Supreme Court’s decision will likely have a significant impact on Securities Act claims in state court. Stay tuned for further developments.

Back to Commercial Litigation Update Blog

Search This Blog

Blog Editors


Related Services



Jump to Page


Sign up to receive an email notification when new Commercial Litigation Update posts are published:

Privacy Preference Center

When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about you, your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalized web experience. Because we respect your right to privacy, you can choose not to allow some types of cookies. Click on the different category headings to find out more and change our default settings. However, blocking some types of cookies may impact your experience of the site and the services we are able to offer.

Strictly Necessary Cookies

These cookies are necessary for the website to function and cannot be switched off in our systems. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms. You can set your browser to block or alert you about these cookies, but some parts of the site will not then work. These cookies do not store any personally identifiable information.

Performance Cookies

These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site. All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we will not know when you have visited our site, and will not be able to monitor its performance.