In a recent decision, In re Comdisco Securities Litigation, Judge Milton Shadur of the Northern District of Illinois cut back on the stay of proceedings imposed by the Private Securities Litigation Reform Act (Reform Act) during the pendency of a defendant’s motion to dismiss the complaint. In re Comdisco Sec. Litig., 166 F. Supp. 2d 1260 (N.D. Ill. 2001).
At issue was the individual defendants’ D&O (directors and officers) insurance policies, which are among the initial disclosures required by Rule 26(a)(1). Disagreeing with a 1996 decision of the Ninth Circuit Court of Appeals staying initial disclosures, Judge Shadur held that disclosure of insurance policies was not stayed by the Reform Act in a broad analysis equally applicable to all initial disclosures. Id. at 1262. Judge Shadur held in the alternative that, even if the stay were applicable, the insurance policies would be producible under the Reform Act’s exception to prevent “undue prejudice” to the plaintiffs, applying a novel balancing test not found in the statutory language. Id. at 1262-63. If this decision were widely adopted, and read to include all preliminary disclosures, the purposes of the Reform Act’s stay would be undermined.
