California Court of Appeals Affirms Ruling Permitting State and Federal Securities Class Actions to Proceed Simultaneously

Client Alert

On August 14, a California Appeals Court issued a decision in In re Oak Technology Securities Litigation (and two related cases) involving important issues for all companies located in California. The Court ruled that the Santa Clara County Superior Court had acted within its discretion when it permitted plaintiffs to pursue a state court securities class action at the same time that plaintiffs were pursuing an identical case in federal court.

As in many recent securities actions, plaintiffs in Oak filed in both state and federal courts so that they could preserve their rights under federal law, while obtaining certain procedural advantages available in state court. Most importantly, under the Private Securities Litigation Reform Act of 1995, plaintiffs in federal securities actions cannot obtain discovery until their complaints survive a motion to dismiss. Plaintiffs have been attempting to use state court actions as a vehicle for obtaining discovery despite the federal Reform Act's restrictions.

The Court rejected defendants' argument that plaintiffs' dual-track litigation strategy was an improper means of avoiding the pleading and discovery limitations imposed by the Reform Act. While the Court acknowledged the public policy issues raised by plaintiffs' strategy, the Court suggested that "the legislative forum is clearly the best arena to work out such public policy questions."

This decision will likely encourage plaintiffs to continue to use their dual-track strategy. The decision, however, was released in unpublished form, preventing plaintiffs from relying on the Court's broad statements. It is likely that this issue will continue to be litigated until definitively resolved by either the California Supreme Court or legislative action.

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