Unreported / Non-Citable
Background
The PG&E bankruptcy and its long-running parallel federal securities class action — In re PG&E Corporation Securities Litigation, Case No. 18-cv-03509-EJD (N.D. Cal.) — have generated complex litigation across two forums for years. In the securities case, certain Directors and Underwriters of PG&E are defendants. In the bankruptcy, certain claimants served them with Rule 45 third-party subpoenas seeking discovery related to claims being adjudicated in the bankruptcy.
The Directors and Underwriters moved in Bankruptcy Court for a protective order, arguing that the subpoenas violated the Private Securities Litigation Reform Act’s automatic discovery stay (15 U.S.C. § 78u-4(b)(3)(B)) and were really an end-run around that stay in the parallel securities case. Bankruptcy Judge denied the motion, holding that the PSLRA’s discovery stay does not provide a “safe harbor from third-party discovery from non-parties in the bankruptcy case, regardless of their status as defendants in district court litigation.” The Directors and Underwriters then sought interlocutory review in the District Court under 28 U.S.C. § 158(a)(3).
The Court’s Holding
Judge Haywood S. Gilliam, Jr. denied the motion for leave to appeal and closed the case.
Under § 158(a)(3) and the analogous § 1292(b) framework, the District Court applies the Ninth Circuit’s Cement Antitrust standard: interlocutory appeals are allowed sparingly, and only where there is a controlling question of law, a substantial ground for difference of opinion, and an immediate appeal could materially advance the ultimate termination of the litigation.
While the court acknowledged the unusual posture — securities claims pending in two different forums before two different judges at two different procedural stages — it found no basis for interlocutory review. Even resolving in the Directors and Underwriters’ favor whether the PSLRA stay applies to the bankruptcy proceeding would not materially advance the bankruptcy litigation. As the Bankruptcy Court had pointed out, even if the Directors and Underwriters were dismissed from the parallel federal securities case, they would still need to respond to the bankruptcy claimants’ discovery in the bankruptcy proceeding itself. The Directors and Underwriters offered no explanation as to how applying the PSLRA stay would streamline the bankruptcy litigation.
The court added that if the Directors and Underwriters believe the discovery is overly burdensome or disproportionate, the proper remedy is a renewed motion before the Bankruptcy Court for a narrower order, not an interlocutory appeal in the District Court.
Key Takeaways
- The PSLRA’s automatic discovery stay (15 U.S.C. § 78u-4(b)(3)(B)) does not, in the Bankruptcy Court’s reading endorsed implicitly here, extend to third-party discovery sought from non-parties in a bankruptcy proceeding, even when those non-parties are defendants in a parallel federal securities action.
- Discretionary interlocutory review of bankruptcy orders under § 158(a)(3) requires the same demanding showing as § 1292(b) review of district court orders. Even unique multi-forum securities-bankruptcy postures do not relax the standard.
- To satisfy the “material advance” prong, an appellant must explain how an interlocutory ruling would streamline the underlying litigation, not merely save the appellant time or expense as a non-party.
- Burdensomeness and proportionality concerns are best addressed by motions to narrow the scope of subpoenas in the issuing court, not by interlocutory appeal of the threshold scope ruling.
Why It Matters
The PG&E bankruptcy and its securities-class-action shadow have run on parallel tracks for years, raising recurring questions about how the PSLRA’s discovery freeze interacts with the open-discovery culture of bankruptcy proceedings. This order leaves intact a Bankruptcy Court ruling that effectively allows bankruptcy claimants to obtain through Rule 45 subpoenas the same kind of information that the PSLRA stay would otherwise lock down in the parallel securities case.
The practical effect is significant for PSLRA defendants who also have exposure as non-parties in a bankruptcy involving the same conduct. They can no longer assume the PSLRA stay will follow them into the bankruptcy. The opinion is also a useful reminder that interlocutory review under § 158(a)(3) is a narrow window, even in obviously complex multi-forum situations.