The U.S. Supreme Court is poised to determine whether state courts must stay discovery in lawsuits alleging violations of federal securities law while motions to dismiss are pending. If the court rules that state courts must impose such stays while the legal sufficiency of complaints are challenged, it would extend the mandatory stays on discovery already imposed in federal court litigation. Such a ruling would be a win for issuers and underwriters of IPOs, who have faced an increase in state court litigation and related expenses in recent years.

The court agreed on July 2 to determine whether the mandatory discovery stay for private lawsuits asserting claims under the Securities Act of 1933 applies in both state and federal courts, or only in federal courts. The case, Pivotal Software v. Superior Court of California, involves a securities lawsuit filed in California state court (the state court action). Plaintiffs in the state court action sued over allegedly false statements made in connection with an initial public offering issued by Pivotal Software in 2018.