Brigade Calvary Fund Ltd., et al. v. James M. Chirico, Jr., and Kieran J. McGrath
Attorneys and Parties
Brief Summary
Securities litigation; coordination of discovery stays between parallel state and federal actions.
Denied the request to continue a previously imposed discovery stay after deciding defendant McGrath’s motion to dismiss.
Modified to continue the existing discovery stay temporarily.
To allow the federal court in the related class action (Jiang v. Chirico) to decide first whether discovery in the state action should be stayed under the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 USC § 78u-4(b)(3)(D) [provision governing stay of discovery in covered securities actions during pendency of motions to dismiss and permitting modification to prevent undue prejudice or to preserve evidence], or on another basis; the appellate court otherwise deferred to the federal court and affirmed.
Background
Plaintiffs, including Brigade Calvary Fund Ltd., brought a state action against former corporate officers James M. Chirico, Jr. and Kieran J. McGrath. In parallel, a related federal securities class action, Jiang v. Chirico, et al., No. 23-cv-01258, is pending in the United States District Court, Southern District of New York (SDNY), with motions to dismiss under consideration. The state court had imposed a discovery stay on January 10, 2025, but later declined to continue that stay after deciding McGrath’s motion to dismiss. McGrath appealed, seeking to maintain the stay pending resolution of the federal motions to dismiss.
Lower Court Decision
The Supreme Court, New York County, denied McGrath’s request to continue the discovery stay previously imposed, notwithstanding the ongoing motions to dismiss in the related SDNY class action.
Appellate Division Reversal
The Appellate Division modified the order to continue the January 10, 2025 discovery stay pending the federal court’s determination of a motion to stay discovery in the state action while the federal court considers the motions to dismiss in the federal case. The court deferred to the federal court on whether a stay is warranted under 15 USC § 78u-4(b)(3)(D) or otherwise, and abstained from addressing the merits of the parties’ arguments about substantial identity between the actions and potential prejudice.
Legal Significance
The decision emphasizes inter-court comity and coordination in parallel securities actions, signaling that New York courts may preserve the status quo by temporarily maintaining a discovery stay while deferring to the federal court to decide whether a statutory stay under 15 USC § 78u-4(b)(3)(D) applies. It helps prevent circumvention of a potential federal discovery stay through state-court discovery.
In parallel state and federal securities cases, New York courts may maintain a temporary discovery stay and defer to the federal court to decide whether a SLUSA-based discovery stay applies while federal motions to dismiss are pending.