Please ensure Javascript is enabled for purposes of website accessibility

Public records request is not discovery

By: David Ziemer, [email protected]//December 2, 2010//

Public records request is not discovery

By: David Ziemer, [email protected]//December 2, 2010//

Listen to this article

Wisconsin’s public records laws can’t be subverted by seeking a stay of the action in federal court.

The 7th Circuit on Nov. 29 concluded that the purposes of discovery stays in federal securities litigation would not be served by permitting public records requests to be stayed.

The City of Menasha issued millions of dollars in bonds to finance the conversion of an electric power plant it owned. The project went over budget, and Menasha defaulted on more than $20 million worth of bonds.

Owners of the bonds, including American Bank, filed suit in federal court, alleging that Menasha violated federal securities laws by failing to disclose material information about the project to prospective buyers of the bonds.

After the suit was filed, American Bank sought records related to the project under Wisconsin’s Public Records Law.

Menasha did not comply, and American Bank filed a mandamus action to force compliance. Instead of complying with the circuit court’s order to produce the documents, Menasha asked the federal court for a stay under the Securities Litigation Uniform Standards Act of 1998 (SLUSA).

SLUSA authorizes federal courts to stay discovery in state court proceedings, if necessary to effectuate the Private Securities Litigation Reform Act of 1995, which provides for the stay of discovery in federal court pending motions to dismiss.

The district court issued the stay, and American Bank Appealed. In an opinion by Judge Richard Posner, the 7th Circuit reversed.

The court acknowledged that, generally, discovery orders are interlocutory, and not appealable.

The Supreme Court recognized an exception in Mohawk Industries, Inc., v. Carpenter, (PDF) 130 S.Ct. 599, 606 (2009), if “deferring review until final judgment so imperils the interest as to justify the cost of allowing immediate appeal.”

The 7th Circuit suggested that a further exception should exist for a discovery order that has the effect of preempting a state law. But instead, the court found that the district court’s order was not a discovery order, but was instead an injunction, which is appealable.

The court noted that case law uniformly holds that request under public records laws are not discovery demands, even if the request is made for the purpose of obtaining information to aid in litigation.

The court also found that the purposes of SLUSA would not be advanced by permitting the stay in this case. The purpose of SLUSA is to prevent “settlement extortion” — imposing large discovery costs on the defendants to force settlement. But under sec. 19.35(3) of Wisconsin’s public records laws, costs are charged to the person making the request.

Finally, the court found that upholding the stay would ultimately be futile. Parties seeking open records could avoid the holding merely by requesting public records before filing suit, rather than after.

Accordingly the court reversed the order staying the state court proceedings.

The court also upbraided counsel for Menasha: “In an example of silly, and indeed unprofessional, advocacy, Menasha’s brief neither cites or mentions the public-records law, as if there were no legal basis for American Bank’s insisting on compliance with the request and as if therefore the stay granted by the district court did not preempt a state law.”

What the Court Held

Case: American Bank v. City of Menasha, No. 10-1963

Issue: Does SLUSA permit a municipal defendant to obtain a stay of proceedings in a state court public records action?

Holding: No. Requests for open records are not discovery requests, even if federal securities litigation is pending.

David Ziemer can be reached at [email protected].

Polls

Should Steven Avery be granted a new evidentiary hearing?

View Results

Loading ... Loading ...

Legal News

See All Legal News

WLJ People

Sea all WLJ People

Opinion Digests