Am. Bank v. City of Menasha

• Decision Date: 08 December 2010
• Docket Number: No. 10-1963,10-1963
• Parties: AMERICAN BANK, Plaintiff-Appellant, v. CITY OF MENASHA, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

627 F.3d 261

AMERICAN BANK, Plaintiff-Appellant,

v.CITY OF MENASHA, et al., Defendants-Appellees.

No. 10-1963.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 26, 2010.

Decided Nov. 29, 2010.

As Amended Dec. 8, 2010.

Michael A. Wukmer (argued), Ice Miller, Indianapolis, IN, for Plaintiff-Appellant.

Brian E. Casey, Barnes & Thornburg, South Bend, IN, Joseph J. Saltarelli (argued), Hunton & Williams, New York, NY, for Defendants-Appellees.

Before POSNER, FLAUM, and SYKES, Circuit Judges.

POSNER, Circuit Judge.

The Private Securities Litigation Reform Act of 1995 provides, with an immaterial exception, that "all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss" a suit governed by the Act. 15 U.S.C. § 78u-4(b)(3)(B). The Securities Litigation Uniform Standards Act of 1998 (SLUSA) amended the Private Securities LitigationReform Act (PSLRA) to authorize the district court to "stay discovery proceedings in any private action in a State court, as necessary in aid of its jurisdiction, or to protect or effectuate its judgments, in an action subject to a stay of discovery pursuant to [section 78u-4(b)(3)(B), quoted above]." 15 U.S.C. § 78u-4(b)(3)(D). The question presented by this appeal is whether this provision of SLUSA authorizes the district court to enjoin a private securities plaintiff from gaining access to records that a state's public-records law entitles members of the public to see and copy at their own expense.

The City of Menasha, Wisconsin issued bond anticipation notes (in effect, short-term bonds) to finance the conversion of an electric power plant owned by it to a steam-generating plant that would burn a cheaper form of coal, emit less pollution, and provide steam to nearby paper mills. But the project went way over budget-costing $40 million rather than the planned $12.7 million-and eventually the City defaulted on the bonds to the tune of more than $20 million. Menasha Utilities, "Executive Summary-Business Plan for Menasha Power Plant Conversion," June 22, 2006, www. menasha- utilities. com/ media/ MU_-_ Business_ Issue_ 6- 22- 06. pdf (visited Nov. 1, 2010); Rick Romell, "City of Menasha Sued After Defaulting on Bonds," Journal Sentinel Online, Sept. 28, 2009, www. jsonline. com/ business/ 62342647. html (visited Nov. 1, 2010). Owners of the bonds, including a Wisconsin bank named American Bank, filed a class-action suit against the City, charging that it had violated federal securities law by failing to disclose to prospective buyers of the bonds material information about the conversion project. The suit named "Menasha Utilities" and "Menasha Steam Utility" as additional defendants, but they seem merely to be names of subdivisions of the city's government rather than entities distinct from the City, so we can ignore them.

American Bank was a named plaintiff in the class action suit, and less than two weeks after the suit was filed it submitted a request to the City, pursuant to Wisconsin's Public Records Law, Wis. Stat. §§ 19.31-.39, to inspect a large number of records, specified in the request, relating to the conversion project. (Menasha's brief barely mentions, and does not discuss, the public-records law and contains no citation to it, as if to insinuate that there is no legal basis for American Bank's insisting on compliance with the request and as if therefore they stay granted by the district court did not preempt state law.) Although required to respond to the request "without delay," § 19.35(4)(a), the City dragged its heels, so American Bank obtained from a Wisconsin state court a mandamus commanding the City to comply with the request. The records sought were-the City does not deny-public records within the meaning of the public records law, see § 19.32(2), and therefore available to any "requester," including one whose interest in the records stems from his involvement in litigation. Cavey v. Walrath, 229 Wis.2d 105, 598 N.W.2d 240, 243 n. 4 (1999); State ex rel. Lank v. Rzentkowski, 141 Wis.2d 846, 416 N.W.2d 635, 637-38 (1987).

The City responded to American Bank's request and to the mandamus order not by producing the documents, as state law required and the state court had ordered, but instead by asking the district court in which the securities suit was pending for a stay under subsection 4(b)(3)(D) of SLUSA. The court granted the stay and American Bank has appealed.

The City argues that the stay is not appealable because it is just a discovery order. For reasons explained inReise v. Board of Regents of University of Wisconsin System, 957 F.2d 293, 295 (7th Cir.1992), discovery orders, being interlocutory, generally are not appealable in the federal court system, Allendale Mutual Ins. Co. v. Bull Data Systems, Inc., 32 F.3d 1175, 1177 (7th Cir.1994); Goodman v. Harris County, 443 F.3d 464, 468 (5th Cir.2006); International Products Corp. v. Koons, 325 F.2d 403, 406 (2d Cir.1963) (Friendly, J.), even though they look like injunctions-which are appealable though interlocutory, 28 U.S.C. § 1292(a)(1)-because they are orders to do rather than to pay. There are exceptions to the rule barring the immediate appeal of a discovery order, as when the order "resolves an important issue completely separate from the merits of the action" and is therefore appealable under the collateral-order doctrine, Goodman v. Harris County, supra, 443 F.3d at 468, or when a petitioner for mandamus proves "irreparable harm ... and a clear right to the relief sought [the vacating of the discovery order]." In re Sandahl, 980 F.2d 1118, 1119 (7th Cir.1992); see also United States ex rel. Chandler v. Cook County, 277 F.3d 969, 981 (7th Cir.2002). In discussing the scope of the collateral-order doctrine, the Supreme Court said recently that the critical question is "whether deferring review until final judgment so imperils the interest as to justify the cost of allowing immediate appeal of the entire class of relevant orders." Mohawk Industries, Inc. v. Carpenter, --- U.S. ----, 130 S.Ct. 599, 606, 175 L.Ed.2d 458 (2009). Wisconsin considers the availability of public records to be sufficiently important to justify the grant of mandamus to compel immediate production of requested documents-a right infringed by the stay granted to Menasha.

Maybe a further exception to the final-judgment rule should be carved for a discovery order that has the effect of preempting a state law, because such an order is a slap in federalism's face. Johnson v. Fankell, 520 U.S. 911, 922, 117 S.Ct. 1800, 138 L.Ed.2d 108 (1997); City of Joliet v. New West, L.P., 562 F.3d 830, 836-37 (7th Cir.2009). The argument for the exception gains support from the echo in SLUSA's stay provision of language in both the All Writs Act, 28 U.S.C. § 1651, and the Anti-Injunction Act, 28 U.S.C. § 2283 ("as necessary in aid of its jurisdiction, or to protect or effectuate its judgments"), since the "writs" issued under those acts are appealable as injunctions. Winkler v. Eli Lilly & Co., 101 F.3d 1196, 1200-01 (7th Cir.1996); Negrete v. Allianz Life Ins. Co., 523 F.3d 1091, 1096-97 (9th Cir.2008); Burr & Forman v. Blair, 470 F.3d 1019, 1027-28 (11th Cir.2006); In re BankAmerica Corp. Securities Litigation, 263 F.3d 795, 800 (8th Cir.2001); Georgine v. Amchem Products, Inc., 83 F.3d 610, 623-24 (3d Cir.1996). The bank argues that inspecting public records pursuant to a state statute is not discovery within the meaning of the stay provision, and thus a stay of such inspection is an injunction against enforcement of a state law and appealable as such-as in United States v. Board of Education, 11 F.3d 668, 671-72 (7th Cir.1993); Olde Discount Corp. v. Tupman, 1 F.3d 202, 206 (3d Cir.1993), and countless other cases-without need for a further exception to the final-judgment rule.

So this may be a case in which the merits of the appeal and whether we have jurisdiction over it are inseparable. See, e.g., Kerns v. United States, 585 F.3d 187, 195 (4th Cir.2009); Shoaf v. Department of Agriculture, 260 F.3d 1336, 1340-41 (Fed.Cir.2001); Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1190 (2d Cir.1996). If the City's interpretation of federal law is correct, American Bank is engaged in discovery and so cannot appeal unless it can invoke one of the exceptions to the rule against interlocutory appeal ofdiscovery orders. If American Bank's interpretation is right, it is certain that the stay is not the stay of a discovery order and so can only be an injunction, and only a stay of discovery is authorized by SLUSA. We think American Bank is right, and that resolves both jurisdiction and merits.

The word "discovery" is not a synonym for investigation. Much of the information gathering that litigants do is not "discovery" as the term is understood in the law. See, e.g., Fed.R.Civ.P. 26(b); Fed.R.Civ.P. 34. They talk to their clients and to witnesses, read newspaper accounts, study the records of previous judicial or administrative proceedings, troll the Web-they do all these things and more without being thought to be conducting "discovery." A plaintiff's lawyer might study corporate records of the defendant that were freely accessible online and no one would think the lawyer was engaged in "discovery." Corporate documents required by the SEC to be filed are available online, see www. sec. gov/ edgar. shtml (visited Nov. 8, 2010), and those documents are often at the heart of the precomplaint investigation required by the Private Securities Law Reform Act.

The case law uniformly refuses to define requests for access to federal or state public records under public records laws (such as the federal Freedom of Information Act and state public records laws-including Wisconsin's) as discovery demands, even when as in this case the request is made for the purpose of obtaining information to aid in a litigation and is worded much like a discovery demand. NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 242 and...