The opinion of the court was delivered by: KUGLER
This matter presents the interesting question of whether the Private Securities Litigation Reform Act of 1995, P.L. 104-67, codified at 15 U.S.C. § 77a et seq. (The "Reform Act" or "Act") applies to certain defendants added to a case after the effective date of the Act. These new defendants, Arthur Anderson, L.L.P. ("Anderson") and McKowan Lowe & Co., Ltd., ("McKowan Lowe") claim that the Act applies to them and they are entitled to the stay of discovery found in section 21D(b)(3)(B), 15 U.S.C. § 78u-4(b)(3)(B):
"In any private action arising under This chapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss ...."
There are two lawsuits before the Court. The first was an action by McKowan Lowe against Jasmine, Ltd., Lujaco, Ltd., Irving Mangel, James Stewart and Jack Aezen, filed on November 3, 1994, and carried under docket number 94-5522. In that action, plaintiff alleges it was a buying agent for Jasmine, who in turn was an importer of women's footwear, handbags and other accessories manufactured in China. Plaintiff claims it entered into a repayment agreement with Lujaco in which Lujaco agreed to assume over $ 13 million in Jasmine's debt to McKowan Lowe. Mangel, Stewart and Aezen allegedly guaranteed Lujaco's debt.
The other case, the one at issue here, is a class action by Berger and others arising from the initial public offering of the stock of Jasmine in December, 1993. Anderson was retained to audit Jasmine's financial statement for the year ending September 30, 1993, and its report was attached to the prospectus. Anderson was also engaged to audit Jasmine's 1994 financial statement, but it was terminated before completion. Shortly thereafter, plaintiff alleges, and as a result thereof, Jasmine's stock was delisted by NASDAQ and its value declined considerably.
The class action case was originally filed in the United States District Court for the District of Illinois on November 17, 1995, and was transferred to the District of New Jersey on May 17, 1996, with a docket number of 96-2318. McKowan Lowe was added as a defendant on June 10, 1996, while Anderson was added on November 18, 1996, in a Second Amended Complaint. This Court consolidated both cases on August 14, 1996.
The issue arises here because the amendments to the Securities Law made by the Reform Act took effect on December 22, 1995. Defendants argue that since they were not sued until after December 22, 1995 (which is undisputed), they are entitled to its protections. Plaintiffs argue that the lawsuit was filed before the effective date of the Act. Further complicating the analysis is a "Tolling Agreement" ("Agreement") entered into by the Berger plaintiffs and Anderson. Plaintiffs contend this Agreement also deprives Anderson of the benefits of the Act. For the reasons that follow, the Court finds that the Act does not apply and denies defendants' application for a stay of discovery.
By letter of November 13, 1995, counsel for plaintiffs in the Berger matter wrote to Anderson informing them of his intent to file suit. However, "as a professional courtesy to Anderson, we are willing to enter into [a] tolling agreement. This will allow us to (a) file the complaint without naming Anderson and (b) discuss this matter thoroughly, without the pressure of a filing deadline."
Plaintiffs and Anderson entered into the agreement on November 17, 1995. It apparently extended until plaintiff let it expire on October 31, 1996. Plaintiffs contend that
"The agreement was expressly designed to preserve the status quo and avoid the rush to the courthouse occasioned by the Reform Act." Def. B. P.4.
The so-called express design is not apparent from the document.
The Agreement provides in pertinent part that plaintiff would not file suit so long as the Agreement remained in effect. In exchange, Anderson agreed that the tolling period "shall not be considered in the calculation with respect to any assertion by Anderson of any time-related defense, including any applicable statute of ...