The opinion of the court was delivered by: MCCLURE
On August 13, 1997, plaintiff Berckeley Investment Group, Ltd., commenced this action with the filing of a complaint alleging breach of contract by all of the named defendants and breach of fiduciary duty on the part of defendant Shoreline Pacific Institutional Finance. The claims stem from an agreement executed on or about May 31, 1996, with Colkitt to sell to Berckeley forty convertible debentures of $ 50,000.00 each. Berckeley claims that Colkitt wrongfully refused to convert the debentures to common stock of defendant National Medical Financial Services Corp. (NMFSC), as required under a contract between Colkitt and Berckeley, despite demands by Berckeley.
On October 20, 1997, Colkitt filed an answer to the complaint which asserted ten affirmative defenses and a six-count counterclaim. The counterclaim alleges violations of: (1) Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10(b)-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (Count I); Section 17 of the Securities Act of 1933, 15 U.S.C. § 77q(a) (Count II); and Section 29 of the Securities Exchange Act of 1934, 15 U.S.C. § 78cc(b) (Count III). Also, counterclaims under state law are asserted, including: violation of Sections 1-401, 1-402, 1-501, and 1-503 of the Pennsylvania Securities Act, 70 Pa. Stat. Ann. §§ 1-401, 1-402, 1-501, and 1-503 (Count IV); common law fraud (Count VI); and breach of contract (Count VI).
On November 25, 1997, Berckeley filed a motion to strike the affirmative defenses of Colkitt and a motion to dismiss the counterclaims. Supporting briefs were filed contemporaneously with the motions.
On December 2, 1997, the court held an initial case management conference by telephone conference call. The attention of the court and counsel was directed at the beginning of the conference to a dispute noted in the joint case management plan as to the effect of the provisions of 15 U.S.C. § 78u-4(b)(3)(B) on Berckeley's right to conduct discovery. On December 4, 1997, the court issued an order directing briefing on the stay issue and continued the initial case management conference. No further proceedings have yet been conducted, as potentially violative of § 78u-4(b)(3)(B).
The parties have been given an opportunity to brief the stay issue, and Berckeley and NMFSC have filed briefs. The issue is therefore ripe for disposition.
NMFSC argues forcefully that the court is bound by the plain language of the statute to stay all proceedings pending resolution of the motion to dismiss the counterclaim. We agree that the language of the statute is plain, although for reasons in addition to those argued by NMFSC, and we agree that it mandates a stay.
The applicable statutory provision reads:
In any private action arising under this chapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.
15 U.S.C. § 78u-4(b)(3)(B).
For present purposes, it is clear that the case is a "private action" and that the counterclaim, at least in part, is brought under "this chapter," i.e. Chapter 2B of Title 15 of the United States Code.
The question is whether the case is one "arising under" Chapter 2B. Important in answering this question is the fact that the counterclaim is compulsory, as it "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does ...