Federal securities law won’t help City of Menasha delay public records request in bond case 

By Joe Forward, Legal Writer, State Bar of Wisconsin

Dec. 6, 2010 – The City of Menasha cannot use federal securities law to delay a bondholder’s request for public records under Wisconsin’s public records law, a U.S. Court of Appeals for the Seventh Circuit panel recently held.

American Bank filed a class-action lawsuit under federal securities law against the City of Menasha stemming from bonds the city issued to finance the conversion of an electric power plant to a steam-generating plant. The project went about $27 million over budget, and the city eventually defaulted on the bonds. American Bank was a bond-holder.

Shortly after American filed suit, it requested records from the city pursuant to Wisconsin’s Public Records Law, Wis. Stat. sections 19.31-.39. When the city failed to produce the records, American Bank obtained a state court mandamus order to compel production.

The city asked the federal district court in Indiana, where the suit was filed, to stay discovery under a provision of the Securities Litigation Uniform Standards Act of 1998 (SLUSA). The district court granted the city’s request and stayed discovery of the public records.

In American Bank v. City of Menasha, No. 10-1963 (Nov. 29, 2010), the 7th Circuit appeals panel – in an opinion written by Judge Richard Posner – concluded that SLUSA does not authorize 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 argued, and the appeals panel agreed, that discovery orders are generally not appealable in the federal court system.

However, the bank argued, and the appeals panel agreed, that “inspecting public records pursuant to a state statute is not discovery within the meaning of the [SLUSA] stay provision.” Rather, a stay of such an inspection is an “injunction against enforcement of a state law and appealable as such.”

The appeals panel reasoned that requests for federal or state public records under public records laws are not considered “discovery” requests even when the request “is made for the purpose of obtaining information to aid in a litigation and is worded much like a discovery demand.” Thus, the appeals panel reversed the federal district court’s judgment granting stay.