In the

United States Court of Appeals

For the Seventh Circuit

No. 10-1963

AMERICAN BANK,

Plaintiff-Appellant,

v.

CITY OF MENASHA, et al.,

Defendants-Appellees.

____________

Appeal from the United States District Court

for the Northern District of Indiana, Hammond Division.

No. 4:09-cv-0064-TLS-APR—Theresa L. Springmann, Judge.

____________

ARGUED OCTOBER 26, 2010—DECIDED NOVEMBER 29, 2010

____________

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 Litigation
2 No. 10-1963

Reform 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 Convers i on, ” J une 22, 20 06, ww w . m enas hautilities.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 classaction 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 conver-
No. 10-1963 3

sion 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. (In an example of silly, and

indeed unprofessional, advocacy, Menasha’s brief neither

cites nor 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.) 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, Wis. Stat. § 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, 598 N.W.2d 240, 243

n. 4 (Wis. App. 1999); State ex rel. Lank v. Rzentkowski,

416 N.W.2d 635, 637-38 (Wis. App. 1987).

The City responded to American Bank’s request and to

the mandamus order not by producing the documents, as
4 No. 10-1963

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 in Reise 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 Auto 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
No. 10-1963 5

to justify the cost of allowing immediate appeal of the

entire class of relevant orders.” Mohawk Industries, Inc.

v. Carpenter, 130 S. Ct. 599, 606 (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 (1997); City of Joliet v. New West, L.P., 562 F.3d 830, 836-

37 (7th Cir. 2008). 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,
6 No. 10-1963

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 of discovery 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
No. 10-1963 7

(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 publicrecords 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 n. 23 (1978); NLRB v. Sears, Roebuck

& Co., 421 U.S. 132, 143 n. 10 (1975); Leucadia, Inc. v.

Applied Extrusion Technologies, Inc., 998 F.2d 157, 167-68

(3d Cir. 1993); Maycock v. Nelson, 938 F.2d 1006, 1008

(9th Cir. 1991); RSR Corp. v. Brock, 764 F.2d 355, 367-68

(5th Cir. 1985); Cavey v. Walrath, supra, 598 N.W.2d at 243 n.

4; State ex rel. Lank v. Rzentkowski, supra, 416 N.W.2d at 637-

38; Kentner v. Indiana Public Employers’ Plan, Inc., 852 N.E.2d

565, 574-75 (Ind. App. 2006). The Delaware General

Corporation Law, for example, entitles shareholders to

inspect corporate books and records for “any proper

purpose.” Del. Code Ann. tit. 8, § 220(b), and the Delaware

Supreme Court has ruled that requests made under

this provision are not discovery demands. E.g., Saito

v. McKesson HBOC, Inc., 806 A.2d 113, 114-15 (Del. 2002).

That is all that American Bank did here when it

requested access to public (not private, not confidential,

not privileged, not hidden) records of its opponent.

Of course Congress in SLUSA might have been using the

word “discovery” in some broad lay sense rather than in
8 No. 10-1963

the conventional legal sense, and then we would be obliged

to give the word its lay meaning, which might encompass

American Bank’s request. “Loose construction” is not an

oxymoron; it is a time-honored interpretive approach. See,

e.g., Oliver Wendell Holmes, “John Marshall” (1901), in The

Essential Holmes 206, 207 (Richard A. Posner ed. 1992). But

we would have to be given a reason, grounded in statutory

purpose or practical consequences, for an interpretation

that goes against the semantic grain, and the City is unable

to give us any; its arguments are purely semantic—in

a case in which semantics (the conventional legal

meaning of “discovery”) favors the other side.

The purpose of authorizing stays of state-court

discovery relating to federal securities litigation is

similar to that of the enhanced pleading requirements of

the Private Securities Litigation Reform Act at issue

in the Tellabs litigation, see Tellabs, Inc. v. Makor Issues &

Rights, Ltd., 551 U.S. 308, 320-21 (2007), and on remand,

513 F.3d 702, 705-06 (7th Cir. 2008); see also Blue

Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 740-42

(1975); Schleicher v. Wendt, 618 F.3d 679, 686 (7th Cir. 2010);

Cozzarelli v. Inspire Pharmaceuticals Inc., 549 F.3d 618, 623-

24 (4th Cir. 2008), and of the Supreme Court’s recent Iqbal

and Twombly decisions, Ashcroft v. Iqbal, 129 S. Ct. 1937,

1949-50, 1953 (2009); Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 557-59 (2007); see also Cooney v. Rossiter, 583

F.3d 967, 971 (7th Cir. 2009); Francis v. Giacomelli, 588 F.3d

186, 193 (4th Cir. 2009). It is to prevent settlement

extortion—using discovery to impose asymmetric costs

on defendants in order to force a settlement advantageous

to the plaintiff regardless of the merits of his suit.
No. 10-1963 9

Thorogood v. Sears, Roebuck & Co., No. 10-2407, 2010 WL

4283637 at *6-8 (7th Cir. Nov. 2, 2010). That purpose could

be thwarted if the plaintiff in a federal securities suit,

by filing a parallel suit in state court under state

securities law against the same defendant that he had sued

in federal court, could use state discovery procedure to

impose the very burdens on the defendant that the PSLRA,

before the amendment made by SLUSA authorizing

stays of discovery under state law, sought to lift by the

automatic stay; the amendment closed a loophole. Merrill

Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81-

82 (2006); Gavin v. AT&T Corp., 464 F.3d 634, 640 (7th

Cir. 2006); Instituto De Provision Militar v. Merrill Lynch,

546 F.3d 1340, 1344-45 (11th Cir. 2008).

But the concern with settlement extortion that

underlies the original and amended provisions does not

justify the interpretation urged by Menasha. For as

is typical of public-records statutes, the costs associated

with responding to requests for access to public records

under Wisconsin’s public-records law are charged to the

person making the request. Wis. Stat. § 19.35(3);

City of Menasha, Public Records Notice and Policy

3,www.cityofmenasha-wi.gov/content/departments/-

city_clerk/documents/PUBLIC%20RECORDS%20NOTIC

E.pdf (visited Nov. 1, 2010). Although the statute and

city regulation don’t specify that the charge for production

of public records includes the time of the staff in responding to a request (labor costs), the statute allows the publicrecords offices to charge fees reflecting the “actual, necessary and direct cost of reproduction and transcription

of the record,” Wis. Stat. § 19.35(3)(a), and both a recent
10 No. 10-1963

case, WIREdata, Inc. v. Village of Sussex, 751 N.W.2d 736,

762 (Wis. 2008), and an older opinion of the Attorney

General of Wisconsin, 72 Opinions of the Attorney General of

the State of Wisconsin 150-51 (Sept. 16, 1983), make clear

that the fees can include labor expenses. In any event

there is no expense to the defendant, as he doesn’t have

to rummage through his files to respond to a demand

for information—at least qua defendant; it is happenstance

that in this case the custodian of the records and

the defendant are one and the same—the City of Menasha.

The City shouldn’t be allowed to use its dual status to

gain an advantage over other defendants in private

securities litigation. And while it’s true that if American

Bank uses any of the information it gleans from the

records to oppose the motion that the City has filed to

dismiss the class action suit the City’s lawyers will have

to analyze the information, so will American Bank’s

lawyers; the analysis costs are symmetrical.

The City acknowledges that it couldn’t refuse a newspaper’s request for the records, and the newspaper would

be free to publish them. Yet it claims a right to an even

broader stay than the district court granted it—to a stay

that would forbid American Bank to suggest to

a newspaper that it request and publish the records, or

even hint at such a suggestion by telling a reporter that

there might be some interesting stuff in the public-records

office about the City’s misbegotten power-plant

conversion project. And so another objection to the City’s

position in this case is that it would invite satellite litigation over efforts to circumvent a stay and even

raise questions under the First Amendment.
No. 10-1963 11

It would also create a precedent of unmanageable

scope. Suppose a newspaper reporter had requested and

obtained records of the City’s conversion fiasco but had

not published anything. Could American Bank’s

lawyers ask him about what he had found in his search?

Or would that be “discovery” too? What if the

lawyers search Google under “City of Menasha securities litigation.” Is that “discovery”—for if they do that,

they will find articles that contain information about

the litigation that they might find useful. See,

e.g., “Menasha Educates Residents on Vote over WPPI’s

Energy Purchase of Menasha Utilities Assets,” Mar. 21,

2010, www.postcrescent.com/article/20100321/APC0101/-

3210497/Menasha-educates-residents-on-vote-over-WPPIEnergy-purchase-of-Menasha-Utilities-assets (visited Oct.

27, 2010). In rejecting an attempt to “exempt private

and citizen litigants from the right to disclosure of public

records if the materials sought potentially relate to a

matter under litigation between the parties,” State ex rel.

Lank v. Rzentkowski, supra, 416 N.W.2d at 637-38, explained

that “circumvention of the statute under such an interpretation could be accomplished with ease and impunity.

Nothing in [the] argument would preclude a person, not

a party to the underlying litigation, from rightfully demanding the materials and then turning them over to the

litigants who otherwise would be denied them. The

interpretation . . . would encourage surreptitious circumventing of the statute. We are hesitant to adopt an interpretation which reduces a law to such unenforceable stature

and holds it out to ridicule rather than respect.”
12 No. 10-1963

The City’s position is not only wrong; if one looks to

the future it is futile. The City acknowledges that had

American Bank requested the records before filing

suit, there would have been no ground for refusing the

request. So the only effect (beyond this case) of our affirming the district court would be that in the future

private securities plaintiffs would file their publicrecords requests a few weeks or months before rather

than (as in this case) a few weeks after filing suit.

Of course if states create discovery procedures but call

them “requests for public records,” perhaps by deeming all

records in the files of private corporations public, this

would not defeat a motion for a stay. Substance trumps

form. But in this case substance and form coincide.

The judgment granting a stay is

REVERSED.

11-29-10