*1 This court received the parties' moving and opposing papers in Plaintiffs' motion to partially lift the stay of discovery in this case pursuant to 15 U.S.C. § 78u–4(b)(3)(B). This motion was referred by the district court (Hon. Phyllis J. Hamilton), pursuant to Civil Local Rule 72–1. This court finds the motion suitable for decision without oral argument as provided by Civil Local Rule 7–6 and hereby issues its order. This is a class action asserting violations of § 10(b) and 20(a) of the Securities Exchange Act of, 15 U.S.C. § 78j(b) and 78t(a), and discovery has been stayed pending adjudication of defendants' motion to dismiss. See § 21D(b)(3)(B) of the Private Securities Litigation reform Act (“PSRLA”), 15 U.S.C. § 78u–4(b)(3)(B).

15 U.S.C. § 78–u4(b)(3)(B) provides for a stay of discovery during the pendency of a 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.” In the case at bar, Plaintiffs have filed their second amended complaint and Defendants' motion to dismiss is due to be filed and served no later than November 28, 2001, for hearing January 9, 2002.

Defendant Pacific Gateway Exchange (“PGE”) filed for protection under Chapter 11 of the Bankruptcy Act on December 29, 2000, and on February 6, 2001, moved the bankruptcy court to allow it to sell its assets. In March 2001 PGE provided plaintiffs an opportunity to mirror image its computer server, the centralized repository of much of its electronic information. There are indications, however, that many personal computers used by individual PGE employees have been reformatted and reprogrammed in such a way as to overwrite and effectively erase potentially relevant data from their hard drives. Although much information was maintained on the server and was previously obtained by plaintiffs, information which was on the personal computers which have been reformatted and sold, either to third parties or to former employees, may only be available in hard copies. These paper documents may still be in the possession of PGE.

There may also be personal computers in the possession of former employees which have not been sufficiently overwritten to be erased and which could provide relevant data. Third parties may also have relevant documents which they themselves would discard and not maintain, unless they were obliged to by a subpoena in this litigation.

The court finds that there is a significant risk that relevant documents, both paper and electronic, could be irretrievably lost, which could result in prejudice to plaintiffs. PGE is in bankruptcy proceedings, most employees have left and therefore there are few knowledgeable personnel available to be responsible for preserving or producing documents. It is not reasonable to expect the individuals hired to wind down the company's operations[1]to know which documents are relevant or to be prepared to provide them to plaintiffs. There are also third parties who should be put on notice that they may have custody of relevant documents which they should preserve for possible later discovery in the course of this litigation. Any former employees who have retained their company computers may not yet have overwritten them sufficiently to completely erase PGE documents which could be relevant.

*2 Accordingly, Plaintiffs are granted a partial lifting of the stay of discovery, as follows:

Plaintiffs may propound a limited number of document requests: no more than thirty in total, to PGE and the individual defendants, for documents within the categories listed at Exhibit U to the declaration of Nicole Lavallee (“Lavallee Declaration”) in support of plaintiffs' motion for a partial lifting of the stay of discovery.

Plaintiffs may take a deposition of the custodian of records of PGE pursuant to Rule 30(b)(6), Federal Rules of Civil Procedure.

Plaintiffs may serve a subpoena and notice to preserve documents in the same categories listed in Exhibit U on the third parties listed at Exhibit V of the Lavallee Declaration.

PGE shall provide to plaintiffs the two laptops which were used by Mr. Thomas P. Murphy, Pacific Gateway's Co–Chief Operating Officer, and which he purchased after his resignation in May 2000. Mr. Murphy shall make the laptops available for mirror-imaging or other processes designed to retrieve or preserve electronic data.

Any responses to the discovery referenced in this order shall be provided within fifteen business days of the receipt of this order.

This order resolves Document Number 123 in the court's docket.

IT IS SO ORDERED.

Day to day operations of PGE are presently controlled by David Davis and Steven L. Victor. Mr. Davis is an employee of Robert Half, a placement agency. Mr. Victor is an employee of Development Specialists, Inc., a national consulting firm retained by PGE.