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State Court Settlement Won’t Stay Federal Case

(CN) - Pacific Biosciences of California cannot stay a federal class action while it tries to settle a similar action in state court alleging that it lied to investors, a federal judge ruled.

Thomas Primo and Evan Powell are the lead plaintiffs in the federal case against Pacific Biosciences (PacBio), nine of its officers and directors, and four underwriting firms.

Alleging violations of the Securities Exchange Act, the suit turns on statements PacBio made about the performance of its third-generation sequencing system while making an initial public offering.

Primo and Powell hope to represent investors that purchased PacBio common stock between Oct. 27, 2010, the day of the company's IPO, up through Sept. 20, 2011.

PacBio meanwhile faces a consolidated class action in San Mateo County Superior Court related to the same conduct. A judge there preliminarily approved a settlement between the parties on June 3, 2013, and scheduled a final approval hearing for Oct. 25.

The parties in the federal action agree that a finalized settlement in state court would extinguish all of Primo and Powell's claims.

"Accordingly, defendants argue, allowing the case to proceed in this court would be duplicative and a waste of judicial and party resources," U.S. District Judge Claudia Wilken wrote. "Plaintiffs counter that staying their Exchange Act claims would be an improper abdication of this court's exclusive jurisdiction over such claims."

Wilken refused to stay the action Tuesday, noting that if Primo and Powell choose to "opt out of the state court case, there is no reason to stay their individual claims in this court."

Wilken also refused Primo and Powell's cross-motion to enjoin the state court proceedings to the extent that the settlement would release the Exchange Act claims of the state class members.

"Plaintiffs have not even moved to certify the class in this case," Wilken wrote. "Accordingly, any request for this court to act on can only be made in their individual capacities. If plaintiffs wish to pursue their Exchange Act claims, they may opt out of the state court settlement and pursue their individual claims in this court."

Discovery in the federal action has also been stayed under the Private Securities Litigation Reform Act, but Primo and Powell said the stay should be lifted so that they could learn the names and contact information of those who obtained shares in the IPO.

They argued that these shareholders might want to serve as additional plaintiffs in the federal case.

Wilken shot down the request after finding that Primo and Powell failed to allege how lack of access to documents that have already been produced to the plaintiffs in the state lawsuit would prejudice them.

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