To what extent can a plaintiff protect the identity of his confidential witnesses once discovery in the case has commenced? Courts have tended to be skeptical of claims that the identity of these witnesses are attorney work product or should be kept secret to avoid possible employer retaliation (see here and here).
In Plumbers and Pipefitters Local Union No. 630 Pension-Annuity Trust Fund v. Arbitron, 2011 WL 5519840 (S.D.N.Y. Nov. 14, 2011), the court addressed these issues in a case where the complaint relied heavily on alleged statements from 11 former Arbitron employees. In discovery, the plaintiffs identified 83 people who were likely to possess discoverable information, but refused to specifically identify the 11 confidential witnesses from among that list. The court concluded that the names of the confidential witnesses were entitled to little, if any, work product protection, noting that "[i]t is difficult to see how syncing up the 11 [confidential witnesses] with these already disclosed names would reveal Plaintiff's counsel's mental impressions, opinions, or trial strategy." Moreover, the plaintiffs had "utilized the [confidential witnesses] offensively" and failing to identify them could require the defendants to take dozens of unnecessary depositions. As for possible retaliation, the court declined to accept any generic assertions that the confidential witnesses faced a risk of retaliation, but did give the plaintiffs' counsel a week to submit an affidavit setting forth any particularized facts it had on that subject.
Holding: Motion to compel disclosure of confidential witness names granted (subject to review of the requested affidavit).
Quote of note: "On the facts before it, the Court, balancing the relevant considerations, does not believe the work product doctrine compels Arbitron (or, derivatively, its shareholders) to bear these costs. The discovery rules 'should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding.' Fed. R. Civ. P. 1. These goals are disserved by forcing a party, in the name of an opponent's evanescent work product interest, to play a high-cost game of 'Where's Waldo?'."
The scope of the Securities Litigation Uniform Standards Act ("SLUSA"), which precludes certain class actions based upon state law that allege a misrepresentation in connection with the purchase or sale of nationally traded securities, continues to be fertile ground for litigation more than 13 years after the legislation's adoption. A persistent issue is to what extent a plaintiff can disclaim that his case is based on an alleged misrepresentation, even if the nature of the case suggests otherwise, and thereby avoid SLUSA preclusion.
In Brown v. Calamos, 2011 WL 5505375 (7th Cir. Nov. 10, 2011), the U.S. Court of Appeals for the Seventh Circuit reviewed a SLUSA dismissal in a case about a fund's issuance of "auction market preferred stock." Although it was a "suit for breach of fiduciary obligation and not securities fraud," the complaint included allegations that the fund had falsely stated the term of the security "was perpetual" and omitted to disclose a material conflict of interest. Judge Posner found that SLUSA preclusion was appropriate under either (a) the Sixth Circuit's "literalist approach," because the complaint could be interpreted as alleging a misrepresentation; or (b) the Third Circuit's "looser approach," because the allegations of the complaint made "it likely that an issue of fraud will arise in the course of the litigation."
Holding: Dismissal affirmed.
Quote of note: "[I]t can be argued that a dismissal with prejudice is too severe a sanction for what might be an irrelevancy added to the complaint out of an anxious desire to leave no stone unturned - a desire that had induced momentary forgetfulness of SLUSA. But a lawyer who files a securities suit should know about SLUSA and ought to be able to control the impulse to embellish his securities suit with a charge of fraud."
As the 2011 fiscal year comes to a close, there have been a series of settlement announcements. Some of the more significant are:
(1) Arthrocare Corp. (NADAQ: ARTC), an Austin-based corporation that develops and manufactures surgical devices, instruments and implants, has announced the preliminary settlement of the securities class action pending against the company in the W.D. of Texas. The case, originally filed in 2008, stems from allegations that Arthrocare and certain of its officers and directors issued materially false financial statements. The settlement is for $74 million. Reuters has an article on the settlement.
(2) Wachovia Corporation, a financial services company now wholly owned by Wells Fargo & Co. (NYSE: WFC), has agreed to settle the securities class action pending against the company in the S.D. of New York. The case, originally filed in 2008, stems from allegations that Wachovia misled its equity investors about its underwriting practices and the quality of its mortgage portfolio. Interestingly, the district court had dismissed the settled claims, although the case was on appeal. The settlement is for $75 million. Reuters has an article on the settlement.
(3) Apollo Group, Inc. (NASDAQ: APOL), a Phoenix-based provider of private education, has agreed to settle the securities class action pending against the company in the D. of Arizona. The case, originally filed in 2004, stems from allegations that Apollo and certain of its officers failed to disclose that the company's financial results were materially inflated by the improper practice of tying recruiter's compensation directly to enrollments. The settlement is for $145 million. The case has a long history, including a jury verdict for the plaintiffs, a post-trial reversal, the reinstatement of the jury verdict on appeal, and the denial of defendants' cert petition.
(4) Over forty underwriters have agreed to settle the securities class action pending against them and against Lehman Brothers Holding, Inc., a now-defunct financial services firm, in the S.D. of New York. The case, originally filed in 2008, stems from allegations that, prior to Lehman’s June 9, 2008 disclosure of a $2.8 billion second quarter loss, the company misled investors about its financial health. The complaint alleged that the underwriters contributed to the fraud by failing to investigate the truth of statements made by Lehman in financial statements and securities offerings. The settlement with the underwriters is for $417 million. Lehman's former directors had previously settled for $90 million, bringing the total settlement amount to $507 million. Reuters has an article on the settlement.