FacultyFaculty/Author Profile

Prosecuting and Defending the Civil Action: Class Certification, Fact Discovery, Experts and Summary Judgment Motions in Securities Litigation


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LYLE ROBERTS: Thanks everyone. Welcome back from our break. I wanted to start with our next panel. So in our last panel, we heard about the motion to dismiss process.

And we're going to have to assume now that motion to dismiss did not work out for the defense. And the case, at least in part if not in full, is moving forward. And so, you know, logically what are next steps in a civil litigation like this? It's looking at class certification, discovery, experts, summary judgment, all the stuff that goes into actually litigating the case now that the PSLRA's discovery stay has been lifted, and everyone's going to get to see the facts.

And so with us to talk about gathering the facts and taking a look at them is a very distinguished panel that includes both plaintiff's counsel and defense counsel so I hope we will get you a good view from both sides of the aisle on this process. Starting to my left, Jonathan Gardner with Labaton, Linton Mann with Simpson Thacher, Katie Sinderson with Bernstein Litowitz, and Rob Stern with Orrick, all very experienced practitioners in handling securities class actions. So let me start here with Katie who's going to talk to us about class certification, which historically had not been that big a hurdle for securities class actions. But it's certainly taken on in the last few years with a number of Supreme Court decisions a much bigger prominence in litigating these types of cases.

KATIE SINDERSON: Thank you. As he just said that securities class actions typically have been considered to be what the courts called the paradigmatic class actions, which means all class actions in federal court have to satisfy the requirements of Rule 23. In securities class actions, it should be very easy to do so. Rule 23 requires that you satisfy the requirements of numerosity, you have a number of class members; commonality, they share common issues; typicality, that the class representatives' claims are typical of the class members; adequacy, that the class representatives adequately represent those claims. And for these types of class actions, we have to satisfy also superiority and predominance. Superiority, that a class action is a superior mechanism of addressing these claims, and predominance, that the common issues or that the issues of facts and law predominates over any individual issues.

So in this type of a case, the securities class action, for example, like the one we're addressing today with Blue Sky where the company trades on the New York Stock Exchange, that the alleged misstatements are made in a public way to all investors, there is no individual transactions. We're not talking about a company that is out there having-- where the CEO is having one on one conversations with a large investor. We're talking about a large sort of anonymous company that is just making statements generally to the marketplace. All of these to thousands of investors so numerosity is obviously satisfied. And the other requirements are satisfied because all of these issues are common to the class.

So most of these factors are typically easy to satisfy with some exceptions here and there, except the element of predominance. That is the one issue under Rule 23 that typically creates the most issues. And the reason why is that the plaintiffs are required to establish that all of the elements of their claim or their securities claim will predominate at a classwide basis over any individual questions. And one of the elements of a securities claim is reliance.

The Supreme Court made it possible to have these securities class actions in 1988, when they issued the decision of Basic v. Levinson. And what that decision was essentially said that individual issues of reliance are not going to be an issue in securities class actions like these because the Supreme Court sanctioned the theory of an efficient market and a fraud on the market theory of reliance. And this basically said that-- the Supreme Court basically created a rebuttable presumption, that once plaintiffs establish the existence of an efficient market, that they get this presumption that all class members relied on the misstatements that the defendants had allegedly issued.

The presumption is based on the fact that the effect of that misrepresentation would be reflected in the price of all stock traded by that company. So there's basically two questions there that is raised by the existence of this presumption. What is an efficient market? And how would defendants be able to rebut this because they are given the opportunity to rebut that presumption. And those two questions have essentially created decades of litigation.

For like, I would say, the last 15 years, there has been-- it's been very, very, very heavily litigated. As the PowerPoint says, the courts generally don't get to the merits of the underlying action when they're considering the requirements of Rule 23. So numerosity, all these other things have nothing to do with whether plaintiffs have adequately alleged their claims or are able to prove their claims. However, when you get into this question of reliance and fraud on the market, that's when the courts have opened the door to really consider the merits of the plaintiff's underlying claims, the merits of whether, when the disclosures come out about the alleged fraud, whether that actually has affected them, the price of the stock, whether those statements were material, all of these questions. So that's really generated, I would say, 15 years of really, really heavy litigation and a lot of money spent on both sides.

So, again, back to the two questions, what is an efficient market, and how do defendants rebut that presumption, if they're able to? So defendants or plaintiffs typically will come in with their opening brief, and they'll say, we've met all the requirements of Rule 23. And also there is an efficient market here so we are entitled to take advantage of this rebuttable presumption, the fraud on the market presumption.

Over the years, the requirements of establishing a fraud in an efficient market have grown through multiple judicial decisions. So plaintiffs will typically hire a very expensive expert. You're going to hear more about experts soon. And they will establish that this market is, in fact, efficient.

Now this, from my perspective as a plaintiff's lawyer-- obviously, I am going to admit I'm a little biased-- has grown a little bit out of proportion because much of the early case law typically says that if you have a lot of analysts following it-- the stock, if you're on the New York Stock Exchange, what could be a more efficient market? Efficient market just means that information is freely traded, and that the information is quickly integrated into the cost of the security. Then what could be more efficient than the New York Stock Exchange?

How are we debating over this? Why is everybody spending tens-- hundreds of thousands of dollars on litigating this issue of whether an efficient market exists. But that's, you know, where we are.

So everybody will bring in these expert reports. The experts will-- there'll be a battle of the experts over whether the market is actually efficient. And then the question typically comes down to whether the stock price reacts to information. So they'll do a whole analysis of the-- a statistical analysis of the stock price movements and what information came out and whether the stock price reacted to that.

The second question is how do defendants rebut this, this presumption once plaintiffs have established an efficient market. This has become a really key issue in recent years since the Supreme Court issued a decision. It's called Halliburton II because there are so many Supreme Court decisions on securities class actions and on class certification. This is the second Halliburton decision on class certification and securities class action.

And what the Supreme Court said is that defendants can rebut this presumption if they show a lack of, quote, "price impact." So now the question is, what does price impact is? And nobody really knows, and that's being debated throughout the courts.

The question is, what is-- how does one show a lack of price impact? And also what is exactly the burden of proof? And just very quickly, there is essentially a circuit split now on what defendants have to show to rebut this presumption, and how they show a lack of price impact. And they can be represented in the very first decision, which was from the 11th Circuit, after the Halliburton 2, which said that defendants have rebutted price impact by showing that when the company initially came out with their false statements, the stock price movement-- there's no stock price movement that occurred.

And plaintiffs have said, well, that's because the defendants were just maintaining that stock price inflation. They were repeating prior false statements. So of course, the stock price didn't move. That makes sense.

However, when the truth came out, the stock price declined. So from their perspective, plaintiffs had established price impact. Defendants said, well, there's no-- you have to show it on the front end, too. You have to show it on the front end and the back end.

The 11th Circuit accepted that argument and held that a front-end showing of price impact is required. The 11th Circuit also said that defendants only have the burden of production to show-- to rebut this presumption. Now we're getting into the weeds.

There's a question of whether you have a burden of production or a burden of persuasion. Obviously, a burden of production is much lower than a burden of persuasion. The 11th Circuit placed this much lower burden on defendants.

The Second Circuit has responded with a series of decisions, essentially going a completely different direction. And in some, the Second Circuit has said two things. There is no need for a front-end showing necessarily.

They accept the theory of price maintenance, which is that if there are prior false statements and defendants continue to issue false statements to maintain the inflation in the stock, that alone does not rebut the evidence of price impact. That if there is a back-end showing that the stock price declines, that can be enough to establish an efficient market and to take advantage of the rebuttable presumption. The second point is that the Second Circuit has said, defendants bear the burden of persuasion, not just production, which obviously puts a much higher burden on defendants.

The third aspect that the Second Circuit has recently made clear is that that first issue that I discussed earlier is what it takes to establish an efficient market and whether we need hundreds of thousands of dollars of MIT professors to come in and teach us all about whether the New York Stock Exchange is an efficient market. That may itself not be necessary if we can establish the basic factors of there are a number of analysts following the stock, whether they are openly traded on a National Stock Exchange, that alone, just a commonsense analysis, may be enough to establish an efficient market, which may cut down a little bit on the litigation before the courts. The defendants in one of those Second Circuit decisions have filed a cert petition so we will see where we end up here. But that's where the state of play is on the class certification and securities class actions.

LYLE ROBERTS: Katie, let me ask you, so what you were describing in terms of having to have the stock price move upon the issuance of the statements and how to defeat that is sometimes called the price maintenance theory, right, the idea that, OK, even if the plaintiffs can't show that the stock price moved as a result of these allegedly false statements, as long as they can show a drop at the end, they can argue that the inflation was kind of being maintained. What do you-- where do you see that headed? I mean, we've got a circuit split here on this. Is it going to be a Supreme Court decision that's going to have to resolve it? Or do you think we're going to get some uniformity amongst the circuits as we move forward?

KATIE SINDERSON: I would not be surprised if we do get uniformity among the circuits because the price maintenance theory has been fairly widely accepted among district courts. It's a little surprising. And it's a unique circumstance that the Best Buy decision was issued. And obviously every fact pattern is different.

The Best Buy decision was the 11th Circuit decision I was referencing earlier. The Second Circuit, obviously, has a lot of securities cases, is widely followed by a lot of circuits. We'll see how this develops. But it is a fairly clear-- and I should also say, the 11th Circuit did not squarely reject the price maintenance theory.

They just said that plaintiffs have not established it there. So that may be enough that the Supreme Court doesn't even take this up at this point because they do like to take up securities cases right now. But maybe they don't want to address this controversy.

LYLE ROBERTS: Great. Well, let's turn to Jonathan and talk a little bit about the experts will have to have, maybe for class certification, but maybe for the underlying facts as well.

JONATHAN GARDNER: Well, I'll talk a little bit about both. But following up with Katie's presentation, at the class certification stage, you should expect to need to retain an expert. My experience is that plaintiffs, almost invariably these days, do put in a market efficiency report to support the presumption of reliance, predominance requirement. Most judges these days expect to see market efficiency report. I can think of a handful of judges.

Former Judge Scheindlin is one that you probably wouldn't have to put one in. But I think err on the side of caution on the plaintiff's side. You should be putting in a market efficiency report in your opening brief and opening papers. But the rubber, in my opinion, really hits the road when the defendants come in and put in their evidence of lack of price impact.

That's really when it gets down to the nitty gritty. My practical advice to the plaintiff's counsel is to have your expert be thinking about price impact from the very beginning. I don't think you need to do anything preemptively in your opening papers, although you should be aware of what the potential price impact arguments are that the defendants are going to make, and be prepared to respond to them fully in your reply papers.

Another practical point I would suggest is when you're setting the briefing schedule on class certification, you better give yourself enough time on reply because your reply brief is going to be-- could be, if the defendants take a full run at price impact, you're going to need your expert to put in a fulsome rebuttal report to whatever the defendants put forward. And you're going to need time to work through the price impact issues, especially if you haven't given it much consideration up to that point. So build yourself enough time to do that.

The other issue that has come up on class certification is whether to put in anything at all on damages. A few years ago, the Supreme Court issued a decision in Comcast, which was an antitrust case. But the defendants have tried to use Comcast in the class certification context for securities cases, arguing that the plaintiffs have the burden of proving that they have a uniform and class-wide method of establishing damages that is consistent with their litigation theory.

And Comcast, because the court had knocked out four of the five antitrust theories in that case, the court ultimately held that the plaintiff did not have a damages theory that matched its liability theory and denied class certification. My experience is that that's been widely unsuccessful at class certification and securities cases, although the defendants continue to make the argument. What I've been doing is having our loss causation damages expert attach at the back of the market efficiency report a very kind of brief discussion of damages, and how we are going to be using the out-of-pocket damages methodology, which is the standard damages methodology used in securities class actions, which is capable of being applied on a class-wide basis, just by doing mathematics.

That's been pretty well accepted by courts as sufficient showing, if any showing under Comcast is even necessary. Again, I err on the side of caution so I do put those in my reports. I know some other plaintiff's counsel don't even bother doing that. So that's the other issue you need to be aware of a class certification.

As far as merits, you're going to want probably an industry expert as well as a loss causation and damages expert. In the fact pattern that's presented today, it seems to me that you may want to find an expert who's familiar with reduction technology. You may want-- reduction technology specifically for power plants. You may want to see if you can find a former EPA regulator that worked on regulating power plants. That seems to me like the perfect expert in this fact pattern.

As far as when to retain experts, my advice is to retain them early. I've retained experts pretty routinely when I'm preparing amended complaints and in the course of the investigation. I think it's invaluable to have that consulting expert, especially when it's complicated cases. If it's a-- this doesn't present any accounting issues per se.

There's no gap violations being alleged in the fact pattern today. But if those fact patterns present, I would strongly encourage plaintiff's counsel to retain accountants on the front end to understand the gap issues. It could help you formulate questions when you're interviewing potential witnesses in the case.

And especially if you're interviewing accountants, former employees who were in the accounting department at the target defendant, being able to ask questions in their language, having consulting with an expert, I think is very helpful. Of course, you have to weigh that against the costs involved. But I think you get a much better result in the complaint if you are consulting with experts from the beginning.

If you don't do that for whatever reason, I would encourage you to retain industry experts as soon as you get past the motion to dismiss. I think it's very important on the front end, when you're formulating your discovery requests and when you're negotiating with the defendants over search terms for electronic discovery, to understand the nomenclature that is involved in this industry. I think the plaintiffs are at a very steep disadvantage when it comes to negotiating search terms and negotiating over documents because defendants, obviously, have access to the company and all of the resources of the company and all of the employees of the company.

They understand their documents a lot better than we do. I think it's helpful to have industry experts and consultants work you through what documents might exist, the nomenclature of it. And you don't want to get to the end of the case, retain an expert at the end of merits discovery, only to find the expert asking you for documents that the company should have that you didn't know existed and don't have and have no time to go get. So retaining experts early is, I think, critical.

How to find experts, my advice is talk to your colleagues, talk to people in your firm, talk to people at plaintiffs or defense firms. The best results that I've had with experts is somebody who has done it before, has been in a case similar to the case that I am litigating. I like to talk to people who've worked with experts from how easy the expert is to work with, how difficult the expert is to work with, how do they present to a jury?

You have to do your vetting of your experts on Daubert standards. Are they an expert? Is it the right expert? Have they been Dauberted out before so you don't get yourself in trouble down the road?

But I think equally important is understanding how this expert is going to present to a jury, how they are to work with. Are they so busy that they're not going to be focused on your case? Some of those things, and I think you get those answers by talking to other attorneys who have worked with that expert before. So I would encourage you to-- That's how I go find my experts. If that doesn't work, I'll go look for a case that's similar to mine.

Oftentimes in the motion to dismiss briefing, there is a case that's close on the merits or close on the facts that gets briefed. Go look in that case. Who did the plaintiffs use as their expert?

How do they like him? You know, try to find somebody who's actually been there and done that so they're not reinventing the wheel. And you can talk to them about what they did in that case and what their knowledge base is so that's some practical, in my opinion, ways of going to find the right expert in these cases.

Communication with experts got a lot easier since 2010. In 2010, the Federal Rules of Civil Procedure Rule 26 was amended to make it clear that drafts of expert reports are protected work product, and that communications with experts are also protected as work product. There are limited exceptions to the communications with expert.

You know, the compensation you pay the expert, that's not protected work product. If you have identified facts or data that the expert has considered in preparing their report, that's not protected work product. If you've identified assumptions you've asked the expert to assume in preparing their report, that's not protected work product. Other than that--

LYLE ROBERTS: Assume there has been a fraud, like the--

JONATHAN GARDNER: Assume-- assume there is-- assume there is-- well, oftentimes, you do ask damages experts to assume liability. So we like to call it assume we're going to prove our case. But yes, assume a fraud has happened. That assumption probably will be in the report itself.

But to the extent it's not, it's fair game for the defendants to ask the expert, you know, what have you been asked to assume in this case, and test whether or not that's a fair assumption. And that gets us to Daubert concerns. I've talked a little bit about it. But the Second Circuit in Pfizer laid out the standard fairly well.

And it's, you know, I think it's Rule 702 of the Federal Rules of Evidence is the operative federal rule that applies to whether or not an expert's going to be allowed to testify. I like to think of it as these are the-- there's multiple grounds that either side can argue, makes the expert inadmissible. The expert doesn't have specialized knowledge.

So if you're looking to retain an expert, make sure that they have specialized knowledge in the particular area that you're asking them to opine on. In this fact pattern, it seems to me, you know, there's just two general types of experts. There's an academic expert, who's qualified because of their public-- they teach. They've published on the topic.

And then there's people who have actually done the work in the industry. It seems to me that the experts in this case are going to be industry practitioners, not academics. So make sure that they have the appropriate knowledge before you retain them because that's a ground that could get them disqualified.

Their opinion won't help the trier of fact. That's second ground that you can move to disqualify an expert. Their opinion is not based upon sufficient facts or data. So when you're dealing with your expert, it may be tempting to feed them the best information from the case and get them to give an opinion based upon that cherry-picked information. That would be a mistake because you invariably will have defense counsel come in and show that they haven't considered all of the relevant information, and that will set up a Daubert motion, based upon the expert not considering all of the facts and data in the case.

Fourth ground to disqualify an expert is that their opinion is not the product of reliable principles and methods. This often comes up in the loss causation and damages context, and make sure they faithfully apply the methodology of doing an event study and taking into consideration all of the things that you need to to make sure that that's robust and sound. It also comes in on, if you have a fact pattern where there's multiple pieces of information that come out on the corrective disclosures. And you're going to have to disaggregate the damages and pinpoint exactly what part of the stock drop is attributable to the revelation of the fraud.

That's a burden on the plaintiff. That is an expert-- you know, that's the expert's ground. And it can get complicated, and you're going to probably get a challenge that the expert did not apply principles and methods.

So make sure whatever arguments the expert comes up with as to how to disaggregate the multiple pieces of information, they have a sound method for doing it because you're going to get challenged on it. The last part-- the last ground to disqualify an expert is that they did not reliably apply the facts to the law or the case. So be careful that they're not-- that they're reliably applying their methods to the fact patterns, and they're not ignoring facts and other information.

LYLE ROBERTS: So let me ask Rob and Linton to jump in kind of on the defense side for experts, and maybe less important than the plaintiff's side but still very important. Can I get your thoughts on it?

LINTON MANN: Sure, I mean, I think it's very important. And also I would encourage everyone to engage experts just as early as the plaintiffs are. I think one additional place to find the experts for the defendants is to look at people who have worked in the industry that you have experience or that are known to do those types of things, the industry experts that Jonathan was mentioning before. Our clients might have a little additional insight into who does that on a day-to-day basis, or who did it during the relevant time period, that we can lock down those folks to be either our consulting experts or potential experts for the litigation a little earlier than expected.

ROBERT STERN: I agree with everything Linton said. I would just, I guess, make two other observations, which is, as you think about industry experts, one of the things you want to give a lot of thought to is you're going to have internal folks who can frequently satisfy a lot of the testimonial baggage or carry that kind of weight at trial. And the question that you want to think about is, well, do you want to spend the cost and do you want to incur all of the burden associated with retaining an outside expert when you may very well be able to use internal folks to provide the exact same testimony.

If you believe that your internal folks have the credibility and are sufficiently immune from the allegations of the securities class action so as to not really get beat up too badly on cross, you may decide to do that. If, however, the people who are likely to provide you the substantive testimony on this are going to incur a lot of cross-examination about their participation in the alleged fraud, then it may be worth it to you to go out and retain industry experts and spend the cost of prepping them, submitting reports, and preparing them because they can come in as an independent objective voice to say, you know, with respect to whether Smokey was going to be a viable alternative, I can provide you the expert opinion that it was. And you know, there's no reasonable way that the defendant would have known until it didn't work that it wasn't going to work, something on that [? line. ?]

LYLE ROBERTS: Great, thanks. With that, let's turn to Rob to talk about discovery issues and strategies.

ROBERT STERN: Yeah, so I get the riveting, scintillating topic of discovery. I will try to make it as interesting as I can, and I will start with this one admonition, which is if you don't think about the discovery issues and implications at every stage of the litigation, both as an inside attorney, outside counsel, and the plaintiff's counsel, it's at your own-- at your own peril. And I'm going to go back and cover a little bit of what happened in the period prior to the motion to dismiss as well.

Because I do think there are certain things that were discussed at the prior panel, that if you change the fact pattern slightly, and you assume certain things, could potentially change the outcome of the motion to dismiss and may have turned a losing motion to dismiss into a winning motion to dismiss, or made an amended complaint for the plaintiffs even stronger. So, for instance, let me start with the stay of discovery, which was mentioned on the prior panel. Under the PSLRA, there is an automatic stay of discovery, except in two instances, right. And those two instances are where it's necessary to preserve evidence or where lifting the stay would prevent undue prejudice.

So I'm going to put my plaintiff's lawyer hat on, you know, for just a second here. And I think on this fact pattern, where you have an internal investigation that was disclosed to the SEC and the DOJ, I might have taken a shot at saying to the judge, you know what, Judge, they've already collected the documents. They've already produced the documents.

There's no burden, and we are already behind the SEC and the DOJ. There's a risk that-- I'm forgetting the name of the company-- that Blue Sky goes into bankruptcy. And if it goes into bankruptcy, we're going to be severely disadvantaged relative to the SEC, DOJ, and the other creditors, if we don't get this discovery, and you should give it to us. And the case law actually, unfortunately for the defendants, is fairly mixed on that.

I've litigated several cases where the plaintiffs walk in and say, right, the PSLRA is designed to avoid the burden of the defendants having to collect the documents. They've already collected them. They're already given them to the SEC and DOJ. They're sitting in a pile somewhere at Blue Sky, just give them to us.

And there are a number of cases, including-- I would commend you to FirstEnergy Securities out of Ohio and LaBranche Securities litigation here in the Southern District by Judge Sweet, where the courts have said, if you've already collected documents for the government, and they're there, turn them over to the defendants. And if that happens, right, it makes the plaintiff's amended complaint potentially much stronger because they get the benefit of that discovery. Now the defendants, obviously, are going to resist it and I think, in most instances, successfully so. But again, it's something at a very early stage with discovery, you want to think about.

The other thing related to avoiding the automatic stay of discovery is you have two state court derivative cases here. You have a state court derivative action in Delaware, and you have a state court derivative action in New Jersey. I have seen plaintiff's counsel try to use those derivative actions to get discovery. I want say in circumvention of the automatic stay of the PSLRA, but essentially a circumvention of the automatic stay of the PSLRA.

And if they get discovery in those state court actions, where there is no automatic stay of discovery-- let me be clear on that-- right, in those state court actions, the PSLRA doesn't apply. There's nothing that prevents the plaintiffs in the derivative cases from going in and seeking the exact same discovery in those state court cases that they could get in federal court while they're trying to draft their amended complaint or, you know, before the motions to dismiss are filed. And so you can use that, again, to circumvent the automatic stay of discovery.

And then the last point, I guess, is I would be remiss on this fact pattern if I didn't mention the recent Supreme Court case in Cyan that has said claims under the '33 Act class actions are parallel jurisdiction and can be brought in state court. So I think if I were a plaintiff's lawyer on this fact pattern, I may have brought the 10b case in federal court where I had to, but I may also have chosen to bring the section 11 class action in state court, where you don't have a PSLRA stay. You have all kinds of benefits. You have friendlier courts.

And one question that you may ask yourself is how much benefit-- if I'm a plaintiff's lawyer, how much benefit do I get from the 10b case as opposed to the section 11 case? And is it worth just proceeding in state court, where I don't have to deal with all these rules and regulations that give the defendants a lot of benefit? So I think those are all things, again, pre-motion to dismiss that the plaintiffs would want to think about.

I think the one thing that the defendants really want to think about at the pre-motion to dismiss stage is the PSLRA stay doesn't prevent us, the defense bar, from going out and talking to our own employees, current and former. And you heard a little bit on the former two panels about the confidential witnesses here on the fact pattern. And I think on this fact pattern, almost all of the scienter allegations are attributed to confidential witnesses and what the confidential witnesses said about what people knew.

I think from the defense perspective, one of the things you really want to think about, from the day the first complaint drops-- or the day the amended complaint drops, it has confidential witnesses, is can identify who these confidential witnesses are, and can I go get discovery from them? Can I talk to them? Can I interview them? Can I figure out if they really said to Katie what she said they said, right?

And more often-- well, I shouldn't say more often than not-- frequently-- frequently it's the case, as Sherry mentioned on the prior panel, that there's some embellishment that goes on in the complaint about whether the confidential witnesses really said to the investigators what's attributed to them in the complaint. And when that happens, it's a good day for the defense bar, right, because you have a whole number of options available to you. You could file a motion to strike all the confidential witness allegations that are attributed to the folks. You could include it in the motion to dismiss.

Or if it's egregious enough-- and I think this is what Sherry was alluding to-- you could file a motion for sanctions, suggesting that the allegations in the complaint were not well-founded under Rule 11 because the quotes attributed to the confidential witnesses weren't what they said. And you know I've been in cases where we have procured declarations from the confidential witnesses who said, yeah, I spoke to-- I'm not calling your firm out-- but I spoke to Bernstein Litowitz and, yeah, they interviewed me, but I didn't say that. And they'll sign a declaration to that effect, and that's really helpful.

So that's all at the pre-motion to dismiss stage, and you can do that. You know, I don't know whether Blue Sky had gone out to the confidential witnesses and interviewed them and got declarations and submitted those declarations at the motion to dismiss stage. We're not sitting here dealing with fact discovery, right. That's possible, but we are, right, because they didn't.

And so now the question becomes, what do you do at this point? You've dealt-- you've lost the motion to dismiss, and you're into discovery. From a defense bar perspective, one of the first things we like to do-- and you'll see this on the slide-- is we like to try to phase the discovery, right.

So you heard about the class certification and all the issues and burdens from Katie. And I think one of the issues here that we like to explore is we think that fact discovery on class cert should go first, and it's limited. And it's just limited to whether they can meet their elements of Rule 23.

And often the defense has a good argument for that because here on this fact pattern for instance you have a whole series of disclosures by blue sky about varying degrees of certainty and about the like the success or lack of success of the new technology and various warnings to the market about whether the technology is going be successful or not. And so one of the things I think from the defense perspective I would be thinking about it class or class or discovery is can they really establish the elements of Rule 23 for the entire class period right the important thing about the Rule 23 element is Katie has to establish them for the entire class period. And we've had a lot of success either trying to trim the front end or trim the back end. Because if it turns out, for instance-- as on the fact pattern here-- that a warning goes out in June of 2016, and we say, as the defense would argue, well, hold on.

Once we made a disclosure in June of 2016 that there was a significant risk the new technology wasn't going to work, the market's on notice. If you're buying at that point, caveat emptor, right. You're on your own because we've told the whole market there is a risk of this. And so you might want to argue at the class cert stage, they can't establish the Rule 23 elements of predominance and everything else following that last disclosure.

So you may want to take discovery from them, to establish that a lot of the clients that the plaintiffs' bar, like Katie's firm represent, are large institutional investors, Public Employee Retirement funds, and they have their own internal analysts, who are following the market and doing their own work. And you can get a lot of mileage on the defense side deposing those folks and saying, well, by June, 2016, did you think that the technology wasn't going to work? And frequently, their internal analysts will say, I didn't know for sure but I certainly was on notice, or I certainly suspected it was a risk or, you know, we bought anyway, or we didn't sell even though we knew the risk. And those kinds of admissions, you can then use at class cert.

And so from the defense bar perspective, you would say, look, all that discovery ought to go first. Before we have to figure out how broad the universe of documents we have to collect and produce are, we ought to know what the real class period is. And we shouldn't be put to the burden of collecting documents for the entirety of the pled class period unless we know that that class period's going to survive or is going to be certified at the class cert stage. Because it's incremental burden on us, additional cost, additional expense, and so we should test that. Now I'm sure that, if I ask Katie, she'll say--

KATIE SINDERSON: I think plaintiffs would reject that proposal. And they would say that, obviously, in order to respond to those class certification arguments, they need full discovery on what defendants did know when they made these disclosures.

ROBERT STERN: Right. And depending on how confident defendants feel about it, you may move the court to phase the discovery, and you may litigate it. And from my perspective, I think that's often a helpful exercise for a number of reasons because it gives you a shot at the judge in advance of the oral argument on class cert. I'm going to walk in.

I'm going to tell the judge that I don't think Katie can certify the class for some period. And he's going to hear it first from me before they even file their motion to certify the entirety of the class. And so there's lots of good reasons to think about these discovery motions and how you phase discovery at each stage of the process.

And then, lastly, we would suggest that you do class cert. If they survive, or if they get a class certified, then we proceed to full-blown merits discovery. That's the expensive, burdensome part where all the documents get produced, and all the witnesses are deposed. And then after that, you phase expert discovery. And that's the stage where you start joining issue with, you know, getting productions from the experts, deposing their experts, and things like that.

But the moral of all of this is, at each stage of this case's progression, thinking about the discovery disputes and the discovery issues and how you frame all of these issues is really critical to the success or failure of your defense. And it can really have a significant impact. And then the last thing I would leave is with the same comment that Jeff made on the prior panel, which is, as with your theory of the case, your theory of discovery, you start with the end in mind.

What do I need to prove at trial? What's my theory of the case? And how do I go about staging, phasing, or collecting my discovery in a way that is supportive and bolsters my entire theory of the case?

LYLE ROBERTS: Great, thanks. Let's turn to Linton finally. So now we've had all our fights about class cert. We've had our fights about discovery and what they're going to get, and when everyone's gotten what they're going to get. And so now we turn to the issue of, OK, can we resolve this case before trial via summary judgment motion.

LINTON MANN: Absolutely. And there are a number of decisions to think about before you decide to move for summary judgment. I think many defendants will ultimately decide to move for summary judgment for many reasons. It is one of the last major inflection points before trial. It could give the parties a good bit of leverage for settlement negotiations.

For the first time, this might present an opportunity for defendants to tell their story affirmatively. When you were dealing with the motion to dismiss, you were limited to the pleadings. And when you're dealing with the discovery disputes and class certification, those are narrower motions before the court.

But really summary judgment presents the defendants with an opportunity to put their theory together and present it affirmatively to the court, often for the first time. A decision on the motion could also help the parties shape jury instructions. It can help the parties address Daubert motions to the extent that all of the expert disputes had not been resolved.

So there are many reasons why one might strategically decide to bring a motion for summary judgment. But that doesn't mean that there is no risk involved. One of the major risks is, obviously, one can lose. And from the defendant's perspective, a loss at summary judgment may increase plaintiffs' settlement leverage.

It may also, depending on how the court writes the opinion and the language that the judge uses, it can harm your theory of the case and the way that you were planning to present the case moving forward. Regardless of whether that case settled or not after an adverse ruling on summary judgment, that opinion that the judge wrote, articulating a view on the law based on the facts that were presented, will be available for use later on for other cases, including cases against this client. And so if you're dealing with a particularly challenging set of facts, and you have an issue that presents perhaps an issue of first impression for a court, you ought to think about whether or not this is the set of facts you want to use to have this court issue an opinion that will follow you, regardless of what happens later in this case.

Filing the motion, obviously, presents some delay potentially, and that may cut either way. But when you're thinking about how to prepare for summary judgment-- you've heard it all morning-- it's all about starting early. You want to think about and frame discovery, as Robert mentioned, early on in the case around your potential grounds for summary judgment.

You want to be seeking the documents that you think you'll need. You want to be asking witnesses in depositions the questions to lock in their understanding, lock in their facts, so that they can't present an opposition to your motion for summary judgment. You know, if only the lawyer had asked me x, this is what I would have said, and creating an issue of fact that might not otherwise exist. So starting early and framing all of your discovery around your potential grounds for summary judgment is highly advisable.

In terms of the actual practice of moving for summary judgment, my best advice is to keep it simple. Less is often more. If you present a lot of information to the judge and stacks and stacks of paper and exhibits and deposition testimony, it might be easier for a judge, particularly a judge who doesn't necessarily want to dig in, to have a view that there must be a question of fact somewhere in all of that information.

So a more targeted motion is often going to be more successful. You have to decide at the beginning whether or not you're going to move on every potential ground, or if there are some few targeted issues that you want to raise and put before the court. Obviously, summary judgment can be dispositive of the entire case. But you can also give thought to whether or not there are discrete issues that you just want to resolve and narrow that case for trial, whether that's getting the court's view and blessing on a particular damages methodology, whether you can present the absence of evidence for a particular factor, reliance is a good candidate for that. If the facts allow scienter, certainly if you think there's a conclusive case on knowledge, those are issues that you can be more discrete and not necessarily have to challenge the entirety of the case, something to think about when you're deciding whether to move for summary judgment.

In terms of opposing summary judgment, you really want to do the opposite of everything that I just said about moving for summary judgment, right. You want to inundate the court with facts and issues that put into context all the arguments that were made by the party that moved for summary judgment. You want to make sure that you're not simply denying the arguments that were raised by the moving party, but really taking this opportunity to tell the court your story, again, affirmatively with the best evidence that presents the opportunity to show that there are genuine issues of material fact. It's not as simple as the moving party would have you believe.

You want to take the opportunity, if the facts allow, to challenge the credibility of witnesses. Credibility determinations are uniquely in the purview of the fact-finder. And if you can challenge that, this email that is produced in support of a motion for summary judgment is contrary to testimony or the witnesses had inconsistent statements. Challenging their credibility is a pretty effective way to lead to the denial of a motion for summary judgment.

Depending on how the case has sort of been staged, if the summary judgment motion came particularly early, for example, a Rule 56(d) allows the opposing party to raise that issue with the court and say, you know, I didn't really have a fair opportunity to develop the record on this particular point. And the court is empowered to allow you the time to develop that record for purposes of opposing the motion. But it is important, at the end of the day, when you're posing a motion for summary judgment, to answer every point that was made.

Make sure that you don't inadvertently lead to the court concluding that an issuer or a statement of fact was undisputed simply because you did not answer it in your opposition. And I put there at the bottom, cross motions for summary judgment, those are tricky. Cross motions, when you're-- it's one of the options that you have, in addition to opposing the motion, is to cross move and say, actually, Your Honor, there's no genuine issue of fact, of material fact. And I'm entitled to judgment as a matter of law.

One of the things that's great about that is, if you think the factual record is that supportive for your side, then this is obviously a vehicle that you can use. But a challenge is also the fact that you've now told the court that you essentially agree with the moving party that there is no genuine issue of material fact. So the court is presented with this option of which side do I believe? Which set of facts makes the most sense here?

Both parties agree that there is no genuine issue of material facts, so which side should win on that point? And that can be a pretty challenging way to go about it. So I haven't-- in my experience, I haven't seen too many cross motions for summary judgment. I've seen parties, and myself-- I've gone as far to say in my opposition, you know, here are all of the factual issues that I think are presented.

Arguably this could lead to judgment as a matter of law for my client. But nevertheless, of course, it shows that there are genuine issues of material fact that lead to the fact-finder deserving the opportunity to decide this issue at trial. I don't know if my plaintiff counsel colleagues have another opportunity. As I said, many defendants will ultimately decide to move for summary judgment. It hasn't been my experience that a lot of plaintiffs do that.

JONATHAN GARDNER: I am not an advocate on the plaintiff side of moving for summary judgment at all. I mean, I'm going to be screaming at the top of my lungs that there are fact issues all over this record, and that we need to be in front of a jury to determine this case. And so I would be very discerning moving initially for summary judgment or cross moving. You know, I've seen plaintiff's counsel do it, usually on falsity.

But again, if you have a great-- if you have great facts that you think you're going to get a judge to give you summary judgment on falsity, I don't see the problem in presenting that to a jury. If you can't get a jury to agree with you on that, you're not going to get scienter either. And so, you know, arguably you would be restricted in what you can put in front of a jury if you have summary judgment on a particular false statement. So I'm, like I said, not an advocate on the plaintiff's side of moving for summary judgment.

KATIE SINDERSON: I've been involved in a couple of times on the plaintiff side, and I think typically that's our position as well, is we always think that a jury should be trusted with seeing all the facts. And I think that's right. If you have particularly compelling facts enough to merit summary judgment ruling in your favor, those are probably facts you want the jury to hear in full and really fleshed out.

On the other hand, I've seen instances where the issues are very legal heavy. And if you can-- and you have a very sympathetic judge, but maybe it's a very tricky issue to present it to a jury, so if you can get the judge to actually rule in your favor on the vast majority, or even all of the case, because it's a legal issue, then I would do that. Because sometimes the jury is not necessarily your friend if it's a very complex legal issue, not necessarily a fact issue.

ROBERT STERN: So I actually have one thing to add to that, which is, on this fact pattern where you have an internal investigation and a report to the SEC and the DOJ, I frequently have seen the plaintiffs, assuming that you get discovery-- and I did not belabor the internal investigation, the discoverability of that because the first panel spent a fair bit of time on that-- but assuming the plaintiffs get discovery of the internal investigation that was conducted by Blue Sky, I could easily see a circumstance where they would move for summary judgment using those admissions to suggest Blue Sky's already conducted an internal investigation. They already have determined that x, y, and z. Those are admissions by the company.

And on those admissions, we're entitled to summary judgment. I had that exact circumstance in the Fannie Mae litigation, where Fannie Mae did a huge internal investigation. Over our recommendation, they published the results on their website.

And the plaintiffs used it to move for summary judgment. Ultimately, we actually-- to Linton's point-- we were able to defeat summary judgment saying, you know, there's still a whole other factual record out there beyond the internal investigation. But I think on this fact pattern in this hypothetical, you might see a sort of circumstance, maybe not, where they'd move for summary judgment.

JONATHAN GARDNER: I think you'd have to take a look. And, I mean, it depends obviously on what's in the internal investigation and what the conclusions. I think my reading of the fact pattern is that they ultimately concluded there was no intentional misconduct.

But if there are-- if there are contrary findings in a different particular case, you know, that's obviously something you'd want to take a look at. I think-- again, I think it's unlikely you're going to actually get summary judgment in those circumstances. I had a case in front of Judge Rakoff once where the defendant had pled guilty to a crime and had allocuted to specific facts, and I couldn't get summary judgment in that circumstance.

ROBERT STERN: Well, that's Judge Rakoff.

JONATHAN GARDNER: So I don't have a record--

ROBERT STERN: Set that aside.

JONATHAN GARDNER: --in moving for summary judgment. But I do think the one thing you would accomplish in moving for summary judgment is to put a tremendous amount of pressure on the defendants from a leverage settlement perspective. So I think there is an alternative purpose in doing it to drive the defendants to the table in a circumstance where you have a lot of leverage over them. So that's another consideration, even if you don't think you're going to actually prevail at the end of the day on that motion.

LYLE ROBERTS: Great. Any more comments on summary judgment? Questions from the audience about anything that we've heard from the panel today? We have just a couple of minutes before lunch. I don't want to hold you up from your lunch.

But if you had a question, I'm happy to seek it. All right. Well, with that, we'll break a couple minutes early to go to our lunch break. Back at 1:30 for our Let's See If We Can Actually Settle This Case.

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