INSIDE THIS ISSUE
Da Silva Moore v. Publicis Groupe & MSL Group: A Game-Changer For Discovery In Litigation?
With the increase in the use of technology in the workplace, there has been a resulting and exponential rise in costs associated with managing and maintaining electronic information. More companies are utilizing alternative means of communication (such as social media sites, twitter, and instant messaging), along with additional tools to communicate (such as iPads and smartphones), thereby increasing the quantity of information that is captured and maintained by an organization.
The amount of discoverable information today dwarfs what would have once been maintained by an organization a decade ago. Tiny flash drives used today can store up to 64 gigabytes of information as compared with an IBM laptop from 2002 that contained 20 gigabytes of storage. Unfortunately, despite the tremendous advances we have witnessed in methods of electronic communication, courts and litigants have been unable to keep up with the advances of technology and the increase in the volume and costs associated with identifying and producing discoverable information.
On February 24, 2012, the Honorable Andrew Peck, U.S. Magistrate Judge for the Southern District of New York, issued a 26-page opinion and order in Da Silva Moore v. Publicis Groupe & MSL Group, No. 11-cv-01279 (S.D.N.Y.), which some lawyers and electronic discovery experts have called “ground breaking” and a “game changer” in addressing how new technologies have changed how organizations collect and produce discoverable information in litigation. In particular, the court’s opinion concerned the use of computer-assisted or “predictive” coding in connection with the collection and production of information. The plaintiffs in the action, who alleged violations of the Equal Pay Act and the Fair Labor Standards Act, objected to the court’s adoption of the defendants’ use of predictive coding to determine which electronic documents would be “relevant” and, thus, produced in the action.
Importantly, the court did not require that the parties use predictive coding; rather, the parties initially agreed to use predictive coding in its case management order, which the court attached as an exhibit to its decision. Rather, the issue in the decision involved a dispute over whether the review, culling, and production of approximately three million electronic documents was appropriate. The plaintiffs argued that the vendor’s predictive coding software and the method the defendants proposed to “educate” the software would not yield the appropriate relevant information for the case. The defendants argued that the volume of information was too large to use traditional methods such as manual page-by-page document review to cull and identify relevant information. Additionally, the defendants argued that traditional methods were no better, and in most cases, worse at identifying relevant information; therefore, predictive coding would result in a more fulsome production of relevant information.
Judge Peck’s ruling—presently on review before United States District Judge Andrew Carter—was in favor of the defendants’ use of predictive coding. In his decision, the judge set forth guidelines based on his understanding of how predictive coding should be employed. Specifically, the court provided a definition of predictive coding or computer-assisted coding as “tools … that use sophisticated algorithms to enable the computer to determine relevance, based on interaction with (i.e., training by) a human reviewer.” Feb. 24, 2012 Op. and Order at 3.
Transparency and cooperation were two key elements that Judge Peck noted as being dispositive in reaching his decision that predictive coding in the case was appropriate and was not simply made using a vendor’s black box. Judge Peck also noted that creation of the information to be used in connection with the predictive coding software involved accumulating a “seed set” of documents from search terms, other documents, and the parties’ input. Judge Peck advised that the parties would have to cooperate to develop a transparent process, jointly select search terms to aid the software, share the coding of the initial documents that would allow the program to make its relevance determinations, and review the test results of documents deemed not relevant to determine if the software’s determinations were accurate.
Judge Peck is considered already well-versed in electronic discovery issues, having previously written on predictive coding in legal technical articles. Moreover, the judge had stated in prior written opinions that he would consider its use in the appropriate case because, as he noted, statistical surveys had found that manual review was no better in identifying and producing responsive information. In the present case, however, the court noted the lack of judicial authorities who have endorsed or condoned a party’s use of predictive coding:
To my knowledge, no reported case (federal or state) has ruled on the use of computer-assisted coding. While anecdotally it appears that some lawyers are using predictive coding technology, it also appears that many lawyers (and their clients) are waiting for a judicial decision approving of computer-assisted review.
This judicial opinion now recognizes that computer-assisted review is an acceptable way to search for relevant [electronic stored information (“ESI”)] in appropriate cases.” Id. at 1-2.
Judge Peck further described in his opinion that “[w]hen the system’s predictions and the reviewer’s coding sufficiently coincide, the system has learned enough to make confident predictions for the remaining documents.” Id. at 4. The court specifically noted that computer-assisted review “works better than most alternatives . . . if not all of the [present] alternatives. So the idea is not to make this perfect, it’s not going to be perfect, the idea is to make it significantly better than the alternatives without nearly as much cost.” Id. at 11. Notably, the court emphasized that the technology for computer-assisted or predictive coding exists and should be used where appropriate, but “it is not a case of machine replacing humans,” rather “it is the process used and the interaction of man and machine that the court needs to examine.” Id. at 17.
In his conclusion, Judge Peck again noted that his opinion appeared to be the first in the nation to address the use of predictive coding:
Counsel no longer have to worry about being the “first” or “guinea pig” for judicial acceptance of computer-assisted review. As with keywords or any other technological solution to ediscovery, counsel must design an appropriate process, including use of available technology, with appropriate quality control testing, to review and produce relevant ESI while adhering to Rule 1 and Rule 26(b)(2)(C) proportionality. Computer-assisted review now can be considered judicially-approved for use in appropriate cases.
Id. at 25-26.
It is yet to be determined whether predictive coding and other related forms of computer-assisted document review will replace manual review or the use of a set of search terms to identify and locate documents. It appears that as technology advances, courts and litigants may be able to obtain resulting benefits from the use of technology to address the increasing burden and cost associated with electronic information. This court has attempted to clear a pathway to move parties and other courts away from the past practices of which may no longer be accepted in today’s environment.
Whether other courts and organizations follow Judge Peck’s path remains to be seen and will likely depend on the facts and circumstances of each case and the judge who hears it. What is certain is that going forward, all parties must be keenly aware and understanding of how technologies such as predictive coding will impact decisions concerning information management and litigation strategies.
Second Circuit Refines Antitrust Pleadings Standards Under Twombly
The Second Circuit Court of Appeals recently overturned a district court’s decision to dismiss an antitrust complaint alleging an anticompetitive boycott of two magazine wholesalers when they attempted to introduce a surcharge for their services. The complaint was brought on behalf of Anderson News, one of the wholesalers and sought damages for violations of Section 1 of the Sherman Act. Anderson News alleged that Defendants—including five national magazine publishers, five distribution representatives, and one major magazine wholesaler (a competitor of the plaintiff)—had conspired among themselves to boycott Anderson News and its competitor by ceasing magazine shipments to them. Defendants brought a motion to dismiss the complaint under Federal Rule of Civil Procedure Rule 12(b)(6). The United States District Court for the Southern District of New York granted the defendants’ motion and the plaintiff appealed.
In its decision captioned Anderson News, L.L.C. v. American Media, Inc., No. 10-4591-cv, the Second Circuit found that the district court had misapplied the pleadings standards of Rule 12(b)(6) as they were established by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Under this standard, a complaint must “plausibly” allege an antitrust conspiracy, pleading facts that would “be sufficient to permit a reasonable inference that the defendant has engaged in culpable conduct.” Anderson News, 2012 WL 1085948, at *16 (2d Cir. Apr. 3, 2012). The district court, however, had dismissed the plaintiff’s allegations of a conspiracy to boycott their business on the basis that an alternative, more plausible, version of events existed. That is, it was equally or more plausible that the defendants had ceased shipping magazines to the plaintiff for their own individual reasons, independent of any conspiracy or agreement among one another to do so.
The Second Circuit overturned the district court’s decision, holding that this was the incorrect standard for the lower court to apply. The court held that any given set of actions can be subject to multiple interpretations. As long as the version of events plaintiffs alleged was plausible, it was sufficient to state a claim under Rule 12(b)(6). Thus, the fact that the defendants may have had unilateral incentives for ceasing shipments to the plaintiff was an improper basis for holding that the plaintiff had not plausibly alleged a conspiracy in its complaint. The Court of Appeals determined that the question for the court at the pleading stage is not whether there is a plausible alternative to the plaintiff’s theory, but “whether there are sufficient factual allegations to make the complaint’s claim plausible.” Id. at *24. Furthermore, the court iterated that factual determinations were inappropriate for a motion on the pleadings; it was not “the province of the court to dismiss the complaint on the basis of the court’s choice among plausible alternatives. . . . [T]he choice between or among plausible interpretations of the evidence will be a task for the fact finder.” Id.
Scott+Scott Win For Investors Of Mortgage-Backed Securities
Scott+Scott had a major victory in early April on behalf of its clients, four public pension funds, and all investors suffering losses in mortgage-backed securities (“MBS”). In a case concerning the proposed $8.5 billion settlement against Bank of America for losses related to Countrywide MBS, a federal court in New York upheld a complaint brought against the Bank of New York Mellon (“BNYM”), trustee of multiple Countrywide MBS trusts, for its failure to protect investors who purchased MBS issued by the trusts. The case is entitled Retirement Board of the Policemen’s Annuity and Benefit Fund of the City of Chicago v. The Bank of New York Mellon, No. 1:11-cv-05459-WHP (S.D.N.Y.).
The judge accepted the plaintiffs’ legal theory based on the Trust Indenture Act of 1939 (“TIA”), which Congress enacted in the wake of the Great Depression, along with the Securities Act and the Securities Exchange Act. Provisions of TIA ensure that there is at least one independent party, the trustee, that will effectively protect investors in debt securities. Congress passed the TIA because of the important role that debt securities play in the nation’s economy and because it is very difficult for investors in debt securities to advocate for themselves without aid from a centralized trustee.
Scott+Scott successfully argued that BNYM failed to notify investors that low quality, or defective, mortgages were placed in the pools backing the MBS and also had failed to take corrective measures to remove those mortgages from the pools. Notably, BNYM failed to take those steps, despite (1) possessing information indicating that the MBS trusts held significant amounts of defective mortgages and (2) the fact that Countrywide was obligated to repurchase them. Due to BNYM’s failures, the defective mortgages remained in the trusts and the value of the MBS declined. But, at the same time, Countrywide reached settlements with other claimants related to the poor quality of the mortgages it sold, thereby considerably depleting Countrywide’s ability to address the MBS investors’ losses and to repurchase the defective mortgages from the trusts.
This decision is a significant breakthrough, as the unrecovered losses MBS investors had suffered seemed likely to be written off. It is important for retirement funds that widely invested in MBS during 2005 – 2007, and then lost billions of dollars, to know that the TIA has a longer statute of limitations—six years—and does not require investors to show fraud to recover. Further, unlike the legal theory used to arrive at the proposed $8.5 billion Bank of America settlement, TIA claims also allow funds that have already sold their certificates in the secondary market to recover losses.
While this decision presents a significant opportunity for all MBS investors who lost money because their certificates were backed by defective mortgage loans, it only permits suit in the event that a certificate holder comes forward to represent the interests of purchasers in a particular securitization. Scott+Scott is investigating potential claims against other MBS trustees who failed to fulfill their statutory, contractual, and fiduciary duties to protect investors.
SEC Commissioner Cautions Investors After Passage of JOBS Act
On April 5, 2012, President Obama signed the “Jumpstart Our Business Startups Act” (the “JOBS Act”) into law. The stated purpose of the JOBS Act is “[t]o increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.” Opponents of the new law believe that it relaxes regulatory oversight of the financial markets and has the potential to harm investors.
One such opponent of the new law is SEC Commissioner Luis A. Aguilar. In a March 16, 2012 statement, Commissioner Aguilar made his opposition well known when he stated that the JOBS Act “would seriously hurt investors by reducing transparency and investor protection and, in turn, make securities law enforcement more difficult.” He went on to say that:
“The bill would specifically permit general solicitation and general advertising in connection with such offerings, obliterating the distinction between public and private offerings. [. . .] I share the concerns expressed by many that this provision [. . .] would be a boon to boiler roomer operators, Ponzi schemers, bucket shops, and garden variety fraudsters, by enabling them to cast a wider net, and making securities law enforcement more difficult.”
The JOBS Act seeks to achieve its stated purpose in three main ways: (1) ease the initial public offering (IPO) process for start up companies and reduce their regulatory burden; (2) improve the ability of companies to access capital using private and small public offerings without U.S. Securities and Exchange Commission (SEC) regulation; and (3) allow private companies with relatively large groups of shareholders to delay becoming a public reporting company.
The JOBS Act carves out a legal definition for “emerging growth companies” as being issues of securities that have total annual gross revenues of less than $1 billion. These companies continue as emerging growth companies until either: (1) the last day of the fiscal year during which it had total annual gross revenues of $1 billion or more; (2) the last day of the fiscal year following the fifth anniversary of its IPO; (3) the date on which it has issued more than $1 billion in debt; or (4) the date on which it is deemed to be a “large accelerated filer” under SEC definitions.
Companies that fit the emerging growth company definitions are now permitted to omit selected financial data for any periods preceding the earliest audited financial states included in its initial registration statement. Emerging growth companies can also conduct meetings with institutional accredited investors and qualified institutional buyers to gauge interest in an IPO without being subject to existing pre-offering communication restrictions.
Although any potential relaxation of the regulatory oversight of the financial markets has the ability to harm unsuspecting investors, this harm can be reduced or prevented through the use of a portfolio tracking service. Scott+Scott’s portfolio tracking service provides clients with electronic monitoring tools which alert investors when events occur pertaining to corporate fraud that may require action. For more information, please contact David Scott at (800) 404-7770 or email@example.com.
Conferences and Educational Seminars
+May 4, 2012
Connecticut Public Pension Forum (CPPF) Spring Forum
Water’s Edge Inn and Resort
The CPPF provides continuing education and seminars to municipal employees and public pension fund trustees. The seminars create a forum for discussion on national and state issues of interest to the public retirement systems.
+May 4-8, 2012
American Alliance Conference, Ltd. and Educational Conference of Benefit Plans Annual Program
Paradisus, Palma Real Resort
Punta Cana, Dom. Rep.
American Alliance and Educational Conference have joined forces to offer this program as part of a commitment to providing practical and cost-effective programs for representatives of unions and employee benefits funds. Faculty will include practicing labor, ERISA and criminal attorneys, investment professionals, and benefit fund specialists. Each speaker is a recognized expert in the topics which will be presented.
+May 5-10, 2012
National Conference on Public Employee Retirement Systems (NCPERS) Annual Conference
Hilton New York
New York, NY
Founded in 1941, NCPERS is the largest trade association for public sector pension funds, representing more than 550 funds throughout the United States and Canada. NCPERS works to promote and protect pensions by focusing on advocacy, research, and education for the benefit of public pension shareholders. More than 1,000 trustees, administrators, state and local officials, investment, financial and union officers from across the nation attend this annual conference.
+May 7-8, 2012
International Foundation of Employee Benefit Plans (IFEBP) Washington Legislative Update
The Capital Hilton
The 2012 presidential election could have a profound impact on the benefits industry. The Washington Legislative Update is designed to keep trustees abreast of the latest legislative and regulatory changes. Learn from Washington insiders on how the events in Washington will impact your plans.
+May 8-11, 2012
State Association of County Retirement Systems (SACRS) Spring Conference
The Resort at Squaw Creek
Lake Tahoe, CA
An association of 20 California county retirement systems have made education and legislation their principles of focus, particularly education in the investment and fiduciary arenas. SACRS conferences provide its members with speakers from various financial, legal, and administrative fields, and include practical training for administrators and trustees.
+May 20-22, 2012
Michigan Association of Public Employee Retirement Systems (MAPERS) Spring Conference
Soaring Eagle Resort
Mt. Pleasant, MI
MAPERS was established to provide educational training and legislative updates to trustees of public employee retirement systems within the State of Michigan. The legislative updates are issued by a fulltime professional lobbyist, hired through Capitol Services, Inc. Trustees, administrators, and staff representing more than Michigan public pension plans as well as state officials, investment, financial, and legal consultants attend the annual spring and fall conferences.
+May 23-25, 2012
Police Officers Association of Michigan (POAM) Annual Convention
Amway Grand Hotel
Grand Rapids, MI
This year’s conference is expected to have several hundred members in attendance with most holding leadership positions on their executive boards. It is promising a great opportunity for building relationships within the Michigan police community.
+May 28-30, 2012
Service Employees International Union (SEIU) 25th International Convention
Colorado Convention Center
SEIU is the fastest growing union in North America. In its 90 year history the SEIU now represents more than 2.1 million members. It focuses on uniting workers in the healthcare, property service, and public service sectors to improve their lives and the services they provide.
+May 30-31, 2012
Information Management Network (IMN) Presents the 7th Annual Illinois PERS Summit
Renaissance Blackstone Chicago Hotel
The Illinois Public Employee Retirement Systems Summit brings together leading pension trustees, board chairs, executive directors, investment officers, investment consultants, and money managers from the State of Illinois and across the country. The conference features in-depth educational content and extensive networking opportunities, and provides attendees with a comprehensive overview of the Illinois public pension fund landscape with in-depth, interactive discussions on pension reform.
+May 20-23, 2012
Southern Conference on Teacher Retirement (SCTR) 68th Annual Conference
Hilton Downtown Nashville
Since the organization’s inception in 1944, SCTR has a long history of providing excellence in education for teacher retirement systems across the southern states. This year’s focus is on direction and change during the current transition period for public pension plans. All are encouraged to attend as now is the real opportunity to shape the way pension plans will operate for many decades into the future.
Government Finance Officers Association Conferences
+May 2-4, 2012
Country Club Hotel & Spa
Lake Ozark, MO
+May 3-4, 2012
New Hampshire GFOA
The Red Jacket Mountain View Resort
North Conway, NH
+May 5-9, 2012, 2012
Marriott World Center
+May 7, 2012
South Carolina GFOA
Columbia Metropolitan Convention Center
+May 10-11, 2012
Great Plains GFOA
University of Nebraska at Omaha School of Public Administration
+May 23-25, 2012
Hilton Virginia Beach Oceanfront Hotel
Virginia Beach, VA
+May 29-June 1, 2012
Deerfoot Inn & Casino
+May 30-June 1, 2012
British Columbia GFOA
Delta Grand Okanagan
On The Record
“Americans are free, in short, to disagree with the law, but not to disobey it. For in a government of laws and not of men, no man, however prominent or powerful, and no mob, however unruly or boisterous, is entitled to defy a court of law.”
John F. Kennedy, U.S. President, born May 29, 1917
Address to the Nation, September 30, 1962
Scott + Scott LLP is a nationally recognized law firm headquartered in Connecticut with offices in New York City, Ohio and California. The firm represents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.
Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client relations is a proven method for institutional investors and their trustees to successfully
- Monitor their investment portfolios
- Identify losses arising from corporate fraud
- Consider what level of participation any given situation requires
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