INSIDE THIS ISSUE
• Da Silva Moore v. Publicis Groupe & MSL
Group: A Game-Changer For Discovery In Litigation?
• Second Circuit Refines Antitrust Pleadings Standards Under Twombly
• Scott+Scott Win For Investors Of Mortgage-Backed Securities
• SEC Commissioner Cautions Investors After Passage of JOBS Act
• Conferences and Educational Seminars
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 drscott@scott-scott.com.
Conferences
and Educational Seminars
+May 4, 2012
Connecticut Public Pension Forum (CPPF) Spring Forum
Water’s Edge Inn and Resort
Westbrook, CT
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
Washington, DC
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
Denver, CO
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
Chicago, IL
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
Nashville, TN
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
Missouri GFOA
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
Florida GFOA
Marriott World Center
Orlando, FL
+May 7, 2012
South Carolina GFOA
Columbia Metropolitan
Convention Center
Columbia, SC
+May 10-11, 2012
Great Plains GFOA
University of Nebraska at
Omaha School of Public Administration
Omaha, NE
+May 23-25, 2012
Virginia GFOA
Hilton Virginia Beach
Oceanfront Hotel
Virginia Beach, VA
+May 29-June 1, 2012
Alberta GFOA
Deerfoot Inn & Casino
Calgary, AB
+May 30-June 1, 2012
British Columbia GFOA
Delta Grand Okanagan
Kelowna, BC
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
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