powerful enforcement tool in this and future cases. It would lose the ability to leverage the private resources of the Defendants to serve the public's interest in effective enforcement of the antitrust laws.
Intervenors attempt to distinguish LTV. They claim first that the LTV decision rendered non-discoverable only the Special Officer's reports, not "raw evidence," such as the tapes at issue in this case. However, the LTV court prohibited discovery of "all documents, interview transcripts, notes, and reports generated by the Special Officer, or prepared by defendants solely for the use of the Special Officer." 89 F.R.D. 595 at 622 (emphasis in original). Similarly, only those tapes generated solely as a result of the Consent Decree will be protected by the provisions of the Consent Decree. Any taping beyond the requirements of the Decree will not be subject to protection.
Intervenors also contend that the Special Officer in LTV was involved in an ongoing SEC "investigation," thus invoking more squarely the traditional law enforcement investigatory privilege than the situation here, where the "investigation" has been brought to a close by the Consent Decree. However, the proposed Decree requires the Defendants to be engaged in continuing self-examination and investigation of their trading practices. As a result of the mechanisms provided by the Decree, the Antitrust Division has the ability to investigate Defendants' compliance and to audit their required self-examination. Under the Decree, the Defendants must tape-record and monitor their traders' conversations to ensure that the Court-ordered-requirement that they not engage in any prohibited conduct under pain of contempt is obeyed. The Decree also requires the Defendants to collect the evidence to make possible their prosecution in the event of any failure to comply with this mandate. While there may be a metaphysical distinction between the "investigation" in LTV and the ongoing monitoring and enforcement envisioned by the Consent Decree, that distinction does not preclude an invocation of the principles behind the investigatory privilege as a justification for the non-disclosure provisions of the Consent Decree.
Finally, Intervenors contend that it is inappropriate to extend a blanket "privilege" under the authority of a consent decree because assertions of privilege, particularly the limited privileges recognized in LTV and similar cases, must be assessed in a concrete factual context, where a court can balance the need of the party seeking discovery against the justifications for protecting the materials sought. However, although the law of privileges provides a basis for evaluating the permissibility of the proposed non-disclosure provisions of the Decree, the Consent Decree itself does not create a "privilege" over existing materials in a concrete discovery dispute. Rather, it makes non-disclosure a condition for the creation of the tapes. Although the Court cannot decide whether the tapes would be privileged in the absence of the Decree, it can approve a bargain in which the parties agree that the potential evidence will only be created on specific disclosure conditions.
Accordingly, it is concluded that the non-disclosure provision of the Decree is legally permissible. However, although Paragraph IV.C may be permissible, it is still possible that the Decree with the non-disclosure provision is not "within the reaches of the public interest."
In determining whether a proposed decree is in the public interest, the court is to consider both "the impact of such judgment upon the public generally and individuals alleging specific injury from the violations." The Intervenors contend that the non-disclosure provision will have a negative impact on the public generally, and that it will certainly have a negative impact on the class of individuals claiming that they were injured by the Defendants' anticompetitive conduct.
Intervenors contend that the non-disclosure provisions of the Decree will thwart effective enforcement of the antitrust laws by permitting Defendants to elude the sanction of private treble damage actions. The antitrust laws provide for complementary public and private enforcement, including recovery of damages available only through private enforcement. See Legislative History of Hart-Scott-Rodino Antitrust Improvement Act, H.Rep. No. 94-499, 94th Cong., 1st Sess. 19-20 1975); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 635, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985) (the "treble damages provision wielded by the private litigant is a chief tool in the antitrust enforcement scheme, posing a crucial deterrent to potential violators"). Because the Government lacks statutory authority in civil proceedings to seek damages on behalf of individuals injured by antitrust violations, see 15 U.S.C. § 4, Intervenors contend that the non-disclosure provision will attenuate the congressional enforcement scheme by depriving private plaintiffs of high quality evidence for treble damages actions, thus effectively allowing Defendants to evade having to disgorge illegal profits from future antitrust violations. Intervenors contend that such a result would be harmful to the public in general because of the diminished deterrent effect on potential violators who may escape effective prosecution of treble damage actions. They also contend that it would be harmful to "individuals alleging specific injury," such as the class of plaintiffs in the Multidistrict Action, since they would be deprived of valuable evidence for their cases.
However, as noted above, were the Court to refuse to enter the proposed Consent Decree with the limitations on access to and use of the tapes, the Intervenors and other potential private plaintiffs might well gain nothing, since the Defendants would not voluntarily create the tapes that could arguably provide support for a private action. The Intervenors contend that equivalent relief could be obtained if the Government were to proceed to trial.
However, even assuming the Government were able to prevail in a trial on the merits in the event the Consent Decree was not approved in its present form, such a detailed and pervasive plan for taping would not necessarily be a likely, or even permissible, remedy. While the courts have "authority to use quite drastic measures to achieve freedom from the influence of the unlawful restraint of trade," United States v. Bausch & Lomb Optical Co., 321 U.S. 707, 726, 88 L. Ed. 1024, 64 S. Ct. 805 (1944), the parties have identified no antitrust cases in which a court has ordered, either after trial or through a consent decree, a similarly burdensome and intrusive monitoring regime upon private defendants. In order to obtain such relief, the Government would have to show that it was necessary to prevent future violations of the antitrust laws, see Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 130, 23 L. Ed. 2d 129, 89 S. Ct. 1562 (1969), and that such relief is no more intrusive than necessary. See Califano v. Yamasaki, 442 U.S. 682, 702, 61 L. Ed. 2d 176, 99 S. Ct. 2545 (1979).
On the other hand, if the Consent Decree is entered intact, tapes will be made available to the Antitrust Division, the SEC, the NASD and any other self-regulatory body established by the securities laws. The tapes may thus be discovered and used by government agencies to enforce the Decree, as well as to punish violations of the antitrust and securities laws in either civil or criminal actions. Moreover if portions of the tapes are used in any public proceeding brought by the Government or a self-regulatory agency, potential civil litigants may be able to obtain such evidence from the public record for use in private actions. Cf. United States v. Amodeo, 44 F.3d 141, 146 (2d Cir. 1995) (noting presumption favoring public access to documents in judicial proceedings).
Notwithstanding, the non-disclosure provisions remain somewhat troubling. The Defendants, some of whom taped trader conversations for business purposes prior to this investigation, will be able to return to such taping, thus obtaining whatever business advantage such taping conferred without incurring the risk that the tapes will be used against them in private litigation. The possibility that the Government will discover direct evidence of violations of the Decree or of the law in the tapes, and that this evidence will be denied to private plaintiffs seeking relief from such violations, is also disturbing.
In essence, however, the question is whether extremely effective Government enforcement and monitoring is worth the price of withholding information, which otherwise probably would not exist, from potential private plaintiffs in the future. If the Decree is rejected, the Government and the public would likely lose the benefits of an extraordinarily powerful prophylactic and investigatory tool, and the potential plaintiffs still would be left to make their cases without the benefit of tape recordings. At bottom, then, the choices are: (1) Government enforcement using tape recorded evidence plus private enforcement without tapes; or (2) Government and private enforcement without tapes. Assuming the Government is vigilant in its role, the first choice provides stronger enforcement than the second, and thus the public interest balance tips in favor of approving the Consent Decree.
Accordingly, the non-disclosure provisions of Paragraph IV(C)(6) do not undermine sufficiently the public benefit to be derived from the decree such that the proposed Order can be said to be outside the reaches of the public interest.
II. Other Objections to the Consent Decree
Professor Junius Peake, a professor of finance at the University of Northern Colorado, submitted comments indicating that he believed that the terms of the Decree were inadequate to deter retributive conduct by traders, and that the Nasdaq Stock Market, Inc. should be required to display market-maker quotes anonymously, so that market-makers breaking any quoting convention could not be identified by those wishing to retaliate. However, Professor Peake's proposed relief may not be obtained in this action because the Nasdaq Stock Market is not a defendant in the case and is not accused of any wrongful conduct. The complaint charges individual private firms, not Nasdaq, of conspiring to inflate prices.
William Leighton, who has bought and sold stock on the Nasdaq market, has made numerous objections to the settlement. His principal concern is that the relief does not include the payment of damages to aggrieved individuals. However, the proposed Decree does not prevent Mr. Leighton from pursuing a treble damages action under Section 4 of the Clayton Act, 15 U.S.C. § 15. Mr. Leighton also contends that there is no "case or controversy" between the Government and the Defendants because a proposed settlement was filed on the same day as the complaint. However, a case or controversy exists because the United States and the Defendants have adverse interests. See Muskrat v. United States, 219 U.S. 346, 361, 55 L. Ed. 246, 31 S. Ct. 250 (1911). The fact that the United States and the Defendants have reached a settlement that would resolve the controversy currently existing between them does not mean that there is no justiciable controversy. See, e.g., Havens Realty Corp. v. Coleman, 455 U.S. 363, 371 n.10, 71 L. Ed. 2d 214, 102 S. Ct. 1114 (1982).
Mr. Leighton also suggests that the proper parties are not before the Court. He contends that the United States is not a proper plaintiff because it is private parties, not the Government, who are injured by the conduct alleged in the complaint. However, the United States is a proper party to bring an injunctive action under Section 1 of the Sherman Act on behalf of the public. 15 U.S.C. § 4. Mr. Leighton also argues that Nasdaq and the NASD are indispensable parties pursuant to Fed. R. Civ. P. 19 because in their absence, complete relief cannot be accorded among the existing parties. However, complete relief between the existing parties can be achieved without joining Nasdaq and the NASD.
Finally, Mr. Leighton contends that the entry of the Decree will result in positive injury to third parties because a "Compilation of Evidence" is not filed as part this action, and is thus inaccessible to private plaintiffs. This contention was addressed and rejected in the prior opinion of this Court.
Joel Steinberg also submitted comments, objecting primarily, as did Mr. Leighton, that none of the injured parties will be monetarily compensated through this action. As stated above, the settlement in this Government action for injunctive relief will not adversely affect injured parties from bringing damage suits to obtain compensation. Mr. Steinberg also objects that no criminal charges were brought against the Defendants. However, decisions "whether or not to prosecute, and what charge to file or bring . . . generally rests entirely in [the prosecutor's] discretion." Bordenkircher v. Hayes, 434 U.S. 357, 364, 54 L. Ed. 2d 604, 98 S. Ct. 663 (1978). Courts are even more deferential to a decision not to prosecute, such as the Government's decision not to pursue criminal sanctions here. See Heckler v. Chaney, 470 U.S. 821, 831, 84 L. Ed. 2d 714, 105 S. Ct. 1649 (1985) ("An agency's decision not to prosecute or enforce, whether through civil or criminal process, is a decision generally committed to an agency's absolute discretion").
In sum, the proposed Consent Decree is within the reaches of the public interest. See Microsoft, 56 F.3d at 1458. It is designed to terminate the anti-competitive acts alleged in the complaint and provides a potent enforcement mechanism to effectuate that design. The ten-year duration of the Decree is adequate to ensure that the Nasdaq market is purged of anti-competitive activity. Although this Court may have preferred other remedies, the record reflects that the Government made a reasonable choice among the alternative remedies actually considered. The proposed Decree will have a positive impact on the public generally by deterring and permitting detection and punishment of future antitrust and securities violations on the Nasdaq market. Although it is possible that a trial on the merits or an alternative decree would provide greater benefits to private individuals alleging injury from the alleged violations, the uncertainties and expense of trial and the deference owed to the Government's litigation strategy counsel against disturbing the bargain achieved by the parties.
For the reasons set forth above, the Stipulation and Order is hereby entered.
It is so ordered.
New York, N. Y.
April 22, 1997
ROBERT W. SWEET