United States District Court, S.D. New York
IN RE MILLENNIAL MEDIA, INC. SECURITIES LITIGATION
OPINION & ORDER
PAUL A. ENGELMAYER, District Judge.
Plaintiffs in this putative securities class action have filed a notice of voluntary dismissal without prejudice, which defendants do not oppose. The Court accordingly so dismisses this case. This Opinion and Order addresses two collateral matters.
First, the Court considers the parties' applications to permit redactions of their filings to the extent that they would tend to reveal the identities of persons described in plaintiffs' First Amended Complaint ("FAC") as "Confidential Witnesses" ("CWs"). The Court approves these redactions so as to protect the confidentiality interests of these persons.
Second, the Court discusses a practice by plaintiffs' counsel, the revelation of which appears to have led plaintiffs to voluntarily dismiss this lawsuit: attributing statements in a Complaint to persons identified there as CWs, without ever (1) confirming with the CW the accuracy of the statements attributed to him or her, or (2) notifying the CW that counsel intended to quote him or her as such. The FAC here quoted 11 persons as CWs. Plaintiffs' counsel had never spoken to 10 of the 11 - the CWs had been interviewed by an investigator. After being alerted that they had been quoted in a Complaint, four CWs asked that all references to them be dropped. And four CWs reported material inaccuracies in statements the FAC had attributed to them.
These circumstances raise serious questions: Did plaintiffs' counsel take proper care to verify the statements attributed to the CWs before the FAC was filed? And were the CWs fairly treated when, without notice, they were designated as CWs in a Complaint, thereby creating a risk that their names would be revealed later in this litigation? As addressed below, this case underscores why it is a best practice - if not an ethical imperative - for counsel, before designating a person as a CW in a Complaint, to notify that person of counsel's intent to do so and to verify the statements that counsel propose to attribute to him or her.
In fall 2014, two putative class actions were filed, under the federal securities laws, on behalf of all purchasers of Millennial Media, Inc. ("MM") securities between March 28, 2012 and May 7, 2014. On February 10, 2015, the Court consolidated these actions and appointed co-lead plaintiffs and counsel. Dkt. 51.
On March 21, 2015, plaintiff's filed the FAC. See Dkt. 61. The FAC alleged that MM, a digital advertising company that provides services to developers and advertisers, and the individual defendants (various directors, officers, and executives) had made false and misleading statements about MM's technological capabilities and outlook, and that, between March 2012 and August 2014, these uncorrected statements artificially inflated MM's stock price. Id. The FAC attributed information to and/or directly quoted 11 persons whom it identified as CWs. Id.
On April 13, 2015, four days before the due date of defendants' anticipated motion to dismiss, plaintiffs filed a letter with the Court. Dkt. 64. Plaintiffs sought leave to file a "Supplemental Amended Complaint, " which would remove all references to "Confidential Witness 4" ("CW-4"). Id. Plaintiffs explained that, after the FAC had been filed, CW-4 had informed plaintiffs that he did not wish to be quoted in a Complaint. Id. Plaintiffs did not disclose whether CW-4 had ever agreed to be quoted in a Complaint, if so under what circumstances CW-4 had done so, or whether before filing the FAC plaintiffs had notified CW-4 that they intended to quote him. Nor, at that time, did plaintiffs reveal whether CW-4 disclaimed any statement the FAC had attributed to him. In their letter, plaintiff's also argued that the due date for defendants' motion to dismiss should not be changed. Id. The same day, defendants moved for additional time to answer or move to dismiss, on the grounds that the "Supplemental Amended Complaint" would qualify as an amended complaint, justifying, under Federal Rule of Civil Procedure 15(a), an extension of time to respond. Dkt. 65.
On April 14, 2015, the Court granted plaintiffs leave to file a newly amended complaint, while extending, by two weeks, the deadline by which defendants were to answer or move to dismiss. Dkt. 66. In its order, the Court expressed concern "about the circumstances related to the inclusion, perhaps without the witness's knowledge or consent, of references in the [FAC], to Confidential Witness 4." Id.
The Court added:
To assure that no impropriety has occurred, and if one has occurred, to enable the Court to determine the appropriate response, the Court directs that, by Friday, April 17, 2015, the following two documents be submitted to the Court by plaintiffs' counsel: (1) a sworn affidavit from a personally knowledgeable attorney explaining, with specificity and attaching all relevant correspondence and/or other relevant documentation, the circumstances under which references to Confidential Witness 4 came to be in the [FAC] and all communications - before and after its filing - with the witness relating to this subject; and (2) a sworn affidavit from Confidential Witness 4 recounting, with specificity, his version of these events. For avoidance of doubt, these submissions may be filed, in the first instance, ex parte. After reviewing the submissions, the Court will determine whether it is appropriate for these materials to be disclosed to the defense, and if so, whether redactions (apart from references tending to identify Confidential Witness 4) are to be made.
The following day, plaintiffs filed a newly amended complaint, the Second Amended Complaint ("SAC"), which excised all references to CW-4. Dkt. 67.
On April 17, 2015, both sides submitted to the Court a series of documents - by email, ex parte - in response to the April 14 order.
Plaintiffs submitted four affidavits: one from CW-4, and three from personnel affiliated with one of plaintiffs' law firms, Labaton Sucharow, LLP ("Labaton") - a partner, a former investigator, and the current director of investigations. See Dkt. 71-1. Plaintiffs' affidavits were accompanied by exhibits. These included an investigator's report and memorandum, and strongly worded emails that CW-4 had sent to a Labaton investigator on March 25, March 28, and April 2, 2015, after learning that he had been quoted as a CW. Id. These materials - described more fully below - revealed that CW-4 had been interviewed one time, telephonically, by a Labaton investigator; that CW-4 not been told, in advance, that he would be quoted in a Complaint; and that CW-4 had learned that the FAC had quoted him, as a CW, only after the FAC had been publicly filed and plaintiffs' counsel had sent him a copy. Id. They also revealed that CW-4 disputed the accuracy of various statements that the FAC attributed to him, and had told plaintiffs' counsel this in no uncertain terms. Id.
For their part, defendants submitted, unsolicited, materials reflecting their investigation into the CWs cited in the FAC. See Dkt. 72, 74, 75. These included declarations of attorneys recounting conversations with three persons whom defendants believed to correspond to CWs (CWs 5, 8, and 11) quoted in the FAC. Dkt. 72, 74. These witnesses each stated that they objected to being quoted, even pseudonymously, in the Complaint. Dkt. 72, 74. Like CW-4, these three witnesses also disputed the accuracy of statements attributed to them. Dkt. 72, 74.
On April 21, 2015, the Court issued an order summarizing these filings. Dkt. 68. The Court stated that the parties' April 17 submissions raised concerns relating to the treatment by plaintiffs' counsel of persons identified as CWs:
(1) To what extent does the FAC (and now the SAC) inaccurately attribute statements to such confidential witnesses?; (2) to what extent were the 11 persons identified in the FAC as confidential witnesses notified beforehand that they might be quoted as such in the complaint as publicly filed, and were these persons notified that being quoted as a confidential witness created a risk that their identities would be ordered disclosed, including during discovery, see, e.g., Plumbers and Pipefitters Local Union No. 630 Pension Annuity Trust Fund v. Arbitron, Inc., 278 F.R.D. 335 (S.D.N.Y. 2011)?; and (3) to what extent do other persons identified as confidential witnesses, like CW-4, now ask to have the attributions to them removed?
Id. The Court directed:
To obtain answers to these questions, and to determine appropriate next steps, the Court directs plaintiffs' counsel, by Tuesday, May 5, 2015, to submit to the Court the following two materials as to each of the remaining 10 confidential witnesses ( i.e., those other than CW-4): (1) a sworn affidavit from a personally knowledgeable attorney explaining (a) the circumstances under which references to that confidential witness came to be in the FAC (now the SAC), (b) how the witness came to be identified as a "confidential witness" ( i.e., as opposed to being referred to by name), (c) whether the witness was informed in advance that he or she would be quoted in the complaint, and that a reference in the complaint to a "confidential witness" created a risk that the witness's identity would be ordered disclosed, see Arbitron, and whether the witness consented to being so quoted in the complaint; and (d) whether the witness, having reviewed the FAC (or SAC), confirms that the statements attributed to him or her were accurately attributed; and (2) a sworn affidavit from each confidential witness setting out, with specificity, his or her version of these events.
Id. (emphasis omitted). The Court directed that these submissions be filed, in the first instance, ex parte, and, on May 8, 2015, publicly. Id. The Court authorized counsel to redact the publicly filed versions of these documents to protect witness identities and to protect counsel's work product. Id.
On May 5, 2015, plaintiffs filed, ex parte, materials in response to the Court's order, including two affidavits from counsel and affidavits from multiple CWs. See Dkt. 71-2. In summary, these materials revealed the following:
1. Before filing the FAC, plaintiffs' counsel had never spoken to 10 of the 11 persons identified as CWs. Each instead had been telephonically interviewed by an investigator employed by Labaton (10 CWs) or its co-counsel Cera LLP ("Cera") (one CW). The eleventh CW, CW-5, had been telephonically interviewed first by ...