N.D. Ala. Notes Split Re Test For Determining Whether Matter was Prepared in Anticipation of Litigaiton

Per Regions Financial Corp. v. U.S., Slip Copy, 2008 WL 2139008 (N.D. Ala. May 08, 2008):

Courts have wrestled with the articulation of a clear test for interpreting what constitutes “prepared in anticipation of litigation” in the context of an IRS summons. The Supreme Court has not provided a controlling standard, and a split has developed between the various courts of appeal. The Fifth Circuit has articulated the “primary motivating purpose” test. United States v. El Paso Co., 682 F.2d 530, 542 (5th Cir.1982) (“ ‘Litigation need not be imminent ... as long as the primary motivating purpose behind the creation of the document was to aid in possible future litigation’ ”) (quoting United States v. Davis, 636 F.2d 1028, 1040 (5th Cir.1981)). This test contrasts with the “because of litigation” test articulated by the Second Circuit in U.S. v. Aldman, 134 F.3d 1194 (2nd Cir.1998). The Second Circuit test affords broader protection than the “primary motivating purpose” test. Quoting from Wright & Miller, the Aldman opinion stated the test this way: “ ‘in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.’ ” Aldman, 134 F.3d at 1202 (quoting Charles Alan Wright, Arthur R. Miller, and Richard L. Marcus, 8 Federal Practice & Procedure § 2024 (1994)).

Eighth Circuit Finds SLUSA Preemption Based on Merely Coincident Nondisclosures

Per Siepel v. Bank of America, N.A., --- F.3d ----, 2008 WL 2079028 (8th Cir. May 19, 2008):

The Plaintiffs argue that the Bank's non-disclosure was not “in connection with” the purchase of the securities, such that the non-disclosure did not relate to a decision whether to purchase a security. See O'Brien v. Cont'l Ill. Nat'l Bank & Trust Co., 593 F.2d 54, 60 (7th Cir.1979). Under Dabit, however, “it is enough that the fraud alleged ‘coincide’ with a securities transaction-whether by the plaintiff or by someone else.” Dabit, 547 U.S. at 85. The Plaintiffs' complaint alleges nondisclosures that clearly coincided with the Bank's purchase of shares in the Nations Funds mutual fund. Given the identical coverage of Section 10(b) and SLUSA, it follows that the Plaintiffs' state-law claims are preempted.

Prof. Sharkey Posts Article on CAFA Settlement Notice Provision

Professor Catherine M. Sharkey (NYU) has recently posted an Article entitled CAFA Settlement Notice Provision: Optimal Regulatory Policy? on SSRN. Here is the Abstract:

Written for The University of Pennsylvania Law Review's symposium, Fairness to Whom? Perspectives on the Class Action Fairness Act of 2005, this article evaluates the largely ignored settlement notice provision. The provision mandates that notice of every class action settlement within CAFA's purview must be provided to appropriate federal and state officials. The relevant federal official is the U.S. Attorney General. As for the states, the relevant official is the one who has primary regulatory or supervisory responsibility with respect to the defendant, or who licenses or otherwise authorizes the defendant to conduct business in the State, or, by default, the AG of any state in which any class member lives.

Some legal scholars have begun to ask whether CAFA's settlement notice provision will awaken a sleeping giant. The scant existing commentary is of two minds. This perhaps reflects the juxtaposition of the lofty goal of aggressive AG monitoring against the fact that the AGs lack a precise mandate for official review, let alone any additional resources for the endeavor.

At this early juncture, it is too soon to tell whether the CAFA settlement notice provision will have a significant impact on private settlements of class actions, let alone any wider impact in motivating state AGs to police more aggressively certain types of misconduct. To the extent that the provision does have a marked effect, it will most likely be due to the increased availability of information and to the facilitation of coordinated efforts on behalf of groups of state AGs. In order to assess the overall effect, it is necessary to delve beneath the layer of formal activity to probe the informal bargaining and negotiation taking place at the behest of state AGs.

The settlement notice provision also provides a window on an even grander topic: CAFA as regulatory policy. As if through a refracting lens, the view of CAFA is transformed by the angle from which it is viewed. The Article sets forth a series of progressively unfolding dyads in order to highlight the state/federal, ex ante/ex post, and public/private dimensions of regulatory policy implicated by CAFA. This triad of matrices proves a useful framework for evaluating the design of optimal regulatory policy - a large domain of which the CAFA settlement notice provision is but one small part.

The full-text version of this Article may be downloaded by visiting http://ssrn.com/abstract=1133137.

Prof. Sebok Posts Essay on Punitive Damages Limitations on SSRN

Professor Anthony Sebok (Brooklyn) recently posted a brief essay entitled After Philip Morris v. Williams: What is Left of the 'Single-Digit' Ratio? on SSRN. Here is the Abstract:

This short essay was written for a symposium on The Future of Punitive Damages held at the Charleston School of Law in 2007. I argue that the ratio rule (that punitive damages that exceed a single digit ratio presumptively violate the Due Process Clause), introduced by the Supreme Court in Campbell, is unlikely to survive. I argue this for three reasons. First, many lower courts have found ways to conceal punitive damages awards that impose, in reality, ratios in the double-digits. Second, the refusal of the Court to reverse the plaintiffs punitive damages award in Williams under the ratio rule - given that it was 98 times the compensatory award - suggests that there are members of the Court who may not want to stand behind the rule. Third, the rule represents a mistaken critique of punitive damages.

A full-text version of the essay may be downloaded at http://ssrn.com/abstract=1131387.

Prof. Moss Posts Article on Improving Discovery

Professor Scott A. Moss of the University of Colorado Law School recently posted an Article entitled Litigation Discovery Cannot Be Optimal but Could Be Better: The Economics of Improving Discovery Timing in a Digital Age on SSRN. Here is the Abstract:

Cases are won and lost in discovery, yet discovery draws too little academic attention. Most scholarship focuses on how much discovery to allow, not how courts decide discovery disputes - which, unlike trials, occur in most cases. The growth of e-discovery - imprudent emails or lingering deleted files - makes cost issues increasingly salient, but the e-discovery rules just reiterate existing cost/benefit proportionality limits. Proportionality limits are topic of broad consensus among civil procedure scholars and economists, but this Article deems them impossible to apply effectively. Proportionality limits fail to curb discovery excess while also disallowing discovery meritorious cases need, resulting in bad cases dominating good ones. This Article acknowledges proportionality's flaws but rejects the consensus blaming bad rulemaking or judging. Rather, proportionality requires impossible comparisons: how can courts compare discovery value and cost before parties gather the evidence? Like other arguments that procedural rulings are never truly separate from case merits, this Article notes how discovery has more probative value in the closest cases - yet case merits remain uncertain in discovery, when courts cannot yet examine all the evidence. In game theory terms, parties with discovery disputes cannot convey case merit credibly; courts have too little information, so low-merit parties can claim high merit, and courts act as if all cases warrant similar discovery. In this pooling equilibrium, ruling the same on all cases in the pool, regardless of merit, is courts' best strategy but a sub-optimal one, yielding too much discovery in low-merit cases, too little in higher-merit ones. Thus, the quest for better discovery has disappointed not because of bad rules or decisions, but because courts and parties are stuck in a pooling equilibrium with information-timing circularity: optimal evidence-gathering requires merits analysis, which requires evidence-gathering.

One answer is to defer close decisions on possibly useful but costly evidence until meritorious cases separate from the pool, turning pooling equilibria into separating equilibria. Summary judgment can be this separation: cases going to trial, post-summary judgment, likely have 50/50 odds - better than most. Costly evidence has more value in 50/50 cases, where juries struggle to reach verdicts, than in weaker or stronger cases. Noone yet has proposed post-summary judgment discovery to redress the costly discovery dilemma (summary judgment typically follows discovery), but high-cost evidence can be an exception: cases surviving summary judgment are close calls warranting more fact-gathering, so some costly discovery regularly denied now should be allowed after summary judgment. Thus, the existing debate is too focused on discovery quantity; it should focus more on discovery timing. Existing rules give courts discretion to use this proposal, but a new rule could minimize the risk of misusing the proposal to deny more discovery. This Article concludes by briefly noting how economic analyses must consider the details and information timing of the litigation process.

The full-text version of this article may be downloaded at http://ssrn.com/abstract=1120921.

First Circuit Discusses Degree of Merits Inquiry Required at Class Certification Stage for Novel or Complex Theories of Injury

Per In re New Motor Vehicles Canadian Export Antitrust Litigation, 522 F.3d 6 (1st Cir. Mar. 28, 2008):

In challenging the certification of the state damages classes, defendants primarily argue that the district court did not engage in a sufficiently searching inquiry into the relevant merits issues. It is a settled question that some inquiry into the merits at the class certification stage is not only permissible but appropriate to the extent that the merits overlap the Rule 23 criteria. Falcon, 457 U.S. at 160, 102 S.Ct. 2364; PolyMedica, 432 F.3d at 6; Mowbray, 208 F.3d at 297-98. It is less settled what degree of merits inquiry is required at the class certification stage, and the Supreme Court has not yet addressed the issue.

Our sister circuits agree that when class criteria and merits overlap, the district court must conduct a searching inquiry regarding the Rule 23 criteria, but how they articulate the necessary degree of inquiry ranges along a spectrum which suggests substantial differences. The Second, Fourth, Fifth, and Seventh Circuits coalesce around the more rigorous end of this spectrum, forbidding district courts from relying on plaintiffs' allegations of sufficiently common proof and requiring the courts to make specific findings that each Rule 23 criterion is met. Miles v. Merrill Lynch & Co. ( In re Initial Pub. Offering Sec. Litig.), 471 F.3d 24, 33, 41 (2d Cir.2006) [hereinafter In re IPO ] (requiring a “definitive assessment of Rule 23 requirements,” including the resolution of relevant factual disputes); Unger v. Amedisys Inc., 401 F.3d 316, 321-22 (5th Cir.2005) (requiring courts to find facts favoring class certification through the use of “rigorous, though preliminary, standards of proof”); Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir.2004) (requiring that “the factors spelled out in Rule 23 ... be addressed through findings”); Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 675-76 (7th Cir.2001) (requiring “whatever factual and legal inquiries are necessary under Rule 23” to “resolve the disputes before deciding whether to certify the class”). These circuits' use of the term “findings” in this context should not be confused with binding findings on the merits. The judge's consideration of merits issues at the class certification stage pertains only to that stage; the ultimate factfinder, whether judge or jury, must still reach its own determination on these issues. In re IPO, 471 F.3d at 39; Gariety, 368 F.3d at 366.

On the other end of the spectrum, the Third and Eighth Circuits sometimes require an inquiry into and preliminary resolution of disputes, but they do not require findings and do not hold that such inquiry will always be necessary. Blades, 400 F.3d at 567, 575 (holding that sometimes courts will be required to resolve factual disputes preliminarily at the class certification stage but voicing caution); Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 166 (3d Cir.2001) (“A class certification decision requires a thorough examination of the factual and legal allegations.”); id. at 168 (“In reviewing a motion for class certification, a preliminary inquiry into the merits is sometimes necessary to determine whether the alleged claims can be properly resolved as a class action.”).

This court has grappled with this issue as well. We have said in Smilow that “a district court must conduct a rigorous analysis” of Rule 23's prerequisites, 323 F.3d at 38, and in Mowbray that “a district court must formulate some prediction as to how specific issues will play out,” 208 F.3d at 298. See also Tardiff, 365 F.3d at 4-5 (noting that the common presumption at early stages of litigation that “the complaint's allegations are necessarily controlling” does not apply in class certification situations because “class action machinery is expensive and in our view a court has the power to test disputed premises early on if and when the class action would be proper on one premise but not another”).

. . .

We do not need to resolve now whether “findings” regarding the class certification criteria are ever necessary, but we do hold that when a Rule 23 requirement relies on a novel or complex theory as to injury, as the predominance inquiry does in this case, the district court must engage in a searching inquiry into the viability of that theory and the existence of the facts necessary for the theory to succeed.

Prof. Burch Posts Article on Securities Class Actions on SSRN

Professor Elizabeth Chamblee Burch (Florida State) has recently posted an Article entitled Securities Class Actions as Pragmatic Ex Post Regulation on SSRN (forthcoming Georgia Law Review). Here is the Abstract:

Securities class actions are on the chopping block-again. Traditional commentators continue to view class actions with suspicion; they see class suits as nonmeritorious byproducts of self-interest and the attorneys who bring them as rent-seekers. Their conventional approach has popularized securities class actions' negative effects. High-profile commissions capitalizing on this rhetoric, such as the Committee on Capital Markets Regulation, have recently recommended eliminating or severely curtailing securities class actions. But this approach misses the point: in the ongoing push and pull of securities regulation, corporations are winning the battle.

Thus, understanding the full picture and texture of securities class actions necessitates a positive pragmatic account. This Article provides that account and thus fills a significant gap in the benefit side of academic cost-benefit literature. To do so, however, it self-consciously begins from a controversial assumption: namely, that securities class actions provide a public good. Integrating both public and private actors into ex post enforcement diminishes collective action dilemmas, agency inaction, and private resolution of public law matters through arbitration. Moreover, by supplementing ex post enforcement, securities class actions produce positive externalities, spillover effects that confer public advantages such as: innovation, cost-reduction through information sharing, deterrence, transparent judicial process, and both corporate and enforcement accountability. So, while I harbor no illusion that the securities class action always functions optimally and have a number of lingering doctrinal and jurisprudential concerns about its operation, I also recognize its comparative institutional capability to make transparent an increasingly opaque process, craft decisional rules and interpretations that guide future behavior, cultivate innovation, deter fraud, and hold corporations, exchanges, and the SEC publicly accountable. This piece thus envisions the ramifications of eliminating securities class actions by imagining a world with government-centric securities enforcement. That world, I contend, is one steeped in bureaucracy, one failing to produce behavior-guiding precedent, one filled with closed-door arbitrations, one neglecting nonprioritized misconduct, and one ignoring litigant preference for judicial process. In short, it is a world less preferable than our current system-flawed though it is.

The full-text version of the Article may be downloaded at http://ssrn.com/abstract=1113923.