Ever since I began working at the intersect of Electronic Discovery and Subprime/Credit Crisis Securities Litigation, I’ve found several sites to be absolutely invaluable sources of insight and information. High among these is Kevin LaCroix’s D&O Diary, www.dandodiary.com. How Kevin finds the time to write as prolifically as he does, I don’t know, but hardly a day goes by that there isn’t something new, useful, and important on his blog.
Two of the most popular ongoing features of Kevin’s blog are the list of subprime lawsuits, currently standing at 191 in various federal district courts throughout the US (mostly in New York and California), here, and a separate list tracking the settlements, dismissals, and denials of dismissal motions, here.
In any securites class action, after the housekeeping step of selecting a lead plaintiff and counsel, the first event is the Motion to Dismiss under Rule 12(b)(6) and the specially high bar that a plaintiffs’ case must get over to survive that motion pursuant to the Private Securities Litigation Reform Act at 15 U.S.C § 78u-4(b).
It’s now been 18 months since the first motion to dismiss, and there have been 23 other motions decided since then. That’s long enough to discern a trend. The earlier decisions had favored the defendants – dismissals were common. Now the trend favors the plaintiffs. While there are still cases being dismissed, the net score stands in the plaintiffs’ favor.
To ascertain this trend, I worked from Kevin’s Dismissals Granted (Table II) and Dismissals Denied (Table III), by merging them and then sorting by date.
I then assigned a numeric value to the outcome of each motion, using a system similar to card counting in Blackjack — not that I have any personal experience doing that, of course.
- A dismissal with prejudice is a high (10-A) card; in Blackjack card counting, when you see a high card you count it as Minus One.
- A denial of a motion to dismiss is a low (2-6) card: Plus One.
- Originally I had thought that a dismissal with leave to amend the Complaint should be a neutral (7-8-9) card: value Zero. But a dismissal with leave to amend is still a better outcome for the defendant than the plaintiff, so I decided to give it a provisional minus 0.5. However, when it gets decided finally one way or the other, that minus 0.5 goes away and is replaced further down the list by either the full Minus One if the case is finally dismissed with prejudice, or by the full Plus One if the next motion to dismiss is denied. One exception is the recent WaMu decision in the Western District of Washington, where the result was mixed, so I gave it a score of minus 0.25.
So, as with counting cards in Blackjack, you arrive at a running count by adding together all the plus ones, minus ones, minus zero point fives, and zeroes.
At the beginning, in November 2007 and the twelve months following, the running count started out in the negative numbers, favorable to defendants, but by late December 2008, the line crossed into positive numbers and has stayed there ever since. With the Moneygram decision May 20, 2009, the running count is now at 2.75. When the count is this positive in Blackjack, it’s better to be the player than the house, or so I’ve been told. If you think of the player as the plaintiffs and the house as defendants, the deck is running in the plaintiffs’ favor right now.
The graph appears at the left, and more legibly, here, and a link to a pdf of the spreadsheet from which it was derived, here. As you can see, the trendline is moving upward in favor of dismissals being denied.
Obviously, the weight to be given to dismissals with leave to amend is subjective. If you call them zero, the trendline in favor of the plaintiffs is even sharper. If you call them minus one, same as outright dismissals with prejudice, then the trendline, while still moving in a favorable direction for the plaintiffs, still doesn’t get out of negative numbers. My justification for giving dismissals with leave to amend a minus 0.5 rather than a full minus 1.0 is partly based on the fact that the three cases that have gone to second motions have gone 2-1 in favor of the plaintiffs. In other words, we’re not seeing any signs that a dismissal with leave to amend is merely a delay of ultimate final dismissal.
Why is an e-discovery consultant blogging about securities class actions? First of all, because it’s interesting. This is the arena in which we may achieve some understanding and resolution of what happened to our economy.
Counsel for both sides of the cases that do go to trial will be carrying much more than their own clients’ interests on their shoulders. Trials will become showpiece inquiries into the financial sector.
I’ve also come to the conclusion that to do the best they can for their clients, e-discovery consultants have to know their substantive area nearly as well as their clients do. The substantive area that grabs my interest the most right now is securities litigation arising out of the subprime/credit crisis. For the present, this is where it’s at. More of these cases are surviving dismissal and going on to discovery. Discovery had better be done right. Blind cookie-cutter e-discovery processing and a dumb “let’s throw some keywords at it” approach will be completely inadequate for efficient discovery in this highly-specialized area.
Those who forget the past are condemned to repeat it, and our recent economic past is something none of us ever want to repeat.