Lessons in Litigation: Knowing when to Admit a Mistake and Checking the Facts of your Case

What’s in a Name? Securities Plaintiff Discovers Six Years after Filing That It Doesn’t Own the Securities at Center of Litigation

William Shakespeare famously wrote "that which we call a rose by any other name would smell as sweet," meaning that it is the thing that matters, not its name. However, we still need names to make sure that we are all talking about the same thing, say, a rose rather than a daffodil, or more to the case at hand, the Smith Barney Capital Preservation Fund rather than the Smith Barney Capital Preservation Collective Trust. After six years of litigation in the U.S. District Court for the Southern District of New York, Operating Local 649 Annuity Trust Fund, the lead plaintiff in In re: Smith Barney Transfer Agent Litigation, 05 Civ. 7583, determined that it owned 75,000 shares of the latter and not the former, the former being the actual subject of the litigation. A rather peeved Judge William Pauley had harsh words for lawyers on both sides in a Sept. 22 order granting Local 649's request to withdraw as Lead Plaintiff on the basis of the admission that Local 649 had not actually bought shares of the Smith Barney Capital Preservation Fund. Judge Pauley wrote that the "epic failures described in [the order] offered a cautionary lesson for securities litigators."  Among the lessons to be learned:

Confirm the most basic fact of the litigation 

Judge Pauley pointed out that lead plaintiff counsel Bernstein Leibhard's failure to confirm that Local 649 had in fact purchased the securities at issue in the litigation had resulted in a huge waste of time and resources, noting that the case now required new motions for appointment of lead counsel, the filing of another amended complaint, a new motion to discuss the statute of repose, additional class action discovery, and a new briefing on plaintiffs' motion for class certification. Due diligence in confirming Local 649's ownership of security at issue was of utmost importance, particularly in a case where there were more than 100 funds at issue, and given, as Judge Pauley described, "the proclivity of investment firms to give their funds remarkably similar names."

Defense counsel WilmerHale was also a target of Pauley's ire on this point, as Smith Barney failed to review the identity of its investors in the subject fund until class certification had nearly concluded, and even then did not determine that the Local 649 plaintiff was not among them. Pauley called Smith Barney's excuse that they had no obligation to review their clients' transaction records prior to the resolution of a motion directed at the sufficiency of the pleadings a "sad apologia."

If thou screweth up, falleth on thy sword 

Pauley described the admission by Local 649's lead counsel Bernstein Leibhard as being "nonchalantly nestled" in a letter to the court dated August 31. Pauley took pains to note Bernstein Leibhard's lack of contrition and failure to explain how such a mistake could be made, characterizing lead counsel as pretending that the discovery was an "innocuous development and present[ing] it as a mere administrative matter" or "scrivener's error."  Rejecting these characterizations, Pauley described the impact of the "startling revelation" as "seismic."   Under these circumstances, none of these attorneys will come out of this situation smelling like a rose, but an apology and ownership of the screw-up obviously would have made a difference to Judge Pauley.

Source:  New York Journal: Judge Blasts Lead Plaintiff's Firm for 'Epic Failures' in Securities Case (free registration required)