One, two Princes kneel before you
(That's what I said now)
Princes, princes who adore you
(Just go ahead now)
One has diamonds in his pockets
(That sounds great now)
This one, said he wants to buy you lockets
(Ain't in his head now)
By The Spin Doctors
Judge Andrew Peck this week cast some doubt on the old adage that two heads are better than one in a written opinion released as In re NTL, Inc. Securities Litigation; Gordon Partners, et al., v. Blumenthal, 2007 U.S. Dist. LEXIS 6198.
NTL, Inc. (Old NTL) was popped with a class-action securities suit in 2002. Old NTL and some subs emerged from Ch 11 in September 2002. Through the transforming magic that is bankruptcy, Old NTL was succeeded by NTL Europe (NTL-E) as well as NTL, Inc (New NTL). NTL-E was tasked with 1) selling off certain assets; and, 2) remaining in the securities suit. New NTL was 1) the operational company; and, 2) the party responsible for providing NTL-E access to all of the documents needed to comply with all legal obligations.
In short, NTL-E was on the hook (along with individual defendants) for the class-action suit, and New NTL was supposed to be keeping the litigation related records on behalf of NTL-E.
According to the court's opinion, NTL-E's discovery responses indicated that they would produce responsive documents, but in April of 2006, had produced no responsive documents or emails. Initially, the emails were highly prized by the plaintiffs, given management's heavy reliance on that devilish device. In August of 2005, the plaintiffs fired off a non-party subpoena to New NTL for numerous documents, and received access to some 70 boxes of paper for their efforts. New NTL also claimed that responsive emails did not exist, as they had been lost when the company's servers had been updated following the reorg...
The plaintiffs then deposed NTL-E's CEO in December 2005, where for the first time, plaintiff's counsel began to learn of the agreements stemming from the bankruptcy regarding New NTL's obligations to provide access to the very types of documents being sought by the plaintiffs.
New NTL was scheduled for a deposition on January 25, 2006, regarding its document production issues. On January 24, New NTL indicated it had reviewed 23,000 boxes and offered to provide an index, and because of the exorbitant cost, would make the boxes available to the plaintiffs, on a per-box and per-day cost to be borne by plaintiffs. New NTL also discovered 3 DVD's worth of emails and 46 back-up tapes, all from a server that had been shut down in New York and sent to the UK after the bankruptcy. During the January 25 deposition, it was also disclosed that New NTL's computer gizmo's had been outsourced to IBM in 2002-2003. NTL employees had (in relative terms) significant flexibility over which emails were retained on their workstation (bad, very bad). Many employees had received new computers, and New NTL did not know if preserved emails had been backed up on tape (very, very bad).
In February 2006, the court extended the discovery period so that "non-party" New NTL could produce the documents requested by the plaintiffs. In March 2006, New NTL produced 3 years worth of emails recovered from back-up tapes. However, for the year that the alleged securities violations took place, 2001, no emails were recovered.
As is usually the case, the juicy stuff starts with re-prints of hearing transcripts. As early as December 2005, questions about the relationship between NTL-E and New NTL were raised. Indeed, plaintiff's counsel stated that New NTL was a non party "only in the most mythical sense."
In February 2006, counsel for New NTL attended, for the first time, the scheduled conference. Apparently, the court politely inquired then of New NTL what steps might be taken to speed up production of ESI.
At some point, the plaintiffs filed a motion for sanctions, which cited to the agreement between New NTL and NTL-E regarding the storage of documents. The court learned of this agreement in April 2006. The court ordered that the documents being held in Europe start being produced in the US, within a 5 day period, and at the expense of NTL-E. [In a moment certain to set back the cause of young attorney's anxious to get into the court room early, the defendant's counsel tried to "undo" consent to the judge's order by arguing that the attorney appearing at the conference was too junior to knowingly consent to such an order. Oye ve!] As one might imagine, the court as also not pleased at the thought that the two NTLs, despite opportunities to do so, had not disclosed the agreement.
One of the interesting, and failed arguments raised in an effort avoid sanction was that the defendant did not have possession or control over the documents, because that duty was given to New NTL as a result of the bankruptcy. In a well-written "Poppycock" retort, the court essentially found that NTL-E could not take advantage of the "artificial separation of entities" resulting from the bankruptcy. Not only did the court hand the plaintiffs an adverse inference instruction, but also costs and attorney's fees associated with the sanction motion.
For the Spin Doctors' next album, I will suggest they reprise their song Two Princes, and alter the lyrics slightly so that one Prince has a pocket full of diamonds, and the other Prince has a head full of rocks...
Wednesday, January 31, 2007
One, two Princes kneel before you