Los Angeles Business Litigation Blog : Los Angeles Business Litigation Lawyer & Attorney : Daniel Reisman Law Firm : California Civil Litigation & Contracts

The WSJ Law Blog details an unfortunate predicament for McGwuireWoods. In short, after five long years of litigation in a massive class action suit, McGuireWoods will not, according to the district court's latest order, recover any of its $12 million fee. I'm not convinced the decision was fair.

• Background

The problem arises from a conflict of interests due to a provision in the original retainer agreement among the firm and five of the seven representative plaintiffs.

Via the WSJ Law Blog:

In early 2007, a $49 million settlement was reached. But before the settlement was approved, it emerged that five of the seven plaintiffs acting as class representatives had an agreement with their lawyers at McGuireWoods which provided that they’d each receive so-called incentive payments after the settlement was approved.

The agreement stipulated that the five would get payments on a sliding scale; the more taken in by the class, the more they’d each get. Specifically, the agreements provided that if the case settled for $500,000 or more, the representatives would get $10,000. The payments would go up as the settlement figure went up, but were capped if the settlement figure reached $10 million.

According to the Ninth Circuit, the incentive agreements created a conflict of interests among the parties, and under well established rules of ethics, law firms may not represent parties, with presently conflicting interests, without written informed consent. To do otherwise, is an automatic ethics violation and grounds for disqualification.

To that end, the Ninth Circuit reversed Judge Real's original award of attorney's fees, and "remanded it for consideration of the effect, if any, of the incentive agreements on entitlement to fees." Rodriguez v. West Publishing Corp., 563 F.3d 948, 969 (9th Cir. 2009).

On remand, Judge Real decided McGuireWoods is not entitled to any fees because of the ethics violation.

• A debatable decision at best

When a law firm violates ethics rules in other situations, as for example, agreeing to fee splitting without disclosure and client consent, a law firm may still recover in quantum meruit for the reasonable value of its services. Oftentimes, the reasonable value of the services is going to be far lower than the firm's full fee, but at least the firm doesn't walk away entirely empty handed.

In the present case, the court interpreted California law to bar quantum meruit recovery as well. However, the Ninth Circuit still left open the possibility for an order granting attorney's fees to McGuireWoods. While the Ninth Circuit certainly implicated that the award should be reduced, it did not hold that an absolute bar was necessarily the right outcome. Thus, the district court still had some room to determine whether some award of attorney's fees to McGuireWoods would be reasonable under the circumstances.

Considering that Judge Real found the $49 million settlement agreement to be fair, and the Ninth Circuit found no abuse of discretion in his doing so, it appears that the conflict of interests, although real, had little impact on the overall outcome of the case. (Also note, incentive agreements in class actions are not unethical per se. In fact, they are quite common.)

While I certainly do not condone unethical behavior, I also think that any measure taken by the court that is clearly punitive, such as reducing an award of attorney's fees, should be balanced against the actual harm that the ethics violation caused.

Where is the harm in this case?

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• Mozilla officially released Firefox 3.5 today. One of its touted new features is Private Browsing mode (also known as "porn mode").

While private browsing may be useful for protecting sensitive information from some prying eyes, it's important to note that private browsing only means that Firefox won't save browsing history and cookies on one's local machine. In other words, you can now search for that perfect anniversary gift for your spouse online without the fear that he or she will be able to figure out what you were doing just by launching Firefox. However, your activity is still just as easy to track from another computer. (So, if any member of your household knows how to use a packet-sniffer, she'll still be able to see just how much porn you're watching how many gifts you're thinking about purchasing.)

• Turning piracy into profit for content owners:

Piracy watchdog Nexicon has found the ultimate way to turn piracy into profit for the fresh copyright holders added to their clientele. They offer alleged file-sharers the chance to settle for $10 per downloaded song or an equal amount for a pirated movie. If you decide not to settle, they promise to bankrupt you in court.

(via TorrentFreak).

There's nothing wrong with content owners tracking the digital distribution of their work. And, there isn't necessarily anything morally, ethically, or legally wrong with pursuing infringers. However, Nexicon and its affiliates such as the Video Protection Alliance ("VPA") (which happens to deal exclusively with adult content) have crossed the line.

The article at TorrentFreak points the reader's attention to the FAQ on the VPA's website. While all of the questions and answers are obviously aimed to scare the recipient of a settlement letter into using the credit card processing system conveniently provided by the VPA to quickly settle the matter, there are two that are particular causes for concern. They are as follows:

• How do I obtain a Liability Release & Settlement Receipt? Your Liability Release & Settlement Receipt will be automatically provided on screen and via email at the end of the settlement payment process.

• Do I need a lawyer? As with any legal proceeding, the guidance and representation of a lawyer can be very important. It is likely that the cost incurred to retain a lawyer will exceed the settlement amount offered. The decision to hire a lawyer is entirely up to you.

Regarding the first question, the problem is that it doesn't provide any detail as to what a "Liability Release & Settlement Receipt" actually is. As far I as I know, there is no standard legal definition of a "Liability Release & Settlement Receipt." Nor would it be in the VPA's interest if there were a standard definition. While a "Liability Release & Settlement Receipt" could theoretically contain an actual settlement agreement and release from liability, there is nothing in the language used on the website to indicate that it actually does. Even if the receipt does contain language releasing the settlor from liability, it may be very narrowly drafted. And, of course, one doesn't actually get to see the "Liability Release & Settlement Receipt" until after payment is tendered.

Regarding the second question, it essentially advises the reader not to seek the independent advice of a lawyer, and simultaneously attempts to avoid advising the reader not to seek the independent advice of a lawyer. In my opinion, it is plainly unethical. In general, if a lawyer is going to advise an individual to take any sort of action that is in the lawyer's interest, but adverse to the individual's interest, the lawyer should encourage the individual to seek independent counsel. Although the VPA is neither a lawyer nor a law firm, to the extent that it offers legal advice, I see no reason as to why it shouldn't be bound by similar ethical standards. After all, the VPA's website isn't solely providing educational information, and it isn't just advertising--it's negotiating settlements.

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An elderly woman is suing Sacha Baron Cohen and NBC in Los Angeles County Superior Court for injuries she suffered, which left her permanently disabled, due to an incident at a bingo tournament where Cohen was filming for his upcoming movie “Bruno.” The lawsuit seeks unspecified damages of more than $25,000.

Gossip blog Gawker’s take on the matter:

We would hope that if this lady genuinely suffered brain bleeding that left her in a wheelchair that she's asking for much more than $25,000 in damages, but why she waited two years to file the suit is anyone's guess—-Some would say probably because it's all a bunch of BS.

Fellow legal blogger Maxwell Kennerly's explanation:

[A] suit that "seeks unspecified damages of more than $25,000" could be worth millions or billions of dollars. That allegation is nothing more than a legal term inserted in the complaint by the plaintiff's lawyer to let the clerk know that the case should be assigned to the full-fledged civil trial court and not the small claims court.

(via Litigation and Trial).

Generally, Kennerly is right. Specifically, in most types of Unlimited Jurisdiction cases, the amount in controversy must exceed $25,000 (see the mandatory Civil Case Cover Sheet). And, while a plaintiff is usually required to state the amount of damages he or she is seeking in a civil case in the complaint under section 425.10(a)(2) of the California Code of Civil Procedure (“CCP”), in personal injury cases, CCP § 425.10(b) specifically prohibits the plaintiff from stating the amount of the damages in the complaint.

Instead, the plaintiff must serve the defendant with a “separate statement of damages” that is not filed with the court. See CCP § 425.11. The reasoning behind the rule is that it protects defendants from adverse publicity resulting from exaggerated monetary demands since the separate statement of damages is not public record.

Of course, given that Sacha Baron Cohen essentially built his career by making an ass of himself in public and on film (frequently with hilarious results), I doubt he’s worried about the adverse publicity. Nevertheless, and despite the irony, even plaintiffs suing those who thrive on bad publicity are bound by the rule.

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Via The Complete Lawyer, Savvy Lawyers Value Their Human Capital:

Use litigation as an opportunity to negotiate a business deal. In hard economic times, GC’s are not in the “millions for defense but not a penny in tribute” mood. Google’s GC Eric Schmidt famously said that litigation is “just a business negotiation being conducted in the courts.” The more working parts any potential business deal has, the easier it is to find solutions that benefit both parties in different ways. Before we can explore the most effective and efficient business solution to a commercial problem, we must shed our merits-based resolution blinders and explore the parties’ commercial interests. One of the swiftest means of doing so is bringing the decision-makers on both sides to the planning, problem-solving and bargaining table. If the parties agree that these brain-storming sessions can be considered “mediations” you can avail yourself of state or federal confidentiality protections. Then let the business people do what they do best: plan for a productive future rather than fighting about an unproductive past.

Settling earlier often means spending less and potentially earning more. But, shedding “our merits-based resolution blinders” may not be so easy. Clearly delineating and distinguishing among commercial interests and personal interests can be difficult for both lawyer and client, especially when smaller businesses and/or individuals are involved. Many business relationships are also personal relationships. Thus, the negative impact of a dispute that reaches litigation on, for example, longstanding friendships, may prove difficult to ignore. While a collaborative approach to dispute resolution may lead to a productive future, sometimes moving forward may require a judgment about an unproductive past.

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Most attorneys that I know are vigilant about their billing practices, and upfront with their clients about them. But, as with any other contractual relationship, disputes inevitably arise. And, in an effort to cut costs due to the economic climate, both individuals and businesses are paying much closer attention to their bills lately. So, it shouldn’t come as much of a surprise that law firms are looking for a way to cash-in on clients’ new spendthrift habits.

Although attorneys who specialize in managing costs and fees of litigation as well auditing other attorneys’ billing practices have been around for ages, I wouldn’t be surprised if other mid-sized firms started looking for partners with specific experience in related areas.

At Legal Blog Watch, Carolyn Elefant writes:

Manchester, England-based law firm Boote Edgar Esterkin has figured out a novel way to generate more revenue. Instead of charging clients more for the firm's services, Boote Edgar has created a new practice specialty going after other law firms for overcharging, reports Crain's Manchester Business. The service, which is called ab8, will help clients either by opening formal negotiations on behalf of customers who believe they’ve been overcharged by their law firms or, in some cases, issuing proceedings against firms.

According to Mark Yaffe, the associate who will run the new service,

[t]here are strict rules governing how solicitors provide information to their clients, especially in relation to costs. Solicitors have a duty to provide their clients with the ‘best information possible’ at the outset of any matter, and this ought to include a clear and concise explanation of the total costs involved.

• Lawyers in California Are Not Usually Bound by Their Initial Estimates.

Lawyers in California do not have the same duty as their British counterparts regarding initial fee quotes. Although it’s a good practice to provide clients with the best information possible at the outset of a matter, most lawyers who do are also careful to explain that litigation can be very unpredictable (which is certainly true), and the costs and fees they quote at the outset of a matter are just an estimate.

• The Mandatory Fee Arbitration Act

The problem, especially for individuals and small businesses with limited resources, with hiring another lawyer to “go after” a previous lawyer for overcharging is the expense of hiring another lawyer. Consequently, the California Legislature enacted the Mandatory Fee Arbitration Act (“MFAA”). Cal. Bus. and Prof. Code. §§ 6200-6206.

The policy behind the mandatory fee arbitration statutes...is to alleviate the disparity in bargaining power in attorney fee matters which favors the attorney by providing an effective, inexpensive remedy to a client which does not necessitate the hiring of a second attorney. Manatt, Phelps, Rothenberg & Tunney v. Lawrence, 151 Cal. App. 3d 1165, 1174-1175 (1984).

The MFAA provides that if a dispute over costs and fees for legal services arises between a lawyer and a client, the client may choose to have the case heard before an arbitration panel under procedures established by the State Bar. The arbitration is optional for the client and mandatory for the lawyer, regardless of which party initiates a fee suit. The arbitration is only binding, however, if the attorney and client so agree in writing after the dispute has arisen. Otherwise, either party may request a trial de novo (something similar to an appeal) within 30 days after the arbitration has concluded.

Also, a lawyer who intends to a initiate a fee dispute against a client is required to notify the client of his or her right to arbitration under the MFAA. Otherwise, there may be grounds for dismissal.

• A few important things to keep in mind regarding mandatory fee arbitration:

1. The courts are not fond of dismissing suits because the lawyer neglected to serve the MFAA notice, especially if the client doesn’t actually want to arbitrate.
2. If the client is already aware of his or her right to arbitration under the MFAA, the lawyer’s failure to give MFAA notice may not result in a dismissal.
3. A dismissal with prejudice based on the lawyer’s failure to give MFAA notice is an abuse of discretion.
4. If the client brings any action for affirmative relief against the lawyer that isn’t specifically limited to the dispute over costs and fees, the right to MFAA arbitration is waived.
5. If the attorney files a complaint against the client, and the client answers the complaint, the right to MFAA arbitration is waived.
6. Most importantly, the judgment of the arbitration panel is not binding for either party, unless the (a) parties otherwise agreed to in writing, or (b) neither party requests a trial de novo within 30 days after the arbitration.

Also of note, a binding arbitration agreement in an agreement for legal services is still binding even if the client requests MFAA arbitration. In other words, if there is a relevant binding arbitration clause in the in the contract between the lawyer and the client, the lawyer may compel the contractually based arbitration proceedings after the MFAA arbitration. See Schatz v. Allen Matkins Leck Gamble & Mallory LLP.

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What if lawyers could get jobs at big firms after they've been lawyers for a few years? If big law firms cut their summer programs, and in turn, dismantle the formal hiring process that basically starts and ends during the first semester of a student's second year in law school, it might just happen.

According to The National Law Journal's L.A. Legal Pad,

With no sign of a lasting rebound in the wider economy, some law firm leaders are playing it safe by reducing their 2010 summer programs or skipping them altogether.

Personally, I think that big firms should cut their formal summer programs entirely.

The idea of securing a job through on-campus interviews during the fall of one's second year in law school with a start-date just over two years away is ridiculous. It creates a false sense of security, and it puts too much emphasis on a student's grades from his or her first year in law school.

I don't think that firms should necessarily stop hiring law students for summer positions; however, I think that the focus of summer employment should shift from lining up next year's crop of associates to actually providing the students with some practical experience.

Clients are increasingly requesting that law firms refrain from staffing cases with first-year associates in order to cut down on their legal fees. Clients tend to think of a lawyer's first year as nothing more than on-the-job training, and they don't want to pay for it. Also, partners at large firms often prefer to hire laterals, who already have experience in specific areas. However, the big firms' formal hiring processes--which start with summer programs--make it nearly impossible for a student who chooses not to go through on-campus interviewing during his or her second year of law school to get a job at a big firm at all.

The result? Law students are advised to get a job at a big firm for a couple years before doing anything else--even if said students have no desire to work at a big firm--because they may never get another chance. Instead of working up the pay ladder, many lawyers are paid more for their first two years of practice than for their next ten.

If big law firms break with tradition by ending their summer programs and their formal yearly hiring processes, hiring partners will be able to hire associates based on academic credentials and experience. Clients will be happier because they'll at least think that they're getting a better deal. Most importantly, law students, and new lawyers will be able explore different career choices without the fear that there's no chance they'll ever get hired at a big prestigious firm.

Overall, lawyers may actually be able to work their way up into big firms based on broad qualifications rather than just their grades from their first years of law school.

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Kevin La Croix, at his blog, The D&O Diary, writes,

In a development that may foreshadow further "gatekeeper" claims as part of the current credit crisis litigation wave, on April 1, 2009, the trustee for the New Century Financial Corp. liquidation initiated lawsuits in California and New York against KPMG and its international parent, seeking to recover $1 billion in damages for negligence and for aiding and abetting breaches of fiduciary duty. 

After a thorough summary of the complaints filed against KPMG, he further states,

[t]he trustee’s filings in these complaints certainly suggest the possibility that auditors and other "gatekeepers" could be targeted in the wake of the subprime meltdown. Id.

Moreover, The Wall Street Journal points out that

[t]he claims are among the first to attempt to blame auditors for the subprime-mortgage crisis, which spread beyond lenders such as New Century and engulfed the global financial system.

In order for private plaintiffs to successfully litigate claims like the ones the New Century trustee asserts against KPMG, some theory of "scheme liability," or "gatekeeper liability" will most likely need to be accepted by the courts.

In 2007, the Supreme Court rejected a theory of "scheme liability"  in the context of securities fraud litigation in Stoneridge Investment Partners v. Scientific-Atlanta. SCOTUSblog summarized the Court's holding in 2007 as well as the background of the case as follows:

Investors, the Court said, may only sue those who issued statements or otherwise took direct action that the investors had relied upon in buying or selling stock — whether that involved public statements, omissions of key facts, manipulative trading, or conduct that was itself deceptive.

***

The case involved what has been called “scheme liability,” in which everyone involved in a plot to deceive securities investors would be legally at fault, whether or not each of them had issued any public statements.  The Securities and Exchange Commission had previously supported such liability, and wanted to enter the Stoneridge case to say so, but its participation was vetoed by the Bush Administration, with President Bush and Treasury Secretary Henry Paulson directly involved in the decision to keep the SEC out of the case.  The Court took the case apparently to resolve a dispute among federal appeals courts on the issue.

Since "gatekeepers" are generally third parties, e.g., auditors like KPMG, Stoneridge has been construed so as to deny private causes of action for securities fraud based upon almost all theories of "gatekeeper liability." However, the plaintiffs in Stoneridge were investors. Here, the plaintiff is the New Century trustee. Furthermore, the trustee's claims for negligence and aiding and abetting breach of fiduciary duty, at least in California, are brought under California law whereas Stoneridge addressed fraud claims pursuant to federal law. So, one question is whether the holding in Stoneridge is even applicable, at least in California.

Also, in Stoneridge, the Court states that third parties, or "secondary actors" may be held both civilly and criminally liable for their roles in securities fraud; however, only the SEC may pursue civil remedies against said secondary actors. Thus, another question, as to whether these remedies are adequate, may arise.

The outcomes of New Century v. KPMG and similar lawsuits may eventually provide some answers to these questions. In any case, at least one thing that is certain--theories of "gatekeeper liability" are not dead.

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On the transactional side, the Obama Administration seems to believe that quite a bit can be accomplished in as little as thirty days. The administration released a report yesterday about the crisis in the auto industry, which states, among other things, that Chrysler has until April 30 to finalize an agreement with Fiat as well as reduce health care and other debt in order for the company to receive more aid according to The New York Times. In other words, the struggling automaker has about thirty days to put a massive agreement together that a variety of interested parties find satisfactory.

Normally, joint ventures, however categorized, take at least a few months to materialize, and joint ventures of international scale can take years. However, I think the Obama Administration has at least one good reason to impose such a harsh deadline on the agreement--if Chrysler does finalize an agreement with Fiat by April 30, it will show that, at least when necessary, both government and private business (or whatever amalgamation we have now) can act fast, and perhaps even efficiently.

Of course, in this case, there are unusual and extraordinary circumstances involved given the government-imposed ultimatum that Chrysler faces. The question is whether such circumstances are necessary in order for large business transactions to move at a fast pace.

Similarly, on the litigation side of the fence, disputes that have reached litigation may still be resolved in a relatively short timeframe, depending on the willingness of the parties to settle.

For example, Ars Technica reports that Microsoft and TomTom have settled their patent dispute. I discussed Microsoft's suit against TomTom in a previous post. In short, Microsoft sued TomTom alleging patent infringement. In the time since that post, TomTom filed a counter-claim for patent infringement against Microsoft.

As far as I know, the exact details of the settlement have not been released, but, according to Ars Technica, TomTom essentially agreed to pay Microsoft for its patents and remove support for the FAT filesystem from its products over the next two years.

While the few details released seem to imply that the agreement is a little one-sided, Microsoft and TomTom still managed to resolve their patent dispute in about a month. Thus, despite the size of the businesses and the scope of the claims involved, it was apparently possible to reach an agreement rather quickly.

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In a recent article, the NY Times reports that researchers at UC Berkeley “have come up with a test that they say is better at predicting success in the field than the widely used Law School Admission Test [LSAT].”

For the uninitiated, the LSAT is the standardized test that all law school hopefuls must endure because the majority of law schools rely very heavily on an applicant’s LSAT score during the admissions process.

But, according to the Times, the LSAT is a poor measure of how the potential law student will actually perform as a lawyer. In response, the aforementioned researchers developed a new test.

• First, the researchers identified 26 factors that measure “raw lawyerly talent.” 
•  Next, they interviewed a variety of individuals in the legal profession, asking them to identify lawyers whom they consider to be “effective.”
• Finally, they administered the test to 1,100 lawyers.

Shockingly, when the results came in, the researchers concluded that the experimental test is much better at “predicting lawyer effectiveness” than the LSAT, which, at best, only predicts how a potential law student will perform in law school. (Note, however, that the LSAT is not regularly administered to lawyers as most lawyers, having already  graduated from law school, have no need to take an admissions test for law school.)

Apparently, the new test relies on questions designed to gauge how well subjects respond to relevant hypothetical situations.

For example, it might describe a company with a policy requiring immediate firing of any employee who lied on an application, then ask what a test taker would do upon discovering that a top-performing employee had omitted something on an application.

Policies? Employees? Personally, I’d call an employment lawyer (just to be on the safe side).

To be fair, the article does note that the researchers realize that the “the participants might have performed differently on it, had they taken the test when they were applying to law school.” (Then again, I would guess that most people who can’t speak Russian would probably perform rather poorly on a test in Russian.)

I’m not trying to defend the LSAT. And, I imagine that the researchers’ new test probably does do a better job at predicting how a subject will perform as a lawyer since it seems to require attending law school in order to answer the questions.

The problem is that we already have a test for law school graduates who would like to become licensed attorneys…

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It seems that legal trade publications may have finally tired of reporting on the mass layoffs at big firms as they have — day after day — for the past several months. Either that, or the numbers of daily layoffs at major law firms have decreased enough since late February and early March to appear less newsworthy. See e.g., Martha Neil, March Mayhem: Law Firm Layoffs in 1 Week Total Nearly 1,500, Mar. 4, 2009. In any case, I find it a welcome respite.

Instead, (in what I would call a trend for the better) reports of how lawyers are dealing with the current financial crisis and reshaping their practices accordingly are finding their way to publications' front pages. For example, last Tuesday the Daily Journal (subscription required) featured former San Diego City Attorney Mike Aguirre discussing his ambition to develop his new law firm into the "center of credit derivative litigation." According to the article, "[Aguirre] wants nothing short of effecting regulatory reforms, he said. 'I've never been interested in putting on blinders and doing litigation in the abstract,' he said. 'Long term solutions need to be hammered out in Congress." And, according to a founding partner at a successful securities litigation boutique, also in San Diego, "'[C]ertainly, given the credit crisis and mortgage meltdown we are experiencing now, there is more than enough opportunities to represent victims. There is certainly enough fraud to go around these days.'" See Pat Broderick, Former City Attorney Pins Hope on Derivatives, L.A. Daily Journal, Mar. 17, 2009, at 1.

Coincidentally, on Friday, Division One of the Fourth Appellate District Court of Appeal (in only the second published California case to even address the topic) ruled on the somewhat controversial "group pleading doctrine" in the context of state securities litigation. See Bains III v. Moores, No. D052533, 2009 WL 723530 (Cal. Ct. App. Mar. 20, 2009). "The doctrine, where applicable, allows a party to attribute collective statements made by a company to individual members of the company's board of directors." Id. at *15.

The facts of the case revolve around allegedly fraudulent accounting and financial statements made by Peregrine Systems, Inc. Id. at *1.

In short, the plaintiffs in Moores filed suit against three former directors of Peregrine Systems, Inc. alleging accounting and financial fraud under California Blue Sky Laws as well as common law theories of fraud and deceit. The trial court granted summary judgment in favor of the defendants because the plaintiffs failed to identify information from which a jury could find that the defendants knew about the alleged fraud. Id. at *15, *1. The plaintiffs argued that the group pleading doctrine should apply; therefore, any fraudulent statements that the company may have made could be imputed to the defendants. The Court disagreed.

The Court held "that the group published information doctrine, or group pleading doctrine, as its alternative name suggests, is a pleading device that has no application in the summary judgment context." Thus, "'the group pleading doctrine' does not apply in determining whether a party has present sufficient evidence of its claims to avoid summary judgment, under California law." Id. at *19.

The only other published California case dealing with the group pleading doctrine is Kamen v. Lindly, 91 Cal. App. 4th 197 (2001). There, the Kamen court adopted the Ninth Circuit's view of the group pleading doctrine, or group published information doctrine. The Ninth Circuit developed the doctrine as follows:

In cases of corporate fraud where false and misleading information is conveyed in prospectuses, registration statements, annual reports, press releases or other ‘group-published information,’ it is reasonable to presume that these are the collective actions of the officers. Under such circumstances, a plaintiff fulfills the particularity requirement of [Rule 9(b) of the Federal Rules of Civil Procedure (28.U.S.C.) ] by pleading the misrepresentations with particularity and where possible the roles of the individual defendants in the misrepresentations. Moores, No. D052533, 2009 WL 723530, at *16.

And, subsequent decisions extended the doctrine to apply to outside directors in addition to officers, who are responsible for day-to-day operation of the company. Id.

The Court agrees with the decision in Kamen based on the rationale that it is difficult for a plaintiff to obtain enough information regarding the perpretrators of corporate fraud to plead fraud with the requisite heightened particularity. But the court in Kamen only addressed the doctrine with regard to the sufficiency of the pleadings. Id. at *17. Here, in Moores, the Court must address it in the context of an evidentiary motion.

In explaining its decision, the Court first notes that the "rationale for invoking the doctrine is less compelling in the context of a summary judgment when discovery is complete." Id. at *18. Second, the Court points out that there is a circuit split as to whether the doctrine should even apply at all because of the stringent pleading requirements adopted in the Private Securities Litigation Reform Act of 1995 ('PSLRA'). (The PSLRA requires that allegations of fraud based on information and belief must "state with particularity all facts on which that belief is formed." 15 USC § 78u-4(b)(1).). Given these factors, the Court concludes "that the doctrine is one that applies, if at all, only in determining the sufficiency of a plaintiff's pleadings." Id. at *19.

Overall, although it appears that the group pleading doctrine is recognized under California law, its future seems rather uncertain.

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The Daily Journal (subscription required) states that civil trials in California dropped by 28% during the fiscal year of 2006–07. According to the same article, the reason most often cited by lawyers, judges, and academics is the cost of litigation and trial.

I suppose rising litigation costs could account for a slow decline in the number of civil trials over the course of a decade, but I find it unlikely that such a steep drop in one fiscal year can be solely attributed to the cost of litigation and trial. Maybe it was just a strange year.

Also, I’m not sure how one can draw any conclusions looking at the number of civil trials in a vacuum.

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