Morgan Stanley May Face Wave of Suits After Admitting It Withheld E-Mail Evidence

As predicted in an earlier post on The Datakos Blawg titled “What is Happening to Morgan Stanley Could Happen to You,” Morgan Stanley is beginning to feel the ripple effect of its problems with email backup tape maintenance and controls.  The Daily Business Review reports “[a]ttorneys say they are gearing up to file hundreds of lawsuits against Morgan Stanley for allegedly hiding evidence from clients who filed arbitration claims.” 

 The residual effects of a bad outcome in a case of poor records management can be felt for many years to come.  For this reason, corporate leaders will have a difficult time avoiding any longer the need to invest and make a concerted effort to improve records and information management compliance.  The rationale that a bad event stemming from records management deficiencies is a “one off” or “unlikely to recur” simply will not cut it.  Once an organization gets sanctioned for signficant records management flaws, expect collateral attack from former litigants and regulators, who will attempt to reopen settlements and adjudications where evidence is perceived to have been withheld or carelessly destroyed.



Navigating the New E-Discovery Rules

By Paul D. Weiner and Mary Kay Brown

Imagine having to tell your client that it must pay more than $1 billion in damages. Imagine now that such a verdict was the direct result of multiple sanctions imposed by the court for discovery violations resulting from the failure to preserve and produce electronic information. If there is any doubt that electronic discovery issues can have a drastic impact on the outcome of cases, Coleman Holdings, Inc. v. Morgan Stanley & Co., Inc. [1] should serve as a wake-up call to all trial lawyers practicing in today’s digital age.

Although the primary claim in the Coleman case was that the defendant, an investment banking firm, conspired with one of its clients to perpetrate a fraud, shortly before trial the judge took the extraordinary step of reversing the burden of proof for fraud based on the defendant’s “willful and gross abuse of its discovery obligations.” Thus, the defendant had to prove to the jury that it lacked knowledge of its client’s accounting fraud and did not conspire to defraud the plaintiff. The court also permitted the plaintiff to read a statement to the jury detailing the defendant’s efforts to hide its emails as evidence of its evil intent. Finally, after still more discovery violations came to light, the court took the additional step of reading a 12-page adverse inference instruction to the jury that described the defendant’s fraudulent scheme in devastating detail.

For more see’s Tips from the Trenches.

Hit ‘Delete’ to Prevent EDD Disaster

The volume of e-discovery and its costs continue to rise for corporations, law firms and even solo attorneys. This phenomena has triggered a plethora of articles on the pitfalls and potential problems in EDD for the uninitiated or unaware. Frequently missing from the discussion, however, is practical experience and analysis from the trenches. This article addresses key EDD issues and pitfalls in a particular case involving 44 million pages of electronic records and a jury verdict of approximately $570 million, with a focus on the consequences of retaining too much electronic information and ways to solve problems that plague large companies in e-discovery.

For more see

SEC Considering Arbitration as Forum for Resolving Shareholder Suits

WASHINGTON — The Securities and Exchange Commission is exploring a new policy that could permit companies to resolve complaints by aggrieved shareholders through arbitration, limiting shareholders’ ability to sue in court.

The initiative is at the discussion stage and may not lead to any changes in rules or practices. But any move toward arbitration could realign the balance of power between shareholders and corporate managements at a time when that balance has tipped increasingly toward shareholders. It could also limit shareholders’ ability to recover money damages or other compensation from corporations.

For more see Wall Street Online Journal.

$1.58 Billion Judgment Against Morgan Stanley Reversed

In a 2-1 decision, a Florida state appellate court today reversed the $1.58 billion judgment against Morgan Stanley on the grounds that plaintiff failed to prove compensatory damages by not establishing the fraud-free value of the Sunbeam stock on the date of the merger. The court did not reach other issues on appeal, including whether the trial court improperly entered a partial default against Morgan Stanley as a sanction for discovery misconduct.

Morgan Stanley & Co., Inc. v. Coleman (Parent) Holdings, Inc., No. 4D05-2606 (Fla. Dist. Ct. App. Mar. 21, 2007)

Dubious Email Exchange Between Jurors Could Derail Protracted Scrushy/Siegelman Bribery Case

From White Collar Crime Blog

JAN. 21, 2007 — With sentencing yet to happen in the Scrushy/Siegelman case, things are heating up. First there was the talk about emails, but the court initially rejected the new trial motion premised upon this. (see here). The question involves whether there was juror misconduct related to emails. But the court did order the government to respond to the defense motion regarding a new trial. Now a WSFA TV-12 report (here) discusses the latest developments in the case.

The government is calling the emails – “inherently discreditable.” And the defense is requesting the court to reconsider its order. Interestingly, the government appears to be arguing that the emails are “too good to be true.” But the defense is clearly at a disadvantage at trying to prove their cause here in that they do not have the resources of the government and Siegelman may be feeling the pressures of the high cost of attorney fees. (see here – noting “his legal bills are nearing $1 million in connection with his 2006 corruption conviction.”)

It is important to remember that the government is not an advocate, but rather serves as a “minister of justice.” Whether there is merit or not to these emails remains to be seen. But what is clear is that the government should want the truth to prevail and not want to proceed to sentencing if an injustice occurred at trial.