Accusations of confidential witness chicanery backfire on defense lawyer

December 5, 2012

The securities class action firm Robbins Geller Rudman & Dowd keeps running into problems with confidential witnesses. I’ve previously told you about a case in federal court in Manhattan in which U.S. Senior District Judge Jed Rakoff held a seven-hour hearing to decide if the plaintiffs’ firm misrepresented its contacts with four former Lockheed Martin employees who disavowed the allegations Robbins Geller attributed to them in a securities fraud complaint against Lockheed. Rakoff hasn’t ruled but, at the end of the hearing in October, said that three of the former Lockheed employees that Robbins Geller cited as confidential witnesses weren’t credible when they denied speaking with the plaintiffs’ firm. The Manhattan judge is now pondering whetherhearsay evidence obtained from confidential witnesses is sufficient to push securities class actions past defense dismissal motions.

Robbins Geller, meanwhile, is dealing with confidential witness recantations — and ensuing defense accusations of misconduct — in at least two other securities class actions, one in federal court in Atlanta, the other in Birmingham, Alabama. But an angry order issued Tuesday by the judge in Alabama shows that the fallout from these disputes over confidential witnesses isn’t limited to the plaintiffs’ bar. U.S. District Judge Inge Johnson ordered Victor Hayslip of Burr & Forman — who represents individual defendants in Robbins Geller’s Alabama class action against Regions Financial — to send a letter to U.S. District Judge William Duffey in Atlanta, apologizing for Hayslip’s previous “inappropriate and unprofessional” letter alerting Duffey to accusations against Robbins Geller in the Alabama case.

The backstory on Johnson’s order is a bit complicated, but it shows how messy these confidential witness recantations can be. Duffey, the Atlanta judge, is presiding over Robbins Geller’s securities class fraud case against SunTrust Banks. The complaint in that case, like so many in securities class actions, relied on information from a former employee. Yet when the former SunTrust worker was contacted by defense counsel, he denied telling Robbins Geller’s investigator what was attributed to him and said he wasn’t even employed by the bank at the time of the events described in the complaint. Based on the recantation, Duffey ended updismissing the class action.

But that wasn’t the end of the matter. Robbins Geller had told the judge that its lawyers had no direct knowledge of when the witness was employed at SunTrust, since he had only spoken with the firm’s investigator, Desiree Torres. After Duffey issued his dismissal order, Torres contacted the judge’s clerk. According to a subsequent order by Duffey, the investigator said that Robbins Geller lawyers had, in fact, sat in on interviews in which the informant said he didn’t have direct knowledge of the supposed fraud. Concerned about the disparity in the accounts of Robbins Geller and its own investigator, Duffey scheduled a Dec. 18 hearing to hear testimony from Torres. He later denied a motion by Robbins Geller to close the hearing to the public.

The Alabama case against Regions featured similar recantations by five former employees cited in Robbins Geller’s complaint. All five Regions witnesses were interviewed by Torres, the investigator in the SunTrust case. But unlike the judge in Atlanta, Johnson refused to dismiss the Regions Financial class action, despite the recantations. After she certified a class of investors in June, the defendants appealed certification to the U.S. Court of Appeals for the 11th Circuit.

On Nov. 28, the Alabama and Atlanta cases intersected. Defense counsel Hayslip sent a letter to Duffey, describing the controversy over Torres, Robbins Geller and the confidential witnesses in the Regions Financial case in Alabama. Because of those events, Hayslip told the Atlanta judge, his clients in the Alabama class action had “a very strong and legitimate interest” in keeping the Dec. 18 hearing in the SunTrust case open to the public.

Hayslip sent his letter to all of the lawyers in the SunTrust case, including Andrew Brown of Robbins Geller, who is also lead counsel for the class in the Regions Financial case. The next day, Robbins Geller asked Johnson to hold a status conference on Hayslip’s letter. The defense lawyer, Robbins Geller asserted, had violated protective orders issued by Johnson and had misrepresented the facts of the Regions case. “Additionally, defendants’ letter gratuitously seeks to impugn the integrity of plaintiffs’ counsel and investigator in this case for their conduct in this case, in that unrelated matter,” the plaintiffs’ motion said.

Hayslip sent another letter to Duffey on Nov. 30, withdrawing his previous letter “as I represent no party to (the SunTrust) action.” He also said he hadn’t meant to cast doubt on Brown’s character.

That letter wasn’t enough to appease Judge Johnson in Alabama, however, especially after Hayslip told her he was out of the country and unavailable to attend the status conference Robbins Geller had requested. In the seven-page order Johnson issued Tuesday, she blasted Hayslip for contacting Duffey and for accusing Robbins Geller of misleading her. Indeed, she said the defense lawyer was the one who had “engaged in a pattern and practice of submitting unsubstantiated and misleading statements to this court.” Johnson ordered Hayslip to draft a letter to Duffey and to the 11th Circuit “containing a sincere apology for misleading and attempting to mislead (them).” The judge also said she’d lift the protective order in the Regions case so Robbins Geller could address the assertions in Hayslip’s letter when it appears before Duffey in the SunTrust hearing later this month.

I reached out to Brown of Robbins Geller but didn’t hear back. Hayslip told me in an email that he is still out of the country and is working on a response to Judge Johnson’s order. In his Nov. 30 letter to Duffey, he said that he did not believe he’d done anything wrong or violated a protective order by sending his first letter to the Atlanta judge.

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