Law Firms Blasted Over Treatment of Witnesses

MANHATTAN (CN) - A federal judge gave a tongue-lashing to a pair of law firms for outing and misquoting confidential informants in a failed class action securities case against Millennial Media.

Shareholders claimed in Manhattan Federal Court that the digital-advertising company lost 86 percent of the $310 million it made since its 2012 initial public offering.

But plaintiffs started dropping like flies, and the case was dismissed last month.

That was because the confidential witnesses weren't told by attorneys at Labaton Sucharow and Bernstein Litowitz Berger & Grossmann that they were going to be used as plaintiffs in the case, and were misquoted, U.S. District Judge Paul Engelmayer wrote in his scathing May 29 opinion.

"The court, the public, and above all such witnesses have the right to expect better of counsel," Engelmayer wrote. "They have a right to expect counsel to treat witnesses with decency. They have a right to expect counsel, before designating a person as a [confidential witness], to take into account how that person might be affected were this designation to lead to his identification."

Engelmayer continued: "They have a right to expect counsel to consider thoughtfully, for each person who submits to an interview, whether the consequences of potentially outing that person are justified - genuinely justified - by counsel's duty of zealous representation of their clients."

By "globally identifying" 11 interviewees as confidential witnesses with no advance notice, attorneys "treated these people shabbily."

"The court's hope and expectation is that, in future cases, counsel will aspire to better," he wrote.

He said 10 of 11 confidential witnesses were interviewed solely by a Labaton investigator, but never by the attorneys at the firms who pursued the case.

Four then asked that all references to them be dropped in subsequently filed amended complaints. Several said they were misquoted.

"This case addresses underscores why it is a best practice - if not an ethical imperative - for counsel ... to verify the statements that counsel propose to attribute," the judge wrote.

The admonishing comes after two securities class actions were filed against Millennial Media Inc. in March 2012 and May 2014. Those cases were then consolidated.

The resulting amended complaint claimed that the digital advertising company lied about its technological capabilities and outlook to inflate stock prices.

Four days before defendants were to file their motion to dismiss last April, plaintiffs filed a letter to remove all references from a confidential informant.

What attorneys didn't say in their filing is that the informant never agreed to be quoted in the lawsuit.

Engelmayer let plaintiffs file a newly amended complaint, and gave the media company two weeks to answer.

Four affidavits then surfaced, from the confidential witness and three others from those associated with Labaton, featuring strongly worded emails that the informant was never told he or she would be quoted as a confidential witness.

Plaintiffs then revealed that attorneys had never spoken to 10 of the 11 confidential witnesses in the lawsuits, and that they were only interviewed over the phone by an investigator with Laboron.

None were told they would be quoted.

Three more confidential witnesses then asked to be dropped from the complaint. At least four confidential witnesses said they were misquoted.

Plaintiffs sought to dismiss the case last month.

The judge, however, ordered attorneys to publicly file redacted versions of their submissions a few days later that removed the confidential witnesses' names.

He said the decision by the four confidential witnesses to be removed is "unsettling."

"Counsel's practices with regard to preparing the complaint create significant potential for inaccuracy," he wrote.

"These circumstances raise serious questions," Engelmayer wrote. "Did plaintiffs' counsel take proper care to verify the statements attributed" to confidential witnesses before an amended complaint was filed? he posited.

And were the confidential witnesses "fairly treated when, without notice, they were designated" in the complaint, "creating a risk that their names would be revealed later in this litigation?"

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