In re Nasdaq Market-Makers Antitrust Litigation

• Decision Date: 06 June 1996
• Docket Number: M.D.L. No. 1023. 94 Civ. 3996 (RWS).
• Citation: 929 F. Supp. 723
• Parties: In re NASDAQ MARKET-MAKERS ANTITRUST LITIGATION.
• Court: U.S. District Court — Southern District of New York

929 F. Supp. 723

In re NASDAQ MARKET-MAKERS ANTITRUST LITIGATION.

M.D.L. No. 1023. 94 Civ. 3996 (RWS).

United States District Court, S.D. New York.

June 6, 1996.

Fine Kaplan and Black, Philadelphia, PA (Arthur M. Kaplan, of counsel), Lovell & Skirnick, L.L.P., New York City (Christopher Lovell, of counsel), Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, CA (Leonard B. Simon, of counsel), for Plaintiffs.

Shearman & Sterling, New York City (Joseph T. McLaughlin, James T. Halverson, of counsel), Liaison Counsel for Defendants and Defendant Herzog, Heine, Geduld, Inc.

Sullivan & Cromwell, New York City (John L. Warden, Michael Lacovara, of counsel), for Defendant Goldman, Sachs & Co.

OPINION

SWEET, District Judge.

This opinion sets out the reasoning underlying this Court's Joint Pretrial Order Number 3 (the "Pretrial Order"), dated March 18, 1996, which ordered, inter alia, that the plaintiffs in this consolidated proposed class action be given access to certain materials related to Civil Investigative Demands ("CIDs") made of the defendants by the Antitrust Division of the United States Department of Justice (the "DOJ", the "Department", or the "Justice Department").

Background

The background of this matter is set out in detail in this Court's previous opinions in this action, In re NASDAQ Market-Makers Antitrust Litig., 1996 WL 187409, 94 Civ. 3996 (RWS) (S.D.N.Y. Apr. 18, 1996); In re NASDAQ Market-Makers Antitrust Litig., 164 F.R.D. 346 (S.D.N.Y.1996); In re Nasdaq Market-Makers Antitrust Litig., 894 F.Supp. 703 (S.D.N.Y.1995), familiarity with which is assumed.

In May 1994, Plaintiffs filed their complaint in this action, alleging the price fixing of spreads of stocks traded on the NASDAQ exchange. The Judicial Panel on Multidistrict Litigation consolidated the litigation before this Court, and Plaintiffs thereafter served consolidated document requests and interrogatories on all Defendants.

In October 1994, the Justice Department announced its own investigation of the NASD, in the course of which it served CIDs requesting the production of documents, answers to interrogatories, and deposition testimony.

On December 6, 1995, Plaintiffs moved for an order, pursuant to Federal Rule of Civil Procedure 37(a) to compel Defendants to produce, to the extent responsive by subject matter to their consolidated discovery requests, CID interrogatories, documents reflecting agreements modifying the CIDs, answers to the CID interrogatories, CID deposition transcripts, and CID financial discovery; and to modify the Stipulated Order Regarding Confidential Documents (the "Confidentiality Order") to permit Plaintiffs to confer with the DOJ regarding Defendants' compliance with Court orders regarding CID discovery.

On December 20, 1995, Defendants filed their Notice of Motion pursuant to Rule 37 to compel discovery and for a scheduling order. Oral arguments on both Plaintiffs' and Defendants' motions were heard on January 17, 1996.

Plaintiffs' and Defendants' motions were resolved by Joint Proposed Pretrial Order No. 3 (the "Pretrial Order"), prepared jointly by the parties and ordered by this Court on March 7, 1996. The Pretrial Order reflected, in part, statements issued by the Court at a pretrial conference held on February 7, 1996 (the "Pretrial Conference"). It read in part:

6. On February 28, 1996, each defendant will identify those of its current employees or former employees who were deposed by the DOJ in connection with the Nasdaq investigation, to the extent known to that defendant.

7. By March 7, 1996, each defendant shall produce copies of all materials, not previously produced pursuant to the Stipulated Order, that were given to the Department of Justice, Antitrust Division, pursuant to Civil Investigative Demands as described in the Stipulated Order, setting forth revenues, costs, profit and/or losses derived from trading Nasdaq securities.

. . . . .

10. By March 20, 1996, defendants shall produce copies of all interrogatory answers that were given to the Department of Justice, Antitrust Division, pursuant to Civil Investigative Demands as described in the Stipulated Order, to the extent such answers related to the operation and structure of the Nasdaq Stock Market. Defendants shall also produce the interrogatories to which answers are being produced pursuant to this paragraph.

The reasoning underlying the Pretrial Order as a whole was stated in open court. This Opinion sets forth the reasoning of the parts of the Pretrial Order, pertaining to the CIDs.

Discussion

Rule 26 of the Federal Rules of Civil Procedure provides that "parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action," without regard to whether the material sought will be admissible at trial, "if the information sought appears reasonably calculated to lead to the discovery of admissible evidence." Rule 26(b)(1), Fed.R.Civ.P. As the Supreme Court stated in Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 98 S.Ct. 2380, 57 L.Ed.2d 253 (1978), "`relevant to the subject matter involved in the pending action' — has been construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case." Id. at 351, 98 S.Ct. at 2389.

Because certain of the CID materials sought by Plaintiffs were relevant and not privileged, their production was compelled.

The CID Materials Are Relevant

The Supreme Court has cautioned that the relevancy requirement of Rule 26(b)(1) "should be firmly applied." Herbert v. Lando, 441 U.S. 153, 177, 99 S.Ct. 1635, 1649, 60 L.Ed.2d 115 (1979); see also In re Surety Assoc. of Am., 388 F.2d 412, 414 (2d Cir.1967). However, "where the proof is largely in the hands of alleged conspirators," antitrust plaintiffs must be given "ample opportunity" for discovery. Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 746, 96 S.Ct. 1848, 1853, 48 L.Ed.2d 338 (1976); see, e.g., In re Shopping Carts Antitrust Litig., 95 F.R.D. 299 (S.D.N.Y.1982).

The requested CID materials could provide additional evidence regarding liability and damages and potential impeachment material and lead to the discovery of other admissible evidence. These include documents setting forth revenues, costs, profits, or losses derived from trading NASDAQ securities; interrogatory answers related to the operation and structure of the NASDAQ market (and the underlying CIDs); and the identities of those of each defendant's current or former employees deposed by the DOJ in connection with the investigation, to the extent known to that defendant. The financial information, in particular, is relevant, in that it may show that common questions predominate for purposes of class certification under Rule 23(b)(3). Indeed, courts have held that financial information can be particularly relevant in price-fixing cases. See, e.g., In re Wirebound Boxes Antitrust Litig., 129 F.R.D. 534, 539 (D.Minn.1990), citing In re Shopping Carts Antitrust Litig., 95 F.R.D. 299, 308 (S.D.N.Y.1982), In re Folding Carton Antitrust Litig., 76 F.R.D. 420, 427 (N.D.Ill.1977).

The CID Materials Are Not Privileged

The Antitrust Civil Process Act ("ACPA"), 15 U.S.C. §§ 1311 et seq., pursuant to which the Justice Department issued its CIDs, does not establish a privilege for the materials held by Defendants. Its language indicates that the restrictions on disclosure are one-sided, providing that: "while in the possession of the custodian, no documentary material, answers to interrogatories, or transcripts of oral testimony, or copies thereof, so produced shall be available for examination, without the consent of the person who produced such material, answers, or transcripts...." 15 U.S.C. § 1313(c)(3).

Indeed, the few cases that have addressed this question have come down squarely in favor of compelling the production of CID materials in the hands of Defendants. Their sound reasoning applies here as well and suggests that the CID materials requested by Plaintiffs are not privileged. In In re Domestic Air Transp. Antitrust Litigation ("Domestic Air II"), 142 F.R.D. 354 (N.D.Ga.1992), and In re Domestic Air Transp. Antitrust Litigation ("Domestic Air I"), 141 F.R.D. 556 (N.D.Ga.1992), the court held that "the ACPA provides no protection against release by any other party who has possession of the CID document." Domestic Air II, 142 F.R.D. at 356. The court thus compelled the defendants to produce the CIDs and the answers to CID interrogatories, since "only the custodian of the documents is prohibited from disclosing the information to the general public." Domestic Air I, 141 F.R.D. at 560. Similarly, in In re Air Passenger Computer Reservation Sys. Antitrust Litig., 116 F.R.D. 390 (C.D.Cal.1986) ("Air Passenger"), the court held that "neither the statutory language nor the legislative history supports defendants' view that CID deposition transcripts are not discoverable when held by defendants in civil actions." Id. at 393.

Defendants suggested that these courts' interpretation of the ACPA fails to appreciate the balance Congress struck between expanding the DOJ's investigatory powers and encouraging the cooperation of private parties by ensuring the confidentiality of their responses to CIDs and that the protection provided in Section 1313(c)(3) becomes meaningless if a third party can circumvent the DOJ and serve a subpoena on a CID recipient. They point to Alcoa v. United States Dept. of Justice, 444 F.Supp. 1342 (D.D.C.1978). There, the Court noted that:

The ultimate purpose of the 1976 Amendments was to "increase the effectiveness of antitrust investigations." In order to achieve this result, Congress expanded the investigatory powers of the Division by, among other things, authorizing the Division to issue CIDs for answers to written interrogatories and oral testimony.... However, concomitant with the

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