In legal briefs filed in the last week, Mark Cuban and the SEC continued to attack each other for their conduct in discovery. On December 13, 2011, Mr. Cuban responded to the Commission’s November 22 Motion to Compel (which asked the Court to order Mr. Cuban to produce a privilege log of documents) by arguing that: (1) he had already produced a log for the years 2004 to 2006; and (2) the Commission was asking for a log of documents for the 2007 to 2011 time-frame, long after the events in dispute took place. The SEC filed its own motion on December 16, 2011, asking that Mr. Cuban be ordered to appear for his deposition at some point in December or January (as opposed to the day before the February 17, 2012 discovery cut-off, which was the only date Mr. Cuban had proposed). While the on-going disputes are over procedural issues, they relate to documents from the investigation from the period long-after the events in the case and provide an interesting look at the strategy of both the SEC and the defense in litigating this matter.
The SEC brought its insider trading case against Mark Cuban in November 2008, alleging that Mr. Cuban, who was aware of the planned PIPE offering by Mamma.com, sold his entire stake in the company prior to the announcement of the offering in June 2004, avoiding a $750,000 loss. SEC v. Cuban No. 3-08-cv-2050 (N.D. Tex. filed Nov. 17, 2008). His Motion to Dismiss was granted in the District Court, but the Fifth Circuit Court of Appeals reversed and remanded the case to the District Court. SEC v. Cuban, No. 09-10996, slip op. (5th Cir. Sept. 21, 2010).
Throughout the case, Mr. Cuban has raised a number of interesting arguments, including: (1) an affirmative defense that the SEC had "unclean hands" based on the conduct of Division of Enforcement staff members during the investigation, which was rejected by Judge Sidney Fitzwater on July 18, 2011 when he granted the SEC’s Motion to Strike the defense (as discussed here); and (2) a complaint filed with the SEC Office of Inspector General ("OIG"), making arguments regarding alleged violations of SEC policy and bias of SEC staff members during the investigation, about which the OIG stated that it "did not find sufficient evidence to substantiate any allegations of misconduct" (as discussed here).
In late August, 2011, Mr. Cuban filed a motion to compel (the supporting brief is available here) seeking the production of the non-privileged portions of the SEC’s investigative file (including the notes of the Enforcement attorneys taken during the investigations regarding Mr. Cuban and Mamma.com), as well as the production of a privilege log of all documents it withheld from production on grounds of privilege. Mr. Cuban ‘s arguments regarding why he was entitled to production of documents from the investigation included:
• he was entitled to the non-privileged portions of the investigative file from the SEC’s Mamma.com investigation evidencing the relationship between the Mamma.com investigation and the investigation into Mr. Cuban because they would be relevant to (1) the credibility of the Mamma.com witnesses (and their possible bias in favor of the SEC) and (2) Mr. Cuban’s scienter with respect to his sale of Mamma.com stock; and
• he was entitled to the factual portions of the interview notes and summaries from the SEC’s interviews of witnesses taken in the course of the investigation because the statements made by witnesses earlier in the course of this matter since the statements may have changed over time and Mr. Cuban has a compelling need to determine precisely how the "story" of certain witnesses may have evolved (the SEC recently prevailed in another case seeking discovery of staff notes under different circumstances, as discussed here).
Mr. Cuban also asserted that the SEC should provide a privilege log of all documents it has withheld from production on grounds of privilege during discovery. In late September, Mr. Cuban filed an amended brief (available here) in support of the motion to compel.
The SEC responded to Mr. Cuban’s amended brief in mid-October, arguing that "[t]here is no relevant, discoverable material that the SEC has not already produced," and that it has valid objections to requests for "the production of materials that are not within the scope of discovery under the Federal Rules." The SEC also argued that it "the SEC has already undertaken considerable burden in providing an extensive privilege log that substantially overlaps with the log" that is the subject of Mr. Cuban’s motion.
As discussed here, on November 22, 2011, the SEC filed its own Motion to Compel, asking the Court to order Mr. Cuban to produce a privilege log of his documents (from the period the SEC was investigating him) which were withheld on privilege grounds. According to the Commission, he has refused to do so because it "it would be burdensome to log a large number of plainly privileged communications." Interestingly, the Commission acknowledged that Mr. Cuban produced a privilege log for a period through December 18, 2006, but has not produced such a log for the period after December 31, 2006, i.e., while the SEC’s investigation was underway and years after he sold his shares in Mamma.com. In part, the SEC argued that it had already provided such a privilege log for that time frame, and Mr. Cuban should have to do so as well.
On December 13, 2011, Mr. Cuban responded to the SEC’s November 22 Motion to Compel by arguing that the SEC "fails to articulate a single colorable reason why it needs a privilege log for documents dated years after the operative allegations upon which the SEC’s claims are based." He further argues that the documents consist of almost entirely privileged communications between Mr. Cuban and his counsel "during the time period Mr. Cuban’s counsel were defending him in the SEC’s investigation of Mr. Cuban and in the early stages of this action." Mr. Cuban further questions the motivation of the SEC for filing the Motion:
Given the facial unreasonableness of the SEC’s position, one is left to wonder why the SEC brought its motion in the first place. Perhaps it was a defensive maneuver on the part of the SEC. Mr. Cuban himself recently moved to compel the SEC to produce a privilege log relating to document requests propounded by Mr. Cuban during the merits phase of this case. Maybe the SEC hopes the Court will simply deny both pending motions, or, alternatively, grant them both.
The day after Mr. Cuban filed his Opposition, the SEC filed a new Motion, this time arguing that Mr. Cuban should be ordered to appear for his deposition in either December or January, rather than on the only day he has offered – the day before the February 17, 2012 discovery cut-off. The SEC stated that the parties had previously agreed to a November 18 deposition date and then postponed it to December 16, 2011. According to the Commission, Mr. Cuban, in early December, objected to the new date and stated he would propose a February date. The SEC objected and requested a date in December or January (at least 30 days before the close of discovery). Mr. Cuban’s counsel then stated he would only be available on February 16, 2012 – one day before the close of discovery and, according to the SEC, would not discuss alternatives. The SEC then moved to compel his testimony on an earlier date, which the Commission wanted "sufficiently advance of the close of discovery to allow for any follow up discovery that may be required based on his testimony." The SEC further asserted that "[t]his is a reasonable request, and consistent with the approach the Commission would take in any enforcement action."
On December 16, 2011, the Court set a briefing schedule for the Motion to Compel the testimony, ordering Mr. Cuban’s response by December 22, 2011 and the SEC’s Reply Brief by December 29, 2011.
By early 2012, all three motions – Mr. Cuban’s Motion to Compel the production of documents, the Motion to Compel a privilege log by the SEC and the Motion to Compel Mr. Cuban’s deposition – should all be fully briefed for Judge Fitzwater. While the procedural "journey" to this point has provided an interesting look at the strategy of the SEC and defense, what the Judge elects to do at that point should provide some insight as to the benefits of the strategy for each side.