Public Employees' Retirement System of Mississippi v. Stanley et al

Filing 249

OPINION & ORDER: This is a securities action brought on behalf of a putative class in which the plaintiffs assert claims relating to the marketing and sale of mortgage-backed security pass-through certificates (the "Certificates") issued by Morgan Stanley Capital I, Inc. The case involves 13 Offerings, which occurred between March 27, 2006 and October 26, 2006. It alleges strict liability and negligence claims brought pursuant to the Securities Act of 1933 (the "1933 Act"). T he Court assumes the parties' familiarity with the issues... BNY shall provide the sworn statement as directed above by September 27, 2013. For those series for which numerosity cannot be established based solely on BNY's unique investors, by October 4, 2013, plaintiffs shall provide to BNY (i) by series, the number of unique investors needed to presumptively establish numerosity for purposes of plaintiffs' motion for class certification, and (ii) for those series where numerosity has not been satisfied based on BNY's sworn statement, the names of those unique investors already identified by other financial institutions to avoid double-counting concerns. Unless such information is rendered unnecessary in light of defenda nts' opposition to plaintiffs' class certification motion, by November 1, 2013, BNY shall provide the identity of those unique investors sufficient to establish presumptive numerosity. All documents and information produced pursuant to this Order shall be governed by the parties' Protective Order for the Production and Exchange of Confidential and/or Highly Confidential Information (Doc. No. 207). SO ORDERED. (See Order). (Signed by Magistrate Judge Sarah Netburn on 9/19/2013) (ja)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------------------------------X
IN RE MORGAN STANLEY MORTGATE
PASS-THROUGH CERTIFICATES
LITIGATION

9/19/2013

09-CV-02137 (LTS)(SN)
OPINION & ORDER

-----------------------------------------------------------------X
SARAH NETBURN, United States Magistrate Judge:
This is a securities action brought on behalf of a putative class in which the plaintiffs
assert claims relating to the marketing and sale of mortgage-backed security pass-through
certificates (the “Certificates”) issued by Morgan Stanley Capital I, Inc. The case involves 13
Offerings, which occurred between March 27, 2006 and October 26, 2006. It alleges strict
liability and negligence claims brought pursuant to the Securities Act of 1933 (the “1933 Act”).
The Court assumes the parties’ familiarity with the issues.
Following a conference at which multiple discovery disputes were addressed, the Court
directed the parties to submit letter motions related to any outstanding matters that were not
resolved by the Court or agreed to by the parties following the conference. Among other letter
motions, the plaintiffs filed an application concerning the refusal by non-party Bank of New
York Mellon Corporation (“BNY”) to comply with plaintiffs’ April 29, 2013 subpoena (the
“Subpoena”). The Subpoena seeks: “(1) documents identifying any persons to whom BNY sold
any of the Certificates at issue as well as BNY’s own purchase, sale or transfer of interest in any
Certificate; and (2) documents concerning any distribution received related to the Certificates
and all documents identifying any persons on whose behalf BNY received distributions.”
Plaintiffs allege that this information is necessary to satisfy Rule 23’s numerosity requirement.

According to plaintiffs, “BNY’s records identify more unique beneficial owners than any other
third party.”
BNY objects to enforcement of the Subpoena on the ground that the information sought
is not relevant to any party’s claim or defense, that it contains confidential customer information,
and that compliance with the Subpoena would be overly burdensome. As a compromise position,
in its August 8, 2013 letter to the Court, BNY offered to provide “the number (but not identities)
of customers by series (i.e., potential sub-class).” BNY contends that, “for those series where
there were sufficient numbers of BNY Mellon’s own customers for a presumption of numerosity
(50 or more), there would be no arguable need for those customers’ identities and no ‘doublecounting’ concerns.” For those series where there was not sufficient investors identified, BNY
has further agreed to seek disclosure from a “reasonable” number of customers based on the
“gap” number between the investors identified by other financial institutions and the presumptive
numerosity amount.
Following the Court’s August 12, 2013 hearing, the parties (plaintiffs and defendants)
were directed to meet-and-confer to see if any anticipated numerosity challenge could be
resolved or narrowed. In letter submissions dated August 23, 2013 and August 26, 2013, the
parties indicated that no compromise position could be reached before the submission of
plaintiffs’ class certification motion, anticipated to be filed on August 30, 2013. Following the
filing of that motion, the Court gave the parties one last opportunity to resolve this dispute
without judicial intervention. That effort has proved unsuccessful, resulting in this order.
DISCUSSION
To obtain certification under Rule 23, it is the plaintiff’s burden to establish that the
action satisfies the numerosity, commonality, typicality and adequacy criteria of Rule 23(a) and

2

fits into one of the three categories described in Rule 23(b). See General Tel. Co. v. Falcon, 457
U.S. 147, 160 (1982); Wilner v. OSI Collection Servs., Inc., 198 F.R.D. 393, 396 (S.D.N.Y.
2001). Accordingly, the plaintiffs have the burden of demonstrating that the class is “so
numerous that joinder of all members is impracticable.” Fed. R. Civ. P. 23(a). In this Circuit,
numerosity is presumed when a class consists of forty or more plaintiffs. Consol. Rail Corp. v.
Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995).
The Court finds that the information sought by the Subpoena is plainly relevant to
plaintiffs’ class certification motion and therefore permissible under the broad discovery allowed
under Rule 26 of the Federal Rules of Civil Procedure. As the Court’s efforts reveal, defendants
will not concede the numerosity requirement, and therefore plaintiffs must demonstrate a
reasonable estimate – even if not a precise quantification – of the number of class members. See
Assif v. Titleserv, Inc., 288 F.R.D. 18 (E.D.N.Y. 2012) (“As plaintiff bears the burden of
demonstrating numerosity, he must show some evidence of or reasonably estimate the number of
class members.”) (quoting Russo v. CVS Pharmacy, Inc., 201 F.R.D. 291, 295 (D. Conn. 2001)).
BNY has, however, presented a compelling argument that disclosure of the identity of
every investor who purchased the Certificates will be burdensome. Counsel for BNY represented
to the Court that it is likely that “many hundreds of customers would be implicated” by the
Subpoena, and that internal efforts to obtain consent before disclosure would take “a multimonth period, likely requiring the hiring of dedicated temporary or overtime workers.” See
Arista Records LLC v. Lime Grp. LLC, 06 Civ. 5936 (KMW), 2011 WL 781198, at *2
(S.D.N.Y. Mar. 4, 2011) (“When balancing the relevance of a particular discovery request
against the burden of production, ‘special weight [should be given] to the burden on non-parties
of producing documents to parties involved in litigation.’” (quoting Copantitla v. Fiskardo

3

Estiatorio, Inc., 09 Civ. 1608, 2010 WL 1327921, at *10 (S.D.N.Y. Apr. 5, 2010))) (internal
citation omitted).
Mindful of plaintiffs’ burden to demonstrate numerosity and, therefore, their legitimate
need for this information, weighed against BNY’s respect for its customers’ privacy and the
burden imposed upon BNY to obtain consent before disclosure of customer information, the
Court orders BNY to provide plaintiffs, in a sworn statement, with the number of unique BNY
customers by series (i.e., potential sub-class). For those series where a presumption of
numerosity may be satisfied based solely on BNY’s customers, no identifying information must
be produced. For those series where a presumption of numerosity cannot be satisfied based
solely on BNY’s customers, BNY must identify a number of its customers for each series in an
amount equal to the difference between those unique investors already identified by other
financial institutions and a presumptive numerosity amount.
CONCLUSION
BNY shall provide the sworn statement as directed above by September 27, 2013. For
those series for which numerosity cannot be established based solely on BNY’s unique investors,
by October 4, 2013, plaintiffs shall provide to BNY (i) by series, the number of unique investors
needed to presumptively establish numerosity for purposes of plaintiffs’ motion for class
certification, and (ii) for those series where numerosity has not been satisfied based on BNY’s
sworn statement, the names of those unique investors already identified by other financial
institutions to avoid double-counting concerns. Unless such information is rendered unnecessary
in light of defendants’ opposition to plaintiffs’ class certification motion, by November 1, 2013,
BNY shall provide the identity of those unique investors sufficient to establish presumptive
numerosity. All documents and information produced pursuant to this Order shall be governed

4

by the parties’ Protective Order for the Production and Exchange of Confidential and/or Highly
Confidential Information (Doc. No. 207).
SO ORDERED.

DATED: New York, New York
September 19, 2013

5