We’ll probably never know the identity of the Appellant in Lefkoe v. Jos. A. Bank Clothiers, Inc., decided yesterday by the Fourth Circuit.  Whether anyone, including the Defendant, was entitled to know that person’s name was the whole point of the appeal by the party referred to by the Fourth Circuit as the "Doe Client."

The Doe Client had accused Jos. A. Bank, a publicly traded company, of serious accounting fraud. That individual, who claimed a constitutional right to anonymity, appealed a ruling of a trial judge in the District of Maryland ordering his or her identity to be disclosed to the Defendant.

The Fourth Court’s ruling touches both deposition and subpoena procedure under the Federal Rules of Civil Procedure as well as issues of freedom of speech under the First Amendment.

Background

You’ll need more than a little bit of background, as the case has elements of a John Grisham novel. Lefkoe is a securities class action. Plaintiffs assert fraud based on a sharp drop in the clothing company’s share price when it delayed an earnings report.

The delay occurred because Bank’s Audit Committee had received, shortly before the report’s due date, a letter from the law firm of Foley & Lardner making detailed charges of accounting improprieties.The letter was sent by the law firm on behalf of a shareholder who it said "held several hundred thousand shares" of Bank stock. The shareholder was not identified in the letter.

Bank hired lawyers and accountants to investigate the charges. The conclusion of the investigation was that the charges were "without substance." In the securities lawsuit, filed in federal court in Maryland, Bank sent a subpoena to the law firm seeking to require it to present a witness to testify as to the identity of its client. The subpoena was issued from the Massachusetts district court.

The law firm objected there to the subpoena, asserting that its client had "a right of anonymity as protected by the First Amendment." The Massachusetts judge permitted the deposition to take place. The law firm presented the Doe Client as the witness. The Court ordered the deposition sealed and entered a protective order stating that the lawyers for Bank couldn’t tell their client the name of the Doe Client.

The lawyers for Bank investigated the Doe Client, and found facts suggesting it had taken "deliberate and successful actions to drive down the market price" of Bank stock, and furthermore that it was a short seller who held a substantial quantity of puts on Bank stock.  The Doe Client therefore stood to profit from the decline in Bank stock.

The clothing company’s lawyers then asked the Maryland judge to permit them to provide the name of  the Doe Client to Bank. The Maryland judge agreed to a wider disclosure, but only to Bank’s in-house counsel.

The Doe Client appealed to the Fourth Circuit, arguing that the Maryland court didn’t have the authority to modify the Massachusetts’ court’s ruling, and furthermore that the ruling violated the Doe Client’s First Amendment rights.Continue Reading Law Firm’s Client Didn’t Have First Amendment Right To Be Anonymous