Untangling Messy Records: The Defense Process in Securities Litigation

Kyle McEntee:

We're joined today by Tijana Brien, a partner at a large elite firm who spends most of her time focused on securities litigation. First off, what is securities litigation? Or better yet, how would you describe what you do to a kid?

Tijana Brien:

I actually have to describe what I do to a kid a lot because I have two young kids. And I would say that securities litigation is at its core, and at least in my practice, the defense of companies and people that work at companies when things go wrong. So when a clinical trial doesn't produce the results you're hoping for, or the cash situation doesn't look as everyone had hoped, lawsuits follow. And that's where I come in.

Kyle McEntee:

Sounds like you're dealing a lot with bad information, whether potentially intentional or accidental.

Tijana Brien:

I mean, I wouldn't say it's bad information. I would say that it is information that turns out to maybe be incorrect, even if at the time it was sort of honestly held and people were sharing optimistic views. Eventually, it does end up turning to be incorrect.

Kyle McEntee:

So in the world of securities, we have all these rules of financial markets. Can you talk a little bit about what those rules are and the kind of rules that you're dealing with when you're assessing the statements that people are making publicly?

Tijana Brien:

Securities litigation is an incredibly broad practice. But a lot of what we do is very much focused on public companies and securities fraud. So that's what I'm going to be talking about.

And the statements that companies make, at least on the side that I see them on the litigation side, tend to be primarily governed by the Securities Exchange Act and the Securities Act, which are federal laws. And typically, what we are dealing with is an assessment of whether statements were false and misleading, either under Section 10b of the Securities Exchange Act or Section 11 of the Securities Act, which is specific to companies who are sort of going public for the first time or putting sort of more stock into the market for the first time.

Kyle McEntee:

Did you always want to end up litigating these sorts of big money, bet the business sort of matters?

Tijana Brien:

I would not say always, no. I was born in the former Yugoslavia. And when I was five years old, the war in Yugoslavia started. And my dad had actually gone to law school in Yugoslavia, but was not practicing at the time, but had planned to do that sort of when he retired from the work that he was doing. We had to flee Yugoslavia when the war started. And so he was no longer able to sort of make his life goal come true.

So little five-year-old me looking at him and my mom and everything that they had sort of sacrificed, decided that I would make them feel better by telling my dad that I was going to become a lawyer for him. I certainly had a very different view of what I thought I would do as a lawyer when I was five years old.

But you know, I went to law school and went through the OCI process. And that was really the first time I learned about big law and what big law firms like this do. And I think once I got exposure to that, it certainly was very appealing to come and work for a law firm like Cooley, where not only do we handle these really sort of serious bet the company lawsuits, but we do it for companies that are sort of at the forefront of what they do. They're really trying to change the world, you know, whether it's from a life sciences or technology standpoint.

Kyle McEntee:

Yeah, there's all kinds of different ways to contribute to the world. The economy kind of keeps us going. And the world of securities litigation, it's a big part of that, I think, actually. So can you talk about the kind of situations that you're brought in for?

Tijana Brien:

In the securities litigation side, sometimes we're brought in when things are going great. And they just want a gut check of we want to say this to the public. Can you help us make sure that we say it properly?

But a lot of the time we're brought in when something bad has happened. The company's future is not panning out as they had hoped. And it's really our job to help them get through what's happened. One, figure out how to disclose it to the public. And then two, you know, help them through sort of the aftereffects of such a disclosure, which typically involves several lawsuits in different forums, as well as government investigations.

Kyle McEntee:

So it's not the public that is bringing the case for these non-governmental suits. Who actually is filing these lawsuits? And what are they saying?

Tijana Brien:

Typically, what we see is one or more investors who are seeking to serve as a lead plaintiff in what is a securities class action lawsuit. And that can be either an individual investor who has lost money on their investment by investing in this particular company, or it can be an institutional investor. So that is typically like a pension fund or a retirement fund, some sort of entity that as part of their investment portfolio had some holdings in the company in question and now would like to serve as a lead plaintiff.

And of course, what you also see is that frequently there are plaintiffs law firms that sort of do this work all the time, right? And they have arrangements with these institutional investors where they're actually monitoring their stock portfolios. And anytime there's a big drop, they go to them and they say, hey, this just happened. Do you want to be a plaintiff here? Do you want to help sue? Or what they'll do is they'll publish these press releases when there's a big stock drop. And those are really aimed more at sort of the individual investors. And they'll say, hey, the stock dropped. We think that maybe there was an issue here. And you fill out a form to indicate your interest that you want to be a lead plaintiff.

Kyle McEntee:

And so the idea here is that the investor is saying, “hey, company, you made some statements. We think they were false or at least misleading. It inflated the value of the stock. Something was realized and therefore the price dropped. And now we want to be made whole. We're not happy we lost all this money. “And you're coming in and you're helping the company or their directors or some of their key employees defend that claim that what they said was false or misleading or material or something else.

Tijana Brien:

Yes, that's exactly right. So what we see is and these lawsuits tend to be created backwards. What we see is a stock drop and typically there's some sort of disclosure, whether it's the announcement of financial results, whether it's the announcement of the performance of a particular clinical trial or drug or sometimes it might be even more sort of event specific, a CEO resigns, whatever it might be. We see that stock drop and then work backwards where then the plaintiff's firm looks at statements that the company has made over X number of years to see if, you know, in their view, there's a disconnect between what was being said and what ultimately transpired.

From there, they build their allegations. And typically, what we see is there's sort of a we call it a placeholder complaint. There's an initial complaint that's filed. It's pretty bare bones, but it gives you some sense of this is the time frame and the theory we're talking about. And these are kind of the people we think made these statements. And then there's a process for a lead plaintiff to be appointed.

And so there's sort of a typically three to four plus month time frame where the company isn't doing much other than sort of gathering facts in the background while the selection of the lead plaintiff is duked out between the different law firms and lead plaintiffs.

And then we get what is sort of this amended complaint that's much more robust and sometimes can be up to 200 pages and 100 plus statements over three years where we then have to figure out how to best help defend that.

And typically the way that that's initially defended is at a motion to dismiss stage where we attack sort of the various elements that they have to allege and whether they've been properly pled.

Kyle McEntee:

So one of the other big facets of your work are these shareholder derivative lawsuits. Can you explain exactly what that is?

Tijana Brien:

So a shareholder derivative lawsuit, and you'll very often see it as sort of a tag along lawsuit to a securities class action. So you have a securities class action that says, hey, the company and the executives made false and misleading statements. What you then also see are shareholder derivative lawsuits. Those are lawsuits brought on behalf of the company by a shareholder derivatively. That's why they're called derivative lawsuits. And what they allege is typically it's against the board of the company.

Hey, the board members allowed the executives to make these statements. They weren't doing enough to prevent it from happening. Sometimes we'll see them when there's an underlying products liability lawsuit or an underlying privacy lawsuit or a government investigation, whatever it might be.

But it typically does end up being sort of tied back to some underlying lawsuit. And then the shareholder derivative lawsuit claims that the board sort of should have done something, but didn't do it.

Kyle McEntee:

I think this might sound a little strange to people. Well, first of all, this is about accountability. These derivative suits are on behalf of the company, but you're representing the company. And so to me, it's a little strange that they're filing on behalf of the company, but you represent the company and they're suing the company. Can you unpack that a little bit and maybe demystify it?

Tijana Brien:

It is strange and it is technically improper. There are requirements, certainly in Delaware where most companies are incorporated, but also in other states where before a shareholder can take action on behalf of the company, they're actually supposed to go to the company and they're supposed to go to the board of directors and say, hey, you should do this. And if they don't do that, then they can't actually bring a derivative lawsuit.

But what we often see in these cases is a claim of demand futility where they say, hey, I couldn't go to the board and tell the board to do it because the board is interested or sort of has relationships with the executives or whatever it might be. And so a lot of times what we'll see in the shareholder derivative actions is the first fight tends to be on this demand futility piece, which is, was a majority of the board interested such that they could not have taken up this demand and properly assessed it.

But we also, as part of sort of the same set of different matters we see arising out of kind of the same event, we will also get shareholder demands. So some shareholders will actually concede that the board can take up the demand and that the board's not interested. And they will send us a letter that says, hey board, you should go do this. And so there's sort of lots of different facets and lots of different ways that plaintiffs and shareholders try to get a piece of the action when something like this happens.

Kyle McEntee:

So with all this going on, your day feels like it's probably pretty chaotic sometimes. Can you talk a little bit about what your day-to-day actually looks like?

Tijana Brien:

In my career today, I tend to be in a lot of meetings, a lot of client calls, counseling of clients on various issues, meet and confers with different plaintiffs' counsels, trying to coordinate if we've got four different derivative lawsuits filed, trying to consolidate those things, and a sprinkling of reviewing research or analysis that's being done by the more junior attorneys on the facts, editing briefs. No day is the same and every day has different elements of those pieces.

Kyle McEntee:

So let's get into a specific case. So you get a new case, let's say the shareholders are suing the board of directors and some of the execs because the shareholders claim they were misled by a pattern of public statements by employees about the efficacy of a new product. Where do you start? It just seems like a huge task figuring out what's going on at some company for years.

Tijana Brien:

It is a huge task and it's actually, I mean, one of my favorite aspects of what we do because we really do have to dig in and review so much information and learn so much about a client. Now, the beauty of it is we do have that sort of three or four-month lag that I was mentioning before that does give us some time to really dig in. But we start by just, one, pulling all of the public statements that have been made by the company during the relevant timeframe.

And so that includes their SEC filings, which if you've ever reviewed an SEC filing, especially a 10-Q or a 10-K, there are hundreds of pages of information that someone has to review. Then we also review any press releases, any earnings calls, transcripts, any other investor conferences that were attended. And from there, we try to piece together everything that was said by the company about the particular information in question.

Then from there, we also pull in third-party statements. Analyst reports, other media articles to see what the market was understanding about what we were saying and how they were interpreting the statements that were being made. Because that tends to be a really important piece of information to sort of help demonstrate the context.

Because what we see a lot of times is, hey, you made this one statement and that was false and misleading because of why. But very often, as you start to unpack all of the statements that were made, you see that, well, they also made this statement or they had this warning or the analysts understood that when they said this, they weren't making a promise and they understood that there was all this risk.

So it's really important to just sort of start with all of the external information, everything that was out there and available to the market, because that's really the core of the claims here is about what did the market know and understand.

But we also go to the internal information conversations with people at the company to try to understand what happened, when people were aware of the information in question, any relevant documents, because it's really important that whatever defense we present in the early stages is going to match what the documents will eventually show.

Kyle McEntee:

I think people often think of document review as something that you do of your opponent. But in this case, you are doing essentially a review of all the documents that you might have to turn over that might be used against you. You've been a partner for a few years now, so you've got associates you're working with. What do you tell them that they need to be looking for when they're reviewing both these internal and external documents?

Tijana Brien:

There's certain things that we always know to look for. So, for example, risk factors, right? Risk factors are sort of key when it comes to defending certain types of statements.

So I certainly make sure that associates understand that they need to review all of the risk factors and really sort of understand thematically what they mean and how they might fit into the story. There's a lot of just trying to figure out anything that might be relevant to a particular topic. So if, in your example, it was the efficacy of a product, if that's the issue, then I want to know every statement that's ever been made about that product, including anything where we warn the public about how we could not, with any certainty, guarantee the efficacy of any of our products. So that's sort of the starting point, right? What are all of the statements about the product, about efficacy, about general risks to the business?

Kyle McEntee:

So if you delete a Slack message or a Zoom recording, are you able to still get that information?

Tijana Brien:

So if there's a litigation hold in place, right? If you're anticipating litigation might come down your way, you absolutely should not delete anything. And it's actually one of the things that keeps me up at night is the preservation of documents and how challenging it is in this day and age where there's so many different sources of data.

But generally, obviously, if there's no duty to preserve and you're just deleting information in sort of the general course of doing your job and you're allowed to do that, then typically, if it's a real deletion, we can't find it.

But what people don't realize is that a lot of times, especially these big companies, they've got these sort of backups. They've got the backend preservation of everything. So even though you think you're deleting something, you're not actually deleting anything at all. And you should always, always assume that anything you say in a Zoom meeting or put in a text message, or a Slack message will end up as a giant blow up in court. So you should really think hard about what you say.

Kyle McEntee:

All right. So we've got a complaint and then an amended complaint. And now you've done all this self-discovery, I guess we can call it. What are you doing with the information at this point?

Tijana Brien:

So the ultimate sort of end goal of what we're doing is a motion to dismiss. And one of the big reasons that we focus on the publicly available external information first is because typically, a motion to dismiss is constrained by the pleadings. You can't go to discovery or other sources of information to show your story.

But in the motion to dismiss context, in a securities case, there are some things you can go to. You can go to any document cited in the complaint. That's why we go to all of the sort of public filings because they're citing them to claim that statements were false and misleading. And you can cite to things that are sort of subject to judicial notice, which again, tend to be things that are publicly available. So what we do is we gather everything that was said by the company and by third parties, and we build out a chronology of the statements, who knew what, when, and then we try to attack the complaint. In particular, it tends to be three elements were adequately alleged.

That's one, whether the statement was in fact alleged to have been false and misleading. A lot of times you'll see this disconnect between what the statement is and then the event that ends up causing the stock drop. So we make a lot of arguments that the statements weren't actually even false and misleading to begin with. So that's the intent element, right? Even if the statement was false and misleading, you have to plead with particularity that the speaker of that statement wanted to mislead investors or was sort of reckless in doing so. And that's a really tough burden to plead. So we attack that.

And then we also at times will attack the loss causation element, which is really tied to the stock drop and the disclosure around the stock drop and whether that connects back to the false and misleading statement, whether it actually identified new information. Sometimes the news picked it up four days earlier and there wasn't a stock market reaction. There's a loss causation issue there as well.

Kyle McEntee:

So what a motion to dismiss does, it's in the name, but why is winning one so important for your client?

Tijana Brien:

So if you are able to win a motion to dismiss, and typically in the securities litigation context, what we see is even when we win the first one, they tend to get another chance to amend the complaint. So we typically have to file anywhere from two to three motions to dismiss before the case is finally kicked. And so what that means is if we finally win a motion to dismiss without prejudice, then the case is at least done at the district court or at the trial court level. There's no more case we've won.

They might appeal it and that's more briefs that are written, more work that has to be done. But if we're able to win that and then they can't get the Supreme Court to review it, then that's it. There is no more case we've won and there isn't discovery. There's no collecting of people's information. The case is over.

So that is a really critical point to the litigation. Sometimes it also, depending on the situation and the client's appetite, sometimes if you win that first motion to dismiss, the plaintiffs might come to you and say, should we just mediate this? Should we just sort of see if we can get a resolution here before we move any further?

So it's, again, another way to sort of put yourself in a good posture to be able to get a favorable resolution of the claims.

Kyle McEntee:

If you don't win the motion to dismiss, then you're furthering the litigation, potentially going to trial. I know trials are not super common, but is that the same team that is working on trial prep or is that just something that would fall to your team just infrequently?

Tijana Brien:

So I think it depends on the law firm. Here at Cooley, we sort of pride ourselves on everyone being a trial attorney. And so you would absolutely see the same team who handled the motion to dismiss in the early investigation of the facts go all the way through to trial.

Of course, we'll add additional associates. We might also add additional partners as we're getting closer to trial. But the expectation is fully that once you're on that case, you take it all the way.

Kyle McEntee:

And how often are you going to trial or at least getting right up towards that trial date?

Tijana Brien:

Security litigation cases are probably one of the less likely cases to go all the way to trial. So I would say not often, but we do get close. We certainly have gotten all the way through fact discovery. And some of the more seasoned partners that I work with have participated in trials of cases. I think it's in the single digits in terms of how many cases have actually gone to trial for a securities class action.

Kyle McEntee:

So I'm curious to know how your work has changed as you transition from being an associate to partner. Are there specific things that were on your to-do list when you are a third or fourth that now you just never do?

Tijana Brien:

I am still, I think, at the stage of my career where I don't view myself as above anything. So I will do what I have to do to help move the case along. But certainly, it has changed a lot.

I don't tend to do first-level document review anymore or even manage document review teams. That tends to fall to the associates. I'm not typically the one that goes through the vast public statements and tries to identify what is or is not relevant.

By the time it comes to me, someone has already gone through that work. For the most part, I'm not the one that's doing the initial research and trying to find cases. I'm reviewing the cases that are identified by someone else.

So most of my time now tends to be spent on more big-picture strategy work, conversations with the clients, preparing people for depositions, taking and defending depositions, being the sort of final editor of a brief before it gets filed.

Kyle McEntee:

So you mentioned more seasoned partners earlier. Do you anticipate your role continuing to evolve, continuing to work even more just at the strategic level, or are you kind of topped out at this point?

Tijana Brien:

No, I think it will continue to evolve. I would sort of consider myself of the junior-ish partner variety. So I tend to work on any of my cases with a more senior partner who has been doing this for even longer than I have.

And they would say that most of the things I have rattled off are not things that they do anymore because they are really sort of just focused on the very big-picture strategy. And they do that for a whole lot of cases at the same time.

Kyle McEntee:

I want to talk about one of your cases that will feel pretty familiar to listeners. So during the pandemic, you ended up representing Zoom. Can you tell us a little bit more about that case and some of the intricacies and challenges?

Tijana Brien:

To date, it was one of the peak moments of my career to be able to say that I was representing Zoom in a securities class action when we were all just depending upon Zoom as our lifeline. The focus of the class action was really on the technology and in particular on the encryption technology.

And so it was challenging in that we had to understand the technology and we had to understand sort of these concepts of end-to-end encryption and zero encryption and what do all these things mean because there's so many different layers of encryption. And that's not something I do or think about in my day-to-day. So really having to understand these really complicated issues and then having to really unpack those issues so that a judge who probably also wasn't thinking about encryption or understanding encryption could understand them so that we could then help explain why the statements that were being made at the time were not actionable.

Kyle McEntee:

Yeah, it's interesting because these lawsuits, they're not in a specialized court. It's not like it is a bankruptcy or some intellectual property cases. You're litigating with judges who just have this huge broad range of cases in front of them. Does that affect your strategy on communication?

Tijana Brien:

It absolutely does. And it's something we think about all the time because they are really, especially at the motion to dismiss stage, which is so important in securities class actions, they are our audience. And so if we can't help them understand it, it's just going to be really challenging to try to win a motion to dismiss.

Kyle McEntee:

Yeah, Zoom is definitely, I think, a pioneer in the web conferencing space. Video calls weren't new, but they did them way better than anyone before them. And as you pointed out, we were all relying on them so much during the pandemic.

And I think technological innovation is just kind of our way of life now. And since securities law so often involves public statements about products that are tough to understand but need to be explained to consumers and investors in a way that they do understand, there's probably just going to be ever more increasing litigation. So are you involved in helping people at these companies use the right words or at least not use the wrong ones?

Tijana Brien:

It depends. We have a very robust corporate group and practice here at Cooley. And so we are brought in by our corporate partners to help advise on public statements and how things are being worded.

I wouldn't say that we're typically brought in to help explain the products and cross-check how they're describing the products, because most of the time they really do understand the products a lot better than we could. And to the Zoom example, it took a long time for us to get the understanding necessary to be able to adequately describe it to a judge. So typically, what we focus on when we're helping assess public statements before they're ever made is, are they couched in a way that brings them within these sort of securities law safe harbors? Are the risk disclosures and risk factors adequate to help soften what is being said?

Kyle McEntee:

A lot of teamwork, basically. And I think teamwork can be really helpful when you're in an environment that is high stress, long hours. How do you deal with those stresses?

Tijana Brien:

One of the big reasons I think I ended up at Cooley and I continue to work at Cooley is that I think Cooley is the unicorn of big law. The collegial nature of the work that we do and the expectation that people are going to be supportive of each other, respectful of each other, really makes dealing with these stressful situations, I wouldn't say easy, but certainly better than I think you would expect.

We don't have yellers, right? I think, you know, when people envision sort of lawyers and law firms and when they see them on TV, they're picturing these like really stressed out people who are yelling at everyone. That's just not how it is here. We understand that we're all working together towards a common goal. Our number one priority is to deliver the best possible service that we can for our client.

Doesn't mean that the job isn't hard sometimes. We all, I think, sometimes go through moments of, gosh, what am I doing here? But I have just found myself in an incredibly supportive law firm and an incredibly supportive practice group that's made it a place I enjoy coming to work.