Northern District of Texas Blog

On August 29, 2011, Mark Cuban filed a motion to compel (available here) requesting that the Court order the SEC to provide several categories of documents that, according to Mr. Cuban, have been improperly withheld.  Mr. Cuban states that, “[t]he SEC’s discovery strategy in this case has become clear: unless the Court intervenes, the SEC will produce only non-privileged material in what it refers to as its ‘investigative file’ and nothing else.”  The motion contains a good discussion of the Federal Rules’ broad discovery regime, the requirements concerning privilege logs, the appropriateness of so-called “boiler plate” objections, and the work product doctrine.

In the lawsuit, the SEC alleges that Mr. Cuban’s activities regarding the sale of Mamma.com stock violated certain securities laws.

Mr. Cuban is represented by Lyle Roberts, Ralph Ferrara, and George Anhang, all of Dewey & LeBoeuf LLP; Stephen Best and Brian Nysenbaum, both of Brownstein Hyatt Farber Schreck LLP; Leslie Maria, of White & Case LLP; and Thomas Melsheimer and Steven Stodghill, both of Fish & Richardson P.C.

The case is before Chief Judge Fitzwater.

On July 18, 2011, in a thorough opinion (available here), Chief Judge Fitzwater agreed with the SEC that Mark Cuban’s unclean hands defense should be struck.  The SEC had instituted an enforcement action against Cuban, alleging that Cuban violated the securities acts by selling shares of stock in Mamma.com after learning material, nonpublic information concerning a planed private investment in public equity offering by the company, thereby avoiding substantial losses when the stock price later declined.  In response to the SEC’s Complaint, Cuban pled unclean hands as an affirmative defense.

Chief Judge Fitzwater rejected the SEC’s argument that unclean hands was unavailable as a matter of law, finding that it is available, but “only in strictly limited circumstances when the SEC’s misconduct is egregious, the misconduct occurs before the SEC files the enforcement action, and the misconduct results in prejudice to the defense of the enforcement action that rises to a constitutional level and is established through a direct nexus between the misconduct and the constitutional injury.”  Because Chief Judge Fitzwater found that Cuban had not sufficiently pled that Cuban suffered prejudice due to the SEC’s alleged misconduct, the SEC’s motion to strike the defense was granted.

(Chief Judge Fitzwater’s decision also noted that he has, thus far, declined to apply the plausibility standard of Twombly and Iqbal to affirmative defenses.)