UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
IN RE: PRICELINE.COM, INC.
SECURITIES LITIGATION
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This document relates to:
ALL ACTIONS
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MASTER FILE NO.
3:00-CV-01884 (AVC)
September 29, 2006
PLAINTIFFS’ OPPOSITION TO DEFENDANT WALKER’S MOTION TO QUASH
AND FOR PROTECTIVE ORDER REGARDING THE SUBPOENAS ISSUED TO
MERRILL LYNCH, MORGAN STANLEY, AND CHASE MANHATTAN BANK
Jay Walker’s Motion to Quash and for Protective Order regarding the subpoenas issued
to Merrill Lynch, Morgan Stanley, and Chase Manhattan Bank1 (hereafter “Chase”) fails for the
same reasons his motion opposing the Goldman Sachs subpoena fails. Walker does not meet the
requisite elements necessary for standing under Rule 26(c), or 45; nor has he demonstrated the
requisite good cause or any cognizable “right to privacy” which cannot be protected through the
confidentiality order already in place. Walker fails to articulate any legitimate grounds for
circumscribing Plaintiffs’ right to subpoena relevant information relating to claims made in the
complaint. His motion should be denied.
I. No Good Cause Established
Walker claims to have established good cause to modify the subpoena or for a protective
order. The standard under Rule 26(c) provides that “for good cause shown, the court…may
make any order which justice requires to protect a party or person from annoyance,
1 Plaintiffs have been informed the entity once called Chase Manhattan Bank no longer exists. The correct entity is
JPMorgan Chase & Co. located at Chase Manhattan Plaza, New York, NY.
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embarrassment, oppression, or undue burden or expense.” Fed.R.Civ.P. 26(c) (emphasis
supplied). However, it is axiomatic that the burden is on the movant to demonstrate any
entitlement to relief in the discovery process (Fed.R.Civ.P. 26(c)). A “party seeking an order of
confidentiality with respect to discovery bears burden of demonstrating the required “good
cause” supporting issuance of such an order.” Reliance Ins. Co. v. Barron’s, 428 F.Supp. 200,
202 (D.C.N.Y. 1977). Walker relies upon two concepts to establish the requisite good cause
necessary for standing; whether disclosure will violate any privacy interest, and whether the
information is sought for a legitimate purpose. As discussed below, Walker fails in his attempt
to establish either, and therefore does not demonstrate the good cause necessary for standing.
A. No personal privacy right exists
Walker cites three statutes which he claims serve as the authority establishing his
purported privacy right: the Gramm-Leach-Bailey Act, 15 U.S.C. §6801; the Right to Financial
Privacy Act of 1978, 12 U.S.C. §3401; and Connecticut General Statutes §36a-41.2 None of
these statutes support his contention, as each is inapplicable to the facts of this case.
The Gramm-Leach-Bailey Act prohibits disclosure of information in some situations, but
specifically exempts disclosure of banking information in response to a civil subpoena. “(e)
General exceptions: Subsections (a) and (b) of this section shall not prohibit the disclosure of
nonpublic personal information - (8) to comply with a properly authorized civil…subpoena…”
15 U.S.C. §6802 (e)(8). Civil subpoenas are specifically excluded from the Act’s application.
Thus, Walker’s claim fails on this point.
Walker next cites The Right to Financial Privacy Act as authorizing limitations on the
information sought in the subpoena. However, this statute only applies to cases where a
2 See Memorandum of Law in Support of Defendant Jay S. Walker’s Motion for Protective Order Regarding the
Subpoenas Issued to Merrill Lynch, Morgan Stanley, and Chase Manhattan Bank Seeking Production of Financial
Information, at 7, and 8.
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Government authority makes a request for banking records. “Access to financial records by
Government authorities prohibited; exceptions – (§3407) A Government authority may obtain
records…pursuant to a judicial subpoena only if – (1) such subpoena is authorized by law and
reason to believe that the records sought are relevant to a legitimate law enforcement inquiry.”
12 U.S.C. §3402, §3407 (1). This is not a law enforcement inquiry; Plaintiffs are not a
Government authority, and thus the second of Walker’s authorities does not apply.
Lastly, Walker cites a Connecticut statute, which specifically applies only to Connecticut
chartered banks.
“Sec. 36a-1 General statement. This title shall be known as the "Banking Law of
Connecticut" and shall be applicable to all Connecticut banks…Sec. 36a-2.
Definitions. As used in this title, …(4) "Bank" means a Connecticut bank or a
federal bank; (5) "Bank and trust company" means an institution chartered or
organized under the laws of this state as a bank and trust company; (12)
"Connecticut bank" means a bank and trust company, savings bank or savings and
loan association chartered or organized under the laws of this state”
Conn. Gen. Stat. §36a-1, 2. None of the three subpoenas at issue have been issued to banks
chartered in Connecticut. Thus, by the terms of the statute, it does not apply to the instant
subpoenas.
Further, the Connecticut statute can not apply to these subpoenas which are issued out of
the Southern District of New York. See F.R.Civ.P 45 (a)(3)(B). Connecticut state law simply
does not apply to these New York institutions. Each of the three statutes cited by Walker fails to
establish his claim of financial information privacy. Under the standards of the authority cited in
Walker’s own memo, he lacks standing to object to the third-party subpoenas and his Motion
may be denied on this basis alone.
B. The Subpoenas seek information for a legitimate purpose
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The Second Circuit’s standard for proving scienter involves either of two methods
articulated by the court:
We have held that to plead scienter in a securities fraud claim, a complaint may
(1) allege facts that constitute strong circumstantial evidence of conscious
misbehavior or recklessness, or (2) allege facts to show that defendants had both
motive and opportunity to commit fraud. See Stevelman v. Alias Research, Inc.,
174 F.3d 79, 84 (2d Cir.1999); Shields v. Citytrust Bancorp., Inc., 25 F.3d 1124,
1128 (2d Cir.1994).
Rothman v. Gregor, 220 F.3d 81, 90 (2d Cir. 2000). The Second Circuit provided guidance on
the type of information required to prove one of the two methods:
the inference may arise where the complaint sufficiently alleges that the
defendants: 1) benefited in a concrete and personal way from the purported
fraud…2) engaged in deliberately illegal behavior…3) knew facts or had access
to information suggesting that their public statements were not accurate…or 4)
failed to check information they had a duty to monitor.
Novak v. Kasaks, 216 F.3d 300, 311 (2d Cir. 2000).
Despite these legal standards, Walker attempts to establish the requisite good cause for
granting his Motion by arguing the subpoena seeks information for an illegitimate purpose. He
thus spends several pages discussing a single sentence of Plaintiffs Opposition to Walker’s
Motion to Quash the subpoena served on another bank which references the obvious issue of
Walker’s ability to pay the multi-billion judgment liability presented by this case, yet disregards
completely Plaintiff’s primary scienter argument.
The subpoenas to these third party banks seek information needed to prove Walker’s
scienter alleged in the complaint. One method to prove scienter is to demonstrate the motive and
opportunity for the insider to mislead the investing public for personal gain. See Ernst & Ernst
v. Hochfelder, 425 U.S. 185, 193 n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)).
The information sought by Plaintiffs is also relevant and discoverable under the
alternative method of establishing scienter by proving strong circumstantial evidence of
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conscious misbehavior or recklessness on the part of Defendants. The subpoenaed information
relates not only to Defendant’s motivation, and will provide circumstantial evidence of
fraudulent manipulation and deception. The information will help to show the actual state of
Walker’s finances (and thus his state of mind as to his need –or lack of need- to inflate the price
of Priceline.com stock) when he was making deceptive statements about Webhouse to the
investing public which in turn inflated the market price of Priceline.com stock, Walker’s greatest
asset at the time.
Plaintiffs have specified with particularity in the Complaint that Defendants benefited in
a concrete and personal way from the purported fraud; knew or had access to information
suggesting that their public statements were not accurate, and failed to check information they
had a duty to monitor.3
The requested trading activity in Walker Digital and other entities will reveal such things
as whether Walker needed to boost the perceived value of Priceline due to margin calls or other
liquidity or leverage issues in other stocks or entities reflected in the trading activity of the
subpoenaed accounts. The information will also show whether he was quietly raising the capital
necessary to continue the Webhouse charade, while continuing to influence the inflated value
attributed for Webhouse warrants on Priceline’s books and how important the success of
Webhouse (which served as the primary valuation for Walker’s vast Priceline.com stock
holdings) was to Walker. The information will help establish that Walker was hyping Priceline’s
lateral expansion model to artificially inflate the Priceline stock price, and to capitalize upon it
by selling shares to unwitting investors.
In his memo there is neither discussion of why the Protective Order applicable to this
case (which provides for the preservation of confidential information from public disclosure) is
3 See Consolidated Amended Complaint, sections 3, 4, 19, 44, 45, 130(n), 138-141, 148(h) (i), 181, 201-215
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insufficient to protect Walker’s claimed “privacy” interests, nor is there any mention (much less
a credible showing) of any particular, real harm to Walker that may be balanced against the harm
of denying relevant discovery to Plaintiffs.
Thus, Walker’s motion fails to demonstrate any good cause. Consequently, his Motion
must be denied because to obtain a protective order, “the requisite showings must be made with
specific facts, not mere conclusory allegations of confidentiality and/or business harm. Standard
Space Platforms Corp. v. U.S. 35 Fed.Cl. 505, 507 Fed.Cl.,1996 (citing Wall Indus., Inc. v.
United States, 5 Cl.Ct. 485, 487 (1984)). Since Walker has failed to show good cause for a
limiting the subpoenas, there is no basis for granting the relief sought by Defendant Walker and
his Motion should be denied.
II. Relevance
Plaintiffs seek relevant non-privileged information relating to defendant Walker’s
financial activity through Merrill Lynch, Morgan Stanley, and Chase. “Parties may obtain
discovery regarding any matter, not privileged, that is relevant to the claim or defense of any
party.” Fed.R.Civ.P 26(b)(1). Of course, the “Relevant information need not be admissible at the
trial if the discovery appears reasonably calculated to lead to the discovery of admissible
evidence.” Fed. R. Civ. P. 26(b)(1). The United States Supreme Court addressed the relevance
standard of Rule 26(b)(1) in Oppenheimer Fund:
The key phrase in this definition-“relevant to the subject matter involved in the
pending action”-has been construed broadly to encompass any matter that bears
on, or that reasonably could lead to other matter that could bear on, any issue that
is or may be in the case. See Hickman v. Taylor, 67 S.Ct. 385, 388, (1947).
Consistently with the notice-pleading system established by the Rules, discovery
is not limited to issues raised by the pleadings, for discovery itself is designed to
help define and clarify the issues. Id., at 388. Nor is discovery limited to the
merits of a case, for a variety of fact-oriented issues may arise during litigation
that are not related to the merits.
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Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S. Ct. 2380, 2389, 57 L.Ed.2d 253,
(1978). Here, the evidence is sought to prove Walker’s state of mind, which is informed by the
state of his finances, and to establish a trend analysis of the interconnected businesses he
oversaw.4 This information will tend to prove the claims made in the Complaint, is relevant, and
should not be quashed.
A. Non-Priceline Trades by Other Entities or Officers are Relevant
Walker summarizes the relevance standard articulated in Chazin v. Lieberman, 129
F.R.D. 97, (S.D.N.Y. 1990) as follows: “[c]ompliance with the subpoena might infringe on
certain privacy rights, in that [the subpoenaing party] would have easy access to [objector’s]
unrelated financial and business dealings in detail.”5 [Emphasis added]. The holding of the
Chazin case is clear: whether financial and business dealings are related or unrelated to the
matter is determined by whether the financial or business dealings are related or unrelated to
claims are made in the complaint. “[T]he court will impose limitations on the subpoenas so as to
restrict their scope to material that pertains to the acts specified in the complaint.” Chazin, 129
F.R.D. at 98. Here, the Complaint alleges acts concerning the financial and business dealings
sought in the subpoenas and should be produced.
The crux of Defendant’s argument is that discovery in this case should be limited solely
to the daily reported movements in Priceline.com stock during the class period. This is an absurd
reduction of the scope of this securities case and ignores the fact that the fluctuations in
4 For example, Defendants constantly deny that the various entities created and controlled by Walker had any
connection beyond their common originating source. Plaintiffs assert this contention is false and that the
interconnectedness of these various businesses provides strong evidence of all Defendants’ knowledge that
WebHouse was a sham and that its presentation to the public as an example of the strength of the “Priceline.com
Business Model” was deceptive, and known by Defendants to be so. See section 22 of Consolidated Amended
Complaint.
5 See Memorandum of Law in Support of Defendant Jay S. Walker’s Motion for Protective Order Regarding the
Subpoenas Issued to Merrill Lynch, Morgan Stanley, and Chase Manhattan Bank Seeking Production of Financial
Information, at 6.
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Priceline.com stock are merely the end result of the fraud alleged, and in no way reveal the
underlying engine of Defendant’s scheme.
This case concerns a complex scheme perpetrated by Defendants to leverage perceived
value by the investing public for personal monetary gain. The case directly involves Walker’s
motivation and opportunity for engaging in the scheme, which is an element of proof of
Plaintiffs’ case. The requested information goes to matters that would tend to prove the
allegations made in the Complaint, such as: whether Walker or other officers needed cash;
whether he had increasing financial demands such as margin calls requiring him to artificially
boost his net worth through the inflation of the largest asset he held, Priceline stock; whether
Walker or other officers were sophisticated and active in trading; whether a large portion of
Walker’s net worth was represented in Priceline transactions; and whether movements in
Priceline stock were significant to Walker.
The motivations for Defendant’s fraud go well beyond the mere price of Priceline stock.
Plaintiffs seek to understand the overlapping nature of Walker’s holdings, the impact of
interrelated entities upon his finances as a whole, and his reactions to the changes in the market
and the value of his holdings. The nature of Walker’s financial resources is important to prove
what type and amount of pressure was being exerted upon Walker’s finances as a whole.
Limiting the subpoena to only one aspect of his holdings would unfairly limit Plaintiffs ability to
discover the stimuli affecting Walker’s financial decision making process.
Plaintiffs have the right to discover relevant non-privileged information. The complaint
specifically alleges that Walker, through companies he controlled, Walker Digital and Walker
Digital LLC, sold over $123,000,000 worth of Priceline.com shares in addition to the personal
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sales of over $240,000,000.6 The complaint also specifically alleges sales of stock by other
Priceline officers, for example, co-defendants Braddock, and Nichols.7 Further, the issue of
trades of and margin loans against securities other than Priceline.com are relevant to Walker’s
motivation and opportunity to manipulate Priceline.com stock. This motivation is alleged in the
complaint’s scienter allegations.8 Plaintiffs seek to discover whether leverage upon Walker’s
interrelated businesses, all of which appear to have declined in value during the class period,
played a role in his motivation to defraud the investing public. Thus, the allegations made in the
complaint concerning trading activity in other securities, entities, and by other individuals, are
relevant, and are therefore related financial transactions discoverable under the standards of the
Chazin case.
III. No Undue Burden
Walker also claims he is subject to undue burden by the subpoena to third party banks.
Significantly, the entities served with the subpoenas at issue here, Merrill Lynch, Morgan
Stanley, and Chase have not moved for a protective order. In the normal course, a party has no
standing to object to a subpoena served on a third party:
According to FRCP 45, which governs the procedure by which a non-party may
be compelled to produce documents, the right to challenge such subpoenas is
limited to the person to whom the subpoena is directed. See Vogue Instrument
Corp v. Lem Instruments Corp, 41 FRD 346, 348 (S.D.N.Y.1967); 9 C. Wright
and A. Miller, Federal Practice and Procedure, § 2457 at 431 (1990 Supp) (“A
motion to quash, or for a protective order, should be made by the person from
whom the documents or things are requested.).
In re: Seagate Technologies II Securities Litigation, 1993 WL 293008 (N.D. Cal. 1993).
Rule 45 provides that a subpoena can be modified “if it, (iv) subjects a person to undue burden.”
Fed.R.Civ.P. 45(c)(3). Walker has not articulated any specific claim of burden, undue or
6 See Consolidated Amended Complaint, §19, among others.
7 See C.A.C. §44, among others.
8 See C.A.C. §42, 43, 44, among others.
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otherwise in his memo as to himself, and certainly none as to Merrill Lynch, Morgan Stanley,
and Chase. There is no discussion of how providing unredacted account and trading information
is burdensome or harms Walker or Merrill Lynch, Morgan Stanley, and Chase in any way.
Indeed, it would only be the need to redact documents that would impose a burden on the banks
– a burden which is patently “undue” in light of the existing protections provided by the
confidentiality order applicable to this case. There is no mention of why the protective order
already in place is insufficient to protect against the novel construction advocated by Walker that
it is a “burden” to have a third party reveal “private” information (which has already been
disclosed to at least those third parties) that will be designated confidential and protected from
public disclosure.9
The court was faced with a similar situation in Sierra Rutile Limited v. Katz, 1994 WL
185751 (S.D.N.Y.);
Resolution of the pending motion turns, therefore, on an inquiry into the relevance
of the information sought balanced against the intrusion on the [plaintiffs’]
privacy interests…[m]oreover, the documents sought can be protected under the
confidentiality order which is in place in this case.
Sierra Rutile Limited v. Katz, 1994 WL 185751, *2 (S.D.N.Y.). Here, the Court’s protective
order is wholly sufficient and effective to protect against disclosure of the information at issue
and there is no basis for denying Plaintiffs access to probative information based solely on the
unsupported speculation that they will violate the Court’s orders.
In light of the Complaint’s specific allegations of scienter, under the standards articulated
by this Circuit, it is very likely that the trading information contained in the subpoenaed accounts
9 Walker suggests redaction of personal information is required here to protect against disclosure. This is false
because the Protective Order in this case resolves issues of sensitive disclosures unequivocally. Further, Plaintiffs
already have acquired the information Walker proposes to redact from this production and allowing redaction here
will merely thwart Plaintiffs’ ability to cross-reference documents without preventing the dissemination of
information Defendant supposedly seeks to keep secret.
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will prove Plaintiff’s claims of motivation and opportunity to perpetrate a fraud upon the public,
and may also prove the circumstantial evidence of conscious or reckless behavior. It is no
wonder Walker would prefer to limit discovery to only himself, Priceline.com trades, and a
constrained time period thereby stripping Plaintiffs and ultimately the jury of the opportunity to
understand the totality of his financial position, and state of mind as it relates to his motivation
and opportunity to commit the fraud alleged in this case.
IV. Time Period
Walker also attempts to unnecessarily constrain the scope of the subpoena to an
extremely cramped time period. The time parameter set forth in the subpoena seeks to recover
relevant documents reflecting Walker’s state of mind during the class period. “[Defendant’s]
attempt to confine discovery to a narrow period beginning three months before the start of the
class period and ending three weeks after the class period closes is artificial, arbitrary and
designed to avoid the production of relevant documents.” Seagate Technologies II, Supra, at 1.
The relevant time period includes transactions outside the class period because they inform why
actions were taken during the class period and provide insight into effects of those actions
(whether they successfully achieved their goals or not).
Moreover, the time period covered in the subpoena is not overreaching or burdensome as
it relates to the banks, which have raised no objection to the time period set forth in the
subpoena. In light of the lack of any objection to the requested time period by Merrill Lynch,
Morgan Stanley, and Chase, there is no justification for extirpating crucial portions of Plaintiffs’
discovery based on the unfounded, wholly conclusory and ultimately wrong assertion by Walker
that such documents will not reveal information admissible at trial concerning Walker’s liability
for the fraud alleged.
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Walker cites Carey v. Berisford Metals Corp., No. 05 Civ 8622 WL 1788299 (S.D.N.Y
2006) as authority to limit the applicable time period of the subpoena.10 Carey is wholly
inapposite as the discovery request there involved expense account fraud, and the court limited
discovery to only the years Carey was employed by the firm which was claiming expense
account abuse. There, the time was finite, because no expenses would be approved, or
reimbursed for non-employees. Here, conversely, the financial transactions leading up to and
following the class period are not limited by a similar approval process with such strict confines.
Walker’s trading activity before, during and after the class period are all relevant to the
allegations that Walker acted with motive in manipulating the price of Priceline.com stock.
Conclusion
The documents sought by the subpoenas are directly related to claims made in the
complaint and the defenses asserted by Walker and the other Defendants. In addition, Walker
lacks standing to object to subpoenas directed to third parties. Walker fails to cite any legitimate
or applicable authority in support of his “privacy” arguments, and he fails to present any good
cause in support of his request to limit relevant discovery. No undue burden is presented by
Plaintiffs’ subpoenas. The prerequisite elements for a protective Order have simply not been
met. The requested discovery is relevant and there exists no factual reason or legal predicate for
denying Plaintiffs’ legitimate discovery. Plaintiffs request the court to deny Walkers motion for
Protective Order and award such other relief as it deems just and equitable.
Dated: September 29, 2006
Respectfully submitted,
____/s/ Eben F. Duval_______________
10 See Walker Memo of Law, Supra, at 7.
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JOHNSON & PERKINSON
Dennis J. Johnson
Jacob B. Perkinson
Eben F. Duval (phv01237)
1690 Williston Road
P.O. Box 2305
South Burlington, VT 05403
Telephone: (802) 862-0030
Facsimile: (802) 862-0060
SCOTT + SCOTT, LLC
David R. Scott, Fed. Bar No. CT16080
Erin G. Comite, Fed Bar No. CT24886
Mark V. Jackowski
108 Norwich Avenue
P.O. Box 192
Colchester, CT 06415
Telephone: (860) 537-5537
Facsimile: (860) 537-4432
SCOTT + SCOTT, LLC
Geoffrey M. Johnson
33 River Street
Chagrin Falls, OH 44022
Telephone: (440) 247-8200
Facsimile: (440) 247-8275
Co-Lead Counsel
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