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IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

SECURITIES & EXCHANGE * Case No. 3:05-CV-1416-D

COMMISSION *

*

Plaintiff, *

*

*

vs. *

*

GREGORY A. BRADY, et al *

*

* Dallas, Texas

Defendants. * January 25, 2006_______ 

HEARING ON MOTION FOR PROTECTIVE ORDER

BEFORE HON. IRMA RAMIREZ

U. S. MAGISTRATE

APPEARANCES:

For Plaintiff: MR TOBY M. GALLOWAY

MR. MARSHALL GANDY

U.S. Securities & Exchange

 Commission

Burnett Plaza, Ste. 1900

801 Cherry Street

Fort Worth, TX 76102

817-978-6447

For Intervenor Pltf Deloitte: MR. MATTHEW R. STAMMEL

Vinson & Elkins

Trammel Crow Center

2001 Ross Ave., Ste. 3700

Dallas, TX. 75201

214-220-7700

For Defendant Brady: MS. MARY L. O’CONNOR

MR. EDWARD S. KOPPMAN

Akin Gump Strauss Hauer & Feld

1700 Pacific Ave., Ste. 4100

Dallas, TX 75201

214-969-2800

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For Defendant Beecher: MR. MICHAEL P. GIBSON

Burleson Pate & Gibson, LLP

900 Jackson St., Ste. 330

Dallas, TX 75202

214-871-4900

For Defendant Lancaster: MR. ERIC DONOVAN PEARSON

Heygood Orr Reyes Pearson &

 Bartolomei

2331 W. Northwest Hwy.

 2

nd Floor

Dallas, TX 75220

214-526-7900

For Intervenor i2: MR. JIM WELCH

Brown McCarroll

2001 Ross Ave., Ste. 2000

Dallas, TX 75201

214-999-6100

Transcription Service: MS. BETTY TATE

3101 Townbluff Dr. No. 923

Plano, TX 75075

972-596-9442

Proceedings recorded by electronic sound recording; 

transcript produced by transcription service.

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P-R-O-C-E-E-D-I-N-G-S

THE COURT: We are here in the matter of 

Securities & Exchange Commission vs. Gregory A. Brady, et 

al, Case No. 3:05-CV-1416-D. Before the Court this morning 

is the Motion of i2 for a Protective Order to preserve the 

confidentiality of documents and for expedited consideration 

filed January 13th, 2006, as well as a related memorandum of 

law and appendix. These pleadings were referred to this 

Court pursuant to the District Court’s Order of Reference 

signed January 17th, 2006.

Also before the Court is Deloitte & Touche LLP’s 

Motion to intervene for the limited purpose of seeking a 

protective order, Motion for Protective Order, and Brief in 

Support filed January 17th, 2006, with related appendix, and 

this was also referred to this Court pursuant to the 

District Court’s Order of Reference signed on January 18th, 

2006.

The Court has before it and has considered 

Defendants’ response to i2 Technologies, Inc.’s and Deloitte 

& Touche’s Motions for a Protective Order filed January 23rd, 

2006, and also Plaintiff’s Response and Brief in Opposition 

to i2 Technologies, Inc.’s Motion for Protective Order, 

Plaintiff’s Response and Brief in opposition to Deloitte & 

Touche, LLP’s Motion for Protective Order, and the related 

appendix filed January 23rd.

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And if counsel would please make their appearances 

for the record. 

MR. GALLOWAY: Judge, Toby Galloway for the 

Plaintiffs, Securities & Exchange Commission.

MR. GANDY: Marshall Gandy for the SEC.

MR. WELCH: Jim Welch for i2 Technologies.

MR. STAMMEL: Matt Stammel, counsel for Deloitte & 

Touche.

THE COURT: Normally I would take the first filed 

motion first but given that i2’s motion I think is going to 

take more time, I’d like to go ahead and take up the 

Deloitte & Touche’s motion, and it appears from the 

certificate of conference that the motion to intervene for 

the purpose of seeking the protective order is not being 

opposed. Is that correct?

MR. GALLOWAY: That is correct, Your Honor.

THE COURT: All right. So the motion to intervene 

for the limited purpose of seeking a protective order is 

granted.

Now, it appears that the Defendants do not object 

to the entry of a protective order. The sole dispute is as 

to the terms, certain terms of the protective order, and the 

only opposition being asserted is being asserted by the SEC, 

so Mr. Galloway, I’d like to hear from you with regard to 

why you oppose entering a protective order as to LLP –

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Deloitte & Touche LLP’s motion.

MR. GALLOWAY: Yes, Your Honor. On Deloitte & 

Touche, we recognize that there are some cases that hold 

that certain proprietary information can be afforded 

protective status. The SEC, however, does not have any such 

information in its possession; we didn’t request it during 

our investigation. We simply don’t think we need it.

The types of materials I’m talking about are 

things like audit manuals, planning guides and check lists, 

things that are general from like Deloitte & Touche 

information as opposed to specific client-related

information relating specifically to i2’s misstated 

financial statements.

What we have is a large, very large volume of email from i2, and as set forth in our paper in response to 

i2’s motion for protective order, we don’t think any of that 

material is confidential or subject to any sort of 

protective order.

Now, there may be some documents in the Deloitte & 

Touche materials that haven’t been specifically identified 

by Deloitte & Touche, but there may be some that have some 

incidental reference to - that Deloitte & Touche’s audit 

methodology. We don’t think that the material we have 

actually would – you know, would contribute to a competitor 

understanding what Deloitte & Touche’s audit methodology is. 

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It simply would just reflect what Deloitte & Touche did on 

this particular single instance of audit work, and so under 

the case law – and I would refer to the Court the case we 

cited in our opposition to Deloitte & Touche’s motion to 

protect – I’m not sure of the pronunciation of this but I 

believe it’s Houbegent (phonetic) v. Development Specialist, 

Inc. The Court there said documents that reveal Deloitte’s 

auditing procedures and methodology may properly be 

designated as confidential. However, Deloitte may not 

simply designate its entire production, which Deloitte 

admits contains materials that are not protected under Rule 

26(c)(7) as confidential. That effectively is what Deloitte 

is asking this Court to do.

Your Honor, we would not object to the core 

proprietary materials as identified by Deloitte & Touche in 

its moving papers – we wouldn’t object to a limited 

protective order as to that type of material, should the 

Defendants subpoena that material, but as of yet we don’t 

have it.

Finally I think it is an important point to 

consider that this is a law enforcement proceeding and given 

the nature of the SEC’s mission we try to insure 

transparency in the securities markets, we bring public 

interest law enforcement actions in the public’s name and 

the public therefore has a unique interest in monitoring 

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that the conduct of litigation being brought in its name.

So that’s essentially our position on Deloitte & 

Touche. We don’t have as huge a problem with a protective 

order as to proprietary materials but the audit materials we 

have are not proprietary, and that’s essentially our 

position, Your Honor.

THE COURT: All right. What about their position 

as reflected in their motion and as supported by the 

affidavits attached thereto that because the audits follow 

these proprietary materials and manuals and guides that they 

reflect this proprietary information? You’ve asserted that 

not all of the information is proprietary material but you 

haven’t produced any evidence in support of that. I don’t 

have the materials before me. I can’t know from the state 

of the record what they consist of other than what you told 

me that some of the materials do constitute just e-mails 

back and forth, but with regard to the actual audit 

materials, what about their argument that these audit 

materials reflect a process that they use which comprises 

the proprietary materials?

MR. GALLOWAY: Your Honor, as I understand their 

argument they’re saying that certain specific audit 

materials related solely to the i2 audit work may contain 

incidental references to proprietary firm-wide audit 

methodology. I think it’s important to note that it’s 

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Deloitte’s burden, of course, to show specific reasons for a 

protective order, they’re not conclusory stereotype 

statements according to the Fifth Circuit, and so while we 

have not submitted any material in opposition, I don’t think 

they’ve pointed out anything with any specificity that would 

constitute that type of protectable information.

THE COURT: Well, they contended their check lists 

and materials are proprietary and the audit follows this 

check list. Doesn’t that reflect proprietary material?

MR. GALLOWAY: It could, Your Honor, but the fact 

is there’s a strong public interest and one of the cases we 

cited in our brief in full disclosure of accountants’ 

professional services, and while we have no argument that 

their overall firm-wide audit methodology may well 

constitute a trade secret, when you balance these incidental 

references – and that’s at most what we’re dealing with 

here, and I can represent to the Court that principally what 

we have are e-mails among the Defendants and other i2 

employees, but when you balance that against the strong 

public interest recognized by the Supreme Court in 

understanding what an accountant’s professional services 

have been, I think that those incidental references are 

clearly outweighed.

THE COURT: Are you disputing that they have 

produced approximately 75,000 documents, if that was the 

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number in this particular motion?

MR. GALLOWAY: No, Your Honor, I haven’t counted 

them but they have produced a large volume.

THE COURT: All right. And, I understand your 

argument about the public interest and I’ve looked at the 

case that you’ve cited, Lagosch, (phonic) but that appears 

to me to relate solely to materials filed in support of 

summary judgment. It talks about judicial documents. 

That’s not what we have here. What we have is discovery and 

we have a large number of documents that are being produced 

by a third party.

Help me understand why it’s not more efficient at 

this point to allow those documents to be designated 

confidential and then to the extent that SEC wants to use 

certain documents to challenge the confidentiality 

designation and put the burden at that point on Deloitte & 

Touche to show the Court why they shouldn’t be disclosed.

MR. GALLOWAY: Your Honor, you know, I think 

Deloitte & Touche is situated a little bit differently than 

i2. That is a party who is coming here having committed no 

wrong doing, and we recognize that if the Court believes 

that that is the most efficient mechanism, I frankly can’t 

argue with it. It’s our policy that we conduct our 

litigation in full public view, and that’s the SEC’s policy, 

but if the Court believes that a more protective order is 

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warranted, then I can’t argue that that’s not the most 

efficient way.

THE COURT: I think that based on the affidavits, 

and granted, they’re not as detailed perhaps as they could 

have been, but I think there is sufficient details to 

support a finding that the materials are confidential and 

proprietary, but I think they’ve met their burden to 

establish that, and I think for the purposes here, because 

this is discovery and we’re talking about producing them to 

the Defendants, and they don’t have an objection to a 

protective order, I’m inclined to grant the motion for a 

protective order, but before I do I’d like to hear from 

Deloitte & Touche regarding your allegation that a large 

part of these materials are e-mails are non protected 

materials.

MR. STAMMEL: Your Honor, Matt Stammel for 

Deloitte & Touche. You’ve really raised all the issues I 

had intended to raise and the mechanism that the Defendants 

saying go back to into whatever briefs, but as far as 

bringing back the documents, if the SEC or the Defendants 

intend to use the documents, they bring that up to Deloitte 

and say is this really confidential, do you need to keep 

this privileged, was the very same turn around and the 

confidentiality order basically implies a window in which 

Deloitte has to first try to agree and then failing that to 

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file a motion, so it’s a very quick turn around so the 

parties aren’t slow in the litigation process.

As far as your question about whether a large part 

of these are e-mails, I will tell you there are 60 boxes of 

documents which I went through on a very high level with an 

associate the other day. There are a lot of e-mails in 

there but there’s also a lot of source documents from i2 and 

there’s a tremendous amount of Deloitte & Touche’s work 

paper related to work on those e-mails, and I would liken 

this, as you too recognize that these are our confidential 

and proprietary processes. What we have here are desk 

files, computer files, cabinet drawers full of the auditor’s 

papers. They’ve covered everything top to bottom, so what 

it is is it’s essentially like lifting the lid off of a 

factory and see how certain things are manufactured, and it 

exposes Deloitte & Touche’s audit process. What happened to 

those, how that information is gathered, how it’s followed 

up on, how it’s integrated into Deloitte & Touche’s system, 

how it’s separated, what type of things are followed up on. 

All of those matters are revealed by the totality of these 

documents.

The protective order and the process that the 

Defendants i2 and Deloitte have worked out to analyze 

certain documents on a one-on basis - we’d really like to 

file this and don’t want to file them under seal, we need to 

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use this at a hearing, a document considered by itself 

likely isn’t going to be objectionable to Deloitte because 

it doesn’t reveal the audit methodology as a whole. What 

these 75,000 pages do is it gives a competitor, it gives i2, 

it gives other audit firms a really good idea of what 

Deloitte & Touche does in an audit, and as the cases we’ve 

cited show, that’s a protected trade secret and that’s what 

the affidavits was meant to establish.

THE COURT: All right. You’re not disputing their 

position that you really don’t have any standing to assert 

privilege on behalf of i2, and they’re here and ready to do 

that for themselves?

MR. STAMMEL: Absolutely. Our concern a service 

provider is to not do something that would run afoul of our 

clients. We just want to make sure that they have an 

opportunity to say the documents are worthy of protection; 

that they have their say in that.

THE COURT: Now the Defendants have submitted 

their own proposed protective order and I compared it to 

your proposed protective order and it seems to me that some 

of the provisions there requesting – I understand the 

position about wanting to have one similar protective order. 

Have you looked at their protective order?

MR. STAMMEL: Absolutely, Your Honor. We worked 

on it together. There was a series of conference calls and 

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we’ve all agreed on it and we would support the entry of 

that protective order.

THE COURT: The Defendant – the one that –

MR. STAMMEL: The Defendants’.

THE COURT: The Defendants’.

MR. STAMMEL: Unless it was changed and I don’t 

think it was but it was the one that we all talked about on 

the phone and was submitted to Deloitte would support the 

entry of that protective order.

THE COURT: The only real difference I saw between 

their submitted protective order and yours is that yours 

requested notice if documents or protected materials were to 

be used in open court at a hearing, and while theirs 

referenced that, you didn’t provide a period for notice to 

object and to allow the Court to determine whether it needed 

to be sealed. Has that been resolved?

MR. STEMMEL: Frankly, Your Honor, I cannot 

remember exactly how that came out but I thought we got it 

to a comfort level that if a party was going to ask that a 

document be admitted that they would have to do that under 

seal. I thought that’s how that –-

THE COURT: That’s what the Defendants’ submitted 

order says. Yours in I think it’s Paragraph 6(b) says if 

you’re going to use it in open court at a hearing, at any 

pretrial hearing, you need to give notice so that we can 

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seek an opportunity to have that hearing sealed, or have 

that portion of the record sealed, while their proposed 

order says – it’s Paragraph 7, if you want to use it at a 

hearing the documents are to be filed under seal but there’s 

no mention of what’s going to happen at the actual hearing, 

so if you worked it out with them and this is fine, then 

that’s all I need to know, but I just wanted to make sure we 

don’t get any surprises later on and then . . .

MR. STEMMEL: Right. Subject to being clarified 

by the other lawyers. I think that the intent there was 

that because we’re trying to reach a compromise on this that 

i2 and Deloitte had gotten to a comfort level that the 

parties would act in good faith, if you will, and not 

overtly and openly try to get trade secrets out there just 

for the sake of getting trade secrets out there, and I think 

that’s for the purpose of compromise how we saw this.

THE COURT: Okay. So at this point Deloitte & 

Touche has no objection to the proposed protective order 

submitted by the Defendants?

MR. STAMMEL: That’s right, Your Honor.

THE COURT: All right. I previously granted the 

motion to intervene. I think with regard to the Motion for 

Protective Order on behalf of Deloitte & Touche, I think 

that Deloitte & Touche have met its burden to establish that 

the information sought is confidential and proprietary, and 

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balancing the factors given the amount of documents that 

we’re talking about, and Deloitte & Touche’s status as a 

third-party, I’m granting the motion for a protective order 

and I will be entering the proposed protective order agreed 

to by the parties and which is attached to the Defendants’ 

response. That will be entered later today, and I believe 

that that order is applicable to all parties to the 

litigation; is that correct? Is there any dispute about 

that, Mr. Galloway, that it does also bind the SEC?

MR. GALLOWAY: Yes, that’s correct. One point of 

clarification, Your Honor, is you’re limiting that solely to 

the Deloitte & Touche material; is that correct?

THE COURT: Well, I’m only taking up their motion, 

but as far as I’m concerned, this order – it appears that 

the Defendants and Deloitte & Touche have agreed to the 

terms of this order. I understand the SEC doesn’t agree to 

any order but right now we’re only dealing with Deloitte & 

Touche.

All right, so that will be entered later today. 

That’s the order that’s Exhibit A to Defendants’ response to 

i2 Technologies’ and Deloitte & Touche’s motions for 

protective order.

All right, anything else on that motion that we 

need to address with regard to Deloitte & Touche?

MR. STAMMEL: Not from me, Your Honor. 

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THE COURT: Mr. Galloway?

MR. GALLOWAY: No, Your Honor.

THE COURT: And I see that counsel for the 

Defendants are here in the courtroom. I think you probably 

want to go ahead and enter your appearances for the record 

just to reflect that you’re here, and I’d like to have you 

also put on the record that you do agree to this protective 

order.

MS. O’CONNOR: Your Honor, Mary O’Connor with 

Akin, Gump Strauss Hauer & Feld. We too are here 

representing Gregory A. Brady, and we do agree to the entry 

of that protective order as to Deloitte & Touche.

MR. GIBSON: Your Honor, Michael Gibson – oh, Ed.

MR. KOPPMAN: For the record, Your Honor, I am Ed 

Koppman with Akin Gump, counsel for Greg Brady.

THE COURT: All right.

MR. GIBSON: Your Honor, Michael Gibson 

representing Bill Beecher and we enter an appearance for 

purposes of this hearing and we do agree to the order. We 

were a part of the group that settled it and we agree that 

the Court may enter it.

THE COURT: All right.

MR. GIBSON: And David Meadows from my office is 

here also for Mr. Beecher.

THE COURT: All right, thank you.

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MR. PEARSON: Eric Donovan Pearson representing 

Reagan Lancaster. We also agree to the terms of the order, 

Your Honor.

THE COURT: Then that order will be entered. All 

right, let’s take up i2’s motion. I have several questions 

for you.

MR. WELCH: Okay. Jim Welch, Your Honor, with 

Brown McCarroll representing i2.

THE COURT: All right. The SEC is contending that 

you have produced some of this information prior to the 

entry of the agreement, which is attached to your appendix 

as Exhibit B, I believe, and that really what they thought 

was at issue were the Baker Botts materials. Now I’ve 

looked at that agreement and it looks like you tried to make 

it applicable to what had previously been produced but it’s 

not completely clear if that’s the documents that are being 

referred to that are the non Baker Botts documents, so tell 

me what’s been produced, when it was produced, and what it 

was produced subject to.

MR. WELCH: Your Honor, yes. Do you have a copy 

of the agreement?

THE COURT: Right here.

MR. WELCH: The agreement specifically references 

the documents that were produced as part of the internal 

investigation that was conducted. At the end of that first 

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paragraph there had been documents previously produced, and 

there’s case law cited in our brief that suggests that 

that’s not any waiver if you produce documents prior to the 

entry of an order. But at the end of that first paragraph 

it says in addition, as you know, the audit committee and 

the company both have previously provided information and 

other documentation to the staff. These previously produced 

materials are also to be treated as confidential. That very 

next line then also contemplates producing documents after 

the date of this agreement and I would suggest then that all 

documents, those produced prior to, at this time and 

thereafter, are subject to this agreement, and as you have 

noted I’m sure on the back that this was entered into by not 

only the SEC but the company as well as the audit committee 

of the company’s board of directors.

And Your Honor, if it had just been the internal 

investigation materials, there would have been no reason for 

the company to even sign off on that. It would just be 

limited to the audit committee.

THE COURT: All right. The SEC is alleging that 

based on the age of the documents, and given that the 

documents were created several years ago, that at this point 

in time there’s no need to treat them as confidential any 

longer, given how quickly technology changes, and I’d like 

for you to address that argument.

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MR. WELCH: A few things. One, they don’t point 

out any documents which are now obviously stale I think is 

how they referred to them, and undoubtedly there would be 

some documents if we went through all 500,000 pages. We’d 

probably find some documents that are no longer fresh or in 

need of protection. However, given the long list of the 

documents and the types of documents that are involved, some 

of those are still documents that would cause i2 harm in the 

market place if they were revealed to any competitors or 

other businesses who are just trying to get access to the 

documents for some sort of competitive or business 

advantage.

THE COURT: Are these the same documents that were 

at issue in the – is it Shiner, Shiner case?

MR. WELCH: Many of the documents will be the 

same. The issues were virtually the same, and also although 

the SEC’s response brief isn’t clear on this point, the 

documents aren’t limited to documents dated in the year 2000 

or 2001. They go beyond that into 2003, and there is a 

continuing request for documents, so these are not all 

documents that are five years old. Some of the documents 

are much newer than that.

THE COURT: It looks to me from the language of 

the agreement that the SEC has a very broad discretion as to 

how to use those documents that determines that disclosure 

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is otherwise required by law or be in furtherance of the 

Commission’s discharge of its duties and responsibilities. 

Haven’t you pretty much given the leeway to use these – how 

they see they need to use them?

MR. WELCH: I wouldn’t say how they see fit but we 

certainly don’t object to their use of these documents in 

any litigation they’re involved in, which is this case. We 

recognize they have an obligation to produce the documents 

in this case to these defendants. We don’t dispute that. 

They can enjoy the unfettered use of the documents as they 

argue in this case, but there’s no reason why they should 

not agree to a protective order so that others use them 

outside the case. That wasn’t part of our agreement. Their 

ability to do that now really renders the whole agreement 

meaningless. If they simply can sit back and let others 

come and look at the documents because they’re using them in 

another case, then the fact that all of the parties went to 

this trouble to enter into this agreement would be rendered 

meaningless at this point, and Your Honor, if I might, 

that’s just on the issue of this agreement. This is not the 

only basis for a protective order. It’s a routine matter in 

most cases. Most of the time parties agree to them. The 

Defendants have all agreed to it. As you just discussed 

with Deloitte’s counsel, Deloitte, i2 and all the Defendants 

agreed to a form of order, and a form of order, by the way, 

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very similar to the form of order that the SEC has agreed to 

in another case. We modeled it after that, and although 

there’s some variances, it’s very similar to that. It’s not 

as if they’ve never made this agreement before, and so the 

fact that they may have a policy, apparently there are 

exceptions to the policy, but i2 has met their burden. 

They’ve submitted affidavits describing the types of 

documents that are included in this half a million pages, 

and clearly not every document in that half a million pages 

is something that warrants protection, but like Deloitte to 

go through 500,000 pages and engage in a process with the 

SEC over which ones should be protected and which ones 

shouldn’t, is not the most efficient way to proceed. i2 

submitted affidavits from both John Harvey and Cathy 

Bonichelli (phonetic) that describes some of the types of 

documents that are included in here.

The SEC does spend a lot of time in their response 

arguing the customer and price list don’t warrant protection 

at this point, and without arguing that point they ignore 

the long list of other materials that was included in that 

affidavit, and that list – internal communications, and 

counsel for the SEC sort of dismissed e-mails as being 

anything warranting protection, but in this date there’s no 

difference between an e-mail and any other type of document. 

The fact that it’s an e-mail doesn’t make it less 

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protectable.

Communications with customers regarding 

capabilities and integrated nature of the software. That’s 

the very type of document that Judge Sanders specifically 

referenced in the Shiner case.

Information regarding i2’s intellectual property, 

certainly they don’t – although they gloss over it, they 

don’t dismiss the fact there is reference – there are 

references to i2’s intellectual property in there. There’s 

information regarding i2’s product development, i2’s product 

release processes, and processes is not something that ever 

becomes stale, the way you run your business, the way you 

operate, much like Deloitte’s processes in auditing. Those 

don’t become stale by age. Product functionality maps, 

commission analysis of product release management and 

product marketing processes, again something that doesn’t 

become stale. Strategic plans are not typically short-term 

one-year type plans. They include long range plans. 

Personnel files and records, those weren’t 

specifically mentioned but they were specifically requested 

by the SEC in their investigation, and although they 

promised to protect those – the confidentiality, I don’t 

think that’s sufficient in this case, and of course, the 

investigative materials. Those are all materials described 

in the affidavits. There is nothing to controvert any of 

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that and certainly good cause would be shown to protect that 

information.

THE COURT: Now, would you agree with me that 

you’ve waived any confidentiality as to the documents that 

were attached to your Motion to Dismiss?

MR. WELCH: Attached to the Defendants’ motions?

THE COURT: Weren’t there documents that were 

attached to – was it Defendants’ Motion to Dismiss or your 

Motion to Dismiss?

MR. STEMMEL: Your Honor, it was the Defendants’ 

Motions to Dismiss. It was the three defendants in this 

litigation.

THE COURT: Oh, the Defendants’ motion. Okay. 

Was it in the prior litigation where your client was the 

Defendant?

MR. WELCH: Yes, i2 was the Defendant in the 

Shiner litigation.

THE COURT: That’s as I recall, so if there were 

documents that were attached to the motion to dismiss in the 

Shiner litigation was that Motion to Dismiss sealed or were 

those documents sealed or were they made public?

MR. WELCH: Your Honor, it was the complaint that 

was at issue in that case and Judge Sanders redacted – had 

those parties redact the complaint, and then make public the 

redacted version.

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THE COURT: Okay. And I recall that from the 

opinion that was attached to the SEC’s appendix, but what 

I’m saying is that if the – if i2 filed a motion to dismiss 

in that lawsuit and attached documents, were those documents 

sealed? Was that pleading also sealed or was it a part of 

the record.

MR. WELCH: Your Honor, I wasn’t involved in that 

litigation so I really – I don’t know and can’t answer that.

THE COURT: Okay. Have you looked at the proposed 

protective order submitted by the Defendants in this case?

MR. STEMMEL: I have and we, like the Deloitte & 

Touche lawyers, participated in working that agreement out.

THE COURT: All right. So if I were to decide 

that a protective order is appropriate in this case you 

don’t object to the form submitted by the Defendants?

MR. STEMMEL: That’s correct, we agree with that 

form.

THE COURT: All right. Mr. Galloway, tell me 

about the Motion to Dismiss and the documents attached to 

it.

MR. GALLOWAY: Okay. I’m not familiar with the 

private litigation of what i2 may have attached to its 

Motion to Dismiss. I’m confident that i2 did move to 

dismiss but I don’t know what they attached. What I can 

tell you –-

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MR. WELCH: Your Honor, if I might, we’re not 

adopting what’s attached to that motion.

THE COURT: Okay.

MR. GALLOWAY: What I can tell you, Your Honor, is 

that i2 was involved - because they were trying to exhibit 

cooperation with the SEC’s investigation, i2 was involved in 

– was well aware of the litigated enforcement action against 

the three Defendants here. This was filed in July, and in 

our complaint we specifically quoted documents that i2 now 

contends are confidential. Not only that, we put out a 

litigation release so even if i2 somehow had missed the fact 

that the case had been filed in open court, we put out a 

press release on our website. The Defendants here have 

indeed filed voluminous documents and their appendices and 

defense in support of their motions to dismiss the SEC’s 

complaint, i2 has never once made any claim that those 

documents were confidential.

Indeed when the subject of confidentiality first 

came up it had only to do with the Baker Botts materials. I 

thought it was only fair, because there was an agreement, 

that i2 ought to be able to make whatever arguments it 

thought it had, so I notified counsel, and at that time, 

those are the only documents we discussed. It was not until 

December 21st, after 200 boxes of documents that i2 has now 

claimed are confidential, had already been produced to the 

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Defendants that i2 made clear that they were now trying to 

cast a very wide net with that confidentiality agreement and 

cover all the documents.

So I think under those circumstances there has 

been a waiver. What’s more I understand from counsel for 

Kmart that these very same documents are at issue and have 

been at issue for months in the Kmart litigation and that i2 

has not once argued that any of these materials are 

proprietary or confidential.

THE COURT: Well, I saw the letter in your 

appendix but I don’t really have anything before me on the 

Kmart litigation and that’s really not a factor for me to 

consider, and if Kmart needs the documents they certainly 

are free to seek them from the Court for that litigation 

pending. 

To the extent you can show me something that says 

– or show me where they’ve taken an inconsistent position in 

another lawsuit, that’s different but what’s attached to 

your appendix is Kmart’s response to i2’s discovery 

requests. There’s nothing from i2.

MR. GALLOWAY: What I can show you, Your Honor, is 

the multitude of transmittal letters that i2, through its 

counsel Deckard, LLP from Washington, D.C., submitted when 

producing documents, they never referenced the 

confidentiality agreement. In contrast, Baker Botts, which 

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represented i2’s audit committee, routinely – and I believe 

in every instance – referenced the confidentiality 

agreement, which I think demonstrates that all the parties 

have the same understanding. Certainly the Commission never 

intended to agree with i2 that all these 200 boxes of 

documents were confidential, and I think based on their own 

transmittal letters it’s clear that they shared that 

understanding, Judge.

THE COURT: Well, I’d like to see those 

transmittal letters because I don’t recall seeing them in 

the appendix, and the other point I wanted to make is that 

the language of the confidentiality agreement is pretty 

broad as to that too. I mean they clearly asked to make all 

documents produced before, designated as confidential, and 

it’s signed off on by the SEC, so it looks like the SEC is 

taking an inconsistent position here from the documents 

rather than i2.

MR. GALLOWAY: Your Honor, if I may approach?

THE COURT: Absolutely. Has opposing counsel seen

these?

MR. GALLOWAY: I have provided them to them. They 

are in the box in front of Mr. Welch. What you have in 

front of you, Your Honor, are, like I said, a multitude of 

letters from Deckard and not once to my knowledge did 

Deckard ever reference the confidentiality agreement in 

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producing documents on behalf of its client, i2 

Technologies. On the other hand – now they did seek FOYA 

protection, which is a completely separate matter, which 

I’ve addressed in our response. On the other hand, Baker 

Botts, there is a tab I believe in the materials before you, 

Your Honor, that separates what’s Baker Botts from Deckard. 

The Baker Botts materials clearly, always references the 

confidentiality agreement, and that, of course, is entirely 

is consistent with what our understanding was all along.

THE COURT: All right. Rather than take time on 

the record to go through this, you’re not disputing that 

they sought to keep the Baker Botts materials confidential 

through the agreement?

MR. GALLOWAY: During the investigation, yes, Your 

Honor, that’s true.

THE COURT: All right. The dispute here is 

whether – as far as the agreement, the confidentiality 

agreement that was signed in May, what you’re contending is 

that all of the non Baker Botts materials they did not seek 

confidential protection for those?

MR. GALLOWAY: That is certainly my position and 

it frankly came as a flash to me on December 21st when I 

received the letter that I saw they took a different 

position that was dramatically different from all the

letters that you see before you.

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THE COURT: Okay. Now, on your website was it 

just a press release or discussion of the investigation or 

have you actually posted these documents?

MR. GALLOWAY: No, the documents themselves are 

not posted. My only point there, Your Honor, was to suggest 

that i2 – but none of this has been conducted in secret. i2 

has been aware of everything that the SEC has done in 

connection with this investigation and the subsequent 

litigation.

THE COURT: Has the SEC produced documents that 

were turned over by i2 to any party at this point?

MR. GALLOWAY: No. The only use we’ve made of 

those documents is, for instance, when we took investigative 

testimony from Karen Austin, who is a representative of 

Kmart, she was shown certain documents, and of course, we 

had to show those in the discharge of our duties, but as far 

as producing documents, no, we haven’t produced them to 

anyone other than the three Defendants in this lawsuit.

THE COURT: So you have produced them to the three 

Defendants in this lawsuit?

MR. GALLOWAY: Yes, Your Honor. Let me be clear. 

During three weeks in December we made available all 200 

boxes of documents produced by i2 and all of those documents 

have been produced and reviewed by defense counsel before 

Ms. Bonichelli (phonetic) sent her December 21st letter 

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taking this new position that all the documents were covered 

by the confidentiality agreement.

THE COURT: All right. Were the Baker Botts 

materials produced to the Defendants?

MR. GALLOWAY: No, Your Honor, they were not.

THE COURT: Okay. So you have produced the non 

Baker – I think that was the terminology that you used in 

your response and that’s I think an appropriate description 

you used - the non Baker Botts materials that you received 

from i2 were produced to the Defendants in December but the 

Baker Botts materials have not been produced?

MR. GALLOWAY: That’s correct. Now, just to – I 

hate to muddy it up further, Judge, but in the last week all 

the parties have agreed that they would maintain the 

confidentiality of even Baker Botts materials pending this 

court’s ruling because I wanted to produce those documents 

as expeditiously as possible. I have made them available 

but I would suggest that certainly there has been no waiver 

on the Baker Botts materials.

THE COURT: All right, but certainly prior to the 

filing of the motion the Baker Botts material has been 

treated as confidential by the SEC pursuant to the 

agreement?

MR. GALLOWAY: Your Honor, we have tried to afford 

them an opportunity to be heard. We never took the position 

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that they were confidential in the sense that we didn’t have 

the – we didn’t have the ability to use them in the 

litigation as we see fit in furtherance of our duties as 

expressly set forth in the original.

THE COURT: Well, you considered them subject to 

the agreement. You didn’t produce them in December with the 

other non Baker Botts materials.

MR. GALLOWAY: That’s correct, Judge.

THE COURT: Okay. Now, tell me about the notice 

that i2 had that the non Baker Botts materials were being 

produced to the Defendants.

MR. GALLOWAY: Your Honor, I can’t point you to a 

document. All I can tell you is that I spoke to Cathy 

Bonichelli (phonetic) on a number of occasions in November 

of 2005 and we focused exclusively on the Baker Botts 

materials. It was plain that the document production was 

forthcoming. As to all the documents, Ms. Bonichelli 

(phonetic) never once said that all these other documents 

are subject to any sort of protection. As I mentioned to 

the Court, when I got her letter on December 21st I was 

somewhat taken aback.

THE COURT: Had any Baker Botts materials been 

produced by i2 prior to the entry of the confidentiality 

agreement?

MR. GALLOWAY: I’m not sure I understand the 

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question, Your Honor.

THE COURT: All right. Let me see if I can back 

it up. The confidentiality agreement appears to have been 

signed on or about May 28th, 2003. That’s the one that’s 

attached to i2’s appendix as Exhibit B.

MR. GALLOWAY: Yes.

THE COURT: Prior to the execution of this 

agreement, had i2 turned over any Baker Botts materials to 

the SEC?

MR. GALLOWAY: Not to my knowledge. They had 

produced thousands of pages of other documents. The 

investigation had been ongoing for six months prior to that 

confidentiality agreement but I don’t believe any Baker 

Botts materials had been produced.

THE COURT: Okay. So when it says in the 

agreement previously produced materials, that did not refer 

to any Baker Botts materials that had been produced before?

MR. GALLOWAY: To my knowledge, no, Your Honor.

THE COURT: So that tends to support their 

argument that they intended those – that non Baker Botts 

materials to also be covered by the agreement, if that’s 

what had been produced at that point.

MR. GALLOWAY: That certainly – it was not our 

interpretation. That may well have been theirs. I think 

the fact that their letters referenced – later didn’t 

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reference those – the confidentiality agreement bears on 

what their intention was, but in any event, as the Court has 

pointed out, that agreement is quite clear that the SEC can 

use those documents in furtherance of its duties.

THE COURT: All right. Tell me how – tell me why 

you oppose entry of a protective order at this point. If 

we’re talking about discovery of these documents and making 

them available to the Defendants for their use in the 

litigation, what’s the issue here? How does the SEC intend 

to use them to discharge its duties and responsibilities 

that would violate that protective order if it was entered?

MR. GALLOWAY: Well, for example, Judge, filing 

motions for summary judgments. Any number of pretrial 

motions that might be filed when we have a sealing order 

places a tremendous burden, particularly on an agency like 

ours, which is, you know, we don’t have near the resources 

that the Defendants have, but we just don’t think that it’s 

warranted to have a protective order in this case. They’ve 

got to demonstrate a specific reason for it, and thus far 

all I’ve heard are conclusory statements.

THE COURT: Well, they’ve got some specifics in 

the affidavits and Judge Sanders has agreed with them that 

this type of information – he’s previously agreed with them 

that this very type of information as represented by Mr. 

Welch, some of this very same information is protected. Why 

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doesn’t that meet their burden to show that that’s 

confidential?

MR. GALLOWAY: Well, first and foremost it’s 

stale. The conduct at issue in this case occurred in 2000 

and 2001. To the extent their documents from ’03, they 

relate back to the earlier misconduct by i2, and when Judge 

Sanders considered this he had before him an agreement among 

all the parties in the case – and that was in November of 

2003 and here we are in January of ’06, the documents are 

far more outdated now than they were then.

THE COURT: What about their argument that it’s 

technology or it’s information that’s still used. We’re not 

talking about a computer chip that’s obsolete now or 

something like that, are we?

MR. GALLOWAY: What we’re talking about is a bunch 

of e-mails primarily, Your Honor. We’re not talking about a 

source code, we’re not talking about something that a 

competitor or somebody can get his hands on, and a perverse 

engineer that – the software. That’s not at all what’s at 

issue here. This is not an intellectual property case; this 

is a fraud case and we intend to prove that the Defendants 

knew that they were selling nonfunctional software and we 

intend to do that by their own communications, not by 

proving that their code – we haven’t asked for any codes. 

I’ll put it that way, Judge. That’s the kind of thing in my 

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mind that could be protected. This is – you know, this is 

just routine business arrangement.

THE COURT: So as I understand your argument, the 

SEC – really how you would be harmed by a protective order 

is that it would make it harder for you when you’re filing 

your motions for summary judgment and trying to use some of 

these documents in court proceedings.

MR. GALLOWAY: That and the fact that we are a 

public agency. We bring our litigation in public interest. 

The public has a strong interest in observing litigation 

being conducted in its name, so this differs. And I’ve 

heard over and over how it’s routine to have a protective 

order in these types of cases but what the defense side 

seems to be missing in my view is that this isn’t a routine 

case like a commercial dispute. This is a law enforcement 

proceeding.

THE COURT: Law enforcement proceeding against 

three former employees of a company whose documents are at 

issue here.

MR. GALLOWAY: A company who overstated its 

revenues by a billion dollars, who is coming into court –

frankly, the equities aren’t really so much in favor of i2 

here. It’s not apparent why they need this protective 

order. What appears to be the reason is that they want to 

avoid further litigation, Judge, and I understand that, I 

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don’t blame them, but that’s no reason for a protective 

order.

THE COURT: Well, that’s not necessarily a reason 

for a protective order in my mind either, but at this point 

I think they’ve made their showing that the documents that 

are at issue here, and given the scope of the production –

we’re talking about over 500,000 documents, whether hard 

copy or electronic format, but the proposed protective order 

gives the parties ample opportunity and means for 

challenging any designation as confidential, and once you 

get to the summary judgment stage then the whole judicial 

document open to the public’s analysis can really be made at 

that point, but I’m having trouble seeing the harm in 

designating the documents confidential for purposes of 

discovery, given the enormity of the amount of documents 

here and the fact that i2 is not in this lawsuit. I 

understand your position about i2 but that was a separate 

lawsuit. Apparently that’s been resolved and we’ve got 

three non party or non i2 Defendants here.

MR. GALLOWAY: That’s correct, Your Honor, and 

there is a large volume of information. Certainly I’m not 

shying away from that. It’s just my understanding that the 

Fifth Circuit requires the movant to make a specific – a 

particular and specific demonstration of fact as 

distinguished from stereotype and conclusory statements.

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THE COURT: Uh-huh, and I think that they have 

made that. I think that the affidavits in support, coupled 

with the previous finding of Judge Sanders regarding some of 

this very same information, I think meets that standard, and 

I am not ordering that those documents not be produced; 

you’ve already got them. I’m only ordering that the 

documents be produced to the Defendants subject to a 

protective order, and they don’t have any objection to a 

protective order, so I understand the position about the 

pubic documents but I think the Lagosch, Lagosh, however you 

pronounce that case, I think it’s very distinguishable. 

We’re not talking about summary judgment materials here.

So, I am going to grant the motion for a 

protective order and I’m going to enter the protective order 

that’s attached to the Defendants’ motion in this case.

Is there anything else that we need to address 

with regard to the motion – any pending discovery, any other 

matters that are -- 

MR. GALLOWAY: Not from the Commission’s 

standpoint, Your Honor.

MR. WELCH: No, Your Honor.

THE COURT: And from the Defendants? I’ll give 

you an opportunity to raise any issues that we need to talk 

about.

MS. O’CONNOR: None, Your Honor. We look forward 

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to obtaining discovery as soon as possible, now that the 

protective order is being entered.

THE COURT: I’ll enter the protective order today. 

What kind of time frame are we looking at for producing – I 

believe the documents are ready and available to be 

produced, it’s just a matter of entering the order?

MR. GALLOWAY: Yes, Your Honor. We can produce 

everything we have within the next day or two.

THE COURT: Okay. Anything else that we need to 

discuss? All right. Well, thank you very much. I’ll 

return your documents to you, Mr. Galloway, and we are 

adjourned.

(Proceedings Concluded)

 I certify that the foregoing is a correct 

transcript from the electronic sound recording of the 

proceedings in the above-entitled matter.

 

Date: June 8, 2009 /s/Betty Tate, Transcriber

3101 Townbluff #923

Plano, TX 75075

972-596-9442

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