In re Fannie Mae Securities Litigation

District of Columbia, dcd-1:2004-cv-01639

MOTION to Strike Expert Report and Award Fees and Costs by FEDERAL NATIONAL MORTGAGE ASSOCIATION

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA In re Federal National Mortgage Association MDL No. 1668 Securities, Derivative, and "ERISA" Litigation In Re Fannie Mae Securities Litigation Consolidated Civil Action No. 1:04-cv-01639 RJL Judge Richard J. Leon FANNIE MAE'S MOTION TO STRIKE EXPERT REPORT AND AWARD FEES AND COSTS Earlier today, Counsel for Lead Plaintiffs Ohio Public Employees Retirement System and State Teachers Retirement System of Ohio ("Lead Counsel") unilaterally and, over objection, abruptly terminated the deposition of their own designated expert witness, Harvey L. Pitt. This transparent and unjustified move was due to the fact that Mr. Pitt was being asked questions based on evidence that was directly relevant to his opinions, but which Lead Counsel had apparently failed to provide him. The disruption came at the very beginning of the second day of Mr. Pitt's deposition. He noted on the record that just last night he "learned for the first time" of a relevant fact deposition testimony that had been taken in this litigation on November 19, 2009. Mr. Pitt then refused to continue to testify until he had an opportunity to review the testimony and consider whether to "amend, supplement or otherwise take steps with respect to the expert report that [he] filed." (February 25, 2011 Tr. of Deposition of Harvey Pitt at 329:15-17.) Lead Counsel provided no advance notice of this issue, refused to allow Defendants to raise the issue with the Court at the time, inappropriately instructed the witness not to answer any questions, and then walked the witness out of the room. Lead Counsel designated Mr. Pitt as an expert witness more than nine months ago, and it has been nearly six months since Mr. Pitt submitted his expert report. Defendants have devoted significant resources analyzing and responding to Mr. Pitt's report, including obtaining a number of defense expert reports in response. In direct contravention of Case Management Order Number 8, Lead Counsel refused to permit Mr. Pitt to answer questions which tested – and found wanting – the factual bases for his opinions. Lead Counsel prevented attempts to resolve this issue promptly with a call to chambers. Instead, Lead Counsel escorted Mr. Pitt from the deposition so that he could have more time to prepare his answers and amend his previous testimony, requiring Defendants to seek redress through this motion. There is no legitimate justification for the waste of resources incurred by Fannie Mae as a result of Lead Counsel's conduct. For the reasons set forth below, Fannie Mae requests that the Court: (1) strike the Expert Report of Harvey L. Pitt and preclude Lead Plaintiffs from calling Mr. Pitt as an expert witness at trial and (2) order Lead Plaintiffs to reimburse Fannie Mae for the attorneys' fees and costs incurred in connection with defense counsel's preparation for and attendance at the deposition of Mr. Pitt, and for the fees and expenses incurred in connection with this motion. Fed R. Civ. P. 30(d)(2). BACKGROUND On May 3, 2010, Lead Counsel designated Harvey L. Pitt as an expert witness. The designation indicated that he would address, among other things "the role of the SEC's Office of the Chief Accountant." (Lead Plaintiffs' Disclosure of Expert Witnesses, May 3, 2010 at 5).1 1 The full text provides: The general subject matter of [Mr. Pitt's] testimony is presently anticipated to be the role, functions, authority, enforcement programs (including the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002), and rules of the U.S. Securities Exchange Commission ("SEC"); the role of the SEC's Office of the Chief Accountant, the anti-fraud and other provisions of the Securities Exchange Act of 1934, as amended; industry practices in applying the foregoing -2- On September 15, 2010, Mr. Pitt submitted his expert report. His report contained a key opinion about the December 15, 2004 public statement by former Securities and Exchange Commission Chief Accountant Donald Nicolaisen's to the effect that "Fannie Mae's accounting practices did not comply in material respects with the accounting principles set forth in FAS 91 and 133," (Expert Report of Harvey L. Pitt ¶ 29), "created binding obligations on the recipient [Fannie Mae]." (Id. ¶ 30.) Defendants provided their own expert reports on November 15, 2010, many of which responded to the opinions expressed in Mr. Pitt's report. On February 24, 2011, Mr. Pitt provided sworn deposition testimony under oath in connection with his expert report and the opinions contained therein. Mr. Pitt repeatedly testified that he did not believe Mr. Nicolaisen had provided deposition testimony in this litigation, (February 24, 2011 Tr. of Deposition of Harvey Pitt at 29:5-8; 30:5-11), and that his opinion was based, at least in part, on that fact. (Id. at 33: 4-16.) This belief was erroneous, as Lead Counsel was well-aware. Mr. Nicolaisen was deposed in this litigation on November 19, 2009. Indeed, his deposition only took place following extensive motions practice initiated by Lead Plaintiffs over the opposition of the Securities and Exchange Commission, and both of the attorneys for Lead Plaintiffs who represented Mr. Pitt at his deposition attended at Mr. Nicolaisen's November 2009 deposition. Inexplicably, neither attorney saw fit to apprise Mr. Pitt of this fact during any of the approximately five occasions on which they met in preparation for Mr. Pitt's deposition. (February 25, 2011 Tr. of Deposition of Harvey Pitt at 338:9-16.) laws and rules to the conduct of U.S. business enterprises; the purpose and importance of internal controls generally and the obligations of public companies with respect to internal controls in light of the Sarbanes-Oxley Act of 2002 and other applicable laws and regulations; and the operation, functions and efficiency of the U.S. financial market system, including the importance of accurate information for investors. (Lead Plaintiffs' Disclosure of Expert Witnesses, May 3, 2010 at 5). -3- Apparently learning of Mr. Nicolaisen's deposition last night, Mr. Pitt made the following remarks on the record at the start of today's deposition: [Y]esterday I learned for the first time that Don Nicolaisen had actually testified in this proceeding. I have had a chance to read Mr. Nicolaisen's testimony cursorily but in light of the fact that it appears to me that he was questioned specifically on some of the matters covered in my report, in particular from pages 173 to 190 of that transcript, I need to read his deposition more carefully and consider whether I need to amend, supplement or otherwise take steps with respect to the expert report that I filed. And until I do that I wanted the record to be clear that to the extent my testimony yesterday under oath indicated that I did not know that he had testified, that is accurate. But now that I know it I believe I have to both read my expert report and my testimony from yesterday to consider what effect if any that testimony will have on what I have said or filed in this case. That's my position and statement. (Id. at 329:5-330:5.) Defendants sought to proceed with the deposition including questioning on opinions unrelated to Mr. Nicolaisen, but Mr. Pitt responded that "I don't want to testify now until I consider all of the events of yesterday so the answer is I'm not able to bifurcate subjects." (Id. at 340:22-341:2.) Thereafter, defense counsel objected to adjourning the deposition and requested that the parties contact the Court to resolve the issues. Rather than do so, Lead Counsel instructed Mr. Pitt not to answer any further questions and escorted him from the room. (Id. at 341:9-346:20.) ARGUMENT I. The Court Should Strike The Expert Report Of Harvey L. Pitt And Preclude Lead Plaintiffs From Calling Mr. Pitt As An Expert Witness At Trial Fannie Mae adopts the arguments made in the motion filed by Franklin Raines and incorporates that motion by reference. In an effort to avoid duplication and conserve judicial resources, Fannie Mae will not repeat those arguments here. -4- II. The Court Should Order Lead Plaintiffs To Reimburse Fannie Mae For Attorneys' Fees And Costs Incurred In Connection With Defense Counsel's Preparation And Attendance At The February 25, 2011 Deposition Of Mr. Pitt The Court should impose sanctions under Rule 30(d)(2) because the abrupt termination of Mr. Pitt's deposition "frustrated the fair examination of the deponent." Fed. R. Civ. P. 30, 2000 amend. note; see also D.D.C. Local Civil Rule 26.2(c) ("If the court finds that the fair examination of the deponent has been frustrated by any impediment or delay, it may impose an appropriate sanction upon the persons responsible, including the reasonable costs and attorney' fees incurred by any parties as a result thereof."). The fact that Lead Counsel did not take adequate steps to ensure that Mr. Pitt was prepared for his deposition is an insufficient basis for refusing to provide testimony. Mr. Pitt was retained by Lead Counsel on this matter in 2009, was designated as an expert witness last May and submitted an expert report on September 15, 2010. (See February 24, 2011 Tr. of Deposition of Harvey Pitt at 17:16-21.) Clearly, this afforded ample time for Lead Counsel to provide Mr. Pitt with the relevant record evidence necessary to support his opinions. Nonetheless, when confronted with evidence that contradicted the opinions in his expert report, Mr. Pitt and Lead Counsel terminated the deposition over Defendants' objections and refused to answer any questions regarding any of his opinions, even those unrelated to the evidence that Lead Counsel did not provide to Mr. Pitt until last night. Instead, Lead Counsel escorted Mr. Pitt from the deposition in order to afford Lead Counsel and Mr. Pitt more time to determine how to respond to Mr. Nicolaisen's contradictory testimony. Defendants should not be subjected to the costs of preparing for a deposition that the witness and Lead Counsel failed to take seriously. In GMAC Bank v. HTFC Corp., 248 F.R.D. 182 (E.D. Pa. 2008), the District Court for the Eastern District of Pennsylvania recognized that the deponent's conduct, which delayed and frustrated the deposition but stopped short of -5- unilaterally terminating the deposition, justified sanctions. Id. at 193-94 ("An award of costs and fees under Rule 30(d)(2) may be used to compensate the party aggrieved by the frustration of the deposition."). The court ordered the deponent to pay reasonable expenses and attorney's fees, including costs and fees incurred in preparing for and conducting the depositions that were frustrated by his conduct. Id. at 194; see also Am. Directory Serv. Agency, Inc. v. Beam, 131 F.R.D. 15, 19 (D.D.C. 1990) ("Without a doubt, Ochs has 'unreasonably and vexatiously' multiplied the proceedings in this case. He unjustifiably protracted and obstructed Kime and Tracy's depositions and thereby triggered Beam's present motion for sanctions. . . . Therefore, we will require Ochs himself to pay to Beam the reasonable expenses, including attorneys' fees, incurred in connection with the August 1989 depositions and the subsequent cross-motions for sanctions." (internal citations omitted).). Even if Mr. Pitt or Lead Plaintiffs believed that the failure to prepare for deposition provides a reasonable basis for terminating a deposition prematurely, the appropriate remedy is a call to the Court, as Defendants requested. See Higginbotham v. KCS Int'l, Inc., 202 F.R.D. 444, 456 (D. Md. 2001) ("[T]here are times when it is appropriate to place a conference telephone call to the judge's chambers and seek an immediate ruling. One such time is when a party is about to leave a deposition over the objection of the other party."). That Lead Counsel instructed Mr. Pitt not to answer any further questions and then escorted him out of the room without any attempt to resolve the dispute frustrated the timely examination of Mr. Pitt and unreasonably deprived Defendants of evidence to which they are entitled. -6- Dated: February 25, 2011 Respectfully submitted, /s/ Jeffrey W. Kilduff _ Jeffrey W. Kilduff (D.C. Bar No. 426632) Robert M. Stern (D.C. Bar No. 478742) Michael J. Walsh, Jr. (D.C. Bar No. 483296) O'Melveny & Myers LLP 1625 Eye Street, N.W. Washington, DC 20006 T: 202/383-5300 F: 202/383-5414 Counsel to Defendant Fannie Mae -7- CERTIFICATE OF SERVICE I certify that on February 25, 2011, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system, which will send notification of such filing to the counsel of record in this matter who are registered on the CM/ECF. /s/ Michael J. Walsh, Jr. Michael J. Walsh, Jr.