In re Fannie Mae Securities Litigation

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

Memorandum in Support

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3 UNITED STATES DISTRICT COURT DISTRICT OF COLUMBIA In re Federal National Mortgage Associate MDL No. 1688 Securities, Derivative, and "ERISA" Litigation In re Fannie Mae Securities Litigation Consolidated Civil Action No. 1:04-cv-01639 (RJL) FILED WITH REDACTIONS EXHIBITS UNDER SEAL TO FOLLOW MEMORANDUM IN SUPPORT OF DEFENDANTS' MOTION TO STRIKE EXPERT WITNESS, OR IN THE ALTERNATIVE, TO COMPEL THE IMMEDIATE CONTINUATION OF HIS DEPOSITION This motion concerns Mr. Harvey Pitt, Lead Plaintiffs' expert on practices and disclosures of the U.S. Securities and & Exchange Commission ("SEC"). In his expert report, Mr. Pitt opines on a variety of topics, including the effect of the December 15, 2004 statement by the then-Chief Accountant of the SEC, Donald Nicolaisen. The deposition of Mr. Pitt commenced on February 24, 2011, and on day one Mr. Pitt testified extensively about his views of the legal significance of Mr. Nicolaisen's December 15, 2004 statement. The deposition was scheduled to resume today. This morning, however, Mr. Pitt unilaterally suspended his deposition indefinitely over the objection of all Defendants. Mr. Pitt explained that overnight he had learned for the first time that Mr. Nicolaisen had testified in this litigation. See Deposition of Harvey Pitt at 329:3-21, 337:4-12 (Feb. 25, 2011) ("Pitt Dep.") (Exhibit A, to be filed under seal).1 Apparently, Lead Plaintiffs' counsel had concealed Mr. 1 The Defendants will file exhibits under seal on Monday, February 28, 2011. 1 3 Nicolaisen's testimony from Mr. Pitt, their very own expert, while eliciting Mr. Pitt's expert opinions about Mr. Nicolaisen's role in this case. In light of his discovery of the testimony, Mr. Pitt requested that the Defendants allow him time to read carefully Mr. Nicolaisen's deposition—which has been available to all parties since November 19, 2009—before resuming his testimony. Mr. Pitt stated that he needed to consider whether he needs to amend, supplement, or otherwise take steps with respect to his expert report. See id. at 329:3-17. Mr. Pitt further stated that he could not testify about any of the opinions in his report without first reviewing the Nicolaisen testimony because he could not disentangle the other topics of his expert report. To distract the Court from these remarkable events, the Lead Plaintiffs then notified the Defendants that they would file a motion for a protective order pursuant to Federal Rule of Civil Procedure 26, to preclude counsel for Mr. Raines, Alex G. Romain, from questioning Mr. Pitt during his testimony.2 Lead Plaintiffs did so despite having assured all counsel, at the conclusion of the first day of Mr. Pitt's testimony, that the deposition would resume the following day at 8 a.m; they did so without providing notice to the attorneys for the Defendants that the deposition would not proceed, and without any attempt to negotiate a resolution without motions practice. Notably, Mr. Pitt stated that he takes no position on Lead Plaintiffs' motion and that although the nature of the questioning was uncomfortable, he could continue to answer questions. Mr. Pitt's current quandary is not defense counsel's questioning; it is that the Lead Plaintiffs did not provide him with critical evidence—available for over a year—until after the first day of his deposition. 2 This motion was filed at 5:24 PM today. See Motion for Protective Order (Feb. 25, 2011) (Dkt. No. 890). 2 3 Mr. Pitt's refusal to proceed with his deposition affects all of the parties. As the Court is well aware, the schedule for expert reports and the current deposition schedule followed lengthy negotiations and attempts to sequence expert reports and depositions in a fair manner. Mr. Pitt's proposal that his deposition be suspended, so that he can review critical evidence that Lead Plaintiffs' counsel concealed from him and amend or supplement his report accordingly, would throw that entire process into disarray. To allow Mr. Pitt to do as he wishes would not only invite each and every witness to similarly adjourn their depositions upon the revelation of damaging evidence, it would also invite an endless cycle of supplementation of reports, counter- supplementation of reports in opposition, and further depositions. Given Lead Plaintiffs' failure to provide Mr. Nicolaisen's testimony to Mr. Pitt and Mr. Pitt's own refusal to testify, Defendants respectfully request that the Court preclude Lead Plaintiffs from proffering Mr. Pitt as an expert on their behalf. In the alternative, we request that the Court direct Lead Plaintiffs to make Mr. Pitt available to complete his deposition on March 3 and 4, 2011 and to bar him from supplementing or adding to his report. BACKGROUND Lead Plaintiffs retained Mr. Pitt, of Kalorama Partners, in 2009. See Pitt Dep. at 17:16- 21 (Exhibit A). Nearly one year ago, on May 23, 2010, Lead Plaintiffs disclosed Mr. Pitt as an expert to testify as to, inter alia, and Lead Plaintiffs' Disclosure of Expert Witnesses at 5 (May 23, 2010) (Exhibit B to be filed under seal). Pursuant to this Court's Scheduling Order, Lead Plaintiffs submitted Mr. Pitt's expert report on September 15, 2010. In that report, Mr. Pitt opines at length about the legal effect of a December 15, 2004 statement issued by Donald Nicolaisen, 3 3 then the SEC's Chief Accountant.3 Mr. Pitt's deposition was jointly scheduled by all parties for February 24 and 25, 2011. On the first day of his deposition, Mr. Pitt was asked questions regarding Mr. Nicolaisen beginning at the very outset of the examination. See Pitt Dep. at 26:5 (Feb. 24, 2011). Mr. Pitt testified that: • He would opine regarding the legal effect of Mr. Nicolaisen's December 15, 2004 statement, which he understood to be see id. at 35:10-14, 48:9-18; • He had his report, id. at 24:6-14, because id. at 18:21-19:6; • As a matter of practice, he specifically searches for documents reflecting the central contentions and all perspectives on the case, id. at 20:14-21:4; • He did id. at 29:5-11, and that it was Mr. Pitt's understanding that id. at 29:12-30:4; • He would have asked whether Mr. Nicolaisen had testified in this case because id. at 33:4-16 (emphasis added). Despite multiple breaks throughout the day, and the fact that both Messrs. Cummins and Karam were present at Mr. Nicolaisen's deposition and knew that Mr. Pitt was incorrect in assuming 3 The opinions offered by Mr. Pitt in this regard have been the subject of motions practice and will likely be the subject of forthcoming motions in limine. See, e.g., Individual Defendants' Motion to Strike Opinion Deposition Testimony of Donald T. Nicolaisen or, in the Alternative, to Compel Additional Deposition Testimony (Dkt. No. 838) (Jan. 7, 2010). 4 3 that Mr. Nicolaisen had not testified, Lead Plaintiffs' counsel apparently did not inform Mr. Pitt over the course of the day about Mr. Nicolaisen's testimony, nor during the five or six discussions Mr. Pitt had with Lead Plaintiffs' counsel in preparation for his testimony. See Pitt Dep. at 338:9-16 (Feb. 25, 2011). Nor did counsel make any effort to correct the clearly inaccurate testimony of their expert. The second day of Mr. Pitt's deposition was scheduled to begin today at 8:00 a.m. At 8:20 a.m., Mr. Pitt, one of his partners from Kalorama Partners, and counsel for the Lead Plaintiffs arrived. Before defense counsel could resume their examination of Mr. Pitt, Lead Plaintiffs declared that Mr. Pitt wanted to make a statement on the record. Mr. Pitt stated his belief that at various points in his testimony of the prior day, he was interrupted and did not feel he could give complete answers. Id. at 328:17-329:2, 329:17-21 (Feb. 25, 2011). He then stated that he had learned for the first time after the deposition had concluded that Mr. Nicolaisen had in fact testified in this case, and that although he had a chance to review his testimony he had determined that Id. at 329:7-17 (emphasis added). Thereafter, Lead Plaintiff's counsel announced that Lead Plaintiffs would file a motion for a protective order pursuant to Federal Rule of Civil Procedure 26 as a result of what they believed to be Id. at 330:8-14 (Feb. 25, 2011). Although Lead Plaintiff's counsel attempted mightily to stop Mr. Pitt from being asked further questions, see, e.g., id. at 333:14-335:12, Mr. 5 3 Pitt wished to make the record clear that regarding Mr. Nicolaisen in fact having testified in this case, Id. at 335:19-21. Mr. Pitt also made clear that because he was if any motion with regard to Rule 26 was filed, Id. at 335:21-336:2. Mr. Pitt also expressed his view that Mr. Romain, the questioner on behalf of Mr. Raines, was in his opinion and that his expression that he felt as though he could not fully answer questions Id. at 335:19-336:16. When asked whether Mr. Pitt was able to testify about any of his opinions including those beyond the subject of Mr. Nicolaisen, Mr. Cummins directed Mr. Pitt not answer, but Mr. Pitt ignored that direction: of his expert testimony. Id. at 340:20-341:2. At the direction of Lead Plaintiffs' counsel, Mr. Pitt then refused to answer any additional questions and left the deposition room. Id. at 346:19-20. ARGUMENT Lead Plaintiffs in this case were required by the Federal Rules and orders of this Court to provide, by September 15, 2010, an expert report in the form of "a complete statement of all opinions to be expressed by the Expert and the basis and reasons therefore" and "all data and other information on which the Expert relied in forming the opinions reflected in the Expert Report." See Order Establishing Expert Discovery and Deposition Protocol at 2 (June 2, 2008) (Dkt. No. 102); Case Management Order No. 8 at 1 (Aug. 3, 2010) (Dkt. No. 880); see also Fed. 6 3 R. Civ. P. 26(a)(2). Moreover, all depositions of Plaintiffs' experts were scheduled to be completed by February 25, 2011. See CMO No. 8 at 2. As a result of Lead Plaintiffs' failure to provide their own expert with critical evidence related to his opinions, Lead Plaintiffs will not have made the requisite disclosures of expert opinions and testimony by the dates set forth in this Court's orders. Accordingly, pursuant to Federal Rule of Civil Procedure 37(c)(1), Defendants respectfully request that the Court prohibit Lead Plaintiffs from presenting Mr. Pitt's expert opinions in support of any motion, at a hearing, or at trial. As it now stands, Defendants do not know what opinions Mr. Pitt will provide at trial, and Lead Plaintiffs' failure in that regard is neither substantially justified nor harmless. First, there is no justification for the failure of Lead Plaintiffs to provide critical deposition testimony to their expert—which they both personally witnessed (and elicited)— before they offered his expert opinions on that very subject.4 No principle of law allows a 4 As the Court knows, Lead Plaintiffs dedicated nearly three years to procuring the deposition testimony of Mr. Nicolaisen. They identified Mr. Nicolaisen as a witness on March 23, 2007. See Reply Mem. in Supp. of Mot. to Compel Dep. of Donald Nicolaisen at Ex. A (Sept. 16, 2009) (Dkt. No. 782). They then attempted to serve him with a Rule 45 Subpoena on December 3, 2007 and again on March 4, 2008. Id. at Exs. B & C. On June 24, 2008, Lead Plaintiffs sought assistance from the SEC's staff in obtaining Mr. Nicolaisen's testimony. See Mem. in Supp. of Mot. to Compel Dep. of Donald Nicolaisen at Ex. A1 (Aug. 27, 2009) (Dkt. No. 772-1). Following a prolonged stay of this litigation (occasioned by Fannie Mae's conservatorship) and correspondence between the parties, on August 14, 2009, the SEC refused to authorize Mr. Nicolaisen's deposition. Id. at Ex. A7. On August 26, 2009, Lead Plaintiffs filed a petition for review of that refusal, id. at Ex. A, which was later denied by formal order of the Commission on October 2, 2009 (Exhibit C to be filed under seal). On August 27, 2009, Lead Plaintiffs moved this Court to compel Mr. Nicolaisen's testimony, claiming that it was necessary to obtain a full understanding of the SEC's review of Fannie Mae's accounting. See Mot. to Compel Dep. of Donald Nicolaisen (Aug. 27, 2009) (Dkt. No. 772). On October 20, 2009, this Court granted Lead Plaintiffs' motion to compel and Mr. Nicolaisen was deposed on November 19, 2009. See Min. Order (Oct. 20, 2009). Both Mr. Cummins and Mr. Karam were present for Mr. Nicolaisen's November 19, 2009 deposition, with Mr. Cummins asking questions on behalf of the Lead Plaintiffs. 7 3 witness to adjourn their own deposition (or for counsel to purport to adjourn that deposition on a pretext) simply because he learns of information that undermines his opinions. Second, to allow Mr. Pitt to adjourn his own deposition in order to evaluate evidence that has long been available to all parties, so that he may amend or supplement his report, would completely upend the schedule entered by this Court and would result in considerable delay and cost. The current dates for expert depositions (like the dates for reports) are set so that defense experts may evaluate and rebut the testimony of plaintiffs' experts and plaintiffs' rebuttal experts may then rebut that testimony. Not only would Mr. Pitt's requested adjournment require the rescheduling of those defense experts intending to rebut Mr. Pitt, which could set in motion a series of delays, it would also invite the submission of further supplemental reports both by Mr. Pitt and those responding to Mr. Pitt. Furthermore, it would invite other expert witnesses to demand similar treatment—potentially introducing massive delays and new expenses every time an expert is confronted with material that had not previously been considered. Third, Defendants have spent a considerable amount of time and expense to have their experts rebut the opinions proffered by Mr. Pitt. That work cannot be undone. The Defendants and their experts abided by the deposition protocol, and by this Court's case management orders, which required the Lead Plaintiffs to disclose their experts' reports first, in order for the Defense experts to respond to the contentions of the Lead Plaintiff experts. Several defense experts respond directly to Mr. Pitt's opinions as stated in his report. Mr. Pitt's report does not rely on Mr. Nicolaisen's deposition testimony because Lead Plaintiffs did not provide it to him. That was Lead Plaintiffs' choice. It is severely prejudicial to Defendants to hit "reset" and enable Lead Plaintiffs to suspend inquiry into the bases for Mr. Pitt's opinions at the time he gave them. 8 3 Finally, Defendants have invested considerable time and money to prepare to depose Mr. Pitt on the wide-ranging topics in his expert report. This includes preparation by counsel for all Defendants. Lead Plaintiffs should not be permitted to turn this situation to their advantage by deferring further testimony, thus giving both counsel and the witness substantial time not afforded any other witness to study the transcript of the first day of testimony and prepare for the remainder, all while holding open the possibility that the witness will submit a new report, tailored to address damaging evidence introduced at the deposition. Under these circumstances, the Court should not allow Lead Plaintiffs "to use [Mr. Pitt] to supply evidence on a motion, at a hearing, or a trial." Fed. R. Civ. P. 37(c)(1); see, e.g., Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106-07 (9th Cir. 2001) (affirming district court's exclusion of expert report because "exclusion is an appropriate remedy for failing to fulfill the required disclosure requirements of Rule 26(a)"); S. States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592, 598 (4th Cir. 2003) (affirming district court's exclusion of expert's third opinion due to party's failure to timely disclose it). Moreover, Rule 37 sanctions are designed to be both "self-executing" and "automatic" so as to "provide[ ] a strong inducement for disclosure of material." Fed. R. Civ. P. 37 advisory committee's note (1993); see also Wilson v. Bradlees of New England, Inc., 250 F.3d 10, 21 (1st Cir. 2001) ("[I]t is the obligation to the party facing sanctions for belated disclosure to show that its failure to comply with [Rule 26] was either justified or harmless. . . ."). In the alternative, Defendants request that Mr. Pitt be required to complete his deposition on March 3 and 4, 2011, and to limit any expert opinions he may proffer to those expressly contained in his September 15, 2010 report. Pursuant to the Deposition Protocol, all depositions of Lead Plaintiffs' experts must be completed before those of Defendants' experts. Mr. Pitt has 9 3 expressed expert opinions, on various subject matters, which relate to several of the Defendants' experts. It would be unduly prejudicial for the Defendants to alter the order of depositions simply because Lead Plaintiffs concealed critical testimony from their own expert. And it would be unduly prejudicial for Mr. Pitt to be permitted to amend or supplement his opinions because the Defendants' experts would not be able to respond appropriately. CONCLUSION For all the reasons stated above, Defendants respectfully request that this Court preclude Lead Plaintiffs from proffering Mr. Pitt as an expert on their behalf. In the alternative, Defendants request that the Court direct Lead Plaintiffs to make Mr. Pitt available to complete his deposition on March 3 and 4, 2011 and to bar him from supplementing, amending, or adding to his report. 10 3 Dated: February 25, 2011 Respectfully submitted, /s/ Kevin M. Downey Kevin M. Downey (D.C. Bar No. 438547) Alex G. Romain (D.C. Bar No. 468508) Joseph M. Terry (D.C. Bar No. 473095) WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 (telephone) (202) 434-5029 (facsimile) Counsel for Defendant Franklin D. Raines /s/ F. Joseph Warin F. Joseph Warin (D.C. Bar No. 235978) Scott A. Fink (pro hac vice) Andrew S. Tulumello (D.C. Bar No. 468351) GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 955-8500 (telephone) (202) 467-0539 (facsimile) Counsel for Defendant KPMG /s/ Steven M. Salky Steven M. Salky (D.C. Bar No. 360175) Eric R. Delinsky (D.C. Bar No. 460958) ZUCKERMAN SPAEDER LLP 1800 M Street, NW, Suite 1000 Washington, DC 20036 (202) 778-1800 (telephone) (202) 822-8106 (facsimile) Counsel for Defendant J. Timothy Howard 11 3 /s/ David S. Krakoff______________________ David S. Krakoff (D.C. Bar No. 229641) Christopher F. Regan (D.C. Bar No. 433972) BUCKLEYSANDLER LLP 1250 24th Street, NW Washington, DC 20037 (202) 349-8000 (telephone) (202) 349-8080 (facsimile) Counsel for Defendant Leanne G. Spencer 12 3 CERTIFICATE OF SERVICE I certify that on February 25, 2011, I electronically filed the foregoing with the Clerk of the 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 CM/ECF. /s/ Eun Young Choi Eun Young Choi 13