In re Fannie Mae Securities Litigation

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

Memorandum in opposition to re 892 Joint MOTION to Strike EXPERT WITNESS, OR IN THE ALTERNATIVE, TO COMPEL THE IMMEDIATE CONTINUATION OF HIS DEPOSITION MOTION to Compel, 891 MOTION to Strike Expert Report and Award Fees and Costs filed by LEAD PLAINTIFFS.

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0 UNITED STATES DISTRICT COURT DISTRICT OF COLUMBIA In re Federal National Mortgage) Association Securities, Derivative, and) MDL No. 1668 "ERISA" Litigation)) In Re Fannie Mae Securities Litigation) Consolidated Civil Action No.: 1:04-CV-01639) Judge Richard J. Leon) LEAD PLAINTIFFS' MEMORANDUM IN OPPOSITION TO (1) FANNIE MAE'S MOTION TO STRIKE EXPERT REPORT AND AWARD FEES AND COSTS (DOC. 891) AND (2) DEFENDANTS' MOTION TO STRIKE EXPERT WITNESS, OR IN THE ALTERNATIVE, TO COMPEL THE IMMEDIATE CONTINUATION OF HIS DEPOSITION (DOC. 892) Harvey Pitt, former Chairman and General Counsel of the U.S. Securities and Exchange Commission, is an expert witness for Lead Plaintiffs and his report offers significant support of Lead Plaintiffs' claims, particularly the claims against Defendant Franklin D. Raines, former Chairman of the Board and Chief Executive Officer of Fannie Mae. Perhaps realizing the damage that Mr. Pitt's report did to his client's defense, throughout the six-hour course of the first day of Mr. Pitt's deposition on February 24, 2011, counsel for Defendant Raines adopted a strategy to intimidate, harass, and "annoy, embarrass and oppress" Mr. Pitt by repeatedly interrupting him, mischaracterizing his testimony, and rebuking him for not providing answers that counsel found satisfactory.1 Lead Plaintiffs' counsel made numerous attempts throughout the six hours of Mr. Pitt's deposition to prevail upon Mr. Raines' counsel to stop harassing Mr. Pitt and to allow Mr. Pitt to actually respond to the questions posed without interruption. Since Mr. Raines' counsel refused to stop, this left counsel for Lead Plaintiffs with no choice but to suspend the deposition and seek 1 See Lead Plaintiffs' Motion for a Protective Order (filed February 25, 2011) (Doc. #890), and memorandum in support, for numerous examples of Mr. Raines' counsel's harassing conduct. 0 a protective order from the Court to prevent the misconduct from continuing throughout the second day of deposition,2 which they promptly did on February 25, 2011 (Doc. #890). Mr. Pitt made a statement on the record at the beginning of the second day of his deposition, expressing concern about Mr. Raines' counsel's conduct: "Yesterday's deposition was troubling to me, because I was not able to finish a good portion of my sentences without interruption, and as I indicated at various points on the record, I did consider that to be disrespectful. I am not a partisan in this case. I am an expert, and I am testifying as to my views." Id. at 328:17-329:2. Mr. Pitt also advised Defendants that he had not been provided with Mr. Nicolaisen's deposition testimony from this case, about which defense counsel had asked questions the day before, and that he wished to read Mr. Nicolaisen's "deposition more carefully and consider whether [he needed] to amend, supplement, or otherwise take steps with respect to the expert report that [he] filed."3 Mr. Pitt's request to review Mr. Nicolaisen's testimony did not change the fact that Lead Plaintiffs' counsel suspended the deposition to "file a motion for (sic.) protective order under Rule 26, as a result of the – what we perceived to be clear violations of that rule regarding the conduct of the examiner with respect to this witness." Id. at 329:14-330:13. Contrary to Defendants' unsupported suggestion, Lead Plaintiffs did not "conceal" Mr. Nicolaisen's testimony from Mr. Pitt. All counsel walk a fine line in assisting an expert witness in preparing his expert report. On the one hand, counsel must be cognizant that the report must reflect the expert's (rather than counsel's) views of the evidence. On the other hand, counsel 2 Paragraph 4 of Case Management Order No. 8 (Doc. 880) provides that expert depositions "shall not exceed two days." Defendants requested, and Plaintiffs agreed, to examine Mr. Pitt for two days of deposition – February 24 and 25. 3 Deposition of Harvey L. Pitt, February 25, 2011, at 328:17-329-2 (attached as Exhibit 1 to Lead Plaintiffs' Motion for a Protective Order (Doc. 890)). 2 0 must provide the expert with reasonable access to the relevant evidence in the case with respect to the topics being opined upon by the expert, so that the expert has had a proper opportunity to make his evaluation and opinions. In this case, counsel for Lead Plaintiffs inadvertently failed to provide Mr. Pitt with Mr. Nicolaisen's deposition.4 Although counsel for Lead Plaintiffs believe that nothing in Mr. Nicolaisen's testimony conflicts with or in any way negatively impacts Mr. Pitt's opinions and conclusions in his report, once Defendants questioned Mr. Pitt about that testimony and Lead Plaintiffs' counsel were made aware that they had not provided Mr. Pitt with Mr. Nicolaisen's deposition testimony, they promptly provided Mr. Pitt with a copy of the testimony. Under Rule 26(e) of the Federal Rules of Civil Procedure, Mr. Pitt has the absolute right to review evidence he has not previously seen that Defendants seek to question him about and to supplement his report in a timely manner if he believes that his report is incomplete or incorrect in some material respect as a result of that evidence. The deposition was suspended because the harassing and abusive method of questioning Mr. Raines' counsel employed throughout the six hours of Mr. Pitt's first day of testimony was not appropriate or permissible. Lead Plaintiffs properly suspended the deposition to move for a protective order, to which they are entitled under the Federal Rules of Civil Procedure, to curtail Mr. Raines' counsel's conduct, and to provide a proper atmosphere within which Defendants could elicit appropriate testimony from Mr. Pitt. LEGAL ARGUMENT The not-so-subtle subtext of Defendants' motion is that they recognize that (1) Mr. Pitt's deposition testimony damaged their case, and (2) Mr. Raines' counsel's conduct at Mr. Pitt's deposition violated Rule 30(d) of the Federal Rules of Civil Procedure; and, accordingly, 4 Defendants Raines, Howard and Spencer have pending a motion to strike a large portion of Mr. Nicolaisen's deposition testimony (Dkt. No. 838, filed Jan. 7, 2010). 3 0 Defendants are attempting to shift the focus to minimize the damage. Based solely on the fact that Mr. Pitt has indicated that he wants to review Mr. Nicolaisen's deposition testimony that Defendants questioned him about and have sought to exclude from the evidence in the case, Defendants have moved to strike his entire report. This is an extreme sanction for what amounts to an expert witness indicating that he needs to review a deposition transcript to ensure that his report and previous testimony remain fully complete and accurate. B. Braun Melsungen AG v. Terumo Medical Corp., C.A. No. 09-347, 2010 WL 4438041 (D. Del. Oct. 28, 2010) (noting that excluding an expert report is an "extreme sanction, not normally to be imposed absent a showing of willful deception or flagrant disregard. . ."). Indeed, under Rule 26(e), Mr. Pitt "must supplement or correct" his expert report "in a timely manner if [he] learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known" to the expert. See also Rule 26(e)(2) (noting that an expert witness's "duty to supplement extends both to information included in the report and to information given during the expert's deposition"). This is precisely what Mr. Pitt has proposed – an opportunity to review this new evidence to determine whether or not it has any bearing on his expert report or his previous testimony, nothing more and nothing less. Courts will generally consider the following factors in determining whether to strike expert reports: (1) the prejudice or surprise against whom the excluded witnesses would have testified, (2) the ability of that party to cure the prejudice, (3) the extent to which allowing the evidence would disrupt the trial, and (4) the non-disclosing party's explanation for its failure to disclose the evidence. Konstantopoulos v. Westvaco Corp., 112 F.3d 710, 719 (3d Cir. 1997). 4 0 In this case, first, Defendants cannot demonstrate any prejudice in allowing Mr. Pitt to simply review the requested deposition testimony and then conclude his second day of deposition. They have already prepared and asked their deposition questions for Mr. Pitt on this issue; Mr. Pitt has already admitted that he had not reviewed Mr. Nicolaisen's deposition testimony in drafting his report. Second, any perceived prejudice in this matter can easily be cured by allowing Mr. Pitt to review Mr. Nicolaisen's testimony and explain on the record whether his review has caused him to amend, supplement or reject any of his previous opinions. Third, Defendants cannot convincingly argue that allowing Mr. Pitt to review Mr. Nicolaisen's deposition testimony would disrupt a trial that has not yet been scheduled. And, fourth, Lead Plaintiffs' counsel have already admitted that failing to provide Mr. Pitt with Mr. Nicolaisen's deposition testimony was an unintentional oversight and that they promptly provided him with a copy once it came to light. Under the Westvaco analysis, therefore, Defendants have failed to demonstrate any legitimate basis for striking Mr. Pitt's expert report. A very recent decision from the Southern District of West Virginia is particularly instructive in this context. Kanawha-Gauley Coal & Coke Co. v. Pittston Minerals Group, Inc., Case No. 2:09-cv-01278, 2011 WL 320909 (S.D.W.Va. Jan. 28, 2011). In that case, a defendant's expert sought to supplement his original expert report based on information discussed in the expert's deposition. Id. at *2. There, the expert "recognized [a] flaw in his methodology, and after his deposition produced a new Exhibit 5 to his report." Id. The plaintiff moved to strike the supplement on the ground that it was an untimely "end-run around the normal timetable for conducting discovery." Id. The district court, however, disagreed, noting that "[t]his is precisely the type of supplementation envisioned by Rule 26(e). An expert witness, after being deposed by opposing counsel, supplemented his original disclosure to 5 0 include an alternative calculation based on data already in the record. I FIND that the defendant's first supplemental disclosure is timely supplementation under Rule 26(e)." Id. (emphasis in original). If Mr. Pitt reviews Mr. Nicolaisen's testimony and in fact determines that he needs to supplement or amend his expert report, it would be no different than the Pittston Minerals expert recognizing a flaw in his methodology and supplementing his report based on "data already in the record" (i.e., Mr. Nicolaisen's deposition testimony). See also In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 791-92 (3d Cir. 1994) (noting that the district court abused its discretion in excluding an expert witness's supplemental opinions where there was no demonstrated prejudice); B. Braun Melsungen AG, 2010 WL 4438041, at *10 (refusing to strike expert report on the ground that the "Court is not persuaded that Braun is unduly prejudiced by the timing or substance of the purportedly 'new' opinions"). Mr. Pitt was simply fulfilling his duty as an expert and an officer of the court – ensuring that newly-discovered evidence did not alter his previously recorded opinions and conclusions. And, Lead Plaintiffs are not, in any way, suggesting that Defendants are not entitled to question him (in conformance with Rule 30(d)) regarding any review he undertakes. Accordingly, Defendants have offered no legitimate reason for striking Mr. Pitt's expert report or testimony. Perhaps recognizing that they lack a reasonable legal basis for their motion to strike Mr. Pitt's expert report, Defendants alternatively request "that Mr. Pitt be required to complete his deposition on March 3 and 4, 2011." Defendants' Memo., at 9. As an initial matter, Defendants are not entitled to two additional days of testimony when Defendants have already questioned Mr. Pitt for six hours of one day. At most, then, Defendants are entitled to one additional day of eight hours to depose Mr. Pitt under Case Management Order #8, which provides that expert 6 0 depositions "shall not exceed two days."5 Moreover, Lead Plaintiffs should not be required to reconvene the deposition until this Court rules on Lead Plaintiffs' Motion for a Protective Order – which sets forth the reasons for Lead Plaintiffs suspending Mr. Pitt's deposition in the first place. As soon as the Court has ruled on their Motion, Lead Plaintiffs will work with Defendants to schedule a second deposition day for Mr. Pitt at a mutually agreeable time as soon as possible.6 But, absent this Court's ruling, Lead Plaintiffs should not be required to reconvene Mr. Pitt's deposition in light of Mr. Raines' counsel's conduct during Mr. Pitt's first day of deposition. Finally, Fannie Mae's request for costs is based on a false predicate – that "Lead Counsel did not take adequate steps to ensure that Mr. Pitt was prepared for his deposition." Fannie Mae Memo., at 5. It bears repeating: Lead Plaintiffs suspended the deposition because of the harassing and oppressive conduct of Mr. Raines's counsel, which is plainly evident from a review of the video excerpts from Mr. Pitt's deposition filed as a supplement to Lead Plaintiffs' Motion for a Protective Order (Doc. #890). Costs should be assessed only in extreme cases. Review of the transcript and record shows that while Mr. Raines' counsel's conduct meets that standard, Lead Plaintiffs' efforts to stop that conduct does not. Moreover, it is misplaced to suggest that Lead Plaintiffs should pay the costs, and thus condone, the Fannie Mae's Defendants continued wasteful spending in this case – including counsel for Franklin Raines sending four attorneys to the deposition; Fannie Mae sending two attorneys to the deposition; and Timothy Howard and Leanne Spencer sending one attorney each to the deposition. 5 The Amended Order Establishing Expert Discovery and Deposition Protocol (Dkt. # 649) specifically provides that it does not apply to expert witness depositions, so those depositions are governed by Fed. R. Civ. P. 30(d)'s requirements that depositions are limited to 7 hours per day. 7 0 CONCLUSION For the foregoing reasons, Lead Plaintiffs respectfully request that this Court deny Fannie Mae's Motion to Strike Expert Report and Award Fees and Costs (Doc. #891) and Defendants' Motion to Strike Expert Witness, or in the Alternative, to Compel the Immediate Continuation of his Deposition (Doc. #892). Dated: March 2, 2011 Respectfully submitted, ATTORNEY GENERAL FOR THE STATE OF OHIO MIKE DEWINE WAITE, SCHNEIDER, BAYLESS & CHESLEY CO., L.P.A. s/ Stanley M. Chesley Stanley M. Chesley s/ James R. Cummins James R. Cummins (D.C. Bar #OH0010) Melanie S. Corwin Christopher D. Stock Francis P. Karam (Of Counsel) 1513 Fourth & Vine Tower One West Fourth Street Cincinnati, Ohio 45202 Telephone: (513) 621-0267 Facsimile: (513) 621-0262 E-mail: jcummins@wsbclaw.com Special Counsel for the Attorney General of Ohio and Lead Counsel for Lead Plaintiffs BERNSTEIN LIEBHARD LLP Jeffrey Lerner 10 East 40th Street New York, New York 10016 Telephone: (212) 779-1414 Facsimile: (202) 298-7678 E-mail: lerner@bernlieb.com Special Counsel for the Attorney General of Ohio and Co-Lead Counsel for Lead Plaintiffs 6 Lead Plaintiffs have already voluntarily agreed to postpone the depositions of two defense experts whose reports Defendants claim relate to Mr. Pitt's report. 8 0 COHEN MILSTEIN SELLERS & TOLL PLLC s/ Daniel S. Sommers Daniel S. Sommers (DC Bar #416549) Matthew K. Handley (DC Bar #489946) 1100 New York Avenue, N.W. Washington, D.C. 20005 Telephone: (202) 408-4600 Facsimile: (202) 408-4699 E-mail: dsommers@cohenmilstein.com Local Counsel for Lead Plaintiffs 9 0 CERTIFICATE OF SERVICE I certify that on March 2, 2011 (i) I electronically filed the foregoing with the Clerk of Court using the CM/ECF system, which will send notification of such filing to counsel of record in this matter who are registered on the CM/ECF, and (ii) service was accomplished on any counsel of record not registered through the CM/ECF system via regular U.S. mail. s/ James R. Cummins _ James R. Cummins (D.C. Bar #OH0010) 10