Fairholme Funds, Inc. v. United States

134 Fed. Cl. 680
United States Court of Federal Claims·Decided October 4, 2017·No. 13-465C·Published·Cited by 2 cases

Opinion

FRE 502(d); Quick Peek Procedure; Clawback Order; RCFC 26; Discovery

OPINION AND ORDER

SWEENEY, Judge

Before the court is plaintiffs’ second motion to compel the production of approximately 1500 documents defendant is currently withholding pursuant to the deliberative process and bank examination privileges. Plaintiffs seek access to these documents pursuant (o the “quick peek” procedure authorized by Rule 502(d) of the Federal Rules of Evidence (“FRE”). The court deems oral argument unnecessary and, for the reasons stated below, grants plaintiffs’ motion.

I. BACKGROUND 2

In their most recent status report, filed on June 30, 2017, the parties indicated that (1) defendant produced an additional 3500 documents in response to the court’s March 7, 2017 order; (2) as a result of that production, plaintiffs identified thirty-eight documents they contend should not be withheld for privilege; (3) defendant stated that it was in the process of reviewing the thirty-eight documents and would respond to plaintiffs by July 12, 2017; and (4) absent any additional motions practice, discovery would be completed by August 3, 2017. June 30, 2017 Joint Status Report 1-2. Following its review of the thirty-eight documents, defendant produced an additional twenty-two documents. Pis.’ Mot. 2. In response to the release of these additional documents, plaintiffs proposed that the parties use the quick peek procedure authorized by FRE 502(d). Id. Defendant did not agree to the use of the procedure. Id. at 3. On August 3, 2017, plaintiffs filed a second motion to compel—the motion currently before the court. Briefing on the motion was completed on August 24, 2017.

As they did in the February 24, 2017 joint status report, plaintiffs again seek a court order directing the parties to utilize the quick peek procedure authorized by FRE 502(d) in their second motion to compel. Pis.’ Mot. 1. Specifically, plaintiffs seek to review the approximately 1500 documents dated May 2012 and later, which defendant is withholding pursuant to the deliberative process and bank examination privileges. Id. Plaintiffs contend that although the court declined their previous request to use the procedure, its use is now appropriate. Id.

II. DISCUSSION

A. The Parties’ Positions

In support of their motion, plaintiffs state: While we do not suggest that Government counsel has failed to make a good faith effort to comply with this Court’s orders, the rate at which another review led the Government to abandon its privilege assertions is troubling and highlights the inherent difficulty of advocates for the Government determining which information Plaintiffs most need in this important and factually complex case.

Pis.’ Mot. 3. Plaintiffs further contend that portions of the belatedly produced documents, such as portions of FHFA00070607, were not privileged in the first instance because they contained segregable factual information. Id. at 3-4. In addition, plaintiffs claim that documents such as FHFA00038592 and FHFA00077771 demonstrate that plaintiffs’ need for the information “was clearly sufficient to overcome the Government’s qualified deliberative process and bank examination privileges.” Id. at 4. According to plaintiffs, FHFA00038592, an electronic-mail message sent by an official of the Federal Housing Finance Agency (“FHFA”) “three days before the Net Worth Sweep was announced that acknowledged that the Companies’ Boards had discussed re-recording certain deferred tax assets that had been written off based on the view that they were going to be profitable going forward,” disproves a December 17, 2013 sworn declaration by Mario Ugoletti, Special Advisor to the Office of the Director of the FHFA. 3 Id. (internal quotation marks omitted). In his declaration, Mr. Ugoletti stated: “‘At the time of the negotiation and execution of the Third Amendment, the Conservator and the Enterprises had not yet begun to discuss whether or when the Enterprises would be able to recognize any value to their deferred tax assets.’ ” Id. (quoting Declaration of Mario Ugoletti ¶ 20, Appendix (“A”) 38). With respect to FHFA00077771, “an internal FHFA [electronic-mail message] summarizing a June 13, 2012 meeting between FHFA officials and [Fannie Mae’s Chief Financial Officer (“CFO”) ], Susan McFarland,” plaintiffs argue it should have been produced earlier because it “speaks directly to the Companies’ profitability and the anticipated effect of the Net Worth Sweep.” Id. at 4-5. In the electronic-mail message, Ms. McFarland states: “‘[I]t is possible that [Fannie Mae] may take a negative provision of $1 to $2 billion in the reserves (this would increase income) due to lower than expected credit losses.’ ” Id, at 4 (quoting A40).

In its response to plaintiffs’ motion, defendant argues that the use of the quick peek procedure was not appropriate when plaintiffs first suggested it and is even less appropriate now. Def.’s Resp. 1. Defendant notes that following its production of the additional twenty-two documents, defendant reconsidered its position “regarding certain documents concerning the Companies’ loan loss reserves and/or deferred tax assets” and.produced a total of fifteen more documents. Id. at 4-5. Defendant further notes its continued objection to the use of the quick peek procedure with respect to the documents currently being withheld on the basis of the deliberative process and bank examination privileges. Id. at 5.

In support of its opposition to the use of FRE 502’s quick peek procedure, defendant contends that the use of the procedure is inappropriate in this case because it does not consent and because it has already conducted a comprehensive review of the privileged materials. Id. at 6. According to defendant, the purpose of the procedure is “to lessen the producing party’s burden to review voluminous electronically stored information (ESI) for privilege and invest the resources necessary to comply with the strictures of Rule 26(b)(6)” of the Rules of the United States Court of Federal Claims (“RCFC”), id. at 7, the general rule governing a producing party’s obligation to identify privileged documents, id. at 6. When the procedure is used, defendant adds, courts enter a “clawback” order to ensure that the producing party does not waive any privileges by virtue of it allowing its opponent to review the documents. Id. at 7. Quoting a note published by The Sedona Conference from its eponymous journal, defendant avers:

“[FRE] 602(d) does not authorize a court to require parties to engage in ‘quick peek’ ... productions and should not be used directly or indirectly to do so. ...

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Fairholme Funds, Inc. v. United States, 134 Fed. Cl. 680 (uscfc 2017).

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