In Re Fannie Mae Securities Litigation

552 F.3d 814, 384 U.S. App. D.C. 161, 2009 U.S. App. LEXIS 9, 2009 WL 21528
CourtCourt of Appeals for the D.C. Circuit
DecidedJanuary 6, 2009
Docket08-5014
StatusPublished
Cited by59 cases

This text of 552 F.3d 814 (In Re Fannie Mae Securities Litigation) is published on Counsel Stack Legal Research, covering Court of Appeals for the D.C. Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re Fannie Mae Securities Litigation, 552 F.3d 814, 384 U.S. App. D.C. 161, 2009 U.S. App. LEXIS 9, 2009 WL 21528 (D.C. Cir. 2009).

Opinion

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

The Office of Federal Housing Enterprise Oversight (OFHEO) appeals a district court order holding it in contempt for failing to comply with a discovery deadline to which it agreed. Though we appreciate OFHEO’s efforts to comply, we conclude that it ultimately failed to do so and find no abuse of discretion in the district court’s contempt finding or choice of sanction.

I.

Appellant Office of Federal Housing Enterprise Oversight regulates the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (for some reason “Freddie Mac”) — both government-sponsored enterprises participating in the secondary mortgage market. This case concerns OF-HEO’s responsibilities toward Fannie Mae.

In 2003 OFHEO opened a special review of Fannie Mae’s accounting and financial practices, ultimately concluding that the enterprise had departed from generally accepted accounting principles in order to manipulate its reported earnings and inflate executive compensation. Although OFHEO has since closed its investigation and concluded its enforcement actions, its preliminary investigation report prompted several private civil actions against Fannie Mae, its senior executives, and others. These actions have been consolidated into multidistrict litigation in the United States District Court for the District of Columbia.

Although OFHEO is not itself a party to the multidistrict litigation, the parties have subpoenaed records it collected in performing its oversight functions and preparing its investigation report. This appeal concerns a dispute over subpoenas issued by appellees, three individual defendants in the multidistrict litigation who were senior executives at Fannie Mae: former chairman and CEO Franklin Raines, former CFO J. Timothy Howard, and former senior vice president and controller Leanne Spencer.

In the summer of 2006, Howard and Raines subpoenaed over thirty categories of documents from OFHEO. See Fed. R.Civ.P. 45(c)(2)(B)(ii) (governing subpoenas to nonparties). They claimed that the documents would aid their defense by showing that they “had been completely transparent with OFHEO,” Appellees’ Br. 5; that “OFHEO had approved Fannie Mae’s accounting and compensation practices,” id.; and that OFHEO’s investigation “was politically motivated and biased,” id. at 6. Arguing that Howard and Raines should have instead sought these documents pursuant to its disclosure regulations, OFHEO moved to quash the subpoenas, and the individual defendants moved to compel compliance. On November 6, 2006, the district court ruled for the individual defendants and directed OFHEO to comply during the next four months.

Although OFHEO began producing documents, it asked Howard and Raines (now joined by Spencer, the third appellee) to limit their requests for electronically stored information in order to minimize the burden on OFHEO. Responding by letter dated February 18, 2007, the individual defendants revised their initial requests for such information, limiting them for the time being to certain email communications stored on OFHEO’s network and backup tapes. Shortly thereafter, OF-HEO filed a motion with the district court seeking an approximately one-month extension of the time to comply. Representing that the parties had “agreed that the *817 Court’s November 6, 2006 Order did not apply to the ESI [i.e., electronically stored information],” OFHEO’s motion proposed extending the deadline only for paper documents. OFHEO’s Mot. for Extension 4, Mar. 9, 2007. OFHEO explained that it was providing electronically stored information voluntarily and not pursuant to the court’s order.

The court granted OFHEO’s motion, but the individual defendants objected, claiming that they had never agreed that the order left out electronically stored information. At an April 2007 status conference, the district court confirmed that its November 6, 2006 order covered such information and that, in approving OFHEO’s proposed extension order, it hadn’t intended to limit the new deadline to paper documents. It granted OFHEO’s request for a further one-month extension to produce the outstanding information.

During the summer of 2007, OFHEO reported to the court that it had produced all documents requested by the February letter. But skeptical of the limited production, the individual defendants sought and obtained a Rule 30(b)(6) deposition, which confirmed that OFHEO had failed to search all of its off-site disaster-recovery backup tapes. See Fed.R.Civ.P. 30(b)(6) (providing for depositions of organizations through designated representatives). According to OFHEO, it never understood the February letter’s request for communications on backup tapes to apply to its disaster-recovery backup tapes, but nonetheless voluntarily undertook to search them for certain of the requested documents.

In August of 2007, the individual defendants moved to hold OFHEO in contempt. In response, the district court, stating that it had “no doubt” that the OFHEO disaster-recovery backup tapes were “going to be looked at,” scheduled a contempt hearing in order to assess the burden that examination of such tapes would impose on OFHEO. Hr’g Tr. at 76 (Sept. 19, 2007). Following the first day of the hearing, OFHEO and the individual defendants entered into a stipulated order that held the contempt motions in abeyance and required OFHEO to conduct searches of its disaster-recovery backup tapes and provide all responsive documents and privilege logs by January 4, 2008. In language central to the issue before us, the stipulated order’s fifth paragraph states:

OFHEO will work with the Individual Defendants to provide the necessary information (without individual document review) to develop appropriate search terms. By October 19, 2007, the Individual Defendants will specify the search terms to be used.

Stipulated Order ¶ 5, Sept. 27, 2007.

Pursuant to the stipulated order, the individual defendants submitted over 400 search terms, which covered approximately 660,000 documents. OFHEO objected on the grounds that the stipulated order limited the individual defendants to “appropriate search terms,” but the district court disagreed, ruling on November 2, 2007 that the stipulated order gave the individual defendants sole discretion to specify search terms and imposed no limits on permissible terms. Although the district court made this ruling in an off-the-record chambers conference, the parties agree on its meaning.

OFHEO undertook extensive efforts to comply with the stipulated order, hiring 50 contract attorneys solely for that purpose. The total amount OFHEO spent on the individual defendants’ discovery requests eventually reached over $6 million, more than 9 percent of the agency’s entire annual budget.

On November 29, 2007, the day before an interim deadline for production of several categories of material, OFHEO in *818

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552 F.3d 814, 384 U.S. App. D.C. 161, 2009 U.S. App. LEXIS 9, 2009 WL 21528, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-fannie-mae-securities-litigation-cadc-2009.