harvey pitt's refusal to tesify motion to stike

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

In re Federal National Mortgage Association Securities, Derivative, and “ERISA” Litigation

MDL No. 1668

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.

Case 1:04-cv-01639-RJL Document 891 Filed 02/25/11 of 8

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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


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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).


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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.


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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


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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.


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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


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.


harvey pitt's refusal to tesify motion to stike

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