Opinion
Case No. 2:03-md-1565.
July 14, 2009
Order
This matter is before the Magistrate Judge on defendant Credit Suisse Securities (USA) LLC's ("Credit Suisse") amended motion for sanction against plaintiff Lloyds TSB Bank PLC ("Lloyds") and for ancillary relief (doc. 1541).
I. Overview
This dispute arises out of Lloyds' counsel failure to disclose a June 2, 2008 written agreement with Moody's during a July 29, 2008 telephone hearing with the magistrate judge. During the hearing, Credit Suisse's counsel stated that Lloyds' deposition questioning of a Moody's' witness, J. McGinnis Caldwell, suggested that there was either a settlement agreement or a cooperation agreement between Lloyds and Moody's. Harold Levinson, Moody's counsel, denied the existence of either a settlement agreement or a cooperation agreement. He said that the only agreement with Moody's was that if at the end of discovery Lloyds did not feel that there was a case against Moody's, it would dismiss Moody's from the lawsuit without prejudice. Transcript of July 29, 2008 Hearing, 28:8-15; 31:5-11. I then permitted counsel to make final statements for the record about the issue raised by Credit Suisse: "Has some agreement or outline of a possible agreement been reached between plaintiff and Moody's that would somehow affect Mr. Caldwell's testimony." 32:8-11. Levinson again responded that the only agreement was that Lloyds would assess the evidence against Moody's after the close of discovery and decide whether to dismiss Moody's without prejudice. 35:15-24. James Coster, Moody's counsel, confirmed that he had been urging Lloyds to dismiss its claims against his client, but that Levinson took the position that he was not letting Moody's out until the close of discovery. 34:9-15, 23-25. Levinson agreed that at the close of discovery he was going to look at Lloyds' case against Moody's and decide whether to dismiss them or not. 35:15-24.
In fact, Lloyds and Moody's had entered a written agreement June 2, 2008 that was broader than that represented by Levinson during the July 29, 2008 telephone hearing. The central term was as represented by Levinson, Lloyds would decide after the close of discovery whether to dismiss its claims against Moody's without prejudice. June 2, 2008 Agreement, ¶ 2. However, additional terms not disclosed by Levinson during the hearing included the following.
• There was a tolling agreement for all claims for which the statute of limitations had not run as of June 2, 2008. ¶ 1. The tolling period ended 30 days after either (1) final resolution of all of Lloyds' claims in the MDL against all defendants other than Moody's or (2) Lloyds' written notice of its intent pursue its claims against Moody's. ¶ 6.
• However, both Lloyds and Moody's reserved the right to sue the other at any time. If Lloyds exercised that right, the tolling agreement ended 30 days later. Id.
• The Agreement did not relieve Moody's of its obligation to cooperate and participate in fact discovery as a party to the MDL litigation. ¶ 4.
• If Lloyds elected to pursue its claims against Moody's, both parties retained the right to take additional discovery including the depositions of people already deposed in the MDL cases. ¶ 5.
• If Lloyds did not file suit against Moody's before the end of the tolling agreement, the parties must execute and promptly file a stipulation of dismissal with prejudice of all claims asserted by Lloyds against Moody's in the MDL. ¶ 8.
Based on Lloyds' failure to disclose the written agreement to it and to the Court, Credit Suisse seeks an order:
• precluding all plaintiffs from using the deposition testimony of Moody's Rule 30(B)(6) witness;
• precluding Lloyds from obtaining or using any additional testimony from current or former employees of Moody's;
• directing the use of an adverse jury instruction against Lloyds;
• precluding Lloyds from presenting any evidence to deny the adverse jury instruction;
• imposing monetary sanctions against Lloyds; and
• providing such further relief as the court deems appropriate.
II. Background
Credit Suisse maintains that counsel for Lloyds made misrepresentations directly to the Court on four separate occasions — during a July 29, 2009 telephonic hearing and in three subsequent letters. Credit Suisse seeks an order: (1) precluding all plaintiffs in this action from using the deposition testimony of Moody's Rule 30(b)(6) witness during the course of this MDL action or any related litigation; (2) precluding Lloyds from obtaining or using any additional testimony from current or former employees of Moody's during the course of this MDL action or any related litigation; (3) directing the use of an adverse jury instruction against Lloyds; (4) precluding Lloyds from presenting any evidence to deny the adverse jury instruction; (5) imposing monetary sanctions against Lloyds; and (6) providing such further relief as the Court deems appropriate.
During the July 29, 2008 telephone hearing, Steven Brody, Credit Suisse's counsel, made the following request:
[T]he type and tone of questioning was very different; that there was, compared to the amount of questioning that was designed to point the finger at Credit Suisse during Mr. Caldwell's deposition, there was hardly any of that sort of questioning during the depositions of the other Moody's witnesses and the cases.
And that raises for us an important question that we would like to know the answer to because it might help us understand what is going on here, and what we would like to know is: Is there, because of the significant change in tone from all the other depositions and then the Caldwell deposition, we would like to know is there a settlement agreement in principle between Lloyds and Moody's, or is there otherwise a cooperation agreement that's in place?
13:3-16. Later Harold Levison, Lloyds counsel, responded:
[I]n response to Mr. Brody's question before about our agreements with Moody's, I don't think it ought to be a game of 20 questions. He asked: Do we have a cooperation agreement? We don't. He asked if we have a settlement agreement? We don't. We don't have a settlement agreement in principle.
What I have agreed with with Moody's is that if we feel we don't have a case at the end of fact discovery, we will dismiss without prejudice so that there is no misunderstanding about it.
28: 8-15. Mr. Brody responded, "[T]hat was a time bomb." 28:17. Brodie asserted:
[P]laintiffs had 7 hours to ask all sorts of meaningless questions about documents that this witness never saw, hours and hours.
And I am sitting here saying, gee, they wasted their time. They asked inefficient questions. It's not what I'm doing. They had 7 hours to ask lots and lots of questions, 400 pages of transcript. I only had an hour, and we needed more time.
Now there is this time bomb that we just got from Mr. Levison which is after asking these questions before, getting unequivocal answers, now we are getting a little bit more, and now I'm starting to wonder what's really going on here and I think we need to explore it a bit more.
I mean obviously this is very important, this discussion that has been had between Lloyds and Moody's. And it doesn't quite make sense, right, if — based on what we have been told. So what I would ask is, at this point, at a minimum that if there has been any documents reflecting any discussions between Lloyds and Moody's, that we receive them immediately.
29:18-30:1-9. Levison rejoined that he had given:
unequivocal answers to the specific questions that you asked, Mr. Brody. But to suggest that there is anything untoward going on here is just untrue. Moody's is a defendant. They are a defendant until the end of fact discovery when we have agreed to assess our case and determine whether or not we believe we have a case, as every attorney is supposed to be doing.
31:5-11.
After the above exchange, I permitted counsel to make final statements for the record on the issue raised by Credit Suisse: "Has some agreement or outline of a possible agreement been reached between plaintiff and Moody's that would somehow affect Mr. Caldwell's testimony."
Brody made the following statement:
The question is whether plaintiffs have reached a settlement agreement in principle or any other cooperation agreement with Moody's. And this is a serious matter. If in fact a settlement agreement in principle was reached or there is a cooperation agreement but it was not disclosed, then we have to ask: What was the tactical reason for that? And there are a few possibilities that come to mind and each one is significant.
It's possible that Lloyds did not want to disclose the nature of its discussions with Moody's because it wanted to make sure that it got 7 hours to take Mr. Caldwell's deposition and left Credit Suisse with only one hour.
It's possible that Lloyds was seeking other sorts of tactical advantages, such as interfering with Credit Suisse's ability to question Mr. Caldwell about his credibility in light of any agreement.
In addition, if there is any agreement between the parties that would have allowed Moody's — I am sorry, Lloyds to unfairly surprise Credit Suisse at the deposition by taking a very different deposition than the other depositions that have been taken of prior Moody's witnesses. Whereas Credit Suisse reasonably expected that plaintiff's questioning of Moody's would focus on Moody's alleged culpability, Lloyds, instead, primarily asked questions to exculpate Moody's and have it point a finger at Credit Suisse.
And I would note, and Your Honor, there are outstanding discovery requests on plaintiffs that seek any documents concerning settlement agreements. So if there have been any sort of written documents relating to settlement, we would be entitled to get that. There is also a similar document request that was served on Moody's.
[W]e consider this to be a serious issue. What we would ask for is production of any related document — any documents relating to a possible settlement between Moody's and Lloyds. We would like to know the timing of any discussions. We would like to reserve the right to question a witness on this issue. And I raised that because of the discovery deadline of this Friday. And we would like to reserve the right to seek appropriate relief after the facts are learned.
32:12-33:25.
James Coster, representing Moody's, then stated his client's position:
I think Mr. Levison was accurate, and I think Mr. Brody knows full well that from very early on in this case, I have been urging Mr. Levison to let us out on the grounds that there is no evidence against Moody's. And Mr. Levison's position was: I'm not letting you people out until the close of discovery, until I see exactly what develops. And I am reserving my rights until then.
. . .
[A]nd the bottom line is Mr. Levison has agreed at the close of discovery he is going to look at this and make a determination whether he is going to let us out or not.
34:9-15, 23-25. Levison then said:
I correctly and accurately described what my agreement is with Moody's. We were the only entity to sue Moody's, Lloyds was. And we have agreed to assess our case at the end of the fact discovery; and if the case isn't there, to dismiss without prejudice. And that's the totality of our agreement. I don't have a cooperation agreement with Moody's. I don't have a settlement agreement with Moody's in principle or otherwise. That's the totality of the agreement area and that's my obligation as an attorney. And that's all there is to it.
35:15-24.
Following the July 29, 2008 conference, Lloyds did not produce to Credit Suisse any documents relating to any agreement it may have reached with Moody's. On September 4, 2008, Lloyds and Moody's filed a joint stipulation of dismissal without prejudice. The joint stipulation was dated June 2, 2008. This was the first time Credit Suisse learned that Lloyds and Moody's had signed a stipulation of dismissal without prejudice prior to the July 29, 2008 conference. On November 3, 2008, Credit Suisse learned for the first time that "there is a written agreement that was described during the July 29, 2008 conference with the Court." November 3, 2008 email from Cindy Caranella Kelly to Steven G. Brody, Exh. C to Credit Suisse's November 7, 2008 letter, Doc. 1431, p. 25.
On November 7, 2008, Credit Suisse filed a letter seeking sanctions for misrepresentations that it maintains MetLife and Lloyds made during the July 29, 2008 telephone discovery hearing with the magistrate judge. In my December 29, 2008 Order, I concluded that Lloyds' argument that the writing evidencing the agreement between it and Moody's is not a settlement agreement and consequently not discoverable by Credit Suisse was not convincing. At the same time, I concluded that Credit Suisse's argument that it was prejudiced by Lloyds not disclosing the existence of a written agreement during the July 29 hearing was without merit. I also found that the written agreement should have been disclosed by Lloyds during the July 29 hearing. Even if the writing is in a very technical sense not a "settlement" agreement, it is clear from the comments of Credit Suisse's counsel during the hearing that Credit Suisse wanted any writings evidencing an agreement between Lloyds and Moody's. The December 29, 2008 Order directed Lloyds to produce the documents, and I indicated if the written agreement was not as it was represented, Credit Suisse could apply to the court for further appropriate relief.
III. Arguments of the Parties
A. Defendant Credit Suisse's Amended Motion for Sanctions and Ancillary Relief
Credit Suisse argues that Lloyds misrepresented and hid the June 2, 2008 Agreement because it did not want it to know that Moody's was no longer an arm's length defendant. Rather, Moody's had entered into an secret alliance with Lloyds, making it possible for Lloyds to take a deposition of Moody's Rule 30(b)(6) witness and focus on condemning Credit Suisse instead of building a case against Moody's. Credit Suisse maintains that Lloyds' argument that the agreement simply means that Lloyds agrees to bide by Rule 11 in exchange for Moody's agreement to abide by Rule 26 is absurd. Two sophisticated parties do not need to craft an agreement to insure that each comply with the law. Credit Suisse also points out that nothing in the agreement expressly precludes Moody's from filing a Rule 11 motion.
Credit Suisse argues that sanctions should be imposed against Lloyds because its misconduct was due to willfulness, bad faith, and fault. Lloyds' conduct was prejudicial to Credit Suisse because it did not have the opportunity to use the agreement to impeach the testimony of Caldwell or Jay Eisbruck, another Moody's witness. Had it known of the agreement, Credit Suisse contends that it would have asked Caldwell questions relating to the agreement, what impact the agreement may have had on the witness's deposition and preparation, and whether the agreement was motivated by a concern that Moody's was contributorily negligent with respect to the harm caused to investors in the NCFE notes. Credit Suisse further maintains that it was prejudiced in the context of expert discovery. Lloyds' expert witness on liability, John Coffee, relied extensively on the Caldwell deposition in his report. Had it received the agreement in a timely manner, Credit Suisse argues it would have used it to question Coffee about the credibility of Caldwell. Credit Suisse further argues that it would have challenged Lloyds' ability to question Caldwell for seven hours because Moody's status as an adverse party was doubtful given the agreement. Credit Suisse also argues that not all of the documents relating to the agreement were preserved. According to emails between counsel, Credit Suisse has determined that an earlier draft of the agreement and correspondence concerning the final draft were not produced.
Credit Suisse maintains that under these circumstances, a prior warning that sanctions could be imposed is not necessary because parties are obligated to be honest with the Court. Credit Suisse contends that it is seeking narrowly tailored sanctions in response to the misconduct and that dismissal is justifiable given the clear evidence that Lloyds engaged in premeditated deception of the Court on multiple occasions.
Credit Suisse argues that all plaintiffs should be precluded from using Caldwell's testimony and Lloyds should be prohibited from obtaining or using any additional testimony from current or former Moody's employees. Credit Suisse maintains that Lloyds' misconduct irreversibly tainted the Caldwell testimony. The other plaintiffs should not be permitted to enjoy a windfall from Lloyds' improper conduct. Credit Suisse was the victim of Lloyds' wrongdoing, and the Court should not permit any party to use that testimony against it at trial.
An adverse jury instruction is appropriate given Lloyds' interference with the truth seeking process, and Credit Suisse maintains that Lloyds should also be precluded from presenting any evidence that denies the adverse jury instruction. Finally, Credit Suisse seeks its costs and attorney fees for bringing this motion as well as its prior application to the Court production of the agreement and the July 29th hearing.
B. Lloyds' Opposition and Cross-Motion for Sanctions
According to Lloyds, in June 2008, in light of its Rule 11 obligations to evaluate its claims against Moody's, Lloyds reached an agreement with Moody's that if by the end of fact discovery Lloyds did not discover evidence supporting its claims against Moody's, Lloyds would dismiss its claims without prejudice. Lloyds maintains that the purpose of the agreement was to provide assurance to Moody's that Lloyds would discharge its obligations to assess its case at the end of fact discovery, and, in particular, its case against Moody's, and at the same time provide Lloyds with additional time to adduce evidence against Moody's without the threat of a Rule 11 motion being filed against Lloyds. A stipulation of dismissal was signed contemporaneously with the agreement. The stipulation was to be held in escrow by Moody's counsel until the close of discovery.
Lloyds argues that there was no prejudice to Credit Suisse. Nothing in the agreement provides more basis for any possible questions concerning bias than the potential of a dismissal without prejudice. Lloyds maintains that Credit Suisse is attempting to argue that its motion is based on new grounds for sanctions when it is based on Lloyds purported failure to produce the agreement before it was required to do so. Lloyds maintains that the Court already rejected Credit Suisse's complaint that it was prejudiced because Credit Suisse was given the opportunity to depose Caldwell and question him concerning potential bias for an additional two hours once it was aware of the agreement between Lloyds and Moody's.
Lloyds argues that by the time Credit Suisse deposed John C. Coffee, Jr., Lloyds' expert witness, Credit Suisse was fully aware that an agreement existed and had ample opportunity to question Coffee about the agreement and what, if any, effect it had on his conclusions. Lloyds maintain that Credit Suisse's claims of prejudice ring hollow when it failed to raise the issue of the agreement with either Caldwell or Coffee even though it had the opportunity to do so.
Lloyds maintains that the agreement was not a "settlement agreement" because it did not call for the payment of settlement monies and contemplated the continuation of Lloyds' action against Moody's. Lloyds maintains that it had sufficient basis for asserting to Credit Suisse and the Court that the agreement was not a settlement agreement despite the conclusion reached by the Court in its December 29 Order that the agreement was in the "ambit of Credit Suisse's Document Request 19." To the extent that the agreement is construed to be some type of settlement agreement, Lloyds maintains that the related documents are protected by a settlement negotiations privilege recognized by the Sixth Circuit in Goodyear v. Chiles, 332 F.3d 976 (6th Cir. 2003).
Lloyds contends that none of the provisions of the agreement not disclosed to Credit Suisse during the July 29 hearing taint Caldwell's testimony. Lloyds also argues that Credit Suisse is not entitled to any adverse jury instruction that advises the jury that it made repeated misrepresentations to the Court to hide issues about the credibility of a witness and constituted a serious interference with the truth-seeking process. No misrepresentations were made that would warrant such an instruction.
Lloyds' request for sanctions. Lloyds seeks sanctions from Credit Suisse because it filed its initial motion for sanctions in violation of the June 14, 2007 Protective Order, willfully disclosing Lloyds' confidential documents. On January 30, 2009, counsel for Credit Suisse filed its original motion for sanctions electronically via the Court's CM/ECF system and included the Coffee's expert report and the agreement, in addition to other confidential documents. By filing it electronically, the confidentiality of certain discovery material was destroyed. Lloyds points to a February 3, 2009 article published in Law360, which described Credit Suisse's allegations in the original motion. Despite Lloyds' request that Credit Suisse take immediate action to remedy the situation, it failed to do so. Although Credit Suisse eventually withdrew its motion and re-filed an amended motion, portions of the original motion remain available for public viewing, and Credit Suisse has taken no steps to correct the ongoing violation of the protective order.
C. The Arizona Noteholders and the UAT's Response to Credit Suisse's Motion for Sanctions Against Metlife and Lloyds and Request for Costs and Other Appropriate Sanctions
Plaintiff Pharos Capital Partners, L.P. joined the Arizona Noteholders and the UAT's response to Credit Suisse's motion. See doc. 1496.
The Arizona Noteholders and the UAT argue that Credit Suisse cites no case law supporting its request for sanctions against innocent third parties who engaged in no conduct that Credit Suisse argues is sanctionable.
Plaintiffs argue that they would be unfairly prejudiced if they were precluded from using the Caldwell testimony because Moody's is an important witness in this case, and Caldwell was the most involved employee of Moody's in the matter, in addition to being their designated corporate representative. Caldwell's testimony is important because his deposition testimony addressed: (1) Moody's contacts with Credit Suisse; (2) what Moody's did and did not approve with respect to the NPF note programs; and, (3) Moody's views on the importance of information that Credit Suisse concealed from it, noteholders, and note purchases.
Plaintiffs argue that Credit Suisse had no good faith basis for requesting relief against the other MDL plaintiffs in connection with this matter, and, as a result, they argue that sanctions should be imposed against Credit Suisse. The Arizona Noteholders and the UAT ask that they be awarded an amount determined by the Court to be sufficient to deter further frivolous, bad faith and misleading filings, in addition to being awarded their attorney fees.
D. Credit Suisses's Response to Lloyds' request for sanctions.
Lloyds' cross-motion for sanctions on the grounds that Credit Suisse failed to file certain exhibits under seal is simply retaliation. Credit Suisse argues that the inadvertent failure to file documents under seal is not the type of misconduct that warrants sanctions because Lloyds cannot show that it was prejudiced.
With respect to the other MDL plaintiffs, Credit Suisse maintains that the MDL transferee court has the power to make all pre-trial rulings and it is immaterial whether the cases will be tried separately in different courts. Credit Suisse argues that the other plaintiffs should not be permitted to enjoy a windfall from Lloyds' improper conduct by using the Caldwell deposition, and because Credit Suisse was the victim of Lloyds' wrongdoing, it is not improper to permit Credit Suisse to use the Caldwell deposition. Credit Suisse maintains that the lack of authority to support its position is not surprising given how egregious the misconduct was in this case.
Credit Suisse further argues that Lloyds' cross-motion for sanctions should be denied because it cannot show that it is entitled to sanctions by clear and convincing evidence. Lloyds has not made any effort to explain how the article affected its commercial interests, position in this lawsuit, or any other conceivable harm. Credit Suisse also contends that Lloyds publicly revealed the agreement in a telephonic hearing and in three letters to the Court. The transcript of the hearing and the letters have never been placed under seal, and Lloyds has waived any confidentiality rights with respect to the issue. Furthermore, Lloyds neglected to inform that court that Law360.com published a January 5, 2009 article regarding the Court's denial of Credit Suisse's motion and Lloyds' characterization of the agreement.
Other plaintiffs in this action have filed a response to Credit Suisse's motion, and Lloyds has taken no action against them for failing to file their responses under seal. Credit Suisse argues that Lloyds cannot show that it was prejudiced by the public filing of the Coffee report given that the substance of the report consists of a background of the securitization process and Coffee's opinion on the propriety of Credit Suisse's conduct in the NCFE securitization transactions.
IV. Discussion
A. The Agreement of Lloyds Moody's
As I stated in my December 29, 2008 Order, the written agreement between Lloyds and Moody's should have been disclosed to Credit Suisse during the July 29, 2008 hearing. Lloyds' characterization of its agreement with Moody's as simply consisting of a promise to dismiss its claims against Moody's without prejudice if it determined at the conclusion of discovery that it did not have a case against Moody's was not completely forthright for two reasons: (1) there was a written agreement; and it contained additional terms and (2) the focus of the July 29 discussion was whether Moody's Rule 30(b)(6) witness had any reason because of an understanding between his employer and Lloyds to provide testimony harmful to Credit Suisse, and Levison could not reasonably have believed that the June 2, 2008 Agreement was irrelevant to that discussion. The Court expects greater candor from counsel.
Additional terms. Levison failed to disclose that there was an executed written agreement. Terms not disclosed during the July 29 hearing included:
• an agreement to toll Lloyds' claims against Moody's;
• that the Agreement did not relieve Moody's of its obligation to cooperate and participate in fact discovery as a party to the MDL litigation;
• an agreement that if Lloyds elected to pursue its claims against Moody's both parties retained the right to take additional discovery including the depositions of people already deposed in the MDL cases; and
• the dismissal of Lloyds' claims with prejudice if it elected not to re-file suit against Moody's.
These terms are set out in the June 2, 2008 Agreement as follows. The tolling provisions provided:
To the extent that Lloyds determines to pursue its claims against Moody's relating to its rating of the the NPF Program Notes, either in the Litigation, the MDL Proceeding or through the institution of a separate action, all statutes of limitations, statutes or periods of repose and laches defenses (the "Limitations Defenses") applicable to any and all such claims or causes of action shall be tolled from June 9, 2003 through the Tolling Termination Date, as defined in Paragraph 6 below. This Agreement shall not be construed to revive any claim that is time-barred as of the effective date of this Agreement, and the Parties expressly reserved any and all claims, counterclaims, causes of action, and defenses to same which they may have against the other, except as otherwise provided herein.
. . .
The "Tolling Termination Date" shall be thirty (30) days after the earlier of: (a) final resolution (including the expiration of all relevant appellate time periods) of all of Lloyds claims in the Litigation against all defendants other than Moody's, including but not limited to Credit Suisse and Fitch, Inc.; and (b) written notice by Lloyds to Moody's that it intends to pursue its claims against Moody's relating to Moody's rating of the NCFE Program Notes.
February 23, 2009 Agreement, ¶¶ 1 and 6, Exh. F to Credit Suisse's February 23, 2009 Amended Motion for Sanctions (doc. 1541). This provision is more beneficial to Lloyds than a simple dismissal without prejudice because it gives it a longer time within which to search for additional evidence that might support its claims and re-file suit against Moody's.
The cooperation in discovery term provided:
The existence of this Agreement, including the Stipulation, shall not in any way extinguish or otherwise relieve Moody's of its obligations prior to the filing of the Stipulation with the Court to cooperate and participate in fact discovery as a party to the Litigation and MDL Proceeding, including but not limited to Moody's obligations to produce for depositions any witnesses within Moody's control who Lloyds seeks to depose.
Agreement, ¶ 4. (Emphasis added.) This provision of the agreement does not require Moody's to do anything more than that which is required by the Federal Rules of Civil Procedure. The provision simply clarifies that Moody's continues to be obligated to participate in discovery despite the signed stipulation of dismissal. However, it might be read to suggest that Moody's had some reason to believe that by signing the agreement it was no longer truly a party to the lawsuit. To that extent, the Moody's witnesses might be subject to cross-examination about their understanding of the agreement.
The advantages of being a non-party are that Rule 45 subpoenas would have to be issued for documents and depositions. Moody's would be entitled to the extra protections available to non-parties under Rule 45(c). Lloyd's could not serve interrogatories and requests for admissions on Moody's. On the other hand, by June 2, 2008, most non-expert discovery in this case had been completed. Some depositions remained to be taken. Interrogatories and requests for admissions had been answered. Document production was virtually complete.
The Agreement provides that in the event a Lloyds elected to pursue its claims against Moody's the parties could takeadditional discovery:
[n]otwithstanding Paragraph 2 of this agreement [relating to the Stipulation of Dismissal], in the event that Lloyds elects to pursue its claims against Moody's relating to the rating of NPF Program Notes, Moody's and Lloyds shall retain all rights to take additional fact and expert discovery, including the right to take the deposition of fact witnesses already deposed in the MDL proceeding.Id. at ¶ 5 (Emphasis added). This paragraph applies only in the event that Lloyds decides to pursue its action against Moody's. It provides Lloyds and Moody's with the opportunity to conduct further discovery if the Lloyds elects to pursue its claims against Moody's. To that extent, it has no direct impact on this MDL litigation. But it is also susceptible to the reading that Lloyds would not vigorously pursue examination of Moody's witnesses once it had signed the agreement. That is, the reason for negotiating a second deposition of Moody's witnesses was that Lloyds' counsel would not have examined them with the same vigor he might have had the agreement not been signed.
The Agreement also provides for a dismissal with prejudice if Lloyds does not choose to file suit against Moody's:
In the event that Lloyds does not take any action to pursue claims against Moody's relating to its rating of the NCFE Program Notes prior to the Tolling Termination Date, the Parties shall execute and promptly file a Stipulation of Dismissal with Prejudice of the claims asserted by Lloyds against Moody's in the Litigation.Id. at ¶ 8. Levinson did not tell Credit Suisse or the Court that Lloyds' claims against Moody's might ultimately be dismissed with prejudice. However, should Lloyds not refile suit after a dismissal without prejudice before the running of the statute of limitations, the effect would be to forever bar its claims against Moody's. The effect of the tolling agreement was to push back the date by which Moody's would know with certainty whether Lloyds' claims against it would be forever barred.
Motivation of the Moody's witnesses to point the finger at Credit Suisse.
Fact finders are naturally skeptical about the testimony of party witnesses. Because they gain if the outcome of the litigation is favorable, they may be tempted to slant their testimony to obtain the most favorable outcome. That is why admissions by party opponents are often viewed as valuable evidence. For the same reason, the testimony of third parties to a litigation is often given more credit than that of the parties.
Human memory is often unreliable. Although the brain is a marvelous biochemical system, it cannot possibly retain and recall all the sense impressions that it is subjected to. Indeed, even when initially processing information, the brain selectively recognizes stimuli and acts on them. When there is a memory of a past event, it is not complete. We tend to fill in the blank spaces with what we think we would have seen or would likely have done. We also tend to give ourselves the benefit of the doubt. We are not quick to conclude that we made a mistake or engaged in an unwise course of action. Rather, we are likely to remember events in a light favorable to our self-esteem.
Here witnesses being deposed are asked questions about what happened six or more years ago. Memory fades if not reinforced. It is unlikely that the witnesses in this case have vivid memories of events that occurred months if not years before they had assigned any out of the ordinary significance to them.
As employees of a party, the Moody's witnesses would have had the normal motivation to give testimony that was favorable to their employer. Since Moody's obtained most of its information for rating the NPF bonds from either NCFE or Credit Suisse, its employees would arguably have had a motivation to "place the blame" on either NCFE or Credit Suisse. However, Credit Suisse makes a plausible argument that if a Moody's witness had knowledge of the signed agreement between Lloyd and Moody's, that employee might interpret the agreement as giving something of value to his employer and be motivated to slant his testimony to place the blame on Credit Suisse.
Conclusion. While the Moody's witnesses might possibly have been motivated to provide testimony that assisted Lloyds in building its case against Credit Suisse, their testimony may not have been affected at all by that motivation. Credit Suisse has only demonstrated that there is a possible bias. The remedy is not an order prohibiting plaintiffs from using the testimony of the Moody's witnesses or directing an adverse jury instruction, but to permit Credit Suisse to reopen the depositions of J. McGinnis Caldwell and Jay Eisbruck.
Credit Suisse argues that it would have challenged the designation of Lloyds as lead examiner of Caldwell had it known of the agreement. I have already rejected this argument. As I stated in my December 29, 2008 Order, if Moody's was not a party to this lawsuit, plaintiffs could have deposed Caldwell as a nonparty witness. Lloyds had 7 hours to examine the Moody's witnesses as party defendant witnesses, and Credit Suisse had one hour. The July 29, 2008 ruling gave Credit Suisse and additional 2 hours to depose Caldwell. Had Lloyds noticed the Moody's witnesses as third-party witnesses, they would have been entitled to 6 hours of examination and Credit Suisse would have been entitled to 2 hours. Even assuming that Moody's was not truly a party when Lloyds examined Caldwell and Eisbruck, which I do not, Credit Suisse has not demonstrated that it was harmed by Lloyds noticing them as party witnesses.
Credit Suisse deposed Lloyds' expert, John C. Coffee, after the December 29, 2008 Order was filed. The expert is not a fact finder. He can be asked on deposition whether he would come to the same conclusion if a witness's testimony was not credible, but he cannot make the credibility determination. Credit Suisse has failed to demonstrate that it was hampered in its examination of Coffee by Lloyds' late disclosure of the June 2, 2008 Agreement.
Accordingly, it is ORDERED that Credit Suisse may reopen the depositions of J. McGinnis Caldwell and Jay Eisbruck.
B. The Protective Order
Rule 26(b) of the Federal Rules of Civil Procedures provides for nearly unlimited discovery of any non-privileged material relevant to a pending matter. The trial court is granted discretion to issue protective orders pursuant to Rule 26(c) to protect parties and witnesses. The combination of parts (b) and (c) of Rule 26 "permit the broadest scope of discovery and leave it to the enlightened discretion of the district court to decide what restrictions may be necessary in a particular case." 8 Charles A. Wright and Arthur R. Miller, Federal Practice and Procedure § 2036 (1994).
The Court's July 12, 2007 Protective Order states that Confidential Discovery Material filed with the Court shall be filed in accordance with the Local Rule 79.3 of the Southern District of Ohio. Doc. 1037, at 10. Lloyds maintains that Exhibits F, I, and M to Credit Suisse's motion for sanctions were subject to the Court's July 12, 2007 and therefore should have been filed under seal.
Exhibits F, I, and M are clearly marked "confidential," and as a result these documents should have been filed under seal as required by the protective order. Credit Suisse's argument that Lloyds waived the confidentiality of these documents by referencing them in telephone conferences with the Court is without merit. The Protective Order states:
Confidential Discovery Material shall be used solely for purposes of the above captioned proceedings, and each action consolidated with or related thereto, including any related cross-claims, non-Party claims, appeals and retrials. Confidential Discovery Material shall not be used for any other purpose. Confidential Discovery Material shall not lose its status as Confidential Discovery Material solely through use in any court proceeding referred to in this paragraph.
Doc. 1037 at ¶ 8 (emphasis added).
Lloyds' counsel attempted to resolve without Court intervention to no avail. See Doc. 1527, Exhs. A, E F. Credit Suisse challenged Lloyds' assertion that the documents remained subject to the protective order, necessitating the motion of Lloyds.
I find that Credit Suisse violated the protective order and persisted in that violation after being advised by Lloyds. Lloyds' February 27, 2009 cross-motion for sanctions against Credit Suisse (doc. 1527-2) is GRANTED. The documents have now been filed under seal. Lloyd's has been unable to demonstrate any compensable injury. Accordingly, Lloyd is AWARDED the sanction of its attorney's fees in filing the motion and responding to Credit Suisse's opposition to it. No further sanction is warranted.
V. Conclusion
Credit Suisse's amended motion for sanction against plaintiff Lloyds TSB Bank PLC and for ancillary relief (doc. 1541) is GRANTED to the extent that it is ORDERED that Credit Suisse may reopen the depositions of J. McGinnis Caldwell and Jay Eisbruck. Further, Credit Suisse is AWARDED its attorney's fees incurred in filing the amended motion for sanctions and in responding to Lloyds' opposition to the motion as well as its attorneys' fees in connection with the briefing leading to the December 29, 2008 Order.
Lloyds' February 27, 2009 cross-motion for sanctions against Credit Suisse (doc. 1527-2) is GRANTED. Accordingly, Lloyd is AWARDED the sanction of its attorney's fees in filing the motion and responding to Credit Suisse's opposition to it.
Under the provisions of 28 U.S.C. § 636(b)(1)(A), Rule 72(a), Fed.R.Civ.P., and Eastern Division Order No. 91-3, pt. F, 5, either party may, within ten (10) days after this Order is filed, file and serve on the opposing party a motion for reconsideration by the District Judge. The motion must specifically designate the Order, or part thereof, in question and the basis for any objection thereto. The District Judge, upon consideration of the motion, shall set aside any part of this Order found to be clearly erroneous or contrary to law.