Case 1:13-cv-00465-MMS Document 37 Filed 03/21/14 Page 1 of 11

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

FAIRHOLME FUNDS, INC., et al.,
Plaintiffs,
v.
THE UNITED STATES,
Defendant.

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No. 13-465C
(Judge Sweeney)

DEFENDANTS PROPOSED PLAN FOR DISCOVERY

In accordance with the Courts order dated March 19, 2014, and the parties Joint Status
Report filed earlier today, the United States respectfully submits this plan for limited discovery.
In submitting this plan, we reserve our objections that discovery is inappropriate at this stage of
the litigation for the reasons stated in our February 12, 2014, and March 17, 2014 filings.1 We
present below our plan for the limited discovery directed by the Court, followed by an
assessment of plaintiffs proposed plan.
I.

United States Discovery Plan And Schedule

A.

Discovery Plan With Respect To The Ripeness Of Plaintiffs Claim

We argue in our motion to dismiss that plaintiffs claim is not ripe because the future
profitability and ultimate disposition of Fannie Mae and Freddie Mac (the Enterprises) which
are still in conservatorship are unknown. In its February 26, 2014 Order, the Court permitted

We also reserve our rights to (1) request discovery from plaintiffs during any
discovery period permitted by the Court, and (2) object to any specific discovery requests
propounded under this or any other discovery plan adopted by the Court, as permitted under the
Rules of the Court of Federal Claims (RCFC). In addition, our discovery plan provides for
discovery with respect to both the Department of the Treasury (Treasury) and the Federal
Housing Finance Agency (FHFA). We do this to facilitate compliance with the Courts
discovery order, but in no way waive or forfeit our position that FHFA when acting as
conservator is not the United States and not subject to this Courts jurisdiction.

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discovery on each partys assessment of the future profitability of the Enterprises and the future
plans as to when and how the conservatorships will end. See Order at 3.
Discovery Plan. With respect to ripeness, we propose that plaintiffs propound two
interrogatories as to the assessment of future profitability. This would allow plaintiffs to seek
non-privileged information regarding the Governments current assessment of the GSEs future
profitability. As to the subject of when and how the conservatorships will end, we propose that
plaintiffs propound two additional interrogatories. This would allow plaintiffs to seek nonprivileged information regarding (a) possible avenues for termination of the conservatorships,
and (b) whether the Government has adopted a plan as to when the conservatorships might end.
B.

Discovery Plan With Respect To The Courts Jurisdiction Over The Acts Of
FHFA As Conservator

We contend in our motion to dismiss that FHFA is not a United States instrumentality
when it acts as conservator. The Court has permitted discovery on whether FHFA acted at the
direct behest of the Treasury, or was an agent and arm of the Treasury. See Order at 3.
Discovery Plan. With respect to the jurisdictional issue of FHFA acting as conservator,
we propose that plaintiffs be permitted to seek the relevant documents from two individual
custodians, one from FHFA and one from Treasury. Plaintiffs would then be permitted to issue
notices to depose the custodians, in their individual, official capacities, on these jurisdictional
topics.
C.

Discovery Plan With Respect To The Solvency In September 2008 Of

Fannie Mae and Freddie Mac

We assert in the Rule 12(b)(6) portion of the motion to dismiss that plaintiffs did not have
a reasonable expectation of profits at the time the Enterprises were placed into conservatorships.

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The Court has permitted discovery as to Fannie Maes and Freddie Macs solvency and the
reasonableness of expectations about their future profitability at that time. See Order at 4.
Discovery Plan. With respect to this issue, and for purposes of the Governments motion
to dismiss, the Government treats as true the factual assertions in plaintiffs complaint
concerning the financial condition of the GSEs and the factual circumstances surrounding the
conservatorships.2 With these factual allegations taken as true, the plaintiffs do not need
discovery on this topic. As an alternative, we propose that plaintiffs be permitted to propound
two interrogatories on the topic of expectations of future profitability. Plaintiffs would also be
permitted to seek relevant documents from two FHFA custodians related to expectations of
Fannie Maes and Freddie Macs future profitability. Plaintiffs would then be permitted to issue
notices for the depositions of those custodians in their individual, official capacities, related to
expectations of future profitability.
D.

Proposed Discovery Schedule

We propose that the Court provide six months for the discovery described above.
II.

Plaintiffs Proposed Discovery Is Extremely Overbroad, Burdensome, And

Unnecessary
The Court should reject plaintiffs proposed discovery plan not only because it is

unnecessary and enormously burdensome, but also because it ignores the larger context of the
Courts order. First, the discovery permitted by the Court relates to only three issues. This
means that discovery is necessarily limited. Second, discovery should be permitted only to the
extent that plaintiffs do not already have access to the information they seek. The Court should
consider that the United States has filed an extensive Administrative Record from both

See Compl., 41 and 43.

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Treasury and FHFA in the District Court cases in which the same plaintiffs challenge the Third
Amendment. See Fairholme Funds, Inc. v. FHFA, No. 13-1053 (D.D.C., July 10, 2013); see
also Exs. 1 and 2. In addition, the Third Amendment has been the subject of extensive public
scrutiny in the press, SEC filings, and Inspector General reports. Not only do plaintiffs have
access to these materials, but they have cited many of them in their complaint and motion for
discovery. Third, the potential scope of this discovery is enormous and unnecessarily disruptive.
The Enterprises have been under conservatorship for over five years, and their rescue and
operation implicates dozens of former and current Government employees, as well as millions of
pages of e-mails and other documents many of which are protected by Government and other
privileges. The cost and time frame of discovery if allowed on the scale proposed by plaintiffs
will easily push into the millions of dollars and require well over a year to complete. Plaintiffs
seek all of this before the Court has had the opportunity to consider threshold legal arguments
that the Government contends are dispositive.
Against this backdrop, plaintiffs ask the Court to adopt an essentially unlimited discovery
plan allowing the full panoply of initial disclosures, document requests, individual depositions,
Rule 30(b)(6) depositions, and interrogatories. The wide-open discovery urged by plaintiffs is
wholly disproportionate to the limited discovery permitted by the Court, is largely unnecessary,
and will create tremendous burdens on both the Government and the Court. Further, the timing
and scope of the plan are divorced from reality and improper under both the Federal Rules of
Civil Procedure and RCFC Appendix A. Accordingly, the Court should reject the plan, in full.
A.

Plaintiffs Discovery Requests Are Unbounded, Rendering Their Discovery

Plan Unusable

The Court should reject plaintiffs discovery plan because it provides no limits on the
breadth of discovery. Plaintiffs discovery plan is evasive regarding the number of deposition
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notices, interrogatories, and document requests the plaintiffs hope to serve upon the Government.
For example, plaintiffs anticipate one or more depositions. Of course, the phrase or more is
clearly open-ended, and undermines any effort by the Government and the Court to calibrate a
discovery plan to accommodate these or more depositions. This flaw is glaring because it
conflicts with the limits provided for in the Courts Rules (RCFC 26 -36), and because it makes a
schedule unmanageable.
Similarly, the plan suggests no limits on the plaintiffs document requests. Unbounded
discovery, as contemplated by the plaintiffs, provides no basis for the Court or the Government
to plan for the production of documents. The Court does not know whether plaintiffs will ask for
1,000 or 10,000,000 documents. A discovery plan that does not address the scope of discovery
sought is not a plan at all, but a request for a blank check. Because the plaintiffs fail to provide
an actual, comprehensive, discovery plan to the Court, as required by the Courts order, the
Court should reject the plaintiffs incomplete proposal.
Further, plaintiffs discovery into the ongoing operations of the conservatorships would
directly and impermissibly interfere with FHFAs current internal deliberations and decisionmaking regarding the future of the Enterprises. Such discovery contravenes the congressional
directive in the Housing and Economic Recovery Act of 2008 (HERA), 12 U.S.C. 4617, that
no court may take any action to restrain or affect the exercise of powers or functions of [FHFA]
as a conservator or a receiver. 12 U.S.C. 4617(f).
B.

Plaintiffs Proposed Written Discovery Requests Are Overbroad And Unduly

Burdensome

Plaintiffs propose a series of written discovery requests. These requests however, lack
any specificity and are not narrowly tailored to achieve the limited discovery warranted by the
three discrete issues identified in the Courts order. For example, plaintiffs requests are not, as
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they should be, confined to specific periods. The Governments plan, on the other hand, includes
targeted time periods intended to achieve the limited discovery contemplated by the Courts
discovery order; similarly, the Governments proposal provides for a reasonable number of
document custodians, and provides for targeted interrogatories appropriate to the limited scope
of the discovery permitted by the Court. Even our plan, however, will require substantial
resources and effort to implement.
Although not mentioned in plaintiffs discovery plan, plaintiffs already have disclosed
their plans in a declaration to the Court as part of their motion for discovery. Just one part of
their plans includes the following:
With regard to the Governments expectations about the future
profitability of the Companies and how long they will remain in the
conservatorship, Plaintiffs seek discovery of emails, strategy documents,
internal analyses and projections, and other communications regarding
the expected future profitability of Fannie and Freddie (both at the time
of the Net Worth Sweep and at present) and also regarding when (if
ever), and how, the conservatorships will end. This discovery should
include, for example, the production of all nonprivileged documents, and
appropriate depositions, relating to the Governments belief that Fannie
and Freddie will remain profitable for the foreseeable future. Plaintiffs
also need discovery about the Governments decision to allow the
Companies to recognize billions of dollars of the Companies deferred
tax asset valuation allowances. This discovery should include
documents in the possession of Treasury, FHFA, and/or any other
relevant Government agencies.
Discovery Motion, Ex. A at 4.
The breadth of plaintiffs discovery plans a wish list issued solely for the purpose of
responding to our motion to dismiss cannot be overstated. Based on current information, we
understand that the average e-mail file for any document custodian will exceed 5 GB, which
likely translates into more than 500,000 pages of e-mails and/or attachments per custodian.
Therefore, if plaintiffs take five depositions, the Government would likely be required to review,

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for privilege and responsiveness, approximately 2.5 million pages of documents. This, of course,
does not include hard-copy documents and non-email electronically stored information.
Plaintiffs document requests potentially would require the Government to produce millions of
pages of documents from both Treasury and FHFA covering over five years, from 2008 to the
present. Thus, the document requests contemplated by plaintiffs discovery plan are overbroad
and completely inappropriate for this limited discovery.
Moreover, plaintiffs document requests may be entirely unnecessary. Plaintiffs have not
shown that any document discovery is required beyond the voluminous documents already
available to them, including the administrative records filed in District Court, SEC filings, and
other public documents. The administrative records alone provide over 8,000 pages of materials
related to the Third Amendment, the subject of Fairholmes cases pending in both courts. See
Fairholme Funds, Inc. v. FHFA, No. 13-1053 (D.D.C., July 10, 2013); see also Exs. 1 and 2
(Indexes of Treasury Administrative Record and FHFA Document Compilation). Given these
records and other publicly available information, plaintiffs already possess sufficient information
for purposes of the limited discovery permitted by the Court. The Court should require plaintiffs
to demonstrate why additional written materials are necessary as part of this limited discovery.
In addition, plaintiffs proposed time for discovery is wholly unreasonable. It would be
impossible to comply with plaintiffs proposal that the Government, by May 7, 2014, review and
produce millions of pages of documents, and prepare a privilege log for all materials withheld on
the basis of privilege. Should the Court adopt plaintiffs plan, we would need at least 12 months
to: (1) collect and load the documents; (2) review the documents for responsiveness and
privilege; (3) prepare a privilege log; and (4) produce responsive documents.

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Demonstrating their disregard for the breadth of the work they request, plaintiffs actually
ask the Court to reduce by half the Governments time to respond and object, if necessary, to
plaintiffs written discovery requests. See RCFC 34(b)(2)(A); RCFC 33(b)(2) (providing 30
days to respond and object to such requests). Plaintiffs ask the Court to unleash a raft of
discovery and then ask the Government to serve all objections to plaintiffs document requests
and interrogatories within 14 days after being served. This request, like all the time periods
sought in the plaintiffs plan, is patently unreasonable by any judicial standard.
Plaintiffs may protest that it is only a limited number of documents they seek, and so not
such a burden. This ignores the basic axiom of searching: it is not the size of the needles for
which one searches, but the size of the haystack that must be searched. To offer a comparison,
document production in Starr International Company, Inc., et al., v. United States (Fed. Cl.)
[Wheeler, J.], took well over a year.
Accordingly, the Court should reject plaintiffs attempt to circumvent the Courts rules
by proposing an accelerated discovery schedule. Indeed, the Government will require at least a
year to provide the discovery identified in plaintiffs excessively broad plan.
C.

Plaintiffs Proposed Deposition Discovery Is Overbroad And Unduly

Burdensome
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Next, the Court should reject plaintiffs plan to take an unlimited number of depositions,
and to take any Rule 30(b)(6) depositions at all.
Given the limited number of issues identified by the Court, the number of depositions for
the permitted discovery should be limited as well. Our proposal of four depositions of witnesses,
testifying in their individual capacity, will meet the goals identified by the Court.
Plaintiffs plan to take one or more RCFC 30(b)(6) depositions, is most troubling.
First, the Court should reject plaintiffs request to take any Rule 30(b)(6) depositions without
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(1) an express showing of need, and (2) Court imposed limits on the proposed depositions
scope. Unlike the depositions of individuals, which can be prepared in advance with the
gathering of the materials of a single witness, Rule 30(b)(6) allows a deponent to ask a party
about information known or reasonably available to the organization. This rule contains a
duty, on the part of the testifying party, to prepare the witness with information that is reasonably
available. United States v. Taylor, 166 F.R.D. 356, 361 (M.D.N.C. 1996). For the Government
properly to prepare and respond to such a request about numerous issues of significant breadth
as suggested by the plaintiffs declaration would require the review and organization of
millions of documents. General discovery has not begun, and the Government has not
undertaken the general review that would follow from the opening of general discovery. The
Rule 30(b)(6) depositions plaintiffs propose should not take place at this jurisdictional stage.
Because plaintiffs proposal calls for open-ended Rule 30(b)(6) depositions, the Court should
reject the proposal.
Indeed, plaintiffs proposal ignores the limits in the Courts rules that bar multiple
depositions of the same witness, without the Courts permission and a proper showing of need.
COFC Rule 30(a)(2)A)(ii). This limit on re-deposing a party properly applies to Rule 30(b)(6)
depositions. See Poly Carpe v. E&S Landscaping, 275 F.R.D. 700, 701 (S.D. Fla 2011). Here,
the Court has only provided for discovery against the Government, and such multiple Rule
30(b)(6) depositions would be improper under the rules. This, too, provides a basis for rejecting
the plaintiffs proposal.
Given the limitless breadth of plaintiffs proposal, its inconsistency with this Courts
rules, and its lack of realism given timing, the Court should reject the plaintiffs discovery
proposal as unfair and unworkable.

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D.

Initial Disclosures Are Unnecessary And Inconsistent With The Courts

Rules

Finally, plaintiffs propose that the Government provide Rule 26 initial disclosures. This
is unnecessary. Plaintiffs already have more than ample information from which to identify
potential document custodians and deponents. Treasury and FHFA have already assembled and
filed administrative records in plaintiffs case challenging the Third Amendment in District
Court. See Fairholme Funds, Inc. v. FHFA, No. 13-1053 (D.D.C., July 10, 2013). These
administrative records provide over 8,000 pages of materials related to the Third Amendment,
the subject of Fairholmes cases pending in both courts. See Exs. 1 and 2 (Document Indexes).
Moreover, plaintiffs request for initial disclosures from the Government is contrary to
Rule 26(a)(1), which states that such disclosures may be appropriate only after the filing of
defendants answer. RCFC App. A, 3. Indeed, only the filing of an answer triggers the case
management obligations set forth in Appendix A of the RCFC. See RCFC 26(a)(1)(C); RCFC
App. A, 3. Because the Government has not filed an answer in this case, the case management
events that follow the filing of an answer, such as initial disclosures, have not been triggered.
See id. Consequently, the Rules do not entitle plaintiffs to initial disclosures. Thus, the Court
should reject plaintiffs request for initial disclosures from the Government.
CONCLUSION
Given the limited discovery ordered by the Court, the ample documentary materials
already available to plaintiffs, and the enormous burden posed by plaintiffs proposed plan, the
Court should adopt the United States discovery plan.
Respectfully submitted,
STUART F. DELERY
Assistant Attorney General

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s/ Jeanne E. Davidson
JEANNE E. DAVIDSON
Director
s/ Kenneth M. Dintzer
KENNETH M. DINTZER
Acting Deputy Director
Commercial Litigation Branch
Civil Division
U.S. Department of Justice
P.O. Box 480 Ben Franklin Station
Washington, D.C. 20044
(202) 616-0385
(202) 307-0972 fax
KDintzer@CIV.USDOJ.GOV
Attorneys for Defendant
March 21, 2014

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