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Recent sharply-worded accusations that the FDIC had
failed to preserve documents attracted quite a bit of media attention. For
example, a January
27, 2012 Wall Street Journal article reported the charges of counsel
for two former IndyMac bank executives, repeating counsel's remarks
accusing the agency of a "stunning display of incompetence" for failing to
preserve documents. Counsel made these statements in a filing in an action the
FDIC had filed against fhe individuals in its capacity as receiver for the
The Journal article also quoted the individual
defendants' counsel's statement that "the breadth and depth of the government's
document-retention failures are staggering, and violations of this magnitude
rarely occur," and that "it is a stunning display of incompetence from an
agency that is supposed to be an expert at seizing and managing banks."
Based on these accusations, two of the
inidividual defendants sought sanctions against the government
for willful spoliation of evidence, dismissal of the relevant counts of the
lawsuit and an adverse instruction to the jury based on the government's
failure to preserve evidence.
The defense counsel's provocative language may have
succeeded in getting his accusations published in the Wall Street Journal.
However, the language proved less successful when the matter came before
Central District of California Judge Dale Fischer in a hearing on January 30,
2012. As reflected in a transcript of
the hearing, Judge Fischer had quite a lot to say about counsel's approach,
including in particular, counsel's use of language.
Judge Fischer started her remarks with a comment about
counsel's pleading tactics and then went on from there:
THE COURT: Now, there were a number of declarations
attached to the reply that apparently were not filed immediately after they
were signed. Why was that?
DEFENSE COUNSEL: Your Honor, we waited to file them with
THE COURT: And you seriously thought that was the
DEFENSE COUNSEL: Yes, I did, your honor.
THE COURT: Well, for future reference, it wasn't.
Don't hold back evidence that relates to your motion until after the opposing
party files its opposition and then just stick it to them at the end. So I'm
not sure why you thought that was appropriate, but now you know.
Along those lines: I also want to tell you, I don't know
why lawyers do this, and there's a lot of them in the room so take heed, all of
you, language like failures are staggering, violations of this magnitude
rarely occur, stunning display of incompetence, bitter irony, breathtaking dereliction
of duty are not only unpersuasive, they're somewhat annoying. I don't have
time for rhetoric. I'm really, really busy. Why anyone would want this job, I
But in any event, it's just - I don't know whether you
stay up nights trying to think of clever phrases, but trust me, no judge that
I've ever spoken to has ever said, Boy, can that guy turn a phrase. They
only say, Boy, why didn't he get to the point. So, please, in future
pleadings, remember that.
DEFENSE COUNSEL: Yes, your Honor.
THE COURT: In addition to that, I've been around awhile
both in practice and on the bench, so I suspect I've seen a few more cases than
you, and really, it's not all that staggering and it's not all that great
a magnitude, so when your experience and mine differ, it just takes all of
the punch out of those comments.
To make matters even worse, Counsel, your statement that
the government failed to make any effort to preserve the documents is simply
false. And your statements in your papers so often go beyond the bounds of
zealous advocacy that I have to say your papers had very little persuasive
value. In fact, as I was trying to check some of the references you made to
deposition testimony, I looked at it three or four times because I thought I
must be searching for the wrong page because the pages you were citing to had
oftentimes no relationship to the proposition you were citing them for. You
started off extremely poorly as I started reading the papers, and I had little
confidence in anything you had to say as I went through them.
Judge Fischer denied the defendants' motion.
Readers of this blog may also be interested to read the
discussion in the hearing transcript, beginning at page 27, about the role that
the D&O insurance program in the ongoing case. From reading the transcript,
it appears that the individual defendants contend that there a second $80
million insurance tower is relevant to this claim, although defense costs are
being funded out of a first $80 million tower. The lawyers present at the
hearing disagreed about the exact amount, but it appears that defense expenses
to date in all of the various IndyMac-related lawsuits have totaled $35 million
or $45 million. There were various references in the transcript to the lack of
responses from the carrier. (The make-up of the two insurance towers and a
prior coverage dispute involving IndyMac's D&O insurance are discussed here.)
Also, and though it is difficult to discern from the
bare face of the transcript, it appears that the reason that the FDIC wants to
take this case to trial is to substantiate damages in excess of the applicable
policy limits, in an apparent attempt to impose a judgment in excess of the
limits on the D&O insurer(s).
As Judge Fischer commented at the outset of
the discussion about the D&O Insurance, the case "seems to be insurance-company
driven." Which corroborates a point I have made
before on this blog, that the D&O insurance may be the real
battleground in the FDIC's failed bank litigation.
This case, which was filed in July 2010, was the first
that the FDIC filed against former officers of a failed bank as part of the
current bank failure wave, as discussed at greater length here.
It is also one of two FDIC actions against former IndyMac officials. The agency
separately filed an action against the failed bank's former CEO, as discussed here.
Judge Fischer's aside that she doesn't know why anyone
would want to be a federal judge, triggered as it was by her frustration with
the matter before her, was remarkably like my own reaction as I read
through the transcript. As I read along, my own decision years ago to walk away
from the active practice of law seemed more and more like a really smart move.
Reading about the tone and temper of the parties'
pleadings in this case reminded me of the
lyrics from the Crosby, Stills & Nash song "You Don't Have to Cry,"
which I often sing to myself when I hear about litigators bashing each other:
"You are living a reality I left years ago, it quite nearly killed me/In the
long run, it will make you cry, make you crazy and old before your time."
What Do You Make, He Asked?: If
you have not seen this video about teachers, drop everything and watch it right
now. Thank you.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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