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Sweeney Orders a Cut to the Chase in Discovery Saga

Once again, U.S. Court of Federal Claims Judge Margaret Sweeney has made it clear she will not abide by the government’s foot-dragging over documents related to the Net Worth Sweep of Fannie Mae and Freddie Mac’s profits. On March 7, she essentially declared the government has enough guidance from the courts at this point to review the thousands of remaining documents with the assumption that most won’t pass the privilege test. She also laid out a no-nonsense timeline to resolve the tug of war.

For several years now, investors in Fairholme Funds have made a compelling case that  the Net Worth Sweep was an illegal taking of property without compensation by the federal government and that the government could not justify hiding thousands of documents related to this claim. One would have thought by now that government lawyers would have recognized that the misuse of executive privilege has been exposed and begun to turn over the many thousands of supposedly super-sensitive documents to plaintiffs’ lawyers and the public.  But the government has continued to resist. So long as the dance continues, Judge Sweeney is clearly happy to oblige in keeping government lawyers on their toes.

Recall that last spring, Sweeney tried to speed up the discovery process and issued a motion to compel the government to offer up 58 documents  — a tiny sample of the approximately 12,000 documents that the defendant claimed were privileged. After a painstaking review of each document in which she applied presidential communications privileges, the deliberative process privileges, and the bank examination privileges the government asserted on the documents, she rejected the claims. She was so thorough that she even constructed hypothetical situations that might help the government’s case. Even so, in an opinion on September 20, 2016 she concluded none of the documents merited such excessive secrecy.

Naturally, the government appealed this sharp rebuke and in January of this year the Court of Appeals for the Federal Circuit handed the government a partial victory on some documents. The next day Judge Sweeney modified her order for the government to produce eight additional documents to plaintiffs and called for agreement on schedules for the completion of the discovery process.

When lawyers for both sides responded three weeks later on February 24, they could not agree on a schedule for the completion of jurisdictional discovery. The government said “[n]o further discovery is necessary or warranted in advance of completion of briefing on the Government’s motion to dismiss.” Fairholme’s lawyers – believing that more discovery was very much in order – suggested what is known as the “quick peek.” Legal parlance found in Federal Rule of Evidence 502(d) aside, “quick peek” is an apt description of a mechanism for keeping the discovery process moving expeditiously on what remains the biggest trove of privileged documents in history.

Fortunately, Sweeney once again came down strongly on the side of the public’s right to know what the government has been doing.  She not only rejected the government’s assertion that no additional discovery is warranted but also regarded even the “quick peek” procedure Fairholme’s lawyers offered as inadequate. Instead, she gave government lawyers until April 17 to review the documents in its privileged log with the parameters and definitions provided to date – her sweeping rejection of the privilege claims from September 20, as modified by the Circuit Court of Appeals in January – to determine whether to press privilege claims.

Once lawyers look at the documents accordingly, she said the government must produce any additional documents listed on its privilege log that are, “either (1) no longer privileged in light of both courts’ rulings or (2) despite being privileged must nevertheless be produced in light of both courts’ rulings.”

She then laid out deadlines for the ongoing briefings that could continue into next year but with an enhanced presumption that the government’s is running out of options to stonewall on each and every document and that sunshine is the best policy.

Meanwhile, the government continues to balk at being ordered to pay plaintiffs’ expenses so Judge Sweeney gave Faireholme’s lawyers until March 27 to respond to the government’s claims that such a payment would be in appropriate because (1) it would not advance the resolution of the case, (2) the defendant’s position was substantially justified, and (3) it would be unjust.

At no time in recent memory has there been so much distrust of our civic institutions and therefore so much need for honesty and transparency. What Judge Sweeney and attorneys for investors and the government know is that the documents will reveal the truth. That is why the government wants to keep them under wraps, why shareholders press for disclosure and why Judge Sweeney continues to perform her duties with exceptional – and timely – integrity.