MBIA Letter to Judge Bransten--COUNTRYWIDE COUNSEL BULLIED WHISTLEBLOWER--fraud Discovery Letter and MBIA Reply Iso Motion to Compel Fraud Docs

8/2/2019 MBIA Letter to Judge Bransten--COUNTRYWIDE COUNSEL BULLIED WHISTLEBLOWER--fraud Discovery Letter and MBI

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WRITER'S DIRECT DIAL No.(212) 849-7156

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M arch 8, 2012

VIA ELECTRONIC MAIL

The Honorable Eileen BranstenNew York State Supreme CourtCommercial Division60 Centre Street, Room 442New York, NY 10007

Re: BIA Insurance Corp. v. Countrywide Home Loans, Inc., et. al., No. 08-602825

Dear Justice Bransten:

We represent Plaintiff MBIA Insurance Corporation ("MBIA") in the above-captionedaction. We write concerning continuing discovery abuses by Defendants, the repetition andseverity of which warrant sanctions. Over the course of the last three weeks, Bank of America("BAC") has produced nearly 170,000 pages of new, relevant, successor liability documents.These productions, which are continuing, have forced the postponement of a number ofsuccessor liability depositions and compelled MBIA to agree to a brief extension of the successorliability discovery schedule. This is just the latest conduct by BAC to sabotage the discovery

schedule and cause MBIA significant prejudice, and is part of an indefensible pattern of delayand discovery abuses by both the BAC and Countrywide Defendants. As reflected in MBIA'srecent motion to compel, Countrywide has failed to produce - or even reveal the existence of-numerous documents concerning suspicions of fraud (and confirmed fraud) relating to loans inthe Countrywide Securitizations, and has engaged in sharp practice that has interfered withdiscovery. This includes withholding important categories of documents on specious groundsand then selectively producing certain of such documents that it believes are favorable on the eveof(or during) depositions. Although the Court has given Defendants the benefit of the doubt asto previous discovery failings, MBIA believes that, as a result of what has become a pattern ofconduct, sanctions against both the BAC and Countrywide Defendants are appropriate, and seeksleave of the Court to file a motion seeking such relief.

BAC's Discovery Misconduct

BAC has engaged in a pattern of conduct throughout the course of discovery that hasconsistently led to the same result - delay. Having failed to obtain a stay of MBIA's successor

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MB IA v. Countrywide Home Loa ns, et al. ndex No. 60282512008Page 2

liability claims - from this Co urt or the F irst Department - BAC has successfully interposed itsown delay by twice making eno rmous supplemental productions of documents on the eve o f thecommencement of depositions, notwithstanding its p revious repeated representations that itsdocument production was complete.

As the C ourt is aware, BAC disclosed, just before depositions were to commence inFebruary, that it had identified a purported "coding error" that had resulted in responsivedocuments being identified as non-responsive, and thus withheld from production. M BIA op tednevertheless to continue with scheduled depositions and receive supplemental p roductions fromBAC on a rolling basis. To MBIA's surprise, what followed was a flood of new documents,which has not abated. BAC has produced 170,000 pages of new documents in total, 115,000 ofwhich were p roduced in just over the last week and a half. BAC 's productions typically includeseveral thousand pag es pe r custodian and took place only days before a witness was to be

deposed. Given the volume and timing, it was impossible to review these document productionsmeaningfully prior to the custodians' depo sitions. A s a result, all five o f the successor liabilitydepositions conducted to date have been he ld open. U ltimately, it became clear that there was nopo int in continuing with depositions when BAC was producing thousands of pages per witnessthat could not be adeq uately analyzed in advance o f the witnesses' depositions.

Incredibly, although BA C agreed to suspend and reschedule those dep ositions set to takeplace over a two week p eriod (between M arch5 and 16), it comp lained that M BIA had sufficienttime to review BA C's deluge of new documents and that M BIA was seeking to review thisdeluge at a " leisurely pace." N ot only does this turn the facts on their head, but BAC has noteven completed its production of these documents, despite having told the Court at the February

9 hearing that it would do so in two to three week s. M BIA has not received supplementalproductions for at least five scheduled witnesses. In addition, BAC has revealed that there is alsafurther collection of successor liability documents to be produced relating to agreed-upondocument custodians who have no t been noticed for dep osition. Thus, notwithstanding theproduction of 170,000 pages of new documents, BAC's supplemental productions will continueat this stage indefinitely.1

Importantly, this is not BAC's first eleventh-hour document dump. As the Court is well aware, inNovember and late December of 2011, BAC produced more than 160,000 pages of new documents thathad been improperly withheld as privileged, again as MBIA was preparing to commence successorliability depositions. That production came about only after MBIA repeatedly questioned BAC as to whyits privilege logs - then including 20,000 entries - identified no redacted documents, suggesting that BAChad improperly withheld documents that could have been redacted and produced in part. Only afterMBJA complained to the Court did BAC acknowledge this issue and commence review of its entireprivilege log, which resulted in BAC producing 160,000 pages of new documents, a substantial portion ofwhich had no redaction at all, reflecting that they should not have been withheld in the first place. BAChas never explained how it could have - inadvertently or otherwise - assembled such a massive privilegelog without establishing a procedure for redacting documents that could be produced in part. Indeed, it is(footnote co ntinued)


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MBIA v. Countrywide Home Loans, et al. ndex No. 60282512008Page 3

Whatever BAC's explanation for these purported "errors," none has been provided, anderrors of this magnitude should not be excused without a full explanation. BAC's productions

over the last three months have put it on pace to double the total size of its production ofsuccessor liability documents. As a result, MBIA has twice been prepared to commencedepositions only to have BAC make massive supplemental document productions that have notonly caused delay but required MBIA to bear considerable expense in reconstituting teams oflawyers to review and analyze large volumes of documents in short periods of time. MBIAshould not be forced to bear the prejudice such extraordinary conduct has imposed. BAC'srepeated delays and obstructionist conduct warrant sanctions.

Cou ntrywide's Discovery Miscondu ct

Countrywide's conduct has been even more egregious than BAC's, and has involved

apparently willful and contumacious disregard of its discovery obligations and of the Court'sscheduling orders and other discovery directives.

1. Coun trywide's Withholding of Wh istleblower Docum ents an d Selective EleventhHour Productions

Countrywide has failed to produce numerous documents relating to four formerCountrywide employees who "blew the whistle" on fraudulent loan origination practices atCountrywide, three of whom were subsequently terminated. Countrywide has repeatedlydelayed scheduling depositions of these "whistleblowers," and withheld documents relating tothem which are clearly both highly relevant and responsive to MBIA's document requests.Moreover, Countrywide has cherry-picked documents most favorable to its own case for use inpreparing for the whistleblowers' depositions, and then produced these documents just prior to orduring depositions, all the while denying MBIA the majority of the documents to which it isentitled.

2. Cou ntrywide's Abu sive Qu estioning of W histleblower Witness

Countrywide's counsel harassed and bullied one of the whistleblowers - who wasunrepresented by counsel at her deposition - to such an extent that she eventually felt compelledto adjourn her deposition until her counsel could be present. In a transparent attempt tointimidate and control the unrepresented witness and to prevent her from giving testimonyharmful to Countrywide, counsel adopted a disrespectful, bullying and unprofessional manner,

asked inappropriate, irrelevant and repetitive questions, and made repeated improper objections.Among other things, counsel repeatedly suggested that the witness was wrong to acceptcompensation from Countrywide if she knew the company was fraudulently originating loans-an ironic position given that her job was to investigate fraud, and she was fired for reporting

difficult to believe that such an omission could be inadvertent given that redacting tools and protocols area basic feature of electronic review platforms used for large scale document review projects.


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what she discovered. Counsel also accused the unrepresented witness of refusing to answer hisquestions when he did not receive the answer he wanted; improperly instructed her that she wasonly to give a "yes" or "no" answer and was not permitted to give an explanation; made bullying,unprofessional comments; and frequently stated "move to strike" and/or "nonresponsive" afterthe witness gave an explanation in response to a question.

3. oun trywide's Withholding of Docum ents Relating Specifically to Loans inSecuritizations a t Issue

As set forth in MBIA's recent motion to compel, Countrywide also failed to disclose forover two and a half yearsan entire database of documents concerning allegations of fraud withrespect to more than 2,000 loans in the Securitizations (the "FACTS" database). This, despite aMay 2009 directive from this Court requiring Countrywide to disclose all such databases, and

Countrywide's representation to the Court at that time that it had already done so. In fact,Countrywide did not disclose the existence of this database until December 2011, and then onlyin response to MBIA's request for documents relating to two Countrywide departmentsresponsible for addressing fraud allegations which had come to light during depositions. 2 Inaddition, Countrywide failed to disclose the existence of an internal Countrywide "FraudHotline," of which MBIA only became aware during the deposition of another Countrywidewitness in August 2011 . Most recently, through the deposition of a former Countrywidewhistleblower employee, MBIA has been alerted to the existence of an "independentappraisal/LandSafe hotline," which apparently also contains relevant and responsive documents.When asked about this hotline during a meet-and-confer on March 7, 2012, Countrywide couldnot confirm that all calls to this hotline were recorded in the FACTS database. Although

Countrywide agreed to look into whether there was another database that tracked informationderived from this appraisal hotline, Countrywide's continued insistence that it had no obligationto disclose the existence of this appraisal hotline prior to MBIA's specific request furtherevidences Countrywide's approach towards discovery - which places the burden on MBIA toidentify by name the specific sources of documents before Countrywide will even considerproducing relevant and responsive documents obtained from that source. Countrywide'sapproach is entirely inconsistent with the rules of discovery which obligate the producing partyto identify all sources of responsive and relevant documents.

2 During a telephonic meet-and-confer held on M arch 7, 2012, Co untrywide agreed to p roduce thedocuments requested by M BIA relating to the over 2,000 loans in the Securitizations contained on theFA CT S database. Co untrywide's agreement to produce these highly relevant and responsive documentsonly after M BIA move d to comp el their production belies any notion that it has acted in goo d faith.

Although Countrywide has now agreed to produce documents from the Fraud Hotline relating to theloans in the Securitizations, it continued to refuse to produce such documents relating to HELOC andCBS loans generally. Given that Countrywide's practice and policies for such loans did not vary by loan,such documents are relevant to M BIA 's allegations regarding suspe cted and confirmed fraud andCo untrywide's kno wledge o f the same.


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MB JA v. Countrywide Home Lo ans, et al. ndex No. 60282512008Page 5

Countrywide's conduct in failing to disclose the existence of vast quantities of relevantand responsive documents, and withholding them from production, has been so persistent,

systematic and egregious that it cannot plausibly be attributed to "inadvertence" or "error."Rather, it app ears to reflect deliberate concealment of evidence highly pro bative of M BIA ' sfraud claims, and willful and contumacious disregard both for Countrywide's discoveryobligations and for the Court's scheduling orders and other discovery directives. Countrywide'sobjective from day one appears to have been to obstruct MBIA's prosecution of its claims or atleast delay their resolution for as long as possible, in the knowledge that defendants can oniybenefit from delay.

MBIA has suffered substantial prejudice as a result of this and other similar conduct by

Defendants. That discovery in this case has been voluminous does not excuse a pattern ofconduct by Defendants that has sought to delay or avoid production of highly relevantinformation. MBIA has been obliged to make extensive and costly motions to compel discoveryto which it is plainly entitled (including its pending motion to compel), in addition to countlessother applications to the Court for assistance in resolving disputes which should not haverequired the Court's intervention. It has been denied documents and other information to whichit is entitled to prepare its case. It has been obliged to re-convene depositions and pay thirdparties' attorneys' fees. And it has had to endure substantial delays in depositions and, moreimportantly, in the ultimate resolution of its claims. Accordingly, sanctions against Countrywideand BAC are warranted.

Respectfully submitted,

/ ~ Z - -O-L ,Jonathan B. Oblak

cc: ounsel for Defendants (by electronic mail)


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LED: NEW YORK COUNTY CLERK 03/22/2012 INDEX NO. 602825/2008SCEF DOC. NO. 1587 RECEIVED NYSCEF: 03/22/2012


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Documents

MBIA Letter to Judge Bransten--COUNTRYWIDE COUNSEL BULLIED WHISTLEBLOWER--fraud Discovery Letter and MBIA Reply Iso Motion to Compel Fraud Docs