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Case 1:13-cv-00465-MMS Document 69 Filed 07/11/14 Page 1 of 13

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)

JOINT STATUS REPORT REGARDING PROPOSED PROTECTIVE ORDER


Consistent with this Courts Orders of June 19, 2014 (Doc. 62) and June 24, 2014 (Doc.
67), the parties hereby respectfully submit their respective proposals for a protective order governing the treatment of materials produced in discovery. Because, after extensive negotiations,
the parties were not able to reach agreement on all provisions of a proposed protective order,
they attach hereto their competing proposals for the Courts consideration,1 and present below
their respective statements in support of those proposals.
While the parties were able to reach agreement on a large number of provisions to be included in the protective order, there are two important issues with respect to which the parties
were unable, after considerable effort, to find common ground. These areas of disagreement relate to (1) the definition of Protected Information; and (2) whether, in the event of disputes between the parties regarding whether particular materials produced in discovery should be treated
as Protected Information, the producing party should bear the burden of demonstrating that the
materials should be so treated. The parties briefly outline below their position with respect to
1

Plaintiffs proposed order is attached as Exhibit 1, and Defendants proposed order is attached as Exhibit 2. In addition, a draft order comparing the differences between the parties
proposals is attached as Exhibit 3.
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each of these questions, and present, for the Courts convenience, tables comparing the parties
proposals on each disputed item.2
I.

Definition of Protected Information


The Parties Proposals
Plaintiffs

Defendant

2. Protected Information Defined. Protected Information as used in this Protective Order means proprietary, trade secret, or market-sensitive information,
as well as information that is otherwise protected from
public disclosure under applicable law. Protected Information does not include discovery material that has
been provided to or prepared by any Government
agency (which shall include, for these purposes,
FHFA) and that is available to the public under the
Freedom of Information Act or other applicable law.
The designation of information as Protected Information must be made or supervised by an attorney.
To facilitate the expeditious production by a party of
information requested in discovery by another party,
the producing party may initially designate all information that it produces as Protected Information, subject to the right of the receiving party, in accordance
with the procedures established under Paragraph 19 of
this Protective Order, to thereafter challenge the designation of the information as Protected Information.

2. Protected Information Defined. Protected Information as used in this Protective Order means proprietary, financial, operational, confidential, trade secret, or market-sensitive information, as well as information that is otherwise protected from public disclosure under applicable law. Protected Information
also means any information disclosed in this litigation
that has not been released to the public previously.
The designation of information as Protected Information must be made or supervised by an attorney. To
facilitate the expeditious production by a party of information requested in discovery by another party, the
producing party may initially designate all information that it produces as Protected Information, subject to the right of the receiving party, in accordance
with the procedures established under Paragraph 19 of
this Protective Order, to thereafter challenge the designation of the information as Protected Information.

A.

Plaintiffs Statement

Under Plaintiffs proposed order, the category of Protected Information subject to severe restrictions on disclosure and use is comprised of information that is proprietary, trade secret, or market-sensitive or that is otherwise protected from disclosure under applicable law.
Plaintiffs proposed definition is consistent with this Courts rules, which contemplate that,
where good cause is shown, the Court may issue an order requiring that a trade secret or other
2

The parties will also be prepared to discuss the parties competing proposals at the next
regular status conference, currently scheduled for July 16, 2014.
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confidential research, development, or commercial information not be revealed or be revealed


only in a specified way. RCFC 26(c)(1)(G). See also In re Violation of Rule 28(d), 635 F.3d
1352, 1357 (Fed. Cir. 2011) (discussing corresponding provision in the Federal Rules of Civil
Procedure). The standard established under Plaintiffs proposed definition is also fully protective of any legitimate interests the parties may have in restricting the disclosure of information
produced in discovery, as it would protect proprietary or market-sensitive information whose
public disclosure or unauthorized use could cause competitive harm to the producing party or
have the types of serious market-distorting effects that Defendant has described in its recent protective order motion. See Def.s Mot. for Protective Order (Doc. 49) (May 30, 2014). In short,
Plaintiffs proposed definition of Protected Information comports with the Courts rules and fully
protects producing parties against the types of legitimate prejudice that protective orders are designed to prevent, while at the same time ensuring that producing parties are not allowed to indiscriminately shield information produced in discovery regardless of whether such information
deserves such protection.
Defendants proposed definition of Protected Information, on the other hand, finds no
support in the Courts rules or applicable law, and is so broad that it undoubtedly would, by its
plain terms, cover virtually all information produced in discovery in this case. Under Defendants proposal, the category of Protected Information would include not only proprietary, tradesecret, or market-sensitive information, but also all financial and operational information.
Given the subject matter at the heart of this case, which involves decisions relating to the financial structure of two financial institutions as well as decisions relating to the operations of
the Treasury Department and the Federal Housing Finance Agency (FHFA), it is almost certainly
true that all information that will be produced in this case could be characterized as financial
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or operational in nature.
To make matters worse, Defendants definition goes on to provide that Protected Information will also include any information disclosed in this litigation that has not been released to
the public previously (emphasis added). Since it is quite unlikely that much if any of the information that will be produced in discovery will have been previously released to the public there
is, after all, little reason for the parties to focus on publicly available information in their discovery efforts this provision removes any remaining doubt that Defendant wants all discovery materials to be accorded confidential treatment. Thus, under Defendants proposal, regardless of
how innocuous the nonpublic information, no matter how dated or stale it may be, and even if it
is undisputed that its disclosure would cause no harm to any legitimate interest of the producing
party, such information will be considered protected, and the receiving party will labor under
onerous restrictions governing the use, treatment, and disclosure of that information, and will be
subject to severe penalties and sanctions for running afoul (even inadvertently) of those restrictions.3
There can therefore be no question that under Defendants proposed definition, little if
any information produced in discovery would avoid qualifying as Protected Information. Indeed,
Defendant has confirmed to Plaintiffs that it intends to designate all of the documents it is currently preparing for production to Plaintiffs as Protected Information.4 But the law simply does

Defendant has even objected to a provision (modeled on a provision in the protective


order entered by the Court in Starr International Co. v. United States (Fed. Cl. No. 11-779C)
(Doc. 104)) making clear that information that would be available to the public under the Freedom of Information Act (FOIA) should not be considered Protected Information. Defendant is
therefore taking the position that material that any member of the public could ask for, receive,
and use without any restriction under FOIA can nevertheless be designated as protected, and be
subjected to numerous restrictions on use and disclosure, when requested by a party in discovery.
4

Defendant has suggested that its plan to designate all materials as protected is driven, at
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not support such wholesale, indiscriminate designation of discovery material as confidential.


The Federal Circuit has noted with disapproval that [p]arties frequently abuse Rule 26(c) by
seeking protective orders for material not covered by the rule, and has observed that other
courts of appeals have repeatedly condemned the improper use of confidentiality designations.
In re Violation of Rule 28(d), 635 F.3d at 1358 (citing Jepson, Inc. v. Makita Electric Works,
Ltd., 30 F.3d 854, 858 (7th Cir. 1994) and Procter & Gamble Co. v. Bankers Trust Co., 78 F.3d
219, 222 (6th Cir. 1996)). Defendants expansive definition of Protected Information presents
exactly the type of scenario that the Federal Circuit and other courts have cautioned against.
Defendants proposal also cannot be reconciled with black letter law placing the burden
on the party seeking a protective order to demonstrate good cause for the protections it seeks. As
this Court has emphasized, the party seeking to limit discovery or seeking other protections under Rule 26(c) must make a particularized factual showing of the harm that would be sustained
if the court did not grant a protective order. Lakeland Partners, L.L.C. v. United States, 88 Fed.
Cl. 124, 133 (2009) (citations and internal quotation marks omitted). See also AG-Innovations,
Inc. v. United States, 82 Fed. Cl. 69, 78 (2008) (same). For good cause to exist, the party seeking to limit the disclosure of discovery materials must show that specific prejudice or harm will
result if no protective order is granted. In re Violation of Rule 28(d), 635 F.3d at 1357-58 (citation and internal quotation marks omitted). [B]road allegations of harm, unsubstantiated by
specific examples, are insufficient to justify issuance of a protective order. Lakeland, 88 Fed.
Cl. at 133. Defendants proposal, which would authorize a producing party to indiscriminately
least in part, by its desire to produce the materials more quickly. In light of that suggestion, and
to avoid any further delays in discovery, Plaintiffs proposal includes a provision that contemplates that in order to facilitate expeditious document productions, a producing party may initially designate all materials it produces as protected, subject to the receiving partys right, under
Paragraph 19 of the order, to challenge that designation.
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and on a wholesale basis designate everything it produces as confidential, runs afoul of these
principles.
Moreover, the Governments own actions illustrate the overbreadth of its proposal and
undermine any claim that such a broad and all-encompassing definition of Protected Information
is necessary or justified. In the district court litigation challenging the Net Worth Sweep, among
other theories, under the Administrative Procedure Act, Treasury and the FHFA served, and publicly filed, document compilations that included both internal analyses of Fannies and Freddies
expected financial performance and internal documents discussing aspects of the operation of the
Fannie and Freddie conservatorships. There has been (and can be) no claim that the public release of these materials, which would clearly fall within Defendants definition of Protected Information if they had not already been publicly filed by the Government itself, has caused any
harm to the markets or to any public or private entity.
It is true that, as discussed in more detail below, both parties proposed orders include
mechanisms that would allow receiving parties to challenge the designation of produced materials as Protected Information. But that procedure does not come close to addressing the problems
posed by Defendants expansive definition of Protected Information, since it is that expansive
definition itself that would presumably govern the resolution of any such challenge.
For these reasons, Plaintiffs respectfully submit that the Court should adopt Plaintiffs
proposed definition of Protected Information, and reject Defendants proposed definition.
B.

Defendants Statement

A fundamental provision of the Protective Order is the definition of Protected Information set forth in Paragraph 2. We propose that the following definition be employed to allow
the Government the only party producing documents at this stage of the litigation to safe6

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guard sensitive documents:


2.
Protected Information Defined. Protected Information as
used in this Protective Order means proprietary, financial, operational,
confidential, trade secret, or market-sensitive information, as well as
information that is otherwise protected from public disclosure under
applicable law. Protected Information also means any information
disclosed in this litigation that has not been released to the public previously . . . .
Ex. 3.
This definition of Protected Information, consistent with our previous motion for protective order, anticipates that public disclosure of the documents plaintiffs seek may have a real
and destabilizing effect on the housing market and broader economy. See Def.s Mot. for Prot.
Order at 7. These include materials that, although sensitive and non-public, may not qualify as
privileged and will, therefore, be subject to production. Public disclosure of sensitive documents
that have not been previously released risks harming investor confidence in Fannie Mae and
Freddie Mac, leading to broad market instability. Id. at 7-9. Further, public disclosure may not
only affect financial markets, but could have a profound chilling effect on ongoing agency and
inter-agency discussions as to the future of housing finance reform in the United States, as described in the declarations supporting the Governments previous motion for protective order.
Id. at App. (Declarations of Melvin L. Watt, Dr. Michael A. Stegman, and Christopher H. Dickerson.)
Plaintiffs proposal fails to account for these concerns. Drawing from the context of a bid
protest, plaintiffs seek to restrict the definition of Protected Information to a narrow class of
competitively sensitive documents. Plaintiffs focus on proprietary and trade secret information
is inappropriate in the context of this case, where plaintiffs seek documents that by their nature
reflect sensitive, non-public policy discussions by the Conservator and within and among Gov7

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ernment agencies. Plaintiffs offer no legitimate reason and none exists to limit the definition
of Protected Information in this manner. The materials related to the policy decisions that are the
subject of this case require an entirely different framework for protection.
The definition of Protected Information proposed by the Government will facilitate production of documents responsive to plaintiffs requests without subjecting the Government and
the public to the harmful effects of disclosure of sensitive, non-public materials. Significantly,
plaintiffs counsel will be able to review these sensitive documents for developing their arguments; we only seek to have the documents shielded from release to the general public.
Finally, plaintiffs propose that the definition of Protected Information exclude documents that would be available to the public under the Freedom of Information Act (FOIA). This
standard is inappropriate. Inserting the FOIA statute and interpretive case law into the standards
for determining whether information is protected would introduce a substantial degree of complexity into what ought to be a simple-to-apply rule. Plaintiffs proposed language would require
the United States (the only party to whom FOIA applies) to undertake a separate FOIA examination of each document before deciding whether a document would be designated protected. This
is unwarranted and unworkable.

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II.

Burden of Challenging Protected Information Designations


The Parties Proposals
Plaintiffs

Defendant

19. Seeking Relief From the Protective Order. . . . If


the receiving party desires to disclose Protected Information to a person not otherwise authorized under
this Protective Order to receive such information, or if
it disagrees with the protected designation by the producing party, then the receiving party shall so notify,
in writing, counsel for the producing party. The parties shall first try to resolve such dispute within five
(5) business days after receipt of the receiving partys
notice. If the dispute is not resolved, and if the producing party wishes to maintain the Protected Information designation, the producing party, within ten
(10) business days after the receipt of the receiving
partys notice, and upon no fewer than three (3) business days written notice to the receiving party must,
by specifying the basis on which it claims that designation of the material at issue as Protected Information is appropriate or that such disclosure is improper, seek a ruling from the Court that the information is properly designated or that such disclosure
should otherwise not be allowed. In connection with
any such request for a ruling by the Court, the burden
of persuasion shall rest with the party seeking the ruling. Pending a determination by the Court, the document(s) shall be treated under this Protective Order as
Protected Information. For purposes of this paragraph, the term producing party includes non-parties
who produce material that has been designated as Protected Information.

9. Seeking Relief From the Protective Order. . . . If


the receiving party desires to disclose Protected Information to a person not otherwise authorized under
this Protective Order to receive such information, or if
it disagrees with the protected designation by the producing party, then the receiving party shall so notify,
in writing, counsel for the party asserting the confidentiality of the information. The parties shall first try
to resolve such dispute within five (5) business days
after receipt of the receiving partys notice. If the dispute is not resolved, the party challenging the protected designation, upon no fewer than three (3) business
days written notice to the producing party may, by
specifying the basis on which it claims that such designation is not appropriate or that such disclosure is
proper, seek a ruling from the Court that the information is improperly designated or that disclosure is
allowed. In connection with any such request for a
ruling by the Court, the burden of persuasion shall rest
with the party seeking the ruling. Pending a determination by the Court, the document(s) shall be treated
under this Protective Order as Protected Information.
For purposes of this paragraph, the term producing
party includes non-parties who produce material that
has been designated as Protected Information.

A.

Plaintiffs Statement

In addition to disagreeing over the definition of Protected Information, the parties also
disagree about which party should bear the burden of proof in the event of disputes over the designation of produced materials as protected. Plaintiffs believe that that burden should rest with
the party seeking to protect materials as confidential i.e., the producing party while Defend-

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ant believes the burden should rest with the receiving party.
The law is quite clear, as discussed above, that it is the party seeking protection who
bears the burden of demonstrating that there is good cause for restricting the disclosure of the
information at issue. In re Violation of Rule 28(d), 635 F.3d at 1357. See also id. at 1357-58
(For good cause to exist, the party seeking to limit the disclosure of discovery materials must
show that specific prejudice or harm will result if no protective order is granted.) (citation and
internal quotation marks omitted). As the Federal Circuit made clear in another decision, [o]ne
seeking a protective order under [Rule 26(c)] must establish that the information sought is confidential and that disclosure might be harmful. American Standard Inc. v. Pfizer Inc., 828 F.2d
734, 740 (Fed. Cir. 1987). This result is in fact compelled by the language of RCFC 26(c) itself,
which makes clear both that it is the party . . . from whom discovery is sought who may move
for a protective order and that an order limiting the disclosure of confidential information may
only be issued upon a showing of good cause.
In keeping with the plain language of the rule, this Court has held that [t]he burden of
demonstrating good cause rests with the party seeking to shield itself from discovery, that that
party must make a particularized factual showing of the harm it would suffer in the absence of
a protective order, and that broad allegations of harm, unsubstantiated by specific examples, are
insufficient to justify issuance of a protective order. Lakeland, 88 Fed. Cl. at 133 (citations and
internal quotation marks omitted). There is no basis under the rules or relevant case law for the
result to be any different when the party from whom discovery is sought seeks not to completely
prevent discovery but instead to impose onerous restrictions, backed by the sanctions of this
Court, on the use and treatment of materials produced in discovery.
For these reasons, the burden should rest with the party who has designated material as
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protected, and who is thereby seeking to invoke the numerous protections provided by an order
of this Court for those materials, and to impose upon the receiving party the substantial burdens
associated with compliance with that order, to defend that designation in the event of a dispute
between the parties.5
Defendants proposal is even more problematic in light of its expressed intention, as discussed above, to initially designate everything it produces as Protected Information. Under Defendants proposal, it would make wholesale and indiscriminate designations of material as confidential, and then place the burden on Plaintiffs to challenge whether such materials are deserving of such treatment. Plaintiffs respectfully submit that Defendants proposal is unreasonable
on its face.
For these reasons, Plaintiffs respectfully submit that the Court should adopt Plaintiffs
proposed version of Paragraph 19 of the Protective Order, and reject Defendants proposal.
B.

Defendants Statement

The second area of dispute relates to the process for resolving party challenges to the designation of documents as Protected Information in Paragraph 19 of the proposed Protective
Order. See Ex. 3. The parties agree that the order should include a process for either party to
challenge the designation of documents as Protected. Ordinarily, such challenges (similar to
privilege challenges) are resolved by negotiations between the parties and, if negotiations are unsuccessful, a motion by the challenging party requesting that the Court resolve the dispute. Paragraph 19 in our proposed Protective Order incorporates this straightforward process by directing
that the party receiving Protected documents, if it chooses, file a motion challenging that des5

Notably, the protective order entered in the Starr litigation, like Plaintiffs proposal
here, places the burden on the party asserting confidentiality to seek a ruling confirming such
treatment in the event of a dispute between the parties.
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ignation.
In contrast, plaintiffs seek to evade the ordinary burden of the receiving party to bring a
motion challenging the designation of documents, and instead ask the Court to place the burden
on the party producing the documents. This is inappropriate. Plaintiffs surely recognize that
document discovery at this stage of the case is wholly asymmetrical: the burden of producing
documents is entirely on the Government. Under plaintiffs proposed language, plaintiffs could
challenge the designation of an unlimited number of Government documents, giving rise to
countless motions brought by the Government seeking a ruling from the Court that each of the
challenged documents is, in fact, properly designated. This would create a tremendous burden
not only on the Government, but also on the Court. Placing the onus on the challenging party to
file a motion makes logical sense and, because the challenging party should be more circumspect
in which documents it challenges, will result in fewer contested motions.
For the reasons described above, we respectfully request that the Court enter a Protective
Order that incorporates the terms proposed by the United States.

Date: July 11, 2014

Respectfully submitted,
s/ Charles J. Cooper
Charles J. Cooper
Counsel of Record for Plaintiffs
COOPER & KIRK, PLLC
1523 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 220-9600
(202) 220-9601 (fax)
ccooper@cooperkirk.com

STUART F. DELERY
Assistant Attorney General
s/ Robert E. Kirschman, Jr.
ROBERT E. KIRSCHMAN, JR.
Director
s/ Kenneth M. Dintzer
KENNETH M. DINTZER
Acting Deputy Director
Commercial Litigation Branch
U.S. Department of Justice

Of counsel:
Vincent J. Colatriano
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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

David H. Thompson
Peter A. Patterson
Brian Barnes
COOPER & KIRK, PLLC
1523 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 220-9600
(202) 220-9601 (fax)

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