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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ) FAIRHOLME FUNDS, INC., et al., ) )

Plaintiffs, ) )

v. ) No. 13-465C ) (Judge Sweeney) THE UNITED STATES, ) )

Defendant. ) )

JOINT STATUS REPORT REGARDING PROPOSED PROTECTIVE ORDER

Consistent with this Court’s 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 gov-

erning 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 Court’s 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 in-

cluded 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 re-

late to (1) the definition of “Protected Information”; and (2) whether, in the event of disputes be-

tween 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 Defendant’s proposed order is at-

tached as Exhibit 2. In addition, a draft order comparing the differences between the parties’ proposals is attached as Exhibit 3.

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

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each of these questions, and present, for the Court’s 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 Infor-mation” as used in this Protective Order means pro-prietary, trade secret, or market-sensitive information, as well as information that is otherwise protected from public disclosure under applicable law. Protected In-formation 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 Infor-mation 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 infor-mation that it produces as Protected Information, sub-ject to the right of the receiving party, in accordance with the procedures established under Paragraph 19 of this Protective Order, to thereafter challenge the des-ignation of the information as Protected Information.

2. Protected Information Defined. “Protected Infor-mation” as used in this Protective Order means pro-prietary, financial, operational, confidential, trade se-cret, or market-sensitive information, as well as in-formation that is otherwise protected from public dis-closure 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 Infor-mation must be made or supervised by an attorney. To facilitate the expeditious production by a party of in-formation requested in discovery by another party, the producing party may initially designate all infor-mation that it produces as Protected Information, sub-ject to the right of the receiving party, in accordance with the procedures established under Paragraph 19 of this Protective Order, to thereafter challenge the des-ignation of the information as Protected Information.

A. Plaintiffs’ Statement

Under Plaintiffs’ proposed order, the category of “Protected Information” subject to se-

vere restrictions on disclosure and use is comprised of information that is “proprietary, trade se-

cret, or market-sensitive” or that is “otherwise protected from disclosure under applicable law.”

Plaintiffs’ proposed definition is consistent with this Court’s 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 Plaintiff’s proposed definition is also fully protec-

tive 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 pro-

tective 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 Court’s rules and fully

protects producing parties against the types of legitimate prejudice that protective orders are de-

signed to prevent, while at the same time ensuring that producing parties are not allowed to in-

discriminately shield information produced in discovery regardless of whether such information

deserves such protection.

Defendant’s proposed definition of “Protected Information,” on the other hand, finds no

support in the Court’s 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 Defend-

ant’s proposal, the category of Protected Information would include not only proprietary, trade-

secret, 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 “finan-

cial” 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, Defendant’s definition goes on to provide that Protected Infor-

mation 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 infor-

mation 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 discov-

ery efforts – this provision removes any remaining doubt that Defendant wants all discovery ma-

terials to be accorded confidential treatment. Thus, under Defendant’s 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 re-

strictions.3

There can therefore be no question that under Defendant’s 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 cur-

rently preparing for production to Plaintiffs as Protected Information.4 But the law simply does

3 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 Free-dom 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)). Defendant’s expansive definition of Protected Information presents

exactly the type of scenario that the Federal Circuit and other courts have cautioned against.

Defendant’s 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 un-

der 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 seek-

ing 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 (cita-

tion 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. Defendant’s 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 contem-plates that in order to facilitate expeditious document productions, a producing party may initial-ly designate all materials it produces as protected, subject to the receiving party’s 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 Government’s 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 pub-

licly filed, document compilations that included both internal analyses of Fannie’s and Freddie’s

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 re-

lease of these materials, which would clearly fall within Defendant’s definition of Protected In-

formation 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 materi-

als as Protected Information. But that procedure does not come close to addressing the problems

posed by Defendant’s 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 Defendant’s proposed definition.

B. Defendant’s Statement

A fundamental provision of the Protective Order is the definition of “Protected Infor-

mation” 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 safe-


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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 pre-viously . . . .

Ex. 3. This definition of “Protected Information,” consistent with our previous motion for pro-

tective 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 de-

scribed in the declarations supporting the Government’s previous motion for protective order.

Id. at App. (Declarations of Melvin L. Watt, Dr. Michael A. Stegman, and Christopher H. Dick-

erson.)

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 Gov-


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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 pro-

duction 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 argu-

ments; we only seek to have the documents shielded from release to the general public.

Finally, plaintiffs propose that the definition of “Protected Information” exclude docu-

ments 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 com-

plexity 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 examina-

tion 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 In-formation to a person not otherwise authorized under this Protective Order to receive such information, or if it disagrees with the protected designation by the pro-ducing party, then the receiving party shall so notify, in writing, counsel for the producing party. The par-ties shall first try to resolve such dispute within five (5) business days after receipt of the receiving party’s notice. If the dispute is not resolved, and if the pro-ducing party wishes to maintain the Protected Infor-mation designation, the producing party, within ten (10) business days after the receipt of the receiving party’s notice, and upon no fewer than three (3) busi-ness days’ written notice to the receiving party must, by specifying the basis on which it claims that desig-nation of the material at issue as Protected Infor-mation is appropriate or that such disclosure is im-proper, seek a ruling from the Court that the infor-mation 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 rul-ing. Pending a determination by the Court, the docu-ment(s) shall be treated under this Protective Order as Protected Information. For purposes of this para-graph, the term “producing party” includes non-parties who produce material that has been designated as Pro-tected Information.

9. Seeking Relief From the Protective Order. . . . If the receiving party desires to disclose Protected In-formation to a person not otherwise authorized under this Protective Order to receive such information, or if it disagrees with the protected designation by the pro-ducing party, then the receiving party shall so notify, in writing, counsel for the party asserting the confi-dentiality of the information. The parties shall first try to resolve such dispute within five (5) business days after receipt of the receiving party’s notice. If the dis-pute is not resolved, the party challenging the protect-ed 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 des-ignation is not appropriate or that such disclosure is proper, seek a ruling from the Court that the infor-mation 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 determi-nation 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 des-

ignation 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 confi-

dential” 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

Defendant’s proposal is even more problematic in light of its expressed intention, as dis-

cussed above, to initially designate everything it produces as Protected Information. Under De-

fendant’s proposal, it would make wholesale and indiscriminate designations of material as con-

fidential, and then place the burden on Plaintiffs to challenge whether such materials are deserv-

ing of such treatment. Plaintiffs respectfully submit that Defendant’s 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 Defendant’s proposal.

B. Defendant’s Statement

The second area of dispute relates to the process for resolving party challenges to the des-

ignation 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 un-

successful, a motion by the challenging party requesting that the Court resolve the dispute. Par-

agraph 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 des-

5 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,

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

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) [email protected] 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 [email protected] 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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