Securities And Exchange Commission v. Berry
Filing
231
ORDER GRANTING IN PART and DENYING IN PART 212 Plaintiff's Motion re: Expert Witness Fees for Depositions. Signed by Magistrate Judge Howard R. Lloyd on 6/1/2011. (hrllc1, COURT STAFF) (Filed on 6/1/2011)
1
** E-filed June 1, 2011 **
2
3
4
5
6
IN THE UNITED STATES DISTRICT COURT
9
FOR THE NORTHERN DISTRICT OF CALIFORNIA
10
For the Northern District of California
NOT FOR CITATION
8
United States District Court
7
SAN JOSE DIVISION
11
SECURITIES AND EXCHANGE
COMMISSION,
No. C07-04431 RMW (HRL)
12
ORDER GRANTING IN PART AND
DENYING IN PART PLAINTIFF’S
MOTION RE: EXPERT WITNESS
FEES FOR DEPOSITIONS
Plaintiff,
13
v.
14
LISA C. BERRY,
[Re: Docket No. 212]
15
16
17
18
Defendant.
____________________________________/
BACKGROUND
The Securities and Exchange Commission (“SEC”) filed this civil enforcement action in
19
2007 in relation to alleged improper stock option backdating at KLA-Tencor Corporation (“KLA”)
20
and Juniper Networks, Inc. (“Juniper”). Defendant Lisa Berry (“Berry”) was General Counsel of
21
KLA from September 1996 to June 1999 and of Juniper from June 1999 to January 2004. The SEC
22
alleges that she oversaw these companies’ stock option granting processes.
23
The case is now in the expert discovery phase. The SEC disclosed two experts: (1) certified
24
public accountant Kenneth Avery ($600 per hour); and (2) economist and professor Dino Falaschetti
25
($500 per hour). Berry disclosed six experts: (1) economist Kenneth Lehn ($950 per hour); (2)
26
attorney Michael Diamond ($750 per hour); (3) Michael Bean ($295 per hour); (4) certified public
27
accountant Charles Lundelius ($750 per hour); (5) certified public accountant Duross O’Bryan
28
($575 per hour); and (6) certified public accountant Roman Weil ($1,600 per hour).
The parties disagree over who will pay these experts’ fees when they are deposed by the
1
2
other side. The SEC says that each party should bear the costs of their own experts, and it moved for
3
an order so requiring. Docket No. 212 (“Motion”). Berry says that the deposing party should pay the
4
fees of the expert deponent. See Docket No. 215 (“Opp’n”). Pursuant to Civil Local Rule 7-1(b), the
5
Court finds the matter suitable for determination without oral argument.
LEGAL STANDARD
6
depose any person who has been identified as an expert whose opinions may be presented at trial.”
9
FED. R. CIV. P. 26(b)(4)(A). “Unless manifest injustice would result, the court must require that the
10
For the Northern District of California
Federal Rule of Civil Procedure 26(b)(4) was revised in 1993 to provide that “[a] party may
8
United States District Court
7
party seeking discovery . . . pay the expert a reasonable fee for time spent in responding to discovery
11
. . . .” FED. R. CIV. P. 26(b)(4)(E). For this reason, “[c]oncerns regarding the expense of such
12
depositions should be mitigated by the fact that the expert’s fees for the deposition will ordinarily be
13
borne by the party taking the deposition.” See Advisory Committee Notes to 1993 amendments to
14
FED. R. CIV. P. 26, subdivision (b).1
DISCUSSION
15
A. Whether Requiring the SEC to Pay Berry’s Experts’ Fees Would Constitute “Manifest
16
17
Injustice”
18
The manifest injustice exception is a “stringent standard.” See Reed v. Binder, 165 F.R.D.
19
424, 427 (D.N.J. 1996) (quoting Gorlikowski v. Tolbert, 52 F.3d 1439, 1444 (7th Cir. 1995)). “To
20
apply the exception, the court must find (1) that the plaintiff is either “indigent or [(2)] that requiring
21
him to pay a deposition fee incurred in litigation that he voluntarily initiated would create an undue
22
hardship.” Harris v. San Jose Mercury News, Inc., 235 F.R.D. 471, 473 (N.D. Cal. 2006) (Chen,
23
M.J.) (quoting Edin v. The Paul Revere Life Insurance Co., 188 F.R.D. 543, 547 (D.Ariz. 1999)).
24
“In making the determination of undue hardship, the court must ‘weigh the possible hardships
25
imposed on the respective parties . . . [and] balance the need for doing justice on the merits between
26
27
28
1
In interpreting the Federal Rules of Civil Procedure, the Advisory Committee Notes, though not
conclusive, should be given considerable weight. Mississippi Publishing Corp. v. Murphree, 326
U.S. 438, 444 (1946).
2
1
the parties . . . against the need for maintaining orderly and efficient procedural arrangements.’” Id.
2
(citing Reed, 165 F.R.D. at 427-28).
Here, the SEC does not contend that it is indigent. See Motion at 4-5; Docket No. 224
3
4
(“Reply”) at 2-3.Therefore, the issue is whether the SEC is faced with an “undue hardship” and
5
whether “the need for doing justice on the merits” outweighs “the need for maintaining orderly and
6
efficient procedural arrangements.” See Harris, 235 F.R.D. at 473; Edin, 188 F.R.D. at 547.
7
Simply put, the SEC’s main argument is that Berry’s experts’ hourly rates are too
8
expensive.2 It says that Berry’s six experts collectively charge $4,920 per hour (while its own two
9
experts only collectively charge $1,100 per hour), and it has already expended significant resources
For the Northern District of California
United States District Court
10
in reviewing the six experts’ reports. Id. Motion at 5, 7. Thus, “[a]dding the costs of paying the
11
additional (and largely unwarranted) fees for defendant’s experts will inevitably require that the
12
[SEC] not expend [its] resources elsewhere in enforcing the securities laws.” Id.
13
The Court is not persuaded. For one, the SEC cites no authority for its proposition that
14
“undue burden” exists when one party’s experts collectively charge more than another party’s
15
experts. If anything, this argument goes to whether a party’s experts’ fees are reasonable (as
16
discussed below). And, as for its argument that the SEC will have to choose how to allocate its
17
resources, this is no different than what nearly all litigants must do.
18
The Court finds that a “manifest injustice” does not exist. The parties shall pay the fees of
19
the other side’s experts per Rule 26(b)(4)(E). See United States v. City of Twin Falls, Idaho, 806
20
F.2d 862, 879 (9th Cir. 1986), overruled on other grounds by Crawford Fitting Co. v. J.T. Gibbons,
21
22
2
23
24
25
26
27
28
The SEC also suggests that “undue hardship” exists because it must jump through a number of
administrative hoops to pay Berry’s experts. Motion at 6. But aside from causing Berry’s experts to
be paid later than they otherwise might, the Court does not see how this constitutes undue hardship
on the SEC. It also contends that “undue hardship” exists because “it is the norm in [its] cases, as
well as [its] experience with [Berry’s] own counsel, that the parties agree to each pay their own
designated experts for time spent at depositions.” Reply at 4; see also Motion at 3. But just because
most parties agree with the SEC to bear their own costs, does not mean every party has to do so.
While the SEC cites a case where a court noted that such agreements were the “usual custom” in
that particular locale, see Rogers, 232 F.R.D. 581, 582 (E.D. Tex. 2005) (suggesting that Texas
attorneys representing Texas clients in the Eastern District of Texas usually pay their own experts
because that is the rule in Texas state court), that court was merely making an observation and did
not rely upon in it in making its ruling.
3
1
Inc., 482 U.S. 437 (1987) (“The language of the rule is mandatory (‘shall’), unless manifest injustice
2
would result.”).3
B. The Reasonableness of Berry’s Experts’ Fees
3
The reasonableness of Berry’s experts’ fees is another matter.4 Indeed, Rule 26(b)(4)(E)’s
4
5
requirement that the expert fees be “reasonable” is, along with the “manifest injustice” inquiry, one
6
way to prevent potential discovery abuse. See Rogers, 232 F.R.D. at 582 n.1; see also City of Twin
7
Falls, 806 F.2d at 879 (“The purpose of the rule is to avoid the unfairness of requiring one party to
8
provide expensive discovery for another party’s benefit without reimbursement.”) (citing 4 J.
9
MOORE, J. LUCAS, & G. GROTHEER, JR., MOORE’S FED. PRAC., ¶ 26.66[5] (2d ed. 1984)).
For the Northern District of California
United States District Court
10
“What constitutes a ‘reasonable fee’ for purposes of [Rule 26(b)(4)(E)] lies within the
11
Court’s sound discretion.” Edin, 188 F.R.D. at 545 (citing 8 CHARLES ALAN WRIGHT & ARTHUR R.
12
MILLER, FED. PRAC. AND PROC., CIVIL 2D § 2034 at 469-70 (2d ed. 1994)). And, “[a]s a general rule,
13
‘[t]he party seeking reimbursement of deposition fees bears the burden of proving reasonableness . .
14
. . If the parties provide little evidence to support their interpretation of a reasonable rate, the court
15
may use its discretion to determine a reasonable fee.’” Mannarino v. United States, 218 F.R.D. 372,
16
374 (E.D.N.Y. 2003) (quoting New York v. Solvent Chem. Co., 210 F.R.D. 462, 468 (W.D.N.Y.
17
2002) (citations omitted)).
Cases discussing the issue of what constitutes a “reasonable” expert fee have set forth seven
18
19
factors to consider: (1) the witness’s area of expertise; (2) the education and training required to
20
provide the expert insight which is sought; (3) the prevailing rates of other comparably respected
21
available experts; (4) the nature, quality, and complexity of the discovery responses provided; (5)
22
the fee actually charged to the party who retained the expert; (6) fees traditionally charged by the
23
3
24
25
26
27
28
The SEC also suggests that, after a Daubert review, “it is doubtful” that Judge Whyte will permit
all of Berry’s experts to testify at trial. Motion at 5-6. This argument is entirely premature. Perhaps
realizing this, the SEC also suggests that the Court can wait to rule on the instant motion until the
conclusion of the litigation. Id. at 9. The Court does not believe deferring its ruling on this basis is
appropriate, and Berry does not cite any authority where a court has done so.
4
Berry contends that the SEC is estopped from challenging the reasonableness of Berry’s experts’
fees because it only raised this issue for the first time in its motion. Opp’n at 8. The SEC, however,
replies that it “explicitly raised” this issue during previous meet-and-confer efforts. Reply at 8.
While Berry may have been caught off-guard, she still set forth her basic points for why her experts’
fees are reasonable, so the Court believes that this matter may be fairly ruled upon.
4
1
expert on related matters; and (7) any other factor likely to assist the court in balancing the interests
2
implicated by Rule 26. Edin, 188 F.R.D. at 546 (citations omitted).
As mentioned earlier, Berry disclosed six experts. Four of them (Diamond, Bean, Lundelius,
3
SEC: these experts all charge between $295 and $750 per hour. However, two of Berry’s experts
6
charge significantly more: Lehn charges $950 per hour and Weil charges $1,600 per hour. These
7
fees are unreasonable. While their levels of expertise, education, and training are indeed impressive,
8
their rates are considerably higher than those of other (presumably) comparable experts (such as
9
Berry’s other experts and the experts hired by the SEC) and are even higher than they have charged
10
For the Northern District of California
and O’Bryan) have hourly rates within the same general range as the two experts disclosed by the
5
United States District Court
4
the SEC for similar work in the recent past. For example, Lehn served as an expert on behalf of the
11
SEC less than ten years ago and was paid $550 and $650 per hour on two separate occasions, and
12
Weil testified on behalf of the SEC in 2007 and was paid approximately $500 per hour. Reply at 6;
13
Docket No. 225 ¶ 3; Docket No. 230 at 1. But these experts had the same levels of expertise,
14
education, and training then as they do now, and the matters for which they were retained were of
15
comparable complexity, so it is hard to understand how their rates could have more than doubled.
16
See Reply at 6-7; see also, e.g., SEC v. Koenig, No. 02 C 2180, 2009 WL 4043319, at *2-3 (N.D.
17
Ill. Nov. 23, 2009) (examining Weil’s methods and conclusions with respect to what a company’s
18
earnings per share would have been “but-for” the defendant’s securities law violations).
19
Accordingly, the Court will reduce Lehn’s fee from $950 to $750 per hour and Weil’s fee from
20
$1,600 to $800 per hour.5
CONCLUSION
21
Based on the foregoing, the Court GRANTS IN PART and DENIES IN PART the SEC’s
22
23
motion. It is denied insofar as the parties are required to pay the other side’s experts’ fees in relation
24
25
26
27
28
5
Cases cited by the parties suggest that a court can reasonably reduce an expert’s fee by half. See,
e.g., Edin, 188 F.R.D. at 547 (reducing deposition rates from $1,400 to $450); Jochims v. Isuzu
Motors, Ltd., 141 F.R.D. 493, 497 (S.D. Ida. 1992) (reducing expert fee from $500 to $250 per
hour, which the court stated was “the outer limit of a reasonable fee” for that particular expert);
Anthony v. Abbot Labs., 106 F.R.D. 461, 464-65 (D.R.I. 1985) (reducing expert’s hourly rate for
depositions from $420 to $250, where the expert was content to charge a friendly litigant $250 per
hour for a previous deposition appearance).
5
1
to their depositions. It is granted insofar as Lehn’s fee is reduced from $950 to $750 per hour and
2
Weil’s fee is reduced from $1,600 to $800 per hour.
3
4
5
6
IT IS SO ORDERED.
Dated: June 1, 2011
HOWARD R. LLOYD
UNITED STATES MAGISTRATE JUDGE
7
8
9
For the Northern District of California
United States District Court
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
6
1
C07-04431 RMW (HRL) Notice will be electronically mailed to:
2
Amy M. Ross
Benjamin Cunningham Geiger
Edward W. Swanson
Elena Ro
James A. Meyers
James Neil Kramer
Jeffrey Bruce Coopersmith
3
4
5
6
7
8
9
For the Northern District of California
United States District Court
10
11
12
Jeremy Emerson Pendrey
Joni L. Ostler
Judith L. Anderson
Katherine Collinge Lubin
Marc J. Fagel
Mark Philip Fickes
Matthew Austen Tolve
Matthew Eric Sloan
Michael David Torpey
Nancy E. Harris
Randall Scott Luskey
Rebecca Felice Lubens
13
14
15
16
Robert John Nolan
Robert Lootfi Tashjian
Steven Andrew Hong
Susan F. LaMarca
Thomas R. Green
aross@orrick.com
bgeiger@orrick.com
eswanson@swansonmcnamara.com
roe@sec.gov
jmeyers@orrick.com
jkramer@orrick.com
jeff.coopersmith@dlapiper.com,
bradley.meissner@dlapiper.com,
evelyn.dacuag@dlapiper.com
pendreyj@sec.gov
jostler@wsgr.com, pbaird@wsgr.com
andersonju@sec.gov, huangw@sec.gov, johnstonj@sec.gov
klubin@orrick.com, swortman@orrick.com
fagelm@sec.gov
fickesm@sec.gov
mtolve@orrick.com
Matthew.Sloan@skadden.com, eaviad@skadden.com,
jlyons@skadden.com, mtroost@skadden.com
mtorpey@orrick.com
nharris@orrick.com, vsweet@orrick.com
rluskey@orrick.com, gpackard@orrick.com
jcopoulos@orrick.com, klubin@orrick.com,
nharris@orrick.com, rlubens@orrick.com, sjaffer@orrick.com
robert.nolan@pillsburylaw.com, docket@pillsburylaw.com
tashjianr@sec.gov, bukowskij@sec.gov, huangw@sec.gov,
johnstonj@sec.gov
shong@orrick.com
lamarcas@sec.gov, huangw@sec.gov, johnstonj@sec.gov
thomas.green@usdoj.gov, daniel.charlier-smith@usdoj.gov,
lily.c.ho-vuong@usdoj.gov
17
18
Counsel are responsible for distributing copies of this document to co-counsel who have not
registered for e-filing under the court’s CM/ECF program.
19
20
21
22
23
24
25
26
27
28
7
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?