Anwar et al v. Fairfield Greenwich Limited et al

Filing 1055

RESPONSE re: #1045 Order,,, Standard Chartered's Response to Plaintiffs' Objection to the Magistrate Judge's Order of February 15, 2013. Document filed by Standard Chartered Bank International (Americas) Limited, Standard Chartered International (USA) Ltd., Standard Chartered PLC, Standard Chartererd Bank. (Attachments: #1 Exhibit Exhibit 1, #2 Exhibit Exhibit 2, #3 Exhibit Exhibit 3, #4 Exhibit Exhibit 4, #5 Exhibit Exhibit 5, #6 Exhibit Exhibit 6)(Nelles, Sharon)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

PASHA S. ANWAR, et al.,
Plaintiffs,
v.
FAIRFIELD GREENWICH LIMITED, et al.,

Master File No. 09-CV-118 (VM) (FM)

Defendants.
This Document Relates To:
The Standard Chartered Cases
STANDARD CHARTERED’S RESPONSE TO PLAINTIFFS’ OBJECTION
TO THE MAGISTRATE JUDGE’S ORDER OF FEBRUARY 15, 2013
Defendants Standard Chartered Bank International (Americas) Limited, Standard
Chartered International (USA) Limited, Standard Chartered Bank, and Standard Chartered PLC
(together, “Standard Chartered”) respectfully submit this response to plaintiffs’ objection to
Magistrate Judge Frank Maas’s Order of February 15, 2013 (the “Order”; ECF No. 1045).
PRELIMINARY STATEMENT
After securing permission to serve rebuttal expert reports, plaintiffs now object
that the Order “effectively requires” them to do so. (Pls.’ Objection at 3.) The objection is not
well-founded, but rather reflects plaintiffs’ unhappiness with a ruling for which they at one time
lobbied, but now no longer want. There is no conflict between the Order and any applicable law
or rule. To the contrary, the Order is entirely consistent with the powers accorded to the Court
under Rules 26 and 37 to control the course of expert discovery. Under any standard of review –

and particularly under the deferential standard applicable to a challenge to a non-dispositive
ruling by the Magistrate Judge – plaintiffs’ objection should be overruled and the Order affirmed.
BACKGROUND
Plaintiffs in this multidistrict litigation assert Florida common law claims,
including breach of fiduciary duty, based on the allegation that Standard Chartered did not
conduct sufficient due diligence on Fairfield Sentry Ltd. (“Fairfield Sentry”) or Bernard L.
Madoff Investment Securities LLC (“BLMIS”). Fact discovery closed on May 4, 2012, and
initial expert reports were due on August 2, 2012. (Pls.’ Objection at 6.)
A.

Plaintiffs’ Expert Reports and Their First Request
for Permission To Submit Rebuttal Expert Reports
Under the terms of the scheduling order entered on February 4, 2011, initial

expert reports were required to encompass “each issue to which a party bears the burden of proof
at trial.”1 On August 2, plaintiffs submitted two reports from designated “due diligence” experts,
setting out their opinions on what due diligence Standard Chartered should have conducted on
Fairfield Sentry.2 Among other matters, plaintiffs’ experts opined that Standard Chartered’s due
diligence team was not entitled to rely on due diligence conducted by third parties, such as
Fairfield Greenwich Group (Fairfield Sentry’s creator and promoter, “Fairfield Greenwich”) or
PricewaterhouseCoopers (the auditor of Fairfield Sentry’s financial statements, “PwC”).
Standard Chartered did not serve initial expert reports on August 2 because it does
not bear the burden of proof on any issue for which it will offer expert testimony. On August 20,
1

Second Amended Scheduling Order Regarding Standard Chartered Cases ¶ 12, ECF
No. 602.
2

The parties previously provided complete copies of their expert reports to the Magistrate
Judge. Standard Chartered would be happy to furnish copies of them to the Court if desired.
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(before rebuttal expert reports were due) plaintiffs sought a conference with the Magistrate Judge,
arguing that Standard Chartered had violated the scheduling order because Standard Chartered
bore the burden of proof on whether it was entitled to “rel[y] on third parties” in conducting due
diligence.3 Plaintiffs sought an order permitting them to either (i) move to strike objectionable
portions of Standard Chartered’s forthcoming expert reports, or (ii) “submit . . . reply expert
reports” in response to the expert reports of Standard Chartered. (Id. at 4.) Plaintiffs described
their proposal to submit “reply expert reports” as “a common-sense order” that was “fair to both
sides and will avoid unnecessary, complicated controversy down the line.” (Id. at 3, 4.)
On September 12, 2012, Magistrate Judge Maas ruled that he would address
plaintiffs’ request after Standard Chartered had served its rebuttal expert reports. (Id. at 1
(handwritten notation).) The Magistrate Judge thus “deferred ruling” on plaintiffs’ request for
permission to submit “reply” expert reports. (Pls.’ Objection at 7, ¶ 1.)
B.

Standard Chartered’s Expert Reports and Plaintiffs’
Second Request To Submit Rebuttal Expert Reports
On December 12, 2012, Standard Chartered served rebuttal reports from two

experts who opined on due diligence standards in the hedge fund and private wealth management
industries and Standard Chartered’s adherence to those standards. In response to the proffered
opinions of plaintiffs’ due diligence experts, Standard Chartered’s experts also discussed the
widespread industry practice of relying on the work of third parties like Fairfield Greenwich and
PwC as part of due diligence.

3

Exhibit 1, at 3, ECF No. 938 (Aug. 24, 2012 Letter from Plaintiffs’ Counsel).
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On December 18, plaintiffs contacted Standard Chartered and requested that it
agree to an extension of time for plaintiffs’ experts to submit their “rebuttal reports.”4 Standard
Chartered reminded plaintiffs that they were not authorized by the Court’s scheduling order to
submit rebuttal reports.5 On December 19, plaintiffs agreed that Standard Chartered’s
articulation of the scheduling order was “probably technically correct” and requested that
Standard Chartered “agree to a rebuttal report” by plaintiffs’ experts.6
C.

The Magistrate Judge’s January 10 Order
Two days later, on December 21, plaintiffs requested that the Magistrate Judge

strike “certain portions of the expert reports” served by Standard Chartered.7 Again, the crux of
plaintiffs’ argument was that Standard Chartered bore the burden of proof on the issue of
reliance on third parties in conducting due diligence and should have come forward with expert
testimony on that subject when “initial expert reports were due.” (Id. at 2.) Plaintiffs then asked
Magistrate Judge Maas to “decide what remedy to enter.” (Id. at 6.)
On January 10, 2013, Magistrate Judge Maas ruled that plaintiffs were “unable to
identify any case suggesting that” Standard Chartered bore the burden of proof on “the issue of

4

Exhibit 2, at 2 (Dec. 18, 2012 Email Message from Mr. Brodsky).

5

Id. (Dec. 19, 2012 Email Message from Mr. Smith).

6

Id. at 1 (Dec. 19, 2012 Email Message from Mr. Brodsky). In subsequent
correspondence with the Magistrate Judge (dated January 24, 2013), plaintiffs represented that
their request to serve rebuttal expert reports was based on a “mistaken[]” belief that plaintiffs
were entitled to submit such reports under the scheduling order. This representation is contrary
to both the written record between the parties and plaintiffs’ August 24, 2012 request for relief
from the Magistrate Judge. Although Standard Chartered requested that plaintiffs correct the
record, they declined.
7

Exhibit 3, at 1 (Dec. 21, 2012 Letter from Mr. Brodsky).
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reliance on third-parties.”8 Magistrate Judge Maas further ruled that plaintiffs “opened the door
for Standard Chartered’s rebuttal” on the question of third-party reliance by proffering opinion
testimony on the subject in their initial expert reports. (Id.)
Finally, although the Magistrate Judge rejected plaintiffs’ assertion that Standard
Chartered had violated the scheduling order, he allowed that plaintiffs would be “permitted to
serve one or more reply expert reports” on the subject of “Standard Chartered’s reliance on thirdparties.” (Id.) Plaintiffs did not file any objection to the Magistrate Judge’s January 10 order
under Rule 72(a).
D.

Plaintiffs’ Change of Heart and the Magistrate Judge’s February 15 Order
Despite having previously sought Standard Chartered’s agreement – and the

Magistrate Judge’s permission – to serve rebuttal expert reports, once plaintiffs received
permission, they decided they did not want it. On January 16, 2013, plaintiffs informed Standard
Chartered that they would not submit rebuttal reports and said that their experts instead “can be
deposed” concerning any additional opinions they might offer that were not contained in their
original reports.9 In response to plaintiffs’ suggestion that their experts had additional
undisclosed topics on which they intended to opine, Standard Chartered reminded plaintiffs that
they should comply with Rule 26.10
Plaintiffs proceeded to seek clarification from Magistrate Judge Maas on the
scope of Rule 26 and initially agreed to put expert depositions “on hold” pending his ruling.11
8

Exhibit 4, at 2, ECF No. 1020 (Jan. 10, 2013 Order).

9

Exhibit 5, at 1 (Jan. 16, 2013 Email Message from Mr. Brodsky).

10

Id. (Jan. 22, 2013 Email Message from Ms. McGimsey).

11

Id. (Jan. 25, 2013 Email Message from Mr. Brodsky).
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On February 13, 2013, however, plaintiffs announced that they had “changed their mind[s]” and
wanted to proceed with expert depositions even before the Magistrate Judge had a chance to
rule.12 This led to the Order of February 15. Magistrate Judge Maas ruled that if plaintiffs’
experts have additional opinions that they wish to offer beyond those included in their initial
reports, they “would be well advised to include” those opinions in a further rebuttal report or
otherwise assume the risk that the Court may “preclude them from proffering” such testimony.
(Order at 1.) Plaintiffs’ objection to the Order followed.
ARGUMENT
Plaintiffs acknowledge that this Court’s review of the Order at issue here is
governed by the standard of review applicable to “non-dispositive” orders by a magistrate judge.
(Pls.’ Objection at 4.) Plaintiffs also concede that in this Court the non-dispositive orders of a
magistrate judge “should be afforded substantial deference and be overturned only if found to be
an abuse of discretion.” R.F.M.A.S., Inc. v. So, 748 F. Supp. 2d 244, 248 (S.D.N.Y. 2010)
(Marrero, J.) (quoting U2 Home Entm’t, Inc. v. Hong Wei Int’l Trading Inc., No. 04 Civ. 6189
(JFK), 2007 WL 2327068, at *1 (S.D.N.Y. Aug. 13, 2007)) (cited at Pls.’ Objection at 10 n.5).13
There was no abuse of discretion here. The Order properly places the burden on
plaintiffs to assess whether their experts’ initial reports – without supplementation – satisfy their
12

Exhibit 6, at 2 (Feb. 13, 2013 Letter from Mr. Brodsky).

13

Citing a case from the Northern District of Iowa, plaintiffs attempt to turn the standard of
review on its head by arguing that a magistrate judge’s decision “cannot stand” unless it is
supported by “a substantial reason.” (Pls.’ Objection at 10 (citing Benedict v. Zimmer, Inc., 232
F.R.D. 305 (N.D. Iowa 2005)).) That is a misreading of Benedict. Although the court there
considered whether the conduct of the plaintiff was “substantially justified,” id. at 316, the court
nevertheless “deci[ded] to review the magistrate order for clear error,” id. at 314. And even if
the court had used a different standard of review, the decision in Benedict is not controlling in
this Court.
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disclosure obligations under Rule 26. If not, plaintiffs should supplement them. The Order does
nothing more than remind plaintiffs that if their disclosures are inadequate, the Court possesses
the authority to bar plaintiffs from using their expert witnesses “to supply evidence on a motion,
at a hearing, or at a trial.” FED. R. CIV. P. 37(c)(1); see also In re Kreta Shipping, S.A., 181
F.R.D. 273, 275 (S.D.N.Y. 1998) (“Expert testimony exceeding the bounds of the expert’s report
is excludable pursuant to Rule 37(c)(1).”); Great Am. Ins. Co. of N.Y. v. Summit Exterior Works,
No. 3:10 CV 1669 (JGM), 2012 WL 459885, at *7 (D. Conn. Feb. 13, 2012) (precluding
testimony “not previously disclosed in expert reports”).
Plaintiffs fail to identify any law or rule that conflicts with the Order. They assert
that the Order is inconsistent with Rule 26(a)(2)(D) (Pls.’ Objection at 10); but just the opposite
is true. The Court holds broad discretion to manage pretrial discovery, and Rule 26(a)(2)(D)
expressly authorizes the Court to direct the parties to submit expert reports “at the times and in
the sequence that the court orders.” Moreover, nothing in the rules requires that expert discovery
be limited to “two rounds of expert reports” (Pls.’ Objection at 2), followed by depositions. See,
e.g., Teva Pharm. USA, Inc. v. Sandoz, Inc., No. 08 Civ. 7611 (BSJ), 2011 WL 4063297, at *1
(S.D.N.Y. Aug. 15, 2011) (describing three-round expert disclosure process consisting of
“opening expert reports,” “rebuttal expert reports,” and “reply expert reports”).
In entering the Order, the Magistrate Judge noted that if Standard Chartered had
served expert reports on August 2 – i.e., “on the schedule the plaintiffs deem appropriate” – then
plaintiffs “would have had to submit opposition reports in order to have their experts testify to
any additional opinions not set forth in their experts’ original reports.” (Order at 1.) Plaintiffs
“have no quibble” with this logic. (Pls.’ Objection at 11.) They assert, however, that since
Standard Chartered did not serve expert reports on August 2, there is no basis for the Magistrate
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Judge’s decision. (Pls.’ Objection at 11-12.) Plaintiffs are incorrect. Based on their own
misinterpretation of Florida law and the scheduling order, plaintiffs assumed that Standard
Chartered would serve expert reports on August 2, giving plaintiffs an opportunity to submit a
second set of expert reports in rebuttal. When plaintiffs learned that Standard Chartered had not
submitted expert reports on August 2 and would instead just rebut plaintiffs’ reports, they
quickly let it be known that their experts had more they wanted to say: They asked the
Magistrate Judge to enter “a common-sense order” authorizing rebuttal reports;14 and they asked
Standard Chartered (twice) for permission to submit rebuttal reports. Plaintiffs’ course of
conduct gives the Court ample reason to conclude – as a factual matter – that plaintiffs’ experts
likely did not disclose all of their anticipated testimony on August 2. Rather than penalizing
plaintiffs for their mistaken assumption about the timing of Standard Chartered’s expert reports,
however, the Order permits plaintiffs to supplement their opening expert reports with additional
opinions to the extent that is necessary for them to comply fully with Rule 26.
Plaintiffs ask the Court to “consider what would have transpired” had plaintiffs
never accused Standard Chartered of violating the scheduling order. (Pls.’ Objection at 12.)
They assert that plaintiffs “would not be required to submit” rebuttal expert reports “because the
issue would not have come up.” (Pls.’ Objection at 12.) Plaintiffs’ hypothetical argument
misses the point. The relevant issue is not whether plaintiffs’ experts submit one expert report or
two, but rather whether they provide a complete written disclosure of their opinions in advance
of any deposition. “[S]ubsequent deposition testimony cannot properly cure a deficiency in an
expert’s written report.” Ferriso v. Conway Org., No. 93 Civ. 7962 (KMW), 1995 WL 580197,

14

Exhibit 1, at 3.
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at *2 (S.D.N.Y. Oct. 3, 1995). Accordingly, had plaintiffs never sought relief from the
Magistrate Judge in the first place, their experts would not be permitted to offer new opinions at
their depositions. To do so, plaintiffs’ experts must set forth now, in writing, “a complete
statement of all opinions” they intend to offer “and the basis and reasons for them.” FED. R. CIV.
P. 26(a)(2)(B)(i); see also FED. R. CIV. P. 26(b)(4)(A) (“[T]he deposition may be conducted only
after the [expert] report is provided.”). The Order permits plaintiffs to do this.
Lastly, plaintiffs complain that they will suffer “prejudice” if they submit rebuttal
expert reports because of the cost and time involved and the fact that Standard Chartered will
have an “advance look” at their experts’ opinions. (Pls.’ Objection at 13.) If it truly will cost
plaintiffs “tens of thousands of dollars” to prepare rebuttal reports (id.), that is proof enough that
their initial expert reports were inadequate. Moreover, plaintiffs are ill-positioned to assert
prejudice, given that they previously told the Magistrate Judge that giving them time to serve
rebuttal reports would be “fair to both sides.”15 And the fact that Standard Chartered will see in
advance what plaintiffs’ experts have to say does not confer a “litigation advantage” (Pls.’
Objection at 13); rather, it ensures that expert discovery proceeds in the open and forthright
manner contemplated by Rules 26 and 37. See Deluca v. Bank of Tokyo-Mitsubishi UFJ, Ltd.,
No. 06 Civ. 5474 (JGK), 2008 WL 857492, at *12 (S.D.N.Y. Mar. 31, 2008) (noting that
purpose of expert disclosures “is to prevent the practice of ‘sandbagging’ an opposing party with
new evidence”). Encouraging plaintiffs to provide appropriate expert disclosures thus does not
amount to prejudice.

15

Exhibit 1, at 4.
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CONCLUSION
Plaintiffs have demonstrated no basis for overturning the Order. To the contrary,
the Order gives plaintiffs what they previously requested and ensures that plaintiffs’ experts do
not evade the disclosure requirements of Rule 26. Plaintiffs’ objection to the Order thus should
be overruled and the Order affirmed.
Dated: February 27, 2013
New York, New York

Respectfully submitted,
/s/ Sharon L. Nelles
Sharon L. Nelles
Bradley P. Smith
Patrick B. Berarducci
SULLIVAN & CROMWELL LLP
125 Broad Street
New York, New York 10004
Telephone: [phone]
Facsimile: [phone]
[e-mail]
Diane L. McGimsey
(Admitted Pro Hac Vice)
SULLIVAN & CROMWELL LLP
1888 Century Park East
Los Angeles, California 90067
Attorneys for Defendants Standard
Chartered Bank International (Americas)
Limited, Standard Chartered International
(USA) Limited, Standard Chartered Bank,
and Standard Chartered PLC

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