Homeward Residential, Inc. v. Sand Canyon Corporation
Filing
335
MEMORANDUM OPINION AND ORDER: For the reasons stated above, Homeward's motion to disqualify Olasov was DENIED. Additionally, within one week of the date of this Memorandum Opinion and Order, the parties shall file unsealed and unredacted vers ions of all documents previously filed under seal or in redacted form (except for redactions of all but the last four digits of mortgage loan numbers contained in ECF No. 311-5 in accordance with Rule 5.2(a)(4)). SO ORDERED. (Signed by Judge Jesse M. Furman on 10/31/2019) (ks)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------------- X
:
HOMEWARD RESIDENTIAL, INC., solely in its
:
capacity as Master Servicer for the Option One Mortgage :
Loan Trust 2006-2, for the benefit of the Trustee and the :
holders of Option One Mortgage Loan Trust 2006-2
:
Certificates,
:
:
Plaintiff,
:
:
-v:
:
SAND CANYON CORPORATION f/k/a OPTION ONE :
MORTGAGE CORPORATION,
:
:
Defendant.
:
:
---------------------------------------------------------------------- X
12-CV-5067 (JMF)
MEMORANDUM OPINION
AND ORDER
JESSE M. FURMAN, United States District Judge:
In this action, Homeward Residential, Inc. (“Homeward”), solely in its capacity as Master
Servicer for certain trusts (the “Trusts”) and for the benefit of the trustees and beneficiaries of the
Trusts, brings claims for breach of warranty and breach of contract against Sand Canyon
Corporation (“Sand Canyon”), formerly known as Option One Mortgage Corporation (“Option
One”), in connection with the sale of certain mortgage loans. On July 26, 2019, Homeward
moved to disqualify one of Sand Canyon’s experts. See ECF No. 309. By “bottom-line” order
entered October 18, 2019, the Court denied the motion for reasons to be explained in an opinion
to follow in due course. See ECF No. 334. This is that opinion.
BACKGROUND
This case concerns mortgage loans sold to the Trusts in 2006 by Sand Canyon, then
known as Option One, and certain of its subsidiaries. See ECF No. 24 (“FAC”), ¶ 1. Homeward
alleges that, in connection with that sale, Sand Canyon made misrepresentations, breached
warranties, and violated contractual obligations, resulting in losses to the Trusts. See id. ¶¶ 6790. Sand Canyon disputes these allegations and raises a number of affirmative defenses,
including, as relevant here, a claim that the Trusts’ losses are attributable, in whole or in part, to
the failure of Homeward and Ocwen Loan Servicing (“Ocwen Servicing”), which is affiliated
with Homeward and replaced Homeward as loan-servicer in 2013, to properly service the loans.
See ECF No. 59 (“Answer”), ¶ 14 (Affirmative and Other Defenses).
Homeward and Ocwen Servicing have faced similar allegations in the past. In 2014,
shareholders of Ocwen Financial Corporation (“Ocwen Financial”), the parent company of both
Homeward and Ocwen Servicing, initiated shareholder derivative litigation alleging that various
directors and officers breached their fiduciary duties by, among other things, improperly
servicing loans. See ECF No. 311-6, ¶ 3; ECF No. 311-7, ¶ 8; ECF No. 311-8, ¶ 1. In response
to this litigation, Ocwen Financial formed a Special Litigation Committee (“SLC”), which, in
turn, retained the law firm of Carlton Fields Jorden Burt, P.A. (“Carlton Fields”), to investigate
the allegations and to determine whether the company should refuse the shareholders’ demand
for litigation. See ECF No. 311-10. Carlton Fields attorneys based in Florida conducted a
significant investigation, much of which was protected by attorney-client privilege, and
unearthed certain problems relating to loan servicing. See ECF No. 310 (“Pl.’s Mem.”), at 5, 10;
ECF No. 311-10, at 2; ECF No. 311-11, at 15. Ultimately, however, Carlton Fields
recommended to the SLC that it not prosecute the shareholders’ claims. The SLC agreed that
litigation would not be in the company’s best interests and refused the shareholders’ demand.
ECF No. 311-11, at 7-8.
In 2016, Sand Canyon, in order to prove its affirmative defense that the Trusts incurred
losses as a result of Homeward’s and Ocwen Servicing’s deficient loan-servicing practices, hired
2
Brian Olasov, a non-attorney, loan-servicing expert employed by Carlton Fields. See ECF No.
311-1 (“Fields Dep.”), at 6; ECF No. 311-3; ECF No. 311-5, at 51-65. Carlton Fields conducted
an internal conflict check, and cleared Olasov’s engagement with Sand Canyon. See Fields Dep.
33-38. Sand Canyon’s counsel paid fees, not to Olasov directly, but instead to Carlton Fields.
See ECF No. 311-4. Although Olasov “occasionally” aids Carlton Fields attorneys conducting
internal investigations, Fields Dep. 7, he carried out his work for Sand Canyon independently,
and he did not report to an attorney, see id. at 9-10. Olasov works out of the firm’s New York
office, id. at 23, from which he generally has access to documents saved on the firm’s shared
network, see id. at 15-16. When Homeward notified Sand Canyon of the potential conflict,
however, Carlton Fields withdrew Olasov’s access to files associated with the internal Ocwen
Financial investigation. See id. at 16. Olasov stated under penalty of perjury that he never
accessed files related to the Ocwen Financial investigation, ECF No. 317, at ¶ 2, testimony that is
corroborated by a “forensic examination” of Carlton Fields’s computer system, Fields Dep. 16.
Notably, Homeward does not contend otherwise. See ECF No. 321 (“Pl.’s Reply”), at 1
(“Homeward is not arguing that Mr. Olasov received confidential information from any Ocwen
entity.”).
DISCUSSION
The parties vigorously dispute what standards should be applied to Homeward’s motion.
Noting that Olasov is not a lawyer, Sand Canyon contends that the Court should apply the
standard test for whether an expert witness should be disqualified. ECF No. 315 (“Def.’s
Opp’n”), at 6-7. That test calls for disqualification only where the movant shows that “(1) it was
objectively reasonable for [the movant] to believe that [it] had a confidential relationship with
[the expert], and (2) [the movant] actually disclosed confidential information” to the expert.
3
Craig v. UMG Recordings, Inc., 380 F. Supp. 3d 324, 338 (S.D.N.Y. 2019) (citing Rodriguez v.
Pataki, 293 F. Supp. 2d 305, 311 (S.D.N.Y. 2003)); accord Capitol Records, Inc. v. MP3tunes,
LLC, No. 07-CV-9931 (WHP), 2010 WL 11590131, at *1 (S.D.N.Y. Apr. 15, 2010) (quoting
Rodriguez, 293 F. Supp. 2d at 311); see also, e.g., Gordon v. Kaleida Health, No. 08-CV378S(F), 2013 WL 2250506, at *5 (W.D.N.Y. May 21, 2013) (“Disqualification of a party’s
expert is designed to protect the integrity of the judicial process by ensuring that experts do not
use, even unwittingly, confidential information.” (internal quotation marks omitted)). Under that
test, “instances of expert disqualification are rare,” Capitol Records, 2010 WL 11590131, at *1
(quoting Grioli v. Delta Int’l Machinery Corp., 395 F. Supp. 2d 11, 13 (E.D.N.Y. 2005)), and for
good reason: “If experts [were] too easily disqualified, unscrupulous attorneys [might] attempt to
create relationships with numerous potential experts at a nominal fee hoping to preempt the
ability of their adversaries to obtain expert assistance,” Stencel v. Fairchild Corp., 174 F. Supp.
2d 1080, 1083 (C.D. Cal. 2001).
By contrast, noting that Olasov works for a law firm, Homeward contends that the Court
should apply the standards applicable to disqualification of lawyers and law firms. See Pl.’s
Mem. 17-21; Pl.’s Reply 1-3. As a general matter, disqualification of counsel “has been ordered
only in essentially two kinds of cases: (1) where an attorney’s conflict of interests . . .
undermines the court’s confidence in the vigor of the attorney’s representation of his client, . . .
or more commonly (2) where the attorney is at least potentially in a position to use privileged
information concerning the other side through prior representation.” Bobal v. Rensselaer
Polytechnic Inst., 916 F.2d 759, 764-65 (2d Cir. 1990) (quoting Bd. of Ed. v. Nyquist, 590 F.2d
1241, 1246 (2d Cir. 1979)). Courts presume that an attorney — but not an expert — received
confidential information in the course of his or her representation. See Silver Chrysler Plymouth,
4
Inc. v. Chrysler Motors Corp., 518 F.2d 751, 754 (2d Cir. 1975); see also, e.g., Gordon, 2013
WL 2250506, at *10 (“Unlike attorney-client communications, discussions between parties or
counsel and experts do not carry the presumption that confidential information was exchanged.”
(internal quotation marks and alterations omitted) (quoting Hewlett-Packard Co. v. EMC Corp.,
330 F. Supp. 2d 1087, 1094 (N.D. Cal. 2004))). Significantly, however, the presumption “is a
rebuttable one,” and the Second Circuit has stressed that “the standard of proof for rebuttal”
should not be made “unattainably high.” Silver Chrysler Plymouth, 518 F.2d at 754 (quoting
Laskey Bros. of W. Va., Inc. v. Warner Bros. Pictures, 224 F.2d 824, 827 (2d Cir. 1955)).
The Court need not resolve this dispute (or decide if some hybrid standard should be
applied in light of the unusual circumstances of this case) because, either way, disqualification of
Olasov is unwarranted. If the standard for disqualification of an expert were applicable, that
would be obvious because Homeward itself does not argue that Olasov received confidential
information in connection with Carlton Fields’s work relating to Ocwen Servicing. See Pl.’s
Reply 1. And if the standard for disqualification of an attorney were applicable, Sand Canyon
has provided ample evidence to rebut the presumption that Olasov was privy to confidential
information. See ECF No. 317, at ¶ 2; see also Fields Dep. 16. Without more, the fact that
confidential files were stored on a shared computer system accessible to Olasov, see Fields Dep.
15-16, is not enough. That is, the mere possibility that information could have been obtained is
not grounds for disqualification when evidence establishes that such a possibility never came to
pass. See Silver Chrysler Plymouth, 518 F.2d at 757 (affirming the district court’s denial of a
motion to disqualify a junior attorney because his involvement in the law firm’s representation of
the movant was limited, he had “rebutted any inference . . . that he possessed confidences that
[could] be used against” his former firm’s client, and there was “no realistic chance that
5
confidences were disclosed”). And Carlton Fields has now blocked Olasov’s access to files
created in the course of the firm’s representation of the SLC, see Fields Dep. 15-16, minimizing
any risk that Olasov will learn confidential information in the future.
Nor can it be said that Olasov’s involvement here “undermines the court’s confidence in
the vigor of” Carlton Fields’s “representation.” Bobal, 916 F.2d at 764-65. Homeward, of
course, does not question the vigor of Carlton Fields’s representation of Sand Canyon in this case
(if Carlton Fields can even be said to represent Sand Canyon). And, putting aside whether it is
even relevant to the analysis of disqualification here, Homeward does “not suggest[] that Carlton
Fields succumbed to the temptation to dilute its efforts on behalf of the [SLC] because of Mr.
Olasov’s work,” either. Pl.’s Mem. 14. In the final analysis, Homeward’s motion, as even it
appears to concede, see id., is premised not upon allegations of prejudice Homeward and its
affiliates actually suffered, or even on allegations of prejudice that they could suffer in the future,
but instead on harm that they might have suffered, but ultimately did not. See, e.g., id. at 11
(“Suppose, then . . . .” (emphasis added)); id. at 13 (“There was a ‘realistic risk’ that Carlton
Fields’ adversity to Homeward and Ocwen would chill the vigor with which Carlton Fields
represented the Special Litigation Committee.” (emphasis added)); id. at 15 (“[T]he rules
themselves are the safeguard against a spillover of client confidences, and a determination of
whether a conflict exists does not await inquiry into the efficiency of the law firm’s measures for
avoiding any such spill.”); id. at 16 (“[I]f the members of the Special Litigation Committee had
known . . . .” (emphasis added)). In such circumstances, it is disqualification — not the lack of
disqualification — that would harm the integrity of the judicial system.
One housekeeping issue remains. Several documents filed in relation to the present
motion were filed under seal or in redacted form. See ECF Nos. 309-312, 315-317, 321. When
6
pressed by the Court, however, the parties took the position that nothing needs to be filed under
seal except for mortgage loan numbers contained in ECF No. 311-5, which must be redacted in
accordance with Rule 5.2(a)(4) of the Federal Rules of Civil Procedure. See ECF Nos. 324,
325. 1 Somewhat ironically, however, Carlton Fields requests that the Court maintain under seal
or in redacted form “documents related to” its representation of the SLC and Ocwen Financial
individual directors. ECF No. 324 at 2. Carlton Fields argues that the SLC and the individual
directors are non-parties and that the information “has become part of the record in this matter
because of a collateral matter, and their expectation of confidentiality should be respected.” Id.
But judicial documents may be maintained under seal only when the presumption of public
access — which is strong “even [when] a Court [does] not” rely on a document “brought to the
Court’s attention in connection with a contested matter,” Accent Delight Int’l Ltd. v. Sotheby’s,
394 F. Supp. 3d 399, 417 (S.D.N.Y. 2019) (citing Lugosch v. Pyramid Co. of Onondaga, 435
F.3d 110, 121 (2d Cir. 2006)) — is overcome by “competing considerations,” such as “the
danger of impairing law enforcement or judicial efficiency and the privacy interests of those
resisting disclosure.” Mut. Marine Office, Inc. v. Transfercom Ltd., No. 08-CV-10367 (PGG),
2009 WL 1025965, at *4 (S.D.N.Y. Apr. 15, 2009) (internal quotation marks omitted). Carlton
Fields fails to carry its burden of showing that is the case here, as it does not suggest that any
1
The parties also “maintain that the underlying materials themselves continue to be
confidential or highly confidential, and so believe[] they should continue to be treated as
designated under the Protective Order.” ECF No. 311-5. The Court does not understand that to
be a request that any document actually filed — including briefs, declarations, and
accompanying exhibits — be maintained under seal or redacted (except pursuant to Rule
5.2(a)(4)). To the extent it is such a request, it is denied. The Protective Order in this case, as
the parties acknowledge, does not entitle them to file and maintain any materials under seal.
ECF No. 66, ¶ 5. And mere agreement between the parties to keep a document confidential is
not sufficient to keep a “judicial document” sealed or redacted. See, e.g., United States v. Wells
Fargo Bank N.A., No. 12-CV-7527 (JMF), 2015 WL 3999074, at *4 (S.D.N.Y. June 30, 2015)
(citing cases).
7
information or documents are privileged, and it “provides no reason other than protection of
confidentiality for keeping the exhibits under seal.” Accent Delight, 394 F. Supp. 3d at 417. In
fact, it does not even identify the particular documents or portions of documents “related to” its
work. Carlton Fields’s request is thus denied.
CONCLUSION
For the reasons stated above, Homeward’s motion to disqualify Olasov was DENIED.
Additionally, within one week of the date of this Memorandum Opinion and Order, the parties
shall file unsealed and unredacted versions of all documents previously filed under seal or in
redacted form (except for redactions of all but the last four digits of mortgage loan numbers
contained in ECF No. 311-5 in accordance with Rule 5.2(a)(4)).
SO ORDERED.
Dated: October 31, 2019
New York, New York
__________________________________
JESSE M. FURMAN
United States District Judge
8
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?