$FNMA court transcript

THE UNITED STATES OF AMERICA, ) Defendant. ) Courtroom 4 Howard T. Markey National Courts Building 717 Madison Place, N.W. Washington, D.C. Wednesday, February 25, 2015 11:00 a.m. Status Conference BEFORE: THE HONORABLE MARGARET M. SWEENEY Sara J. Vance, CERT, Digital Transcriber UNITED STATES COURT OF FEDERAL CLAIMS FAIRHOLME FUNDS, INC., ET AL.,) ?Fairholme Funds, Inc., et al. v. USA

ALL: Good morning, Your Honor. THE COURT: I’m ready to begin whenever counsel is. MR. SCHWIND: Very well, Your Honor. Thank you. May I begin, Your Honor? THE COURT: Yes. MR. SCHWIND: The first subject for the Court this morning is a general status of document discovery in this case. I just thought it would be helpful if you -- THE COURT: I think Mr. Cooper was simply just going to identify himself for the record. Would you like to identify yourself for the record and then have your colleagues identify themselves? 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 for -- MR. SCHWIND: Oh, sure, Your Honor. Gregg Schwind THE COURT: I just think so the record is clear. MR. SCHWIND: Yes. THE COURT: In case someone orders a transcript. I 1 2 3 4 5 6 7 seated. 8 Incorporated vs. the United States, Case Number 13-465. THE COURT: Good morning, everyone. Please be don’t think he was trying to cut you off. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. DINTZER: Kenneth Dintzer for the United States, Your Honor. 1 2 3 4 please? 5 MR. SCHWIND: I’m not sure, but, yes, I am Gregg Schwind for the United States. THE COURT: Thank you. And your colleagues, MS. HOSFORD: And Elizabeth Hosford for the United States, Your Honor. THE COURT: Thank you. And for the Plaintiffs? MR. COOPER: Thank you, Your Honor. Charles Cooper for the well known to the Court, Mr. Colatriano. Plaintiffs’ side of the case. With me this morning, MR. COLATRIANO: Good morning, Your Honor. MR. COOPER: Of course Mr. Thompson. And is our turn to speak, Your Honor, Mr. Thompson will the Court. when it address THE COURT: Very good. MR. COOPER: With the Court’s permission. THE COURT: Thank you. MR. SCHWIND: Thank you, Your Honor, and good Again, I’d like to start with the general status of morning. document discovery in this case. As we stated at the previous status conference back on -- at the end of January, at that time, we had produced to Plaintiffs in this case and

1 not in other cases, but in this case, approximately 175,000 2 pages of documents. Since that status conference, we have 3 made two further document productions on February 12th and 4 February 18th, and we have now produced over 300,000 pages of 5 documents from FHFA and Treasury. 6 And our document review, of course, continues. We 7 have a Russian process that we’re in the midst of, of course, 8 and we expect to complete our document production by April of 9 this year. The parties have among themselves agreed to go to 10 the Court jointly and ask for an extension of the discovery 11 period previously authorized by the Court. The Court 12 previously extended discovery until March 27th, and so the 13 parties again have agreed to come to the Court and ask for an 14 extension of three months to that period of time. And, so, 15 we expect to file that joint motion either today or tomorrow 16 with the Court. And we are hopeful that the Court will grant 17 the extension. 18 THE COURT: I will. 19 MR. SCHWIND: We appreciate that, Your Honor. One 20 other update that may be less of a problem than we thought 21 based on a conversation I had with counsel this morning is 22 that in January Plaintiffs served the Government a second -- 23 served on the Government a set second of production requests, 24 not seeking documents that are necessarily relevant to the 25 claims or the Government’s motion to dismiss, but seeking

1 what we call and what they -- and they call as well -- 2 electronic hit reports, that is, reports from our document 3 vendor showing how many the universe of -- the universe of 4 documents are for particular search terms. 5 Courts -- other courts have called that type of 6 discovery “discovery about discovery.” 7 8 9 requests, 10 amount of 11 to agree, 12 on our conversation this morning, we -- that may or may not 13 end up in a formal motion, at least not in the short term. 14 THE COURT: Well, I hope you can resolve it. Some 15 courts permit it; some courts do not. I don’t have a 16 position on it at this time, so we’ll just have to see. It 17 would be great if you all can work that out, but I’ll just 18 stay tuned. 19 MR. SCHWIND: All right. Thank you, Your Honor. 20 And that’s, again, where we are at least on subjects one and 21 four as far as the current status of discovery, and then 22 potential extension of time for that. So, I’ll just turn the 23 floor over to the Plaintiffs if they have anything to add. 24 THE COURT: Very good. Thank you. 25 MR. THOMPSON: Good morning, Your Honor.

THE COURT: Yes, exactly. MR. SCHWIND: We have objected to those document and under the Court’s order, we have a certain time to confer with Plaintiffs, and if we’re unable to then file a motion for protective order. Based ?7 1 THE COURT: Good morning. 2 MR. THOMPSON: David Thompson. Your Honor, we 3 would like to bring to the Court’s attention a controversy 4 that has emerged between ourselves and the Government. And 5 with the Court’s permission, I’d like to just sketch a little 6 bit of background. Tomorrow will be the one-year anniversary 7 of this Court’s order authorizing discovery into specific 8 topics. And in April of last year, we submitted document 9 requests. 10 And under the rules of this Court, the Government 11 had one of two choices, but only two choices, when it 12 received those document requests and identified responsive 13 material: either, number one, the Government had to produce 14 that -- those materials to us; or they had to assert 15 privilege over those materials. And that’s what the rules of 16 this Court, Rule 26 specifically, says, “When a party 17 withholds information otherwise discoverable by claiming that 18 the information is privileged or subject to protection as 19 trial-preparation material, the party must expressly make the 20 claim.” 21 And that’s what the Government did, or so we 22 thought. Six months ago, on August 22nd, we got the 23 Government’s first privilege log from FHFA. And then in 24 January of this year, we got the Treasury’s first privilege 25 log. And we looked at those logs. We had concerns about

1 them. We sent DOJ a letter saying we’d like to meet and 2 confer about the propriety of some of these designations. 3 And eight days later, on February 13th, for the first time, 4 six months after we got the privilege log, we were told these 5 were just provisional designations -- provisional 6 designations. 7 Your Honor, this is an invented way of proceeding. 8 This is not contemplated by the rules. It is not permitted 9 by the rules. We have looked far and wide to see if there is 10 any court that has ever authorized a party to say -- to come 11 up with a third option rather than producing or asserting 12 privilege, to say, well, maybe it’s privileged, so I’m not 13 going to give it to you. And we have found no authority, 14 Your Honor. We have told the Department of Justice we know 15 of no authority, and they have pointed us to no authority. 16 And this places us, Your Honor, in a purgatory 17 where we don’t have documents; we don’t have a final 18 designation of privilege by the Government; and we have an 19 absolute right to either get those documents or to have a 20 final designation of them as privileged. In the world we’re 21 living in, Your Honor, we may get documents that they 22 themselves subsequently acknowledge are not privileged, and 23 get them months and months and months after they’ve 24 identified them as responsive. We’re talking about six 25 months we’ve had this privilege log, and now they tell us,

1 oh, it’s temporary, it’s provisional. 2 Your Honor, we know of no authority for this. We 3 wanted to bring it to the Court’s attention, and it’s part of 4 our effort to keep the Court apprised of how discovery is 5 going. So, that was why we put that on the agenda for today, 6 Your Honor. 7 THE COURT: And there’s -- is there a -- I assume 8 there’s a clawback agreement in place? 9 MR. THOMPSON: There is a clawback. And, so, if 10 the Government were to produce something to us and then 11 inadvertently -- and decide, oh, you know, that was 12 inadvertently produced, of course, we would give that back 13 pursuant to the clawback. But what they’re not permitted to 14 do is take months and months and months without making up 15 their mind. When they find a responsive document, they are 16 obligated under the rules of this Court, to give it to us or 17 to -- or conclude that it’s privileged and to turn it over. 18 THE COURT: Okay. So, you articulated a concern. 19 You have not requested relief this morning. So, you’re just 20 flagging it. 21 MR. THOMPSON: Yes, Your Honor. And we will be 22 filing a motion to compel on the underlying designations, 23 Your Honor, in short order. And, so, that will be coming to 24 the Court, potentially as early as next week. But we reject 25 this notion that these are provisional and that somehow it’s

1 premature for us to be filing a motion to compel, because it 2 is inappropriate to designate them and the rules do not 3 contemplate this third category, this purgatory for 4 documents. 5 6 7 8 9 10 speaks of 11 request. 12 three -- 13 THE COURT: I see. Thank you. MR. THOMPSON: Thank you. MR. SCHWIND: May I respond, Your Honor? THE COURT: Certainly. MR. SCHWIND: This third category that counsel was essentially created for or at Plaintiffs’ Some background, Your Honor. We have produced THE COURT: Could I just ask, and please give me 14 the background, but when you say it was -- when you get into 15 your explanation, please give me the details of how this was 16 created at the Plaintiffs’ insistence or at their request. 17 MR. SCHWIND: The short answer to that -- 18 THE COURT: Thank you. But then please give me the 19 -- lay the foundation as you were going to. Thank you. 20 MR. SCHWIND: I will, Your Honor. But I can say in 21 a sentence, the short answer is Plaintiffs requested rolling 22 privilege logs, and we agreed to that. That’s the -- that’s 23 the short answer. 24 The longer answer is this, and it starts with some 25 history. We have produced three privilege logs as part of

1 our ongoing document review. Somewhere over 600 documents 2 are on those three logs combined. These are documents that 3 we believe are likely protected, in whole or in part, by 4 various privileges. In this type of case, it’s not uncommon 5 to expect that the Government would assert the deliberative 6 process privilege, perhaps the presidential communications 7 privilege, in addition to the ordinary privileges like 8 attorney/client and work product. 9 On September -- I’m sorry, on February 5th, we 10 received, a somewhat surprising letter from Plaintiffs 11 challenging the privilege assertions as to almost every 12 document that we had put on those logs, for one basis or 13 another -- some, it was four bases -- and then demanding to 14 meet and confer and then ostensibly leading to a motion to 15 compel. 16 Our response, and we don’t think this is unusual, 17 is that these -- that the challenge at this point, when our 18 document is continuing, we’re not at all finished with our 19 document review and production, is that a challenge to 20 privilege is entirely premature. Ordinarily, I mean, in I 21 think almost every case I’ve worked on -- I’m not sure if 22 this happened otherwise -- a party does its document review, 23 it produces documents to the other side, and then at some 24 point thereafter produces a privilege log. 25 Again, Plaintiffs requested, hey, instead of doing

1 that, can you give us some rolling privilege logs. We -- you 2 know, we think it served a purpose of at least letting 3 Plaintiffs know the types of privileges we would be 4 asserting, perhaps to formulate some categorical type 5 objections that we can talk about at the proper time. And, 6 so, we did that. We continue -- our intent is to continue to 7 provide rolling logs to Plaintiffs to the extent we can. 8 But those rolling logs will be revisions in some 9 cases of what’s on previous logs. And, again, this isn’t -- 10 we don’t think it’s particularly unusual as document review 11 continues for us to reevaluate our privilege determinations. 12 I mean, we are not, for example, at the point in this 13 document review where we are ready to go and formally assert 14 deliberative process privilege or presidential communications 15 privilege and obtain the necessary declarations from the 16 right person at Treasury, the right person at FHFA, or the 17 right person at the White House. That’s not where we are at 18 this at all, because, again, we’re still in the middle of 19 document review and production. 20 Will the final privilege logs contain these types 21 of privileges? I’d expect they will. I expect they will. 22 And that’s, again, one of the purposes of our rolling logs, 23 but as to which documents and which part of the documents, 24 it’s not final. The fact is, Your Honor, at this point, we 25 have not produced redacted documents to Plaintiffs. For The Record, Inc. (301) 870-8025 - www.ftrinc.net - (800) 921-5555 ?13 Fairholme Funds, Inc., et al. v. USA 2/25/2015 1 Our expectation is that a number of the documents 2 on the logs are going to be redacted. In other words, 3 Plaintiffs will get a lot of the documents themselves. It 4 may be that when Plaintiffs see the redacted versions of 5 these documents they no longer have a challenge to them. 6 But, again, we haven’t reached that point in the document 7 production yet. 8 And, of course, when we go -- we’ll be happy to 9 meet and confer with them in talking about their challenges, 10 but at this time, Plaintiffs’ desire to challenge document by 11 document our assertions of privilege, it’s premature and it 12 would be very, very disruptive to our ongoing document review 13 process. We don’t think it’s necessary; we don’t think it’s 14 warranted. And we would hope that Plaintiffs would not file 15 a motion to compel and pull us into that process at this 16 stage. 17 THE COURT: Thank you. Certainly, I don’t have a 18 motion in front of me at this stage, but I think that the 19 Government makes very good points this morning. I think a 20 motion to compel at this stage would be -- and I realize the 21 case has been ongoing for some time now, but given the 22 breadth of this litigation, given the voluminous nature of 23 the production, I don’t think a motion to compel is wise at 24 this stage. I think the Government should be given more 25 time. And once the Government has had adequate time to For The Record, Inc. (301) 870-8025 - www.ftrinc.net - (800) 921-5555 ?14 Fairholme Funds, Inc., et al. v. USA 2/25/2015 1 review the documents, produce them to the Plaintiff, and the 2 parties have had the opportunity to have a realistic meet- 3 and-confer, and if Plaintiffs’ concerns are not satisfied, 4 then a motion to compel would be appropriate. 5 But I wouldn’t dare suggest to the Plaintiff how 6 they should conduct this litigation. They are people of 7 integrity; they are -- these are the finest law firms in the 8 country, so they will -- they will do what they will, and I 9 have great respect for them, and we’ll just see what happens. 10 But I’m just saying, just sort of flying blind here, and just 11 giving you just initial take, I think a motion to compel at 12 this stage would be ill-advised, and no hard feelings if you 13 file one. You do what you have to do for your client, but 14 what Government counsel has represented to me today makes 15 eminent good sense, and I think the Government is proceeding 16 -- I know from the Plaintiffs’ point of view, I’m sure it 17 seems glacial, but I think they are doing the very best they 18 can. 19 So, again, that’s just my take on it without seeing 20 everything laid out in motion and memoranda. So, I’ll just 21 wait and see if you file something, and then I’ll read it and 22 I will pay attention to what you have 23 we’ll have argument, perhaps not, and 24 ruling. 25 Is there anything else, Mr. to say, and perhaps then you’ll see my Thompson, for me this

1 morning? 2 3 that last point, Your Honor. So, we had asked the Government 4 to meet and confer with us and they declined to do so. We 5 would like to ask the Court to order them to meet and confer 6 with us by the end of March. 7 THE COURT: Well, you know what -- 8 MR. THOMPSON: So, to give them four weeks to make 9 their determination with respect to these documents that 10 they’ve identified six months ago, and then sit down with us 11 in good faith, as we have done repeatedly throughout this 12 process, and give us an opportunity to try to work through 13 this. So, that’s -- that’s what we would ask as a middle 14 ground, Your Honor. MR. THOMPSON: Well, if I may just follow up on 15 16 asked you 17 agreeable 18 19 meet with 20 we do expect there are going to be significantly more 21 documents that are ultimately withheld on the basis of 22 various privileges. Our hope is that at the close of this, 23 when we finally finish producing our final privilege logs, 24 that somehow the parties can then meet and confer and figure 25 out a way to logically put these documents in categories for THE COURT: Without being ordered to do so, if I to do it and I put it in an order that you’re to do it, would you meet with Plaintiffs’ counsel? MR. SCHWIND: Your Honor, of course we’ll always Plaintiffs’ counsel, but I just want to point out,

1 the Court’s consideration. 2 And I’ll say that Plaintiffs, to their credit, in 3 their February 5th letter, in their privilege challenge 4 letter, identified some possible categories. For example, 5 Plaintiffs -- and this is just as an example -- Plaintiffs 6 disagree with the ability of FHFA to assert what’s known as 7 the bank examination privilege. FHFA has asserted that -- 8 asserted that privilege as to, I don’t know, how many hundred 9 documents. That’s a category. It’s not document-dependent. 10 It just simply says as a matter of law do you think you have 11 the ability to do this. 12 That’s the type of thing that would take care of a 13 whole lot of documents. But right now, since FHFA, we 14 haven’t produced their final log and we do expect more 15 documents to be shielded by that privilege, it seems 16 premature to talk about that. 17 THE COURT: You know -- if you don’t mind, thank ** 18 you. Pardon me.** ** 19 You know, I used to sit at the table where you sat,** ** 20 and I knew that on the other side it was citizens of this** ** 21 country bringing a lawsuit against the sovereign. And I just** ** 22 always think it’s important when you know that it’s citizens** ** 23 of the United States that are trying to redress a grievance** ** 24 that -- that as much as we are advocates for the sovereign** ** 25 that we also have an obligation in the administration of**

1 justice to somehow increase the comfort level of a plaintiff ** 2 that we are being diligent, that we are being fair, we are** ** 3 being honest.** 4 So, I would ask you if by the end of March if you 5 would carve out part of your day to meet with Mr. Thompson 6 and/or Mr. Cooper or whomever, and just spend a couple of 7 hours with them just to have an initial -- you may not cover 8 the entire universe of documents. I know that couldn’t be 9 accomplished, but maybe if you could just take -- you and 10 some of your colleagues could take some time, would you be 11 willing to do that? 12 MR. SCHWIND: Yes, Your Honor, to the extent -- 13 again, it’s a category-type challenge. And maybe we can talk 14 to Plaintiffs’ counsel about this, but the minute it descends 15 into a document-by-document challenge, that’s where we’re 16 somewhat more resistant. 17 THE COURT: Okay, can we agree to that? 18 MR. THOMPSON: Yes, Your Honor. And I would point 19 out, I think the bank examination privilege that Mr. Schwind 20 points to is a perfect example of why we thought it was ripe 21 to bring a motion to compel now. We may not know whether 22 there are going to be five documents or a hundred documents 23 that the bank examination privilege is going to be asserted 24 to, but we know they’re going to assert it, we know we’re 25 going to contest it, and rather than having that resolved at

1 the end of discovery and maybe having to reopen depositions 2 if we prevail and we get additional documents. 3 We thought it would be sensible to tee that 4 categorical question up now, perhaps leaving aside specific 5 documents, where we could get the Court’s guidance. It’s a 6 live controversy. They’re going to assert it. And then we 7 could move forward and it would really narrow down the 8 document-by-document type of discussion. So, that’s -- that 9 was our contemplation and what we’d like to do. 10 THE COURT: Well, so, what we will do, then, what 11 you all will do by the end of March is you will take a macro, 12 not micro, a macro approach to the various categories of 13 documents 14 15 16 where privileges may be asserted. Is that fair? MR. SCHWIND: Yes, Your Honor. THE COURT: Okay. MR. THOMPSON: Thank you, Your Honor. 17 18 19 20 21 22 telephone 23 tomorrow to discuss dates and times -- 24 MR. SCHWIND: Yes. THE COURT: That satisfies? MR. THOMPSON: Yes, thank you. THE COURT: Do you have your calendars here today? MR. SCHWIND: I do not. THE COURT: All right. Are you available to have a conference with Mr. Thompson either today or 25 THE COURT: -- for the end of the month?

25 THE COURT: Absolutely. You know what, that’s MR. SCHWIND: -- the end of March. THE COURT: I’m just -- I just -- I thought if you

1 2 3 4 5 issue. 6 7 8 9 MR. THOMPSON: Yeah. MR. SCHWIND: I mean, there’s -- that’s not at THE COURT: Okay. Well, then, what I would ask is if you would confer today and then just contact my Chambers. You may call Ms. Ahmed and let her know what the date in that you will be meeting in March, and I will put that in an order so it will be reflected. MR. THOMPSON: Thank you, Your Honor. MR. SCHWIND: And we’ve had no problem scheduling phone calls. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 fine. 24 THE COURT: All right? Is that -- is that all right? Again, and I’m not -- really, this is just simply cooperation. I’m just noting the Government’s cooperation. You know, Mr. Schwind, I think you hung the moon. I think you’re a great guy. You’re a fine lawyer. You’re the perfect public servant, so -- but I just -- MR. SCHWIND: Well, I can say, Your Honor, is it not sufficient for the Government to state here on the record, we will meet and confer in good faith with Plaintiffs well before -- ?20

1 wanted a deadline, I would just put it in the order, but 2 that’s fine. If that’s sufficient for you, that’s fine with 3 me. 4 5 6 7 8 9 MR. THOMPSON: That’s fine, Your Honor. THE COURT: That’s good. That works. That’s good. All right. 10 11 Plaintiff? 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. THOMPSON: Nothing further, Your Honor. THE COURT: Is there anything else for the Government this morning? MR. SCHWIND: Yes, Your Honor, one final issue. And that has to do with our concerns regarding Plaintiffs continuing and expanding third-party discovery in this case. And we touched on this briefly at the last status conference, and I’d like to devote a few more minutes to it this morning. I’d like to start by reminding the Court of the obvious, that we are still at the motion-to-dismiss stage in this litigation. We are not in merits discovery where third- party discovery might be more common and is more common. We filed our motion to dismiss over a year ago. As the Court knows, we raised multiple bases that we believe as a matter

MR. SCHWIND: Thank you. THE COURT: Fine. MR. THOMPSON: Thank you, Your Honor. THE COURT: Is there anything else for the ?21

1 of law require the Court to dismiss Plaintiffs’ complaint, 2 even assuming the facts in Plaintiffs’ complaint as true. 3 Plaintiffs then responded with their motion for 4 discovery, also in December 2013, saying they needed some 5 discovery from the Government in order to meet -- I think 6 there were three particular issues that they picked out, that 7 were raised by the motion to dismiss. 8 THE COURT: Are you suggesting there’s something ** 9 unprincipled or improper about seeking discovery from a third** ** 10 party that would prove the jurisdiction of this Court or that** ** 11 would support it?** 12 MR. SCHWIND: In this case, it is improper, Your 13 Honor, given that Plaintiffs in their motion for discovery 14 stated only that they needed -- that the need -- and this is 15 articulated in a declaration from counsel for Plaintiffs, the 16 need they said -- 17 THE COURT: Well, but why would -- I mean, in this 18 Court, the only defendant is the United States Government, so 19 is silence with respect to other individuals a commentary 20 that -- or an affirmation that no other discovery would be 21 taken from any other individuals? Or is it -- I’m just -- 22 MR. SCHWIND: The short answer, Your Honor, is 23 absolutely yes. I mean, we are, again, at the motion-to- 24 dismiss stage where discovery is highly unusual. Now, we’re 25 not relitigating that motion for discovery. We are saying

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that the Court granted limited discovery, given Plaintiffs’ stated need for discovery to meet certain aspects of our motion to dismiss. THE COURT: But if a Plaintiff needs discovery to meet the jurisdictional allegations raised by the United States, let them have it. MR. SCHWIND: Well, they didn’t make that argument, Your Honor. They have not asked the Court for discovery from third parties. They asked the Court for discovery from Government agencies. That’s our point. What Plaintiffs are doing, essentially they’ve arrogated to themselves and then expanded this right to discovery in this case. And we do think under the circumstances it’s improper. We -- THE COURT: But wouldn’t that be for the third- parties to have their counsel come in and complain? MR. SCHWIND: Certainly -- THE COURT: Rather than the United States? MR. SCHWIND: No, Your Honor. Certainly, the third parties have their reasons to object, and -- THE COURT: Is that because it might show the United States controls those third parties? MR. SCHWIND: No, Your Honor. The United States does not control these third parties. We’re talking about one of the -- THE COURT: Who are the third parties?

1 MR. SCHWIND: -- we’re talking about one of the big 2 three bond credit rating agencies, Moody’s. 3 THE COURT: Okay. Okay. 4 MR. SCHWIND: The United States does not control 5 Moody’s. We’re talking about -- 6 7 are. 8 9 Deloitte -- Deloitte and PricewaterhouseCoopers, and that’s 10 the kind of -- that’s how far we’ve gone astray from 11 Plaintiffs’ request for discovery from the Government 12 agencies, to see, the Court will recall, the main question is 13 whether or not FHFA was controlled by Treasury, whether FHFA 14 acted at the behest of Treasury when it executed -- when it 15 entered into the third amendment. 16 THE COURT: Well, why aren’t those -- why aren’t 17 the lawyers for the third parties coming in? 18 MR. SCHWIND: Your Honor, we don’t know what the -- 19 again, those are independent companies. We’re not telling 20 them what to do. All we are saying -- 21 THE COURT: But -- but if they have -- but if a 22 third party has a complaint or -- what is the connection -- I 23 guess what I -- what I’m -- and I apologize, Mr. Schwind, 24 really. I’m not trying to give you a hard time. It’s just 25 I’m trying to wrap my head around the Government complaining

THE COURT: So, I don’t know who the third parties MR. SCHWIND: -- two major accounting forms, ?24 Fairholme Funds, Inc., et al. v. USA 2/25/2015 1 about a third party responding to discovery. If a third 2 party is served with a discovery request by the Plaintiff, 3 it’s up to that third party to come in and complain to me, 4 not the United States Government. 5 MR. SCHWIND: With respect, Your Honor, we believe 6 that is not a correct statement of the law. 7 THE COURT: Okay. 8 MR. SCHWIND: We think that where this discovery 9 does place some type of burden on a party, such as us. 10 And -- 11 THE COURT: What’s your -- what is your authority? 12 MR. SCHWIND: The authority, Your Honor, is that 13 the burden -- well, for standing, there are plenty of cases 14 out there, for example, that talk about if that third party 15 production impinges on the Government assertions of 16 privilege. Some of these documents we may, the United 17 States, need to reach out and assert privilege on, but 18 because Plaintiffs have done the end-around, it would deny us 19 that opportunity. It doesn’t recover all the third-party 20 discovery they request, but it definitely covers some of it. 21 But the fundamental point is that when this third- 22 party discovery creates a burden on us, and we’re talking -- 23 we heard the last discovery -- at the last status conference 24 that one of the accounting firms or both have produced almost 25 as much or more documents than we have in this litigation,

1 but now we have that burden of reviewing all these documents. 2 We know, for example, recently that Plaintiffs have 3 approached counsel for Fannie Mae and Freddie Mac seeking to 4 depose their current chief executive officers and their 5 former chief financial officers. That is obviously a burden 6 on us to prepare for these depositions. And, so, we see that 7 just growing and growing and growing, this third-party 8 discovery that does, again, create a burden on us. And we 9 think under the circumstances we certainly have standing to 10 object and say no, particularly where we are at the motion- 11 to-dismiss stage. 12 Plaintiffs asked for limited discovery just from 13 Government agencies, essentially that was part of the deal. 14 The Court allowed that, and now we feel like somewhat we’re 15 being subjected to a bait-and-switch, where now Plaintiffs 16 are saying, well, we’re going to now seek all this other 17 material. So, we do intend to bring this -- raise this in a 18 motion for the Court’s attention. We would appreciate Your 19 Honor today, again because this has happened and all this -- 20 these conversations are going on without Government counsel. 21 You know, the Plaintiffs are reaching out to these major 22 firms without us and perhaps negotiating discovery. We don’t 23 know what they’re negotiating. 24 What we would ask from the Court this morning is 25 that the Court simply direct Plaintiffs to stop third-party

1 2 3 4 5 6 7 8 9 discovery until the Court has a chance to rule on our motion. We think Plaintiffs should have to come -- THE COURT: I want to have -- I want a motion in front of me with authority. I want you to explain the burden, explain the obligation. I’m not going to enter -- hamstring the Plaintiff until I see things laid out. MR. SCHWIND: Well, we can definitely do that, Your Honor, but, again, when -- THE COURT: I mean, this -- time frame as to which those companies have to 10 11 12 13 respond. 14 15 16 17 if a privileged document is produced, there are remedies, 18 there are remedies for that, which you know. So, but -- 19 proceed. 20 MR. SCHWIND: Well, our -- Your Honor, again, our 21 fundamental point is that this Court -- Plaintiffs did not 22 request, and this Court certainly did not authorize 23 Plaintiffs to seek discovery from wherever they wanted. 24 Again, at this stage of this, we are not at the point at 25 which Plaintiffs appear to be transforming this case into MR. SCHWIND: -- these subpoenas -- these subpoenas the Plaintiffs are serving on major companies, you know, have a certain THE COURT: And if -- MR. SCHWIND: And what we are concerned -- THE COURT: -- and not only that, but if third --

1 merits discovery, trying to prove up allegations in their 2 complaint, as opposed to simply figure out whether or not 3 this Court has jurisdiction, whether FHFA acted at the behest 4 of Treasury. 5 It seems strange to us. And I don’t want to go to 6 any more extreme adjectives, but at least strange to us that 7 for this Court to figure out whether or not it has 8 jurisdiction over Plaintiffs’ complaint, the Plaintiffs get 9 to go out to Deloitte, Pricewaterhouse, Moody’s, and other 10 firms for documents. We think that’s entirely incongruous, 11 inappropriate, and rather strange. And that’s why, again, 12 given that there are time frames on this discovery and it 13 will take the Court -- 18 19 20 21 22 23 24 25 14 THE COURT: I don’t know if it is or not. I don’t 15 know what’s been requested. I don’t know what’s been 16 produced. 17 MR. SCHWIND: Well -- THE COURT: It may help them. MR. SCHWIND: -- we don’t know either, Your Honor. But, again -- THE COURT: Well, then, if you don’t know what it ** is, then you’re just making it up as you go along.** ** MR. SCHWIND: We’re definitely not, Your Honor.** ** And --** ** THE COURT: Well, of course you are.** You’re saying

1 you don’t know what they’ve asked for, you don’t know what’s 2 been produced. Oh, by the way, but it simply goes to merits, 3 and it can’t possibly help them with respect to their 4 jurisdictional defenses or their jurisdictional allegations. 5 6 asking in 7 going out 8 example, Plaintiffs said in their motion for discovery they 9 only needed discovery from the Government. It made sense, MR. SCHWIND: This is why, Your Honor, we are our motion that Plaintiffs demonstrate that before there and embarking on third-party discovery. For 10 whether or not, for example, whether FHFA acted at the behest 11 of Treasury. It has to do with the relationship between FHFA 12 and Treasury, not the relationship between Fannie Mae’s 13 auditor and Fannie Mae, for example. 14 So, we don’t think -- well, Plaintiffs have never 15 come forth and established why this is necessary. The Court 16 has never agreed with Plaintiffs that this type of discovery 17 is necessary. It does create a burden on us. And, again, 18 given the time frames, we think it would be wise for the 19 Court simply to say -- and we’re going to file our motion 20 probably within -- within two weeks. 21 THE COURT: Well, that’s fine. I just -- I just 22 don’t -- as I sit here today, I mean, I don’t have every 23 pleading that’s ever been filed in front of me memorized. I 24 don’t remember a declaration from counsel stating that in no 25 uncertain terms that the Plaintiffs would not seek -- I’m not

1 saying you’re making it up. I just -- I just didn’t remember 2 them saying affirmatively they would not seek discovery from 3 third parties. 4 MR. SCHWIND: Your Honor -- 5 THE COURT: And I’m not saying they didn’t say it. 6 I’m just saying I just don’t recall. And -- 7 MR. SCHWIND: Okay. In the motion for discovery 8 dated December 20th, 2013, there was a declaration -- the 9 motion itself, that has the declaration attached to it 10 justifying the need for the documents that they said they 11 needed. Every category of document they said they needed was 12 filed with some statement that the discovery should include 13 documents in the possession of Treasury, FHFA, and/or other 14 relevant government agencies. At no time did they say in 15 their motion or in their reply they would go outside of that. 16 THE COURT: Well, is there something -- ** 17 MR. SCHWIND: And I would say, Your Honor --** ** 18 THE COURT: -- in that declaration that says that** ** 19 they will not, that they would refrain from seeking discovery** ** 20 from a third party?** ** 21 MR. SCHWIND: No, Your Honor. And, again --** ** 22 THE COURT: Okay, well, that’s -- okay, fine.** ** 23 MR. SCHWIND: -- you can’t --** ** 24 THE COURT: Thank you. There’s -- thank you.** ** 25 MR. SCHWIND: Well, Your Honor, we understand what**

1 the Court’s saying, but again, we have been -- this is -- ** 2 THE COURT: Well, yeah, it’s a big distinction.** 3 You said -- you made an affirmative statement to me that the 4 Plaintiffs said they would not seek third-party discovery. 5 MR. SCHWIND: No, Your Honor. What I said was that 6 Plaintiffs never said they would seek third-party discovery, 7 and the Court never -- that is what I said, Your Honor, 8 Plaintiffs have never said, prior to serving the first few 9 subpoenas on Fannie Mae and Freddie Mac, that they were 10 seeking third-party discovery, not in their motion for 11 discovery, not in their reply. 12 Again, the Court never had that before it. And I’m 13 sorry if I’ve -- if I’ve suggested otherwise, but that is 14 what’s in their motion, Your Honor. This is -- this came as 15 a surprise to us. We’ve allowed it to continue. We allowed 16 it to continue for some -- again, document productions from 17 Fannie Mae and Freddie Mac, even from the auditors, but we 18 don’t see an end to it. This has never been authorized by 19 the Court. It is disruptive. It is burdensome. And we do 20 intend to bring it to the Court’s attention. 21 THE COURT: That’s fine. 22 MR. THOMPSON: The Court -- Your Honor, if I may 23 just very briefly -- 24 THE COURT: Certainly. 25 MR. THOMPSON: -- make a couple of points. This is For The Record, Inc. (301) 870-8025 - www.ftrinc.net - (800) 921-5555 ?31 Fairholme Funds, Inc., et al. v. USA 2/25/2015 1 really a search for a controversy. They are very able 2 lawyers from Wilmer Hale and King & Spaulding representing 3 these third parties. We have had productive and cooperative 4 negotiations with all of them. We have resolved all of the 5 issues. They are well aware of the limits on discovery that 6 were in this Court’s February order, and that’s why we’ve 7 been able to negotiate through successfully. 8 We raised in May of last year the need to go to 9 third parties, which was in part born of the fact that the 10 Government wasn’t going to give us the Fannie Mae and Freddie 11 Mac documents, unlike in the Winstar cases, where when 12 entities were in conservatorship, you know, the Government 13 gave us all those documents. And, so, we thought we would ** 14 get the Fannie Mae and Freddie Mac documents from the** ** 15 Government. When they said no, we said, okay, well, then,** ** 16 we’ll issue a subpoena.** 17 And we told the Government that in May; we told the 18 Court that in May. This is -- this is nothing new, Your 19 Honor, and so we are confident we will continue to be able to 20 work productively with these very fine lawyers representing 21 the third parties. We don’t think there’s going to 22 controversy, Your Honor. 23 THE COURT: Thank you. Is there anything 24 the Plaintiff this morning? 25 MR. THOMPSON: No, Your Honor. For The Record, Inc. (301) 870-8025 - www.ftrinc.net - (800) 921-5555 bea else for ?32 Fairholme Funds, Inc., et al. v. USA 2/25/2015 1 THE COURT: Thank you. 2 Is there anything else for the United States this 3 morning? 4 5 6 7 8 a.m.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. SCHWIND: No, Your Honor. Thank you. THE COURT: Thank you very much. We’re adjourned. MR. SCHWIND: Thank you, Your Honor. (Whereupon, the hearing was adjourned at 11:37 For The Record, Inc. (301) 870-8025 - www.ftrinc.net - (800) 921-5555 ?33 Fairholme Funds, Inc., et al. v. USA 2/25/2015 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CERTIFICATE OF TRANSCRIBER I, Sara J. Vance, court-approved transcriber, certify that the foregoing is a correct transcript from the official electronic sound recording of the proceedings in the above-titled matter. DATE: 2/26/2014 s/Sara J. Vance SARA J. VANCE, CERT For The Record, Inc. (301) 870-8025 - www.ftrinc.net - (800) 921-5555