Lawyers for a monoline insurance firm must produce to opposing counsel documents that include draft affidavits and communications with witnesses whose testimony form the backbone of the insurer’s amended complaint against the defendant bank, a judge has ruled.
Plaintiff MBIA alleges that Credit Suisse Securities fraudulently induced the issuance of insurance policy tied to defective residential mortgage loans by misrepresenting its business practices and the health of these securitized loans in MBIA v. Credit Suisse, 603751/2009.
In the amended complaint, MBIA relies on the testimony of approximately 10 confidential witnesses, former employees and contractors at Credit Suisse’s due diligence and fulfillment center vendors, who were allegedly pressured to inappropriately clear loan conditions, skip over valid due diligence and “rubber stamp” dubious stated incomes.
Citing deposition testimony, Credit Suisse attorneys at Orrick, Herrington & Sutcliffe allege that these witness affidavits were “scripted” by plaintiff’s counsel and uniform in construction. They also question “all-expenses paid trips to Manhattan” to bring these witnesses, none of whom reside here, to New York to meet with counsel.
Orrick, on behalf of defendants Credit Suisse, DLJ Mortgage Capital and Select Portfolio Servicing, filed a motion to compel disclosure of documents such as draft affidavits from plaintiff firm Patterson Belknap Webb & Tyler, which opposed the motion, arguing these were privileged trial preparation materials and attorney work product.
In her Oct. 3 decision, Manhattan Supreme Court Justice Shirley Kornreich granted the motion to compel disclosure, citing a “substantial need” demonstrated by the defendant bank as “there is no other contemporaneous, physical evidence of what happened that could allow defendants to cross-examine and impeach the witnesses.”
She noted the “substantial sums of money” paid to these plaintiff witnesses, including $12,000 paid to one witness for 10 hours’ worth of meetings and deposition preparation. Citing a recent Court of Appeals decision, Caldwell v. Cablevision Sys. Corp., 20 NY3d (2013) regarding disproportionate payments to witnesses, Kornreich said the documents here were not shielded under trial preparation privilege under CPLR 3101(d)(2).
“The question before the court is not whether the use of confidential witness testimony in a complaint automatically entitles a defendant to obtain all documents and communications between the witnesses and plaintiff’s counsel,” the judge held. “Rather, the issue is whether, once defendants have laid a foundation giving rise to a reasonable suspicion of a witness dissembling, fairness militates in favor of disclosure.”
The judge pointed out that multiple drafts of a whistleblowing affidavit “will show what the witnesses really know to have occurred and to what extent there was lawyer-incentivized embellishment.”
“At stake in this case is both a substantial amount of money and defendants’ reputation in the financial industry,” she held. “Indeed, the stakeholders in this case are not limited to the parties themselves, but the general public, who has a compelling interest in learning about the conduct that caused the recent global financial crisis.”
Attorneys from both Patterson Belknap and Orrick declined to comment on the ruling.