Opinion
3:01 CV 1290(JBA)
May 5, 2003
RULING ON PETITIONERS' MOTION TO COMPEL DEPOSITIONS OF MICHAEL CRAGG AND CAMBRIDGE FINANCE PARTNERS
On July 9, 2001, Long-Term Capital Holdings, L.P., Long-Term Capital Portfolio, L.P. and Long-Term Capital Management, L.P. ["LTCM"], [collectively "Petitioners"], as the tax matters partners of Long-Term Capital Partners, L.P., filed a Petition for Readjustment pursuant to 26 U.S.C. § 6226(a)(2) (Dkt. #1). On August 19, 2002, this case was referred to this Magistrate Judge for discovery purposes (Dkt. #84) by United States District Judge Janet Bond Arterton. Familiarity with the legal and procedural history of this litigation is presumed.
On February 21, 2003, Petitioners filed their Motion to Compel Depositions of Cambridge Finance Partners ["Cambridge"] and Michael Cragg ["Cragg"], a founding partner of Cambridge. (Dkt. #114). Four days later, this Magistrate Judge held a telephonic discovery conference, in which Petitioners were permitted to file a supplemental brief in support. (Dkts. #115-16). Petitioners filed their supplemental brief on February 28, 2003 (Dkt. #118) and two weeks later, Respondent filed its brief in opposition (Dkt. #121) as to which Petitioners filed their reply brief on March 20, 2003. (Dkt. #122).
Attached are the following nine exhibits: copy of memorandum, dated February 4, 2003 (Exh. A); copy of Appraisal Report by DMC Consulting Group, dated January 2003 (Exh. B); copy of memorandum, dated January 20, 2003 (Exh. C); copy of e-mail correspondence, dated January 27, 2003, copies of memoranda, dated August 6, 2002, October 28, 2002, June 6, 2002, February 7, 2003, August 27, 2002, and copy of e-mail, dated October 9, 2002 (Exh. D); copy of e-mail, dated December 21, 2002 (Exh. E.); copy of correspondence between counsel, dated February 14, 2003 (Exh. F); copy of Petitioners' Notice of Deposition of Michael Cragg, dated February 19, 2003 (Exh. G); copy of Petitioners' Notice of Rule 30(b)(6) Deposition of Cambridge, dated February 19, 2003 (Exh. H); and copy of case law. (Exh. I).
Attached are the following seven exhibits: copies of correspondence, dated June 12, 2002. July 10, 2002, August 18, 2002, September 11, 2002, December 11, 2002, January 18, 2003. and January 13, 2003, each with the corresponding supporting documents attached (Exh. A); copy of Cambridge's Billings, from May 2002 to December 2002 (Exh. B); copies of billing statements from Dr. James Schallheim for the period May 23, 2002 through August 3, 2002 (Exh. C); copies of billing entries related to Dr. James Schallheim for the period between May 21, 2002 and July 23, 2002 (Exh. D); copies of billing entries related to Dr. James Schallheim for the period between August 8, 2002 and November 11, 2002 (Exh. E); and copies of case law (Exhs. F-G).
Two exhibits are attached: copy of Respondent's Status Report, filed on November 27, 2002 (Exh. A) and copy of Cambridge's CHIPS Binder, Jacob Thomas Model Presentation. DOJ-LTCM (Exh. B).
Attached are copies of the profiles of the following Cambridge founding partners: Dr. Cragg, Dr. George W. Fenn, and Dr. Robert B. Noah (Exh. A).
For the reasons stated below, Petitioners' Motion to Compel (Dkt. #114) is granted in part.
I. FACTUAL BACKGROUND
On February 14, 2003, after reviewing Respondent's voluminous expert reports, Petitioners sent a letter to Respondent's counsel indicating Petitioners' intention to take the depositions of Cambridge and Cragg, non-testifying experts, on March 3, 2003. (Dkt. #114, at ¶ 5 Exh. F; Dkt. #121, at 1 n. 1). On February 19, 2003, after counsel for the Petitioners spoke to Respondent's counsel, who indicated that he would object to these depositions, Cragg and Cambridge were served notices of depositions and subpoenas. (Dkt. #114, at ¶ 6, Exhs. G-H; Dkt. #121, at 1 n. 1). Two days later, Petitioners filed this motion now pending before the Court. (Dkt. #114).II. DISCUSSION
Rule 26(b)(4)(B) of the Federal Rules of Civil Procedure provides that a party may depose a non-testifying expert retained by the other party upon a showing of exceptional circumstances. Petitioners assert that exceptional circumstances exist in this case to depose Respondent's non-testifying experts under FED. R. Civ. P. 26(b)(4)(B) because Cambridge and Cragg were "heavily involved" in the preparation of the expert reports produced by Respondent between February 7, 2003 and February 14, 2003 and signed by Joseph Stiglitz, James Schallheim, Paul McDaniel, Jacob Thomas and Peter Daley [the "Testifying Experts"]. (Dkt. # 114, at ¶¶ 2, 4 8; Dkt. #118, at ¶¶ 7-8). Specifically, Petitioners allege that Cambridge prepared all of the quantitative analysis that was included in the expert reports, that Cambridge personnel drafted portions of the expert reports, and that Cambridge presented substantive analysis and conclusions to the Testifying Experts. (Dkt. #114, at ¶ 4). Additionally, the Cambridge invoices, according to Petitioners, demonstrate that Cambridge has spent an "overwhelming" number of hours working on this matter for Respondent. (Dkt. # 118, at ¶ 3 Exhs. A-B). Specifically, Dr. James Schallheim, one of Respondent's Testifying Experts, spent 105 hours from May 1, 2002 to November 1, 2002, while Cambridge invested 5,497.5 hours from May 1, 2002 to December 31, 2002. (Dkt. #118, at ¶¶ 3, 4 6.a-e Exhs. A-E). Moreover, in addition to the existence of exceptional circumstances in this case, Petitioners contend that the scope of the matters about which Petitioners seek to inquire is limited, so that the work product concerns that underlie Rule 26(b)(4)(B) are not implicated. (Dkt. #114, at ¶ 8, n. 1; Dkt. #122, at ¶ 3). Thus, according to Petitioners, because the work of non-testifying experts Cambridge and Cragg far exceeds the normal assistance that would be provided to a testifying expert, Petitioners seek to conduct limited depositions of Cambridge and Cragg. (Dkt. #114, at f 14.a-d; Dkt. #118, at ¶¶ 4-6.a-e).
FED. R. Civ. P. 26(b)(4)(B) provides:
A party may, through interrogatories or by deposition, discover facts known or opinions held by an expert who has been retained or specially employed by another party in anticipation of litigation or preparation for trial and who is not expected to be called as a witness at trial, . . . upon a showing of exceptional circumstances under which it is impracticable for the party seeking discovery to obtain facts or opinions on the same subject by other means.
(emphasis added).
Petitioners' notice of deposition served on Cambridge indicates that the scope of the deposition would be limited to the participation of Cambridge personnel "in the preparation, drafting, editing and/or revising the expert reports" and "any meetings, telephone calls or other contacts" between Cambridge and the Testifying Experts. (Dkt. # 114, ¶ 7 Exh H, Attachment A). Petitioners seek to inquire about the level of collaboration between the testifying and non-testifying experts (Cambridge and Cragg), the amount of influence that Cambridge and Cragg had on each of the testifying experts' analysis and conclusions, and the level and nature of the input Cambridge and Cragg had in the final reports tendered by Respondent's Testifying Experts. (Dkt. #122, at ¶ 3).
Respondent counters that Rule 26(b)(4)(B) is "aimed at preventing one party from building its case on the work of its opponent"; thus, Petitioners may not substitute depositions of Respondent's non-testifying experts for hiring their own experts to conduct an analysis of the record. (Dkt. #121, at 10). Respondent asserts that it retained Cambridge to assist Respondent's Testifying Experts in analyzing voluminous data. (Id. at 2). According to Respondent, it is not only economically efficient to have non-testifying experts conduct the time consuming review of the record, but it is necessary in this case because college professors cannot commit the thousands of hours necessary to do the "basic analyses" required in this case. (Id. at 2 9). Contrary to Petitioners' assertion, Respondent contends that Cambridge worked under the direction of the Testifying Experts, "sifted" through the available discovery, and imputed the data into financial models designated by the Testifying Experts. (Dkt. # 121, at 2-3). According to Respondent, the Testifying Experts then relied on the information from those models in forming their opinions. (Id.) Thus, while Respondent is unconcerned about any substantive information that might come out of the depositions, Respondent is concerned that the request for the depositions is "merely a subterfuge for an unfounded attack on [Respondent's] experts." (Id. at 4).
Because of the number of tax shelter transactions at issue in this case, each involving a complex series of leasing transactions, Respondent obtained nearly 67,000 documents, encompassing hundreds of thousands of pages. (Dkt. #121, at 2).
A party may depose a non-testifying witness "upon a showing of exceptional circumstances under which it is impracticable for the party seeking discovery to obtain facts or opinions on the same subject by other means." FED. R. Civ. P. 26(b)(4)(B). There are four commonly articulated policy considerations underlying Rule 26(b)(4)(B):
(1) the "interest in allowing counsel to obtain the expert advice they need in order properly to evaluate and present their clients' positions without fear that every consultation with an expert may yield grist for the adversary's mill"; (2) the view that "each side should prepare its own case at its own expense"; (3) the concern that it would be unfair to the expert to compel its testimony and also the concern that experts might become unwilling to serve as consultants if they suspected their testimony would be compelled; and (4) the risk of prejudice to the party who retained the expert as a result of the mere fact of retention.Bank of Brussels Lambert v. Chase Manhattan Bank, 175 F.R.D. 34, 45 (S.D.N.Y. 1997) (citing Rubel v. Eli Lilly and Co., 160 F.R.D. 458, 460 (S.D.N.Y. 1995)). Additionally, "[t]he party seeking discovery of a non-testifying expert carries the burden of showing exceptional circumstances." 175 F.R.D. at 44 (citations omitted). There are two situations where exceptional circumstances are commonly identified: (1) where "the object or condition observed by the non-testifying expert is no longer observable by an expert of the party seeking discovery," and (2) where "it is possible to replicate expert discovery on a contested issue, but the costs would be judicially prohibitive." Id. The latter situation exists when the replication would cause the party to expend enormous time and resources in duplicating the experts' efforts. See In re Agent Orange, 105 F.R.D. 577, 581 (E.D.N.Y. 1985). Similarly, exceptional circumstances under Rule 26(b)(4)(B) may exist when a non-testifying expert's report is used by a testifying expert as the basis for an expert opinion, or when there is evidence of substantial collaborative work between a testifying expert and a non-testifying expert. See Herman v. Marine Midland Bank, 207 F.R.D. 26, 30-32 (W.D.N.Y. 2002); Derrickson v. Circuit City Stores, Inc., 1999 U.S. Dist. LEXIS21100, at *18 (D. Md. March 19, 1999); Hartford Fire Ins. Co. v. Pure Air on the Lake Ltd., 154 F.R.D. 202, 208 (N.D. Ind. 1993) (citations omitted).
In Derrickson, the plaintiffs expert based his opinion on tables which were produced by the expert's assistant, under the general instruction of the expert. 1999 LEXIS 21100, at *17-18. The District Judge concluded that "the fruits of their labor [were] indivisible"; the "[expert] and his assistant worked hand-in glove" and the expert's opinions were the result of a "seamless collaboration with his assistant." Id. at *18. Furthermore, the court found that because this was "not a case where the testifying expert relied on a single, discrete written report by a non-testifying expert," (in which case, plaintiff would need only to produce the non-testifying expert's report), the defendant is entitled to know what the assistant did. Id. The Herman case involved a motion to compel a deposition of an associate and co-author of the expert report at issue. 207 F.R.D. at 30. After noting that the associate performed more than half of the total hours it took to generate the expert report, and accounted for more than half of the fee, the court held that the "fruits of the [expert's] labor [were] indivisible" from the work of the associate; tnus, the defendant was entitled to explore what the associate did. Id. at 31.
Additionally, although the issue was not raised by the defendant in Derrickson, the court noted that it was inclined under the circumstances "to think that [the defendant] cannot only obtain the underlying data, but can also depose and cross-examine [the expert's] assistant" because the expert may not be properly cross-examined "without first understanding how his assistant manipulated the data." Id. at *18 n. 1.
Respondent contends that these cases reflect "a fundamental lack of understanding of complex litigation in today's world." (Dkt. #121, at 9). The Court disagrees. In both cases, the courts examined the collaboration between testifying and non-testifying experts before concluding that the depositions of the associates were appropriate. In this case, Cambridge and Cragg, whether as independent experts or assistants, spent a disproportionate number of hours working on the collection and analysis of the data underlying the Testifying Experts' reports. See Dura Automotive Sys. of Indiana v. CTS Corp., 285 F.3d 609, 613 (7th Cir. 2002) (it is common in technical fields for an expert to base an opinion in part on what a different expert believes; the experts may be assistants but "it would make no difference if they were independent experts.") In Herman, after learning that an associate billing record reflected 16.75 hours more than the number of hours billed by the expert and more than half the total hours it took to generate the report, the Western District of New York concluded that a deposition of the associate is proper because the "fruits of the labor [were] indivisible." 207 F.R.D. at 31. The facts in this case are much more compelling; Cambridge's invoices reflect an investment of over fifty times the number of hours spent by at least one Testifying Expert. In addition to the disproportionate number of hours, the extensive number of documents before the Court reveals a "seamless collaboration" between Cambridge and the Testifying Experts. Derrickson, 1999 U.S. Dist. LEXIS 21100, at *18. Moreover, although expert witness are "permitted to use assistants in formulating [their] expert opinion[s]," opposing parties may conduct limited depositions of "[the assistants] in order to make sure they performed their tasks competently." Dura Automotive, 285 F.3d at 612-13 (citations omitted).
Petitioners have only supplied the Court with Cambridge's and Dr. Schallheim's invoices. (Dkt. #118, Exhs A-E). This is enough, however, to allow the Court to infer that Cambridge's time and efforts in this matter far exceeded the time spent by all of Respondent's Testifying Experts.
Respondent is critical of this case for its failure to cite Rule 26(b)(4)(B). (Dkt. #121, at 8). However, while the Seventh Circuit did not refer to this Rule in its decision, the decision supports Petitioners' argument that the limited scope of the type of deposition sought in this case, and does not implicate the work product concerns of Rule 26(b)(4)(B).
Respondent contends that Petitioners' claim is essentially identical to the claim made in Lowery v. Circuit City Stores, Inc., 158 F.3d 742 (4th Cir. 1998), vacated on other grounds, 527 U.S. 1031 (1999). (See Dkt. #121, at 7-8). In Lowery, the Fourth Circuit upheld the district court's denial of discovery of the data produced and developed by other non-testifying consultants underlying the expert's statistical analysis, because the statistical expert submitted a detailed expert report providing supporting reasons and exhibits, and because the defendant was able to thoroughly examine the statistical expert about the basis and methods of his analysis. Id. at 765. However, although Respondent disclosed the underlying reports, data and exhibits upon which the Testifying Experts relied, this case does not fall within the purview of the Fourth Circuit's decision. In that case, unlike in the case at hand, the independence of the testifying expert was not at issue because Circuit City was able to thoroughly examine the expert about the bases of, and methods used for, his analysis. Id. Petitioners, in this case, however, seek limited discovery from Cambridge and Cragg to determine whether the testifying experts reached their opinions independently because the numerous documents received from Cambridge and Cragg and the extensive number of hours invested by Cambridge and Cragg suggests that the experts have relied on the bases and methods of analysis used by Cambridge and Cragg to reach their expert opinions.
A deposition limited in scope to the extent of participation of Cambridge personnel in the preparation and drafting of the expert reports and the extent of any meetings and contacts between the Cambridge and Cragg does not invoke the work product concerns underlying Rule 26(b)(4)(B). (Dkt. #114, at ¶ 7). Any questioning beyond this scope, however, may invoke Rule 26(b)(4)(B) and for this reason, the deposition is limited to the participation of Cambridge personnel in the preparation and drafting of the expert reports. The limited nature of the depositions will also protect the other policy concerns underlying Rule 26(b)(4)(B) since the depositions shall not extend into the underlying substantive analysis completed by Cambridge personnel. See Bank of Brussels Lambert, 175 F.R.D. at 45. Petitioners are still responsible for preparing their own case, including hiring their own experts to conduct analyses of the record. Petitioners, therefore, may depose Cambridge and Cragg to the extent that the depositions are limited to an inquiry into the "participation of Cambridge Finance Partners personnel in the preparation, drafting, editing and/or revising the expert reports in this case authored by [the Testifying Experts]; and . . . any meetings, telephone calls or other contacts between Cambridge Finance personnel and the [Testifying Experts]." (See Dkt. #114, Exh. H, Attachment A).
The facts in this case, like the facts in Derrickson, do not evidence a situation where the purpose of Rule 26(b)(4)(B) would be defeated; rather than engaging in "free riding" and seeking "to build its own case with [the experts'] work," the Petitioners in this case seek to "tear down" Respondent's case. Derrickson, 1999 U.S. Dist. LEXIS 21100, at *19.
Petitioners also allege that as a result of the substantial collaboration between Cambridge and the Testifying Experts, evidence of ghost writing exists in the Testifying Experts' reports. (Dkt. #114, ¶ 8). "Ghost writing a testifying expert's report is the preparation of the substance writing of the report by someone other than the expert purporting to have written it." Trigon Ins. Co. v. U.S., 204 F.R.D. 277, 291 (E.D. Va. 2001).
Petitioners bear the burden of proving ghost writing and to prove ghost writing, Petitioners must use the available documents to show that Cambridge provided the substance of the opinions of the Testifying Experts. Id. at 295. Although the acceptable level of involvement that a non-testifying expert may have in the preparation of the expert report is unclear, it is clear that "if opinions expressed in an expert report are not the opinions of the expert, the expert will not be able to satisfy the requirements of FED. R. EVID. 702 . . . that the report be based on the expert's own valid reasoning and methodology." Id. at 294. The evidence before the Court reveals that the reports completed by Peter Daley, one of the Testifying Experts, is substantially similar to a report issued by Cambridge; however, Petitioners have not satisfied their burden since the documents before the Court may be interpreted to show that Daley's report was edited and permissibly drafted, to a limited extent, by Cambridge but reflects the independent opinion of the testifying expert. (Dkt. #114, Exhs. A-B). Moreover, Petitioners' allegation of ghost writing is premature as the Testifying Experts have not yet had the opportunity to demonstrate that the opinions reflected in their reports are their own.
III. CONCLUSION
Petitioners' Motion to Compel Depositions of Cragg and Cambridge Finance Partners (Dkt. #114) is granted to the extent set forth above.
This is not a Recommended Ruling but a Ruling on discovery, the standard of review of which is specified in 28 U.S.C. § 636; FED. R. Civ. P. 6(a), 6(e) 72; and Rule 2 of the Local Rules for United States Magistrate Judges. As such, it is an order of the Court unless reversed or modified by the District Judge upon timely made objection.
See 28 U.S.C. § 636(b) (written objections to ruling must be filed within ten days after service of same); FED. R. Civ. P. 6(a). 6(e) 72; Rule 2 of the Local Rules for United States Magistrate Judges, United States District Court for the District of Connecticut; Small v. Secretary, HHS. 892 F.2d 15, 16 (2d Cir. 1989) (failure to file timely objection to Magistrate Judge's recommended ruling may preclude further appeal to Second Circuit).