Free Response to Motion - District Court of Federal Claims - federal

Case 1:05-cv-00999-MMS

Document 11-3

Filed 01/30/2006

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EXHIBIT B
Memorandum in Support of Motion for Relief in Connection with Rule 16 Discovery

Case 1:05-cv-00999-MMS

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David

Spears

(DS-2720)

Richards Spears Kibbe & Orbe LLP One World Financial Center New York, Telephone: Fax: New York 10281 212-530-1800 212-530-1801

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK UNITED STATES OF AMERICA : LANNING, 05 Cr. 888 (LAK) (ALL) (ECF)

V,

JEFFREY

STEIN,

JOHN

RICHARD SMITH, PHILIP WIESNER, ROBERT PFAFF,

JEFFREY EISCHEID, JOHN LARSON, RAYMOND J. RUBLE

(also known as "R. J. RUBLE"), and MARK WATSON, Defendants.
.................................... X

MEMORANDUM

IN SUPPORT WITH

OF MOTION RULE

FOR RELIEF

IN CONNECTION Defendant For Relief Jeffrey Stein respectfully

16 DISCOVERY in support of his Motion

submits

this memorandum

In Connection

With Rule 16 Discovery. BACKGROUND

On September October nothing identical 5, [2005]." resembling

6, 2005, the Court ordered the government (9/6/05 Transcript of Hearing

to "complete

discovery received provided A

by

at 19.) Thereafter,

defendants

discovery

until October

5, at 5:37 PM, when the government

an

letter to counsel

for each defendant,

six pages in length and attaching Exhibits

Case 1:05-cv-00999-MMS

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through

F. 1 Among center

other things, in Maspeth,

the government's

October

5 letter directed and copying North having

defense

counsel

to

(1) a document being produced

New York for inspection and (2) a vendor files containing

of hard documents Carolina expended letter and that (1) the and (2) the to purchase

by the government, with electronic

in Fayetteville, After October

hard drives significant actually

loaded

documents.

time attempting obtain production

to follow up on the government,s of the materials the Court's directed described September

5 discovery

in the letter, 6 Order

we are convinced discovery,

government Court

has not honored a further

regarding if defendants

must enter

order

to the government Rules

are to have meaningful Our reasons are

discovery

as required

by Rule i6 of the Federal

of Criminal

Procedures.

set forth below. FACTS
A®

"Hard"

Documents

At The Document

Center

In Maspeth, traveled

New York to the business Bruno Edlin, in who is

On October question apparently documents pallets piled

12, 2005, counsel

for one of the defendants and spoke

to begin review a representative available

of the documents of the document at that time.

with a man named

center. 2 Mr. Edlin stated He directed counsel's

that there

were no 20

for review

attention

to approximately 1300

high with boxes

and shrink-wrapped.

Mr. Edlin said he has approximately

1A copy of the government's letter is attached to the Declaration Of David Spears In Support Of Motion For Relief In Connection With Rule 16 Discovery, dated October 14, 2005, ("Spears Decl.") as Exhibit 1. The government, s October 5 letter resulted in several letters to the Court. On October 6, counsel for Mr. Stein delivered a letter to the Court noting significant issues regarding the government's production of Rule 16 discovery and requesting a conference with the Court (attached as Exhibit 2 to the Spears Decl.). On October 7, counsel for defendant Mark Watson delivered to the Court a letter seeking certain relief regarding the discovery provided by the government (attached as Exhibit 3 to the Spears Decl.). Also on October 7, the government delivered a letter to the Court responding to the letter of Mr. Stein's counsel (attached as Exhibit 4 to the Spears Decl.). On October 13, counsel for defendant John Larson, who has also served as counsel for Presidio Advisory Services, sent a letter to the Court regarding Presidio's prior production of information to the government and certain allegations made by the government in its October 7 letter (attached as Exhibit 5 to the Spears Decl,). 2 The governmenfs October 5 letter gave the name of the document center as "JAG". Mr. Stein presented a card showing that he works for a business called Red Rose Document Solutions. -2-

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boxesnow,butthe government hastold him to expectatotal of around1500boxes.He intends to arrange boxesby number,whichwill apparently orrespond anindexto beprovidedby the c to the government. heseboxesarein a warehouse hich alsocontains T w approximately 20large andnoisycopyingmachines oneside.Mr. Edlin saidheintends setuptablesin the on to warehouse counselo reviewdocuments. r. Edlin saidit wouldtakeapproximately for t M five weeksto copyall the documents, andthecostwouldbe$.10perpage. Mr. Edfinnotedthat 3 makingmorethanonesetof copiescouldreduce theperpagecost;but headded thattherewould benoreductionin theperpagecostif the otherpartyorderinga setis thegovernment, because thecosttothe governments "nominal." i Counsel wasdirected Mr. Edlin to aJoseph by Meisnertotalk aboutscanning the documents electronic into format. Mr. Meisner's cardsaidheworksfor a business alledFirst c ChoiceCopy. Mr. Meisnertold counselt wouldbepossible scanthedocuments an i to into electronicformatwith opticalcharacterecognitionCOCR"), r
searchable. Mr. Meisner said it would take about three months that would In North which would make them wordand would

to scan the documents

cost $,20 per page. B. Electronic

For 2.7 million

pages,

come to $540,000.

Files At The Vendor

Carolina files being made available for 800 by

The facts we have gathered purchase gigabytes

regarding

the electronic

on hard drives are even more disturbing. ("GB") of data. This is an enormous

The hard drives

contain

approximately be handled the

amount of data, more than could on the two hard drives (2) two email databases

the IT system following:

at a large law firm.

The data contained images,

includes

(1) 19 databases

with associated

of some form with

3As counsel for Mr. Stein informed the Court in his October 6 letter (Spears Decl. Ex. 2), another representative of the document center has reported that each of the 1500 boxes will contain 1800 pages, on average, for a total of 2.7 million pages. At a cost of $,10 per page, the total cost for making one set of copies would be approximately $270,000.
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attachments,

and (3) other documents with IT experts,

in formats

such as Word,

PDF, Excel, in North Industry

etc. Carolina, standards we have rely on

Working developed an estimate

who have spoken represent

with the vendor about 600 GB.

an estimate

that the I9 databases 16,500 image

of approximately pages.

files (pages)

per GB, so 600 GB would represent have searchable text files and

about 9.9 million some do not.

Some of the images

in the databases

The two email databases documents or files, which an estimate means

and the "other documents" they are not in image files represent

referred

to above are called

"native" 4 We files,

format

and are not word-searchable. For these native represent

have developed industry standards

that the native

about 200 GB.

rely on an estimate pages.

of 65,000

pages per GB, so 200 GB would

approximately

13 million

We are advised electronic capacity

by our IT experts

that the only possible to a specialty vendor

way to handle which website,

this volume

of

data is to give the hard drives for handling electronic

has an extraordinary accessible A vendor only to of this type Depending on the

data and can set up a secure

subscribers, charges number

that has all the data on it for access for storage

by the subscribers.

by the month of subscribers,

of the data and maintenance

of the website.

the cost can be up to $95 per month per GB, which $76,000 per month for the duration In addition, documents there would of the case.

for 800 GB would set-

come to approximately up, training, and monthly

Other costs include expense

user fees.

be considerable

associated searchable.

with the conversion We have received

of non-searchable cost estimates

to OCR format

so as to make them

from vendors

for this task that range

from approximately

4 Some of the documents may be in a format that would permit them to be searched individually on a document-by-document basis. 4

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$467,000

to approximately

$1.6 million. 5 ARGUMENT

The defendants defend themselves

in this case cannot

bear such ruinous legitimately

expense impose

in order to be entitled such hardship on

to

at trial, nor can the government case or any other. that the KPMG

defendants

in this criminal

It must be noted advance indemnification

at the outset by KPMG

defendants

have been deprived that would ordinarily with crimes

of the have been they are at

for legal fees and expenses defendants

their due in this proceeding. alleged KPMG, to have committed with no question

All of the KPMG in the performance of breach of fiduciary years advance

are charged

of their regular duty to KPMG.

duties and responsibilities To the knowledge of Deputy

of Mr. Stein,

who was a partner KPMG

at KPMG

for many

and rose to the position indemnification

Chairman, partner in

has never refused

to provide

to a partner

or former

such circumstances. cover their defenses case sufficient discovery. There "Thompson to all United of Business entity

Yet all of the KPMG with their own assets, associated

defendants which

have been "cut off' by KPMG among defendants perverse

and left to

vary greatly

but are in no to

to bear the expense

with the government's

approach

can be no doubt as to how this state of affairs memo" States - a memorandum Attorneys issued by then-Deputy

came about. Attorney

The so-called General Larry Thompson Prosecution that an in

on January (attached advance

20, 2003,

setting out "Principles

of Federal

Organizations" refuse

as Exhibit

6 to the Spears

Decl.) - virtually and former

requires

such as KPMG

indemnification

to its employees

employees by the

order to avoid indictment

itself.

The memo

sets out nine factors

for consideration

5For the hard documents in Maspeth, we have received estimates from the same vendors for scanning and converting to OCR format ranging from approximately $315,000 to approximately $666,000. 5

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government decidingwhetherto charge entitywith a crimeor not. Thesixthfactoris "the in the [entity's]remedialactions,includinganyeffortsto...disciplineor
(Spears Decl. Ex. 6, at 3.) Another A subsequent "Comment" on this factor terminate wrongdoers states: .... "

in the memo the

factor

to be weighed

by the prosecutor

is whether

[entity] appears to be protecting its culpable employees and agents. Thus, while cases will differ depending on the circumstances, a corporation's the advancing in weighing (I__d. t 5.) a There promise of support to culpable employees,..through of legal fees.., may be considered by the prosecutor the extent and value of a corporation,s cooperation. which the government could took so not have

can be no doubt that an entity such as KPMG, as to require

close to the edge of indictment avoided indictment without

entry into a deferred prosecution, indemnification

a repudiation

of the advance

that would otherwise and the

have been forthcoming resulting effect Especially - placing before a burden

to the KPMG

defendants.

The coercion

by the government, defense, approach are palpable. to discovery

on the defendants' under

ability to mount an effective the government's

such circumstances, of millions

in this case

of expense fees - reflects

of dollars on the defendants that it makes has dangled related

just in disbursements, the goal of every criminal before the defendants defenses, of but

attorneys'

such a level of unfairness The government are presumptively completely

proceeding, millions

a fair trial, an impossibility. of discovery, those It bears which

of pages

to the defendants' without

in a form that makes millions of dollars.

documents

inaccessible

the expenditure request, the

noting that in response no Brad2g material. from the millions

to defendants'

express

government such evidence relief

has produced themselves

Thus, it is incumbent of pages "provided"

upon defendants by the government.

to ferret out Without

from the Court, discovery

defendants because

will be unable to even attempt afford the massive

to review

the government's with the manner

proffered

they cannot

expense

associated

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in whichthegovernment aselected makethatdiscovery h to available. Wereferthe Courtto theletterfromcounselfor Mr. Larson datedOctober13(Spears Decl.Ex. 5). Counsel tates s thatwhenheproduced documentso thegovernment, t the government sked a thattheybeproduced electronically andin a specificformat. Presumably the government idthesamewith all of the entitiesfrom whichit subpoenaed d documents, and presumablyhegovernment t hasbeenableto search electronically variousproductions the made to it andavailitself of theinformationcontained therein,Defendants usthavethe sameability, m andwithoutinordinate expense. Mr. Steinrequestshe following relieffrom theCourtto remedytheunfairness t created by the Government connection in with discovery: (1) Thegovernment hould, tits ownexpense, s a promptlyhaveall of theelectronic

files beingmadeavailable defendantsnharddrivesconverted anOCRformatthatis fully to o to word-searchable. (2) Thegovernment hould, tits ownexpense, s a promptlyhaveall documents

currentlylocatedatthe document centerin Maspeth, ewYork converted electronicfiles in N to anOCRformatthatis fully word-searchable.

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(3)

Thegovernment hould, tits ownexpense, s a promptlyarrange a third-party for

vendorto loadall of theelectronicfiles referredto in (1) and(2) above ontosecure servers which canbe accessedy defense b counsel n anongoingbasisfor thependency f thisproceeding. o o

Respectfullysubmitted, RICHARDSSPEARS KIBBE & ORBELLP

By:

/s/David David

Spears Spears (DS-2720) Center 10281

One World

Financial

New York, New York (212) 530-1800 Attorneys for Defendant

Jeffrey

Stein

- Of Counsel

-

Craig Margolis, Esq. Vinson & Elkins LLP 1455 Pennsylvania Washington, DC Avenue, 20004-1008 Suite 600

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