Free Appeal of Magistrate Judge Decision to District Court - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-cv-1451-REB-CBS (Consolidated with Civil Action Nos. 01-cv-1472-REB-CBS, 01-cv-1527-REB-CBS, 01cv-1616-REB-CBS, 01-cv-1799-REB-CBS, 01-cv-1930-REB-CBS, 01-cv-2083-REBCBS, 02-cv-0333-REB-CBS, 02-cv-0374-REB-CBS, 02-cv-0507-REB-CBS, 02-cv-0658REB-CBS, 02-cv-755-REB-CBS, 02-cv-798-REB-CBS and 04-cv-0238-REB-CBS) In re QWEST COMMUNICATIONS INTERNATIONAL, INC. SECURITIES LITIGATION LEAD PLAINTIFFS' OBJECTION TO MAGISTRATE JUDGE SHAFFER'S SEPTEMBER 28, 2005 ORDER GRANTING DEFENDANT QWEST COMMUNICATIONS INTERNATIONAL, INC.'S MOTION TO STAY PRODUCTION OF PRIVILEGED DOCUMENTS PRODUCED TO THE GOVERNMENT PENDING REVIEW BY COURT OF APPEALS

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TABLE OF AUTHORITIES Page I. II. Introduction........................................................................................................... 1 Magistrate Judge Shaffer Erred in Granting Qwest's Motion to Stay.................... 1 A. B. C. D. III. Qwest's Appeal Is Unlikely to Succeed...................................................... 3 Qwest Will Not Suffer Irreparable Harm if the Stay Is Not Granted............ 4 Lead Plaintiffs and Other Victims of Defendants' Fraud Will Suffer Irreparable Harm if the Stay Is Granted ..................................................... 5 The Public Interest Disfavors a Stay of the Court's Discovery Order ......... 6

Conclusion............................................................................................................ 7

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I.

Introduction Pursuant to Federal Rule of Civil Procedure 72, Lead Plaintiffs respectfully submit

this objection to Magistrate Judge Shaffer's September 28, 2005 Order granting Qwest's motion to stay production of privileged documents produced to the Government pending review by the Court of Appeals (Docket No. 832). Lead Plaintiffs respectfully request that this Court issue an order setting aside Magistrate Judge Shaffer's order staying production and requiring Qwest to produce the documents that this Court has already ordered produced forthwith. This Court's Order Concerning Rule 72 Objections dated August 15, 2005 ("Order") concludes that Qwest waived the attorney-client and work-product privileges for 220,000 pages of documents produced to the Securities & Exchange Commission ("SEC") and/or the Department of Justice ("DOJ"). Qwest's motion to stay was based upon the faulty premise, already rejected by Magistrate Judge Shaffer and this Court, that the documents at issue are subject to a claim of privilege. The Company fails to note that it already waived the privilege when it produced the documents at issue to the SEC and the DOJ. Qwest can claim no harm from the production of these documents to Lead Plaintiffs in this litigation, especially where the protective order in this litigation already ensures confidentiality. II. Magistrate Judge Shaffer Erred in Granting Qwest's Motion to Stay To obtain a stay pending appeal, the Tenth Circuit requires an applicant to address four factors: "(1) the likelihood of success on appeal; (2) the threat of irreparable harm if the stay is not granted; (3) the absence of harm to opposing parties if the stay is granted; and (4) any risk of harm to the public interest." Spain v. Podrebarac, 68 F.3d 1246, 1247 (10th -1-

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Cir. 1995) (stay denied since none of the four factors clearly weighed in petitioner's favor). Qwest, as the movant, bears the burden of establishing that the factors are met. Hillman v. U.S. Postal Serv., No. 97-4041-SAC, 2001 U.S. Dist. LEXIS 22409, at *3 (D. Kan. Nov. 27, 2001). Several courts have denied requests to stay similar orders pending appeal. See In re CMS Energy Sec. Litig., No. 02-CV-72004, 2005 U.S. Dist. LEXIS 8838 (E.D. Mich. May 13, 2005) (denying defendant's motion to stay production of a "special committee report" and related documents pending district court's review of magistrate judge's order); United States v. Duke Energy Corp., 218 F.R.D. 468 (M.D.N.C. 2003) (stay pending appeal of magistrate judge's discovery order denied because documents subject to protective order); In re Vitamins Antitrust Litig., No. 99-0197 (TFH), 2003 U.S. Dist. LEXIS 3038 (D.D.C. Jan. 24, 2003) (stay of court's earlier order denied pending resolution); In re BaMak Gaming Int'l, No. 95-1991, 1996 U.S. Dist. LEXIS 10642 (E.D. La. July 22, 1996) (denying motion for stay pending appeal); Dayco Prods., Inc. v. Walker, 142 F.R.D. 450 (S.D. Ohio 1992) (court denied defendants' motion to stay the magistrate judge's discovery order); Zitin v. Turley, No. CIV 89-2061-PHX-CAM, 1991 U.S. Dist. LEXIS 18978 (D. Ariz. Sept. 20, 1991) (court denied defendants' motion to stay the court's discovery order pending appellate review). As discussed infra, Qwest will not be irreparably harmed by a denial of the stay nor will Qwest likely be successful on its appeal. Moreover, a denial of the stay will serve the public interest and prevent Lead Plaintiffs and the other direct victims of defendants' fraud from being harmed by any further delay in the resolution of their claims. Since Qwest has -2-

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failed to carry its burden with respect to any of the four factors enunciated by the Tenth Circuit, Magistrate Judge Shaffer's Order staying the production of the documents is clearly in error. A. Qwest's Appeal Is Unlikely to Succeed

Qwest's appeal is extremely unlikely to succeed. As discussed at length in Lead Plaintiffs' Motion to Compel Production of Documents from Defendant Qwest Communications International, Inc. (Docket No. 574) and Lead Plaintiffs' Opposition to the Objection of Qwest Communications International Inc. to May 31, 2005 Order of Magistrate Judge Shaffer Concerning Motion to Compel Production of Documents (Docket No. 716), the great weight of authority supports the affirmation of the Court's findings that Qwest waived the privilege when it produced the documents at issue to the SEC and DOJ. Based upon this authority, both this Court and Magistrate Judge Shaffer, in well-reasoned decisions, have already expressly rejected Qwest's assertion of the privilege. Qwest's citation to In re Steinhardt Partners, L.P., 9 F.3d 230, 236 (2d Cir. 1993), in support of its motion is particularly unavailing, as in that case the Second Circuit Court of Appeals actually denied the petition for mandamus and lifted the stay because defendants (like Qwest here) waived the protections of the work-product doctrine by producing the documents at issue to the SEC. For the same reasons noted in Steinhardt Partners, as well as the two prior decisions in this case, it is unlikely that the Court of Appeals will side with Qwest and overrule the order compelling production. The unlikelihood of success of Qwest's appeal weighs heavily against a stay of this Court's Order.

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B.

Qwest Will Not Suffer Irreparable Harm if the Stay Is Not Granted

Qwest claims that absent a stay, irreparable harm will occur because disclosure of its allegedly privileged documents cannot be undone by the Court upon a finding of error. This claim is unavailing since a protective order exists which will preserve the confidentiality of any documents produced by Qwest in this litigation. Accordingly, Qwest will not be harmed by production of the documents because the documents will be produced subject to the terms of the protective order. See Duke Energy, 218 F.R.D. at 477 (allowing production of allegedly privileged documents, pursuant to protective order to plaintiffs' counsel, to allow them to be used in preparation of case pending appeal of magistrate judge's discovery order); In re Metiom, Inc., 318 B.R. 263 (S.D.N.Y. 2004) (holding potential for irreparable harm was substantially, if not entirely, reduced or eliminated by the confidentiality agreement and denying requested stay pending appeal). Moreover, even in absence of the protection provided by the confidentiality order, it is difficult to comprehend what harm could result from the disclosure of documents generated nearly five years ago, which Qwest has already voluntarily provided to the SEC and the DOJ. Qwest also claims that production of the documents threatens to make Qwest's objections moot. This also fails to show irreparable harm. The mooting of an appeal is insufficient by itself to establish that a party will be injured by denying a stay. Ba-Mak Gaming, 1996 U.S. Dist. LEXIS 10642, at *7 ("mooting of the appeal is not sufficient by itself to establish that Movers will be injured by denying the stay"). Thus, Qwest has failed to establish that it will suffer irreparable harm if the documents are produced to Lead Plaintiffs pending the resolution of an appeal of the Court's Order. -4-

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C.

Lead Plaintiffs and Other Victims of Defendants' Fraud Will Suffer Irreparable Harm if the Stay Is Granted

In contrast, the delay will injure Lead Plaintiffs who have already encountered numerous delays in this litigation. The 220,000 pages of documents which have been ordered produced are vital to Lead Plaintiffs' case. Lead Plaintiffs need to review these documents as soon as possible so they can be used at the depositions of Qwest lawyers Susan Cude and Kevin Baird, both of which have been noticed and can proceed in their entirety as soon as these documents are produced. This Court has already determined that, based upon the great weight of authority, Lead Plaintiffs are entitled to the documents at issue. In addition, 28 depositions of embargoed witnesses still need to be taken in this litigation. Lead Plaintiffs have opposed the United States Attorney's motion to stay and have already asked Magistrate Judge Shaffer to allow additional depositions of potentially "embargoed witnesses" to go forward. The parties have been ordered to submit status reports by November 16, 2005 laying out their positions regarding the further conduct of deposition discovery. Lead Plaintiffs are hopeful that, based upon past practice in the Enron and WorldCom prosecutions, the United States Attorney's Office will ultimately after further analysis agree to reduce the number of embargoed witnesses. In absence of such an agreement, Lead Plaintiffs are hopeful that Magistrate Judge Shaffer or, if necessary, this Court will greatly scale back the number of embargoed witnesses, as many of the witnesses at issue have no cooperation agreement with the Government and some are

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undoubtedly targets of the Government's investigation.1 In any event, Lead Plaintiffs will need to review the 220,000 documents before the remaining 28 depositions can go forward. D. The Public Interest Disfavors a Stay of the Court's Discovery Order

A stay of the order pending a ruling on an appeal does not serve the public interest because it would side track this litigation which is the only avenue of relief for thousands of investors who have collectively lost billions of dollars as a result of defendants' fraud. The public interest will be served if this litigation is kept on track and the stay is denied. See Vitamins, 2003 U.S. Dist. LEXIS 3038, at *26 (rejecting defendants' arguments that production of materials pending appeal would cause them irreparable harm and holding that "public interest will be served if this litigation is kept on track"). Similarly, the public interest favors civil enforcement of the federal securities laws as not only a deterrent to future wrongdoing, but also as perhaps the only mechanism by which those class members who lost a substantial portion of their savings can recover their losses from the defendants. Because the Court and the parties have devoted substantial resources to this case, which will allow the direct victims of defendants' conduct to seek compensation for their losses, the public interest weighs against a stay. Id.

1

In fact, the United States Attorney's Office has yet to make any showing with respect to 27 of the 28 embargoed witnesses as to whether they are in fact cooperating with the Government or targets of an investigation.

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III.

Conclusion For the foregoing reasons, Lead Plaintiffs respectfully request this Court set aside

Magistrate Judge Shaffer's Order granting Qwest's motion to stay and order the 220,000 pages of documents produced immediately. DATED: October 17, 2005 Respectfully submitted, LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP MICHAEL J. DOWD SPENCER A. BURKHOLZ THOMAS E. EGLER SCOTT H. SAHAM X. JAY ALVAREZ TRIG R. SMITH TED MINAHAN ANDREA N. SALOW

/s/ SCOTT H. SAHAM SCOTT H. SAHAM 401 B Street, Suite 1600 San Diego, CA 92101 Telephone: 619/231-1058 LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP MICHELLE M. McCARRON 9601 Wilshire Blvd., Suite 510 Los Angeles, CA 90210 Telephone: 310/859-3100 310/278-2148 (fax) Lead Counsel for Plaintiffs

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DYER & SHUMAN, LLP ROBERT J. DYER III KIP B. SHUMAN JEFFREY A. BERENS 801 East 17th Avenue Denver, CO 80218-1417 Telephone: 303/861-3003 Liaison Counsel
S:\CasesSD\Qwest\OBJORD00024854.doc

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DECLARATION OF SERVICE BY MAIL I, the undersigned, declare: 1. That declarant is and was, at all times herein mentioned, a citizen of the

United States and a resident of the County of San Diego, over the age of 18 years, and not a party to or interested party in the within action; that declarant's business address is 655 West Broadway, Suite 1900, San Diego, California 92101. 2. That on October 17, 2005, declarant served the LEAD PLAINTIFFS'

OBJECTION TO MAGISTRATE JUDGE SHAFFER'S SEPTEMBER 28, 2005 ORDER GRANTING DEFENDANT QWEST COMMUNICATIONS INTERNATIONAL, INC.'S MOTION TO STAY PRODUCTION OF PRIVILEGED DOCUMENTS PRODUCED TO THE GOVERNMENT PENDING REVIEW BY COURT OF APPEALS by depositing a true copy thereof in a United States mailbox at San Diego, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List. 3. That there is a regular communication by mail between the place of mailing

and the places so addressed. I declare under penalty of perjury that the foregoing is true and correct. Executed this 17th day of October, 2005, at San Diego, California. /s/ KATHLEEN R. JONES KATHLEEN R. JONES

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QWEST (LEAD) Service List - 10/14/2005 Page 1 of 4 Defendant(s) Scott B. Schreiber John A. Freeman Kwame Clement Arnold & Porter 555 Twelfth Street, N.W. Washington, DC 20004 202/942-5000 202/942-5999(Fax)

(201-067)

Timothy Atkeson Joshua D. Franklin Arnold & Porter LLP 370 Seventeenth Street, Suite 4500 Denver, CO 80202-1370 303/863-1000 303/832-0428(Fax)

Mark T. Drooks Thomas V. Reichert Bird, Marella, Boxer & Wolpert, P.C. 1875 Century Park East, 23rd Floor Los Angeles, CA 90067-2561 310/201-2100 310/201-2110(Fax) Alfred Levitt Jonathan D. Schiller David Boyd Boies, Schiller & Flexner, LLP 5301 Wisconsin Avenue, N.W., Suite 800 Washington, DC 20015-2015 202/237-2727 202/237-6131(Fax) David Meister James Miller David Cook Clifford Chance US LLP 31 West 52nd Street New York, NY 10019 212/878-8000 212/878-8375(Fax)

David Boies Boies, Schiller & Flexner, LLP 333 Main Street Armonk, NY 10504 914/749-8200 914/749-8300(Fax)

David W. Shapiro John F. Cove, Jr. Boies, Schiller & Flexner, LLP 1999 Harrison Street Oakland, CA 94612 510/874-1005 510/874-1460(Fax)

James E. Nesland Paul H. Schwartz Jeff Smith Cooley Godward, LLP 380 Interlocken Crescent, Suite 900 Broomfield, CO 80021-8023 720/566-4000 720/566-4099(Fax)

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QWEST (LEAD) Service List - 10/14/2005 Page 2 of 4

(201-067)

Holly Stein Sollod Jennifer H. Weddle Holland & Hart 555 Seventeenth Street, Suite 3200 Denver, CO 80202 303/295-8000 303/295-8261(Fax) Mark C. Hansen Rebecca Beynon David Schwarz Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C. 1615 M Street, N.W., Suite 400 Washington, DC 20036 202/326-7900 202/326-7999(Fax) Barbara Moses Haley Fabricant Morovillo, Abramowitz, Grand, Iason & Silberberg 565 Fifth Avenue New York, NY 10017 212/856-9600 212/856-9494(Fax)

Bruce F. Black Michael J. Hofmann Holme Roberts & Owen LLP 1700 Lincoln Street, Suite 4100 Denver, CO 80203 303/861-7000 303/866-0200(Fax) Walter W. Garnsey, Jr. Kelly Haglund Garnsey & Kahn LLC 1441 Eighteenth Street, Suite 300 Denver, CO 80202-1255 303/296-9412 303/293-8705(Fax)

Eric S. Goldstein Roberta A. Kaplan Marguertie S. Dougherty Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 212/373-3000 212/757-3990(Fax) Frederick J. Baumann James M. Lyons Rothgerber Johnson & Lyons LLP 1200 17th Street, Suite 3000 Denver, CO 80202-5839 303/623-9000 303/623-9222(Fax)

Robert N. Miller Stephanie E. Dunn Perkins Coie LLP 1899 Wynkoop Street, Suite 700 Denver, CO 80202 303/291-2300 303/291-2400(Fax)

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QWEST (LEAD) Service List - 10/14/2005 Page 3 of 4

(201-067)

Terence C. Gill Marcy M. Heronimus Sherman & Howard L.L.C. 633 Seventeenth Street, Suite 3000 Denver, CO 80202 303/297-2900 303/298-0940(Fax)

Neil Peck James D. Kilroy Snell & Wilmer, LLP One Tabor Center, SUite 1900 1200 Seventeenth Street Denver, CO 80202 303/634-2000 303/634-2020(Fax)

Charles A. Stillman Diana Nehro Stillman & Friedman, P.C. 425 Park Avenue New York, NY 10022 212/223-0200 212/223-1942(Fax) Plaintiff(s) Robert J. Dyer III Kip B. Shuman Jeffrey A. Berens Dyer & Shuman, LLP 801 East 17th Avenue Denver, CO 80218-1417 303/861-3003 303/830-6920(Fax) William S. Lerach Spencer A. Burkholz Thomas E. Egler Lerach Coughlin Stoia Geller Rudman & Robbins LLP 655 West Broadway, Suite 1900 San Diego, CA 92101 619/231-1058 619/231-7423(Fax) Michelle M. McCarron Lerach Coughlin Stoia Geller Rudman & Robbins LLP 9601 Wilshire Blvd., Suite 510 Los Angeles, CA 90210 310/859-3100 310/278-2148(Fax)

Joe R. Whatley, Jr. Whatley Drake, LLC 2323 Second Ave., North Birmingham, AL 35203 205/328-9576 205/328-9669(Fax)

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QWEST (LEAD) Service List - 10/14/2005 Page 4 of 4

(201-067)

Plaintiff Stichting Pensioenfonds Counsel Jay W. Eisenhofer Geoffrey C. Jarvis Michael J. Barry Grant & Eisenhofer, P.A. 1201 North Market Street, Suite 2100 Wilmington, DE 19801 302/622-7000 302/622-7100(Fax) Intervenor Plaintiff William J. Leone District of Colorado United States Attorney 1225 17th Street, Suite 700 Denver, CO 80202 303/454-0100 303/454-0400(Fax) Clyde A. Faatz Christopher J.W. Forrest Hamilton and Faatz, A P.C. 1600 Broadway, Suite 500 Denver, CO 80202-4905 303/830-0500 303/860-7855(Fax)