UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
Plaintiff, 12 Civ. 7527 (JMF) (JCF)
- against - ECF CASE
WELLS FARGO BANK, N.A. and KURT
LOFRANO,
Defendants.
MEMORANDUM OF LAW OF KURT LOFRANO IN
OPPOSITION TO THE UNITED STATES OF AMERICA'S MOTION TO
REOPEN FACT DISCOVERY AND COMPEL THE PRODUCTION OF
DOCUMENTS FROM DEFENDANT WELLS FARGO
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 1 of 20
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ........................................................................ I
BACKGROUND ................. I....I........I........................................................... 2
A. The Second Amended Complaint ...................................................... 2
B. The Government's Knowledge of Mr. Lofrano's Advice of Counsel Defense... 3
C. Lofrano's Testimony Concerning the Advice He Received from Counsel ........ 7
ARGUMENT ...........................I.. ._......I......I......I.........I............................... 9
A. Mr. Lofrano Is Entitled to Present His Advice of Counsel Defense, Which He
Timely Asserted and Has Steadfastly Maintained .................................... 9
B. The Government's Belated Request to Re-open Fact Discovery Should
Be Denied ............................................................................... 14
CONCLUSION..................I.....I........................................................... 16
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 2 of 20
TABLE OF AUTHORITIES
Pame(s)
Cases
Arista Records LLC v. Lime Group LLC,
No. 06 CV 5936 (KMW), 2011 WL 1642434 (S.D.N.Y. Apr. 20, 2011) ............. 11
In re Residential Capital, LLC,
491 B.R. 63 (Bankr. S.D.NY. 2013)......................................................1I
Lindsey v. Normet,
405 U.S. 56 (1972)......................................................................... 13
Troubli v. Wet Seal, Inc.,
179 F. Supp. 2d 291 (S.D.N.Y. 2001).....................................................1I
US, ex rel. Mikes v. Straus,
84 F. Supp. 2d 427 (S.D.N.Y. 1999) ..................................................... 13
United States ex rel. Hochman v. Nackman,
145 F.3d 1069 (9th Cir. 1998)............................................................ 13
United States v. Bilzerian,
926 F.2d 1285 (2d Cir. 1991) ................. I...........................11 ...-........
United States v. Mix,
No 12-171, 2012 WL 2420016 (E.D. La. June 26, 2012).................... 12
United States v. Olano,
507 U.S. 725 (1993).........................................................................1I
United States v. Sanchez,
520 F. Supp. 1038 (S.D. Fla. 1981) ...................................................... 13
United States v. WR. Grace,
439 F. Supp. 2d 1125 (D. Mont. 2006) ................................................. 11-12
Upjohn Co. v. United States,
449 U.S. 383 (1981)........................................................................ 9
Rules and Statutes
18 U.S.C. §1001................................................................................. 13
18 U.S.C. § 1006 .......... ........................................................................ 13
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 3 of 20
18 U.S.C. § 1014........................................................ 13
18 U.S.C. § 1341................................................................................. 13
18 U.S.C. §1343................................................................................. 13
31 U.s.c. § 3729(b)................................................................................ 13
Fed. R. Civ. P,.12(b) ............................................................................... 10
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 4 of 20
Defendant Kurt Lofrano ("Mr. Lofrano") respectfully submits this memorandum
of law in opposition to the motion of plaintiff United States of America (the "Government") to
(a) reopen fact discovery for the purpose of taking discovery concerning Mr. Lofrano's advice of
counsel defense; (b) compel defendant Wells Fargo Bank, N.A. ("Wells Fargo") to produce
documents concerning legal advice rendered relating to its self-reporting policy; or (c) find that
Mr. Lofrano has waived his advice of counsel defense. The Government's motion should be
denied, except that Mr. Lofrano would not object to an Order permitting him to answer, at the
appropriate time, those of the Government's questions asked during his deposition that Wells
Fargo directed Mr. Lofrano not to answer on grounds of privilege.
PRELIMINARY STATEMENT
The Government has known since at least December 2013 that to the extent Mr.
Lofrano played any role-along with others, including his supervisors-in considering or
implementing Wells Fargo's self-reporting policy, he relied on advice from Wells Fargo's legal
department, and has known that Mr. Lofrano is asserting an advice of counsel defense for almost
as long. The Government does not dispute that it was on notice, but argues-without any
supporting authority-that Mr. Lofrano was somehow required to make Wells Fargo produce
privileged documents or else forfeit his advice of counsel defense. That position is untenable.
The Government is suing Mr. Lofrano personally for hundreds of millions of
dollars, including punitive damages. Mr. Lofrano is entitled to present any defense available to
him. The Government is well aware that Mr. Lofrano is not an executive of Wells Fargo. In
fact, Mr. Lofrano is several levels removed from Wells Fargo's executive management, and has
no ability to force Wells Fargo to disclose privileged documents if Wells Fargo chooses not to do
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 5 of 20
SO. 1 ]n addition., it is the Government's obligation to ensure that it receives any discovery it
needs to advance its case, not Mr. Lofrano's.
The Government made a tactical decision not to depose lawyers it knew likely
had relevant information, and to depose Mr. Lofrano on the very last day of fact discovery. The
Court has warned the parties on multiple occasions that the deadline to complete fact discovery
will not be extended. The Government ignored those warnings at its peril. It is far too late for
the Government to seek to reopen fact discovery to pursue inform-ation it has been aware of since
before its complaint against Mr. Lofrano was filed. The Government's motion should be denied.
BACKGROUND
A. The Second Amended Comglaint
The Government's Second Amended Complaint (the "SAC"), asserts claims
against Mr. Lofrano under the False Claims Act ("FCA") and the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), SAC T 1, Jan. 10, 2014, ECF No. 77.
The SAC alleges (incorrectly) that Mr. Lofrano (a) was responsible for Wells Fargo's self-
reporting throughout the 2002-2010 time period at issue in the SAC; and (b) intentionally caused
Wells Fargo not to self-report, in violation of HUD requirements. SAC T 5, 10. One of Mr.
Lofrano's defenses is that, to the extent he had any involvement (along with others, including
several layers of his supervisors) in considering or implementing Wells Fargo's self-reporting
Ex, -24729-29- -256:15;
Ex. A at 2 56:16-20; Ex. B at 2 .50:12-
251:3, The Government cites no evidence-testimony or documents-for its allegation, see Gov't Br. at
10, that Mr, Lofrano is an executive, and the witnesses who were asked this question uniformly testified
that Mr. Lofrano is not (and was not) a Wells Fargo executive. All Exhibits ("Ex. _") cited herein are
attached to the Declaration of Liana Roza Vitale ("Vitale Dccl."), dated June 2, 2015-, filed together with
this brief.
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 6 of 20
policy, he relied on the advice of counsel as to what items Wells Fargo was required to self-
report to HUD.
B. The Government's Knowledge of Mr. Lofrano's Advice of Counsel Defense
The Government has known since no later than December 2013 that Mr. Lofrano
asked for and received advice from lawyers with respect to what Wells Fargo was required to
self-report. On December 3, 2013, after the Government sought leave to add Mr. Lofrano as a
defendant in this case, Pl.'s Notice of Mot. to Amend its Compi., Nov. 22, 2013, ECF No. 69,
trial counsel for Mr. Lofrano met with counsel for the Government. Declaration of Meredith
Kotler, dated June 2, 2015 ("Kotler Decl."), T 2. At that meeting, trial counsel for Mr. Lofrano
explained that, among other things, to the extent Mr. Lofrano participated in the consideration of
HUD's self-reporting requirements and/or Wells Fargo's self-reporting policy, he consulted with
Wells Fargo's in-house lawyers. Id. T 3. The Government specifically asked whether Mr.
Lofrano relied on the advice of Wells Fargo's legal department. Id. T 4. Trial counsel for Mr.
Lofrano responded that Mr. Lofrano was not in a position to waive the privilege concerning any
legal advice, which belonged to Wells Fargo, but that counsel was in fact involved in the relevant
decisions. Id. T 5.
Mr. Lofrano and his trial counsel conveyed the same message-and the same
warning-when they met with the Government a few weeks later, on January 7, 2014. Id. T 6-
7. Without disclosing the content of advice or waiving a privilege he did not own, Mr. Lofrano
explained that, to the extent he participated in the consideration of HUD's self-reporting
requirements and/or Wells Fargo's self-reporting policy, he relied upon the advice of counsel
when doing so. Id. T 7.
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The December and January meetings left it unambiguous both that the
Government was interested in (and aware of) the question whether Mr. Lofrano relied on advice
of counsel and that Mr. Lofrano's position was that, as a matter of fact, he did rely on counsel.
The only open question was whether he would formally assert that defense were a case brought
against him.
That question was unambiguously answered as soon as the Government brought
its case. The Government filed its amended complaint naming Mr. Lofrano for the first time on
January 10, 2014; on March 17, 2014, Mr. Lofrano answered the SAC. And, as the Government
concedes, Mr. Lofrano expressly asserted an advice of counsel defense in his Answer to the
SAC. Gov't Br. at 4; Lofrano Answer to SAC at 36, Mar. 17, 2014, ECF No. 942
Since that date, Mr. Lofrano has continued to assert-and has done nothing to
waive-his advice of counsel defense. In March 2014, Mr. Lofrano provided the Government
with initial disclosures pursuant to Fed. R. Civ. P. 26, Those initial disclosures identified Wells
Fargo attorneys Denise Brennan, Karen Jackson, and David Whitaker as individuals likely to
have informnation Mr. Lofrano would use to support his defenses. Ex. C at 3-5, Although the
Government now complains that Mr. Lofrano listed only "a small number of Wells-Fargo in-
house counsel," Gov't Br. at 4, those attorneys were the ones who worked at Wells Fargo and (as
far as Mr. Lofrano is aware) were consulted at various times regarding self-reporting. Ex. D at
117:6-9; 121:13-20.
On March 26, 2014, the Government served its first and only set of interrogatories
on Mr. Lofrano, none of which sought information specific to the advice of counsel defense
2 Thus, the Government's statement that it "was on notice at the very outset of the case" that Mr.
Lofrano "inten[ded] to raise an advice of counsel defense," Gov't Br. at 12 (emphasis added), makes no
sense unless the Government is referring to the communications it had with Mr. Lofrano and his counsel
before filing the SAC. Mr. Lofrano did actually raise an advice of counsel defense in his Answer.
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 8 of 20
asserted in Mr. Lofrano's March 17 Answer. See Ex. E, Mr. Lofrano's April 25, 2014 responses
did not withhold on attorney-client privilege grounds any information related to Mr. Lofrano's
advice of counsel defense. To the contrary, to the extent the interrogatories called for
information about communications with lawyers, that information was included in Mr. Lofrano's
responses. See Ex. F. For example, Mr. Lofrano's response to Government Interrogatory
Number 4 (asking about individuals at Wells Fargo who discussed self-reporting requirements
with Mr. Lofrano) listed attorneys Jackson, Brennan and Whitaker. Id at 11-13. Similarly, in
rcsponse to the Government's queries about individuals who "had some involvement in Wells'
self-reporting of FlHA loans to HUID," Mr. Lofrano identified attorneys Brennan, Jackson, and
Whitaker. Id at 7-9. Mr. Lofrano also identified attorney Jackson as a participant in Wells
Fargo's Government Quality Assessment GroU
Id at 16.
Although both Wells Fargo and the Government at various times asserted
privileges to refuse to produce documents, Mr. Lofrano never did. He was never served with
document requests (as the Government admits, Gov't Br. at 4 n.3) and when the issue arose-in
response to the Government's aggressive assertion of privilege-Mr. Lofrano went out of his
way to inform. the Governent, in a letter to the Court, that he had not withheld any documrents
or informnation on grounds of attorney-client privilege. Letter to J. Furman, Apr. 16, 2015, ECF
No. 158.
On April 13, 2015, Mr. Lofrano again confirmed that he was pursuing an advice
of counsel defense by serving the Government with requests for admission that "Wells Fargo's
legal department was involved in any decisions made in 2004 concerning Wells Fargo's self-
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 9 of 20
reporting policy" that "Wells Fargo's legal department was involved in any decisions made in
2005 concerning Wells Fargo's self-reporting policy" and that "[tlo the extent Mr. Lofrano
believed any changes should be made to Wells Fargo's self-reporting policy in 2005, his views
were based on his good faith understanding of what HUD-EHA expected Wells Fargo to report
(including based on his discussions with Mark Ross) and the concurrence and approval of his
supervisors, Wells Fargo legal personnel, and relevant Wells Fargo committees." Ex. G at 7-8
(Requests for Admission Nos. 27, 3 1, and 36) (emphasis added).
Armed with all of this information, and in the face of this Court's repeated
warning that the fact discovery period would not be extended, see Order, Jan. 12, 2015, ECF No.
134; Order, Apr. 7, 2015, ECF No. 154, the Government proceeded to notice and take the
depositions of a number of Wells Fargo employees identified in Mr. Lofrano and Wells Fargo's
interrogatory responses and initial disclosures. The Government asked questions of certain of
these witnesses regarding legal advice, Ex. H at 151:13-24 (questioning whether witness spoke
with legal about whether FHA loans should be self-reported); Ex. I at 151:3-15 (inquiring
whether witness knew if anyone at Wells Fargo sought advice from an attorney about self-
reporting requirements), demonstrating that it was aware of the issue of advice of counsel. But
the Government decided not to use any of its depositions on the Wells Fargo counsel Mr.
Lofrano identified in his initial disclosures and interrogatory responses.
The Government noticed Mr. Lofrano's deposition near the end of fact discovery.
Counsel for Mr. Lofrano offered to make Mr. Lofrano available for deposition on a number of
dates beginning on May 7. Had it taken Mr. Lofrano's deposition earlier, the Government would
have again heard that Mr. Lofrano had specific conversations with counsel on which he relied
and that-absent instruction-he would have been anxious to testify' about them. Instead, the
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 10 of 20
Government chose to wait until the very last day of fact discovery to take Mr. Lofrano's
deposition and to ask him whether he relied on advice of counsel. Between the date of Mr.
Lofrano's Answer and the date of the deposition, the Government never asked Mr. Lofrano or
his counsel about that defense and whether he relied on advice of counsel, or raised any issue
regarding that reliance to Wells Fargo, Mr. Lofrano, or the Court. Nor, to state the obvious, did
it ever make a motion to this Court that the privilege had been waived because of Mr. Lofrarxo's
affirmative defense, or to otherwise compel disclosure of information underlying the defense.
C. Lofrano's Testimony Concerning~ the Advice He Received from Counsel
At Mr. Lofrano 's deposition, he testified that
Ex. Dat
113:19-114:11; 115:17-20.
Id, a t
116:4-117:23; 118:7-12; 185:18-186: 19.3
____________________________________________________________________ LIA. 1 L II. IU I -L I, Z'1t7..-
12; Ex. J at 268:11-271:22. No evidence supports the Government's allegation, see SAC 11135, 37, 126,
that Mr. Lofrano made decisions for, or was the "head" of, these groups-and, significantly, the
Government's brief points to no such evidence despite that fact discovery has ended.
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 11 of 20
Mr. Lofrano testified that
Id. at 102:12-103:3; 110:24-111:6;
112:4-15; 118:22-119:5; 120:15-23; 121:23-122:9; 142:3-11; 147-:24-148:8. He further testified
that
Id. at 120:15-
121:22; 123:19-124:12; 125:6-24; 132:8-13; 136:7-13; 143:15-23; 149;19-150:4.
Mr. Lofrano also testified that one basis for his view that the working group's
decision in 2004 was reasonable was advice provided by counsel. Id. at 125:6-24. The
Government asked Mr. Lofrano what question was put to legal; who provided the legal advice; in
what form it was provided; what, if anything, was provided to the attorneys in connection with
obtaining advice; whether legal provided anything in writing; in what setting the advice was
given; who else was present when the advice was given; whether legal advice was given on more
than one occasion; whether legal's advice on self-reporting changed over time; whether any
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 12 of 20
disagreement was expressed with respect to whether legal's opinion was consistent with HUD
requirements; and other similar questions. Id. at 120-141.
Mr. Lofrano was prepared to answer those questions (and did answer certain of
them that did not reveal the substance of advice given), but counsel for Wells Fargo instructed
him not to testify concerning the substance of the legal advice that he received, noting that the
privilege belongs to Wells Fargo. id. at 104:24-105,19; 113:21-114:3; 120:15-122:16; 129:21 -
131:17. As the Government concedes, Mr. Lofrano himself does not own the privilege here.
Gov't Br. at 8; see also Upjohn Co. v. United States, 449 U. S. 3 83, 394-95 (198 1) (corporation
holds privilege of attorney-client communications between its attorneys and other employees). 5
Accordingly, Mr. Lofrano followed the instruction. Rather than contacting the Court in an effort
to resolve this issue during the deposition, the Goverinment chose to go ahead with the deposition
and raise the issue with the Court only after the close of fact discovery.
ARGUMENT
Mr. Lofrano has not waived his advice of counsel defense. The Government's
motion for additional discovery should be denied, except that Mr. Lofrano does not oppose, at
the appropriate time, reopening his deposition for the limited purpose of him providing answers
to the specific questions asked by the Government to which Wells Fargo interposed an
instruction on grounds of attorney-client privilege.
A. Mr. Lofrano Is Entitled to Present His Advice of Counsel Defense, Which He
Timely Asserted and Has Steadfastly Maintained
The Government jumps from its premise-that " [t]he law in this Circuit is settled
that when a party invokes the advice of counsel defense, the attorney-client privilege is impliedly
Mr. Lofrano also testified that
Ex. D at 236:18-25; 240:25-242:2.
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 13 of 20
waived," Gov't Br. at 3, and therefore Mr. "Lofrano's assertion of an affirmative advice of
counsel defense" operates as a waiver agai nst Wells Fargo, id at 8-1 1-to the incorrect (and
unconstitutional) conclusion that Mr. Lofrano has waived the advice of counsel defense because
he purportedly made "no effort whatsoever to disclose evidence underlying his advice of counsel
defense." Id. at 14. The Government complains that Mr. "Lpfrano was aware that the Bank had
withheld as privileged all documents reflecting legal advice about self-reporting and he made no
effort whatsoever to ensure that the Government received full (or even any) discovery
concerning his advice of counsel defense." Id, at 5.
It was not incumbent upon Mr. Lofrano, however, to ensure that the Government
received the discovery the Government wanted to counter Mr. Lofrano '5 affirmative defense. To
state the obvious, that was the role of the Government. And, if the Government's brief is to be
believed, every single one of the arguments it now makes with respect to the waiver of the
privilege could have made the day after Mr. Lofrano served his affirmative defense asserting the
advice of counsel defense. If the Government chose not to challenge Wells Fargo's privilege
assertions earlier (and before the close of fact discovery), or not to take any depositions of the
attorneys identified by Mr. Lofrano, or to wait until the last day to take Mr. Lofrano's deposition,
it was not Mr. Lofrano's responsibility to tell the Government otherwise or presume the
Government did not know what it was doing.
Mr. Lofrano did what he needed to do to both assert and preserve the affirmative
defense by asserting it in his Answer, Fed. R. Civ. P. 12(b), and never once relying on a privilege
he asserted as a basis for withholding documents or information requested by the Government. 6
6 Although Mr. Lofrano's interrogatory responses asserted a general privilege objection, he did not
in fact withhold any information on that basis, as reflected in our April 16, 2015 letter. Letter to J.
Furman, BOF No. 158.
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 14 of 20
Indeed, he did not refuse to answer any Government question whatsoever on grounds of
privilege until the last day of fact discovery and only then because Wells Fargo-and not his
own counsel-asserted a privilege objection and refused to let him answer questions he would
have been anxious to address.
It follows that none of the cases cited by the Government support its waiver
argument. First, the Government relies on cases involving circumstances in which the same
party that was asserting the advice of counsel defense also simultaneously invoked attorney-
client privilege. See In re Residential Capital, LLC, 491 B.R. 63, 69 (Bankr. S.D.N.Y. 2013);
Arista Records LLC v. Lime Group LLC, No. 06 CV 5936 (KMW), 2011 WL 1642434, at *2
(S.D.N. Y. Apr. 20, 2011); Troublg v. Wet Seal, Inc., 179 F. Supp. 2d 291, 3 04 (S.D.N.Y. 200 1)
(cited by the Government at Gov't Br. at 14). In those circumstances, courts appropriately have
held that a party cannot use the privilege as a sword and as a shield, United States v. Bilzerian,
926 F.2d 1285, 1292 (2d Cir. 1991), as when a party has the power to waive the privilege, its
assertion of the advice of counsel operates as a waiver.
Here, however, as the Government admits, "the relevant privilege in this matter is
held by Wells Fargo," Gov't Br. at 8 n.4, and not Mr. Lofrano, and the Government does not cite
a single case where the refusal of a party who owns the privilege operates as a waiver of an
affirmative defense against a separate party who does not own the privilege, who has not asserted
it, and who has not declined to produce any information or documents on the grounds of his own
attorney-client privilege. To the contrary, a waiver is an intentional relinquishment of a known
right, United States v. Olano, 507 U.S. 725, 733 (1993) (quoting Johnson v. Zerbst, 304 U.S.
45 8, 464 (193 8)), and where Mr. Lofrano did not have a right to turn over information (and was
never requested to do so)-as the Government admits, Gov't Br. at 13-his alleged failure to
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 15 of 20
compel Wells Fargo to do so cannot operate as a waiver of his personal affirmative defense,
Indeed, the only authority we are aware of that is directly on point supports Mr. Lofrano, and
holds that the assertion of an advice of counsel defense by individuals who can raise such
defense while a corporate defendant asserted attorney-client privilege did not "present an
instance in which the privilege is impermissibly used as 'both' a sword and a shield." United
States v. WR. Grace, 439 F. Supp. 2d 1125, 1144 (D. Mont. 2006).
The Government also claims that Mr. Lofrano could have moved for a protective
order to require Wells Fargo to produce privileged documents, see United States v. Mix, No 12-
171, 2012 WL 2420016 (ERD La. June 26, 2012), and suggests that Mr. Lofrano was compelled
to burden the Court with such a motion to preserve his ability to assert the affirmative defense at
trial. Gov't Br. at 4-5, 11. But Mix does not remotely support that claim. The defendant in that
case sought production of the documents because he wanted "to use [the privileged documents]
at trial," not because he needed to make the motion to preserve an affirmative defense. Id. And,
accordingly, the Court did not hold that an individual defendant who wants to assert an
affirmative defense is required to make every motion necessary for his adversary to receive
relevant documents in order to preserve the defense. That is the role of the adversary.
Here, Mr. Lofrano has been prepared-and is prepared-to rely on his own
testimony regarding the advice he received, as well as on the non-privileged documents already
produced by Wells Fargo that corroborate such advice was given to support his affirmative
defense. Such testimony will establish that Mr. Lofrano received oral advice with respect to self-
reporting requirements and that he followed and relied on the advice. The testimony is also
corroborated by a number of produced documents showing that Wells Fargo's legal department
was involved in decisions concerning Wells Fargo's self-reporting policy. See, e.g., Ex. L at 2
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 16 of 20
inEx. M(
Ex. N at W0000044354(
If the Government
needed testimony from other witnesses or additional documents from Wells Fargo, it should have
made the motion it is now making during the fact discovery time period.
Mr. Lofrano has a constitutional right to present all defenses available to him,
Lindsey v. Normet, 405 U.S. 56, 66 (1972) ("Due process requires that there be an opportunity to
present every available defense.") (quoting American Surety Co. v. Baldwin, 287 U.S. 156, 168
(1932)). The Government asserts a claim with punitive aspects, for "hundreds of millions of
dollars," including "treble the Government's damages, and civil penalties for the maximum
amnount allowed by law." SAC 5,.203 (b); United States v. Sanchez, 520 F. Supp. 103 8, 1040
(S.D. Fla. 198 1) (where government sought $92,000 fine, rejecting government's argument that
defense was foreclosed; noting that "characterizing the sanction as civil does not alter the fact
that a penalty is being imposed by the Government for violation of the law, and in these cases, a
very severe penalty. As such, this Court feels compelled to afford Defendants every opportunity
to establish whatever defenses may exist, in law and fact, to the penalties imposed.").
Mr. Lofrano's reliance in good faith on the advice of counsel represents a
complete defense (as the Government admits) and defeats the scienter requirement of the
Governiment's FCA and FIRREA claims. See 31 U.S.C. § 3729(b); U.S, ex rel. Mikes v. Straus,
84 F. Supp. 2d 427, 432 (S.D.N.Y. 1999); United States ex rel Hochman v. Nackmnan, 145 F-3d
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 17 of 20
1069, 1073 (9th Cir. 1 998).7 The Government made no attempt whatsoever to request discovery
regarding Mr. Lofrano's advice of counsel defense from either Mr. Lofrano or Wells Fargo, and
there is no basis for its suggestion that defendants nonetheless somehow were required to but
failed to provide that discovery, The Government cannot shift responsibility onto Mr. Lofrano
for the Government's tactical decision not to pursue discovery, and use that decision to deprive
Mr. Lofrano of his right to present this defense.
The Government's illogical suggestion that defendants have been both in
"4conflict" and, at the same time, in collusion to conceal their supposed conflict from the
Government, is equally baseless. Gov't. Br. at 10. Wells Fargo has not asserted an advice of
counsel defense and will not gain any advantage from Mr. Lofrano's assertion of the defense,
and if Mr. Lofrano were merely Wells Fargo's puppet he would not have asserted the defense at
all. Similarly, Mr. Lofrano does not gain any advantage from Wells Fargo claiming privilege,
While Mr. Lofrano does not need the documents and testimony that Wells Fargo has withheld in
order to assert his advice of counsel defense, he was prepared to answer the questions posed to
him at his deposition.
B. The Government's Belated Request to Re-open Fact Discovery Should Be
Denied
The Government (and the team pursuing the case against Mr. Lofrano) has known
for over a year that Mr. Lofrano asserted an advice of counsel defense, and would likely testify
that he had received legal advice on self-reporting issues. Mr. Lofrano raised that affirmative
defense in his Answer and identified lawyers in his initial disclosures and interrogatory
7 The Government's FIRREA claims against Mr. Lofrano are based on alleged violations of 18
U.S.C. § 1001, 1006, 1014, 1341, and 1343. Section 1001 requires "knowing and willful" misconduct;
section 1006 requires a false statement with the intent to defraud; section 1014 requires a knowingly false
statement; sections 1341 and 1343 require knowing participation in a scheme to defraud with the specific
intent to defraud.
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 18 of 20
responses. Indeed, he alerted the Government to the issue in December 2013 and January 2014,
even before the Government filed its lawsuit against Mr. Lofrano. During that entire time, the
Court warned all parties more than once that it would not extend discovery, ECF Nos. 134, 154,
and the parties were on notice that they should use the time the Court made available to pursue
both the claims asserted and the affirmative defenses interposed.
Wells Fargo and Mr. Lofrano used the period to discover and challenge the
Government's affirmative claims. So too did the Government with respect to certain of the
defendants' arguments and affirmative defenses. The Government chose not to take the
deposition of Wells Fargo's lawyers-whose names it had been given. No one deprived the
Government of the right to notice those depositions. With respect to documents, the Government
chose the grounds on which to oppose Wells Fargo's assertion of privilege. Wells Fargo served
its privilege log on March 31, 2015. The Government challenged Wells Fargo's withholding of
documents based on the bank examiner privilege a week later on April 7, but made no challenges
concerning attorney client privilege until a week before the May 15 close of fact discovery, and
even then it did not do so on the basis of waiver. Indeed, until Wells Fargo instructed Mr.
Lofrano not to answer particular questions at his deposition on the last day of fact discovery, the
Government never once suggested or argued that Mr. Lofrano's assertion of the advice of
counsel defense operated as a waiver against Wells Fargo., And the Government chose not to
serve any document requests or contention interrogatories on Mr. Lofrano.
It is now too late for the Government to reopen discovery and to seek depositions
and make arguments it could have made during the period of fact discovery. The Court gave the
Government time to notice and take fact depositions; that time has expired. Scheduling Order,
Nov. 19, 2014, ECF No. 13 1. The Court also gave the parties ample time to request documents
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 19 of 20
and to challenge document production. That time too has expired. The parties-certainly Mr.
Lofrano-have planned their defenses based on the documents that have been produced and the
depositions that have been taken. And the Court's scheduling Order, to which Mr. Lofrano
intends studiously to adhere, calls for the parties now to move to expert discovery.
Mr. Lofrano would not oppose a request for an Order permitting him to answer
the Government's questions at his deposition (for which he followed the privilege instruction of
Wells Fargo counsel) at a later time before trial, as determined by the Court. But it would be the
height of unfairness, would reward the Government for its own tactical or reckless decision, and
would disserve judicial efficiency for the Court now to give the Government leave to take
depositions it affirmatively chose not to take during the time fixed for fact discovery or to make
additional arguments with respect to the production of documents it chose not to assert during
that period.
CONCLUSION
For the foregoing reasons, the Government's motion should be denied, except to
the extent it seeks to reopen the deposition of Mr. Lofrano so that he can answer the questions
about advice of counsel that he was instructed not to answer on May 15.
Dated: New York, New York CLEARY GOTTLI ,B STEEN M TON LLP
June 2, 2015
By: _ _ _ _ _ _ _ _ _ _ _ _ _ _
Lewis Liman
Meredith E. Kotler
Liana Roza Vitale
One Liberty Plaza
New York, New York 10006
Phone: (212) 225-2000
Facsimile: (212) 225-3999
A4ttorneys for Defendant Kurt Lofrano
Case 1:12-cv-07527-JMF Document 262 Filed 07/20/15 Page 20 of 20
