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1 FILED: NEW YORK COUNTY CLERK 0/1/1 1: PM INDEX NO. 1/1 NYSCEF DOC. NO. RECEIVED NYSCEF: 0/1/1 1 1 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY : CIVIL TERM : PART X DEUTSCHE BANK NATIONAL TRUST COMPANY, solely as Trustee for HSI ASSET SECURITIZATION CORPORATION TRUST 0-NCI Plaintiff - against - HSBC BANK USA, NATIONAL ASSOCIATION Defendant Ind. No. 01/ X 0 Centre Street New York, New York May 1, 1 B E FOR E : HONORABLE MARCY S. FRIEDMAN 1 Justice 1 A P PEA RAN C E S : 1 HOLWELL SHUSTER & GOLDBERG LLP Attorneys for Plaintiff 1 1 Broad Street New York, NY 00 1 BY: MICHAEL A. SHUSTER, ESQ. DANIEL P. GOLDBERG, ESQ. BLAIR E. KAMINSKY, ESQ.

2 PATTERSON BELKNAP WELL & TYLER LLP Attorneys for Plaintiffs Avenue of the Americas New York, NY 0 BY: ERIK HAAS, ESQ. ORRICK, HERRINGTON & SUTCLIFFE, LLP Attorneys for Defendants 0 Howard Street San BY: Francisco, CA BARRY S. LEVIN, ESQ. PAUL F. RUGANI, ESQ. SIMPSON THACHER & BARTLETT, LLP Attorneys for Defendants Lexington Avenue New York, NY 0 BY: DAVID J. WOLL, ESQ. MARY KAY VYSKOCIL, ESQ. DAVIS POLK & WARDELL LLP Attorneys for Defendant Morgan Stanley 0 Lexington Avenue New York, NY 0 BY: BRIAN WEINSTEIN, ESQ. ELISABETH GRIPPANDO, ESQ. Kathy Y. Jones Official Court Reporter

3 KATHY Y. JONES, OFFICIAL COURT REPORTER

4 THE COURT: May I have the appearances just of counsel who are seated at the table. I know that we have distributed a sign-in sheet for other counsel who are present. MR. SHUSTER : Michael Shuster, Holwell Shuster & Goldberg for the putback plaintiffs. MR. HAAS: Erik Haas, Patterson, Belknap Webb & Tyler on behalf of the monoline plaintiffs. MR. GOLDBERG: Daniel Goldberg, Holwell, Shuster & Goldberg for the putback plaintiffs. 1 MS. KAMINSKY: Blair Kaminsky, Holwell, Shuster & Goldberg also for the putback plaintiffs. MR. LEVIN : Good morning, your Honor. Barry Levin, Orrick Herrington & Sutcliffe on behalf of the defendants in both the put back and monoline plaintiffs. MR. RUGANI : Good morning, your Honor. Paul Rugani, Orrick Herrington & Sutcliffe also for the putback monoline defendants. MR. WOLL: Good morning, your Honor. David Woll, Simpson Thacher also on behalf of the putback defendants. MS. VYSKOCIL: Mary Kay Vyskocil from Simpson Thacher for the monoline defendants. MR. WEINSTEIN : Brian Weinstein from Davis Polk for the putback defendants and my colleage Elisabeth

5 Grippando. THE COURT: At the outset I would like to thank counsel for their commitment to the coordination of these RMBS cases and their work in resolving many of the coordination issues. Although counsel's efforts were obviously ostensive, a significant number of disputes do remain. I therefore, intend to spend the time today highlighting some concerns about the proposed orders and suggestions for possible resolution, or in the private language that those in the commercial bar seem so to favor, I intend to give you an overview from 0,000 feet. I hope that my suggestions will provide a framework for a further meet and confer process that will result in resolution of many of the remaining issues. Although I will therefore not hear extensively today from counsel regarding their positions on the disputed issues, there will be a full opportunity to be heard with respect to any remaining disputes after a further meet and confer process is undertaken. I will comment on the proposed master orders in the following order: The ESI order, the case management order or CMO including the special master provisions and finally the confidentiality order which may also be referred to as the protective order. In commenting on the master orders, I may use the term finding or I may use

6 language to the effect that a party's position lacks support in the case law. At this conference, however, unless otherwise stated, I am not making a final finding as to a party's request or position on a dispute but rather am strongly indicating my concerns about the propriety of such requests or position. To begin with the ESI order. The production of loan files is the subject of a major dispute. To summarize this dispute in general terms, plaintiffs request that each loan file be produced in OCR format, have a loan number and be "logically unitized", that is, have the beginning and end of each document identified. Defendant's request that each loan file be produced with bate stamps and in the manner in which the documents were kept in the ordinary course of business and is willing to produce meta data to the extent available. Plaintiffs also seek a certification from defendants that what is produced is the best evidence of the loan and a "translation table" setting forth the number by which the loan is identified in the PSA as well as any other loan number. Plaintiffs seek the production within 0 days of the approval of the ESI and confidentiality orders. Defendants seek to stay discovery if a motion to dismiss is pending but undecided or if the time to answer has not yet expired.

7 1 1 1 It appears that plaintiffs seek to place the onus on defendants as the producing parties to identify the documents that are in each loan file, to state when each document begins and ends and to assign meta data identifying the beginning and end of each document. Plaintiffs in effect request the defendants organize and structure the productions. The plaintiff's position appears to seek considerably more preproduction work on defendants' part than would be legally warranted. In the ESI order in the investor fraud cases which this Court has approved as I am sure you know, the defendants are agreeing to some preproduction efforts to 1 organize the documents. Generally speaking, in those 1 cases the parties have agreed with respect to each loan file to produce the file in a single PDF which will be bate stamped or to produce TIFF images without OCR. The Court directs that the parties in the putback and monoline cases meet and confer and strongly recommends that the parties use the ESI order in the investor fraud cases as a baseline. I am turning now to the case management order and will begin with the issues concerning the appointment of the special master. I urge the parties to agree to a provision that the duties of the special master will

8 include not only duties with respect to discovery but also the conduct of settlement conferences in any individual case in which the parties agree to such conferences. standard of review of the special master's discovery The rulings is a major subject of dispute. Plaintiffs seek review under a clearly erroneous or contrary to law standard. Defendants seek de novo review. The authority for appointment of the special 1 master which should be added to the CMO is CPLR (b). The parties are strongly urged to apply the three-part standard of review under Federal Rule (f) () and to 1 stipulate that: One, the factual findings of the special master will be reviewed for clear error or will be final; two, the procedural rulings will be reviewed only for abuse of discretion; and three, de novo rulings will be made with respect to the special master's conclusions of law. This clearly-articulated standard will minimize disputes or enable more expeditious and predictable resolution of disputes that do occur. In contrast, CPLR (b) does not specify the standard of review and the standard under this statute for reviewing discovery rulings does not appear to be settled. Cases involving review of trial rulings apply neither de novo review nor a clearly erroneous standard. Application of Rule with the permitted stipulations would appear to

9 be a reasonable compromise that would lead to predictability in determinations upon review. A further issue with respect to review is plaintiff's request for fee shifting in the event a defendant brings an unsuccessful motion for review. The general rule is that each party bears its own costs absent sanctionable conduct. The Court finds that this rule should apply to requests for review of the special master's rulings. Another major issue is whether a motion for 1 review should stay disclosure. CPLR l0(d) provides for a stay pending review although it provides for any application for review to be made somewhat more quickly than does the CMO. In discovery proceedings which the Court itself supervises, this Court does not ordinarily stay discovery pending hearing of discovery disputes or absent good cause shown. However, this Court would accept a provision that discovery will be stayed pending review unless the Court orders otherwise. Turning to another issue, the special master's fee. The basis or method for setting the fees must be defined with the special master and set forth in more detail in the CMO. The "private agreement" as to the fees for which the CMO provides in Paragraph III (F) must

10 contain detail as to the method for allocation and must be approved by the Court. Paragraph III (J) which provides 1 that the master shall only incur such fees as may be reasonably necessary is unworkably vague and should be unnecessary if the fee arrangement is reduced to writing with sufficient detail. It may be necessary to work with the special master to determine what documents regarding fees can be maintained in order to reach a final agreement on the fees and the appropriate allocation methodology. With respect to other issues concerning special 1 master, the CMO provides in Paragraph III (D) that a 1 ruling of the special master will be entered as an order 1 of the Court unless a party seeks review. It is not 1 likely that the Court would decline to accept an order of the special master but if the parties wish the ruling to be considered an order of the court, they must submit it for Court approval. Otherwise, they can simply provide that the ruling will be final as would be the case in a hear and determine under New York law. Leaving the topic of the special master, the proposed CMO provides in Paragraph I that the CMO does not amend any agreement by the parties to stay discovery or other proceedings. The CMO elsewhere appears to contemplate that the parties may by agreement without

11 Court approval modify the CMO or extend deadlines. for example Paragraph II (A). See The Court will not approve provisions to the CMO which modify, alter or are inconsistent with the CMO unless such agreements are submitted to the Court for approval and expressly approved. Turning now to the filing of papers. We are in the process of requesting three separate index numbers for master files for the putback cases, monoline cases and investor fraud cases. After I hav e concluded the statement that I am now putting on the record, my principal law clerk Ms. Wolfe will meet with the parties to discuss other details regarding the filing of papers. 1 Turning now to the steering committee. The 1 Court requests that the parties establish liaison counsel to facilitate communications between the Court and the steering committee. The Court further requests that the steering committees for the putback and the monoline cases coordinate with the steering committee for the investor fraud cases in order to achiev e uniformity of coordination procedures to the extent practicable. If it is not possible to undertake such coordination, that issue can be addressed at the next conference. Finally, on the topic of the steering committee, it is not appropriate for this Court to make an advisory

12 1 ruling as provided for in Paragraph V (J). That participation in a steering committee shall not constitute a client conflict. It is not apparent to this Court that such participation could constitute a client conflict but the Court will not in any event make an advisory ruling. I turn now to the general discovery provisions of the CMO. Paragraphs VI (A) and VI (B) appear to contemplate a master CMO and individual scheduling orders in each case. recognized. Individual case needs must of course be It is, however, important that there be 1 1 deviations from the CMO only where a basis for such deviations exist in the particular case and only with 1 Court approval. Any individual scheduling orders should 1 1 not repeat the terms of the CMO and should merely set forth the provisions which differ for the individual case from the CMO. All reasonable efforts should be made to conform to the outside dates in this CMO. A major dispute concerns provision of loan files, loan tapes and underwriting guidelines. Aspects of this dispute have already been discussed in connection with the ESI order. In addition, the Court notes that the parties have been unable to reach agreement on dates for priority production or outside dates for fact discovery. The parties to the investor fraud actions have

13 proceedings agreed to dates for priority productions including 1 productions by the plaintiffs of standing information and productions by defendants of loan tapes and loan files. They have also agreed to outside dates for completion of fact discovery. The Court has not yet heard from the parties in the investor fraud cases on whether the outside dates are reasonable and should be approved but the obvious question is why the parties to the putback and monoline cases have 1 not to date reached any agreement on such dates. parties can reach agreement on the format for the If the 1 production, however, it is expected that they should be 1 able to reach agreement on such dates. Such an agreement 1 1 should be a primary objective in the next meet and confer process. Turning now to the subject of depositions. Plaintiffs seek 1 depositions while defendant seeks a limit of. Plaintiffs seek no time limit while defendants seek a seven-hour limit. The parties should be able to reach a reasonable compromise on this dispute or to resolve this issue with the special master. In addition, a mechanism should be developed with the special master to avoid multiple depositions of witnesses across the putback and monoline cases. Turning to the issue of sampling. This issue is

14 deferred to the next conference. 1 The last issue I will address with respect to the CMO is pro hac vice admissions. The Part 0 practices should be followed for such admissions. The Court will 1 accept stipulations admitting outside counsel supported by certificates of good standing. The summary of the dispute on the depositions will be corrected to reflect that the dispute relates to party depositions. With respect to the confidentiality order, I am going to highlight the paragraphs with respect to which 1 the Court had particular concerns. When Ms. Wolfe meets with the parties, she will address any questions you may have because I will speak very generally and we will be jumping around a little bit as I address the paragraphs. Paragraph nine I'm using the plaintiff's redline attached to the March, 1, letter. Paragraph nine reflects a dispute about the extent to which there should be sharing across cases. Global sharing does not seem to this Court to be appropriate but some sharing across actions with the same parties for corporate representatives or witnesses that have knowledge of common issues as between the same parties should be undertaken. Paragraph (d) concerns access of "directing

15 certificate holders" to confidential information. 1 I am not persuaded at this juncture that the information should be made available to such certificate holders. However, particular applications for disclosure can be made to the special master on a showing of the reasons as to why the disclosure is needed to prosecute the claims in the case. Paragraph (e) is an agreed-to provision that experts will not use information for competitive advantage. The Court will not retain jurisdiction for enforcement of that provision. Paragraph 0 reflects a dispute between the 1 1 parties as to the plaintiffs may disclose information to taxing authorities and auditors and also to regulatory 1 agencies. Again, an application for relief may be made to 1 1 the special master on a showing as to why a specific document needs to be released to any of these third parties. Paragraphs (m) reflects a dispute about whether non-party borrower information may be disclosed to third parties such as an employer for purposes of verifying the borrower's eligibility for the loan. This is a very sensitive disclosure that the Court will not authorize absent an ev identiary showing at a later stage in the litigation that re-underwriting or loan sampling cannot be properly conducted without such disclosure. The issue, would, however, appear to be premature at this stage of the discovery proceedings.

16 1 Paragraph involves shifting of the usual burden for seeking relief from a subpoena where a receiving party is served with the subpoena. This issue was resolved to the Court's satisfaction in a pending Article proceeding involving JP Morgan, index number of 1, docket number. That's NYSCEF docket number paragraph. I would expect that the resolution will be acceptable to the parties here. Paragraph 1(a} concerns sealing and will be discussed by Ms. Wolfe with the parties. Paragraph is an agreed-upon paragraph which provides that if there is a violation of the confidentiality order the parties will not have an adequate remedy at law. There are issues with respect to the Court's retention of jurisdiction regarding this paragraph and it is requested that the parties confer with a view to reaching agreement on reasonable limits. Ms. Wolfe can address that issue further with you as well. Finally, with respect to the confidentiality order, paragraph concerns production of non-party borrower information. I am likely to approve some version of that paragraph and Ms. Wolfe will address some issues concerning that paragraph with you shortly. That concludes my highlight of issues with respect to the orders.

17 The Court has a request of counsel which is that they prepare a joint document, one, identifying all putback cases and a separate joint document identifying all monoline cases filed on or after May, 1, which have not yet been assigned to a judge; two, categorizing the cause of action, putback, monoline, fraud or other. I see that I've made a mistake. We want one 1 joint document and if it's necessary to confer with the investor fraud liaison counsel on this, it would be greatly appreciated identifying all RMBS cases of whatever type that have been filed on or after May, 1, which 1 have not yet been assigned to a judge. Two, categorizing 1 the cause of action whether putback, monoline, fraud or 1 other. I think we have at least one other, an Attorney 1 General case. We are further requesting that within 0 days of the date of filing of a so-ordered transcript of today's proceedings, any party who has not filed an RJI shall do so in order to facilitate the assignment of the cases. The purpose of this request is that we get as much of what we are going to get. We had some cases that were filed in 1 that we did not get until a few weeks ago. So, hopefully, this will pull the cases in. The significance of the May, 1, date is that is the date as of which the administrative judge

18 directed that all RMBS cases be referred to my part. We are also requesting that counsel in these cases and with counsel in the investor fraud cases prepare a joint list or joint document identifying all cases previously assigned to this part categorizing the type of case and in addition including a third item setting forth the status of the case with respect to participation in the coordination. So, for example, stating whether the parties are participating in the coordination or if not participating stating why. For example, that they are 1 stayed by court order or they are stayed by agreement of 1 the parties. If those categories that I just mentioned do 1 1 not capture every pending case, counsel should feel welcome to add additional categories explaining why they 1 are not participating in the coordination. just a housecleaning measure. This is really I have concluded my statement for today. I request that counsel obtain a copy of the transcript of today's proceedings. Ms. Wolfe will make arrangements with you as to where it should be efiled given that we don't yet have the master index numbers and we would like to have two hard copies filed with the clerk of Part 0. I will not so order the transcript until I receive the hard copies. I remind you that I reserve the right to correct

19 errors in the transcript. Therefore, if it is needed for any purpose, counsel should be sure they have a copy as so ordered by the Court and not merely as signed by the court reporter. Again, thank you for your efforts in coordinating these actions and I will remain available throughout the morning if anything is needed. MR. HAAS : Judge, just one point. Thank you so much for your direction. I think it would be useful now that we hav e been directed to meet and confer on these issues if we could set a timeframe to get back to your Honor. THE COURT: We will give you a date. How long do you think the process will take or do you need to confer among yourselves before letting me know? MR. SHUSTER: So, I think from our point of view there are going to be received clear directions for which we thank the Court. There are going to be very clear issues that are going to require additional really hard negotiations. We would like to meet and confer with the defendants early next week. You know, we've all taken detailed notes. We would like to meet and then you know come back to the Court with you know our joint submissions and any remaining issues which hopefully there won't be any but there is a couple that I can see.

20 quickly. So, we would like to do it quickly and come back The main thing for us is until we get all of these orders signed, these cases just aren't going to move forward. MR. LEVIN : So, we don't have any interest in delay but as you can see from the number of people in the courtroom, we also don't have authority -- I know we don't have authority and I suspect he might not either to reach agreement. We want to take your direction, see if we can agree on as much as possible but we also have Memorial 1 holiday coming up. So, we respectfully suggests 0 days. 1 1 I think that would give us enough time to close as many gaps as humanly possible. 1 MR. SHUSTER: Whatever is the pleasure of the 1 Court but we're prepared to meet quickly and move quickly. The Court has done most of the work for us here. THE COURT: We will find a date for you in 0 days or so. I neglected to mention earlier that the submissions that we had on the disputes that I addressed today were quite unwieldy and they were very v ery difficult to navigate. So, I am going to request that for the future submission, I get one joint letter of no more than ten double space pages setting f orth the parties' positions next to each other. I never thought I would ask

21 for a document that looked anything like anything that had not been produced in the th century but that is what I want, one column for the putback and monoline if their interest are in sync or if not, separate columns for putback and monoline and one column for the plaintiffs for each of the defendants' cases. 1-point typed font. I really must have MR. HAAS: Non-condensed. THE COURT: Sorry. They are very hard to read. MR. HAAS: Yes. 1 MR. LEVIN: Your Honor, they have a really nice chart. The first column is the disputed provision. We can put that on the page highlighting anything we don't agree on and the two columns after that so you will be able to see the language right there in front of you. THE COURT: This is worrying me that anyone is going to see this record. MR. SHUSTER: It's worrying me that Mr. Levin read my chart. MR. LEVIN : Trust me, my glasses are off. I can't read anything. THE COURT: I think we must have something more workable and that is something that Ms. Wolfe will address as well. MR. SHUSTER: So, is the idea that we will

22 submitting something before the next conference? THE COURT : Yes. That's very important. I appreciate your cooperation. Thank you. MR. SHUSTER: Thank you. MR. HAAS: Thank you. MR. WOLL: Thank you, your Honor. C E R T I F I CAT E Certified t~ ue and accurate transcript of the proceedings Reporter 1 1