JAN 6, 2022 | REPUBLISHED BY LIT: JAN 6, 2022
A review of the changes in the federal court system in the last year alone has raised eyebrows.
There are new templated “standard” scheduling orders and pilot schemes for initial disclosures when foreclosures land in the federal court system, usually by a foreclosure mill removing the case from state court.
The latest surge in protective orders in foreclosure cases is another new event as the public access to courts and open dockets and media oversight is being restricted, rather than expanded.
LIT discovered behind the PACER paywall lies a dark forum of hidden paperwork – which proves beyond a reasonable doubt; perjury, judicial misconduct and much more.
We’ve uncovered it, first hand.
Below we have selected the ongoing foreclosure saga of Kafi Inc, who has maintained several cases over several years in S.D. Tex. federal courthouse in Rusk St.
Since the departure of Judge Vanessa Gilmore, this case has been reassigned to Judge Charles Eskridge, who made his multi-million dollar net worth from representing Wall St during the Financial Crisis 2008, e.g. Lehman Bros while at Quinn Emanuel.
CASE LAW ON ENTERING PROTECTIVE ORDERS,
ENTERING SEALING ORDERS, AND MODIFYING
Committee on Rules of Practice and Procedure
(Prepared by Andrea Kuperman)
Updated July 2010
Protective order is an order that prevents the disclosure of certain information under certain circumstances. A party cannot use discovery rights just to harass or annoy another party or an outside witness. If a party is abusing discovery rights in a case, Federal Rules of Civil Procedure Rule 26(C) lets the other party or outside party to ask the court for a protective order. A person can be protected from annoyance, embarrassment, undue burden and expense, and oppression.
Protective order is mainly used to protect a witness from unreasonable discovery requests like harassing questions in a deposition or unnecessary medical examination. While regulating the process of pre trial discovery, the State intends to facilitate the search to promote justice by allowing liberal discovery of information from the other party. At the same time, it aims to protect the legitimate privacy interests by restricting the availability of information from the other party only upon proving the good cause behind it.
As per Rule 26(C) of Federal Rules of Civil Procedure, a party or any person from whom discovery is sought may move the court for a protective order. The motion must include a certification that the person has in good faith conferred with other parties in an effort to solve the dispute without the interference of court. The court may issue an order to protect a party from annoyance, oppression, undue burden, expense by forbidding the disclosure or discovery, forbidding inquiry into certain matters, designating persons who may be present while the discovery is conducted, requiring that a deposition be sealed and opened only on court order, requiring that a trade secret or other confidential research, development, or commercial information not be revealed, and requiring that the parties simultaneously file specified documents in sealed envelopes which has to be opened as the court directs.
“STANDARD” PROTECTIVE ORDER
The Court orders that the following restrictions and procedures apply to certain information, documents, and excerpts from documents that the parties produce to each other during initial disclosures and in response to discovery requests.
1. “Confidential Information” refers to private, secret, or restricted information of any party that by its nature must be maintained in confidence to protect the interests of the party. Counsel for any party, or a pro se party, may designate any document, information contained in a document, information revealed in an interrogatory response, or information revealed during a deposition as Confidential Information where determined in good faith that such designation is necessary. The party making such designation must stamp the documents or information with indication of “CONFIDENTIAL.”
2. Unless otherwise ordered by the Court or provided for in this Order, any party receiving Confidential Information:
a. Must hold and maintain such information or document solely for use in connection with this action; and
b. Must not disclose the information or document to any other person.
3. The parties must make a good faith effort to resolve any challenge to another party’s confidentiality designation. The challenging party may seek resolution by the Court in the absence of agreement.
4. Information or documents designated as “confidential” must not be disclosed to any person, except:
a. The requesting party and counsel, including in-house counsel;
b. Employees of such counsel assigned to and necessary to assist in the litigation;
c. Consultants or experts retained by either party to the extent deemed necessary by retaining counsel;
d. Any person from whom testimony is taken or is to be taken in this matter, but such a person may only be shown Confidential Information during and in preparation for testimony and may not retain the Confidential Information; and
e. The Court, including any clerk, stenographer, or other person having access to Confidential Information by virtue of his or her position with the Court, and including the jury at trial or as exhibits to motions.
5. Prior to disclosing or displaying Confidential Information to any persons identified in Paragraphs 4(a), (b), (c), and (d), counsel must:
a. Inform the person of the confidential nature of the information and documents; and
b. Inform the person that this Court has enjoined the use of the information or documents for any purpose other than this litigation and has enjoined the disclosure of that information or documents to any other person.
6. Prior to disclosing or displaying Confidential Information to any persons identified in Paragraphs 4(c) and (d), counsel must also obtain a signed agreement binding the person to this Order in the form attached as Exhibit A. The party desiring to disclose Confidential Information may seek appropriate relief from the Court in the event such person refuses to sign an agreement.
7. The disclosure of a document or information without designating it as Confidential Information shall not constitute a waiver of the right to later designate such document or information provided that the producing party designates such material as Confidential Information no later than fourteen days after the close of discovery.
Upon such designation, all parties must treat such document or information as Confidential Information. No producing party may hold a receiving party accountable for any use or disclosure prior to such designation.
8. Any party seeking to file under seal any pleading, brief, or supporting material containing Confidential Information must obtain permission of the Court. The Court allows such filing only on showing of exceptional circumstances. Any party seeking to seal Confidential Information must:
a. File a sealed motion explaining to the Court the justification for preventing public disclosure of the information;
b. Attach the filing proposed for permanent seal on the docket;
c. Attach a redacted version suitable to and proposed for filing on the public docket or explanation why redaction is not possible; and
d. Absent alternate permission, identify the filing with a title and designation of “SEALED” on the CM/ECF System (for example, “Motion for Summary Judgment (SEALED),” and not simply “SEALED DOCUMENT”).
The Court promptly considers such motions and directs filings under seal or on the public docket as appropriate.
Anticipate and seek resolution of such motion in advance of filing deadlines.
9. Within thirty days after entry of final judgment no longer subject to further appeal, each party must return all Confidential Information and any copies to the producing party or provide certification of its destruction. Each parties’ counsel may retain their working files on the condition that those files will remain confidential.
10. The foregoing is without prejudice to the right of any party to apply to the Court for an order to:
a. Further protect Confidential Information;
b. Seek protection regarding the production of documents or information;
c. Compel production of documents or information; or
d. Modify this Order.
11. Nothing in this Protective Order constitutes an admission by any party that Confidential Information disclosed in this case is relevant or admissible. Each party maintains its right to object to the use or admissibility of all Confidential Information pursuant to applicable law and rules.
12. Any party may enforce this Order by motion to the Court. Any violation may result in the imposition of sanctions.
Signed on January 05, 2022, at Houston, Texas.
Hon. Charles Eskridge
United States District Judge
Ten years ago, Lehman Brothers filed for bankruptcy. The collapse of the legendary bank — a fixture of the U.S. financial system dating to the 1850s — reverberated around the world, unleashing a financial crisis of a magnitude not seen since 1929. Credit markets froze, global trade choked, asset values evaporated and jobs vanished.
The firm has spent nearly 10 years since then fighting in court for the rights of Lehman’s creditors, leading the charge against the so-called “big bank” counterparties.
This arduous legal journey, wending through tens of millions of documents, hundreds of depositions, and one of the longest trials in the history of the U.S. Bankruptcy Court for the Southern District of New York has allowed Lehman’s estate to recover more than $6 billion.
It has also yielded insights into weaknesses in our financial system and bankruptcy laws that could allow such catastrophic losses to happen again.
The immediate cause of Lehman’s death was a rapid loss of liquidity capped by extraordinary demands for cash collateral by other banks. As Bryan Marsal, the restructuring expert who oversaw Lehman post-bankruptcy, explained, Lehman “was solvent. It just ran out of liquidity.”
Despite being the fourth largest investment bank in the world, Lehman’s life literally depended on the mercy of its clearing banks, the conduits of short-term liquidity.
None more so than JPMorgan, which controlled Lehman’s tri-party repo, the repurchase agreements akin to collateralized loans essential to broker-dealers’ financing their inventory of securities.
The run on Lehman came in various forms, including money market funds scaling back their overnight repo investments and hedge funds transferring out their prime brokerage balances.
Some of the big banks sought to improve their position vis-a-vis Lehman on the eve of bankruptcy by obtaining additional collateral, but the players’ varying degrees of success were a direct function of their relative leverage.
Citibank, for example, used its essential role in clearing Lehman’s foreign exchange transactions to extract a $2 billion cash deposit in June 2008. Firms who were merely Lehman’s trading counterparties enjoyed more limited success.
During the week of Sept. 8, 2008, as rumors swirled that counterparties were reluctant to trade with Lehman, Lehman provided $285 million to Goldman Sachs and $200 million to Deutsche Bank as extra collateral for their derivatives trades.
No such luck for Lehman bondholders and other Main Street investors.
The largest single drain on Lehman’s liquidity came ultimately from JPMorgan itself.
In the week prior to Lehman’s bankruptcy, JPMorgan used the explicit threat of ceasing to clear Lehman’s tri-party repo to extract $8.6 billion in cash from Lehman.
This left Lehman’s European broker-dealer with a projected cash shortfall of $4.5 billion, forcing Lehman to file for bankruptcy in the early morning hours of Sept. 15, 2008.
Rather than step in as lender of last resort, the Federal Reserve pronounced Lehman just small enough to fail, offering a lesson in moral hazard that lasted 24 hours until the Fed found it had $85 billion with which to bail out AIG.
To halt the run, the market needed assurance from the Fed that JPMorgan and Lehman’s tri-party repo investors would not pull the plug on Lehman’s financing. The Fed had begun participating in the tri-party repo market in March 2008.
At first, the Fed accepted only the most liquid and easily valued types of securities.
But on Sunday, Sept. 14, 2008, it offered expanded repo financing to every dealer except one — Lehman.
Not only did the Fed have the authority and ability to extend this liquidity to Lehman using its emergency lending authority under Section 13(3) of the Federal Reserve Act, but it actually did so immediately after Lehman’s bankruptcy, which allowed Lehman’s broker-dealer business to continue operating long enough to be purchased by Barclays.
Had the Fed offered Lehman this liquidity lifeline just one day earlier, Lehman would have survived long enough to be rescued when the real Wall Street bailout came in the form of programs like the Troubled Asset Relief Program, or TARP, which Congress passed three weeks later.
Instead, Lehman plunged into a bankruptcy freefall that destroyed billions of dollars in value — value that belonged to Main Street creditors and shareholders — and turned a credit crisis into a global conflagration.
For Lehman’s creditors, a sudden unplanned bankruptcy filing proved extremely costly.
Untold value was lost in translation as the once-integrated global enterprise was Balkanized into multiple insolvency proceedings in different jurisdictions and once valuable assets were broken apart and sold at fire-sale prices.
Bankruptcy fees, expenses and interest alone reached into the billions. Lehman’s U.S. broker-dealer business was sold to Barclays in such a mad rush that an extra $5 billion of securities were mistakenly conveyed as margin to cover overnight loans, a loss to the estate that the bankruptcy judge chalked up to the “fog of Lehman.”
Lehman suffered a deluge of inflated bankruptcy claims, particularly for derivatives trades where counterparties tried to claim losses bearing no resemblance to the actual value of their trades.
Bankers and regulators were not the lone culprits. Exacerbating the crisis was a legal regime that rewarded the base instincts of fear and greed.
The Bankruptcy Code provides a “safe harbor” for securities transactions, emboldening firms to make collateral grabs and, perversely, hasten the collapse of a firm like Lehman.
Ordinarily in a bankruptcy, if the debtor pays off a debt on the eve of filing, that preferential payment can be clawed back.
But Bankruptcy Code Section 546(e) exempts securities transactions from preference liability, giving financial institutions an incentive to demand that a failing borrower repay its loans prior to a bankruptcy filing.
As former Bankruptcy Judge James Peck explained in a later case, 546(e) protects transactions “that the law generally would seek to discourage (ganging up on a vulnerable borrower to obtain clearly preferential treatment in the months leading up to a bankruptcy).” Consequently, once there’s a hint of trouble, financial institutions have every incentive to accelerate the downfall by ceasing to lend and demanding payment — precisely what happened to Lehman.
Post-bankruptcy, the legal regime allowed for further abuse of the Lehman estate.
The ISDA (International Swaps and Derivatives Association) master agreement gives counterparties the chance to inflate claims and force the bankrupt party to pursue them in court.
As one Wall Street trader preyed on a bankrupt Lehman, he quipped, “let them come sue us.” With 6,000 counterparties asserting claims arising from over 1 million derivative trades, Lehman was forced to expend vast amounts of time and resources pursuing lawsuits, mediations and settlements to resolve inflated derivatives claims.
As long as faulty rules like these persist, and as long as a handful of colossal firms serving many different functions dominate our financial system, the law of the jungle that toppled Lehman will surely govern the next financial crisis.