Deloitte Discovery Motion Moved to Florida

     (CN) – A Florida court will consider a discovery motion that Deloitte & Touche hopes will ultimately undermine allegations it overlooked a massive mortgage fraud, a federal judge ruled.
     U.S. District Judge Rosemary Collyer in Washington granted the global financial advisory’s request to pursue its discovery efforts in a federal court in South Florida, where the firm is being sued by the Federal Home Loan Mortgage Corp. for allegedly issuing unscrupulous audit reports concerning Taylor Bean & Whitaker.
     Taylor Bean was a wholesale lender that went bankrupt in 2009 after being accused of fraudulently peddling worthless mortgage assets. Its chairman Lee Farkas gained infamy as one of the only top-level U.S. financial executives to be criminally charged for the widespread misconduct that plagued the mortgage industry leading up to the housing market collapse.
     Federal Home Loan Mortgage Corp. aka Freddie Mac claims that it purchased billions of dollars in mortgage assets through Taylor Bean in reliance on flimflam auditing by Deloitte & Touche.
     Freddie Mac is seeking $1.3 billion in damages from Deloitte & Touche, alleging that the firm overlooked obvious signs that Taylor Bean was engaged in pervasive fraudulent activity.
     Deloitte & Touche – deemed one of the “Big Four” accounting firms – is purportedly hoping that its discovery motion will generate evidence that will shift some of the blame to the Federal Housing Finance Agency, the regulatory entity that oversees Freddie Mac and acted as its conservator through the housing market collapse.
     Among other arguments, Deloitte & Touche says that the Federal Housing Finance Agency failed to pursue a tip about the Taylor Bean fraud and may therefore be brought into the lawsuit under a Florida Supreme Court doctrine established in Fabre v. Marin.
     Pursuant to the Fabre doctrine, Deloitte’s liability would be reduced in proportion to the regulator’s responsibility for Freddie Mac’s losses.
     In the discovery motion, Deloitte is demanding that the Federal Housing Finance Agency produce various internal documents related to an investigation into Taylor Bean, and a Taylor Bean employee’s reports of corporate malfeasance.
     The Federal Housing Finance Agency for its part had opposed fielding the discovery process in Florida.
     The agency invoked deliberative-process      as a means to withhold some of the requested documents, and it tried to convince Judge Collyer that the Florida court was not experienced enough in handling such matters.
     The agency says fewer than 10 opinions regarding deliberative-process privilege have been issued in the Southern District of Florida, but that the D.C. court has issued several hundred.
     But Collyer did not buy into that logic, saying she “has every confidence that the Southern District of Florida can handle Deloitte’s Motion to Compel.”
     In transferring the motion to Florida, Judge Collyer expounded on federal rules of civil procedure, which dictate that, in order to avoid undue burdens on respondent parties, a discovery motion stemming from out-of-state litigation generally should be kept in the local court where production is sought.
     She cited exceptions to the rules in cases where transfers would help avoid disrupting the underlying litigation.
     “In light of the short discovery window and the complexity of the issues raised by the Motion to Compel, the Court finds that transfer is appropriate to avoid disrupting the Southern District of Florida’s management of the underlying action,” the judge wrote.
     According to the order, discovery in the Deloitte case is scheduled to close by September 4, 2015.
     Court records indicate that Deloitte has avoided trial in a few other lawsuits over its allegedly lax auditing practices with respect to Taylor Bean.
     Those cases, which were filed against the firm by Taylor Bean’s bankruptcy trustee, as well as Deutsche Bank and Ocala Funding (a Taylor Bean subsidiary), were settled back in 2013.
     Representatives of the parties were not immediately available for comment.

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