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WRITER'S DIRECT DIAL No. (212) 849-7156 WRITER'S EMAIL ADDRESS jonoblak@quinnemanuel.com

March 8, 2012
VIA ELECTRONIC MAIL

The Honorable Eileen Bransten New York State Supreme Court Commercial Division 60 Centre Street, Room 442 New York, NY 10007 Re: MBIA Insurance Corp. v. Countrywide Home Loans, Inc., et. al., No. 08-602825

Dear Justice Bransten: We represent Plaintiff MBIA Insurance Corporation ("MBIA") in the above-captioned action. We write concerning continuing discovery abuses by Defendants, the repetition and severity of which warrant sanctions. Over the course of the last three weeks, Bank of America ("BAC") has produced nearly 170,000 pages of new, relevant, successor liability documents. These productions, which are continuing, have forced the postponement of a number of successor liability depositions and compelled MBIA to agree to a brief extension of the successor liability discovery schedule. This is just the latest conduct by BAC to sabotage the discovery schedule and cause MBIA significant prejudice, and is part of an indefensible pattern of delay and discovery abuses by both the BAC and Countrywide Defendants. As reflected in MBIA's recent motion to compel, Countrywide has failed to produce - or even reveal the existence ofnumerous documents concerning suspicions of fraud (and confirmed fraud) relating to loans in the Countrywide Securitizations, and has engaged in sharp practice that has interfered with discovery. This includes withholding important categories of documents on specious grounds and then selectively producing certain of such documents that it believes are favorable on the eve of(or during) depositions. Although the Court has given Defendants the benefit of the doubt as to previous discovery failings, MBIA believes that, as a result of what has become a pattern of conduct, sanctions against both the BAC and Countrywide Defendants are appropriate, and seeks leave of the Court to file a motion seeking such relief.
BAC's Discovery Misconduct

BAC has engaged in a pattern of conduct throughout the course of discovery that has consistently led to the same result - delay. Having failed to obtain a stay of MBIA's successor thrn emanueo umuhan & sImvl,
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MBIA v. Countrywide Home Loans, et al.

Index No. 60282512008 Page 2

liability claims - from this Court or the First Department - BAC has successfully interposed its own delay by twice making enormous supplemental productions of documents on the eve of the commencement of depositions, notwithstanding its previous repeated representations that its document production was complete. As the Court is aware, BAC disclosed, just before depositions were to commence in February, that it had identified a purported "coding error" that had resulted in responsive documents being identified as non-responsive, and thus withheld from production. MBIA opted nevertheless to continue with scheduled depositions and receive supplemental productions from BAC on a rolling basis. To MBIA's surprise, what followed was a flood of new documents, which has not abated. BAC has produced 170,000 pages of new documents in total, 115,000 of which were produced in just over the last week and a half. BAC's productions typically included several thousand pages per custodian and took place only days before a witness was to be deposed. Given the volume and timing, it was impossible to review these document productions meaningfully prior to the custodians' depositions. As a result, all five of the successor liability depositions conducted to date have been held open. Ultimately, it became clear that there was no point in continuing with depositions when BAC was producing thousands of pages per witness that could not be adequately analyzed in advance of the witnesses' depositions. Incredibly, although BAC agreed to suspend and reschedule those depositions set to take place over a two week period (between March 5 and 16), it complained that MBIA had sufficient time to review BAC's deluge of new documents and that MBIA was seeking to review this deluge at a "leisurely pace." Not only does this turn the facts on their head, but BAC has not even completed its production of these documents, despite having told the Court at the February 9 hearing that it would do so in two to three weeks. MBIA has not received supplemental productions for at least five scheduled witnesses. In addition, BAC has revealed that there is also a further collection of successor liability documents to be produced relating to agreed-upon document custodians who have not been noticed for deposition. Thus, notwithstanding the production of 170,000 pages of new documents, BAC's supplemental productions will continue, at this stage indefinitely. 1

Importantly, this is not BAC's first eleventh-hour document dump. As the Court is well aware, in November and late December of 2011, BAC produced more than 160,000 pages of new documents that had been improperly withheld as privileged, again as MBIA was preparing to commence successor liability depositions. That production came about only after MBIA repeatedly questioned BAC as to why its privilege logs - then including 20,000 entries - identified no redacted documents, suggesting that BAC had improperly withheld documents that could have been redacted and produced in part. Only after MBJA complained to the Court did BAC acknowledge this issue and commence review of its entire privilege log, which resulted in BAC producing 160,000 pages of new documents, a substantial portion of which had no redaction at all, reflecting that they should not have been withheld in the first place. BAC has never explained how it could have - inadvertently or otherwise - assembled such a massive privilege log without establishing a procedure for redacting documents that could be produced in part. Indeed, it is

(footnote continued)

MBIA v. Countrywide Home Loans, et al.

Index No. 60282512008 Page 3

Whatever BAC's explanation for these purported "errors," none has been provided, and errors of this magnitude should not be excused without a full explanation. BAC's productions over the last three months have put it on pace to double the total size of its production of successor liability documents. As a result, MBIA has twice been prepared to commence depositions only to have BAC make massive supplemental document productions that have not only caused delay but required MBIA to bear considerable expense in reconstituting teams of lawyers to review and analyze large volumes of documents in short periods of time. MBIA should not be forced to bear the prejudice such extraordinary conduct has imposed. BAC's repeated delays and obstructionist conduct warrant sanctions.

Countrywide's Discovery Misconduct

Countrywide's conduct has been even more egregious than BAC's, and has involved apparently willful and contumacious disregard of its discovery obligations and of the Court's scheduling orders and other discovery directives.

1.

Countrywide's Withholding of Whistleblower Documents and Selective Eleventh Hour Productions

Countrywide has failed to produce numerous documents relating to four former Countrywide employees who "blew the whistle" on fraudulent loan origination practices at Countrywide, three of whom were subsequently terminated. Countrywide has repeatedly delayed scheduling depositions of these "whistleblowers," and withheld documents relating to them which are clearly both highly relevant and responsive to MBIA's document requests. Moreover, Countrywide has cherry-picked documents most favorable to its own case for use in preparing for the whistleblowers' depositions, and then produced these documents just prior to or during depositions, all the while denying MBIA the majority of the documents to which it is entitled.

2.

Countrywide's Abusive Questioning of Whistleblower Witness

Countrywide's counsel harassed and bullied one of the whistleblowers - who was unrepresented by counsel at her deposition - to such an extent that she eventually felt compelled to adjourn her deposition until her counsel could be present. In a transparent attempt to intimidate and control the unrepresented witness and to prevent her from giving testimony harmful to Countrywide, counsel adopted a disrespectful, bullying and unprofessional manner, asked inappropriate, irrelevant and repetitive questions, and made repeated improper objections. Among other things, counsel repeatedly suggested that the witness was wrong to accept compensation from Countrywide if she knew the company was fraudulently originating loansan ironic position given that her job was to investigate fraud, and she was fired for reporting
difficult to believe that such an omission could be inadvertent given that redacting tools and protocols are a basic feature of electronic review platforms used for large scale document review projects.

MBIA v. Countrywide Home Loans, et al.

Index No. 60282512008 Page 4

what she discovered. Counsel also accused the unrepresented witness of refusing to answer his questions when he did not receive the answer he wanted; improperly instructed her that she was only to give a "yes" or "no" answer and was not permitted to give an explanation; made bullying, unprofessional comments; and frequently stated "move to strike" and/or "nonresponsive" after the witness gave an explanation in response to a question.

3.

Countrywide's Withholding of Documents Relating Specifically to Loans in Securitizations at Issue

As set forth in MBIA's recent motion to compel, Countrywide also failed to disclose for over two and a half years an entire database of documents concerning allegations of fraud with respect to more than 2,000 loans in the Securitizations (the "FACTS" database). This, despite a May 2009 directive from this Court requiring Countrywide to disclose all such databases, and Countrywide's representation to the Court at that time that it had already done so. In fact, Countrywide did not disclose the existence of this database until December 2011, and then only in response to MBIA's request for documents relating to two Countrywide departments responsible for addressing fraud allegations which had come to light during depositions. 2 In addition, Countrywide failed to disclose the existence of an internal Countrywide "Fraud Hotline," of which MBIA only became aware during the deposition of another Countrywide witness in August 2011 . Most recently, through the deposition of a former Countrywide whistleblower employee, MBIA has been alerted to the existence of an "independent appraisal/LandSafe hotline," which apparently also contains relevant and responsive documents. When asked about this hotline during a meet-and-confer on March 7, 2012, Countrywide could not confirm that all calls to this hotline were recorded in the FACTS database. Although Countrywide agreed to look into whether there was another database that tracked information derived from this appraisal hotline, Countrywide's continued insistence that it had no obligation to disclose the existence of this appraisal hotline prior to MBIA's specific request further evidences Countrywide's approach towards discovery - which places the burden on MBIA to identify by name the specific sources of documents before Countrywide will even consider producing relevant and responsive documents obtained from that source. Countrywide's approach is entirely inconsistent with the rules of discovery which obligate the producing party to identify all sources of responsive and relevant documents.
2

During a telephonic meet-and-confer held on March 7, 2012, Countrywide agreed to produce the documents requested by MBIA relating to the over 2,000 loans in the Securitizations contained on the FACTS database. Countrywide's agreement to produce these highly relevant and responsive documents only after MBIA moved to compel their production belies any notion that it has acted in good faith. Although Countrywide has now agreed to produce documents from the Fraud Hotline relating to the loans in the Securitizations, it continued to refuse to produce such documents relating to HELOC and CBS loans generally. Given that Countrywide's practice and policies for such loans did not vary by loan, such documents are relevant to MBIA's allegations regarding suspected and confirmed fraud and Countrywide's knowledge of the same.

MBJA v. Countrywide Home Loans, et al.

Index No. 60282512008 Page 5

Countrywide's conduct in failing to disclose the existence of vast quantities of relevant and responsive documents, and withholding them from production, has been so persistent, systematic and egregious that it cannot plausibly be attributed to "inadvertence" or "error." Rather, it appears to reflect deliberate concealment of evidence highly probative of MBIA' s fraud claims, and willful and contumacious disregard both for Countrywide's discovery obligations and for the Court's scheduling orders and other discovery directives. Countrywide's objective from day one appears to have been to obstruct MBIA's prosecution of its claims or at least delay their resolution for as long as possible, in the knowledge that defendants can oniy benefit from delay.

MBIA has suffered substantial prejudice as a result of this and other similar conduct by Defendants. That discovery in this case has been voluminous does not excuse a pattern of conduct by Defendants that has sought to delay or avoid production of highly relevant information. MBIA has been obliged to make extensive and costly motions to compel discovery to which it is plainly entitled (including its pending motion to compel), in addition to countless other applications to the Court for assistance in resolving disputes which should not have required the Court's intervention. It has been denied documents and other information to which it is entitled to prepare its case. It has been obliged to re-convene depositions and pay third parties' attorneys' fees. And it has had to endure substantial delays in depositions and, more importantly, in the ultimate resolution of its claims. Accordingly, sanctions against Countrywide and BAC are warranted. Respectfully submitted,

/~Z-Jonathan B. Oblak cc:

O-L,

Counsel for Defendants (by electronic mail)

FILED: NEW YORK COUNTY CLERK 03/22/2012

NYSCEF DOC. NO. 1587

INDEX NO. 602825/2008 RECEIVED NYSCEF: 03/22/2012