1

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF OREGON 

PORTLAND DIVISION 

LAWRENCE P. CIUFFITELLI, for )

himself and as Trustee of )

CIUFFITELLI REVOCABLE TRUST, )

et al., )

 ) 

 Plaintiffs, ) Case No. 3:16-cv-00580-AC 

 ) 

 v. ) 

 ) November 4, 2016

DELOITTE & TOUCHE LLP; )

EISNERAMPER LLP; SIDLEY AUSTIN )

LLP; TONKON TORP LLP; TD )

AMERITRADE, INC.; and )

INTEGRITY BANK & TRUST, )

 ) 

 Defendant. ) Portland, Oregon

________________________________) 

ORAL ARGUMENT 

TRANSCRIPT OF PROCEEDINGS 

BEFORE THE HONORABLE JOHN V. ACOSTA 

UNITED STATES DISTRICT COURT MAGISTRATE JUDGE 

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 1 of 38
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APPEARANCES 

FOR THE PLAINTIFF(S): 

 TIMOTHY S. DEJONG 

 Stoll Stoll Berne Lokting & Shlachter, PC 

 209 SW Oak Street 

 Fifth Floor 

 Portland, OR 97204 

FOR THE PLAINTIFF(S): 

 KEITH A. KETTERLING 

 Stoll Stoll Berne Lokting & Shlachter, PC 

 209 SW Oak Street 

 Fifth Floor 

 Portland, OR 97204 

FOR THE PLAINTIFF(S): 

 KARL PHILLIPS BARTH 

 Hagens Berman Sobol Shapiro, LLP 

 1918 8th Avenue 

 Seattle, WA 98101 

FOR DELOITTE & TOUCHE LLP: 

 GARY I. GRENLEY 

 Garvey Schubert Barer 

 Eleventh Floor 

 121 SW Morrison Street 

 Portland, OR 97204 

FOR DELOITTE & TOUCHE LLP: 

 PETER A. WALD 

 Latham & Watkins LLP 

 505 Montgomery Street 

 Suite 2000 

 San Francisco CA 94111 

FOR EISNERAMPER LLP: 

 WILLIAM P. FERRANTI 

 The Ferranti Firm LLC 

 1819 SW 5th Avenue 

 #403 

 Portland, OR 97201 

FOR EISNERAMPER LLP: 

 LINDA T. COBERLY 

 Winston & Strawn LLP 

 35 West Wacker Drive 

 Chicago, IL 60601 

 

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 2 of 38
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FOR SIDLEY AUSTIN: 

 BRUCE A. ABBOTT 

 Munger Tolles & Olson LLP 

 355 South Grand Avenue 

 35th Floor 

 Los Angeles, CA 90071 

FOR TONKON TORP: 

 PHILIP S. VAN DER WEELE 

 K&L Gates LLP 

 One SW Columbia Street 

 Suite 1900 

 Portland, OR 97258 

Attorneys Also Present: 

David B. Markowitz, Sidley Austin LLP 

Matthew J. Kalmanson, TD Ameritrade, Inc. 

Nicholas T. Christakos, TD Ameritrade, Inc. 

Robert C. Weaver, Jr., Deloitte & Touche LLP 

Milo Petranovich, Integrity Bank & Trust 

Chad M. Colton, Sidley Austin LLP 

Zachary M. Briers, Sidley Austin LLP 

Gavin M. Masuda, Deloitte & Touche LLP 

Nadia Dahab, Plaintiffs 

COURT REPORTER: Jill L. Jessup, CSR, RMR, RDR, CRR 

 United States District Courthouse 

 1000 SW Third Avenue, Room 301 

 Portland, OR 97204 

 (503)326-8191 

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 3 of 38
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TRANSCRIPT OF PROCEEDINGS 

THE COURT: All right. We're here on two motions.

Motion for protective order, Docket No. 139, filed by Defendant

Deloitte and Touche, and motion for protective order, Docket

No. 143, filed by EisnerAmper.

All right. For EisnerAmper, who will take the lead? 

MR. FERRANTI: Good afternoon, Your Honor.

Will Ferranti. This is my co-counsel, Linda Coberly, who will

take the lead for us.

MS. COBERLY: Thank you, Your Honor.

THE COURT: For Deloitte and Touche? 

MR. GRENLEY: Gary Grenley, Garvey Schubert, and

presenting will be Peter Wald from Latham and Watkins.

MR. WALD: Good afternoon, Your Honor.

THE COURT: Okay. All right. We have two motions.

They are quite similar, and the oppositions are similar as

well.

For the plaintiffs, Mr. Ketterling, will it be you or,

Mr. DeJong, will it be you?

MR. DEJONG: It will be me, Your Honor. Tim DeJong.

THE COURT: All right. Thank you. 

Let's start with basics, and I'll start with the

defendants. 

Mr. Wald, since Deloitte is the first-named defendant,

I'll ask you this question first: Knowing what you know about

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 4 of 38
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the motions to dismiss that currently are pending, how likely

do you think it is that if I grant the motion I would also not

grant leave to the plaintiffs to amend? 

I guess I'm asking in a roundabout way what is the

likelihood, in your view, that the motion to dismiss will take

Deloitte out of the case entirely?

MR. WALD: Your Honor, consistent with at least my

experience in federal court, it certainly would not surprise

me, if the Court were persuaded by our arguments on the motion

to dismiss, that you give the plaintiffs an opportunity to

amend.

That said, the question is what would they do with that

opportunity and would the second pleading that they submit be

any more persuasive about their ability to stay in court, about

their ability to stay primary and secondary liability claims

than the first complaint?

THE COURT: Which is an indirect way of saying,

"Judge, there's a pretty good chance we might file another

motion to dismiss"; correct?

MR. WALD: I think, Your Honor, yes, if you dismiss

without prejudice.

THE COURT: And leave to amend.

MR. WALD: Correct. We would fully expect --

obviously, I would need to see what the plaintiffs submit. But

based on what we have seen so far, there has been no allegation

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 5 of 38
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in our submission, Your Honor, of any evidence or claim that

can connect Deloitte to the securities transactions within the

meaning of the statute.

THE COURT: Sure. All right. I understand that's

your argument, as it has been asserted both in the motions to

dismiss as well as in a more abbreviated form in the protective

order briefing. But this isn't my first rodeo and this isn't

my first motion to dismiss. And given the issues and the

potential exposure in play in this case, if I were to make an

educated guess, that guess would be I'm probably going to see a

second motion to dismiss from one or both of the defendants, if

not all the defendants. And so the reason I raise that is

this: While we are engaged in that procedural exchange, if I

accept the defendants' position, there will be no discovery

conducted.

It's quite possible -- let's just say one way this may

play out, Mr. Wald -- ultimately, the plaintiffs managed to

scrape together a complaint that passes muster. We move

forward in the case, and we're looking at the end of the summer

before discovery begins. That's one possible scenario. That's

quite a long time.

MR. WALD: May I address, Your Honor?

THE COURT: Absolutely.

MR. WALD: I guess I would answer your observation

with two observations. The first is that, to be clear on the

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 6 of 38
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record, it is not the position of the defendants that all

discovery should be stayed. That's not our position at all.

THE COURT: So let me ask you about that.

MR. WALD: Okay.

THE COURT: I'll interrupt, because you haven't made

your second observation, are you at least willing to provide

the work papers for the two years during which, as I recall

from your briefing, you acknowledged that was those are the two

years that Deloitte performed work for the plaintiff?

MR. WALD: Your Honor, for the reasons set forth in

the protective order, we don't believe that would be an

appropriate outcome in this case. We are, of course, willing

to provide the transaction level documents that Deloitte

possesses on an electronic filing website. These are documents

what came to Deloitte, in the course of doing its work, from

Aequitas. Plaintiffs do not have these documents. They are

important documents. They are the documents that show all of

the things, Your Honor, that we say are missing from the

complaint. And when I say "all," that's probably an

overstatement. But they go to the question of which plaintiffs

bought what securities through what medium. What -- what is in

our files that can help start to nail down the specifics of the

transactions that are at issue, who bought what, when, from

whom, on the basis of what statements, what documents, what

subscription agreements. That is a level of detail that is

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 7 of 38
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simply lacking from the current complaint.

Indeed, the plaintiffs, as a matter of pleading, are not

even able to say, under oath, that they themselves received

certain representations. The most they say in their pleading

is that investors received certain representations. 

And as we move from today's hearing to the December 21st

hearing, Your Honor, obviously those issues will be in full

relief.

So when I say that the defendants' position is not that

all discovery should be stayed but that it should be limited

and it should be directed to the categories of documents that

are -- could be relevant and should be relevant to the next

phase of the proceeding, which is Your Honor's consideration of

the motions to dismiss and the bases for the motions to

dismiss. 

And the -- if I may just make one other observation, the

plaintiffs themselves have agreed what they would produce

documents in their possession fitting that description to the

defendants.

THE COURT: All right. Thank you. 

Ms. Coberly, you've now had the advantage of hearing me

ask all the questions of Mr. Wald that I intend to ask you. 

The first question I'll ask is how about those Cubs?

MS. COBERLY: How about those Cubs? But I'm here

instead, Your Honor, and I'm happy to be here instead, rather

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 8 of 38
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than with 5 million people in the middle of Chicago.

THE COURT: Yes. So my questions to you are the same

as they were to Mr. Wald. First, what is the likelihood, in

your view, that if I were to grant your motion I would also

grant leave to amend?

MS. COBERLY: Well, I think it depends on which basis

the Court grants the motion to dismiss. We've made several

different arguments. A couple of the arguments are of a nature

where I would expect a Court would grant leave to amend. That

is in the nature of a lack of specificity. This is a fraud

case, and we have argued that the allegations aren't sufficient

to say what was false and when. We've -- we've made those

kinds of allegations that one would expect. You know, in my

experience, typically, those lead to -- leave to -- sorry,

those typically lead to leave to replead. But we've also

argued that as a matter of law providing ordinary year-end

audit work does not constitute material aid to all the sales

that the entity made during that previous period or during the

next period, and that's a legal issue that we believe would

require dismissal with prejudice. There's no way that that can

be pleaded around because it's undisputed that what our clients

did and all our clients did was do ordinary audit work at the

end of the year.

THE COURT: So your answer to my question would be it

depends on which ground or grounds I would grant your motion?

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 9 of 38
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MS. COBERLY: Correct. And --

THE COURT: So, that said, in the holistic view of

the issues you've raised, how likely do you think -- let's put

it this way: More likely than not, I'm going to give the

plaintiffs' leave to amend.

MS. COBERLY: Well, I hesitate to handicap my own

arguments, but just given we've made a number of arguments

about lack of specificity, I would say, yes, it's probably more

likely than not that you're going to grant leave to amend.

THE COURT: So while we wait for our hearing the week

before Christmas on the motions to dismiss and assuming that I

can issue a ruling within three to four weeks of the hearing,

if not sooner, if I grant your motion with leave to replead,

then we're still looking at settling the complaint and

potentially, as I asked Mr. Wald, another motion to dismiss.

That's a possibility; correct?

MS. COBERLY: That's a possibility, though perhaps on

different grounds.

THE COURT: Well, sure, because there would be

different allegations.

So during that time, should there be any discovery at all,

as far as you're concerned, on behalf of your client?

MS. COBERLY: We have asked -- we, EisnerAmper,

because we're in a somewhat different position, vis á vis the

rest of the defendants --

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 10 of 38
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THE COURT: Yes.

MS. COBERLY: -- we have asked for a stay of all

discovery pending resolution of the motion to dismiss that's

pending.

Now, would that necessarily entail a motion to -- a

protective order that would prevent discovery until the

resolution of the next motion to dismiss? I'm not so sure.

And here is why I say that: One of the disputes we have right

now between the parties about the scope of discovery has to do

with which entities. So my client audited certain entities but

not others.

THE COURT: You say -- I'm sorry to interrupt. When

you say which entities, you mean which of the 88 Aequitas

entities?

MS. COBERLY: Correct.

THE COURT: Okay. Go ahead. 

MS. COBERLY: So my clients performed audit work for

certain Aequitas entities for certain periods of time. And we

have argued that the only claims that can be stated in this

case relate to entities that we audited and entities that the

plaintiffs purchased securities from. That is an argument

we've made in our motion to dismiss, and it has been briefed

extensively. 

The plaintiffs' response to that argument is once you've

edited one Aequitas entity, you are an auditor of the Aequitas

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 11 of 38
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securities business kind of now and forever, and so your

liability extends to all purchasers of all securities from all

Aequitas entities going forward. 

So we've argued about that very legal issue that's been

briefed extensively, and you'll hear more about it on the

21st of December.

The discovery requests you have before you ask for

discovery of work papers for all Aequitas entities. Our

objection to that is that all Aequitas entities are not the

basis for claims against EisnerAmper. The only Aequitas

entities that could yield, even conceivably, even granting the

rest of their arguments, that could yield claims against

EisnerAmper, are for securities that were issued by entities

that EisnerAmper audited and securities that the plaintiffs

themselves purchased. 

So in order to resolve the scope of discovery, even

sitting here today, even with respect to just the work papers,

the Court would have to weigh in on that important legal issue.

Now, I would expect, I'm guessing, that the Court's ruling

on the first motion to dismiss will settle that issue, and the

Court will conclude one way or the other whether the plaintiffs

are required to plead claims only with respect -- whether

they're required to link their claims to specific securities

that were issued by entities we audited. 

And if they're required to make that connection, then we

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 12 of 38
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could limit our discovery to those entities, and we would be

done with it.

But for now what I'm saying, Your Honor, is that the Court

would have to resolve that very issue in order to deal with

these discovery requests.

So it would be much more sensible, from the perspective of

judicial economy, to wait until the Court's ruling on the first

motion to dismiss, where presumably some of those issues will

be ironed out, and then we'll see how much more guidance we

need to evaluate what the reasonable scope of discovery really

is.

THE COURT: Thank you. This is not directed at you,

Ms. Coberly, but I find myself smiling inwardly every time I

hear a justification of judicial economy which doesn't seem to

really come into play when I get motions to compel, so -- but

thank you. I appreciate the sentiment.

Mr. DeJong, what exactly is it between now and the time I

decide the motions to dismiss that you think the plaintiffs

should be able to get from these two defendants? 

MR. DEJONG: Their audit work papers.

THE COURT: You can stand if you wish.

MR. DEJONG: I'm too tall for the microphone.

THE COURT: You can stand if you wish, everyone, or

you can stay seated if you wish. Thank you.

MR. DEJONG: My apologies.

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 13 of 38
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THE COURT: It's better. Go ahead.

MR. DEJONG: The answer, Your Honor, is the audit

work papers.

THE COURT: All right. So far so good. For which

years for which defendants?

MR. DEJONG: For the years that they concede that

they were the auditors. I believe there are two years for each

of them. They're in our papers. I think it's 2010 and '11 for

EisnerAmper and --

MS. COBERLY: It's fiscal 2011 and 2012 for

EisnerAmper.

MR. DEJONG: Correct.

MR. WALD: And '13 and '14 for Deloitte.

THE COURT: So two years for each of the two

defendants.

Anything else?

MR. DEJONG: From these two defendants, our proposal

is that we get those now. That's our request from Your Honor.

THE COURT: So let's pursue a little bit more the

EisnerAmper work papers.

For which entities?

MR. DEJONG: The entities that they audited.

THE COURT: Just those?

MR. DEJONG: That's correct.

THE COURT: Not the 88, just the -- what is it? Six? 

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 14 of 38
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MR. DEJONG: If they didn't audit it -- if they

didn't audit an entity, there are no work papers, and we aren't

requesting them. They're -- I believe there are six entities,

if that's what they represented.

MS. COBERLY: Well, Your Honor, the -- sorry.

Forgive me.

THE COURT: Go ahead.

MS. COBERLY: Thank you. There are three entities

that the plaintiffs purchased securities from that EisnerAmper

audited that are alleged in the complaint. There may be other

entities that EisnerAmper audited that are not -- that did not

issue securities that are at issue in the complaint. And

that's the very thing that we are arguing about in our motion

to dismiss, and that is illustrated. And this is the -- this

is the very distinction that we're talking about. The -- the

request from the plaintiffs goes beyond the entities from which

they purchased the securities.

MR. WALD: Your Honor, if I may add to that for

Deloitte.

THE COURT: Go ahead.

MR. WALD: Our numbers are 12. I believe it's 12

Aequitas entities that we audited; only six of which issued

securities that are at issue in the case.

And if I may, Your Honor, there's one other organizing

principal that may be of utility to the Court, and that is that

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 15 of 38
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there is a single entity into which all of these sub-entities

consolidated up in its reporting, and that's an entity called

ACF. So you have an audit of ACF and then you have audits of

other entities that consolidate up into ACF. So when I say

that Deloitte audited 12 entities, six of which issued

securities, one of which was ACF, I would simply note that the

audit of ACF includes work papers that would be relevant to the

other issuing entities in the case, the work that Deloitte did

to allow those issuing entities to consolidate up to ACF.

I don't know if that's of help to the Court, but that's

the structure.

THE COURT: Thank you. So before we continue, what I

should have said at the beginning, because most of you in the

room haven't appeared before me previously for a motion

hearing, is typically I have questions. I ask those questions,

and we go through all the questions. And when I'm finished, if

there are things that you have to say that you didn't get a

chance to say in response to my questions, we'll do that before

we adjourn.

I prefer that you try not to interrupt so that everyone

feels they have had the chance to speak. 

So I had been talking to Mr. DeJong about the particular

years for which and then we talked about particular entities.

So, Mr. DeJong, you have heard now, from Ms. Coberly and

Mr. Wald, their interpretation of the audited entities. Any

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 16 of 38
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thoughts about that?

MR. DEJONG: Yes, Your Honor. Discovery is -- the

limits of discovery are governed by relevance, and all of the

audit work papers are relevant to our claims. 

We allege in the complaint that Aequitas, in the

securities business, used the audited financial statements

prepared by these fine attorneys' clients to solicit sales of

securities, and their clients were also listed in the sales

materials as the auditors lending an air of credibility to this

enterprise.

Furthermore, they can't -- Aequitas can't sell securities

without these audited financial statements.

The audited financial statements, whether or not they were

an audit of an issuing company or not, which it sounds like we

have concessions that 50 percent of them, or more, were, are

relevant to -- on each of the levels that we can -- we can

address here, they're relevant to Aequitas' primary liability

under the Oregon securities law for making false statements

about their financial condition.

Understand, Your Honor, that the basic -- the basic

manipulation, for lack of a better term, that Aequitas engaged

in was they have various assets, and they -- they use the

assets -- they shifted them around to these 88 entities, as

they saw fit, so they could access cash within those various

entities so that they would give the appearance of being a

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 17 of 38
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going concern.

This is a giant -- really, a shell game of moving assets

around. That's the basic fundamental nature of our complaint. 

And so the audits of each of these entities is going to

shed light on many -- the truth or untruth of many of the

allegations that we say are false, including asset valuations,

which companies are holding the assets, perhaps the work papers

will show the consideration, if any given, for these

transactions.

Okay. So we've got the issue of primary liability, which

the work papers are relevant to, and they're also -- they're

also relevant to the issue of our burden to establish

participation or material aid because the test in Oregon is not

a legal test. It's a fact test. It's a test of the scope and

importance of the parties' contribution to the business.

So how can we understand that without understanding the

full scope of the work that these auditors did for Aequitas? 

The final way and I think the most indisputable way that

these work papers are relevant, regardless if they are an audit

of an issuing company, is that I assume each of the defendants

in this case is going to attempt to take advantage of the

affirmative defenses provided in ORS 59.115(3) which requires

them to prove that they did not know and could not reasonably

have known of the truth of the facts that were not truthfully

stated.

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 18 of 38
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So we need to examine -- when they assert that defense,

they put in play for discovery and relevance all of their

knowledge, all of their activities. What did they do; what did

they not do? What did they know; what did they not know? The

audit work papers are going to shed light on those facts

whether or not it's an issuing company that issued the

securities.

It's a -- from my perspective, Your Honor, the -- it's an

impossible task for us at this hearing today with what's in the

record before you, which doesn't contain any of these

arguments, by the way, to parse which financial statement,

which audit is going to be relevant in this case.

What is important is we have alleged that they all are.

We have alleged that this is -- all of the offerings are one

single consolidated series of offerings, and effectively that

the so-called corporate, you know, setup should be disregarded

because it's real -- Aequitas operated these 88 entities as one

company.

THE COURT: Since we don't have any answers filed by

these defendants, we don't know what affirmative defenses, if

any, they will assert. I suspect that your prediction probably

is right; but at least the issues raised by those affirmative

defenses and therefore the relevancy to discovery that they

would have, haven't yet come into the case. They might later

on, but they're not yet. But I understand your point.

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Mr. Wald, further comments or observations?

MR. WALD: Thank you, Your Honor. I want to pick up

on the last point that Your Honor addressed, because, in our

view, it's the -- it's the most important point in your

consideration of how to proceed, and that is what we see this

as a timing issue. We sit here today on November 4th. There

will be significant oral argument and preparation for oral

argument on December 21st. Not very far away. You're

absolutely correct that the defense has not asserted

affirmative defenses. That's correct. So even on Mr. DeJong's

submission about what's relevant, that's certainly not relevant

yet.

But we don't see this right now, Your Honor, as a debate

about what is or might be relevant. We think that the most

sensible and efficient way to proceed is for the Court to hear

argument on the 21st about whether these plaintiffs can survive

in federal court on these claims of secondary liability against

us.

Those are very substantial questions, and I submit that as

the Court dives into -- even more into the briefs in

preparation for it, the question of what will be relevant if

these claims survive and what will not be relevant if these

claims survive will come into much sharper belief. 

And because we are not talking about a long time and

because there has been a lot of activity, even since the

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briefing of the motions for protective order, as I know

Your Honor is aware, Sidley Austin has filed a motion for

protective order. The individual defendants in the SEC

receiver proceeding have filed a motion for protective order

having to do with privileged documents. The receiver has not

yet filed his report saying when discovery will be available as

against the Aequitas entities. 

So from a prejudice point of view, it's difficult, I would

submit, to make a strong argument of prejudice because there is

going to be a lot that is going to have to be decided over the

next couple of months in any event. It's not like we're going

to produce these documents and everything is going to -- going

to go forward. That is just not going to happen.

Conversely, if the Court waits to decide what the

appropriate scope of discovery is, as Ms. Coberly argued, at

the moment in time when you're fully seized of the legal

arguments that have been put forward on the motion to dismiss,

I suspect, Your Honor, that the guidance that you can give the

parties about what is appropriate going forward will be

precise, and we won't have further discovery disputes, if,

indeed -- if indeed, the plaintiffs are actually able to stay

in court on these issues.

And, obviously, Your Honor, we all acknowledge we

certainly -- Deloitte certainly acknowledges that this is

committed to the sound discretion of this Court, this dispute,

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and how to proceed and how to sequence it.

I would observe, as the Ninth Circuit observed in the

Ruttman case that we have cited to you, that it is the better

practice to see whether the plaintiffs are going to be able to

stay in Court on their claims before subjecting the parties to

burdensome and potentially discovery that doesn't need to take

place.

THE COURT: So let me follow up on that particular

point because I notice that in your papers and the citation to

the case there's a difference between the case, seeming from

the face of the complaint, to be unlikely to survive a motion

to dismiss and a case on the face of the complaint which seems

that with leave to amend it probably can go forward.

So my question is this: Is the point you just made that

the Deloitte defendant shouldn't have to give any information

up because of the possibility that the Deloitte defendant will

be dismissed from the case perhaps finally and with prejudice?

MR. WALD: It's probably a variant of that,

Your Honor. It is that we submit, as we say in the briefs and

in the Rule 16 conference statement, that Deloitte should give

up the transaction-oriented documents, which are significant

documents in this case, which is in its possession, which comes

from Aequitas, which the plaintiffs cannot get currently

because of the receivership stay, and that that is an important

corpus of documents. It should be -- and the law firm

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defendants are willing to produce those documents as well, and

the plaintiffs have acknowledge that they are willing to

produce their investment-related transaction documents to us.

What I'm really saying to my timing point, Your Honor, is

that that ought to define the discovery that the parties

exchange with each other until December 21st. Again, not very

long from now. That discovery will keep the case moving

forward, in an appropriate way, until the Court really is in a

position to say yea or nay on the motion. And if yea, what

does that mean and what does what mean for the next phase? 

And I second Ms. Coberly's suggestion that we proceed in

that way until December 21st. Obviously, without prejudice to

the Court to decide after the December 21st whether that should

be the same rule going forward or whether that should be

amended.

THE COURT: All right. Thank you. 

Ms. Coberly, anything to add to that?

MS. COBERLY: Yes. If I heard Mr. DeJong correctly,

I think he said it was impossible to parse based on the

arguments before the Court today exactly what is and isn't

going to go relevant to some of these claims. That's -- did

I -- I may have misheard, but I thought --

THE COURT: That's accurate. Go ahead.

MS. COBERLY: And so if that's -- I totally agree

with that. It is impossible to parse, and we've argued that

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point in detail in our motion to dismiss. And the Court's

ruling on that initial motion to dismiss will give the parties

tremendous guidance on that issue.

So we have other entities from which the plaintiffs didn't

purchase securities. Do we have to produce those now or not?

We're not really in a position to argue today. We've argued

no; the plaintiffs are arguing yes. And that's the very issue

this Court is going to have to decide on the motion to dismiss

about the relevance of one to another.

There's a legal argument the plaintiffs are making which

is that once you argued a -- once you did an audit for an

Aequitas entity, you're in, and everything is relevant, and we

say that's not true.

Now, there's another issue for EisnerAmper which is a

timing issue. It's a different kind of timing issue. My

client is being sued here based on audits of fiscal 2011 and

2012 relating to entities that encountered financial

difficulties in 2014 and collapsed in 2015.

One of the arguments we've made in our motion to dismiss

is that there are not sufficient allegations in this complaint

that trace any false statements, any shifting of assets, any

mingling of entities, all the way back to the period where our

client was on the scene. And in order to state a claim,

they're going to have to do that.

Now, it may be, if this Court grants leave to amend on

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that ground, the plaintiffs will decide they can't do it; but

we still think that's required. They may decide they can't

meet that burden and they may just not pursue it against our

clients, or they may decide they have enough and they may try;

in which case, we can deal with those arguments at that time.

But it does distinguish, I think, the timing issue for --

for my clients, in particular. It's just another reason why

some of the guidance this Court is going to give in connection

with this initial motion to dismiss will be so helpful in

helping the parties to define the scope of relevant and

appropriate discovery.

THE COURT: All right. Thank you.

Mr. DeJong, any final comments on these issues?

MR. DEAN: Yes. Your Honor, I think I heard Mr. Wald

suggest that it was my burden to prove a prejudice here.

That's not how this works at all. It's his burden to prove a

prejudice, and nobody has proved a prejudice.

Today happens to be the seven-month anniversary of the

filing of this lawsuit. Seven months. We don't have a

document produced. We even have defense counsel suggesting

that there's documents that they don't object to producing, but

they haven't even produced those. They haven't served us with

any document requests yet.

This is all about delay. We have a hearing on

December 21st. Your Honor has suggested you may be able to get

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an opinion out within a few weeks. That's very helpful. It's

very likely, and I think we could expect, since there are no

consents to magistrate, that the aggrieved party, or one or

more in this, may appeal your findings, which would add more

delay. And, as you say, we are into the late summer or fall or

even winter next year if we have a stay pending the settling of

the pleadings. And I think we probably could speculate with

pretty good confidence that the plaintiffs will never plead

sufficient facts to satisfy all of the defendants.

To clarify something that was used against me from my

prior argument, Your Honor, if I -- if I said it that way,

that's not what I meant. What I meant was we can't parse out

which financial statements, which audits are not relevant. We

have alleged they are all relevant. We have alleged claims

based upon all of those audits. So what I'm saying is we

can't, at this stage before Your Honor -- I don't think you're

prepared to make a ruling to dismiss our claims based upon the

50 percent of the audits what they don't want to produce. 

I think that's what I had to say, Your Honor. Thank you.

THE COURT: All right. I don't mean to prevent

anyone else who's here attending the hearing to make any

comments that they came to make or perhaps your position is to

just stay out of the way on this one since you're not involved.

I'm finished with the questions I had. So here is the

opportunity for you to add any additional points you think I

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need to be mindful of before I make a decision on these issues.

Keeping in mind I've read everything, you don't need to restate

what's in the brief. You don't need to restate what you have

argued already.

Mr. Wald, I'll start with you because you're the

first-named defendant, even though you filed your motion after

Ms. Coberly did. So go ahead. 

Wait. No. Ms. Coberly, you filed yours first.

MS. COBERLY: I think Mr. Wald filed his first.

MR. WALD: As luck would have it, Your Honor.

THE COURT: Go ahead. Anything else you would like

to say?

MR. WALD: Only that there's been a lot of discussion

today about what is relevant, what could be relevant, and what

might be relevant, and to us that underscores the utility of

deciding the issues on the motion to dismiss. If we are right

in our submission, Your Honor, then they have not only not

stated a claim, but, to Ms. Coberly's point, they will have a

tall task. Let me put it that way.

THE COURT: So let me ask you this question. I don't

mean this to be glib or facetious --

MR. WALD: Sure.

THE COURT: -- but it's not as if we're looking at a

complaint for securities fraud that actually pleads products

liability. I mean, we know securities fraud are the claims

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here. Correct?

MR. WALD: Correct.

THE COURT: Something has to be relevant. Would you

agree with that?

MR. WALD: Correct.

THE COURT: All right. So I'll give you the

opportunity to respond to this observation. As I sit here now,

it seems clear to me there are some things that are relevant,

regardless of how the motions to dismiss come out, that could

be the subject of discovery now. Why am I wrong about that? 

Now, I know you've already acknowledged, "Hey, there's

certain things, Judge, we're happy to give over or exchange

with the plaintiffs." So it seems to me that there are some

things what can be exchanged; right?

MR. WALD: That's absolutely correct, Your Honor. I

think at page 6 of the joint statement we list what those

things are.

THE COURT: It's just the scope and the timing.

MR. WALD: That's right. That's exactly right,

Your Honor. That captures our position.

This is the secondary liability claim against the

defendants in this courtroom today.

THE COURT: Yes.

MR. WALD: The plaintiffs need to connect each one of

us to the specific sales transactions.

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THE COURT: Yes.

MR. WALD: The complaint does not do that. It does

not give us fair notice of that.

The documents I'm suggesting that we exchange may well go

to that question, particularly when we get documents also from

the plaintiffs, because, in our view, their complaint is

cleverly worded at the point. So this is not make-way

discovery, but this is actually core discovery, given where

this complaint is right now.

With respect to the work papers, Your Honor, I would make

this observation: There is no question that Ms. Coberly's

client and my client audited certain Aequitas entities. Okay.

There's no doubt about that. We have produced the audited

financial statements and our reports on those statements.

Nothing in the work papers at this stage of the litigation

is going to bear on the legal issues that we have ripened

through the motion to dismiss.

There is no -- there's no doubt that we did the audit

work. Indeed, the plaintiffs don't challenge the adequacy of

the audit work, and they say they don't have to.

So I'm not saying that depending on what Your Honor

decides, these documents might not be relevant down the road.

I'm not saying that, Your Honor. 

What I am saying is that in our submission the best, most

efficient and most precise way to proceed is to exchange the

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corpus of documents that is reflected on page 6 of the joint

statement, get to the hearing on December 21st, take the

Court's measure as to the legal arguments that are advanced and

decided on that day, and then regroup and ask ourselves does

that affect the view of whether further discovery should be

had.

THE COURT: Thank you. 

Ms. Coberly, final thoughts?

MS. COBERLY: Yes. Just to address the fact that the

case has been pending for seven months. Last summer we had a

meet-and-confer. We had a conference, and we filed our joint

conference statement, and we couldn't come to an agreement.

THE COURT: Right.

MS. COBERLY: We hoped to, but we couldn't come to an

agreement, and the defendants collectively made a proposal for

phased discovery that included actually producing certain

things. And the plaintiffs rejected that proposal and didn't

press the issue, and it wasn't until however long before now,

in the fall, that we received these incredibly broad discovery

requests where we were asked for everything. It went well

beyond what the plaintiffs said they wanted over the summer in

their 26(f) proposal. 

And then we needed -- because we had no choice and we had

a deadline facing us, we needed to file this motion to protect

ourselves because we were -- because we were objecting to the

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 30 of 38
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scope of those requests. 

But that's why we're here today and that's why it's taken

so longer. We made a proposal. The defendants collectively

made a proposal that would have started the discovery process

last summer, and the plaintiffs didn't accept it. And that's

why it's been seven months and there's been no discovery.

THE COURT: All right. Mr. DeJong.

MR. DEJONG: Very quickly, Your Honor. We didn't

have any discovery because the defendants have refused to give

us any meaningful discovery and would not give us even the most

miniscule discovery unless we agreed to forego all the merits

discovery. 

The delay was, respectfully, caused by the defendants.

What happened was the defendants wouldn't agree to have a

Rule 26(f) discovery planning conference for several months

because it was going to -- in their minds, the discovery issues

were going to be so complicated. That's what they told us.

When we finally had our discovery conference in July,

after the case had been filed in April, and to be told you can

have, effectively, the records of your own investments, which,

frankly, we think, by and large, we already have.

So the rule -- the federal rules allow -- provide for us

to have full discovery at this point. There's been

a seven-month reprieve from any discovery.

We have made a very substantial compromise with respect to

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 31 of 38
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these two defendants. We have agreed to limit it to work

papers that can be easily produced, basically with a push of a

button, and to forego the more burdensome things, such as

emails. And that's a very substantial compromise that we

offered, Your Honor, and what we -- we think that's more than

adequate, and we should be allowed to proceed like they have.

I mean, we -- it's pretty certain that defense counsel had

already reviewed these documents and are well versed in them.

We're way behind.

THE COURT: All right. Thank you. 

Before I hear from others, just an observation: This

case, by its very nature, is complicated. The number of

lawyers in the room proves the fact that there are a lot of

parties and a lot of moving parties, both legally and

factually. Lawyers are going to disagree on discovery issues.

So far the disagreements have been well articulated and made

reasonably and rationally.

I am not interested in figuring out who started it. We're

seven months from filing. It kind of makes sense to me, given

the nature of this case. So right now I'm not concerned about

the delay, but I am mindful of the absence of discovery and the

proposed absence of discovery, or most discovery, until the

motion or motions to dismiss, if there would be a second round,

are finally decided. So I'm sensitive to the plaintiffs'

concerns on that. I'm not going to decide these issues based

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on who I think started it.

Now, anyone else who is here who had anything to say about

the pending two protective orders, this is your opportunity to

weigh in if you would like to. You don't have to; but if

there's something you think you need to say, this is the time,

before we move on to the next issue.

All right. Probably wise.

There was a mention in the briefing papers about ESI. I

know it's not directly in play yet, but it will be. So I had a

thought about that, and, as long as I have you all here, we

might as well talk about it.

My experience with electronically stored information is

that the parties often disagree on how it will be gathered, who

will do it, whose expert gets to look at what things, access --

direct access to systems or legacy systems, things being

produced in the native format, in the original format, all of

those good things, but also the protocols, right, the key

search terms, all those things. There will be a lot of those

in this case. 

My thought is this: It makes sense to me now that

everyone start thinking about search terms so that when the

time comes for discovery of electronically stored information

you have something of a head start about what you want from

everyone else and what you think every else gets from you. But

I would prefer to avoid -- well, actually, there are two

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things.

I would prefer to avoid an unnecessary delay because the

parties can't agree on search terms. Second, I would prefer to

avoid being put in a position of having to decide for you what

the search terms will be. You all know this case better than I

do. You will be involved in discovery. Hopefully I won't be.

You are in the best position to determine search terms. Start

thinking about that now with the idea in mind that the next

probably three or four months we might actually be here or on

the phone talking about setting up ESI protocols.

So that is my advice to all of you.

The only other thing on my list of things to cover before

we adjourn or hear anything else that has to do with scheduling

is this: Typically, I conduct a Rule 16 conference in a case

as soon as all the parties have appeared. When there are

motions to dismiss pending, it delays a Rule 16 conference

because, as in this case, there sometimes is a dispute or even

an agreement over whether discovery should go forward. So I'm

going to ask you this one thing that I usually cover in a Rule

16 conference. I'm going to do it now. And Mr. DeJong touched

on it a little while ago. Consent to jurisdiction by

magistrate judge.

You are not required to consent, as you all know, and

there are no consequences if you do not consent, but I would

ask that between now and ten days from now you advise the Court

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whether you will consent to jurisdiction by magistrate judge.

If you choose not to, that's fine, and it doesn't preclude you

from later consenting. That happens quite a bit. I have a

couple of trials scheduled because of consents that came in

after summary judgment rulings. But it would help me manage my

docket and it would help me know exactly what to start

predicting for scheduling into the early part of next year.

If you do consent, we have a form on the court's website

that you can use and must be filed in hard copy. You can't

electronically file it; so if you choose to consent, you must

do it that way.

As I said, if you don't, that's fine. You don't have to,

and there aren't any consequences if you don't.

All right. Before we adjourn, are there any other issues

we should take up before going off the record?

I'll start with the plaintiffs. Mr. DeJong?

MR. DEJONG: Your Honor, how would you like us --

assuming that there are parties who do not consent, how would

you like us to inform you of that fact?

THE COURT: If you choose to consent, you can file

the form. If you choose to not consent for now or ever, just

send Mr. Gale an email. That way we won't be bugging you to

find out will you or won't you. Then I'll know, and I'll know

how to proceed. 

Thank you.

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MR. DEJONG: The second thing I wanted to discuss

briefly, if you have time, Your Honor, is the motion to

intervene that was filed.

THE COURT: Yes.

MR. DEJONG: It would be helpful, in my view, to

resolving some potential issues with discovery from the law

firm defendants if we can get those issues resolved sooner

rather than later. So the motion to intervene was filed. It

is not opposed by any of the parties in the case. There --

each party either took no position or stated that they didn't

oppose it.

THE COURT: Right. But the motion raises two issues.

Whether they should be allowed to intervene, that seems pretty

easy to sort out.

MR. DEJONG: Yes.

THE COURT: But then the substantive issue they've

raised; right?

MR. DEJONG: Yes.

THE COURT: I haven't heard from anybody else on that

yet because the motion is so recent.

MR. DEJONG: They have told us that they are going to

file a motion for protective order, which I think they're

waiting for Your Honor to grant them permission to intervene so

that they can file it. That's what I was going to encourage

Your Honor to address, was the pending motion to intervene, so

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we don't have that holding up their filing of the protective

order.

THE COURT: So since everyone is here, is there

anyone who opposes the motion to intervene?

All right. Which is consistent so far with the

representations in the motion. So I will grant that by minute

order. Then the intervening parties can go ahead and file

their motion, and we can get that moving forward.

MR. DEJONG: Thank you.

THE COURT: Anything else?

MR. DEJONG: No, Your Honor.

THE COURT: Mr. Wald, anything else?

MR. WALD: No, Your Honor. Thank you.

THE COURT: Ms. Coberly?

MS. COBERLY: No, Your Honor. Thank you.

THE COURT: Anyone else have anything to raise before

we adjourn?

All right. Seeing no one step forward, we are adjourned.

Thank you.

DEPUTY COURTROOM CLERK: Court is adjourned.

(Hearing concluded.) 

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 37 of 38
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C E R T I F I C A T E

Lawrence P. Ciuffitelli v. Deloitte & Touche LLP

3:16-cv-00580-AC

ORAL ARGUMENT

November 4, 2016

I certify, by signing below, that the foregoing is a 

true and correct transcript of the record, taken by

stenographic means, of the proceedings in the above-entitled 

cause. A transcript without an original signature, conformed 

signature, or digitally signed signature is not certified.

/s/Jill L. Jessup, CSR, RMR, RDR, CRR

____________________________________

Official Court Reporter Signature Date: 11/21/16

Oregon CSR No. 98-0346 CSR Expiration Date: 3/31/17

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Case 3:16-cv-00580-AC Document 207 Filed 02/02/17 Page 38 of 38