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United States of America v. Louis Tomasetta and

March 16, 2012

UNITED STATES OF AMERICA, PLAINTIFF,
v.
LOUIS TOMASETTA AND EUGENE HOVANEC, DEFENDANTS.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge:

USDC SDNY

ORDER & OPINION

Defendants Louis Tomasetta and Eugene Hovanec ("Defendants") are charged with multiple counts of securities fraud, relating to their employment at Vitesse Semiconductor Corporation ("Vitesse"). Familiarity with the Court's prior orders is assumed (see Dkt. No. 31, 52, 67, 86, 98), though the facts relevant to the current discovery dispute are detailed below.

On the eve of trial, 43 boxes of documents, which contained some materials that neither the Government, nor the Defendants had seen before, were produced by Munger Tolles & Olsen LLP ("Munger"), a law firm representing the Special Committee of Vitesse's Board of Directors (the "Committee"). As a result, the Court adjourned the trial and conducted an inquiry into the discovery issued raised by the late document production.

The Defendants, arguing that a continuance was insufficient to account for the Government's purported Rule 16 and Jencks Act violations, now move for remedies including: a fact inquiry, reimbursement of costs, a change in venue, evidence and witness preclusion, reversal of the Court's ruling on a deferred opening, and dismissal. *fn1

Defendants requests range far afield from any wrong which may have occurred; and they are DENIED.

FACTS

On April 11, 2006, the Committee hired Munger to conduct an investigation into Vitesse's stock options practices. (Feb. 8, 2012, Barth Declaration ("Barth Decl.") ¶ 4.) On April 21, 2006, Munger's investigation expanded to include other accounting issues or irregularities, such as "issued related to the Company's practices with respect to customer credits and related accounting treatment, and the application of payments received to the proper accounts receivable." (Vitesse's SEC Submission, dated Apr. 30, 2009, at 3.) (Barth Decl. ¶ 7.) Munger thereafter collected numerous hard copy and electronic documents from Vitesse, including documents from Tomasetta, Hovanec, and Yatin Mody's ("Mody")*fn2 offices. (Id. ¶¶ 9-19.)*fn3 Personal items and clearly irrelevant materials-such as Vitesse merchandise- from Tomasetta, Hovanec, and Mody's office were removed from the document collection materials. (Id. ¶¶ 12, 22.) The hardcopy documents were then scanned and loaded onto a database that also included electronic documents collected from Vitesse. (Id. ¶ 21.) Among the documents collected, scanned, and loaded onto an electronic database were handwritten notebooks that Mody maintained. (Id. ¶ 26.) Munger then conducted a multi-tiered review of the database for relevance, responsiveness, and privilege. (Id. ¶¶ 22-24.) In October or November 2006, O'Melveny & Myers LLP ("O'Melveny"), Vitesse's outside counsel, took over the review. (Id. ¶ 28.)

The United States Attorney's Office for the Southern District of New York (the "Government") and the Securities and Exchange Commission ("SEC") also began investigating Vitesse's financial practices. The Government served three grand jury subpoenas on Vitesse, dated May 17, 2006, June 18, 2006, and September 15, 2006. (Jan. 30, 2012 Government Report ("Gov't Report") at 4.) On or about May 31, 2006, Munger and O'Melveny began producing documents to the Government on behalf of Vitesse, in response to the Government's first subpoena. (Gov't Report at 5.)

Four plus years later, on December 7, 2010, the Government indicted Defendants Tomasetta and Hovanec.*fn4 In January 2011, the Government began producing to Defendants the discovery material that it received from Vitesse. (Gov't Report 6.) On April 11, 2011, the Government represented to the Court that it had substantially completed its production under Rule 16 of all the necessary material in its possession. (Apr. 11, 2011 Tr. 2.) Defendants maintained that due to the voluminous nature of the discovery, they would need months to review the materials and prepare for trial. (Apr. 11, 2011 Tr. 4-5.) The Court accommodated their request and set a date in January 2012 for trial. (See id. at 18.)

The event which led to the current dispute occurred on October 24, 2011 when the Government interviewed one of its key witnesses, Yatin Mody, who told the Government's attorneys, present with other law enforcement personnel in attendance, that he maintained detailed notes in a composition notebook. (Gov't Report 1-2.) The Assistants were not aware of the notebooks, having not previously heard of their existence, and called Munger to inquire about them. (Gov't Report 2.) The Munger lawyer told the Government that if the notebooks existed, they would have been produced already. (Gov't Report 2; Barth Decl. ¶ 34.) This representation was not correct. (Barth Decl. ¶ 29.) On November 9, 2011, the Government issued a trial subpoena, not to Munger but to O'Melveny, for, inter alia, Mody's notebooks. (See Gov't Report Ex. A.) O'Melveny disputes whether it received the subpoena, and, in any event, did not respond to it. (See Bookin Decl. ¶ 5.)*fn5 The Government failed to follow-up with either Munger or O'Melveny concerning its search for Mody's notebooks or its November 9 subpoena until late December 2011.

In late December 2011 and early January 2012, the Government issued a number of trial subpoenas to Munger and O'Melveny for additional original materials to use at trial, which was scheduled to begin on January 23, 2012. (Gov't Report 3.) The Government also asked Munger to ship to the Government any boxes of material taken from Mody's office, so the Government could look for the notebooks. (Gov't Report 3.) In searching for originals responsive to the Government's subpoenas, Munger found boxes of original materials from Mody and Hovanec's offices, which included Mody's notebooks. (Barth Decl. ¶¶ 36-37.) On January 15, 2012, Munger notified the Government of this discovery. (Barth Decl. ¶ 38.) At the same time, Munger explained that it could not quickly identify the documents responsive to the Government's subpoenas because the original documents did not have bates numbers. (Barth Decl. ¶ 38.) Munger and the Government then agreed that Munger would send 21 boxes containing the potentially responsive original materials-including Mody's notebooks-to the Government. (Barth Decl. ¶ 38.) On January 18, 2012, the Government notified the Defendants that it was receiving 21 boxes of original versions of previously-produced documents, and offered to make these materials available for the Defendants' review. (Gov't Report 3.)

On January 20, 2012, the Friday before trial, Defendants' counsel began reviewing these originals and discovered what they believed to be new materials that they had not seen before. (Jan. 20, 2012 Tr. 2.) The Defendants immediately notified the Court of this discovery, and the Court addressed the issue on a conference call with the parties that afternoon. The Government stated that it could not confirm or deny whether the materials in the 21 boxes had previously been produced because the originals were not bates numbered and thus could not easily be matched to the Government's prior productions. (Jan. 20, 2012 Tr. 5.) The Government nonetheless admitted that Mody's notebooks looked like new material. (Id. at 10.) The Court asked the Defendants if they wanted an adjournment to review the materials in these 21 boxes. (Id. at 8-9.) The Defendants asked to defer their answer until Monday January 23, 2012, giving them the weekend to review (or begin to review) the materials in the boxes. (Id. at 9.) The Court then directed the Government to check with Munger to confirm that Munger did not have any other originals that had not been previously produced. (Id. at 11-12.)

In checking with Munger, the Government learned that Munger had 22 additional boxes of original materials in its possession, and that it could not confirm whether these materials had been produced before. Munger then shipped these 22 boxes to the Government. (Gov't Report 3.) The Government notified the Defendants and the Court of this ...


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