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Securities and Exchange Commission v. Lisa C. Berry


June 1, 2011


The opinion of the court was delivered by: Howard R. Lloyd United States Magistrate Judge

** E-filed June 1, 2011 **



[Re: Docket No. 212]


The Securities and Exchange Commission ("SEC") filed this civil enforcement action in 2007 in relation to alleged improper stock option backdating at KLA-Tencor Corporation ("KLA") 20 and Juniper Networks, Inc. ("Juniper"). Defendant Lisa Berry ("Berry") was General Counsel of KLA from September 1996 to June 1999 and of Juniper from June 1999 to January 2004. The SEC 22 alleges that she oversaw these companies' stock option granting processes.

The case is now in the expert discovery phase. The SEC disclosed two experts: (1) certified public accountant Kenneth Avery ($600 per hour); and (2) economist and professor Dino Falaschetti ($500 per hour). Berry disclosed six experts: (1) economist Kenneth Lehn ($950 per hour); (2) 26 attorney Michael Diamond ($750 per hour); (3) Michael Bean ($295 per hour); (4) certified public 27 accountant Charles Lundelius ($750 per hour); (5) certified public accountant Duross O'Bryan ($575 per hour); and (6) certified public accountant Roman Weil ($1,600 per hour).

other side. The SEC says that each party should bear the costs of their own experts, and it moved for 3 an order so requiring. Docket No. 212 ("Motion"). Berry says that the deposing party should pay the 4 fees of the expert deponent. See Docket No. 215 ("Opp'n"). Pursuant to Civil Local Rule 7-1(b), the Court finds the matter suitable for determination without oral argument.

Federal Rule of Civil Procedure 26(b)(4) was revised in 1993 to provide that "[a] party may depose any person who has been identified as an expert whose opinions may be presented at trial."

The parties disagree over who will pay these experts' fees when they are deposed by the


FED. R. CIV. P. 26(b)(4)(A). "Unless manifest injustice would result, the court must require that the 10 party seeking discovery . . . pay the expert a reasonable fee for time spent in responding to discovery

. . . ." FED. R. CIV. P. 26(b)(4)(E). For this reason, "[c]oncerns regarding the expense of such depositions should be mitigated by the fact that the expert's fees for the deposition will ordinarily be 13 borne by the party taking the deposition." See Advisory Committee Notes to 1993 amendments to FED. R. CIV. P. 26, subdivision(b).*fn1

A. Whether Requiring the SEC to Pay Berry's Experts' Fees Would Constitute "Manifest

The manifest injustice exception is a "stringent standard." See Reed v. Binder, 165 F.R.D. 424, 427 (D.N.J. 1996) (quoting Gorlikowski v. Tolbert, 52 F.3d 1439, 1444 (7th Cir. 1995)). "To 20 apply the exception, the court must find (1) that the plaintiff is either "indigent or [(2)] that requiring 21 him to pay a deposition fee incurred in litigation that he voluntarily initiated would create an undue 22 hardship." Harris v. San Jose Mercury News, Inc., 235 F.R.D. 471, 473 (N.D. Cal. 2006) (Chen,

"In making the determination of undue hardship, the court must 'weigh the possible hardships 25 imposed on the respective parties . . . [and] balance the need for doing justice on the merits between



M.J.) (quoting Edin v. The Paul Revere Life Insurance Co., 188 F.R.D. 543, 547 (D.Ariz. 1999)).

the parties . . . against the need for maintaining orderly and efficient procedural arrangements.'" Id. 2

(citing Reed, 165 F.R.D. at 427-28). 3

("Reply") at 2-3.Therefore, the issue is whether the SEC is faced with an "undue hardship" and 5 whether "the need for doing justice on the merits" outweighs "the need for maintaining orderly and 6 efficient procedural arrangements." See Harris, 235 F.R.D. at 473; Edin, 188 F.R.D. at 547.

expensive.*fn2 It says that Berry's six experts collectively charge $4,920 per hour (while its own two 9 experts only collectively charge $1,100 per hour), and it has already expended significant resources 10 in reviewing the six experts' reports. Id. Motion at 5, 7. Thus, "[a]dding the costs of paying the

additional (and largely unwarranted) fees for defendant's experts will inevitably require that the

[SEC] not expend [its] resources elsewhere in enforcing the securities laws." Id.

"undue burden" exists when one party's experts collectively charge more than another party's 15 experts. If anything, this argument goes to whether a party's experts' fees are reasonable (as 16 discussed below). And, as for its argument that the SEC will have to choose how to allocate its 17 resources, this is no different than what nearly all litigants must do.

19 the other side's experts per Rule 26(b)(4)(E). See United States v. City of Twin Falls, Idaho, 806

F.2d 862, 879 (9th Cir. 1986), overruled on other grounds by Crawford Fitting Co. v. J.T. Gibbons,

Here, the SEC does not contend that it is indigent. See Motion at 4-5; Docket No. 224

Simply put, the SEC's main argument is that Berry's experts' hourly rates are too

The Court is not persuaded. For one, the SEC cites no authority for its proposition that

The Court finds that a "manifest injustice" does not exist. The parties shall pay the fees of

Inc., 482 U.S. 437 (1987) ("The language of the rule is mandatory ('shall'), unless manifest injustice 2 would result.").*fn3

B. The Reasonableness of Berry's Experts' Fees

requirement that the expert fees be "reasonable" is, along with the "manifest injustice" inquiry, one 6 way to prevent potential discovery abuse. See Rogers, 232 F.R.D. at 582 n.1; see also City of Twin

Falls, 806 F.2d at 879 ("The purpose of the rule is to avoid the unfairness of requiring one party to 8 provide expensive discovery for another party's benefit without reimbursement.") (citing 4 J.

MOORE, J. LUCAS, & G. GROTHEER, JR., MOORE'S FED. PRAC., ¶ 26.66[5] (2d ed. 1984)).

"What constitutes a 'reasonable fee' for purposes of [Rule 26(b)(4)(E)] lies within the Court's sound discretion." Edin, 188 F.R.D. at 545 (citing 8 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FED. PRAC. AND PROC., CIVIL 2D § 2034 at 469-70 (2d ed. 1994)). And, "[a]s a general rule, '[t]he party seeking reimbursement of deposition fees bears the burden of proving reasonableness . .

The reasonableness of Berry's experts' fees is another matter.*fn4 Indeed, Rule 26(b)(4)(E)'s

. . If the parties provide little evidence to support their interpretation of a reasonable rate, the court 15 may use its discretion to determine a reasonable fee.'" Mannarino v. United States, 218 F.R.D. 372, 2002) (citations omitted)).

factors to consider: (1) the witness's area of expertise; (2) the education and training required to 20 provide the expert insight which is sought; (3) the prevailing rates of other comparably respected 21 available experts; (4) the nature, quality, and complexity of the discovery responses provided; (5) 22 the fee actually charged to the party who retained the expert; (6) fees traditionally charged by the

While Berry may have been caught off-guard, she still set forth her basic points for why her experts' fees are reasonable, so the Court believes that this matter may be fairly ruled upon.

374 (E.D.N.Y. 2003) (quoting New York v. Solvent Chem. Co., 210 F.R.D. 462, 468 (W.D.N.Y.

Cases discussing the issue of what constitutes a "reasonable" expert fee have set forth seven expert on related matters; and (7) any other factor likely to assist the court in balancing the interests 2 implicated by Rule 26. Edin, 188 F.R.D. at 546 (citations omitted).

4 and O'Bryan) have hourly rates within the same general range as the two experts disclosed by the

SEC: these experts all charge between $295 and $750 per hour. However, two of Berry's experts 6 charge significantly more: Lehn charges $950 per hour and Weil charges $1,600 per hour. These 7 fees are unreasonable. While their levels of expertise, education, and training are indeed impressive, 8 their rates are considerably higher than those of other (presumably) comparable experts (such as 9

As mentioned earlier, Berry disclosed six experts. Four of them (Diamond, Bean, Lundelius,

Berry's other experts and the experts hired by the SEC) and are even higher than they have charged 10 the SEC for similar work in the recent past. For example, Lehn served as an expert on behalf of the

SEC less than ten years ago and was paid $550 and $650 per hour on two separate occasions, and

Weil testified on behalf of the SEC in 2007 and was paid approximately $500 per hour. Reply at 6; 13

Docket No. 225 ¶ 3; Docket No. 230 at 1. But these experts had the same levels of expertise, 14 education, and training then as they do now, and the matters for which they were retained were of 15 comparable complexity, so it is hard to understand how their rates could have more than doubled.

Ill. Nov. 23, 2009) (examining Weil's methods and conclusions with respect to what a company's 18 earnings per share would have been "but-for" the defendant's securities law violations).

$1,600 to $800 per hour.*fn5

See Reply at 6-7; see also, e.g., SEC v. Koenig, No. 02 C 2180, 2009 WL 4043319, at *2-3 (N.D. 17

Accordingly, the Court will reduce Lehn's fee from $950 to $750 per hour and Weil's fee from

motion. It is denied insofar as the parties are required to pay the other side's experts' fees in relation


Based on the foregoing, the Court GRANTS IN PART and DENIES IN PART the SEC's to their depositions. It is granted insofar as Lehn's fee is reduced from $950 to $750 per hour and 2

Weil's fee is reduced from $1,600 to $800 per hour.


Amy M. Ross Benjamin Cunningham Geiger Edward W. Swanson Elena Ro James A. Meyers James Neil Kramer Jeffrey Bruce Coopersmith,, Jeremy Emerson Pendrey Joni L. Ostler, Judith L. Anderson,, Katherine Collinge Lubin, Marc J. Fagel Mark Philip Fickes Matthew Austen Tolve Matthew Eric Sloan,,, Michael David Torpey Nancy E. Harris, Randall Scott Luskey, Rebecca Felice Lubens,,,, Robert John Nolan, Robert Lootfi Tashjian,,, Steven Andrew Hong Susan F. LaMarca,, Thomas R. Green,,

C07-04431 RMW (HRL) Notice will be electronically mailed to:

Counsel are responsible for distributing copies of this document to co-counsel who have not registered for e-filing under the court's CM/ECF program.

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