Resolution Trust Corp. v. Thornton

• Citation: 41 F.3d 1539
• Decision Date: 16 December 1994
• Docket Number: No. 94-5005,94-5005
• Parties: , 63 USLW 2387 RESOLUTION TRUST CORPORATION, Appellee, v. Grant THORNTON, Appellant. District of Columbia Circuit
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 1539

41 F.3d 1539

309 U.S.App.D.C. 384, 63 USLW 2387

RESOLUTION TRUST CORPORATION, Appellee, v. Grant THORNTON, Appellant.

No. 94-5005.

United States Court of Appeals,District of Columbia Circuit.

Argued Oct. 21, 1994.

Decided Dec. 16, 1994.

Rehearing and Suggestion

for Rehearing In Banc ^*

Denied Feb. 16, 1994.

Marc Gary, Washington, DC, argued the cause for appellant. With him on the briefs were James G. Duncan, Evan M. Tager, Washington, DC, and Stanley J. Parzen, Chicago, IL.

David M. Fitzgerald, Sr. Counsel, Resolution Trust Corp., Boston, MA, argued the cause for appellee. With him on the brief were Suzanne Rigby, Atty., Resolution Trust Corp., Paul M. Laurenza, John H. Korns, II, Washington, DC, and James E. Topinka, San Francisco, CA.

Before: EDWARDS, Chief Judge, SENTELLE and TATEL, Circuit Judges.

Opinion for the Court filed by Chief Judge EDWARDS.

HARRY T. EDWARDS, Chief Judge:

In FTC v. Invention Submission Corp., 965 F.2d 1086 (D.C.Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1255, 122 L.Ed.2d 654 (1993), we recognized that administrative agencies may subpoena a corporation's financial documents solely to ascertain the cost-effectiveness of pursuing contemplated litigation against the corporation. Slightly more than a year later, in Linde Thomson Langworthy Kohn & Van Dyke v. Resolution Trust Corp., 5 F.3d 1508 (D.C.Cir.1993), we held that, absent a governing statutory provision to the contrary, an agency's authority to subpoena documents in support of an investigation survives the agency's filing of a civil lawsuit against the target of the subpoena. And, most recently, in Resolution Trust Corp. v. Walde, 18 F.3d 943 (D.C.Cir.1994), we held that where personal (as opposed to corporate) records are at issue, an agency must harbor a reasonable articulable suspicion of wrongdoing before a cost-effectiveness purpose will be enforced via an investigative subpoena. This appeal presents a question unanswered by Invention Submission Corp., Linde Thomson, and Walde: whether an administrative agency's authority to subpoena documents from a partnership solely to ascertain the cost-effectiveness of litigation survives the agency's filing of suit against the subpoena recipient.

In this case, Grant Thornton, an accounting partnership, appeals from an order of the District Court enforcing two subpoenas duces tecum issued by the Resolution Trust Corporation ("RTC") pursuant to the agency's investigation of two failed savings associations, San Jacinto Savings Association ("San Jacinto") of Bellaire, Texas, and Cobb Federal Savings Bank ("Cobb Federal") of Marietta, Georgia. In the subpoenas, the RTC sought a broad variety of Grant Thornton's financial and insurance information for the asserted purpose of determining the cost-effectiveness of pursuing litigation against Grant Thornton. Four days after seeking enforcement of the subpoenas in the District Court, the RTC sued Grant Thornton in connection with the San Jacinto investigation, alleging misconduct in Grant Thornton's auditing of the institution and seeking reimbursement for the savings association's losses. Approximately six weeks later, the District Court entered an order enforcing both subpoenas.

We reverse the District Court's decision with regard to the San Jacinto subpoena. We hold that the RTC lacks statutory authority to subpoena financial documents solely to ascertain the cost-effectiveness of pursuing litigation once such litigation commences. While the RTC relies upon its general statutory authority to maximize the assets of failed savings institutions, minimize losses, and make efficient use of funds, we find these statutory mandates insufficiently specific to confer a power that would stretch beyond both the traditional boundaries of an investigation and the well-established limits on discovery of an adversary's financial and insurance information during the course of litigation. Thus, we conclude that the filing of suit by the RTC in this case terminated the agency's investigation into the cost-effectiveness of pursuing litigation against Grant Thornton. ¹ As to the Cobb Federal subpoena, we remand to the District Court for a determination of privilege and privacy issues.

I. BACKGROUND

Congress created the RTC in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. Secs. 1441a, 1811 et seq. (1988 & Supp. V 1993) ("FIRREA"), as part of a comprehensive response to the nationwide collapse of the savings and loan industry. Under the FIRREA, the RTC acts as a receiver for hundreds of failed savings and loan institutions, succeeding to "all rights, titles, powers, and privileges" of such institutions. Id. Secs. 1821(c)(6)(A), 1821(d)(2)(A)(i). As a receiver, the RTC is authorized to perform a variety of functions, including collecting all obligations and money owed to failed institutions, and preserving and conserving their assets and property. Id. Sec. 1821(d)(2)(B). Congress charged the RTC with performing all of its duties so as to maximize the value of the assets of failed institutions, minimize the losses realized in the resolution of cases, and make efficient use of public funds. Id. Sec. 1441a(b)(3)(C). To facilitate these functions and others, the FIRREA authorizes the RTC to issue subpoenas "for purposes of carrying out any power, authority, or duty" under the statute. Id. Secs. 1818(n), 1821(d)(2)(I)(i).

Exercising this power, the RTC issued a subpoena duces tecum to Grant Thornton on November 6, 1992, in connection with its investigation of San Jacinto, a failed institution to which Grant Thornton provided auditing services for fiscal years 1983 to 1988. According to an order of investigation signed that same day, the agency issued the San Jacinto subpoena to determine whether "pursuit of ... litigation [against Grant Thornton] would be cost-effective, considering the extent of the potential defendant's ability to pay a judgment in any such litigation." In re San Jacinto Savings & Loan Ass'n, Order of Investigation at 1 (Nov. 6, 1992) [hereinafter Order of Investigation], reprinted in Joint Appendix ("J.A.") 6. ² The subpoena sought a broad range of financial and insurance information, including Grant Thornton's present financial statements and projections of future earnings through 1996; documentation of all insurance claims relating to any of Grant Thornton's engagements since 1983; internal organizational documents of any insurers in which Grant Thornton holds an ownership interest; all of Grant Thornton's partnership agreements since 1983, as well as statements of current firm income to each partner; full documentation of Grant Thornton's professional liability coverage, malpractice coverage, and loss reserves; and all documents created since 1990 discussing "the ability of Grant Thornton to pay potential judgments or settlements that may become due before January 1, 1995." J.A. 13-15. The subpoena was the second the RTC had issued to Grant Thornton since becoming the receiver for San Jacinto in November 1990. Pursuant to a September 1991 subpoena, Grant Thornton gave the RTC various documents relating to Grant Thornton's audits of San Jacinto, including its indemnity policies for the years relevant to its San Jacinto work.

In response to the second San Jacinto subpoena, Grant Thornton initially attempted unsuccessfully to persuade the RTC to alter or withdraw its demands. Then, in January 1993, Grant Thornton partially complied with the subpoena, producing recent financial statements, balance sheets, budget information, and tax returns; individual partner earnings summaries from 1990 to 1992; credit agreements between Grant Thornton and its lenders; and insurance policies covering the years during which Grant Thornton served as auditor for San Jacinto. The RTC reminded Grant Thornton of its remaining obligations under the San Jacinto subpoena in a letter dated July 28, 1993. In that letter, the agency also demanded reimbursement from Grant Thornton for at least $280 million worth of San Jacinto's losses. On November 15, 1993, the RTC sent Grant Thornton another letter, this time demanding compliance with the subpoena and threatening an enforcement action. On November 22, 1993, the RTC filed the threatened enforcement action in the District Court. Four days later, the RTC sued Grant Thornton in the United States District Court for the Southern District of New York, seeking the previously demanded $280 million as damages.

Meanwhile, the RTC also sought information from Grant Thornton in connection with the agency's investigation of Cobb Federal. On October 12, 1993, the RTC issued a subpoena duces tecum to Grant Thornton seeking insurance policies covering the same period as the request issued in connection with the San Jacinto investigation. Like the order of investigation underlying the San Jacinto subpoena, the order underlying the Cobb Federal subpoena asserted the purpose of determining whether litigation against Grant Thornton would be cost-effective. Because the two subpoenas overlapped, the RTC also requested enforcement of the Cobb Federal subpoena in the San Jacinto subpoena enforcement action.

The District Court granted the RTC's motion for summary enforcement of both subpoenas on January 10, 1994. See Hearing Tr. (Jan. 10, 1994) at 22, reprinted in J.A. 87. The District Court concluded that the subpoenas served the valid investigative purpose of allowing the RTC to determine the cost-effectiveness of litigating against Grant Thornton, and that our decision in Linde Thomson foreclosed Grant Thornton's argument that the RTC's filing of suit terminated that purpose. Id. at 22-24, reprinted in J.A. 87-89. The District Court thus ordered Grant Thornton to comply with the subpoenas or produce a log of privileged documents by January 31, 1994. Id. at 31, reprinted in J.A. 96. We stayed the District Court's order pending this appeal. ³

On appeal, Grant Thornton raises...