Bankers Trust Co., In re

• Decision Date: 03 August 1995
• Docket Number: No. 95-3199,95-3199
• Citation: 61 F.3d 465
• Parties: In re BANKERS TRUST COMPANY, Petitioner.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 465

61 F.3d 465

32 Fed.R.Serv.3d 85

In re BANKERS TRUST COMPANY, Petitioner.

No. 95-3199.

United States Court of Appeals Sixth Circuit.

Argued June 13, 1995.

Decided Aug. 3, 1995.

Daniel J. Buckley, Vorys, Sater, Seymour & Pease, Columbus, OH, Michael A. Cooper (argued), Sullivan & Cromwell, New York City, for Bankers Trust Co.

John D. Luken, Thomas S. Calder (argued), Dinsmore & Stohl, Stanley M. Chesley (argued), Waite, Schneider, Bayless & Chesley, Cincinnati, OH, for Procter & Gamble Co.

Norman R. Nelson (briefed), New York Clearing House Ass'n, New York City, for amicus curiae New York Clearing House Ass'n.

Richard Ashton (briefed), Federal Reserve Bd., Legal Div., Stephen L. Siciliano, Katherine H. Wheatley (argued), Federal Reserve System, Bd. of Governors, Washington, DC, for amicus curiae Federal Reserve System.

Before: MERRITT, Chief Judge; BROWN and MARTIN, Circuit Judges.

BROWN, J., delivered the opinion of the court, in which MARTIN, J., joined. MERRITT, C.J. (p. 472), delivered a separate concurring opinion.

BAILEY BROWN, Circuit Judge.

The petitioner, Bankers Trust Company, the defendant in a pending securities action, seeks a writ of mandamus to vacate a discovery order directing it to produce to the plaintiff, Procter and Gamble Company, certain documents which constitute or contain "confidential supervisory information" under federal regulations promulgated by the Federal Reserve System. ¹ Bankers Trust contends that the discovery order is in error because: 1) Procter and Gamble Company failed to comply with the clearly applicable governing regulations of the Federal Reserve in attempting to obtain the documents from Bankers Trust, and 2) the documents are, in any event, protected by the Federal Reserve's bank examination privilege which the district court refused to consider. We grant the writ in part, vacate the discovery order, and remand the case to the district court with instructions.

I.

The Procter and Gamble Company ("P & G") sued Bankers Trust and BT Securities Corporation (collectively "Bankers Trust"), alleging fraud, misrepresentation, violations of the Commodities Exchange Act, and various other causes of action arising from two derivative contracts entered into with Bankers Trust. P & G claims approximately $195 million in damages.

The petition for writ of mandamus focuses on a single discovery issue in this litigation which is otherwise still in the discovery phase. At issue is P & G's demand that Bankers Trust produce all documents submitted to or received from the Federal Reserve, including "any and all documents relating to any and all regulatory reports of examination and inspection which relate to or refer to Bankers Trust's [leveraged derivative transaction] Business." ² Thus, P & G is seeking Federal Reserve examination reports and documents prepared by both the Federal Reserve and Bankers Trust during the examination process. Bankers Trust contends that the documents P & G seeks are property of the Federal Reserve Board and that under the applicable Board regulations, Bankers Trust is prohibited from disclosing the documents to P & G. Bankers Trust therefore contends that it has been thrust into an untenable position. If it complies with the district court's order, it violates the Board's regulations prohibiting disclosure and risks criminal penalties. If, on the other hand, it does not comply with the court order, it is subject to being held in contempt and to possible sanctions under Rule 37 of the Federal Rules of Civil Procedure.

The relevant regulation in the instant case is 12 C.F.R. Sec. 261 et seq. Section 261 first defines "confidential supervisory information" as, among other things, "reports of examination and inspection" as well as "documents prepared by, on behalf of, or for the use of the [Federal Reserve] Board, [or] a Reserve Bank...." 12 C.F.R. Sec. 261.2(b). The regulations provide that such information is and shall always remain "the property of the Board." 12 C.F.R. Sec. 261.11(g). The regulations further provide the procedures to be followed to obtain access to confidential supervisory information. A person seeking access shall file a written request with the general counsel of the Board of Governors of the Federal Reserve System. 12 C.F.R. Sec. 261.13(b). The general counsel may then approve the request if: 1) the person making the request has shown a substantial need for confidential supervisory information that outweighs the need to maintain confidentiality; and 2) disclosure is consistent with the supervisory and regulatory responsibilities and policies of the Board. 12 C.F.R. Sec. 261.13(c). Making a request under this section and a denial thereof is considered to be an exhaustion of administrative remedies for discovery purposes in any civil proceeding. 12 C.F.R. Sec. 261.13(d). If a party has exhausted such remedy to no avail, it may then file against the Federal Reserve either a Freedom of Information Act (FOIA) action or subpoena the documents under Rule 45 of the Federal Rules of Civil Procedure. ³ What a party may not do under the procedures set out in the regulations, however, is seek the documents from some other party without the Board's approval or permission. Likewise, any person or organization that has documents which may not be disclosed under these regulations and is served with a "subpoena, order, or other judicial process ... requiring the production of documents or information" is directed to promptly advise the Board's general counsel of such request and must continually "decline to disclose the information...." 12 C.F.R. Sec. 261.14. The Federal Reserve contends, in its amicus curiae brief, that the procedures set out in the regulations are the exclusive means of obtaining confidential supervisory information.

In this case, P & G made a discovery request in which it asked for documents of Bankers Trust relating to its leveraged derivative business. Bankers Trust objected to the production of the documents, relying on the regulations summarized above. Unknown to Bankers Trust, P & G also had made a written request to the Federal Reserve Board, pursuant to Sec. 261.13 of the regulations, for the documents in question. The Board took the position that any report or document sent by the Federal Reserve to Bankers Trust as part of the examination process, and any document created by Bankers Trust and sent to the Federal Reserve as part of that process, constituted "confidential supervisory information" which could not be disclosed by Bankers Trust. In a letter to P & G, the Board denied P & G's request for the documents on the ground that P & G had not shown a substantial need for the information that outweighed the need to maintain confidentiality. P & G took that letter to be an exhaustion of administrative remedies, and instead of then proceeding directly against the Federal Reserve through a Rule 45 subpoena or FOIA action, it turned to the district court in which its action against Bankers Trust was pending and sought to compel production of the documents directly from Bankers Trust. P & G served a motion to compel production upon Bankers Trust, and a telephonic conference on the motion was conducted by the district court. P & G advised the Board by letter that this conference would be taking place. The Board, however, did not participate in the conference.

In the conference, the district court made it clear that the Federal Reserve's regulations could in no way interfere with the normal operation of the judicial branch of government. To this end, the court concluded that it was not bound to follow the Board's regulations to the extent that the regulations posed a barrier to the court's ability to control discovery. Thus, because Bankers Trust was in possession of the requested documents, the court concluded that P & G could have discovery of the documents from Bankers Trust. Moreover, the district court did not analyze the documents in question under the bank examination privilege upon which Bankers Trust also relied, because, in the court's opinion, the privilege "doesn't exist." On February 21, 1995, the district court entered an order granting P & G's request to compel production of the documents. It ordered Bankers Trust to produce three categories of documents: 1) all business records or other pre-existing documents which Bankers Trust had submitted to the Board relating to the leveraged derivatives products business; 2) all documents concerning the leveraged derivatives business prepared by Bankers Trust relating to the examination process; and 3) the Federal Reserve's examination reports relating to the leveraged derivatives business. The first two categories were to be turned over to P & G; the last category was to be turned over to the district court for in camera inspection.

Bankers Trust now objects to the production of the documents in the latter two categories, and claims that the order is clearly erroneous as a matter of law. ⁴ First, Bankers Trust contends that the Board's regulations prohibit it, in all events, from disclosing such documents and dictate that P & G seek the documents in question directly from the Federal Reserve. Second, Bankers Trust alleges that the documents are protected under the Federal Reserve's bank examination privilege, a privilege the existence of which the district court refused to recognize. As stated, the Federal Reserve has filed an amicus curiae brief in support of the petition for writ of mandamus. ⁵

II.

Mandamus review must be confined to matters of usurpation of judicial power or clear abuse of discretion. Schlagenhauf v. Holder, 379 U.S. 104, 111, 85 S.Ct. 234, 238-39, 13 L.Ed.2d 152 (1964). Thus, mandamus is not to be used to reverse a decision made by a court in the exercise of legitimate jurisdiction. In re Aetna Cas. & Sur. Co., 919 F.2d 1136, 1140 (6th Cir.1990) (en banc). Moreover, the petitioner has the burden of showing that its right...