Lakewood Trust Co. of Lakewood v. Fidelity & Deposit Co. of Md.

• Decision Date: 15 November 1963
• Docket Number: Nos. L--11895--60,L--3513--61,s. L--11895--60
• Citation: 195 A.2d 503,81 N.J.Super. 329
• Parties: The LAKEWOOD TRUST COMPANY OF LAKEWOOD, N.J., a banking corporation of New Jersey, Plaintiff, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, a corporation of Maryland, and E. Michael Donnelly, Defendants. E. Michael DONNELLY, Plaintiff, v. The LAKEWOOD TRUST COMPANY OF LAKEWOOD, N.J., Wilber S. Sigler and Morton C. Steinberg, Defendants.
• Court: New Jersey Superior Court

Page 329

81 N.J.Super. 329

195 A.2d 503

The LAKEWOOD TRUST COMPANY OF LAKEWOOD, N.J., a banking

corporation of New Jersey, Plaintiff, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, a corporation of

Maryland, and E. Michael Donnelly, Defendants.

E. Michael DONNELLY, Plaintiff, v. The LAKEWOOD TRUST COMPANY OF LAKEWOOD, N.J., Wilber S.

Sigler and Morton C. Steinberg, Defendants.

Nos. L--11895--60, L--3513--61.

Superior Court of New Jersey Law Division.

Nov. 15, 1963.

Charles J. Tyne, Bergenfield, for E. Michael Donnelly.

Fred G. Stickel, Jr., Newark, for Fidelity & Deposit Co. of Maryland (Stickel & Stickel, Newark, attorneys).

Harry Green, Deal, for the Lakewood Trust Co. of Lakewood, N.J Alan B. Handler, Deputy Atty. Gen., for Department of Banking & Insurance (Arthur J. Sills, Atty. Gen., attorney).

GIULIANO, J.S.C.

This is a motion by E. Michael Donnelly (Donnelly) and Fidelity and Deposit Company of Maryland (Fidelity) for an order directing the Lakewood Trust Company of Lakewood, N.J. (Lakewood) and the Commissioner of Banking and Insurance of the State of New Jersey (Commissioner) to permit the examination and inspection of certain reports made by or under the direction of the Bureau of Banking of the New Jersey Department of Banking and Insurance (Department), and special reports, if any, made by Lakewood at the request of the Department, and reports made and filed by Lakewood during the years 1955 to 1960, both inclusive. The movants also seek an order requiring the production of such records at trial. The specific reports which the movants demand, together with certain other written matter, have been more particularly set forth in a letter dated May 13, 1963 addressed to the court. Such letter is considered amendatory of and included within the motion before the court. The reports and other written matter are specified as follows:

1. Reports of all examinations of Lakewood by or under the supervision of the Commissioner for each of the years 1955 to 1959, both inclusive;

2. Reports of examination made by or under the supervision of the Commissioner of Lakewood as of the close of business on August 15, 1960;

3. Letters of transmittal accompanying or pertaining to the aforesaid reports from the Department to Lakewood for each of the aforesaid years;

4. Reply or replies of Lakewood to the aforesaid letters of transmittal from the Department to Lakewood;

5. Examination reports and such forms as are required by the Commissioner, and letters or copies thereof accompanying said reports to the Commissioner, which reports are required under the provisions of N.J.S.A. 17:9A--254 and which include the certification of the person under whose supervision the examination was made and list of all loans which in the judgment of the board of directors are (1) worthless, (2) doubtful, or (3) insufficiently secured;

6. All writings transmitted by the Department to Lakewood pertaining to the reports and letters referred to in No. 5 above;

7. Copies of all examination reports and other reports filed by Lakewood with the Department and signed by the required number of directors of Lakewood in accordance with the provisions of N.J.S.A. 17:9A--256;

8. All special reports filed by Lakewood with the Department in accordance with N.J.S.A. 17:9A--256 for the years of 1955 to 1960, both inclusive;

9. Report of examination or examinations made by Peat, Marwick, Mitchell & Co. in 1960 of Lakewood and filed with the Department, together with letter or letters of transmittal.

Donnelly and Fidelity moved on the same date in a separate motion for an order permitting the inspection of certain reports made by the Federal Deposit Insurance Corporation on December 2, 1960, and for the inspection of reports of examinations made by or under the supervision of the Federal Deposit Insurance Corporation during the years of 1955 to 1960, both inclusive. Subsequent to the filing of this motion a representative of the Federal Deposit Insurance Corporation took the reports in question from the possession of Lakewood. The movants at the hearing conceded that since the reports made by the Federal Deposit Insurance Corporation are in the hands of the federal agency, they are not within the jurisdiction of this court and, accordingly, their motion was withdrawn as to the Federal Deposit Insurance Corporation reports.

Discussion of the merits of the motion before the court must be predicated upon a description of the underlying action. Suit was originally brought by Lakewood against both Donnelly and Fidelity. The amended complaint against Donnelly alleges that Lakewood suffered money losses as a result of the dishonest, fraudulent or criminal, or other acts of Donnelly in his handling of installment loans while in the employ of Lakewood. The amended complaint against Fidelity is based on a blanket bond issued by Fidelity to Lakewood covering the employees of Lakewood, alleging that the actions of Donnelly caused losses covered by such bond. Donnelly then instituted a separate action against Lakewood and certain of its officers and directors alleging that they had falsely and maliciously published defamatory matter concerning Donnelly. Lakewood then counterclaimed for losses it allegedly incurred as a result of the fraudulent and dishonest acts of Donnelly. The allegations set forth in the counterclaim of Lakewood are similar to those set forht in the amended complaint. The two actions were then consolidated and the motion here under consideration was thereafter filed.

Concisely stated, the movants assert in support of their motion that Lakewood makes specific reference to certain reports made by or under the supervision of the Department, that these reports are neither set out in the complaint nor annexed thereto, and accordingly, under R.R. 4:24--2, such reports must be produced for the inspection of the movants; and that the reports constitute or contain evidence, or contain matter, which would lead to the discovery of evidence relative to the complaint against the movants and are discoverable under R.R. 4:24--1, and that the reports are relevant to the subject matter of the pending action and consequently may be inspected under the provisions of N.J.S.A. 17:9A--264.

In opposition to the motion, Lakewood asserts that the reports demanded are confidential under N.J.S.A. 17:9A--264, which reads as follows:

'Every report and copy of a report of examination of a bank made by or under the supervision of the commissioner, and every report and copy thereof made by a bank pursuant to subsection C of section 256 shall be confidential, and shall not be made public by any officer, director or employee of a bank, and shall not be subject to subpoena or to admission into evidence in any action or proceeding in any court except pursuant to an order of the court made upon notice to the commissioner and after affording the commissioner an opportunity to advise the court of reasons for excluding from evidence such report or any portion thereof. The court shall order the issuance of a subpoena for the production or admission into evidence of any such report or portion thereof, only if it is satisfied that (1) it is material and relevant to the issues in the proceedings, and (2) the ends of justice and public advantage will be subserved thereby. * * *'

Lakewood contends that the reports are neither material nor relevant to the underlying action and, consequently, under the terms of N.J.S.A. 17:9A--264, may not be opened for inspection by the movants. In addition, Lakewood relies upon the argument of the Attorney General.

The reports asserted to be of a confidential nature by the Attorney General are the 'Income Audit' made by the Department and dated September 19, 1960, the report of examination as of the close of business on August 15, 1960, and the 'Accountant's Report' made by Peat, Marwick, Mitchell & Co. at the request of the Department, dated June 30, 1960. The Attorney General contends in behalf of the Commissioner that since the reports in question were made by the Department or under the direction of the Department, they are confidential under the provisions of N.J.S.A. 17:9A--264, and that the reports may only be opened for inspection if they are found to be material and relevant to the subject matter of the underlying action and if it is found that the interests of justice will be subserved by the production of the reports in question.

In contesting the materiality and relevancy of the reports the Attorney General argues that, even if it be assumed that the reports contain information which would be evidential or suggestive of acts of dishonesty on the part of Donnelly, the reports or portions thereof would not be admissible in evidence since the contents of the reports are patently incompetent and hearsay. It is claimed that these reports and others like them are rendered on the assumption that they will be considered confidential, and it is only upon the basis of preserving the confidentiality of these reports that the Department can elicit the type of sensitive information and data which it needs to protect the community relying on the services of financial institutions. Full, candid and complete disclosure of the internal affairs of financial institutions is of the utmost importance in enabling the Department to discharge its supervisory duties. It is contended that opening these records for inspection would adversely affect the information sources available to the Department, and consequently, that disclosure of these reports would not be in the best public advantage. Moreover, the Attorney General asserts that these reports contain information concerning various aspects of the internal controls and procedures of Lakewood, and that such information in some instances might appear to be of a critical nature. Therefore, he contends that it would be a grave disservice to Lakewood as well as to its customers if such...