Seafirst Corp. v. Jenkins

• Decision Date: 20 June 1986
• Docket Number: No. C83-771R.,C83-771R.
• Citation: 644 F. Supp. 1160
• Parties: SEAFIRST CORPORATION, Plaintiff, v. William JENKINS, et al., Defendants.
• Court: U.S. District Court — Western District of Washington

644 F. Supp. 1160

SEAFIRST CORPORATION, Plaintiff, v. William JENKINS, et al., Defendants.

No. C83-771R.

United States District Court, W.D. Washington.

June 20, 1986.

Stephen V. Bomse, Eric Redman, Robert Rosenfeld, Matthew Larrabee, Heller, Ehrman, White & McAuliffe, Seattle, Wash., San Francisco, Cal., for Seafirst.

Stevan D. Phillips, Deborah A. Elvins, Jones, Grey & Bayley, Seattle, Wash., Luke D. Lynch, Jr., D'Amato & Lynch, New York City, for National Union.

Steven B. Frank, Seattle, Wash., Daniel W. Krasner, Fred T. Isquith, Wolf, Haldenstein, Adler, Freeman & Herz, New York City, Sherrie R. Savett, Berger & Montague, Philadelphia, Pa., Richard D. Greenfield, Greenfield, Chimicles, Haverford, Pa., Chris R. Youtz, Sirianni & Youtz, Seattle, Wash., for class plaintiffs.

William Lerach, San Diego, Cal., Alan Schulman, Milberg, Weiss, Bershad, Specthrie & Lerach, John Braislin, Betts, Patterson & Mines, Seattle, Wash., for Nayes.

T. Dennis George, Laurie Kohli, George Hull & Porter, Seattle, Wash., for Jaehning.

Allan H. Baris, Merrick, Hofstedt & Lindsey, Seattle, Wash., for John Nelson.

Richard E. Keefe, Foster, Pepper & Riviera, Seattle, Wash., for Curtis.

Evan L. Schwab, Davis, Wright & Jones, Seattle, Wash., for Seafirst, Carter, Anderson, Gering, A. Nelson & Gillis.

William A. Helsell, Ragan Powers, Helsell, Fetterman, Martin, Todd & Hokanson, Seattle, Wash., for Jenkins.

Robert D. McLean, Sidley & Austin, Chicago, Ill., Richard M. Clinton, Lucy P. Isaki, Bogle & Gates, Seattle, Wash., for Arthur Andersen & Co.

J. Ronald Sim, Schweppe, Krug & Tausend, Seattle, Wash., for John Boyd.

J. Vernon Williams, Riddell, Williams, Bullitt & Walkinshaw, Seattle, Wash., for McGregor, Stroum, Therpe, and Webster.

REPORT AND RECOMMENDATION

ROTHSTEIN, District Judge.

THIS MATTER comes before the court as special master appointed by the Honorable Charles R. Richey of the United States District Court for the District of Columbia to hear a discovery matter, Seafirst Corp. v. Jenkins, Misc. No. 85-0346, filed in the District of Columbia. The discovery matter has been filed by John R. Boyd in order to serve certain subpoenas duces tecum on the Comptroller of the Currency. Boyd now moves to enforce these subpoenas, and Arthur Andersen & Company joins in his motion. The court has reviewed the memoranda and other materials submitted in support of and in opposition to this motion and has inspected in camera the documents Boyd seeks. The court concludes that the subpoenas should be enforced.

John R. Boyd seeks discovery from the Comptroller in connection with an array of lawsuits known as the Seafirst Litigation, currentl pending in the Western District of Washington. The Seafirst Litigation involves certain large losses reported by Seafirst Corporation in 1982 as a result of the nonperformance of certain energy loans undertaken by Seafirst's principal subsidiary Seattle-First National Bank and numerous energy loan participations purchased by Seattle-First National Bank from the now defunct Penn Square Bank of Oklahoma. It is comprised of two major cases. In Seafirst Corp. v. Boyd, Seafirst Corporation asserts mismanagement claims against a number of former officers and directors of Seafirst and Seattle-First National Bank as well as against Arthur Andersen & Company. In Naye v. Boyd, a class of Seafirst common stock purchasers ("class plaintiffs") assert Rule 10b-5 claims against Seafirst, Seattle-First National Bank, numerous former officers and directors of these two corporations, and Arthur Andersen. Among the defendants in each of these cases is John R. Boyd, former Senior Vice President of Seattle-First National Bank and Manager of the bank's Energy Division. The Comptroller is not a party to either of these cases.

In February, 1982, the National Bank Examiners ("NBE") of the Office of the Comptroller of the Currency ("OCC") commenced one of their regular examinations of Seattle-First National Bank. See 12 U.S.C. § 481 (1982). On the basis of this examination, NBE produced certain reports that contain information about the financial condition of the bank and evaluations of bank management. The purpose of such reports is to communicate to the Comptroller the information necessary for effective supervision of national banks. The reports are strictly confidential.

One of the reports produced by NBE on the basis of their examination of Seattle-First National Bank is the 1982 Commercial Report of Examination. It appears that a draft of the Commercial Report may have been reviewed by senior officers of Seattle-First National Bank. Declaration of J. Ronald Sim in support of Boyd's Motion to Enforce Subpoenae served on Comptroller of Currency ("Dec. Sim"), Ex. K at 481-84, Ex. L at 583-85. This draft report was generally favorable with minor reservations. After the closure of Penn Square Bank on July 5, 1982, the draft report was substantially rewritten based on new information and additional examination. The final 1982 Commercial Report of Examination was highly critical of Seattle-First National Bank's Energy Division.

In July, 1982, OCC issued to Seattle-First National Bank a Shared National Credit Examination Report. A shared national credit is a loan or loan commitment of $20 million or more that is shared by two or more banks. The report contains information on problem credits shared by Seattle-First National Bank.

On January 17, 1983, class plaintiffs submitted to the Comptroller a request under 12 C.F.R. § 4.19 for release of portions of the 1980-82 NBE reports on Seattle-First National Bank. Dec. Sim, Ex. D. On January 20, 1984, the Comptroller agreed to release certain redacted versions of the reports. Id. According to the Comptroller, portions deleted consist largely of statements of opinion. Id.

On January 25, 1984, Seafirst submitted to the Comptroller a request under 12 C.F.R. § 4.19 for release of the draft of the 1982 Commercial Report of Examination on Seattle-First National Bank. Dec. Sim, Ex. E. Boyd joined in this request. Id., Ex. F. By letter dated April 12, 1984, the Comptroller denied the request. Id., Ex. G.

On October 2, 1985, Boyd served a subpoena duces tecum on the Comptroller that requires production of the 1982 Commercial Report of Examination on Seattle-First National Bank and the draft thereof. Dec. Sim, Ex. H. On October 9, 1985, Boyd served a second subpoena duces tecum on the Comptroller that requires production of the 1982 Shared National Credit Examination Report issued to Seattle-First National Bank. Id., Ex. I.

The Comptroller has objected to these subpoenas on the grounds that (1) the material Boyd seeks is protected by the deliberative process privilege; (2) the material is confidential and the Comptroller's interest in confidentiality outweighs the litigants' need for protection; (3) the subpoenas are overbroad; and (4) the subpoenas were not accompanied by proof of service of a notice to take a deposition. In addition, the Comptroller objected to the second subpoena on the grounds that the litigants have failed to exhaust administrative remedies.

The court believes that the subpoenaed NBE reports are extremely relevant to the defenses raised by Boyd and Arthur Andersen to the claims against them in the Seafirst litigation. Seafirst has alleged that under Boyd's management, particularly during the period from November 1, 1981, to March 31, 1982, Seattle-First National Bank's Energy Division imprudently loaned many millions of dollars to high-risk energy businesses and has alleged further that Arthur Andersen, as independent auditor, negligently failed to discern the deterioration of the bank's energy portfolio. Class plaintiffs have alleged that Boyd and Arthur Andersen are both responsible for misrepresentations about the bank's energy portfolio that were published in Seafirst's annual and quarterly reports to shareholders in 1981 and early 1982. Pursuant to these allegations, one of the key issues in the litigation is how a reasonable person would have assessed the condition of the bank's energy portfolio in early 1982. The 1982 NBE reports Boyd seeks provide an analysis of the Energy Division and parts of the energy portfolio during this time. Moreover, the draft report of examination provides analysis that has not been revised in light of the subsequent failure of Penn Square Bank.

I. PRIVILEGE

The Comptroller asserts that the NBE reports Boyd seeks are protected by the government's deliberative process privilege. This privilege protects "intragovernmental documents reflecting advisory opinions, recommendations and deliberations comprising part of the process by which government decisions are formulated." Carl Zeiss Stiftung v. V.E.B. Carl Zeiss, Jena, 40 F.R.D. 318, 324 (D.D.C.1966), aff'd on opinion below, 384 F.2d 979, cert. denied, 389 U.S. 952, 88 S.Ct. 334, 19 L.Ed.2d 361 (1967).

The primary rationale for the intragovernmental privilege is that effective and efficient government decision making requires a free flow of ideas among government officials and that inhibitions will result if officials know that their communications may be revealed to outsiders.

In re Franklin Nat'l Bank Securities Litigation, 478 F.Supp. 577, 580-81 (E.D.N.Y. 1979). In accordance with this rationale, the privilege protects only expressions of opinion or recommendations, not purely factual material. Id. at 581. See Paisley v. Central Intelligence Agency, 712 F.2d 686, 699 (D.C.Cir.1983) (FOIA). Communications are not within the purview of the privilege unless they are both (1) "predecisional" in that they have been generated prior to an agency's adoption of a policy or decision and (2) "deliberative" in that they reflect the give-and-take of a deliberative decision-making process. Federal Trade Comm'n v. Warner Communications, Inc., 742 F.2d 1156, 1158, 1161 (9th Cir. 1984). See Kansas State Network, Inc. v. Federal Communications Comm'n, 720 F.2d 185, 191 (D.C.Cir...