Stratford Factors v. New York State Banking Dept.

• Decision Date: 15 March 1960
• Parties: STRATFORD FACTORS, a copartnership, Plaintiff-Appellant, v. NEW YORK STATE BANKING DEPARTMENT and Superintendent of Banks, Respondents, and The Pennsylvania Exchange Bank, Mary R. Gallagher, as Executrix of the Estate of William H. Gallagher, Deceased, and George Vassil, Defendants.
• Court: New York Supreme Court — Appellate Division

Page 375

197 N.Y.S.2d 375

10 A.D.2d 66

STRATFORD FACTORS, a copartnership, Plaintiff-Appellant, v. NEW YORK STATE BANKING DEPARTMENT and Superintendent of

Banks, Respondents, and The Pennsylvania Exchange Bank, Mary

R. Gallagher, as Executrix of the Estate of William H.

Gallagher, Deceased, and George Vassil, Defendants.

Supreme Court, Appellate Division, First Department.

March 15, 1960.

Reargument and Appeal Denied April 26, 1960. See 200 N.Y.S.2d 359.

Emanuel Silverman, New York City, of counsel (Jack Goldstein, New York City, with him on the brief; Emanuel Silverman, New York City, attorney), for plaintiff-appellant.

Herbert J. Wallenstein, New York City, of counsel (Paxton Blair, Albany, and Irving Galt, New York City, with him on the brief; Louis J. Lefkowitz, Atty. Gen., of the State of New York, attorney), for respondents.

Before BOTEIN, P. J., and BREITEL, RABIN, M. M. FRANK, and VALENTE, JJ.

VALENTE, Justice.

Plaintiff sued to recover $52,217.33 from defendants as the balance due on a loan made by plaintiff to Concord Supplies & Equipment Corp. The defendants--the Pennsylvania Exchange Bank and two of its former officers, one of whom is now deceased--were charged with fraudulently misrepresenting to plaintiff the amount of an outstanding loan due to the Bank from Concord, concealing pertinent facts concerning the amount of that loan and misrepresenting the financial condition of Concord. It was alleged that in reliance on the misrepresentations, plaintiff was induced to make a loan of $50,000 to Concord in October, 1955, no part of which has been repaid, because soon thereafter Concord was declared a bankrupt.

It appears that the New York State Banking Department conducted an examination and investigation into the affairs of the Bank during the period from 1954 to 1956. In fact, the inquiry by the Banking Department still continues. There is presently a 'resident' bank examiner at the premises of the Bank, and the institution remains under the continuing supervision of the Banking Department.

Plaintiff caused to be served upon the Superintendent of Banks of the State of New York and the New York State Banking Department a subpoena duces tecum requiring the production upon the trial of the action of '* * * all documents, correspondence and memoranda with The Pennsylvania Exchange Bank during the years 1954, 1955 and 1956 relating to the transactions of The Pennsylvania Exchange Bank and Concord Supplies and Equipment Corp. now in your custody, and all other deeds, evidences and writings, which you have in your custody or power, concerning the premises.'

Another subpoena duces tecum, served on the defendant Bank, called for the production at the trial, among other things, of

'* * * all documents, correspondence and memoranda with The Superintendent of Banks of the Department of Banking during the years 1954, 1955 and 1956 relating to the transactions of The Pennsylvania Exchange Bank and Concord Supplies and Equipment Corp.'

The Banking Department thereupon moved to vacate the subpoena served upon the Superintendent and the Department and to modify the subpoena served upon the Bank to the extent of striking therefrom the matter hereinabove quoted. Plaintiff seeks to review the order of Special Term which granted the motion in toto on the authority of our decision in Clark v. Flynn, 9 A.D.2d 249, 193 N.Y.S.2d 401, 403.

Clark v. Flynn sustained a claim of privilege asserted by the Superintendent of Banks under the provisions of subdivision 10 of Section 36 of the Banking Law which declares that 'All reports of examinations and investigations' of the Banking Department 'shall be confidential communications, shall not be subject to subpoena and shall not be made public unless, in the judgment of the superintendent, the ends of justice and the public advantage will be subserved by the publication thereof'. In the instant case, the Superintendent of Banks has once more claimed the privilege, asserting that in his judgment the public advantage will not be subserved by publication of the documents in question through their production at the trial for introduction in evidence.

This appeal presents another facet of the problem of governmental claim of privilege to non-disclosure of evidence in suits between private litigants to which the government is not a party. The general question has been the subject of considerable discussion among law writers (M. M. Carrow--Governmental Nondisclosure In Judicial Proceedings, 107 U. of Pa.L.Rev. 166-198 (1958); J. W. Bishop, Jr.--The Executive's Right of Privacy, 66 Yale L.J. 477-491 (1957); Berger and Krash--Government Immunity From Disclosure, 59 Yale L.J. 1451 (1950); Sanford--Evidentiary Privileges Against the Production of Data, etc., 3 Vand.L.Rev. 73 (1949); Notes, 69 Yale L.J. 452-461 (1960); 58 Yale L.J. 993 (1949); 41 Corn.L.Q. 737-49 (1956); 29 N.Y.U.L.Rev. 194 (1954); 32 A.L.R.2d 391-407; 8 Wigmore, Evidence § 2378 (3d Ed.); McCormick on Evidence §§ 143-149).

Whenever a governmental privilege against non-disclosure is asserted, a court is faced with a resolution of two conflicting interests. See Bank Line v. United States, D.C., 76 F.Supp. 801, 803. Initially, there is the interest of the individual litigant to obtain justice through full disclosure of all relevant information. In Matter of Bakers Mut. Ins. Co. (Dept. of Health), 301 N.Y. 21, 27, 92 N.E.2d 49, 52, Loughran, C. J., said:

'The right to resort to means competent to compel the production of written as well as oral testimony has long been regarded as not less than essential to the very existence and constitution of a court at common law. But persons subpoenaed may nevertheless assert against the compulsion of such process whatever privileges they may enjoy under the common law or by statute. See American Lithographic Co. v. Werckmeister, 221 U.S. 603, 31 S.Ct. 676, 55 L.Ed. 873; 8 Wigmore on Evidence [3d ed.], § 2191, pp. 62-63.'

Opposed to the individual suitor's interest is that of governmental officials to prevent disclosure where it would impinge upon effective administration or where the public interest would be adversely affected.

In England the rule is established that the claim of privilege made by a governmental agency must be respected and allowed by the courts without any further inquiry into the substance of the claim. (Duncan v. Cammell, Laird & Co. [1942] A.C. 624). As Viscount Simon, L.C., said in that case (p. 641):

'The practice in Scotland, as in England, may have varied, but the approved practice in both countries is to treat a ministerial objection taken in proper form as conclusive.'

In this country, it was established by United States v. Reynolds, 345 U.S. 1, 9-10, 73 S.Ct. 528, 533, 97 L.Ed. 727, that: 'Judicial control over the evidence in a case cannot be abdicated to the caprice of executive officers.' Hence, where a claim of privilege is made, there must be an appropriate basis for the assertion thereof; and whether there is or not will be for the Court to determine.

In Clark v. Flynn (9 A.D.2d 249, 193 N.Y.S.2d 401), supra, the claim of privilege under Section 36, subd. 10, of the Banking Law was sustained as not being arbitrary or capricious. It was held that the determination of the Superintendent of Banks to withhold...