Subpoena Duces Tecum Served on Office of Comptroller of Currency, In re

• Decision Date: 26 June 1998
• Docket Number: Nos. 97-5228,97-5229,s. 97-5228
• Citation: 145 F.3d 1422
• Parties: , 41 Fed.R.Serv.3d 306, 32 Bankr.Ct.Dec. 998, 10 Fourth Cir. & D.C. Bankr. 429 In re SUBPOENA DUCES TECUM SERVED ON THE OFFICE OF THE COMPTROLLER OF THE CURRENCY.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1422

145 F.3d 1422

330 U.S.App.D.C. 352, 41 Fed.R.Serv.3d 306,

32 Bankr.Ct.Dec. 998,

10 Fourth Cir. & D.C. Bankr. 429

In re SUBPOENA DUCES TECUM SERVED ON THE OFFICE OF THE COMPTROLLER OF THE CURRENCY.

Nos. 97-5228, 97-5229.

United States Court of Appeals District of Columbia Circuit.

Argued May 4, 1998.

Decided June 26, 1998.

Appeals from the United States District Court for the District of Columbia (Nos. 94ms00329, 95ms00006).

Thomas R. Kline argued the cause for appellant, with whom Thomas E. Starnes and Scott A. Richie were on the briefs.

Larry J. Stein, Attorney, United States Department of Treasury, argued the cause for appellee Comptroller of the Currency, with whom L. Robert Griffin, Director, and Rosa M. Koppel, Attorney, were on the brief. Robert B. Serino, Deputy Chief Counsel, entered an appearance.

Stephen H. Meyer, Senior Attorney, argued the cause for appellee Board of Governors of the Federal Reserve System, with whom James V. Mattingly, Jr., General Counsel, Richard M. Ashton, Associate General Counsel, Katherine H. Wheatley, Assistant General Counsel, and Karen A. Appelbaum, Senior Attorney, were on the brief.

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

SILBERMAN, Circuit Judge:

The Trustee in Bankruptcy for the Bank of New England Corporation appeals from the district court's refusal to enforce subpoenas duces tecum against the Federal Reserve Board and the Comptroller of the Currency. We reverse, holding that the deliberative process privilege does not protect these documents, and remand to the district court.

I.

The Bank of New England Corporation and its subsidiary, the Bank of New England, N.A., experienced serious financial trouble in the late eighties and came under the heightened supervision of the Federal Reserve Board, which regulates bank holding companies, and the Office of the Comptroller of the Currency, which oversees the national banking system. The Comptroller began to monitor the day-to-day operations of the Bank, and new management teams, approved by the regulators, assumed leadership of the Bank and Corporation. Between 1989 and January of 1991, the Corporation transferred millions of dollars in assets to the Bank in an effort to shore it up. But the financial condition of both institutions continued to deteriorate, and on January 6, 1991, the Comptroller declared the Bank insolvent and named the FDIC as receiver. The next day, the Corporation filed for bankruptcy.

The Trustee in Bankruptcy sued the FDIC in Massachusetts federal district court to void the Corporation's transfers to the Bank as fraudulent conveyances. He claimed that the FDIC, acting in concert with the Board and the Comptroller, realized that the Corporation and the Bank were already insolvent and pressured the Corporation's management to downstream assets to the Bank to reduce the losses that the FDIC would incur as receiver. To support his allegations, he offered evidence like the following statement that the Comptroller of the Currency gave to Congress in defense of his decision not to close the Bank sooner:

[T]he loss to the FDIC did not increase, and may well have been reduced, due to the efforts of the new management team. These efforts included the sale of Corporation assets and the downstreaming of the sale proceeds to the Bank. Had the Bank been closed earlier, these assets would have been left behind in the holding company and would not have been available to reduce the FDIC's ultimate cost.

The Failure of the Bank of New England: Hearings Before the Senate Comm. on Banking, Hous., and Urban Affairs, 102d Cong. 11 (1991) (statement of Robert L. Clarke, Comptroller, Office of the Comptroller of the Currency). The Trustee's theory required him to show either that the transfers were made "with actual intent to hinder, delay, or defraud" the Corporation's creditors or that the Corporation was insolvent when the transfers were made and did not receive fair consideration in return for them. 11 U.S.C. § 548(a) (1994). If the transfers were voidable under § 548, the Trustee could recover them from the entity for whose benefit they were made. 11 U.S.C. § 550(a)(1) (1994). The FDIC moved to dismiss the suit on the ground that it was not an "entity" under the Code because of its role as regulator and insurer of banks and that, in any event, a reduction in its handling costs was not the sort of "benefit" contemplated by § 550. The district court, finding the FDIC subject to suit under § 550, denied the motion. Branch v. FDIC, 825 F.Supp. 384, 401-02 (D.Mass.1993).

The Trustee sent discovery requests to the FDIC and served the Board and the Comptroller with subpoenas duces tecum. All three turned over some documents, but asserted the deliberative process privilege with respect to others. The Trustee filed a motion to compel against the FDIC in Massachusetts and separate subpoena enforcement actions against the Board and Comptroller in District of Columbia district court. The Massachusetts court refused to apply the privilege to the FDIC documents. It said that, unless the FDIC could show a greater need for secrecy than the generalized "chilling effect" of disclosure, the privilege must give way in a case that turned on the government's intent.

Our district court, ruling subsequently, thought that the privilege could be overcome only if the Trustee introduced evidence of government "misconduct" or if he satisfied a five factor balancing test showing a superior interest in the documents. The court said that the misconduct exception only applied when a plaintiff alleged that the agency's decisionmaking process had been tainted by misconduct. Since the Trustee "attacks the goals of the regulators' policies, to downstream assets, and not the deliberative system from which these goals arose," it held the misconduct bar inapplicable. As to the five factor balancing test, the court relied on the analysis we articulated in Schreiber v. Society for Sav. Bancorp, Inc., 11 F.3d 217 (D.C.Cir.1993). There, we said that the bank examination privilege, a close cousin of the deliberative process privilege, could be overcome on a showing of good cause, as determined by the following considerations (i) the relevance of the evidence sought to be protected; (ii) the availability of other evidence; (iii) the 'seriousness' of the litigation and the issues involved; (iv) the role of the government in the litigation; and (v) the possibility of future timidity by government employees who will be forced to recognize that their secrets are violable.

Schreiber, 11 F.3d at 220-21 (citations omitted). The district court appeared to apply only the second, third, and fourth factors. It said that the underlying litigation was not "serious" because there was no evidence showing that either the Board or the Comptroller had engaged in "misconduct." And since neither were named defendants in the underlying suit, the court thought their role minimal. Finally, it emphasized that the Trustee would not suffer much harm if he could not reach these documents, because all three agencies had already supplied him with a multitude of materials.

II.

Appellant's primary argument is that the common law deliberative process privilege is not appropriately asserted--as the district court in Massachusetts appeared to recognize--when a plaintiff's cause of action turns on the government's intent. We agree. The privilege was fashioned in cases where the governmental decisionmaking process is collateral to the plaintiff's suit. See, e.g., In re Subpoena Served Upon the Comptroller of the Currency, 967 F.2d 630 (D.C.Ci...