United States v. Wells Fargo Bank, N.A.

• Decision Date: 22 September 2015
• Docket Number: No. 12–CV–7527 (JMF).,12–CV–7527 (JMF).
• Citation: 132 F.Supp.3d 558
• Parties: UNITED STATES of America, Plaintiff, v. WELLS FARGO BANK, N.A., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

132 F.Supp.3d 558

UNITED STATES of America, Plaintiff,

v.WELLS FARGO BANK, N.A., et al., Defendants.

No. 12–CV–7527 (JMF).

United States District Court, S.D. New York.

Signed Sept. 22, 2015.

Caleb Hayes–Deats, Christopher Blake Harwood, Rebecca Sol Tinio, Jeffrey Stuart Oestericher, Sarah Jean North, United States Attorney's Office, New York, NY, for Plaintiff.

Amy Pritchard Williams, Michael J. Missal, K&L Gates LLP, Charlotte, NC, Jennifer M. Wollenberg, Kayla Stachniak Kaplan, Anayansi Rodriguez Carbo, Douglas W. Baruch, Katherine A. Raimondo, Neaha Raol, Fried, Frank, Harris, Shriver & Jacobson LLP, Washington, DC, William Farnham Johnson, King & Spalding LLP, Lewis J. Liman, Meredith Eve Kotler, Liana Roza Vitale, Meredith Eve Kotler, Daniel James Northrop, Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for Defendants.

OPINION AND ORDER

JESSE M. FURMAN, District Judge.

This case—a civil fraud case brought by the United States against Defendants Wells Fargo Bank, N.A. ("Wells Fargo" or the "Bank") and Kurt Lofrano (together with the Bank, "Defendants")—presents an issue of first impression within the Second Circuit: whether, or under what circumstances, an employee may pursue an advice-of-counsel defense where doing so requires disclosure of privileged communications and his employer owns the privilege and refuses to waive it. In a prior opinion, the Court held that Lofrano's mere declaration of his intention to assert an advice-of-counsel defense—without more—does not impliedly waive the Bank's privilege. See United States v. Wells Fargo Bank N.A., No. 12–CV–7527 (JMF), 2015 WL 3999074 (S.D.N.Y. June 30, 2015) ("Wells Fargo I "). The Court indicated, however, that Wells Fargo might waive the privilege by failing to object to Lofrano's reliance on privileged communications or that, in any event, Lofrano's "right to present a defense could conceivably overcome Wells Fargo's right to maintain its privilege." Id. at *3.

Wells Fargo now moves for a protective order precluding Lofrano from disclosing any privileged communications (Docket No. 274)—thereby confirming that it does object and squarely presenting the question of whether Lofrano's right to present the advice-of-counsel defense is sufficient to overcome the Bank's privilege. For the reasons stated below, the Court concludes—in light of binding Supreme Court precedent—that it does not and that Lofrano may not assert an advice-of-counsel defense over Wells Fargo's objection. The Court recognizes that that result is arguably harsh in this particular case, as it may well deprive Lofrano of his best defense to liability for tens of millions of dollars. It is, however, the price that must be paid for society's commitment to the values underlying the attorney-client privilege. Additionally, upon closer analysis, the result may be less harsh than first appears because, in the absence of a robust commitment to the privilege, the communications at issue may never have been made—or Lofrano might not have been made privy to them. Moreover, in many cases, companies in Wells Fargo's position may choose to either waive the privilege or, if they choose not to do so for broader institutional reasons, indemnify their employees and pay the price themselves.

BACKGROUND

The background of this case is described in detail in this Court's prior opinions, familiarity with which is assumed, and will not be repeated here. See United States v. Wells Fargo Bank, N.A., No. 12–CV–7527 (JMF), 2015 WL 5051679 (S.D.N.Y. Aug. 26, 2015) ; Wells Fargo I, 2015 WL 3999074, at *1–2 ; United States v. Wells Fargo Bank, N.A., 972 F.Supp.2d 593, 599–603 (S.D.N.Y.2013). For present purposes, it suffices to say that the United States brings claims under the False Claims Act, 31 U.S.C. §§ 3729 et seq. ("FCA"), and the Financial Institutions Reform, Recovery, and Enforcement Act, 12 U.S.C. § 1833a ("FIRREA"), against Wells Fargo and Lofrano, alleging that they engaged in misconduct with respect to residential mortgage loans insured by the Government. (Second Am. Compl. (Docket No. 77)). Wells Fargo vigorously disputes the Government's claims, but does not rely on the advice of counsel as a defense. By contrast, Lofrano does assert, among other defenses, that he relied on the advice of counsel—albeit Wells Fargo counsel—when he engaged in the alleged misconduct. (Answer & Aff. Defenses Def. Kurt Lofrano ("Lofrano Answer") (Docket No. 94) 36). Specifically, he asserts that he sought advice from at least two Wells Fargo attorneys about the legal requirements he is now alleged to have violated and that he then acted in conformance with the advice that he received. (See Mem. Law Def. Kurt Lofrano Response To Def. Wells Fargo Bank, N.A.'s Mot. Protective Order (Docket No. 280) ("Lofrano Mem.") 1; Lofrano July 21, 2015 Ltr. (Docket No. 272)). All parties agree that, if successfully pursued, the advice-of-counsel defense would be a complete defense to the Government's claims against Lofrano. (See Lofrano Mem. 5).

The potential clash between Lofrano's defense and Wells Fargo's privilege first came to the Court's attention a few months ago, when the Government moved to reopen fact discovery for the limited purpose of taking discovery relating to communications between Lofrano and counsel or, in the alternative, to bar Lofrano from asserting an advice-of-counsel defense. (Mem. Law United States Am. Supp. Mot. To Reopen Fact Disc. Limited Purpose & Compel Produc. Docs. Def. Wells Fargo (Docket No. 260) ("Gov't's Mot. Reopen Discovery") 2). In Wells Fargo I, the Court denied that motion without prejudice, holding that a company's privilege is not waived by an employee's "mere invocation" of an advice-of-counsel defense during discovery and that nothing Wells Fargo had done—as of then—constituted a waiver of the privilege. 2015 WL 3999074, at *1–2. The Court noted, however, that a failure by Wells Fargo to object to disclosure of privileged information in support of Lofrano's defense at trial "very well might" constitute a waiver. Id. at *3. Additionally, the Court noted, "Lofrano's right to present a defense could conceivably overcome Wells Fargo's right to maintain its privilege." Id. To ensure that those issues were resolved in a timely fashion, the Court ordered the parties to propose a procedure to tee them up for decision. See id.

Thereafter, Wells Fargo confirmed that it did indeed object to Lofrano's disclosure of its privileged communications, so the Court ordered the parties to brief not only whether Lofrano "should be precluded from asserting the advice-of-counsel defense, but also the scope of any judicially compelled waiver of the privilege (and, by extension, the scope of any further discovery to be permitted)" in the event Lofrano was permitted to pursue the defense. (Mem. Endorsement (Docket No. 255) 10). Pursuant to the procedures that were adopted by the Court (see id. ), Lofrano first made an ex parte submission outlining the basis of his defense and served a letter on the Government identifying the witnesses and documents upon which he would rely. (Docket Nos. 271, 272). Thereafter, the Government filed a letter describing the scope of additional discovery that it sought in the event that the Court allowed Lofrano to rely on privileged communications to pursue the defense. (Docket No. 273). Wells Fargo then responded with the present motion—specifically, a motion for a protective order preventing disclosure of information protected by its attorney-client privilege. (Docket No. 274; see Wells Fargo Bank, N.A.'s Mem. Law Supp. Mot. Protective Order (Docket No. 275) ("Wells Fargo Mem.") 8–14). Lofrano opposes the motion on the grounds of fairness and due process (Docket Nos. 280, 292), while the Government—which effectively takes no position on the question of whether Lofrano should be permitted to pursue the advice-of-counsel defense notwithstanding Wells Fargo's invocation of the privilege—argues that the scope of any compelled disclosure should be broader than Wells Fargo contends. (Docket No. 281).

DISCUSSION

As noted, the question presented here—whether an employee can pursue an advice-of-counsel defense that requires disclosure of his employer's privileged communications where the employer will not waive the privilege—appears to be one of first impression in this Circuit.¹ The question is a difficult one because it involves a conflict between two indisputably weighty principles. On the one hand, fundamental fairness and due process generally require that a person accused of wrongdoing—whether criminally or civilly—have "an opportunity to present every available defense." Philip Morris USA v. Williams, 549 U.S. 346, 353, 127 S.Ct. 1057, 166 L.Ed.2d 940 (2007) (internal quotation marks omitted). On the other hand, the attorney-client privilege is "one of the oldest recognized privileges for confidential communications," and "promote[s] broader public interests in the observance of law and the administration of justice." Swidler & Berlin v. United States, 524 U.S. 399, 403, 118 S.Ct. 2081, 141 L.Ed.2d 379 (1998) (internal quotation marks omitted). It follows that the "rules which result in the waiver of this privilege," or that "possess the potential to weaken attorney-client trust, should be formulated with caution." In re County of Erie, 546 F.3d 222, 228 (2d Cir.2008).

In this case, Lofrano contends that "his constitutional right to present every available defense" overrides Wells Fargo's invocation of attorney-client privilege. (Lofrano Mem. 2). But whether the advice-of-counsel defense is "available" in the circumstances presented here is precisely the question. And any suggestion that the right to present every available defense automatically trumps the attorney-client privilege is plainly wrong. It is well established that the right to present a defense—even in criminal cases, where the right is at its strongest—is not "absolute," United States v. Valenzuela–Bernal, 458 U.S. 858, 871, 102...