Wal-Mart Puerto Rico, Inc. v. Zaragoza-Gomez

• Decision Date: 21 January 2016
• Docket Number: Civil No. 3:15-CV-03018 (JAF)
• Citation: 152 F.Supp.3d 67
• Parties: Wal-Mart Puerto Rico, Inc. Plaintiff, v. Juan C. Zaragoza-Gomez, in his official capacity as Secretary of the Treasury of the Commonwealth of Puerto Rico, Defendant.
• Court: U.S. District Court — District of Puerto Rico

152 F.Supp.3d 67

Wal-Mart Puerto Rico, Inc. Plaintiff,

v.Juan C. Zaragoza-Gomez, in his official capacity as Secretary of the Treasury of the Commonwealth of Puerto Rico, Defendant.

Civil No. 3:15-CV-03018 (JAF)

United States District Court, D. Puerto Rico.

Signed January 21, 2016

Alejandro J. Cepeda-Diaz, Francisco G. Bruno-Rovira, Juan A. Marques-Diaz, McConnell Valdes, LLC, San Juan, PR, Joseph Phv S. Grinstein, Neal S. Manne, Virkram Swaruup, Susman Godfrey, LLP, Houston, TX, Shawn J. Rabin, Steven M. Shepard, Susman Godfrey LLP, New York, NY, for Plaintiff.

Gerardo A. De-Jesus-Annoni, Department of Justice, Jose L. Gonzalez-Castaner, Roberto A. Fernandez-Quiles, Gonzalez Castaner & Morales Cordero Law Office, San Juan, PR, H. Marc Tepper, Robert J. Fitzgerald, Buchanan Ingersoll & Rooney PC, Philadelphia, PA, John Warner, Susan E. Seabrook, Buchanan Ingersoll & Rooney PC, Washington, DC, for Defendant.

OPINION AND ORDER

JOSE ANTONIO FUSTE, UNITED STATES DISTRICT JUDGE

On the morning of January 20, 2016, plaintiff Wal-Mart Puerto Rico, Inc. (“Wal-Mart PR”) moved the court to compel third-party Melba Acosta-Febo (“Acosta”), current President of the Government Development Bank for Puerto Rico (“the GDB”), to comply with the subpoena dated January 11, 2016, by producing all reasonably available material responsive to Topic Ten of the subpoena. (ECF No. 81.) The court ordered Acosta to respond to the motion by 4:00 p.m. that afternoon, more than six and one-half hours after the motion was filed. (ECF No. 85.) The court also ordered her to file, under seal, the contested discovery for in camera review. (ECF No. 88.) Acosta has responded in opposition to the motion and delivered the discovery for court review. (ECF Nos. 90, 92, 93.) The court appreciates the alacrity of the parties, which has allowed us to promptly read the filings, review the discovery in camera , and dispose of the motion.

In Topic Ten of the subpoena, Wal-Mart PR requests from the GDB “[t]he results of the most recent examination of the GDB's financial condition by the Commissioner of Financial Institutions of Puerto Rico (the ‘Commissioner’),” including “the most recent report or examination results that the GDB has received from the Commissioner” and the “GDB's communications to and from the Commissioner, since September 1, 2015, relating to the Commissioner's examination of the GDB.” (ECF No. 81-1 at 7.) By a letter dated January 14, 2016, Acosta objected to the subpoena. (ECF No. 81-2.) She specifically declined to produce material in response to Topic Ten on multiple grounds, including that the topic “seeks information that is protected from disclosure by the executive privilege, the deliberative process privilege, or other applicable rules, doctrines, privileges or immunities or protections from discovery (whether based upon statute or common law).” (ECF No. 81-2 at 14.) In her opposition to the present motion, Acosta clarifies the basis of her objection, arguing that “[t]he limited documents being withheld are protected from disclosure by the bank examiner's privilege, by [the] deliberate process privilege, and by privileges under Puerto Rican law.” (ECF No. 92 at 4.)

Under Federal Rule of Civil Procedure 26(b)(1)

, “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.”¹ And, under Federal Rule of Evidence 501, federal common law, as interpreted in the light of reason and experience, governs all claims of privilege in a federal-question case unless federal constitutional or statutory law, or a rule prescribed by the United States Supreme Court, provides otherwise. Fed. R. Evid. 501 ; see also

Fashion House, Inc. v. K mart Corp., 892 F.2d 1076, 1095 n. 11 (1st Cir.1989). In general, the burden is on the party asserting a privilege “to ‘establish the existence and applicability of the privilege ... [using] sufficient information to allow the court to rule intelligently on the privilege claim.” In re Grand Jury Proceedings , 802 F.3d 57, 65 (1st Cir.2015) (alterations in original) (quoting Marx v. Kelly, Hart & Hallman, P.C. , 929 F.2d 8, 12 (1st Cir.1991) ).² “If the privilege is established, the burden shifts to the opposing party to show that an exception defeats the privilege.” United States v. Breton , 740 F.3d 1, 9 (1st Cir.2014)

(citing Vicor Corp. v. Vigilant Ins. Co., 674 F.3d 1, 17 (1st Cir.2012) ). The court granted the request of both Wal-Mart PR and Acosta to conduct in camera review of the contested discovery to determine whether the asserted privileges and their exceptions apply. (See ECF Nos. 81 at 9; 84 at 4; 88.)

The federal “courts have long recognized that the report of a bank examiner is protected by a qualified privilege.” In re Subpoena Served upon the Comptroller of the Currency , 967 F.2d 630, 633 (D.C.Cir.1992)

(“In re Subpoena ”) (citing Bank of Am. Nat'l Tr. & Sav. Ass'n v. Douglas, 105 F.2d 100, 104–06 (D.C.Cir.1939) ). However, the First Circuit Court of Appeals appears to have not yet interpreted the privilege, and so we must rely on the decisional law of other circuits instead. “First and foremost, the bank examination privilege is a qualified rather than absolute privilege which accords agency opinions and recommendations and banks' responses thereto protection from disclosure.” In re Bankers Trust Co. , 61 F.3d 465, 471 (6th Cir.1995) (citing Schreiber v. Soc'y for Sav. Bancorp,

Inc ., 11 F.3d 217, 220 (D.C.Cir.1993) ). “Purely factual material falls outside the privilege, and if relevant, must be produced.” Id. (citing

In re Subpoena , 967 F.2d at 634 ). “[A] district court owes no deference to the [examining agency] in ruling on whether the documents are covered by the bank-examination privilege.” Houston Bus. Journal v. Office of the Comptroller of the Currency , 86 F.3d 1208, 1212 (D.C.Cir.1996) (citing

Schreiber , 11 F.3d at 220–21 ).

Even when the privilege is found to apply, it “may be overridden ... if good cause is shown.” In re Bankers Trust Co. , 61 F.3d at 471

. To determine good cause, “the court must balance the ‘competing interests' of the party seeking the documents (which may vary from case to case) and those of the [examiner] (which will tend to be a constant, reflecting long-term institutional concerns).” Schreiber , 11 F.3d at 220 (quoting

In re Subpoena , 967 F.2d at 634 ). “At a minimum the court “must consider: ‘(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.” Id. at 220–21 (internal quotes omitted) (quoting

In re Subpoena , 967 F.2d at 634 ). A paradigmatic example of good cause is “when the public's interest in effective government would be furthered by disclosure.” In re Subpoena, 967 F.2d at 634 (quoting In re Franklin Nat'l Bank Sec. Litig., 478 F.Supp. 577, 582 (E.D.N.Y.1979) ).

Based on our in camera review of the contested discovery, the court finds that the documents largely consist of factual analysis, i.e., a mix of privileged and unprivileged material. Thus, the court will proceed to evaluate the documents under the multi-factor balancing test set forth above. Acosta alleges that her interest in nondisclosure stems from the need to “ensur [e] full and honest exchanges of information between and among government regulators” and to prevent “future timidity and chilling effects on ... open and honest dialogue between the GDB and its examiners and regulator.” (ECF No. 92 at 2-3.) In turn, Wal-Mart PR alleges that their interest in disclosure stems from the need to prove “the key issue of whether this Court has jurisdiction over this case under the Butler Act” because “[t]he GDB is the lender of last resort for the Commonwealth's agencies, including the Treasury Department,” and thus the GDB's solvency “go[es] to the heart of the Commonwealth's fiscal circumstances” and whether the Commonwealth's tax-refund action provides an adequate remedy. (ECF No. 81 at 6.) These competing interests clearly warrant serious consideration.

On the topic of relevance, Wal-Mart PR argues that the challenged discovery is “critical to understand[ing] what, if any, ultimate protection there would be for [their] recovery of overpayment of taxes.” (ECF No. 81 at 6.) It is uncontested that “[t]he GDB is the lender of last resort for ... the Treasury Department.” (ECF No. 81 at 6.) And, the discovery focuses on the Commissioner's examination into “the conditions and resources of the [GDB].” 7 L.P.R.A. § 151(g)(1)

; see also ECF No. 92 at 1. The Commonwealth has already declared that it “is facing the most serious fiscal crisis in its history” and that its agencies “risk becoming insolvent.” Franklin Cal. Tax

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Free Trust v. Puerto Rico, 805 F.3d 322, 324 (1st Cir.2015). For us to deny to Wal-Mart PR access to this court, the Butler Act, 48 U.S.C. § 872, “requires” the Commonwealth “to provide [them] with a swift and certain remedy when they resist tax collections” on federal-law grounds. Hibbs v. Winn, 542 U.S. 88, 108 n.10, 124 S.Ct. 2276, 159 L.Ed.2d 172 (2004). Any “uncertainty concerning a State's remedy may make it less than ‘plain’ ” under the Butler Act, thereby “lift[ing] the bar to federal-court jurisdiction.” Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 516–17, 101 S.Ct. 1221, 67 L.Ed.2d 464 (1981) (quoting

Tully v. Griffin, Inc., 429 U.S. 68, 76, 97 S.Ct. 219, 50 L.Ed.2d 227 (1976) ; then citing Twp. of Hillsborough v. Cromwell , 326 U.S. 620, 625–26, 66 S.Ct. 445, 90 L.Ed. 358 (1946) ). A “supposed remedy at law” is not “ ‘certain’ or ‘complete’ ” if the insolvency of the party against whom judgment is sought effectively renders that party judgment-proof. PHL Variable Ins. Co. v. The P....