LEGAL
The most recent wave of financial institution litigation and regulation, brought on by the financial crisis, has pushed counsel representing those institutions to re-evaluate certain industry-specific privilege issues. This submission provides a brief overview of one of these issues: the Bank Examiner privilege. The comments below are meant primarily to highlight certain practical considerations surrounding potential application of the privilege during litigation and document discovery.
Unlike Attorney Client and Work Product privilege claims that are asserted by parties to litigation over their own documents and records, the Bank Examiner privilege – in its most general sense – refers to a claim held by a regulator to whom certain confidential or sensitive information was communicated. Under a common interpretation, a regulator that holds jurisdiction over a financial institution could assert a privilege claim over certain communications between itself and the subject financial institution to protect certain information from discovery in subsequent litigation in which the subject financial institution is a party.1 Several other assumptions are built into this example, including that: 1)The regulator is not also a party to that subsequent litigation; 2)That subsequent litigation has advanced to a stage where parties are required to produce documents, data, or other communications; and 3)The information at issue that could potentially be affected by the Bank Examiner claim is otherwise determined to be within the scope of relevance defined by applicable requests for document production in that subsequent litigation. The often cited basis for the privilege is rooted in the "practical necessity" for open disclosure between an examiner and subject financial institutions. As the D.C. Circuit Court of Appeals noted:2
"Because bank supervision is relatively informal and more or less continuous, so too must be the flow of communication between the bank and the regulatory agency. Bank management must be open and forthcoming in response to the inquiries of bank examiners, and the examiners must in turn be frank in expressing their concerns about the bank. These conditions simply could not be met as well if communications between the bank and its regulators were not privileged."
A practical understanding of the Bank Examiner privilege is an integral part of discovery planning in the type of situation described above. The points below are geared towards providing a framework to approaching that planning and understanding the volumes of academic literature and case law that have addressed this topic.
This point is noted above, but bears repeating because the Bank Examiner claim is sometimes confused with potential Work Product claims asserted by a financial institution litigant over its own documents that were prepared in anticipation of, for example, a regulatory investigation that was separate from the litigation at issue.3 The basis for the Bank Examiner's potential claim has been clearly codified in applicable regulations; relevant portions of the Federal Reserve Board's regulations are included below, and are instructive:4
"Federal Reserve supervisory staff...may review all books and records of a banking organization that is subject to Federal Reserve supervision. In addition, under the Board's Rules regarding the Availability of information, banking organizations are prohibited from disclosing confidential supervisory information without prior written permission of the Board's General Counsel. Confidential supervisory information is defined to include any information related to the examination of a banking organization. Board staff have taken the position that identification of information requested by, or provided to, supervisory staff – including the fact that an examination has taken or will take place – is related to an examination and falls within the definition of confidential supervisory information."
Relevant portions of the Office of the Comptroller Currency (OCC) regulations are similar – with "non-public OCC information" essentially the counterpart to the "confidential supervisory information" defined in the Fed regulation above:5
"Without OCC approval, no person, national bank or other entity, including one in lawful possession of non-public OCC information...may disclose information covered by this subpart in any manner, except: (A) After the requester has sought the information (directly) from the OCC pursuant to the procedures set forth in this subpart; and (B) As ordered by a Federal Court in a judicial proceeding in which the OCC has had the opportunity to appear and oppose discovery."
Determining what constitutes, for example, "Confidential Supervisory Information" or "non-public OCC information" per the examples above – or, more broadly, determining what constitutes the type of Examiner-related information that could potentially be affected by a Bank Examiner claim – may go to the heart of the issue for parties at certain stages of document discovery. Cases in this area have made clear that facts and circumstances will ultimately govern the potential scope of application of a Bank Examiner claim.6 However, relevant cases illustrate a wide range of facts and circumstances to which a Bank Examiner claim could apply. In addressing this issue, courts have advanced that:
While courts have continued to provide guidance in interpreting the types of regulations above, it remains clear that the regulations are, on their surface, extremely broad in defining what may constitute information that is potentially subject to a Bank Examiner claim. For example, portions of 12 CFR 261.2(c)(1)(i) note that "Confidential supervisory information is defined to include any information related to the examination of a banking organization." On its surface, this type of regulation could potentially include a wide range of communications, related to examinations ranging from normal course of business regulatory reviews to special regulatory reviews, under a wide range of different circumstances. The plain wording of relevant regulations; the wide range of facts and circumstances to which a Bank Examiner claim has been held to apply; and the inherent difficulty of anticipating the types of facts and circumstances in which a court could limit the scope of their application (for instance, attempting to anticipate whether a court would make a distinction between agency opinions and recommendations that have been issued on one hand, and internal emails regarding pending opinions and recommendations on the other, per the examples above), require a financial institution litigant to take a broad initial approach in evaluating the potential scope of a Bank Examiner's claim.
This point is perhaps an obvious corollary to the first point noted above, but also bears repeating because of the practical circumstances surrounding litigation in which a relevant Examiner/Regulator is not a direct party. Because the regulator that is not a direct party may not immediately be in a position to directly claim the privilege, relevant cases and regulations hold that the regulator be provided notice where documents that are potentially subject to its claim could potentially be produced. Furthermore, certain cases have held that a litigant seeking discovery of certain of these types of materials may be required to first exhaust administrative remedies to obtain the information at issue directly from the regulator, rather than seek it directly from the adverse financial institution litigant.12 While a number of opinions have resulted from parties adverse to a financial institution ultimately challenging an Examiner/Regulator's right to withhold information from subsequent litigation, they have also, in certain instances, been quite clear on the financial institution's obligations regarding disclosure of potentially affected information absent direct consent from a Regulator or while administrative remedies are pending. As one court has noted in interpreting the Fed regulations cited above: 13
"What a (plaintiff) party may not do under the (Federal Reserve Board) procedures set out in the regulations....is seek the documents from some other party without the (Fed's) approval or permission. Likewise, any (financial institution) organization that has documents which may not be disclosed under these regulations and is served with a subpoena, order, or other judicial process requiring the production of documents or information is directed to promptly advise the Board's general counsel of such request and must continually decline to disclose the information."
Cases in this area thus make clear that a litigant adverse to a financial institution may be required to seek disclosure of certain materials directly from a regulator through administrative proceedings, and that a subject financial institution litigant may not disclose the information at issue where administrative remedies may be required or while administrative remedies are pending. Given the practical circumstances surrounding litigation in which regulator is not a direct party – including that establishing an appropriate dialogue with a regulator on this point may be a separate process in and of itself, and that a subject financial institution may not disclose potentially affected information while this process is pending – case law in this area appears to further require a financial institution litigant to take a broad initial approach in evaluating the potential scope of a Bank Examiner's claim.
As noted above, judicial guidance on this topic has made clear that the facts and circumstances of a particular case ultimately govern the potential scope of application of a Bank Examiner's privilege claim when a subject financial institution is involved in litigation.14 However, the plain wording of relevant regulations authorizing Bank Examiner claims; relevant case holdings that illustrate a wide range of facts and circumstances to which a Bank Examiner claim could apply; relevant case holdings that a financial institution litigant may not disclose certain types of information that an opposing party may need to seek directly from a regulator; and the practical circumstances surrounding litigation where a regulator is not a direct party suggest that a financial institution litigant must take a broad initial approach in determining the potential scope of a Bank Examiner claim. The above points further warrant very careful planning and analysis by a financial institution litigant in these phases of discovery – formulating and executing a comprehensive privilege review in this type of matter is invariably a crucial part of discovery efforts, and the considerations above are only a starting point for framing more complex document specific analyses that are invariably a focus of this type of review.
Ashoke Prasad serves as Assistant Vice President in the Pangea3 Litigation Solutions department and has an extensive background in financial services, tax and financial accounting related matters. His role in Pangea3 involves managing complex document reviews as part of litigation and regulatory investigations. Ashoke is admitted to practice in Illinois and has passed all four parts of the Uniform CPA (Certified Public Accountant) examination (licensing pending). He received his JD from the University of Michigan Law School, an LLM in Taxation from Georgetown University Law Center, and a BS in Economics from the University of Michigan.
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