Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-97-05228/USCOURTS-caDC-97-05228-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 4, 1998 Decided June 26, 1998

No. 97-5228

In re: Subpoena Duces Tecum Served on the Office of the

Comptroller of the Currency

Consolidated with

No. 97-5229

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Appeals from the United States District Court

for the District of Columbia

(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.

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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.

Opinion for the Court filed by Circuit Judge Silberman.

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

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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.

s 548(a) (1994). If the transfers were voidable under s 548,

the Trustee could recover them from the entity for whose

benefit they were made. 11 U.S.C. s 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

s 550. The district court, finding the FDIC subject to suit

under s 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

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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.

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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.

Cir. 1992) (shareholders sought Comptroller's bank examination reports to prove fraud charges against corporation);

Singer Sewing Machine Co. v. NLRB, 329 F.2d 200 (4th Cir.

1964) (petitioner wanted deliberative materials to establish a

defense to an unfair labor practice charge). If the plaintiff's

cause of action is directed at the government's intent, however, it makes no sense to permit the government to use the

privilege as a shield. For instance, it seems rather obvious to

us that the privilege has no place in a Title VII action 1 or in a

constitutional claim for discrimination. See Crawford-El v.

Britton, 118 S. Ct. 1584 (1998); Webster v. Doe, 486 U.S. 592

(1988). The Supreme Court struggled in Crawford-El and

Webster with governmental claims that discovery in such a

proceeding should be limited, but no one in any of these cases

ever had the temerity to suggest that the privilege applied.

__________

1 On one occasion, we speculated that the privilege would apply

to a Title VII suit. American Fed'n of Gov't Employees, Local

2782 v. Department of Commerce, 907 F.2d 203, 207 (D.C. Cir.

1990). In that case, however, our primary concern was the scope of

Exemption 5 of the Freedom of Information Act. The appellants

had argued that because the documents they sought would be

"available by law" to a litigant in a Title VII suit, the government

could not claim the deliberative process privilege under Exemption

5. Part of our response was that the privilege may well protect

documents in Title VII litigation. But, as we recognized even in

that case, this assumption is not necessary to preserving the vitality

of the FOIA exemption. A litigant may not overcome Exemption 5

by reference to hypothetical litigation. See id. at 207; see also

NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 149 n.16 (1975); In re

Sealed Case, 121 F.3d 729, 737 n.5 (D.C. Cir. 1997).

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The argument is absent in these cases because if either the

Constitution or a statute makes the nature of governmental

officials' deliberations the issue, the privilege is a nonsequitur. The central purpose of the privilege is to foster

government decisionmaking by protecting it from the chill of

potential disclosure. See NLRB v. Sears, Roebuck & Co., 421

U.S. 132, 150 (1975). If Congress creates a cause of action

that deliberatively exposes government decisionmaking to the

light, the privilege's raison d'%23etre evaporates.

The government, to be sure, disputes that appellant has

such a cause of action. It argues that however the Bankruptcy Act treats private parties, bank regulatory agencies are

removed from its reach. The Federal Deposit Insurance Act

requires the FDIC and presumably its fellow government

regulators to resolve failing banks with the least possible cost

to the bank insurance fund--and thus to the American taxpayer. Therefore, the argument goes, even if the Board and

Comptroller had pressured the Corporation to downstream

assets, they were only doing "the Lord's work." There may

well be a question as to the relationship between these two

federal statutes, but the Massachusetts district court has, at

least preliminarily, ruled on that issue by rejecting the government's motion to dismiss the underlying litigation. We

will defer to its ruling. Strictly speaking, it might not be the

law of the case, because a subpoena enforcement action is

technically a different "case" and the Board and the Comptroller are not named defendants in Massachusetts. The suit

before us, however, is tied closely to the underlying litigation,

and the Board and the Comptroller are but different government arms accused of acting in concert. As a matter of

judicial comity, we leave it to the Massachusetts court to

resolve the merits of the Trustee's suit.

When it rejected the misconduct exception, our district

court intuitively recognized that the analysis normally governing the applicability of the deliberative process privilege

does not fit this situation. It pointed out that the plaintiff

was attacking the actual goals of the regulators, rather than

asserting that the agency's decisionmaking process was tainted with misconduct. We think that is another way of exUSCA Case #97-5228 Document #362512 Filed: 06/26/1998 Page 6 of 7
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pressing our understanding that the deliberative process privilege protects against collateral attack. But the appropriate

conclusion is not that the misconduct exception does not

apply, but rather that the privilege does not enter the picture

at all.2

We therefore see no need to engage in the balancing test

applied in deliberative process privilege cases. The appellant

is entitled to have his subpoena enforced.

__________

2 The word "misconduct" does not even really fit this situation,

because the government could have violated the Bankruptcy Code

without the nefarious motives that the word "misconduct" implies.

Section 548 of the Bankruptcy Code requires a showing of the

government's intent, but it does not require a showing that the

government acted in bad faith. See In re Checkmate Stereo &

Elecs., Ltd., 9 B.R. 585, 613 (Bankr. E.D.N.Y. 1981) ("A plan to

appropriate the assets of an insolvent debtor, while holding the

debtor's creditors at bay, is in fraud of creditors .... even if done

in the greatest good faith.").

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