Opinion
CIVIL ACTION NO: 98-1823 SECTION: "J"(1)
March 15, 2004
ORDER AND REASONS
Before the Court is Plaintiff's Motion to Compel Production of Documents Claimed to be Privileged (Rec. Doc. 161). The Federal Deposit Insurance Corporation ("FDIC") opposes the motion (Rec. Doc. 165). The motion was set for hearing with oral argument on October 22, 2003. After oral argument, this Court took the motion under advisement and ordered that the defendant submit the contested documents for in camera review. After review of the documents, and upon consideration of the briefs, the record, arguments submitted by counsel, and the applicable law, the Court finds that the Plaintiff's Motion to Compel Production of Documents Claimed to be Privileged should be GRANTED IN PART and DENIED IN PART.
BACKGROUND
In 1998, Patricia Heaton originally filed this class action suit against Monogram Credit Card Bank in state court alleging violation of Louisiana's usury laws. The case has followed a somewhat tortured and circuitous path between state and federal courts since its initial filing. This procedural voyage has included two separate orders by this Court remanding the case to-state court, and two separate interlocutory appeals to the Fifth Circuit. Without reciting the entire procedural history, suffice it to say that the case has once again landed in this Court, due to the intervention of the FDIC. The FDIC and Monogram argue that Ms. Heaton's claims are completely preempted by section 27 of the Federal Deposit Insurance Act ("FDIA"), 12 U.S.C. § 1831d.
The intervention of the FDIC created federal jurisdiction and thus, the case was removed to this Court.
A threshold issue in this case is whether Monogram is a "state bank" within the meaning of the FDIA. To qualify as a "state bank" for purposes of FDIC insurance coverage, a bank must be "engaged in the business of receiving deposits." 12 U.S.C. § 181-3 (a)(2). At the time this suit was filed in 1998, the FDIC had not promulgated an official regulation or interpretation of the statutory "engaged in the business of receiving deposits" requirement. Instead, according to the FDIC, applications for FDIC insurance by trust companies and other special purpose banks, including credit card banks such as Monogram, were considered on an ad hoc or case-by-case basis. In 2000, after this lawsuit was filed, the FDIC issued General Counsel Opinion Number 12 ("GCO No. 12"), which interpreted the "engaged in business" language as requiring a single $500,000 non-fiduciary deposit. In 2001, during the course of the convoluted voyage of this case between state and federal courts, the FDIC formally converted GCO No. 12 into a regulation, now found at 12 C.F.R. § 303.14.
According to 12 C.F.R. § 303.14, the FDIC has now officially determined that the phrase "being engaged in the business of receiving deposits other than trust funds" means that a depository institution must maintain one or more non-trust deposit accounts in the minimum aggregate amount of $500,000. 12 C.F.R. § 303.14 (2003). The FDIC has construed this statutory language as simply requiring a special purpose bank such as Monogram to have at least a single deposit of more than $500,000, even if that single deposit is made by its parent corporation. There is apparently no factual dispute that Monogram meets this requirement.
Thus, Monogram is "engaged in the business of receiving deposits" and is a "state bank" for purposes of federal deposit insurance. Being considered a state bank, Monogram has the benefits of federally-insured status including the provision of the FDIA allowing state-chartered banks to "export" their interest rates when they do business in other states. 12 U.S.C. § 1815 (a)(1(1)2001). Because Louisiana's usury laws are preempted by this federal statute, Monogram, which is chartered by the state of Georgia, is permitted to charge Louisiana customers, such as Ms. Heaton, Georgia's rate of interest.
Plaintiff argues that the interpretation adopted by the FDIC is not only wrong, but is unreasonable, arbitrary and contrary to the clear language and intent of the statute. The Court has allowed limited discovery to the parties on this issue. The FDIC has responded to requests by plaintiff for production of a large volume of documents, but has objected to the production of a number of documents on the grounds that these documents are irrelevant, not intended to lead to the discovery of relevant evidence and, further, are protected by the attorney-client and/or work product privileges. The plaintiff now moves to compel production of these documents from the FDIC.
Plaintiff contends that the documents are not privileged because they are not protected by the attorney-client privilege or by the work-product privilege. Specifically, the plaintiff argues that discovery of these documents is necessary because they contain critical information relating to how the FDIC interpreted the phrase "engaged in the business of receiving deposits."
The FDIC disagrees and stares that its regulation is entitled toChevron deference. Thus, this Court is not in the position to determine the meaning of the phrase "engaged in the business of receiving deposits." Moreover, even if Chevron deference is not required, the documents should not be produced because they are neither relevant nor likely to lead to admissible evidence. Lastly, the defendant asserts that the documents are protected by both the attorney-client and work-product privileges.
DISCUSSION
1. Whether the FDIC is entitled to Chevron deference.
"When a court reviews an agency's construction of a statute which it administers, it is confronted with two questions." Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842, 104 So. Ct. 2778, 2781 (1984). The Court must consider first whether Congress has directly spoken to the question at issue, and if not, the question for the court is whether the agency's answer is based on a permissible construction of the statute. Id. at 843. The court should not impose its own construction of the statute. Id. However, the court is the "final authority on issues of statutory construction and must reject administrative constructions that are contrary to clear congressional intent." Id. n. 9. Congress may implicitly or explicitly delegate that an administrative agency fill in the gap of a specific statute by regulation. Id. at 844 (citing Morton v. Ruiz, 415 U.S. 199, 231, S.Ct. 1055, 1072 (1974)). The agency's construction need not be the only construction that could have been adopted or even the reading that the court itself would have reached. Id. n. 11. "[L]egislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute." Id. Thus, the issue before the court is whether the agency's view or interpretation is "reasonable." Id. at 845.
Moreover, as stated by the court in Smiley v. Citibank (South Dakota), N.A., a court should accord Chevron deference to agencies "not because of a presumption that they drafted the provisions in question, or were present at the hearings, or spoke to the principal sponsors; but rather because of a presumption that Congress when it left ambiguity in a statute meant for implementation by an agency, understood that the ambiguity would be resolved, first and foremost, by the agency, and desired the agency (rather than the courts) to possess whatever degree of discretion the ambiguity allows." 517 U.S. 735, 740-41, 116 S.Ct. 1730, 1733 (1996). "It does not matter that the regulation was prompted by litigation including this very suit." Id. at 741. "That it was litigation which disclosed the need for the regulation is irrelevant." Id. Furthermore, the "mere fact that an agency interpretation contradicts a prior agency position is not fatal." Id.
However, a "[s]udden and unexplained change, see, e.g., Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 46-57, 103 S.Ct. 2856, 2868-2874 (1983), or change that does not take account of legitimate reliance on prior interpretation, see, e.g., United States v. Pennsylvania Indus. Chem. Corp., 411 U.S. 655, 670-675, 93 S.Ct. 1804, 1814-1817 (1973); NLRB v. Bell Aerospace Co., 416 U.S. 267, 295, 94 S.Ct. 1757, 1772 (1974), maybe `arbitrary, capricious, [or] an abuse of discretion.'" Id. at 742 (citing; 5 U.S.C. § 706 (2)(A)). When there are no findings and no analysis that justify the choice made by the agency, and no indication of the basis on which the agency exercised its expert discretion, the court need not permit or accept, such practice. Motor Vehicle Mfrs., 463 U.S. at 48. Unless the courts make the administrative process and expert discretion strict and demanding, there may be no limits on an agency's discretion.Id.
Following the general reasoning of Smiley, it is arguable that the FDIC's recently created regulation is entitled to Chevron deference. However, Smiley specifically noted that nothing in that case indicated that the agency interpretation could be described as a change in official agency position. Smiley, 517 U.S. at 742. Therefore, the regulation enacted by the FDIC is not automatically entitled to Chevron deference. Instead, this Court must first determine whether the FDIC's regulation is a change in official agency position. If so, the Court must then decide if the change is arbitrary, capricious, or an abuse of discretion.
The Court has previously refused to give Chevron deference to the FDIC's General Counsel Opinion Number 12 (Rec. Doc. 133).
2) Whether the documents are relevant or likely to lead to admissible evidence.
Discovery of documents is permitted if they are relevant to the subject matter involved in the action or if they are reasonably calculated to lead to the discovery of admissible evidence. FED. R. Civ. P. 26(b)(1).
[R]elevancy is broadly construed and a request for discovery should be considered relevant if there is any possibility that the information sought may be relevant to the subject matter in the action or if there is any possibility that the information sought may lead to the discovery of admissible evidence.Panama Canal Comm'n v. Atl. Shipping Agencies, No.
CIV.A. 00-1716, 2002 WL 31654921, at *1 (E. D. La. Nov. 25, 2002) (citingBeach v. City of Olathe, No. CIV.A.99-2210-GTV, 2000 WL 960808, *2 (D. Kan. Jan. 6, 2000)). "[A] request for discovery should be allowed unless it is clear that the information sought can have no possible bearing on the subject matter of the action." Id. Moreover, if the discovery seems relevant, the burden to establish lack of relevance is on the party resisting the discovery. Id. at *2.
The FDIC argues that the plaintiff's discovery request is merely an attempt to find evidence of ex parte contacts between Monogram and the FDIC. The FDIC further asserts that such ex parte contacts are not barred by the Administrative Procedure Act ("APA") and that the courts should deny motions for discovery based on such contacts. However, following the reasoning of the court in Smiley, it appears that the court must determine whether the FDIC's interpretation of the phrase "engaged in the business of receiving deposits" is permissible or an unreasonable change in official agency position. Thus, documents withheld by the FDIC explaining the meaning of the debated phrase are relevant to the present case.
3) Whether documents sought by the plaintiff are protected under either the attorney-client privilege or the work-product privilege.
a) Attorney-Client Privilege:
The attorney-client privilege protects confidential communications to a lawyer or his subordinate, "for the primary purpose of securing either a legal opinion or legal services, or assistance in some legal proceeding."U.S. v. Robinson, 121 F.3d 971, 974 (5th Cir. 1997; (citing U.S. v. Neal, 27 F.3d 1035, 1048 (5th Cir. 1994)); In Re Grand Jury Proceedings (Jones), 517 F.2d 666, 670 (5th Cir. 1975)). "Blanket claims of privilege are disfavored." Central Gulf Lines, Mos. CIV.A. 97-3829, CIV.A. 99-18882001, WL 30675, *1 (E.D. La. Jan. 11, 2001) (citing U.S. v. El Paso Co., 682 F.2d 530, 539 (5th Cir. 1982)). Furthermore, a party may not use privileged information for its benefit, while asserting the attorney-client privilege to prevent disclosure. Conkling v. Turner, 883 F.2d 431, 434 (5th Cir. 1989). If the party discloses a significant portion of the confidential communication, there is an implicit waiver of the attorney-client privilege. Nguyen v. Excel Corp., 197 F.3d 200, 207 (5th Cir. 1999). Moreover, when an attorney or client relays information to a third party who is not giving legal advice, such communication is no longer privileged. Id. at 207. When confidential communications are made a material issue in a judicial proceeding, the privilege is waived. Conkling, 883 F.2d at 434.
The plaintiff claims that the FDIC publicly disclosed its legal interpretation of the phrase "engaged in the business of receiving deposits" in the GCO No. 12 and in other materials in an effort to convince the courts that the agency's interpretation was reasonable. As such, the FDIC placed at issue its interpretation of the phrase and thus, may not now withhold as privileged documents on the very same issue.
The FDIC disagrees and states that their interpretation of the phrase has net been put at issue and that they do not rely on historical interpretations or on the GCO No. 12. Instead, the FDIC asserts that they rely on the statutory language and on the regulation.
Although the FDIC may, at the present time, rely on the statutory language and the regulation, the prior history of this case indicates that the FDIC did, at an earlier time, present the GCO No. 12 to this Court in an effort, to explain its interpretation of the phrase at issue. In addition, at the time this suit was filed in 1998, there existed no official interpretation, but the FDIC employed an ad hoc or case-by-case method of considering and approving applications by special purpose banks for FDIC insurance. Therefore, the historical documents that relate to the FDIC's previous interpretations of the statutory language are relevant to issues present in this case, including the issue of whether the current regulation is entitled to full Chevron deference. It is unfair to allow the FDIC to withhold its own historical interpretations of the statutory language which lies at the heart of this case. Therefore, documents interpreting and explaining the meaning of the phrase "engaged in the business of receiving deposits" are not protected by the attorney-client privilege.
However, the attorney-client privilege does protect from discovery those documents unrelated to the historical interpretation of the statute, but which include only communications between the FDIC and its counsel relating to legal strategy or tactics in defense of the instant case. The FDIC correctly notes that the privilege is applicable to confidential communications made for the primary purpose of securing a legal opinion, services, or assistance in a legal proceeding. Although the FDIC correctly asserts that the privilege also extends to advice or opinions of the attorney, it appears that the FDIC requests and receives opinions and advice from attorneys in the normal course of its business. As part of its daily business activities, the FDIC's legal staff reviews applications for federal deposit insurance. In addition, the FDIC creates regulations and statutes. Although the FDIC contends that each document sought by the plaintiff embodies advice, legal opinions, or confidential communications, because the legal staff is inextricably entwined with the daily business activities of the FDIC, arguably many of the FDIC's daily business documents could contain such information. However, after reviewing the documents in camera, this Court has determined that the primary purpose of most of the documents was not to secure legal opinions, services, or assistance in a legal proceeding. Instead, the primary purpose of the communications involved the daily business activities of the FDIC.
Lastly, an exception to the attorney-client privilege would apply if the FDIC shared information with a third party. If the FDIC shared the information, the information would no longer be privileged. However, it does not appear that the FDIC shared any of the 69 requested documents with any third party. Therefore, the third party exception argued by the plaintiffs does not apply in this case, and the attorney-client privilege applies to the few remaining documents created for the primary purpose of securing legal advice and not interpreting or explaining the meaning of the phrase at issue.
b) Work-Product Privilege:
The work-product doctrine applies to documents "prepared in anticipation of litigation." Kaiser Aluminum Chem. Co., 214 F.3d 586, 593 (5th Cir. 2000) (citing FED. R. CIV.P. 26(b)(3)). Fifth Circuit precedent: follows the "primary purpose" test. Id. "[T]he privilege can apply where litigation is not imminent, `as long as the primary motivating purpose behind the creation of the document was to aid in possible future litigation.'" Id. The work-product doctrine is not an umbrella that shields all materials prepared by the lawyer. United States v. El Paso Co., 682 F.2d 530, 532 (5th Cir. 1982). To the extent a party seeks to discover "opinion work product," it must demonstrate "a compelling need for the information." Varel v. Bank One Capital Partners, Inc., No. CA 3:93-CV-1614-R, 1997 WL 86457, *4 (N.D. Tex. Feb. 25, 1997) (citingConkling, 883 F.3d at 434-35)). However, excluded from the work product doctrine are materials assembled in the ordinary course of business or pursuant to public requirements unrelated to litigation. Id. (citing FED. R. CIV. P. 26(b)(3)).
The plaintiff argues that the work product doctrine does not apply because the documents in question were created by the FDIC's staff as a result of the agency's regulatory activities. Thus, the documents are excluded from the privilege because they were assembled in the ordinary course of business.
The FDIC argues that it anticipates litigation whenever it reviews applications for deposit insurance or develops a regulation in uncertain areas such as deposit insurance for non-traditional banks. Thus, each document sought at present is protected under the work-product privilege. Furthermore, the FDIC insists that the plaintiff has not shown a compelling need for the information.
The FDIC's argument is a blanket claim of privilege. Reviewing applications for deposit and creating regulations are clear examples of work done by the agency in the ordinary course of business. Additionally, the plaintiff has shown a compelling need for the information as the Chevron issue can only be properly analyzed through discovery of the FDIC's documents. The plaintiff is unable to access the information contained in the "privileged" documents unless it is disclosed by the FDIC. Although the plaintiff is requesting the release of 69 "privileged" documents, not all documents should be disclosed. After reviewing the documents in camera, the Court finds that most of the documents fall under two categories: (1) historical documents relating to ad hoc approvals of applications by various special purpose banks for insurance coverage; or (2) historical documents, including opinions by its attorneys, relating to the FDIC's rule-making function, i.e., interpretation of the "engaged in the business of receiving deposits" statutory language. The Court finds that these categories of documents, which are encompassed in document numbers 2 through 67, should be produced cut that document numbers 1, 68, and 69 should not be produced because they relate solely to communications between the FDIC and its counsel relating to the defense of the instant litigation and are protected by the attorney-client privilege. Accordingly,
IT IS ORDERED that Plaintiff's Motion to Compel Production of Documents Claimed to be Privileged (Rec. Doc. 161) is GRANTED IN PART and DENIED IN PART. Plaintiff's Motion to Compel Production of Documents Claimed to be Privileged (Rec. Doc. 161) is GRANTED insofar as pertains to document numbers 2 through 67 and is DENIED as pertains to document numbers 1, 68 and 69. The FDIC shall produce document numbers 2 through 67 within ten days from entry of this order.