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FDIC Enforcement Decisions and Orders
FDIC denies respondent's Petition for Interlocutory Review, which challenged the portion of the ALJ's Order on Objections directing him to produce a privilege log.
The FDIC found Lenz's request for interlocutory review failed to satisfy the criteria contained in FDIC Rule 308.28(b).
[.1] Interlocutory Review StandardsFailure to meet any criteria
In the Matter of
Before the Executive Secretary of the Federal Deposit Insurance Corporation (FDIC), pursuant to authority delegated by the FDIC Board of Directors (Board) under 12 C.F.R. §308.102(b)(2)(ii), is a Petition for Interlocutory Review (Petition) referred by the Administrative Law Judge (ALJ) pursuant to 12 C.F.R. §308.28(c) by her order dated May 24, 2004. The Petition was filed by Respondent Randolph W. Lenz (Lenz) on April 22, 2004 and on May 24, 2004, enforcement counsel for the FDIC (Enforcement Counsel) filed an opposition (Opposition).
The subject of Lenz's Petition is a discovery ruling in an administrative enforcement proceeding in which the ALJ issued an order that sustained the response of Enforcement Counsel to Lenz's Motion to Compel production of documents. The underlying matter involves a proceeding under section 8 of the Federal Deposit Insurance Act (FDI Act), 12 U.S.C. §1818, against former officers and directors of Connecticut Bank of Commerce, Stamford, Connecticut (Bank); which was closed by Connecticut bank regulators on June 26, 2002, with the FDIC being appointed as receiver. Specifically, the FDIC charged that Lenz, the Bank's chairman and controlling shareholder, among other things, engaged in unsafe and unsound banking practices and violated federal law and regulation and an FDIC cease and desist order which caused the Bank to lose tens of millions of dollars and directly contributed to its failure. The FDIC sought removal of Lenz from the banking industry pursuant to section 8(e) of the FDI Act, 12 U.S.C. §1818(e), assessed a civil money penalty against him in the amount of $2 million pursuant to section 8(i) of the FDI Act, 12 U.S.C. §1818(i), and directed that a hearing be held to determine whether, among other things, Lenz should be required to pay $34 million in restitution.
On January 24, 2003, Lenz served on Enforcement Counsel his First Request for Production of Documents of Respondent Randolph W. Lenz (Lenz Document Request). Petition, Ex. D. On April 1, 2003, in response to the Lenz Document Request and document requests submitted by other respondents in this case, Enforcement Counsel filed FDIC's Motion to Strike or Otherwise Limit Respondent's Request for Production of Documents and FDIC's Response to Respondents' Request for Production of Documents (Enforcement Counsel's Response). Petition, Ex. E. Enforcement Counsel objected, among other things, to the scope of Lenz's Document Request, the fact that some of the instructions were in the nature of interrogatories and, therefore, impermissible under the FDIC Rules of Practice and Procedure (FDIC Rules), and also challenged specific document requests.
Enforcement Counsel did produce, in conjunction with its Response,
approximately 11,000 documents stored on compact discs.
The materials produced included documents obtained from Bank files, documents obtained from third parties pursuant to subpoenas issued during the FDIC's investigation conducted pursuant to section 10(c) of the FDI Act (10(c) investigation),12 U.S.C. §1820(c), and transcripts of testimony taken during the section 10(c) investigation. Enforcement Counsel stated in its Response that the documents "constitute all documents in the possession, custody or control of the FDIC that are materially relevant to the allegation of the Notice of Charges or any defense raised in Respondents' Answers, including exculpatory materials, if any." Enforcement Counsel's Response at 10. Enforcement Counsel's Response also included a privilege log identifying documents withheld pursuant to FDIC Rule 308.25(e), 12 C.F.R. §308.25(e). Subsequently, on May 14, 2003, Enforcement Counsel produced to Lenz also in electronic format approximately 5,500 additional documents which included materials maintained in various FDIC offices. A revised privilege log accompanied Enforcement Counsel's supplemental production.
Thereafter, on May 29, 2003, Lenz filed a Motion to Compel Production of Documents and Opposition to FDIC's Motion to Strike or Otherwise Limit Respondents' Request for Production of Documents (Motion to Compel). Petition, Ex. F. On June 9, 2003, Enforcement Counsel submitted a response to Lenz's Motion to Compel which was supported by the Declaration of Daniel E. Frye, Area Director of the FDIC's Boston Area Office, (Frye Declaration) formally claiming "the government deliberative process privilege, the bank examination privilege, and the attorney-client privilege with respect to specific documents sought by Respondents in connection with this pending enforcement action." Petition, Ex. G.
Besides Lenz, Respondents Jack W. Dunlap (Dunlap) and Steven B. Levine (Levine) had also filed motions to compel production. Levine, in his motion, had objected to Enforcement Counsel making material relevancy determinations and had also objected to Enforcement Counsel's identification and claim of privilege for certain documents by category. On June 23, 2003, the ALJ entered her Order on Discovery Motions Relating to Respondent Levine (Levine Discovery Order). Opposition, Ex. B. In the Levine Discovery Order, the ALJ rejected Levine's arguments and concluded, based on the Frye Declaration, that FDIC's claims of privilege were adequately asserted and that FDIC Rule 308.25(e) specifically permitted Enforcement Counsel to assert privilege as to categories of documents. The ALJ also concluded that "as a matter of practicality, though, the producing party, whether it be FDIC or Respondent, must make some initial determination as to material relevance." Levine Discovery Order at 1.
Two days later, on June 25, 2003, the ALJ issued her Order on Discovery Motions Relating to Respondents Lenz and Dunlap (Lenz Discovery Order) which is the subject of Lenz's Petition. Lenz and Dunlap had also challenged the Enforcement Counsel's privilege assertions and material relevancy determinations. Relying on her reasoning in the Levine Discovery Order, the ALJ also denied Lenz's and Dunlap's motions. On July 8, 2003, Lenz filed a Petition for Interlocutory Review by FDIC Board of Directors on the Denial of his Motion to Compel Production of Documents (First Petition). The parties then asked the ALJ to defer the briefing schedule so that they could attempt to work out production disputes. On September 10, 2003, Enforcement Counsel filed an amended privilege log and produced an additional 48 items in their entirety and 11 others with redactions. Petition at 6 and Petition, Exhibit H. On February, 13, 2004, Enforcement Counsel submitted an additional updated privilege log. Petition, Ex. H.
In the interim, on August 5, 2003, the ALJ granted a motion to stay the proceedings which had been filed by Lenz the previous June. On December 4, 2003, however, upon Enforcement Counsel's petition for interlocutory review, the Executive Secretary, acting pursuant to delegated authority, reversed the ALJ's order and lifted the stay. In the Matter of Randolph Lenz, et al. FDIC Enforcement Decisions and Orders, ¶5276, A-3301 (2003); 2003 WL 23273837, at *4 (Dec. 4, 2003).
After the stay was lifted, the ALJ, following a scheduling conference,
issued on January 23, 2004, an Order Rescheduling Hearing and Report of
Telephone Conference (Rescheduling Order) which noted, among other
things, that because the parties had substantially narrowed the issues
raised in Lenz's First Petition, the FDIC would not respond to the
petition as originally filed. Instead, the ALJ ordered that "within
60 days, Lenz will refile his motion and FDIC will thereafter respond." Opposition, Ex. C. On April 22, 2004, Lenz filed his Petition.1
Preliminarily, Lenz must demonstrate that the arguments presented in his Petition satisfy one or more of the four standards enumerated under FDIC Rule 308.28(b), 12 C.F.R. §308.28(b), which states that interlocutory review of a ruling of an ALJ may be granted if the Board finds that:
(1) The ruling involves a controlling question of law or policy as to which substantial grounds exist for a difference of opinion;
(2) Immediate review of the ruling may materially advance the ultimate termination of the proceeding;
(3) Subsequent modification of the ruling at the conclusion of the proceeding would be an inadequate remedy; or
(4) Subsequent modification of the ruling would cause unusual delay or expense.
In this case, because Lenz's Petition presents a mix of arguments none of which meet any of the criteria for interlocutory review set out in Rule 308.28(b), the Board finds no basis for disturbing the ALJ's rulings in the Lenz Discovery Order.
[.1] First, as the Board has previously noted in another case involving the denial of a motion to compel, "the scope of the asserted privilege(s) does not involve `controlling questions of law or policy' within the meaning of section 308.28(b)(1)." In the Matter of Michael D. Landry, et al., FDIC-95-65, Decision and Order on Request for Interlocutory Review (April 7, 1997) (Landry Interlocutory Order), aff'd, FDIC Enforcement Decisions and Orders, ¶5256, A-3017, 3022-23 (1999), aff'd Landry v. FDIC, 204 F.3d 1125 (D.D. Cir. 2000). The Board applies the same reasoning with respect to relevancy determinations. Indeed, with few exceptions, the Board rejects interlocutory review of routine discovery matters.2 See, e.g., In the Matter of Ronald J. Grubb, FDIC Enforcement Decisions and Orders, ¶8006A, 1-20.1, I-20.2 (1990) ("[I]nterlocutory appeals, especially those pertaining to routine discovery matters, are generally not favored."); In the Matter of Randolph W. Lenz, et al, FDIC-02-174e, et al., Decision and Order on Interlocutory Review (June 17, 2004) (ALJ's order directing respondent to submit privilege log not subject to interlocutory review.] See also In the Matter of Incus Co., Ltd., 86 Federal Reserve Bulletin 246, 248-249 (2000) (Discovery orders do not present controlling issues of law justifying the grant of interlocutory review under the Rules).
Although Lenz's Petition and accompanying exhibits are of substantial volume, his arguments, in distilled form, amount to nothing more complex than basic challenges to the ALJ's rulings in the Levine and Lenz Discovery Orders. The ALJ in the Levine Discovery Order (on which the Lenz Discover Order is based) considered the respondents' challenges to Enforcement Counsel's assertions of privilege and concluded that the claims were properly asserted, legitimate and that in camera review was unnecessary. Levine Discovery Order at 1. Likewise, the ALJ considered and rejected respondents' challenges to enforcement Counsel's relevancy determinations. Id. Lenz's complaints about the ALJ's ordinary discovery ruling pose no novel or compelling issues of law or policy which would warrant the extraordinary remedy of immediate review.
The Board is also unconvinced that, pursuant to FDIC Rules 308.28(b)(2)
immediate review of the Lenz Discovery Order would materially advance the ultimate termination of this proceeding or that subsequent modification of the ruling at the conclusion of the proceeding would be an inadequate remedy. Indeed the very nature of FDIC enforcement proceedings automatically provides the parties with review by the Board of the ALJ's Recommended Decision. When the ALJ issues her Recommended Decision, the parties have, pursuant to FDIC Rule 308.39(a), the opportunity to file exceptions to the ALJ's rulings. 12 C.F.R. §308.39(a).
Under FDIC Rule 308.40(c), the Board must consider any such exceptions filed by the parties before it issues its final decision. Thus, Lenz will have a sufficient remedy at the conclusion of the administrative proceedings and the Board will have ample opportunity to consider Lenz's disagreement with the ALJ's procedural rulings. With this in mind, the Board cautions Enforcement Counsel to retain and maintain in segregated retrievable format originals or in the absence of originals clearly legible copies of each of the withheld documents, so that these materials are readily available for submission should the Board or a reviewing court later request in camera review. See, e.g., Landry, 204 F.3d 1134-35 (After the proceedings concluded, both the board and the Court of Appeals requested review of materials subject to claims of privilege).
Finally, Lenz has not demonstrated that subsequent modification of the Lenz Discovery Order would cause unusual delay or expense pursuant to FDIC Rule 308.28(b)(4). As discussed above, the agency's Rules of Practice and Procedure contemplate Board review at the conclusion of the proceedings. Therefore, any delay caused by subsequent modification of the Lenz Order would not be regarded as unusual. Moreover, although Lenz notes parenthetically that this proceeding has had an adverse impact on his financial condition, litigation expenses are not the type of expense that Rule 308.28(b)(4) contemplates. See In the Matter of Citizens Bank of Clovis, FDIC Enforcement Decisions and Orders, ¶8016, I-58, I-60 (1992); 1992 WL 812920, at *2 (May 5, 1992).
Lenz has not met any of the standards for interlocutory review established under FDIC Rule 308.28(b). His Petition is, therefore, denied.
For the reasons set forth above, it is hereby ORDERED that Lenz's Petition for Interlocutory Review is DENIED.
Pursuant to delegated authority, upon the advice and recommendation of the Deputy General Counsel for Litigation.
Dated at Washington, D.C., this 21st day of September, 2004.
2 One special case involved a decision which
previously arose in this proceeding where the Board granted
interlocutory review based on its finding that the independent privacy
interest of respondent Levine's wife presented a controlling issue of
law that warranted immediate review and that a later reversal could not
adequately restore a prior breach of Ms. Levine's privacy rights.
In the Matter of Randolph W. Lenz, et al., FDIC Enforcement
Decisions and Orders, ¶5271 at A-3280-81 (2003); 2003 WL 22019848,
at *2 (July 17, 2003). The Board does not find similar compelling
issues in the matter at hand.
2 One special case involved a decision which previously arose in this proceeding where the Board granted interlocutory review based on its finding that the independent privacy interest of respondent Levine's wife presented a controlling issue of law that warranted immediate review and that a later reversal could not adequately restore a prior breach of Ms. Levine's privacy rights. In the Matter of Randolph W. Lenz, et al., FDIC Enforcement Decisions and Orders, ¶5271 at A-3280-81 (2003); 2003 WL 22019848, at *2 (July 17, 2003). The Board does not find similar compelling issues in the matter at hand.
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