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[¶8024] In the Matter of First State Bank of Sarasota, Sarasota, Florida, Docket No. FDIC-92-192b (12-14-92).
FDIC Executive Secretary, under authority delegated by FDIC Board, grants interlocutory review and reverses an ALJ's discovery order requiring FDIC to produce personnel records of its staff.
[.1] Practice and Procedure—Interlocutory Review—Criteria
Subsequent modification would be an inadequate remedy, for violation of the Privacy Act, if privileged personnel records were to be released.
[.2] Practice and Procedure—Discovery—ALJ Authority
The Primacy Acts prohibits release of personnel records except under specific statutory authorization, such as by court order. Since administrative tribunals are not constitutional courts, ALJ's do not have authority to compel production of records in contravention of the Privacy Act in administrative proceedings.
[.3] Bank Examiners—Opinion—Weight Accorded
Commissioned bank examiners are presumed competent to testify by virtue of their training and experience, so discovery of their personnel records regarding education, expertise and professional experience is not necessary.
In the Matter of
FIRST STATE BANK OF SARASOTA
SARASOTA,FLORIDA
(Insured State Nonmember Bank)
DECISION AND ORDER ON
REQUEST FOR INTERLOCUTORY
REVIEW
FDIC-92-192b
INTRODUCTION
This matter is before the Executive Secretary of the Federal Deposit Insurance Corporation ("FDIC"), acting pursuant to authority delegated by the Board of Directors of the FDIC and with the advice and recommendation of the General Counsel, upon a Request for Interlocutory Review of Administrative Law Judge's Order on Discovery ("Request for Interlocutory Review") filed by FDIC Enforcement Counsel. FDIC Enforcement Counsel requests review of a pre-hearing discovery ruling ("Order on Discovery") of Administrative Law Judge Arthur L. Shipe ("ALJ") requiring production of personnel records of five Division of Supervision ("DOS") employees to First State Bank of Sarasota, Sarasota, Florida ("Respondent"). The request arises in a cease-and-desist proceeding under section 8(b) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(b).
BACKGROUND
On July 2, 1992, Respondent was served with a Notice of Charges and of Hearing ("Notice") issued by the Regional Director (Supervision) of the FDIC's Atlanta Regional Office under delegated authority pursuant to section 8(b). The Notice, based on the FDIC's examination of Respondent as of August 12, 1991, alleged that the Respondent had engaged in certain unsafe or unsound practices and had committed a violation of law.
Respondent served its August 27, 1992, Request for Production of FDIC Documents and Records for Inspection ("Request for Production") on FDIC Enforcement Counsel seeking, among other documents, personnel records relating to all FDIC bank examiners and supervisory personnel involved in the examination process.1 Respondent also sought personnel records relating to "all senior staff members of the FDIC Atlanta
1 Part III, ¶46, of the Request seeks production of:
All documents concerning and including all written performance evaluations pertaining to the proper execution of the official duties and responsibilities of all FDIC examiner personnel who participated in the conduct of any FDIC examination or visitation of the [Respondent]...
{{2-28-93 p.I-78}}Region who directly or indirectly participated in the review of any FDIC examination or visitation report of the Bank." Request for Production at ¶47. Further, Respondent sought "[a]ll documents and files concerning the number, nature, quality and jobrelatedness of all courses of continuing business education or professional training..." as to the examiners and supervisory personnel. Request for Production at ¶48. FDIC Enforcement Counsel objected to the request and submitted their Response and Motion to Limit Respondent's Request for Production of FDIC Documents and Records for Inspection to the ALJ ("Objections").2
Respondent replied to the FDIC's objection by narrowing the focus of the Request for Production to five DOS regional employees, including the Assistant Regional Director and the Review Examiner responsible for the supervision of Respondent, the Examiner-in-Charge, and two examiners who had assisted in the preparation of the Report of Examination. Respondent asserts in its response to the Objections that:
These three categories of document requests are designed [to] identify the existence of any documentary evidence pertaining to the professional competence, business education, job training, and work performance of FDIC examiner and supervisory personnel who participated in and were directly involved with the preparation and review of the ... Report of Examination....
Bank Response in Opposition to FDIC Motion to Limit Bank Production Request at 29. Respondent further argued that it has not initiated a "fishing expedition" and that "[r]egardless of which party calls any of the five named persons, the education, training, professional experience and expertise of such persons will be a paramount concern" and that the information contained within the personnel records, including performance appraisals, "are clearly relevant in assessing an individual's expertise." Id. at 35–36. In closing its argument, Respondent asserts that privacy "concerns can be addressed with an appropriate protective order" or by the ALJ "making appropriate redactions in the documents based upon an in camera review." Id. at 36.
FDIC Enforcement Counsel then responded stating that the "Bank's Motion ... misunderstands the threshold requirement for the discovery of personnel records" and that:
the information that the Bank seeks is readily obtainable when each of the FDIC employees named by the Bank appears at the administrative hearing in this matter ... when called by the FDIC or called by the Bank.
FDIC's Reply to Bank Response In Opposition to FDIC Motion to Limit Bank Production Request ¶8, at 14. FDIC Enforcement Counsel conclude their arguments by asserting that "[t]he cases cited by the Bank do not support the discovery suggested by the Bank..." and that "the only relevant point for the case at bar is if relevant judgments regarding the Bank's practices are rendered by commissioned bank examiners, and this can easily be established by Bank's counsel by voir dire examination of the FDIC's commissioned bank examiners at the hearing in this matter." Id.
The ALJ's Order on Discovery, requires production of these "[d]ocument[s] responsive to Requests 46, 47, and 48 pertaining to the individuals named in the Bank's Response, page 31." It is from this Order on Discovery that FDIC Enforcement Counsel seeks interlocutory appeal.
In support of the motion for interlocutory review, FDIC Enforcement Counsel has raised identical arguments utilized before the ALJ and further argues that "[i]f the FDIC is compelled to produce documents responsive ... then in camera inspection, redaction and a protective order should be ordered." Respondent's counsel argues in response that "the Bank is not engaging in a fishing expedition," and that a "clear factual predicate has been propounded in support of the requested [personnel] records."
DISCUSSION
Requests for interlocutory review are governed by Rule 28 of the Uniform Rules of Practice and Procedures, 12 C.F.R. § 308.28. The FDIC may conduct an interlocutory review pursuant to its broad gen-
2 FDIC Enforcement Counsel objected to the requests pursuant to 12 C.F.R. § 308.24(b) on the grounds that they are "not reasonably calculated to lead to the discovery of admissible information." Further, FDIC Enforcement Counsel pointed out that Respondent's blanket request for the personnel records of DOS personnel involved in the Report of Examination could "only be viewed as a fishing expedition,'" citing In re One Bancorp Securities Litigation, 134 F.R.D. 4 (D. Me. 1991).
{{2-28-93 p.I-79}}eral grant of authority to carry out the provisions of the FDI Act. 12 U.S.C. § 1819(a) (Seventh). See also FDIC-91-246jj, 2 P-H FDIC Enf. Dec. P 8014 (1992). The FDIC concludes, upon a review of the record that the criteria for interlocutory review have been satisfied. Accordingly, the FDIC grants the request.
I. FDIC ENFORCEMENT COUNSEL HAS MET THE CRITERIA FOR INTERLOCUTORY APPEAL UNDER PART 308.28.
Rule 28 provides that the FDIC may grant interlocutory review of an Administrative Law Judge's ruling if:
(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.
12 C.F.R. § 303.28(b). The FDIC finds that one of the four criteria has been met in the Request for Interlocutory Review.
[.1] The FDIC finds that subsequent modification would be an inadequate remedy or would cause unusual delay or expense. If FDIC Enforcement Counsel provides the documents as ordered by the ALJ, a violation of the Privacy Act would occur. 5 U.S.C. 552a(b).3 Once material protected from disclosure by the Privacy Act is released, the infringement upon the individual's privacy rights has occurred and the available remedy in the form of monetary damages under the Privacy Act is likely to be insufficient when compared to the victim's loss of privacy. Therefore, subsequent modification of the ruling is an inadequate remedy.
In sum, FDIC Enforcement Counsel's Request for Interlocutory Review satisfies one of the criteria contained in Rule 28. Accordingly, the Request for Interlocutory Review is granted and for the following reasons, the underlying Order on Discovery requiring production of FDIC personnel records is reversed.
II. THE ALJ'S ORDER ON DISCOVERY OF NOVEMBER 10, 1992 REQUIRING PRODUCTION OF PERSONNEL RECORDS IS AN ABUSE OF DISCRETION.
The Uniform Rules of Practice and Procedure specifically provide for document discovery, consistent with the Federal Rules of Civil Procedure, regarding any matter, not privileged, which has material relevance to the merits of the pending action.4 12 C.F. R. § 308.24(b) (emphasis added.) Respondent's request for personnel records, including job performance evaluation records and job training records, is an attempt to subvert and attack the regulatory system rather than respond to the Notice. For the following reasons, the ALJ's Order on Discovery, as it relates to production of personnel records, is reversed.
A. The Order on Discovery Requiring Production of Personnel Records Exceeds the Authority of the ALJ and is Prohibited by Federal Law.
[.2] Under the Privacy Act, federal agencies are prohibited from releasing records relating to individuals except under specific statutory authorization. 5 U.S.C. § 552a(b). Specifically, the Privacy Act provides that "[n]o agency shall disclose any record which is contained in a system of records...to any person...except...with the prior written consent of the individual to whom the record pertains, unless disclosure would be...pursuant to the order of a court of competent jurisdiction." Id. Inasmuch as the administrative courts are not Article III courts under the United States Constitution, the un-
3Documents and information utilized by the FDIC to support its decision to issue the Notice as well as any documents upon which FDIC Enforcement Counsel relied upon in support of that decision have been produced to Respondents by order of the ALJ. The FDIC finds that the inquiry as to the personnel records of the FDIC's staff is an abuse of discretion and is not calculated to lead to the discovery of admissible information. The education, training, professional experience, and expertise of FDIC's examination staff and supervisory personnel can be easily ascertained during voir dire without violating the Privacy Act. The FDIC finds that this information is readily accessible by testimony of the FDIC's examination staff and supervisory personnel.
4Discovery may include documents that are inadmissible provided the discovery "is calculated to lead to the discovery of admissible evidence." 12 C.F.R. § 308.24(b). However, such discovery must not "be unreasonable, oppressive, excessive in scope or unduly burdensome." Id.
{{2-28-93 p.I-80}}derlying action is not before a "court of competent jurisdiction." See Blackburn v. Portland Gold Mining Company, 175 U.S. 571, 581, 20 S. Ct. 222, 226, 44 L.Ed. 276 (1900) (quoting Chambers v. Harrington, 111 U.S. 350, 351, 4 S. Ct. 428, 429, 28 L.Ed. 452 (1884) ("[w]hat is a competent court is not specifically stated, but it undoubtedly means a court of general jurisdiction, whether it be a state of a Federal court....")). Therefore, the ALJ lacks authority to order production of personnel records in contravention of the Privacy Act in the underlying administrative proceeding.
B. Under Sunshine State Bank, FDIC Examiners are Presumed to Be Experts in the Field of Bank Examination.
[.3] The proper issue before the ALJ regarding expert testimony, is whether the individual experts are competent to testify, considering evidence of their education, training, professional experience, and expertise as elicited during direct testimony or during voir dire by Respondent's Counsel. However, FDIC-commissioner examiners are presumed to be competent to testify by virtue of their unique training, experience and education.5 As the Eleventh Circuit found in Sunshine State Bank v. FDIC, 783 F.2d 1580, 1581 (11th Cir. 1986), reh'g denied, 792 F.2d 1126 (11th Cir. 1986),
...the [FDIC] Board correctly determined that the unique experience of the bank examiners involved in this examination leads to the conclusion that their classifications were entitled to deference and could not be overturned unless they were shown to be arbitrary and capricious or outside a "zone of reasonableness."
The ALJ may not disregard the testimony of examination and supervisory personnel unless he finds that such testimony has been shown to be "arbitrary and capricious or outside a `zone of reasonableness.'" Id.
CONCLUSION
For all the foregoing reasons, the ALJ's Order on Discovery requiring production of FDIC personnel records is hereby REVERSED.
ORDER
For the reasons set forth above, it is hereby ORDERED that FDIC Enforcement Counsel's Request for Interlocutory Review is GRANTED.
Further, for the reasons set forth above, the Administrative Law Judge's Order on Discovery of November 10, 1992, as to Respondent's Request for Production, ¶¶46, 47, and 48 relating to personnel records of FDIC examination staff and supervisory personnel is REVERSED.
Dated at Washington, D.C., this 14th day of December, 1992.
Pursuant to delegated authority, upon the advice and recommendation of the General Counsel.
_______________________________________
RECOMMENDED DECISION
In the Matter of
First State Bank of Sarasota
Sarasota,Florida
FDIC-92-192b
ON DISCOVERY
Upon consideration of FDIC's Response and Motion to Limit Respondent's Request for production of FDIC Documents and Records, the Bank['s] Response in Opposition to FDIC Motion to Limit Bank Production Request, the Bank's Motion to Compel FDIC Compliance With Bank Request for Production of FDIC Documents, and the FDIC's Reply to Bank Response in Opposition to FDIC Motion to Limit Bank Production Request, the following rulings are entered.
FDIC has submitted 12 documents for in camera inspection for which privilege against production is claimed. The Bank generally accepts the claim of privilege with respect to these documents, but claims as to certain documents, numbered 7, 10 and 11, that it has "reasonable cause to believe that any privileges may have been waived." It requests that the FDIC be required to provide all of the named distributees or recipients of these documents. In view of the nonspecific nature of the claimed basis for asserting that a waiver may have occurred the request is denied.
5As the Board of Directors of the FDIC stated in In the Matter of The Stephens Security Bank:
Deference is to be given to FDIC examiners because "[a]fter extensive training, lengthy apprenticeship and careful evaluation, FDIC examiners are appointed as `commissioned examiners,' and thereby vested with authority to make informed predictions about the risk inherent in a bank's assets."
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The Bank, based on the identification of Document No. 12 as a memorandum from a state examiner to the FDIC examiner, specifically challenges the claim of privilege thereon. FDIC in response construes the Bank's argument as denying that a privilege exists because the document was not prepared by an attorney. This is only part of the argument. The document was also prepared by a non-party and does not seem to be responsive to specific attorney requests making it an attorney's work product. The document shall be produced.
The Bank request that a review of the other documents be made to ascertain whether the privilege has been properly invoked as to them.
The following rulings are made upon in camera inspection of the documents.
1. This document is found to be irrelevant to this proceeding, and need not be produced.
2. These documents shall be produced. This ruling is made on the assumption that the writer will, or should be, a witness herein.
3. This document has been produced and is not in controversy.
4. This document is deemed privileged, unless the writer is to be called as a witness, in which case it shall be produced.
5. This document is deemed privileged, unless the writer is to be called as a witness, in which case it shall be produced.
6. This document is deemed privileged, and need not be produced.
7. This document is deemed privileged, and need not be produced.
8. This document is deemed privileged, unless the writer is to be called as a witness, in which case it shall be produced.
9. This document is deemed privileged, unless the writer is to be called as a witness, in which case it shall be produced.
10. This document is deemed privileged, and need not be produced.
11. This document is deemed privileged, and need not be produced.
12. This document is ordered produced as discussed above.
13. This document is found to be irrelevant to this proceeding, and need not be produced.
FDIC objects generally to the definitions and instructions contained in the Bank's document request. The objection is granted to the extent stated below.
Documents responsive to the Bank's Requests 1 through 25 allegedly have been produced, but they were not entirely "organized to correspond with the categories in the request," as stated in Rule 308.25(a). FDIC argues that this requirement is qualified by the statement in the Rule that documents must be produced as they are kept in the usual course of the business.
Rule 34(b) of the Rules of Civil Procedure states, as pertinent:
A party who produces documents for inspection shall produce them as they are kept in the usual course of business or shall organize and label them to correspond with the categories in the request.
Rule 308.25(a) is an evident adaptation of Rule 34(b), with "or" transformed to "and". In view of the frequency with which these words are used interchangeably, it is doubtful if the rules can be construed as having different meanings because of the transposition. Rule 34(b) clearly allows alternative methods of production.
According to the commentary accompanying the federal Rules of Civil Procedure, Rule 35(b) was added to foil the practice of mixing critical documents with others to obscure the significance of the critical documents. Either mode of production is consistent with that purpose. Therefore, it is concluded here that the production of documents by the FDIC "as they are kept in the usual course of business" complies with Rule 308.25(a). Accordingly, the Bank's motion to compel an alternative method of production is denied.
FDIC states that to the extent that discoverable material responsive to this Requests 25 exists, it has been produced. The Bank contends that it has reason to believe that the identified FDIC documents 4, 5, 9, 10, 12 and 13 are responsive to the request. Rulings on the documents are as indicated above.
FDIC produced its Supervision of Supervision Manual of Examination Policies in response to Requests 26 through 35. The Bank requests that the FDIC be compelled to designate what pages or portions of the Manual respond to each category of documents sought. The request is denied.
Document Requests 36 and 37 have been withdrawn.
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Request 38 seeks documents concerning various oral communications. FDIC's response is that to the extent that the requests documents exist they were included in its production in response to Requests 1 to 24. The Bank requests a more specific identification in accordance with its instructions. It is largely a question of who is going to search identified files for specific documents. Since, as previously discussed, there is no persuasive basis offered for shifting this task to the FDIC, the motion is denied.
The issues pertaining to Request 39 are similar to those in Request 38, and are similarly resolved.
Document Requests 40 and 41 have been withdrawn.
Document Request 42 has been satisfied.
Document Request 43 is accorded the disposition of Request 38 and 39.
Document Request 44 is withdrawn, and Request 45 is satisfied.
Document responsive to Requests 46, 47, and 48 pertaining to the individuals named in the Bank's Response, page 31, shall be produced.
Documents sought by Requests 49 and 50 need not be produced.
Documents Requests 51 to 55 are withdrawn.
Additional documents responsive to Request 56 need not be produced.
Documents ordered produced shall be furnished within 20 days of the date of this order.
The documents submitted for in camera inspection will be returned to the FDIC.
So ORDERED, this 10th day of November, 1992.
