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	FDIC Enforcement Decisions and Orders ED&O Home \| Search Form \| ED&O Help {{12-31-90 p.I-1}} [¶8001] FDIC Docket No. FDIC-85-83k (12-9-85). Board of Directors granted FDIC's motion for special permission to appeal, quashed subpoena to testify, but denied FDIC's motion for a protective order as moot. (For further proceedings relating to this case, see [¶5137].) [.1] Practice and Procedure—Motion for Special Permission to Appeal—Timeliness Seventeen-day lapse from the time ALJ denied FDIC's Motion for Reconsideration to the time FDIC filed Motions to Quash Subpoena and for Special Permission to Appeal is not unreasonable given the procedural issues raised by the motions. [.2] Practice and Procedure—Motion for Special Permission to Appeal—Issue of First Impression FDIC Board of Directors has discretion to grant special permission to appeal an ALJ decision to subpoena members of the FDIC Board of Review, compelling them to testify at a hearing or by deposition, as this is a significant issue of first impression before the Board. [.3] Practice and Procedure—Evidence—FDIC Board of Review—Subpoena FDIC has burden to establish record to support assessment of civil money penalty and respondent has an opportunity to establish an evidentiary record to counter FDIC's assessment; testimony of members of FDIC Board of Review is not necessary to establish an evidentiary record. [.4] Practice and Procedure—Evidence—Subpoena—Governmental Deliberative Process Privilege Potential interference with governmental processes must be carefully weighed against the need of the party seeking the testimony, who must establish need for the information and that it is not available from another source. In the Matter of * * * , et. al. * * * * * * (Insured State Nonmember Bank) DECISION AND ORDER GRANTING SPECIAL PERMISSION TO APPEAL, QUASHING SUBPOENAS TO TESTIFY AND DENYING PROTECTIVE ORDER FDIC-85-83k DECISION A. Statement of the Case On July 9, 1985, * * * ("Respondent") filed with the Administrative Law Judge ("ALJ") a request to issue subpoenas to testify at the administrative hearing or by deposition to those members of the Federal Deposit Insurance Corporation's ("FDIC") Board of Review who participated in the decision to issue the Notice of Assessment of Civil Money Penalties, Findings of Fact And Conclusions of Law, and Order To Pay ("Notice"). The purpose alleged by Respondent was to obtain testimony and/or depositions with respect to whether the Board of Review considered the proper statutory and regulatory factors in deciding to impose a civil money penalty on Respondent. On July 16, 1985, at the Prehearing Conference, the ALJ granted the Respondent's request for subpoenas and required that the Board of Review be made available for depositions no later than September 3, 1985. On July 30, 1985, FDIC filed a Motion for Reconsideration of Partial Allowance of Request for Issuance of Subpoenas for Testimony at Hearing. The ALJ denied this motion on August 5, 1985. The FDIC, on August 22, 1985, filed with FDIC's Board of Directors ("Board") a Motion For Protective Order, a Motion For Special Permission to Appeal From Granting a Request For Subpoena To Testify, and a Motion to Quash Subpoena to Testify. The FDIC also filed a Supplemental Motion To Quash on August 30, 1985. These four motions will be referred to collectively as "FDIC's or its Motions." On September 3, 1985, Respondent * * * filed with the Board an opposi- {{12-31-90 p.I-2}}tion to FDIC's Motions.¹ As a matter of administrative economy, the Board has considered all of FDIC's Motions at this time. This Decision reflects such consolidation. B. Special Permission To Appeal Should Be Granted [.1] 1. A Prompt Request to FDIC's Board of Directors Has Been Made In Respondent * * 's Opposition to FDIC's Motion For Protective Order, Motion For Special Permission to Appeal From Granting A Request For Subpoena To Testify And Motion To Quash Subpoena To Testify ("Respondent's Opposition"), he argues that FDIC violated the procedural requirements governing permissive special interim appeals under section 308.12(e) of FDIC's Rules of Practice and Procedure, 12 C.F.R. § 308.12(e). Section 308.12(e) states, in pertinent part, that: ...Rulings of an administrative law judge or the Executive Secretary on any motion may not be appealed to the Board of Directors prior to its consideration of the administrative law judge's recommended decision, findings and conclusions, except by special permission of the Board. Such rulings shall be considered by the Board in reviewing the record. Requests to the Board for special permission to appeal from such rulings shall be filed promptly in writing* and shall briefly state the grounds for the request.... [Emphasis added.] Section 308.12(e) requires that requests to the Board for special permission to appeal rulings of an ALJ must be made promptly and in writing. Respondent claims that FDIC "knew on July 16, 1985" following the preliminary hearing that the Board of Review would have to testify. However, appeal to the Board was not appropriate until August 5, 1985, when the ALJ denied FDIC's Motion for Reconsideration and FDIC's legal options with the ALJ were exhausted. On August 22, 1985 and August 30, 1985, FDIC filed its Motions. The 17 days that elapsed from the time the ALJ denied FDIC's Motion For Reconsideration to the time FDIC filed its Motions with the Board, is not unreasonable given the procedural and substantive issues raised by FDIC's Motions. Therefore, the Board finds that requirements of section 308.12(e) that the request be prompt and in writing have been met. [.2] 2. The Subpoenas Raise a Significant Issue of First Impression Section 308.12(e) states that a ruling of an ALJ on a motion may only be appealed by "special permission" of the Board of Directors. The prerequisites for the Board to grant special permission are not specified and are, therefore, left to its discretion. Whether the Board of Review should either testify or be deposed is a question of first impression and one that involves significant policy issues. The Board has never before been required to consider whether the Board of Review may be examined to determine its basis for issuing a Notice commencing a proceeding to assess a civil money penalty on a party. There is a danger that allowing inquiry into the decisional process of the Board of Review would result in a severe disruption of and interference with the primary function of the Board of Review. See, Community Federal Saving and Loan Ass'n v. FHLBB, 96 F.R.D. 619, 621 (D.D.C. 1983). Allowing depositions of governmental officials concerning a collective decision to commence an administrative enforcement action could have the broader effect of inhibiting the free interchange of ideas among such officials. Further, permitting such depositions or testimony from members of the Board of Review could encourage the use of such depositions or testimony as a tactic to harass the FDIC rather than for the legitimate discovery of facts relating to the merits of the enforcement action. 3. Interlocutory Review is Appropriate Respondent cites various cases holding that interlocutory appeal of a district court's decision with respect to a discovery subpoena is not proper. This action, however, is before an administrative agency. Consequently, FDIC's rules governing administrative hearings control whether interlocutory appeal is appropriate. Under section 308.12(e), the Board of Directors has discretion to grant interlocutory motions to appeal adverse rulings of an ALJ if permission to appeal is promptly requested in ¹ Also on September 3, 1985, Respondent * * * filed an opposition of FDIC's Motions making several of the same arguments made by Respondent * * . Respondent * 's opposition has been considered by the Board. Since Respondent * 's opposition raised no additional arguments, for simplicity we have dealt with those arguments in the context of Respondent * 's opposition. {{12-31-90 p.I-3}}writing. Since the Board has found that the FDIC's request was both filed promptly and in writing, the Board chooses to exercise that discretion under section 308.12(e) for the reasons set forth above and permit interlocutory review of the subpoenas authorized by the ALJ. C. Testimony of Members of the Board of Review Is Not Appropriate* [.3] 1. Respondent Mistakenly Seeks Board of Review Testimony to Establish the Administrative Record In Respondent's Opposition, Respondent * * * argues that the subpoenaed testimony bears directly on his defense. Specifically, Respondent alleges that in instituting these proceedings against him, the Board of Review exceeded its authority and failed to consider the factors set forth in section 18(j) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1828(j), and section 308.68 of the FDIC's Rules and Regulations, 12 C.F.R. § 308.68, in that it increased the penalty by over 25 times that recommended by the Regional Director and that the penalty assessed by the Board of Review represents an abrupt shift in its policy in setting civil money penalties. Respondent further argues that "inquiry of agency officials to establish the administrative record supporting agency action or to supply firsthand knowledge of matters material to an administrative decision is appropriate." See, Respondent's Opposition at 16. In making this assertion, Respondent cites cases which do not support his proposition. See, Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402 (1971), Community Federal Savings and Loan Ass'n v. FHLBB, 96 F.R.D. 619 (D.D.C. 1983) and Union Savings Bank v. Saxon, 209 F. Supp. 319 (D.D.C. 1962). Respondent's argument and the cases cited in support miss the point. Once Respondent chose to contest the Notice, it became merely a preliminary administrative action that is the functional equivalent of a civil complaint in the courts. The Notice sets forth the charges against the Respondent and informs him of the penalty being sought by the FDIC, but it constitutes neither evidence of liability nor the proper amount of the assessment. In short, the decisional process into which Respondent seeks discovery was merely a preliminary aspect of the administrative process that would ultimately lead to an administrative hearing and a final decision by the Board of Directors and is not itself a final administrative decision. However, both Respondent's argument and the cases cited by him presume a final administrative action without any opportunity to establish an evidentiary record. The Overton Park, Community Federal, and Union Savings cases each involved a final administrative decision made with no opportunity for the plaintiffs in those cases to be heard by or to present evidence to the decisional authority. In short, no procedure was available for the creation of an administrative record. In this case an administrative hearing will be held at which the initial burden will be on the FDIC to establish a record to support assessment of a civil money penalty under section 18(j) of the FDI Act. It is on the basis of the record made in the administrative hearing that the ALJ will make a recommended decision and the Board will make its final decision on imposition of a civil money penalty and the appropriate amount of such penalty. Thus, Respondent will have ample opportunity to develop an evidentiary record to counter FDIC's assessment. Consequently, the cases cited do not support his effort to depose Board of Review members under these circumstances. [.4] 2. The Governmental Deliberative Process Privilege and the Governmental Mental Process Exemption Claim The governmental mental process exemption holds that the judiciary is "not authorized to probe the mental process of an executive or administrative officer." Carl Zeiss Stiftung v. V.E.B. Carl Zeiss Jens, 40 F.R.D. 319, 325 (D.D.C. 1966), aff'd on opinion below, 384 F.2d 978 (D.C. Cir.), cert. denied, 389 U.S. 852 (1967). Information which is generated by government officials as a result of pre-decisional deliberations has been held by the courts to be exempt from discovery under the deliberative process privilege. The policy underpinnings of this privilege relate to safeguarding "free expression by eliminating the possibility of outside examination as an inhibiting factor...." Carl Zeiss, 40 F.R.D. at 325. We see no reason why those {{12-31-90 p.I-4}}privileges should not be just as applicable in an administrative proceeding. In its motion to quash, FDIC argues that the testimony sought by Respondent will be an unwarranted and unjustified intrusion, violating the mental process exemption and the deliberative process privilege. While the courts have held that the mental process exemption and the deliberative process privilege are not absolute, the courts have found, and the Board agrees, that the potential harm or interference with governmental functions must be carefully weighed against the need of the party seeking the information.² Respondent argues that the governmental privilege does not prohibit the testimony he seeks because it will deal only with factual information.³ Respondent states that he seeks to obtain from the Board of Review the following three categories of information: (i) whether the Board considered the thirteen factors they were required to consider in determining whether or not any proceeding should be brought; (ii) whether the Board considered the factors it is required by statute to consider in determining the amount of an assessment; (iii) what is the administrative record supporting the change in FDIC policy increasing substantially the amount of civil money penalties it assesses. [Respondent's Opposition at 21.] First, requiring the Board of Review to provide testimony that obviously involves its "deliberation" could severely inhibit the free and open exchange of thoughts, concerns or ideas among such officials. Governmental officials in general, and the Board of Review specifically, when engaged in the decisional process, should not have to be concerned during their deliberations about whether their statements may at some later time be found to be deliberative and thus privileged, or, instead, non-deliberative and thus subject to discovery. Therefore, the Board concludes that Respondent has the burden of establishing both a substantial need for the information and that the information is not available through some other means of discovery or from some other source. 2 Weinstein & Berger, Evidence ¶509[07] (1985). Second, to be the subject of discovery, or in any event, to be admissible, information must be relevant to the issues in the proceeding. In this proceeding, the issues are (1) whether Respondent engaged in activities in violation of statutes, regulations or orders as set forth in the Notice, and (2) if such violation(s) occurred, what is the appropriate civil money penalty that should be assessed. Those issues will be resolved on the basis of the evidentiary record presented by the FDIC and subjected to scrutiny, rebuttal evidence and cross-examination by Respondent. The information considered by the Board of Review prior to issuing the Notice has no relevance to the Board's final decision in this matter. Consequently, the depositions and/or testimony sought by Respondent have little, if any, possible relevance to the issues in this proceeding and do not appear to be likely to lead to discoverable evidence. Third, with respect to the question of what factors the Board of Review considered in setting the amount of the proposed civil money penalty, the Minutes of the April 3, 1985 meeting of the Board of Review state: "WHEREAS, the Board of Review has taken into account the appropriateness of the penalty with respect to the financial resources and good faith of each Respondent, the gravity of the violations, the history of previous violations, and such other matters as justice may require." (Emphasis Added.) The factors set forth in those minutes by the Board of Review are those required to be considered by Section 18(j) of the FDI Act, 12 U.S.C. § 1828(j), in connection with the assessment of a civil money penalty. To the extent that Respondent seeks to question the individual members of the Board of Review concerning the statutory factors beyond that which is set forth in the minutes, it is the conclusion of the Board of Directors that such an inquiry would necessarily delve into the mental process through which such member determined the appropriate amount of the civil money penalty. Fourth, Respondent's reference to "thirteen factors" presumably refers to the factors set forth in the "Interagency Policy Regarding The Assessment Of Civil Money Penalties By The Federal Financial Institu- ²See, e.g., United States v. Nixon, 418 U.S. 683 (1974); 8 Wright & Miller, Federal Practice and Procedure ¶2019 at 167-69 (1982). ³ The privilege does not protect purely factual material or information. See, e.g., EPA v. Mink, 410 U.S. 73, 87–88 (1973). {{12-31-90 p.I-5}}tions Regulatory Agencies," issued September 30, 1980. As with the inquiry discussed above, it is the view of the Board that beyond asking whether the thirteen factors were considered, any further inquiry would inevitably delve into the decisional process. At the same time, whatever the response obtained from the Board of Review, the inquiry would yield little, if any, evidence relevant to the issues in the proceeding. Respondent's final proposed area of inquiry concerning an alleged change in policy is based upon incorrect assumptions. The Board of Directors of the FDIC is the only body that has the authority to establish and modify "policy." Furthermore, the Board has not established a policy with regard to the assessment of civil money penalties other than as set forth in 12 U.S.C. § 1828(j) and the September 30, 1980 Interagency Policy Statement. Under the statute and regulations, the determination to assess and the amount of a civil money penalty is made on a case-by-case basis. There is no other uniform policy relating to determination of the amounts of civil money penalties. In any event, the Board of Review is not an appropriate body to be subjected to the discovery proposed by Respondent's third area of inquiry since it does not set policy. There remains only the balancing of the harm to the governmental decisional process against the need by Respondent for the information sought in the first and second areas of inquiry. In view of the role of the Board of Review,⁴ the at best marginal relevance of the information sought to be discovered, the allocation of the burden of proof to the FDIC, the opportunity for Respondent to cross examine FDIC witnesses, to call his own witness and to offer documentary evidence at the hearing, the Board of Directors finds that Respondent has not established a showing of need sufficient to defeat the governmental deliberative process privilege. Furthermore, Respondent has not shown that there is no other source of information that would meet his needs. We note in this regard that Respondent has already conducted documentary discovery concerning FDIC's civil money penalty assessments for 1985. In addition, the Regional Director's recommendation to the Board of Review has been made available to Respondent. 3. The Waiver Claim Finally, Respondent alleges that the FDIC's disclosure of the Regional Director's memorandum to the Board of Review resulted in a waiver by FDIC of its deliberative process privilege. The memorandum contains the Regional Director's recommendation and sets forth the facts upon which it is based. Presumably, that memorandum was considered by the Board of Review in assessing the penalty. That memorandum, however, does not reveal the Board of Review's analysis or decisional process. The Board, therefore, finds that no waiver of the privilege occurred. D. Conclusion For the reasons set forth herein, the Board (1) grants FDIC's Motion for Leave to File Special Appeal, and (2) grants the FDIC's Motion and Supplemental Motion to Quash Subpoenas. In view of our decision herein, it is unnecessary for the Board to consider FDIC's Motion for a Protective Order. Therefore, that motion is denied as moot. ORDER The Board of Directors of the Federal Deposit Insurance Corporation ("Board"), having considered the Federal Deposit Insurance Corporation's Motion for Special Permission to Appeal From Granting of Request for Subpoena to Testify, Motion to Quash Subpoena to Testify and Supplemental Motion to Quash, and the memoranda in opposition filed by Respondents * * * and * * *, it is hereby ORDERED that: (1) the Motions for Special Permission to Appeal From Granting of Request for Subpoena to Testify, from Order Requiring Appearance For Depositions, and from issuance of the August 22, 1985 Subpoena Duces Tecum be, and hereby are GRANTED; the Motion to Quash Subpoena to Testify be, and hereby is, GRANTED; (3) the Supplemental Motion to Quash be, and hereby is, GRANTED; and (4) the Motion ⁴ The Board of Review receives and reviews proposed enforcement actions from the FDIC Regional Offices. Based on the information available to it, the Board of Review considers the evidence and arguments offered by the Regional Office and either makes a determination as to whether a formal enforcement action should be initiated under sections 8(b) and 18(j) of the FDI Act or makes a recommendation to the Board of Directors as to initiation of enforcement actions under sections 8(a) and 8(e) of the Act. {{4-1-90 p.I-6}}for Protective Order be, and hereby is, DENIED as moot. By direction of the Board of Directors. Dated at Washington, D.C., this 9th day of December, 1985. ED&O Home \| Search Form \| ED&O Help
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