Schoenmann v. Federal Deposit Insurance Corporation
Filing
99
ORDER DENYING #81 Administrative Motion to File Under Seal the amended complaint pursuant to Civil L.R. 79-5(d) filed by E. Lynn Schoenmann. Signed by Judge Maria-Elena James on 7/3/2012. (cdnS, COURT STAFF) (Filed on 7/3/2012)
1
2
3
UNITED STATES DISTRICT COURT
4
Northern District of California
5
6
E. LYNN SCHOENMANN, Trustee for
UCBH Holdings, Inc.,
7
Plaintiff,
8
No. C-10-3989-CRB (MEJ)
ORDER ON SEALING PLAINTIFF’S
AMENDED COMPLAINT
v.
[Docket Nos. 81, 86, 87, 88, 89, 91]
9
10
Defendant.
_____________________________________/
12
For the Northern District of California
UNITED STATES DISTRICT COURT
11
FEDERAL DEPOSIT INSURANCE
CORPORATION, as a receiver for United
Commercial and in its corporate capacity,
13
This is a consolidated action filed by E. Lynn Schoenmann, Chapter 7 Trustee (the “Trustee”)
14 of United Commercial Bank Holdings, Inc. (“UCBH”), to recover from the Federal Deposit Insurance
15 Corporation (“FDIC”) in both its corporate and receivership capacities over $117 million in assets
16 that were allegedly fraudulently transferred to United Commercial Bank (“UCB”). The Trustee’s
17 central claim is that federal banking regulators failed to shut down UCB when it became insolvent
18 and instead kept it open to facilitate downstream transfers of UCBH’s assets to UCB for the purpose
19 of reducing the FDIC’s losses when UCB ultimately failed. The Trustee seeks recovery of the
20 transferred assets under the Bankruptcy Code, California Civil Code, and Federal Torts Claim Act.
21
On September 7, 2010, the Trustee filed its initial Complaint against the FDIC. Dkt. No. 1.
22 On June 16, 2011, the Court entered into the record the parties’ Confidentiality Stipulation and
23 Protective Order pursuant to Federal Rule of Civil Procedure 26(c) and Federal Rule of Evidence 502
24 (the “Protective Order”), which the parties agreed upon to facilitate discovery. Dkt. No. 67.
25 Subsequently, the FDIC produced Bank Regulatory Information and Confidential Bank Information
26 (collectively referred to as “Bank Information”) in response to the Trustee’s request and pursuant to
27 the Protective Order. Portions of this production were designated by the FDIC as either Confidential
28 or Highly Confidential. On April 27, 2012, the Trustee submitted an Amended Complaint (FAC) to
1 the Court that disclosed privileged contents of the Bank Information. The Trustee filed an
2 Administrative Motion under Civil Local Rule (“L.R”) 79-5(d), placing the burden on the FDIC to
3 substantiate why any part of the FAC should remain underseal. Dkt. No. 81. The FDIC responded
4 on May 4 with a declaration (the “Holzman Declaration”) in support of sealing paragraphs 13, 14, 15,
5 17, 18, 25, 31, 32, 35, 36, 38, 39, 41, 43-50, 75, 76, 81-84, 86, 87, 95, 96, 100-102, 104-107, 116,
6 117, 140, 142, 143, 158, 160-162, 166, 174, 217, and 223 of the FAC. Dkt. No. 86. The Trustee
7 replied on May 6 to the Holzman Declaration. Dkt. No. 87. On May 9, the FDIC filed another
8 response with a more detailed declaration addressing the Trustee’s arguments. Dkt. No. 88. On the
9 same day, the Trustee responded once again to the FDIC’s filing. Dkt. No. 89. On May 25, 2012, the
10 determination of whether portions of the FAC should be sealed was referred to the undersigned. Dkt.
12
For the Northern District of California
UNITED STATES DISTRICT COURT
11 No. 91.
The FDIC argues that the above paragraphs are confidential and should remain under seal due
13 to the bank examination privilege and the deliberative process privilege. The FDIC explains that
14 communication between banks and their examiners should be protected to encourage frank and
15 candid conversations between the two, as well as increase the quality of administrative decision16 making. By protecting internal deliberations of a bank regulatory agency, the FDIC argues that
17 information and ideas will flow more freely within the agency.1
18
The Trustee argues that the FDIC’s sealing request should be denied for the following
19 reasons: (i) the FDIC failed to meet its burden to show specific prejudice or harm that will result if
20 the request is not granted; (ii) Ninth Circuit case law strongly favors access to court records; and (iii)
21 the privileges that the FDIC relies upon are not applicable to the FAC.
22
23
24
25
26
27
1
The bank examination privilege falls under the umbrella of the deliberative process
privilege and both are often referred to interchangeably. In re Subpoena Served Upon the
Comptroller of the Currency, 967 F.2d 630, 633 (D.C. Cir. 1992); see also NLRB v. Sears, Roebuck
& Co., 421 U.S. 132, 149-54 (1975). Both privileges seek to protect and maintain the relatively
informal and continuous supervisory relationships between banks and examiners. In re Subpoena,
967 F.2d at 634. These frank and forthright exchanges of communication could not be maintained if
it were not confidential under the bank examination and deliberative process privilege. Id.
28
2
1
A party seeking to place documents under seal must meet the requirements of Civil L.R. 79-5
2 and Ninth Circuit case law. Contratto v. Ethicon, Inc., 227 F.R.D. 304, 307 (N.D. Cal. 2005). Under
3 Civil L.R. 79-5(d), a party wishing to file a document that has been designated by another party as
4 confidential pursuant to a protective order must file an Administrative Motion for a sealing order and
5 lodge the document at issue with the Court. If only a portion of the document is sealable, then the
6 submitting party must also lodge a redacted version of the document with the Court. Id. Within
7 seven days thereafter, the designating party must file with the Court a declaration establishing that the
8 designated information is sealable, and must lodge and serve a narrowly tailored proposal sealing
9 order. Id. The designating party bears the burden to narrowly tailor its request and show “specific
10 prejudice or harm” for each particular redaction that it seeks to protect. Contratto, 227 F.R.D. at 307;
12
For the Northern District of California
UNITED STATES DISTRICT COURT
11 Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1130 (9th Cir. 2003).
The FDIC did not meet these requirements with its Holzman Declaration. The Holzman
13 Declaration consisted of mainly conclusory statements and it did not show the required “specific
14 demonstrations of fact, supported where possible by affidavits and concrete examples.” Id. For
15 instance, in describing why the paragraphs at issue should be placed under seal, Holzman declares:
16
17
18
19
The courts recognize that candor in communications between banks and examiners, as
well as the examiners themselves, is essential to the effective supervision of banking
institutions, and that such candor would not exist if exposed to public disclosure. The
Ninth Circuit has recognized that communications within federal agencies should
remain confidential because “if agencies were forced to ‘operate in a
fishbowl’...candid exchange of ideas within an agency would cease and the quality of
decisions would suffer.”
20 Holzman ¶ 13 (internal citations omitted). This portion of the declaration only provides the Court
21 with the FDIC’s unsubstantiated conclusion that there may be future harms. It does not explain how
22 disclosure of the Bank Information would result in specific prejudice or harm if the selected
23 paragraphs were not sealed. Holzman goes on to list the paragraphs that should remain under seal,
24 which he only substantiates by including the following sentence: “This information should remain
25 confidential and under seal pursuant to the Protective Order and Civil L.R. 79-5(d).” This does not
26 sufficiently explain to the Court why each paragraph should remain under seal. Essentially, the
27 FDIC only outlined what privileges would allow the Court to seal the paragraphs at issue, but did not
28
3
1 show why each individual paragraph would be harmful if disclosed.
2
This Court in City of Oakland v. SSA Terminals explained that such broad statements are not
3 enough to show that documents should be sealed. 2012 WL 1414075, at *2 (N.D. Cal. Apr. 23,
4 2012). In City of Oakland, the defendant argued that the plaintiff should not be permitted to review
5 certain documents because they were privileged. Id. at 3. This Court, citing to the local sealing rules,
6 ordered the defendants to specifically explain why each document should not be available to the
7 plaintiff. Id. However, because the defendant’s declaration only contained conclusory statements,
8 this Court denied the defendant’s request. Id. City of Oakland is instructive here because its
9 emphasizes the importance of narrowly tailoring a request and showing specifically why each
10 document should be sealed. Similar to how the defendants in City of Oakland did not show specific
12 prejudice or harm for each paragraph that it believes should be placed under seal. Therefore, the
For the Northern District of California
UNITED STATES DISTRICT COURT
11 prejudice or harm in producing documents for the plaintiff, the FDIC here does not show specific
13 FDIC has not met its burden to keep the paragraphs at issue under seal.
14
Even if the Court were to consider the FDIC’s second declaration in support of sealing the
15 paragraphs at issue, it does not persuade the Court to grant the FDIC’s request.2 Dkt. No. 88. First,
16 the FDIC does not explain why the paragraphs at issue in the FAC should be sealed when the same
17 paragraphs in the original complaint were not. In other words, some of the information that the FDIC
18 seeks to place under seal is already fully disclosed in the Trustee’s original Complaint.3 For example,
19 the original Complaint contains the following allegation:
20
21
On April 20, 2009, the FDIC followed up its April 6, 2009 targeted review report with
a letter to the Bank notifying it that its classification had been downgraded to a
composite “3" rating and designating the bank as “troubled.” The letter also restricted
the Bank’s issuance of debt under the Temporary Liquidity Guarantee Program.
22
23
24
2
25
26
27
28
The FDIC never explains why it failed to include these arguments in the Holzman
declaration or why the Court should consider the FDIC’s second declaration.
3
While not all of the selected paragraphs in the FAC contain the same information that was
alleged in the original Complaint, the fact that some do shows that the FDIC failed to narrowly tailor
their request with respect to each paragraph.
4
1 Dkt. No. 1 ¶ 19. An allegation in the FAC has nearly the same information:
2
3
4
5
On April 20, 2009, the FDIC followed up its April 6, 2009 targeted review report with
a letter to the Bank notifying it that its CAMELS classification had been downgraded
to a composite “3" rating and designating the bank as “troubled.” [167] (The reference
numbers in brackets “[x]” refer to deposition exhibits or documents in this action that
are the source of the factual statement preceding them. Underlined numbers “[x]” have
been designated by the FDIC as “confidential” under the Protective Order entered in
this action.)
6 FAC ¶ 13. The FDIC makes no effort to explain why the paragraph in the FAC requires sealing when
7 the same information has already been disclosed in the original Complaint. Similarly, some of the
8 FDIC’s selected paragraphs for sealing are nearly identical, save for a single word, to those in the
9 original Complaint. For example, the original Complaint alleges:
10
12
For the Northern District of California
UNITED STATES DISTRICT COURT
11
On June 30, 2009, the FDIC and the CDFI issued a follow-up report to the Bank and
UCBH summarizing the April 2009 targeted review results and announcing that a
Cease and Desist Order would be issued. A letter from the Bank to the FDIC dated
July 29, 2009 acknowledged the Bank’s deterioration in its asset quality and concurred
with the examiners’ April 2009 targeted review findings.
13 Dkt. No. 1 ¶ 20 (emphasis added). The FAC alleges the same, except for one change:
14
15
16
On June 30, 2009, the FDIC and the CDFI issued a follow-up report to the Bank and
UCBH summarizing the April 2009 targeted review results and announcing that a
Cease and Desist Order would be forthcoming. A letter from the Bank to the FDIC
dated July 29, 2009 acknowledged the Bank’s deterioration in its asset quality and
concurred with the examiners’ April 2009 targeted review findings.
17 FAC ¶ 15 (emphasis added). The FDIC’s attempt to seal information that has already been disclosed
18 through the Trustee’s original Complaint is another reason for denying the sealing request.
19
Lastly, the bank examination privilege and deliberative process privilege that the FDIC invokes
20 do not directly apply to this situation. While the bank examination privilege and deliberative process
21 privilege both serve to protect candid and forthright communication between a bank and its regulators,
22 this privilege does not extend to purely factual material. In re Subpoena, 967 F.2d at 634; In re
23 Bankers Trust Co., 61 F.3d 465, 471 (6th Cir. 1995); Schreiber v. Soc’y for Sav. Bancorp, 11 F.3d 217,
24 220 (D.C. Cir. 1993). Some of the selected paragraphs the FDIC wants sealed are largely factual by
25 content. For example, paragraph 101 in the FAC alleges: “The next day, September 23, 2009, the
26 FDIC staff in Washington, D.C. prepared their ‘Board Case’ to be presented to the FDIC board of
27 directors authorizing the FDIC’s Director, DDR, ‘to accept appointment of the FDIC as receiver for the
28
5
1 Bank.’ [131].” FAC ¶ 101. This selected paragraph, among others, merely outlines a sequence of
2 events and contains little to no evaluative material.4 Because the selected paragraphs are not
3 evaluative, they are not protected by the bank examination privilege or the deliberative process
4 privilege.5
5
In conclusion, the Court finds that the selected paragraphs should not be placed under seal for
6 the reasons explained above. Accordingly, the FDIC’s request for the selected paragraphs to remain
7 under seal is DENIED.
8
IT IS SO ORDERED.
9
10 Dated July 3, 2012
_______________________________
Maria-Elena James
Chief United States Magistrate Judge
12
For the Northern District of California
UNITED STATES DISTRICT COURT
UNITED STATESDistrict of California
For the Northern DISTRICT COURT
11
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
4
Another example of a largely factual paragraph that the FDIC asks to be sealed alleges the
following: “As demanded by the FDIC, UCBH and the Bank executed the ‘Capital Maintenance
Commitment and Guaranty’ by board revolution dated September 24, 2009. [FDIC-ROO44683 FDIC-R004686].” FAC ¶ 217.
5
While some of the FDIC’s selected paragraphs have factual and evaluative material
intertwined within each other, the FDIC’s failure to narrowly tailor their request to only include such
paragraphs results in its request being denied.
6
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?