Li et al v. Walsh, et al

Filing 706

ORDER FOLLOWING IN CAMERA REVIEW: granting in part and denying in part 670 Plaintiffs' Motion to Compel Production of Redacted or Withheld Documents. Specifically, all documents contained under the following privilege log entries shall be prod uced by PNC to the Plaintiffs: 11, 13-16, 26-28, 37, 38, 44, 48, 49, 87, 110, 191-218, 220, 221. Production shall be made within ten (10) days of this Order. Signed by Magistrate Judge William Matthewman on 10/5/2020. See attached document for full details. (kza)

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF FLORIDA
LAN LI, et al.,
Plaintiffs,
v.
JOSEPH WALSH, et al.,
Defendants.
LAN LI, et al.,
Plaintiffs,
v.
PNC BANK, N.A., and
RUBEN RAMIREZ,
Defendants.

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) Civ. No. 16-81871
) LEAD CASE
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) Civ. No. 19-80332
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KJZ

Oct 5, 2020
West Palm Beach

ORDER FOLLOWING IN CAMERA REVIEW
THIS CAUSE is before the Court upon the Joint Motion for in camera review [DE 662],
and Plaintiffs’ accompanying Motion to Compel Production of Redacted or Withheld Documents
[DE 670]. The matter is fully briefed [DEs 674, 677], and the Court has conducted an in camera
review of the documents submitted by Defendant PNC Bank, N.A., (“PNC”) which were submitted
on August 17, 2020. [DE 675].
BACKGROUND
In their Motion to Compel, Plaintiffs requested documents pertaining to any Anti-Money
Laundering (“AML”) or Bank Secrecy Act (“BSA”) alerts or investigations that were generated
by PNC regarding specific accounts that are relevant to the underlying litigation. PNC produced a

privilege log which contains 242 entries where PNC has asserted the Suspicious Activity Reports
(“SAR”) privilege over the requested documents. 1 Plaintiffs argue that PNC may have overapplied the SAR privilege. The Court conducted an extensive in camera review of thousands of
pages of documents to determine if the privilege was properly applied by PNC. This Order follows.
LEGAL STANDARDS
The party invoking a privilege has the burden to prove the privilege exists. See United
States v. Schaltenbrand, 930 F.2d 1554, 1562 (11th Cir. 1991). “[W]hen possible, privileges
should be construed narrowly.” Pierce Cty., Wash. v. Guillen, 537 U.S. 129, 144-46 (2003)
(explaining that privileges are construed narrowly to avoid “suppress[ing] otherwise competent
evidence”).
In Ackner v. PNC Bank, Nat'l Ass'n, 2017 WL 1383950, at *2 (S.D. Fla. Apr. 12, 2017),
the Court discussed the statutory and regulatory scheme giving rise to the SAR privilege. The
Annunzio–Wylie Anti–Money Laundering Act of 1992 (“AML”), 31 U.S.C. § 5318(g), provides
in relevant part:
(g) Reporting of suspicious transactions.—
(1) In general.—The [Treasury] Secretary may require any financial institution, and any
director, officer, employee, or agent of any financial institution, to report any suspicious
transaction relevant to a possible violation of law or regulation.
(2) Notification prohibited.—A financial institution, and a director, officer, employee, or
agent of any financial institution, who voluntarily reports a suspicious transaction, or that
reports a suspicious transaction pursuant to this section or any other authority, may not
notify any person involved in the transaction that the transaction has been reported.
(3) Liability for disclosures.—Any financial institution that makes [i.] a disclosure of any
possible violation of law or regulation or [ii.] a disclosure pursuant to this subsection or
[iii.] any other authority, and any director, officer, employee, or agent of such institution,
shall not be liable to any person under any law or regulation of the United States or any
1

PNC is a “national bank” subject to the Bank Secrecy Act. As such, PNC is required to file a SAR to report certain
suspicious activity to a person or agency designated by the Secretary of the Treasury. 31 U.S.C. § 5318(g); 12
C.F.R. § 21.11.

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constitution, law, or regulation of any State or political subdivision thereof, for such
disclosure or for any failure to notify the person involved in the transaction or any other
person of such disclosure.
The three safe harbors provided by § 5318(g)(3) supply an affirmative defense to claims
against a financial institution for disclosing an individual's financial records or account-related
activity. Financial institutions are granted immunity from liability for three different types of
disclosures:
(i.) A disclosure of any possible violation of law or regulation,
(ii.) A disclosure pursuant to § 5318(g) itself, or
(iii.) A disclosure pursuant to any other authority.
See 31 U.S.C. § 5318(g)(3).
Additionally, “[a] separate Bank Secrecy Act regulation provides that a bank must file a
Suspicious Activity Report (SAR) when it detects any known or suspected federal criminal
violation, or pattern of criminal violations, aggregating $5,000 or more in funds or other assets if
the bank believes that it was used ‘to facilitate a criminal transaction, and the bank has a substantial
basis for identifying a possible suspect or group of suspects.’ ” 12 C.F.R. § 21.11(c)(2). Dusek v.
JPMorgan Chase & Co., 132 F. Supp. 3d 1330, 1336 (M.D. Fla. 2015). No national bank “shall
disclose a SAR or any information that would reveal the existence of a SAR.” The SAR privilege
is limited to a “SAR or any information that would reveal the existence of a SAR,” but does not
include “the underlying facts, transactions, and documents upon which a SAR is based ...” 12
C.F.R. § 21.11(k).

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ANALYSIS
Recent cases have noted that a strong public policy leans heavily in favor of applying SAR
confidentiality not only to a SAR itself, but also in appropriate circumstances to material prepared
by the national bank as part of its process to detect and report suspicious activity, regardless of
whether a SAR ultimately was filed or not. Fed. Trade Comm'n v. Marcus, 2020 WL 1482250, at
*3 (S.D. Fla. Mar. 27, 2020) (quoting regulatory language). To that end, documents which have
been prepared as part of a national bank’s process for complying with federal reporting
requirements are covered by the SAR privilege. Lesti v. Wells Fargo Bank, N.A., 2014 WL
12828854, at *1 (M.D. Fla. Mar. 4, 2014).
On the other hand, those same Courts have distinguished the underlying factual documents
which prompt a bank to investigate further. These documents are typically records made in the
ordinary course of business, rather than reports or evaluations produced to comply with federal
regulations, and are, therefore, not protected by the SAR privilege. Id. To that end, a bank’s
general policies and procedures regarding fraud detection practices are generally not protected by
the SAR privilege. Ackner, supra, at *2.
Following an in camera review of the documents at issue in this case, the Court has
identified five categories of documents withheld by PNC:
1. Transaction monitoring alerts, which contain information concerning a decision
whether to file a SAR;
2. Supporting documentation for a transaction monitoring alert;
3. Evaluative processes and algorithms used by PNC to detect suspicious activity and
comply with AML and BSA regulations;

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4. Transaction monitoring “cases,” which contain information concerning a decision
whether to file a SAR;
5. Evaluative reports created by PNC which concern a transaction monitoring case to
comply with AML and BSA regulations;
Regarding

categories

one

and

three—transaction

monitoring

alerts

and

processes/algorithms used to detect suspicious transactions and comply with the BSA and AML—
the Court finds that these documents are protected by the SAR privilege. In Marcus, supra, Judge
Strauss specifically analyzed PNC’s transaction monitoring “alerts” and “cases.” Id. at *6.
Reasoning that they consisted of “material of an evaluative nature” that was prepared for the
specific purpose of complying with federal reporting requirements, Judge Strauss found that such
documents were protected by the SAR privilege. Id. In his detailed Opinion, which this Court
finds to be exceedingly persuasive, Judge Strauss distinguished those protected documents from
those documents that were created in the ordinary course of business, which are not protected. Id.
The Court has specifically reviewed the similar documents withheld by PNC in this case and finds
that their complete withholding is not an over-application of the SAR privilege, but instead is
necessary to protect the confidential information contained therein. Nothing less than the complete
withholding of these documents will satisfy this objective.
By the same token, regarding the evaluative reports concerning the above-discussed alerts
and “cases,” (category five), the Court finds that these documents were also properly withheld by
PNC here based upon application of the SAR privilege. See Wiand v. Wells Fargo Bank, N.A.,
981 F. Supp. 2d 1214, 1218 (M.D. Fla. 2013) (internal reports or other evaluative documents are
protected). These documents include evaluative content of the nature of the suspicious activity
and whether the same is protected by the BSA and AML. In other words, these documents are

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reports of an evaluative nature intended to comply with federal reporting requirements. Likewise,
PNC’s processes and algorithms used to detect suspicious activity (category three) are privileged.
See Marcus, at *5 (shielding from disclosure “documents [which] reveal the processes and
algorithms that are used to detect suspicious activity for federal reporting purposes”). The Court
has specifically reviewed the documents and finds that their complete withholding is not an overapplication of the SAR privilege, but instead is necessary to protect the confidential information
contained therein. Nothing less than the complete withholding of these documents will satisfy this
objective.
However, regarding category two—supporting documentation—the Court finds that these
documents were improperly withheld.

See Wiand, 981 F.Supp.2d at 1217 (underlying

transactional documents generated in the ordinary course of business are not protected by the SAR
privilege); see also Marcus, 2020 WL 1482250, at *4 (“The SAR Privilege does not include,
however, the underlying facts, transactions, and documents upon which a SAR is based.
Accordingly, courts have held that supporting documentation giving rise to a SAR that is generated
or received in the ordinary course of business is discoverable.”) (internal citations and quotation
marks omitted). The Court has carefully analyzed all documents which fall into this category, and
finds that none are protected by the SAR privilege.
The Court pauses to briefly note Plaintiffs’ attempt to distinguish Marcus, which is the
most persuasive and applicable case, as it deals with the same national bank, the same categories
of documents, and is the most recent Opinion on the SAR privilege in this District. Plaintiffs
attempt to distinguish Marcus by arguing that it was not a party in that case, but was rather a courtappointed receiver. The fact that PNC is a named party/Defendant in the present case is a
distinction without a difference. A national bank’s litigation position is irrelevant to an analysis

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of whether documents are protected by the SAR privilege, as the privilege is unqualified not
waivable by the national bank. Wiand v. Wells Fargo Bank, N.A., 2013 WL 12157564, at *1 (M.D.
Fla. Dec. 11, 2013) (“The SAR privilege is “an unqualified discovery and evidentiary privilege ...
that cannot be waived by financial institutions.”). Accordingly, the Court rejects Plaintiffs’
attempt to distinguish Marcus, and adopts its reasoning in full.
CONCLUSION
In accordance with the foregoing, Plaintiffs’ Motion to Compel Production of Redacted or
Withheld Documents [DE 670] is GRANTED in part and DENIED in part to the extent specified
herein. Specifically, all documents contained under the following privilege log entries shall be
produced by PNC to the Plaintiffs: 11, 13-16, 26-28, 37, 38, 44, 48, 49, 87, 110, 191-218, 220,
221. Production shall be made within ten (10) days of this Order.
DONE and ORDERED in Chambers at West Palm Beach, Palm Beach County, Florida,
this 5th day of October 2020.
_________________________________
WILLIAM MATTHEWMAN
United States Magistrate Judge

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