UNITED STATES SECURITIES AND EXCHANGE COMMISSION v. ITT EDUCATIONAL SERVICES, INC. et al
ORDER granting Plaintiff's 132 Motion to Compel. See Order for details. If Plaintiff intends to seek attorney's fees from Counsel for the Bankruptcy Trustee pursuant to Federal Rule of Civil Procedure 37(a)(5)(A), it may file and serve a motion for such fees on or before January 17, 2017. Any response must be filed on or before January 24, 2017. Any reply is due on or before January 31, 2017. Signed by Magistrate Judge Mark J. Dinsmore on 1/3/2017. (SWM)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
UNITED STATES SECURITIES AND
ITT EDUCATIONAL SERVICES, INC.,
KEVIN M. MODANY,
DANIEL M. FITZPATRICK,
ORDER ON MOTION TO COMPEL
The winding saga in this SEC enforcement action has made its way before the Court on
Plaintiff’s unopposed Motion to Compel Discovery. [Dkt. 132.] Plaintiff alleges that
Defendants fraudulently concealed the poor performance of a student loan program from
investors in violation of federal securities laws. [See Dkt. 1.] Part of Defendants’ defense rests
upon the legal advice they received about the loan program. 1 As a consequence, each of the
parties, by counsel, executed an agreement waiving attorney client-privilege as to certain
subjects. [Dkt. 83.] The agreement, approved and entered as an Order of the Court on April 14,
2016 (“Protective Order”), provides that
ITT is deemed to have waived the attorney-client privilege as to the Waived
a. The legal advice provided to ITT and its employees regarding the
permissibility of modified parity payments ("MPP") under the PEAKS
Student Loan Program Agreements;
Defendants Modany and Fitzpatrick argue that Plaintiff inaccurately portrays its reliance-on-counsel
defense as an affirmative defense. They instead characterize it as evidence negating scienter or
negligence. [Dkt. 137 at 4.] This dispute is irrelevant for purposes of the instant Motion and the Court
therefore takes no position thereupon.
b. The legal advice provided to ITT and its employees regarding ITT' s
disclosure of information related to MPP to PEAKS program senior
c. The legal advice provided to ITT and its employees regarding the
disclosures to be included in ITT's SEC Form 10-Q for the third quarter of
2012, Form 10-K for 2012, Form 10-Q for the first quarter of 2013, Form
10-Q for the second quarter of 2013, and Form 10-Q for the third quarter
of 2013, as well as earnings calls and releases during these time periods.
[Dkt. 84 at 1 (¶ 1) (footnote omitted).]
Acting under the Protective Order, Plaintiff has sought to depose one Janelle
Blankenship, upon whose advice Defendants Modany and Fitzpatrick have purported to rely.
[Dkt. 132 at 2 (¶ 6).] However, on September 16, 2016, Defendant ITT filed for Chapter 7
bankruptcy. [Dkt. 109.] Defendant ITT, now in the hands of a bankruptcy trustee, stated via
letter to Plaintiff that the deposition could not go forward and “advise[d] . . . that that the Trustee
does not authorize any further disclosure of communications reflecting legal advice, whether by
Faegre, including any of its partners, lawyers or employees at the deposition currently scheduled
on December 20, 2016, or otherwise.” [Dkt. 132-1 at 2.]
In response to the Trustee’s reassertion of Defendant ITT’s attorney-client privilege,
Plaintiff filed the instant Motion to Compel Discovery. [Dkt. 132.] The Court directed Plaintiff
to serve their Motion upon the Trustee and Blankenship and set a deadline of December 28,
2016, for any response to be filed. [Dkt. 134.] Plaintiff filed a Proof of Service, indicating that it
had served counsel for both the Trustee and Blankenship by electronic and First Class mail.
[Dkt. 136.] Defendants Fitzpatrick and Modany filed a response in support of Plaintiff’s Motion
on December 22, 2016. [Dkt. 137.] Neither the Trustee nor Blankenship have responded to the
Motion; by failing to do so, they have waived any arguments they may have had in response to
“[I]t has long been held” that once a party has knowingly and intentionally waived the
attorney-client privilege, the privilege “cannot be reasserted.” United States v. Suarez, 820 F.2d
1158, 1160 (11th Cir. 1987) (collecting authorities). The Court finds that Defendant ITT
knowingly and intentionally waived its privilege as to the topics identified in the Protective
Order, excerpted above. Therefore, the Trustee may not reassert the waived privilege, and
Plaintiff is entitled to depose Blankenship and conduct discovery into the attorney-client
communications for which the privilege has been waived.
The genie is out of the bottle; Pandora’s box has been opened; “[t]he Moving Finger
writes; and, having writ, Moves on.” Omar Khayyám, The Rubáiyát of Omar Khayyám 71
(Dodge Pub’g Co. 1912) (Edward FitzGerald trans., 1859). Each of these maxims aptly
describes the issue before the Court. It takes no stretch of the imagination to foresee the games
that counsel would play if they were permitted to revoke an intentional and knowing waiver of
attorney-client privilege as the Bankruptcy Trustee has sought to do here. The Court therefore
GRANTS Plaintiff’s Motion to Compel Discovery [Dkt. 132] and COMPELS the requested
discovery—including the deposition of Janelle Blankenship—in accordance with the Protective
Order entered in this case [Dkt. 84], the Federal Rules of Civil Procedure, and the Local Rules of
If Plaintiff intends to seek attorney’s fees from Counsel for the Bankruptcy Trustee
pursuant to Federal Rule of Civil Procedure 37(a)(5)(A), it may file and serve a motion for such
fees on or before January 17, 2017. Any response must be filed on or before January 24, 2017.
Any reply is due on or before January 31, 2017.
IT IS SO ORDERED.
Dated: 03 JAN 2017
Service will be made electronically
on all ECF-registered counsel of record via
email generated by the court’s ECF system.
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