Pershing LLC v. Kiebach et al

Filing 132

ORDER AND REASONS re Privilege Logs and Associated Documents of In Camera Review. Signed by Magistrate Judge Michael North on 3/24/2017.(Reference: 14-2549)(bwn)

PERSHING LLC
VERSUS

THOMAS KIEBACH, ET AL.

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

CIVIL ACTION

NUMBER: 14-2549

ORDER AND REASONS

SECTION: “I”(5)

Pursuant to this Court’s Order of January 4, 2017 (rec. doc. 85) and two subsequent

Minute Entries dated March 6, 2017 (rec. doc. 124) and March 10, 2017 (rec. doc. 126),

Pershing has (finally) produced to the Court privilege logs and associated documents for in

camera review. Along with and as part of that production, Pershing submitted its “Brief
Accompanying Incident Reports and Log for In Camera Review” (rec. doc. 116), in which it

argues that the Incident Reports are protected from disclosure by the Suspicious Activity
Report (“SAR”) privilege under federal law.

The Court has reviewed multiple rounds of briefing submitted by the parties on the

issue; entertained oral argument; held numerous status conferences; reviewed the statutes,
regulations and case law germane to the invocation of the SAR privilege; and reviewed the

subject documents in camera and considering all of the foregoing, concludes that some, but
not all, of the previously withheld documents should be produced.

THE PRODUCTION OF DOCUMENTS FOR IN CAMERA REVIEW

In an unnecessarily drawn-out saga, three separate productions of two “types” of

documents have finally been accomplished. And within those productions, the Court has

been provided both redacted and un-redacted documents. 1 In its first production, Pershing

The Court notes, without taking further action, that the presentation of redacted documents to the Court for
in camera review was inappropriate for two reasons, both of which should be obvious. First, counsel should
not have unilaterally determined to redact documents without first explaining to the Court the reasoning for
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provided the Court with 74 tabbed “Incident Reports,” accompanied by a privilege log.
Despite the fact that the discovery requests giving rise to the present motion sought
documents from January 1, 2005 through the date the FINRA statement of claim – June 13,
2013 – Pershing’s production inexplicably included documents only through February 2009.

Accordingly, the Court convened a status conference and ordered Pershing to produce any

additional responsive documents dated between February 17, 2009 and June 13, 2013. (Rec.
doc. 124).

Following issuance of the aforementioned order, Pershing produced another set of

documents, this time denominated as “Summary Reports.” These 14 documents were also

accompanied by a privilege log. There were two notable differences between the documents
in this second production and those in the first production. First, the Summary Reports

contained the same type of information as the Incident Reports, but also contained followup notes that were not reflected in any of the documents originally produced. Second,
portions of the Summary Reports were redacted by counsel.

The Court was forced by these anomalies to convene yet another status conference,

during which it ordered Pershing to: (1) produce the Summary Reports that coincided with
Tabs 68-74 2 of the Incident Reports originally produced to the Court for in camera review

and (2) produce to the Court un-redacted versions of all documents so that the Court could
that decision or seeking permission to do so. More substantively, as the proponent of a privilege, Pershing
should have known that it has the burden of proving that privilege applies. See Hodges, Grant & Kaufmann v.
United States, 768 F.2d 719, 721 (5th Cir. 1985). It is impossible for this Court (or any other) to determine
whether redacted language is privileged. But for the fact that the SAR privilege is un-waivable, See S.E.C. v.
Yorkville Advisors, LLC, 300 F.R.D. 152, 166 (S.D.N.Y. 2014), the Court would have found that Pershing waived
its privilege claim by undertaking those redactions.
2 As will be explained below, the Court had already reviewed the Incident Reports originally submitted by
Pershing and determined that those included in Tabs 1-67 have no relevance to the present matter.

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determine whether the information redacted was actually subject to the SAR privilege. (Rec.
doc. 126). This last ordered production was accomplished on March 14, 2017.

The Court has now reviewed and cross-referenced all of the documents produced by

Pershing and is prepared to rule on their production.

ANALYSIS AND PRODUCTION ORDER

A. Application of the SAR Privilege to the Documents

The Incident Reports produced by Pershing are described by it as “document[s] at

Pershing related to the potential filing of Suspicious Activity Reports” and that it “uses
Incident Reports to begin its process of internally investigating potential suspicious activity.

(Rec. doc. 89-1 at pp. 1, 8)(emphasis added). Standing alone, Pershing’s own description of

the purpose of the documents tends to establish two important facts: First, they are clearly
documents created in the ordinary course of business, albeit as an ordinary function of
Pershing’s “process of internally investigating potential suspicious activity.” 3 Second, the

potential link between Incident Reports in general and the creation of an actual SAR is too
tenuous to implicate the privilege, which protects documents that would reveal the existence
or nonexistence of a SAR. See 31 C.F.R. § 1023.320(e)(1)(i). While it may be possible for
certain Incident Reports to fall within the protection of the privilege, that would depend on
what the report actually said on its face. Here, none of the Incident Reports reviewed by the

Court qualify for protection under the SAR privilege because they are devoid of any

information by which the reader can determine whether the matter identified therein
The Court also notes that the content of the documents themselves demonstrate that they are the product of
routine investigation, as they include reports of such matters as customers’ lost or mis-delivered credit cards,
disputed credit card charges, unsigned or missing checks, ATM fraud and other rather routine concerns.
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progressed beyond the making of the report, much less whether an actual SAR was ever
created. They are not subject to the SAR privilege.

The Summary Reports are somewhat different animals, as they generally contain the

same narrative information as their counterpart Incident Reports but also contain certain

follow-up information. Pershing believes that some of this information is subject to the SAR
privilege and, as a consequence, it redacted those portions it thought privileged. Now that

the Court has been provided with the un-redacted language and had an opportunity to
review it against the applicable law, it agrees with Pershing that the redacted language is

privileged and should not be disclosed pursuant to 31 C.F.R. § 1023.320(e)(1)(i). As to the

un-redacted portions of the Summary Reports produced by Pershing and reviewed in
camera, the Court finds they are not subject to the SAR privilege.
B. Discoverability of Non-privileged Documents

The mere fact that certain of the documents are not privileged does not make them

discoverable in this lawsuit, which, it should be recalled, is an action to under the Federal

Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq. to confirm the arbitration award rendered by the

FINRA Dispute Resolution Panel (the “Panel”) on November 3, 2014.

While discovery in an action to confirm an arbitration award is rare, it is not

prohibited. This Court’s decision to review the documents in the first place was based on the
argument of the Defendants, Louisiana Retirees, Dr. Thomas J. Kiebach, et al. (“Defendants”),

that the Panel deprived them of a fair hearing when it refused to conduct an in camera review
of the documents and failed to even require the submission of a privilege log, accepting at

face value Pershing’s assertion of the SAR privilege. Also notable to this Court was the
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subsequent decision in Weatherly, et al. v. Pershing LLC 4 that rejected Pershing’s argument

regarding the scope of the SAR privilege (the very argument that the Panel accepted in the

underlying arbitration) and ordering production of documents withheld as privileged by
Pershing, including some of the very documents withheld from the Panel in this case.

After closely reviewing the documents produced for in camera review by Pershing,

the Court finds that the Incident Reports at Tabs 1-67 bear no arguable relationship to the

claims or defenses in this case and are not discoverable for that reason. On the other hand,

the Court finds that the Incident Reports at Tabs 68-74 should be produced, as they are
relevant to the claims and/or defenses of the Defendants in this case and are not privileged.

Additionally, the redacted version of the Summary Reports that correlate to Tabs 68-

74 should be produced, as should the redacted versions of Tabs 1-14 of the Summary
Reports produced in Pershing’s third production on March 14, 2017.

The Court notes that it takes no position here on the potential admissibility of any of

the documents it is ordering produced herein.

Case No. 3:14-cv-366-NBG, United States District Court, Northern District of Texas, Dallas Division (Oct. 16,
2015).
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For the reasons set forth above, Pershing shall produce the documents described

above to the Defendants within seven days of the issuance of this Order. Simultaneously
with that production, Pershing shall provide the Court with a copy of the production, so that
it may be compared, if necessary, against the documents reviewed by the Court.
New Orleans, Louisiana, this 24th day of

March

, 2017.

MICHAEL B. NORTH
UNITED STATES MAGISTRATE JUDGE

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