Fort Worth Employees' Retirement Fund v. JP Morgan Chase & Co. et al

Filing 348

MEMORANDUM AND ORDER: For the reasons discussed, the plaintiffs' letter application for certain discovery rulings is granted in part and denied in part as set forth above. (Signed by Magistrate Judge James C. Francis on 4/14/2015) Copies Transmitted By Chambers. (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - -:
FORT WORTH EMPLOYEES’ RETIREMENT
:
FUND, et al.,
:
:
:
Plaintiffs,
:
:
- against :
:
J.P. MORGAN CHASE & CO., et al.,
:
:
Defendants.
:
- - - - - - - - - - - - - - - - - -:
JAMES C. FRANCIS IV
UNITED STATES MAGISTRATE JUDGE

09 Civ. 3701 (JPO) (JCF)
MEMORANDUM
AND ORDER

This is a securities action brought on behalf of a class of
purchasers of residential mortgage-backed securities issued by J.P.
Morgan Acceptance Corporation I.

The plaintiffs have submitted a

letter motion seeking a ruling that: (1) documents clawed back at
a witness’ deposition are not subject to the attorney-cleint
privilege; (2) documents withheld or clawed back by the defendants
as

related

to

Suspicious

Activity

Reports

(“SARs”)

must

be

disclosed; and (3) the defendants have waived any privilege by
failing to produce an adequate privilege log in a timely manner.
(Letter of Hillary B. Stakem dated March 11, 2015 (“Stakem 3/11/15
Letter”)).

I will address each issue in turn.

A. Attorney-Client Privilege
During the deposition of Alison Malkin on November 18, 2014,
the defendants clawed back portions of two documents that the

1

plaintiffs intended to introduce as exhibits.

(Deposition of

Alison Malkin, excerpt attached as Exh. A to Stakem 3/11/15 Letter,
at 134-35, 161-62).

The first document is an e-mail chain from

which the defendants have now redacted a portion in which the
author, an employee of defendant J.P. Morgan Securities, LLC, asks
another employee about the materiality of certain contemplated
action.

(E-mail from Tom Roh to Robert B. Miller dated Aug. 10,

2006, attached as part of Exh. B to Stakem 3/11/15 Letter and as
part of Exh. 1 to Letter of Tom A. Paskowitz dated March 23, 2015
(“Paskowitz Letter”)).

Neither the sender nor the recipient is an

attorney, but the e-mail is copied to in-house counsel. (Paskowitz
Letter at 2). The redacted material is privileged. The discussion
of materiality relates to a legal matter, see Davis v. City of New
York, No. 10 Civ. 699, 2012 WL 612794, at *11 (S.D.N.Y. Feb. 27,
2012)

(finding

that

use

of

legal

term

of

art

indicated

communication relating to legal advice), and inclusion of counsel
in the chain was a solicitation of legal advice, see TVT Records v.
Island Def Jam Music Group, 214 F.R.D. 150-51 (S.D.N.Y. 2003)
(finding

communications

privileged

where

“to

the

extent

the

messages were not directed to or from counsel, they were at least
copied to counsel for the purpose of allowing counsel to respond to
ongoing developments with legal advice”).
The second document is also an e-mail chain between non-

2

lawyers from which the defendants have redacted a discussion of inhouse counsel’s position on an issue.

(E-mail from Alison X.

Malkin to William C. Buell dated Oct. 26, 2006 & e-mail from
William C. Buell to Alison Malkin dated Oct. 26, 2006, attached as
part of Exh. C to Stakem 3/11/15 Letter and Exh. 2 to Paskowitz
Letter).

These

communications,

too,

are

privileged.

“[A]

communication containing legal advice does not lose its privileged
status

when

shared

among

corporate

employees

who

share

responsibility for the subject matter of the communication.” In re
Currency Conversion Antitrust Litigation, No. 05 Civ. 7116, 2010 WL
4365548, at *4 (S.D.N.Y. Nov. 3, 2010) (internal quotations marks
and alteration omitted).
Accordingly, the defendants may continue to withhold the
redacted portions of these two documents.
B. Suspicious Activity Reports
On November 19, 2014, the defendants clawed back almost 600
documents

on

the

ground

that

they

are

SARs

or

information

indicating the existence of SARs, which is prohibited from being
disclosed by 31 C.F.R. § 1020.320(e). (Stakem 3/11/15 Letter at 3;
Letters of David L. Breau dated Nov. 19, 2014, attached as Exhs. D
& E to Stakem 3/11/15 Letter).

Subsequently, the defendants

produced a privilege log identifying several hundred additional
documents that they were withholding on the same basis.

3

(Stakem

3/11/15 Letter at 3; Privilege Log, attached as Exh. H to Stakem
3/11/15 Letter).

The documents clawed back generally consist of

(1) logs of mortgage loan put-back claims made or received, (2)
logs of repurchase claims made or received, (3) logs of potential
misrepresentations relating to the mortgage loans, or (4) quality
assurance audit spreadsheets and related cover e-mails.
3/11/15

Letter

at

3-4).

The

defendants

maintain

(Stakem
that

the

information at issue was properly clawed back or withheld as “part
of the separate and regulatory-required process to detect and
report suspicious activity, and was not created during the ordinary
course of business by JPMorgan’s quality assurance or repurchase
departments.”

(Paskowitz Letter at 4 (internal quotation marks

omitted)).
The defendants take too broad a view of their confidentiality
obligations in connection with SARs.

The Bank Secrecy Act, 31

U.S.C. § 5311 et seq., provides in part that “[t]he Secretary [of
the Treasury] may require any financial institution . . . to report
any suspicious transaction relevant to a possible violation of law
or regulations.”

31 U.S.C. § 5318(g)(1).

The statute also

prohibits the disclosure of such reports in order not to alert a
suspected wrongdoer of an investigation:
If a financial institution or any director, officer,
employee, or agent of any financial institution,
voluntarily or pursuant to this section or any other
authority, reports a suspicious transaction to a
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government agency . . . neither the financial
institution, director, officer, employee, or agent of
such institution (whether or not any such person is still
employed by the institution), nor any other current or
former director, officer, or employee of, or contractor
for, the financial institution or other reporting person,
may notify any person involved in the transaction that
the transaction has been reported. . . .
31

U.S.C.

§

5318(g)(2)(A).

The

various

federal

agencies

responsible for regulating financial institutions have promulgated
regulations to implement the statute.

For example, the Office of

the Comptroller of the Currency (“OCC”) and the Financial Crimes
Enforcement Network (“FinCEN”), the agency with which SARS are
filed, have issued rules that closely track each other.
C.F.R. § 1020.320 (OCC); 12 C.F.R. § 21.11 (FinCEN).

See 31
The OCC

regulations provide in pertinent part that “[n]o bank, and no
director, officer, employee, or agent of any bank, shall disclose
a SAR or any information that would reveal the existence of a SAR.”
31 C.F.R. § 1020.320(e)(1)(i). The FinCEN rule is identical except
that it governs any “national” bank.

12 C.F.R. § 21.11(k)(1)(i).

The regulations include “rules of construction,” the most pertinent
of which states that the regulations do not prohibit disclosure of
“[t]he underlying facts, transactions, and documents upon which a
SAR is based.”

31 C.F.R. § 1020.320(e)(1)(ii)(A)(2) (OCC); 12

C.F.R. § 21.11(k)(1)(ii)(A)(ii) (FinCEN).
The

language

plaintiffs’

of

argument

the
that

regulations,
the
5

then,

information

supports

withheld

by

the
the

defendants should be produced. But there remains a dispute arising
from the commentary that accompanied publication of the OCC’s final
rule.

This commentary states in part:

Documents that may identify suspicious activity, but that
do not reveal whether a SAR exists (e.g., a document
memorializing a customer transaction such as an account
statement indicating a cash deposit or a record of a
funds transfer), should be considered as falling within
the underlying facts, transactions, and documents upon
which a SAR is based, and need not be afforded
confidentiality. This distinction is set forth in the
final rule’s second rule of construction . . . and
reflects relevant case law.
Confidentiality of Suspicious Activity Reports, 75 Fed. Reg. 7557601, 75579 (Dec. 3, 2010) (to be codified at 12 C.F.R. pt. 21).

But

the notes then go on to say:
However, the strong public policy that underlies the SAR
system as a whole -- namely, the creation of an
environment that encourages a national bank to report
suspicious activity without fear of reprisal -- leans
heavily in favor or 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.
Id.

The defendants contend that this latter language justifies

their position.
There are two flaws with the argument.

First, the head of

JPMorgan’s Fraud Operations group has testified that the fraud
investigations that generated the types of documents at issue would
be conducted independent of whether they might result in the filing
of a SAR.

(Deposition of Susan S. Dailey, excerpts attached as
6

Exh. L to Letter of Hillary B. Stakem dated March 27, 2015 (“Stakem
3/27/15 Letter) at 76, 107-08).

Second, I agree with the court’s

analysis in Wultz v. Bank of China Ltd., __ F. Supp. 3d __, __,
2014 WL 5690342, at *3 (S.D.N.Y. 2014), which found that the
language relied upon by the defendants was too tentative and
qualified to constitute an authoritative interpretation of the
regulation as prohibiting disclosure of the type of documents at
issue here.

See also In re Whitley, No. 10-10426C-7G, 2011 WL

6202895, at *4 (Bankr. M.D.N.C. Dec. 13, 2011) (“The letter and
spirit of the limitation [on disclosure] is served by shielding any
SAR filed by a bank as well as any document that refers to a SAR
having been filed or refers to information as being part of a SAR
or otherwise reveals the preparation or filing of a SAR.”).
The defendants shall therefore produce within two weeks of the
date of this order the documents withheld on the basis of the SAR
nondisclosure regulations, with the exception of any document that
refers to the filing of a SAR, refers to the fact that a SAR was
not filed, or would otherwise disclose information about the
decision to file or refrain from filing a SAR.

Copies of any

documents withheld on that basis hereafter shall be provided to the
Court within two weeks for in camera review.
C. Privilege Logs
The dispute concerning privilege logs may be moot, in whole or

7

in part.

Apparently, the defendants produced a revised privilege

log on March 23,

2015, along with an additional 1,315 documents.

(Paskowitz Letter at 11-12; Stakem 3/27/15 Letter at 5).
same date,

they indicated the intention of providing still more

documents and a further revised log "shortly."
at 12).

On that

(Paskowitz Letter

Not surprisingly, when the plaintiffs responded four days

later, they did not address the adequacy of the revised log they
had just received.

(Stakem 3/27/15 Letter at 5).

Counsel shall

therefore advise the Court within two weeks of the extent to which
there

remains

a

live controversy about

the

sufficiency of

the

defendants' privilege logs.
Conclusion
For the reasons discussed, the plaintiffs' letter application
for certain discovery rulings is granted in part and denied in part
as set forth above.
SO ORDERED.

C·~~rJ

It:

C. FRANCIS IV
D STATES MAGISTRATE JUDGE
Dated: New York, New York
April 14, 2015

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Copies transmitted this date:
Arthur C. Leahy, Esq.
Ivy T. Ngo, Esq.
Jonah H. Goldstein, Esq.
Matthew I. Alpert, Esq.
Nathan R. Lindell, Esq.
Scott H. Saham, Esq.
Susan G. Taylor, Esq.
Thomas E. Egler, Esq.
L. Dana Martindale, Esq.
Daniel S. Drosman, Esq.
Darryl J. Alvarado, Esq.
Caroline M. Robert, Esq.
Hilary B. Stakem, Esq.
Angel P. Lau, Esq.
Ashley M. Robinson, Esq.
Lucas F. Olts, Esq.
Robbins Geller Rudman & Dowd LLP
655 West Broadway
Suite 1900
San Diego, CA 92101
David A. Rosenfeld, Esq.
Samuel H. Rudman, Esq.
Robbins Geller Rudman & Dowd LLP
58 South Service Rd.
Suite 200
Melville, NY 11747
Luke o. Brooks, Esq.
Robbins Geller Rudman & Dowd LLP
One Montgomery Street, Suite 1800
San Francisco, CA 94104
Joseph P. Guglielmo, Esq.
Thomas L. Laughlin, IV, Esq.
Scott + Scott, L.L.P.
405 Lexington Ave.
40th Floor
New York, NY 10174
Geoffrey M. Johnson, Esq.
Scott + Scott, L.L.P.
12434 Cedar Rd., Suite 12
Cleveland Heights, OH 44106
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Alfred R. Pietrzak, Esq.
Dorothy J. Spenner, Esq.
Owen H. Smith, Esq.
David L. Breau, Esq.
Daniel A. McLaughlin, Esq.
Danny C. Moxley, Esq.
Andrew w. Sters, Esq.
Tom A. Paskowitz, Esq.
Sidley Austin LLP
787 Seventh Ave.
New York, NY 10019
Alison L. MacGregor, Esq.
Kelley Drye & Warren, LLP
101 Park Ave.
New York, NY 10178
Darrell S. Cafasso, Esq.
William B. Monahan, Esq.
Tina G. Barton, Esq.
Sullivan & Cromwell, LLP
125 Broad St.
New York, NY 10004
Robert A. Sacks. Esq.
Sullivan & Cromwell, LLP
1888 Century Park East, Suite 2100
Los Angeles, CA 90067
Richard F. Lubarsky, Esq.
Levi Lubarsky & Feigenbaum LLP
1185 Avenue of the Americas
17th Floor
New York, NY 10036
Rebecca L. Butcher, Esq.
Landis Rath & Cobb LLP
919 Market St., Suite 1800
Wilmington, DE 19801

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