United States of America v. Wells Fargo Bank, N.A.

Filing 294

MEMORANDUM OPINION AND ORDER re: 235 MOTION to Compel plaintiff to re-produce "clawed-back" documents, and produce an adequate and complete privilege log filed by Wells Fargo Bank, N.A.: For the reasons stated abov e, the Bank's motion is GRANTED with respect to the documents used during depositions, but DENIED with respect to all other documents. The Clerk of Court is directed to terminate Docket No. 235. (Signed by Judge Jesse M. Furman on 8/26/2015) (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
UNITED STATES OF AMERICA,
:
:
Plaintiff,
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:
-v:
:
WELLS FARGO BANK, N.A., et al.,
:
:
Defendants.
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:
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08/26/2015
08/25/2015

12-CV-7527 (JMF)
MEMORANDUM OPINION
AND ORDER

JESSE M. FURMAN, United States District Judge:
In this civil fraud case, familiarity with which is assumed, the United States (the
“Government”) alleges that Defendants Wells Fargo Bank, N.A. (“Wells Fargo” or the “Bank”)
and Kurt Lofrano, a Bank employee, engaged in misconduct with respect to home mortgage
loans that were insured by the Government. Now pending is Wells Fargo’s motion to compel the
Government to re-produce approximately 1,000 documents (the “Documents”) that the
Government “clawed back” on the last day of fact discovery. (Docket No. 235). 1 For the
reasons stated below, Wells Fargo’s motion is granted in part and denied in part.
The current dispute centers on the interpretation and applicability of a protective order
that the Court entered on March 21, 2014 (the “Protective Order”). (Docket No. 97). That
Order, which was proposed by the parties (Docket No. 95), provides that, “if, in connection with
this litigation, a party . . . discloses information subject to a claim of [any applicable privilege]
. . . such disclosure shall not constitute or be deemed a waiver or forfeiture of any claim of
1

Wells Fargo’s motion also raised objections to the Government’s privilege log. Per an
Order entered July 1, 2015, however, the parties are addressing those issues separately. (Docket
No. 244).

privilege.” (Protective Order 15-16). Despite the seemingly broad sweep of the Protective
Order, the Bank contends that the Government was not entitled to claw back the Documents
because it failed to “promptly” assert that they were privileged. (Wells Fargo Bank N.A.’s Mem.
Law Supp. Mot. To Compel Re-Production “Clawed Back” Documents & Adequate & Complete
Privilege Log Pl. (Docket No. 249) (“Wells Fargo’s Mem.”) 16-17). 2 According to the Bank, the
Government was on notice that it had inadvertently produced privileged documents to
Defendants since at least March 30, 2015, when the Bank alerted the Government to almost
twenty documents that appeared to be privileged. (Decl. Kayla Stachniak Kaplan Supp. Wells
Fargo Bank, N.A.’s Mot. To Compel Re-Production “Clawed Back” Documents & Adequate &
Complete Privilege Log Pl. (Docket No. 250) (“Kaplan Decl.”) ¶3, Ex. A). Further, in an e-mail
sent the next day, Wells Fargo warned the Government that those documents seemed to be the
“tip of the iceberg,” and informed the Government that it would consider any privileges waived
with respect to other documents that had not been clawed back by the end of the week. (Kaplan
Decl., Ex. A). Nevertheless, the Government waited until May 15, 2015 — more than six weeks
later — before clawing back the Documents. (Kaplan Decl. ¶ 16, Ex. G).
The Government responds that the Protective Order does not impose a deadline by which
it must assert its privilege and that, in any event, it did act promptly in seeking the Documents’
return. The Government asserts that it clawed back privileged documents as it identified them,
and insists that it could not have been expected to re-review its production for privilege any
sooner because of the large number of documents it had produced (about 1.7 million) and

2

Wells Fargo does not argue that the Government waived its privilege with respect to the
Documents merely through its initial production of the Documents to Defendants. (See Wells
Fargo’s Mem. 14 (“Wells Fargo is not relying on the Government’s original failure to properly or
reasonably review its documents for privilege prior to production as a basis for a finding of
waiver.”)).

2

because the parties were in the midst of taking depositions. (Mem. Law United States Am.
Opp’n Def. Wells Fargo Bank N.A.’s Mot. To Compel Re-production of “Clawed Back”
Documents (Docket No. 253) (“Gov’t’s Mem.”) 12-14).
In support of its argument that the Government waived its right to request the return or
destruction of the Documents by waiting too long, Wells Fargo largely relies on cases analyzing
waiver under Rule 502(b) of the Federal Rules of Evidence. (Wells Fargo’s Mem. 15-16 (citing
Bensel v. Air Line Pilots Ass’n, 248 F.R.D. 177, 180 (D.N.J. 2008); Fed. Deposit Ins. Corp. v.
Marine Midland Realty Credit Corp., 138 F.R.D. 479, 483 (E.D. Va. 1991))). 3 Courts in this Circuit,
however, have held that “[i]nadvertant disclosure provisions in stipulated protective orders are
generally construed to provide heightened protection to producing parties,” as protective orders
would serve little purpose if “the provisions applied only to documents deemed inadvertently
produced under governing case law.” U.S. Commodity Futures Trading Com’n v. Parnon Energy

Inc., No. 11-CV-3543 (WHP), 2014 WL 2116147, at *4-5 (S.D.N.Y. May 14, 2014) (internal
quotation marks omitted) (citing cases). 4 Thus, where parties have entered into a protective
order that includes a non-waiver provision, as here, courts have found waiver only where the
producing party acted in a “completely reckless” manner with respect to its privilege. See, e.g.,

3

The one case that Wells Fargo cites that did involve a protective order, Luna Gaming-San
Diego, LLC v. Dorsey & Whitney, LLP, No. 06-CV-2804 (WMc), 2010 WL 275083, at *4 (S.D.
Cal. Jan. 13, 2010), is not to the contrary. In that case, two of the four documents at issue had
been used at depositions or in court filings, and the other two were “related by subject matter.”
Id. at *1. As discussed below, the Court here does find waiver with respect documents that were
used without objection in depositions. Further, the Court in Luna Gaming found that the party
seeking to claw back privileged documents had not been sufficiently diligent. Id. at *6-7.

4

Although the non-waiver provision here does not use the term “inadvertent,” another
provision addressing how the parties may respond to the disclosure of privileged information
refers to “unintended or inadvertent” disclosure. (Protective Order ¶¶ 27, 29). Accordingly, the
Court finds that the case law on non-waiver provisions governing inadvertent disclosure applies.

3

Dover v. British Airways, PLC (UK), No. 12-CV-5567 (RJD) (MDG), 2014 WL 4065084, at *34 (E.D.N.Y. Aug. 15, 2014) (applying the “completely reckless” standard and citing cases); HSH
Nordbank AG N.Y. Branch v. Swerdlow, 259 F.R.D. 64, 75 (S.D.N.Y. 2009) (same); Prescient
Partners, L.P. v. Fieldcrest Cannon, Inc., No. 96 Civ. 7590 (DAB) (JCF), 1997 WL 736726, at
*4 (S.D.N.Y. Nov. 26, 1997) (similar). For a producing party’s actions to be deemed completely
reckless, the party “must have shown no regard for preserving the confidentiality of the
privileged documents.” HSH Nordbank, 259 F.R.D. at 75.
Wells Fargo has not met that standard. Although the clawback at issue here occurred
more than six weeks after Wells Fargo first notified the Government that it had received
privileged documents, the Government began clawing back documents on a rolling basis on
April 3rd. (See Kaplan Decl. ¶ 7-8, 10, Exs. B-E). The clawback at issue was merely the last
one to occur. Given the scale of discovery in this case, the Court cannot say that the
Government’s approach was unreasonable, let alone completely reckless. Further, while the
Government undoubtedly should have informed Wells Fargo (and the Court) that it was
continuing its privilege review, nothing in the protective order — or in any case cited by Wells
Fargo — obligated it to do so. Wells Fargo states that it “reasonably assumed” that the
Government’s April 3rd clawback was the entire response to Wells Fargo’s March 31st e-mail,
but it never took any steps to verify that that was so, and, in any event, it admits that the
Government continued to make requests for the return of documents, with which Wells Fargo
complied, after that date. (Wells Fargo Bank N.A.’s Reply Supp. Mot. To Compel Re-

4

Production “Clawed Back” Documents & Adequate & Complete Priv. Log Pl. (Docket No. 258)
(“Wells Fargo’s Reply”) 4-5 & n.3; Kaplan Decl. ¶¶10-14, Ex. C-F). 5
Nor does the large number of documents clawed back change the analysis. First, “[i]t is
not enough that the inadvertent production involved a large number of documents”; “[g]iven the
scale of document production in contemporary litigation, errors — even those involving multiple
documents — are inevitable.” Parnon Energy Inc., 2014 WL 2116147 at *4. Second, the
number of documents clawed back cannot be considered in a vacuum, but rather must be viewed
in relation to the total number of documents produced. Here, the 1,000 or so Documents at issue
make up less than one tenth of one percent of those turned over to the Bank during discovery.
See HSH Nordbank, 259 F.R.D. at 75 (upholding a clawback where the inadvertently disclosed
documents “represent[ed] less than one-hundredth of one percent of those reviewed”); cf. Dover,
2014 WL 4065084, at *3-4 (finding that a production was not completely reckless where the
privileged information consisted of a “few rows and columns of information embedded on two of
34 pages of spreadsheets”).
In addition to arguing that the delay was unreasonable in and of itself, Wells Fargo
contends that it has been unfairly prejudiced by the Government’s decision to wait until the last
day of fact discovery to claw back the Documents. See Dover, 2014 WL 4065084, at *3-4
(considering whether the “‘overriding issues of fairness’ which underlie all determinations
regarding waiver or forfeiture of protection of privileged documents” required a finding that

5

Wells Fargo argues that accepting the Government’s argument would mean that the
Government could “continue to claw back documents and assert privilege right up through
summary judgment and trial.” (Wells Fargo’s Mem. 20). Waiting until summary judgment to
claw back documents, however, could well rise to the level of “completely reckless.” Further,
the prejudice to Wells Fargo if the Government waited so long would be much greater, perhaps
tipping the analysis in favor of finding waiver.

5

privilege had been waived, even though the Court had already concluded that the party seeking
to claw back a privileged document had not been “completely reckless”). Wells Fargo identifies
two potential forms of prejudice: first, that “Wells Fargo had reviewed and relied on [the
Documents] in developing its discovery and case strategy,” and second, that the end of the fact
discovery period deprived Wells Fargo of the opportunity to “do[] anything to alter the strategic
decisions it had already made in the expectation that the documents were available.” (Wells
Fargo’s Mem. 18). Wells Fargo, however, provides no detail about the kind of discovery it
would have sought had the Government clawed back the Documents earlier. Nor does it explain
what information was contained in the 1,000 Documents that is not available elsewhere or why
that information is central to its case. Further, despite Wells Fargo’s insinuations to the contrary
(Wells Fargo’s Mem. 19 (stating that the Government “postponed taking appropriate action”
until after the close of discovery)), there is no evidence that the Government intentionally
sandbagged Wells Fargo. At bottom, therefore, Wells Fargo’s prejudice argument amounts to
little more than a complaint that it cannot use the information contained in the Documents. But,
as the Government points out in its memorandum of law (Gov’t’s Mem. 15-16), “the prejudice
factor focuses only on whether the act of restoring immunity to an inadvertently disclosed
document would be unfair, not whether the privilege itself deprives parties of pertinent
information.” BNP Paribas Mortg. Corp. v. Bank of America, N.A., No. 09-CV-9783 (RWS),
2013 WL 2322678, at *8 (S.D.N.Y. May 21, 2013). That conclusion does not change merely
because the relevant clawback occurred on the last day of discovery. See Quinby v. Westlb AG,
No. 04-CV-7406 (WHP), 2007 WL 2068349, at *3 (S.D.N.Y. July 18, 2007) (rejecting the
plaintiff’s argument that applying work-product protection to a document after the close of
discovery would be unfair to her because the close of discovery prevented her from “us[ing]

6

other means to obtain the evidence [the document] contain[ed]” on the grounds that the plaintiff
had had “ample incentive to obtain additional evidence” before the document was clawed back).
Wells Fargo is, however, entitled to two documents that were used, without objection,
during depositions. (Kaplan Decl. ¶¶ 20-21). 6 Although the Protective Order provides that
disclosure does not waive any applicable privileges, it says nothing about whether the failure to
object to use of a documents constitutes waiver. Accordingly, the Court finds that, as to the
documents used in depositions, the Protective Order’s non-waiver provision does not apply. See
Luna Gaming-San Diego, LLC v. Dorsey & Whitney, LLP, No. 06-CV-2804 (WMc), 2010 WL
275083, at *4 (S.D. Cal. Jan. 13, 2010) (“Although the Protective Order states that the
inadvertent disclosure of privileged documents ‘shall not constitute a waiver of any privilege,’ it
does not address under what circumstances failure to object to the use of inadvertently produced
privileged documents waives the privilege, which is what the Court must resolve here.”). But see
Emps. Ins. Co. of Wausau v. Skinner, No. 07-CV-735 (JS) (AKT), 2008 WL 4283346, at *7
(E.D.N.Y. Sept. 17, 2008) (applying the “completely reckless” analysis to a document that was
marked as a deposition exhibit without analyzing whether the failure to object fell within the
parties’ confidentiality agreement). Instead, the normal waiver analysis applies to those
documents, and, under that analysis, the failure to object plainly constituted a waiver. See Luna
Gaming, 2010 WL 275083, at *5 (observing that “under both state and federal law, if a
privileged document is used at a deposition, and the privilege holder fails to object immediately,
the privilege is waived” and citing cases); Fodelmesi v. Schepperly, No. 87-CV-6762 (KMW),

6

Counsel did assert during one deposition that a document “might be” privileged, but
counsel allowed the witness to be questioned about the document, and, in any event, failed to
object to its use during three other depositions. (Kaplan Decl. ¶ 21).

7

1990 WL 115607, at *3 (S.D.N.Y. Aug. 10, 1990) (finding waiver based on deposition testimony
even though the parties had stipulated that all objections would be reserved until trial). 7
For the reasons stated above, the Bank’s motion is GRANTED with respect to the
documents used during depositions, but DENIED with respect to all other documents.
The Clerk of Court is directed to terminate Docket No. 235.

SO ORDERED.
Date: August 26, 2015
New York, New York

7

Further, even if the “completely reckless” standard did apply to the two documents used
at depositions, the Court finds that the standard would be met. The Government argues that its
failure to object does not constitute a waiver because it clawed back the documents just eleven
and seventeen days after they were first introduced as deposition exhibits. (Gov’t’s Mem. 1415). But one of the documents was used at four depositions without objection, and eleven days
is not an insignificant delay in this context. (Kaplan Decl. ¶ 21). Further, the depositions
occurred in late May and early April (see Kaplan Decl. ¶¶ 22-23), by which time the
Government had been warned that its production contained privileged documents and was in the
midst of re-reviewing its production and conducting rolling clawbacks of privileged documents.
The Government should therefore have been more vigilant about protecting any privileges during
the depositions, and its failure to do so was completely reckless.
8