W Holding Company, Inc. et al v. Chartis Insurance Company-Puerto Rico

Filing 698

ORDER granting in part 608 Motion to Compel. FDIC-C shall comply by January 7, 2014. Signed by US Magistrate Judge Bruce J. McGiverin on 12/5/13. (McGiverin, Bruce)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
W HOLDING COMPANY, INC., et al.,
Plaintiffs,
v.
CHARTIS INSURANCE COMPANY OF
PUERTO RICO,
Defendant;
FEDERAL DEPOSIT INSURANCE
CORPORATION, as receiver of Westernbank
Puerto Rico,
Plaintiff-Intervenor,
Civil No. 11-2271 (GAG/BJM)
v.
FRANK STIPES GARCÍA, et al.,
Cross-Claim Defendants,
CHARTIS INSURANCE COMPANY OF
PUERTO RICO,
Previously-Joined Defendant, and
MARLENE CRUZ CABALLERO, et al.,
Additional Defendants.

ORDER ON MOTION TO COMPEL
In an amended complaint, the FDIC, acting as receiver of Westernbank (“FDICR”), sued former directors and officers of Westernbank (collectively, “D&Os”), alleging
the D&Os were negligent in the course of making certain loans. (Docket No. 182,
“Compl.”). The D&Os filed a third-party complaint against the FDIC in its corporate
capacity (“FDIC-C”) seeking apportionment and contribution, and claiming the FDIC-C’s

FDIC, as Receiver of Westernbank Puerto Rico v. Stipes, Civil No. 11-2271 (GAG/BJM)

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conduct is the proximate cause of alleged losses. Docke t No. 415 (“TPC”). Before the
court is the D&Os’ second motion to compel the FDIC to comply with its discovery
obligations. Docket No. 608 (“Mot.”). FDIC-C and FDIC-R separately opposed (Docket
Nos. 624 (“FDIC-C Opp.”), 636 (“FDIC-R Opp.”)), and the D&Os replied (Docket No.
674). The motion was referred to me for disposition. Docket No. 613. For the reasons
set forth below, the motion is GRANTED IN PART.
At issue are the D&Os’ discovery requests relating to Project Themis, a plan by
the FDIC to deal with failing banks in Puerto Rico, including Westernbank, by selling
portions of their assets to other healthier banks. The requests for production ask for:
77. All documents evidencing or relating to your plan or decision
to close Westernbank as part of “Project Themis.”
78. All documents evidencing or relating to “Project Themis.”
Docket No. 608-7, at 23. The D&Os argue that these documents are relevant to their
affirmative defenses against the FDIC-R, and their third-party claims against the FDIC-C.
The FDIC-C contends that the motion to compel is procedurally improper as to them, and
the FDIC-R argues that the requests pertain to matters not reasonably calculated to lead to
the discovery of admissible evidence.
I will first address the two procedural arguments the FDIC-C raises in its
opposition. It claims that the motion to compel is not ripe because the FDIC-C has not
been served with any discovery requests, and relatedly that counsel for the D&Os failed
to meet and confer with the FDIC-C in accordance with Rule 37. FDIC-C Opp. 6–7.
Only the FDIC-R has been formally served with discovery requests. Docket No. 608-7.
However, counsel for the D&Os emailed counsel for the FDIC-C on August 6, 2013,
asking whether the FDIC-C will produce documents responsive to Project Themis
requests. Docket No. 608-9. According to the D&Os, the FDIC-C never responded to
that email.

FDIC, as Receiver of Westernbank Puerto Rico v. Stipes, Civil No. 11-2271 (GAG/BJM)

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I find that the D&Os’ email to FDIC-C in early August was an adequate attempt
to confirm whether they would produce documents relating to Project Themis. Docket
No. 608-9. Given the FDIC-R’s and FDIC-C’s instant position on this dispute, any
attempt by the D&Os to further meet and confer with the FDIC on this matter most likely
would have been fruitless. See also In re Tyco Int'l, Ltd., Multidistrict Litig., MD-021335-B, 2004 WL 1179450 (D.N.H. May 25, 2004) (finding motion to compel ripe when
movant attempted in good faith to meet and confer and adequately explained why further
attempts would prove useless). In the interest of judicial economy, and putting aside
formalities, FDIC-C is now clearly on notice of the D&Os’ request for Project Themis
documents, and thus I will proceed to determine whether the requests are within the
scope of discovery.1
The D&Os maintain that documents relating to Project Themis are relevant to
their defenses and judgment-reduction claim. See Mot. 11; TPC 2. The FDIC-R argues
that Project Themis documents are irrelevant and their production is unlikely to lead to
the discovery of admissible evidence because the FDIC owes no duty to the D&Os, and
thus its oversight of and decisions in connection with Project Themis have no effect on
the D&Os’ liability. FDIC-R Opp. 3.
But as this court has noted previously, the viability of the no-duty rule is a
complex question of which there is a split in authority.

Docket No. 512, at 5–6

(discussing the unsettled state of the no-duty rule post O’Melveny & Myers v. FDIC, 512
U.S. 79 (1994)). I find the court’s approach in FDIC v. Brudnicki persuasive and best
comports with principles of judicial restraint. 291 F.R.D. 669 (N.D. Fla. 2013). There
the court faced a similar situation in which the FDIC raised the no-duty rule in opposing
discovery of documents relating to post-receivership administration of the bank’s assets.
1

Because I find that the FDIC-C is procedurally subject to the motion to compel, I
decline to address the parties’ arguments as to 12 U.S.C. § 1821(o), in particular whether the
FDIC-R has possession, custody, or control of Project Themis documents, which may or may not
constitute “supervisory records” of an insured institution.

FDIC, as Receiver of Westernbank Puerto Rico v. Stipes, Civil No. 11-2271 (GAG/BJM)

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Id. at 677. In rejecting the FDIC’s argument, the court noted that the issue is one of
discovery and not whether the documents sought are admissible at trial under the no-duty
rule. Id. at 678. Like the post-receivership records sought in Brudnicki, Project Themis
documents themselves may not be admissible at trial; but they may lead to admissible
evidence relevant to the D&Os claims and defenses. Moreover, this court’s opinion
denying the FDIC-C’s motion to dismiss clearly contemplates some discovery of
documents relevant to the D&Os’ affirmative defenses and their third-party claims. See
Docket No. 512, at 6.
While some documents relating to Project Themis are within the scope of
discovery, at the same time, not all such records are relevant to the D&Os claims and
defenses. Project Themis is the FDIC’s allegedly comprehensive plan to close failing
banks and consolidate the Puerto Rico banking industry; Westernbank is only one of
those failed banks. The D&Os have not attempted to explain how the project as a whole
is relevant to their claims and defenses. Thus, I find that only those parts of Project
Themis that relate to the decisions and actions taken regarding Westernbank are
discoverable. Specifically, request 78, which asks for “[a]ll documents evidencing or
relating to ‘Project Themis’” is overly broad and stricken as encompassing documents not
reasonably calculated to lead to the discovery of admissible evidence.
The D&Os also requested an award of attorney’s fees and expenses incurred in
filing this motion pursuant to Rule 37(a)(5). I find that the FDIC-C and FDIC-R’s
oppositions to the D&Os’ discovery requests were substantially justified, given the
genuine split in authority on the no-duty rule and the overly broad nature of request 78.
See Peterson v. Hantman, 227 F.R.D. 13, 18 (D.D.C. 2005) (“If there is an absence of
controlling authority, and the issue presented is one not free from doubt and could
engender a responsible difference of opinion among conscientious, diligent but
reasonable advocates, then the opposing positions taken by them are substantially
justified.”). Therefore, the D&Os’ request for fees and expenses is denied.

FDIC, as Receiver of Westernbank Puerto Rico v. Stipes, Civil No. 11-2271 (GAG/BJM)

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For the foregoing reasons, the D&Os’ motion to compel is GRANTED IN
PART.

Within thirty (30) days, FDIC-C shall produce documents to the D&Os

responsive to request 77.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 5th day of December, 2013.
S/Bruce J. McGiverin
BRUCE J. MCGIVERIN
United States Magistrate Judge