UNITED STATES OF AMERICA et al v. Ocwen Loan Servicing LLC
MEMORANDUM OPINION AND ORDER - GRANTING 434 Emergency SEALED MOTION (Relators' Emergency Motion for Privilege Determination Regarding West Virginia Banking Documents) filed by Brian Bullock, Michael J Fisher.It is further ORDERED that (1) the documents between the WVDFI and Ocwen are not privileged; (2) Ocwens internal documents discussing WVDFI findings, communications, orotherwise related to the WVDFI are not privileged; and (3) Relators may use the WVDFI-related documents at trial. It is further ORDERED that any and all WVDFI-related documents that Ocwen is currently withholding must be produced to Relators within seven days of this Order. Signed by Judge Amos L. Mazzant, III on 6/7/2016. (baf, )
United States District Court
EASTERN DISTRICT OF TEXAS
UNITED STATES OF AMERICA
Ex rel., Michael J. Fisher, and Michael Fisher
Individually, and Brian Bullock, and Brian
OCWEN LOAN SERVICING, LLC and
OCWEN FINANCIAL CORPORATION
CIVIL ACTION NO 4:12-CV-543
MEMORANDUM OPINION AND ORDER
Pending before the Court is Relators’ Emergency Motion for Privilege Determination
Regarding West Virginia Banking Documents (Dkt. #434).
After reviewing the relevant
pleadings, the Court finds that the motion should be granted.
The above-referenced case is a qui tam action under the False Claims Act (the “FCA”), in
which the United States has declined to intervene. Relators assert their FCA claims based upon
false certifications of compliance allegedly made as part of the Treasury Department’s Home
Affordable Modification Program (“HAMP”). In particular, with respect to this motion, Relators
allege that the loan servicing, modifications, and loss mitigation practices of Defendants Ocwen
Loan Servicing, LLC (“OLS”) and Ocwen Financial Corporation (“OFC,” collectively with
OLS, “Ocwen” or “Defendants”) failed to comply with federal and state law, in violation of
Ocwen’s certifications of compliance and applicable servicing laws. Relators also allege that
Ocwen made other representations for which the West Virginia Division of Financial Institutions
(the “WVDFI”) findings are relevant, including representing that Ocwen performed its services
as a “well-managed operation,” taking steps to ensure it had a sufficient capacity to comply with
HAMP requirements, and complying with various documentation requirements (Dkt. #434 at p.
The documents at issue fall into two categories: (1) communications to Ocwen from the
WVDFI; and (2) Ocwen’s internal documents discussing and/or relating to the WVDFI’s
findings and supervision. The subject matters of these documents focus primarily on two reports
issued by the WVDFI, one in 2007 and the other in 2012. Relators assert that the reports at issue
address pervasive weaknesses in Ocwen’s overall organization, and specifically, address its lack
of control and lack of compliance with West Virginia’s law and regulations protecting borrowers
(Dkt. #434 at p. 1).
The WVDFI was created by the West Virginia Legislature in 1901. (Dkt. #434 at p. 4)
(citing “About,” WEST VIRGINIA DIVISION
FINANCIAL INSTITUTIONS (available at
http://ww.dfi.wv.gov/about/Pages/default.aspx)). The WVDFI describes itself as “a state
regulatory agency responsible for the oversight of [West Virginia]’s financial services industry in
order to foster and promote a sound and dynamic climate for the citizens and businesses of West
Virginia.” (Dkt. #434 at p. 4). Thus, the WVDFI is a state regulatory force that seeks to protect
borrowers in West Virginia from harm from financial services companies (Dkt. #434 at p. 4).
On multiple occasions, the WVDFI has communicated with and investigated Ocwen for
failing to comply with West Virginia’s laws protecting borrowers. Specifically, for example, on
April 30, 2007, the WVDFI sent a letter to Ocwen’s Chief Executive Officer, Ron Faris (“Faris”)
(Dkt. #434 at p. 4; see Dkt. #434, Exhibit B). The letter related to WVDFI’s review of Ocwen
(Dkt. #434 at pp. 4-5). In the letter, the WVDFI informed Ocwen that it had identified various
violations of West Virginia law that required “management’s immediate attention.” (Dkt. #434
at p. 5; Dkt. #434, Exhibit B at p. 8). Additionally, in December 2012, the WVDFI’s
investigation culminated in the assessment of $1,918,000 in civil penalties against Ocwen for
non-compliance with the state’s laws (Dkt. #434 at p. 3; see Dkt. #434, Exhibit A).
In addition to the direct communications between Ocwen and WVDFI, Ocwen generated
internal documents and communications based on the discussions between the WVDFI and
Ocwen regarding the WVDFI investigations and discussions, and seeks to claw back those
documents as being privileged (Dkt. #434 at p. 6).
On April 6, 2015, the Court entered the parties’ Agreed Clawback Order, which states
[p]ursuant to Federal Rule of Civil Procedure 26(b)(5)(B) and Federal Rule of
Evidence 502(d), the Receiving Party hereby agrees to return, sequester, or
destroy any assertedly Privileged Information disclosed or produced by a
Producing Party or Disclosing Party upon request, subject to the Receiving
Party’s right to “promptly present the information to the Court under seal for a
determination of the claim.”
(Dkt. #120 at p. 2) (emphasis added).
On December 29, 2015, Relators attached, as exhibits to its motion for partial summary
judgment, the examination reports issued by the WVDFI in December 2012 (Dkt. #299, Exhibit
12). On January 21, 2016, after completing its investigation into privilege issues, Defendants
informed Relators that they had intended to withhold and log all reports and communications
regarding the WVDFI and Maryland Department of Labor, Licensing, and Regulation (the
“MDLLR”) examinations pending those regulators providing their consent to disclosure (Dkt. #
452 at p. 5). On that same day, Defendants wrote both the WVDFI and MDLLR1, informing
them that (1) Defendants had endeavored to withhold their confidential documents pending the
regulators’ consent; (2) the Court had declined to recognize New York’s state banking
On February 2, 2016, the MDLLR informed Defendants’ counsel that it consented to production of its confidential
documents (Dkt. #452 at p. 6). After it consented, Defendants began producing those documents on February 11,
2016 (Dkt. #452 at p. 6).
examination privilege; and (3) Defendants had inadvertently produced the confidential
documents attached to Relators’ summary judgment motion (Dkt. #452 at pp. 5-6). Defendants
then asked whether the entities would “consent to their [confidential information’s] production,
or require that Ocwen assert th[e] privilege on behalf of the [regulator].” (Dkt. #452 at p. 6).
On March 4, 2016, Defendants completed their privilege log, which contained 204
WVDFI documents, 96 of which were withheld based of West Virginia Code § 31A-2-4(b)(1)
(Dkt. #452 at p. 6). Defendants contacted the WVDFI several times regarding the privilege
issue, and on May 19, 2016, the WVDFI emailed Defendants stating that after “carefully
consider[ing]” the issue, the WVDFI had concluded that “neither the WVDFI nor its licensee,
Ocwen Loan Servicing, LLC, [could] ‘consent’ to disclosure of the subject information.” (Dkt.
#452 at pp. 6-7). Furthermore, the WVDFI asserted that § 31A-2-4(b)(1) “provides clear and
unequivocal codification of an important multifaceted public policy,” as “[c]onfidentiality of the
subject information…encourages cooperation and compliance with the regulatory process and
facilitates the open and unfettered exchange of information between financial institution and
their regulators….” (Dkt. #452 at p. 7). On May 20, 2016, Defendants informed Relators of the
WVDFI’s decision, and requested under the Agreed Clawback Order that Relators destroy their
copies of eight document families containing inadvertently-produced WVDFI information (Dkt.
#452 at p. 7).
On May 24, 2016, Relators filed their Emergency Motion for Privilege Determination
Regarding West Virginia Banking Documents (Dkt. #434). On May 27, 2016, Defendants filed
their response (Dkt. #452). On May 30, 2016, Relators filed their reply (Dkt. #455). On June 1,
2016, Defendants filed their sur-reply (Dkt. #471).
Relators seek an expedited determination that:
(1) Ocwen’s attempt to claw back
documents has “no basis” in case law or statute; and (2) the documents may be fairly discovered
and utilized in the case (Dkt. #434 at p. 1). Defendants assert that West Virginia Code § 31A-24(b)(1) should apply to bar disclosure of the documents, and as the documents were
inadvertently disclosed to Relators during document production, those documents should be
clawed back to preserve privilege (Dkt. #452 at p. 1).
Ocwen2 asserts that the documents are protected by West Virginia Code § 31A-2-4(b)(1),
which provides that WVDFI’s “records relating to the financial condition of any financial
institution and any information contained in the records shall be confidential for the use of the
commissioner and authorized personnel of the Division of Banking.” The statute also provides
that “[n]o person shall divulge any information contained in any records except as authorized in
this subdivision in response to a valid subpoena or subpoena duces tecum issued pursuant to law
in a criminal proceeding or in a civil enforcement action brought by the state or federal
regulatory authorities.” W. Va. Code Ann. § 31A-2-4(b)(1).
Federal Rule of Evidence 501 provides that the “common law—as interpreted by United
States courts in the light of reason and experience—governs a claim of privilege” unless federal
law provides otherwise. Rule 501 also makes it clear that “in a civil case, state law governs
privilege regarding a claim or defense for which state law supplies the rule of decision.” When a
case involves a privilege that is “not existent in the [federal] common law but enacted by the
(state) legislature based on unique considerations of government policy,” the Fifth Circuit has
Relators contend in their reply, that Ocwen lacks standing to assert the bank examination privileges, because “the
bank examination privilege belongs solely to the…banking regulatory entities, and may not be asserted by third
parties on behalf of the banking agencies.” Merchants Bank v. Vescio, 205 B.R. 37, 42 (D. Vt. 1997); (Dkt. #455 at
p. 1 n. 1). The Court agrees; however, as Relators have filed their motion seeking a privilege determination, the
Court will address the merits of the WVDFI’s privilege.
recognized that the state law privilege may be applied after “balancing the policies behind the
privilege against the policies favoring disclosure.” Am. Civil Liberties Union v. Finch, 638 F.2d
1336, 1343 (5th Cir. Unit A 1981) (citation omitted). Therefore, although this is a federal
question case in which Relators’ claim arise out of the FCA, the Court will apply the Finch
balancing test to determine whether the West Virginia Code § 31A-2-4(b)(1) should be applied
in this case.
In Finch, the Fifth Circuit found that the balancing test is applied by answering two
questions: “(1) whether the fact that the [state] courts would recognize the privilege itself creates
good reason for respecting privilege in federal court, regardless of our independent judgment of
its intrinsic desirability; and (2) whether the privilege is intrinsically meritorious in our
independent judgment.” Finch, 638 F.2d at 1343; see also Fairchild v. Liberty Indep. Sch. Dist.,
466 F. Supp. 2d 817, 821 (E.D. Tex. 2006).
The first question almost always is answered in the negative. “That the courts of
a particular state would recognize a given privilege will not often itself justify a
federal court in applying that privilege.” Courts should apply state privileges
when there is no substantial cost to federal substantive policy, but there is almost
always such a cost, as privileges hinder the “special federal interest in seeking the
truth.” When federal questions or issues play a predominant role in the litigation,
the federal interest in very strong.
Fairchild, 466 F. Supp. 2d at 822 (internal citations omitted). The second question requires the
Court to consider four conditions in order for the Court to recognize the privilege: (1) whether
the communications originated in a confidence that they will not be disclosed; (2) whether
confidentiality is essential to the full and satisfactory maintenance of the relation between the
parties; (3) whether the relation is one in which the opinion of the community ought to be
sedulously fostered; and (4) whether the injury that would inure to the relation by the disclosure
of the communications is greater than the benefit gained for the correct disposal of the litigation.
Finch, 638 F.3d at 1344; Fairchild, 466 F. Supp. 2d at 822-23.
As to the first question3, the Court finds that it should be answered in the negative.
Relators’ complaint alleges numerous violations of federal law and regulations. There is a strong
federal interest in FCA cases for seeking the truth, and in this case, federal law plays a
predominant role in the litigation. Therefore, the first Finch factor question is answer “no.”
The first factor of the four-part test regarding the second question requires that the
communications originate in a confidence that they will not be disclosed. The communications
between the WVDFI and Ocwen do indicate that the parties expected confidentiality. Ocwen
asserts that the WVDFI has a strong confidentiality interest, and “neither Defendants nor
WVDFI could have anticipated that these documents would be disclosed in private civil
litigation (Dkt. #452 at p. 10) (emphasis added). However, the West Virginia Code explicitly
states that information can be disclosed “in a civil enforcement action brought by the state or
federal regulatory authorities.” § 31A-2-4(b)(1). In the present case, Relators stand in the shoes
of the state or federal regulatory authorities to which the statute expressly permits disclosure.
See 31 U.S.C. § 3730(b)(1) (“A person may bring a civil action for a violation of section 3729
for the person and for the United States Government.”) (emphasis added); United States ex rel.
Kreindler & Kreindler v. United Tech. Corp., 985 F.2d 1148, 1154 (2nd Cir. 1993) (“[T]he qui
tam relator stands in the shoes of the government, which is the real party in interest.”) (emphasis
added); see also United States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 748 (9th Cir. 1993).
Clearly, these communications originated with an understanding that they would not be
Ocwen asserts that “[t]his motion requires a fresh examination of the Finch balancing test the Court applied in the
June 26, 2015 Order because the West Virginia statute differs from the New York statute.” (Dkt. #452 at p. 9).
Ocwen asserts that a new examination is need as Relators have argued that “the Court has already held that any state
regulatory agency’s interest in confidentiality over its documents must yield to Relator’s interest in discovery….”
(Dkt. #452 at p. 9). The Court finds that Ocwen overstates Relators’ contentions. After reviewing the related
pleadings, it appears to the Court that Relators assert that the two states’ statutes are similar, and therefore, the
Court’s reasoning would apply equally in both circumstances. However, because the Court’s previous motion dealt
with the New York statute, the Court will re-examine the Finch balancing test for the West Virginia statute.
disclosed under state law.
However, there is no reason for WVDFI to assume that these
document would be protected in an FCA action based on a federal question, especially given the
broad range of permissible discovery. Additionally, as Relators point out, no federal court has
extended West Virginia Code § 31A-2-4(b)(1) privilege to a federal question case, much less a
FCA action. Accordingly, the Court finds that the document did not originate in a confidence
that they would be not be disclosed pursuant to discovery in a FCA case.
The second factor requires that the Court determine whether confidentiality is essential to
the full and satisfactory maintenance of the relation between the parties. Ocwen asserts that the
“WVDFI’s 1995 interpretive ruling that § 31A-2-4(b)(1) ‘requires that examination reports of
the WV Division of Banking be kept confidential.’” (Dkt. #452 at p. 8) (quoting Interpretive
Ruling, 1995 WL 17804185, at *1). However, the Court finds that the WVDFI has not been
impaired in its ability to require cooperation from entities notwithstanding that federal courts
have not adopted the § 31A-2-4(b)(1) privilege as applicable or controlling in FCA cases.
The third factor for the Court to consider is whether the relation is one in which the
opinion of the community ought to be sedulously fostered. Relators do not dispute that this
factor weighs in favor of the WVDFI (Dkt. #434 at p 10). Therefore, the Court finds that this
factor weighs slightly in favor of the WVDFI.
The fourth factor for the Court to consider is whether the injury that would inure to the
relation by the disclosure of the communications is greater than the benefit gained for the correct
disposal of the litigation. The WVDFI has explained that “‘West Virginia law weighs and
carefully balances’ the competing interests in public disclosure and confidentiality in the
regulatory process, and it struck that balance in favor of confidentiality in virtually all
circumstances.” (Dkt. #452 at p. 10). The Court finds that in light of its prior holdings on the
first two factors, this factor is a balancing test that weighs in favor of allowing disclosure for the
benefit gained by seeking the truth in this FCA case. Therefore, the Court finds that the second
Finch question should also be answered “no.”
Therefore, the Court finds the following as to the WVDFI documents: (1) the documents
between the WVDFI and Ocwen are not privileged; (2) Ocwen’s internal documents discussing
WVDFI findings, communications, or otherwise related to the WVDFI are not privileged; and
(3) Relators may use the WVDFI-related documents at trial. Furthermore, the Court finds that
any and all WVDFI-related documents that Ocwen is currently withholding must be produced to
It is therefore ORDERED that Relators’ Emergency Motion for Privilege Determination
Regarding West Virginia Banking Documents (Dkt. #434) is hereby GRANTED.
It is further ORDERED that (1) the documents between the WVDFI and Ocwen are not
privileged; (2) Ocwen’s internal documents discussing WVDFI findings, communications, or
otherwise related to the WVDFI are not privileged; and (3) Relators may use the WVDFI-related
documents at trial.
It is further ORDERED that any and all WVDFI-related documents that Ocwen is
currently withholding must be produced to Relators within seven days of this Order.
Ocwen asserts that “Relators unfairly suggest, without support, that Defendants browbeat the WVDFI into
objecting to disclosure.” (Dkt. #452 at p. 10). To the extent Relators claim that Ocwen acted inappropriately in its
dealings with the WVDFI, after reviewing the relevant pleadings, the Court finds that Defendants acted
appropriately in their communications with the WVDFI.
SIGNED this 7th day of June, 2016.
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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