Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 1 of 10

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA __________________________________________ ) UNITED WESTERN BANK, ) ) Plaintiff, ) ) v. ) ) OFFICE OF THE COMPTROLLER ) OF THE CURRENCY, et al., ) ) Defendants. ) __________________________________________)

CIVIL ACTION

Case No. 11-408 (ABJ)

REPLY TO RESPONSE TO NOTICE OF IN CAMERA PRODUCTION OF DOCUMENTS Purporting to respond to the one-page Notice of In Camera Production filed on February 15, 2012, by the Federal Deposit Insurance Corporation in its corporate capacity (FDIC-C), Plaintiff in fact seeks reconsideration of FDIC-Cs already-granted Motion for Limited Intervention. No reconsideration is warranted, as Plaintiffs response rests on uninformed speculation about the contents of documents that are already before the Court and misrepresentations of the record in this case. ARGUMENT I. PLAINTIFF MISCHARACTERIZES THE FDICS RESPONSE TO THE COURTS ORDER AS AN ADMISSION THAT DOCUMENTS ARE NOT PRIVILEGED. The FDIC-C has already explained the reasons for its Motion for Limited Intervention, and the timing of that motion. See Docket No. 75 at 1-2. Plaintiffs inaccurate portrayal of the FDICs decisionmaking, however, requires a response: Plaintiff asserts that the FDIC-C admitted that some of the withheld documents are not

Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 2 of 10

privileged, but the FDIC-C has admitted no such thing. The FDIC-C pointed out in its motion that Plaintiff, unaccountably, had never requested any of the documents in question from the FDIC directly, despite Defendants repeated encouragement. See Docket No. 75 at 4-5. The FDIC-C explained that the proper course for seeking release of FDIC materials in the custody of another party is to request discretionary disclosure under 12 C.F.R. 309.6(b)(8)(i), which provides: Third parties seeking disclosure of exempt records or testimony in litigation to which the FDIC is not a party shall submit a request for discretionary disclosure directly to the General Counsel. Such request shall specify the information sought with reasonable particularity and shall be accompanied by a statement with supporting documentation showing in detail the relevance of such exempt information to the litigation, justifying good cause for disclosure, and a commitment to be bound by a protective order. Id. Absent the FDICs authorization, third parties are prohibited from releasing FDIC material. Id. 309.7(c). Notwithstanding Plaintiffs failure to abide by the regulations, the FDIC-C offered to make the withheld documents available for the Courts in camera review. In response, the Courts February 12, 2012, order directed the FDIC-C simply to consider Plaintiffs requests for the material a request for release under 309.6(b)(8)(i). To the extent that the FDIC-C did not make such a discretionary disclosure, the Court directed the FDIC to submit the withheld material to the Court for in camera review. The FDIC-C accordingly evaluated the material in light of the record thus far, and elected to make discretionary disclosures of the majority of the documents. Specifically, the FDIC-C informed Plaintiff that it would release nearly 200 pages of previously withheld material, subject to the protective order required by 12 C.F.R. 309.6(b)(8)(i). Plaintiff refused to consent to the protective order, however, so the FDIC-C moved for

Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 3 of 10

the entry of a protective order and has not yet released the materials to Plaintiff.1 The FDIC-C found that release of the remaining material was not justified, and submitted 46 pages of documents to the Court for in camera review. Thus, Plaintiffs assertion that the FDIC admits that many of the materials . . . are not privileged, Response at 1-2, is inaccurate. The FDIC has made no such admission. Rather, in response to the Courts direction to consider Plaintiffs motion a request for release, it has conducted the review required by the governing regulations and has determined that discretionary release to Plaintiff of certain documents is appropriate under these circumstances. Accordingly, the FDIC-C has informed Plaintiff that the FDIC will provide those documents under a protective order. The FDIC-C did not change[] course; it complied with its own regulations and the Courts order.2 II. THE REMAINING DOCUMENTS ARE PRIVILEGED. Plaintiff goes on to speculate at length that the Board materials submitted to the Court for in camera review are not in fact privileged. Plaintiffs conjectures about documents it has not seen are erroneous and should be rejected. First, the Board materials submitted to the Court are privileged. Those documents are predecisional materials directed to the FDIC Board containing recommendations for the Boards action, namely the authorization of the FDICs Division of Resolutions and Receiverships (DRR) to act as a receiver for United Western. That information is
The Court, on February 15, 2012, requested revisions to the FDICs proposed protective order; the FDICC has revised the proposed order and has provided it to Plaintiff, again seeking Plaintiffs consent. The FDIC-C hopes to file a revised proposed protective order shortly. 2 Plaintiff attempts to cite another case involving FDIC documents, In re Citigroup, Inc. Bond Litigation, No. 08-cv-9522 (S.D.N.Y.), for the proposition that the FDIC should have intervened earlier, but overlooks that the court in that case expressly invited the FDIC to intervene, an invitation that the FDIC chose not to reject. Citigroup, Docket No. 122 (The Board of Governors of the Federal Reserve System's motion to intervene (Dkt. No. 110) is GRANTED for the limited purpose of asserting and defending the bank examination privilege. Any other agency intending to assert the bank examination privilege shall move to intervene for the same limited purpose on or before August 15, 2011.).
1

Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 4 of 10

protected by the deliberative process privilege. See Taxation with Representation Fund v. IRS, 646 F.2d 666, 677 (D.C. Cir. 1981) (privilege protects documents reflecting advisory opinions, recommendations, and deliberations comprising part of a process by which governmental decisions and policies are formulated). Those documents also contain agency opinions and recommendations reflecting regulators confidential communications with United Western, and that information is protected by the bank examination privilege. Schreiber v. Society of Savings Bancorp, Inc., 11 F.3d 217, 222 (D.C. Cir. 1993). Plaintiff asserts that the FDIC-C is asserting the privilege as to factual information in the Case Memorandum that cannot be protected by the deliberative process and bank examination privileges. Response at 11. In fact, as the FDIC-Cs February 15, 2012 letter to the Court (copied to Plaintiff), attached as Exhibit A, clearly explains, the FDICC is prepared to produce the segregable factual information in the Board materials, and is awaiting the Courts ruling on the remaining portions. Exhibit A at 1 ([W]e have identified segregable factual information in those documents that is not privileged. Because those documents do contain privileged material, however, we are submitting the unredacted versions of the documents to the Court for in camera review.). Nor is Plaintiff correct that factual information can never be protected by the deliberative process and bank examination privileges. In re Sealed Case, 116 F.3d 550, 558 (D.C. Cir. 1997) (factual material protected when it is so inextricably intertwined with the deliberative sections of documents that its disclosure would inevitably reveal the government's deliberations); Schreiber, 11 F.3d at 220 (If the factual and privileged material are inextricably intertwined, then the court must determine whether the

Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 5 of 10

privilege, which is qualified, should be overridden for good cause and the documents produced.); Petroleum Info. Corp. v. United States Dept of Interior, 976 F.2d 1429, 1433 (D.C. Cir. 1992) (To the extent that predecisional materials, even if factual in form, reflect an agency's preliminary positions or ruminations about how to exercise discretion on some policy matter, they are protected by the privilege). Furthermore, as the FDIC-Cs letter also clearly explains, see Exhibit A, the agenda for the FDICs Board meeting and its November 5, 2010 e-mail to Board members in advance of that meeting were withheld because they contain information pertaining to institutions other than Plaintiff, and it would not be proper to release that information to Plaintiff. Plaintiffs generalizations about whether a meeting agenda can be protected by the privilege are neither accurate nor helpful. As for the redacted OTS memoranda, the FDIC-C has only recently obtained the unredacted versions of those materials. It is reviewing them now and, in the next few days, will either request supplemental in camera review for some portion of them or authorize their release to Plaintiff under a protective order. III. THE FDICS PRIVILEGED DOCUMENTS WERE PROPERLY WITHHELD FROM PLAINTIFF. Plaintiff further argues that, even if the Board documents are privileged, the Court should override the privilege.3 Plaintiffs argument rests on distortions of the record before the Court and baseless conjecture about the documents. A. The Board Materials Are Not Relevant.

First, Plaintiff incorrectly asserts that the Board materials were relied upon or

Plaintiff asserts that the Court has already ruled that the privilege should be overridden in this case, Response at 1, but the Court has not addressed that issue, nor did Plaintiffs motion to compel even raise that question.

Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 6 of 10

considered by the Director of the Office of Thrift Supervision. Response at 4. On August 31, 2011before the Board materials were identified as responsiveDefendants informed the Court that they had produced all materials considered, directly or indirectly, by Acting Director John Bowman in connection with the decision to place United Western in receivership: I have reviewed the copy of the administrative record provided to Plaintiff and the Court in this matter. It is a true and complete copy of the administrative record before me at the time I determined to appoint a receiver for the Bank and contains an accurate and complete record of all information that I considered, directly or indirectly, and upon which I relied in making the January 21, 2011 decision to appoint a receiver for the Bank pursuant to 12 U.S.C. 1464(d)(2)(A). Declaration of John Bowman, Docket No. 54-1, 5 (Sept. 1, 2011). Subsequently, Plaintiff submitted proposed discovery requests that went beyond the scope of the materials that had previously been provided. See Docket No. 55. Specifically, Plaintiff requested information that was merely provided to the Director, even if not considered or relied upon in the Directors decision to appoint a receivera much broader request. See Exhibit B at 14. Defendants response to the discovery requests identified the FDIC Board materials as responsive. In short, Defendants did not include the Board documents among materials relied upon or considered by the OTS Director; it identified them as responsive to Plaintiffs much broader request for materials provided to, directly or indirectly considered by, or relied upon by the Director. Thus, Plaintiff has the requested inference precisely backwards: the clear import of this record is that the Board materials were not considered or relied upon by the

Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 7 of 10

Director in the appointment decision, but were merely provided to the Director.4 Plaintiffs assertions that the FDICs privileges should be overridden because the documents are decidedly relevant, Response at 4, therefore fall flat. Plaintiffs arguments also rest on a persistent misunderstanding of the FDICs role, or lack thereof, in the decision to appoint a receiver. As the FDIC-C has previously shown, the OTS, and only the OTS, made the decision to appoint the FDIC as receiver; the FDIC plays no role in that decision, and indeed is not authorized to block or alter it. 12 U.S.C. 1821(c)(2)(A)(ii) (The Corporation shall be appointed receiver, and shall accept such appointment, whenever a receiver is appointed for the purpose of liquidation of or winding up the affairs of an insured Federal depository institution . . . by the appropriate Federal banking agency.). The FDIC Board therefore did not decide whether a receiver should be appointed; it authorized the DRR to act as receiver for United Western should such an appointment be made, a step that the perilous condition of the bank made all too likely by the fall of 2010. The internal administrative matter that the Board addressedauthorizing the DRR to act and setting forth its powers and responsibilitieshas no bearing on the propriety of the OTSs appointment decision. The materials submitted to the FDIC Board to guide its decision need not be produced.5 B. Other Policy Considerations Support Withholding of the Board Materials.

Equally baseless are Plaintiffs assertions that production will not chill future internal government deliberations. See Response at 6. Plaintiff claims that bank

Because the Director, pursuant to statute, was also a member of the Board, see 12 U.S.C. 1812(a)(1)(B) (2010), the Board materials were provided to him in that capacity. 5 Indeed, the FDICs decision to authorize DRR to act as a receiver is wholly separate from the substantive appointment decision; in some instances, the Board has adopted similar resolutions for banks that were never, in fact, placed in receivership.

Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 8 of 10

regulators already understand that their actions are subject to challenge and thus are already aware that their deliberations may be disclosed, but that exception would swallow the privilege: any agency action subject to review under the Administrative Procedure Act (which is to say, all final agency actions, see 5 U.S.C. 704, unless otherwise exempted by statute) is subject to challenge, and the Freedom of Information Act, 5 U.S.C. 552, requires disclosure in other scenarios as well. Courts have not viewed agencies awareness that disclosure is possible as obviating concern about the chilling of internal deliberations or candid discussions among examiners. See, e.g., Department of the Interior v. Klamath Water Users Protective Assn, 532 U.S. 1, 8-9 (2001) ([O]fficials will not communicate candidly among themselves if each remark is a potential item of discovery and front page news; the purpose of the deliberative privilege is to enhance the quality of agency decisions by protecting open and frank discussion among those who make them within the Government.); Baker & Hostetler LLP v. United States Dept of Commerce, 473 F.3d 312, 321 (D.C. Cir. 2006) (disclosure would hinder government officials from debating issues internally, deter them from giving candid advice, and lower the overall quality of the government decisionmaking process); In re Subpoena, 967 F.2d 630, 633 (D.C. Cir. 1992) (Bank management must be open and forthcoming in response to the inquiries of bank examiners, and the examiners must in turn be frank in expressing their concerns about the bank. These conditions simply could not be met as well if communications between the bank and its regulators were not privileged.). Here, the Board materials (the Case Memorandum in particular) reflect FDIC department directors recommendations to the Board in light of examiners appraisals of the banks condition; the possibility of disclosure could

Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 9 of 10

encourage both the department directors and the examiners to tailor or temper their discussions. The deliberative process privilege and bank examination privilege should not be overridden here. Finally, Plaintiffs assertion that the Board documents are not available from any other source and that the Court, absent production of the 46 pages at issue, will be forced to decide this case on an incomplete administrative record, Response at 5, ignores that Defendants have already produced thousands of pages of material to Plaintiff, encompassing not only materials considered or relied upon by the OTS Director but also vast quantities of other material. The notion that the administrative record will only be complete if it encompasses FDIC materials that the Director did not consider in the appointment decision is fanciful at best. CONCLUSION Plaintiff, while complaining about the FDICs attempt to relitigate this already decided issue, Response at 12, has sought reconsideration of the Courts February 10, 2012 Order permitting the FDIC to submit documents for in camera review, speculating that the documents are not privileged and that any privilege can be overridden. Plaintiffs speculations are groundless; the documents submitted to the Court are in fact privileged and were properly withheld. Respectfully submitted, COLLEEN J. BOLES Assistant General Counsel BARBARA SARSHIK Senior Counsel _____/s/__________________________ DUNCAN N. STEVENS D.C. Bar No. 473550 Counsel

Case 1:11-cv-00408-ABJ Document 79

Filed 02/17/12 Page 10 of 10

Federal Deposit Insurance Corporation 3501 N. Fairfax Drive, D-7028 Arlington, VA 22226 dstevens@fdic.gov (703) 562-2402 (phone) (703) 562-2477 (fax) dstevens@fdic.gov Attorney for Federal Deposit Insurance Corporation in its corporate capacity February 17, 2012

10

Case 1:11-cv-00408-ABJ Document 79-1

Filed 02/17/12 Page 1 of 2

FDIC
Federal Deposit Insurance Corporation
rn

550 17th Street, NW, Washington, DC 20429

Legal Division

February 15, 2012 By Hand Delivery Hon. Amy Berman Jackson United States District Court for the District of Columbia 333 Constitution Ave. N.W. Washington, DC 20001 Re: United Western Bank v. 0CC, No. 11-408 (ABJ) Dear Judge Jackson: As you know, a dispute has arisen in the above-referenced matter concerning certain FDIC materials in Defendants custody. Plaintiff has moved to compel the production of those materials. On February 10, 2012, the Court ordered the FDIC to deem the motion to compel a request for discretionary disclosure pursuant to 12 C.F.R. 309.6(b)(8)(i). The Court further ordered the FDIC to either produce the materials to Plaintiff or submit them for in camera review no later than February 15, 2012. The FDIC has undertaken further review of the materials, pursuant to the Courts order, and has elected to make a discretionary disclosure of the majority of them. Specifically, the FDIC is prepared to produce all of the liquidity reports and accompanying e-mails that Defendants identified as responsive to Plaintiffs discovery requests (Bates numbered 0CCUWB 00799-970), along with one of the e-mails circulated among FDIC Board members (Bates numbered OCC-UWB 01012). Because the governing regulations require a protective order for the confidential supervisory information contained in those reports and e-mails, see 12 C.F.R. 309.6(b)(8)(i), we sought Plaintiffs consent to the entry of a protective order, but Plaintiff declined to consent. Accordingly, we are enclosing those materials and will move for a protective order shortly; we are prepared to provide them to Plaintiff once the Court has ruled on our motion for protective order. As for the remaining materials, specifically an e-mail circulated among FDIC Board members on November 5, 2010 (OCC-UWB 00971), a Case Memorandum to the FDIC Board dated October 25, 2010 (OCC-UWB 00972-1011), and the agenda for the FDIC Boards closed meeting on November 9, 2010 (OCC-UWB 01013-17), we have identified segregable factual information in those documents that is not privileged. Because those documents do contain privileged material, however, we are submitting the unredacted versions of the documents to the Court for in camera review. For the Courts convenience, we are submitting both a clean copy of the documents and a copy with brackets around the privileged portions, along with notations indicating the nature of the privilege asserted. Portions marked "BEP" are withheld under the bank examination privilege, portions marked "DPP" are withheld under the deliberative process privilege, portions marked "BEP-DPP" are withheld under both privileges, and a few phone

Case 1:11-cv-00408-ABJ Document 79-1 Hon. Amy Berman Jackson February 15, 2012

Filed 02/17/12 Page 2 of 2

numbers have been redacted to safeguard FDIC employees privacy. To avoid confusion and potentially duplicative production, we have not yet produced the redacted versions of those documents to Plaintiff, once the court has ruled on whether the redacted information is in fact privileged, we will produce the documents with such redactions as the Court deems appropriate. We are also submitting the declaration of Serena Owens, Associate Director of the Risk Management Examination Branch of the FDIC s Division of Risk Management Supervision, explaining the basis for the assertion of the privileges as to the Case Memorandum. The redacted material in the November 5, 2010 e-mail and the meeting agenda relates solely to institutions other than United Western and is withheld to safeguard the confidentiality of those institutions and the Boards deliberations regarding them. We appreciate your careful consideration of this important issue. Please contact me at (703) 562-2402 with any questions.

Sincerely,

Duncan N. Stevens Counsel cc: Christopher A. Sterbenz, Esq. Andrew L. Sandler, Esq. (w/o enclosures) Kirby D. Behre, Esq. (w/o enclosures) Theodore J. Abariotes (w/o enclosures)

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 3 of 60 02/17/12 1 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 4 of 60 02/17/12 2 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 5 of 60 02/17/12 3 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 6 of 60 02/17/12 4 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 7 of 60 02/17/12 5 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 8 of 60 02/17/12 6 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 9 of 60 02/17/12 7 20

Case 1:11-cv-00408-ABJ Document 60-2 Filed 11/02/11 Page 10of 20 Case 1:11-cv-00408-ABJ Document 79-2 Filed 02/17/12 Page 8 of 60

Case 1:11-cv-00408-ABJ Document 60-2 Filed 11/02/11 Page 11of 20 Case 1:11-cv-00408-ABJ Document 79-2 Filed 02/17/12 Page 9 of 60

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 12 of 60 02/17/12 10 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 13 of 60 02/17/12 11 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 14 of 60 02/17/12 12 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 15 of 60 02/17/12 13 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 16 of 60 02/17/12 14 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 17 of 60 02/17/12 15 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 18 of 60 02/17/12 16 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 19 of 60 02/17/12 17 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 20 of 60 02/17/12 18 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 21 of 60 02/17/12 19 20

Case 1:11-cv-00408-ABJ Document 60-2 79-2

Filed 11/02/11 Page 22 of 60 02/17/12 20 20