Rotstain v. Trustmark Nat'l Bank
Rotstain v. Trustmark Nat'l Bank
2020 WL 1697990 (N.D. Tex. 2020)
January 21, 2020
Bryant Jr., D. Gordon, United States Magistrate Judge
Summary
The court ordered TD Bank to produce any ESI relevant to the case. The court also ordered TD Bank to submit any documents withheld as privileged under the Bank Secrecy Act (BSA) for an in camera review to determine if they are in fact privileged. The court will consider six factors to determine if the documents are privileged, including the document's origin, purpose, and content.
Additional Decisions
Peggy Roif ROTSTAIN, et al., Plaintiffs,
v.
TRUSTMARK NATIONAL BANK, et al., Defendants
v.
TRUSTMARK NATIONAL BANK, et al., Defendants
Civil Action No. 3:09-CV-2384-N-BQ
United States District Court, N.D. Texas, Dallas Division
Signed January 21, 2020
Counsel
Peter D. Morgenstern, Butzel Long PC, David Joseph Ranzenhofer, Pro Hac Vice, Friedman Kaplan Seiler & Adelman LLP, Gregory A. Blue, Dilworth Paxson LLP, Rachel K. Marcoccia, Morgenstern & Blue LLC, New York, NY, Benjamin D. Reichard, Jesse Cobb Stewart, James R. Swanson, Lance C. McCardle, Molly Wells, Pro Hac Vice, Fishman Haygood Phelps Walmsley Willis & Swanson LLP, New Orleans, LA, Edward C. Snyder, Castillo Snyder PC, San Antonio, TX, for Plaintiffs Guthrie Abbott, Steven Queyrouze, Sarah Elson-Rogers, Salim Estefenn Uribe, Ruth Alfille de Penhos.Peter D. Morgenstern, Butzel Long PC, David Joseph Ranzenhofer, Pro Hac Vice, Friedman Kaplan Seiler & Adelman LLP, Gregory A. Blue, Dilworth Paxson LLP, Rachel K. Marcoccia, Morgenstern & Blue LLC, New York, NY, Benjamin D. Reichard, James R. Swanson, Lance C. McCardle, Molly Wells, Pro Hac Vice, Fishman Haygood Phelps Walmsley Willis & Swanson LLP, New Orleans, LA, for Plaintiff Gabriel Suarez.
David Joseph Ranzenhofer, Pro Hac Vice, Friedman Kaplan Seiler & Adelman LLP, Joshua E. Abraham, Peter D. Morgenstern, Butzel Long PC, New York, NY, Benjamin D. Reichard, Jesse Cobb Stewart, James R. Swanson, Lance C. McCardle, Molly Wells, Pro Hac Vice, Fishman Haygood Phelps Walmsley Willis & Swanson LLP, New Orleans, LA, Edward C. Snyder, Castillo Snyder PC, San Antonio, TX, for Plaintiff Diana Suarez.
Robin C. Gibbs, Ashley McKeand Kleber, Colin Cairney Pogge, Jeffrey C. Kubin, Larston Bruce Baldree, Robert J. Madden, Scott A. Humphries, Gibbs & Bruns LLP, Houston, TX, for Defendant Trustmark National Bank.
Rodney Acker, Ellen B. Sessions, James V. Leito, IV, Norton Rose Fulbright US LLP, Dallas, TX, Courtney A. Welshimer, Pro Hac Vice, Eamonn W. Campbell, Pro Hac Vice, Joshua Polster, Pro Hac Vice, Kavitha Sivashanker, Lynn Neuner, Melissa Vallejo, Pro Hac Vice, Meredith D. Karp, Pro Hac Vice, William Russell, Jr., Peter E. Kazanoff, Pro Hac Vice, Raquel E. Villagra, Pro Hac Vice, Stephen J. Digregoria, Pro Hac Vice, Thomas McMahon Cramer, Pro Hac Vice, Simpson Thacher & Barlett LLP, New York, NY, for Defendant the Toronto-Dominion Bank.
Noelle M. Reed, Wallis Mizell Hampton, Daniel E. Bolia, Skadden Arps Slate Meagher & Flom LLP, Houston, TX, Allen L. Lanstra, Julia Nahigian, Pro Hac Vice, Skadden Arps Slate Meagher & Flom LLP, Los Angeles, CA, George A. Zimmerman, Pro Hac Vice, Julie Elizabeth Cohen, Pro Hac Vice, Skadden Arps Slate Meagher & Flom LLP, New York, NY, Michelle L. Davis, Skadden Arps Slate Meagher & Flom LLP, Midlothian, TX, for Defendant SG Private Banking (Suisse) S.A.
Roger B. Cowie, Taylor F. Brinkman, Locke Lord LLP, Dallas, TX, John K. Schwartz, Locke Lord LLP, Austin, TX, for Defendant HSBC Bank PLC.
Brian A. Herman, Stephanie Gamiz, Pro Hac Vice, Morgan Lewis & Bockius LLP, New York, NY, Aaron C. Christian, Arcadi Jackson LLP, Jillian R. Harris, Morgan Lewis & Bockius LLP, Dallas, TX, Ryan C. Wooten, Orrick Herrington & Sutcliffe LLP, Houston, TX, for Defendant Blaise Friedli.
Paul C. Watler, Edwin M. Buffmire, Jonathan D. Neerman, Lindsey Marsh Brown, Minoo Blaesche, Jackson Walker L.L.P., Dallas, TX, Anthony F. Sullivan, Galloway Johnson Tompkins Burr & Smith, Houston, TX, for Defendant Independent Bank.
Noelle M. Reed, Skadden Arps Slate Meagher & Flom, Houston, TX, George A. Zimmerman, Pro Hac Vice, Skadden Arps Slate Meagher & Flom LLP, New York, NY, for Defendant Societe Generale Private Banking.
Bryant Jr., D. Gordon, United States Magistrate Judge
FILED UNDER SEAL1 ORDER GRANTING PLAINTIFF'S MOTION TO COMPEL
*1 This discovery dispute involves certain requests for production Plaintiff The Official Stanford Investors Committee (OSIC) served on Defendant The Toronto-Dominion Bank (TD Bank). TD Bank objected to OSIC's discovery requests primarily on the ground that they seek materials privileged under Canadian and United States law. See ECF No. 624. After several attempts by the parties to resolve the issue, including a telephonic hearing with the undersigned, OSIC filed the Motion to Compel now before the Court. Through the motion, OSIC seeks a Court order compelling TD Bank to: (1) produce any filings it made with the Canadian government concerning Stanford International Bank Ltd. and its affiliates (SIB) as well as any internal communications related to such filings; and (2) provide ninety-five documents it has logged and withheld as privileged under the United States' Bank Secrecy Act (BSA) or, alternatively, OSIC asks the Court to conduct in camera review of the documents to determine whether TD Bank has properly withheld them. Pl.'s Mot. to Compel 1–2, 12, ECF No. 583.
The district judge has referred discovery issues such as those raised in the pending motion to the undersigned magistrate judge, see Orders, In re Stanford Entities Secs. Litig., 3:09-MD-2099-N (N.D. Tex. Sept. 24, 2012, and Feb. 13, 2014) (ECF Nos. 30, 50), and the motion is ripe for review. The undersigned has considered the papers filed by the parties, and has determined that OSIC's motion should be GRANTED as follows.
I. Background
Plaintiff OSIC represents investors who lost billions in a Ponzi scheme perpetrated by R. Allen Stanford, his associates, and various entities under Stanford's control, including SIB. In this action, OSIC and the named Plaintiffs allege, inter alia, that TD Bank assisted SIB and other Stanford entities in fraudulently transferring certificate of deposit (CD) proceeds. First Am. Intervenor Compl. ¶¶ 44–47, ECF No. 403. OSIC also contends that TD Bank “received [an unknown amount of] banking and other fees for providing their supposed ‘services’ which actually facilitated and furthered the Stanford Ponzi scheme” and “also made huge profits on the amounts deposited with them.” Id. ¶ 45. OSIC asserts claims for fraudulent transfer and civil conspiracy, among others, and requests punitive damages as a result. Id. ¶¶ 77–114.
Through its Motion to Compel, OSIC seeks an order from the Court compelling TD Bank “to produce any filings that TD made with the Canadian government concerning [SIB] ... and any internal communications related to such filings”—namely, suspicious transaction reports (STRs), large cash transaction reports, cross-border currency or monetary instruments reports, and related internal communications. Pl.'s Mot. to Compel 1, 5–6. OSIC argues that, despite TD Bank's contention to the contrary, section 8 of Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act (POCA) does not prohibit disclosure of the requested information. Id. at 5–6.
*2 OSIC also “asks the Court to overrule TD's assertion that 95 documents it logged and withheld [are] privileged” under the BSA. Id. at 2. OSIC posits that the BSA, a United States statute, affords no protection to TD Bank as a Canadian institution. Id. But even if it does apply, OSIC argues, the BSA does not shield from disclosure the documents TD Bank has withheld because they do not fall within the narrow scope of the BSA privilege. Id. Specifically, TD Bank represents that the withheld documents “relate to inquiries made to TD ... by another bank.” Id. OSIC claims that TD Bank cannot assert the BSA privilege with respect to any inquiries it received from another bank regarding SIB. Id. at 2, 7.[2] Alternatively, OSIC seeks in camera review of the ninety-five documents to determine whether the BSA applies to any of the withheld communication. Id. at 8. Finally, OSIC requests that the Court, at a minimum, require TD Bank to disclose the name of the bank that made inquiry to TD Bank regarding SIB's banking activity. Id. at 3, 12.
In response, TD Bank does not directly refute OSIC's contention that under the plain language of POCA's section 8, the requested documents are not privileged. See Def. The Toronto-Dominion Bank's Opposition 5-8, ECF No. 596 (hereinafter Def.'s Resp.). Instead, TD Bank generally asserts that the Court should not compel disclosure of responsive information because it would be contrary to the purpose of POCA. Id. TD Bank additionally criticizes OSIC's alleged reliance “on outdated and non-binding authority” in support of its claim that section 8 does not prohibit disclosure of the documents in dispute. Id. at 6–7.
With respect to the ninety-five withheld documents, TD Bank disputes the notion that the BSA, a United States statute, does not apply to TD Bank, a Canadian entity. See id. at 8–12. TD Bank further claims “[t]hat [whether] the [BSA] privilege ... extend[s] to third parties uninvolved in a SAR or SAR-related inquiry is irrelevant.” Id. at 10. TD Bank instead asks the Court to focus on the principle that the BSA creates “an unqualified ... evidentiary privilege that ... cannot be waived,” and which applies regardless of a bank's country of incorporation because the BSA unequivocally protects disclosure of SARs. See id. TD Bank also argues that it should not be required to reveal the name of the inquiring bank for the same reason—that the BSA protects it from disclosure—and for the additional reason “that the deadline for third-party discovery passed months ago on May 28, 2019....” Id. at 10–11.
OSIC replies that POCA's section 8, “read in its grammatical and ordinary sense,” does not bar disclosure of the requested information where, as here, such information is not being disclosed with the intent to prejudice a criminal investigation. Pl.'s Reply 1-2, ECF No. 610. OSIC avers that its interpretation of section 8 is consistent with relevant Canadian authority. Id. at 2–6. OSIC further disputes TD Bank's contention that the BSA prohibits disclosure of the documents in question on the following additional grounds: (1) “[t]he BSA does not have extraterritorial application,” and “TD Bank does not dispute this”; and (2) “the BSA does not allow TD to withhold documents from production which were generated by another bank and sent to TD, and which would reveal whether the other bank filed an SAR.” Id. at 8. OSIC also notes that through its privilege log, TD Bank has failed to “explain the basis on which it is withholding documents under the BSA”—for example, TD Bank “does not represent that any of these documents would reveal whether it filed an SAR.” Id. at 7.
II. Analysis
A. Legal Standard
Rule 26 of the Federal Rules of Civil Procedure defines the permissible bounds of discovery:
Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.
*3 Fed. R. Civ. P. 26(b)(1). Information must therefore be nonprivileged, relevant, and proportional to the needs of the case to constitute discoverable material. See Samsung Elecs. Am., Inc. v. Chung, 321 F.R.D. 250, 279 (N.D. Tex. 2017) (citing Rocha v. S.P. Richards Co., Civil Action No. 5:16-CV-411-XR, 2016 WL 6876576, at *1 (W.D. Tex. Nov. 17, 2016)) (“Under Rule 26(b)(1), discoverable matter must be both relevant and proportional to the needs of the case—which are related but distinct requirements.”).
Federal Rule of Civil Procedure 37(a) governs motions to compel discovery responses. Rule 37(a)(3)(B) provides that a party seeking discovery may move for an order compelling production against another party when the latter has failed to answer interrogatories under Federal Rule of Civil Procedure 33 or produce documents requested under Rule 34. See Fed. R. Civ. P. 37(a)(3)(B)(iii), (iv). For purposes of Rule 37(a), “an evasive or incomplete disclosure, answer, or response must be treated as a failure to disclose, answer, or respond.” Fed. R. Civ. P. 37(a)(4). “The moving party bears the burden of showing that the materials and information sought are relevant to the action or will lead to the discovery of admissible evidence.” Abraham v. Alpha Chi Omega, 271 F.R.D. 556, 559 (N.D. Tex. 2010) (citing Export Worldwide, Ltd. v. Knight, 241 F.R.D. 259, 263 (W.D. Tex. 2006)). Once a moving party makes an initial showing of relevance, however, the party resisting discovery has the burden of showing why the requested discovery is irrelevant, overly broad, unduly burdensome, or privileged. Id. (citing Spiegelberg Mfg., Inc. v. Hancock, No. 3-07-CV-1314-G, 2007 WL 4258246, at *1 (N.D. Tex. Dec. 3, 2007)); see also Clockwork IP LLC v. Parr Mgmt. LLC, No. 3:14-CV-3879-N, 2016 WL 3350703, at *3 (N.D. Tex. Mar. 21, 2016). In response to a motion to compel, an objecting party must “urge and argue in support of its objection to an interrogatory or request, and, if it does not, it waives the objection.” Firebirds Int'l, LLC v. Firebird Rest. Grp., LLC, No. 3:17-cv-2719-B, 2018 WL 3655574, at *7 (N.D. Tex. July 16, 2018) (citing OrchestrateHR, Inc. v. Trombetta, 178 F. Supp. 3d 476, 507 (N.D. Tex. 2016)).
B. The disputed discovery requests.
In response to the Court's order, OSIC filed the Requests for Production (RFP) at issue. ECF No. 624. OSIC asserts that its Motion to Compel relates to numbers 2, 3, and 5 in its First Set of RFPs and number 6 in its Second Set of RFPs. Id. TD Bank objected to the requests on numerous grounds, including relevancy and burdensomeness. Id. In its response to OSIC's motion, however, TD Bank does not assert and argue in support of most of its objections. See Def.'s Resp. 1–13. In response to a motion to compel, an objecting party must “urge and argue in support of its objection to an interrogatory or request, and, if it does not, it waives the objection.” Firebirds Int'l, 2018 WL 3655574, at *7 (citing OrchestrateHR, 178 F. Supp. 3d at 507). Accordingly, the Court only considers the arguments raised in the parties' papers, as discussed below. To the extent TD Bank raised objections in its responses to OSIC's RFPs not addressed in the instant response, its objections are waived.[3]
C. TD Bank must produce any STRs or other filings it made with the Canadian government concerning Stanford International Bank and its affiliates as well as any internal communications related to such filings.
*4 OSIC contends that TD Bank should be required to produce suspicious transaction reports (STRs) and related internal communications. Pl.'s Mot. to Compel 5. TD Bank avers that, under section 8 of POCA, the documents OSIC seeks are privileged. Def.'s Resp. 5–7. OSIC argues, however, that under the plain language of section 8, an entity is prohibited from disclosing a STR only where the producing entity does so with the intent of prejudicing a criminal investigation. Pl.'s Mot. to Compel 5; Pl.'s Reply 1-2. In this case, OSIC asserts that it is not seeking the STRs and related documents for the purpose of prejudicing a criminal investigation and, in fact, any criminal proceedings involving Allen Stanford and SIB have long since concluded. Pl.'s Mot. to Compel 5; Pl.'s Reply 2.
Where, as here, foreign law applies, “United States courts are presumed competent to apply foreign law, and Federal Rule of Civil Procedure 44.1 governs federal courts' determination of foreign law.” Alim v. KBR, Inc., Civil Action No. 3:11-CV-1746-N, 2012 WL 12857421, at *5 (N.D. Tex. Mar. 15, 2012) (Godbey, J.) (internal citations omitted). Rule 44.1 provides that “[i]n determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence,” and “[t]he court's determination must be treated as a ruling on a question of law.” Fed. R. Civ. P. 44.1. In support of their respective positions, both parties submitted declarations from experts on Canadian law. See Decl. of Edward Babin 4–18, ECF No. 583-1 [hereinafter Babin Decl.]; Decl. of Jacqueline Shinfield 5–27, ECF No. 596-1 [hereinafter Shinfield Decl.]; Reply Decl. of Edward Babin 1–6, ECF No. 611 [hereinafter Babin Reply Decl.]. The Court has considered the declarations of both parties in evaluating the relevant Canadian law.
Section 8 of POCA provides that “[n]o person or entity shall disclose that they have made, are making or will make a report under section 7, or disclose the contents of such a report, with the intent to prejudice a criminal investigation, whether or not a criminal investigation has begun.” Proceeds of Crime (Money Laundering) & Terrorist Financing Act, S.C. 2000, c. 17, s. 8 (Can.) (emphasis added). Based on a plain reading, and as OSIC's expert Edward Babin similarly notes, section 8, “[r]ead in its ‘grammatical and ordinary sense,’ ” prohibits disclosure of STRs and related information only where the party revealing the information does so with intent to prejudice a criminal investigation. See id.; Babin Decl. 13 ¶ 28.
Notably, TD Bank does not address OSIC's plain-language argument in its response. See Def.'s Resp. 5–7; see also Pl.'s Reply 1 (“Nowhere in TD's opposition papers, whether in its expert's report or elsewhere in its 353-page appendix, does it try and come to terms with the plain language of Section 8 of POCA, even though TD claims the statute allows it to avoid production of any STRs (or other Canadian government filings it made) about SIB....”). Instead, TD Bank generally argues that requiring it to disclose STRs and related internal communications would be counter to the underlying policies of POCA. Def.'s Resp. 5–7. TD Bank apparently seeks to avoid an ordinary reading of the statute on three grounds: (1) POCA “stresses STR confidentiality and restricts STR sharing”; (2) “OSIC's interpretation [of section 8] relies on outdated and non-binding authority”; and (3) the policies underlying Canada's anti-money laundering (AML) and counter-financing of terrorism (CFT) schemes support non-disclosure. Id. at 5. But other than relying on its expert's opinion and non-binding authority, TD Bank provides little persuasive support for its position.
TD Bank's expert, Jacqueline Shinfield, principally relies on the Financial Action Task Force (FATF) recommendations in arguing that “STRs and other related information are ‘presumptively confidential.’ ” Def.'s Resp. 5 (quoting Shinfield Decl. 9 ¶ 15). According to Shinfield, FATF is “an inter-governmental body with a mandate to establish international standards for fighting money laundering and terrorist financing.” Shinfield Decl. 7 ¶ 16. TD Bank points to FATF's June 2019 recommendations, including numbers 18 and 21, in conjunction with FATF's Guidance on Private Sector Information Sharing, dated November 2017, in support of its contention that STRs and related documents must be kept confidential to not only prevent “tipping-off,” as OSIC posits, but also to ensure that such information is only used for AML/CFT purposes.[4] Shinfield Decl. 19 ¶¶ 29–35. Shinfield also opines that various FATF guidances, which relate to sharing STR information within a financial group, support TD Bank's position that the discovery OSIC seeks must be kept confidential and is therefore privileged. Id. at 11–12.
*5 As Shinfield's declaration explains, however, POCA actually implements the FATF's recommendations. Id. In other words, the FATF recommendations are advisory; each participating country must implement the recommendations into law. See id.; see also What we do, FATF, https://www.fatf-gafi.org/about/whatwedo (last visited Dec. 31, 2019) (describing its objectives to include “set[ting] standards and promot[ing] effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system” and “monitor[ing] [member] countries' progress in implementing the FATF Recommendations”). Although TD Bank asserts FATF counsels that STRs and related communications should be “used only for AML/CFT purposes and not for any other purpose” (Shinfield Decl. 15 ¶ 35), the plain language of Canada's POCA does not support such a broad stance on confidentiality. See Babin Decl. 16 ¶ 37 (noting that section 8's intent requirement was not part of FATF's recommendations but Canadian Parliament nevertheless included it, thus confirming that disclosure is prohibited “only where the person or entity actually intends to prejudice a criminal investigation,” and further explaining that the intent requirement “is particularly significant given that violations of section 8 can result in serious criminal sanctions”); Babin Reply Decl. 3 ¶ 9 (opining that his “interpretation of section 8 is based on the plain and ordinary meaning of the words in accordance with the usual principles of statutory interpretation applied by Canadian courts”); cf Wultz v. Bank of China Ltd., 942 F. Supp. 2d 452, 464 (S.D.N.Y. 2013) (observing that China's (also an FATF member) AML law plainly states that “[f]inancial institutions and their staff shall keep confidential ... [STRs and other related information] ... which shall not be provided to clients or others in violation of regulations” (quoting article 15(2) of the Anti-Money Laundering Law of the Peoples Republic of China)).
TD Bank's policy argument is similarly unavailing. TD Bank urges the Court to consider “the policy implications of STRs being discoverable in civil litigation.” Shinfield Decl. 7 ¶ 14. Shinfield opines that were the Court to compel TD Bank to produce the STRs and related communications, “Canada's AML/CFT regime would be significantly weakened” because “reporting institutions would have strong incentives to limit their filing of STRs out of fear that these reports would be held against them in subsequent litigation” and “the highly proprietary and expensive transaction monitoring systems ... would be exposed to public view, which could enable individuals ... to ‘game the system’ in order to avoid detection.” Id. at 17 ¶ 38. Most of TD Bank's concerns can be addressed through the protective order already entered by the Court. More importantly, however, the Court cannot ignore the plain language of section 8. See Perrin v. United States, 444 U.S. 37, 42 (1979) (“A fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning.”); see also H.J. Heinz Co. of Canada Ltd. v. Canada (Attorney General), [2006] 1 S.C.R. 441 ¶ 21 (Can.) (quoting Rizzo & Rizzo Shoes Ltd., [1998] 1 S.C.R. 27 (Can.)) (“As with most questions of statutory interpretation, the dispute can be resolved through what is now commonly referred to as the modem approach: ‘the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.’ ”). TD Bank has provided no explanation as to why the Court should disregard it.
In sum, TD Bank's expert, Jacqueline Shinfield, frames most of her conclusions in the form of directions as to how the Court should interpret section 8—not as statements concerning what Canadian law is as reflected by the plain statutory language. See, e.g., Shinfield Decl. 6–8 ¶¶ 12, 14–16 (opining that Babin's Declaration “does not provide an adequate explanation of the legal landscape governing” Canadian “AML/CFT monitoring activities” and urging the Court to consider the “broader picture,” including FATF recommendations and “policy implications of STRs being discoverable in civil litigation”). Shinfield's contention that the STRs and related communication OSIC seeks are privileged is supported with general, abstract language from non-binding authority, and supplemented by her own opinions concerning the potential implications of adopting the plain meaning of section 8. TD Bank has not, however, offered any authority under Canadian law supporting a deviation from the plain language of POCA's section 8. The Court therefore concludes that TD Bank has failed to meet its burden of establishing that the documents OSIC seeks are privileged under Canadian law. See In re Santa Fe Int'l Corp., 272 F.3d 705, 710 (5th Cir. 2001) (“A party asserting a privilege exemption from discovery bears the burden of demonstrating its applicability.”).
*6 Accordingly, TD Bank is ORDERED to serve on OSIC, no later than February 4, 2020, any STRs or other filings it made with the Canadian government concerning Stanford International Bank and its affiliates as well as any internal communications related to such filings.
D. TD Bank shall produce the ninety-five documents it has withheld as privileged under the BSA, subject to the limitations set forth below.
TD Bank has withheld ninety-five documents[5] that it asserts are “subject to statutory evidentiary privilege per the [BSA].” See Pl.'s App. 311–41. TD Bank contends that the withheld documents “relate to inquiries made to TD by another bank that are protected under the [BSA] and relevant law.” Def.'s Resp. 9 (quoting Def.'s App. 351, ECF No. 596-1). OSIC seeks an order from the Court compelling TD Bank to produce these documents, arguing that the BSA is inapplicable to TD Bank, a banking institution incorporated in Canada, “which conducted its relationship with SIB from Canada.” Pl.'s Mot. to Compel 6. Because TD Bank is a Canadian financial institution, OSIC maintains it is not required to comply with the BSA, which only protects Suspicious Activity Report (SAR) filings by United States financial institutions. See id. at 6-7; Pl.'s Reply 8.
OSIC further avers that even if the Court concludes that the BSA applies to TD Bank, the BSA only shields production of SARs and documents that reveal whether the bank itself filed a SAR. Pl.'s Mot. to Compel 8–11. Thus, OSIC contends, the BSA does not apply to the documents TD Bank has withheld because they “relate to inquires made to TD ... by another bank.”[6] Id. at 2. OSIC alternatively asserts that if the BSA privilege protects documents that reveal whether another bank filed a SAR but that are within the possession of an institution that is not required to comply with the BSA, TD Bank must still disclose any factual or transactional documents upon which a SAR was based. Id. at 10. As a result, OSIC asks the Court to conduct in camera review of the withheld documents to determine whether they are in fact privileged under the BSA. Id. at 2, 12. Finally, OSIC seeks, at a minimum, an order directing TD Bank to reveal the identity of the inquiring bank so that it “may subpoena [the bank] for documents and testimony about these inquiries.” Id. at 4.
*7 TD Bank generally does not refute OSIC's contention that the BSA, a United States regulation, does not apply. See Def.'s Resp. 8–12. Although not clearly defined, TD Bank seems to argue that the BSA's privilege applies by extension. Id. at 10. Citing Wiand v. Wells Fargo Bank, N.A., 981 F. Supp. 2d 1214 (M.D. Fla. 2013) for support, TD Bank claims that it has properly withheld the disputed documents because they relate to “a report of an evaluative nature”—i.e., they would reveal whether another bank filed a SAR. Id. at 10–11. TD Bank also opposes OSIC's request to obtain the name of the inquiring bank, contending that “[s]uch information is precisely the sort of underlying communication that the BSA protects from disclosure.” Id. at 10. And in any event, TD Bank avers, OSIC's request for the inquiring bank's name should be denied because “the deadline for third-party discovery passed months ago on May 28, 2019....” Id. at 11.
In its reply, OSIC clarifies that it “does not dispute that if the documents TD withheld were joint SARs filed by TD and the other bank about SIB, or [if they] would reveal whether TD and the other bank filed joint SARs about SIB, this would fall within the scope of the BSA privilege.” Pl.'s Reply 9. OSIC claims, however, that “there is no record based upon which this Court could understand that any of the 95 logged documents comprise a joint SAR or would reveal whether a joint SAR was filed.” Id. Moreover, OSIC reiterates that “the BSA does not allow TD to withhold documents from production which were generated by another bank and sent to TD, and which would reveal whether the other bank filed an SAR.” Id. at 8.
The BSA requires banks and other financial institutions “to report any suspicious transaction relevant to a possible violation of law or regulation.” 31 U.S.C. § 5318(g)(1) (2014). SARs, “and any information that would reveal the existence of a SAR, are confidential, and shall not be disclosed....” 12 C.F.R. § 21.11(k); see § 5318(g)(2)(A); Whitney Nat'l Bank v. Karam, 306 F. Supp. 2d 678, 682–83 (S.D. Tex. 2004) (defining protected documents as including “a SAR itself; communications pertaining to a SAR or its contents; communications preceding the filing of a SAR and preparatory or preliminary to it; communications that follow the filing of a SAR and are explanations or follow-up discussions; or oral communications or suspected or possible violations that did not culminate in the filing of a SAR”). “The underlying facts, transactions, and documents upon which a SAR is based,” however, are not confidential and may be released. 12 C.F.R. § 21.11 (k)(1)(ii)(A)(2). “Accordingly, courts have held that the SAR privilege does not shield from discovery reports, memoranda, or underlying transactional documents generated by a bank's internal investigation procedures.” Wiand, 981 F. Supp. 2d at 1217-18 (collecting cases) (compelling bank to produce “a report generated by the bank in the ordinary course of business in monitoring unusual activity” and other internal documents but concluding reports of “an evaluative nature intended to comply with federal reporting requirements” were privileged); see Wultz v. Bank of China Ltd., 56 F. Supp. 3d 598, 601-02 (S.D.N.Y. 2014) (holding that a bank's internal investigatory documents were not privileged, where bank had not shown the documents would reveal whether it filed a SAR); Freedman & Gersten, LLP v. Bank of Am., N.A., Civil Action No. 09–5351 (SRC)(MAS), 2010 WL 5139874, at *5 (D. N.J. Dec. 8, 2010) (requiring bank to produce “documents created in the ordinary course of business that are responsive to the request and do not include the actual SAR, if any”).
TD Bank does not directly refute OSIC's argument that, as a Canadian institution, the BSA does not apply to TD Bank or require it to withhold documents protected under the BSA. See Def.'s Resp. 8–10. TD Bank instead generally argues that the ninety-five withheld documents are privileged because they relate to SARs. See Def.'s Resp. 10 (citing Wiand, 981 F. Supp. 2d at 1218) (asserting that “OSIC's argument that the BSA does not protect the 95 documents at issue ... must fail” because they relate to information “intended to comply with federal reporting requirements”). TD Bank's argument, however, operates from the mistaken assumption that the BSA applies regardless of the country of incorporation of the financial institution. TD Bank points to no authority, and the Court has found none, standing for the proposition that the BSA applies to non-American financial institutions.[7] Arguably, the plain language of the BSA, and its implementing provisions, support the contrary. See, e.g., 31 U.S.C. § 5312(a)(2) (defining the term “financial institution” as used in the BSA but not including an entity incorporated outside the United States); 31 C.F.R. § 1010.100(d), (t) (defining a “bank” and “financial institution” as including “[e]ach agent, agency, branch or office within the United States ...” (emphasis added)); see also 21 C.F.R. § 21.11(a) (providing that “[t]his section applies to all national banks as well as any Federal branches and agencies of foreign banks licensed or chartered by the [Office of the Comptroller of the Currency]”), (k)(1)(i) (prohibiting national banks from disclosing SARs “or any information that would reveal the existence of a SAR” (emphasis added)).[8] TD Bank does not refute OSIC's contention that it is a Canadian bank. Moreover, as OSIC noted, one of TD Bank's witnesses in this litigation acknowledged that there would be no circumstance under which TD Bank, an entity organized under the laws of Canada, would have been required to file a SAR. Pl.'s Reply App. 87-88, ECF No. 611.
*8 Accordingly, the Court finds that TD Bank has not met its burden of demonstrating that it is subject to the BSA's provisions. Thus, the Court concludes that TD Bank may not withhold the ninety-five withheld documents, as listed in TD Bank's February 13, 2019, Privilege Log, as privileged under the BSA.
Nevertheless, the Court recognizes that the SAR privilege is unqualified and not subject to waiver by a financial institution required to comply with the BSA. See Whitney Nat'l Bank, 306 F. Supp. 2d at 682; see also Wiand v. Wells Fargo Bank, N.A., Case No: 8:12–CV–557–T–27EAJ, 2013 WL 12157565, at *1 n.2 (citing Confidentiality of Suspicious Activity Reports, 75 Fed. Reg. 75577 (Dec. 3, 2010)) (explaining that “[b]ecause SARs are used for law enforcement and regulatory purposes, financial institutions are prohibited from releasing any information related to SARs as it could compromise an investigation and alert parties involved in suspicious activities that they are being monitored”). Despite the BSA's general inapplicability to TD Bank, OSIC concedes “that if the documents TD withheld [are] joint SARs filed by TD and the other bank about SIB, or would reveal whether TD and the other bank filed joint SARs about SIB,” such documents would be privileged under the BSA. Pl.'s Reply 9; see also 21 C.F.R. § 21.11 (k)(1)(ii)(A)(2)(i) (contemplating the disclosure by a national bank of information to another financial institution “for the preparation of a joint SAR”). OSIC further acknowledges that if any of the ninety-five withheld documents “reveal if this [inquiring] bank filed an SAR,” such documents would be privileged under the BSA. Pl.'s Mot. to Compel 10.
The Court therefore ORDERS that with respect to the ninety-five withheld documents, TD Bank shall, no later than February 4, 2020:
1. Serve on OSIC all responsive documents it previously withheld as privileged under the BSA, including any documents relating to “[t]he underlying facts, transactions, and documents upon which a SAR is based, including, but not limited to, disclosures,”[9] except
2. To the extent TD Bank asserts that any of the remaining ninety-five documents constitute: (1) a SAR or joint SAR, completed on the form(s) required by the Office of the Comptroller of the Currency and intended to comply with United States federal law in accordance with 31 U.S.C. § 5318(g)(1) and 12 C.F.R. § 21.11(c); or (2) information that TD Bank contends is protected by the SAR privilege because it consists of an evaluative nature and was generated or collected to comply with SAR reporting requirements—e.g., “information that could reveal whether a SAR or other report of suspected or possible violations has been prepared or filed or what it might contain, or the discussions leading up to or following the preparation or filing of a SAR or other form of report of suspected or possible violations,”[10] TD Bank shall submit such documents for in camera review.[11] To assist in its evaluation of determining which documents are privileged, the Court will rely, inter alia, on the factors set forth in SEC v. Stanford Int'l Bank, Ltd., 2014 WL 3702558, at *5.[12]
3. Any documents TD Bank submits to the Court for in camera review must be provided in the following formats:
a. A bound hard copy that is appropriately marked on the outside to indicate that it contains documents responsive to this Order, produced for in camera inspection, delivered under seal to the chambers of D. Gordon Bryant Jr., United States Magistrate Judge for the Northern District of Texas, Lubbock Division, 1205 Texas Ave., Room 209, Lubbock, TX, 79401. Each page must measure 8½ x 11 inches, with tabs and Bates stamp numbers. The section(s) of each document claimed to be privileged shall be highlighted in yellow. On a separate page following each document, TD Bank shall match the highlighted section to the corresponding entry on its February 13, 2019, privilege log. Stated alternatively, wherever TD Bank claims content of a document is protected by the BSA's SAR privilege, it shall specifically cite the respective line item in the privilege log. The Court will not consider any grounds, legal or factual, not contained in the privilege log already on file herein.
*9 b. TD Bank shall also deliver a text-searchable portable document format (PDF) copy of the bound documents identified above already bookmarked, with the bookmarks corresponding to the document tabs (or reference numbers) for each document TD Bank has identified as privileged, either by email to Bryant_Orders@txnd.uscourts.gov or delivery of same on a CD or flash drive to the magistrate's chambers. The electronic copy will be filed with the Clerk of Court, under seal, for purposes of the record.
All other relief not expressly granted herein is DENIED.
SO ORDERED.
Footnotes
The Clerk of Court is directed to file this Order under SEAL.
As examined in more detail below, OSIC does appear to concede that TD Bank can withhold as privileged documents revealing whether another bank that is subject to the BSA filed a SAR. Pl.'s Mot. to Compel 3 n.2.
OSIC asserts that the requested documents are relevant because they potentially show TD Bank had reason to know that SIB was engaged in fraudulent activity. Pl.'s Mot. to Compel 3. In its response, TD Bank generally objects to “OSIC's inaccurate characterization of the relevance of the requested documents.” Def.'s Resp. 3. TD Bank argues that its “compliance with regulatory obligations does not indicate that TD Bank had knowledge of wrongdoing or turned a ‘blind eye’ to it.” Id. To the extent the foregoing statement can be construed as an objection based on relevance, the Court concludes TD Bank has not met its burden. In the discovery context, relevance is “construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978) (citing Hickman v. Taylor, 329 U.S. 495, 501 (1947)). OSIC has made an initial showing of relevance, and TD Bank has not adequately demonstrated that the documents are irrelevant. See Clockwork IP LLC v. Parr Mgmt. LLC, No. 3:14-CV-3879-N, 2016 WL 3350703, at *3 (N.D. Tex. Mar. 21, 2016) (Godbey, J.) (explaining that “after the party seeking discovery establishes relevance, the party resisting discovery has the burden to show why” it should not be required to provide the requested material).
TD Bank also asserts that OSIC relies on “outdated and non-binding authority.” Def.'s Resp. 6. TD Bank contends that OSIC relies on a Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) interpretive bulletin, which does not constitute binding authority, and an FATF recommendation from 2004 that is outdated and has been replaced by updated recommendations as of June 2019. Id. at 6–7. Even assuming OSIC relies on non-binding authority, however, TD Bank has not provided any information to rebut the plain language of section 8.
The withheld documents are referenced at rows 86–129, 131–37, 139–40, 142–43, and 145–84 on TD Bank's February 13, 2019, privilege log. Pl.'s App. 311–41, ECF No. 583-1.
OSIC's position in this regard, however, is unclear. On the one hand, OSIC argues that “the BSA does not allow TD to withhold documents from production which were generated by another bank and sent to TD, and which would reveal whether the other bank filed an SAR.” Pl.'s Reply 8. But OSIC also concedes that if any of the withheld documents reveal whether the inquiring bank filed a SAR, such documents would be privileged. Pl.'s Mot. to Compel 9 (“In the unlikely event that any of the 95 documents reveals if the other bank filed an SAR, the Court may exclude it from the production set during an in camera inspection.”), 10 (contending that “the 95 documents relating to the other bank's inquiries” are not privileged “except to the limited extent they reveal if this bank filed an SAR”). Such a development would seem unlikely, as noted by OSIC, since the release or provision of such documents by the other bank to TD Bank would presumably violate the BSA, as construed by TD Bank.
TD Bank cites to Wiand v. Wells Fargo Bank, N.A. to support its general position that the BSA applies to it by extension—i.e., that documents related to a SARs inquiry made to it by another bank are privileged. See Def.'s Resp. 10. The Court finds, however, that Wiand is inapposite to the facts of this case. Wiand does not address whether the BSA, in the first instance, applies to a bank outside the United States. See 981 F. Supp. 2d at 1216–19. The Wiand court only considered whether “internal bank emails between another financial institution” and Wells Fargo Bank, N.A.—an institution required to comply with the BSA—were protected by the SAR privilege. Id. at 1218. Moreover, that court found the communications between Wells Fargo and the other institution were privileged to the extent “the comments on those documents, the regulatory authority cited in the communications, and the evaluative content, as a whole, reflect material that could be considered as a report of an evaluative nature intended to comply with federal reporting requirements”—a determination it made after in camera review. Id.
TD Bank also cites SEC v. Stanford Int'l Bank, Ltd., No. 3:09–CV–0298–N, 2014 WL 3702558 (N.D. Tex. July 25, 2014) (Frost, J.) for the general proposition that “the prohibition on SAR disclosures and SAR-related disclosures” is broad and the withheld documents are therefore privileged. Def.'s Resp. 9, 11. TD Bank does not argue, however, that the SEC v. Stanford Int'l Bank case decided whether the BSA applies to a Canadian bank in the first instance, and the Court does not read it as binding in that respect.
TD Bank has not argued that it falls within the definition of any of the foregoing.
21 C.F.R. § 21.11 (k)(1)(ii)(A)(2); see Wiand, 981 F. Supp. 2d at 1217 (explaining that “courts have held that the SAR privilege does not shield from discovery reports, memoranda, or underlying transactional documents generated by a bank's internal investigation procedures”); Whitney Nat'l Bank, 306 F. Supp. 2d at 683 (requiring bank to provide “documents produced in the ordinary course of business pertaining to the defendants' banking activities, transactions, and accounts”).
Whitney Nat'l Bank, 306 F. Supp. 2d at 683.
Stated alternatively, the only privilege claim the Court will review and consider is an assertion that the withheld document constitutes a SAR or contains SAR related information.
The factors include the following: “(1) whether the document was created in the ordinary course of business; (2) whether the information or communication in the document was purely factual or was evaluative, speculative, or opinionated; (3) whether the language in the document referred to a specific customer or transaction or was general in nature; (4) whether the language in the document was indicative of suspicious or illegal activity or future risk of such activity; (5) the source or author of the document; and, if possible, (6) the reason the document was prepared or created.” Stanford Int'l Bank, 2014 WL 3702558, at *5.