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In Re the Reserve Fund Securities and Derivative Litigation v. Reserve Management Company

May 23, 2011

IN RE THE RESERVE FUND SECURITIES AND DERIVATIVE LITIGATION SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
v.
RESERVE MANAGEMENT COMPANY, INC., RESRV PARTNERS, INC., BRUCE BENT SR., AND BRUCE BENT II,
DEFENDANTS, AND
THE RESERVE PRIMARY FUND,
RELIEF DEFENDANT.



The opinion of the court was delivered by: Paul G. Gardephe, U.S.D.J.:

USDC SDNY DOCUMENT ELECTRONICALLY FILED

DOC #:

DATE FILED:

ECF CASE

MEMORANDUM OPINION & ORDER

The Commission seeks an order compelling Defendants to produce approximately sixty emails between Bruce Bent II and his wife, Rebecca Bent, exchanged on September 15 and 16, 2008 (the "Bent emails"). Defendants contend that these emails are protected by the marital privilege. (Oct. 22, 2010 Joint Ltr. at 7) In a November 29, 2010 Order -- familiarity with which is presumed -- this Court reserved decision concerning the production of these emails and directed "the Commission and Defendants to make submissions . . . addressing this issue in greater detail and citing supporting legal authority." (Nov. 29, 2010 Order at 17) The parties have provided additional briefing, and the issue is ripe for resolution.

BACKGROUND

Rule 26(b)(1) of the Federal Rules of Civil Procedure provides that "[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense," and that "[r]elevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." Fed. R. Civ. P. 26(b)(1). "This obviously broad rule is liberally construed," Daval Steel Prods. v. M/V Fakredine, 951 F.2d 1357, 1367 (2d Cir. 1991) (citing Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978)), and "[i]n general, limitations on discovery are imposed only where the requested discovery is 'sought in bad faith, to harass or oppress the party subject to it, when it is irrelevant, or when the examination is on matters protected by a recognized privilege.'" Melendez v. Greiner, 01 Civ. 07888 (SAS) (DF) 2003 U.S. Dist. LEXIS 19084, at *3-4 (S.D.N.Y. Oct. 23, 2003) (quoting In re Six Grand Jury Witnesses, 979 F.2d 939, 943 (2d Cir. 1992)).

The Commission contends that it is entitled to discovery of the Bent emails because (1) Bent II had no reasonable expectation of privacy in email transmitted over Reserve Management Company, Inc. ("RMCI") email system; and (2) Defendants inadvertently produced some of the Bent emails, and thereby waived the marital privilege as to all such emails. (Jan. 12, 2011 SEC Ltr. at 4) Defendants contend that the Bent emails are protected by the marital communications privilege and that there has been no waiver. (Dec. 6, 2010 Def. Br.; Jan. 14, 2011 Def. Ltr. at 2-3)*fn1

I.THE MARITAL COMMUNICATIONS PRIVILEGE

The law recognizes two types of marital privilege. The first is referred to as the "adverse spousal testimony" privilege and permits an individual to refuse to testify adversely against his or her spouse. See Trammel v. United States, 445 U.S. 40, 53 (1980). "This privilege rests on the notion that a husband and wife should be able to trust each other completely, and that marriage is a sanctuary. The privilege is described as being 'broadly aimed at protecting marital harmony.'" United States v. Premises Known as 281 Syosset Woodbury Rd., Woodbury, N.Y., 71 F.3d 1067, 1070 (2d Cir. 1995) (quoting In re Grand Jury Subpoena United States, 755 F.2d 1022, 1027 (2d Cir. 1985), vacated on other grounds sub nom United States v. Koecher, 475 U.S. 133 (1986)).

The second type of marital privilege, referred to as the "marital communications privilege," protects private and confidential communications between spouses from disclosure. See Blau v. United States, 340 U.S. 332, 333 (1951); Premises Known as 281 Syosset Woodbury Rd., Woodbury, N.Y., 71 F.3d at 1070. It provides that "[c]ommunications between the spouses, privately made, are generally assumed to have been intended to be confidential, and hence they are privileged. . . ." Wolfle v. United States, 291 U.S. 7, 14 (1934). The marital communications privilege is at issue here.

There are three prerequisites for assertion of the marital communications privilege:

(1) a valid marriage at the time of the communication, United States v. Lustig, 555 F.2d 737, 747-48 (9th Cir. 1977) (privilege claim denied in part because common law marriage of defendant is not recognized as valid under state law), cert. denied, 434 U.S. 926 (1978); (2) the privilege "applies only to utterances or expressions intended by one spouse to convey a message to the other," id. at 748; and (3) the communication must have been made in confidence, which is presumed, Pereira v. United States, 347 U.S. 1, 6 (1954).

United States v. Premises Known as 281 Syosset Woodbury Rd., 862 F. Supp. 847, 853-54 (E.D.N.Y. 1994).

"The basis of the immunity given to communications between husband and wife is the protection of marital confidences, regarded as so essential to the preservation of the marriage relationship as to outweigh the disadvantages to the administration of justice which the privilege entails. . . ." Wolfle, 291 U.S. at 14. "The confidential communications privilege . . . provides assurance that all private statements between spouses -- aptly called the 'best solace of human existence,' -- will be forever free from public exposure." In re Witness Before Grand Jury, 791 F.2d 234, 237 (2d Cir. 1986) (quoting Trammel, 445 U.S. at 51) (internal quotations omitted).

The marital communications privilege, however, like other evidentiary privileges, deprives "fact-finders of potentially useful information." United States v. Etkin, No. 07-CR-913 (KMK), 2008 WL 482281, at *2 (S.D.N.Y. Feb. 20, 2008) (citing In re Witness Before the Grand Jury, 791 F.2d at 237); see Trammel, 445 U.S. at 50-51 (1980) ("Testimonial exclusionary rules and privileges contravene the fundamental principle that 'the public . . . has a right to every man's evidence.'" (quoting United States v. Bryan, 339 U.S. 323, 331 (1950))); United States v. Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., AFL-CIO, 119 F.3d 210, 214 (2d Cir. 1997) (an evidentiary privilege must be "strictly confined within the narrowest possible limits consistent with the logic of its principle" (internal quotations omitted)). "As such, [a privilege] must be strictly construed and accepted 'only to the very limited extent that permitting a refusal to testify or excluding relevant evidence has a public good transcending the normally predominant principle of utilizing all rational means for ascertaining truth.'" Trammel, 445 U.S. at 50 (citations omitted).

'"The party asserting an evidentiary privilege, such as the marital communications privilege, bears the burden of establishing all of the essential elements involved."' United States v. Acker, 52 F.3d 509, 514-15 (4th Cir. 1995) (quoting United States v. White, 950 F.2d 426, 430 (7th Cir. 1991)); Mercator Corp. v. U.S. of Am. (In re Grand Jury Subpoenas Dated March 19, 2002 & August 2, 2002), 318 F.3d 379, 384 (2d Cir. 2003) ("It is, moreover, well established that the party invoking a privilege bears the burden of establishing its applicability to the case at hand." (citations omitted)); Morganroth & Morganroth v. DeLorean, 123 F.3d 374, 383 (6th Cir. 1997) ("As the trial judge correctly held, the person asserting the marital privilege has the burden of proving that a communication is a marital communication."); United States v. Mardis, No. 08-20021, 2011 WL 90314, at *9 (W.D. Tenn. Jan. 11, 2011) ("'[T]he person asserting the marital privilege has the burden of proving that a communication is a marital communication."' (quoting Morganroth & Morganroth v. DeLorean, 123 F.3d 374, 383 (6th Cir. 1997)); see also Chevron Corp. v. Donziger, No. 11 Civ. 0691(LAK), 2011 WL 1747046, at *13 (S.D.N.Y. May 9, 2011) ("As the party asserting privilege, the [plaintiffs] had the burden of establishing it."); Seyler v. T-Systems N. Am., Inc., 2011 WL 196920, at *1 (S.D.N.Y. Jan. 21, 2011) ("The party claiming the [attorney-client] privilege bears the burden of establishing it." (citations omitted)).

Here, the parties do not dispute that there was a "valid marriage" and that the emails were "utterances or expressions intended by one spouse to convey a message to the other." See Premises Known as 281 Syosset Woodbury Rd., 862 F. Supp. at 854. Accordingly, only the third prerequisite for assertion of the marital communication ...


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