United States District Court, S.D. New York
SHERYL WULTZ, individually, as personal representative of the Estate of Daniel Wultz, and as the natural guardian of plaintiff Abraham Leonard Wultz; YEKUTIEL WULTZ, individually, as personal representative of the Estate of Daniel Wultz, and as the natural guardian of plaintiff Abraham Leonard Wultz; AMANDA WULTZ; and ABRAHAM LEONARD WULTZ, minor, by his next friends and guardians Sheryl Wultz and Yekutiel Wultz, Plaintiffs, -
- BANK OF CHINA LIMITED, Defendant
[Copyrighted Material Omitted]
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For Plaintiffs: Lee S. Wolosky, Esq., Steven I. Froot, Esq., Marilyn C. Kunstler, Esq., Jaime Sneider, Esq., Boies, Schiller & Flexner LLP, New York, NY.
For Defendant: Mitchell R. Berger, Esq., Patton Boggs LLP (DC), Washington, D.C.; Zachary Carter, Esq., Lanier Saperstein, Esq., Neil McDonell, Esq., Eric Epstein, Esq., Daniel Goldberger, Esq., Dorsey & Whitney LLP, New York, NY.
OPINION & ORDER
Shira A. Scheindlin, U.S.D.J.
This suit arises out of the death of Daniel Wultz and the injuries of Yekutiel Wultz, suffered in a 2006 suicide bombing in Tel Aviv, Israel. Four members of the Wultz family brought suit against Bank of China (" BOC" ), alleging acts of international terrorism and aiding and abetting international terrorism under the Antiterrorism Act (" ATA" ), among other claims. The general facts and procedural history of the case were laid out in previous opinions, and familiarity with them is assumed. Plaintiffs' attempts to obtain discovery from and related to BOC have a long, complex, and contested history tat I will discuss below as necessary.
Before the Court is plaintiffs' motion to compel defendant BOC and non-party the Office of the Comptroller of the Currency (" the OCC" ) to produce various investigative files and U.S. regulatory communications. For the reasons stated below, I grant plaintiffs' motion to compel with regard to BOC, and deny plaintiffs' motion without prejudice with regard to the OCC.
II. APPLICABLE LAW
A. Motion to Compel
As noted above, plaintiffs seek an order compelling the production of documents from two sources: defendant BOC and non-party the OCC. The two requests are governed by different legal standards. I address each in turn, summarizing the procedural history of this case where necessary.
1. Materials from the OCC
The Second Circuit has held that " motions to compel agency compliance with discovery requests" are governed by " the administrative exhaustion requirement of [Administrative Procedure Act (" APA" )] § 704."  This is so because
[a]bsent a waiver of sovereign immunity, a federal agency, as representative of the sovereign, cannot be " compel[led] . . . to act." But the federal government, in enacting the APA, waived its immunity with respect to those " action[s] in a court of the United States" which seek review of " agency action." . . . [W]e [have] held that a motion to compel agency compliance with a [discovery request] qualified as an " action" seeking review of " agency action" for purposes of APA § 702, and, therefore, that a federal court's consideration of such a motion did not violate sovereign immunity.
Because the federal government's waiver of sovereign immunity occurred through the enactment of the APA, " a party seeking judicial review of an agency's non-compliance with a [discovery request] must first exhaust his or her administrative remedies pursuant to APA § 704. Judicial review under APA § 702 is expressly conditioned, under APA § 704, on the existence of a 'final' agency action." 
Here, plaintiffs served the OCC with a subpoena duces tecum on April 4, 2011, requesting a broad range of documents related to the OCC's enforcement actions against BOC, and placing no time limit on the documents requested: regardless of when the documents were created, plaintiffs' subpoena requested them. The OCC objected to the subpoena, and instructed plaintiffs to submit an administrative request for documents.
Like other federal banking regulators, the OCC has developed administrative regulations governing the release of non-public information. Such regulations, promulgated pursuant to the so-called " Housekeeping Statute," 5 U.S.C. § 301, are known as " Touhy " regulations, after the Supreme Court decision upholding the validity of such regulations in United States ex rel. Touhy v. Ragen. The OCC's Touhy regulations appear at 12 C.F.R. § § 4.31 et seq.
The parties' submissions do not clearly distinguish between the governing law in the Second Circuit and elsewhere. But other courts, such as the District of Columbia Circuit, the Ninth Circuit, and the Sixth Circuit, have approached conflicts between Touhy regulations and the Federal Rules of Civil Procedure very differently
than the Second Circuit. For example, the D.C. Circuit offered the following analysis of some of the issues addressed by the Second Circuit in Glotzer :
When a litigant seeks to obtain documents from a non-party federal governmental agency, the procedure varies depending on whether the underlying litigation is in federal or in state court. In state court the federal government is shielded by sovereign immunity, which prevents the state court from enforcing a subpoena. . . . Thus, a state-court litigant must request the documents from the federal agency pursuant to the agency's regulations . . . .
A federal-court litigant, on the other hand, can seek to obtain the production of documents from a federal agency by means of a federal subpoena. In federal court, the federal government has waived its sovereign immunity, see 5 U.S.C. § 702, and neither the Federal Housekeeping Statute nor the Touhy decision authorizes a federal agency to withhold documents from a federal court. To the extent that the Comptroller's regulation . . . may be to the contrary, it conflicts with Federal Rule of Civil Procedure 45 and exceeds the Comptroller's authority under the Housekeeping Statute.
Setting aside the details of the doctrinal disputes that underlie the various Circuits' positions, the practical effect of the disagreement is that the Second, Fourth and Tenth Circuits as a general rule give primacy to agencies' Touhy regulations over the Federal Rules of Civil Procedure when the two conflict, requiring litigants to exhaust their administrative remedies before moving to compel production from a governmental agency, while the D.C., Ninth, and Sixth Circuits generally give primacy to the Federal Rules over conflicting Touhy regulations.
Here, plaintiffs partially circumvented the conflict by submitting, on September 7, 2012, an administrative request to the OCC for the production of documents pursuant to 12 C.F.R. § 4.33 (the " Touhy request" ). The Touhy request was limited to documents in the OCC's control between July 1, 2003 and December 31, 2006, but was otherwise broader than the earlier subpoena duces tecum. Like the subpoena, plaintiffs' Touhy request sought documents associated with any OCC examination of BOC. But plaintiffs' Touhy request also sought documents concerning the Shurafa accounts, Shurafa, or Shurafa affiliates; and documents concerning BOC's provision of banking services to the Palestinian Islamic Jihad, Hamas, Iran, or Syria. On October 29, 2012, the OCC issued a final agency decision in response to plaintiffs' Touhy request, largely denying plaintiffs' requests, and only producing two letters from the OCC to BOC in 2006.
As the OCC correctly argues, plaintiffs have failed to exhaust their administrative remedies with respect to any documents not described in their Touhy request. There has been no " 'final' agency action"  with respect to such documents. Consequently, under the Second Circuit's rulings in Glotzer, this Court lacks the power to review the OCC's refusal to produce any documents not mentioned in plaintiffs' Touhy request. This includes any documents that the OCC only controlled before July 1, 2003 or after December 31, 2006. Plaintiffs' inclusion of these documents in their 2011 subpoena duces tecum does not alter this analysis.
Under the APA, an agency decision will be upheld " if it is not 'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,' 5 U.S.C. § 706(2)(A), or 'unsupported by substantial evidence,' id. § 706(2)(E)."  Under this deferential standard of review, the court 20 " 'must assess, among other matters, whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.'"  The court will set aside the agency's decision only if the agency
" has relied on factors which Congress had not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise." 
The Second Circuit has expressly declined to decide whether a final agency
decision regarding a discovery request must be reviewed using the deferential standard under APA § 706 or under the Federal Rules of Civil Procedure. Other courts are divided on the appropriate standard.
2. Materials from BOC
" The Supreme Court has acknowledged the 'fundamental maxim of discovery that [m]utual knowledge of all the relevant facts gathered by both parties is essential to proper litigation.'"  " 'To that end, either party may compel the other to disgorge whatever facts [it] has in [its] possession.'" 
Plaintiffs' motion to compel BOC to produce documents is governed by the Federal Rules of Civil Procedure, and in particular Rule 26(b)(1), which embodies the principles of full discovery articulated by the Supreme Court. Rule 26(b)(1) states that " [p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense," and that, " [f]or good cause, the court may order discovery of any matter relevant to the subject matter involved in the action."
B. Bank Examination Privilege
" Stated broadly, the bank examination privilege is a qualified privilege that protects communications between banks and their examiners in order to preserve absolute candor essential to the effective supervision of banks."  " It arises out of the practical need for openness and honesty between bank ...