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Fort Worth Employees'retirement Fund v. Jp Morgan Chase & Co.

United States District Court, S.D. New York

April 15, 2015

FORT WORTH EMPLOYEES' RETIREMENT FUND, et al., Plaintiffs,
v.
J.P. MORGAN CHASE & CO., et al., Defendants.

MEMORANDUM AND ORDER

JAMES C. FRANCIS IV, Magistrate Judge.

This is a securities action brought on behalf of a class of purchasers of residential mortgage-backed securities issued by J.P. Morgan Acceptance Corporation I. The plaintiffs have submitted a letter motion seeking a ruling that: (1) documents clawed back at a witness' deposition are not subject to the attorney-cleint privilege; (2) documents withheld or clawed back by the defendants as related to Suspicious Activity Reports ("SARs") must be disclosed; and (3) the defendants have waived any privilege by failing to produce an adequate privilege log in a timely manner. (Letter of Hillary B. Stakem dated March 11, 2015 ("Stakem 3/11/15 Letter")). I will address each issue in turn.

A. Attorney-Client Privilege

During the deposition of Alison Malkin on November 18, 2014, the defendants clawed back portions of two documents that the plaintiffs intended to introduce as exhibits. (Deposition of Alison Malkin, excerpt attached as Exh. A to Stakem 3/11/15 Letter, at 134-35, 161-62). The first document is an e-mail chain from which the defendants have now redacted a portion in which the author, an employee of defendant J.P. Morgan Securities, LLC, asks another employee about the materiality of certain contemplated action. (E-mail from Tom Roh to Robert B. Miller dated Aug. 10, 2006, attached as part of Exh. B to Stakem 3/11/15 Letter and as part of Exh. 1 to Letter of Tom A. Paskowitz dated March 23, 2015 ("Paskowitz Letter")). Neither the sender nor the recipient is an attorney, but the e-mail is copied to in-house counsel. (Paskowitz Letter at 2). The redacted material is privileged. The discussion of materiality relates to a legal matter, see Davis v. City of New York, No. 10 Civ. 699, 2012 WL 612794, at *11 (S.D.N.Y. Feb. 27, 2012) (finding that use of legal term of art indicated communication relating to legal advice), and inclusion of counsel in the chain was a solicitation of legal advice, see TVT Records v. Island Def Jam Music Group, 214 F.R.D. 150-51 (S.D.N.Y. 2003) (finding communications privileged where "to the extent the messages were not directed to or from counsel, they were at least copied to counsel for the purpose of allowing counsel to respond to ongoing developments with legal advice").

The second document is also an e-mail chain between non-lawyers from which the defendants have redacted a discussion of in-house counsel's position on an issue. (E-mail from Alison X. Malkin to William C. Buell dated Oct. 26, 2006 & e-mail from William C. Buell to Alison Malkin dated Oct. 26, 2006, attached as part of Exh. C to Stakem 3/11/15 Letter and Exh. 2 to Paskowitz Letter). These communications, too, are privileged. "[A] communication containing legal advice does not lose its privileged status when shared among corporate employees who share responsibility for the subject matter of the communication." In re Currency Conversion Antitrust Litigation, No. 05 Civ. 7116, 2010 WL 4365548, at *4 (S.D.N.Y. Nov. 3, 2010) (internal quotations marks and alteration omitted).

Accordingly, the defendants may continue to withhold the redacted portions of these two documents.

B. Suspicious Activity Reports

On November 19, 2014, the defendants clawed back almost 600 documents on the ground that they are SARs or information indicating the existence of SARs, which is prohibited from being disclosed by 31 C.F.R. § 1020.320(e). (Stakem 3/11/15 Letter at 3; Letters of David L. Breau dated Nov. 19, 2014, attached as Exhs. D & E to Stakem 3/11/15 Letter). Subsequently, the defendants produced a privilege log identifying several hundred additional documents that they were withholding on the same basis. (Stakem 3/11/15 Letter at 3; Privilege Log, attached as Exh. H to Stakem 3/11/15 Letter). The documents clawed back generally consist of (1) logs of mortgage loan put-back claims made or received, (2) logs of repurchase claims made or received, (3) logs of potential misrepresentations relating to the mortgage loans, or (4) quality assurance audit spreadsheets and related cover e-mails. (Stakem 3/11/15 Letter at 3-4). The defendants maintain that the information at issue was properly clawed back or withheld as "part of the separate and regulatory-required process to detect and report suspicious activity, and was not created during the ordinary course of business by JPMorgan's quality assurance or repurchase departments." (Paskowitz Letter at 4 (internal quotation marks omitted)).

The defendants take too broad a view of their confidentiality obligations in connection with SARs. The Bank Secrecy Act, 31 U.S.C. § 5311 et seq., provides in part that "[t]he Secretary [of the Treasury] may require any financial institution... to report any suspicious transaction relevant to a possible violation of law or regulations." 31 U.S.C. § 5318(g)(1). The statute also prohibits the disclosure of such reports in order not to alert a suspected wrongdoer of an investigation:

If a financial institution or any director, officer, employee, or agent of any financial institution, voluntarily or pursuant to this section or any other authority, reports a suspicious transaction to a government agency... neither the financial institution, director, officer, employee, or agent of such institution (whether or not any such person is still employed by the institution), nor any other current or former director, officer, or employee of, or contractor for, the financial institution or other reporting person, may notify any person involved in the transaction that the transaction has been reported....

31 U.S.C. § 5318(g)(2)(A). The various federal agencies responsible for regulating financial institutions have promulgated regulations to implement the statute. For example, the Office of the Comptroller of the Currency ("OCC") and the Financial Crimes Enforcement Network ("FinCEN"), the agency with which SARS are filed, have issued rules that closely track each other. See 31 C.F.R. § 1020.320 (OCC); 12 C.F.R. § 21.11 (FinCEN). The OCC regulations provide in pertinent part that "[n]o bank, and no director, officer, employee, or agent of any bank, shall disclose a SAR or any information that would reveal the existence of a SAR." 31 C.F.R. § 1020.320(e)(1)(i). The FinCEN rule is identical except that it governs any "national" bank. 12 C.F.R. § 21.11(k)(1)(i). The regulations include "rules of construction, " the most pertinent of which states that the regulations do not prohibit disclosure of "[t]he underlying facts, transactions, and documents upon which a SAR is based." 31 C.F.R. § 1020.320(e)(1)(ii)(A)(2) (OCC); 12 C.F.R. § 21.11(k)(1)(ii)(A)(ii) (FinCEN).

The language of the regulations, then, supports the plaintiffs' argument that the information withheld by the defendants should be produced. But there remains a dispute arising from the commentary that accompanied publication of the OCC's final rule. This commentary states in part:

Documents that may identify suspicious activity, but that do not reveal whether a SAR exists (e.g., a document memorializing a customer transaction such as an account statement indicating a cash deposit or a record of a funds transfer), should be considered as falling within the underlying facts, transactions, and documents upon which a SAR is based, and need not be afforded confidentiality. This distinction is set forth in the final rule's second rule of construction... and reflects relevant case law.

Confidentiality of Suspicious Activity Reports, 75 Fed. Reg. 75576-01, 75579 (Dec. 3, 2010) (to be codified at 12 C.F.R. pt. ...


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