United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 4, 1998 Decided June 26, 1998
No. 97-5228
In re: Subpoena Duces Tecum Served on the Office of the
Comptroller of the Currency
Consolidated with
No. 97-5229
---------
Appeals from the United States District Court
for the District of Columbia
(94ms00329)
(95ms00006)
Thomas R. Kline argued the cause for appellant, with
whom Thomas E. Starnes and Scott A. Richie were on the
briefs.
Larry J. Stein, Attorney, United States Department of
Treasury, argued the cause for appellee Comptroller of the
Currency, with whom L. Robert Griffin, Director, and Rosa
M. Koppel, Attorney, were on the brief. Robert B. Serino,
Deputy Chief Counsel, entered an appearance.
Stephen H. Meyer, Senior Attorney, argued the cause for
appellee Board of Governors of the Federal Reserve System,
with whom James V. Mattingly, Jr., General Counsel, Rich-
ard M. Ashton, Associate General Counsel, Katherine H.
Wheatley, Assistant General Counsel, and Karen A. Appel-
baum, Senior Attorney, were on the brief.
Before: Edwards, Chief Judge, Silberman and Sentelle,
Circuit Judges.
Opinion for the Court filed by Circuit Judge Silberman.
Silberman, Circuit Judge: The Trustee in Bankruptcy for
the Bank of New England Corporation appeals from the
district court's refusal to enforce subpoenas duces tecum
against the Federal Reserve Board and the Comptroller of
the Currency. We reverse, holding that the deliberative
process privilege does not protect these documents, and
remand to the district court.
I.
The Bank of New England Corporation and its subsidiary,
the Bank of New England, N.A., experienced serious financial
trouble in the late eighties and came under the heightened
supervision of the Federal Reserve Board, which regulates
bank holding companies, and the Office of the Comptroller of
the Currency, which oversees the national banking system.
The Comptroller began to monitor the day-to-day operations
of the Bank, and new management teams, approved by the
regulators, assumed leadership of the Bank and Corporation.
Between 1989 and January of 1991, the Corporation trans-
ferred millions of dollars in assets to the Bank in an effort to
shore it up. But the financial condition of both institutions
continued to deteriorate, and on January 6, 1991, the Comp-
troller declared the Bank insolvent and named the FDIC as
receiver. The next day, the Corporation filed for bankruptcy.
The Trustee in Bankruptcy sued the FDIC in Massachu-
setts federal district court to void the Corporation's transfers
to the Bank as fraudulent conveyances. He claimed that the
FDIC, acting in concert with the Board and the Comptroller,
realized that the Corporation and the Bank were already
insolvent and pressured the Corporation's management to
downstream assets to the Bank to reduce the losses that the
FDIC would incur as receiver. To support his allegations, he
offered evidence like the following statement that the Comp-
troller of the Currency gave to Congress in defense of his
decision not to close the Bank sooner:
[T]he loss to the FDIC did not increase, and may well
have been reduced, due to the efforts of the new manage-
ment team. These efforts included the sale of Corpora-
tion assets and the downstreaming of the sale proceeds
to the Bank. Had the Bank been closed earlier, these
assets would have been left behind in the holding compa-
ny and would not have been available to reduce the
FDIC's ultimate cost.
The Failure of the Bank of New England: Hearings Before
the Senate Comm. on Banking, Hous., and Urban Affairs,
102d Cong. 11 (1991) (statement of Robert L. Clarke, Comp-
troller, Office of the Comptroller of the Currency). The
Trustee's theory required him to show either that the trans-
fers were made "with actual intent to hinder, delay, or
defraud" the Corporation's creditors or that the Corporation
was insolvent when the transfers were made and did not
receive fair consideration in return for them. 11 U.S.C.
s 548(a) (1994). If the transfers were voidable under s 548,
the Trustee could recover them from the entity for whose
benefit they were made. 11 U.S.C. s 550(a)(1) (1994). The
FDIC moved to dismiss the suit on the ground that it was not
an "entity" under the Code because of its role as regulator
and insurer of banks and that, in any event, a reduction in its
handling costs was not the sort of "benefit" contemplated by
s 550. The district court, finding the FDIC subject to suit
under s 550, denied the motion. Branch v. FDIC, 825
F. Supp. 384, 401-02 (D.Mass. 1993).
The Trustee sent discovery requests to the FDIC and
served the Board and the Comptroller with subpoenas duces
tecum. All three turned over some documents, but asserted
the deliberative process privilege with respect to others. The
Trustee filed a motion to compel against the FDIC in Massa-
chusetts and separate subpoena enforcement actions against
the Board and Comptroller in District of Columbia district
court. The Massachusetts court refused to apply the privi-
lege to the FDIC documents. It said that, unless the FDIC
could show a greater need for secrecy than the generalized
"chilling effect" of disclosure, the privilege must give way in a
case that turned on the government's intent.
Our district court, ruling subsequently, thought that the
privilege could be overcome only if the Trustee introduced
evidence of government "misconduct" or if he satisfied a five
factor balancing test showing a superior interest in the docu-
ments. The court said that the misconduct exception only
applied when a plaintiff alleged that the agency's decision-
making process had been tainted by misconduct. Since the
Trustee "attacks the goals of the regulators' policies, to
downstream assets, and not the deliberative system from
which these goals arose," it held the misconduct bar inapplica-
ble. As to the five factor balancing test, the court relied on
the analysis we articulated in Schreiber v. Society for Sav.
Bancorp, Inc., 11 F.3d 217 (D.C. Cir. 1993). There, we said
that the bank examination privilege, a close cousin of the
deliberative process privilege, could be overcome on a show-
ing of good cause, as determined by the following consider-
ations:
(i) the relevance of the evidence sought to be protected;
(ii) the availability of other evidence; (iii) the 'serious-
ness' of the litigation and the issues involved; (iv) the
role of the government in the litigation; and (v) the
possibility of future timidity by government employees
who will be forced to recognize that their secrets are
violable.
Schreiber, 11 F.3d at 220-21 (citations omitted). The district
court appeared to apply only the second, third, and fourth
factors. It said that the underlying litigation was not "seri-
ous" because there was no evidence showing that either the
Board or the Comptroller had engaged in "misconduct." And
since neither were named defendants in the underlying suit,
the court thought their role minimal. Finally, it emphasized
that the Trustee would not suffer much harm if he could not
reach these documents, because all three agencies had al-
ready supplied him with a multitude of materials.
II.
Appellant's primary argument is that the common law
deliberative process privilege is not appropriately asserted--
as the district court in Massachusetts appeared to recog-
nize--when a plaintiff's cause of action turns on the govern-
ment's intent. We agree. The privilege was fashioned in
cases where the governmental decisionmaking process is col-
lateral to the plaintiff's suit. See, e.g., In re Subpoena Served
Upon the Comptroller of the Currency, 967 F.2d 630 (D.C.
Cir. 1992) (shareholders sought Comptroller's bank examina-
tion reports to prove fraud charges against corporation);
Singer Sewing Machine Co. v. NLRB, 329 F.2d 200 (4th Cir.
1964) (petitioner wanted deliberative materials to establish a
defense to an unfair labor practice charge). If the plaintiff's
cause of action is directed at the government's intent, howev-
er, it makes no sense to permit the government to use the
privilege as a shield. For instance, it seems rather obvious to
us that the privilege has no place in a Title VII action 1 or in a
constitutional claim for discrimination. See Crawford-El v.
Britton, 118 S. Ct. 1584 (1998); Webster v. Doe, 486 U.S. 592
(1988). The Supreme Court struggled in Crawford-El and
Webster with governmental claims that discovery in such a
proceeding should be limited, but no one in any of these cases
ever had the temerity to suggest that the privilege applied.
__________
1 On one occasion, we speculated that the privilege would apply
to a Title VII suit. American Fed'n of Gov't Employees, Local
2782 v. Department of Commerce, 907 F.2d 203, 207 (D.C. Cir.
1990). In that case, however, our primary concern was the scope of
Exemption 5 of the Freedom of Information Act. The appellants
had argued that because the documents they sought would be
"available by law" to a litigant in a Title VII suit, the government
could not claim the deliberative process privilege under Exemption
5. Part of our response was that the privilege may well protect
documents in Title VII litigation. But, as we recognized even in
that case, this assumption is not necessary to preserving the vitality
of the FOIA exemption. A litigant may not overcome Exemption 5
by reference to hypothetical litigation. See id. at 207; see also
NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 149 n.16 (1975); In re
Sealed Case, 121 F.3d 729, 737 n.5 (D.C. Cir. 1997).
The argument is absent in these cases because if either the
Constitution or a statute makes the nature of governmental
officials' deliberations the issue, the privilege is a non-
sequitur. The central purpose of the privilege is to foster
government decisionmaking by protecting it from the chill of
potential disclosure. See NLRB v. Sears, Roebuck & Co., 421
U.S. 132, 150 (1975). If Congress creates a cause of action
that deliberatively exposes government decisionmaking to the
light, the privilege's raison d'%23etre evaporates.
The government, to be sure, disputes that appellant has
such a cause of action. It argues that however the Bankrupt-
cy Act treats private parties, bank regulatory agencies are
removed from its reach. The Federal Deposit Insurance Act
requires the FDIC and presumably its fellow government
regulators to resolve failing banks with the least possible cost
to the bank insurance fund--and thus to the American tax-
payer. Therefore, the argument goes, even if the Board and
Comptroller had pressured the Corporation to downstream
assets, they were only doing "the Lord's work." There may
well be a question as to the relationship between these two
federal statutes, but the Massachusetts district court has, at
least preliminarily, ruled on that issue by rejecting the gov-
ernment's motion to dismiss the underlying litigation. We
will defer to its ruling. Strictly speaking, it might not be the
law of the case, because a subpoena enforcement action is
technically a different "case" and the Board and the Comp-
troller are not named defendants in Massachusetts. The suit
before us, however, is tied closely to the underlying litigation,
and the Board and the Comptroller are but different govern-
ment arms accused of acting in concert. As a matter of
judicial comity, we leave it to the Massachusetts court to
resolve the merits of the Trustee's suit.
When it rejected the misconduct exception, our district
court intuitively recognized that the analysis normally gov-
erning the applicability of the deliberative process privilege
does not fit this situation. It pointed out that the plaintiff
was attacking the actual goals of the regulators, rather than
asserting that the agency's decisionmaking process was taint-
ed with misconduct. We think that is another way of ex-
pressing our understanding that the deliberative process priv-
ilege protects against collateral attack. But the appropriate
conclusion is not that the misconduct exception does not
apply, but rather that the privilege does not enter the picture
at all.2
We therefore see no need to engage in the balancing test
applied in deliberative process privilege cases. The appellant
is entitled to have his subpoena enforced.
__________
2 The word "misconduct" does not even really fit this situation,
because the government could have violated the Bankruptcy Code
without the nefarious motives that the word "misconduct" implies.
Section 548 of the Bankruptcy Code requires a showing of the
government's intent, but it does not require a showing that the
government acted in bad faith. See In re Checkmate Stereo &
Elecs., Ltd., 9 B.R. 585, 613 (Bankr. E.D.N.Y. 1981) ("A plan to
appropriate the assets of an insolvent debtor, while holding the
debtor's creditors at bay, is in fraud of creditors .... even if done
in the greatest good faith.").