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Federal Deposit Insurance Corporation v. Berling

United States District Court, N.D. California

July 10, 2015

CHARLES J. BERLING, et al., Defendants.



The Federal Deposit Insurance Corporation ("FDIC") as the receiver for the United Western Bank of Denver, Colorado ("the Bank") sued nine former directors and officers of the Bank alleging breach of fiduciary duty, negligence, and gross negligence. The FDIC filed suit in the United States District Court for the District of Colorado in 2014. FDIC v. Berling, et al., No. 14-137-CMA-MJW (D. Colo.). As part of on-going discovery, Defendants issued two subpoenas seeking to depose non-parties Steven J. Harris and Kevin B. Swanson, Office of Thrift Supervision ("OTS") bank examiners who reside in this District. Defendants now move to compel the Office of the Comptroller of Currency (the successor agency to the OTS) to produce these examiners for deposition. (Dkt. No. 1.) Having considered the papers and having had the benefit of oral argument, the Court GRANTS the motion to compel.


In 2011, the Bank closed and the FDIC was appointed as the receiver. Three years later, the FDIC initiated the underlying action in the Colorado District Court seeking $35 million in damages based on allegations that the Defendants, nine former officers and directors of the Bank, recommended and approved loans that violated the Bank's lending policies and prudent, safe, and sound lending practices. (Dkt. No. 1-2 at 3[1] (Complaint ¶ 3).) The FDIC further alleges that regulators warned Defendants of the risks inherent in their lending practices prior to issuance of the at-issue loans. ( Id. at ¶ 21.)

The 12 loans at issue were made between November 2006 and August 2009. From 2006 to 2009, federal bank examiners from the OTS conducted regular examinations of the Bank. Pursuant to the Uniform Financial Institutions Rating System and applicable OTS guidance, the OTS examiners reviewed financial institutions, including the Bank, in six separate areas known as the "CAMELS" components, which stands for "Capital Adequacy, " "Asset Quality, " Management, " "Earnings, " "Liquidity, " and "Sensitivity to Market Risk." See 62 Fed. Reg. 752, 753 (Jan. 6, 1997).

In November 2014, Defendants submitted an administrative request for information to the Office of the Comptroller of Currency ("OCC") seeking information related to the OTS's examinations of the Bank during the relevant time period. (Dkt. No. 1-2 at 56.) In particular, Defendants sought documents regarding OTS examiners' review of several of the loans at issue and sought to depose four bank examiners, including current OCC employees, Steven Harris and Kevin Swanson, and former employees, Nicholas Dyer and Walter Santos. (Dkt. No. 12 at 56-60.) After five months of administrative process, the OCC denied the request for the depositions, but granted some of the requests for documents. (Dkt. No. 1-3 at 25.) Defendants thereafter issued subpoenas to the two OCC employees residing in this District: Steven Harris, the OTS Examiner-in-Charge of the 2007 examination, and Kevin Swanson, the OTS Field Manager for the examinations conducted in 2005, 2006, 2007, and 2009.[2] The OCC notified Defendants that Messrs. Harris and Swanson would not appear for deposition, and Defendants thereafter filed the underlying motion to compel compliance with the subpoenas. (Dkt. No. 1-3 at 35 (Harris Subpoena), 38 (Swanson Subpoena), 43 (email re: OCC's position).)


Federal Rule of Civil Procedure 45 governs discovery of nonparties by subpoena. The scope of the discovery that can be requested through a subpoena under Rule 45 is the same as the scope under Rule 26(b). Fed.R.Civ.P. 45 Advisory Comm.'s Note (1970) ("[T]he scope of discovery through a subpoena is the same as that applicable to Rule 34 and other discovery rules."); Fed.R.Civ.P. 34(a) ("A party may serve on any other party a request within the scope of Rule 26(b)."). Rule 26(b) allows a party to obtain discovery concerning any nonprivileged matter that is relevant to any party's claim or defense. Fed.R.Civ.P. 26(b)(1).

A court must protect a nonparty subject to a subpoena if the subpoena "requires disclosure of privileged or other protected matter" or the subpoena "subjects a person to undue burden." Fed.R.Civ.P. 45(d)(3). A court must also limit discovery if it is unreasonably duplicative, if it can be obtained from a source that is more convenient or less burdensome, or if the burden of producing it outweighs its likely benefit. Fed.R.Civ.P. 26(b)(2)(C).

"On a motion to quash a subpoena, the moving party has the burden of persuasion under Rule 45(c)(3), but the party issuing the subpoena must demonstrate that the discovery sought is relevant." Chevron Corp. v. Donziger, No. 12-MC-80237, 2013 WL 4536808, at *4 (N.D. Cal. Aug. 22, 2013) (internal citation omitted). "[I]f the sought after documents are not relevant nor calculated to lead to the discovery of admissible evidence, then any burden whatsoever imposed... would be by definition undue." See Compaq Computer Corp. v. Packard Bell Elecs., 163 F.R.D. 329, 335-36 (N.D. Cal. 1995).


Defendants contend that the depositions are relevant to demonstrate that their actions met the standard of care, and to test the FDIC's allegation that Defendants ignored the regulators' warnings as to some of the loans at issue. Defendants further assert that this information is not otherwise available from another source. The OCC, on behalf of non-parties Messrs. Harris and Swanson, contends that Defendants have failed to establish that the depositions would yield any relevant information, and even if the information were relevant, it is equally available from the documents available to Defendants and unduly burdensome. Because the Court concludes that the discovery sought is relevant given the FDIC's allegations, and otherwise satisfies the proportionality requirements of Rule 26(b)(2), Defendants' motion to compel is granted.

A. The Deposition Testimony Sought from Messrs. Harris and Swanson is Relevant

The starting point in the Court's analysis is the question of relevance. The district court in the underlying action here recently considered a related question regarding the relevance of OTS documents regarding the Bank's overall regulatory ratings in two specific quality-control categories. The court was persuaded by Defendants' argument that "the records w[ould] shine light on their conduct-specifically, whether they followed their internal policies generally, and whether they met their standard of care generally" and ordered the FDIC to produce the OTS documents sought. FDIC v. Berling, et al., No. 14-137-CMA-MJW, Dkt. No. 78 (D. Colo. Jun. 16, 2015) (submitted here at Dkt. No. 15-3 at 2.) The OCC attempts to distance itself from this ruling by arguing that there is a difference here because ...

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