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Erhart v. Bofi Federal Bank

United States District Court, S.D. California

September 19, 2019




         Presently before the Court are twelve motions concerning filing documents under seal.[1] The parties filed the motions in connection with their cross-motions for summary judgment and a motion to exclude expert testimony. For the following reasons, the Court grants in part and denies in part the motions.

         BACKGROUND [2]

         Defendant BofI Federal Bank is a federally chartered savings and loan association. Defendant’s holding company, BofI Holding, Inc., is publicly traded under the Securities Exchange Act of 1934.[3] BofI hired Charles Matthew Erhart as a Staff Internal Auditor in its headquarters in San Diego, California.

         These consolidated actions revolve around competing narratives of Erhart’s tenure as an internal auditor for BofI. In his pleading, Erhart recounts how he repeatedly battled against pressure from senior management as he discovered conduct he believed to be wrongful. For example, Erhart claims he unearthed evidence that BofI failed to turn over information that was responsive to a subpoena from the Securities and Exchange Commission. Erhart also allegedly discovered that BofI’s Chief Executive Officer was “depositing third-party checks for structured settlement annuity payments into a personal account, including nearly $100, 000 in checks made payable to third parties.” In addition, Erhart claims the Bank engaged in wrongdoing during an examination by BofI’s principal regulator, the Department of the Treasury’s Office of the Comptroller of the Currency (“OCC”).

         When BofI learned Erhart was potentially reporting these allegations to the OCC, Erhart claims BofI engaged in a pattern of retaliatory conduct against him, including making false statements about his medical leave and ultimately terminating him. Based on these allegations, Erhart brings seven claims against BofI, including whistleblower retaliation in violation of the Sarbanes–Oxley Act and the Dodd– Frank Wall Street Reform and Consumer Protection Act.

         In contrast, BofI’s countersuit portrays Erhart as an entry-level internal auditor who conducted improper “rogue investigations.” BofI claims Erhart “abused his power” as an auditor by “initiating and conducting his own unplanned and unapproved investigations into matters that were outside the scope of the” Bank’s internal audit plans. In doing so, Erhart allegedly “misrepresented to other BofI employees that he was conducting authorized investigations as part of his job.” The Bank also contends that Erhart accessed confidential information for personal gain, disseminated confidential information to “a website that allows comments on the stocks of publicly traded companies, ” and abandoned his job. In light of these allegations, BofI brings its own catalog of eight claims against Erhart, including breach of contract, breach of the duty of loyalty, and violation of the Computer Fraud and Abuse Act.

         BofI is moving for partial summary judgment on several of Erhart’s claims. (ECF No. 127.) Erhart is also moving for summary judgment on almost all of BofI’s claims. (ECF No. 137.) Erhart is further seeking to exclude the testimony of two expert witnesses at trial. (ECF No. 128.) In connection with these three motions, the parties have filed twelve motions related to sealing documents. Due to the volume of the parties’ requests, the Court will refer to each motion by its Electronic Case Filing Number (“ECF No.”).


         “[T]he courts of this country recognize a general right to inspect and copy public records and documents, including judicial records and documents.” Nixon v. Warner Commc’ns, Inc., 435 U.S. 589, 597 (1978). “Unless a particular court record is one ‘traditionally kept secret, ’ a ‘strong presumption in favor of access’ is the starting point.” Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006) (citing Foltz v. State Farm Mut. Auto Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003)). “The presumption of access is ‘based on the need for federal courts, although independent-indeed, particularly because they are independent-to have a measure of accountability and for the public to have confidence in the administration of justice.” Ctr. for Auto Safety v. Chrysler Grp., LLC, 809 F.3d 1092, 1096 (9th Cir. 2016) (quoting United States v. Amodeo, 71 F.3d 1044, 1048 (2d Cir. 1995)).

         A party seeking to seal a judicial record bears the burden of overcoming the strong presumption of access. Foltz, 331 F.3d at 1135. The showing required to meet this burden depends upon whether the documents to be sealed relate to a motion that is “more than tangentially related to the merits of the case.” Ctr. for Auto Safety, 809 F.3d at 1102. When the underlying motion is more than tangentially related to the merits, the “compelling reasons” standard applies. Id. at 1096–98. When the underlying motion does not surpass the tangential relevance threshold, the “good cause” standard applies. Id.

         “In general, ‘compelling reasons’ sufficient to outweigh the public’s interest in disclosure and justify sealing court records exists when such ‘court files might have become a vehicle for improper purposes, ’ such as the use of records to gratify private spite, promote public scandal, circulate libelous statements, or release trade secrets.” Kamakana, 447 F.3d at 1179 (quoting Nixon, 435 U.S. at 598). However, “[t]he mere fact that the production of records may lead to a litigant’s embarrassment, incrimination, or exposure to further litigation will not, without more, compel the court to seal its records.” Id. (citing Foltz, 331 F.3d at 1136). The decision to seal documents is “one best left to the sound discretion of the trial court” upon consideration of “the relevant facts and circumstances of the particular case.” Nixon, 435 U.S. at 599.


         Consistent with the presumptive right of public access to court records, this Court’s Standing Order for Civil Cases provides:

The Court may seal documents to protect sensitive information, however, the documents to be filed under seal will be limited by the Court to only those documents, or portions thereof, necessary to protect such sensitive information.
Parties seeking a sealing order must provide the Court with: (1) a specific description of particular documents or categories of documents they need to protect; and (2) declarations showing a compelling reason or good cause to protect those documents from disclosure. The standard for filing documents under seal will be strictly applied.

         (Standing Order ¶ 5.)


         The parties’ summary judgment motions and Erhart’s request to exclude experts at trial are all more than tangentially related to the merits of this consolidated dispute. Hence, these motions and the documents attached to them are subject to the compelling reasons standard. Before turning to the parties’ specific sealing requests, the Court addresses a frequent basis asserted in the parties’ motions for sealing information: the 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.” Wultz v. Bank of China Ltd., 61 F.Supp.3d 272, 281 (S.D.N.Y. 2013) (quoting Linde v. Arab Bank, PLC, No. 04 Civ. 2799, 2009 WL 3055282, at *1 (E.D.N.Y. Sept. 21, 2009)). The Ninth Circuit has “not addressed” this privilege, which is also known as “the bank examiner’s privilege.” Campidoglio LLC v. Wells Fargo & Co., 870 F.3d 963, 977 n.5 (9th Cir. 2017). But in recognizing the privilege, other courts have explained that it “arises out of the practical need for openness and honesty between bank examiners and the banks they regulate, and is intended to protect the integrity of the regulatory process by privileging such communications.” Wultz, 61 F.Supp.3d at 281–82 (quoting Merchants Bank v. Vescio, 205 B.R. 37, 42 (D. Vt. 1997)); see also In re Subpoena Served upon Comptroller of Currency, 967 F.2d 630, 633–34 (D.C. Cir. 1992). Indeed, for successful bank supervision, the bank’s “management must be open and forthcoming in response to the inquiries of bank examiners, and the examiners must in turn be frank in expressing their concerns about the bank.” In re Subpoena, 967 F.2d at 634. “These conditions simply could not be met as well if communications between the bank and its regulators were not privileged.” Id. The bank examination privilege belongs solely to banking regulatory entities. See, e.g., In re Bankers Tr. Co., 61 F.3d 465, 472 (6th Cir. 1995).

         The magistrate judge previously recognized that there are documents relevant to this litigation containing information covered by the bank examination privilege. (ECF No. 100.) Hence, the magistrate judge directed the parties to seek permission from the OCC-the holder of the bank examination privilege-to use documents that disclose “agency opinions and recommendations and banks’ responses.” (Id.) The OCC subsequently asserted the bank examination privilege over certain records, but “determined that the particular circumstances of the [case] warrant making the Records available to the parties in this action, provided that appropriate protection of their confidentiality can be secured.” (See ECF No. 114.) Thus, the magistrate judge entered a protective order that required, among other things, that the parties file under seal those records for which the OCC provided permission to be used in this case. (Id.)

         In light of the foregoing, the Court finds it appropriate to seal information subject to the bank examination privilege; namely, the OCC’s examination requests to BofI and the Bank’s responses to these requests. The Court also finds it appropriate to seal briefing, deposition testimony, and other information that reveals the content of the OCC’s requests and the Bank’s responses. However, the Court will require that the parties’ redactions be narrowly tailored to this content, making the filings otherwise publicly available.

         Beyond material involving bank examination, the parties also seek to redact bank and loan account information and certain non-public information of third parties, including bank customers and employees. The Court generally concludes it is appropriate to grant narrowly tailored requests to seal this information- particularly where the content of this information is unnecessary to understand the Court’s orders and the parties’ dispute. However, where this is not the case-or where it is unclear why the information is confidential or sensitive-the Court finds the parties have not satisfied the compelling reasons standard. The Court will thus consider each sealing motion in turn.

         I. ECF No. 125

         The Bank moves to seal portions of its motion for summary judgment and approximately ten attachments. (ECF No. 125.) Erhart does not oppose. The Court rules on the proposed redactions in Table 125 attached to this order. Accordingly, the Court grants in part and denies in part ECF No. 125. The Clerk shall accept and file under seal the following documents:

• BofI’s Mot. (ECF No. 126-1);
• Tolla Decl. (ECF No. 126-2);
• Ex. C: Erhart Dep. (ECF No. 126-5);
• Ex. E: Erhart Dep. (ECF No. 126-7);
• Ex. F: Ball Dep. (ECF No. 126-8);
• Ex. G: Ball Dep. (ECF No. 126-9);
• Ex. I: Grenet Dep. (ECF No. 126-10);
• Ex. J: Garrabrants Dep. (ECF No. 126-11);
• Ex. M: Tolla Rule 30(b)(6) Dep. (ECF No. 126-13);
• Ex. T: SEC Letter to BofI & Subpoena (ECF No. 126-16);
• Ex. U: BofI Letter to SEC (ECF No. 126-17);
• Ex. X: Erhart E-mail to Ball RE: Subpoena (ECF No. 126-18);
• Ex. AA: Internal Audit Memo RE: Employee Account Review (ECF No. 126-19);
• Ex. UU: BofI’s Responses to OCC’s Requests (ECF No. 126-20);
• Ex. VV: Erhart E-mails to Shkabara RE: SEC Subpoena (ECF No. 126-21); and
• Ex. XX: Tolla E-mail RE: OCC’s Requests (ECF No. 126-22).

         The Clerk shall further:

• Reject the lodged, unredacted McWilliams Decl. (ECF No. 126-3) and replace the redacted version on the docket (ECF No. 127-5) with the unredacted copy (ECF No. 126-3);
• Reject the lodged, unredacted Towill Decl. (ECF No. 126-4) and replace the redacted version on the docket (ECF No. 127-6) with ...

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