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DIRECTOR OF THE OFFICE OF THRIFT SUPERVISION v. ER

April 16, 1992

DIRECTOR OF THE OFFICE OF THRIFT SUPERVISION, Petitioner,
v.
ERNST & YOUNG, Respondent.


Lamberth


The opinion of the court was delivered by: ROYCE C. LAMBERTH

This case first came before the court on January 28, 1992, for a hearing on petitioner's petition for summary enforcement of an administrative subpoena duces tecum served upon Ernst & Young. On March 3, 1992, the court granted OTS' petition to enforce the subpoena. The court also directed the parties to endeavor to agree upon the conditions governing the enforcement of the subpoena and to file supplemental memoranda with respect to the issues upon which they could not agree. Since March 3, 1992, the parties have met on three occasions and have agreed upon a stipulated order which covers most of the issues regarding the enforcement of the subpoena. Seven issues, however, remain unresolved, and the parties have filed supplemental memoranda stating their positions with respect to these issues. Upon consideration of the parties' filings, the court shall order that the subpoena be enforced as requested by OTS.

 I. IMPLEMENTATION OF PRODUCTION

 A. Copying Costs

 Ernst & Young insists that OTS should bear all copying costs. Ernst & Young's proposed order provides that "if OTS representatives photograph any documents produced for inspection, the OTS shall provide Ernst & Young with duplicates of the photographs at OTS's expense. If the OTS determines that it needs photocopies of documents produced for inspection, the OTS will pay the cost of the photocopies . . . ."

 OTS, on the other hand, proposes the following language:

 The court shall follow OTS' proposal. The subpoena in this case requires Ernst & Young to produce the documents that OTS requests. If Ernst & Young produces the originals of these documents, it incurs no copying costs. Ernst & Young only incurs copying costs if it wishes to retain the originals. Under these circumstances, the court sees no reason why OTS should bear Ernst & Young's copying costs.

 The cases cited by Ernst & Young, SEC v. Arthur Young & Co., 584 F.2d 1018 (D.C. Cir. 1978) and United States v. Friedman, 532 F.2d 928, 37 A.F.T.R.2d (P-H) 1110 (3d Cir. 1976), do not require the court to impose the copying costs upon OTS. These cases merely recognize that the district court has the authority to order reimbursement when the cost of compliance is unreasonable. In the present case, the court finds that Ernst & Young's cost of compliance under OTS' proposal is not unreasonable.

 B. Inspection Observer

 The parties agree that OTS shall provide Ernst & Young with two days' advance notice before inspecting any documents, that Ernst & Young shall make reasonable arrangements to permit OTS representatives to inspect documents, that Ernst & Young shall provide reasonable space for inspection by up to ten persons at one time and that Ernst & Young shall set aside a room for OTS representative to discuss matters privately. The parties do not agree, however, on whether an inspection observer should be present in the room where OTS is inspecting the documents. Ernst & Young claims that having an observer present would help assure that the documents are not altered, rearranged or otherwise handled in such a manner that would prevent them from being returned to their original condition.

 OTS opposes having an Ernst & Young representative present when its representatives are inspecting Ernst & Young's documents because it would interfere with its investigation. OTS points out that Ernst & Young would not be entitled to insist on the presence of an observer had OTS required that the documents be produced in OTS' Washington, D.C. office instead of agreeing to inspect the documents at Ernst & Young's Dallas, Texas office.

 The court shall follow OTS' proposal and not allow an Ernst & Young observer in the room where OTS is inspecting the documents for three reasons. First, Ernst & Young cites no authority for having an observer present. Second, the court agrees with OTS that the presence of an Ernst & Young representative during the inspection would interfere with OTS' investigation. Third, Ernst & Young's concerns with respect to the documents being altered, rearranged or otherwise mishandled may be addressed in other ways. For example, Ernst & Young may number the documents that are produced to assure that all are returned, and it may also make copies of the documents to assure that they are not altered.

 II. SCOPE OF PRODUCTION

 A. Complaints


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