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RESOLUTION TRUST CORP. v. THORNTON

May 1, 1992

RESOLUTION TRUST CORPORATION, Petitioner,
v.
GRANT THORNTON, Respondent.


The Resolution Trust Corporation ("RTC") seeks enforcement of three subpoenas duces tecum it served on respondent Grant Thornton ("Grant"), an accounting firm, on August 22 and September 27, 1991. The RTC is investigating Grant to determine Grant's potential civil liability in connection with Grant's past audits of three failed savings and loan associations. In two of those cases, CitySavings and Metropolitan, Grant seeks to modify the subpoenas by requiring the RTC to give Grant ten days' notice before using the disclosed material in other investigations by the RTC or the Federal Deposit Insurance Corporation ("FDIC"), in order that Grant will have an opportunity to challenge such use. In the third case, San Jacinto, Grant seeks both this notice protection and a "Chinese wall" that would prevent the RTC from disclosing subpoenaed information to the FDIC for possible use in the latter agency's pending district court litigation against Grant. Grant also seeks to ensure that the information is not improperly disclosed within Kenneth Leventhal, RTC's outside consultant in the San Jacinto case, which firm also is a party to the pending district court litigation against Grant.

In all three cases, the RTC has declined to offer blanket notice of all future use of the subpoenaed information. It has assured Grant that it will give notice of disclosure to any other government agencies, but it will not agree to give notice of, or place any limitations on, use of the material "internally" within either RTC or FDIC. Further, in San Jacinto, it represents that measures sufficient to prevent improper disclosure within Kenneth Leventhal are already in place. The Court heard argument on the RTC's motion on April 23, 1992. For the reasons stated below, the Court will order that the subpoenas be enforced in full, subject to the requirement that the RTC must give Grant ten days' written notice of any disclosure of the San Jacinto material to the FDIC.

 I.

 The RTC served the CitySavings and Metropolitan subpoenas on Grant on August 22, 1991, and the San Jacinto subpoena on September 18, 1991. Grant first challenged the subpoenas administratively, asserting, inter alia, that they were overbroad and burdensome. The RTC denied Grant's San Jacinto objections on November 29, and its objections in the other two matters on December 12. Petitioners' Exhs. A.4, B.6. In each case, the RTC gave identical assurances of confidentiality, including the assurance taht "documents designated as confidential by the submitter will not be disclosed outside FDIC/RTC without ten days' advance notice to the submitter." Id. P 2. However, that assurance excepted disclosure to outside counsel or consultants, or in any judicial or administrative proceedings as long as the RTC complies with applicable forum rules. Id. PP 3, 4. The RTC also advised that "under no circumstances will FDIC/RTC agree to limit internal use of subpoenaed information." Id. P 5.

 On December 30, Grant made an initial document production in the Metropolitan case. On the day of the production, the parties agreed that no other use would be made of the information except pursuant to statute, agency rule or practice. Respondent's Exhs. Z, AA. The next day, the RTC issued an "internal practice guideline" which stated that subpoenaed information "may be shared internally with RTC officers, employees, or agents (including consultants and outside counsel) who have a need for such documents in the performance of their duties," including for use in other investigations. *fn1" Petitioner's Exh. A.5 at 4. Apparently contending that this policy issued too late for it to be an "agency rule or practice," Grant again objected to the Metropolitan production, and has not produced further documents in that case or in CitySavings.

 In San Jacinto, Grant raised the additional objection that the subpoena creates conflicts of interest with the pending "Sunbelt Savings" case in the Northern District of Texas. FDIC v. McBirney, Civ. No. CA3-89-2295-R (N.D. Tex.). In that case, the FDIC has sued Grant, who in turn brought Kenneth Leventhal, a second accounting firm, into the suit as a third-party defendant. Kenneth Leventhal happens to be the RTC's outside consultant in San Jacinto, and as such would have access to Grant's San Jacinto papers, papers that both Kenneth Leventhal and the FDIC have sought to use in Sunbelt. *fn2" Moreover, Kenneth Leventhal also has succeeded Grant as auditor for San Jacinto. Thus, Grant's confidentiality concerns are threefold: first, that the RTC will disclose information to the FDIC, allowing the FDIC to circumvent the normal discovery process in Sunbelt and pressure Grant to settle that case; second, that Kenneth Leventhal will obtain the San Jacinto documents, either directly or from the FDIC, and turn them to its own use in Sunbelt ; and third, that the Kenneth Leventhal auditors for San Jacinto could, even if screened from the Sunbelt case, use Grant's papers to "restate" Grant's work for San Jacinto, thereby gaining leverage over Grant by increasing the chances that the RTC will initiate litigation in that case.

 In response to Grant's concerns, the RTC stated that Kenneth Leventhal had established a "Chinese wall" between the San Jacinto and Sunbelt matters, which are base in Kenneth Leventhal's Houston and Dallas offices, respectively. Petitioner's Exh. A.5 at 1-2. Kenneth Leventhal then instructed its staff that no one working on either matter could discuss it with anyone not working on the same matter, that "there shall be no communication, either direct or indirect, between the two teams,'" and that no personnel could "cross over" between the two matters. Respondent's Exh. O. Later, it expressly assured RTC that no such communication or cross-over had taken place. Respondent's Exh. P. With regard to "internal use," the RTC clarified its position that it would not accept any limitation on internal use by referring Grant to the December 31 internal practice guideline. Petitioners' Exh. A.5 at 2. As seen above, that guideline does not refer to the FDIC, and the RTC did not explicitly state its position on "internal" disclosure to FDIC.

 On January 27, Grant's counsel informed RTC that the "Chinese wall" as described was insufficient, and proposed a more rigorous identification and segregation of the Kenneth Leventhal "teams" responsible for the Sunbelt and San Jacinto matters. Respondent's Exh. Q. On February 27, the RTC defended the the existing procedures, and claimed that Grant's proposals "would eliminate communication between government personnel and their consultants with respect to these two associations." Petitioner's Exh. A6 at 1. This language is the basis for Grant's claim that the RTC will in fact disclose documents subpoenaed in the San Jacinto investigation to the FDIC for use in Sunbelt. The RTC effectively has confirmed this claim, arguing that it may exchange the subpoenaed information relatively freely with the FDIC, as well as within the RTC.

 II.

 Grant does not seriously challenge either the RTC's authority to issue the instant subpoenas or, for the most part, the scope of the subpoenas. Grant at times does suggest that the investigations are being conducted in bad faith, but stops short of asserting that its suggestions amount to a basis for denying enforcement under the "abuse of process" standard set forth in United States v. Powell, 379 U.S. 48, 13 L. Ed. 2d 112 , 85 S. Ct. 248 , 14 A.F.T.R.2d (P-H) 5942 (1964). *fn3" Instead, Grant's papers and its extensive correspondence with the RTC focus on the narrower questions of to whom and under what conditions subsequent disclosure of subpoenaed material may take place.

 The question common to all three subpoenas is whether the RTC may be required to give Grant ten days' advance notice before using subpoenaed material in investigations other than the one for which it was subpoenaed. This question must be considered in the context of the recent decision in RTC v. KPMG Peat Marwick, 779 F. Supp. 2 (D.D.C. 1991). In that subpoena enforcement action, Judge Sporkin held that "absent statute, agency rule or practice to the contrary, the RTC will be limited in its use of the materials obtained to the particualr investigation for which the subpoena was issued." Id. at 4. Accordingly, if the RTC could not point to any such rule or practice, it would be required to issue separate process for each investigation in which the same materials were sought. Once the agency establishes that a practice of sharing exists, however, "it will not be limited in its use of the subpoenaed information." Id.

 Significantly, the RTC points out that in a hearing subsequent to the published decision in Peat Marwick, Judge Sporkin upheld the December 31, 1991 internal practice guideline as a sufficient basis for sharing subpoenaed material within the RTC. Reply at 10. He also rejected the suggestion that a notice requirement be imposed. Id. at 10-11 (quoting transcript of hearing on Feb. 24, 1992). This decision is consistent with the holding in FTC v. Texaco, 555 F.2d 862 (D.C. Cir.) (en banc), cert. denied, 431 U.S. 974 (1977), which imposed a ten-day notice requirement on disclosure outside the FTC, but vacated restrictions on internal use. Id. at 883-84; accord FTC v. Cockrell, 431 F. Supp. 561 (D.D.C. 1977) (notice required for external disclosure); see also FTC v. Anderson, 631 F.2d 741, 748 (D.C. Cir. 1979) ("Such a [blanket] notice requirement might interfere with agency enforcement functions by forcing disclosure of pending investigations.") Here, once the RTC issued the internal practice guideline, it became entitled to share subpoenaed material internally pursuant to that guideline's "need to know" standard, and it cannot be required to give notice of such internal sharing. *fn4"

 Grant argues that since the internal practice guideline does not mention information sharing with the FDIC, it cannot constitute a "practice" sufficient to justify such sharing under Peat Marwick. However, the confidentiality assurances, with their references to "FDIC/RTC," certainly contemplate such sharing. Petitioner's Exh. A.4 P. 2 . While these assurances are less detailed than they might be, their clear treatment of the RTC and the FDIC as one entity, coupled with the fact that the RTC offers identical assurances in many of its investigations, suffice to make them a "practice" that supports information sharing under Peat Marwick. Especially given the ample evidence that Congress intended the RTC and FDIC to work in tandem, see 12 U.S.C. § 1441a(b)(12)(G), sharing between these agencies on related matters does not constitute the sort of lawless agency behavior with which Judge ...


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