Plaintiffs filed this action pursuant to Rule 45(c)(2)(B) of the Federal Rules of Civil Procedure moving to compel John D. Hawke, Jr., the Comptroller of the Currency and head of the Office of the Comptroller of the Currency ("OCC"), to comply with a subpoena commanding the production of documents and his appearance to give deposition testimony. The OCC opposed plaintiffs' motion and filed a motion to quash the subpoena. The Court heard oral argument on the motions on May 28, 2004, at which time the Court announced certain findings of fact and conclusions of law memorialized by separate Order issued that same day. The Court also directed the OCC to submit to Chambers for in camera review the three documents, which total 29 pages, that the OCC has withheld from production. The remaining issues raised in the parties' motions are the subject of this Opinion.
In their motion, plaintiffs assert that on May 13, 2004, they served a subpoena on the OCC in connection with a federal securities class action pending in the United States District Court for the Northern District of California ("May 13 Subpoena"). In that class action, plaintiffs have alleged that Providian Financial Corp. ("Providian") and certain individual defendant officers (collectively, "defendants") engaged in a course of conduct designed to mislead the investing public through the issuance of a series of false and misleading public statements and through the failure to make timely mandated updates and corrections. See Plaintiffs' Motion to Compel Compliance from the Office of the Comptroller of the Currency with a Rule 45 Subpoena ("Pls.' Mot.") at 1. Plaintiffs assert that "the Defendants engaged in this fraudulent conduct to mask the serious deterioration of Providian's credit card loan portfolio and to conceal their knowledge that Providian's expected future managed net credit losses and managed net credit loss rates would not meet projections." Id. at 1-2.
During the course of discovery in the underlying action, plaintiffs determined that the OCC, the Federal Deposit Insurance Corp. ("FDIC"), and the Utah Department of Financial Institutions ("UDFI") each had examined Providian and two of its bank subsidiaries, Providian National Bank ("PNB") and Providian Bank, for "safety and soundness," focusing on the way in which Providian calculated its loan losses and on the adequacy of its loan loss reserves. These investigations resulted in a consent agreement entered into by PNB and the OCC on November 21, 2001 ("November 21 Agreement"), which required Providian to increase its loan reserves, mandated charges to Providian's financial statements and restricted Providian's operations. See Pls.' Mot. at 2. Plaintiffs assert that the issues examined by the OCC, and memorialized in the consent agreement, are at the heart of plaintiffs' securities class action. See id.
Plaintiffs submitted requests for testimony and documents to the OCC on April 16 and April 19, 2004. *fn1 Specifically, plaintiffs sought access to Reports of Examination and other correspondence that the OCC may have sent to PNB or PNB's auditor, Ernst & Young, pertaining to the OCC's 2001 examination of PNB and the November 2001 Agreement. By letter of May 13, 2004, the OCC stated that it had located three responsive documents, but denied plaintiffs' request on the grounds that: (1) "none of the [responsive documents] was written by the close of the class action period and so none pertains to OCC communications with the Bank during the relevant period"; (2) "the parties already have access to the [November 21 Agreement], Article VI of which reflects the OCC's concerns with the Bank's allowance for loan and lease losses and its instructions to the Bank as to how to calculate the allowance"; and (3) "the factual information about the Bank's allowance, lending function, and the deterioration in asset quality upon which the OCC based its opinions is available in non-privileged documents generated by the Bank and Ernst & Young." Motion of the Office of the Comptroller of the Currency to Quash the Rule 45 Subpoena ("OCC Mot."), Ex. 1, Letter of May 13, 2004 from Timothy W. Long, Senior Deputy Comptroller to James E. Evangelista, Esq. ("First OCC Denial Letter").
By letter of May 14, 2004, plaintiffs responded to the OCC denial with a lengthy argument and a request for reconsideration. See OCC Mot., Ex. 2, Letter of May 14, 2004 from J. Evangelista to T. Long ("Pls.' OCC Recon. Req."). Also in response to the OCC's denial, plaintiffs served the May 13 Subpoena on the head of the OCC to obtain documents and testimony related to the OCC's investigation of Providian. The subpoena included eight document requests, seven of which concerned documents related to the OCC and its examination of Providian, PNB and/or the individual defendants. The remaining request sought the minutes of any meetings of the Boards of Directors of Providian and PNB and any committees thereof. See Pls.' Mot., Ex. A, May 13 Subpoena. The OCC reiterated its denial by letter of May 21, 2004, and raised the additional ground for denial that the documents in question were protected by the "bank examination privilege." See OCC Mot., Ex. 3, Letter of May 21, 2004 from T. Long to J. Evangelista ("Second OCC Denial Letter").
For the reasons stated in open court at the conclusion of the May 28 hearing, the Court concludes that the proper standard of review in considering the parties' motions is the "relevancy" standard articulated in Rules 26 and 45 of the Federal Rules of Civil Procedure, not the arbitrary and capricious standard of the Administrative Procedure Act. Under the Federal Rules, discovery is broad, as "parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter." FED. R. CIV. P. 26(b)(1). Discovery may be obtained from non-parties pursuant to Rule 45, but that non-party can move to quash a subpoena by demonstrating that the subpoena "requires disclosure of privileged or other protected matter and no exception or waiver applies, or subjects [the nonparty] to undue burden." FED. R. CIV. P. 45(c)(3).
Plaintiffs assert that "the operative complaint in this action alleges that by October 2000 Defendants knew that Providian's actual credit losses would significantly exceed their loss projections for 2001, which projections they nevertheless disseminated to the investing public." Plaintiffs' Reply Memorandum in Further Support of their Motion to Compel. ("Pls.' Rep.") at 9. Plaintiffs' request to the OCC seeks access to Reports of Examination and other correspondence that the OCC may have sent to PNB or its auditor Ernst & Young, pertaining to the OCC's 2001 examination of PNB and the November 2001 Agreement.
1. Objection on the Basis of the Date of the Documents
The OCC objects to plaintiffs' document subpoena on several grounds. First, the agency concluded that the three documents that address the issues raised in plaintiffs' requestportions of an Examination Report pertaining to the November 21 Agreement and two related letters -- were not written during the class period and therefore that plaintiffs have failed to demonstrate their relevance. See First OCC Denial Letter at 1. Plaintiffs respond that the materials were written to address defendants' activities prior to and during the class period and therefore are relevant. See Pls.' OCC Recon. Req. at 2-3. As a preliminary matter, the Court concludes that the origination dates of the three documents is not dispositive as to the relevance of the documents because the relevance standard is so broad under the Federal Rules of Civil Procedure. The Court only can look to the content of the documents in order to determine whether the documents are relevant and should be produced. This examination is detailed in Section II(B)(4), infra.
2. Objection on the Basis of Availability
Second, the OCC claims that plaintiffs can obtain the factual information they seek from other sources, including the November 2001 Agreement and non-privileged documents available from Providian and Ernst & Young. See First OCC Denial Letter at 1; OCC Mot. at 9; Second OCC Denial Letter at 2. Plaintiffs respond that the information is not available because defendants and their auditors have refused to produce the documents on the basis of the bank examination privilege pursuant to the direction of the OCC. See Pls.' Mot. at 16; Pls.' Rep. at 10-11; Pls.' OCC Recon. Req. at 4. At oral argument, the OCC conceded that it had directed the defendants and their auditor to withhold documents under the privilege. See Transcript of ...