In re: JPMorgan Chase Bank, NA v. ( 2015 )

United States Court of Appeals
For the First Circuit
No. 14-8015
IN RE: JPMORGAN CHASE BANK, N.A.,
Petitioner.
ON PETITION FOR EXTRAORDINARY WRIT TO THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Judith G. Dein, U.S. Magistrate Judge]
Before
Howard, Chief Judge,
Thompson and Kayatta, Circuit Judges.
Beth I.Z. Boland, with whom Michael Thompson, Stephen J.
Quinlan, Rachel M. Blise and Foley & Lardner LLP were on brief, for
petitioner.
Keith L. Miller for respondent.
August 21, 2015
HOWARD, Chief Judge. JPMorgan Chase Bank, N.A.
(hereinafter, "Chase") initiated this mandamus proceeding, asking
the court to intervene in what essentially is a discovery dispute.
Before the district court, Chase unsuccessfully argued that fifty-
five pages of Chase records were shielded from production or use in
the underlying putative class action per a provision of the Bank
Secrecy Act, 31 U.S.C. § 5318(g) (hereinafter, "the Act"), and
related regulations. As explained below, there are significant
reasons to doubt that the Act and related regulations apply at all
to the unique facts of this case. Moreover, even assuming that the
Act and regulations apply and that the protections emanating
therefrom extend as far as Chase suggests, the documents disputed
here would not be shielded from discovery or use in litigation.
Accordingly, Chase has not demonstrated a clear entitlement to the
relief it seeks, and the petition for writ of mandamus will be
denied.
I.
An abbreviated version of the relevant facts will suffice
for current purposes. Through a convoluted course of events that
need not be described here, counsel for the name plaintiffs in the
underlying putative class action obtained a sizable collection of
Chase records from the receiver. Counsel and the name plaintiffs
wished to rely on the documents in order to pursue various claims
sounding in fraud, deceit, and conversion against Chase. The name
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plaintiffs alleged that a customer had used his accounts with Chase
and a predecessor bank acquired by Chase to operate a Ponzi scheme
that the banks had failed to detect and stop. A dispute arose as
to whether portions of the Chase records were shielded from
discovery and litigation use under the Act and related regulations.
The Director of the Litigation Division for the Office of the
Comptroller of the Currency ("OCC") and the Financial Crimes
Enforcement Network ("FinCEN") were notified of the dispute as
required by 12 C.F.R. § 21.11(k)(1)(i). The OCC declined to
intervene in the matter and expressed support for the district
court's plan to conduct in camera review of the disputed documents.
Both agencies declined to review the specific documents disputed in
this case. The OCC eventually did file an amicus brief in the
district court, offering a general overview of relevant legal
principles but making clear that the documents at issue in this
case had not been reviewed.
After much legal wrangling, a magistrate judge
adjudicating the action by consent ultimately reviewed all the
disputed documents in camera and concluded that the vast majority
of the documents were not shielded by statute or regulation,
leaving the name plaintiffs free to rely upon all but a small
sliver of the Chase records in counsel's possession. The district
court rejected Chase's request that the ruling be certified for
review via interlocutory appeal. Chase then initiated this
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mandamus proceeding, asking the court to intervene by declaring
that the Act and related regulations shield an additional fifty-
five pages of records from evidentiary or other use in the putative
class action.1 Seizing upon language from prior cases, Chase
characterizes those fifty-five pages as "Evaluative Documents" and
claims that the documents are protected because they were prepared
for purposes of determining Chase's obligations under the Act and
related regulations to report certain transactions to FinCEN. This
court has conducted de novo review of those fifty-five pages in
camera.
II.
A. Mandamus Standard
"A petitioner seeking mandamus must show both that there
is a clear entitlement to the relief requested, and that
irreparable harm will likely occur if the writ is withheld." In re
Cargill, 66 F.3d 1256, 1260 (1st Cir. 1995). The alleged error to
which a petitioner points must be "palpable." In re Cambridge
Literary Props., Ltd., 271 F.3d 348, 349 (1st Cir. 2001). "[I]t is
1
At points in its papers, Chase also has invited this court
to involve itself in other aspects of the district court
proceeding, including entry of orders directly striking filings in
the district court. The court declines the invitation to seize
control of the underlying proceeding from a magistrate judge who,
up to this point, appears to have handled the matter quite ably.
This opinion, which focuses exclusively on the question whether
Chase is clearly entitled to a ruling that the fifty-five pages of
so-called "Evaluative Documents" are privileged, should provide the
magistrate judge with the guidance necessary to continue
effectively refereeing the parties' privilege dispute.
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well-established that an extraordinary writ, such as a . . . writ
of mandamus, may not be used as a substitute for an appeal and will
not lie if an appeal is an available remedy." In re Urohealth
Sys., Inc., 252 F.3d 504, 507 (1st Cir. 2001). Analogizing to
mandamus petitions centered on claims of attorney-client privilege,
we assume without definitively deciding that there is no general
bar to Chase's use of a mandamus petition to pursue the claim at
bar. See Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100, 114
(2009) ("We expect that the combination of standard postjudgment
appeals, § 1292(b) appeals, mandamus, and contempt appeals will
continue to provide adequate protection to litigants ordered to
disclose materials purportedly subject to the attorney-client
privilege.").
B. Relevant Legal Principles
Here, the "clear entitlement" prong of the mandamus
standard requires careful consideration of the Act, related
regulations, the limited body of caselaw applying those
authorities, and the guidance offered by FinCEN and the OCC as the
primary agencies charged with implementing the Act and related
regulations. A general overview is in order. The relevant portion
of the Act, 31 U.S.C. § 5318(g) -- added in 1992 as part of the
Annunzio-Wylie Act -- requires financial institutions "to report
any suspicious transaction relevant to a possible violation of law
or regulation." Annunzio-Wylie Anti-Money Laundering Act, Pub. L.
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102-550, 106 Stat. 3672 (1992). Key for current purposes, the Act
also imposes limits as to whom financial institutions, government
officials, and others may notify when a "suspicious transaction"
has been reported. Id. § 5318(g)(2). No involved person, whether
on the financial institution side or the government side, "may
notify any person involved in the transaction that the transaction
has been reported." Id. The statute also creates a "safe harbor"
for reporting financial institutions, stating that reporting
institutions and employees
shall not be liable to any person under any
law or regulation of the United States, any
constitution, law, or regulation of any State
or political subdivision of any State, or
under any contract or other legally
enforceable agreement (including any
arbitration agreement), for such disclosure or
for any failure to provide notice of such
disclosure to the person who is the subject of
such disclosure or any other person identified
in the disclosure.
Id. § 5318(g)(3).
Several pertinent regulations have been promulgated under
the Act, including 12 C.F.R. § 21.11(k) from the OCC, which refers
to a suspicious activity report as a "SAR" and dictates, inter
alia, that "[a] SAR, and any information that would reveal the
existence of a SAR, are confidential, and shall not be disclosed
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except as authorized in this paragraph."2 The regulation further
specifies:
No national bank, and no director, officer,
employee, or agent of a national bank, shall
disclose a SAR or any information that would
reveal the existence of a SAR. Any national
bank, and any director, officer, employee, or
agent of any national bank that is subpoenaed
or otherwise requested to disclose a SAR, or
any information that would reveal the
existence of a SAR, shall decline to produce
the SAR or such information, citing this
section and 31 U.S.C. 5318(g)(2)(A)(I).
12 C.F.R. § 21.11(k)(1)(i). In addition to other limitations not
relevant for current purposes, the regulation specifies that
"[p]rovided that no person involved in any reported suspicious
transaction is notified that the transaction has been reported,"
the regulation should "not be construed as prohibiting . . . [t]he
disclosure . . . of . . . [t]he underlying facts, transactions, and
documents upon which a SAR is based." 12 C.F.R.
§ 21.11(k)(1)(ii)(A)(2).
Against this backdrop, a body of district court caselaw
has emerged, examining the scope of the protections emanating from
the Act and related regulations. District courts have extrapolated
from the statute and regulations "an unqualified discovery and
evidentiary privilege that . . . cannot be waived." See, e.g.,
Whitney Nat. Bank v. Karam, 306 F. Supp. 2d 678, 682 (S.D. Tex.
2
Nearly identical regulations from FinCEN may be found at 31
C.F.R. § 1020.320(e). For the sake of simplicity, only the OCC
regulations are referenced infra.
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2004) (collecting cases). The trickier task for the district
courts has been to define the universe of documents encompassed by
this "privilege." See id. at 682-83. The Whitney court concluded
that the universe of protected documents
may consist of a SAR itself; communications
pertaining to a SAR or its contents;
communications preceding the filing of a SAR
and preparatory or preliminary to it;
communications that follow the filing of a SAR
and are explanations or follow-up discussions;
or oral communications o[f] suspected or
possible violations that did not culminate in
the filing of a SAR.
Id. Other categories of documents are not shielded, including
"documents produced in the ordinary course of business pertaining
to the defendants' banking activities, transactions, and accounts"
that do not suggest the existence of a SAR. Id. at 683.
That position is consistent with the regulation quoted
above, and other courts have drawn similar distinctions between
SARs and supporting documentation. See United States v. Holihan,
248 F. Supp. 2d 179, 187 (W.D.N.Y. 2003) ("[A]ny supporting
documentation which would not reveal either the fact that an [sic]
SAR was filed or its contents cannot be shielded from otherwise
appropriate discovery based solely on its connection to an SAR.");
see also Cotton v. PrivateBank & Trust Co., 235 F. Supp. 2d 809,
815 (N.D. Ill. 2002); Gregory v. Bank One Corp. Inc., 200 F. Supp.
2d 1000, 1002 (S.D. Ind. 2002); Weil v. Long Island Sav. Bank, 195
F. Supp. 2d 383, 390 (E.D.N.Y. 2001).
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On the issue of scope, FinCEN has provided some guidance:
Clearly, any document or other
information that affirmatively states that a
SAR has been filed constitutes information
that would reveal the existence of a SAR and
should be kept confidential. By extension, an
institution also should afford confidentiality
to any document stating that a SAR has not
been filed. Were FinCEN to allow disclosure
of information when a SAR is not filed,
institutions would implicitly reveal the
existence of a SAR any time they were unable
to produce records because a SAR was filed.
The more difficult situation is when a
document or other information is silent as to
whether a SAR has or has not been filed.
Documents that may identify suspicious
activity but that do not reveal whether a SAR
exists (e.g., a document memorializing a
customer transaction, such as an account
statement indicating a cash deposit or a
record of a funds transfer), should be treated
as falling within the underlying facts,
transactions, and documents upon which a SAR
may be based, and should not be afforded
confidentiality. This distinction is set
forth in the final rule's second rule of
construction and reflects relevant case law.
However, the strong public policy that
underlies the SAR system as a whole--namely,
the creation of an environment that encourages
financial institutions to report suspicious
activity without fear of reprisal--leans
heavily in favor of applying SAR
confidentiality not only to a SAR itself, but
also in appropriate circumstances to material
prepared by the financial institution as part
of its process to detect and report suspicious
activity, regardless of whether a SAR
ultimately was filed or not. This
interpretation also reflects relevant case
law.
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Confidentiality of Suspicious Activity Reports, 75 Fed. Reg. 75593,
75595 (Dec. 3, 2010) (footnotes omitted).3
The final paragraph of the FinCEN guidance, with its
reference to "material prepared . . . as part of [the financial
institution's] process to detect and report suspicious activity,"
may seem ambiguous, but the cases cited in support of that
paragraph are telling. See id. at n.15. FinCEN cited, inter alia,
the Whitney and Cotton decisions referenced above and characterized
those cases as having to do with communications, draft SARs, or
other materials protected because they suggested the existence or
non-existence of a SAR. See id. (citing Whitney, 306 F. Supp. 2d
at 682; Cotton, 235 F. Supp. 2d at 815).
Decisions post-dating the FinCEN guidance have tended to
focus on whether implicated documents were created "in the ordinary
course of business in monitoring unusual activity," as opposed to
being documents "of an evaluative nature intended to comply with
federal reporting requirements." See Wiand v. Wells Fargo Bank,
N.A., 981 F. Supp. 2d 1214, 1218 (M.D. Fla. 2013). Applying this
dichotomy, the Wiand court declared the following types of records
to be outside the scope of the Act and related regulations:
"copies of transactional documents," "list[s] or description[s] of
certain transactions," and "internal bank emails and reports" not
3
The OCC provided essentially identical guidance on the same
day as FinCEN. See Confidentiality of Suspicious Activity Reports,
75 Fed. Reg. 75576, 75578-79 (Dec. 3, 2010).
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"of an evaluative nature." Id.; see also In re Whitley, No.
10-10426C-7G, 2011 WL 6202895 at *4 (Bankr. M.D.N.C. Dec. 13, 2011)
("[A]lthough a bank may undertake an internal investigation in
anticipation of filing a SAR, it is also a standard business
practice for banks to investigate suspicious activity as a
necessary and appropriate measure to protect the bank's interests,
and the internal bank reports or memorandum generated by the bank
regarding such an investigation are not protected by SAR
privilege."); Freedman & Gersten, LLP v. Bank of Am., N.A., No.
09-5351, 2010 WL 5139874 at *3 (D.N.J. Dec. 8, 2010) ("[T]he Court
finds good cause to permit the disclosure of supplemental discovery
related to documents and facts pertaining to the suspicious
activity at issue in this matter, which were created in the
ordinary course of business.").
C. Application to This Case
As is likely clear by this point, the scope of the
protections stemming from the Act and related regulations is an
evolving area of the law. However, two distinct issues lead us to
question whether those authorities apply to this case to any extent
at all, and that certainly does not bode well for Chase in its
quest to demonstrate "a clear entitlement" to mandamus relief,
Cargill, 66 F.3d at 1260, or a "palpable" error, Cambridge Literary
Props., 271 F.3d at 349. First, there is the question whether the
Act and related regulations prevent disclosure by third parties
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like the name plaintiffs. As set out above, the Act itself
expressly forbids disclosure only by reporting financial
institutions and their officers and agents, and by government
entities, officials, and agents on the receiving end of SARs. See
31 U.S.C. § 5318(g)(2). Indeed, each of the cases cited and
discussed above involved a financial institution relying upon the
Act to resist disclosure of a SAR and related documentation; none
of the cases involved attempts to keep third parties from
disclosing SARs. Also, the FinCEN guidance quoted above focuses on
financial institutions and does not address in any way the issue of
third-party applicability.
It is true that the regulations fleshing out the Act do
begin with the broad proposition that SARs and documents speaking
to their existence "are confidential, and shall not be disclosed
except as authorized" by regulation. 12 C.F.R. § 21.11(k).
However, the regulations proceed to enumerate a universe of
individuals to whom the prohibition against disclosure applies that
is functionally equivalent to that set out in the Act (i.e.,
financial institutions and their officers and agents, and
government entities and their officials and agents). See id. Per
the so-called "general/specific canon," the specific list of
subject entities and individuals trumps any suggestion of a broader
universe of individuals bound by the prohibition on disclosure.
See RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065,
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2071 (2012) ("'It is an old and familiar rule that, where there is,
in the same statute, a particular enactment, and also a general
one, which, in its most comprehensive sense, would include what is
embraced in the former, the particular enactment must be operative,
and the general enactment must be taken to affect only such cases
within its general language as are not within the provisions of the
particular enactment.'" (quoting United States v. Chase, 135 U.S.
255, 260 (1890))). Thus, it would appear that neither the Act nor
the regulations restrict third parties -- that is, parties on
neither the financial-institution side nor the government side of
a SAR exchange -- from disclosing the existence or non-existence of
a particular SAR.
That reading also would comport with general agency
principles. The specific manner in which the disclosure
prohibition is set out in the Act suggests an intent on the part of
Congress to limit only disclosure by specific entities and
individuals for the specific purposes of encouraging reporting by
financial institutions and preserving investigatory latitude. See
Maine Ass'n of Interdependent Neighborhoods v. Comm'r, Maine Dep't
of Human Servs., 946 F.2d 4, 6 (1st Cir. 1991) ("We first
determine if Congress has spoken to the precise question at issue
. . . . At this stage we look to the statute's language, history
and purpose. If congressional intent is clear, we simply give
effect to that intent.") (internal quotations and citation
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omitted); see also Ernst & Ernst v. Hochfelder, 425 U.S. 185,
213-14 (1976) ("The rulemaking power granted to an administrative
agency charged with the administration of a federal statute is not
the power to make law. Rather, it is the power to adopt
regulations to carry into effect the will of Congress as expressed
by the statute.") (internal quotations omitted). Where Congress
has spoken with specificity, an agency may not promulgate
regulations that are "an attempted addition to the statute of
something which is not there," even if the intent behind the
attempted addition is consistent with the intent behind the
authorizing statute. See United States v. Calamaro, 354 U.S. 351,
358-359 (1957) (holding that treasury regulation could not extend
coverage of statute imposing occupational tax on those in the
business of "receiving" wagers to so-called "pick-up men"). In
sum, while resolution of this case does not require us to
specifically demarcate the universe of individuals encompassed by
the disclosure limitations, we conclude that Chase cannot satisfy
the demanding mandamus standard where there is such uncertainty as
to the applicability of the disclosure limitations to parties like
the name plaintiffs.
Issues of scope to the side, there is a second concern
causing us to question the very applicability of the disclosure
limitations, and that concern stems from circumstances unique to
this case. Both the Act and the regulations speak of "disclosure"
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of SARs and documents speaking to their existence. See 31 U.S.C.
§ 5318(g); 12 C.F.R. § 21.11(k). "'Dictionaries of the English
language are a fundamental tool in ascertaining the plain meaning
of terms used in statutes and regulations.'" Rhode Island Hosp. v.
Leavitt, 548 F.3d 29, 35 (1st Cir. 2008) (quoting United States v.
Lachman, 387 F.3d 42, 51 (1st Cir. 2004)). Webster's Dictionary
defines "disclose" as "to expose to view" or "to make known or
public." Merriam-Webster's Collegiate Dictionary 356 (11th ed.
2012). It is undisputed among the parties that, through a series
of events we need not limn, the SAR to which the relevant documents
relate was placed into the public record via court filings in prior
litigation and that electronic versions of the SAR reside on the
internet. As such, even assuming applicability of the Act and
regulations, it is doubtful that the name plaintiffs are even
capable of exposing the SAR to view or making it known or public
because, right or wrong, the SAR already has been exposed to view
and has been made public by other actors.
The two issues just discussed lead us to question
strongly the very applicability of the Act and regulations to this
case and, standing alone, would lead us to conclude that Chase has
not satisfied the demanding mandamus standard. However, we need
not arrive at a definitive conclusion as to the reach of the Act
and regulations at this time. Even assuming, arguendo, that the
disclosure limitations apply in this case and constitute a
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"privilege" against disclosure of the same scope as prior precedent
and agency guidance would suggest, the court would deny mandamus
relief because in camera review of the documents at issue here
reveals that the documents fall outside the scope of that so-called
"privilege."
As conveyed above, both relevant agencies and some courts
have suggested that the "privilege" extends, not just to the SAR
itself and documents expressly stating the existence of a SAR, but
also to documents that indirectly suggest the existence or non-
existence of a SAR. For current purposes, the court will assume
the correctness of that position. Even so, Chase's claim of
privilege would fail. First, the vast majority of the allegedly
privileged documents in this case feature only lists and
descriptions of transactions. As described previously, courts
uniformly have concluded that such documents are not encompassed by
the Act or the regulations but, instead, constitute "[t]he
underlying facts, transactions, and documents upon which a SAR is
based," which are expressly declared exempt from the
confidentiality obligation at 12 C.F.R. § 21.11(k)(1)(ii)(A)(2).4
See, e.g., Wiand, 981 F. Supp. 2d 1214, 1217-18 (finding to be
unprotected "a list or description of certain transactions rather
4
Nothing in this opinion should be construed as forbidding
redactions necessary to comply with court rules regarding the
filing of papers featuring personally identifiable information and
other sensitive materials.
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than copies of the transactional documents themselves"). That
leaves the narrow sliver of the fifty-five pages featuring non-
transactional information. Under the existing law and guidance
previously described, the key query is whether any of those
documents suggest, directly or indirectly, that a SAR was or was
not filed. See, e.g., 75 Fed. Reg. 75593, 75595 n.15 (citing
Whitney, 306 F. Supp. 2d at 682; Cotton, 235 F. Supp. 2d at 815).
Careful de novo in camera review of the documents reveals that none
of them do.5 For example, none of the documents at issue
constitute a draft SAR, and none of the documents reflect the
decision-making process as to whether a SAR should be filed, the
process of preparing a SAR, or an attempt to explain the content of
a SAR post-filing. See Whitney, 306 F. Supp. 2d at 682; Cotton,
235 F. Supp. 2d at 815.
In arriving at this conclusion, the court declines
Chase's invitation to view the "privilege" as extending to any
document that might speak to the investigative methods of financial
institutions. While FinCEN and the OCC have identified
safeguarding of investigative methods as one goal of the
5
In arriving at this conclusion, we have not relied upon the
"in the ordinary course of business in monitoring unusual activity"
versus "of an evaluative nature intended to comply with federal
reporting requirements" dichotomy previously discussed and relied
upon to some degree by the district court in this case. See supra
pp. 10-11. Demarcating the border between ordinary monitoring and
compliance-related monitoring would be a difficult, if not
impossible, task in some cases. We save for another day
consideration of the merits of that approach to the issue.
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confidentiality provisions, see 75 Fed. Reg. 75576, 75578 (OCC); 75
Fed. Reg. 75593, 75595 (FinCEN), the Act and related regulations
refer only to SARs and documents speaking to the existence of SARs.
Chase's suggested approach would see the bulk of a financial
institution's investigative file in a particular case shielded from
discovery. Congress and/or the agencies certainly would have used
broader, less specific language had that been their intent.
Further, Chase's suggested approach, in many instances, would be
inconsistent with the portions of the regulations specifically
exempting from protection "[t]he underlying facts, transactions,
and documents upon which a SAR is based," 12 C.F.R.
§ 21.11(k)(1)(ii)(A)(2), as well as with the body of caselaw
described previously.6 Finally, it is worth noting that the
documents in this case do not reveal a great deal about Chase's
investigative methods that could not be guessed by the average
would-be wrongdoer. Moreover, nothing in this opinion would
prevent Chase from asking the district court to continue sealing
6
Contrary to Chase's contentions, this narrower approach
also is not inconsistent with Regions Bank v. Allen, 33 So. 3d 72,
77-78 (Fla. Dist. Ct. App. 2010). There, a state appellate court
simply held that a blanket order from the trial court calling for
redactions of "any reference to a SAR or any language disclosing
whether there was or was not a SAR or whether a SAR was or will be
prepared" might not be sufficient and that, instead, any documents
falling into a "grey area" should be reviewed by the trial court in
camera prior to production. See id. Nothing in that decision
supports a broader view of the scope of the privilege than is being
assumed here, and, in this case, both the district court and this
court have reviewed the relevant documents in camera already.
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any filed copies of the fifty-five pages or filings describing
their content.7 It is entirely possible, then, that Chase will not
be prejudiced to the extent suggested in its papers and that an
appeal at the conclusion of district court proceedings would allow
Chase a sufficient opportunity to pursue its claim of privilege.
See Urohealth Sys., 252 F.3d at 507 ("[A] writ of mandamus[] may
not be used as a substitute for an appeal and will not lie if an
appeal is an available remedy.").8
D. Outstanding Motions
Two outstanding motions require attention. First, Chase
filed a motion for sanctions against plaintiff-respondents, arguing
that counsel on at least two occasions had failed to comply with
orders placing certain documents under seal. In each instance, the
non-compliance was remedied promptly, and counsel has accounted for
any lapses. The motion for sanctions will be denied, though the
court trusts that counsel will redouble his efforts to comply
strictly with any orders placing documents under seal in this court
and in the district court. Second, the parties have tendered a
supplemental joint appendix and requested leave to file the same.
The motion is granted, and, to the extent relevant, the documents
in the tendered appendix have been considered.
7
The court expresses no opinion as to whether the district
court should grant such relief.
8
In light of the foregoing, the court need not reach the
plaintiff-respondents' standing and First Amendment arguments.
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III.
The petition for writ of mandamus is denied due to
Chase's failure to demonstrate a clear entitlement to the relief
sought. The motion for sanctions is denied, and the motion for
leave to file a joint supplemental appendix is granted.
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