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COTTON v. PRIVATEBANK AND TRUST COMPANY

November 12, 2002

SHERMAN COTTON, AS INDEPENDENT EXECUTOR OF THE ESTATE OF LOY E. KING, JR. AND TRUSTEE OF THE LOY E. KING, JR. LIVING TRUST, AS AMENDED, PLAINTIFF,
V.
PRIVATEBANK AND TRUST COMPANY, DEFENDANT/THIRD-PARTY PLAINTIFF



The opinion of the court was delivered by: Morton Denlow, United States Magistrate Judge.

MEMORANDUM OPINION AND ORDER

I. BACKGROUND FACTS

A. THE LITIGATION.

The following background facts are alleged in the pleadings. Loy King settled a personal injury lawsuit via the creation of a structured settlement agreement with SBU, Inc. ("SBU"). The agreement called for the creation of a trust to be administered by PrivateBank. Plaintiff, Sherman Cotton ("Cotton"), is the Independent Executor of the Estate of Loy E. King, Jr. and Trustee of the Loy E. King, Jr. Living Trust. Pursuant to the agreement, PrivateBank, as the trustee of the trust instrument created by SBU, was required to make periodic payments to Cotton. In August 1996, PrivateBank resigned as trustee and Flag Finance Corporation ("Flag") took over the duties of making payments to Cotton on SBU's behalf.

Due to its resignation, PrivateBank transferred securities intended to fund Cotton's payments to an account at Crews & Associates, Inc. ("Crews") in the name of Flag as trustee for SBU. Subsequently, Crews transferred securities from the Flag trustee account to an account at CIBC World Market Corp. ("CIBC") in the name of SBU. Securities held by CIBC were then liquidated by SUB's principal, James Gibson, and used to purchase supermarkets, other real estate, and personal luxury items. At some time during the preceding events, Cotton's structured settlement payments were discontinued.

Cotton filed a complaint against PrivateBank to recover monies owed due to the structured settlement arrangement with SBU. PrivateBank filed a third-party complaint against CIBC alleging that CIBC knowingly permitted the liquidation of securities from the SBU account that were to be used solely to fund payments under structured settlement agreements. Furthermore, PrivateBank contends that CIBC loaned money to Gibson and SBU on margin, took a pledge of the securities in return, and ultimately liquidated millions of dollars of earmarked securities to pay back these margin loans. PrivateBank further contends that subsequent to this last liquidation of funds, CIBC conducted an internal investigation and decided to close SBU's account. This alleged investigation is the focus of the motion at hand,

B. DISPUTED DISCOVERY REQUESTS.

On March 12, 2002, PrivateBank served a request for production of documents upon CIBC. CIBC objected to PrivateBank's request numbers 28, 29 and 34 as follows:

Request No. 28: All documents relating to any inquiry or investigation or review conducted by CIBC, including by CIBC's compliance department, of any account of SBU, Flag Finance or Gibson at CIBC at any time.
Response: CIBC objects to Request No. 28 on the grounds that it is vague, overboard, unduly burdensome, seeks documents and information protected by the attorney-client privilege and the work product doctrine, and is not reasonably calculated to lead to the discovery of admissible evidence.
Request No. 29: All suspicious activity reports filed by (ABC at any time relating in any way to SBU, Flag Finance or Gibson, and all documents of any kind relating thereto.
Response: Subject to and without waiving the foregoing objections, pursuant to 31 U.S.C.A. § 5318(g)(2) and 12 C.F.R. § 21.11 (k), CIBC is legally prohibited from disclosing the existence and contents of any suspicious activity report.
Request No. 34: All documents relating to any internal or outside investigation, review, inquiry, examination or audit by any person, entity or regulatory or enforcement authority of any kind or nature (including CIBC's inside or outside accountants or auditors or ...

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