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Federal Deposit Insurance Corp., As Receiver of Citizens Bank and v. Belongia Shapiro & Franklin

November 19, 2012

FEDERAL DEPOSIT INSURANCE CORP., AS RECEIVER OF CITIZENS BANK AND TRUST CO. OF CHICAGO, PLAINTIFF,
v.
BELONGIA SHAPIRO & FRANKLIN, LLP, DEFENDANT.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:

MEMORANDUM OPINION AND ORDER

The Federal Deposit Insurance Corporation (FDIC), in its capacity as receiver for a failed bank, Citizens Bank and Trust Company of Chicago (Citizens), has petitioned the Court to enforce an administrative subpoena issued to a law firm that represented the bank, Belongia, Shapiro & Franklin, LLP (BSF). For the reasons stated below, the Court grants the FDIC's petition in part and denies it in part.

Facts

In April 2010, the Illinois Department of Financial and Professional Regulation closed Citizens after determining that the bank was operating in an unsafe and unsound condition due to its poor asset quality and weak management. The FDIC was then appointed as receiver of Citizens. As receiver, the FDIC is authorized to take over the failed institution's assets, preserve and conserve those assets, and collect any money due to the institution. 12 U.S.C. § 1821(d)(2)(B)(i). In conjunction with the agency's authority as receiver to marshal the failed institution's assets, it has the power to issue administrative subpoenas. 12 U.S.C § 1821(d)(2)(I)(i).

In its capacity as receiver, the FDIC initiated an investigation into possible wrongdoing by professionals that provided legal services to Citizens, including BSF. In particular, the FDIC is investigating legal opinions in which BSF advised the bank to indemnify or pay the legal fees of Citizens personnel in three lawsuits. The three lawsuits are: Jennifer Farafas v. Citizens Bank & Trust Co. ("Farafas"); Stephen P. Koppel v. Citizens Bank & Trust Co. ("Koppel"); and In the Matter of Robert Michael, George Michael, individually and as institution affiliated parties of Citizens Bank and Trust Co. ("In re Michael"). Citizens relied on BSF's legal advice and ended up paying almost $1 million in connection with the lawsuits.

The Farafas and Koppel matters were lawsuits against Citizens and certain of its directors. In those matters, BSF provided legal advice to Citizens as an institution. In re Michael was an administrative enforcement action by the FDIC in which it alleged that Robert and George Michael, who were directors of Citizens, had participated in unsound banking practices and sought to remove them from banking and impose civil fines upon them. In that matter,BSF is alleged to have initially advised Citizens on the issue of the Michaels' legal fees. About a year later, BSF represented Robert and George Michael in seeking reconsideration of an administrative law judge's recommendation to impose civil fines and remove them from banking.

The FDIC issued a subpoena duces tecum to BSF in September 2011 for all documents and communications in its possession related to the Farafas, Koppel, and In re Michael cases. Specifically, the FDIC requested: 1) professional liability insurance policies that may have been in effect for BSF's benefit from January 1, 2000 to the present; 2) documents sufficient to identify all claims filed or payments received under any such insurance policy; 3) pleadings filed in administrative or judicial forums against BSF; 4) documents referring or relating to the expectation of indemnification for any potential liability with respect to BSF's activities at Citizens Bank; 5) copies of all litigation or settlement documents to which BSF is now or has been a party; 6) all documents and communications concerning the Farafas lawsuit; 7) all documents and communications concerning the Koppel lawsuit, and 8) all documents and communications concerning the In re Michael proceeding. In requests 9-13, the FDIC asked for all communications to or from Citizens Bank, Robert Michael, George Michael, Nicholas Tanglis (another director of Citizens), and BSF concerning the lawsuits referenced in requests 6-8. The FDIC has made clear in its filings in the present matter that it is primarily concerned with the opinion letters that BSF issued in connection with the three lawsuits and with documents and communications pertaining to those opinion letters.

In response to the FDIC's subpoena, BSF produced a letter containing BSF's legal opinion that Citizens should indemnify all Board members involved in the Farafas case and documents related to the firm's representation of Citizens and Robert Michael in the Koppel case. BSF also produced pleadings, correspondence, and research materials pertaining to Farafas, as well as pleadings, discovery documents, invoices/receipts, notes, corporate information, and research materials pertaining to Koppel. BSF asserted the attorney-client privilege over most of the documents related to In re Michael.

In conjunction with the filing of its response brief in the present subpoena enforcement proceeding, BSF produced additional documents. These include e-mails and attachments pertaining to the Farafas and Koppel cases. BSF also produced some documents concerning In re Michael that it says are not subject to the work product or attorney-client privileges. In addition, BSF provided a privilege log for e-mails and attachments pertaining to In re Michael that BSF contends are subject to the work product and/or attorney-client privilege.

BSF concedes that the FDIC now "stands in the shoes" of Citizens Bank and thus holds all the rights and privileges that belonged to the bank previously, including the bank's attorney-client privilege relating to its communications with BSF. BSF contends, however, that it is still entitled to withhold documents that are subject to the Michaels' attorney-client privilege.

BSF maintains that it has now produced all responsive documents concerning the Farafas and Koppel matters and that it has appropriately withheld as privileged documents regarding In re Michael. The FDIC contends that BSF's document production is not complete. First, the FDIC points out that aside from the production of a single insurance policy, BSF did not address requests 1 through 5 in the subpoena. Second, the FDIC says that the documents BSF has produced concerning Farafas and Koppel consist mostly of "court pleadings and documents previously provided to the FDIC" (Pl.'s Reply at 4) and that BSF has not produced documents that were created in connection with the legal opinions that the FDIC has targeted. The FDIC notes in particular that documents such as drafts of the legal opinions, research memoranda on the issue of indemnification of bank directors, related correspondence, and attorney notes and analysis are missing from the records BSF has produced. The FDIC also says that BSF has produced no documents and communications related to the legal opinion it issued to Citizens in connection with In re Michael (indeed, BSF appears not to even acknowledge that it issued an opinion regarding that matter). Finally, the FDIC argues that the attorney-client privilege does not apply to documents relating to In re Michael because of the joint-client exception and the common-interest doctrine. In its reply, the FDIC asks the Court to: (a) order BSF to produce all documents responsive to requests 1 through 5; (b) order BSF to produce all documents responsive to requests 6 through 8 or certify that it has already done so; and (c) if the Court determines the Michaels' attorney-client privilege applies, make a finding that the privilege log provided by BSF is improper.

Discussion

1. Requests 1 through 5

BSF did not address items 1 through 5 in its response brief. It has provided only a single document to the FDIC in response to these requests, namely a single malpractice insurance policy. It is conceivable that this is the only document that BSF has that is responsive to these requests. If so, however, BSF must certify that is the case. The Court ...


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