Judge Orders BHC to Produce Examination and Enforcement Documents

Case: SBAV LLP v. Porter Bancorp. Inc.

Issue: Whether the federal bank examination privilege controls whether Porter Bancorp. Inc. (Porter) must produce examination and enforcement documents.

Case Summary: A Kentucky federal district court ordered Porter to produce examination and enforcement documents sought by investor SBAV LLP (SBAV) in a suit alleging that Porter’s misrepresentations of its financial conditions caused SBAV to lose its entire $5 million investment. The district court ruled that the federal bank examination privilege does not apply.

SBAV brought the suit alleging that Porter misrepresented the financial conditions of its subsidiary, PBI Bank, which caused SBAV to lose its $5 million investment when Porter suffered financial losses of over $100 million in 2011. SBAV claimed Porter violated Kentucky’s security laws and breached its contract and sought to recover $4.5 million in damages.

SBAV moved the district court to compel Bancorp to produce all documents related to examinations and enforcement actions of Porter or PBI by the Federal Reserve, Federal Deposit Insurance Corp. (FDIC), Securities and Exchange Commission (SEC), and the Kentucky Department of Financial Institutions (KDFI). SBAV argued that the documents, which include confidential communications with the regulators, prove SBAV made false and misleading statements about its subsidiary. Bancorp contended that it was not required to produce the documents under the federal bank examination privilege.

The magistrate judge agreed with SBAV and ordered Porter to turn over the examination and enforcement documents. The magistrate judge ruled that the federal bank examination privilege does not apply because state law controls the discovery dispute under Federal Rule of Evidence 501. According to the judge, under Kentucky’s bank examination statute, the documents are considered confidential but may not be withheld. The magistrate judge also ruled that SBAV demonstrated good cause to override the federal banking examination privilege.

Porter filed an objection to overturn the order, but a senior judge in the district court declined and affirmed the magistrate judge’s order compelling Porter to turn over the documents.

Bottom Line: In a similar matter in New York, a retirement fund suing Bank of America is demanding that the bank produce more than 30,000 documents, which include confidential communications with regulators, to show that the bank made false and misleading public statements about its securities. The Federal Reserve Board (Board) and the Office of the Comptroller of the Currency (OCC) filed briefs supporting Bank of America’s decision to withhold the documents under the bank examination privilege.

About Thomas Pinder

Thomas Pinder
Thomas Pinder is senior vice president and senior counsel for litigation in the office of ABA's general counsel.
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