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Pershing LLC v. Kiebach

United States District Court, E.D. Louisiana

April 6, 2017

PERSHING LLC
v.
THOMAS KIEBACH ET AL.

         SECTION I

          ORDER AND REASONS

          LANCE M. AFRICK, UNITED STATES DISTRICT JUDGE

          I.

         In this consolidated action, Pershing LLC seeks to confirm an arbitration panel's decision in its favor. The defendants, “Louisiana Retirees, ” Dr. Thomas J. Kiebach, et al., seek to vacate the arbitration panel's decision. Since the lawsuits were consolidated, the focus has been on whether the Louisiana Retirees are entitled to any discovery before this Court renders its decision.

         The Court referred the discovery issue to the U.S. Magistrate Judge. Before rendering a decision, the Magistrate Judge entertained multiple rounds of briefing from the parties, heard oral arguments, held multiple status conferences, considered the statutes, regulations, and case law, and reviewed in camera the numerous documents that Pershing submitted through three separate productions. The three separate productions were necessitated by Pershing's inexplicable and repeated failure to fully comply with the Magistrate Judge's discovery orders. Those repeated unresponsive productions-at least one of which, the redacted production, was clearly intentionally unresponsive-needlessly delayed the resolution of the discovery issues.

         As it stands, the Magistrate Judge ultimately decided that only some of the documents produced by Pershing for in camera review should be produced to the Louisiana Retirees. See R. Doc. No. 132. The documents which the Magistrate Judge held non-discoverable were either not relevant to the present matter or were protected from disclosure by the Suspicious Activity Report (“SAR”) privilege under federal law. As to the remaining documents which the Magistrate Judge ordered produced to the Louisiana Retirees, the Magistrate Judge held that they were relevant and that they fell outside the protection of the SAR privilege.

         Now before the Court are Pershing's objections[1] to the Magistrate Judge's order. Pershing argues that all of the documents the Magistrate Judge ordered produced to the Louisiana Retirees are protected from disclosure by the SAR privilege, and it asks this Court to overturn the Magistrate Judge's order. With respect to the issues discussed herein, the order of the Magistrate Judge may be reversed “where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law.” 28 U.S.C. § 636(b)(1)(A); see also Fed. R. Civ. P. 72(a). For the following reasons, the objections are denied.

         II.

         The Court previously discussed the SAR privilege in its order and reasons denying Pershing's first objection to the Magistrate Judge's discovery order, see R. Doc. No. 114, though at that time the Court made no ruling as to the applicability of the SAR privilege to the documents at issue. Instead, the Court simply noted that “the applicability of the SAR exception to the documents described by Pershing is not as black-and-white as Pershing would have the Court believe, ” and that “this Court is not prepared to hold that Magistrate Judge North's decision to order the creation of a privilege log and have the documents produced for an in camera review was clearly erroneous or contrary to law.” See R. Doc. No. 114, at 9.

         Because the Court has already discussed, albeit briefly, the fundamental aspects of the SAR privilege, and considering that the parties agree on the basic legal framework for analyzing whether a document related to SARs may be disclosed, the Court wastes no time here repeating that framework. The Court instead proceeds to directly address each of Pershing's arguments as to why the Magistrate Judge's decision was clearly erroneous or contrary to law.

         A.

         Pershing first argues that the Magistrate Judge erred in finding that Pershing's Incident Reports were prepared in the ordinary course of business as part of Pershing's process of internally investigating potential suspicious activity. Pershing argues that this conclusion flies in the face of the “sole piece of evidence in the record regarding the role that Incident Reports play at Pershing: the declaration of Alma Angotti, a former senior enforcement official . . . who reviewed Pershing's [Anti-Money Laundering] program.” See R. Doc. No. 133-1, at 3. Ms. Angotti swears that the Incident Reports are created expressly for the purpose of determining whether activity is in fact suspicious, requiring a SAR, and that the reports are “not a record created in [Pershing's] ordinary course of business about a transaction, an account or a business relationship that may give rise to Pershing's suspicions.” See R. Doc. No. 89-3, at 5.

         As an initial matter, the Court observes that Ms. Angotti is not an employee of Pershing, but rather an expert whom Pershing hired to review its Anti-Money Laundering (“AML”) program.[2] Her declaration states that she “understand[s] the general steps undertaken by Pershing to file SARs.” See R. Doc. No. 89-3, at 4. To the extent Ms. Angotti is offered her opinion, based on a review of Pershing's program, as to whether the Incident Reports were prepared in the ordinary course of business, the Magistrate Judge was not obligated to accept her conclusion packaged as an expert opinion.

         There is also reason to doubt Ms. Angotti's conclusion. It goes without saying that “detecting fraud is simply part of a financial institution's ordinary course of business, ” see R. Doc. No. 114, at 8, and that Pershing-like other financial institutions-would investigate suspicious activity even if it was not required by federal law to adopt AML programs and prepare SARs. Pershing does not argue otherwise. Instead, it simply asserts that “[t]here is nothing to suggest Incident Reports are used for loss prevention, employee discipline, credit decisions, or other matters.” See R. Doc. No. 133-1, at 5. Notably absent from Pershing's briefing is any explanation of how its procedures for detecting loss prevention and the like-which undoubtedly exist-are implemented separately from the AML program. Pershing seems content to rely on the fact that the Louisiana Retirees have not introduced evidence that Pershing's loss prevention procedures overlap with Pershing's AML procedures. However, as the party advocating for the privilege, it is Pershing's burden ...


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