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Federal Deposit Insurance Corp. v. Belcher

United States District Court, E.D. Louisiana

December 10, 2019

FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER FOR FIRST NBC BANK
v.
DANIEL BELCHER

         SECTION “A” (5)

          ORDER AND REASONS

          JAY C. ZAINEY, UNITED STATES DISTRICT JUDGE

         Before the Court are four separate motions. First, a Motion for Summary Enforcement of Administrative Subpoena (Rec. Doc. 5) filed by the Plaintiff Federal Deposit Insurance Company (“FDIC”). Second, a Motion to Quash Subpoena (Rec. Doc. 23) filed by the Defendant Daniel Belcher. Third, a Motion to Disqualify Counsel (Rec. Doc. 24) also filed by Belcher. Fourth, a Motion to Intervene (Rec. Doc. 27) filed by Ernst & Young LLP (“EY”). These motions, all set for submission on October 30, 2019, are before the Court on the briefs without oral argument. For the following reasons, the Court grants the FDIC's Motion for Summary Enforcement of Administrative Subpoena and denies the three other remaining motions.

         I. BACKGROUND

         First NBC Bank Holding Company (“Holding Company”) employed the public accounting firm, EY, to perform audits over its issued financial statements. (Rec. Doc. 23-23, p. 3, Belcher's Opposition to the FDIC's Subpoena). Each opinion made by EY was made with respect to the Holding Company and was included in the Holding Company's yearly required 10-K. Id. However, the Holding Company's only asset was First NBC Bank (“Bank”). (Rec. Doc. 49, p. 2, FDIC's Response Memorandum). Thus, EY's annual audit was performed on a consolidated basis and included the financial statements of both the Holding Company and the Bank. Id. Further, these consolidated statements were required to be filed with both the Federal Reserve, through Form FR Y-9C, and the FDIC, through a Part 363 Annual Report.[1] Id.

         During the Bank's financial distress, the Public Company Accounting Oversight Board (“PCAOB”) initiated a confidential investigation relating to EY's audits of the Holding Company and the Bank between 2013 and 2015. (Rec. Doc. 23-27, Letter from EY). In connection with this investigation, EY produced thousands of pages of documents to the PCAOB, [2] including audit workpapers, emails, proprietary firm guidance and methodology, personnel files and reviews, firm audit quality review documents, and other documents. (Rec. Doc. 23-23, p. 6, Belcher's Opposition to the FDIC's Subpoena). In total, eight EY auditors provided a combined 28 days of testimony to the PCAOB, generating over 62, 000 transcript pages and using 390 exhibits. Id. Further, the PCAOB assured EY and its deponents that, pursuant to 15 U.S.C. § 7215(b)(5), the documents, testimony, and other information provided to the PCAOB and its staff were privileged, confidential, and exempt from disclosure under the Freedom of Information Act. Id. Similarly, each time EY disclosed any documents to the PCAOB, the following verbiage was included: “in the event that the PCAOB receives any request for the Confidential Materials [that EY provided] from any third-party or plans to provide the Confidential Materials to any third party, EY requests that the [EY's counsel] be notified of such request or plan, and be furnished a copy of all written materials pertaining to such request or plan.” Id. 6-7.

         Then, in May of 2017, the Holding Company declared bankruptcy, and the Louisiana Office of Financial Institutions closed the Bank and appointed the FDIC as its receiver. (Rec. Doc. 5-5, p. 2, FDIC's Memorandum in Support). The FDIC subsequently issued an Order of Investigation authorizing a probe into the work performed by EY, and the FDIC began requesting documents from the PCAOB. Id. at 3. After the PCAOB's Board of Directors received this request, the PCAOB's Board authorized the disclosure of particular records to the FDIC, which included deposition transcripts and other documents that it had received from EY. (Rec. Doc. 49, p. 4, FDIC's Response Memorandum). However, the PCAOB never notified EY that it made these disclosures to the FDIC.[3] (Rec. Doc. 23-23, p. 6-7, Belcher's Opposition to the FDIC's Subpoena).

         As the FDIC's investigation developed, it subsequently issued subpoenas for six administrative depositions of current and former EY personnel. (Rec. Doc. 5-5, p. 3, FDIC's Memorandum in Support). Of the six scheduled depositions, the FDIC scheduled Mr. Belcher's first. Id. However, three days before his deposition, Mr. Belcher notified the FDIC that he would not be attending the deposition because the PCAOB had improperly shared classified EY documents and testimony with the FDIC. Id. Thus, the FDIC filed this instant suit to compel Mr. Belcher's deposition and it named “Mr. Belcher, not the other five individuals, in [its Complaint] because he was scheduled to testify first and he canceled his deposition. Id. at 2, n. 2. The FDIC further explained in its Complaint that, “[c]ompelling Mr.

         Belcher's deposition will resolve the objection to all of the depositions [for the remaining EY auditors].” Id. Lastly, as to why EY was not named as a party in this suit, the FDIC stated in its Memorandum in Support that: “EY is not a Respondent to these subpoenas to individuals for their depositions, is not entitled to notice of these administrative depositions issued in a confidential investigation[, ] and accordingly is not a party to this action.” Id.

         In response to the suit and the FDIC's Motion for Summary Enforcement of Administrative Subpoena (Rec. Doc. 5), Belcher filed a Motion to Quash Subpoena (Rec. Doc. 23) and a Motion to Disqualify Counsel (Rec. Doc. 24). Further, EY filed a Motion to Intervene (Rec. Doc. 27). The Court will next analyze the merits of the FDIC's motion for summary enforcement of the subpoena issued to Belcher.

         II. MOTION FOR SUMMARY ENFORCEMENT OF ADMINISTRATIVE SUBPOENA

         a. FDIC's Organizational Structure

         “The FDIC is an instrumentality created by Congress to promote stability and restore and maintain confidence in the nation's banking system.” FDIC v. Bank of Boulder, 865 F.2d 1134, 1136 (10th Cir. 1988). To achieve these goals, the FDIC acts in its corporate capacity (i.e., FDRC-C) by insuring bank deposits and paying depositors after an insured bank fails. id.; see also FDIC v. Sumner Fin'l Corp., 602 F.2d 670, 679 (5th Cir. 1979). In addition, the FDIC's Board of Directors can appoint the FDIC to act as a receiver (i.e., FDIC-R) for an insolvent state bank to prevent losses to the deposit insurance fund. 12 U.S.C. § 1821(c).

         When the FDIC is appointed as receiver, it acts simultaneously in two separate capacities: as receiver of the failed bank and as insurer of the deposits. Bank of Boulder, 865 F.2d at 1136. Thus, under federal law, the FDIC is empowered to act in “‘two entirely separate and distinct capacities' in proceedings involving an insured state bank.” Sumner Fin'l Corp., 602 F.2d at 679 (quoting FDIC v. Abraham, 439 F.Supp. 1150, 1151 (E.D. La. 1977)); seealso FDIC v. Glickman, 450 F.2d 416, 418 (9th Cir. 1971) (recognizing FDIC's “dual capacity as federal insurer of deposits and as liquidating agent for the bank”); FDIC v. de Jesus Velez, 678 F.2d 371, 374 (1st Cir. 1982) (“It seems apparent that the FDIC must be permitted to operate in a dual capacity simultaneously, as a receiver and an ...


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