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Federal Deposit Insurance Corp. v. Belcher

United States District Court, E.D. Louisiana

January 15, 2020

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

         SECTION “A” (5)

          ORDER AND REASONS

          JAY C. ZAINEY JUDGE

         Before the Court is a Motion to Stay Order on Motion for Summary Enforcement of Administrative Subpoena (Rec. Doc. 68) filed by the Defendant Daniel Belcher. The Plaintiff Federal Deposit Insurance Company (“FDIC”) opposes this motion. (Rec. Doc. 76). This motion, set for submission on January 8, 2020, is before the Court on the briefs without oral argument.

         I. BACKGROUND

         First NBC Bank Holding Company (“Holding Company”) employed the public accounting firm Ernst & Young LLP (“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 significant 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.

         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, 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). Further, eight EY auditors provided a combined 28 days of testimony to the PCAOB, generating over 62, 000 transcript pages and using 390 exhibits. Id.

         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. (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 a Motion for Summary Enforcement of Subpoena (Rec. Doc. 5) to compel Mr. Belcher's deposition.

         Upon reviewing the FDIC's Motion, the Court granted the Motion for Summary Enforcement and instructed Mr. Belcher “to appear promptly for an administrative deposition.” (Rec. Doc. 65, p. 11, Court's Order and Reasons). Instead of complying with this Order, Mr. Belcher requested this Court to stay its Order while the Fifth Circuit “considers the significant questions of statutory interpretation and privilege at issue.” (Rec. Doc. 68-3, p. 11, Belcher's Memorandum in Support). The Court will now address the merits of Belcher's Motion to Stay.

         II. LEGAL STANDARD

         “A stay pending appeal ‘simply suspends judicial alteration of the status quo.'” Veasey v. Perry, 769 F.3d 890, 892 (5th Cir. 2014) (citing Nken v. Holder, 556 U.S. 418, 429 (2009)). A stay may be automatic or discretionary. If the merits of the case before the district court are directly involved in the merits of an appeal, the district court's proceedings must be stayed. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982) (per curiam). When an automatic stay is not required by an appeal, the district court may nevertheless grant a discretionary stay of the proceedings. See Weingarten Realty Investors v. Miller, 661 F.3d 904, 908 (5th Cir. 2011). While a district court is granted discretion in its decision on whether to grant a stay when a stay is not required, “the exercise of that discretion is not unbridled.” In re First South Sav. Ass'n, 820 F.2d 700, 709 (5th Cir. 1987). “[R]ather, the court must exercise its discretion in light of what this court has recognized as the four criteria for a stay pending appeal.” Id. Those four traditional factors include: “(1) whether a stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.” Weingarten Realty Investors, 661 F.3d at 910. Notably, the Supreme Court has held that the “first two factors of the traditional standard are the most critical.” Veasey, 769 F.3d at 892 (citing Nken, 556 U.S. at 434). Accordingly, there is a “widely held view that a stay can never be granted unless the movant has shown that success on appeal is probable.” Ruiz v. Estelle (Ruiz I), 650 F.2d 555, 565 (5th Cir. 1981).

         There is, however, an exception where the heavy burden of the first factor is not required. Under this exception to the traditional rule, when a court is “confronted with a case in which the other three factors strongly favor interim relief, ” the court may lessen the burden of the first factor from a strong showing of succeeding on the merits, to a substantial case on the merits. Ruiz, 650 F.2d at 565 (citing Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977). Thus, when the three remaining factors strongly favor interim relief and the exception applies, “the movant need only present a substantial case on the merits when a serious legal question is involved and show that the balance of equities weighs heavily in favor of granting a stay.” Ruiz, 650 F.2d at 565 (emphasis added) (citing Providence Journal v. Federal Bureau of Investigation, 595 F.2d 889 (1st Cir. 1979); U.S. v. Baylor University Medical Center, 711 F.2d 38 (5th Cir. 1983); see also In re Deepwater Horizon, 732 F.3d 326, 345 (5th Cir. 2013) (citing Weingarten Realty Investors, 661 F.3d at 910) (stating “where there is a serious legal question involved and the balance of equities heavily favors a stay . . . the movant only needs to present a substantial case on the merits.”)). If the moving party cannot demonstrate this, then it must “make a more substantial showing of likelihood of success on the merits in order to obtain a stay pending appeal.” Id.

         Whether the analysis falls under the traditional approach or the exception, the movant bears the burden of showing that a stay is warranted. Weingarten Realty Investors, 661 F.3d at 910. Where “there is even a fair possibility that the stay . . . will work damage to someone else, ” the party seeking a stay “must make out a clear case of hardship or inequity in being required to go forward.” Landis, 299 U.S. at 255; see Ind. State Police Pension Tr. v. Chrysler LLC, 556 U.S. 960, 961 (2009) (citation omitted) (“‘[A] stay is not a matter of right, even if irreparable injury might result otherwise.' It is instead an exercise of judicial discretion, and the ‘party requesting a stay bears the burden of showing that the circumstances justify an exercise of that discretion.'”).

         III. DISCUSSION

         a. “Strong Showing of Succeeding on the Merits” Test

         Determining what constitutes a “likelihood of success, ” is no easy task. As the Second Circuit has stated, “[a]lthough courts have discussed and applied these four criteria on numerous occasions, some uncertainty has developed as to the first factor because of the various formulations used to describe the degree of likelihood of success that must be shown.” Mohammed v. Reno, 309 F.3d 95, 100 (2d Cir. 2002). While the analysis “somewhat resembles the test applied in the district court when evaluating a request for a preliminary injunction, [ ] the differences in posture mean that the two tests are not identical.” See FEDERAL PRACTICE AND PROCEDURE § 3954 (citing National Treasury Employees Union v. Von Raab, 808 F.2d 1057 (5th Cir. 1987)). Thus, it is apparent that the circuits have, to a large degree, chosen to engage in an ad-hoc decision-making process, rather than a formulaic analysis when it comes to the first factor. However, according to the Supreme Court, a sufficient demonstration of a likelihood of success on the merits “requires more than a mere possibility that relief will be granted. Nken, 556 U.S. at 418. Even more specifically, when determining the likelihood of a movant's success, the Fifth Circuit has explicitly considered the ...


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