— Preston J. Tetzlaff and Charles D. Gullickson, Davenport, Evans, Hurwitz & Smith, LLP
The attorney-client privilege protects communications between attorneys and their clients from compelled disclosure. This well-established privilege is deeply rooted in both common law and statutory frameworks across the country. Banks occasionally receive requests from regulators to produce communications protected by this privilege. Such requests raise an important question: must a bank, upon request, provide its regulator with communications between the bank and its legal counsel? Put differently, do the broad examination and visitorial powers of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Consumer Financial Protection Bureau (collectively, the “Agencies”) authorize the Agencies to compel a bank to turn over communications that are protected by the attorney-client privilege? The answer is surprisingly unclear.
Despite the long-recognized importance of the attorney-client privilege, the Agencies have each asserted that their supervisory authority allows them to compel the production of privileged materials. They reason that the statutes giving them broad access to a bank’s books, records, and premises logically include access to all materials maintained by a bank, including attorney-client communications. The Agencies argue that to fulfill their supervisory role and ensure the safety and soundness of the banking system, they need access to the full record of these internal communications, including those involving legal counsel. In addition, the Agencies cite the enactment of 12 U.S.C. § 1828(x) in 2006 to support their view that they may compel the disclosure of such privileged information. This federal statute provides that a bank that discloses information to any of the Agencies does not waive any privilege with respect to that information. The Agencies interpret this language as implicitly supporting the proposition that they have the authority to compel the disclosure of communications subject to the attorney-client privilege.
In a 2018 memo titled “Banking Regulators’ Examination Authority Does Not Override Attorney-Client Privilege”, seven national law firms teamed up to challenge the Agencies’ position. The well-reasoned memo concludes that “[t]here is no valid legal basis for the Agencies to demand that supervised institutions disclose privileged material.” The authors begin their argument by noting that the Agencies’ examination authority is, by their own admission, statutorily based. As such, without express statutory authority permitting the Agencies to compel disclosure of communications protected by attorney-client privilege, the privilege bars the Agencies from compelling banks to disclose such communications. In addition, the authors highlight U.S. Supreme Court case law establishing that common law privileges cannot be abrogated without clear and express statutory language. Given the lack of explicit statutory language authorizing the Agencies to compel the production of communications subject to the attorney-client privilege, the authors of the memo were not surprised by the fact that, where no other exception applies, they could not locate any cases entitling the Agencies to compel such disclosure.
It is the experience of the authors that the Agencies are reluctant to provoke a fight over whether they may compel a bank to disclose to them communications that are subject to the attorney-client privilege. In their experience, if a bank refuses to provide the Agencies with a record or document on the grounds that it is subject to the privilege, the Agency will back off from the request although perhaps also seek other avenues to gather the information it thinks the Agency needs. It remains noteworthy, however, that the public position of the Agencies is that the attorney-client privilege does not restrict their ability to seek privileged communications as they assert their examination and supervisory authorities over a bank.
It is unclear whether the Agencies’ broad examination and visitorial authority gives them the right to compel banks to deliver communications subject to the attorney-client privilege. While the regulators assert this right, the memo cited above presents a compelling argument that they lack a solid legal basis to do so. To date, this issue has not been conclusively resolved by any notable court decisions, statutes, or regulations. Therefore, banks facing such requests should be aware that this area of law is unsettled, and well-reasoned arguments exist supporting the position that privileged communications need not be disclosed.
Additionally, banks should remember that sharing communications protected by the attorney-client privilege with a third party generally results in a waiver of the privilege for that communication against all other parties. There is one notable exception–as noted above, following the enactment of 12 U.S.C. § 1828(x), bank disclosure of privileged information to the Agencies does not result in a waiver of the attorney-client privilege. However, outside of communications disclosed to the Agencies, the general rule accepted by most courts is that disclosure of privileged material to a third party waives the privilege as to all other third parties. For instance, if the bank shares a privileged communication from counsel with a trusted customer or another outside party, the general rule is that the attorney-client privilege will be lost in connection with that communication.
“Banks should remember that sharing communications protected by the attorney-client privilege with a third party generally results in a waiver of the privilege for that communication against all other parties.”
Banks should take care to organize and store privileged communications in a manner that avoids the risk that they may unwittingly make attorney-client privileged communications available to third parties; for example, a bank should not place communications subject to privilege in its corporate minute book or other files or records that the bank may otherwise want to share with third parties. An error would cost that communication its privileged status.
Responding to an Agency Request
If a bank receives a request from an Agency to turn over privileged communication, its first step should be to consult with counsel to plan a response. A bank should not assume that it is compelled to turn over privileged communications to an Agency upon demand. If a bank desires to do so, it should clearly note the communication is subject to attorney-client privilege, thus confirming that privilege will not be lost as to other parties, per 12 U.S.C. § 1828(x).