390 F. Supp. 3d 311
D.P.R.2019Background
- Certain ERS bondholders sought documents and privilege logs from ERS, the Commonwealth, AAFAF, and the Oversight Board in discovery related to a motion for relief from the automatic stay challenging Puerto Rico’s 2017 PayGo pension reforms (J.R. 188 and Act 106).
- Government Parties withheld categories of documents under deliberative process, executive, attorney-client, work-product, and common-interest privileges and served categorical and then individual privilege logs.
- Magistrate Judge Dein largely sustained the privilege assertions in three discovery orders (May 6, May 15, May 30, 2019), after directing targeted supplemental submissions and limited, document-by-document logging for certain categories.
- Bondholders objected, arguing (inter alia) that withheld factual material is not protected, privileges were waived as to inter-agency sharing, they had substantial need for the materials, AAFAF could not invoke executive privilege, and the attorney-client/common-interest/Kovel exceptions do not apply.
- District Court reviewed the magistrate judge’s non-dispositive orders for clear error or legal error and affirmed them: it held withheld factual material was intertwined with deliberative analysis, post-certification documents related to distinct legislative decisions, common-interest and Kovel-type exceptions applied, and bondholders lacked substantial need.
Issues
| Issue | Bondholders' Argument | Government Parties' Argument | Held |
|---|---|---|---|
| Applicability of deliberative process privilege to documents with factual content | Facts are separable; factual material is not privileged and must be produced | Factual material is intertwined with deliberative analysis and cannot be segregated | Magistrate not clearly erroneous: facts are part-and-parcel of deliberations; privilege applies |
| Temporal scope: post-Fiscal Plan documents (after March 13, 2017) | Post-certification documents merely implemented the Oversight Board’s Fiscal Plan; no further deliberation protected | J.R.188 and Act 106 were separate, subsequent legislative/implementation decisions involving deliberation | Magistrate correct: legislative enactments and implementation involved post-certification deliberations; privilege covers those documents |
| Waiver by inter-agency sharing and Oversight Board status | Sharing among Commonwealth entities (and Oversight Board) waived privilege; Oversight Board is federal so no privilege | Government Parties share common interest; PROMESA treats Oversight Board as territorial instrumentality for these purposes | No clear error: inter-agency common interest preserved privilege; Aurelius did not compel broader waiver here |
| Substantial need balancing | Bondholders need deliberative materials to prove PayGo was designed to divert collateral/establish intent | Central issues turn on statutory and contract interpretation; essential factual material already produced | Magistrate did not err: bondholders failed to show substantial need outweighing privilege; evidentiary intent is marginal |
| Attorney-client privilege and Kovel exception for non-lawyer advisors | Disclosing to non-lawyers waived privilege; common interest between ERS and others is insufficient | Advisors were necessary translators/agents for legal advice in complex restructuring; common interest applies to pension reform matters | Magistrate reasonably found Kovel criteria and common-interest applied; privilege upheld |
| Work-product and executive privilege (alternative grounds) | Bondholders asked court to reach these if other privileges fail | Government Parties asserted these as additional protections | Court declined to reach them because attorney-client and deliberative privileges suffice; no need to rule on work-product or executive privilege |
Key Cases Cited
- Phinney v. Wentworth Douglas Hosp., 199 F.3d 1 (1st Cir. 1999) (standard for review of magistrate judge factual findings)
- Texaco Puerto Rico, Inc. v. Dep't of Consumer Affairs, 60 F.3d 867 (1st Cir. 1995) (deliberative process privilege elements and balancing)
- National Wildlife Fed'n v. United States Forest Serv., 861 F.2d 1114 (9th Cir. 1988) (deliberative process privilege framework)
- Stalcup v. C.I.A., 768 F.3d 65 (1st Cir. 2014) (analysis on when factual material is intertwined with deliberative content)
- Providence Journal Co. v. U.S. Dep't of Army, 981 F.2d 552 (1st Cir. 1992) (predecisional and deliberative definitions)
- FDIC v. Ogden Corp., 202 F.3d 454 (1st Cir. 2000) (standard for common-interest doctrine in First Circuit)
- Cavallaro v. United States, 284 F.3d 236 (1st Cir. 2002) (privilege waiver and Kovel agent/translator principle)
- Aurelius Inv., LLC v. Puerto Rico, 915 F.3d 838 (1st Cir. 2019) (discussed regarding Oversight Board status and Appointments Clause context)