324 P.3d 693
Wash. Ct. App.2014Background
- Plaintiffs John and Kristine Norton invested $11 million with Jose Nino de Guzman/NDG; they later sued after discovering a Ponzi scheme and added U.S. Bank, alleging the bank failed to detect/supervise and investigated money laundering inaction.
- Nortons obtained ordinary business records (statements, checks, wire transfers) showing many accounts and transfers; they sought additional discovery of the bank’s internal monitoring, investigations, policies, employee names, and procedures for detecting suspicious activity.
- U.S. Bank produced transactional records but refused to produce documents concerning internal investigations, monitoring methods, and whether Suspicious Activity Reports (SARs) existed, invoking the Bank Secrecy Act (31 U.S.C. § 5318(g)) and comptroller regulations.
- The trial court denied the bank’s protective order and compelled production; the bank sought discretionary review in the appellate court.
- The appellate court reviewed the statutory privilege de novo and concluded that federal law (statute and comptroller regulations) protects SARs and any information that would reveal their existence, including internal investigatory materials and monitoring methods.
- The appellate court reversed, holding the trial court abused its discretion and remanded for entry of a protective order shielding internal investigation and monitoring materials from discovery.
Issues
| Issue | Norton’s Argument | U.S. Bank’s Argument | Held |
|---|---|---|---|
| Whether documents about the bank’s internal monitoring/investigations and methods for detecting suspicious activity are discoverable | Nortons: internal investigations and monitoring are discoverable; redaction of explicit SAR references suffices | Bank: BSA and comptroller regs bar disclosure of SARs and any information that would reveal their existence, including internal procedures and investigations | Held: Privilege bars disclosure; internal investigatory materials and methods that would reveal existence of SARs are protected and not discoverable |
| Whether transactional business records underlying suspicions must be produced | Nortons: transactional materials are part of ordinary course business and discoverable | Bank: some transactional records may be produced but not investigatory materials tied to SAR process | Held: Ordinary transactional records (statements, checks, wires) are discoverable, but investigatory/supporting internal materials are privileged |
| Whether redaction or in camera review can cure privilege concerns | Nortons: redaction or judicial in camera review should allow court to identify non-privileged material | Bank: redaction/in camera review insufficient because documents revealing processes/names/methods would still disclose SAR existence and risk policy harms | Held: Redaction/in camera review not required—the record shows bank produced ordinary business records; privilege applies so no in camera review compelled |
| Scope of the privilege—limited to SARs or broader to include preparatory communications and internal forms | Nortons: privilege should be narrow; internal reports not communicated to government fall outside privilege | Bank: privilege covers SARs, communications about SARs, drafts, internal forms and steps in SAR process | Held: Privilege is broad: covers SARs and any information that would reveal SAR existence, including internal forms, communications, preparations, and methods for detecting suspicious activity |
Key Cases Cited
- Cotton v. PrivateBank & Trust Co., 235 F. Supp. 2d 809 (N.D. Ill. 2002) (held SARs and related internal investigatory materials creating or revealing a SAR are privileged; transactional business records remain discoverable)
- Whitney Nat’l Bank v. Karam, 306 F. Supp. 2d 678 (S.D. Tex. 2004) (privilege protects communications to government and internal discussions preparatory to or following SARs; broad protection beyond explicit SARs)
- Union Bank of Cal. v. Superior Court, 130 Cal. App. 4th 378 (Cal. Ct. App. 2005) (internal bank forms used in SAR preparation are part of SAR process and protected from discovery)