The Order on the Motion to Compel last week in WNC Holdings, LLC v. Alliance Bank & Trust Co. will be of particular interest to lawyers in litigation with banks.
The case deals mainly with the discoverability of a bank’s "compliance review documents." Those are defined by statute as "documents prepared for or created by a compliance review committee." N.C. Gen. Stat. sec 53-99.1(a)(2). A compliance review committee is a committee appointed by the board of directors of a bank and charged with determining compliance with:
1. Loan underwriting standards;
2. Asset quality;
3. Financial reporting to federal or State regulatory agencies;
4. Adherence to the bank’s investment, lending, accounting, ethical, and financial standards; or
5. Compliance with federal or State statutory requirements.
Id. at (a)(1)(b). Probably good stuff to have if you are suing a bank for failing to follow its own underwriting guidelines with regard to an allegedly inflated proposal, as WNC is doing.
There’s a statute dealing with these types of documents. It says that they "are not discoverable or admissible in evidence in a civil action against a bank, its directors, officers, or employees, unless the court finds that the interests of justice require that the documents be discoverable or admissible in evidence." N.C. Gen. Stat. Sec. 53-99.1 (emphasis added).
Judge Murphy, after observing that "there is no case law in North Carolina dealing with the interpretation of" the statute, said that the term "in the interests of justice" meant "the fair allocation of common advantages and the sharing of common burdens between parties to a legal action." Op. ¶11.
He ordered the bank Defendant to provide its compliance review documents for an in camera inspection.
But WNC wasn’t as successful in its attempt to obtain attorney-client privileged documents based on its argument that they fell within the crime-fraud exception. (If you’ve forgotten the crime-fraud exception to attorney-client privilege, it says that communications between a lawyer and a client will not be privileged where an attorney’s services are utilized in furtherance of a crime or fraud.).
Judge Murphy said that before he would conduct an in camera review of the documents in question, the Plaintiffs would need to "present ‘a factual basis adequate to support a good faith belief by a reasonable person,’ . . . that in camera review of the materials may reveal evidence to establish the claim that the crime-fraud exception applies.’" Op. ¶14.
Plaintiff’s argument that the communications sought were made during the time that the bank defendant had allegedly converted hundreds of thousands of dollars from its account were insufficient to "support a good faith belief that an in camera review would reveal evidence that the crime-fraud exception applies." Op. ¶15.