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holding that "[t]he journalist privilege is a qualified one. Fitch is not primarily engaged in newsgathering generally, nor was it doing so when procuring the information sought by the subpoenas. The Court finds that Fitch is not entitled to the protections offered by the journalist privilege."
Summary of this case from In re Enron Corp. Sec., Derivative "ERISA" LitigationOpinion
Case No. M8-85
December 16, 2002
Adrienne B. Koch, ESANU KATSY KORINS SIGER, LLP; New York, New York, Counsel for Plaintiffs
Evan A. Davis, Gabrielle S. Friedman, CLEARY, GOTTLIEB, STEEN HAMILTON, One Liberty Plaza, New York, New York, Counsel for Non-Party Fitch, Inc.
OPINION AND ORDER
Before the Court is motion of plaintiff American Savings Bank, FSB ("ASB") to enforce a subpoena served on non-party Fitch, Inc. ("Fitch") and Fitch's cross-motion to quash the subpoena. The underlying action is pending in the District of Hawaii. That lawsuit asserts state law claims for misrepresentation, breach of warranty, breach of fiduciary duty and negligence against UBS PaineWebber, Inc. ("PaineWebber") based on PaineWebber's alleged unlawful scheme to induce ASB to make certain investments. As ASB's investment broker, PaineWebber makes investment recommendations to ASB. PaineWebber contends that it made representations to ASB concerning marketing investments in three Collateralized Loan Obligations ("CLOs") based on information received from Fitch. ASB purchased certain Trust Certificates in which PaineWebber "embedded" an interest in the equity tranche of those CLOs.
Fitch is a credit rating agency based in New York engaged in collecting, analyzing, and publishing information on securities and various types of debt. Brown Aff. ¶ 2. Fitch gathers information and provides ratings that are published, either to the general public or to certain segments of it, to assist investors in making informed investment decisions. ASB acknowledges that Fitch did not rate the specific Trust Certificates at issue in the lawsuit. ASB still seeks information from Fitch because in the course of creating and marketing those CLOs and the related Trust Certificates, PaineWebber communicated with Fitch about a variety of important issues related both to the structuring of the CLOs and to the related Trust Certificates. See Alston Aff. ¶ 13. The subpoenas seek information and documents concerning the communications between PaineWebber and Fitch on these matters.
ASB served subpoenas on Fitch to obtain information it claims is (1) highly relevant to ASB's claims and PaineWebber's alleged defenses and is (2) unavailable from PaineWebber or any other source. ASB claims to have learned through discovery that the records from PaineWebber of communications with Fitch are incomplete and ASS can only acquire the missing materials through these subpoenas. Although the relevant witnesses from PaineWebber have been deposed and the relevant documents have been requested, ASS has been unable to obtain complete information concerning these communications. Alston Aff. ¶ 13.
On August 26, 2002, ASS served on Fitch subpoenas seeking documents and testimony relevant to Fitch's communications with PaineWebber on these issues. Fitch has objected to producing any documents or providing testimony on the grounds that all responsive documents or testimony would be protected by the journalist privilege.
DISCUSSION
I. Privilege log
ASS argues that Fitch's failure to produce a privilege log results in Fitch waiving any privilege objections.
Federal Rule of Civil Procedure 45(d)(2) requires that any claim of privilege be "supported by a description of the nature of the documents, communications or things not produced that is sufficient to enable the demanding party to contest the claim." Fed.R.Civ.P. 45(d)(2). This rule is further supported and specified by Local Civil Rule 26.2(a)(2)(A) which requires that documents objected to on the basis of privilege be identified by type, general subject matter and other identifying criteria such as the date of creation. The burden of establishing privilege is on the party asserting it to show that the information they have withheld is privileged. See von Bulow v. von Bulow, 811 F.2d 136, 144 (2d Cir. 1987). To do so, Fitch must identify the material in question with specificity to demonstrate that it relates to newsgathering.
While Fitch's claim that creating a log would be as burdensome as producing the requested documents may be true, without the log ASB cannot determine which items, if any, it needs Fitch to produce. Further, the burdensome nature of producing the log deters parties from asserting the privilege haphazardly. The Court finds Fitch's wholesale refusal to produce a log and assertion of a blanket privilege an unreasonable course of action. Nevertheless, the Court does not consider it a waiver of Fitch's privilege claims and will evaluate Fitch's assertion of the journalist privilege.
II. Journalist privilege
Fitch claims its work is protected by the journalist privilege under the United States and New York State Constitutions, and Section 79-h of the New York Civil Rights Law, 8 N.Y. Civ. Rights Law § 79-h ("the Shield Law"). Fitch argues that ASB's attempt to obtain discovery here violates the protections accorded Fitch as a member of the financial media and the subpoenas should be quashed.
The Shield Law defines a professional journalist as "one who, for gain or livelihood, is engaged in gathering, preparing, collecting, writing, editing . . . of news intended for a newspaper, magazine, news agency, press association, or wire service or other professional medium or agency which has as one of its functions the processing and researching of news intended for dissemination to the public." 8 N.Y. Civ. Rights Law § 79-h(a)(6). News is defined as "written [or] oral . . . information or communication concerning local, national, or worldwide events or other matters of public concern or public interest or affecting the public welfare." Id. § 79-h(a)(8). To fall within the protected group here Fitch must demonstrate that it was engaged in newsgathering with the intent "to disseminate information to the public and that such intent existed at the inception of the newsgathering process." von Bulow, 811 F.2d at 144; Pan Am Corp. v. Delta Air Lines, Inc., 161 B.R. 577, 580 (S.D.N.Y. 1993).
In Pan Am Corp., Judge Preska considered this issue regarding a competitor of Fitch, Standard Poor's ("SP"), under the First Amendment and held that SP functions as a journalist when gathering information for its ratings. Pan Am Corp., 161 B.R. at 586. SP gathered and analyzed the data for communication to the public through its publications including CreditWeek, HighYield Quarterly, and Ratings Handbook. Id. at 579. These periodicals have a regular circulation to a general population. Therefore, the court found that because SP publishes for the benefit of the general public and it had the requisite newsgathering intent from the beginning of the process, it is entitled to the protection afforded the press. Id.; see also In re Scott Paper Co. See Litig., 145 F.R.D. 366, 369 (E.D. Pa. 1992) (holding the same). Critical to the analysis here is whether Fitch acquired the information sought by the subpoena as party of its newsgathering process with the intent to disseminate this information to the public. Pan Am Corp., 161 B.R. at 583 (citing von Bulow, 811 F.2d at 144).
Fitch emphasizes that its employees gather information about the companies Fitch rates to publish commentary and ratings on its website, which functions as Fitch's primary means of disseminating information to both its subscribers and the general public. In contrast to SP, Fitch does not operate publications with complete circulation to the general public. Fitch performs its ratings based on a private contractual agreement. See Nat'l Med. Care, Inc. v. Home Med. of Am., Inc., Index No. 103030/02, 2002 WL 146179 (N.Y.Sup.Ct. May 20, 2002). Fitch rates transactions at the request of issuers or investment bankers for a fee. Fitch rarely rates transactions without a fee. Koch Reply Aff. Exh. L at 48-51. ASS acknowledges that Fitch sometimes functions as a "news-gatherer"; however, ASB argues that in this case it has not subpoenaed any information that could fall within the protection of the journalist privilege. ASB emphasizes that research conducted for a fee cannot be journalism.
The journalist privilege is a qualified one. Fitch is not primarily engaged in newsgathering generally, nor was it doing so when procuring the information sought by the subpoenas. The Court finds that Fitch is not entitled to the protections afforded by the journalist privilege.
Assuming arguendo that Fitch were entitled to the protection of the privilege, ASB has overcome the privilege. The journalist privilege can be overcome by a clear and specific showing that the information sought is (1) highly material, (2) critical to the maintenance of the claim, and (3) not otherwise available. O'Neill v. Oakgrove Constr., Inc., 71 N.Y.2d 521 (1998). Fitch contends that ASB has not satisfied this three-prong test because the material sought is not highly relevant and critical because Fitch did not rate any of the securities that ASB purchased from PaineWebber. Basically, the debt that Fitch did rate is not at issue in the underlying lawsuit and Fitch did not gather information on the securities that ASB purchased. Fitch claims that the connection ASB draws to the information sought and the underlying case is "tenuous at best" and cannot meet the relevance standard of the Shield Law.
However, ASB has demonstrated that this information is material and crucial to ASB's claims and PaineWebber's alleged defenses. Further, ASB has conducted discovery sufficient to determine that Fitch is the only available source of these communications necessary to the litigation against PaineWebber. Having sought the information elsewhere, ASB must now turn to Fitch. Any privilege to which Fitch would potentially be entitled has been overcome by this showing.
CONCLUSION
The Court rules in favor of ASB and directs Fitch to comply with the subpoenas served upon it on August 26, 2002.