Opinion
No. FSTCV-06-5002499S
October 2, 2007
Memorandum of Decision on Defendants' Motions for Protective Orders and Plaintiff's Objections Thereto Procedural and Factual Background
It is undisputed that on or about March 3, 1997 R.S. Silver and Company invested the sum of $1,250,000 with the defendant Henry Pascarella to participate in some form in the ownership, leasing, mortgaging and/or sale of a building known as 200 Pemberwick Road, Greenwich, Connecticut (the "property"). The nature and attributes of that investment relationship are very much in dispute. The plaintiff alleges that he purchased a 50% interest in the defendant general partnership then known as SPD Associates, now known as Riversedge Partners (the "partnership"), the entity that owns the property. The defendants Pascarella and Riversedge Partners claim that the plaintiff purchased a "participating interest" in the venture or the property, being something other than a full partnership interest, which other interest would not entitle him to the relief he seeks in this action.
The plaintiff alleges that the defendants have totally failed to recognize his partnership interest and his rights as a partner, and have entirely excluded him from partnership affairs (count 1); have violated fiduciary duties they owe to him (count 2); have failed and refused to account to him in regard to the business and affairs of the partnership (count 3); have made it unreasonably practicable to carry on the business of the partnership (count 4) and that he, as the owner of a 50% interest in the property, is entitled to a partition by sale and distribution of the proceeds. (Count 5.) The defendant NLI Commercial Mortgage Fund, LLC ("NLI"), a Delaware limited liability company with its only office in Des Moines, Iowa, is joined in as a defendant to count 5 as the assignee and holder of the mortgage on the property. The plaintiff seeks money damages plus interest and costs, an accounting of partnership assets, a decree dissolving the partnership, an injunction against the sale or encumbrance of partnership assets, the appointment of a receiver, a judgment of partition of the property by court-ordered sale, and, in a sixth count, a declaratory judgment that certain limited liability companies to be joined as additional defendants are not partners of the partnership and have no interest in the partnership assets.
The two parties to be served as additional defendants are: 200 Pemberwick Road, LLC, and Henry W. Pascarella, LLC, claimed by the defendants to be partners of the partnership.
Now before the court are two very similar motions for protective orders filed by NLI (No. 133) and by the partnership (No. 135), and opposed by the plaintiff (Nos. 138 and 140), asking the court to quash or limit a certain notice of deposition issued by the plaintiff pursuant to Practice Book § 13-27(h) directed to one or more designated representatives of NLI to appear in Stamford to testify and to bring to the deposition:
1. The entire file [of NLI] and its predecessor in interest relating to 200 Pemberwick Road, Greenwich, CT ("Property") and Riversedge Partners.
2. All correspondence or communications whether written or electronic made between NLI or its predecessor in interest and Riversedge Partners, SPD Associates or Henry Pascarella and/or their employees or representatives that in any way refer to or relate to the Property, Henry Pascarella, Robert Silver, 200 Pemberwick Road, LLC, Henry W. Pascarella, LLC, and/or R.S. Silver Enterprises, Inc. or its predecessor R.S. Silver Co., Inc.
3. All documents, including any notes, mortgages, commitment letters, applications, or closing documents related to the loan provided by NLI and secured by the Property.
4. Any internal documents, notes, memos, emails or letters that in any way refer or relate to the Property, Riversedge Partners, SPD Associates, Henry Pascarella, 200 Pemberwick Road, LLC, Henry W. Pascarella, LLC, Robert Silver, R.S. Silver Co., Inc., and/or R.S. Silver Enterprises, Inc.
5. All appraisals of the Property.
The defendants oppose the requested NLI deposition and production of documents on grounds that the documents called for constitute confidential financial information about banking customers contained in the files of NLI and that NLI's customers, the partnership and Henry Pascarella, have not consented to the release of that confidential information. NLI further objects to the deposition being noticed for Stamford Connecticut in violation of Practice Book § 13-29(c)(2) which limits the place of deposition by notice of a defendant who is not a resident of this state to ". . . any place within thirty miles of the defendant's residence or within the county of his or her residence . . ." At oral argument on September 27, 2007 the defendants also objected to the broad sweep of the document request which they characterize as a "fishing expedition."
Discussion
The issues raised are the confidentiality of the requested documents, whether or not the requested documents are otherwise properly discoverable, and the propriety of the deposition taking place in Stamford.
Confidentiality
NLI claims common-law confidentiality of "sensitive" customer financial information contained in its banking records. No case law or other authority has been cited to support the claim of common law protection. There have been a few cases (none, so far as the court can determine, decided under Connecticut, Delaware or Iowa law) which have addressed the confidentiality of banking records in the absence of statutory provision, summarized at 9 C.J.S. § 266:
Although plaintiff has properly challenged NLI's standing to assert the confidentiality of its customer's financial information, plaintiff concedes that the standing issue is now moot since Pascarella and the partnership have filed their own motion for protective order raising the same confidentiality issue.
NLI is chartered in Delaware with its only office located in Iowa. (See also, fn. 4.)
It has been held that bank records are not confidential communications, that a customer has no right to assert control over the release of the customer's bank records or prevent their publication in a proper case, that a bank has no duty of confidentiality with respect to a loan agreement that a borrower has no independent cause of action against a bank for improper disclosure, and that a right to privacy or confidentiality distinct from contractual rights does not attach to all contracts into which a bank enters simply because a bank qua bank is a party to the contract.
For this proposition the annotation cites U.S. Satellite-Financial Planning Corp. v. First National Bank of Wilmington, U.S.D.C., District of Delaware, 633 F.Sup. 386 (1986), on reconsideration 643 F.Sup. 449, (1986) which is based on federal law and the state law of Maryland. (Count for violation of financial privacy dismissed).
However, it has also been held that a bank has a duty of confidentiality with regard to a customer's accounts at the bank, or the financial condition of its customers, or with respect to credit information or information derived from loan applications. (Citations omitted.)
The cases cited in C.J.S. footnotes are about equally divided pro and con with regard to confidentiality. Under § 36a-41(1) a "financial institution" includes ". . . an out of state bank that maintains a branch in this state." It is undisputed that NLI is a Delaware financial institution that has no Connecticut branch.
In the absence of any controlling case law, in order to decide this issue the court is constrained to examine banking confidentiality statutes despite NLI's disclaimer of reliance on any statutory provision. Connecticut has afforded confidential status to banking customer records by statute since 1977. Conn. Gen. Stat. § 36a-42 provides that:
A financial institution may not disclose to any person, except to the customer or the customer's duly authorized agent, any financial records relating to such customer unless the customer has authorized disclosure to such person or the financial records are disclosed in response to . . . (2) a lawful subpoena, summons, warrant or court order as provided in section 36a-43, . . ."
§ 36a-43 requires ten days advance written notice to the banking customer before a court can order disclosure of the customer banking records, in order to give the customer an opportunity to come into court and oppose the disclosure. Aside from the obvious exception for court-ordered disclosures, the Connecticut statute does not apply to NLI's records being sought in this case for two reasons. NLI is not a "financial institution" as defined in § 36a-41(1) and the records the plaintiff is trying to discover are not "financial records" as defined in § 36a-41(2) which include only banking records of signature authority, checks, drafts or money orders, or records of debit or credit to a deposit account.
There is no Iowa statute on the subject of confidentiality of banking customer records. Nor has the court been able to locate a Delaware statute on the subject.
There is a federal statute, the Gramm-Leach Bliley Financial Modernization Act of 1999, 15 USC § 6801 et seq., which in § 6802 prohibits a financial institution from disclosing to an unaffiliated third party without customer consent any nonpublic personal information of a consumer unless the financial institution has given the consumer clear and conspicuous notice of a policy that such information may be disclosed and that there is a procedure for the consumer to oppose such disclosure to a third party. NLI is presumably a "financial institution" as defined broadly in the federal act, and the documents sought by the plaintiff are within the definition of "nonpublic personal information" of the defendant Riversedge Partners. 15 USC § 6809. There is no evidence of any notice of a privacy policy by NLI which would permit disclosure of these records to an unaffiliated third party such as the plaintiff. But, like the Connecticut statute, the federal Gramm-Leach Bliley Financial Modernization Act of 1999 exempts court-ordered disclosures: "Subsections (a) and (b) shall not prohibit the disclosure of nonpersonal public information — . . . (8) to comply with Federal, State or local laws, rules, or other applicable legal requirements . . . or to respond to judicial process . . ." Any order which this court might make in the nature of ordering disclosure of the records being sought as discovery under Practice Book § 13-27 by denying relief sought under a motion for protective order under § 13-5 would fall within the scope of the statutory exception for disclosure responding to judicial process. Marks v. Global Mortgage Group, Inc., 218 F.R.D. 492, 496-97 (S.D.W.Va. 2003) (". . . 15 U.S.C. § 6802(e)(8) permits a financial institution to disclose the non-public personal financial information of its customers to comply with a discovery request.") See, also Northern Trust Company v. MS Securities, Inc., 2006 WL 1843369,*5 (ND. Ill., June 30, 2006); KnifeSource, LLC v. Wachovia Bank, N.A., 2007 WL 2326892, *1 (D.S.C. August 10, 2007); Choate v. State Fram Lloyds, 2005 WL 1109432 *3+ (N.D.Tex. May 5, 2005); and Her v. Regional Financial Corporation, (W.D.Ark., Fort Smith Div. No. 2:07-CV-2017 RTD, September 24, 2007).
In summary, there is no common-law or statutory privacy restriction which would bar the discovery of the records sought by the plaintiff herein, and the resolution of these motions therefore turns on whether or not the records sought are discoverable under Connecticut law, and, if so, to what extent, if any, a protective order would be appropriate.
Standard of Discovery; Scope of Requested Discovery
The standard of discovery is clear:
Discovery shall be permitted if the disclosure sought would be of assistance in the prosecution or defense of the action and if it can be provided by the disclosing party or person with substantially greater facility than it could otherwise be obtained by the party seeking disclosure. It shall not be ground for objection that the information sought will be inadmissible at trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. Practice Book § 13-2.
Applying this standard to the documentary discovery sought by the plaintiff the court finds that, with the exception of paragraph 1 of the list of items to be produced at the deposition of the representative of NLI (which shall be discussed, infra) the requested discovery is proper and must be produced. All of the documents requested in paragraphs 2, 3, 4, and 5 would be of assistance to the plaintiff in prosecuting its case and can obviously be provided by NLI with greater facility than by any other party. They are all documents that a prudent lender would normally have on file for a commercial mortgage loan made to a partnership borrower. Paragraphs 2, 3, 4 are reasonably calculated to lead to admissible evidence on the key issue of plaintiff's status as a significant investor in the property. Paragraph 5 (appraisals) asks for documentation that may be admissible or would lead to admissible evidence relating to the partnership dissolution and/or partition counts.
Paragraph 1 ("The entire file [of NLI] and its predecessor in interest relating to 200 Pemberwick Road, Greenwich, CT ("Property") and Riversedge Partners.") is overbroad. In addition to the proper items detailed in paragraphs 2-5 the "entire file" of NLI may contain the original lender's underwriting documents, and negotiations and documents of the assignment transaction whereby NLI acquired the loan from its predecessor, or other irrelevant documentation not reasonably calculated to lead to the discovery of evidence admissible as to the issues raised in this case.
Place of Deposition
If the representative of NLI is actually to be examined under oath at oral deposition, the deposition cannot take place as noticed in Stamford. Practice Book 13-29(c)(2). If there is to be oral deposition examination of the NLI representative, that examination must take place in Iowa within 30 miles of the NLI branch office. The plaintiff may, however, instruct that the documents called for by paragraphs 2, 3, 4, and 5 of the production request be produced by NLI at Stamford prior to the plaintiff's decision whether or not to conduct a deposition by oral examination in Iowa. See Morgan v. Brown, 219 Conn. 204, 213 (1991) (Banking Commissioner's letter asking deponent to deliver requested documents to banking department offices prior to deposition but at least 10 days after deposition subpoena was served not improper.)
Order
For the foregoing reasons, the motions for protective order are denied and the objections thereto are sustained as to paragraphs 2, 3, 4, and 5 of the production request incorporated into the notice of the NLI deposition. The motions for protective order are granted and the objections overruled as to paragraph 1 of the production request which item need not be produced (except for the contents of the file which are called for by paragraphs 2, 3, 4, or 5). Production ordered by November 2, 2007. The NLI motion for protective order is granted, and the objection overruled, insofar as NLI complains of oral deposition of the NLI representative taking place in Stamford, but documents to be produced may be directed to be sent by NLI to the plaintiff at the office of plaintiff's counsel in Connecticut.
So ordered.