Fed, FDIC Move to Limit Stay in Privilege Case

By Chris Bruce

Nov. 6 — A bank and a hedge fund may want to stay and settle a case involving the federal bank examination privilege, but federal bank regulators have other ideas, saying the case raises significant questions that must be addressed.

Porter Bancorp (PBIB), a Louisville, Ky., bank holding company, and SBAV LP, a hedge fund in New York that sought to reach Porter Bancorp documents, Nov. 3 asked the U.S. District Court for the Western District of Kentucky to stay the case, saying they have reached a settlement.

SBAV has sought sensitive examination- and enforcement-related documents relating to Porter, testing the bank examination privilege. The privilege, aimed at encouraging a free flow of information, shields certain communications between banks and their regulators.

Senior Judge Thomas B. Russell recently allowed the Federal Reserve and the Federal Deposit Insurance Corp. to intervene to address the privilege questions. The stay sought by Porter and SBAV, if ordered by the court, would cut short briefing by the agencies.

Not So Fast 

However, the Fed and the FDIC Nov. 5 urged Russell to allow their briefing to continue, saying an earlier ruling by Russell ordering disclosure already is being cited in other litigation.

“The bank examination privilege issues addressed in the Court’s March 31, 2015, decision may no longer be of concern to the plaintiff and defendants, but they remain of serious concern to the agencies,” the brief said.

The Fed and the FDIC have asked Russell to reconsider his March decision, and are scheduled to file briefs Nov. 20.

The Fed and the FDIC's Nov. 5 filing, if approved by the court, would allow briefing to continue, along with their motions either to vacate or reconsider the March ruling.

“The agencies have not entered into any settlements relating to this case, and the parties’ settlement does not moot the issues that the agencies intend to raise in their forthcoming motion,” the Fed and the FDIC said.

Judge Orders Disclosure

At issue is whether Porter Bancorp and its bank unit could prevent disclosure of sensitive materials to SBAV, which claimed Porter Bancorp misrepresented the bank's financial solvency and its standing with federal and state regulators.

Russell in March upheld a magistrate's order directing the bank to produce materials sought by investors.

In May, the Fed and the FDIC weighed in, urging the court to delay production of the materials.

Last month, Russell stayed production and allowed the Fed and the FDIC to intervene.

However, the bank and SBAV Nov. 3 jointly asked the court to stay the case, saying they have reached a settlement agreement. They said its terms likely will be met by the end of the month.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

The joint Fed-FDIC filing Nov. 5 is at http://www.bloomberglaw.com/public/document/SBAV_LP_v_Porter_Bancorp_Inc_et_al_Docket_No_313cv00710_WD_Ky_Jul/4. The Nov. 3 filing is at http://www.bloomberglaw.com/public/document/SBAV_LP_v_Porter_Bancorp_Inc_et_al_Docket_No_313cv00710_WD_Ky_Jul/3.