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Hugler v. Bat Masonry Co., Inc.

United States District Court, W.D. Virginia, Lynchburg Division

February 22, 2017

EDWARD HUGLER[1], United States Secretary of Labor, Plaintiff,
BAT MASONRY COMPANY, INC., et al., Defendants.


          Robert S. Ballou, United States Magistrate Judge

         In this ERISA action, the Department of Labor (“DOL”) seeks to hold defendants liable for their purported breaches of fiduciary duties under a failed ESOP. Defendant James Joyner, proceeding pro se, brings a motion to compel the DOL to produce its Report of Investigation (“ROI”).[2] Dkt. No. 98. The DOL objects on the grounds that the ROI and related expert opinions are protected from disclosure by the deliberative process privilege, the attorney work product doctrine, and Federal Rule of Civil Procedure 26(b). The motion is DENIED.[3]


         Defendant BAT Masonry Company, Inc. (“BAT”) and other defendants established the BAT Masonry Company Incorporated Employee Stock Ownership Plan and Trust (“the ESOP”), effective May 1, 2009, to enable employees to acquire a proprietary interest in the company. Compl. ¶¶ 6, 19, Dkt. No. 1. Wayne Booth was the sole shareholder of BAT Masonry stock at the time; thus, the ESOP purchased Booth's stock, and thereafter employees would acquire shares of company stock from time to time as allowed under the ESOP documents. Through the ESOP transaction, Booth eliminated his debt to the company, and the ESOP, which then owned all company stock, was indebted by almost $11.9 million. Compl. ¶ 23. The company ceased doing business in 2012. Compl. ¶ 61. This action seeks to hold the company principals and fiduciaries involved in the ESOP transaction liable for having engaged in prohibited transactions as defined under ERISA and having violated the fiduciary obligations owed to the company and its employees. Compl. ¶ 19.

         A core issue in this action is whether the established purchase price for Booth's stock accurately represented the fair market value of BAT. On July 19, 2010, BAT's Board of Directors appointed Joyner as an independent trustee, with the sole responsibility to assess the fairness of the proposed purchase of Wayne Booth's stock by the ESOP. Compl. ¶ 44. The DOL contends that Joyner violated his duty of loyalty and prudence to the ESOP. Compl. ¶¶ 11, 12, 84-86, 88, Dkt. No. 1. The DOL further alleges that Joyner violated ERISA by causing the ESOP to acquire stock at a price that exceeded the fair market value, and caused the ESOP to suffer financial losses, for which he is personally, jointly, and severally liable. Compl. ¶ ¶ 77, 79, 85-86.


         Joyner's motion to compel seeks the DOL's unredacted ROI, and all related documents, pertaining to the ESOP investigation of BAT.[4] The DOL objects to producing the unredacted ROI, asserting that it is protected under the deliberative process privilege; however, the DOL did file a redacted version of the ROI as Exhibit D to its Response in Opposition to Joyner's Motion for Sanction.[5] See ROI, Dkt. No. 75-1. Joyner argues that the government deliberative process privilege is “inapplicable” to the ROI. He states that the “privilege is designed to protect government policy-making; it is unrelated to the EBSA's role as an investigative and enforcement agency.” D's Mot. to Compel at 5, Dkt. No. 98. The DOL maintains that the deliberative process privilege is “not limited in scope to documents leading to the formulation of agency policy” but rather includes recommendations and opinions by agency subordinates following an investigation. Pl.'s Resp. in Opp. at 12, Dkt. No. 99.

         The deliberative process privilege protects from disclosure certain documents that contain “advisory opinions, recommendations and deliberations” on which governmental decisions and policies are based. In re Sealed Case, 121 F.3d 729, 737 (D.C. Cir. 1997) (citation omitted); NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150 (1975) (The privilege rests on “the policy of protecting the ‘decision making processes of government agencies, ' [] and focus[es] on documents ‘reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated.'”)(citations omitted)

         The purpose of the privilege is to protect agency deliberations from public scrutiny, encouraging “open [and] frank discussion between subordinate and chief concerning administrative action.” Environmental Protection Agency v. Mink, 410 U.S. 73, 87, 91 (1973) (finding that the exemption does not protect “purely factual material appearing in . . . documents in a form that is severable without compromising the private remainder of the documents.”).[6]

         To successfully invoke the deliberative process privilege, the government must show that the documents are both (1) predecisional and (2) deliberative. See Virginia Beach v. Dep't of Commerce, 995 F.2d 1247, 1253-54 (4th Cir. 1993) (noting that “ultimate questions [are] whether the materials bear on the formulation or exercise of agency policy-oriented judgment [and] whether disclosure would tend to diminish candor within an agency.”) (citation and internal quotation marks omitted). Predecisional documents are “prepared in order to assist an agency decision maker in arriving at his decision.” Id; Renegotiation Board v. Grumman Aircraft Engineering Corp., 421 U.S. 168, 184 (1975); see also Coastal States Gas Corp. v. Dep't of Energy, 617 F.2d 854, 868 (D.C. Cir. 1980) (noting that “a document from a subordinate to a superior official is more likely to be predecisional, while a document moving in the opposite direction is more likely to contain instructions to staff explaining the reasons for a decision already made”). Deliberative materials are documents that reflect “the give-and-take of the consultative process by revealing the manner in which the agency evaluates possible alternative policies or outcomes.” Id. Thus, the privilege protects “recommendations, draft documents, proposals, suggestions, and other subjective documents which reflect the personal opinions of the writer rather than the policy of the agency.” Coastal States Gas Corp., 617 F.2d at 866 (“Documents which are protected by the privilege are those which would inaccurately reflect or prematurely disclose the views of the agency, suggesting as agency position that which is as yet only a personal position.”). Finally, the deliberative process privilege can be overcome by showing a compelling need, and it is subject to judicial oversight. Marriott Int'l Resorts, L.P. v. United States, 437 F.3d 1302, 1307 (Fed. Cir. 2006) (distinguishing the deliberative process privilege from other privileges such as the military and state secrets privilege, which cannot be overcome by showing a compelling need, and for which courts generally may not conduct in-camera review of the “highly sensitive withheld documents”).

         The DOL has submitted an affidavit from the Assistant Secretary of Labor, Phyllis Borzi, stating why the redacted portions of the ROI are protected by the deliberative process privilege.[7]See United States v. O'Neill, 619 F.2d 222, 226 (3d Cir.1980) (“Usually such claims [of the deliberative process privilege] must be raised by affidavit.” (citation omitted)); Kaufman v. New York, No. 98 Civ. 2648(MJL)(KNF), 1999 WL 239698, at *3 (S.D.N.Y. Apr. 22, 1999) (“The agency head or his or her authorized designee must invoke the privilege through an affidavit which states, inter alia, that he or she has reviewed each of the relevant documents and provides the reason(s) why preserving confidentiality-rather than the agency's interest in the particular action-outweighs the public interest in disclosure.”).

         Assistant Secretary Borzi states that EBSA investigators are required to create an ROI for their supervisor and the Regional Director at the conclusion of an investigation. The ROI is comprised of “facts, documents and witness statements” gathered during the EBSA investigation, and may discuss the potential ERISA claims that the DOL could bring. Aff. Borzi ¶ 8, Dkt. 99-1. After the Regional Director reviews and approves the ROI, he makes his own recommendation to the Solicitor of Labor regarding a civil lawsuit. Aff. Borzi at ¶ 8. The Solicitor of Labor makes the final decision regarding whether to file a civil action, including what facts and causes of action to plead. Aff. Borzi ¶ 10.

         Here, Investigators Colleen McKee and Samantha Truppi prepared the ROI following their investigation of the ESOP's purchase of all of BAT's outstanding stock. Aff. Borzi at ¶ 13. Assistant Secretary of Labor Borzi states in her Affidavit that she personally reviewed the unredacted ROI and determined that “disclosure of the discussion, recommendations, and opinions contained on pages 11 through 22 of the ROI would inhibit the agency's decision-making process by exposing the candid thoughts and opinions of subordinate agency employees regarding their subjective views about the meaning of facts and legal theories possibly applicable to this case.” Aff. Borzi at ¶ 12. Thus, Assistant Secretary Borzi invokes the deliberative process privilege and “direct[s] that the Solicitor of Labor withhold from disclosure the redacted portions of the ROI.” Aff. Borzi at ¶ 12.

         Assistant Secretary Borzi avers that in the redacted portions of the ROI, pages 11 through 22, the “investigators offer their personal opinions about the application of the law to facts.” Aff. Borzi at ¶ 15. Specifically, on pages 11 to 14 the investigators set forth their understanding of the expert's draft analysis of SMK's valuation, and whether those involved in the ESOP transaction failed to assess the fair market value of BAT's stock. Aff. Borzi at ¶ 16. On pages 14 through 19, the investigators assess whether the Secretary of Labor could prove imprudent conduct by fiduciaries in administering the ESOP. Aff. Borzi at ¶ 17. Finally, pages 20 through 22 contain the investigators' theories about liability of non-fiduciaries. Aff. Borzi at ¶ ...

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