The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
CONFIDENTIAL Date To Board o f Governors From M r . J . J . Smith % Special Counsel June 9 . 19A9« Subject Production o f Transamerica Reports o f Examination. The Board has requested my o p i n i o n as t o whether o r n o t i t should comply w i t h the f o r m a l demand o f Transamerica 1 s counsel t h a t the Board f s 1943 and 1946 examination r e p o r t s o f Transamerica and i t s a f f i l i a t e s be produced f o r i n s p e c t i o n toy c o u n s e l l o r Transamerica. For reasons h e r e i n a f t e r s t a t e d , I b e l i e v e t h a t the s o - c a l l e d "open", o r n o n - c o n f i d e n t i a l , sections o f the r e p o r t s should be so p r o duced, and t h a t t h i s may be done w i t h o u t the n e c e s s i t y o f the Board r e v e r s i n g the Hearing O f f i c e r ' s r u l i n g t h a t o n l y p a r t s o f the r e p o r t s be made a v a i l a b l e f o r i n s p e c t i o n by Transamerica 1 s counsel. The r e p o r t s r e f e r r e d t o c o n s i s t almost e n t i r e l y o f informat i o n and copies o f documents obtained from o f f i c i a l s , and the books, records and f i l e s , o f Transamerica and i t s a f f i l i a t e s , and o f expressions o f opinions and conclusions by the Board 1 s examiners w i t h respect t o the s i g n i f i c a n c e and e f f e c t o f the f a c t s d i s c l o s e d by t h e i r examinations. Both examinations are s a i d t o have been made i n the r e g u l a r course o f the Board f s business, b u t the record a l s o i n d i c a t e s t h a t the examinations were l i k e w i s e made f o r the a d d i t i o n a l and ent i r e l y proper purpose o f enabling the Board t o determine whether o r n o t Transamerica had v i o l a t e d any law which i t i s the Board's r e s p o n s i b i l i t y t o e n f o r c e . There seems t o be no question but t h a t these examinat i o n s were important f a c t o r s i n l e a d i n g t o the i n s t i t u t i o n of the Board 1 s present proceeding a g a i n s t Transamerica, and, as s t a t e d on the record by the Board 1 s S o l i c i t o r , the contents o f the Board's examination r e p o r t s are f , Basic t o the e n t i r e m a t e r i a l t h a t has been going i n t o these f i l e s " (R. 1694). Through i t s S o l i c i t o r , and over the o b j e c t i o n s o f counsel f o r Transamerica, the Board has placed i n evidence much i n f o r m a t i o n and a l a r g e number of e x h i b i t s drawn from the Board 1 s 1943 and 1946 examination r e p o r t s . The Board's witnesses Smith and R e i n h o l d t made extensive use of p a r t s of the r e p o r t s i n r e f r e s h i n g t h e i r r e c o l l e c t i o n s , and t h e i r testimony, which included a number o f expressions o f opinions and conclusions, was based e n t i r e l y on i n f o r m a t i o n obtained during the Board's examinations and contained i n i t s r e p o r t s , i n a d d i t i o n t o t h i s , p a r t s o f the r e p o r t s placed i n evidence by t h e Board consisted o f i n formation obtained, and o f opinions and conclusions expressed, by examiners who were not themselves c a l l e d t o t h e witness stand, but whose r e p o r t s were, i n p a r t , read o r put i n t o the record through Messrs• Smith and R e i n h o l d t . -2Evidence drawn from the Board f s r e p o r t s was not o f f e r e d as t o a l l Transamerica companies examined by the Board or r e f e r r e d t o i n i t s r e p o r t s . And the r e p o r t s contain a great deal o f information t o which the S o l i c i t o r f o r the Board made no reference and which he d i d not o f f e r i n evidence. The reports having been used i n the manner above i n d i c a t e d , however, counsel f o r Transamerica f o r m a l l y requested on the record t h a t the Board 1 s complete 1943 and 1946 examination r e p o r t s be produced f o r h i s i n s p e c t i o n and use i n cross-examining Mr. Reinholdt and i n t e s t i n g the opinions and conclusions o f f e r e d i n evidence from, and on the basis o f , the information contained i n the r e p o r t s i n question (R. 1610-1612, 1694-1695, 1709-1720). As I understand the record, the Board 1 s S o l i c i t o r objected t o t h i s request, but he seems t o have implied t h a t he had no o b j e c t i o n t o producing those n o n - c o n f i d e n t i a l p a r t s o f the Board 1 s r e p o r t s r e l a t i n g to the Transamerica companies w i t h respect t o which Ar. Reinholdt t e s t i f i e d (R. 1610-1611, 1709-1712, 1715-1716). The Hearing O f f i c e r thereupon r u l e d , i n e f f e c t , t h a t Transamerica was e n t i t l e d t o inspect the Board's 1943 and 1946 reports o f examination, " w i t h c o n f i d e n t i a l sections deleted, of the i n d i v i d u a l companies concerning ^ i i c h Mr. Reinholdt has given testimony," together w i t h those p a r t s of " t h e f u l l reports o f examination o f Transamerica f o r the years 1943 and 1946 * * * r e l a t i n g to such companies" (R. 1716, 1721-1722, 1761-1762, 1916-1917)• I n s o f a r as Transamerica 1 s request f o r the Board 1 s complete examination r e p o r t s was denied, the p o s i t i o n taken by the Board 1 s Hearing O f f i c e r and S o l i c i t o r seems to have been influenced p r i m a r i l y by two considerations, namely, proper respect f o r the Board's own r u l e t h a t reports o f examination not be made p u b l i c , and the r u l e , followed i n some j u r i s d i c t i o n s , l i m i t i n g a witness 1 cross-examination t o the scope of h i s d i r e c t examination. I n ray o p i n i o n , however, n e i t h e r o f these considerations furnishes a v a l i d reason f o r refusing Transamerica 1 s request f o r the r e p o r t s , except i n s o f a r as the " c o n f i d e n t i a l sections" of the r e p o r t s are concerned. The question of Transamerica 1 s r i g h t t o inspect those sections i s , i n my opinion, not e n t i r e l y f r e e from doubt. But f o r the reasons stated i n Section 8(d) of the Board1 s Rules o f Organization and by the Board's S o l i c i t o r a t R. 1718, arid f o r the a d d i t i o n a l reason t h a t no p a r t o f the c o n f i d e n t i a l sections o f the r e p o r t s appears t o have been o f f e r e d i n evidence, I am i n c l i n e d to believe t h a t the Board's S o l i c i t o r properly objected t o , and the Hearing O f f i c e r properly denied, Transamerica's request f o r production of the c o n f i d e n t i a l sections o f the Board's examination r e p o r t s . I believe t h a t the remainder o f the r e p o r t s , however, should be produced f o r Transamerica's i n s p e c t i o n . I n my opinion, i t i s clear t h a t whatever p r i v i l e g e or c o n f i d e n t i a l status might otherwise have attached to the open sections o f the -3- Board's reports o f examination (see Note, 123 A.L.R. 1278} Note, 165 A.L.R. 1302, 1320-1323, 1347 e t sea.j Hickman v . T a y l o r , 329 U.S. 495, 505-514 (1947)), i t was waived or l o s t by the use of p a r t s of the r e p o r t s i n the manner above stated (see Western Onion Telegraph Co. v* Baltimore & Ohio Telegraph Co.. 26 F. 55, 56-57 (C.C. N.X., 1885))* That being t r u e , I believe t h a t the open sections o f the reports should be produced f o r Transamerica 1 s i n s p e c t i o n under w e l l - s e t t l e d r u l e s which permit p a r t i e s t o inspect w r i t i n g s used by opposing witnesses to r e f r e s h t h e i r r e c o l l e c t i o n s (70 C.J. 597-598} 58 Am. J u r . Witnesses, Sees. 601, 605), r e q u i r e t h a t where one party has o f f e r e d p a r t of a document o r series o f documents i n evidence, h i s opponent be permitted t o show so much of the remainder o f the document or documents as serves t o explain or give a complete understanding of the p a r t o f f e r e d (31 C.J.S. Evidence, Sec. 190} 20 Am. J u r . , Evidence, Sec. 914), and authorize a court t o order a p a r t y , i n c l u d i n g the United States and i t s agencies, t o produce f o r h i s advers a r y ^ inspection documents p e r t a i n i n g t o the issues of the case, and which may contain, or lead to the discovery o f , m a t e r i a l evidence (Rule 34, Federal Rules of C i v i l Procedure} United States v . Grayson. 166 F. 2d 863, 870 (C.C.A. 2, 1948)} United States v . Andolschek. 142 F. 2d 503, 506 (C.C.A. 2, 1944)} Bank Line v . United States, 76 F. Supp. 801, 803-804 (S.D. K.Y., 1948)} Bowles v . Ackerman. 4 F.R.D. 260, 262 (S.D. N . Y . , 1945)} Pike and F i s c h e r , Discovery against Federal Administrative Agencies (1943) 56 Harvard L . Rev. 1125, 1129-1132). I t may w e l l be t h a t cases can be found which would support a r e f u s a l on the p a r t o f the Board t o produce the r e p o r t s demanded by Transamerica. And i t may also be t h a t the r u l e s t o which I have r e f e r r e d do not f u r n i s h a precise end complete analogy. I b e l i e v e , however, t h a t t h e i r cumulative e f f e c t i s c o n t r o l l i n g , and t h a t i f t h i s were a proceeding a t law, a court would not h e s i t a t e t o order the Board 1 s r e p o r t s produced f o r Transamerica ! s i n s p e c t i o n . I t might w e l l be said here, as the court said i n Bowles v . Ackerman. 4 F.R.D. 260, 262 (S.D. N.Y., 1945), a p r i c e c o n t r o l a c t i o n f o r an i n j u n c t i o n and t r i p l e damages i n which the Price Administrator r e s i s t e d the defendants 1 motion t o produce data taken by him from the defendants 1 f i l e s ; ,!It i s obvious t h a t defendants are seeking the e v i dence obtained by p l a i n t i f f ' s i n v e s t i g a t o r s from them, and which, undoubtedly, w i l l be used upon the t r i a l o f the case against them. Such evidence cannot be said t o be p r i v i l e g e d . And i f i t i s t o be revealed on the t r i a l , and comes from the defendants, i t can h a r d l y now be said t o be c o n f i d e n t i a l . * * * t!I am unable t o appreciate the f a i r n e s s o f an argument t h a t one party may obtain evidence from another, upon which i t seeks an i n j u n c t i o n of wide a p p l i c a t i o n and to hold the l a t t e r t o l i a b i l i t y i n a l a r g e p e n a l t y , and may refuse t o r e v e a l t h a t evidence, where r e q u i r e d by o r d e r l y procedure i n the s u i t brought, on a c l a i m t h a t i t is confidential." I n a d d i t i o n t o t h i s , I t h i n k i t also important t o bear i n mind the f a c t t h a t i f t h i s were a c o u r t proceeding, p r a c t i c a l l y none o f the evidence o f f e r e d from the Board's r e p o r t s of examination would have been admissible. E n t i r e l y apart from the question o f the r e l e vance o f some o f i t , v i r t u a l l y a l l of i t ran counter t o one or more o f the w e l l - s e t t l e d r u l e s a g a i n s t hearsay, o p i n i o n evidence and secondary evidence, I do n o t mean by t h i s t o imply t h a t the evidence should n o t have been admitted i n t h i s a d m i n i s t r a t i v e proceeding i n which the Board asserts no subpoena power; The p o i n t i s t h a t the evidence was admitted under an a d m i n i s t r a t i v e r e l a x a t i o n o f t h e r u l e s r e f e r r e d t o , w h i l e Transamerica was denied access t o p a r t s o f the Board's r e p o r t s by v i r t u e o f a s t r i c t — and, i n my o p i n i o n , erroneous — a p p l i c a t i o n o f other r u l e s . This type of procedure i s , I b e l i e v e , c l e a r l y i n c o n s i s t e n t , and may f u r n i s h strong support t o Transamerica 1 s c o n t e n t i o n t h a t i t i s not being accorded a f a i r t r i a l . For i t does not comport w i t h due process, i n my o p i n i o n , t o r e l a x conventional r u l e s o f evidence and procedure i n f a v o r o f the Board, 'while e n f o r c i n g them a g a i n s t i t s adv e r s a r y . I f the r u l e s are t o be relaxed i n f a v o r o f one p a r t y , they should l i k e w i s e be relaxed i n f a v o r o f the o t h e r . Hearsay and o p i n i o n evidence having been o f f e r e d from the Board's r e p o r t s o f examination, i t t h e r e f o r e seems t o me t h a t even i f the r e p o r t s were not othen-rise * subject t o i n s p e c t i o n , t h e i r i n s p e c t i o n should be allowed, i n f a i r n e s s , i n order to accord t o Transamerica an o p p o r t u n i t y t o b r i n g t o t h e Board's a t t e n t i o n on the record any p e r t i n e n t m a t e r i a l i n i t s r e p o r t s v h i c h might serve t o e x p l a i n , q u a l i f y or rebut the evidence which the Board has o f f e r e d from t h a t source. lifliile I have n o t , of course, discussed t h i s matter w i t h the S o l i c i t o r f o r the Board or w i t h counsel f o r Transamerica, i t i s my understanding t h a t the Board's S o l i c i t o r does not o b j e c t t o Transamerica's i n s p e c t i o n of the n o n - c o n f i d e n t i a l sections of the Board's r e p o r t s . He s t a t e d on the record t h a t he d i d not "want the impression t o go abroad t h a t we are u n w i l l i n g t o produce f o r the i n s p e c t i o n o f [Transamerica's counsel] any of the papers upon v h i c h the Board i s p r e d i c a t i n g t h i s case" (R. 1709), and, as already s t a t e d , h i s o b j e c t i o n t o producing the r e p o r t s seems t o have been prompted t o some extent by respect f o r the Board's own r u l e which makes undisclosed examination r e p o r t s c o n f i d e n t i a l (P. 1715, 1804; see also R. 1721). As I understand, the present concern of the S o l i c i t o r f o r the Board i s t h a t a r e v e r s a l by the Board o f the Hearing O f f i c e r ' s r u l i n g might be embarrassing t o the Bearing O f f i c e r . I t seems obvious to me t h a t t h i s i s not a v a l i d basis upon which t o determine the question presented. Furthermore, i t i s not necessaiy f o r the Board t o reverse the Hearing O f f i c e r ' s r u l i n g i n respect o f -5the Board's examination r e p o r t s . Since Transamerica has not y e t brought the r u l i n g up f o r review, no question i n t h a t connection i s now pending before the Board. I n the circumstances, without the e n t r y of any Board order reversing the Hearing O f f i c e r ' s r u l i n g , the Board f s reports may be made a v a i l a b l e t o Transamerica i n any one of three ways, namely: 1. By the Board's S o l i c i t o r withdrawing h i s record obj e c t i o n and v o l u n t a r i l y producing the r e p o r t s f o r Transamerica's inspection. a . By the Hearing O f f i c e r reconsidering h i s r u l i n g and himself ordering t h a t the r e p o r t s be produced. 3 . By a r e t r o a c t i v e r e s c i s s i o n of the Board's r u l e r e q u i r i n g t h a t examination reports o f holding companies not be mad& a v a i l a b l e t o the companies examined. One f u r t h e r matter should be mentioned. I am advised by Mr. Hostrup, of the Board's L i v i s i o n o f Examinations, t h a t the examin a t i o n r e p o r t s i n question s t a t e t h a t Transamerica and c e r t a i n o f i t s subsidiary banks, a t various times had n o t complied w i t h provisions of law r e l a t i n g t o the submission and p u b l i c a t i o n of reports> a f f i l i a t i o n s w i t h s e c u r i t i e s companies and the voting of stock of member banks, w i t h respect t o some of which v i o l a t i o n s o f law, Mr. Hostrup s t a t e s , no a c t i o n has been taken by the Board. Mr. Hostrup a l s o informs me t h a t i n a few instances statements vhich should have been made only i n the c o n f i d e n t i a l sections of the Board's r e p o r t s were i n a d v e r t e n t l y or erroneously i n cluded i n the open sections. Whether or not i t would embarrass the Board t o d i s c l o s e , by production of i t s r e p o r t s , t h a t i t had f a i l e d to take a c t i o n to c o r r e c t the v i o l a t i o n s of law r e f e r r e d t o i n the r e p o r t s , I do not know. I t may very w e l l have been t h a t the Board was vested w i t h and exercised d i s c r e t i o n i n the matter or had other good reasons f o r the course vhich i t f o l l o w e d . However t h a t may be, possible embarrassment t o the Board because o f the d i s c l o s u r e of such v i o l a t i o n s i s n o t i n my opinion a v a l i d ground f o r d e c l i n i n g to produce the Board's r e p o r t s . As f o r the statements which should not have been included i n the open sections o f the r e p o r t s , I t h i n k the Board may delete or paraphrase them i n the event t h a t the r e p o r t s are produced f o r Transamerica's i n s p e c t i o n . I f the reports are so modified, however, I assume t h a t the Board's Hearing O f f i c e r or S o l i c i t o r would n o t i f y Transamerica, on the record, of the precise paragraphs and pages deleted or paraphrased and the reason f o r the Board's a c t i o n . Otherwise, production of the r e p o r t s would imply t h a t they are i n the exact form i n vhich they were submitted t o the Board.
