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SPENCER SAV. BANK v. EXCELL MORTG. CORP.

March 7, 1997

SPENCER SAVINGS BANK, SLA f/k/a SPENCER SAVINGS AND LOAN ASSOCIATION, Plaintiff,
v.
EXCELL MORTGAGE CORP., ET AL, Defendants.



The opinion of the court was delivered by: HEDGES

 HEDGES, Magistrate Judge

 I. INTRODUCTION

 Defendants Excell Mortgage Company, David Greenberg, Greenberg & Covitz, and Group One seek an order compelling the disclosure of a review and report of Fin Pro Financial Services ("FINPRO") and a review and report of plaintiff's Loan Review Committee. Plaintiff alleges that both sets of materials are protected from discovery by the self-critical analysis privilege. The issue of whether the privilege applies was brought to my attention during a case management conference on October 28, 1996. *fn1" I directed the parties to address plaintiff's assertion of the privilege. I have considered the papers submitted in support of and in opposition to the application. There was no oral argument. Rule 78.

 II. DISCUSSION

 Defendants first argue that the privilege is not applicable as plaintiff has not demonstrated that it protects the documents in issue from discovery. *fn2" Defendants also contend that plaintiff has waived the privilege by failing to disclose the existence of the documents in its answers to interrogatories.

 A. Rule 501 Analysis

 Any analysis of the law of privilege must begin with Rule 501 of the Federal Rules of Evidence:

 
Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness . . . shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness . . . shall be determined in accordance with State law.

 "Under this rule, in federal question cases the federal common law of privileges applies." Wm. T. Thompson Co. v. General Nutrition Corp., 671 F.2d 100, 103 (3d Cir. 1982). "When there are federal law claims in a case also presenting state law claims, the federal rule favoring admissibility, rather than any state law privilege, is the controlling rule." 671 F.2d at 104. However, a federal court may "resort to state law analogies for the development of a federal common law of privileges in instances where the federal rule is unsettled." 671 F.2d at 104. Here, plaintiff has asserted both federal and state law causes of action. Accordingly, the federal law of privilege governs.

 In its enactment of Rule 501, Congress "manifested an affirmative intention not to freeze the law of privilege. Its purpose rather was to 'provide the courts with the flexibility to develop rules of privilege on a case-by-case basis. . .'" Trammel v. United States, 445 U.S. 40, 47, 63 L. Ed. 2d 186, 100 S. Ct. 906 (1980) (quoting 120 CONG. REC. 40,891 (1974) (statement of Rep. William Hungate)). However, "the Court has been disinclined to exercise its authority expansively." University of Pennsylvania v. Equal Employment Opportunity Commission, 493 U.S. 182, 189, 107 L. Ed. 2d 571, 110 S. Ct. 577 (1990). Under Rule 26, there is a broad policy which favors full disclosure of facts during discovery. Wei v. Bodner, 127 F.R.D. 91, 95-96 (D.N.J. 1989). Consistent with this liberal discovery policy is the view that privileges are not favored. Herbert v. Lando, 441 U.S. 153, 175, 60 L. Ed. 2d 115, 99 S. Ct. 1635 (1979); In re: Grand Jury, 35 V.I. 516, 103 F.3d 1140, 1149 (3d Cir. 1997). Privileges . . . "are not lightly created nor expansively construed, for they are in derogation of the search for truth." United States v. Nixon, 418 U.S. 683, 710, 41 L. Ed. 2d 1039, 94 S. Ct. 3090 (1974).

 The Supreme Court has been hesitant to expand common law testimonial privileges. Privileges hinder the fundamental principle that "'the public . . . has a right to every man's evidence.'" Trammel, supra, 445 U.S. at 50 (quoting United States v. Bryan, 339 U.S. 323, 331, 94 L. Ed. 884, 70 S. Ct. 724 (1950)); see Jaffee v. Redmond, 135 L. Ed. 2d 337, 116 S. Ct. 1923, 1928 (1996). Privileges must be strictly construed and tolerated "'only to the very limited extent that permitting a refusal to testify or excluding relevant evidence has a public good transcending the normally predominant principle of utilizing all rational means for ascertaining truth.'" Trammel, supra, 445 U.S. at 47 (quoting Elkins v. United States, 364 U.S. 206, 234, 4 L. Ed. 2d 1669, 80 S. Ct. 1437 (1960) (Frankfurter, J., dissenting)); see Jaffee, supra, 116 S. Ct. at 1928.

 While cognizant of these principles, in Trammel the Supreme Court modified the common law privilege for adverse spousal testimony "so that the witness-spouse alone has a privilege to refuse to testify adversely. . . ." 445 U.S. at 53. In doing so, the Supreme Court observed that its modification of the common law privilege for adverse spousal testimony was consistent with the trend among the states and scholarly criticism. 445 U.S. at 48-50. The Supreme Court further reasoned that the "ancient foundations" for the sweeping privilege against adverse spousal testimony no longer existed, and that the contemporary reason justifying such a privilege was not persuasive. 445 U.S. at 52.

 In University of Pennsylvania, the Supreme Court declined to recognize a common law privilege "against the disclosure of peer review materials" in a Title VII action. 493 U.S. at 189. In addressing the creation and application of evidentiary privileges, the Supreme Court cautioned: "we do not create and apply an evidentiary privilege unless it 'promotes sufficiently important interests to outweigh the need for probative evidence.'" 493 U.S. at 189 (quoting Trammel, supra, 445 U.S. at 51).

 In rejecting the claim of privilege, the Supreme Court in University of Pennsylvania noted that Congress had been aware of the possible burden associated with the disclosure of peer review materials when it enacted Title VII. 493 U.S. at 191. Moreover, recognition of a common law privilege against the disclosure of peer review materials would probably result in the assertion of similar privilege claims, and the asserted privilege had no historical or statutory basis. 493 U.S. at 194-95.

 In Jaffee, the Supreme Court did recognize a privilege protecting confidential communications between a psychotherapist and her patient. 116 S. Ct. at 1928. Guided by Trammel and University of Pennsylvania, the Supreme Court concluded that a psychotherapist privilege "'promotes sufficiently important interests to outweigh the need for probative evidence. . . .'" 116 S. Ct. at 1928 (quoting Trammel, supra, 445 U.S. at 51).

 The Supreme Court recognized the psychotherapist-patient privilege, in part, because it appeared among the nine specific privileges recommended by the Advisory Committee on Rules of Evidence in 1972. *fn3" 116 S. Ct. at 1928-30 & n.7; see D'Aurizio v. Borough of Palisades Park, 899 F. Supp. 1352, 1358 (D.N.J. 1995) (noting that political vote privilege was recognized by Supreme Court in proposed Rule 507); see also Proposed Rules of Evidence for the United States Courts and Magistrates, 56 EF.R.D.F 183, 230-61 (1973). The Supreme Court further noted that all 50 states as well as the District of Columbia had enacted legislation recognizing some form of the psychotherapist privilege. Jaffee, supra, 116 S. Ct. at 1929 & n.11 (listing statutes). The Supreme Court emphasized that "the policy decisions of the States bear on the question whether federal courts should recognize a new privilege or amend the coverage of an existing one." Jaffee, supra, 116 S. Ct. at 1929-30; see Trammel, supra, 445 U.S. at 48-50. ". . . The existence of a consensus among the States indicates that 'reason and experience' support recognition of the privilege." Jaffee, supra, 116 S. Ct. at 1930.

 Both Trammel and University of Pennsylvania emphasized the need for federal courts to be cautious in recognizing a new privilege. Trammel, supra, 445 U.S. at 50; University of Pennsylvania, supra, 493 U.S. at 182. However, that caution must be considered with Rule 501, which allows federal courts to be flexible in the development of rules governing privileges. United States v. Gillock, 445 U.S. 360, 367, 63 L. Ed. 2d 454, 100 S. Ct. 1185 (1980); In re Grand Jury Investigation (Appeal of United States), 918 F.2d 374, 378-79 (3d Cir. 1990); D'Aurizio, supra, 899 F. Supp. at 1355 n.2. Nevertheless, federal courts have rarely exercised their authority under Rule 501 to expand common law testimonial privileges. See, e.g., In re: Grand Jury, supra, 103 F.3d at 1149 (declining to recognize parent-child privilege); United States v. Schoenheinz, 548 F.2d 1389, 1390 (9th Cir. 1977) (declining to recognize state created employer-stenographer privilege, which prohibits stenographer from disclosing communication or dictation made by employer to him or her in course of employment without ...


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