(CN) - A federal judge refused to unseal files related to Washington Mutual Bank's alleged rigging and steering of appraisals to benefit mortgage lenders before the market crashed.
The case in Washington, D.C., stems from a 2008 federal class action that Felton Spears Jr. and Sidney Scholl first brought in San Jose, Calif., against Washington Mutual Bank, Lender's Service Inc., and the Santa Ana appraisal-management firm First American eAppraiseIT.
Spears and Scholl said that back in 2006 WaMu had eAppraiseIT and Lender's Service provide inflated mortgage-loan appraisals, so that the bank could sell the aggregated security interests in the properties at higher prices.
At WaMu's direction, eAppraiseIT and Lender's Service hired former bank employees as appraisal business managers who could override the values determined by third-party appraisers, the complaint alleged.
The court in San Jose, Calif., dismissed all but a claim under the Real Estate Settlement Procedures Act against eAppraiseIT in 2009, and U.S. District Judge Ronald Whyte certified the class in April 2012.
In Washington, the plaintiffs served the Office of the Comptroller of Currency (OCC) with a subpoena for documents that the U.S. Senate Permanent Subcommittee on Investigations (PSI) cited in a 2011 report on the 2007-08 financial crisis.
Though the Office of Thrift Supervision, which has since been succeeded by the comptroller's office, gave the Senate the documents under seal and without waiver of any privileges, the comptroller objected to the subpoena, noting that many files may be privileged.
After the plaintiffs narrowed their search to "15 specific Bates-stamped documents" months later, the comptroller's office claimed it could not find them.
The plaintiffs then moved to compel compliance with the subpoena on Oct. 16, 2013.
Deferring ruling on the motion, a federal judge ordered deposition of a comptroller's office representative about the agency's efforts to locate the documents.
Upon retrieving the documents from the Senate, the comptroller sent the plaintiffs a letter stating that it was withholding three files based on attorney-client privilege, the attorney work-product doctrine, and the deliberative-process privilege.
The plaintiffs argue, however, that the Office of Thrift Supervision waived the privileges when it "voluntarily" gave the files to the Senate subcommittee.
U.S. District Judge Royce Lamberth denied the motion Tuesday, finding that "documents produced pursuant to a subpoena are not voluntarily disclosed.
"The OTS provided the documents under seal to the Senate PSI," Lamberth wrote, abbreviating Office of Thrift Supervision. "There is less reason to find waiver when documents have been provided pursuant to a subpoena, and provided under seal."
The office neither waived the deliberative process privilege, because the disclosure was not "public," according to the ruling.
There is also no showing that the comptroller failed to adequately object to the subpoena based on privilege, according to the ruling.
"The OCC had not obtained the Bates-stamped documents, and therefore, had no way of knowing exactly which privileges would apply and for what reasons those privileges would apply," Lamberth wrote, abbreviating Office of the Comptroller of Currency.