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FDIC Sues Baker Botts for Findings of Internal Investigation
Lawsuit also names Ernst & Young as a defendant
The National Law Journal
August 06, 2009
The Federal Deposit Insurance Corp. (FDIC) has hit Baker Botts with a lawsuit seeking information that the law firm uncovered in its investigation of a defunct Texas savings and loan.
The FDIC, as the receiver for Franklin Bank, said that the Houston-based law firm failed to hand over materials that the agency subpoenaed in July. The lawsuit, filed in the U.S. District Court in Houston, also named Ernst & Young as a defendant.
The action stemmed from an investigation that Baker Botts and Ernst & Young conducted last year for the savings and loan after one of its vice presidents alleged accounting fraud and misconduct. The investigation, which included the review of 250,000 e-mail messages from Franklin Bank employees, resulted in more than $2 million in fees for legal and accounting services, the lawsuit said.
Franklin Bank Corp., the parent of Franklin Bank, filed for bankruptcy protection in November. The bankruptcy court appointed a trustee for the savings and loan, George L. Miller. The trustee, the law firm and Ernst & Young claim that the results of the investigation are privileged information between the professional services firms and the trustee.
The FDIC argued that the information is not privileged because of a presentation about its findings that the law firm made to the FDIC, to the directors of the savings and loan, to its parent company and to Texas regulators. Baker Botts partner Joseph Cialone discussed the information during a PowerPoint presentation, the lawsuit asserted.
Cialone did not return a phone call seeking comment. A spokesman for Baker Botts declined to comment on the lawsuit.
The FDIC also asserted that Baker Botts is unable to claim that the information is privileged because the FDIC now "stands in the shoes" of its client, Franklin Bank. The FDIC argued that it needs the information to determine whether the saving and loan's former executives may be held liable for the losses and whether improper asset transfers occurred.
Representing the FDIC in Houston is Godwin Ronquillo. Name partner Marcos G. Ronquillo declined to comment on the case.
The lawsuit -- FDIC v. Baker Botts, 4:09-CV-02492 -- asked the court to issue an expeditious enforcement of the subpoena.
