Two federal appellate judges in Washington today expressed hesitation about forcing American International Group (AIG) to disclose an independent consultant’s reports that addressed compliance with a settlement in 2004 with U.S. securities regulators.
A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit is weighing whether to uphold a trial judge's ruling that requires AIG to reveal the reports, which the company contends are confidential. U.S. District Judge Gladys Kessler in April ordered the publication of redacted reports, saying the public's interest "far outweighs" the interests of AIG and the U.S. Securities and Exchange Commission.
Public disclosure, Kessler said in her opinion, is important "given the financial meltdown of 2008, the recession it spawned and the suffering the country has endured because of it." Lawyers for AIG, represented by Baker Botts, asked the appeals court to overturn Kessler's decision. Sue Reisinger, a senior reporter with Corporate Counsel and American Lawyer, ALM publications affiliated with The Blog of Legal Times, is the plaintiff in the case.
The central issue in the case is whether the corporate monitor reports are "judicial records" that come with a presumption of public access. A lawyer for AIG, Baker partner Alexandra Walsh, argued that the reports are not judicial records. The documents, Walsh said, were never filed in any court proceeding and they never formed the foundation of any court ruling.
Walsh's position seemed to receive some favorable attention from Judge Brett Kavanaugh and Senior Judge Stephen Williams, who heard the case with Judge Janice Rogers Brown.
Kavanaugh asked Walsh about the implications of a D.C. Circuit decision against AIG. "The implications are immense," responded Walsh, who represented AIG with Baker partner William Jeffress Jr. She said companies, in the future, knowing that similar reports would be subject to public inspection, could be less forthcoming when it comes to sharing information with regulators.
Williams and Kavanaugh both appeared troubled by the fact the monitor records were never in court before a judge.
The AIG monitor reports, Kavanaugh said at one point, don't fit the "common sense" definition of a judicial record. Williams said: "These documents have never been before a judge's eyes." A ruling against AIG, the judge said, could open the door for the disclosure of documents that are a "sequel" to a lawsuit.
Walsh, a member of the defense team that represented I. Lewis "Scooter" Libby in Washington in 2007, said that if the SEC had any questions about AIG's compliance with its settlement with the government, the commission could have filed the consultant reports in court to initiate further proceedings. The consultant's reports, Walsh said, were provided to the SEC and to the U.S. Department of Justice.
J. Joshua Wheeler, director of the Thomas Jefferson Center for the Protection of Free Expression, representing Reisinger, tried to convince the D.C. Circuit panel that the corporate monitor reports were part of the underlying court proceeding against AIG. He argued that it doesn't matter that the reports themselves were not in existence at the time of the judgment against AIG.
In the underlying securities case, which Kessler oversaw, AIG agreed to the final judgment in Washington federal district court in November 2004 with the SEC without admitting or denying the allegations, rooted in transactions between AIG and PNC Bank. The company agreed to give up $46.3 million in profit in the SEC civil action. DOJ entered a deferred prosecution agreement with AIG that same month in federal district court in Pennsylvania.
The terms of the deal with the SEC required AIG to hire an independent consultant to, among other things, keep tabs on the work of AIG's "transaction review committee." The committee was tasked with reviewing transactions that "involved heightened legal or regulatory risk because of the dangers of questionable accounting by counterparties," AIG lawyers said in court papers.
Wheeler argued in the D.C. Circuit today that the reports are judicial records stemming from Kessler's court order. Kessler, Wheeler said, incorporated the expected filing of the reports into the final judgment against AIG. Kessler retained ongoing supervision of AIG after the entry of the consent decree against the company. Wheeler said in court that Kessler’s reliance on the reports, in resolving the case against AIG, was both forward and backward looking.
In court papers, Wheeler said the reports are important to "understanding the country’s ongoing economic struggles and the efficacy of the regulatory and judicial mechanisms used to ferret out and monitor corporate wrongdoing."
"They are important specifically to understanding the role of AIG (which is years after its bailout still majority-owned by the U.S. government) and its counterparties in the run-up to the financial crisis. Yet they are shielded entirely from public view," Wheeler wrote in a brief in the D.C. Circuit.
The "ultimate point" of public access to court records, Wheeler wrote, isn't to relitigate a case but to let the public see what happened in a case. "Whether the records show that AIG is the best pupil in the class or in need of continued remedial attention is irrelevant to the strong public interest in disclosure of these materials," Wheeler said.
The D.C. Circuit didn't immediately rule this morning.