Court: Standard & Poor’s is entitled to discovery supporting its ‘selective prosecution’ claim

The government has sued Standard & Poor’s for allegedly “deliberately misrepresented the integrity of its [credit] ratings, in order to further its own financial interests.” Standard & Poor’s has various defenses, including selective prosecution — the Administration is pursuing it, Standard & Poor’s argues, largely because Standard & Poor’s downgraded the United States’ own credit rating. The question at this point in the lawsuit is whether Standard & Poor’s can get discovery to support this selective prosecution claim.

Such discovery is not normally available until a claimant shows some serious evidence of possible selective prosecution (whether based on, for instance, the claimant’s race, sex, religion, or constitutionally protected speech). But an opinion in U.S. v. McGraw-Hill Companies, Inc. (C.D. Cal.), issued Apr. 15, 2014 but just posted on Westlaw over the weekend, holds that Standard & Poor’s can indeed get such discovery (some paragraph breaks added):

[S & P argues] that “[the Government] commenced this action in retaliation for Defendants’ exercise of their free speech rights with respect to the creditworthiness of the United States of America.” … The Government argues that S & P has not made the required preliminary showing to be entitled to discovery on its retaliation defense and, additionally, moves to strike the defense altogether….

“A selective-prosecution claim is not a defense on the merits to the charge itself, but an independent assertion that the prosecutor has brought the charge for reasons forbidden by the Constitution.” Unites States v. Armstrong, 517 U.S. 456, 463 (1996). While Armstrong addresses selective-prosecution claims in the criminal context, such claims are also available in the civil enforcement context….

Generally, “courts presume that [prosecutors] have properly discharged their official duties[,]” but “a prosecutor’s discretion is ‘subject to constitutional constraints.’” [United States v. Armstrong.] In order to defeat this presumption, a selective-prosecution claimant “must demonstrate that the federal prosecutorial policy ‘had a discriminatory effect and that it was motivated by a discriminatory purpose.’ ” …

[I]n Armstrong, the Supreme Court noted that the “rigorous standard for the elements of a selective-prosecution claim … require[s] a correspondingly rigorous standard for discovery in aid of such a claim.” Therefore, it is clear that some preliminary showing must be made before a claimant is entitled to discovery on a selective-prosecution claim…. [A] party is entitled to discovery on its selective-prosecution claim if there is “some evidence tending to show the existence of the essential elements of the defense, discriminatory effect and discriminatory intent.” …

As to the first element, discriminatory effect, S & P is entitled to discovery if there is “some evidence tending to show the existence” of “different treatment of similarly situated persons.” Of the three major ratings agencies, the Government has elected to file a complaint, for now, against only S & P.

The Government may indeed have many good reasons for its decisions: the relative strengths of each case, general deterrence values, enforcement priorities, and the case’s relationship to the Government’s overall enforcement plan. But, S & P is entitled to test the Government’s case through discovery because it has presented “some evidence tending to show the existence” of “different treatment of [other Nationally Recognized Statistical Rating Organizations].”

As to the second element, discriminatory purpose, S & P is entitled to discovery if there is “some evidence tending to show the existence” of a purpose to retaliate against S & P for its exercise of a constitutional right.

S & P’s showing as to the second element consists of circumstantial evidence. In November 2009, the Government opened a civil investigation of S & P and served [Financial Institutions Reform, Recovery, and Enforcement Act] subpoenas seeking documents.

Nearly two years later, on Friday, August 5, 2011, S & P downgraded the credit rating of United States debt. After the close of business that day, Chairman, CEO, and President of McGraw Hill, Harold McGraw III …, received a telephone message from Terrence J. Checki …, then the Executive Vice President of the New York Federal Reserve Bank, who passed along a message from Timothy Geithner …, then the Secretary of the Treasury, expressing anger over S & P’s downgrade.

The next Monday morning, August 8, 2011, Secretary Geithner met with President Obama from 9:30 a.m. to 10:10 a.m. Immediately after that meeting, Secretary Geithner called Mr. McGraw and personally expressed his anger at S & P, asserting that it made a two-trillion dollar error, that S & P had a previous history of errors, and that “[Mr. McGraw] [was] accountable for that.” McGraw Decl. ¶ 5. He added that, “you have done an enormous disservice to yourselves and to your country,” that the downgrade had done real damage to the economy, and that S & P’s conduct would be “looked at very carefully.” Id. ¶ 6.

S & P’s evidence of discriminatory intent is circumstantial but sufficient. Secretary Geithner responded to S & P’s downgrade by pointing to S & P’s history of errors and promising that its conduct would be “looked at very carefully.” He levied these criticisms just minutes after speaking to other executive officials, including President Obama.

Secretary Geithner’s statements are susceptible to several interpretations and it is unclear whether there is a nexus between his displeasure and the Department of Justice’s litigation decisions. But, such open questions are properly answered after — not before — discovery. For now, it is enough that S & P has presented“some evidence tending to show the existence” of an improper purpose. See Armstrong, 517 U.S. at 470 (emphasis added). Therefore, S & P is entitled to additional discovery regarding its selective-prosecution claim.

However, “special considerations control when the Executive Branch’s interests in maintaining the autonomy of its office and safeguarding the confidentiality of its communications are implicated.” Cheney v. U.S. Dist. Court for Dist. of Columbia, 542 U.S. 367, 384–90 (2004). Accordingly, to the extent that it is directed at the Executive Office of the President, a ruling on the Discovery Motion is held in abeyance. For now, the Government must produce those documents that are related to the selective-prosecution claim but are not protected by the privileges that specially attach to the Executive Office of the President. Only after such discovery is propounded and considered, will the Court entertain a renewed motion to compel the production of documents from the Executive Office of the President.

Note, for whatever it’s worth, that the decision was rendered by Judge Carter, who was a Clinton appointee.

Eugene Volokh teaches free speech law, religious freedom law, church-state relations law, a First Amendment Amicus Brief Clinic, and tort law, at UCLA School of Law, where he has also often taught copyright law, criminal law, and a seminar on firearms regulation policy. Before coming to UCLA, he clerked for Justice Sandra Day O'Connor on the U.S. Supreme Court and for Judge Alex Kozinski on the U.S. Court of Appeals for the Ninth Circuit. Volokh is the author of the textbooks The First Amendment and Related Statutes (4th ed. 2011), The Religion Clauses and Related Statutes (2005), and Academic Legal Writing (4th ed. 2010), as well as over 70 law review articles. Volokh is also an Academic Affiliate for the Mayer Brown LLP law firm.
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