McKinley v. Federal Deposit Insurance Corporation ( 2010 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
VERN McKINLEY, )
)
Plaintiff, )
)
v. ) Civil Action No. 09-1263 (ESH)
)
FEDERAL DEPOSIT INSURANCE )
CORPORATION )
)
and )
)
BOARD OF GOVERNORS OF THE )
FEDERAL RESERVE SYSTEM, )
)
Defendants. )
____________________________________)
MEMORANDUM OPINION
Plaintiff Vern McKinley brings this action against the Board of Governors of the Federal
Reserve System (“Board”) pursuant to the Freedom of Information Act (“FOIA”), 5 U.S.C. §
552 et seq.1 Plaintiff seeks access to documents related to the Board’s March 14, 2008 decision
to authorize the Federal Reserve Bank of New York (“FRBNY”) to extend credit to JP Morgan
Chase to provide temporary emergency financing to The Bear Stearns Companies Inc. (“Bear
Stearns”). In response to plaintiff’s FOIA request, the Board produced a number of documents,
but withheld or redacted others pursuant to FOIA Exemptions 4, 5, and 8. 5 U.S.C. §
552(b)(4)(5) & (8). Before the Court are the parties’ cross-motions for summary judgment. For
1
The complaint previously included FOIA claims against the Federal Deposit Insurance
Corporation (“FDIC”). (Complaint, July 8, 2009 [dkt. #1].) However, after the withheld
material was publicly released, the pending motions pertaining to those FOIA claims were
denied as moot and the FDIC was dismissed as a defendant. (Minute Order, Sept. 3, 2010.)
the reasons stated herein, the Court will grant the Board’s motion for summary judgment and
deny plaintiff’s motion.
BACKGROUND
The Federal Reserve System is composed of the Board and twelve regional Federal
Reserve Banks. The Board is a federal agency composed of seven members appointed by the
President and confirmed by the Senate. (Pl.’s Statement of Material Facts (“Pl.’s Statement”) ¶ 2
(Mar. 8. 2010); Def.’s Resp. to Pl.’s Statement (“Def.’s Resp.”) at 2 (Apr. 22, 2010).) It
supervises and regulates the operation of the Federal Reserve System, promulgates and
administers regulations, and plays a major role in the supervision and regulation of the United
States banking system. (Pl.’s Statement ¶ 3; Def.’s Resp. at 2.) For example, the Board is
“authorized and empowered . . . (1) [t]o examine at its discretion the accounts, books, and affairs
of each Federal reserve bank and of each member bank and to require such statements and
reports as it may deem necessary” and “(2) [t]o require any depository institution specified in
this paragraph to make, at such intervals as the Board may prescribe, such reports of its liabilities
and assets as the Board may determine to be necessary or desirable to enable the Board to
discharge its responsibility to monitor and control monetary and credit aggregates.” 12 U.S.C. §
248. It is not, however, authorized to extend credit. (Pl’s Statement ¶ 14; Def.’s Resp. at 4.)
The twelve regional Federal Reserve Banks serve as the operational arm of the nation’s
central banking system. (Pl.’s Statement ¶ 2; Def.’s Resp. at 2.) They receive no appropriated
funds from Congress, but rather are capitalized by required contributions from
member banks. (Pl.’s Statement ¶ 11; Def.’s Resp. at 4.) Each bank is a separate corporation
that issues stock held by depository institutions within its district; each has its own 9-member
2
board of directors, six of whom are elected by member banks within the district, and three of
whom are appointed by the Board; and each acts as a depository for banks within its district, a
lender to eligible institutions through its “discount window,” a clearing agent for checks, and
fulfills other responsibilities for banks within the district. (Pl.’s Statement ¶¶ 6, 8, 9; Def.’s
Resp. at 3.) The regional banks, unlike the Board, are authorized to extend credit. (Pl.’s
Statement ¶ 14; Def.’s Resp. at 4.)
In early March 2008, the Board became aware of potential liquidity problems at Bear
Stearns, a holding company comprised of a number of different financial instiutions. (Decl. of
Coryann Stefansson (“Stefansson Decl.”) ¶ 7; Decl. of Margaret Celia Winter (“Winter Decl.”) ¶
11.) On Thursday, March 13, 2008, Bear Stearns’ liquidity declined to levels that were
inadequate to cover its maturing obligations. (Stefansson Decl. ¶ 7.) That evening, the United
States Securities and Exchange Commission (“SEC”) notified both the Board and the FRBNY,
one of the twelve regional banks, that as things stood Bear Stearns “would have to file for
bankruptcy protection the next day.” (Id.) “In response to the rapidly evolving crisis, Board
staff and staff of the FRBNY began collecting and sharing real-time data on the exposure of
various financial institutions to Bear Stearns, as well as other information and analyses, to assess
the gravity of Bear Stearns’ situation, the possible impact of a Bear Stearns bankruptcy on
financial institutions and markets, and the Board’s possible policy responses.” (Def.’s Statement
of Material Facts (“Def.’s Statement”) ¶ 9 (Feb. 1, 2010 (citing Stefansson Decl. ¶¶ 7-10).)
Among other actions, the Board surveyed the Large Complex Banking Institutions (LCBOs)
under its supervision to assess their exposure to Bear Stearns. (Stefansson Decl. ¶ 8.) The
information gathered was disseminated and discussed among Board members and other Federal
3
Reserve staff. (Id. ¶ 9.)
Ultimately, the Board concluded that “a sudden disorderly failure of Bear Stearns would
have had unpredictable, but severe, consequences on the functioning of financial markets.” (Id.
¶¶ 9,10.) However, “[b]ecause Bear Stearns was not a depository institution, it was not eligible
to obtain financing directly from the FRBNY’s discount window.” (Id. ¶ 7.) Citing these
“unusual and exigent circumstances” and its authority under section 13(3) of the Federal Reserve
Act (Decl. of Alison Thro (“Thro Decl.”), Ex. A, at 3), the Board agreed, as reflected in the
minutes of its meeting on the morning of March 14, 2008, “that, given the fragile condition of
the financial markets at the time, the prominent position of Bear Stearns in those markets, and
the expected contagion that would result from the immediate failure of Bear Stearns, the best
alternative available was to provide temporary emergency financing to Bear Stearns through an
arrangement with JPMorgan Chase & Co.” (Id.; Stefansson Decl. ¶ 10.) Specifically, the Board
authorized the FRBNY to extend credit to JP Morgan Chase to provide a temporary loan to Bear
Stearns to enable it to meet its financial obligations and to avoid filing for bankruptcy. (Thro
Decl., Ex. A.). The FRBNY decided to extend the loan, and Bear Stearns did not file for
bankruptcy.2
On December 17, 2008, plaintiff submitted the following FOIA request to the Board:
I am requesting further detail on information contained in the following minutes
of the Board of Governors of the Federal Reserve dated March 14, 2008:
http://www.federalreserve.gov/newsevents/press/other/other20080627a1.pdf
The source of this power is Section 13(3) of the Federal Reserve Act. In
2
On March 16, 2008, the Board authorized the FRBNY to extend a second loan to JP
Morgan Chase in connection with its acquisition of Bear Stearns. (Thro Decl. ¶ 3.)
4
particular, I am requesting any supporting memos or other information that detail
the ‘expected contagion that would result from the immediate failure of Bear
Stearns’ and the related conclusion that ‘this action was necessary to prevent,
correct, or mitigate serious harm to the economy or financial stability’ as
described in the meeting minutes.
(Id.)
In responding to plaintiff’s request, Board staff reviewed “a document repository
containing over 28,000 pages of information.” (Id. ¶¶ 4, 5.) On August 11, 2009, the Board
produced 120 pages of previously released or publicly available documents. (Id. ¶ 9 & Ex. D.)
On September 30, 2009, the Board identified an additional 238 pages of responsive documents.
(Id. ¶10.) From this universe, the Board produced 48 pages in full, produced 27 pages with
information redacted, and withheld 163 pages in full, including 8 pages containing information
about the financial condition of Bear Stearns that had originated with the SEC, which the Board
referred to the SEC for final disposition.3 (Id.) The Board based its withholdings and redactions
on FOIA Exemptions 4, 5, 6, and 8. (Id.) On January 7, 2010, the SEC informed plaintiff that it
considered the documents referred to it by the Board protected from disclosure under FOIA
Exemptions 5 and/or 8. (Winter Decl. ¶ 5.) The Board has produced a Vaughn Index,
identifying the withheld material by “Item” number (1-38), “Bates” number(s), physical location
on the page (where necessary), a description of the withheld material, and the “basis for
withholding.” (Thro Decl., Ex. F (“Vaughn Index”).)4
Defendant has moved for summary judgment, contending that its application of FOIA
3
The documents produced in full have Bates numbers ending in 02-03, 06, 10, 14-16,
18-19, 24-28, 36-37, 40, 42, 45-50 and 215-238; the withheld and redacted pages have Bates
numbers ending in 01, 04-05, 07-09, 11-13, 17, 20-23, 29-35, 38-39, 41, 43-44, 51-214.
4
A single Item number may include multiple pages or a single redaction on a page.
5
exemptions was proper. (Def.’s Mot. for Summ. J., Feb. 1, 2010). Its motion is supported by
declarations from Alison M. Thro, Senior Counsel in the Board’s Legal Division, Coryann
Stefannson, Associate Director of the Board’s Division of Banking Supervision and Regulation,
Margaret Celia Winter, Freedom of Information Act and Privacy Act Officer at the SEC, and
Michelle A. Danis, senior financial economist in the Broker-Dealer Risk Office of the SEC
Division of Trading and Markets (“Danis Decl.”). (Id.; Def.’s Opp’n & Reply, Apr. 22, 2010.)
Plaintiff does not dispute defendant’s application of FOIA Exemption 6 (Item #’s 2, 3, 19, 25,
and 28), but challenges the applicability of FOIA Exemptions 4, 5 and/or 8 (Item #’s: 1, 4-22,
24, 26-27, 29-38),5 and cross-moves for summary judgment.6 (Pl.’s Cross-Mot. for Summ. J.,
Mar. 8, 2010).
ANALYSIS
I. STANDARD OF REVIEW
The Court may grant a motion for summary judgment “if the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(c). The moving party bears the burden of demonstrating an absence of a genuine issue of
material fact in dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Factual assertions
5
On January 28, 2010, after initially withholding it, the Board produced Item #23 (Bates
# 0046). (Thro Decl. ¶ 11.)
6
Plaintiff’s response to defendant’s Statement of Material Facts states that he “disputes
that the Board has satisfied its burden of demonstrating that it conducted an adequate search.”
(Pl. Statement of Material Facts ¶ 3.) However, plaintiff fails to support this statement with any
legal argument, so the Court need not consider the adequacy of the search.
6
in the moving party’s affidavits may be accepted as true unless the opposing party submits his
own affidavits or declarations or documentary evidence to the contrary. Neal v. Kelly, 963 F.2d
453, 456 (D.C. Cir. 1992).
“FOIA cases typically and appropriately are decided on motions for summary judgment.”
Defenders of Wildlife v. U.S. Border Patrol, 623 F. Supp. 2d 83, 87 (D.D.C. 2009) (citations
omitted). “In a FOIA case, summary judgment may be granted to the government if ‘the agency
proves that it has fully discharged its obligations under the FOIA, after the underlying facts and
the inferences to be drawn from them are construed in the light most favorable to the FOIA
requester.’” Fischer v. U.S, Dep’t of Justice, 596 F. Supp. 2d 34, 42 (D.D.C. 2009) (quoting
Greenberg v. U.S. Dep’t of Treasury, 10 F. Supp. 2d 3, 11 (D.D.C. 1998))). “An agency that has
withheld responsive documents pursuant to a FOIA exemption can carry its burden to prove the
applicability of the claimed exemption by affidavit.” Larson v. Dep’t of State, 565 F.3d 857, 862
(D.C. Cir. 2009) (citing Ctr. for Nat’l Sec. Studies v. U.S. Dep’t of Justice, 331 F.3d 918, 926
(D.C. Cir. 2003)). “Summary judgment is warranted on the basis of agency affidavits when the
affidavits describe the justifications for nondisclosure with reasonably specific detail,
demonstrate that the information withheld logically falls within the claimed exemption, and are
not controverted by either contrary evidence in the record nor by evidence of agency bad faith.”
Id. (quoting Miller v. Casey, 730 F.2d 773, 776 (D.C. Cir. 1984)); see also Military Audit Project
v. Casey, 656 F.2d 724, 738 (D.C. Cir.1981); Larson, 565 F.3d at 862.7
7
FOIA provides district courts the option to conduct in camera review, 5 U.S.C. §
552(a)(4)(B), but “it by no means compels the exercise of that option.” Larson, 565 F.3d at 862(internal citations and quotations omitted). To the contrary, although district courts possess
broad discretion regarding whether to conduct in camera review, “[w]hen the agency meets its
burden by means of affidavits, in camera review is neither necessary nor appropriate.” Id.7
“FOIA represents a balance struck by Congress between the public’s right to know and
the government’s legitimate interest in keeping certain information confidential.” Ctr. for Nat’l
Security Studies, 331 F.3d at 925 (citing John Doe Agency, 493 U.S. at 152). “While these
exemptions are to be ‘narrowly construed,’ FBI v. Abramson, 456 U.S. 615, 630, courts must not
fail to give them ‘a meaningful reach and application,’ John Doe Agency, 493 U.S. at 152.” Id.
Ultimately, an agency’s justification for invoking a FOIA exemption is sufficient if it appears
‘logical’ or ‘plausible.’” Larson, 565 F.3d at 862 (quoting Wolf v. CIA, 473 F.3d 370, 374-75
(D.C. Cir. 2007)).
II. FOIA Exemption 5
FOIA Exemption 5 allows an agency to withhold “inter-agency or intra-agency
memorandums or letters which would not be available by law to a party other than an agency in
litigation with the agency.” 5 U.S.C. § 552 (b)(5). “To qualify, a document must thus satisfy two
conditions: its source must be a Government agency, and it must fall within the ambit of a
privilege against discovery under judicial standard that would govern litigation against the
agency that holds it.” Dep’t of the Interior v. Klamath Water Users Protective Ass’n, 532 U.S. 1,
8 (2001); see EPA v. Mink, 410 U.S. 73 (1973); NLRB v. Sears, 421 U.S. 132, 148 (1975).
Among the privileges incorporated by FOIA Exemption 5 are the “deliberative process”
privilege and the “attorney work product” privilege. Klamath, 532 U.S. at 8; see Loving v. Dep’t
of Defense, 550 F.3d 32, 37 (D.C. Cir. 2008); Baker & Hostetler LLP v. Dep’t of Commerce, 473
F.3d 312, 321 (D.C. Cir. 2006)). The Board claims that Exemption 5 protects from disclosure all
of the material plaintiff seeks (Item #’s 1, 4-22, 24, 26-27, 29-38). Plaintiff challenges the
Board’s reliance on Exemption 5 on several grounds, each of which is addressed below.
8
A. Inter-Agency/Intra-Agency Communications
Plaintiff argues that Item #’s 1, 4-6, 10-12, 14, 20-21, 26-27, 29-34, 36, 37, and 38 are
not “inter-agency” or “intra-agency” communications because they are “records and information
exchanged by officials of the Board and employees of the FRBNY” or “records or information
exchanged between the SEC and the FRBNY” and the FBRNY is not a government agency. (Pl.
Mem. at 27.) The Board concedes that FRBNY is not a government agency, but argues that
Exemption 5 applies nonetheless under the “consultant corollary,” pursuant to which
“intra-agency” and “inter-agency” communications include “agency records containing
comments solicited from non-governmental parties . . . whose counsel [an agency] sought.”
Nat’l Institute of Military Justice v. U.S. Dep’t of Defense, 512 F.3d 677, 680 (D.C. Cir. 2008);
see also Ryan v. Dep’t of Justice, 617 F.2d 781, 790 (D.C. Cir. 1980) (“When an agency record
is submitted by outside consultants as part of the deliberative process, and it was solicited by the
agency, we find it entirely reasonable to deem the resulting document to be an ‘intra-agency’
memorandum for purposes of determining the applicability of Exemption 5.”); Judicial Watch,
Inc. v. Dep’t of Energy, 412 F.3d 125, 129 (D.C. Cir. 2005) (documents prepared by
presidentially-established policy group and held by eight different federal agencies were
nonetheless “intra-agency” records because group was created solely to advise the President).
Plaintiff does not dispute the existence of a “consultant corollary,” but argues that
defendant has not demonstrated that the records at issue were “created at the request of the
agency [the Board] and ‘for the purpose of aiding the agency’s deliberative process.’” (Pl.’s
Reply at (quoting Nat’l Institute of Military Justice, 512 F.3d at 681).) Plaintiff argues that the
Board has failed to make the necessary showing because “[n]owhere does the Board assert that it
9
asked the FRBNY to gather and discuss data with the Board” and “the Board [does not] assert
that the FRBNY gathered data for the purpose of aiding the Board’s deliberative process.” (Pl.
Reply at 11-12.) Plaintiff’s argument conveniently overlooks the Stefansson Declaration, which
includes those precise assertions. (Stefansson Decl. ¶ 8.) For example, in her declaration,
Stefansson, an Associate Director in the Board’s Division of Banking Supervision and
Regulation and a participant in the March 13-14, 2008 events, states that:
Board members and Board staff were concerned about the effects a Bear Stearns
bankruptcy would have on financial markets given the prominent position of Bear
Stearns in those markets. We were also concerned about the impact a Bear Stearns
bankruptcy filing would have on individual LCBOs [large complex banking
organizations] and smaller institutions supervised by the Board and other financial
entities not supervised by the Board. As a result, in accordance with well-established
supervisory processes, Board and Reserve Bank staff responsible for LCBO supervision
surveyed the LCBOs for purposes of assessing LCBOs’ real-time exposure to Bear
Stearns. This action was taken as part of the Board’s consideration of potential responses
to Bear Stearns’ funding difficulties.
(Stefansson Decl. ¶ 8.) This statement more than satisfies defendant’s burden to show that the
records and information exchanged by the Board and the FBRNY were “documents . . .
submitted by non-parties in response to an agency’s request for advice.” Nat’l Institute of
Military Justice, 512 F.3d at 681; see also Formaldehyde Inst. v. Dep’t of Health & Human
Servs., 889 F.2d 1118 , 1123 (D.C. Cir. 1989) (“Whether the author is a regular agency employee
or a temporary consultant is irrelevant; the pertinent element is the role, if any, that the document
plays in the process of agency deliberations.” (internal quotations omitted)).
Plaintiff also suggests that the consultant corollary cannot apply here because the
FBRNY’s interests “are not identical to the Board.” According to plaintiff, the FRBNY’s
interests diverge from the Board’s interests because “in enacting Section 13(3) of the Federal
Reserve Act, Congress gave the Board the power to authorize Federal Reserve Banks, such as
10
the FRBNY, to extend loans to non-banks in ‘unusual and exigent circumstances,’ but it gave the
Federal Reserve Banks the final say as to whether to actually extend such loans.” (Pl’s Mem. at
4.) Moreover, “[b]efore the loan could be extended, the FRBNY was required by law to make its
own finding, specifically, that the recipient of the prospective loan ‘is unable to secure adequate
credit accommodations from other banking institutions.’” (Id. (quoting 12 U.S.C. § 343).) Thus,
plaintiff concludes, “[t]he FRBNY’s role . . . is fundamentally different from that of an outside
consultant. The FRBNY, as a private corporation engaged in the business of banking, has its
own interests and obligations in the commercial activity of extending loans.” (Pl’s Mem. at 3-4.)
Accepting plaintiff’s description as accurate, it does not necessarily follow, as plaintiff
asserts, that “it is likely that the FRBNY gathered data in furtherance of its own interests: to
determine whether it would extend an emergency loan to Bear Stearns.” Pl. Reply at 12.) More
importantly, the critical inquiry is not whether FRBNY’s interests were at all times identical to
the Board’s, but rather whether the FRBNY “d[id] not represent an interest of its own, or the
interest of any other client, when it advise[d] the [Board],” such that its “only obligations are to
truth and its sense of what good judgment calls for, and in those respects the consultant functions
just as an employee would be expected to do.” Klamath, 532 U.S. at 10-11. Under those
circumstances, records submitted by an outside consultant “‘play[] essentially the same part in an
agency’s process of deliberation as documents prepared by agency personnel might have done,’
notwithstanding the consultants ‘were independent contractors and were not assumed to be
subject to the degree of control that agency employment could have entailed’ and they were not
necessarily ‘devoid of a definite point of view.’” Nat’l Institute of Military Justice, 512 F.3d at
682 (quoting Klamath, 532 U.S. at 10). Here, the declarations and the documents adequately
11
establish that the FRBNY was not representing an interest of its own when it advised the Board,
but rather it was simply assisting the Board’s evaluation of the Bear Stearns situation. (See, e.g.,
Stefansson Decl. ¶ 7 (“SEC notified the Board and the Federal Reserve Bank of New York . . .
that Bear Stearns funding resources were inadequate to meet its obligations”); id. ¶ 8 (“in
accordance with well-established supervisory processes, Board and Reserve Bank staff
responsible for LCBO supervision surveyed the LCBOs for purposes of assessing the LCBOs’
real-time exposure to Bear Stearns”); Vaughn Index at 2 (Item #1) (e-mail conveyed information
re supervised institutions exposure to Bear Stearns); Vaughn Index at 5 (Item #4) (same);
Vaughn Index at 7 (Item #6) (e-mail conveying information re supervised institutions’ attempts
to limit exposure to Bear Stearns).
Accordingly, the Court concludes that Item #’s 1, 4-6, 10-12, 14, 20-21, 26-27, 29-34, 36,
37, and 38 are inter or intra-agency documents within the meaning of Exemption 5.
B. Applicability of Deliberative Process Privilege
With one exception, see infra § II.C, all of the Board’s Exemption 5 claims rest on the
deliberative process privilege. The deliberative process privilege “covers ‘documents reflecting
advisory opinions, recommendations and deliberations comprising part of a process by which
governmental decisions and policies are formulated.’” Klamath, 532 U.S. at 8 (quoting NLRB v.
Sears, 421 U.S. at 150.) The privilege “rests on the obvious realization that officials will not
communicate candidly among themselves if each remark is a potential item of discovery and
front page news, and its object is to enhance ‘the quality of agency decisions.’” Id. (quoting
NLRB v. Sears, 421 U.S. at 151.); see Mead Data Cent. v. Inc. v. U.S. Dep’t of the Air Force,
566 F.2d 242, 256 (D.C. Cir. 1977) (purpose is to protect the “quality of administrative
12
decision-making [which] would be seriously undermined if agencies were forced to ‘operate in a
fishbowl’ because the full and frank exchange of ideas on legal or policy matters would be
impossible”); Dudman Commc’n Corp. v. Dep’t of the Air Force, 815 F.2d 1565, 1568 (D.C.
Cir.1987) (privilege “rests most fundamentally on the belief that were agencies forced to
‘operate in a fishbowl,’ the frank exchange of ideas and opinions would cease and the quality of
administrative decisions would consequently suffer”).
For the deliberative process privilege to apply, the material must be both “predecisional”
and “deliberative.” In re Sealed Case, 121 F.3d 729, 737 (D.C. Cir. 1997); Loving v. Dep’t of
Defense, 550 F.3d 32, 38 (D.C. Cir. 2008). A document is predecisional if it is “generated
before the adoption of an agency policy.” Coastal States Gas Corp. v. Dep’t of Energy, 617 F.2d
854, 866 (D.C. Cir.1980). To demonstrate that a document is predecisional, the burden is on the
agency to “establish[ ] what deliberative process is involved, and the role played by the
documents in issue in the course of that process.” Id. at 868. A document is deliberative if it
“reflects the give-and-take of the consultative process.” Id. at 866. The deliberative process
privilege generally does not cover the purely factual portions of documents, except in cases
where the factual material “is so inextricably intertwined with the deliberative sections of
documents that its disclosure would inevitably reveal the government’s deliberations.” In re
Sealed Case, 121 F.3d at 737; Quarles v. Dep’t of the Navy, 893 F.2d 390, 392 (D.C. Cir. 1990)
(“disclosure of certain factual information can “expose an agency’s decision-making process in
such a way as to discourage candid discussion within the agency and thereby undermine the
agency’s ability to perform its functions”); Dudman, 815 F.2d at 1568.
Plaintiff challenges the Board’s invocation of the deliberative process privilege on two
13
grounds: (1) that the Board improperly withheld purely factual information; and (2) the Board
fails to show that release of the withheld material will cause “harm” to the deliberative process.8
1. Factual Information
The Board states up front that it has withheld “certain factual material that is itself
deliberative.” (Mem. in Support of Def.’s Mot. for Summ. J. at 15.) Plaintiff challenges this
claim on the ground that the Board “has not demonstrated that disclosure of the factual material
at issue -- financial statistics, pricing and exposure data, and the identities of various financial
institutions -- by itself will reveal any deliberations or judgment calls by Board officials in
deciding to authorize an emergency loan to Bear Stearns.” (Pl. Mem. & Opp’n at 29.) Plaintiff
directs the Court’s attention to three examples of what he considers improperly withheld factual
8
At one point plaintiff also asserts that “the deliberative process privilege is a “qualified
privilege and can be overcome by a sufficient showing of need.” (Pl.’s Mem. & Opp’n at 28
(quoting In re Sealed Case, 121 F.3d at 737).) However, it is well-established that “[a] court’s
decision in a discovery case may rest in part on an assessment of the particularized need of the
party seeking discovery, but in a FOIA suit, the court does not consider the needs of the
requestor.” See EPA v. Mink, 410 U.S. at 86.
14
information (Items 139, 1610, and 2011).12 Plaintiff argues that “[i]f anything, the factual data the
Board seeks to withhold from Plaintiff reflects a frantic scramble on the evening of March 13,
2008 and in the early morning of March 14, 2008 to gather as much raw data as possible, not any
careful or considered culling of facts that would reveal the exercise of agency judgment.” (Pl.
Mem. & Opp’n at 30.)
The Board responds that plaintiff “fails to perceive that the very act of the Board (or in
certain cases, the Securities & Exchange Commission) reaching out to request specific financial
information from specific institutions was itself a part of the deliberative process.” (Board
Opp’n & Reply at 2.) As an example, the Board points to Item 8, from which the Board
withheld “the identities of two financial firms and one regulated financial institution” because
9
Item 13 is an email from a Board analyst on March 13, 2008, at 5:40 p.m. that states,
“Here are exposures to [Bear Stearns] that I have now.” The Vaughn index describes the
withheld material as “Identification of LFIs and the nature and scope of their exposure to BS.”
10
Item No. 16 is an email from a Board official on March 13, 2008, at 10:18 p.m. that
states, “Gov. Kohn and I are still in the office . . . Based on [Bear Stearns] global operations, do
you know if anyone has talked with the [Financial Services Authority] in London? [REDACTED
MATERIAL] We have pulled together the exposure #s of the [Large Financial Institutions] to
[Bear Stearns] but the information is from the last monthly reports.” The Vaughn index
describes the withheld material as “five sentences” that “describe[] a conversation between Scott
Alvarez, General Counsel to the Board, and a member of Board staff, regarding the projected
regulatory response to BS’s funding position, and a Board staff member’s subsequent contact
with another federal agency concerning the situation at BS.”
11
Item No. 20 is an email from a Board official on March 14, 2008, at 5:48 a.m. that
states: “I just got off a call with folks at [the FRBNY]. Below is a chart with exposures. I’m on
my way into the office.” The Vaughn index describes the withheld material as a “table,” that
“identifies BS’s projected cash flows, as well as FRS-supervised LFIs with exposure to BS and
the relative size of the exposure to the institution in question.”
12
Plaintiff also refers to Item 19, but item 19 is simply the redaction of a personal cell
phone number. The attachment to the e-mail – the spreadsheet showing Bear Stearns “exposure”
– is the document (Item #20; Bates # 00041) that is withheld.
15
they “reveal[] the identities of institutions that FRS staff considered to be systemically important
or whose failure could have systemic consequences to the financial system . . . .” (Thro Decl.,
Ex. F, Item 8.) As explained by the Board:
“In other words, there were certain financial institutions whose failure (possibly
prompted by a Bear Stearns bankruptcy) the Board believed could have ripple
effects across the financial system at large. The possible impact of a Bear Stearns
bankruptcy on these institutions played an important part in the Board’s
deliberations leading to its decision to authorize the Temporary Loan, see
Stefansson Decl., ¶ 8, and revealing their names would be tantamount to revealing
the Board’s decision making process.”
(Def.’s Opp’n & Reply at 11.) In support of its argument, the Board cites two cases: Quarles v.
Dep’t of the Navy, 893 F.2d 390 (D.C. Cir. 1990), and Montrose Chemical Corp. v. Train, 491
F.2d 63 (D.C. Cir. 1974.) In Quarles, the court upheld the withholding of certain cost estimates
made by agency officials because the estimates themselves reflected the exercise of the agency’s
judgment. In Montrose, the court upheld the withholding of factual summaries made by an
agency official based on evidence entered into the lengthy record of a public hearing. Plaintiff
contends that the present case “differs substantially” from Quarles and Montrose because all that
he seeks released is “raw market data.” The Court disagrees.
Having reviewed the Items plaintiff identifies as improperly withheld and the entire
record, the Court is persuaded that defendant has adequately established that disclosing the
withheld factual material would reveal the Board’s deliberative process. In Montrose, the court
observed that “[t]he work of the assistants in separating the wheat from the chaff is surely just as
much part of the deliberative process as is the later milling by running the grist through the mind
of the administrator.” Montrose, 491 F.2d at 71. Similarly here, as defendant puts it, “[t]he
work of Board and FRBNY staff in reaching out and culling certain financial statistics and
16
exposure data, and the identities of certain financial institutions, for consideration by the Board
from the mass of data available to it is itself deliberative.” (Def.’s Opp’n & Reply at 11.) For
example, the Thro declaration describes Item #13, among others, as a document “conveying or
discussing data gathered by Reserve Bank examiners concerning supervised financial institutions
and their exposure to Bear Stearns” and declaring that the “information was gathered for and
communicated to and discussed by Board members and Board and Reserve Bank staff in
connection with the Board’s decision . . . because it bore on the significant issue of the potential
consequences of a Bear Steans bankruptcy on individual financial institutions and firms and
then-fragile financial markets.” (Thro Decl. ¶ 17.) Items #16 and #20, among others, are
described as e-mails “conveying market developments and analyses related to a potential
bankruptcy by Bear Stearns; methods of obtaining information regarding financial insitutions’
exposure to Bear Stearns; proposed regulatory responses to the situation; and arguments and
considerations regarding the need for the Temporary Loan” and that “this information and these
analyses were considered by the Board and staff advising the Board as part of the ongoing
process of deliberation.” Accordingly, the Court is “convinced” that disclosure of the requested
“factual summar[y] prepared [for] decisionmakers” “‘would expose [the Board’s]
decisionmaking process in such a way as to discourage candid discussion within the agency and
thereby undermine the agency’s ability to perform its functions.’” Quarles, 893 F.2d at 392(quoting Dudman, 815 F.2d at 1568).
2. Harm to Decision-Making Process
Plaintiff also argues that defendant has failed to establish the applicability of the
deliberative process privilege because defendant has not demonstrated “that disclosure of the
17
withheld records or information would cause harm to its decision-making process.” (Pl. Mem. &
Opp’n at 30.) However, once it has been shown that a document is both predecisional and
deliberative, no such showing is legally required.
Plaintiff bases his argument on the following language from Mead Data, 566 F.2d at 258:
“An agency cannot meet its statutory burden of justification by conclusory allegations of
possible harm. It must show by specific and detailed proof that disclosure would defeat, rather
than further, the purposes of FOIA.” Plaintiff fails to acknowledge, however, that the court in
Mead Data made this statement in considering whether Exemption 5 could ever apply to an
agency’s negotiation proceedings with an outside party – i.e. to material that was indisputably
not part of the agency’s internal deliberative process. Id. at 257-58. The court held that in order
for Exemption 5 to apply, the agency would have to show “that the threat of disclosure of
negotiation proceedings would so inhibit private parties from dealing with the Government that
agencies must be permitted to withhold such information in order to preserve their ability to
effectively arrange for contractual agreement.” Id. It was only in this context that the court
suggested that “more than conclusory allegations of possible harm” were required. Id. In
contrast, in that same decision, the court upheld the applicability of Exemption 5 to other
documents where the record established that those documents were both “predecisional” and
“part of the deliberative process.” Id.Here, defendant has both “establish[ed] what deliberative process is involved, and the
role played by the documents in issue in the course of that process.” See Coastal States, 617
F.2d at 868 (D.C. Cir. 1980.) Having established that the withheld documents were both
“predecisional” and “deliberative,” defendant is not also required to establish that the release of
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the withheld documents or material would cause “harm” to the decision-making process.
C. Applicability of Attorney Work Product Privilege
The Board has withheld Item 38 based on the attorney work product component of
Exemption 5. “The work-product doctrine shields materials ‘prepared in anticipation of
litigation or for trial by or for another party or by or for that other party's representative
(including the other party's attorney, consultant, surety, indemnitor, insurer, or agent).’” Judicial
Watch, Inc. v. Dep’t of Justice, 432 F.3d 366, 371 (D.C. Cir. 2005) (quoting Fed. R. Civ. P.
26(b)(3)) Tax Analysts v. IRS, 117 F.3d 607, 620 (D.C.Cir. 1997). “The purpose of the
privilege, however, is not to protect any interest of the attorney, who is no more entitled to
privacy or protection than any other person, but to protect the adversary trial process itself.”
Coastal States, 617 F.2d at 864. While there is no requirement that actual litigation be pending,
“at the very least some articulable claim, likely to lead to litigation, must have arisen.” Id.“[T]he Supreme Court has made clear [that] the doctrine should be interpreted broadly and held
largely inviolate.” Judicial Watch, 432 F.3d at 371 (citing Hickman v. Taylor, 329 U.S. 495,
510-11 (1947)). Thus, “[a]ny part of [a document] prepared in anticipation of litigation, not just
the portions concerning opinions, legal theories, and the like, is protected by the work product
doctrine and falls under exemption 5.” Id. at 371 (quoting Tax Analysts, 117 F.3d at 620). “In
other words, factual material is itself privileged when it appears within documents that are
attorney work product. If a document is fully protected as work product, then segregability is
not required.” Id.The document withheld by the Board as attorney work product is a “draft affidavit . . .
conveyed by a FRBNY attorney to Board attorneys.” (Vaughn Index at 39; see also Thro Decl. ¶
19
22.) According to defendant, the affidavit was “prepared by FRBNY attorneys in anticipation of
litigation by Bear Stearns shareholders related to the Board’s authorization to extend credit to
[Bear Stearns] indirectly through [JP Morgan Chase].” (Id.)
Plaintiff first argues that as the document was prepared by an FRBNY attorney, it is not
the work product of the Board’s attorney. However, as discussed above, because FRBNY
personnel were acting as consultants to the Board, the work product of an FRBNY attorney
conveyed to the Board is properly withheld under Exemption 5. Cf. National Institute of
Military Justice, 512 F.3d at 684-85 & n.10 (Exemption 5 applies to communications between an
agency and “individual non-government lawyers” pursuant to the “consultant corollary”
principle); see also Hanson v. U.S. Agency for Intern. Development, 372 F.3d 286, 294 (4th Cir.
2004) (“The government has the same right to undisclosed legal advice in anticipation of
litigation as any private party. And there is nothing in FOIA that prevents the government from
drawing confidential counsel from the private sector. Allowing disclosure here would impair an
agency’s ability to prepare effectively for litigation with private parties and thereby thwart its
ability to discharge its functions in the public interest.”)
Plaintiff’s second argument is that the Board has not met its burden to show that there
was “some articulable claim, likely to lead to litigation.” (Pl’s. Mem. & Opp’n at 31 (quoting
Coastal States, 617 F.2d at 865).) The Court disagrees. The Thro Declaration describes the
withheld document as an affidavit “setting out the factual considerations and legal analyses” that
had been “presented orally to the Board prior to its decision” and prepared due to the Board’s
concern about “possible litigation stemming from the Board’s decision.” (Thro Decl. ¶ 22.)
Moreover, the Board has submitted affidavits establishing that “stockholders of Bear Stearns had
20
filed several lawsuits in March 2008 in the Delaware Court of Chancery and in the Supreme
Court of the State of New York seeking to enjoin JP Morgan, Chase & Co.’s merger with Bear
Stearns.” (Def.’s Reply at 16.) Indeed, as the Board points out, “the brief from the Delaware
Chancery litigation provided to the Plaintiff specifically mentions ‘critical actions by the Federal
Reserve Bank of New York’ that led to the merger. (Id. (internal quotations omitted).)
Accordingly, the Court is convinced that “it was entirely reasonable for the Board to anticipate
that it, and/or the FRBNY, might be drawn into litigation by Bear Stearns shareholders, and to
prepare for the possibility of litigation.” (Id.)
III. FOIA Exemption 8
In addition to FOIA Exemption 5, defendant relies on FOIA Exemption 8 as a alternate
basis for withholding thirteen Items (Item #’s 4, 5, 6, 9, 10, 11, 12, 13, 17, 18, 21, and 22).
FOIA Exemption 8 provides that an agency may withhold information that is “contained in or
related to the examination, operating or condition reports prepared by, or on behalf of, or for the
use of an agency responsible for the regulation or supervision of financial institutions.” 5 U.S.C.
§ 552(b)(8). The Board cites Exemption 8 in declining to produce e-mails or tables (or portions
thereof) that contained information furnished to the Board by financial institutions regulated by
the Board. (Thro Decl. ¶17; Stefansson Decl. ¶¶ 2, 4, 13-15.) Specifically, the Board withheld
the identity of institutions with exposure to Bear Stearns, the amount of such exposure, and/or
the activities these institutions had taken to limit their exposure to Bear Stearns. (See Thro Decl.
¶ 17; Steffanson Decl. ¶ 15.) Similarly, the Board withheld under Exemption 8 information the
SEC gathered from Bear Stearns “in connection with its supervision and regulation of Bear
Stearns.” (Winter Decl. ¶ 9; see also Thro Decl.¶¶ 10, 11, 18.) Plaintiff challenges all of
21
defendant’s Exemption 8 withholdings.
FOIA Exemption 8 serves two purposes: (1) to ensure the security of financial
institutions by eliminating the risk that disclosure of examination, operation, and condition
reports containing frank evaluations of the investigated banks that might undermine public
confidence and cause unwarranted runs on banks; and (2) to safeguard the relationship between
the banks and their supervising agencies because if details of the bank examinations were made
freely available to the public and to banking competitors, banks would cooperate less than fully
with federal authorities. See Public Citizen v. Farm Credit Admin., 938 F.2d 290, 291 (D.C. Cir.
1991); Consumers Union of U.S., Inc. v. Heimann, 589 F.2d 531, 534 (D.C. Cir. 1978); see also
Nat’l Cmty. Reinv. Coal. v. Nat’l Credit Union Admin., 290 F. Supp. 2d 124, 135-36 (D.D.C.
2003)
Although generally FOIA exemptions are to be “narrowly construed,” U.S. Dep’t of
Justice v. Julian, 486 U.S. 1, 8 (1988); Wolf, 473 F.3d at 374, it is well-established that
Exemption 8's scope is “particularly broad.” Consumers Union, 589 F.2d at 534. In Consumers
Union, the D.C. Circuit considered FOIA Exemption 8 for the first time and concluded that “[i]f
the Congress has intentionally and unambiguously crafted a particularly broad, all-inclusive
definition, it is not our function, even in the FOIA context, to subvert that effort.” Id.Subsequent decisions have reaffirmed that Exemption 8 “provide[s] absolute protection
regardless of the circumstances underlying the regulatory agency’s receipt or preparation of
examination, operating or condition reports.” Gregory v. Fed. Deposit Ins. Corp., 631 F.2d 896,
898 (D.C. Cir. 1980).
Plaintiff acknowledges that Exemption 8 was “crafted broadly,” but argues that the Board
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has not met its obligation to provide “‘a relatively detailed justification, specifically identifying
the reasons why a particular exemption is relevant and correlating those claims with the
particular part of a withheld document to which they apply.’” (Pl.’s Mem. at 32 (quoting King v.
U.S. Dep’t of Justice, 830 F.2d 210, 219 (D.C. Cir. 1987).) Specifically, plaintiff faults the
Board for not identifying the specific “report” to which the information relates.13
The Board’s affidavits establish that the Board’s bank supervisory process “is one of
continual interaction and information-sharing by regulated entities with their bank supervisors”
(Stefansson Decl. ¶ 15); that the withheld materials “constituted part of a fast moving, real-time
effort by the Board to monitor the possible impact of a Bear Stearns bankruptcy filing on
financial institutions regulated by the Board” (Stefansson Decl. ¶¶ 4-5, 15; Thro Decl. ¶ 17);
that “Federal Reserve examiners utilizing the Board’s supervision authority obtained information
from various LCBOs regarding their exposure to Bear Stearns in an effort to gauge possible
impact of a Bear Stearns bankruptcy on regulated financial institutions” (Stefansson Decl. ¶14);
that the information was provided based on strict assurances of confidentiality (Stefansson Decl.
¶¶ 14-15; Thro Decl. ¶ 17); and that the Board created or obtained these documents as part of its
“continuous” supervision of institutions it supervised, in the hectic days and hours during which
the Board and its staff strove to assess the impact of a possible disorderly failure of Bear Stearns.
(Stefansson Decl. ¶¶ 4-8, 15; Thro Decl. ¶ 17.) Similarly, the affidavits establish that Bear
13
It is true, as plaintiff points out, that the Vaughn index makes no mention of
examination, operating, or condition reports with respect to its reasons for withholding Item #’s
4, 5, 6, 9, 10, 13, 17, 18, 21, 22, and 24. However, defendant remedies this omission in its
affidavits.
23
Stearns was supervised by the SEC as part of its CSE14 program, which “was designed to
monitor for financial or operational weakness in a CSE holding company or its unregulated
affiliates that might place the U.S.-regulated broker-dealers and other regulated entities at risk”
(Winter Decl. ¶10); and that the SEC obtained the withheld information in connection with its
supervision and regulation of Bear Stearns (Danis Decl. ¶¶ 4-5; see also Vaughn Index at 11-12
(Items 10 and 11).)
Under these circumstances, and given the Board’s statutory authority to “require such
statements or reports as it may deem necessary,” 12 U.S.C. § 248(a), the Board contends that the
information it was receiving in “real-time” about what financial significance a Bear Stearns
failure would have for a given institution and financial markets more generally is properly
characterized as related to “examination, operating, or condition” reports about individual
supervised institutions. (See Stefansson Decl. ¶ 8.) The Court agrees. Given the breadth of
Exemption 8, and the Board’s and the SEC’s undisputed regulatory responsibilities in relation to
the financial institutions whose information has been withheld, these affidavits are sufficient to
establish that the Board properly withheld the above-described information as “related to the
examination, operating or condition reports prepared by, or on behalf of, or for the use of an
agency responsible for the regulation or supervision of financial institutions.” 5 U.S.C. §
552(b)(8); see also Teichgraeber v. Board of Governors of the Federal Reserve System, 1989
WL 32183 (D. Kan. 1989) (“Because plaintiff has not controverted defendant’s assertion that the
documents are directly based upon examination and investigation reports, the court must give
14
The CSE program “allowed the [SEC] to supervise certain broker-dealer holding
companies, including Bear Stearns, on a consolidated basis.” (Winter Decl. ¶ 10.)
24
effect to the plain meaning of Exemption 8 and grant defendant’s motion.”)
Plaintiff’s contention that “Congress cannot have intended the term ‘report’ as used in
Exemption 8 to have such an overarching meaning” is made without citation to any authority.
Indeed, plaintiff’s position is undermined by the fact that it is well-established that Exemption 8
is to be broadly construed. See, e.g., Consumers Union, 589 F.2d at 534; Gregory, 631 F.2d at
898. Moreover, plaintiff’s suggested limitation on the scope of Exemption 8 would lead to an
outcome that is inconsistent with the one of the two purposes of Exemption 8 – to ensure “frank
cooperation between bank officials and regulated entities.” Gregory, 631 F.2d at 899; see also
Consumers Union, 589 F.2d at 534 (second purpose is “to safeguard the relationship between the
banks and their supervising agencies”); Nat’l Cmty. Reinv. Coal., 290 F. Supp. 2d at 135-36 (one
purpose of Exemption 8 is to “to ensure that [banks] continue to cooperate . . . without fear that
their confidential information will be disclosed.”) As the court in Consumers Union observed,
“[i]f details of the bank examinations were made freely available to the public and to banking
competitors, . . . banks would cooperate less than fully with federal authorities.” Consumers
Union, 589 F.2d at 534. Based on its examination of the record, the Court agrees that the
Board’s “ability to gather such information in furtherance of its mission to regulate our nation’s
banking system would inarguably be compromised if such information were now released.”
(Def.’s Mem. at 26.) As that outcome is precisely what Exemption 8 is designed to avoid, the
Court is persuaded that the Board properly withheld documents under Exemption 8.
IV. REMAINING ISSUES
In addition to its more general arguments, plaintiff also challenges the withholding of
specific records. In a number of instances, plaintiff’s points simply restate arguments addressed
25
above. As for the remaining arguments, the Court has reviewed the record and finds no merit to
plaintiff’s arguments. In addition, having concluded that the Board properly claimed both FOIA
Exemptions 5 and 8, the Court need not address whether Exemption 4 also justified withholding
certain Items.
Finally, the Court has an affirmative obligation to address the issue of segregability sua
sponte. Trans-Pac. Policing Agreement v. U.S. Customs Serv., 177 F.3d 1022, 1028 (D.C. Cir.
1999). FOIA requires that an agency produce “any reasonably segregable portion” of a record
that is not exempt from disclosure. 5 U.S.C. § 552(b). According to the Thro Declaration, she,
“working with at least two other attorneys in the Board’s Legal Division, . . . reviewed the
responsive documents for potentially exempt information.” (Thro Decl. ¶ 14.) She avers that
“[e]ach page was carefully reviewed, and the redactions were highly circumscribed” and that
“[p]ages were withheld in full only when they contained no reasonably segregable nonexempt
material.” (Id.) The Vaughn index provides detailed descriptions of each document and portions
that are withheld either in part or in whole. The Court has reviewed the Vaughn index and is
satisfied that defendant has produced all reasonably segregable nonexempt material.
CONCLUSION
Having considered the pleadings and the entire record herein, and for the foregoing
reasons, the Court concludes that the Board properly withheld documents pursuant to FOIA
Exemptions 5 and 8. Accordingly, an accompanying Order grants defendant’s motion for
summary judgment and denies plaintiff’s cross-motion.
/s/
ELLEN SEGAL HUVELLE
United States District Judge
DATE: September 29, 2010
26