Inner City Press/Community on the Move v. Board of Governors of the Federal Reserve

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2005
(Argued June 22, 2006 Decided September 11, 2006)
Errata Filed: November 16, 2006)
Docket Nos. 05–6162–cv(L)& 05-6628-cv(XAP)
-----------------------------------------------------
Inner City Press/Community on the Move,
Plaintiff–Appellant, Cross-Appellee,
v.
Board of Governors of the Federal Reserve System,
Defendant–Appellee, Cross-Appellant.
----------------------------------------------------
Before: MINER and CALABRESI, Circuit Judges, and RESTANI,* Judge.
Plaintiff-Appellant appeals from a judgment of the
United States District Court for the Southern District of New
York (Denise Cote, Judge) granting summary judgment in part in
favor of Defendant, the court having denied Plaintiff’s request
for information under the Freedom of Information Act. Defendant-
Appellee cross appeals the district court’s finding that
Plaintiff met its burden of production showing that the
information at issue was in the public domain.
Affirmed in part, remanded in part.
JILLIAN M. CUTLER (David C.
Vladeck, on the brief), Georgetown
*
The Honorable Jane A. Restani, Chief Judge of the United
States Court of International Trade, sitting by designation.
University Law Center, Washington,
D.C., for Plaintiff-Appellant-
Cross-Appellee.
YVONNE F. MIZUSAWA (Richard M.
Ashton & Katherine H. Wheatley, on
the brief), Board of Governors of
the Federal Reserve System,
Washington, D.C., for
Defendants–Appellee-Cross-
Appellant.
Restani, Judge:
This appeal concerns a request to the Board of Governors
of the Federal Reserve System (“Board”) under the Freedom of
Information Act (“FOIA”), 5 U.S.C. §§ 552–552b (2000 & West Supp.
2006), for information contained in a bank merger application by
Wachovia Corporation (“Wachovia”) and SouthTrust Corporation
(“SouthTrust”). Inner City Press/Community on the Move (“ICP”)
appeals from a judgment of the District Court for the Southern
District of New York finding that the names of Wachovia’s subprime-
lending clients listed in an exhibit to the merger application
qualified as confidential commercial information which is not
subject to disclosure under Exemption 4 to FOIA, 5 U.S.C.
§ 552(b)(4).1 The Board cross-appeals from the judgment that the
public domain exception to Exemption 4 applies to part of the
withheld information. The Board argues that ICP did not meet its
burden of production showing the likelihood that part of the
1
ICP is a nonprofit organization engaged in advocacy on issues
affecting low income consumers and communities. Among the issues
of concern to ICP is subprime lending, lending at high interest
rates to people with high credit risk. Appellant’s Br. 5.
2
withheld information would be in the public domain so that the
Board was required to do a limited search to verify that fact. We
agree with the district court that Exemption 4 applies to the
information sought, but we do not agree that ICP has met its burden
of production so that it would be appropriate to place a search
burden upon the Board.
BACKGROUND
On July 9, 2004, Wachovia and SouthTrust submitted a
merger application to the Board.2 Prior to filing the application,
Wachovia contacted the Board inquiring whether it should include
information about its relationships with subprime lenders. The
Board replied that such information is helpful if public
commentators question an applicant’s relationships with subprime
lenders. Therefore, Wachovia included information about its
relationships with subprime lenders and requested confidential
treatment of the information. Among the materials included was an
exhibit labeled “Confidential Exhibit 3: Discussion of Activities
Relating to Sub-Prime Lending” (“Exhibit 3”). The Board describes
the contents of Exhibit 3 as follows:
(i) the names of nine of Wachovia’s commercial customers
that make and/or purchase subprime residential mortgage
loans; (ii) the specific amounts and some terms of
Wachovia’s credit facilities to these customers; (iii)
descriptions of other banking services Wachovia provides
2
The Bank Holding Company Act (“BHCA”) requires the Board to
approve bank mergers and certain ownership transactions prior to
their occurrence. 12 U.S.C. § 1842(a) (2000).
3
to, or other relationships with, these customers; (iv)
financial data on Wachovia’s exposure and loan
outstandings to commercial customers who engage in
subprime lending; and (v) details regarding the due
diligence Wachovia performs in evaluating particular
lenders’ requests for credit facilities.
Inner City Press/Cmty. on the Move v. Bd. of Governors of the Fed.
Reserve Sys., 380 F. Supp. 2d 211, 214 (S.D.N.Y. 2005).
On July 19, 2004, ICP submitted a FOIA request to the
Board seeking release of the merger application and related
documents. In response, the Board released parts of the
application but withheld certain documents, including Exhibit 3,
explaining that the withheld materials were not subject to
disclosure under Exemption 4 to FOIA because they contained
“commercial or financial information obtained from a person and
privileged or confidential.” 5 U.S.C. § 552(b)(4). ICP sent a
letter to the Board appealing its decision and the Board denied the
request on the same grounds.
On October 21, 2004, ICP filed suit in district court
seeking release of only Exhibit 3. The parties filed cross-motions
for summary judgment. The district court found that the
information contained in categories (i), (ii), and (iii) of Exhibit
3, as indicated above, was “commercial or financial information
obtained from a person and privileged or confidential” for purposes
of Exemption 4.3 Inner City Press, 380 F. Supp. 2d at 215, 218.
3
The court also held that Exemption 4 did not apply to
categories (iv) and (v). The parties do not challenge this ruling.
4
The district court also acknowledged that Exemption 4 did not apply
to information that was already in the public domain. Id. at 221.
The court found that ICP had met its burden of production showing
that specific information in the public domain appears to duplicate
that being withheld. The district court concluded that ICP had met
its burden by: (1) showing that Exhibit 3 contained information
that Wachovia acted as a market maker or underwriter to some of its
subprime-lending clients who issued securities for public sale; and
(2) pointing to registration forms containing similar information
filed with the Securities and Exchange Commission (“SEC”) by
companies that issue securities for public sale. Id. The district
court then required the Board to conduct a limited search of SEC
filings for the subprime lenders listed in Exhibit 3 to verify if
information was in the public domain that Wachovia was an
underwriter for, and provided credit, funding or other financial
services to any of the lenders. Id. The court ruled that the
Board must release the information to the extent that it was
publicly available. Id.
ICP limits its present appeal to the district court’s
decision pertaining to category (i), the names of Wachovia’s
customers that engage in subprime lending.4 ICP argues that
4
While category (i) is the principal target of ICP’s appeal
regarding information classified as confidential under Exemption 4,
ICP also asks that we uphold the district court’s order that the
Board release any information that is already publicly available,
even from the otherwise confidential information in categories (ii)
5
Exemption 4 does not apply to the names contained in Exhibit 3.
The Board cross-appeals, arguing that ICP did not meet its burden
of production. The Board also argues that the information that may
be in the public domain is not subject to disclosure because it is
not “freely available” under U.S. Dep’t of Justice v. Reporters
Committee for Freedom of the Press, 489 U.S. 749, 764 (1989).
DISCUSSION
We review FOIA exemption claims de novo. See A.
Michael’s Piano, Inc. v. Fed. Trade Comm’n, 18 F.3d 138, 143 (2d
Cir. 1994).
FOIA was enacted in 1966 “to improve public access to
information held by public agencies.” Pierce & Stevens Chem. Corp.
v. U.S. Consumer Prod. Safety Comm’n, 585 F.2d 1382, 1384 (2d Cir.
1978). “There is no doubt that the basic purpose of the FOIA is a
general philosophy of full agency disclosure.” Id. (citation and
quotation omitted). The statute accomplishes this in several ways,
providing that some types of agency information “must be published
in the Federal Register; some must be made available for public
inspection and copying; and other reasonably described records are
obtainable on request to an agency.” Id.
The statute also exempts nine categories of information
from disclosure. 5 U.S.C. § 552(b)(1)–(9). Because of the policy
and (iii) containing the terms and amounts of their loans as well
as descriptions of their other banking services with Wachovia.
6
favoring disclosure, however, the nine exemptions “do[] not
authorize withholding of information or limit the availability of
records to the public, except as specifically stated.” Pierce, 585
F.2d at 1384 (citation and quotation marks omitted). Thus, the
exemptions are “given a narrow compass.” U.S. Dep’t of Justice v.
Tax Analysts, 492 U.S. 136, 151 (1989).
At issue here is Exemption 4. For Exemption 4 to apply,
“(1) [t]he information . . . must be a ‘trade secret’ or
‘commercial or financial’ in character . . . ;(2) . . . must be
‘obtained from a person,’ . . . and (3) . . . must be ‘privileged
or confidential.’” Nadler v. FDIC, 92 F.3d 93, 95 (2d Cir. 1996)
(quoting 5 U.S.C. § 552(b)(4)) (edits omitted). ICP does not
contest that the information here, the names of the subprime
lenders listed in Exhibit 3, is commercial or financial in nature
and that it was obtained from Wachovia, a person within the meaning
of FOIA. See 5 U.S.C. § 551(2) (defining a person as “an
individual, partnership, corporation, association, or public or
private organization other than an agency”). The issue is whether
the information sought is “confidential.”
To determine whether information is confidential for the
purposes of Exemption 4, this Circuit has adopted a two-part test
formulated by the District of Columbia Circuit in National Parks &
Conservation Ass’n v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974).
See Nadler, 92 F.3d at 95; Cont’l Stock Transfer & Trust Co. v.
7
SEC, 566 F.2d 373, 375 (2d Cir. 1977) (per curiam). The test
states that information is confidential for the purposes of
Exemption 4 if its disclosure would have the effect either: “(1) of
impairing the government’s ability to obtain information –
necessary information – in the future, or (2) of causing
substantial harm to the competitive position of the person from
whom the information was obtained.” Cont’l Stock, 566 F.2d at 375
(adopting the National Parks test).
Although confidential commercial information is not
subject to disclosure under Exemption 4, the exemption does not
apply if identical information is otherwise in the public domain.
Niagara Mohawk Power Corp. v. U.S. Dep’t of Energy, 169 F.3d 16, 19
(D.C. Cir. 1999) (discussing Exemption 4); Davis v. U.S. Dep’t of
Justice, 968 F.2d 1276, 1279 (D.C. Cir. 1992) (discussing Exemption
3 and 7); Cont’l Stock, 566 F.2d at 375 (discussing Exemption 4).
The rationale behind the public domain doctrine is clear: “if
identical information is truly public, then enforcement of an
exemption cannot fulfill its purposes.” Niagara, 169 F.3d at 19.
The Supreme Court has limited the public domain exception to
information that is “freely available.” Reporters Comm., 489 U.S.
at 764.
While the government retains the burden of persuasion
that information is not subject to disclosure under FOIA, “a party
who asserts that material is publicly available carries the burden
8
of production on that issue.”5 Davis, 968 F.2d at 1279. The
burden of production is placed upon the party who asserts that
material is publicly available because “[i]t is far more efficient,
and obviously fairer.” Occidental Petroleum Corp. v. SEC, 873 F.2d
325, 342 (D.C. Cir. 1989). To hold otherwise would require the
opponent of disclosure to prove a negative, “that the information
has nowhere been published.” Id. That is, the opponent of
disclosure would have to “identify all of the public sources in
which the information contained in its documents is not
reproduced.” Id.; Niagara, 169 F.3d at 19; Davis, 968 F.2d at 1279
(“[T]he task of proving the negative – that information has not
been revealed – might require the government to undertake an
exhaustive, potentially limitless search.”).
We first address the parties’ arguments concerning the
“impairment” prong of the National Parks test, and then we address
the parties’ arguments concerning the public availability of part
of the information sought.
I. Impairment of the government’s ability to obtain information
in the future
As the District of Columbia Circuit explained, disclosure
5
Contrary to ICP’s contentions, the allocation of burdens
remains the same in Exemption 4 cases as in other public domain
cases involving different FOIA exemptions. Niagara, 169 F.3d at 19
(discussing Exemption 4 and stating that the burden of production
rests upon the party favoring disclosure). Likewise, the cases
discussing the application of public domain doctrine to other FOIA
exemptions are applicable here. Id. (citing to other public domain
cases and the exemptions discussed therein).
9
of confidential business information will impair the ability of the
government to obtain information in the future because “[u]nless
persons having necessary information can be assured that it will
remain confidential, they may decline to cooperate with officials.”
Nat’l Parks, 498 F.2d at 767. Exemption 4 thus protects the
government’s ability to obtain information by “encouraging
cooperation by those who are not obliged to provide information to
the government.” Id. at 769. If a person is compelled to submit
information, however, “there is presumably no danger that public
disclosure will impair the ability of the Government to obtain
th[e] information in the future.”6 Id. at 770.
In the present case, the district court determined that
the Board’s ability to obtain information in the future would be
impaired by the disclosure of the names of the subprime lenders
listed in Exhibit 3. Key to the district court’s determination was
6
The District of Columbia Circuit has revised the impairment
prong of the National Parks test to further differentiate between
voluntarily submitted information and information submitted
mandatorily. Critical Mass Energy Project v. Nuclear Regulatory
Comm’n, 975 F.2d 871, 878–79 (D.C. Cir. 1992) (en banc). Under
Critical Mass, information voluntarily provided to the government
is not examined under the “impairment” or “substantial competitive
harm” prong of the National Parks test but is to be withheld from
disclosure under Exemption 4 if it “would customarily not be
released to the public by the person from whom it was obtained.”
Id. at 879. In contrast, mandatory submissions are withheld from
disclosure under Exemption 4 according to the traditional National
Parks test. Id. at 872. We have not previously adopted the
Critical Mass amendment to the National Parks test. Nadler, 92
F.3d at 96 n.1. The parties here do not argue for its adoption and
the district court did not apply it in its decision. We decline to
adopt nostra sponte the Critical Mass test.
10
its finding that Wachovia voluntarily submitted the names to the
Board because the Board did not exercise any authority to compel
the information. Because the district court found that Wachovia
voluntarily rather than mandatorily submitted the names to the
Board, the court did not find a presumption against impairment of
the government’s ability to obtain information.
In the main, ICP argues that Wachovia did not voluntarily
submit the information sought because the mere legal authority to
compel the production of information at issue7 is sufficient for
7
The extent of the Board’s authority to demand information
from Wachovia is unclear. As previously stated, the BHCA provides
the Board with authority to approve bank mergers and certain other
ownership transactions. 12 U.S.C. § 1842. The Community
Reinvestment Act (“CRA”), id. §§ 2901–2908, further directs the
Board to “encourage [financial institutions] to help meet the
credit needs of the local communities,” id. § 2901(b), in part by
“assess[ing] the institution’s record of meeting the credit needs
of its entire community, including low- and moderate-income
neighborhoods, consistent with the safe and sound operation of such
institution,” id. § 2903(a)(1). Neither of these acts explicitly
requires the Board to compel specific information such as client
names from a financial institution.
Although the BHCA requires the Board to consider “the
financial and managerial resources and future prospects of the
company or companies and the banks concerned, and the convenience
and needs of the community to be served,” id. § 1842(c)(2), it does
not require the Board to collect specific information such as
client names from merger applicants. The CRA is a similarly
“amorphous statute” that also does not set forth the specific types
of information that the Board is to obtain. Lee v. Bd. of
Governors of the Fed. Reserve Sys., 118 F.3d 905, 913 (2d Cir.
1997). We have stated previously that “[a]ny attempt to glean
substance from the CRA is met with the reality that the statute
sets no standards for the evaluation of a bank’s contribution to
the needs of its community.” Id.
Hence, while the Board may request some information from
11
that submission of information to be deemed mandatory. We reject
ICP’s proposed standard.
Adoption of ICP’s suggested standard would result in an
undesirable general presumption against impairment.8 As previously
Wachovia and similar institutions under the BHCA and the CRA, it is
unclear whether the Board is permitted to compel specific
information such as client lists. We do not, however, resolve
whether the Board may compel such information because we hold that
the government must have actually exercised any such legal
authority to compel information for the submission of such
information to be considered mandatory under National Parks.
8
We have not previously considered this precise issue. The
District of Columbia Circuit has held that the “actual legal
authority” to request information governs the assessment of the
character of submissions. Ctr. for Auto Safety v. Nat’l Highway
Traffic Safety Admin., 244 F.3d 144, 149 (D.C. Cir. 2001). While
we agree with the holding in Auto Safety that submissions are
deemed mandatory only if the agency has the actual legal authority
to compel information, the holding does not resolve the issue
before us because the court in Auto Safety did not consider whether
legal authority, while necessary, is sufficient for a submission to
be deemed mandatory. Id.
Some district courts have considered this issue. One court
stated that “[i]n addition to possessing the authority to compel
submission, the agency must also exercise that authority in order
for a submission to be deemed mandatory.” Parker v. Bureau of Land
Mgmt., 141 F. Supp. 2d 71, 78 n.6 (D.D.C. 2001). The court also
noted that “an agency may decline to require information that it
has the authority to compel and instead pursue voluntary
compliance.” Id.
In contrast, another district court stated that “where
compelled cooperation will obtain precisely the same results as
voluntary cooperation, an impairment claim cannot be countenanced.”
Teich v. FDA, 751 F. Supp. 243, 251 (D.D.C. 1990). The facts of
Teich, however, distinguish it from the present case. First, it is
unclear whether the information obtained in Teich was truly
voluntarily submitted. Unlike the current case, in Teich, the FDA,
pursuant to its informal powers, sent a letter requesting data from
a silicone breast implant manufacturer. Id. at 250. The Board in
this case did not make any requests for information but gave an
12
discussed, if a submission is deemed mandatory, then there is a
presumption against impairment of government function. See Nat’l
Parks, 498 F.2d at 770. If the vast majority of submissions are
deemed mandatory, which would seem to be the effective result of
ICP’s suggested standard, then there would be an overwhelming
presumption against impairment. This essentially undermines
Exemption 4's goal of protecting the government’s ability to obtain
information. Although FOIA exemptions are construed narrowly, ICP
offers little reason for adopting such a broad rule.
ICP’s suggested standard also interferes with the
government’s discretion as to how to obtain information. By
reducing the protection for confidential business information, the
proposed standard deters holders of necessary information from
voluntarily cooperating and complying with the government because,
if they knew “that their information was subject to public
disclosure, [they] would likely submit the bare minimum required.”
Inner City Press, 380 F. Supp. 2d at 217 n.5. ICP disputes this
point, arguing that banks would not be deterred from disclosing the
names of their subprime lenders because they have a strong
incentive to provide the Board with all necessary information to
ensure approval of their merger applications.
informational response to a telephone inquiry. Second, in Teich,
the district court was admonishing the FDA for its failure to
exercise authority to implement regulations to compel information
and for thirteen years relying upon informal letters to seek
information. Id. at 251. We do not have similar facts here.
13
ICP’s own brief, however, indicates that banks have a
competing interest deterring them from disclosing the names of
their subprime-lending clients to the Board if they were to become
public. ICP states that its investigations generate publicity
about a financial institution’s relationships with subprime
lenders, Appellant’s Br. 8, and that reputational harm may result
from the disclosure of these relationships, id. at 11. ICP also
states that the resulting negative publicity and reputational harm
have caused some banks to discontinue business relations with
subprime lenders. Id. Thus, it is apparent that banks, including
Wachovia, have a financial interest in not releasing the names of
their subprime-lending clients to the Board if such names are to
become public. This deterrent would likely counteract the
incentive to complete the merger application process quickly by
providing full disclosure to the Board and would result in more
restrained disclosures to the Board.9
Faced with a bank’s reluctance to provide full
disclosure, the Board would be forced to achieve its ends through
assertion of its authority to compel information. Like the
District of Columbia Circuit, we see no reason for interfering with
9
Michael P. Rizer, Senior Vice President of Wachovia,
illustrates the strength of this deterrent when he states that
Wachovia “would not have provided the Board with the actual names
of its sub-prime lending clients” if it believed that the
information would later become publicly available. Rizer Decl. ¶
10.
14
the government’s discretion as to how to exercise its regulatory
authority to collect necessary information. See Critical Mass, 975
F.2d at 880 (“We know of no provision in FOIA that obliges agencies
to exercise their regulatory authority in a manner that will
maximize the amount of information that will be made available to
the public through that Act. Nor do we see any reason to interfere
with the [agency’s] exercise of its own discretion in determining
how it can best secure the information it needs.”). Accordingly,
we hold that an agency must both possess and exercise the legal
authority to obtain information for the resulting submission of
information to be deemed “mandatory” under the National Parks test.
In the instant case, the Board did not exercise any
authority to compel information from Wachovia about its
relationships with subprime lenders. Such information is not
requested in the merger application. Rather, the merger
application requires applicants to provide information regarding:
(1) the proposed transaction; (2) financial and managerial status
of the applicant; and (3) the competition of the applicant and the
convenience and needs of the community. J.A. 31–35. The
application does not specifically request information about an
applicant’s relationships with subprime lenders nor does it request
a list of an applicant’s clients.
The Board also made no separate requests for information
from Wachovia about its relationships with subprime lenders. The
15
Board instead received such information from Wachovia after
Wachovia telephoned the Board and was told that the information was
useful if commentators questioned the relationships. Rizer Decl.
¶ 3; Baer Decl. ¶ 8. The Board’s response to the telephone inquiry
appears to have been merely informative, alerting Wachovia about
the preferred action in anticipation of questions regarding its
relationships with subprime lenders. The district court correctly
concluded that the Board’s response to Wachovia was “too amorphous”
to be considered a demand for the names of Wachovia’s subprime-
lending clients. Inner City Press, 380 F. Supp. 2d at 218.
Therefore, we agree with the district court that the Board did not
compel Wachovia to submit the names of its subprime-lending
clients.
Accordingly, we affirm the district court’s ruling that
the requested information is confidential under the “impairment”
prong of the National Parks test and that Exemption 4 to FOIA is
applicable. Because the impairment prong of the National Parks
test applies, we do not reach the “substantial competitive harm”
prong of the test.
II. Information in the public domain
As previously stated, the district court also ruled that
the public domain exception to Exemption 4 applied to some of the
information sought. The district court found that ICP satisfied
its burden of production by pointing to publicly available SEC
16
forms that appeared to require part of the information being
withheld in Exhibit 3. The court then required the Board to search
the SEC filings to determine whether the information listed in
Exhibit 3 was publicly available. Specifically, the district court
ruled that:
if the fact that Wachovia has provided credit facilities
to any of the clients listed in Exhibit 3 has already
been disclosed to the public in SEC filings, and Exhibit
3 itself indicates that underwriting services have been
provided to one or more of the listed clients, such
information in Exhibit 3 must likewise be disclosed to
the extent it is already public.
Inner City Press, 380 F. Supp. 2d at 221 (footnote omitted).
The Board argues that the district court erred in its
ruling because ICP did not meet its burden of production. The
Board also argues that even if ICP were to meet its burden of
production, disclosure would still be unwarranted under Reporters
Committee, 489 U.S. at 764. We agree with the Board that ICP did
not meet its burden of production but we do not agree that
disclosure necessarily would be barred under Reporters Committee.
A. Burden of production
To satisfy the burden of production, the requesting party
“must . . . point[] to specific information in the public domain
that appears to duplicate that being withheld.” Afshar v. U.S.
Dep’t of State, 702 F.2d 1125, 1130 (D.C. Cir. 1983); see also
Cottone v. Reno, 193 F.3d 550, 555 (D.C. Cir. 1999) (holding that
claimant met its burden of production by showing “the precise date
17
and time that the particular conversation was recorded and the
unique identification number assigned to the tape”); Davis, 968
F.2d at 1280 (requiring the claimant show that there is a
“permanent public record of the exact portions he wishes [to
obtain]”). A requesting party can fulfill this burden by pointing
to a regulation that requires the disclosure of the specific
information sought. See Niagara, 169 F.3d at 19–20 (allowing a
citation to a regulation requiring the filing of a public form to
meet the burden of production but holding that the burden was not
fulfilled because the information required by the regulatory form
was projected data while the document requested contained actual
data). Thus, one way – and the way relevant to the instant case –
for ICP to meet its burden of production, would be for it to show
that the information publicly available through a regulation
appears to duplicate the information being withheld in Exhibit 3.
In this case, Exhibit 3 contains information that
Wachovia “will act as a market maker or underwriter with respect to
securities issued by some of [its] clients [listed in Exhibit 3]”
and that Wachovia provided “credit or funding facilities or other
financing relationships” to these clients.10 Rizer Decl. ¶ 5. ICP
10
Contrary to ICP’s arguments, it must show that information
is in the public domain that Wachovia provided credit, funding, or
other financial services to its subprime-lending clients. First,
the district court has held that such information is exempt from
disclosure. Inner City Press, 380 F. Supp. 2d at 218. ICP does
not contest this finding. Second, information about the provision
of credit, funding, or other financial services is not segregable
18
claims that this information is publicly available in SEC filings
because the lenders who offered securities for public sale were
required to file registration statements with the SEC containing
the withheld information. ICP, however, fails to meet its burden
of production because the SEC forms which it cites disclose
information that is different from the information withheld in
Exhibit 3. In particular, we examine the information required to
be disclosed by SEC Form S-1.11
Form S-1 is a registration form that a company files with
from information that Wachovia acted as a principal underwriter to
its clients. Mr. Rizer’s affidavit clearly states that Wachovia
provided credit, funding or other financial services to each of its
clients. Rizer Decl. ¶ 5. Thus, to know the names of Wachovia’s
subprime lending clients is to know that Wachovia provided them
with credit, lending, or other financial services. Because
information that is “inextricably intertwined” with exempt
information cannot be disclosed, Willamette Indus., Inc. v. United
States,689 F.2d 865, 867–68 (9th Cir. 1982) (quoting Mead Data
Cent., Inc. v. U.S. Dep’t of Air Force, 566 F.2d 242, 260–61 (D.C.
Cir. 1977)), ICP must also show that there is likely information in
the public domain that Wachovia provided credit, funding, or other
financial services to its subprime-lending clients in order for the
public domain exception to apply.
11
SEC Form 424B5(b), also cited by ICP, does not require
registrants to provide types of information different from that
required by Form S-1. Form 424(b)(5) was promulgated pursuant to
Rule 424, Regulation C of the Securities Act of 1933. Rule
424(b)(5), from which Form 424B5(b) stems, provides that a new
prospectus must be filed with the SEC in certain circumstances. 17
C.F.R. § 230.424 (2006). In pertinent part, Form 424B5 requires
the reporting only of a substantive change from, or addition to,
the information contained in the last prospectus filed with the SEC
or as part of the registration statement. 17 C.F.R.
§ 230.424(b)(5) (referring to 17 C.F.R. § 230.424(b)(3)).
19
the SEC when it issues securities in an initial public offering.12
Preliminarily, we note that the parties do not dispute that Form S-
1 will contain information on whether a registrant conducts
subprime lending. Form S-1 requires registrants to describe their
business pursuant to 17 C.F.R. § 229.101. See SEC Form S-1 at 4.
Section 229.101 states that registrants must “[d]escribe the
business done and intended to be done by the registant . . .
focusing upon the registrant’s dominant segment or each reportable
segment about which financial information is presented in the
financial statements.” 17 C.F.R. § 229.101(c)(1). Thus, if a
registrant engages in subprime lending, it would be reflected on
Form S-1 pursuant to 17 C.F.R. § 229.101.
Form S-1 also requires registrants to “[f]urnish the
information required by Item 508 of Regulation S-K ([17 C.F.R.]
§ 229.508 . . .).” SEC Form S-1 at 4. Section § 229.508(a) states
that “[i]f the securities are to be offered through underwriters,
name the principal underwriters.” 17 C.F.R. § 229.508(a). Section
229.508(a) does not require the identity of all other
underwriters.13 Id.; see also SEC, Division of Corporate Finance,
12
Form S-1 can be accessed at: www.sec.gov/about/forms/forms-
1.pdf (last visited Sept. 6, 2006).
13
The Securities Act of 1933 defines an underwriter as:
any person who has purchased from an issuer with a view
to, or offers or sells for an issuer in connection with,
the distribution of any security, or participates or has
a direct or indirect participation in any such
20
Manual of Publicly Available Telephone Interpretations ¶ 62 (1997),
at http://www.sec.gov/interps/telephone/cftelinterps_regs-k.pdf
(last visited Sept. 6, 2006) (“Item 508(a) of Regulation S-K, which
calls for disclosure of the identify of ‘principal underwriters’
and their material relationships with the registrant, does not
require disclosure as to each member of the selling group, but is
limited to those underwriters who are in privity of contract with
the issuer with respect to the offering.”).
Finally, § 229.508(a) also requires registrants to
“[i]dentify each [principal] underwriter having a material
relationship with the registrant and state the nature of the
relationship.” 17 C.F.R. § 229.508(a). A relationship is material
if “there is ‘a substantial likelihood that the disclosure of the
omitted [information] would have been viewed by the reasonable
investor as having significantly altered the ‘total mix’ of
information made available.’” DeMaria v. Andersen, 318 F.3d 170,
undertaking, or participates or has a participation in
the direct or indirect underwriting of any such
undertaking . . . .
15 U.S.C. § 77b(a)(11) (2000).
Not all underwriters, however, are “principal underwriters.”
Principal underwriters are typically the parties who “sign the
firm-commitment underwriting agreement. These managers or
principal underwriters in turn contact other broker-dealers to
become members of the underwriting group . . . .” Billing v.
Credit Suisse First Boston, Ltd., 426 F.3d 130, 138 n.4 (2d Cir.
2005) (citing 1 Thomas Lee Hazen, The Law of Securities Regulation
§ 2.1[2][B] (5th ed. 2005)).
21
180 (2d Cir. 2003) (quoting TSC Indus., Inc. v. Northway, Inc., 426
U.S. 438, 449 (1976)). In sum, SEC Form S-1 makes the following
information publicly available: (1) the nature of a registrant’s
business including information about subprime lending businesses;
(2) the identity of the registrant’s principal underwriters; and
(3) the nature of the material relationships between the registrant
and its principal underwriters.
Here, the information publicly available through Form S-1
has not been shown to be likely duplicative of the information
being withheld in Exhibit 3. As discussed previously, Exhibit 3
contains the following information: (1) some of the subprime
lenders listed in Exhibit 3 issued securities and thus filed a
registration statement with the SEC; (2) Wachovia acted as a market
maker or underwriter to some of its subprime-lending clients; and
(3) Wachovia provided credit or funding facilities or other
financing services to each of its subprime-lending clients. Rizer
Decl. ¶ 5. Parts (2) and (3) of the withheld information do not
appear to correspond with the information publicly available
through Form S-1.
As to part (2), Form S-1 reveals the identity of a
registrant’s principal underwriters, not general underwriters. ICP
has not shown that Exhibit 3 contains information that Wachovia was
a principal underwriter to some of its subprime-lending clients.
In regards to part (3), Form S-1 discloses the nature of
22
material relationships between a registrant and its principal
underwriters. It does not specifically request general information
about credit, funding, or other financial relationships. ICP has
failed to address this issue directly. It has not argued that
Wachovia’s provision of credit, funding, or other financing
services to its subprime-lending clients constitutes a material
relationship, or that the provision of credit, loan, or other
financial services in similar situations likely constitutes a
material relationship. Having failed to address this issue
directly and having failed to show that Wachovia acted as a
principal underwriter to its subprime-lending clients, ICP has not
met its burden of production.
Accordingly, we remand to the district court for ICP to
have the opportunity to fulfill its burden of production. To
fulfill its burden of production, ICP must demonstrate that the
information sought from Exhibit 3 is likely duplicative of that in
the SEC filings. To do that, in the context of this case, ICP must
show that Wachovia was a principal underwriter to some of its
subprime-lending clients. Additionally, ICP must address part (3)
and show that the credit, funding, or financing relationships
involved here are likely material relationships.
B. Reporters Committee
The Board also argues that even if ICP meets its burden
of production showing that the information sought is likely to be
23
in the public domain, the information is still not subject to
disclosure under Reporters Committee. The Board argues that under
Reporters Committee, if information in the public domain is not
“freely available” because of the logistical difficulties in
locating it, the information remains exempt from FOIA disclosure.
Appellee’s Br. 55. Because it is quite possible that on remand ICP
will meet its burden of production, we consider the Board’s
argument in the interest of judicial economy. Having done so, we
reject it.
In Reporters Committee, the Supreme Court discussed
whether a rap sheet compiling a person’s criminal history is
subject to disclosure because the events summarized in the rap
sheet have been previously disclosed to the public. 489 U.S. at
762–63. The Court stated that the issue was “whether the
compilation of otherwise hard-to-obtain information alters the
privacy interest implicated by disclosure of that information.”
Id. at 764. The Court noted that the individual records of
criminal convictions and arrests were found at various locations
throughout the country. Id. at 753. The Court then distinguished
between the “scattered disclosure of the bits of information
contained in a rap sheet and revelation of the rap sheet as a
whole.” Id. at 764. The Court emphasized that “there is a vast
difference between the public records that might be found after a
diligent search of courthouse files, county archives, and local
24
police stations throughout the country and a computerized summary
located in a single clearinghouse of information.” Id. Hence, the
Court held that a rap sheet is not “freely available” and is not
subject to disclosure. Id.
The publicly available information in this case, the SEC
filings, differs from the criminal records in Reporters Committee.
Rather than dealing with various government entities such as
courthouses, county record departments, and local police stations,
a member of the public seeking securities filings need contact only
one government agency, the SEC. A person seeking securities
filings also does not need to traverse the entire nation seeking
records but can access the filings on-line free of charge via the
SEC’s Electronic Data Gathering and Retrieval system (“EDGAR”).14
Searches through SEC filings on EDGAR can be done in a number of
ways, such as by using an issuer’s name or filing number. If the
name of the registrant is not known to the searcher, as in ICP’s
situation, a search through the text of the SEC filings can be
done. EDGAR currently allows text searches through SEC filings
submitted during the past two years. Despite this current two-year
limitation, the information in this case remains much more “freely
available” than in Reporters Committee.15
14
EDGAR can be accessed at http://www.sec.gov/edgar.shtml (last
visited Sept. 6, 2006).
15
As technology quickly changes, information becomes more
readily available to the public and the difficulties noted in
25
Securities filings also do not have the same privacy
concerns as criminal records. While government agencies assemble
rap sheets for their own use and limit their disclosure due to
privacy concerns, see id. at 764–65, the SEC collects securities
filings and makes them available to the public. Moreover, the goal
of securities filings themselves is to protect investors by
requiring full disclosure of material information. Pinter v. Dahl,
486 U.S. 622, 638 n.14 (1988). Therefore, the ready availability
of securities filings and the policy favoring disclosure of
information found in securities filings distinguishes this case
from Reporters Committee.
Accordingly, assuming that ICP can meet its burden of
production, we hold that it is not inconsistent with Reporters
Committee to require the Board to search the SEC filings for the
lenders listed in Exhibit 3 to determine whether information is in
the public domain showing that Wachovia acted as a principal
underwriter and provided credit, funding or other financial
services to the lenders, and to release such information to the
extent that it is already public.16
Reporters Committee, for example, lessen significantly. The rapid
change in technology is evidenced here by the fact that a text
search of securities filings became available during the pendency
of this matter. Appellee’s Br. 58 n.21.
16
In the circumstances of this case, the Board’s search would
involve only a limited number of client names in one database. It
remains possible that a more difficult search involving a very
large number of names or widely scattered names would alter the
26
CONCLUSION
For the foregoing reasons, we conclude that Exemption 4
applies unless the withheld information is in the public domain.
We also hold that ICP did not fulfill its burden of production
showing that the withheld information is likely in the public
domain sufficiently to place a limited search burden upon the
Board. Accordingly, we AFFIRM the judgment of the district court
in so far as it ruled with respect to the applicability of
Exemption 4 but REMAND for the district court to afford ICP the
opportunity to fulfill its burden of production of showing that
Wachovia functions as a principal underwriter to its subprime
lenders and that the credit, funding, or other financial
relationships involved here are likely material relationships.
concerns here. Because that is not the case before us, we take no
stand on such a situation.
27