Stein v. United States Securities and Exchange Commission

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
MITCHELL J. STEIN
Plaintiff,
v. Civil Action No. 15-1560 (JDB)
U.S. SECURITIES AND EXCHANGE
COMMISSION,
Defendant.
MEMORANDUM OPINION
Before the Court are [10] and [11] cross-motions for summary judgment in this Freedom
of Information Act (FOIA) case. Plaintiff Mitchell Stein is the subject of both a criminal and a
civil judgment entered against him related to various fraud and securities violations. He seeks
records developed in the civil enforcement action brought against him by defendant Securities and
Exchange Commission (SEC). For the reasons that follow, Stein’s motion will be denied, and the
SEC’s motion will be granted in part and denied in part.
I. BACKGROUND
In 2011, the SEC filed a civil enforcement action against Heart Tronics, Inc., a medical
device manufacturing company, naming Stein and several other individuals and corporate officers
associated with the company as co-defendants. See Donnelly Decl. [ECF No. 10-2] ¶ 14; see also
Complaint, SEC v. Heart Tronics, Inc., et al., No. 8:11-1962 JVS (ANx) (C.D. Cal.) [ECF No. 1].
Stein was the purported outside counsel to the company, and his wife, Tracey Hampton-Stein, was
the majority shareholder. The SEC alleged that Stein and his co-defendants engaged in a series of
fraudulent schemes, masterminded by Stein, to drive up the price of Heart Tronics stock, including
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repeatedly creating false sales orders and including these in Heart Tronics’ SEC filings, and issuing
false press releases and other public broadcasts. Donnelly Decl. ¶ 14. Meanwhile, Stein
continuously directed the sale of his and Hampton-Stein’s Heart Tronics stock, netting more than
$5.8 million in profit. Id. Stein was convicted in 2013 on charges of securities fraud, mail fraud,
wire fraud, conspiracy to commit mail and wire fraud, and conspiracy to obstruct justice. Id. ¶ 16.
In 2015, the district court in the Heart Tronics case entered judgment against Stein based on the
collateral estoppel effect of his related criminal conviction. See id. ¶ 15; see also Judgment, SEC
v. Heart Tronics, Inc. et al., No. 8:11-1962 JVS (ANx) (C.D. Cal.) [ECF No. 277]. His criminal
conviction was affirmed in January 2017 by the Eleventh Circuit, although his sentence was
vacated and that case remanded to the Southern District of Florida for resentencing. See United
States v. Stein, 846 F.3d 1135, 1156 (11th Cir. 2017). His appeal of the judgment entered against
him in the Heart Tronics case, which was stayed during the appeal of the criminal case, is still
ongoing in the Ninth Circuit. See Gov’t Supp. Br. [ECF No. 19] at 2–3; see also Mar. 3, 2017
Clerk Order, SEC v. Heart Tronics, Inc., et al., No. 15-155506 (9th Cir.) [ECF No. 35] (lifting
stay).
Stein submitted a FOIA request to the SEC in March 2015, seeking two categories of
documents: all documents and information described in the privilege log prepared by the SEC in
the Heart Tronics case, and all documents and information relating to the SEC’s investigation into
individuals named Yossi Keret, Tony Nony/Nonoy, Avi Cohen, Ari Cohen, and Marina Orita. See
Compl., [ECF No. 1] Ex. B. Stein was accused of inventing several of the names in the latter
category for use in false purchase orders. The SEC responded in June 2015, withholding the
privilege log records under FOIA Exemption 7(A), which permits the withholding of records that
may interfere with law enforcement activities. See Compl., Ex. D at 1; see also 5 U.S.C.
2
§ 552(b)(7)(A). The SEC also asserted that other exemptions may apply, and reserved the right to
raise those exemptions when Exemption 7(A) was no longer applicable. Compl., Ex D. at 1. With
respect to the second category of documents, the SEC did not discuss these in its response, except
to conclude in a footnote that “to the extent the records [Stein was] seeking . . . exist” they had
either already been made available to Stein in the Heart Tronics litigation, or were included in the
privilege log category of documents. Id. at n.1.
Stein filed an administrative appeal of the SEC’s decision, insisting that the agency turn
over “all of the requested documents,” and arguing that Exemption 7(A) did not apply because the
civil and criminal actions against him had concluded. Compl., Ex. E at 1–2. The SEC’s Office of
General Counsel (OGC) responded, concluding that the FOIA officer had correctly withheld the
requested records under Exemption 7(A), because claims brought against Stein’s co-defendants in
the Heart Tronics case were still proceeding, and because Stein had appealed the civil judgment
against him to the Ninth Circuit. See Gov’t Mot. for Summ. J., Ex. 2 [ECF No. 10-3] at 1–2.
Therefore, the OGC concluded that release of the records could still interfere with ongoing
enforcement proceedings. Id. at 2.
Stein filed this suit in September 2015, bringing claims under both FOIA and the Privacy
Act, 5 U.S.C. § 552a, seeking the production of all records responsive to his request. Both parties
have moved for summary judgment.
II. LEGAL STANDARDS
Summary judgment is appropriate where “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). Evidence is construed in the light most favorable to the non-moving party; however,
factual assertions made in the moving party’s declarations may be accepted as true unless the
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opposing party submits affidavits, declarations, or documentary evidence to the contrary. See,
e.g., Sample v. Bureau of Prisons, 466 F.3d 1086, 1087 (D.C. Cir. 2006); Neal v. Kelly, 963 F.2d
453, 456 (D.C. Cir. 1992).
“FOIA cases typically and appropriately are decided on motions for summary judgment.”
Georgacarakos v. FBI, 908 F. Supp. 2d 176, 180 (D.D.C. 2012) (internal quotation marks omitted)
(quoting Defenders of Wildlife v. U.S. Border Patrol, 623 F. Supp. 2d 83, 87 (D.D.C. 2009)).
FOIA provides a “‘statutory right of public access to documents and records’ held by federal
agencies.” Citizens for Responsibility & Ethics in Wash. (CREW) v. U.S. Dep’t of Justice, 602
F. Supp. 2d 121, 123 (D.D.C. 2009) (quoting Pratt v. Webster, 673 F.2d 408, 413 (D.C. Cir. 1982)).
As the Supreme Court has explained, FOIA is “a means for citizens to know what their
Government is up to.” Nat’l Archives & Records Admin. v. Favish, 541 U.S. 157, 171–72 (2004)
(internal quotation marks omitted). Thus, FOIA requires federal agencies to make their records
available to the public upon request, unless the requested information falls under one of nine
statutory exemptions to disclosure. See 5 U.S.C. §§ 552(a)–(b).
District courts review de novo an agency’s decision to withhold requested documents under
a statutory exemption, and the agency “bears the burden of proving the applicability of claimed
exemptions.” Am. Civ. Liberties Union (ACLU) v. U.S. Dep’t of Defense, 628 F.3d 612, 619
(D.C. Cir. 2011); 5 U.S.C. § 552(a)(4)(B). To satisfy its burden, the agency may submit supporting
declarations of responsible agency officials and, where necessary, an index of the documents
withheld, known as a Vaughn index. See ACLU, 628 F.3d at 619; Vaughn v. Rosen, 484 F.2d
820, 827–28 (D.C. Cir. 1973). “If an agency’s affidavit describes the justifications for withholding
the information with specific detail, demonstrates that the withheld information logically falls
within the claimed exemption, and is not contradicted by contrary evidence in the record or by
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evidence of the agency’s bad faith, then summary judgment is warranted on the basis of the
affidavit alone.” ACLU, 628 F.3d at 619. “Ultimately, an agency’s justification for invoking a
FOIA exemption is sufficient if it appears ‘logical’ or ‘plausible.’” Id. (some internal quotation
marks omitted) (quoting Larson v. U.S. Dep’t of State, 565 F.3d 857, 862 (D.C. Cir. 2009).
III. DISCUSSION
Stein raises three main issues in his motion for summary judgment and in his opposition to
the government’s motion for summary judgment: he challenges the adequacy of the government’s
search for responsive records, the agency’s withholding determinations, and the agency’s
segregability determinations. See Stein Mot. for Summ. J. [ECF No. 11] at 10–13, 16–18; Stein
Opp’n to Gov’t Mot. for Summ. J. (hereinafter “Stein Opp’n”) [ECF No. 14] at 5–10. The
government argues that Stein failed to exhaust his administrative remedies with respect to the
second category of requested documents and with respect to his Privacy Act claims. Furthermore,
in addition to claiming that the requested documents are exempt from disclosure under FOIA
Exemption 7(A), the government also raises arguments under Exemptions 3, 5, 6, and 7(C). See
Gov’t Mot for Summ. J. [ECF No. 10-1] at 1–2; 5 U.S.C. §§ 552(b)(3), (5), (6), (7)(C). The Court
will address each argument in turn.
A. EXHAUSTION
Before a plaintiff may bring an action under FOIA, he must first exhaust his administrative
remedies. See Hidalgo v. FBI, 344 F.3d 1256, 1258–59 (D.C. Cir. 2003) (noting that exhaustion
under FOIA is a prudential requirement). Failure to administratively appeal an adverse
determination may bar judicial review of a FOIA claim. See Wilson v. U.S. Dep’t of Transp., 730
F. Supp. 2d 140, 150 (D.D.C. 2010) (citing Hidalgo, 344 F.3d at 1259–60). Likewise, Privacy Act
claims are subject to an administrative exhaustion requirement—and exhaustion under the Privacy
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Act is a jurisdictional requirement. See Barouch v. U.S. Dep’t of Justice, 962 F. Supp. 2d 30, 67
(D.D.C. 2013) (citing cases); see also 5 U.S.C. §§ 552a(d)(1)–(3), (g)(1). “A person seeking
judicial review of an agency’s handling of his or her Privacy Act request must actually exhaust the
available administrative remedies.” Barouch, 962 F. Supp. 2d at 67 (internal quotation marks
omitted) (quoting Makuch v. FBI, No. Civ. A 99-1094 RMU, 2000 WL 915640, at *4 (D.D.C.
Jan. 5, 2000)).
Stein has clearly failed to exhaust any Privacy Act claims—there is no mention of the
Privacy Act in his initial request for documents or in his administrative appeal letter. See, e.g.,
Compl., Ex. B at 1 (“This is a request under the Freedom of Information Act (5 U.S.C. Section
552).”). Indeed, the first and only time any mention of the Privacy Act is made is in his
complaint—he makes no argument with respect to the Privacy Act in his motion for summary
judgment or in any of the other briefs filed here. See, e.g., Compl. at 5, 8–9. 1 Accordingly, Stein’s
Privacy Act claims are dismissed for failure to exhaust. See, e.g., Barouch, 962 F. Supp. 2d at 67–
68 (dismissing Privacy Act claims for failure to exhaust administrative remedies); Mulhern v.
Gates, 525 F. Supp. 2d 174, 187 (D.D.C. 2007) (same).
The SEC also argues that Stein has failed to exhaust his FOIA claim with respect to the
second category of requested documents, those relating to various named individuals. See Compl.,
Ex. B at 1 (Stein’s FOIA request). The SEC argues that, because Stein’s appeal letter did not
contest the SEC’s determination that the records in the second category had either already been
produced to him or were included in the privilege log, Stein failed to administratively appeal the
SEC’s determination with respect to this group of documents. Gov’t Mot. for Summ. J. at 6.
It is true that Stein did not specifically contest this point in his appeal letter. He disputed
1
There appears to be an error in the complaint where the paragraph numbering starts over on page 8. To
avoid confusion, the Court will therefore cite to page numbers in the complaint, rather than numbered paragraphs.
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the SEC’s withholding decision under Exemption 7(A)—which, according to the SEC, was also
the exemption under which the SEC was withholding some documents related to the second
document category. See Compl., Ex. D at 1 n.1. But his appeal letter also specifically demanded—
twice—“all of the requested documents,” not just documents related to the first category. See
Compl., Ex. E at 1–2. The government is obligated to construe FOIA requests—and appeals—
liberally, where a request is “reasonably susceptible to the broader reading.” See LaCedra v.
Executive Office for U.S. Attorneys, 317 F.3d 345, 347–48 (D.C. Cir. 2003) (holding that a FOIA
request should be read to seek all documents covered by a catchall). While Stein’s appeal letter
could have been more specific, it is reasonably apparent based on his references to all of the
documents he requested that he intended to appeal the SEC’s decision with respect to his entire
request, not merely some portion of it. Moreover, it is unclear to the Court how, exactly, Stein
was supposed to credibly contest the SEC’s conclusion that the documents responsive to the
second category had either already been turned over to him or were included in the privilege log,
as the agency did not explain in its response letter how it reached this conclusion, and Stein did
not have access to the documents listed on the privilege log or to any other documents in the SEC’s
possession to confirm what had been given to him. The Court therefore finds that Stein sufficiently
exhausted his administrative remedies with respect to the second category of requested documents.
B. ADEQUACY OF THE SEARCH
Stein also argues that the government’s search for responsive records was inadequate.
Where a FOIA plaintiff challenges the adequacy of an agency’s search for responsive documents,
the agency “must show beyond material doubt . . . that it has conducted a search reasonably
calculated to uncover all relevant documents.” Morley v. CIA, 508 F.3d 1108, 1114 (D.C. Cir.
2007) (some internal quotation marks omitted) (quoting Weisberg v. U.S. Dep’t of Justice, 705
7
F.2d 1344, 1351 (D.C. Cir. 1983)); Steinberg v. U.S. Dep’t of Justice, 23 F.3d 548, 551 (D.C. Cir.
1994). The relevant question, moreover, “is not whether other responsive documents may exist,
but whether the search itself was adequate.” Wilson, 730 F. Supp. 2d at 149 (citing Steinberg, 23
F.3d at 551). “[T]he agency must show that it made a good faith effort to conduct a search for the
requested records, using methods which can be reasonably expected to produce the information
requested.” Oglesby v. U.S. Dep’t of the Army, 920 F.2d 57, 68 (D.C. Cir. 1990). Summary
judgment may be granted if the agency’s declarations provide “sufficiently detailed information
for a court to determine if the search was adequate.” Students Against Genocide v. U.S. Dep’t of
State, 257 F.3d 828, 838 (D.C. Cir. 2001) (internal quotation marks omitted). Stein raises a number
of objections to the agency’s search methods, most of which relate to the agency’s search—or lack
thereof—for his second category of requested documents.
1. Search for documents responsive to Stein’s first category of requests
With respect to the privilege 2 log documents, i.e., documents responsive to Stein’s first
category of requests, the agency listed on the Vaughn index all of the documents identified
individually on the privilege log, identified the handwritten notes and legal research that was listed
categorically on the privilege log, and searched for privileged emails that were also identified
categorically on the privilege log. Donnelly Decl. ¶¶ 5, 7–8, 12–13. Stein does not challenge the
agency’s search for either the individual documents identified on the privilege log or the
handwritten notes and legal research identified on the privilege log, but he does contest the
agency’s search for relevant privileged emails.
Stein objects to the search terms the agency used for identifying privileged emails that were
2
To be clear, the Court makes no determination at this point as to whether these documents are, in fact,
covered by a legal privilege; the Court only refers to “privileged” notes, documents or emails as those the government
identified on its privilege log in the Heart Tronics case.
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listed categorically on the Heart Tronics privilege log. Stein Opp’n at 5–8; see also Privilege Log,
Ex. B. to Stein Decl. [ECF No. 11-1] at 1. The privilege log lists two categories of documents
containing privileged emails dated between May 2009 and December 19, 2011: internal SEC
attorney and staff accountant emails discussing the Heart Tronics litigation (entry 1), and emails
between the SEC and various other government agencies that assisted with the investigation,
including attorneys at DOJ, the FBI, and the IRS (entry 4). See Privilege Log at 1; see also
Donnelly Decl. ¶¶ 7–8. In gathering these emails for purposes of FOIA review, the SEC’s Office
of Information Technology (OIT) searched for (1) emails dated between May 3, 2009 and
December 19, 2011, the period of the formal investigation; (2) sent to or from named SEC staff
who were assigned to the investigation; (3) and which contained any of the following terms: Stein,
Heart Tronics, Inc., Martin Carter, Willie Gault, J. Rowland Perkins, Mark Nevdahl, Ryan Rauch,
Yossi Keret, Tony Nony/Nonoy, Avi Cohen, Ari Cohen, or Marina Orita, the last five names of
which were identified in Stein’s second category of requests. Donnelly Decl. ¶ 8.
Stein argues that these search terms were designed to “confuse the Court and manipulate
the facts” by adding names that Stein did not ask for in his FOIA request, i.e., those of his co-
defendants and the SEC staff involved in the investigation. Stein Opp’n at 7. According to Stein,
this is evidence of the SEC’s bad faith, because it is evidence that the SEC was trying to obscure
or skew the results of any search. Id. at 5–7. But Stein’s objections on this point make little sense.
The SEC’s search terms with respect to the privileged emails were reasonably calculated to identify
privileged emails noted on the Heart Tronics privilege log by identifying relevant dates (the period
of the investigation), custodians (SEC attorneys and staff assigned to the investigation), and
subjects of or persons of interest in the investigation (Stein, his co-defendants and other relevant
names, including Yossi Keret, Tony Nony, etc.). These search terms produced 2,715 documents,
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which the SEC then reviewed, concluding that 1,800 were privileged emails categorically
identified on the privilege log. Donnelly Decl. ¶¶ 8–10. There is no evidence of bad faith. The
Court is therefore satisfied that the agency has fulfilled its search obligations with respect to the
first category of requested documents.
2. Search for documents responsive to the second category of requests
With respect to the second category of documents, as the Court has already noted, the
agency concluded in its FOIA response letter that documents responsive to this category had either
already been made available to Stein in the Heart Tronics litigation or were included on the
privilege log. Compl., Ex. D. at 1 n.1. It is clear that the SEC did not provide Stein the documents
it already produced to him in the Heart Tronics case in response to his FOIA request, nor does the
agency state that it ever conducted a search through its records for documents specifically
responsive to Stein’s second category of requests—instead, it concluded that the only documents
that had not been made available to Stein in the previous litigation were those identified on the
privilege log.
Stein never directly addresses the agency’s argument that it produced much of his requested
information during the Heart Tronics litigation. He does, however, object generally to the agency’s
failure to search for documents responsive to this second category of requests. Stein also argues
repeatedly that the SEC has a 200-million-file database compiled during the investigation,
containing vast numbers of unprivileged documents, that the government never produced to him
in either the Heart Tronics litigation or in United States v. Stein. Stein Opp’n at 3, 9, 10, 12, 16.
Stein argues that the SEC’s failure to search this database for documents relating to his second
category of requests is additional evidence of the agency’s bad faith. Id. at 3–10.
a. Heart Tronics discovery and the SEC’s open file policy
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Although the SEC maintains that Stein waived any objection to the agency’s findings with
respect to category two of the request, the SEC nevertheless provided the Court with information
about the basis for its conclusion that documents responsive to category two were already provided
to Stein in the Heart Tronics litigation or were included on the privilege log. See Gov’t’s Reply
[ECF No. 16] at 4–6. The SEC relies on a declaration submitted by an attorney in the Heart Tronics
litigation in response to Stein’s motion to compel in that case, which explains the SEC’s “open
file” discovery policy during that investigation. Id. at 4; see also SEC Am. & Supp. Resp. to
Request for Produc. of Docs., Ex. A to Gov’t’s Reply [ECF No. 16-1] ¶ 3; Nonaka Decl., Ex. B to
Gov’t’s Reply [ECF No. 16-2]. 3
According to the Nonaka declaration, the SEC produced two million pages of documents
to Stein and his co-defendants during the litigation, which constituted “all subpoenas and voluntary
document requests issued during the investigation, all documents produced in response to such
subpoenas and requests, all investigation testimony given by any witness, and all exhibits to all
testimony.” Nonaka Decl. ¶¶ 5–6. The SEC also made available for review two one-terabyte hard
drives that were delivered to the SEC on behalf of Heart Tronics, and which contained data from
Heart Tronics computers, as well as boxes of documents likewise delivered by Heart Tronics (the
“RenewData materials”). Id. ¶¶ 7–8. The SEC received these materials from RenewData, a third
party e-discovery vendor that Heart Tronics’ one-time counsel, Greenberg Traurig, LLP, had
contracted with on Heart Tronics’ behalf to help manage the discovery process during the SEC’s
investigation. The SEC received the two hard drives and the boxes of documents at the direction
of Heart Tronics’ then-counsel Jared Scharf, because Heart Tronics could no longer pay
RenewData to store the drives and documents. See SEC Am. & Supp. Resp. ¶ 4; Nonaka Decl. ¶¶
3
Stein also includes this declaration in the lengthy set of materials he submitted with his opposition to the
government’s motion for summary judgment. See Ex. B., Stein Decl. [ECF No. 14-1].
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7–8.
The SEC never reviewed the contents of these documents or hard drives, but did make
them available to Stein and his co-defendants for review at SEC headquarters during the litigation.
SEC Am. & Supp. Resp. ¶ 4; Nonaka Decl. ¶¶ 7–8. All told, these materials “comprise[d] the
universe of non-privileged documents in the SEC’s possession, custody or control that were
produced by witnesses and other third parties during the investigation.” Nonaka Decl. ¶ 9. The
SEC withheld only those documents described individually or categorically on the privilege log,
id. ¶¶ 11–19; hence, the SEC concluded that the only universe of documents at issue here are those
listed on the privilege log. See Gov’t’s Reply at 4–5; Donnelly Decl. ¶ 6 (“All of the documents
Stein requested in the second bullet-point category . . . were either made available to Stein in SEC
v. Heart Tronics or were listed on the Privilege Log.”).
The SEC seems to think that its open file discovery policy during the Heart Tronics
litigation has satisfied its FOIA obligations and that it need not search for documents responsive
to Stein’s second category of requests, because there is nothing it could search for or produce that
Stein has not already seen, excepting the documents on the privilege log. Were the Court certain
that Stein already received all documents responsive to his FOIA request in the prior litigation, the
Court might agree. If an agency can demonstrate that it has already searched for and actually
produced all documents responsive to a plaintiff’s FOIA request, FOIA surely does not require it
to duplicate those efforts. 4 But it is not clear here that this situation is so neat, and there is one
issue that is cause for concern.
The Court’s concern relates to the RenewData materials—the two one-terabyte hard
4
For example, it cannot be the case that if a FOIA plaintiff submits a request for “Document A,” which the
agency produces, that the agency need produce Document A again if the plaintiff submits another request for
“Document A” and “Document B” a year later if the agency can demonstrate that it produced Document A the first
time.
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drives and the boxes of documents. While the SEC maintained an open file policy during the Heart
Tronics litigation, it did not produce all of its records to Stein, such that he now already has all of
the SEC’s records in his possession. The RenewData materials were only “made available” to him
for review in Washington, D.C. during the discovery period. Nonaka Decl. ¶ 7. As discovery in
Heart Tronics has now ended, and that case is on appeal, Stein presumably no longer has access to
these materials, and the Court is not convinced that the fact that Stein once had a chance to examine
these materials is sufficient to satisfy FOIA. Although FOIA obligations may be satisfied when
the agency “has provided an alternative form of access” to requested records, this is typically only
the case when the records are publicly accessible, for example, on the internet, in other published
records, or in a public reading room. See, e.g., Shutleff v. EPA, 991 F. Supp. 2d 1, 19 (D.D.C.
2013) (citing Oglesby, 920 F.2d at 70). In other words, FOIA plaintiffs in such cases have the
ability to look up or search through the documents they want if the agency does not provide the
records in response to a specific request. Stein, presumably, still has access to the two million
pages of documents the SEC provided to him, making the SEC’s production with respect to those
documents a kind of “alternative access,” but this does not appear to be the case with respect to
the RenewData documents.
Moreover, the SEC states that it never reviewed these materials when they were delivered,
which leaves open the possibility that there are documents responsive to Stein’s second request
contained in these materials, of which the SEC is unaware. Although an agency is not required to
search endlessly for every document responsive to a FOIA request, its search must be “reasonably
calculated to uncover all relevant documents.” Valencia-Lucena v. U.S. Coast Guard, 180 F.3d
321, 325 (D.C. Cir. 1999) (internal quotations marks omitted) (quoting Truitt v. U.S. Dep’t of
State, 897 F.2d 540, 542 (D.C. Cir. 1990)). Here, the SEC has not conducted a search for Stein’s
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second category of requests at all, relying on its productions in the Heart Tronics case. But because
Stein no longer has access to the RenewData materials, the onus is on the agency to search this set
of materials for documents responsive to Stein’s second category of requests, or else explain to the
Court why those materials are unlikely to contain responsive documents.
b. 200-million file database
As noted above, Stein consistently argues that there is a 200-million file database in the
SEC’s possession that the agency failed to search for his category two requests, and which Stein
is convinced contains undisclosed material that will exonerate him. Stein does not explain what
this database is, how he knows of its existence, or why he thinks it contains undisclosed material,
and the SEC has stated—both here and in the Heart Tronics litigation—that it does not know what
database Stein is referring to and that there is no database containing undisclosed documents. See
Gov’t Response at 6; SEC Am. & Supp. Resp. ¶ 4. Based on documents both parties have
submitted, however, it appears likely that Stein is referring to the set of documents or materials
maintained by RenewData, which has on occasion been referred to as a “database,” and which
appears to be the only database referred to in either the Heart Tronics litigation or the criminal case
against Stein. See SEC Am. & Supp. Response ¶ 4; Nonaka Decl. ¶ 10 (referring to a RenewData
“database”); Trans. of Faretta Hrg. in United States v. Stein, Ex. D to Stein Decl. [ECF No. 17-1]
at 33:14–18 (Stein stating “[t]here was a database created which the Government has, in 2008, of
all the documents presumably in the world regarding Signal Life [sic]. It was provided to the SEC,
it was made by Greenberg Traurig in conjunction with Mr. Scharf, in conjunction with the SEC.”);
see also United States v. Stein, 846 F.3d 1135, 1142 (11th Cir. 2017) (referring to a database of
“about 200 million records produced by Signalife”); Ex. 4, Gov’t Opp’n to Motion for New Trial,
United States v. Stein, No. 11-cr-80205-KAM (S.D. Fla.) [ECF No. 292-4] (letter to SEC from
14
former Heart Tronics counsel Katten Munchin & Rosenman describing the RenewData database). 5
To the extent that the 200-million-file database that Stein refers to is the RenewData
documents and materials produced to the SEC, the Court has already addressed the SEC’s
obligation to search these materials or explain why those materials are unlikely to contain
responsive documents. The SEC has also stated that it never had access to the actual database (if
there was one) hosted by RenewData, Nonaka Decl. ¶ 10; thus, if Stein is referring to a greater
“database” of documents hosted by RenewData but never provided to the SEC, the SEC has no
obligation to produce documents outside its custody or control at the time of the FOIA request.
See McGehee v. CIA, 697 F.2d 1095, 1110 (D.C. Cir. 1983). Finally, if Stein is referring to some
other, heretofore unheard of, database of materials, Stein has presented no evidence that there is
more material in the SEC’s possession beyond what the Court has already discussed. Mere
speculation about the existence of other documents is not sufficient to overcome the presumption
of good faith accorded the agency’s affidavits. See, e.g., Willis v. U.S. Dep’t of Justice, 581 F.
Supp. 2d 57, 72–73 (D.D.C. 2008).
Accordingly, for the reasons explained above, the Court finds that the SEC has not satisfied
its search obligations with respect to Stein’s second category of requests.
3. Exhibit X
Like the mysterious database, Stein also spends a great deal of time arguing about “Exhibit
X,” a document produced to Stein in the Heart Tronics litigation. See, e.g., Stein Opp’n at 10–11;
Stein Mot. at 15–16; see also Ex. X, Stein Decl. [ECF No. 11-1]. Exhibit X is apparently a publicly
available SEC filing signed by someone named “Yossi Keret” on behalf of a company called
Pluristem Life Systems, a company which is apparently unrelated to any of the parties to the Heart
5
Signalife was the predecessor organization to Heart Tronics, and Scharf at one point represented Stein and
his co-defendants, including Heart Tronics, during the litigation.
15
Tronics case. See Ex. X; see also Stein Reply, Ex. B, SEC Resp. to First Interrogatories [ECF No.
17-1] at 32–33. 6 Stein, however, was accused of falsifying a purchase order, using the name
“Yossi Keret,” for an allegedly fictitious company called IT Healthcare. Stein Reply, Ex. B., SEC
Resp. to First Interrogatories at 32–33; see also Compl., SEC v. Heart Tronics, 8:11-cv-1962-JVS-
KES (C.D. Cal.) ¶¶ 51–62. Stein argues that Exhibit X proves that Yossi Keret is a real person
and that the SEC has therefore hidden away documents pertaining to Keret and other individuals
that undermine the civil and criminal cases against him. Stein Mot. at 15–16; Stein Opp’n at 10–
11.
But Stein has not explained how the apparent existence of a person named Yossi Keret at
a company named Pluristem Life Systems shows either that a person named Yossi Keret really did
sign a purchase order on behalf of an unrelated company called IT Healthcare, or more relevantly,
that the SEC is hiding documents related to a person named Yossi Keret at IT Healthcare. In short,
Stein has presented no evidence to suggest that these two people are the same or could reasonably
be the same. Exhibit X therefore says nothing about the agency’s good faith or bad faith in this
FOIA action, and does not undermine the agency’s affidavits regarding what was already produced
to Stein during the Heart Tronics litigation. To the extent that there may be additional documents
pertaining to Keret or others in the RenewData materials, the agency will be able to so indicate
once it has conducted its search of these materials.
4. De Facto Glomar Response
Stein next argues that, because the SEC’s Vaughn index does not identify which documents
are responsive only to his first requested category of documents and which are responsive to both
6
Because this exhibit is a “composite exhibit” and therefore contains other documents in addition to the
SEC’s interrogatory response, the Court has cited to the page number of the PDF document, rather than to the page
number of the SEC’s response, for clarity.
16
the first and second categories, the agency has submitted a “de facto Glomar response” to his
requests. Stein Opp’n at 8–9. Such a response is appropriate where the fact of the existence or
nonexistence of agency records itself falls within a FOIA exemption; the agency may then submit
a FOIA response that neither confirms nor denies the existence of such records. See, e.g., Wolf v.
CIA, 473 F.3d 370, 374 (D.C. Cir. 2007); see also Phillippi v. CIA, 546 F.2d 1009, 1012 (D.C.
Cir. 1976) (concerning the CIA’s refusal to confirm or deny the existence of records related to a
ship named the Hughes Glomar Explorer). According to Stein, the fact that the agency cannot or
will not identify which documents are responsive to which request again calls into question the
agency’s good faith and the adequacy of its search. Stein Opp’n at 8–9.
Stein’s arguments on this point are misguided. The agency has not submitted a Glomar
response, and it certainly has not indicated that it intends to rely on that doctrine for any of the
withheld documents. The agency is not obligated to identify in the Vaughn index which documents
are specifically responsive to which categories of Stein’s requests. The purpose of the Vaughn
index, together with any declarations an agency may submit in support of its withholding
decisions, is to provide the court with enough information about the withheld documents for the
court to determine whether the claimed exemptions were appropriately applied. See, e.g.,
Defenders of Wildlife, 623 F. Supp. 2d at 88–89; Voinche v. FBI, 412 F. Supp. 2d 60, 65 (D.D.C.
2006). Whether the agency’s index and declarations sufficiently support the agency’s withholding
decisions remains to be seen, but the Vaughn index is not indicative of bad faith on the agency’s
part with respect to its search.
5. Conclusion
Accordingly, the Court finds that the agency’s search for the privilege log documents was
adequate, but that the agency failed to adequately search for documents responsive to Stein’s
17
second category of requests. The SEC shall conduct an adequate search of the RenewData
materials for documents relating to its investigation into any individuals named Yossi Keret, Tony
Nony/Nonoy, Avi Cohen, Ari Cohen, and Marina Orita during the Heart Tronics litigation.
C. WITHHOLDING DECISIONS
The SEC withheld the privilege log documents principally under FOIA Exemption 7(A),
which exempts from disclosure “records or information compiled for law enforcement purposes,
but only to the extent that the production of such law enforcement records or information could
reasonably be expected to interfere with enforcement proceedings.” 5 U.S.C. § 552(b)(7)(A).
However, the SEC also withheld in full or redacted in part a handful of records under Exemptions
6 and 7(C), which relate to individual privacy interests, and a few documents under Exemption 3,
which relates to documents that are exempt by other statute. Finally, the SEC also claims that
many of the documents exempt under 7(A) are also exempt under Exemption 5, which protects
documents covered by the attorney client privilege, deliberative process privilege, and the attorney
work product doctrine.
1. Exemption 7(A)
Exemption 7(A) applies to law enforcement records compiled for civil, administrative, and
criminal matters. Tax Analysts v. IRS, 294 F.3d 71, 77 (D.C. Cir. 2002). Agency “records are
considered ‘compiled for law enforcement purposes’ if ‘the investigatory activity that gave rise to
the documents is related to the enforcement of federal laws, and there is a rational nexus between
the investigation at issue and the agency’s law enforcement duties.’” Judicial Watch v. Rossotti,
285 F. Supp. 2d 17, 24 (D.D.C. 2003) (some internal quotation marks omitted) (quoting Jefferson
v. U.S. Dep’t of Justice, 284 F.3d 172, 177 (D.C. Cir. 2002)). Here, there is no dispute that the
privilege log documents, compiled during the SEC’s Heart Tronics investigation and litigation,
18
were compiled for law enforcement purposes. Instead, Stein contests the agency’s conclusion that
release of the privilege log documents could reasonably be expected to interfere with ongoing
enforcement proceedings. Stein Opp’n at 19–22; Stein Mot. for Summ. J. at 10–14.
In order to justify its withholding decision under Exemption 7(A), the SEC must
demonstrate that “disclosure (1) could reasonably be expected to interfere with (2) enforcement
proceedings that are (3) pending or reasonably anticipated.” Citizens for Responsibility & Ethics
in Wash. (CREW) v. U.S. Dep’t of Justice, 746 F.3d 1082, 1096 (D.C. Cir. 2014) (internal
quotation marks omitted) (quoting Mapother v. U.S. Dep’t of Justice, 3 F.3d 1533, 1540 (D.C. Cir.
1993)). Exemption 7(A) is thus a temporary exemption; once the relevant enforcement
proceedings are over, the exemption no longer applies. Id. at 1097.
“[A]lthough [courts] give deference to an agency’s predictive judgment of the harm that
will result from disclosure of information, it is not sufficient for the agency to simply assert that
disclosure will interfere with enforcement proceedings; it must rather demonstrate how disclosure
will do so.” Id. at 1098 (internal quotation marks and citation omitted). However, the SEC does
not need to justify its withholding decision document by document; rather, it may take a categorical
approach. To do so, the agency must define functional categories, review the requested documents
one by one and assign each to a category, and explain how the release of each category of
documents would interfere with enforcement proceedings. Bevis v. U.S. Dep’t of State, 801 F.2d
1386, 1389–90 (D.C. Cir. 1986). The defined categories must enable the court to “trace a rational
link between the nature of the document and the alleged likely interference.” Id. at 1389.
The universe of documents at issue here are most of the documents listed individually on
the Vaughn index, 7 the privileged emails, and the privileged notes and legal research. The SEC
7
The agency has specifically identified on the Vaughn index which exemptions it is asserting with respect
to which documents. Thus, it does not assert Exemption 7(A) with respect to Document Nos. 12, 13, 14, 16, 17, 34,
19
has reviewed and grouped all of these documents into two broad categories: “attorney work
product and deliberations by Commission staff,” and “memoranda by Commission Staff” to the
Commission and to high ranking officers in the Division of Enforcement. Donnelly Decl. ¶¶ 19–
20, 22.
The first group of documents, consisting of attorney work product and staff deliberations,
is the largest, and includes the privileged notes and emails, and the majority of the privilege log
documents. These documents reveal how the SEC interpreted various facts and law throughout
the investigation, including impressions of witnesses and what SEC staff thought was and was not
important as the investigation developed. Id. ¶ 20. The privileged emails include emails among
the attorneys conducting and supervising the Heart Tronics investigation, including emails
circulating drafts of memoranda and court filings, testimony outlines and exhibit lists, interview
summaries and testimony digests, and emails discussing the drafting of documents, investigative
plans, facts and legal issues, and settlement negotiations. Id. ¶ 11. The privileged emails also
include emails with other SEC staff seeking legal and factual information, analyzing relevant law
and providing information about the investigation; emails containing Suspicious Activity reports;
emails containing information from the Commission de Surveillance du Secteur Financier, the
financial regulatory authority of Luxembourg; and emails to senior officials in the Division of
Enforcement providing information about the case and seeking approval for different steps in the
investigation. Id. Finally, the privileged emails include emails between attorneys handling the
investigation and the SEC’s Office of the Secretary sending memoranda seeking Commission
approval and action, including approval to bring an enforcement action; emails between SEC staff
and DOJ staff sharing information and analysis about the parallel investigations; and emails
36, 66, 112, 124, 156, 175, 222, 243, and 244. The SEC has also agreed to produce in full Document Nos. 229, 231,
233, 234, 236, and 273. See Vaughn Index [ECF No. 10-4]; Donnelly Decl. ¶ 19.
20
discussing cases that “Stein-related entities” filed against the SEC and its staff. Id.
The privileged notes and legal research include handwritten notes and other writings by
SEC staff and attorneys recording their thoughts and impressions during meetings or phone calls
regarding the investigation, when the attorneys were taking testimony from or interviewing
witnesses, and when the attorneys or staff were reviewing documents gathered during the
investigation. Id. ¶¶ 12–13. The legal research includes the SEC attorneys’ research files
containing case law and other legal research related to possible claims in the Heart Tronics
litigation, gathered in anticipation of the litigation or in connection with the advice, evaluations,
opinions and recommendations made by the staff to the Commission. Id.
Lastly, privilege log documents that fall into this group include documents collected by
and created by attorneys involved in the litigation to determine relevant facts and legal theories,
and reflect the development of the investigation and subsequent litigation. Id. ¶ 20. These include
investigative plans, outlines for interviews and testimony, digests of testimony, witness contact
lists, exhibit lists, spreadsheets created to summarize and evaluate facts, summaries of factual
theories and proposed next steps, data regarding securities trades and other transactions,
memoranda analyzing facts and legal issues, emails among the SEC staff discussing legal and
factual issues and sharing key documents, and research materials including case law and memos
and complaints from other SEC cases. Id.; see also Vaughn Index.
The second group of documents the SEC withholds under Exemption 7(A) are memoranda,
drafts of memoranda, and comments on memoranda from SEC enforcement attorneys to the
Commission and to high-ranking officials in the Division of Enforcement regarding whether the
Commission should open a formal investigation, notify Stein and others that Enforcement planned
to recommend filing a civil action, file a complaint, or settle actions. Donnelly Decl. ¶ 22. These
21
documents contain “detailed analyses of potential violations of the federal securities laws.” Id.
With respect to both groups of documents, the SEC claims that disclosure would interfere
with the SEC’s enforcement actions against Stein and Stein’s co-defendant, Willie Gault, as both
of these cases are on appeal and the judgments against Stein and Gault are not yet final. Donnelly
Decl. ¶¶ 21, 23; Gov’t Supp. Br. [ECF No. 19] at 2–3; see also SEC v. Heart Tronics, Inc. et al.,
No. 15-55506 (9th Cir.); SEC v. Willie James Gault, No. 16-55780 (9th Cir.). Release of the
SEC’s internal deliberations and trial preparation materials could undermine the agency’s ability
to relitigate the cases against Stein and Gault if they are reversed on appeal. Testimony outlines,
for example, may not reflect exactly what a witness was asked, and could therefore reveal staff
theories about what occurred, and digests of testimony and spreadsheets of facts could reveal what
facts or statements an attorney thought was important. Donnelly Decl. ¶ 35. Contact lists could
reveal who the staff thought it needed to talk to at what points in the investigation, and draft
documents reveal decisions and changes that were made during the drafting process. Id. The
memoranda reveal deliberative discussions about the options for the investigation and enforcement
action, which the agency may or may not have ultimately pursued. Id. ¶ 34. The SEC argues that
disclosure would reveal SEC attorneys’ and staff’s thought processes and deliberations, including
evaluations of the case and the development of legal strategies and theories, and would also reveal
information protected by the attorney-client privilege and work-product doctrine. Id. ¶¶ 21, 23.
This could reveal the case’s strengths and weaknesses, as well as privileged information Stein or
Gault would not otherwise be privy to, giving them an undue advantage in the ongoing litigation.
Id.
Stein’s arguments in response to the SEC’s claims are again somewhat confusing. First,
he appears to focus principally on DOJ’s criminal case against him, arguing that the SEC has
22
always maintained that the civil and criminal investigations were separate, and that the SEC has
therefore failed to show how release of its materials would interfere with the ongoing criminal
case. Stein Mot. for Summ. J. at 12–14; Stein Opp’n at 20–21 (“The cases cited by the SEC . . . are
FOIA cases brought against the very agencies that actually prosecuted the FOIA requester in the
related proceeding . . . .”). Stein appears to misunderstand the SEC’s arguments. The SEC is not
arguing that release of the privileged documents would interfere with DOJ’s criminal case against
him; instead, the agency is crystal clear that release of the documents could interfere with the
ongoing civil enforcement actions against Stein and at least one of his co-defendants in the Heart
Tronics litigation. Donnelly Decl. ¶¶ 21, 23; Gov’t Mot. for Summ. J. at 14–16. Stein’s argument
about the criminal case is therefore inapposite.
Second, Stein argues that the government’s investigation against him concluded “years
ago” and that the government already “let the cat out of the bag” about the investigation and its
trial strategy when it presented its case in the district court. Stein Mot. for Summ. J. at 11–12;
Stein Opp’n at 20. Courts have repeatedly held, however, that the potential for interference
remains even when a case is on appeal; an agency may continue to withhold law enforcement
records “until all reasonably foreseeable proceedings stemming from [an] investigation are
closed.” Kay v. FCC, 976 F. Supp. 23, 38 (D.D.C. 1997); see also, e.g., Kidder v. FBI, 517 F.
Supp. 2d 17, 28–31 (D.D.C. 2007) (finding that the release of FBI records of an investigation,
including witness statements, documentary evidence, and administrative and investigative
materials, could reasonably be expected to interfere with a criminal case on appeal); Ehringhaus
v. FTC, 525 F. Supp. 21, 23 (D.D.C. 1980) (noting that “courts have held that the purpose of the
1974 amendment to 7(A) was to allow disclosure of closed investigative files, while preventing it
for active and prospective files” (citing NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 224–
23
232 (1978))). Moreover, if the exemption applies, it “will justify denial of release, not only to the
objects of the investigation and any pending or prospective enforcement actions, but to third parties
as well.” Kanter v. IRS, 433 F. Supp. 812, 817 (D.D.C. 1977) (citing Nat’l Public Radio v. Bell,
431 F. Supp. 509 (D.D.C. 1977)). Thus, the SEC may justify withholding documents from Stein
on the basis that release of the records would interfere with its case against Gault.
Here, while the release of the government’s work product, deliberative material, and staff
memoranda would not prematurely reveal that Stein or his co-defendants were under
investigation—that particular cat is indeed already out of the bag—the documents that Stein seeks
may still cause harm. Attorney notes, memoranda, and other written products, as well as witness
statements and other investigative materials, have been withheld under Exemption 7(A) where
they would reveal agency analyses, thoughts, impressions, or what the agency found important in
an investigation. See, e.g., J.P. Stevens & Co., Inc. v. Perry, 710 F.2d 136, 142–43 (4th Cir. 1983)
(withholding, among other things, internal memos, interviews, and internal or inter-agency
correspondence related to the investigation); Barney v. IRS, 618 F.2d 1268, 1272–73 & nn.9, 13
(8th Cir. 1980) (withholding, among other things, memoranda of interviews with third parties,
agent workpapers and notes analyzing evidence and information received during the investigation,
internal memoranda analyzing the investigation and the government’s case, and correspondence
between the IRS and DOJ); New England Med. Ctr. Hosp. v. NLRB, 548 F.2d 377, 383 (1st Cir.
1976) (withholding of witness statements and agency interview notes); Kay, 976 F. Supp. at 36,
38–39 (withholding of complainant/informant exhibits, attorney work product notes, witness
statements, and other exhibits); Parker/Hunter, Inc. v. SEC, No. 80-3034, 1981 WL 1675, at *4
(D.D.C. Apr. 29, 1981) (withholding of notes, memoranda and witness interview transcripts);
Ehringhaus, 525 F. Supp. at 23 (withholding documents that would reveal “important aspects of
24
the planned strategy of Commission attorneys, the strengths and weaknesses of the government’s
case and the amount of resources devoted to the investigation”); Bell, 431 F. Supp. at 514–15 &
n.13 (withholding internal DOJ memoranda as to whether a federal crime had occurred).
Because the work product, internal communications, and deliberative documents that Stein
seeks essentially provide a road map for the SEC’s case in the Heart Tronics litigation, they are
likely to give Stein insight into the way the investigation and the SEC’s legal strategies developed
that he and Gault would not otherwise have, which could make re-litigating the Stein and Gault
cases—or possibly even pursuing them on appeal—difficult. See, e.g., Barney, 618 F.2d at 1273
(noting that “[o]ne of the primary purposes of exemption 7 was ‘to prevent harm to the
Government’s case in court by not allowing litigants earlier or greater access to agency
investigatory files than they would otherwise have’” (quoting Robbins, 437 U.S. at 224–25)
(alteration omitted)); Kay, 976 F. Supp. at 38 (“Interference may be established by demonstrating
that release of the records may give the requester earlier and greater access than otherwise
possible . . . [i]n this regard, FOIA cannot be used as a discovery tool.”); see also, e.g., New
England Med. Ctr. Hosp., 548 F.2d at 383 (disclosure of witness statements and interview notes
“cannot be said to lack any adverse impact on the Board’s ability to prosecute its enforcement
proceeding to a successful conclusion”). The Court is therefore satisfied that release of both groups
of documents is “reasonably likely” to interfere with the ongoing Heart Tronics litigation.
2. Exemption 5
The SEC also claims that most of the documents on the Vaughn index, and all of the
privileged notes, research, and emails, are additionally exempt under Exemption 5, which applies
to “interagency 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). In order for
25
Exemption 5 to apply, the documents withheld must be (1) inter-agency or intra-agency; and (2)
must fall within a civil discovery privilege. See, e.g., Shapiro v. U.S. Dep’t of Justice, 969 F.
Supp. 2d 18, 27 (D.D.C. 2013) (citing U.S. Dep’t of the Interior v. Klamath Water Users Protective
Ass’n, 532 U.S. 1, 8 (2001)). This exemption encompasses three different privileges: the attorney
work-product doctrine, the deliberative process privilege, and the attorney-client privilege. See
Ellis v. U.S. Dep’t of Justice, 110 F. Supp. 3d 99, 108 (D.D.C. 2015). The SEC focuses here on
the attorney work-product doctrine with respect to all of the documents it claims are exempt under
Exemption 5, although it also invokes the attorney-client privilege and deliberative process
privilege with respect to some of these documents as well. Because Exemption 7(A) is a temporary
exemption that will only prevent disclosure for the duration of the Heart Tronics litigation, the
Court will also examine whether the SEC may withhold documents under Exemption 5, which
would prevent disclosure even after the Heart Tronics litigation ends. See, e.g., Shapiro, 969 F.
Supp. 2d at 28–29 (noting that work-product is protected after the litigation for which it was
prepared has ended) (citing FTC v. Grolier, 462 U.S. 19, 28–29 (1983)).
The work-product doctrine applies to “documents and tangible things prepared in
anticipation of litigation or for trial” by an attorney, or in some circumstances by non-lawyers.
See Fed. R. Civ. P. 26(b)(3)(A); Shapiro, 969 F. Supp. 2d at 28 (citing United States v. Nobles,
422 U.S. 225, 238–39 (1975)). In order for the government to discharge its burden under this
doctrine, it must (1) provide a description of the nature and contents of the document; (2) identify
the document’s author or origin, (3) note the circumstances that surround the document’s creation,
and (4) provide some indication of the type of litigation for which use of the documents is
foreseeable. See Ellis, 110 F. Supp. 3d at 108 (citing In re Sealed Case, 146 F.3d 881, 884 (D.C.
Cir. 1998)).
26
With respect to all of the documents for which the SEC claims this exemption, it is clear
that the documents were created for purposes of the Heart Tronics investigation and litigation, or
in the case of a few documents listed on the Vaughn index, were memos created for other cases
but used for research in the Heart Tronics case. See Donnelly Decl. ¶¶ 11–13, 19–20, 26–27; see
generally, Vaughn Index. The SEC has thus satisfied the requirement that the documents for which
the work-product privilege is sought were “prepared or obtained because of the prospect of
litigation.” See In re Sealed Case, 146 F.3d at 884. The SEC has also explained that all of the
documents, including emails and notes, identified on the privilege log and listed individually on
the Vaughn index were intended to be confidential and have not been shared with third parties.
See Nonaka Decl., ¶¶ 11–16; Donnelly Decl. ¶¶ 3–5.
Based on the descriptions on the Vaughn index, most of the documents listed are classic
attorney work product: internal memos and drafts of court filings, legal and factual research and
analyses related to potential securities violations, recommendations of possible courses of action,
and trial preparation materials, including testimony outlines and digests, all prepared or obtained
by SEC attorneys during the course of the Heart Tronics investigation and litigation. The SEC has
described the nature and content of these documents and the circumstances surrounding their
creation—for example, a “[d]raft action memo for the Commission from Enforcement
recommending issuance of a Formal Order authorizing an investigation of potential violations of
the federal securities laws and outlining facts developed in the investigation.” Vaughn Index at 3,
Doc. No. 20. The document was created by “SEC [e]nforcement attorneys” for the Commission.
Id.
Stein objects that the Vaughn index does not sufficiently identify the authors and recipients
of the listed documents for the Court to determine that Exemption 5 applies. To be sure, the index
27
does not give the names of the individual author, but it identifies, for example, the positions of
those drafting or receiving documents, which is more useful than individual names in identifying
the contents of a document and the purpose for which it was created. Such documents are properly
withheld as work product under Exemption 5. See, e.g., Safecard Servs., Inc. v. SEC, 926 F.2d
1197, 1202–03 (D.C. Cir. 1991) (withholding documents that contain “mental impressions,
conclusions, opinions, or legal theories of an attorney,” including handwritten notes containing
factual and legal analyses related to the investigation); Ellis, 110 F. Supp. 3d at 108–109
(withholding requests to apply for wiretap authorization, and action and authorization memos);
Gov’t Accountability Project v. U.S. Dep’t of Justice, 852 F. Supp. 2d 14, 26 (D.D.C. 2012)
(withholding internal communications about whether to pursue prosecution); Wolfson v. United
States, 672 F. Supp. 2d 20, 30 (D.D.C. 2009) (withholding attorney memoranda recommending
that DOJ apply for a Title III order); Durrani v. U.S. Dep’t of Justice, 607 F. Supp. 2d 77, 84
(D.D.C. 2009) (withholding emails between attorneys and draft indictment and memoranda);
Miller v. U.S. Dep’t of Justice, 562 F. Supp. 2d 82, 114–15 (D.D.C. 2008) (withholding trial
preparation materials).
For a handful of documents described on the Vaughn index, however, the SEC has not
provided sufficient information for the Court to determine that the documents are indeed work
product. Documents 5–11 are blue sheet reports 8 showing trading data for Heart Tronics stock,
which were apparently “requested by [an] SEC attorney.” See Vaughn Index at 1–2, Doc. Nos. 5–
11. The SEC claims that this is attorney work product, but gives no further explanation on either
the Vaughn index or in the submitted declarations as to why that is the case. Not everything created
8
“Blue sheets” provide trading data and account holder information, and are used by regulatory agencies in
enforcement inquiries to monitor and analyze firms’ trading activity. They are known as “blue sheets” for the color
of the form.
28
or requested by an attorney constitutes work product; compilations that merely reflect information
already known to an adversary do not. See, e.g., SEC v. Collins & Aikman Corp., 256 F.R.D. 403,
410–11 (S.D.N.Y. 2009); SEC v. Strauss, No. 09-cv-4150, 2009 WL 3459204, at *10 (S.D.N.Y.
Oct. 28, 2009). The defining feature of work-product is that it reflects the attorney’s thought
processes, mental impressions, and theories; compilations of data or documents may thus
constitute work product “when the act of culling, selecting or ordering” documents or data “reflects
the attorney’s opinion as to their relative significance in the preparation of the case or the attorney’s
legal strategy.” See Shapiro, 969 F. Supp. 2d at 32 (citing Sporck v. Peil, 759 F.2d 312, 316–17
(3d Cir. 1985)). Neither the Vaughn index nor the submitted declarations explain how the blue
sheets reflect attorney thought processes or mental impressions, and thus the Court cannot
conclude on the information before it that these documents are work-product and therefore
protected from disclosure under Exemption 5.
Likewise, the Vaughn index’s descriptions are lacking with respect to Document Nos. 66,
201, 209, 265, 266, 268, and 269. Document No. 66 is merely described as a “[f]orm document
transmittal sheet to Iron Mountain.” Vaughn Index at 8. No other description is provided that
would give the Court any insight into what this document is, what kind of information it contains,
or for what purpose it was created (although admittedly a form transmittal sheet is unlikely to have
much substance). Document Nos. 201 and 209 are described as “UPS shipping label[s],” again
with no further explanation as to how they constitute work product. Vaughn Index at 20–21.
Document Nos. 265, 266, 268, and 269 are press releases and draft press releases, which generally
are not privileged because they do not contain confidential information and are intended to be
released to third parties. See, e.g., Robbins & Meyers, Inc. v. J.M. Huber Corp., 274 F.R.D. 63,
84 (W.D.N.Y. 2011) (public service announcements are not protected by attorney client privilege);
29
Calvin Klein Trademark Trust v. Wachner, 124 F. Supp. 2d 207, 209–10 (S.D.N.Y. 2000) (draft
press releases are not protected by work-product). The SEC has not explained what, if any,
information these documents might contain that would qualify them for work product protection.
With respect to the privileged notes, research, and emails, the SEC has likewise failed to
provide sufficient information for the Court to determine whether all of these documents may also
be withheld under the narrower, more specific standards of Exemption 5 (as opposed to Exemption
7(A)). It seems clear from the SEC’s description of these documents that some of them likely
constitute work product, for example, emails among attorneys working on the Heart Tronics
investigation and sharing draft memos, documents, and comments regarding the investigation.
Donnelly Decl. ¶ 11. But the categories of emails and notes withheld is broad and varied, and not
every document or category is obviously work product on its face. Some of the emails, for
example, appear more likely to fall under the deliberative process privilege or attorney client
privilege, but the SEC has not provided the Court with enough specific detail to determine which
documents it seeks to withhold under those privileges, and whether all of the elements of those
privileges have been met. See, e.g., id. (describing “emails to senior officers in the SEC’s Division
of Enforcement providing information about the case and seeking approval for various steps in the
investigation”).
Thus, the Court finds that the documents listed on the Vaughn index, with the exception of
the specific documents identified above, are attorney work product and may also be withheld under
Exemption 5. With respect to Document Nos. 5–11, 66, 201, 209, 265, 266, 268, and 269, as well
as the privileged notes and emails, the SEC has not provided the Court with enough information
to determine whether those documents are work product or otherwise exempt from disclosure
under Exemption 5. When the agency submits new affidavits about its search of the RenewData
30
materials, it should also submit a more detailed description of the above documents and of the
categories of withheld emails and notes, specifying which privilege the agency is asserting with
respect to each document or category. The new affidavit should provide the Court with enough
information to satisfy the standards of the claimed privileges.
3. Exemption 3
The SEC claims that the Suspicious Activity Reports (SARs) listed on the Vaughn index
at entry 278 are properly withheld under Exemption 3, which permits the withholding of
documents pursuant to other federal statutes that prohibit disclosure. 5 U.S.C. § 552(b)(3). The
SEC argues that the SARs are protected from disclosure under 31 U.S.C. § 5319, a provision of
the Bank Secrecy Act which exempts from FOIA disclosure records and reports on monetary
instruments transactions, including SARs. See 31 U.S.C. § 5319; Donnelly Decl. ¶ 24–25. Courts
have therefore held that SARs are appropriately withheld under Exemption 3. See, e.g., Cuban v.
SEC, 795 F. Supp. 2d 43, 62–63 (D.D.C. 2011); Sciba v. Bd. of Governors of the Fed. Reserve
Sys., Civ. No. 04–1011, 2005 WL 3201206, at *5–6 (D.D.C. Nov. 4, 2005). The SEC’s
withholding of the SARs here under Exemption 3 was appropriate.
4. Exemption 6 & 7(C)
The SEC withheld a handful of documents listed on the Vaughn index under Exemptions
6 and 7(C), both of which protect personal privacy interests. Exemption 6 protects from disclosure
“personnel and medical files and similar files the disclosure of which would constitute a clearly
unwarranted invasion of personal privacy.” 5 U.S.C. § 552(b)(6). This exemption covers records
and information on an individual “which can be identified as applying to that individual.” U.S.
Dep’t of State v. Washington Post Co., 456 U.S. 595, 602 (1982). Exemption 7(C) is “somewhat
broader,” Beck v. U.S. Dep’t of Justice, 997 F.2d 1489, 1491 (D.C. Cir. 1993), and covers
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information compiled for law enforcement purposes, the disclosure of which “could reasonably be
expected to constitute an unwarranted invasion of personal privacy,” 5 U.S.C. §552(b)(7)(C).
Although the “protection available under these exemptions is not the same,” the same balancing
standard applies to both. Beck, 997 F.2d at 1491. Courts must balance the privacy interests that
would be harmed by disclosure against the public’s “right to be informed about what their
government is up to.” Id. (internal quotation marks omitted) (quoting U.S. Dep’t of State v. Ray,
502 U.S. 164, 177 (1991)).
Pursuant to these exemptions, the SEC withheld in full Document Nos. 12, 13, 14, 16, and
17. These documents are spreadsheets listing individuals with knowledge of Stein’s conduct,
provided by SEC informants, and two emails from informant-investors to an SEC attorney
describing how Stein allegedly defrauded them. See Vaughn Index at 2–3. The SEC has withheld
this information because the disclosure of these documents could reveal the identity of informants
who provided information and other potential informants and witnesses who the informant
believed had information relevant to the SEC’s investigation. Donnelly Decl. ¶ 37. Based on the
Vaughn index, the SEC also appears to have withheld in full Document No. 222, a witness
background questionnaire containing handwritten answers and personal information such as social
security numbers, family and residence information, dates of birth, etc. See Vaughn Index at 22.
This document was redacted in full to protect the witness’s identity. Id. A blank copy of this
questionnaire was apparently released in full to Stein. Id. at 28; Donnelly Decl. ¶ 19.
The SEC also withheld in part Document Nos. 34, 36, 112, 124, 156, 175, 243, and 244.
Document Nos. 34, 36, and 112 redacted the names of attorneys working on the investigation,
Vaughn Index at 5, 12; Document Nos. 124, 156, and 175 redacted the names of witnesses who
provided investigative testimony, id. at 13, 16, 18; and Document Nos. 243 and 244 redacted
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personal information like social security and bank account numbers, id. at 24–25.
Because these records are contained in the SEC’s investigative files, the Court will address
the withholding of these records under Exemption 7(C). “It is settled that the privacy interests of
third parties mentioned in law enforcement files are ‘substantial,’ while ‘[t]he public interest in
[their] disclosure is not just less substantial, it is insubstantial.’” Sonds v. Huff, 391 F. Supp. 2d
152, 158 (D.D.C. 2005) (quoting Safecard Servs., 926 F.2d at 1205). Moreover, “Exemption 7(C)
‘affords broad privacy rights to suspects, witnesses, and investigators.’” Safecard Servs., 926 F.2d
at 1205 (quoting Bast v. U.S. Dep’t of Justice, 665 F.2d 1251, 1254 (D.C. Cir. 1981) (alteration
omitted)). In particular, disclosure of names, addresses, and other personal identifying information
is required only if the public interest outweighs the private interest. Id. at 1206.
Here, Stein does not directly address Exemptions 6 or 7(C), but he does argue generally
that the public interest favors broad disclosure of the information he has requested because the
government has an interest in knowing “how government agencies investigate and chose [sic] to
indict and prosecute alleged offenders on [sic] taxpayer’s expense, all while not searching for the
truth.” Stein Opp’n at 12. While the public certainly has a general interest in “matters of
substantive law enforcement policy,” CREW, 746 F.3d at 1095 n.5 (internal quotation marks
omitted), this sort of general public interest rationale has been consistently rejected with respect to
the kind of personal identifying information the government has withheld here. See, e.g., Safecard
Servs., 926 F.2d at 1205 (rejecting the argument that “access to the names and addresses . . . would
provide SafeCard and the public with insight into the SEC’s conduct with respect to SafeCard in
particular and short selling practices in general”). Personal information like witness or investigator
names, addresses, and social security numbers is rarely probative of agency conduct or
performance. Id.
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Nevertheless, Stein alleges that government misconduct took place in both the civil and
criminal cases against him, which he argues creates an overriding interest in disclosure. Stein
Opp’n at 10–13. But in order to override the privacy interests at stake, Stein must produce
“compelling evidence that the agency denying the FOIA request is engaged in illegal activity
and . . . that the information sought is necessary in order to confirm or refute that evidence.”
Quinon v. FBI, 86 F.3d 1222, 1231 (D.C. Cir. 1996). Stein has not done so. As “evidence” of
government misconduct, he quotes out of context a statement made by an SEC attorney during the
Heart Tronics summary judgment hearing, in which the attorney explained that the SEC had not
ultimately done much discovery on the truth or falsity of the purchase orders discussed in the
complaint because the SEC was planning to rely on the collateral estoppel effect of Stein’s criminal
conviction. Compare Stein Opp’n at 11–12, with Ex. A, Stein Decl. [ECF No. 14-1] at 15:14–
16:4 (transcript of summary judgment hearing in SEC v. Heart Tronics et al.). Stein also points to
“Exhibit X” as evidence that the government is lying about the existence of Yossi Keret, an
argument that the Court has already rejected. Stein Opp’n at 12. Finally, Stein makes vague
allegations about Brady violations in his criminal case, which he has not substantiated here, and
which the Eleventh Circuit has already rejected in any event. See Stein, 846 F.3d at 1145–47.
None of this is evidence of government misconduct. Moreover, “[a] requester’s ‘personal stake in
using the requested records to attack his convictions’ is not enough to meet the public interest test.”
Sonds, 391 F. Supp. 2d at 159 (quoting Oguaju v. United States, 288 F.3d 448, 450 (D.C. Cir.
2002), vacated and remanded on other grounds, 541 U.S. 970 (2004)); see also, e.g., Nishnic v.
U.S. Dep’t of Justice, 671 F. Supp. 776, 791 (D.D.C. 1987) (interest in Brady material is a
“decidedly private interest”).
In short, Stein has failed to explain what public interest exists in the names, addresses,
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social security numbers, and other personal information of the informants and investigators whose
information the government withheld under Exemption 7(C). The private interests in this
information, on the other hand, are obvious. The government’s withholding and partial
withholding of documents under Exemption 7(C) is appropriate.
D. SEGREGABILITY
FOIA requires that “[a]ny reasonably segregable portion of a record shall be provided to
any person requesting such record after deletion of the portions which are exempt.” 5 U.S.C.
§ 552(b). Where a plaintiff does not challenge the agency’s segregability efforts, courts are
required to consider this issue sua sponte. Trans-Pacific Policing Agreement v. U.S. Customs
Serv., 177 F.3d 1022, 1028 (D.C. Cir. 1999). The agency must provide a “detailed justification”
for the non-segregability of any documents. See Mead Data Cent., Inc. v. U.S. Dep’t of the Air
Force, 566 F.2d 242, 261 (D.C. Cir. 1977). That being said, “[a]gencies are entitled to a
presumption that they complied with the obligation to disclose reasonably segregable material,”
which a requester must rebut by some “quantum of evidence.” Sussman v. U.S. Marshals Serv.,
494 F.3d 1106, 1117 (D.C. Cir. 2007). Generally, it appears that agencies may satisfy their
segregability obligations if they provide a sufficiently detailed Vaughn index that describes the
documents withheld and why, and if the agency also submits a declaration attesting that all
segregable information has been released. See, e.g., Loving v. U.S. Dep’t of Defense, 550 F.3d
32, 41 (D.C. Cir. 2008); Johnson v. Executive Office for U.S. Attorneys, 310 F.3d 771, 776 (D.C.
Cir. 2002).
With respect to the documents withheld under Exemption 7(A) (which is the same group
of documents withheld under Exemption 5), certain of the privileged emails contained attachments
or forwarded documents that the agency did not consider to be work product standing alone, but
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the emails were withheld because they identified what documents or facts SEC attorneys
considered significant. Donnelly Decl. ¶ 28. The non-privileged attachments were produced
separately to Stein during the Heart Tronics litigation. Id. The SEC states that none of the withheld
documents, emails, or notes are otherwise segregable. Id. ¶ 29.
Stein argues generally that the SEC has failed to show that the documents withheld are not
segregable because the agency did not describe document by document on the Vaughn index why
certain information could not be segregated. Stein Mot. at 18. Contrary to Stein’s arguments, an
agency withholding documents under Exemption 7(A) does not need to justify its segregability
determination document by document, as the exemption allows agencies to justify withholding
based on categories of documents. See Robbins, Geller, Rudman & Dowd, LLP v. SEC, No. 3:14-
cv-2197, 2016 WL 950995, at *8–10 (M.D. Tenn. Mar. 12, 2016); Kidder, 517 F. Supp. 2d at 32
(citing Parker/Hunter, 1981 WL 1675 at *4). Here, the SEC has sufficiently described two
categories of documents that it has withheld under Exemption 7(A) in their entirety, and explained
that it is not possible to segregate non-exempt information from these documents, except as the
Court has described above. This is sufficient to satisfy the agency’s segregability obligations with
respect to the documents withheld under Exemption 7(A). See, e.g., Dillon, 102 F. Supp. 3d at
298 (finding that the agency satisfied its segregability obligations where the agency explained that
certain records were exempt in their entirety under 7(A)).
In addition, the SEC need not demonstrate segregability with respect to those documents
that were also withheld as attorney work product under Exemption 5, because where “a document
is fully protected as work product, then segregability is not required.” Judicial Watch, Inc. v. U.S.
Dep’t of Justice, 432 F.3d 366, 371 (D.C. Cir. 2005). Likewise, the SEC need make no
segregability determination with respect to the SARs withheld under Exemption 3, because
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disclosure of those documents in their entirety is prohibited by the Bank Secrecy Act. See Morley
v. CIA, 508 F.3d 1108, 1126 (D.C. Cir. 2007) (“Exemption 3 differs from other FOIA exemptions
in that its applicability depends less on the detailed factual contents of specific documents; the sole
issue for decision is the existence of a relevant statute and the inclusion of withheld material within
the statute’s coverage.” (internal quotation marks omitted) (quoting Ass’n of Retired R.R. Workers
v. U.S. Rail Road Ret. Bd., 830 F.2d 331, 336 (D.C. Cir. 1987))).
Regarding the documents withheld under Exemption 7(C) to protect personal privacy, the
SEC has explained why certain documents must be withheld in their entirety, because disclosure
would reveal the identity of various informants. See Vaughn Index at 2–3, Doc. Nos. 12–14, 16–
17. The SEC stated that it would provide Stein the unredacted portions of those documents only
partially withheld under Exemption 7(C)—i.e., Document Nos. 34, 36, 112, 124, 156, 175, 222,
243, and 244—but has not yet confirmed that it has done so. See Gov’t Mot. for Summ. J. at 27.
When the SEC submits its briefs, affidavits, and declarations with respect to the RenewData
materials and Stein’s second category of requests, it should also confirm that it has produced the
unredacted portions of these documents to Stein.
Finally, the SEC has confirmed that it has produced in full Document Nos. 229, 231, 233,
234, 236, and 273. Donnelly Decl. ¶ 19; Vaughn Index at 23–24, 28; Gov’t Supp. Br. at 1, 3.
While Stein argued in his opening brief that the SEC “failed to produce any documents in this
FOIA litigation,” Stein Mot. for Summ. J. at 15, he does not appear to contest in any subsequent
brief that the SEC has now produced in full these six documents. Accordingly, the Court finds
that the SEC has satisfied its segregability obligations with respect to the documents withheld
under Exemption 7(A) and Exemption 3, but has not satisfied its obligations with respect to the
partially redacted documents withheld under Exemption 7(C), until it confirms that it has provided
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the unredacted portions of these documents to Stein.
CONCLUSION
For the foregoing reasons, the Court finds that the government properly withheld
documents responsive to Stein’s first category of requests under FOIA Exemptions 3, 7(A), and
7(C), but did not conduct an adequate search for documents responsive to Stein’s second category
of requests. Some of the documents withheld under Exemption 7(A) were also properly withheld
under Exemption 5, but the Court lacks sufficient information to determine whether the privileged
notes and emails, as well as several documents listed on the Vaughn index, were properly withheld
under Exemption 5 as well. The Court also finds that the government has satisfied its segregability
obligations with respect to all withheld documents except the specific documents identified above
withheld under Exemption 7(C). The Court therefore grants in part and denies in part the
government’s motion for summary judgment, and denies Stein’s motion for summary judgment.
A separate order has been issued on this date.
/s/
JOHN D. BATES
United States District Judge
Dated: July 24, 2017
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