09-4083-cv(L), 09-4097-cv(CON) To be Argued by:

THOMAS H. GOLDEN

In the United States Court of Appeals for the

Second Circuit

BLOOMBERG L.P.,

Plaintiff-Appellee,

– v. –

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,

Defendant-Appellant,

– and –

THE CLEARING HOUSE ASSOCIATION L.L.C.,

Intervenor-Appellant.

_______________________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF OF PLAINTIFF-APPELLEE

CHARLES J. GLASSER, JR. Global Media Counsel, Bloomberg News 731 Lexington Avenue New York, New York 10022 (212) 617-4529 Of Counsel

THOMAS H. GOLDEN WILLKIE FARR & GALLAGHER LLP 787 Seventh Avenue New York, New York 10019 (212) 728-8000 Counsel of Record for Plaintiff-Appellee

December 7, 2009

RULE 26.1 DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1, Plaintiff-

Appellee Bloomberg L.P. (“Bloomberg”), the owner and operator of Bloomberg

News, states that Bloomberg is a limited partnership organized under the laws of

the State of Delaware; that Bloomberg, Inc., which is not a publicly-held

corporation, owns 99.5% of its partnership interests; that BLP Acquisition L.P.

owns 0.5% of its partnership interests; and that no publicly-held corporation owns

ten percent or more of its partnership interests.

i

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ................................................................................... iii

PRELIMINARY STATEMENT ...............................................................................1

COUNTERSTATEMENT OF ISSUES PRESENTED FOR REVIEW ...................2

COUNTERSTATEMENT OF THE CASE...............................................................3

1. The Fed’s Mandate And The Loan Programs At Issue ........................3

2. Bloomberg’s FOIA Request And The Board’s Identification Of The Responsive “Remaining Term Reports” .......................................5

3. Proceedings Below................................................................................6

SUMMARY OF ARGUMENT .................................................................................8

ARGUMENT ...........................................................................................................12

THE REMAINING TERM REPORTS ARE NOT COVERED BY FOIA’S EXEMPTION 4 BECAUSE THEY WERE NOT OBTAINED FROM A NON-AGENCY PERSON AND THEIR DISCLOSURE WOULD NOT BE LIKELY TO CAUSE COMPETITIVE INJURY TO ANY BORROWERS .........12

I. THE DISTRICT COURT CORRECTLY HELD THAT THE REMAINING TERM REPORTS WERE NOT OBTAINED FROM A “PERSON.” ...................................................................................................14

A. The Information In The Remaining Term Reports Was Not Obtained From The Borrowers. ..........................................................14

B. Information Obtained From The FRBNY Is Not Subject To Exemption 4 Because The FRBNY Is An “Agency” For Purposes Of FOIA. ..............................................................................19

II. THE DISTRICT COURT CORRECTLY HELD THAT THE BOARD FAILED TO SHOW THAT THE RELEASE OF THE REQUESTED INFORMATION WOULD BE LIKELY TO CAUSE SUBSTANTIAL COMPETITIVE HARM TO BORROWERS...................27

ii

A. The District Court Applied The Correct Standard. .............................28

B. The Banks’ Arguments Concerning Stigma Are Entirely Speculative. .........................................................................................31

C. The District Court Correctly Held That Reputational Harm Does Not Trigger Exemption 4 ...........................................................33

D. Disclosure Would Not Result In Competitive Injury To The Borrowers Given The Passage Of Time..............................................34

E. The Newly-Submitted Materials Outside The Record On Which The Clearing House Relies Do Not Establish Competitive Injury. ..................................................................................................37

1. The Clearing House Misstates The Law, And Mischaracterizes The New Materials, In Claiming That The Court Should Take Judicial Notice of Them.....................37

2. Under The Banks’ Notion Of Judicial Notice, This Court Should Consider The Special Inspector General’s Conclusions Regarding The Absence Of Harm From Disclosure..................................................................................42

F. The Banks’ Speculation Is Contradicted By Unrebutted Economic Theory ................................................................................44

G. The Banks’ Position Is Inconsistent With SEC Disclosure Rules. ...................................................................................................46

H. The Board’s “Understanding” With Borrowers Does Not Trump FOIA’s Disclosure Requirements. ..........................................50

III. THE “PROGRAM EFFECTIVENESS” THEORY DOES NOT PROVIDE A BASIS FOR SHIELDING THE MATERIALS......................52

IV. REMAND FOR FURTHER DEVELOPMENT OF THE FACTUAL RECORD IS UNWARRANTED HERE.......................................................57

CONCLUSION........................................................................................................59

iii

TABLE OF AUTHORITIES

Cases Page(s)

Dep’t of Air Force v. Rose, 425 U.S. 352 (1976)......................................................................................13, 14

American Airlines, Inc. v. National Mediation Board, 588 F.2d 863 (2d Cir. 1978) ...............................................................................51

Blackman v. New York City Transit Authority, 491 F.3d 95 (2d Cir. 2007) .................................................................................34

Buffalo Evening News, Inc. v. SBA, 666 F. Supp. 467 (W.D.N.Y. 1987)..............................................................17, 55

Center for Public Integrity v. Dep’t of Energy, 191 F. Supp. 2d 187 (D.D.C. 2002)....................................................................35

Center to Prevent Handgun Violence v. U.S. Dep’t of the Treasury, 981 F. Supp. 20 (D.D.C. 1997)...........................................................................34

Ciba-Geigy Corp. v. Mathews, 428 F. Supp. 523 (S.D.N.Y. 1977) .....................................................................21

City of Chicago v. U.S. Dep’t of the Treasury, No. 01 C 3835, 2002 WL 370216 (N.D. Ill. March 8, 2002).......................................................32

Charles River Parks “A” Inc. v. The Dep’t of Housing and Urban Development, 519 F.2d 935 (D.C. Cir. 1975)............................................................................51

Church of Scientology of California v. U.S. Dep’t of the Army, 611 F.2d 738 (9th Cir. 1980) ..............................................................................13

Clarke v. U.S. Dep’t of the Treasury, Civ. A. No. 84-1873, 1986 WL 1234 (E.D. Pa. Jan. 28, 1986) ......................................................................................19

Comstock Int’l Inc. v. Export-Import Bank of U.S., 464 F. Supp. 804 (D.D.C. 1979).........................................................................32

Consumers Union of U.S., Inc. v. Veterans Admin., 301 F. Supp. 796 (S.D.N.Y. 1969) .....................................................................27

iv

Cases Page(s)

Cotton v. Heyman, 63 F.3d 1115 (D.C. Cir. 1996)............................................................................21

Crown Fin. Corp. v. Winthrop Lawrence Corp., 531 F.2d 76 (2d Cir. 1976) .................................................................................58

Crum v. Marini, 06-CV-0513, 2007 WL 3104750 (N.D.N.Y. Oct. 22, 2007)..............................57

Dong v. Smithsonian Inst., 125 F.3d 877 (D.C. Cir. 1997)............................................................................26

Dow Jones & Co. v. U.S. Dep’t of Justice, 161 F.R.D. 247 (S.D.N.Y. 1995) ........................................................................58

Fasano v. Fed. Reserve Bank of New York, No. 05-4661, 2006 WL 5439217 (3d Cir. Jan. 23, 2006) .........................................................22

Fed. Reserve Bank of Boston v. Comm’r of Corps. and Tax of Commonwealth of Mass., 499 F.2d 60 (1st Cir. 1974) .....................................................................25

Fed. Reserve Bank of St. Louis v. Metrocentre Improvement Dist. No. 1, 657 F.2d 183 (8th Cir. 1981) ..............................................................................25

Flight Int’l Group, Inc. v. Fed. Reserve Bank of Chicago, 583 F. Supp. 674 (N.D. Ga. 1984)................................................................23, 24

Flying J, Inc. v. Van Hollen, 578 F.3d 569 (7th Cir. 2009) ..............................................................................37

FOMC v. Merrill, 443 U.S. 340 (1979)....................................................................16, 17, 34, 49, 51

Fox News Network, LLC v. Bd. of Governors of the Fed. Reserve Sys., No. 09 Civ. 272, 2009 WL 2345097 (S.D.N.Y. July 30, 2009) .........................19

Garber v. Legg Mason Inc., No. 08-1831-cv, 2009 U.S. App. LEXIS 21404 (2d Cir. Sept. 30, 2009).......................................................................................38

GC Micro Corp., v. Def. Logistics Agency, 33 F.3d 1109 (9th Cir. 1994) ..............................................................................13

v

Cases Page(s)

Gulf & Western Indus. Inc. v. United States, 615 F.2d 527 (D.C. Cir. 1980)............................................................................18

Hack v. Dep’t of Energy, 538 F. Supp. 1098 (D.D.C. 1982).......................................................................35

Hercules, Inc. v. Marsh, 839 F.2d 1027 (4th Cir. 1988) ............................................................................31

Iglesias v. CIA, 525 F. Supp. 547 (D.D.C. 1981).........................................................................30

In Defense of Animals v. U.S. Dep’t of Agriculture, 587 F. Supp. 2d 178 (D.D.C. 2008)..............................................................33, 34

In Defense of Animals v. U.S. Dep’t of Agriculture, Civ. A. No. 02-557, 2009 WL 2974764 (D.D.C. Sept. 18, 2009).......................................................33

Inner City Press/Community on the Move v. Bd. of Governors of the Fed. Reserve Sys., 463 F.3d 239 (2d Cir. 2006)...........................................................20, 27, 28

Irwin Mem’l Blood Bank of the San Francisco Medical Soc. v. Am. Nat’l Red Cross, 640 F.2d 1051 (9th Cir. 1981) .....................................................21, 22, 26

James v. Fed. Reserve Bank of New York, 471 F. Supp. 2d 226 (E.D.N.Y. 2007) ................................................................25

Judicial Watch, Inc. v. FDA, 449 F.3d. 141 (D.C. Cir. 2006).....................................................................17, 28

Judicial Watch, Inc. v. Export-Import Bank, 108 F. Supp. 2d 19 (D.D.C. 2000)......................................................................18

Lee v. FDIC, 923 F. Supp. 451 (S.D.N.Y. 1996) ...............................................................13, 35

Lee Constr. Co. v. Fed. Reserve Bank of Richmond, 558 F. Supp. 165 (D. Md. 1982).............................................................22, 23, 24

McDonnell Douglas Corp. v. United States Dep’t of the Air Force, 375 F.3d 1182 (D.C. Cir. 2004)....................................................................29, 30

vi

Cases Page(s)

Nadler v. FDIC, 92 F.3d 93 (2d Cir. 1996) .............................................................................33, 53

National Parks and Conservation Ass’n v. Morton, 498 F.2d 765 (D.C. Cir. 1974)............................................................................53

Niagara Mohawk Power Corp. v. U.S. Dep’t of Energy, 169 F. 3d 16 (D.C. Cir. 1999).............................................................................31

N.Y. State Teamsters Conference Pension & Retirement Fund v. Express Services, Inc., 426 F.3d 640 (2d Cir. 2005) .......................................................................57

OSHA Data/CIH, Inc. v. U.S. Dep’t of Labor, 220 F.3d 153 (3rd Cir. 2000) ..............................................................................18

Pechinski v. Federal Savings and Loan Association, 345 F.3d 78 (2d Cir. 2003) .................................................................................30

PETA v. U.S. Dep’t of Agriculture, No. Civ. 03 C 195-SBC, 2005 WL 1241141 (D.D.C. May 24, 2005)............................................32, 55, 56

Public Citizen Health Research Group v. FDA, 704 F.2d 1280 (D.C. Cir. 1983)....................................................................50, 51

Public Citizen Health Research Group v. NIH, 209 F. Supp. 2d 37 (D.D.C. 2002)......................................................................18

Puliglisi v. Underhill Park Taxpayers Assoc., No. 96-9584, 1997 U.S. App. LEXIS 27260 (2d Cir. Oct. 3, 1997) ........................................37

Ry. Labor Executives’ Ass’n v. Consol. Rail Corp., 580 F. Supp. 777 (D.D.C. 1984).........................................................................21

Scott v. Fed. Reserve Bank of Kansas City, 406 F. 3d 532 (8th Cir. 2005) .............................................................................26

Soucie v. David, 448 F.2d 1067 (D.C. Cir. 1971)..........................................................................25

Teich v. FDA, 751 F. Supp. 243 (D.D.C. 1990).........................................................................51

vii

Cases Page(s)

U.S. Bancorp Mortgage Co. v. Bonner Mall P’ship, 513 U.S. 18 (1994)..............................................................................................23

U.S. Dep’t of Justice v. Reporters Comm. For Freedom of the Press, 489 U.S. 749 (1989)......................................................................................13, 26

U.S. Dep’t of Justice v. Tax Analysts, 492 U.S. 136 (1989)............................................................................................12

Vaughn v. Rosen, 484 F.2d 820 (D.C. Cir. 1973) ...............................................................13, 14, 33

Yeager v. DEA, 678 F.2d 315 (D.C. Cir. 1982) ...........................................................................13

Statutes

17 C.F.R. § 210, Regulation S-X ......................................................................47, 49

17 C.F.R. § 229, Regulation S-K.............................................................................47

31 C.F.R. § 210.7 .....................................................................................................22

5 U.S.C. § 551....................................................................................................14, 20

5 U.S.C. § 552...................................................................................................passim

12 U.S.C. § 248........................................................................................................22

12 U.S.C. § 301........................................................................................................22

12 U.S.C. § 391........................................................................................................22

15 U.S.C. § 78..........................................................................................................49

H.R. Rep. No. 89-1497 ............................................................................................12

H.R. Rep. No. 93-876 ..............................................................................................20

S. Rep. No. 89-813...................................................................................................13

PRELIMINARY STATEMENT

Bloomberg has been trying for almost two years to break down a brick

wall of secrecy in order to vindicate the public’s right to learn basic information

about the federal government’s unprecedented and highly controversial use of

public money to prop up financial institutions. Bloomberg appropriately sought

that information under the Freedom of Information Act through a request to the

Board of Governors of the Federal Reserve System (the “Board”). The Board,

later joined by the beneficiaries of the public largesse that it secretly dispensed, has

fought disclosure through dilatory tactics, inconsistent positions, and hyperbolic

assertions of financial ruin were the public to learn – even two years later – how its

money had been spent. Their strategy would appear to be to draw out the

proceedings long enough so that the information Bloomberg seeks is no longer of

interest to anyone. Bloomberg respectfully urges the Court to compel the Board to

discharge its statutory obligation to release the requested information without

further delay, so that the public can know and assess what its government has been

up to.

The Board and its allies in the banking industry claim that disclosure

would “stigmatize” borrowers and lead to 1930’s-style bank runs. In their

doomsday scenario, past borrowers would be ruined and the fear of disclosure

would cause future would-be borrowers to risk failure rather than avail themselves

2

of federal lending facilities, thereby preventing the Board from discharging its

statutory mandate to affect monetary policy. But neither the Board nor The

Clearing House Association L.L.C. (the “Clearing House” and, together with the

Board, the “Banks”) presents any evidence to support the predictions of a falling

sky. Rather they simply repeat the Board’s conclusion – which is entitled to no

deference here – that disclosure would have that result. And just last month, the

Office of the Special Inspector General for the Troubled Asset Relief Program, in

the context of assessing Board actions in connection with the bailout of AIG,

concluded that “the now familiar argument from government officials about the

dire consequences of basic transparency, as advocated by the Federal Reserve …,

once again simply does not withstand scrutiny.” Bloomberg respectfully submits

that the record in this case compels the same conclusion.

COUNTERSTATEMENT OF ISSUES PRESENTED FOR REVIEW

1. Did the District Court correctly hold that Exemption 4 does not

apply because the requested information was not “obtained from a person,” but

instead is information generated by the Board which reflects governmental action?

Moreover, to the extent the reports in question reflect information obtained from

the Federal Reserve Banks, is Exemption 4 not applicable because a Federal

Reserve Bank is an “agency” – and not a “person” – under FOIA?

3

2. Did the District Court correctly conclude that Exemption 4 does

not apply because the Board failed to meet its substantial burden of showing with

specific, concrete and non-conclusory evidence that the release of the requested

information would be likely to cause substantial harm to the competitive positions

of the sources of the information?

3. Did the District Court correctly decline to apply a “program

effectiveness” test under Exemption 4 in this case, where the Board failed to

demonstrate with specific evidence that disclosure of the requested information

would impair the Board’s future ability to address strains in the financial markets

and to pursue effectively its statutory obligations?

COUNTERSTATEMENT OF THE CASE

Bloomberg brought this action under the Freedom of Information Act,

5 U.S.C. §552 (“FOIA”), seeking to vindicate the public’s right to obtain

government records maintained by the Board concerning its lending of hundreds of

billions of dollars of public money through Federal Reserve Banks (“FRBs” and,

together with the Board, the “Fed”) to private financial institutions.

1. The Fed’s Mandate And The Loan Programs At Issue

The Board oversees the government’s central banking system, and its

objectives include “to promote effectively the goals of maximum employment,

stable prices, and moderate long-term interest rates”; to address “unusual and

4

exigent circumstances” in the domestic economy; and to relieve liquidity strains

through lending. (Board Br.1 at 4-5, 32-33 (internal quotations and citations

omitted).) The Board accomplishes its objectives in large part through loan

programs administered by the various FRBs, including the four loan programs at

issue here (the “Lending Facilities”). (Id. at 4-6.) The Fed considers itself “the

lender of last resort” because it “can serve as an emergency, back-up source of

liquidity for institutions that may not have access to ordinary, market sources of

funding on a short term basis.” (A-74, at ¶ 18; see also A-84, ¶ 5, A-89, ¶ 19.)

Through the Lending Facilities, the Fed lends taxpayers’ money to

certain private institutions for short periods of time, ranging from overnight to 90

days. (A-265-298.) During 2008, according to the Fed’s public list, some of the

institutions eligible to participate in the Lending Facilities were Banc of America

Securities LLC, Barclays Capital Inc., Goldman, Sachs & Co., HSBC Securities

(USA) Inc., J. P. Morgan Securities Inc., Merrill Lynch Government Securities

Inc., Morgan Stanley & Co. Inc., Bear, Stearns & Co., and Lehman Brothers Inc.

(A-313.) During the week of August 9, 2007, before the Fed expanded its loan

programs during the economic crisis, the Fed had an average outstanding loan

1 “Board Br.” refers to the Board’s brief in this appeal, filed on November 6, 2009.

5

balance through the discount window of approximately $1 million. (A-349.)

During the week of October 8, 2008, after changes to the Fed’s loan programs, the

Fed had an average outstanding loan balance of over $400 billion. (Id., A-270,

313.)

2. Bloomberg’s FOIA Request And The Board’s Identification Of The Responsive “Remaining Term Reports”

On May 20, 2008, Bloomberg submitted to the Board a FOIA request

(the “Request”) seeking certain information related to the Fed’s Lending Facilities.

(A-14-15.) In a letter dated December 9, 2008 – almost seven months after

Bloomberg submitted the request – the Board formally responded for the first time

to Bloomberg’s request. In its response the Board informed Bloomberg that it had

located 231 responsive documents, called “Remaining Term Reports.” (A-38-39,

¶¶ 11-13, 16, 31.) These reports were created by the Board to summarize FRB

lending activities, based on data provided to the Board by the FRBs. (A-38-39,

¶ 11.) According to the Board, the Remaining Term Reports reflect the names of

borrowers, the type of institution, the originating Federal Reserve district, the type

of credit extended, the origination and maturity dates of the loans, and the

individual loan amounts. (A-38-39, ¶ 11.)

The Board claimed that the Remaining Term Reports were exempt

from disclosure under FOIA’s Exemption 4 because they constituted confidential

commercial information. The Board also claimed that they were exempt under

6

FOIA’s Exemption 5, which covers certain materials sent within or between

agencies. (A-38-39, ¶¶ 11-13, 16, 31.)

3. Proceedings Below

a. Bloomberg Sues For Disclosure, And The Parties Agree To Move Directly To Summary Judgment Without Discovery.

On November 7, 2008, (prior to receiving the Board’s formal response

to its FOIA request) Bloomberg sued the Board, seeking to compel disclosure of

the responsive records. (A-2, Docket Sheet Entry # 1; A-9-22.) On January 21,

2009, before any pretrial disclosures were exchanged, Bloomberg wrote to the

District Court with the parties’ joint scheduling proposal. (A-3, Endorsed Letter,

Docket Sheet Entry # 7.) Bloomberg’s letter reported the parties’ agreement “that,

given the nature of the relief sought, it would make sense to move directly to

summary judgment motion practice.” (Id.) The letter proposed a summary

judgment briefing schedule, subject to change if the parties agreed to proceed with,

or the District Court ordered, any sort of discovery. (Id.) Neither party sought

discovery, and the summary judgment briefing proceeded with slight modifications

to the schedule proposed in the January 21st letter. (A-1-8.)

On March 4, 2009, the Board moved for summary judgment on a

number of grounds. (A-3-4, Docket Sheet Entries # 9-17.) Bloomberg opposed

the Board’s motion and filed its own motion for summary judgment seeking

7

immediate disclosure of the records. (A-4, Docket Sheet Entries # 18-24.) The

Board opposed Bloomberg’s motion but did not claim the need for discovery.

b. The District Court Rules That The Remaining Term Reports Are Not Exempt From Disclosure.

On August 24, 2009, the District Court issued an Opinion and Order

granting Bloomberg’s summary judgment motion and denying the Board’s. (SPA-

1-47.) Among other things, the District Court concluded that the Board failed to

meet its burden of proving that the Remaining Term Reports were covered by

Exemption 4. In reaching that conclusion, the District Court found that the Board

did not “point to an immediate risk of competitive harm that will result from

disclosure of the Remaining Term Reports.” (SPA-41.) The District Court

explained that “[c]onjecture, without evidence of imminent harm, simply fails to

meet the Board’s burden of showing Exemption 4 applies.” (SPA-41.) The

District Court also declined to adopt the so-called “program effectiveness” prong

of Exemption 4. (SPA-37-38, n.15.) Finally, the District Court held that

Exemption 4 did not apply because most of the information in the Remaining Term

Reports was not obtained from a non-governmental “person.” (SPA-33-36.) 2 The

2 The District Court also held that Exemption 5 did not apply because the Remaining Term Reports would not have been covered by a civil discovery privilege. (SPA-42-46.) The Board did not appeal the District Court’s ruling with respect to Exemption 5.

8

District Court ordered the Board to produce the Remaining Term Reports within

five business days. (SPA-47.)

c. The Clearing House Joins The Fight After Judgment Is Entered.

On September 9, 2009, two weeks after judgment was entered, the

Clearing House (an association of banks) sought from the District Court leave to

intervene in the action. (A-469-72.) The Board consented to the Clearing House’s

proposed intervention, but Bloomberg did not. (A-469.) Bloomberg argued that

the motion was untimely, that the Clearing House lacked standing, and that its

members’ interests would be adequately protected by the Board. (A-516.) In

response, the Clearing House did not address how it would better represent its

members’ interests than the Board would, but it did assure the District Court that it

sought “leave to intervene to appeal . . . not to relitigate this action in the District

Court before such an appeal.” (A-517.) The District Court allowed the Clearing

House to intervene. (A-513.)

SUMMARY OF ARGUMENT

The Banks’ sole argument on appeal is that the Remaining Term

Reports are exempt from disclosure under FOIA’s Exemption 4, which protects

confidential information obtained from someone other than an “agency” if

disclosure would likely result in substantial competitive harm to the person from

whom the information was obtained. As part of that argument, the Banks urge the

9

Court to revisit its previous decision not to address the viability of the so-called

“program effectiveness” judicial gloss on Exemption 4, and to use that gloss as a

further basis for reversing the District Court’s judgment. Bloomberg respectfully

submits that the District Court’s judgment should be affirmed.

First, Exemption 4 does not apply to the Remaining Term Reports

because the information in them was obtained not from borrowers but rather from

an FRB, which is an “agency” whose information is therefore outside the scope of

Exemption 4.

Second, the Board failed to discharge its heavy burden of producing

specific evidence substantiating what is merely a bundle of conclusory, speculative

assertions that disclosing borrowers’ accessing of short-term Fed lending facilities

would likely “stigmatize them.” Those assertions are entitled to no deference here,

and find insufficient support in the record. Indeed, the supposed “stigma” becomes

even more illusory when one considers that the information Bloomberg seeks

concerns short-term borrowings that occurred two years ago.

In apparent recognition of the fact that the record before the District

Court disproved the Board’s speculation about “stigma,” the Clearing House seeks

impermissibly to supplement the record on appeal by asking the Court to take

judicial notice of published materials regarding the banking crisis generally. The

Banks claim that those materials lend credence to the view that disclosure of

10

borrowers’ accessing Fed lending facilities would “stigmatize” them. But even if

the Court were inclined to suspend any limitations on the judicial notice rule and

consider the contents of these new materials, its review would bolster

Bloomberg’s, and not the Banks’, argument. Those materials show that reports of

governmental assistance in the United States tend to calm, not exacerbate, market

concerns about the viability of our financial institutions, and disprove the Banks’

fears that borrowers would be stigmatized by news that they accessed public

money almost two years ago.

The Banks’ claim that greater transparency will cause market

overreaction and panic is also contradicted by well-settled economic theory, as

presented to the District Court by unrefuted expert testimony. That common-sense

theory holds that greater transparency leads to a better-informed and better-

functioning market, and it is corroborated by recent market history.

The Banks’ argument is fundamentally flawed for the additional

reason that it is premised on the notion that a bank holding company’s shareholders

should not be informed that the company in which they have invested faces

financial pressures that are serious enough to require its accessing the Fed Lending

Facilities. According to the Banks, shareholders should not be informed of such

facts because they might “overreact” and pull their money out. This paternalistic

view is, of course, directly contrary to the philosophy and affirmative disclosure

11

obligations of our securities laws. And, in fact, various bank holding companies –

including Clearing House members – have disclosed to shareholders their

participation in Fed lending programs, without adverse consequences. Such

disclosures prove that transparency will not have the disastrous effects the Banks

fear.

Nor would the so-called “program effectiveness” test help the Banks

here, even if this Court were inclined to adopt it. That test would require a

showing that disclosure would prevent failing banks from seeking government aid

for fear of being “stigmatized.” If there is a financial institution out there that

would rather fail then seek public money, then perhaps it does not deserve public

funds. In any event, it defies all logic and common sense to argue that disclosure

would impede the Board’s ability to fulfill its statutory mission.

Finally, remand would not be appropriate here. The Board never

sought discovery below, and instead took the position that the case should be

resolved based on the parties’ summary judgment papers alone. In fact, even

having lost below, the Board does not seek remand. That suggestion for further

delay comes instead from the Clearing House, which chose to wait to seek

intervention until after entry of judgment in Bloomberg’s favor. The Clearing

House’s belated intervention should not allow the Board to revisit the deliberate,

albeit unsuccessful, litigation strategy it chose below.

12

ARGUMENT

THE REMAINING TERM REPORTS ARE NOT COVERED BY FOIA’S EXEMPTION 4 BECAUSE THEY WERE NOT OBTAINED FROM A NON-AGENCY PERSON AND THEIR DISCLOSURE WOULD NOT BE

LIKELY TO CAUSE COMPETITIVE INJURY TO ANY BORROWERS.

In enacting FOIA, “Congress sought to open agency action to the light

of public scrutiny. Congress did so by requiring agencies to adhere to a general

philosophy of full agency disclosure. Congress believed that this philosophy, put

into practice, would help ensure an informed citizenry, vital to the functioning of a

democratic society.” U.S. Dep’t of Justice v. Tax Analysts, 492 U.S. 136, 142

(1989) (internal quotations and citations omitted); see also H.R. Rep. No. 89-1497,

at 33 (1966) (“a democratic society requires an informed, intelligent electorate, and

the intelligence of the electorate varies as the quantity and quality of its

information varies”).

FOIA also reflects the conclusion that greater disclosure will engender

greater public confidence in our government: “A government by secrecy benefits

no one. It injures the people it seeks to serve; it injures its own integrity and

operation. It breeds mistrust, dampens the fervor of its citizens, and mocks their

loyalty.” S. Rep. No. 89-813, at 45 (1965).

In short, by allowing the public to know “what the government is up

to,” FOIA leads to a better-informed citizenry with greater confidence in its public

13

institutions. U.S. Dep’t of Justice v. Reporters Comm. For Freedom of the Press,

489 U.S. 749, 750 (1989).

While FOIA exempts certain categories of documents from its

disclosure requirements, those exemptions are to be construed narrowly. Dep’t of

Air Force v. Rose, 425 U.S. 352, 360-61 (1976); GC Micro Corp. v. Def. Logistics

Agency, 33 F.3d 1109 (9th Cir. 1994); Yeager v. DEA, 678 F.2d 315 (D.C. Cir.

1982). An agency invoking a FOIA exemption bears a “substantial” burden in

proving its applicability, and must do so by producing specific evidence;

conclusory or speculative assertions in support of an exemption are insufficient.

Lee v. FDIC, 923 F. Supp. 451 (S.D.N.Y. 1996); see also Church of Scientology of

California v. U.S. Dep’t of the Army, 611 F.2d 738, 742 (9th Cir. 1980) (“in

meeting its burden of proof, the government may not rely upon ‘conclusory and

generalized allegations of exemptions’”) (citations omitted); Vaughn v. Rosen, 484

F.2d 820, 826 (D.C. Cir. 1973). And FOIA’s narrow exemptions “do not obscure

the basic policy that disclosure, not secrecy, is the dominant objective of the Act.”

Rose, 425 U.S. at 361.

On appeal, the Banks invoke only one FOIA exemption: Exemption

4, which protects “trade secrets and commercial or financial information obtained

from a person and privileged or confidential.” 5 U.S.C. § 552(b)(4). The Banks

fail to meet their heavy burden of demonstrating Exemption 4’s applicability.

14

I. THE DISTRICT COURT CORRECTLY HELD THAT THE REMAINING TERM REPORTS WERE NOT OBTAINED FROM A “PERSON.”

To be exempt from disclosure under Exemption 4, the information in

question must be “obtained from a person.” 5 U.S.C. § 552(b)(4). For purposes of

FOIA, “person” is defined as an “individual, partnership, corporation, association,

or public or private organization other than an agency.” 5 U.S.C. § 551(2)

(emphasis added). In this case, the District Court correctly held that Exemption 4

does not apply to the Remaining Term Reports because the information in them

was not obtained from a “person.” As discussed more fully below, the Board

obtained the information it put in the Remaining Term Reports not from the

borrowers but rather from FRBs. And, because FRBs are “agencies” for FOIA

purposes, they are not “persons” within the meaning of Exemption 4.

A. The Information In The Remaining Term Reports Was Not Obtained From The Borrowers.

The Banks contend that the information in question was obtained from

a “person” because it originated with the borrowers. (See Board Br. at 40-48;

Clearing House Br.3 at 48-51.) But as the District Court correctly observed, “[t]he

information in the Remaining Term Reports relates more to the FRBNY’s decision

3 “Clearing House Br.” refers to the Clearing House’s brief in this appeal, filed on November 6, 2009.

15

to lend than to the information provided by the borrowers. While the Remaining

Term Reports certainly include information about the FRB’s interactions with the

borrowers, it is a non sequitur to say that information about a person is obtained

from that person.” (SPA-35-36.) (emphasis in original)

Indeed, the Board itself acknowledged that the information in the

Remaining Term Reports emanated not from borrowers but rather from the

FRBNY. According to the Board, the Remaining Term Reports reflect the

originating FRB district; individual loan amounts extended by the FRBs; the type

of FRB lending program borrowed from; and loan origination and maturity dates.

SPA-34 (citing Thro Decl. ¶¶ 11, 13; Board’s Local Rule 56.1 Stmt. ¶ 5). All of

this information, as the Board admitted in its District Court filings, was generated

by the FRBs themselves, and none of it constitutes information obtained by the

FRBs from the borrowers. (See A-65, ¶ 1 (with respect to discount window loans,

“Reserve Bank staff would review the request, verify collateral and, if approved,

enter the loan in the Reserve Bank’s loan and accounting systems”); A-69-70, ¶¶ 8,

10 (for Primary Dealer Credit Facility and Term Securities Lending Facility loans,

explaining that the Board determined the maximum amount of funds to be

provided, and the FRBNY administered auction mechanisms to determine the loan

amounts and terms).

16

The Banks assert that because certain information in the Remaining

Term Reports (in particular, loan amounts) reflect requests to the FRBs by the

borrowers, that information was “obtained from a person.” (Board Br. at 40-41.)

The District Court properly rejected this argument, holding:

The only information in the Remaining Term Reports that the FRBNY and other FRB’s could possibly have obtained from the borrow[er]s is the borrowers’ names; the FRBs generated all the other information from internal data regarding their lending programs. It is evident from the Board’s own testimony that the bulk of the information contained in the Remaining Term Reports was generated by the FRBNY and other FRBs operating [Discount Window] programs.

(SPA-34.)

In short, the borrowers requested loans from the FRBs, and the FRBs

processed those loan requests. The FRBs provided data concerning their lending

activities, including the decisions to lend and the terms of the loans, to the Board,

which used that information to create the Remaining Term Reports. (A-38, ¶ 11;

A-71, ¶ 13.) Thus, the Remaining Term Reports reflect Fed (and, therefore,

governmental) action. They do not constitute information obtained from the

borrowers. See FOMC v. Merrill, 443 U.S. 340, 360 (1979) (because Exemption 4

is limited to information “obtained from a person,” it does not cover “information

generated by the Federal Government itself”); Judicial Watch, Inc. v. FDA, 449

F.3d. 141, 148 (D.C. Cir. 2006) (“Materials implicating Exemption 4 are generally

17

not developed within the agency. Instead, it must procure commercial information

from third parties, either by requirement or by request.”).

The decision in Buffalo Evening News, Inc. v. SBA, 666 F. Supp. 467

(W.D.N.Y. 1987) is instructive. There, a newspaper had requested certain details

about loans made by the Small Business Administration (“SBA”), including the

loan amounts, amounts repaid, and the status of the loans. The newspaper argued

that “the [requested] information . . . ha[d] been generated by the SBA . . . .[, and]

that in no way d[id] [the] record[s] implicate any financial information provided to

the government by the borrower.” Id. at 468 (internal quotations and citations

omitted). The agency argued that it “obtains information concerning the status

of…[the] loan from the small business itself, i.e., the action or inaction of the

business in paying its SBA loan obligations determines the loan’s status. SBA

merely comp[iles] and records the data supplied by the business through its loan

payment activity.” Id. at 469 (internal quotations omitted). The court agreed with

the newspaper and ordered disclosure.

The cases cited by the Banks do not support a different conclusion.

Those cases involved compilations of data that were supplied to the government by

outside companies. See OSHA Data/CIH, Inc. v. U.S. Dep’t of Labor, 220 F.3d

153, 157 (3rd Cir. 2000) (information provided by private employers to the

Department of Labor concerning the number of incidences of serious injuries and

18

illnesses occurring at individual work sites and ratios of that information to the

number of employee work hours performed at the work site during particular time

periods); Gulf & Western Indus. Inc. v. United States, 615 F.2d 527, 530 (D.C. Cir.

1980) (company provided government agency with costs for units produced, scrap

rates, break-even point calculations, and actual cost data); Public Citizen Health

Research Group v. NIH, 209 F. Supp. 2d 37 (D.D.C. 2002) (licensee provided

government with royalty rates at the outset of negotiations with the government);

Judicial Watch, Inc. v. Export-Import Bank, 108 F. Supp. 2d 19 (D.D.C. 2000)

(companies provided information in export insurance applications). The reports at

issue in those cases are qualitatively different from the Remaining Term Reports,

which reflect government action by the Fed.4

4 Although the court in Clarke v. U.S. Dep’t of the Treasury, Civ. A. No. 84-1873, 1986 WL 1234 (E.D. Pa. Jan. 28, 1986) held that the requested information was protected from disclosure by Exemption 4, the court’s primary holding focused on the fact that the requested information did not exist in a previously prepared document. In any event, the Clarke court did not provide any discussion of the “obtained from a person” requirement, beyond a conclusory sentence that the information at issue there was obtained from a person, presumably because there was not a dispute between the parties concerning that prong of Exemption 4. Bloomberg respectfully submits that the decision in Fox News Network, LLC v. Bd. of Governors of the Fed. Reserve Sys., No. 09 Civ. 272, 2009 WL 2345097 (S.D.N.Y. July 30, 2009) misapplied the law to the facts in concluding that the information reflected in the Remaining Term Reports was obtained from the borrowers.

19

Accordingly, because the Remaining Term Reports do not contain

information “obtained from a person,” they are not shielded by Exemption 4.

B. Information Obtained From The FRBNY Is Not Subject To Exemption 4 Because The FRBNY Is An “Agency” For Purposes Of FOIA.

The Board asserts, in the alternative, that the information in the

Remaining Term Reports deserves secrecy under Exemption 4 because the Board

obtained that information from the FRBNY which, according to the Board, is also

a “person.” (See Board Br. at 48-51.) As a threshold matter, in the proceedings

below, the Board claimed that the Remaining Term Reports were covered by FOIA

Exemption 5, which applies to “inter-agency or intra-agency memorandums or

letters.” 5 U.S.C. § 552(b)(5) (See SPA-42.) Given the Board’s position that the

data in the Remaining Term Reports came from FRBs, its invocation of Exemption

20

5 suggests a recognition that FRBs are “agencies.” 5 As discussed next, the FRBs

are, in fact, “agencies” within the meaning of Exemption 4.6

The Administrative Procedure Act (“APA”), which includes FOIA,

defines “agency” as “each authority of the Government of the United States,

whether or not it is within or subject to review by another agency . . . .” 5 U.S.C.

§ 551(1). In 1974, Congress expanded the definition to include, among other

things, any “Government controlled corporation.” 5 U.S.C. § 552(f)(1). In doing

so, Congress noted that FOIA encompasses entities that “perform governmental

functions and control information of interest to the public.” H.R. Rep. No. 93-876,

at 7 (1974). Consistent with this, courts have recognized that the overarching

question in determining FOIA “agency” status is whether the entity performs

5 The Board subsequently reversed course and took the position that the FRBNY’s status as an agency is irrelevant to this case. (See SPA-33, n.12.) As a result, the District Court concluded that the Board “intended to abandon its argument that it obtained the information contained in the Remaining Term Reports from a person because it obtained the information from the FRBNY.” (Id.) Nonetheless, and ignoring its earlier invocation of Exemption 5, the Board attempts to resurrect its abandoned argument here. 6 In addition, as discussed more fully below, Exemption 4 requires a showing that disclosure would cause “substantial harm to the competitive position of the person from whom the information was obtained.” Inner City Press/Community on the Move v. Bd. of Governors of the Fed. Reserve Sys., 463 F. 3d 239, 244 (2d Cir. 2006). The Board does not, and cannot, contend that disclosure would have any impact on the FRBNY’s “competitive position.” For this reason too, Exemption 4 would not apply to information obtained from the FRBNY.

21

governmental functions, and have held that FRBs are “agencies” under the APA’s

(and therefore FOIA’s) definition. Bloomberg is aware of no cases that reached a

contrary conclusion.

In making the FOIA “agency” determination, courts “have not applied

a precise standard but have adopted a functional analysis.” Ciba-Geigy Corp. v.

Mathews, 428 F. Supp. 523, 527 (S.D.N.Y. 1977). See also Cotton v. Heyman, 63

F.3d 1115, 1121 (D.C. Cir. 1996) (“In determining whether an entity fits the

agency definition under FOIA, we have never developed bright line rules. Rather,

we have generally employed a fact-specific functional approach.”); Ry. Labor

Executives’ Ass’n v. Consol. Rail Corp., 580 F. Supp. 777, 778 (D.D.C. 1984)

(“Courts making this analysis have not developed a specific standard by which

each entity can be judged. Rather, the diverse array of organizational

arrangements that exist for the performance of government functions requires that

‘each arrangement must be examined anew and in its own context.’”) (citation

omitted).

The overarching question in determining “agency” status is whether

the entity performs governmental functions and is subject to federal control. See

Irwin Mem’l Blood Bank of the San Francisco Medical Soc. v. Am. Nat’l Red

Cross, 640 F.2d 1051, 1055 (9th Cir. 1981) (“[T]he existence of . . . substantial

federal control . . . distinguishes those entities that can be fairly denominated as

22

federal agencies under the FOIA from . . . [those] whose activities may be

described as merely quasi-public or quasi-governmental.”); Lee Constr. Co. v. Fed.

Reserve Bank of Richmond, 558 F. Supp. 165, 173 (D. Md. 1982) (“courts have

indicated that . . . ‘the authority to act with the sanction of government behind it

determines whether or not a governmental agency exists’”) (citations omitted).

The FRBNY plays a substantial governmental role and is subject to

substantial governmental control. Congress created the FRBs as the monetary and

fiscal agents of the United States. See 12 U.S.C. § 391 (referring to the FRBs as

“fiscal agents” of the government); 31 C.F.R. § 210.7 (same). The FRBs are the

operational arm of the government’s central banking system, and the Board

accomplishes its objectives by authorizing and overseeing FRB funding facilities,

including those at issue in Bloomberg’s FOIA request here. (SPA-3.) The FRBs

operate subject to the provisions of law and the orders of the Board, and the Board

has broad oversight responsibility over the FRBs. 12 U.S.C. §§ 248(k), 301.7 As

the District Court noted, the FRBs’ “role within the Federal Reserve system is

7 The FRBNY has admitted in a brief it filed with the Third Circuit Court of Appeals that it “execute[s] a quintessential central bank function on behalf of the United States government, … act[s] as the banker for the United States government, … [and] executes the monetary policy of the United States.” Brief for Appellant Federal Reserve Bank of New York, Fasano v. Fed. Reserve Bank of New York, No. 05-4661, 2006 WL 5439217, at *16-17 (3d Cir. Jan. 23, 2006).

23

generally supportive of the Board, ‘carrying out a variety of System functions,

including operating a nationwide payments system, distributing the nation’s

currency and coin, supervising and regulating member banks and bank holding

companies, and serving as banker for the U.S. Treasury.’” (SPA-4 (quoting The

Federal Reserve System: Purposes and Functions 4 (9th ed., June 2005)).) Indeed,

the Remaining Term Reports were generated by the Board in connection with FRB

actions on behalf of the Board in furtherance of the federal government’s monetary

policies.

Consistent with the FRBs’ governmental role, two courts have held

that they are “agencies” under the APA (whose definition applies to FOIA as well).

Lee Constr., 558 F. Supp. 165; Flight Int’l Group, Inc. v. Fed. Reserve Bank of

Chicago, 583 F. Supp. 674 (N.D. Ga. 1984), vacated on other grounds, 597 F.

Supp. 462 (N.D. Ga. 1984).8 Bloomberg is not aware of any case that shields the

FRBNY’s functional capacity from its responsibilities to the public under FOIA,

and the Board did not cite any such case before either the District Court or this

Court.

8 The Flight International Group decision was vacated because of a settlement between the parties. However, as the Supreme Court subsequently held, settlement does not nullify a prior order’s precedential effect. See U.S. Bancorp Mortgage Co. v. Bonner Mall P’ship, 513 U.S. 18, 26-29 (1994).

24

In Lee Constr., the court considered whether an FRB was an “agency”

under the APA such that its actions would be subject to judicial review. In finding

that it was, the court noted that “the affairs of each [FRB] are conducted under the

close supervision and ultimate control of the Board, an independent federal

regulatory agency,” and “the Board has delegated substantial decision-making

authority to the FRB.” 558 F. Supp. at 177-78. The Court concluded that “a

consideration of each and every one of the relevant factors tips the balance in favor

of holding that the [Federal Reserve Bank of Richmond] is an ‘agency’ [under

§ 551(1)].” Id. at 179. The court also noted that, “For the most part, that

conclusion comports with the decisions of other Courts which have held that

[FRBs] are agencies or instrumentalities of the United States for other purposes.”

Id.

Flight International Group also considered whether an FRB is an

“agency” under the APA. Noting that the FRB “performs important governmental

functions and exercises powers entrusted to it by the United States government,”

the court concluded that it is “an authority of the United States government” and

therefore an “agency” under the APA. 583 F. Supp. at 678. Indeed, the court

considered that conclusion to be so obvious that it questioned “[h]ow the [FRB]

can contend otherwise in good faith.” Id.

25

Further, courts, including a court in this Circuit, have held that FRBs

are government agencies or instrumentalities in various other contexts. See, e.g.,

Fed. Reserve Bank of St. Louis v. Metrocentre Improvement Dist. No. 1, 657 F.2d

183, 185 n.3 (8th Cir. 1981) (FRBs are instrumentalities for tax purposes because

“they conduct important governmental functions”); Fed. Reserve Bank of Boston

v. Comm’r of Corps. and Tax of Commonwealth of Mass., 499 F.2d 60, 63 n.6, 63-

64 (1st Cir. 1974) (FRB is “a public governmental body” whose “greater

independence in no way signals a diminished role in the operations of

government”); James v. Fed. Reserve Bank of New York, 471 F. Supp. 2d 226,

240 (E.D.N.Y. 2007) (FRBNY is an instrumentality because it “perform[s]

important governmental functions . . . [and] operate[s] virtually as . . . [an] arm[] of

the government”) (citation omitted).

The Board contends that the FRBNY is not an “agency” under the

“authority of the government” prong of the definition because it has no rulemaking

or adjudicatory authority. (Board Br. at 49-50.) But rulemaking and adjudicatory

authority is not the sine qua non of being an “authority of the government” or a

FOIA agency. See Soucie v. David, 448 F.2d 1067, 1073 (D.C. Cir. 1971) (“While

the primary purpose of the APA is to regulate the processes of rule making and

adjudication, administrative entities that perform neither function are nevertheless

agencies, and therefore subject to the public information provisions of the APA,

26

i.e., [FOIA].”). And none of the cases cited by the Board for this proposition holds

that “agency” status requires final rulemaking or adjudicatory authority. Rather, in

Irwin Memorial Blood Bank v. American National Red Cross, 640 F.2d 1051,

1053 (9th Cir. 1981), the court held that the Red Cross was not an “agency”

because there was no showing of “substantial federal control or supervision” of its

operations. 640 F.2d at 1057-58. In Dong v. Smithsonian Inst., 125 F.3d 877, 881

(D.C. Cir. 1997), cert. denied, 524 U.S. 922 (1988), the court held that the

Smithsonian Institute was not an “agency” because “it did not exercise any

substantial governmental authority.”

The Board similarly contends that the FRBNY does not fit into the

“government controlled corporation” prong of the “agency” definition. (Board Br.

at 50-51.) In support of this assertion, the Board cites Scott v. Fed. Reserve Bank

of Kansas City, 406 F.3d 532 (8th Cir. 2005). But Scott involved not the APA’s

definition of “agency” but rather the meaning of that term as used in Rule

4(a)(1)(B) of the Federal Rules of Appellate Procedure, which extends the time by

which a United States “agency” may file a notice of appeal. In finding that an FRB

was not eligible for the extended period, the court based its decision “most

importantly” on Rule 4’s rationale that the government often needs more than

thirty days to decide whether to appeal, which the court found did not apply to an

FRB. 406 F.3d at 538. That rationale bears no relation to FOIA’s goal of ensuring

27

that the American people know what their government is “up to.” U.S. Dep’t of

Justice v. Reporters Comm. For Freedom of the Press, 489 U.S. 749, 750 (1989).

Because the FRBNY is an “agency,” it is not a “person” for purposes

of Exemption 4. And because Exemption 4 only protects from disclosure certain

specified information obtained “from a person,” it does not shield responsive

information that the Board obtained from an FRB. See Consumers Union of U.S.,

Inc. v. Veterans Admin., 301 F. Supp. 796, 804 (S.D.N.Y. 1969) (“The [Senate

Judiciary] Committee clearly had no intention of including information obtained

from other government sources in the exemption. To include it would pervert the

purposes of the Act for then commercial and financial information could be made

secret simply by transferring records from one agency to another with a promise of

confidentiality.”).

II. THE DISTRICT COURT CORRECTLY HELD THAT THE BOARD FAILED TO SHOW THAT THE RELEASE OF THE REQUESTED INFORMATION WOULD BE LIKELY TO CAUSE SUBSTANTIAL COMPETITIVE HARM TO BORROWERS.

The Banks recognize that commercial information is “privileged or

confidential” under Exemption 4 only if 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.” Inner City

Press/Community, 463 F.3d at 244. Both in the District Court and on appeal, the

28

Board invokes only the second prong of Exemption 4. The District Court,

applying the proper test, correctly found that the Board failed to carry its burden of

establishing that release “would have the effect . . . of causing substantial

competitive harm” to the borrowers. Bloomberg respectfully submits that this

Court should reach the same conclusion. Id.

A. The District Court Applied The Correct Standard.

The Banks seek to sow doubt regarding the propriety of the District

Court’s analysis by claiming that it committed legal error by requiring the Board to

show the certainty, as opposed to the mere likelihood, of substantial competitive

injury. This attack on the District Court’s analysis is misplaced.

In making this argument, the Banks quote the District Court’s

conclusion that the Board failed to show that disclosure “would” result in

competitive harm. (Clearing House Br. at 32). But in using this language, the

District Court simply repeated the same language used by this Court and the D.C.

Circuit Court of Appeals in defining the scope of Exemption 4. See Inner City

Press, supra (information is “privileged or confidential” under Exemption 4 only if

disclosure “would have the effect . . . of causing substantial harm to the

competitive position of the person from whom the position was obtained”)

(emphasis added); Judicial Watch, Inc. v. FDA, 449 F.3d 141, 148 (“The agency

may therefore withhold involuntarily submitted information as confidential [under

29

Exemption 4] if disclosure would … cause substantial competitive harm to the

entity that submitted the information.”) (emphasis added).

And there can be no doubt that the District Court applied the correct

“likelihood” standard. First, Bloomberg argued below that the Board was required

to show a likelihood of competitive harm (Bloomberg SJ Br.9 at 22) , and it is

unlikely that the District Court, sua sponte, would have held the Board to a higher

standard. Second, the District Court concluded that the Board had failed to meet

its burden of showing a “risk” of competitive harm flowing from disclosure,

demonstrating its recognition that likelihood, as opposed to certainly, was the

relevant test. (SPA-41.)

Indeed, a strategy similar to the Banks’ was employed unsuccessfully

in McDonnell Douglas Corp. v. United States Dep’t of the Air Force, 375 F.3d

1182 (D.C. Cir. 2004). There, McDonnell Douglas brought a “reverse” FOIA case

challenging the Air Force’s decision to disclose certain pricing information

contained in a contract with McDonnell Douglas. Among other things, McDonnell

Douglas claimed that the Air Force misapplied Exemption 4 “because it required

9 “Bloomberg SJ Br.” refers to “Plaintiff Bloomberg L.P.’s Memorandum of Law in Opposition to Defendant’s Motion for Summary Judgment and in Support of Its Cross-Motion for Summary Judgment,” filed in this case on April 15, 2009. (A-4, Docket Sheet Entry # 19.)

30

McDonnell Douglas to demonstrate ‘with certainty’ release of the contested

information would cause the Company substantial competitive harm.” McDonnell

Douglas, 375 F.3d at 1187. The D.C. Circuit Court of Appeals rejected that attack

on the agency’s analysis, finding that, “[a]lthough the Air Force did not use the

word ‘likely’ at every opportunity in the course of its analysis of whether

disclosure would cause substantial competitive harm, it is quite clear the agency

knew what was required to meet the National Parks I standard and sought to apply

that standard accordingly.” Id. The same can be said of the District Court’s

analysis here.

The Clearing House also criticizes the District Court’s finding that the

Board failed to show that competitive injury was “imminent,” claiming that

Exemption 4 carries no such requirement. Here, the Clearing House misconstrues

“imminent” to be synonymous with “certain,” and therefore more onerous than

merely “likely.” (See Clearing House Br. at 29, 33.) But “imminent” does not

mean “certain”; rather, it provides temporal context, and means “about to occur” or

“impending.” See The American Heritage Dictionary of the English Language,

31

Fourth Edition.10 The Court in Iglesias v. CIA, 525 F. Supp. 547, 559 (D.D.C.

1981) also required a showing of “imminent” competitive injury, and the Clearing

House does not cite any case that criticizes the imposition of that requirement.

Consistent with it, other Courts of Appeal have held that Exemption 4’s

requirement of likely substantial competitive injury is not satisfied where the

alleged injury is “remote.” Niagara Mohawk Power Corp. v. U.S. Dep’t of Energy,

169 F.3d 16, 18 (D.C. Cir. 1999); Hercules, Inc. v. Marsh, 839 F.2d 1027, 1030

(4th Cir. 1988). An “imminence” requirement is also wholly consistent with the

Supreme Court’s commands that FOIA’s exemptions be read narrowly and

consistent with the overarching Congressional goal of agency transparency.

As shown next, the District Court was correct in determining that the

Board failed to show a likelihood of substantial competitive harm.

B. The Banks’ Arguments Concerning Stigma Are Entirely Speculative.

Rather than offer specific factual evidence of likely substantial

competitive harm, the Board raises speculative arguments about the so-called

“stigma” that might attach to borrowers if the requested information is disclosed.

Thus, the Board speculates that release of the requested information might fuel

10 The Court has previously relied on this edition for the plain meaning of words. See Pechinski v. Federal Savings and Loan Association, 345 F.3d 78, 83 (2d Cir. 2003).

32

market speculation and rumors which “can quickly place an institution in a

weakened condition vis-à-vis its competitors by causing a loss of public confidence

in the institution, a sudden outflow of deposits (a “run”), a loss of confidence by

market analysts, a drop in the institution’s stock price, and a withdrawal of market

sources of liquidity.” (A-74, ¶ 17; A-89-90, ¶¶ 20-22 (emphasis added).)

Similarly, the Board speculates that “the fact that an institution borrowed from the

DW may suggest . . . that its liquidity shortage stems from a financial problem at

an institution that is not known to the public at large.” (A-74-75, ¶ 18 (emphasis

added).) And the Board speculates that out of fear of these potential consequences,

an institution may stop borrowing from the Fed, which “could quickly lead to an

institution’s demise.” (A-75, ¶ 20 (emphasis added).)

Such unsupported speculation of the metaphysical possibility of

remote harm is insufficient to meet the Board’s burden of offering specific facts to

show that substantial competitive harm is likely to occur. See City of Chicago v.

U.S. Dep’t of the Treasury, No. 01 C 3835, 2002 WL 370216, at *2 (N.D. Ill.

March 8, 2002) (Exemption 4 does not apply where competitive injury is remote or

speculative); PETA v. U.S. Dep’t of Agriculture, No. Civ. 03 195-SBC, 2005 WL

1241141, at *7 (D.D.C. May 24, 2005); Comstock Int’l Inc. v. Export-Import Bank

of U.S., 464 F. Supp. 804, 807 (D.D.C. 1979) (“[C]onclusory and generalized

33

allegations are unacceptable as a means of sustaining the burden of nondisclosure

under the FOIA.”).

The Banks’ argument is, essentially, that the Board has concluded that

disclosure of the Remaining Term Reports may result in competitive harm, and

that in light of the Board’s expertise in such matters, the Court should simply defer

to its judgment. But in FOIA matters, the agency’s conclusion is entitled to no

deference. Vaughn v. Rosen, 484 F.2d 820, 823 (D.C. Cir. 1973). Given the

Board’s heavy burden of proof and its failure to produce evidence substantiating its

speculation of competitive harm, this Court should affirm the decision below.

C. The District Court Correctly Held That Reputational Harm Does Not Trigger Exemption 4.

The Banks also criticize the District Court’s holding that competitive

harm under Exemption 4 means something more than mere reputational harm.

(See SPA-39.) In support, the Banks cite this Court’s decision in Nadler v. FDIC,

92 F.3d 93 (2d Cir. 1996). In doing so, the Banks overstate Nadler, which found

Exemption 4 satisfied based on threats to the commercial success of a development

project, as opposed to the mere reputational harm – i.e., the “stigma” that the

Banks claim to foresee here. 92 F.3d at 97. And two recent decisions reaffirmed

that reputational harm is not sufficient for Exemption 4 to apply; rather, the agency

must show likelihood of a competitor’s affirmative use of the information resulting

in competitive harm. See In Defense of Animals v. U.S. Dep’t of Agriculture, Civ.

34

A. No. 02-557, 2009 WL 2974764, at *10 (D.D.C. Sept. 18, 2009) (“the

competitive harm that matters is a competitor’s affirmative use of proprietary

information that could reap a commercial windfall for the competitor, rather than

the harm caused by a customer or other third party’s negative reaction to

disclosure.”); In Defense of Animals v. U.S. Dep’t of Agriculture, 587 F. Supp. 2d

178, 181 (D.D.C. 2008) (“The type of competitive injury covered under Exemption

4 is limited to ‘that which may flow from competitors’ use of the released

information, not from any use made by the public at large or customers.’”)

(quoting Ctr. to Prevent Handgun Violence v. U.S. Dep’t of the Treasury, 981 F.

Supp. 20, 23 (D.D.C. 1997) (emphasis in original)).

D. Disclosure Would Not Result In Competitive Injury To The Borrowers Given The Passage Of Time.

As Bloomberg argued below, the Banks cannot show that disclosure

would likely cause competitive harm because the requested information – which

concerns lending activities from 2007 through May 2008 – is now commercially

stale. The Clearing House seeks to avoid consideration of this point by arguing

that it was not “addressed” by the District Court, and therefore is “not before this

Court.” (Clearing House Br. at 43.) Of course, it is well-settled that this Court

“may … affirm the District Court’s judgment on any ground appearing in the

record, even if the ground is different than the one relied on by the District Court.”

Blackman v. New York City Transit Authority, 491 F.3d 95, 100 (2d Cir. 2007).

35

Various courts have recognized, in the FOIA context, that the passage

of time can eliminate competitive harms that might have flowed from more

immediate release of sensitive information. See, e.g., FOMC v. Merrill, 443 U.S.

at 363 (1979) (recognizing that where certain directives requested under FOIA

contained sensitive information and “immediate release of these Directives would

significantly harm the Government’s monetary functions or commercial interests,”

then a slight delay in the publication of the directives would be appropriate); Hack

v. Dep’t of Energy, 538 F. Supp. 1098, 1104 (D.D.C. 1982) (government agency

allowed to withhold certain information in response to FOIA request “until the

contract for the project has been let”); Ctr. for Public Integrity v. Dep’t of Energy,

191 F. Supp. 2d 187, 195 (D.D.C. 2002) (“Courts have recognized that the passage

of time can mitigate the potential for harm that might otherwise have resulted from

the release of commercial information.”).

Here, Bloomberg seeks information concerning short-term borrowing

that took place in late 2007 and early 2008. The Banks cannot seriously contend

that any financial institution would now be stigmatized if shareholders and

depositors were to learn that two years ago, at the height of the financial crisis, it

availed itself of short-term Fed assistance. On the factual record here, and in light

of the significant passage of time, the Banks’ “stigma” argument does not

withstand even passing scrutiny. See Lee v. FDIC, 923 F. Supp. at 455 (“the

36

financial information in question is given for the 1994 year and any potential

detriment which could be caused by its disclosure would seem likely to have

mitigated with the passage of time.”).

In fact, the Banks do not seriously dispute that the information is now

dated. Rather, the Clearing House notes that Bloomberg’s FOIA request sought

records that were created up to the day before the request was submitted. (Clearing

House Br. at 42.) While some of the information might not have been

commercially stale had it been produced when Bloomberg first requested it, it

certainly is now. Indeed, as discussed below, the Clearing House’s response to

Bloomberg’s arguments regarding borrowers’ SEC disclosure obligations concedes

that, with the passage of less than a year, any adverse effect of disclosure is

significantly lessened. (See Clearing House Br. at 41.) By that logic, the passage

of two years from borrowing to disclosure would lessen any adverse competitive

impact of disclosure to the point of eliminating it.

The Banks’ real argument is that an order directing disclosure of the

requested materials would cause competitive injury to future borrowers, because

the precedential effect of such an order would compel the immediate disclosure of

information about their future borrowings. (Clearing House Br. at 7-8, 42-43.)

This argument does not withstand scrutiny, either. If the Court were to conclude

that the passage of time dissipated any adverse commercial impact that might have

37

flowed from timely disclosure, the precedential impact of such a decision would be

limited to cases where an analogous passage of time had a similar ameliorative

effect. It would not vitiate an agency’s ability, where appropriate, to delay briefly

the disclosure of sensitive information under FOIA.

E. The Newly-Submitted Materials Outside The Record On Which The Clearing House Relies Do Not Establish Competitive Injury.

The Clearing House purports to find support for its claim of

“competitive injury” in various news articles regarding the recent financial crisis.

But these materials, which are not part of the record on appeal, fail to substantiate

the Banks’ claim that transparency would lead to financial ruin. To the contrary,

they reflect that disclosure of government intervention typically calms markets,

and that the most severe market reactions come from confirmation that government

aid will not be forthcoming.

1. The Clearing House Misstates The Law, And Mischaracterizes The New Materials, In Claiming That The Court Should Take Judicial Notice of Them.

As a threshold matter, none of these materials was presented to the

District Court, and the Clearing House overreaches in presenting them to this

Court. See, e.g., Puliglisi v. Underhill Park Taxpayers Assoc., No. 96-9584, 1997

38

U.S. App. LEXIS 27260 (2d Cir. Oct. 3, 1997) (evidence that was not presented to

the district court may not be considered on appeal).11

The Clearing House seeks to evade this black letter principle of

appellate practice by claiming that the Court can take judicial notice of these new

materials. But while the Court may take judicial notice of the fact that the articles

were published, it should not take judicial notice that the articles suggest that the

Banks’ fears of “stigmatization” are well-founded. First, the judicial notice rule

does not extend to the truth of the contents of news articles. See, e.g., Garber v.

Legg Mason Inc., No. 08-1831-cv, 2009 U.S. App. LEXIS 21404 (2d Cir. Sept. 30,

2009). Second, the articles’ contents do not support the conclusions that the

Clearing House draws from them.

In fact, none of the articles suggests that disclosure of the Remaining

Term Reports would lead to competitive injury. Some of them simply chronicle

the demise of financial institutions without reference to Fed lending at all.12 Others

11 The fact that the Clearing House intervened after judgment was entered below does not change the analysis. See Flying J, Inc. v. Van Hollen, 578 F.3d 569 (7th Cir. 2009). 12 See Daniel Dombey et al., Fall in markets as bail-out is approved, Fin. Times, Oct. 3, 2008 (observing that although the markets fell when Congress approved a financial rescue package, the drop was fueled, in part, by Congress' previous failure to pass the bill and a simultaneous spike in unemployment numbers); Diya Gullapalli, Investing in Funds: A Monthly Analysis, Wall St. J.,

39

observe that Fed assistance has had a calming impact on markets, that adverse

market reactions followed news that a federal bail-out was not forthcoming, or that

failing institutions had no qualms about seeking a public bail-out to save them

from ruin.13 Indeed, some of the materials suggest that market concerns are stoked

(Footnote cont’d.)

Mar. 2, 2009 (noting the panic in money market mutual funds after the Reserve Fund “broke the buck” following Lehman Brothers’ bankruptcy); James R. Hagerty & Lingling Wei, Countrywide Seeks Deposits to Fund Loans, Sept. 19, 2007 (discussing Countrywide’s financial problem without respect to government involvement); Greg Hitt & Damian Paletta, U.S., Europe Push to Limit Crisis, Wall St. J., Oct. 1, 2008 (attributing bank runs to fears regarding the general economy and irrationality); Sebastian Mallaby, A Market Run on Rationality, Wash. Post, Aug. 20, 2007 (simply observing the irrationality of a run on Countrywide, which had insured deposits); Damian Paletta & David Enrich, Crisis Deepens as Big Bank Fails, Wall St. J., Jul. 12, 2008 (stating that IndyMac’s inability to raise capital led to its decline). 13 See Jenny Anderson & Ben White, Wall St.’s Fears on Lehman Bros. Batter Markets, N.Y. Times, Sept. 10, 2008 (noting that a government bailout would have stabilized the Lehman Brothers situation, while it was fears of the Treasury’s inability to take on the Lehman burdens that helped fuel a sell-off); Federal Deposit Insurance Corp., History of the Eighties -- Lessons for the Future: An Examination of the Banking Crises of the 1980s and Early 1990s (Dec. 1997) at p. 244 (observing that public action by the Federal Reserve in supporting the failing Continental Illinois bank stemmed a run on the bank); James R. Hagerty, et al., U.S. Seizes Mortgage Giants, Wall St. J., Sept. 8, 2008 (observing that the federal takeovers of Fannie Mae and Freddie Mac were welcomed by the markets as a way of dispelling uncertainty that was “roiling the world’s financial markets); Diana B. Henriques, Treasury to Guarantee Money Market Funds, N.Y. Times, Sept. 20, 2008 (observing that the U.S. Treasury’s provision of backstop financing to money market funds will enhance market confidence); Matthew Karnitching, et al., U.S. to Take Over AIG in $85 Billion Bailout, Wall St. J., Sept. 17, 2008 (stating that AIG was stabilized by the Fed’s public announcement that it would lend AIG up to

40

by Fed secrecy, rather than full disclosure of lending practices. See John

Hilsenrath, et al., Crisis Mode: Paulson, Bernanke Strained for Consensus In

Bailout, Wall St. J., Nov. 10, 2008 (suggesting that the Fed’s opacity bred

nervousness about financial stability).

Indeed, as Bloomberg demonstrated below, in various contexts the

market has reacted positively to news that an institution received government aid.

(See, e.g., A-396 (Citigroup Inc.’s stock surged 64% after the market learned that it

received a “government rescue package that shields the bank from losses on toxic

assets and injects $20 billion of capital”), A-400 (E*Trade Financial Corp.’s stock

surged 42% after the company announced that it was “optimistic” that it would

receive funds from the government’s Troubled Asset Relief Program), A-402

(General Motors Corp.’s shares increased 5.6% after announcing that its GMAC

(Footnote cont’d.)

$85 billion); Kate Kelly, Fed Races to Rescue Bear Stearns in Bid to Steady Financial System, Wall St. J., Mar. 15, 2008 (noting Bear Stearns’ desire to secure Fed funding to stabilize its situation, even though the eventual Fed funding came too late to restore confidence in Bear Stearns); Andrew Ross Sorkin, Bids to Halt Financial Crisis Reshape Landscape of Wall St., N.Y. Times, Sept. 15, 2008 (noting that A.I.G. requested a “$40 billion lifeline from the Federal Reserve and that a refusal to provide federal funding to Lehman Brothers fueled concerns rather than preventing concerns); Andrew Ross Sorkin, In Sweeping Move, Fed Backs Buyout and Wall St. Loans, N.Y. Times, Mar. 17, 2008 (observing that analysts felt the Fed’s involvement in the sale of Bear Stearns would stabilize the market and not penalize J.P. Morgan).

41

funding affiliate would receive $6 billion in TARP funding), A-405 (PNC

Financial Services Group’s stock price increased $2 to $58.58 when it announced a

deal to acquire National City Corp. using $5.58 billion in funds PNC received

through the TARP program)).14

To be sure, there may be many reasons that a publicly-traded

company’s share price jumps, but the historical facts here – a disclosure by banks

of public fund assistance followed immediately by a share price increase –

14 Here, the requested information would have little or no negative effect on the market because, while the information is very valuable to the public in assessing governmental action, the information is stale from the market’s perspective. As explained above, the Board states that its lending facilities serve as a “back-up source of liquidity for institutions . . . on a short-term basis.” (A-74, ¶ 18.) The requested information contained in the Remaining Term Reports relates to short-term loans that were awarded in April and May 2008. Those loans range in duration from overnight up to 90 days. The requested information addresses loans that were made a year ago, and paid back well over six months ago. Further, the Board admits that an institution “may experience a sudden funding need for any number of reasons” which “may result from routine developments and may not indicate an underlying capital or liquidity problem.” (A-74, ¶ 18.) Therefore, the release of the requested information would merely reveal whether around one year ago a borrower had a short-term liquidity shortfall, which may or may not have indicated financial instability. Accordingly, the withheld information has little or no relevance to the market today. On the other hand, it remains highly relevant to the public’s ability to assess the government’s actions in response to the current economic crisis.

42

demonstrate the fallacy of the Board’s speculative and unsupported allegations of

harm and “stigma.”15

2. Under The Banks’ Notion Of Judicial Notice, This Court Should Consider The Special Inspector General’s Conclusions Regarding The Absence Of Harm From Disclosure.

Under the Clearing House’s view of the scope “judicial notice,” the

Court should also consider the November 17, 2009 report by the Office of the

Special Inspector General for the Troubled Asset Relief Program entitled “Factors

15 Indeed, the Clearing House’s exhaustive search of the public record reveals only one instance in which news of government assistance to a bank was thought to have sparked a run on the bank. See Clearing House Br. at 17-18. That episode, involving a news leak of the Bank of England’s forthcoming assistance to Northern Rock, does not provide a basis for this Court to conclude that disclosure of the Remaining Term Reports would have a similar effect. First, in Northern Rock, news was leaked that the Bank of England was about to provide assistance. House of Commons Report at 65. That is a far cry from public disclosure of assistance rendered two years ago. Second, the Northern Rock report suggests that the negative reaction stemmed not so much from news of the bailout as from the fact that the news was leaked prematurely, and that neither the Bank of England nor Northern Rock was in a position to explain the significance of that news to shareholders or depositors. Id. Here, by contrast, where information would be disclosed pursuant to FOIA (and given bank holding companies’ SEC disclosure obligations), the Board and the borrowers would be in a position proactively to explain the significance – or lack thereof – of the borrowing. Finally, due to the absence of significant deposit insurance in the U.K., depositors’ money in Northern Rock was largely uninsured and therefore truly at risk of imminent loss (id. at 153); the American system of deposit insurance would significantly dampen such panic. As an aside, the Northern Rock report also notes that “covert” aid, such as the type the Banks would have this Court bless, would have not been feasible in the U.K. in light of Northern Rock’s disclosure obligations to its shareholders. Id. at 56.

43

Affecting Efforts to Limit Payments to AIG Counterparties.” In that report the

Special Inspector General examined actions by the Treasury Department and the

Board in connection with their provision of public assistance to American

International Group, Inc. The Special Inspector General concluded, among other

things, that:

the now familiar argument from Government officials about the dire consequences of basic transparency, as advocated by the Federal Reserve in connection with Maiden Lane III, once again simply does not withstand scrutiny. Federal Reserve officials initially refused to disclose the identities of the counterparties or the details of the payments, warning that disclosure of the names would undermine AIG’s stability, the privacy and business interests of the counterparties, and the stability of the markets. After public and Congressional pressure, AIG disclosed the identities. Notwithstanding the Federal Reserve’s warnings, the sky did not fall; there is no indication that AIG’s disclosure undermined the stability of AIG or the market or damaged legitimate interests of the counterparties. The lesson that should be learned — one that has been made apparent time after time in the Government’s response to the financial crisis — is that the default position, whenever Government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with Government funds.

Office of the Special Inspector General for the Troubled Asset Relief Program,

SIGTARP-10-003, Factors Affecting Efforts to Limit Payments to AIG

Counterparties, at 31 (Nov. 17, 2009), available at

http://www.sigtarp.gov/audits.shtml (emphases added).

44

F. The Banks’ Speculation Is Contradicted By Unrebutted Economic Theory.

The Banks’ “competitive injury” argument is, in essence, that the truth

should be kept from the market because the market might misconstrue it to the

borrowers’ detriment. But this flies in the face of widely accepted economic – and

democratic – theory, which holds that a better-informed market is a better-

functioning market. (See A-119, ¶¶ 8, 22, 24, 35.) As Bloomberg demonstrated

below, objective expert research refutes the Banks’ speculation that disclosure

might result in substantial competitive harm in the market for retail and

commercial banking and for brokerage services. (See A-119, ¶¶ 6-14.) Indeed,

research conducted by economists at the Fed shows that increased disclosure of

information regarding troubled banks in times of crisis provides useful information

that allows markets to adjust, without substantial or undue competitive

consequences. (Id. ¶¶ 8-9.) For example, in a study of announcements of formal

actions by the Fed that reflected that banks were “deeply troubled,” Fed

economists found that the disclosure provided “useful patterns of stock price

reaction,” which did not cause severe problems, but instead represented “a

repricing of reasonable magnitude.” (Id. ¶ 9.)

Second, the so-called “stigma” associated with borrowing at the

discount window is inconsistent with the purposes of the facilities at issue. By the

Board’s own description of the programs, accessing credit from the discount

45

window is not indicative of a troubled institution, but rather often is due to

transitory or liquidity needs. (See A-249.) Further, to the extent that there was any

stigma associated with borrowing at the discount window (which the Board has

failed to demonstrate beyond mere speculation), that stigma would be expected to

be more pronounced in normal financial conditions, since the likelihood of using

the facility might be more unusual. Thus, the market would not be surprised that

financial institutions borrowed at the discount window during the crisis of late

2007 and early 2008, given the prevailing economic climate.

Finally, the Banks claim to be concerned that financial analysts,

customers, and competitors would draw adverse conclusions about borrowers

which would lead to a loss of confidence in those institutions, which would in turn

pose competitive harm to these institutions. The Banks’ concern is premised on

the assumption that the market will necessarily draw adverse inferences about the

borrowers, and that the market is not able to correctly internalize the information.

However, economic theory and empirical studies presented to the District Court

suggest that markets are extremely efficient in processing information, both in

direction and proportion. (See A-119, ¶ 24.) That portion of the record shows

that:

• the markets fail when there is a high level of uncertainty, and a lack of good information on which to base decisions (Id. ¶ 24);

46

• markets that are less efficient or that exhibit symptoms of market failure warrant greater levels of disclosure (Id. ¶ 24); and

• by the mechanics of the efficient market hypothesis, disclosure will result in increases in market efficiency (Id. ¶ 29).

In short, increased disclosure, such as the information sought by

Bloomberg’s FOIA requests, would eliminate the type of opacity that creates

significant uncertainty in the financial markets and in the economy overall. (See

A-119, ¶¶ 32-42.) And, as discussed above, history demonstrates the accuracy of

economic theory about the benefits of greater transparency in disclosures.16

G. The Banks’ Position Is Inconsistent With SEC Disclosure Rules.

A central premise of the Banks’ argument is that members of the

public should not be provided with the information that Bloomberg seeks because

they might misconstrue its significance. This theory is flatly inconsistent with the

disclosure obligations of publicly-traded borrowers under the Securities Exchange

Act of 1934 (the “’34 Act”). Indeed, such publicly-traded borrowers are required

to disclose, and in fact have disclosed, their participation in the loan programs that

are the subject of Bloomberg’s FOIA request. And there is no evidence that such 16 As an additional example, in response to the banking and credit crisis in the early 1990s, the Japanese government discouraged disclosure of problems with the banking system, while Korea owned up to its problems more quickly. Not surprisingly, Japan’s reaction resulted in a lost decade for Japan’s economy, while Korea’s economy bounced back more quickly. (See A-119, ¶ 41.)

47

disclosure has resulted in the “stigma” that the Banks contend would result from

publishing the requested information.

SEC rules and regulations adopted pursuant to the ’34 Act require

regular and periodic disclosure of, among other things, disclosure of loans and

other commitments, such as the programs that are the subject of Bloomberg’s

FOIA requests. For example, Regulation S-X requires banks that are subject to the

’34 Act’s reporting requirements to disclose “amounts payable” for “short-term

borrowings.” See 17 C.F.R. § 210 Regulation S-X, Item 9-03.16. Further,

publicly-traded companies are required to include in the Management Discussion

and Analysis section of their public filings a disclosure of known trends, demands,

commitments, events or uncertainties that will or are reasonably likely to result in

material increases or decreases in liquidity. See 17 C.F.R. § 229, Regulation S-K,

Item 303(a)(1).

Consistent with those disclosure obligations, publicly-traded

borrowers have disclosed their participation (or their eligibility to participate) in

the Fed programs that are the subject of Bloomberg’s request. For example, many

companies have disclosed their participation in the Term Auction Facility program,

including the following:

• Bank of America Corporation (a Clearing House member) (A-361) (“We are currently utilizing TAF and have pledged residential, commercial mortgage and credit card loans as collateral.”);

48

• BOK Financial Corp. (A-366) (“In 2008, the subsidiary banks began borrowing funds under the Federal Reserve Bank Term Auction Facility program. . . . Funds borrowed under this program totaled $450 million at December 31, 2008.”);

• Colonial Bancgroup Inc. (A-370) (“Short-term borrowings consist of . . . Federal Reserve Tem Auction Facility (TAF) funds. . . . from December 31, 2007 to December 31, 2008 . . . Colonial purchased $700 million in Federal Reserve TAF funds”);

• Metlife Inc. (A-370) (“At December 31, 2008, MetLife Bank had borrowed $950 million under the Term Auction Facility for various short-term maturities.”);

• Sterling Financial Corp. (A-375) (“Sterling is also eligible to participate in the Term Auction Facility . . . . Sterling has utilized this source of funds to the extent that these funds are more competitive than other sources.”); and

• Comerica Inc. (A-384) (“Short-term borrowings increased $818 million to $3.6 billion at September 30, 2008, from $2.8 billion at December 31, 2007, primarily due to borrowings under the Federal Reserve Term Auction Facility. . . .”).

Borrowers also have disclosed their participation (or eligibility to

participate) in the Primary Dealer Credit Facility and the Term Securities Lending

Facility, including: Bank of America Corporation (A-359); Goldman Sachs Group

Inc. (A-386); Merrill Lynch & Co. (A-392); and Morgan Stanley (A-354).

Thus, some publicly-traded borrowers already have disclosed at least

some of the information that Bloomberg seeks through its FOIA request. Further,

there is not a scintilla of evidence that these disclosures have caused the “stigma”

that the Board contends will occur if the requested information is provided.

49

The Banks do not try to refute Bloomberg’s showing that SEC

regulations require disclosure of the information in question. To the contrary, the

Clearing House acknowledges that “certain borrowing institutions” have in fact

disclosed their participation in certain Fed lending programs. (Clearing House Br.

at 41). The Clearing House argues that these disclosure do not change the analysis

because, in the context of SEC disclosures, the information is disseminated “on the

borrowers’ own terms” and typically in year-end 10-K filings, rather than within

days of the borrowings. Id. This argument fails for at least two reasons.

First, SEC disclosure requirements do not allow an issuer to decide

when it is ready to disclose the required information. Rather, they compel

disclosure at regular, set intervals. See 15 U.S.C. § 78m(a); 17 C.F.R. § 210,

Regulation S-X, Items 9-03.13, 9-03.16. Second, as discussed above, the

information that Bloomberg seeks is already almost two years old, and FOIA does

not necessarily compel the disclosure of information immediately upon its creation,

and allows an agency to delay briefly the disclosure of sensitive commercial

information in order to mitigate any adverse consequences from disclosure. See,

e.g., FOMC v. Merrill, 443 U.S. at 363 (recognizing that where directives

requested under FOIA contained sensitive information and “immediate release of

these Directives would significantly harm the Government’s monetary functions or

commercial interests,” then a slight delay in the publication of the directives would

50

be appropriate). Given the Clearing House’s apparent concession that delayed

disclosure under the ’34 Act has not had adverse consequences on borrowers, the

same conclusion should flow from disclosure, two years after the fact, of the

Remaining Term Reports in response to Bloomberg’s FOIA request.

The Clearing House also argues that SEC disclosure obligations are

irrelevant because “many” of the disclosures cited by Bloomberg simply refer to

“the availability and use of certain Fed Lending Programs.” (Clearing House Br. at

41). But as discussed above, Item 9-03.16 of Regulation S-X requires bank

holding companies to disclose “amounts payable” for “short-term borrowings,”

and several such companies have done just that. Moreover, the Banks have

claimed that the mere fact that a borrower had participated in lending programs

was confidential information, the disclosure of which would cause injury. (See

Clearing House Br. at 49 (“the competitive harm likely to result from disclosure of

borrower names alone is sufficient to exempt the entirety of the reports”)

(emphasis in original); Board Br. at 21, 43).) The SEC disclosures in the record

show that the Banks’ alleged concerns are unfounded.

H. The Board’s “Understanding” With Borrowers Does Not Trump FOIA’s Disclosure Requirements.

The Banks also argue that the Board’s “understanding” with

borrowers that the requested information will remain secret is evidence that release

of such information would cause competitive harm. (See Board Br. at 22; Clearing

51

House Br. at 47.) In fact, as discussed above, borrowers have disclosed their

participation in the Lending Facilities; those disclosures refute the Board’s

contention that there is an unwritten “agreement” between the Fed and the

borrowers that neither will disclose such information to the public. In any event,

the Board may not enter into an agreement with borrowers − explicit or otherwise

− to disregard its disclosure obligations under FOIA. See Public Citizen Health

Research Group v. FDA, 704 F.2d 1280, 1287 (D.C. Cir. 1983) (“Congress has

made clear both that the federal courts, and not the administrative agencies, are

ultimately responsible for construing the language of the FOIA, and that agencies

cannot alter the dictates of the Act by their own express or implied promises of

confidentiality.”) (citations omitted); Charles River Parks “A” Inc. v. the Dep’t of

Housing and Urban Development, 519 F.2d 935, 940 (D.C. Cir. 1975) (if requested

information “is not found to be confidential under the FOIA, it must be disclosed

even if it was submitted in confidence.”); Teich v. FDA, 751 F. Supp. 243, 247

(D.D.C. 1990) (“If the FDA were permitted to assure confidentiality to those it

regulates… the FOIA would be completely frustrated. . . . [The agency cannot]

forge a Northwest passage around the FOIA…. by assert[ing] simply that it

received the file under a pledge of confidentiality to the one who supplied it.

52

Undertakings of this nature can not, in and of themselves, override the Act.”)

(citation omitted).17

III. THE “PROGRAM EFFECTIVENESS” THEORY DOES NOT PROVIDE A BASIS FOR SHIELDING THE MATERIALS.

The Banks also urge the Court to read into Exemption 4 a “program

effectiveness” prong, which they contend would compel the secrecy of the

Remaining Term Reports because “disclosure of the information would undermine

the Board’s interest in effectively administering its statutory and regulatory

responsibilities.” (Board Br. at 31; see also id. at 31-39; Clearing House Br. at 45-

48.) But the Board has failed to demonstrate that disclosure of the requested

information would impair the Board’s ability to address strains in the financial

markets and to effectively pursue its statutory obligations. Thus, while Bloomberg

believes that adoption of the “program effectiveness” test would run counter to the

17 In support of the contention that the supposed “understanding” with the borrowers should inform this Court’s decision, the Clearing House cites American Airlines, Inc. v. National Mediation Board, 588 F.2d 863 (2d Cir. 1978). But in American Airlines, the Court acknowledged that such an understanding of confidentiality is “perhaps not binding upon the courts in their construction of the FOIA.” Id. at 871. Moreover, there was more than a simple “understanding” of confidentiality in American Airlines. Rather, the promise of confidentiality was included in the agency regulations at issue there. Id. The Banks have not pointed to any regulation documenting the “understanding” upon which they rely here, nor could they because none exists.

53

Congressional command that FOIA’s exemptions be read narrowly, that test would

in any event be inapplicable here.18

The “program effectiveness” test has its genesis in a footnote in

National Parks and Conservation Ass’n v. Morton, 498 F.2d 765 (D.C. Cir. 1974).

The National Parks court cited to Congressional hearings in which “the problems

of compliance and program effectiveness are mentioned as governmental interests

possibly served by [Exemption 4].” Id. at 770 n.17. Subsequent to National Parks,

some courts have adopted the “program effectiveness” test as a third governmental

interest that may render information as “confidential” under Exemption 4.

18 The Supreme Court, in the context of Exemption 5, has rejected a similar agency assertion of a program effectiveness doctrine because it cannot be reconciled with FOIA’s fundamental goal of full disclosure, stating:

Such an interpretation of Exemption 5 would appear to allow an agency to withhold any memoranda, even those that contain final opinions and statements of policy, whenever the agency concluded that disclosure would not promote the “efficiency” of it operations or otherwise would not be in the “public interest.” This would leave little, if anything, to FOIA’s requirement of prompt disclosure, and would run counter to Congress’ repeated rejection of any interpretation of the FOIA which would allow an agency to withhold information on the basis of some vague “public interest” standard.

FOMC v. Merrill, 443 U.S. at 353. That same conflict with FOIA’s goal exists in the context of the Banks’ efforts to inject the program effectiveness doctrine into Exemption 4.

54

However, this Court has not adopted the “program effectiveness” test,19 and the

District Court declined to “import or apply the program effectiveness test in this

action.” (SPA-38 n.15.) The result here should be no different.

In essence, the Banks argue that financial institutions’ fear of negative

public reactions to the disclosure of the Remaining Term Reports would cause

those institutions not to avail themselves of the financing facilities in question.

According to the Banks, that, in turn, would interfere with the Board’s ability to

help those institutions through FRB lending. But the Banks’ concerns about the

competitive harm that would supposedly flow from disclosure is based on multiple

levels of speculation, and is contradicted by the facts. The Board has not provided

any specific evidence that disclosure of the requested information would impair the

Board’s ability to address strains in financial markets or to effectively pursue its

statutory obligations. Indeed, Bloomberg has shown that some information

concerning who has borrowed from the relevant lending facilities has been

disclosed, and the Board has not presented a scintilla of evidence that any of those

19 In Nadler v. Federal Deposit Insurance Corporation, 92 F.3d 93 (2d Cir. 1996), this Court expressly stated that it did “not reach the issue whether the district court properly afforded the relief to the FDIC on the basis of the ‘program effectiveness’ exemption.” Id. at 96.

55

borrowers has been reluctant to make further use of, or no longer uses, those

facilities.

Moreover, the Banks’ argument makes no sense: the Banks would

have the Court believe that a bank on the precipice of failure, and with no other

funding available to it, would rather fold for lack of funding than let its depositors

and shareholders know that it is being strengthened by the federal government.

That simply is not a rational basis for continued secrecy.

The court in Buffalo Evening News, Inc. v. SBA, 666 F. Supp. 467

(W.D.N.Y. 1987), rejected a similar argument. There, the newspaper had

requested certain details about loans made by the Small Business Administration

(“SBA”), including the loan amounts, amounts repaid, and the status of the loans.

The government withheld the requested information under Exemption 4, arguing

that its release would “impair [its] interest in the effective operations of its loan

assistance program.” Id. at 470. The newspaper countered that “disclosure of the

status of the SBA loan will not cause qualified borrowers to decline the benefits

associated with obtaining an SBA loan. Instead, [the newspaper argued] that it is

more likely that borrowers will see such disclosure as a ‘cost of doing business’

with the government.” Id. at 470. The district court agreed with the newspaper,

stating that it “d[id] not believe that disclosure in this case w[ould] harm the SBA’s

ability to conduct its own business as intended by Congress.” Id. at 471.

56

PETA v. U.S. Dep’t of Agriculture, No. Civ. 03 C 195-SBC, 2005

WL 1241141 (D.D.C. May 24, 2005), is also instructive. The plaintiff in that case

sought various records related to USDA-guaranteed loans by a bank to a private

corporation. The bank argued that Exemption 4 shielded the records “because

bank customers would be unwilling to participate in federal loan guarantee

programs if their financial records may be disclosed under FOIA.” Id. at *7. The

court held that the “testimony [was] too conclusory and speculative to demonstrate

substantial competitive injury.” Id.

Similarly, the Board has provided nothing more than conclusory and

speculative assertions about the impact of disclosure of the requested information

on its ability to pursue its statutory obligations. Indeed, the materials that the

Banks urge the Court judicially to notice reject their “program effectiveness”

argument. See James A. Clouse, Recent Developments in Discount Window

Policy, 80 Fed. Res. Bull. 965, 970 (1994) (“The greater reluctance of banks to

borrow has had little effect on the ability of the Federal Reserve to achieve its

objectives for money growth or for general conditions in reserve and money

markets.”); Brian F. Madigan & William Nelson, Proposed Revision to the Federal

Reserve’s Discount Window Lending Programs, 88 Fed. Res. Bull. 313, 316

(2002) (“Furthermore, the proposed changes should appreciably reduce depository

57

institutions’ concern that borrowing will be perceived as a sign of weakness, as

only financially sound institutions will have access to primary credit.”).

Thus, even if the Court were inclined to read a “program

effectiveness” prong into Exemption 4, it need not do so in this case because the

Banks have failed to meet their burden to establish the applicability of that test to

the Remaining Term Reports.

IV. REMAND FOR FURTHER DEVELOPMENT OF THE FACTUAL RECORD IS UNWARRANTED HERE.

As an alternative to reversal of the District Court’s judgment, the

Clearing House asks this Court to vacate the final judgment and remand for further

proceedings to allow further development of the factual record. (See Clearing

House Br. at 45 & n.25.) Remand would not be appropriate here.

The Board does not join the Clearing House in seeking remand; to the

contrary, the Board argues that “there is no real dispute as to the facts” here.

(Board. Br. at 24.) In any event, the Board waived further development of the

factual record when it agreed that this matter could be resolved on summary

judgment without discovery. See N.Y. State Teamsters Conference Pension &

Retirement Fund v. Express Services, Inc., 426 F.3d 640, 648 (2d Cir. 2005)

(declining to remand for further proceedings where party failed to seek discovery

before responding to cross-motion for summary judgment); see also Crum v.

Marini, 06-CV-0513, 2007 WL 3104750 at *1 (N.D.N.Y. Oct. 22, 2007) (rejecting

58

objection to report and recommendation on ground that plaintiff should have been

permitted to take discovery prior to grant of summary judgment, stating that

plaintiff “waived any purported right to discovery by not raising the issue until this

late stage in the proceedings”).

The Board had a full and fair opportunity to present the District Court

with all evidence in support of its motion. The Clearing House’s eleventh-hour

intervention – several months after Bloomberg filed its complaint and after the

District Court entered final judgment – should not provide the Board with a second

bite at the apple to have additional evidence submitted in support of its position.

Cf. Crown Fin. Corp. v. Winthrop Lawrence Corp., 531 F.2d 76, 77 (2d Cir. 1976)

(holding that where judgment has already been entered, intervention is “unusual

and not often granted”); Dow Jones & Co. v. U.S. Dep’t of Justice, 161 F.R.D.

247, 253 (S.D.N.Y. 1995) (permitting intervention after grant of summary

judgment, emphasizing that intervenor represented that she did “not intend to add

to the factual record already before the court”).

STATE OF NEW YORK COUNTY OF NEW YORK

) ) )

ss.:

AFFIDAVIT OF SERVICE BY OVERNIGHT EXPRESS MAIL

I, , being duly sworn, depose and say that deponent is not a party to the action, is over 18 years of age and resides at the address shown above or at

On December 7, 2009 deponent served the within: Brief for Plaintiff-Appellee

upon: Gregory F. Taylor, Esq. Robert J. Giuffra, Esq. American Bankers Association Sullivan & Cromwell Amicus Curiae Attorneys for Intervenor-Appellant 1120 Connecticut Ave 125 Broad Street Washington, DC 20036 New York, NY 10004 (202) 663-5028 (212) 558-3121 gtaylor@aba.com giuffra@sullcrom.com Yvonne Facchina Mizusawa, Esq. Board of Governors of the Federal Reserve System Defendant-Appellant 20th and C Sts., N.W. Washington, DC 20551 (202) 452-3436 Yvonne.F.Mizusawa@frb.gov the address(es) designated by said attorney(s) for that purpose by depositing 2 true copy(ies) of same, enclosed in a postpaid properly addressed wrapper in a Post Office Official Overnight Express Mail Depository, under the exclusive custody and care of the United States Postal Service, within the State of New York. Sworn to before me on December 7, 2009

Mariana Braylovskaya Notary Public State of New York

No. 01BR6004935 Qualified in Richmond County

Commission Expires March 30, 2010

Job # 226693

ANTI-VIRUS CERTIFICATION FORM Pursuant to Second Circuit Local Rule 32(a)(1)(E)

CASE NAME: Bloomberg L.P. v. Board of Governors of the Federal Reserve Systems DOCKET NUMBERS: 09-4083 -cv (L), 09-4097-cv (CON) I, Mariana Braylovskiy, certify that I have scanned for viruses the PDF

version of the

________ Appellant’s Brief ____X___ Appellee’s Brief ________ Reply Brief ________ Amicus Brief that was submitted in this case as an email attachment to <civilcases@ca2.uscourts.gov> and that no viruses were detected. Please print the name and the version of the anti-virus detector that you used:

Vipre AntiVirus version 3.1 was used.

________________________________ Mariana Braylovskiy Date: December 7, 2009

09-4083cv (L) & 09-4097cv (CON)

IN THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BLOOMBERG L.P.,

Plaintiff-Appellee, v.

THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,

Defendant-Appellant,

and

THE CLEARING HOUSE ASSOCIATION L.L.C., Intervenor-Appellant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE

SOUTHERN DISTRICT OF NEW YORK

BRIEF OF APPELLANT

Tony West Richard M. Ashton Assistant Attorney General Katherine H. Wheatley Mark B. Stern Yvonne F. Mizusawa Matthew M. Collette Board of Governors of the Attorneys, Appellate Staff Federal Reserve System Civil Division, Room 7212 Washington, D.C. 20551 Department of Justice (202) 452-3436 Washington, D.C. 20530-0001 Counsel for Appellant (202) 514-4214

November 6, 2009

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................................................................................... iv GLOSSARY OF ACRONYMS ............................................................................. viii STATEMENT OF SUBJECT MATTER JURISDICTION AND APPELLATE JURISDICTION ......................................................................................................... 0 STATEMENT OF ISSUES PRESENTED................................................................ 1 STATEMENT OF THE CASE .................................................................................. 2

A. Nature of the Case ................................................................................. 2

B. Statement of the Facts ............................................................................ 4

1. The Discount Window and the Board’s Emergency Lending Facilities. ..................................................................................... 4

2. Plaintiff’s FOIA Request and the Board’s Response. ................ 8

3. The District Court’s Opinion. ...................................................10

STANDARD OF REVIEW .....................................................................................13 SUMMARY OF THE ARGUMENT ......................................................................13 ARGUMENT ...........................................................................................................16 THE DISTRICT COURT ERRED AS A MATTER OF LAW IN HOLDING THAT INFORMATION IN THE REMAINING TERM REPORTS WAS NOT EXEMPT UNDER FOIA EXEMPTION 4 .............................................................16

ii

A. The Names, Loan Amounts, and Loan Dates of Borrowers That Took Out Loans From the Discount Window and Emergency

Lending Facilities Are “Privileged or Confidential” Under Exemption 4. .......................................................................................17

1. The Board Demonstrated that Disclosure of the Names, Loan

Amounts, and Dates is Likely to Cause Substantial Competitive Injury to the Borrowers .............................................................18

2. The District Court Applied a Standard for Substantial

Competitive Harm that is Directly at Odds with Controlling Second Circuit Precedent ..........................................................25

a. The District Court Erred in Finding that Harm Must

Result from Use of Information by Competitors ............25

b. The District Court Erred in Requiring a Showing of Certain, Rather than Likely, Harm ..................................29

c. The District Court Erred in Requiring That Harm be

Imminent .........................................................................30

B. The Information in the Remaining Term Reports Is Privileged or Confidential Because Disclosure Would Undermine the Effective

Execution of the Board’s Statutory And Regulatory Responsibilities. ..................................................................................31

1. Disclosure of the Remaining Term Reports Would Impair the

Board’s Statutory Abilities Under the Federal Reserve Act to Authorize Lending by the Federal Reserve Banks and to Promote Maximum Employment, Stable Prices and Moderate Long Term Interest Rates ..........................................................32

2. The District Court Erred In Refusing To Recognize the

Program Effectiveness Standard ...............................................35

C. The District Court Erred in Holding That Information in the Remaining Term Reports, Other Than the Borrowers’ Names, Was Not “Obtained from a Person” as Required Under Exemption 4 .......40

iii

1. The District Court Erred in Finding That Loan Amounts and

Dates in the Reports Were Not Obtained From the Borrowers ..................................................................................40

2. As a Matter of Law, Information in Government Reports

Obtained from Persons Outside the Government, or from Which Such Information Can be Extrapolated, Is Obtained “From a Person” under Exemption 4 ........................................44

3. In the Alternative, Information Obtained from FRBs in this

Case was “Obtained From a Person” Under FOIA Exemption 4 ..............................................................................48

CONCLUSION ........................................................................................................52 CERTIFICATE OF SERVICE CERTIFICATE OF COMPLIANCE ANTIVIRUS CERTIFICATE

iv

TABLE OF AUTHORITIES

Cases 9 to 5 Org. for Women Office Workers v. Board of Governors, 721 F.2d 1 (1st Cir. 1983) .................................................................. 17, 31, 36, 38 Africa Fund v. Mosbacher, 1993 U.S. Dist. LEXIS 7044 (S.D.N.Y. 1993) ....................................................37 American Airlines, Inc. v. National Mediation Board, 588 F.2d 863 (2d Cir. 1978) .................................................................................26 Associated Press v. U.S. Dep’t of Defense, 554 F.3d 274 (2d Cir. 2009) .......................................................................... 13, 24 Buffalo Evening News, Inc. v. SBA, 666 F. Supp. 467 (W.D.N.Y. 1987) .............................................................. 47, 48 Clarke v. U.S. Dep’t of Treasury, 1986 U.S. Dist. LEXIS 29989 (E.D. Pa., Jan. 28, 1986) .............................. 37, 46 Comstock Int’l (U.S.A.), Inc. v. Export-Import Bank, 464 F. Supp. 804 (D.D.C. 1979)...........................................................................37 Continental Stock Transfer & Trust Co. v. SEC, 566 F.2d 373 (2d Cir. 1977) (per curiam) ............................................................17 Cotton v. Heyman, 63 F.3d 1115 (D.C. Cir. 1995)..............................................................................50 Critical Mass Energy Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992) (en banc), cert. denied, 507 U.S. 984 (1993) ............................................................ 17, 31, 36 Dong v. Smithsonian Inst., 125 F.3d 877 (D.C. Cir. 1997), cert. denied, 524 U.S. 922, (1998) .....................50

v

Fasano v. Federal Reserve Bank of Kansas City, 457 F.3d 274 (3rd Cir. 2006) .................................................................................49 Flight Safety Servs., Corp. v. Dep't of Labor, 326 F.3d 607 (5th Cir. 2003) .................................................................................43 FOMC v. Merrill, 443 U.S. 340 (1979) .............................................................................................10 Fox News Network v. Board of Governors of the Federal Reserve System, 2009 U.S. Dist. LEXIS 66929 (S.D.N.Y., July 30, 2009), appeal pending, No. 09-3795-cv (2d Cir.). ................................................... passim Gulf & Western Industries, Inc. v. United States, 615 F.2d 527 (D.C. Cir. 1980)........................................................... 24, 30, 45, 46 Iglesias v. C.I.A., 525 F. Supp. 547 (D.D.C. 1981)...........................................................................31 Inner City Press/Community on the Move v. Board of Governors, 463 F.3d 239 (2d Cir. 2006) .................................................................... 16, 17, 31 Irwin Memorial Blood Bank v. American National Red Cross, 640 F.2d 1051 (9th Cir. 1981) ..............................................................................50 Judicial Watch, Inc. v. Export-Import Bank, 108 F. Supp. 2d 19 (D.D.C. 2000)................................................................. 37, 46 Nadler v. FDIC, 899 F. Supp. 158, 162 (S.D.N.Y. 1995), aff’d on other gnds, 92 F.3d 93 (2d Cir. 1996) .....................................................................................37 Nadler v. FDIC, 92 F.3d 93 (2d Cir. 1996) ............................................................................. passim National Parks & Conservation Ass’n v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976)................................................................. 18, 27, 30 National Parks Conservation Ass’n v. Morton, 498 F.2d 765 (D.C. Cir. 1974)...................................................................... passim

vi

Occidental Petroleum Corp. v. SEC, 873 F.2d 325 (D.C. Cir. 1989)..............................................................................27 OSHA Data/CIH, Inc. v. U.S. Dep’t of Labor, 220 F.3d 153 (3rd Cir. 2000) .......................................................................... 44, 45 Public Citizen Health Research Group v. FDA, 704 F.2d 1280 (D.C. Cir. 1983)............................................................................25 Public Citizens Health Research Group v. NIH, 209 F. Supp. 2d 37 (D.D.C. 2002)........................................................................46 Scott v. Federal Reserve Bank of Kansas City, 406 F.3d 532 (8th Cir. 2005), cert. denied, 546 U.S. 1216 (2006) ................ 50, 51 Utah v. U.S. Dep’t of the Interior, 256 F.3d 967 (10th Cir. 2001) ........................................................................ 28, 30 Vaughn v. Rosen, 484 F.2d 820 (D.C. Cir. 1973)..............................................................................30 Statutes

5 U.S.C. § 551(1) .............................................................................................. 49, 51

5 U.S.C. § 551(2) .............................................................................................. 40, 49

5 U.S.C. § 552 ............................................................................................................ 1

5 U.S.C. § 552(b)(4).................................................................................. 1, 9, 16, 47

5 U.S.C. § 552(f) ......................................................................................................51

5 U.S.C. § 552(f)(1). ................................................................................................49

12 U.S.C. §§ 221 et seq. ............................................................................................. 4

12 U.S.C. § 225a ........................................................................................... 4, 32, 38

vii

12 U.S.C. § 248(j) ...................................................................................................... 4

12 U.S.C. § 248(k) ............................................................................................ 49, 50

12 U.S.C. § 282 ........................................................................................................49

12 U.S.C. §§ 282-83.................................................................................................50

12 U.S.C. § 301 ....................................................................................................4, 49

12 U.S.C. § 302 ........................................................................................................49

12 U.S.C. § 341 ................................................................................................. 49, 50

12 U.S.C. § 343 ................................................................................... 4, 5, 21, 33, 38

12 U.S.C. § 347b(a) .................................................................................. 4, 5, 34, 38

28 U.S.C. § 1291 ........................................................................................................ 1

31 U.S.C. § 9101 ......................................................................................................50

Other Authorities Hearings on S. 1966 Before the Subcommittee on Administrative Practice and

Procedure of the Senate Committee on the Judiciary, 88th Cong., 1st Sess. 1-2 (1964) .......................................................................................... 35, 36, 38, 39

viii

GLOSSARY OF ACRONYMS Board: Board of Governors of the Federal Reserve System DW: Discount Window FOIA: Freedom of Information Act, 5 U.S.C. § 552 FRA: Federal Reserve Act, 12 U.S.C. § 221 et seq. FRBs: Federal Reserve Banks FRBNY: Federal Reserve Bank of New York MA: Monetary Affairs PDCF: Primary Dealer Credit Facility SCLF: Special Credit and Liquidity Facilities TAF: Term Auction Facility TSLF: Term Securities Lending Facility

IN THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT Nos. 09-4083cv(L) and 09-4097(CON)

BLOOMBERG, L.P.,

Plaintiff-Appellee,

v.

THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,

Defendant-Appellant,

and

THE CLEARING HOUSE ASSOCIATION L.L.C.,

Intervenor-Appellant. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE

SOUTHERN DISTRICT OF NEW YORK

BRIEF FOR DEFENDANT – APPELLANT THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

STATEMENT OF SUBJECT MATTER JURISDICTION AND APPELLATE JURISDICTION

This case stems from a decision ordering the Board of Governors of the

Federal Reserve System (“Board”) to release, pursuant to the Freedom of

1

Information Act, 5 U.S.C. § 552 (“FOIA”), records containing information

concerning loans made under certain short term liquidity programs implemented

by Federal Reserve Banks. The district court (Preska, C.J.) issued its opinion and

order granting summary judgment to plaintiff Bloomberg L.P. (“Bloomberg”) and

denying the Board’s motion for summary judgment on August 24, 2009. On

September 17, 2009, the district court granted the motion by The Clearing House

Association L.L.C. (“Clearing House”) for leave to intervene. Defendant Board

filed a timely notice of appeal on September 30, 2009. Intervenor Clearing House

filed a timely notice of appeal on September 30, 2009. On October 6, 2009, the

Court entered a stay pending appeal. This Court has appellate jurisdiction under

28 U.S.C. § 1291.

STATEMENT OF ISSUES PRESENTED Exemption 4 of the FOIA authorizes the withholding of “trade secrets and

commercial or financial information obtained from a person and privileged or

confidential.” 5 U.S.C. § 552(b)(4). In this case, the Board withheld the

borrowers’ names, loan amounts, and dates of individual loans at the Discount

Window and Federal Reserve emergency lending facilities, concluding that release

of this information would substantially harm the competitive position of the

borrowers and would severely impair the Board’s ability to maintain stability in

2

financial markets by providing “last resort” loans under these programs. The

questions presented are as follows:

1. Whether the district court incorrectly limited the reach of Exemption 4 by

requiring that the competitive harm from disclosure of the records must result from

use of the information by competitors, and that the harm must be both certain and

imminent.

2. Whether the district court erred in holding that Exemption 4 does not permit

the withholding of financial information whose release would undermine the

effectiveness of the government program at issue by impairing the Board’s

statutory ability to conduct monetary policy and provide liquidity to depository

institutions and others in a time of economic crisis.

3. Whether the district court erred in holding that all information except for the

names of the borrowers was not “obtained from a person” as required by

exemption 4, notwithstanding the fact that the additional information was obtained

by the Board from Federal Reserve Banks, which in turn obtained it from

individual borrowers.

STATEMENT OF THE CASE

A. Nature of the Case.

This case stems from a FOIA request made to the Board by plaintiff, a news

media organization, for information relating to the rates, terms, and collateral

3

posted for loans by the regional Federal Reserve Banks (“FRBs”) to individual

commercial borrowers under four programs designed to provide short term

liquidity to financial institutions. The Board disclosed a number of non-exempt

responsive records, but withheld approximately 231 pages of “Remaining Term

Reports.” These reports contain, among other things, the names, loan amounts,

and loan dates for individual borrowers. Individual borrowers provide this

information to the FRBs when obtaining loans at the Discount Window (“DW”)

and emergency lending facilities on the understanding that it will be kept

confidential, and the FRBs in turn provide this information to the Board, a

government agency, where it is reported in internal, highly confidential Remaining

Term Reports.

The district court granted summary judgment for plaintiff and denied the

Board’s motion for summary judgment. The court held, inter alia, that the

Remaining Term Reports may not be withheld under FOIA Exemption 4. The

court first held that, with the exception of the names of the borrowers, the withheld

information was not “obtained from a person” as required by the exemption

because it came not from the individual borrowers, but from the FRBs. The court

declined to decide whether the FRBs are “persons” under Exemption 4. The court

then held that none of the information (including the borrowers’ names) fell within

Exemption 4 because the Board could not show that release of the information

4

would cause substantial harm to the competitive position of the borrowers. In

doing so, the court held that the only competitive harm cognizable under

Exemption 4 is harm from the affirmative use of the disclosed information by

competitors, and that the harm must be both certain and “imminent.” Finally, the

district court also rejected the Board’s claim that public disclosure of the requested

information would impair the Board’s ability to carry out its statutory monetary

policy and financial stability responsibilities, holding that Exemption 4 does not

permit an agency to withhold records on the basis of harm to “program

effectiveness.” This appeal followed.

B. Statement of the Facts.

1. The Discount Window and the Board’s Emergency Lending Facilities. The Federal Reserve Act, 12 U.S.C. §§ 221 et seq. (“FRA”), provides that

the Board, along with the Federal Open Market Committee, “shall maintain long

run growth of the monetary and credit aggregates commensurate with the

economy’s long run potential to increase production, so as to promote effectively

the goals of maximum employment, stable prices, and moderate long-term interest

rates.” 12 U.S.C. § 225a. The FRA vests lending authority in the FRBs and the

power to authorize and supervise lending in the Board. Id. § 347b(a); see also id.

§§ 343, 301, 248(j).

5

The Discount Window (“DW”) is the basic lending program through which

the twelve regional FRBs lend funds on a secured, short-term basis to eligible

depository institutions in their districts. Joint Appendix at A–67, ¶ 6 (hereinafter

“A-xx”). The DW is a permanent program of the FRBs, which operate the

program under rules and regulations issued by the Board, and subject to the

Board’s general supervision.

In the latter part of 2007, escalating credit problems in the subprime

mortgage market and the market for related instruments caused financial market

conditions to deteriorate. A–68, ¶ 7. In response to a severe reduction in liquidity

in the economy and tightening in the credit markets, the Board authorized the

FRBs to establish the Term Auction Facility (“TAF”) under section 10B of the

FRA. 12 U.S.C. § 347b(a). The TAF is a form of DW lending that provides

longer than overnight funding to depository institutions with interest rates

determined at auction. A–69, ¶ 8.

Despite these early efforts to provide needed liquidity, financial market

conditions continued their rapid deterioration. In response, in early 2008, the

Board, acting under the emergency authority of section 13(3) of the FRA, 12

U.S.C. § 343, authorized the Reserve Banks to initiate a number of additional,

temporary special credit and liquidity facilities (“SCLFs”) to pump liquidity into

the economy and reduce financial instability. A-68 – A-69, ¶ 7. These facilities

6

included two additional lending programs relevant here. The first is the Primary

Dealer Credit Facility (“PDCF”), under which the Federal Reserve Bank of New

York (“FRBNY”) makes overnight funds available to “primary dealers”1

The second program is the Term Securities Lending Facility (“TSLF”), a

lending facility permitting primary dealers to obtain 28-day loans of Treasury

securities from the FRBNY by pledging certain other kinds of securities. A-70,

¶ 10. This program is designed to promote liquidity in the financing markets for

Treasury securities and other collateral, thereby fostering the functioning of

financial markets. Id.

who are

not eligible to borrow at the DW. This program was designed to ease primary

dealers’ access to credit, thereby facilitating the continued functioning of financial

markets and supporting overall economic activity. A-69, ¶ 9.

The Board and the FRBs release extensive public information about

aggregate DW and SCLF lending. For example, the Board’s public website,2 the

Discount Window website of the FRBs,3 and the FRBNY’s public website4

1 Primary dealers are designated banks and securities brokers with which the FRBNY trades U.S. government securities as counterparties in executing open market operations. A-86, ¶ 10. Because primary dealers are not depository institutions, they are not eligible for DW or TAF loans.

contain

2 http://www.federalreserve.gov/monetarypolicy/bst.htm. 3 http://www.frbdiscountwindow.org/

7

extensive public information about the terms of, and eligibility for, DW and SCLF

loans, aggregate current and historical lending data, broken down by Federal

Reserve district and facility, general types and aggregate value of collateral

accepted at these facilities, and other information.5

However, neither the Board nor the FRBs disclose highly sensitive and

confidential information regarding individual loans, such as the names of

individual borrowers at the DW or SCLFs, nor the amounts, dates, or specific

collateral pledged for specific loans. A-73, ¶ 16; see also A-89, ¶ 18; A-99, ¶ 20;

A-464, ¶ 4. This information is sensitive and confidential because FRBs act as

“lenders of last resort” to depository institutions and primary dealers unable to

secure funding from market sources on a short term basis. A-84, ¶ 5; A-89, ¶ 19.

Although healthy financial institutions also borrow from FRBs for ordinary

operational reasons, A-74, ¶ 18; A-90, ¶ 20, and to obtain liquidity in markets that

are temporarily closed to participants, the FRBs’ role as lenders of last resort to

4 http://www.ny.frb.org/markets/index.html 5 This public information includes: the terms of, and eligibility for, lending facilities; interest rates; acceptable forms of collateral; sample lending documentation; collateral margin tables; aggregate current lending data (published weekly and broken down by Federal Reserve district and credit facility); historical lending data; mechanics of DW and SCLF borrowing; relevant statutory and regulatory provisions; a detailed explanation of the Federal Reserve Banks’ balance sheets; descriptions of all Federal Reserve liquidity and credit facilities; information on collateral eligibility; information on the valuation and margins (“haircuts”) applied to collateral by program; and information on the general types and aggregate value of collateral pledged to various facilities. A-72 – A-73, ¶ 15.

8

institutions unable to secure short term funds means there is a “stigma” associated

with borrowing from them. That stigma can cause severe and irreparable

competitive injury to financial institutions should information regarding individual

loans become public. This injury can include loss of public confidence in the

institution, a sudden outflow of deposits (a “run”), withdrawal of market sources of

funding or, in extreme cases, closure of some institutions. A-74, ¶ 17; see also A-

90, ¶ 21; A-92, ¶ 25.

In light of these concerns, the borrowing institutions, primary dealers, and

FRBs all share the common understanding that information relating to borrowing

under each of the programs discussed above will not be disclosed by the FRBs or

the Board. A-89, ¶ 18; A-99, ¶ 20; A-73, ¶ 16; see A-464, ¶ 4. Moreover,

confidentiality is essential to the success of the Board’s statutory mission to

maintain the health of the Nation’s financial system and conduct monetary policy.

If depository institutions and primary dealers are unwilling to come to the FRBs

for their funding needs, particularly in time of economic crisis, the Board’s ability

to administer lending programs crucial to maintaining national financial and

economic stability will be severely undermined. A-79 – A-82, ¶¶ 26-30.

2. Plaintiff’s FOIA Request and the Board’s Response.

On May 21, 2008, plaintiff filed a FOIA request with the Board seeking

information on the rates, terms, and collateral posted for individual loans at the

9

DW, TAF, PDCF and TSLF between April 4, 2008 and May 20, 2008 (the “FOIA

request”).6

The Remaining Term Reports were prepared each business day during that

period by staff of the Board’s Division of Monetary Affairs, using data collected

by each FRB. A-38 – A-39, ¶ 11 and A-57 – A-58. The Reports list DW and

SCLF loans by name of the borrower, individual loan amount, and origination and

maturity dates of individual loans. They also contain non-responsive information

regarding the institution type, Federal Reserve district, and total credit outstanding

and maturing on a specific date. Id.

A-50 – A-51. In response, the Board provided several non-exempt

records to the plaintiff. However, the Board withheld approximately 231 pages of

“Remaining Term Reports” responsive to the request.

The Board withheld the Remaining Term Reports under FOIA exemption 4,

which exempts from disclosure “trade secrets and commercial or financial

information obtained from a person and privileged or confidential.” 5 U.S.C.

§ 552(b)(4). The Board explained that disclosure of the Reports would reveal the

6 In a separate request, plaintiff sought records related to the portfolio of securities supporting the Federal Reserve’s loan in connection with the proposed acquisition of Bear Stearns by JP Morgan Chase (the “Bear request”). See Special Appendix at SPA-12 – SPA-15 (hereinafter “SPA-xx”); A-43, ¶ 22. The district court held that the Board’s search of its records, which uncovered no documents responsive to the Bear request, was inadequate because the Board had not stated that it searched its “official files” located at the FRBNY. SPA-24 – SPA-25. Plaintiff subsequently abandoned its request that the Board conduct a broader search, A-459 - A-460, and that portion of the district court’s order is not subject to this appeal.

10

identities of the institutions that sought funds from the Federal Reserve under these

“last resort” lending programs, and thus would likely cause substantial competitive

injury to depository institutions and primary dealers that provided the information

to Reserve Banks. A-57 – A-58. In addition, the Board explained that the ensuing

reluctance of institutions to participate in these lending programs would impair the

Board’s ability to carry out statutory functions in a time of economic crisis.

Plaintiff thereafter brought this action, seeking an injunction requiring the Board to

disclose responsive records.

3. The District Court’s Opinion.

On cross-motions, the district court granted summary judgment for plaintiff

and denied the Board’s motion. The court rejected the Board’s contention that

information in the Remaining Term Reports is exempt under FOIA exemption 4.7

7 The court rejected the Board’s argument, based upon FOMC v. Merrill, 443 U.S. 340 (1979), that information in the Reports relating to DW borrowing is protected by FOIA exemption 5. SPA-42 – SPA-46. That holding is not at issue in this appeal.

SPA-31 – SPA-42. The court held that information in the Reports, with the

exception of the borrowers’ names, was not “obtained from a person” as required

by the exemption, reasoning that “the fact that the FRBs themselves generated the

information contained in the Remaining Term Reports is sufficient to vitiate the

applicability of Exemption 4 … .” SPA-35.

11

The court then held that none of the material at issue (including the

borrowers’ names) could be withheld under exemption 4 because the Board had

not shown that the information is “privileged or confidential.” SPA-36. The court

acknowledged that the Board had submitted declarations describing how

depository institutions and primary dealers were likely to be stigmatized and how

knowledge of their financial problems would likely weaken their ability to

compete. SPA-39 – SPA-40. The court did not question the validity of these

declarations, but instead held they were insufficient because they did not establish

that the persons providing the information will “suffer imminent competitive harm

from the affirmative use of the disclosed information by their competitors … .”

SPA-40 (emphasis in original). The court also held that “[c]onjecture” about the

harms caused by the stigma of disclosure, “without evidence of imminent harm,

simply fails to meet the Board’s burden of showing that Exemption 4 applies.”

SPA-41.

The court then rejected the Board’s alternative argument that the commercial

and financial information in the Remaining Term Reports is “privileged or

confidential” because its release would substantially undermine the Board’s ability

to administer lending programs crucial to maintaining market stability. Without

questioning the Board’s showing that disclosure would undermine its statutory

mission, the district court held that a governmental interest in “program

12

effectiveness” is not protected by exemption 4. SPA-37 – SPA-38 n.15. In doing

so, the court declined to adopt the reasoning of another district court in the same

district, which had adopted the program effectiveness rationale to protect the same

information withheld in this case, as well as other similar information, see Fox

News Network v. Board of Governors of the Federal Reserve System, 2009 U.S.

Dist. LEXIS 66929 (S.D.N.Y., July 30, 2009), appeal pending, No. 09-3795-cv (2d

Cir.).8

The district court ordered disclosure of the Reports within 5 business days

(SPA-47), but granted a temporary stay pending the Board’s filing of a notice of

appeal and stay application with this Court. A-460. On September 17, 2009, the

district court granted the motion of Clearing House, an association of major

commercial banks, to intervene to protect its members’ interest in confidentiality

of the Reports. A-513. On September 30, 2009, the Board and Clearing House

filed notices of appeal. A-521 – A-523. This Court granted a stay pending appeal

on October 6, 2009.

8 Because Fox News presents issues nearly identical to those presented here, the parties in Fox News have requested that oral argument in both cases be heard by the same panel.

13

STANDARD OF REVIEW

This Court reviews de novo a district court’s grant of summary judgment in

a FOIA case. Associated Press v. U.S. Dep’t of Defense, 554 F.3d 274, 283 (2d

Cir. 2009).

SUMMARY OF THE ARGUMENT

The district court in this case held that the information in the Remaining

Term Reports fails to satisfy two requirements of exemption 4. First, the court

held that none of the withheld information is “privileged or confidential” because

the Board did not demonstrate sufficient competitive harm from disclosure of the

information, and the court also declined to apply the alternative “program

effectiveness” test. Second, the court held that, with the exception of the

borrowers’ names, none of the information was “obtained from a person” as

required by exemption 4. These holdings are incorrect.

1. The district court incorrectly held that the information in the Remaining

Term Reports is not “privileged or confidential.” The Board submitted

declarations -- based upon years of experience and expertise of Board and FRB

officials and backed up by concrete examples -- demonstrating that depository

institutions and primary dealers are likely to suffer substantial competitive injury

from release of the information in the Remaining Term Reports, including runs on

some institutions and, in extreme cases, closure.

14

The district court did not question the competitive harm outlined in the

Board’s declarations. Instead, the court held that, as a matter of law, the potential

for loss of deposits and financial instability caused by the stigma of seeking loans

from lenders of last resort is insufficient to satisfy the competitive harm

requirement of exemption 4. That holding is based upon three fundamental legal

errors.

First, the district court held that the only harm cognizable under exemption 4

is the harm the borrowers will suffer “from the affirmative use of the disclosed

information by their competitors.” SPA-40 (emphasis in original). That holding is

directly contrary to this Court’s decision in Nadler v. FDIC, 92 F.3d 93, 97 (2d Cir.

1996), which recognizes that competitive harm is protected by exemption 4 even if

that harm is not caused by prospective competitors.

Second, the court held that the exemption 4 requires a showing that the

borrower will suffer competitive harm. The proper standard, however, requires

only that the harm be “likely.” See, e.g., Nadler, 92 F.3d at 97. And third, the

district court held that the competitive harm must be “imminent,” a requirement

that finds no basis in exemption 4 and that is unsupported by the case law.

The information is “privileged or confidential” for an independent reason.

As the Board’s unrebutted declarations show, disclosure of the information would

undermine the Board’s ability to carry out its statutory responsibilities. The harm

15

to financial institutions and primary dealers that is likely to result from release of

the information may make these institutions less willing to access the DW and

SCLF programs, undermining the Board’s ability to use these programs to control

short-term interest rates, provide much needed liquidity, and maintain market

stability.

The district court did not question the serious adverse consequences to the

Board’s ability to administer programs crucial to maintaining the health of the

National economy. Instead, the court simply declined to recognize the “program

effectiveness” prong of exemption 4. However, the program effectiveness

standard is fully supported by congressional intent and uniform case law.

Exemption 4 is designed to protect not just those who provide information, but also

the integrity and effectiveness of agencies who receive and use that information.

2. The district court also erred in holding that, with the exception of the

names of the borrowers, the information at issue was not “obtained from a person”

under exemption 4. First, the court incorrectly concluded that the “only”

information in the Remaining Term Reports that could have been obtained from

the borrowers was the borrowers’ names. In fact, as the Board’s evidence

demonstrated, the loan amounts and maturity and origination dates are confidential

information provided by borrowers. The fact that this information is contained in

16

reports prepared internally by the Board does not change its character as

information obtained from the borrowers.

In the alternative, exemption 4 applies here because the FRBs are “persons”

under FOIA. Their stock is privately held; they are overseen by boards of directors

the majority of whom are privately appointed; they do not carry out typical

executive functions (such as issuing binding regulations); they do not receive

appropriated funds; and they are responsible for their own day-to-day functioning.

Accordingly, the district court erred in holding that information in the Remaining

Term Reports may not be withheld under exemption 4.

ARGUMENT

THE DISTRICT COURT ERRED AS A MATTER OF LAW IN HOLDING THAT INFORMATION IN THE REMAINING TERM REPORTS WAS

NOT EXEMPT UNDER FOIA EXEMPTION 4

Exemption 4 protects records containing information that is: (1) a ‘trade

secret’ or ‘commercial or financial’ in character...; (2) … ‘obtained from a person,’

... and (3) … ‘privileged or confidential.’” Inner City Press/Community on the

Move v. Board of Governors, 463 F.3d 239, 244 (2d Cir. 2006) (quoting Nadler,

supra, 92 F.3d at 95 (quoting 5 U.S.C. § 552(b)(4)). As the district court noted

(SPA-32), there is no dispute that the information in the Remaining Term Reports

is “commercial or financial” information under the first requirement.

17

However, the district court held none of the information is “privileged or

confidential,” and that only the names of the borrowers were “obtained from a

person” as required by exemption 4. As discussed below, these holdings reflect an

application of legal standards that is fundamentally incorrect.

A. The Names, Loan Amounts, and Loan Dates of Borrowers That Took Out Loans From the Discount Window and Emergency Lending Facilities Are “Privileged or Confidential” Under Exemption 4.

This Court, adopting the test articulated by the D.C. Circuit in National

Parks Conservation Ass’n v. Morton, 498 F.2d 765 (D.C. Cir. 1974) (“National

Parks I”), has held that information is “privileged or confidential” under exemption

4 if 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.’” Inner City Press, supra, 463 F.3d at 244 (quoting

Continental Stock Transfer & Trust Co. v. SEC, 566 F.2d 373, 375 (2d Cir. 1977)

(per curiam)). Several courts, including the D.C. Circuit, have recognized a third

instance in which information is “privileged or confidential” – where disclosure

would undermine the agency’s “effective execution of its statutory

responsibilities.” See 9 to 5 Org. for Women Office Workers v. Board of

Governors, 721 F.2d 1, 11 (1st Cir. 1983); Critical Mass Energy Project v. NRC,

975 F.2d 871, 875 (D.C. Cir. 1992) (en banc), cert. denied, 507 U.S. 984 (1993).

18

As discussed below, the information in the Remaining Term Reports plainly

satisfies both the “competitive harm” and the “program effectiveness” standards,

and the district court therefore erred in refusing to hold that the information is

privileged or confidential under exemption 4.

1. The Board Demonstrated that Disclosure of the Names, Loan Amounts, and Dates is Likely to Cause Substantial Competitive Injury to the Borrowers

Information meets the “competitive harm” standard if (1) the person

submitting the information actually faces competition; and (2) substantial

competitive harm would likely result from disclosure. National Parks &

Conservation Ass’n v. Kleppe, 547 F.2d 673, 679 (D.C. Cir. 1976) (“National

Parks II”). However, “[n]o actual adverse effect on competition need be shown,

nor could it be, for the requested documents have not been released.” Id. at 683.

Rather, “[t]he court need only exercise its judgment in view of the nature of the

material sought and the competitive circumstances in which the [submitters] do

business, relying at least in part on relevant and credible opinion testimony.” Id.

In the case at bar, the Board’s evidence, which the district court did not

question, demonstrated that depository institutions and primary dealers are likely to

suffer substantial competitive harm should their names, loan amounts and loan

dates in the Remaining Term Reports be disclosed to the public. The Board

submitted declarations from the director of its division of Monetary Affairs

19

(“MA”), responsible for advising the Board on the conduct of monetary policy, the

role of the DW in monetary policy, and the SCLFs, A-65 – A-67, ¶¶ 1-2, 4, and

from senior vice presidents at the FRBNY responsible (in part) for overseeing the

DW, TAF, TSLF, and PDCF. A-83 – A-84, ¶¶ 1-2, 4; A-93 – A-94, ¶¶,1-2, 4.

The Board’s declarations are detailed and specific, and show that public

disclosure of the Remaining Term Reports is likely to cause “substantial

competitive injury”9 to depository institutions and primary dealers named in the

Reports. A-71, ¶ 14; A-74 – A-78, ¶¶ 17-24; A-89 – A-90, ¶¶ 19-21; A-91 – A-

92, ¶ 25; A-99 – A-100, ¶ 21. Harm is likely because the FRBs act as “lenders of

last resort” to institutions unable to secure funding from market sources on a short

term basis. A-89, ¶ 19; see also A-74, ¶ 18. Because DW and emergency credit is

available to institutions unable to secure funding in the market, there is a “stigma”

associated with borrowing from the Reserve Banks that can fuel speculation and

rumors that the borrowing entity is experiencing underlying financial problems --

even if that is not the case.10

9 The Board also demonstrated that depository institutions face actual competition in the market for retail and commercial banking services, A-74, ¶ 17; A-89, ¶ 20, and primary dealers face actual competition in the market for securities brokerage services. A-91 – A-92, ¶ 25; A-99, ¶ 21.

A-74 – A-75, ¶ 18; see also A-89 – A-90, ¶ 20.

10 Sound financial institutions come to the DW for ordinary, operational reasons such as an unexpectedly large loan request, a runoff in liquidity as a large depositor makes payments, operational problems that impede funds receipt, or clerical errors. A-90, ¶ 20; A-74, ¶ 18. Market analysts, private lenders, customers, and the media

20

The Board’s declarations list detailed, specific harms likely to befall

depository institutions and primary dealers upon public disclosure of this

confidential commercial information, including a loss of public confidence, a run

on the bank, a loss of confidence by market analysts, a drop in the institution’s

stock price, a withdrawal of market sources of funding, acceleration of existing

loans, or, in extreme cases, closure of the institution. A-74, ¶ 17. “Such a sudden

withdrawal of deposits and drying up of private sources of liquidity could quickly

lead to an institution’s demise.” A-75, ¶ 20. “[E]ven if the institution managed to

meet its funding needs and survive, it would be at a disadvantage vis-à-vis

competitors in the market because it could be forced to pay very high rates to

borrow and might be limited in its ability to issue longer-term debt.” Id.

“Potential customers would tend to direct their business to other institutions that

were thought to be in better financial condition.” Id. “[C]ustomers would likely

withdraw deposits, and private lenders would likely accelerate loans or refuse to

provide additional funding to the borrowing institution. … caus[ing] capital and

liquidity strains, leaving the borrowing institution in a weakened position vis-à-vis

its competitors.” A-90, ¶ 21. The Board’s evidence that disclosure of the Reports

is likely to undermine the very stability of financial institutions is sufficient to

cannot distinguish between routine uses of the DW and loans necessitated by financial distress, id., and the Reports do not list reasons for individual loans. A-57 – A-58.

21

prove the likelihood of substantial competitive injury in this Circuit. See Nadler,

supra, 92 F.3d at 97 (“’the likely commercial disadvantage resulting from release

of the withheld information could well cause a reduction in the amount realizable

for the receivership ….”) (emphasis supplied) (quoting FDIC finding).

These harms apply with equal force to primary dealers and depository

institutions using PDCF, TSLF and TAF. A-76, ¶ 21; A-91 – A-92, ¶ 25; A-99 –

A-100, ¶ 21. “[T]he mere fact that a primary dealer is coming to the PDCF would

lead market participants to inaccurately speculate that the primary dealer was

having difficulty obtaining financing in the open market and that the dealer itself

must therefore be in financial trouble, or the underlying securities must be difficult

to pledge.” A-92, ¶ 25; accord A-100, ¶ 21. Indeed, the stigma associated with

usage of emergency credit is particularly acute, as section 13(3) of the FRA, 12

U.S.C. § 343, under which these programs are authorized, requires the FRBs to

determine that the borrower is “unable to obtain reasonable credit

accommodations” from other sources. See A-68 - A-69, ¶ 7; see also A-76, ¶ 21.

As a result, information regarding individual DW and SCLF loans, including

the borrower’s name and loan amount,11

11 Even the release of individual loan amounts, without the borrowers’ name, could result in substantial competitive harm because, for large loans, speculation could center around one of a handful of institutions in a Federal Reserve district, or, for very large loans, the country, eligible to borrow large amounts. A-77 – A-78, ¶ 24.

is treated as “highly sensitive and

22

confidential commercial information” by the Board, FRBs, borrowers and clearing

banks (the banks that hold collateral on the Reserve Banks’ behalf). A-89, ¶ 18; A-

99, ¶ 20; see also A-73, ¶ 16. The FRBs’ public Discount Window website

contains the statement: “the Federal Reserve does not publish information about

individual institution’s borrowings.”12

Nor can one discount the Board’s declarations as involving “[c]onjecture” or

“speculat[ion].” SPA-41. The declarations were based upon extensive expertise

and experience.

13

12 http://www.frbdiscountwindow.org/dwfaqs.cfm#ps10.

Moreover, the declarants provided real world examples to

support their conclusions. Thus, Mr. Madigan specifically cites a reported incident

in the early 1990s where rumors that Citibank might be borrowing from the DW

sparked runs at some of its offices in Asia. A-76, ¶ 22. Mr. Madigan also points to

13 The declaration of the director of the division of Monetary Affairs, Brian Madigan, was based upon Mr. Madigan’s years of experience advising the Board on the conduct of monetary policy, the DW and, more recently, the emergency facilities and their impact on financial markets. A-65 – A-67, ¶¶ 1-4. He states “[i]n my experience as director of MA, I have observed that depository institutions that may potentially borrow at the DW recognize that their customers, lenders and other counterparties, market analysts, and news media organizations, among others, may draw adverse inferences from their decision to borrow from the Federal Reserve Banks.” A-74, ¶ 17 (emphasis supplied). Likewise, Ms. McLaughlin and Ms. Logan, FRBNY officers with day-in, day-out operational responsibility for TSLF, PDCF and the FRBNY’s DW and TAF operations, based their declarations upon personal knowledge, which includes knowledge of the market behavior of their customers (the depository institutions and primary dealers) and the operation of those FRBNY lending facilities. See A-83 – A-84, ¶¶ 1,2,4; A-93 – A-94, ¶¶ 1, 2, 4.

23

two instances where the stigma associated with DW borrowing became “evident in

the very high rates that banks were willing to pay to borrow money in the private

federal funds market rather than borrow at the [DW]” amid periods of global

market turbulence in 1990 and 1998-99. A-75, ¶ 19. Additional real-world

examples, gleaned from public sources, were provided by intervenor Clearing

House in its submission supporting a stay pending appeal.14

The concerns and real-world examples discussed above led the district court

in Fox News to conclude that the Board’s release of the same information

regarding individual DW and SCLF loans at issue in this case,

See A-465 – A-468,

¶¶ 8, 9, 11, 12 (relating the difficulties of a British bank that experienced a run

after a BBC report that the bank “had asked for and received emergency financial

support from the Bank of England,” and several U.S. institutions that failed or

nearly failed when information about their funding difficulties became public).

15

14 In its brief, intervenor Clearing House provides a detailed discussion, gleaned from public information, of the run on British bank Northern Rock, and other real-world examples of harm to financial institutions from rumors of financial difficulties. See Clearing House Brief (“Clearing House Br.”) at 17-22. The Board joins Clearing House’s argument that the Court may take judicial notice of these publicly-available facts. Clearing House Br. at 8 n. 3 and 17 n. 16.

as well as other,

15 The Fox News FOIA requests sought “’the names of institutions receiving Federal Reserve lending’” from twelve named Federal Reserve lending programs including DW, TAF, PDCF and TSLF and “’any other Federal Reserve lending facility not mentioned above,’” as well as loan amounts and collateral pledged from August 2007 through November 2008. Fox News, supra, 2009 U.S. Dist. LEXIS 66929 at *12 (quoting FOIA request). The 231 pages of Remaining Term

24

similar information, was “’likel[y to cause] … substantial competitive injury.’”

Fox News, supra, 2009 U.S. Dist. LEXIS 66929 at *39 (quoting Gulf & Western

Industries, Inc. v. United States, 615 F.2d 527, 530 (D.C. Cir. 1980)). Judge

Hellerstein found that the Board had “shown specific and substantial harms to

borrowers if the information about Discount Window loans were disclosed.” Id. at

**39-40. Having weighed largely the same evidence, over a longer time period

involving more Federal Reserve lending facilities, Judge Hellerstein concluded

“[t]he Board’s concerns, that rumors are likely to begin and runs on banks are

likely to develop, cannot be dismissed. …. The national economy is not so out of

danger,and the frailty of banks so different now than when their Discount Window

borrowing began, as to make the Board’s concerns academic.” Id. at **40-41.

Because the Board’s evidence was sufficient to prove likelihood of

substantial competitive injury to the borrowers from disclosure of the Reports, and

there is no real dispute as to the facts, the district court’s decision should be

reversed and judgment entered for the Board, as this Court did in Associated Press.

See, supra, p. 13.

Reports withheld in response to the Bloomberg FOIA request are a subset of the 6186 pages of information withheld, id. at *19, and found exempt, in Fox News.

25

2. The District Court Applied a Standard for Substantial Competitive Harm that is Directly at Odds with Controlling Second Circuit Precedent

The district court did not question any of the facts or conclusions outlined in

the declarations discussed above. Rather, the court held that, as a matter of law,

the competitive harm outlined in those declarations -- the potential for loss of

deposits and financial instability caused by the stigma of seeking loans of last

resort -- is insufficient to satisfy the competitive harm requirement of exemption 4.

That holding is contrary to law and must be reversed.

a. The District Court Erred in Finding that Harm Must Result from Use of Information by Competitors

The district court’s holding that the Board did not demonstrate competitive

harm is based upon three fundamental legal errors. First, the court incorrectly

limited the basis of competitive harm recognized by exemption 4, holding that

disclosure is required unless the persons who provide the information will suffer

harm “from the affirmative use of the disclosed information by their competitors.”

SPA-40 (emphasis in original). This standard -- gleaned from dictum in a footnote

of the D.C. Circuit’s 1983 opinion in Public Citizen Health Research Group v.

FDA, 704 F.2d 1280, 1291 n.30 (D.C. Cir. 1983) -- has been squarely rejected by

this Court.

In Nadler, supra, 92 F.3d 93, the Court considered an exemption 4 claim

advanced by the FDIC as receiver for a failed bank. The FDIC argued that

26

disclosing details of a joint venture agreement entered into by a wholly-owned

subsidiary of the bank would result in harm because neighborhood groups would

hinder the development project. Id. at 97. The Court upheld the use of

exemption 4 over the plaintiffs’ argument that the injury suffered by the FDIC as

receiver “would not be competitive in nature, but political.” Id. at 96. The Court

found that the fact that the harm to the FDIC as receiver -- a diminution in the

amount it could realize on the development project -- “would result from active

hindrance by [a community group] rather than directly by potential competitors

does not affect the fairness considerations that underlie Exemption Four.” Id. at

97. In holding the joint venture agreement exempt under the competitive harm

prong, the Court concluded “[s]ensitive financial information about a project of

this nature clearly falls within a class of materials that Congress exempted as

‘confidential’ in section 552(b)(4).” Id.

The Court reached a similar result in American Airlines, Inc. v. National

Mediation Board, 588 F.2d 863, 871 (2d Cir. 1978). There, the Court held that

competitive harm under exemption 4 was likely where public disclosure of

information about a union’s efforts to organize an air carrier’s employees “would

adversely affect the union’s competitive position vis-à-vis both other unions and

the employer itself.” (emphasis supplied). By finding that competitive harm could

flow from use of confidential information by employers, who are not competitors

27

but parties to labor negotiations, this Court rejected the narrow reading of

exemption 4 adopted by the district court below.

This result is consistent with the intent of Congress in enacting exemption 4.

As the Nadler Court recognized, exemption 4 was designed “to ‘(1) encourag[e]

cooperation by those who are not obliged to provide information to the government

and (2) protect[] the rights of those who must.’” 92 F.3d at 96 (quoting National

Parks I, supra, 498 F.2d at 769). That rationale applies regardless of the source of

the competitive harm ensuing from the disclosure of confidential financial

information.

In other cases, the D.C. Circuit as well has recognized that the zone of injury

under the second prong of exemption 4 is not limited to harm inflicted by

competitors. In National Parks II, for instance, the D.C. Circuit found financial

records submitted by National Park concessioners exempt under the competitive

harm prong where, in addition to providing “valuable insights” to the

concessioners’ competitors, disclosure would mean that their “[s]uppliers,

contractors, labor unions and creditors, too, could use such information to bargain

for higher prices, wages or interest rates, while the concessioner[s’] unregulated

competitors would not be similarly exposed.” 547 F.2d at 684. And in Occidental

Petroleum Corp. v. SEC, 873 F.2d 325, 341 (D.C. Cir. 1989), the D.C. Circuit held

that protection “depends upon the competitive significance of whatever

28

information may be contained in the documents, not upon whether [the company’s

motive] is to avoid embarrassing publicity.” Rather, the aim is “to determine

whether any non-public information contained in these documents is competitively

sensitive, for whatever reasons.” Id. (second emphasis added). Likewise, in Utah

v. U.S. Dep’t of the Interior, 256 F.3d 967, 970 (10th Cir. 2001), the Tenth Circuit

held that disclosure of lease information involving storage of spent nuclear fuel

was likely to cause substantial competitive harm where, in addition to giving

competitors valuable information, disclosure would place the submitter “in a

weaker position at the bargaining table in negotiating any future deals because its

potential partners would know the financial and legal details of the [submitter’s]

prior business agreements,” and “’would severely undercut the [submitter’s] future

business transactions’ because the [submitter] would be unable to offer potential

partners any assurance of confidentiality.” (quoting declaration) (emphasis

supplied).

Here, the Board’s declarations show that depository institutions and primary

dealers are likely to suffer serious economic consequences. This harm includes

harm inflicted by competitors, A-75, ¶ 20, as well as by other market participants

including the borrowing institutions’ customers and outside lenders. See, supra, p.

20. The resulting damage to the borrowers’ competitive position cannot be

dismissed as mere “embarrassing publicity.”

29

b. The District Court Erred in Requiring a Showing of Certain, Rather than Likely, Harm

Second, the court committed legal error in requiring the Board to show that

disclosure “will cause the borrowers to suffer imminent competitive harm.” SPA-

40 (emphasis supplied). Exemption 4 does not require a showing of certain harm

-- this Court has held that harm need only be likely.16

16 The Board’s declarations show that substantial competitive harm is likely. See, supra, p. 20.

In Nadler, supra, 92 F.3d at

97, the Court found information sought from the FDIC in its capacity as receiver

for a failed bank was exempt under the competitive harm prong where “’the likely

commercial disadvantage resulting from release of the withheld information could

well cause a reduction in the amount realizable for the receivership ….’” (emphasis

supplied) (quoting FDIC finding). The standard announced in Nadler flows

directly from the D.C. Circuit’s opinion in National Parks I, where the court held

that information is confidential for purposes of exemption 4 if disclosure “is likely

to have either of the following effects: … (2) to cause substantial harm to the

competitive position of the person from whom the information was obtained.” 498

F. 2d at 770 (emphasis supplied). The court continued, “[t]he exemption may be

invoked for the benefit of the person who has provided commercial or financial

information if it can be shown that public disclosure is likely to cause substantial

harm to his competitive position.” Id. (emphasis supplied).

30

Like this Court in Nadler, the D.C. Circuit has reaffirmed that it is not

necessary to show actual competitive harm to meet the National Parks I

competitive injury test. Rather, “[a]ctual competition and the likelihood of

substantial competitive injury is all that need be shown.” Gulf & Western, supra,

615 F.2d at 530 (citing National Parks II, supra, 547 F.2d at 679); accord Utah,

supra, 256 F.3d at 970 (“evidence demonstrating the existence of potential

economic harm is sufficient”). Indeed, a showing of actual harm as required by

the district court would almost certainly require that exempt information be

released in order to establish the applicability of the exemption, which FOIA does

not require. See Vaughn v. Rosen, 484 F.2d 820, 826 (D.C. Cir. 1973) (agency’s

description need not be so specific “that if made public would compromise the

secret nature of the information ….”). Because the Board’s evidence shows that

substantial competitive harm to the borrowers identified in the requested materials

is likely, see, supra, p. 20, the district court erred as a matter of law in holding that

the Board had not shown competitive harm as required by exemption 4.

c. The District Court Erred in Requiring That Harm be Imminent

Third, the district court erred when it grafted onto the competitive harm

prong the requirement that the harm be “imminent” or “immediate,” and faulted

the Board for failing to meet that standard. SPA-38, SPA-40, SPA-41. This

portion of the district court’s test apparently derived from a 28-year-old district

31

court case, Iglesias v. C.I.A., 525 F. Supp. 547, 559 (D.D.C. 1981), in which the

defendant agency described the withheld documents “in a cursory manner, [with]

no full explanation or other supporting detail [that] demonstrates why disclosure

would result in competitive harm.” Id. at 558. On that basis, the district court in

Iglesias, as cited by the court below, held that the agency had not “fulfilled its

obligation to provide this Court with evidence that competitive harm is imminent

should this information be disclosed.” Id. at 559. But “imminence” has no place in

the test for competitive harm applied by this Court. Rather, as articulated in the

cases cited above, information is confidential under exemption 4 if release would

have the effect “of causing substantial harm to the competitive position” of the

submitter. See, e.g., Inner City Press, supra, 463 F.3d at 244. The district court’s

demand that the Board establish “imminent” or “immediate” competitive harm was

error, and its decision should be reversed.

B. The Information in the Remaining Term Reports Is Privileged or Confidential Because Disclosure Would Undermine the Effective Execution of the Board’s Statutory And Regulatory Responsibilities.

The information in the Remaining Term Reports is “privileged or

confidential” under exemption 4 for another, independent, reason: disclosure of the

information would undermine the Board’s interest in effectively administering its

statutory and regulatory responsibilities. See 9 to 5 Org., supra, 721 F.2d at 10-11;

Critical Mass, supra, 975 F.3d at 880. The unrebutted evidence shows that

32

disclosure of the information would severely disrupt the Board’s ability to maintain

market stability in financial markets through the DW and SCLF programs, and the

district court’s refusal to recognize this significant government interest was error.

1. Disclosure of the Remaining Term Reports Would Impair the Board’s Statutory Abilities Under the Federal Reserve Act to Authorize Lending by the Federal Reserve Banks and to Promote Maximum Employment, Stable Prices and Moderate Long Term Interest Rates

Here, the Board met its burden with respect to the program effectiveness

prong by producing unrebutted evidence that disclosure of borrower-specific

information in the Reports would impair its ability to meet its statutory obligations

under sections 2A, 10B and 13(3) of the FRA, to conduct monetary policy, provide

liquidity to depository institutions, and provide emergency liquidity to other

entities in the event of financial stress. A-71 – A-72, ¶ 14; A-79 – A-82, ¶¶ 26-30;

see also A-91, ¶ 23; A-92, ¶ 26; A-101 – A-102, ¶ 26. Section 2A of the FRA, 12

U.S.C. § 225a, requires the Board “to promote effectively the goals of maximum

employment, stable prices, and moderate long-term interest rates.” A-72, ¶ 14.

The Board (and FOMC) carry out this statutory mandate through monetary policy

– the process of affecting short term interest rates and the money supply in pursuit

of the stated statutory goals. A-79 – A-80, ¶ 27. DW lending complements open

market operations (a central bank’s purchase and sale of government securities) in

achieving target short term interest rates by making balances at the FRBs available

33

to depository institutions at the DW, which in turn loan money to customers,

thereby reducing short term interest rates. Id. As the Board’s unrebutted evidence

shows, “[i]f institutions are unwilling to access the DW for fear of public

disclosure, this ‘safety valve’ role of the DW is impaired, and the [Board’s and

FOMC’s] task of achieving a desired level of short-term interest rates through open

market operations is greatly complicated. … add[ing] to uncertainty in financial

markets and mak[ing] it more difficult for the Federal Reserve to achieve its

statutory objectives [under section 2A]… .” A-80, ¶ 27. Uncontroverted evidence

from a senior Board officer that disclosure of confidential DW lending information

will diminish the central bank’s ability to control short term interest rates is within

the zone of interests Congress intended to protect in enacting exemption 4. See,

infra, pp. 38-39.

Similarly, if financial institutions and primary dealers are unwilling to access

SCLFs for fear of public disclosure, the Board’s ability to use those emergency

facilities, and traditional DW lending, as a means of providing liquidity to the

economy in emergency circumstances would be impaired. A-80 – A-81, ¶ 28.

Section 13(3) of the FRA, 12 U.S.C. § 343, allows the Board “to authorize any

Federal reserve bank” to extend credit to “individual[s], partnership[s], or

corporations” in “unusual and exigent circumstances … .” The Board used this

Depression-era emergency lending authority to provide much needed liquidity,

34

backed by ample collateral, to non-depository institutions when the recent credit

crisis threatened our Nation’s financial system and market sources of funding had

all but dried up. A-68 – A-70, ¶¶ 7, 9, 10; A-86, ¶ 10; A-94, ¶ 5. As the

declaration of the FRBNY officer responsible for overseeing the PDCF states, “the

utility of the [PDCF] in providing liquidity to the capital markets will be

undermined if primary dealers are unwilling to use the facility for fear of public

disclosure of specific loan information.” A-92, ¶ 26; accord A-100 – A-101, ¶ 24

(same for TSLF). Similarly, the director of the Board’s division responsible for

advising the Board on the emergency facilities stated “[t]he effectiveness of the

SCLFs depends critically on institutions’ willingness to use them. The reluctance

to borrow at the SCLFs would undermine the goal of many of these facilities in

supporting the liquidity of individual institutions and markets … depriv[ing them

of] critically needed funding.” A-80, ¶ 28.

Finally, the Board showed that its ability to utilize Reserve Bank DW (and

more recently the TAF) lending under section 10B of the FRA, 12 U.S.C. §

347b(a), as a liquidity safety valve to individual depository institutions and the

banking system as a whole would be undermined by disclosure of the Remaining

Term Reports. A-84, ¶ 5; A-91, ¶ 23; A-81 – A-82, ¶¶ 29-30. The Board’s

declaration states, “[t]he adverse impact on the economy could be severe as

diminished access to liquidity could result in the failure of some institutions, a

35

further tightening in credit conditions, and a slowing of economic growth.” A-81,

¶ 29. Banks reluctant to access the TAF or DW out of concern for confidentiality

of lending information “would likely have been forced to conduct … ‘fire-sales’ of

assets … depress[ing] asset prices and further impair[ing] the condition of

important financial institutions and markets.” A-82, ¶ 30.

2. The District Court Erred In Refusing To Recognize the Program Effectiveness Standard

The district court did not question any of the unrebutted evidence

demonstrating the substantial harm to the Board’s ability to operate its lending

facilities and to promote stable prices and economic growth. Instead, the court

simply declined to recognize the program effectiveness prong of exemption 4. See

SPA-37 – SPA-38 n.15. That holding was incorrect.

Although this Court has not yet formally recognized the program

effectiveness standard, Nadler, supra, 92 F.3d at 96, the standard is fully supported

by Congressional intent and uniform case law. When the D.C. Circuit adopted its

two-part test in National Parks I, the court expressly recognized that there may be

additional governmental interests embodied in exemption 4. Indeed, the court

specifically mentioned the program effectiveness standard as one of those interests,

stating: “[w]e express no opinion as to whether other governmental interests are

embodied in this exemption. Cf. 1963 Hearings at 200 where the problems of

compliance and program effectiveness are mentioned as governmental interests

36

possibly served by this exemption.” 498 F.2d at 770 n.17 (citing Hearings on S.

1966 Before the Subcommittee on Administrative Practice and Procedure of the

Senate Committee on the Judiciary, 88th Cong., 1st Sess. 1-2 (1964) (“1963

Hearings”) at 200) (see Addendum).

Following National Parks I, the First Circuit held that exemption 4 protects

other interests as well, including a third interest, the “governmental interest of

efficient operation,” and “effective execution of its statutory responsibilities.” 9 to

5 Org., supra, 721 F.2d at 11. Subsequently, the D.C. Circuit, sitting en banc,

conducted an extensive review of the interests protected by exemption 4 and

concluded: “[i]t should be evident from this review that the two interests identified

in the National Parks test are not exclusive.” Critical Mass, supra, 975 F.2d at 879.

As examples of additional interests covered by exemption 4, the court then noted

that the panel opinion in that case had “adopted the First Circuit’s conclusion that

the exemption also protects a governmental interest in administrative efficiency

and effectiveness.” Id.

Moreover, district courts in this and other circuits have held that exemption

4 protects the government’s interest in efficient operations where disclosure of

third party commercial information would compromise an agency’s ability to

fulfill statutory objectives -- and have applied that standard to exempt information

derived from borrowers in commercial transactions with the government where

37

disclosure would impede statutory programs similar to the FRB lending programs

at issue here. See Fox News, supra, 2009 U.S. Dist. LEXIS 66929 at *44

(“disclosing details of the facilities Fox identifies would compromise the Board’s

effective execution of its statutory responsibilities”); Nadler v. FDIC, 899 F. Supp.

158, 162 (S.D.N.Y. 1995), aff’d on other gnds, 92 F.3d 93 (2d Cir. 1996)

(disclosure of joint venture agreement would “interfere significantly with the

FDIC’s receivership program, which aims to maximize profits on the assets

acquired from failed banks”); Africa Fund v. Mosbacher, 1993 U.S. Dist. LEXIS

7044 at *21 (S.D.N.Y. 1993) (agency properly withheld documents relating to

export license applications based on unrebutted evidence that disclosure “would

interfere with the export control system”).17

17 See also Comstock Int’l (U.S.A.), Inc. v. Export-Import Bank, 464 F. Supp. 804, 808 (D.D.C. 1979) (documents relating to commercial lending agreements with ExIm Bank found exempt where “disclosure would significantly impair [the agency’s] ability to promote United States exports ….”); Clarke v. U.S. Dep’t of Treasury, 1986 U.S. Dist. LEXIS 29989 at *5 (E.D. Pa., Jan. 28, 1986) (names, dollar amount, and maturity date of individual U.S. Treasury bondholders exempt where “releasing the requested information would harm the national interest because investors would be less likely to purchase government bonds … if they knew the details of their purchases would be subject to public disclosure.”); Judicial Watch, Inc. v. Export-Import Bank, 108 F. Supp. 2d 19, 30 (D.D.C. 2000) (upholding ExIm Bank’s withholding of information regarding applications for export insurance where disclosure “would impair its ability to fulfill its statutory purpose, which is to foster domestic economic growth by supporting United States export transactions that are too risky for private capital financing”).

Indeed, the Fox News court expressly

held that disclosure of Federal Reserve lending information on individual

borrowers would compromise the Board’s effective execution of its statutory

38

responsibilities under 12 U.S.C. §§ 225a, 343 and 347b(a), and is therefore

protected from disclosure under exemption 4. 2009 U.S. Dist. LEXIS 66929 at

*44. Finally, although some courts (as in Nadler) have found no need to address

the issue, until the district court’s decision here, no court to our knowledge has

rejected the program effectiveness standard.

The wealth of support for the program effectiveness standard is not

surprising, because the standard is firmly grounded in the purpose and legislative

history of exemption 4. As the National Parks I court observed, the exemption

“recognizes the need of government to have access to commercial and financial

data,” and therefore the legislative history “firmly supports the inference that

section 552(b)(4) is intended for the benefit of persons who supply information as

well as the agencies who gather it.” 498 F.2d at 767, 770 (emphasis supplied).

The court noted that if persons decline to cooperate for fear of disclosure, “the

ability of the Government to make intelligent, well informed decisions will be

impaired.” Id. at 767; see 9 to 5 Org., supra, 721 F.2d at 10.

Moreover, the National Parks I court noted that the 1963 Hearing on

exemption 4 supported the notion that the exemption protects governmental

effectiveness. 498 F.2d at 770 n.17. The Department of Justice statement in the

1963 Hearings discusses the fact that the exemption is necessary because if

confidential financial material is subject to disclosure, “[t]he value to the public of

39

Government lending and loan insurance programs as well as licensing programs,

which involve the submission of private credit information, may be diminished

considerably and the governmental purposes achieved by such programs may

suffer correspondingly.” 1963 Hearings at 200 (see Addendum); see also id.

(“[t]he manner in which and the extent to which the disclosure of private

information will impede or wholly obstruct the proper performance of necessary

governmental functions must be carefully inventoried and evaluated”).

Contrary to the district court’s statement (SPA-38 n.15), Nadler does not

suggest that the rationale behind the “program effectiveness” standard is unduly

speculative. Rather, the Nadler Court merely observed that this Court had not

adopted the D.C. Circuit’s “speculation” in National Parks I that exemption 4 may

protect program effectiveness. Nadler, 92 F.3d at 96 n.2. Far from foreclosing the

use of this standard, Nadler merely recognized that the D.C. Circuit had not yet

affirmatively adopted it in National Parks I, although, the Court observed, it

subsequently did so. In light of subsequent case law expressly adopting the

program effectiveness standard, as well as the legislative history expressly

recognizing a governmental interest in maintaining confidentiality of private credit

information obtained through government lending programs, the district court’s

summary rejection of the program effectiveness test cannot withstand analysis.

40

C. The District Court Erred in Holding That Information in the Remaining Term Reports, Other Than the Borrowers’ Names, Was Not “Obtained from a Person” as Required Under Exemption 4

In addition to holding that all of the withheld information in the Remaining

Term Reports was not “privileged or confidential,” the district court held that, with

the exception of the names of the borrowers, the loan amounts and loan origination

and maturity dates were not “obtained from a person” under exemption 4. This

holding reflects both a misunderstanding of the nature of the information at issue

here, and a misapplication of the applicable law.

1. The District Court Erred in Finding That Loan Amounts and Dates in the Reports Were Not Obtained From the Borrowers

FOIA defines “person” to “include[] an individual, partnership, corporation,

association, or public or private organization other than an agency.” 5 U.S.C.

§ 551(2). As the district court recognized (SPA-33), the borrowers who sought

loans under the programs at issue here are “persons” under the FOIA. The court

erred, however, in concluding that “[t]he only information in the Remaining Term

Reports that the FRBNY and other FRBs could possibly have obtained from the

borrow[er]s is the borrowers’ names; the FRBs generate all the other information

from internal data regarding their lending programs.” SPA-34.

To the contrary, a proper understanding of the mechanics of the FRB lending

programs at issue compels the conclusion that the loan amounts and dates in the

Remaining Term Reports were provided to Reserve Banks by the borrowers, and

41

were therefore “obtained from a person” under FOIA. As the Board’s declarations

show, loan amounts and dates are determined by borrowers, or, in the case of the

TAF and TSLF, through an auction process open to all eligible borrowers, and are

not “generate[d]” by Reserve Banks from “internal data regarding their lending

programs.” SPA-34.

At the PDCF, “[t]he amount that can be borrowed … is equal to the value of

the collateral the borrower can deliver to the New York Fed’s account at the

clearing bank, including a cushion … to cover the possible decline in value of

collateral overnight (the ’haircut’).” A-87, ¶ 11. “[A] primary dealer … contacts

its clearing bank to advise it of the amount of funding it is requesting.” A-87, ¶ 12.

The amount of an individual PDCF loan is therefore determined by the borrower’s

request and the value of its collateral. For the TSLF and the TAF, loan amounts of

individual borrowers are determined through a competitive auction open to all

interested, eligible primary dealers, subject to an overall, public auction maximum

determined by the Board, and are not “generated” by the FRBNY. A-95 – A-97,

¶¶ 7-9, 11; A-69, ¶ 8. Individual depository institutions also determine the amount

of their DW loans. There are no size limits or thresholds on DW loans.18

18 http://www.frbdiscountwindow.org/dwfaqs.cfm#ps14 (FAQ #14).

The

amount of a loan is determined by the borrower’s request and the amount of

eligible collateral the borrower has available. While the FRB may request

42

additional information about the collateral or the borrower’s eligibility, id. (FAQ

#14), the size of a loan is dictated by the value of the collateral and the request of

the borrower.

Likewise, borrowers determine the origination date of their loans by asking

for DW or PDCF credit on a particular date, or by opting to participate in specific

TSLF or TAF auctions on particular dates. The “term” of all PDCF loans is

overnight, A-69, ¶ 9; TSLF loans are for 28 days, A-70, ¶ 10. On March 17, 2008,

the term of primary credit DW loans was temporarily extended to up to 90 days.19

Borrowers may repay a DW loan at any time within that 90-day window. Id.

(FAQ #15). Secondary credit DW window are short-term, generally overnight, but

may be extended if the borrower explains why it needs longer-term credit. Id.

(FAQs # 2 and 15). The terms of TAF loans are chosen by the borrower and at the

relevant time were either 28 days or 84 days.20

19 http://www.frbdiscountwindow.org/dwfaqs.cfm#ps15 (FAQ #15).

Accordingly, the maturity date

flows from the borrower’s selected origination date and is not “generated” from the

“Reserve Bank’s internal data regarding their lending programs.” SPA- 34.

Indeed, by knowing the maturity date of specific PDCF, TSLF or TAF loans,

knowledgeable market analysts could easily back into origination dates selected by

20 http://www.federalreserve.gov/monetarypolicy/taffaq.htm

43

borrowers, possibly fueling speculation of financial distress by the borrower on or

around that date.

The loan amounts of these loans are therefore determined by, and hence

“obtained from,” the borrowers. But even if one were to accept that loan amounts

are “generated” by FRBs, the amounts would still be exempt because they are

inextricably intertwined with the identity of the borrower, which is unquestionably

“obtained from” the borrower. Flightsafety Serv. Corp. v. Dep’t of Labor, 326

F.3d 607, 612 (5th Cir. 2003). The Board established that, for larger loans,

revealing the loan amount alone could be tantamount to revealing the identity of

the borrower. Because there may be only a handful of borrowers in smaller

Federal Reserve districts eligible to take out large loans, revealing loan amounts

may fuel speculation that “the borrower must be one of the very few large banks in

that Federal Reserve district or, for very large loans, in the country,” eligible for

such a loan.21

21 Revealing only those loans that are small enough not to permit “reverse engineering” to the identity of the borrower, and redacting only large loan amounts, could still permit an analyst to infer the existence of a large loan that would reveal the borrower’s identity because larger loans are, by nature, fewer in number and their redaction would be apparent from the face of the Report.

A-77 – A-78, ¶ 24. “Speculation about the identity of borrowers

poses similar problems to actual identification of borrowers, and a greater number

of institutions could adversely be affected.” A-78, ¶ 24.

44

Accordingly, the district court erred as a factual matter in concluding that the

term and amount of individual DW, TAF, PDCF and TSLF loans are internally

“generated” by Reserve Banks -- rather, this information is obtained from

borrowers. The district court’s finding should be reversed, and judgment entered

for the Board.

2. As a Matter of Law, Information in Government Reports Obtained from Persons Outside the Government, or from Which Such Information Can be Extrapolated, Is Obtained “From a Person” under Exemption 4

The district court reasoned that, because the information in the Reports was

generated by the FRBs, it could not have been “obtained from a person” under

exemption 4. SPA-35. That reasoning is wrong.

The fact that the names, loan amounts and loan dates obtained from the

borrowers are contained in Reports prepared internally by the Board does not alter

the character of that information. Numerous courts have held that data and reports

prepared internally by an agency using confidential information obtained from

“persons” outside of the agency are “obtained from a person” for exemption 4

purposes.

In OSHA Data/CIH, Inc. v. U.S. Dep’t of Labor, 220 F.3d 153, 162 n. 23

(3rd Cir. 2000), the Third Circuit held that Lost Work Day Injury and Illness

(“LWDII”) rates calculated internally by the Department of Labor using data

submitted by outside employers were “obtained from a person” despite the

45

plaintiff’s claim that the information was unprotected “because it is a derived

figure calculated by the DOL.” Because the LWDII rate was “merely a ratio

calculated from individual components all of which are obtained from employers,”

the court found that the information was “’obtained from a person’” for exemption

4 purposes. Id. Similarly, in Gulf & Western, supra, 615 F.2d at 529-30, the D.C.

Circuit found that a defense agency had properly redacted, under exemption 4,

portions of an internal government report containing information “supplied by” a

contractor outside of the agency “or from which information supplied by [the

person] could be extrapolated.” As we showed, supra, pp. 41-42, the borrowers

provided their names, loan amounts, and dates -- and that information was

“supplied by” persons outside of the Board under OSHA Data and Gulf &

Western.

In Fox News, supra, 2009 U.S. Dist. LEXIS 66929 at *35, another district

court in the Southern District of New York relied on OSHA Data, and similar

district court exemption 4 cases, to find that the same borrower name, loan amount,

and date information22

22 See, supra, pp. 23-24, n.15.

in internal Board reports, as well as other similar

information, prepared using information FRBs obtained from outside borrowers

was obtained “from a person.” Judge Hellerstein found “[b]ecause the borrower’s

name, the amount it must borrow, and the property it volunteers to provide as

46

collateral is information that originated with the borrower … I hold that it was

‘obtained from’ the borrower” under exemption 4. Id.

The Fox News decision is consistent with district court opinions in cases

involving factually similar government lending and licensing programs which have

held that information obtained from persons outside the government through

negotiations or transactions with the government is obtained “from a person” for

exemption 4 purposes. Public Citizen’s Health Research Group v. NIH, 209 F.

Supp. 2d 37, 44 (D.D.C. 2002) (fact that royalty rate information was arrived at

through negotiations with persons outside the government “does not alter the fact

that the licensee is the ultimate source of that information”); Judicial Watch, supra,

108 F. Supp. 2d at 28 (documents that contain “summaries or reformulations of

information supplied by a source outside of the government” are protected under

exemption 4) (citing Gulf & Western, supra); Clarke, supra, 1986 U.S. Dist.

LEXIS 29989 at *4 (names, addresses, dollar amounts, and coupon maturity dates

of Treasury bond holders were “obtained from a person,” notwithstanding fact that

agency obtained that information through lending transactions with outside

parties). Here, the fact that the FRBs obtained borrower names, loan amounts and

loan dates by making loans to outside borrowers does not alter the conclusion that

the borrowers were the ultimate source of that information.

47

The fact that the Board obtained individual borrower information indirectly

through the FRBs also does not alter the fact that it was obtained from “persons”

outside of the Board. Exemption 4 provides that information must be “from a

person,” but does not require that information come directly to the agency from the

exemption 4 person. 5 U.S.C. § 552(b)(4). For example, in Nadler, supra, 92 F.3d

at 95, the Court held that a joint venture agreement obtained by the FDIC as

receiver for failed bank, which the bank had obtained from its solvent, wholly-

owned subsidiary, was “obtained from a person” for purposes of exemption 4

because the wholly-owned subsidiary was a “person.” The fact that the

information went through another entity before being obtained by the FDIC did not

alter the Court’s determination that it was obtained from a person.

The district court’s reliance upon the decision in Buffalo Evening News, Inc.

v. SBA, 666 F. Supp. 467, 468 (W.D.N.Y. 1987), is misplaced. SPA-35. In

Buffalo Evening News, the court essentially accepted the plaintiff’s factual

argument that the loan amount, repayment amounts, and current disposition of

SBA loans -- the specific information sought by the requester -- was not directly

connected to or derived from the “financial records submitted by the borrower” on

the basis of which the SBA granted the various loans. Id. at 468-69. Thus, the

court held that information regarding the current status of the loans “in no way

48

implicates any of the financial information provided by the borrowers to the

government” in applying for the loan. Id. at 469.

In the case at bar, by contrast, the information in the Remaining Term

Reports clearly “implicates” the information provided by the borrowers -- in fact,

as shown above, it all comes directly from the borrowers. See Fox News, supra, at

**36-38 (distinguishing Buffalo Evening News). The amount and maturity date of

the loans was directly provided by the borrowers through their requests for DW or

PDCF loans, or through their bids for loans from the TAF or TSLF. Moreover,

unlike the traditional lending program at issue in Buffalo Evening News, the FRBs

do not make judgments on creditworthiness based on financial information

provided by borrowers. See, supra, pp. 41-42. Buffalo Evening News does not

suggest that the fact that a submitter’s information is compiled by the government

into a report “vitiates[s] the applicability of Exemption 4 with respect to that

information.” SPA-35. It simply stands for the fact that when the information in

the report was not derived from the submitter’s information, it is not protected

under that exemption.

3. In the Alternative, Information Obtained from FRBs in this Case was “Obtained From a Person” Under FOIA Exemption 4

In addition to unrebutted evidence that loan amounts and dates were

obtained from individual borrowers, exemption 4 also applies because the Board

obtained information in the Reports from FRBs, which are “persons” under FOIA.

49

As noted, FOIA generally defines “person” to “include[] an individual, partnership,

corporation, association, or public or private organization other than an agency.” 5

U.S.C. § 551(2). Each FRB is a corporation which issues stock held by depository

institutions within the Federal Reserve district, 12 U.S.C. §§ 282, 341; Fasano v.

Federal Reserve Bank of New York, 457 F.3d 274, 277 (3rd Cir. 2006), cert.

denied, 549 U.S. 1115 (2007), and has its own nine-member Board of directors, six

of whom are elected by member banks in the district, and three appointed by the

Board. 12 U.S.C. §§ 301, 302. Because FRBs are corporations, they are “persons”

under FOIA unless one concludes that they are “agencies.” 5 U.S.C. § 551(2).

FRBs are not “agencies” under FOIA.23

The FRBs are not “authorit[ies] of the Government of the United States”

under 5 U.S.C. § 551(1) because they have no “authority to take final and binding

The Act borrows the definition of

“agency” in the Administrative Procedure Act (“each authority of the Government

of the United States, whether or not it is within or subject to review by another

agency,” 5 U.S.C. § 551(1)), but further defines “agency” to “include[] any

executive department, military department, Government corporation, Government

controlled corporation, or other establishment in the executive branch of the

Government (including the Executive Office of the President), or any independent

regulatory agency.” Id. § 552(f)(1).

23 There are situations not presented here where FRBs act in an agency capacity under authority delegated by the Board. 12 U.S.C. § 248(k).

50

action affecting the rights and obligations or individuals . . . .” Irwin Memorial

Blood Bank v. American National Red Cross, 640 F.2d 1051, 1053 (9th Cir. 1981);

accord Scott v. Federal Reserve Bank of Kansas City, 406 F.3d 532, 536 (8th Cir.

2005), cert. denied, 546 U.S. 1216 (2006); Dong v. Smithsonian Inst., 125 F.3d

877, 882 (D.C. Cir. 1997), cert. denied, 524 U.S. 922 (1998). These powers are

vested by statute in the Board, whose rulemaking authority may not be delegated.

12 U.S.C. § 248(k).

Nor are they “establishment[s] in the executive branch of government.”

They are corporations whose stock is privately held, which are overseen by boards

of directors the majority of whom are privately appointed, and do not carry out

typical executive functions. Cf. Dong, 125 F.3d at 879. And, the FRBs are not

“government corporations.” None of their stock is government owned, 12 U.S.C.

§§ 282-83, and they are not among the government corporations listed in 31 U.S.C.

§ 9101. See Cotton v. Heyman, 63 F.3d 1115, 1123 (D.C. Cir. 1995).

Finally, the FRBs are not “government controlled corporations,” because (1)

their employees are not federal employees, 12 U.S.C. § 341; (2) their officers are

appointed by their own boards, id; (3) they receive no appropriated funds; (4) they

may make contacts, sue and be sued, prescribe their own bylaws, and carry out

other powers incidental to the business of banking, id.; and (5) although the Board

51

has broad oversight authority, the FRBs’ day-to-day operations are managed by

their officers. See Scott, supra, 406 F.3d at 536-37.

The district court incorrectly concluded that the Board “abandoned” this

argument. SPA-33 n.12. In fact, the Board’s opening brief on summary judgment

asserted (at 16) that the “Federal Reserve Banks . . . are ‘person[s]’ within the

meaning of FOIA Exemption 4.” And, while the district court correctly observed

that the Board consistently maintained that it was unnecessary to decide this issue

(SPA-33 n.12), that fact alone plainly is insufficient to constitute a waiver. Indeed,

we continue to believe that the Court need not decide the issue, since the

information at issue is “obtained” from the borrowers. Finally, in response to the

district court’s July 20, 2009 Order, A-445, the Board filed a supplemental brief

showing that Reserve Banks -- private corporations that perform some public

functions -- do not fall within any of the categories of entities that FOIA has

defined as an “agency.” A-447 – A-452; 5 U.S.C. §§ 551(1) and 552(f).

52

CONCLUSION

For the foregoing reasons, the district court’s opinion that borrower names,

loan amounts, and dates in Remaining Term Reports are not “privileged and

confidential” under the second and third prong tests of FOIA exemption 4, and that

the loan amounts and dates were not “obtained from a person” under exemption 4,

should be reversed.

Respectfully submitted, ___________________________ Richard M. Ashton Katherine H. Wheatley Yvonne F. Mizusawa Board of Governors of the Federal Reserve System 20th and C Sts., N.W. Washington, D.C. 20551 (202) 452-3436 Counsel for Defendant-Appellant

Tony West

Assistant Attorney General Mark B. Stern

(202) 514-5089 Matthew M. Collette (202) 514-4214 Attorneys, Appellate Staff Civil Division, Room 7212 Department of Justice Washington, D.C. 20530-0001

CERTIFICATE OF COMPLIANCE

Pursuant to Rule 32(a)(7)(C), Fed. R. App. P., I hereby certify that the foregoing brief of Defendant-Appellant Board of Governors of the Federal Reserve System is in compliance with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B)(i) in that the brief is set in 14-point proportional typeface (Time New Roman) and contains fewer than 14,000 words, when measure by Microsoft Office Word 2007, the word processing program used to prepare the brief (which counted 12,318 words).

Yvonne F. Mizusawa

CERTIFICATE OF SERVICE

I, Yvonne F. Mizusawa, hereby certify that on this 6th day of November,

2009, I served two true and correct copies of the within and foregoing Brief for Defendant-Appellant the Board of Governors of the Federal Reserve System, and a copy of the Joint Appendix and Special Appendix (in paper and CD-ROM format), upon the following attorneys for plaintiff-appellee Bloomberg L.P. and attorneys for intervenor-appellant Clearing House Association L.L.C. by Federal Express priority overnight delivery, and, pursuant to interim Local Rule 25.1, by electronic mail in PDF format:

Thomas H. Golden, Esq. Scott Rose, Esq. Willkie, Farr and Gallagher, LLP 787 Seventh Avenue New York, NY 10019 (Ph.) (212) 728-8000 tgolden@willkie.com srose@willkie.com (attorneys for plaintiff-appellee Bloomberg L.P.) Robert J. Giuffra, Jr., Esq. William J. Snipes, Esq. Sullivan & Cromwell LLP 125 Broad Street New York, NY 10004-2498 (Ph.)(212) 558-4000 giuffrar@sullcrom.com snipesw@sullcrom.com (attorneys for intervenor-appellant Clearing House Association LLC)

Yvonne F. Mizusawa

CERTIFICATE OF SCAN FOR VIRUS PROTECTION

I, Yvonne F. Mizusawa, do hereby certify, pursuant to interim Local Rule 25.1(a)(6), that the within and foregoing PDF version of the Brief for Defendant-Appellant the Board of Governors of the Federal Reserve System filed electronically on November 6, 2009 with the Clerk of the Second Circuit Court of Appeals, Joint Appendix and Special Appendix, were scanned for viruses using Symantec AntiVirus software version 10.1.6, with Auto-Protect, and no viruses were detected. Yvonne F. Mizusawa

ADDENDUM

09-4083-cv(L)IN THE

United States Court of AppealsFOR THE SECOND CIRCUIT

BLOOMBERG L.P.,Plaintiff-Appellee,

—v.—

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,

Defendant-Appellant,—and—

THE CLEARING HOUSE ASSOCIATION L.L.C.,

Intervenor-Appellant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF OF INTERVENOR-APPELLANTTHE CLEARING HOUSE ASSOCIATION L.L.C.

Robert J. Giuffra, Jr.SULLIVAN & CROMWELL LLP125 Broad StreetNew York, New York 10004(212) 558-4000

Counsel of Record for Intervenor-Appellant The Clearing HouseAssociation L.L.C.

H. Rodgin CohenMichael M. WisemanWilliam J. SnipesPatrice A. RouseErez J. Davy

Of Counsel

November 6, 2009

09-4097-cv(CON)To Be Argued By:ROBERT J. GIUFFRA, JR.

d

CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1, the

undersigned counsel for Intervenor-Appellant The Clearing House Association

L.L.C. (the “Clearing House”) hereby certifies that the Clearing House is not a

subsidiary of any other corporation. The Clearing House is a limited liability

company and as such has no shareholders. Rather, each member holds a 10%

limited liability interest in the Clearing House.

TABLE OF CONTENTS

Page

STATEMENT OF JURISDICTION..........................................................................1

STATEMENT OF THE ISSUES...............................................................................2

STATEMENT OF THE CASE..................................................................................3

STATEMENT OF FACTS ........................................................................................8

1. The Fed Lending Programs .............................................................................8

A. The Discount Window ..........................................................................8

B. The Current Economic Crisis and the Expansion of Government Emergency Lending Programs.......................................11

2. The Harm to Financial Institutions From Disclosure of Their Use of Emergency Lending Facilities .......................................................................17

3. Bloomberg’s FOIA Request ..........................................................................23

4. The District Court’s August 24 Opinion and Order ......................................24

5. The Stay and Intervention Motions ...............................................................26

STANDARD OF REVIEW .....................................................................................27

SUMMARY OF ARGUMENT ...............................................................................27

ARGUMENT ...........................................................................................................31

I. THE BOARD ESTABLISHED THAT DISCLOSURE OF THE REPORTS LIKELY WOULD CAUSE SUBSTANTIAL COMPETITIVE HARM TO BORROWERS.................................... 31

A. The District Applied the Wrong Legal Standards. ...................32

1. Competitive Harm Need Only Be “Likely,” not Certain or Imminent........................................................32

Page

- ii -

2. Competitive Harm Need not Result from a Competitor’s “Affirmative Use” of Confidential Information. ....................................................................35

B. The Board Satisfied Its Burden of Showing Likely Competitive Harm.....................................................................38

C. The Board Raised Genuine Issues of Material Fact Regarding the Likelihood of Competitive Harm. .....................43

II. THIS COURT SHOULD ADOPT THE “PROGRAM EFFECTIVENESS” TEST................................................................. 45

III. THE DISTRICT COURT ERRED IN FINDING THAT INFORMATION IN THE REPORTS, EXCEPT FOR BORROWERS’ NAMES, WAS NOT “OBTAINED FROM A PERSON.”.......................................................................................... 48

CONCLUSION........................................................................................................52

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TABLE OF AUTHORITIES

Page(s) CASES

9 to 5 Org. for Women Office Workers v. Bd. of Governors of the Fed. Reserve Sys., 721 F.2d 1 (1st Cir. 1983).............................................................................30, 46

Africa Fund v. Mosbacher, No. 92 Civ. 289, 1993 WL 183736 (S.D.N.Y. May 26, 1993) ..........................47

Am. Airlines, Inc. v. Nat’l Mediation Bd., 588 F.2d 863 (2d Cir. 1978) .........................................................................36, 47

Associated Press v. U.S. Dep’t of Defense, 554 F.3d 274 (2d Cir. 2009) .........................................................................27, 44

Bloomberg L.P. v. Bd. of Governors of the Fed. Reserve Sys., No. 08 Civ. 9595, 2009 WL 2599336, --- F. Supp. 2d ---, (S.D.N.Y. Aug. 24, 2009) ..................................................................................................... passim

Building & Constr. Trade Council of Buffalo, New York & Vicinity v. Downtown Dev., Inc., 448 F.3d 138 (2d Cir. 2006) ....................................................................... 6-7 n.2

Buffalo Evening News, Inc. v. Small Bus. Admin., 666 F. Supp. 467 (W.D.N.Y. 1987)......................................................26, 50 n.29

Clarke v. U.S. Dep’t of Treasury, Civ. No. 84-1873, 1986 WL 1234 (E.D. Pa. Jan. 28, 1986).................46, 50 n.28

Comstock Int’l (U.S.A.), Inc. v. Export-Import Bank of the U.S., 464 F. Supp. 804 (D.D.C. 1979).........................................................................47

Cuomo v. Clearing House Ass’n, LLC, 129 S. Ct. 2710 (2009)................................................................................ 6-7 n.2

Critical Mass Energy Project v. Nuclear Regulatory Comm’n, 975 F.2d 871 (D.C. Cir. 1992)................................................................27, 30, 46

FBI v. Abramson, 456 U.S. 615 (1982)............................................................................................27

Page(s)

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Fox News Network, LLC v. Bd. of Governors of the Fed. Reserve Sys., 639 F. Supp. 2d 384 (S.D.N.Y. 2009), appeal pending, No. 09-3795-cv (2d Cir.)....................................................................................................... passim

Gen. Elec. Co. v. Dep’t of Air Force, --- F. Supp. 2d ---, 2009 WL 2749359 (D.D.C. Aug. 28, 2009) ........................37

Gulf & W. Indus. v. U.S., 615 F.2d 527 (D.C. Cir. 1979)................................................................28, 33, 50

Hotel Employees & Rest. Employees Union, Local 100 of New York, N.Y. & Vicinity, AFL-CIO v. City of New York Dep’t of Parks & Recreation, 311 F.3d 534 (2d Cir. 2002) ................................................................17 n.16, 44

Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333 (1977).................................................................................... 6-7 n.2

Iglesias v. CIA, 525 F. Supp. 547 (D.D.C. 1981).........................................................................32

In Defense of Animals v. U.S. Dep’t of Agric., 501 F. Supp. 2d 1 (D.D.C. 2007)........................................................................45

Judicial Watch, Inc. v. Export-Import Bank, 108 F. Supp. 2d 19 (D.D.C. 2000)........................................................47, 50 n.28

Kaggen v. IRS, 71 F.3d 1018, 1021 (2d Cir. 1995) .................................................................8 n.3

Lion Raisins v. U.S. Dep’t of Agric., 354 F.3d 1072 (9th Cir. 2004) ............................................................................38

McDonnell Douglas Corp. v. Nat’l Aeronautics & Space Admin., 180 F.3d 303 (D.C. Cir. 1999)......................................................................34, 37

McDonnell Douglas Corp. v. U.S. Dep’t of the Air Force, 375 F.3d 1182 (D.C. Cir. 2004)..........................................................................33

Nadler v. FDIC, 92 F.3d 93 (2d Cir. 1996) ........................................................................... passim

National Parks & Conservation Ass’n v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976)........................................... 28, 34, 35, 36 n.21, 38

Page(s)

- v -

National Parks & Conservation Ass’n v. Morton, 498 F.2d 765 (D.C. Cir. 1974).................................................................... passim

Niagara Mohawk Power Corp. v. U.S. Dep’t of Energy, 169 F.3d 16 (D.D.C. 1999) ........................................................................... 44-45

Occidental Petroleum Corp v. SEC, 873 F.2d 325 (D.C. Cir. 1989)............................................................................37

OSHA Data/CIH, Inc. v. U.S. Dep’t of Labor, 220 F.3d 153 (3d Cir. 2000) ...............................................................................50

Pub. Citizen Health Research Group v. FDA, 704 F.2d 1280 (D.C. Cir. 1983).................................................................. passim

Sears, Roebuck & Co. v. Gen. Servs. Admin., 553 F.2d 1378 (D.C. Cir. 1977)..........................................................................44

Sec. Indus. Ass’n v. Bd. of Governors of the Fed. Reserve Sys., 716 F.2d 92 (2d Cir. 1983) .................................................................................39

United Techs. Corp. by Pratt & Whitney v. FAA, 102 F.3d 688 (2d Cir. 1996) ...............................................................................31

Utah v. U.S. Dep’t of Interior, 256 F.3d 967, 970 (10th Cir. 2001) ......................................................34, 36 n.21

Vaughn v. Rosen, 484 F.2d 820 (D.C. Cir. 1973)............................................................................34

STATUTES, REGULATIONS, AND RULES

5 U.S.C. § 552............................................................................................................1

5 U.S.C. § 552(a)(6)(A)(i) .......................................................................................43

5 U.S.C. § 552(b)(4)...................................................................................2, 5, 27, 31

12 U.S.C. § 461(b)(1)(A) .....................................................................................8 n.4

28 U.S.C. § 1291........................................................................................................2

28 U.S.C. § 1331........................................................................................................1

12 C.F.R. § 261.13(e)...............................................................................................43

Page(s)

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Fed. R. Evid. 201(f) .........................................................................................17 n.16

OTHER AUTHORITIES

Andrew Ross Sorkin, Bids To Halt Financial Crisis Sharpen Landscape of Wall St., N.Y. Times, Sept. 14, 2008............................................................11 n.8

Andrew Ross Sorkin, In Sweeping Move Fed Backs Buyout and Wall St. Loans, N.Y. Times, Mar. 17, 2008 ...............................................................11 n.8

Ben S. Bernanke, Chairman, Bd. of Governors of the Fed. Reserve Sys., Remarks Via Satellite at the Federal Reserve Bank of Atlanta Financial Markets Conference: Liquidity Provision by the Federal Reserve (May 13, 2008), available at http://www.federalreserve.gov/newsevents/ speech/bernanke20080513.htm .............................................................. 12-13, 16

Binyamin Appelbaum, Investors Flee From Banking Stocks; National City, Wachovia Plummet, Wash. Post, Sept. 27, 2008................................................21

Brian F. Madigan & William Nelson, Proposed Revision to the Federal Reserve’s Discount Window Lending Programs, 88 Fed. Res. Bull. 313 (2002) ............................................................................................................10 n.7

Cheryl Edwards, Open Market Operations in the 1990s, 83 Fed. Res. Bull. 859 (1997).............................................................................................................9

Damian Paletta & David Enrich, Crisis Deepens as Big Bank Fails—IndyMac Seized in Largest Bust in Two Decades, Wall St. J., July 12, 2008.....................................................................................................................20

Daniel Dombey et al., Fall in Markets as Bail-out Is Approved, Fin. Times, Oct. 4, 2008............................................................................................. 11-12 n.8

Diana B. Henriques, Treasury to Guarantee Money Market Funds, N.Y. Times, Sept. 20, 2008 .................................................................................19 n.18

Diya Gullapalli, Investing in Funds: A Monthly Analysis—Low Yields Join Credit Worries as Big Issues for Money Funds, Wall St. J., Mar. 2, 2009 .............................................................................19 n.18

Documentation for the Bank of England’s Operations Under the Sterling Monetary Framework, Art. 16.3(a) (Oct. 2009), available at http://www.bankofengland.co.uk/markets/money/documentation/ 090925full.pdf.............................................................................................15 n.14

Page(s)

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Federal Deposit Insurance Corporation, History of the Eighties—Lessons for the Future: An Examination of the Banking Crises of the 1980s and Early 1990s (Dec. 1997), Volume I, available at http://www.fdic.gov/bank/historical/history/235_258.pdf .................................22

FDIC Announces Plan to Free Up Bank Liquidity, Oct. 14, 2008, available at http://www.fdic.gov/news/news/press/2008/pr08100.html................ 11-12 n.8

Frequently Asked Questions, Discount Window Lending Programs, available at http://www.frbdiscountwindow.org/dwfaqs.cfm#ps10. .........14 n.13

Greg Hitt & Damian Paletta, U.S., Europe Push to Limit Crisis—Senate Plans Vote on Revised Rescue Package that Raises Limits on Deposit Insurance, Wall St. J., Oct. 1, 2008..............................................................11 n.8

James A. Clouse, Recent Developments in Discount Window Policy, 80 Fed. Res. Bull. 965 (1994)......................................................................... 9-10 n.5, n.6

James R. Hagerty et al., U.S. Seizes Mortgage Giants—Government Ousts CEOs of Fannie, Freddie; Promises Up to $200 Billion in Capital, Wall St. J., Sept. 8, 2008 .......................................................................................11 n.8

James R. Hagerty & Lingling Wei, Countrywide Seeks Deposits to Fund Loans – Company to Expand Bank Arm in Latest Bid To Combat Credit Crunch, Wall St. J., Sept. 19, 2007.....................................................................19

James T. O’Reilly, Federal Information Disclosure (3d ed. 2000) .........................33

Jenny Anderson & Ben White, Wall St.’s Fears on Lehman Bros. Batter Markets, N.Y. Times, Sept. 10, 2008 .................................................................21

Jon Hilsenrath et al., Crisis Mode: Paulson, Bernanke Strained for Consensus In Bailout, Wall St. J., Nov. 10, 2008 ........................................11 n.8

Kate Kelley, Greg Ip & Robin Sidel, Fed Races to Rescue Bear Stearns in Bid to Steady Financial System: Storied Firm Sees Stock Plunge 47%; J.P. Morgan Steps In, Wall St. J., Mar. 15, 2008 ...............................................20

Matthew Karnitsching et al., U.S. to Take Over AIG in $85 Billion Bailout, Wall St. J., Sept. 17, 2008....................................................................... 11-12 n.8

Primary Dealer Credit Facility: Program Terms and Conditions, available at http://www.newyorkfed.org/markets/ pdcf_terms.html ..........................................................................................16 n.15

Page(s)

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Sebastian Mallaby, A Market Run on Rationality, Wash. Post, Aug. 20, 2007 ......19

Term Securities Lending Facility: Program Terms and Conditions, available at http://www.newyorkfed.org/markets/tslf_terms.html. ...........................15 n.15

The Semi-Annual Monetary Policy Report to the Congress: Hearing Before the S. Comm. on Banking, Housing & Urban Affairs, 111th Cong. (Feb. 24, 2009) ....................................................................................................... 14-15

Treasury Committee, The run on the Rock, 2007-08, H.C. 56-1, (“House of Commons Report”), available at http://www.publications.parliament.uk/ pa/cm200708/cmselect/cmtreasy/56/56i.pdf. ............................................. passim

This appeal arises from the judgment of the United States District

Court for the Southern District of New York (Loretta A. Preska, Chief Judge),

entered on August 26, 2009, denying the motion of the Defendant-Appellant Board

of Governors of the Federal Reserve System (the “Board”) for summary judgment

and granting the cross-motion of Plaintiff-Appellee Bloomberg L.P.

(“Bloomberg”) for the same relief. The opinion supporting that judgment is

reported at Bloomberg L.P. v. Bd. of Governors of the Fed. Reserve Sys., No. 08

Civ. 9595, 2009 WL 2599336, --- F. Supp. 2d --- (S.D.N.Y. Aug. 24, 2009).

STATEMENT OF JURISDICTION

The District Court had subject-matter jurisdiction under 28 U.S.C.

§ 1331 because the action arises under a federal statute, i.e., the Freedom of

Information Act, 5 U.S.C. § 552.

On August 24, 2009, the District Court rendered an Opinion and

Order granting Bloomberg’s cross-motion for summary judgment and, on August

26, 2009, entered judgment on that order. (SPA 48.) On September 17, 2009, the

District Court granted the motion of The Clearing House Association L.L.C. (the

“Clearing House”)1 to intervene. (A 513.) On September 30, 2009, the Board and

1 The members of the Clearing House are: ABN Amro Bank N.V.; Bank of America, N.A.; The Bank of New York Mellon; Citibank, N.A.; Deutsche Bank Trust Company Americas; HSBC Bank USA, N.A.; JPMorgan Chase Bank, N.A.; UBS AG; U.S. Bank N.A.; and Wells Fargo Bank, N.A.

- 2 -

the Clearing House filed timely notices of appeal from the District Court’s

August 26 judgment. (A 521-23.)

This Court has appellate jurisdiction under 28 U.S.C. § 1291 because

this appeal is from a final decision of the District Court.

STATEMENT OF THE ISSUES

1. Whether, in ordering the Board to disclose the names, amounts

and duration of emergency loans made to financial institutions during the current

financial crisis, the District Court erred in holding that such information was not

“privileged or confidential” under the competitive harm prong of Exemption 4 of

the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552(b)(4). Specifically, did

the District Court:

(a) apply the wrong legal standard by requiring the Board to show

that the harm to financial institutions from disclosure of such information

(i) must be “imminent,” as opposed to just “likely”; and (ii) must result from

competitors’ use of the disclosed information; and

(b) impermissibly dismiss as “speculat[ive]” the Board’s

substantial evidence and expert judgments—detailed in declarations of

senior Board and Federal Reserve Bank (“FRB”) officials—of the likely

competitive harm to financial institutions from public disclosure of their

borrowings from the FRBs, as lenders of last resort.

- 3 -

2. Whether the District Court erred in refusing to recognize, as an

additional basis for non-disclosure, the impact disclosure would have on the

Board’s ability to carry out its statutory mandate to oversee the Nation’s central

banking system, including by deterring financial institutions from accessing Board

lending programs, particularly during a period of financial crisis.

3. Whether the District Court erred in holding that—except for the

borrowers’ names—the information contained in the Board’s reports, including the

amount and duration of any loan, was not “obtained from” the borrowing

institutions, but was “generat[ed]” by the FRBs and, therefore, was not exempt

from disclosure.

STATEMENT OF THE CASE

Since August 2007, in response to the worst financial crisis since the

Great Depression, the Board has authorized or expanded the FRBs’ ability to

provide loans through the Discount Window and other emergency lending

programs (the “Fed Lending Programs”) to financial institutions, including

members of the Clearing House. These programs have helped stabilize our

Nation’s fragile financial system, and the Board and the FRBs have released

extensive information to the public about these programs, including about the

terms of, and eligibility for, such loans and the amounts of aggregate lending.

- 4 -

Because the FRBs act as lenders of last resort when providing funding

through the Fed Lending Programs, banks, other market participants and regulators

have recognized that borrowers’ use of such emergency lending programs marks

them with a “stigma” of financial weakness. In fact, public disclosure that an

institution has borrowed from a lender of last resort, such as an FRB, has had

severe adverse consequences for individual borrowers, including sparking bank

runs. In the early 1990s, for example, rumors that Citibank was borrowing at the

Discount Window sparked runs at some of its Asian offices. More recently, in

September 2007, British bank Northern Rock plc suffered a bank run after the

British Broadcasting Corporation reported that Northern Rock had obtained

emergency funding from the Bank of England.

As a result, to avoid the risk of serious competitive injury to financial

institutions from disclosure of their need to access the Fed Lending Programs,

particularly during a period of financial crisis, the Board and the FRBs have

maintained their longstanding policy of not disclosing information about individual

borrowers. Moreover, borrowers have participated in these programs with the

expectation and understanding that the Board would protect their confidentiality.

Board policy regarding the confidentiality of individual borrower use of the

Discount Window has been in existence since 1913, when this lending program

was put in place for emergency or other special funding. Other central banks

- 5 -

similarly do not disclose the identities of financial institutions that obtain short-

term funding through government lending facilities.

Bloomberg, a leading global financial information news service, seeks

to upset the Board’s longstanding policy (and the expectations and understandings

of borrowers) against public disclosure of individual bank borrowing. In

responding to Bloomberg’s FOIA request, the Board withheld internal “Remaining

Term Reports” (the “Reports”), which reflect confidential information provided to

FRBs by borrowing institutions, on the expectation of confidentiality, to obtain

loans through the Fed Lending Programs. Specifically, the Reports list, among

other things, (1) the names of the borrowing institutions; (2) the amount of the

loans; (3) the duration of loans; and (4) the type of lending program borrowed

from.

The Board properly withheld the Reports under FOIA Exemption 4,

which authorizes government agencies to withhold records containing

“commercial or financial information obtained from a person and privileged or

confidential.” 5 U.S.C. § 552(b)(4). After Bloomberg filed this action, the Board

provided the District Court with extensive declarations from senior Board and FRB

officials explaining that public disclosure of the individual borrowing of financial

institutions (including Clearing House members) likely would result in substantial

competitive harm to those institutions.

- 6 -

In ordering the Board to produce the Reports, the District Court

applied the wrong standard, as evidenced by, among other things, (a) requiring the

Board to establish that the competitive harm to individual borrowers from

disclosure of the Reports would have to be “imminent,” as opposed to just “likely,”

and (b) dismissing as “speculat[ive]” declarations from senior Board and FRB

officials, notwithstanding their experience and expertise.

In addition, the District Court rejected the decision of another

Southern District Judge, addressing virtually the same FOIA issues, which

recognized the Board’s interest in efficiently executing its statutory

responsibilities, including administering its lending programs during a financial

crisis, as a basis for non-disclosure of the Reports to Fox News. See Fox News

Network, LLC v. Bd. of Governors of the Fed. Reserve Sys., 639 F. Supp. 2d 384

(S.D.N.Y. 2009), appeal pending, No. 09-3795-cv (2d Cir.).

Following the District Court’s erroneous (and unprecedented and

unexpected) ruling below, the Clearing House promptly intervened to protect its

members’ substantial interests in the confidential information they provided to the

FRBs.2

2 Members of the Clearing House are among the world’s principal participants in the international banking and payment systems. The Clearing House frequently participates as a party in litigation to protect its members’ interests. See, e.g., Cuomo v. Clearing House Ass’n, LLC, 129 S. Ct. 2710, 2714 (2009) (reviewing challenge by the Clearing House to New York Attorney General’s investigation of

- 7 -

The District Court’s erroneous ruling, if left to stand, will impair the

ability of Clearing House members to protect the confidential information that they

have provided (and will provide in the future) to the FRBs in connection with the

Fed Lending Programs. The likely competitive harm to Clearing House members

from public disclosure of their need to access the Fed Lending Programs is

demonstrated by the failures and near failures of financial institutions after

disclosure of information, or even rumors, regarding their difficulty in obtaining

funding. See infra at 17-22.

By imposing disclosure obligations on the Board not faced by other

central banks, the District Court’s ruling threatens the ability of the Board and the

FRBs to respond to future financial crises—in the near and longer term—to the

detriment of the U.S. financial system. The FOIA requires the Board to respond

to a request within 20 days, and interested third parties, such as news

organizations, market analysts, and investors, would have every incentive to file

lending practices of certain of its members and other national banks). The Clearing House, like other organizations of its type, has standing to bring this action on behalf of its members if, as here, “‘(a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization’s purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.’” Building & Constr. Trade Council of Buffalo, New York & Vicinity v. Downtown Dev., Inc., 448 F.3d 138, 144 (2d Cir. 2006) (quoting Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333, 343 (1977)). The holding companies of three Clearing House members have publicly disclosed limited information about their participation in the Fed Lending Programs. (A 153; A 360-61.)

- 8 -

numerous and successive FOIA requests at minimal cost. As a result, unless this

Court reverses the decision below, financial institutions may elect not to participate

in Fed Lending Programs out of fear that prompt public disclosure (within 20 days)

of their participation will have adverse competitive consequences for them, up to

and including catastrophic bank runs.

Because the District Court applied the wrong legal standard, and then

disregarded the substantial Board evidence showing that public disclosure of the

information in the Reports likely would inflict substantial competitive harm on

borrowers who have accessed the Fed Lending Programs, the District Court’s order

should be reversed.

STATEMENT OF FACTS

1. The Fed Lending Programs

A. The Discount Window3

The Discount Window is an indispensable source of short-term

funding for depository institutions.4 Established in 1913, when the Federal

3 “Courts in general have long taken judicial notice of facts of common knowledge relating to banks and banking procedure.” Kaggen v. IRS, 71 F.3d 1018, 1021 (2d Cir. 1995). 4 A “depository institution” is defined by statute under 12 U.S.C. § 461(b)(1)(A).

- 9 -

Reserve Act was passed,5 the Discount Window “is a mechanism by which the

twelve Federal Reserve Banks lend funds on a short-term basis, secured by

collateral, to eligible depository institutions within their respective districts.” (A

67 ¶ 6.) The Discount Window serves, essentially, as a “back-up source of

liquidity for institutions that may not have access to ordinary, market sources of

funding on a short-term basis.” (A 74 ¶ 18.)

Precisely because the Discount Window can serve an emergency-

lending function (thereby signaling an institution’s inability to fund itself),

depository institutions traditionally have been reluctant to access this lending

facility. Indeed, “[s]ince the mid-1980s, depository institutions have become quite

reluctant to turn to the discount window because of concerns that their borrowing

might become known to private market participants—even though the Federal

Reserve treats the identity of borrowers in a highly confidential manner—and that

such borrowing might be viewed as a sign of weakness.” Cheryl L. Edwards,

Open Market Operations in the 1990s, 83 Fed. Res. Bull. 859, 859 (1997).6

5 Specifically, “[s]ections 10B and 13 of the Federal Reserve Act authorize the Federal Reserve Banks to extend discount window credit to depository institutions in the form of discounts and advances.” James A. Clouse, Recent Developments in Discount Window Policy, 80 Fed. Res. Bull. 965, 965 (1994). 6 See also James A. Clouse, Recent Developments in Discount Window Policy, 80 Fed. Res. Bull. 965, 965 (1994) (“[C]hanges became evident during the 1980s in the willingness of healthy institutions to turn to the discount window. Many

- 10 -

Banks have, in other words, recognized that a “stigma” of financial

weakness may attach to their use of the Discount Window. (A 74 ¶ 17.) That

“stigma” can damage, if not destroy, an institution by triggering a “sudden outflow

of deposits (a ‘run’), a loss of confidence by market analysts, a drop in the

institution’s stock price, and a withdrawal of market sources of liquidity.” (Id.; see

also A 90 ¶ 21.)

During periods of financial distress, the stigma from borrowing from a

lender of last resort often intensifies because, during such periods, market

participants have heightened concerns about the condition of financial institutions.

(A 75 ¶ 19.) For instance, during the early 1990s, when many banks failed, banks

were willing to pay very high rates in the private federal funds market rather than

turn to the Discount Window. (Id.) The same was true following the financial

crisis triggered by the 1998-1999 Russian debt default. (Id.)7 The effects of that

stigma were evidenced in the early 1990s, when rumors that Citibank was

banks apparently became more reluctant to turn to the window for fear of provoking market concerns about their financial condition.”). 7 See also Brian F. Madigan & William R. Nelson, Proposed Revision to the Federal Reserve’s Discount Window Lending Programs, 88 Fed. Res. Bull. 313, 319 (2002) (observing that, during the early 1990s, “many banks, even healthy institutions, were concerned that their borrowing would be viewed by other market participants as a sign of financial weakness.”).

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borrowing at the Discount Window sparked runs at some of its offices in Asia. (A

76 ¶ 22.)

B. The Current Economic Crisis and the Expansion of Government Emergency Lending Programs

In August 2007, the U.S. economy experienced a severe financial

crisis. By 2008, this crisis changed the face of the global financial services

industry. Lehman Brothers and Washington Mutual declared bankruptcy; Bear

Stearns and Wachovia were sold for far less than what their values were just days

before the sale; two of the three largest bank failures in U.S. history occurred;

Fannie Mae and Freddie Mac were placed into government conservatorship; the

Federal Reserve provided a $150 billion rescue package to AIG, which granted the

federal government an 80% ownership stake in the company; Congress enacted a

$700 billion plus support program for the financial industry; and the Federal

Deposit Insurance Corporation invoked its systemic risk authority to guarantee

billions of dollars of obligations.8

8 See Andrew Ross Sorkin, Bids To Halt Financial Crisis Sharpen Landscape of Wall St., N.Y. Times, Sept. 14, 2008, at A1; Andrew Ross Sorkin, In Sweeping Move Fed Backs Buyout and Wall St. Loans, N.Y. Times, Mar. 17, 2008, at A1; Greg Hitt & Damian Paletta, U.S., Europe Push to Limit Crisis—Senate Plans Vote on Revised Rescue Package that Raises Limits on Deposit Insurance, Wall St. J., Oct. 1, 2008, at A1; John Hilsenrath et al., Crisis Mode: Paulson, Bernanke Strained for Consensus in Bailout, Wall St. J., Nov. 10, 2008; James R. Hagerty et al., U.S. Seizes Mortgage Giants—Government Ousts CEOs of Fannie, Freddie; Promises Up to $200 Billion in Capital, Wall St. J., Sept. 8, 2008, at A1; Matthew Karnitsching et al., U.S. to Take Over AIG in $85 Billion Bailout, Wall St. J., Sept.

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During the current financial crisis, banks experienced intense pressure

to meet short-term liquidity needs. The Board reacted by encouraging greater use

of the Discount Window. In August 2007, the Board reduced the rate charged on

Discount Window loans and extended term financing for as long as 30 days. (A

269.) In March 2008, the Board extended term financing for as long as 90 days.

(A 484.)

Nevertheless, according to Board Chairman Ben Bernanke, banks

remained concerned that they would be stigmatized if they used the Discount

Window:

[T]he efficacy of the discount window has been limited by the reluctance of depository institutions to use the window as a source of funding. The “stigma” associated with the discount window, which if anything intensifies during periods of crisis, arises primarily from banks’ concerns that market participants will draw adverse inferences about their financial condition if their borrowing from the Federal Reserve were to become known.

Ben S. Bernanke, Chairman, Bd. of Governors of the Fed. Reserve Sys., Remarks

Via Satellite at the Federal Reserve Bank of Atlanta Financial Markets Conference:

17, 2008, at A1; Daniel Dombey et al., Fall in Markets as Bail-out Is Approved, Fin. Times, Oct. 4, 2008, § 1, at 1; FDIC Announces Plan to Free Up Bank Liquidity, Oct. 14, 2008, available at http://www.fdic.gov/news/news/ press/2008/pr08100.html.

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Liquidity Provision by the Federal Reserve (May 13, 2008) (“Liquidity Provision

by the Federal Reserve”).9

Banks in other countries likewise were concerned about the stigma

that would attach to their use of central banks’ emergency lending facilities. As

the Governor of the Bank of England observed:

A key lesson that central banks around the world have taken from the recent turmoil is that, in stressed conditions, any bank that is seen to come to the central bank to borrow—whether in regular standing facilities10 against high-quality collateral or against wider collateral in a discount window or support operation—can become stigmatised in the market.

Treasury Committee, The run on the Rock, 2007-08, H.C. 56-1, ¶ 106 (“House of

Commons Report”).11

In response to these concerns, the Board continued to follow its

longstanding practice of not disclosing information concerning individual

depository institutions’ use of the Discount Window—a practice in turn relied on

by depository institutions, including Clearing House members, when accessing the

9 Available at http://www.federalreserve.gov/newsevents/speech/bernanke200 80513.htm. 10 A “standing facility” is a U.K. lending facility that is similar to the Discount Window. See House of Commons Report ¶ 82 (“The ‘discount window’ is similar to the UK ‘standing facility’ . . . , but accepts a much wider range of collateral.”). 11 Available at http://www.publications.parliament.uk/pa/cm200708/cmselect/ cmtreasury/56/56i.pdf.

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Discount Window. Brian Madigan, Director of the Board’s Division of Monetary

Affairs, specifically advised the District Court that, except for Bear Stearns and

AIG, “neither the Board nor the [FRBs] publicly disclose the names of borrowers

at the [Discount Window]” or “other information that could lead to the

identification of borrowers by counterparties, market analysts, news media

organizations, or the public at large.”12 (A 73 ¶ 16.) Indeed, the FRBs’ public

Discount Window website states that “the Federal Reserve does not publish

information about individual institutions’ borrowings.”13

The Board’s practice of not disclosing the names of individual

borrowers that access the Discount Window was informed by the Board’s

extensive central banking experience. Specifically, when testifying before the

Senate Banking Committee in February 2009, Chairman Bernanke explained that

“[h]undreds of years of central banking [experience]” taught that disclosing

borrower names would pose a risk “that the market will say that there’s something

wrong with them, that there’s a stigma of some kind, and the[ banks] will refuse to

12 Susan E. McLaughlin, Senior Vice President in the Markets Group at the Federal Reserve Bank of New York (“FRBNY”), similarly advised the District Court that there is an “explicit understanding” among the FRBNY and depository institutions that information about their Discount Window borrowing “will not be disclosed by either the borrowers or by the [FRBNY].” (A 89 ¶ 18.) 13 Frequently Asked Questions, Discount Window Lending Programs, available at http://www.frbdiscountwindow.org/dwfaqs.cfm#ps10.

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come to the window in the first place.”14 The Semi-Annual Monetary Policy

Report to the Congress: Hearing Before the S. Comm. on Banking, Housing &

Urban Affairs, 111th Cong. (Feb. 24, 2009) (statements of Ben S. Bernanke,

Chairman, Bd. of Governors of the Fed. Reserve Sys.).

During the financial crisis, the Board also introduced several new

programs designed to make short-term funding more accessible or available to

depository and other financial institutions. In December 2007, the Board unveiled

the “Term Auction Facility,” or “TAF,” a form of Discount Window lending

“which provides longer than overnight (‘term’) funding to depository institutions

that are eligible for primary credit through an auction mechanism.” (A 69 ¶ 8.)

In early 2008, the Board created certain special credit and liquidity

facilities, including the Primary Dealer Credit Facility (“PDCF”) and Term

14 Like Chairman Bernanke, the Chancellor of the Exchequer (who serves a role comparable to the U.S. Secretary of the Treasury) informed the House of Commons that, though there had been “‘interest in how much support the Bank of England is giving’” to financial institutions like Northern Rock, “‘in common with other central banks, it does not provide details of any operations because it believes that doing so would undermine its ability to provide such support.’” House of Commons Report ¶ 360; see also Documentation for the Bank of England’s Operations Under the Sterling Monetary Framework, Art. 16.3(a) (Oct. 2009) (permitting the Bank of England to make “general disclosure” regarding the Sterling Monetary Framework, its analogue to the Discount Window, provided “that such general disclosure does not identify or name the Participant”), available at http://www.bankofengland.co.uk/markets/money/documentation/090925full.pdf.

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Securities Lending Facility (“TSLF”).15 (A 67 ¶ 4; A 68 ¶ 7.) These programs,

enacted under the emergency authority provided to the Board by section 13(3) of

the Federal Reserve Act (A 68-69 ¶ 7), provided greater liquidity to “primary

dealers,” i.e., designated banks and securities broker-dealers with which the

FRBNY trades U.S. government and other securities. (A 69 ¶ 9.)

The PDCF and TSLF programs have features similar to the Discount

Window and TAF lending programs. The PDCF is a facility under which the

FRBNY makes overnight funds available to primary dealers. (Id.) The PDCF, in

effect, “provides primary dealers with a liquidity backstop similar to the discount

window for depository institutions.” Ben S. Bernanke, Liquidity Provision by the

Federal Reserve; see also A 69 ¶ 9. The TSLF is a program that “allows primary

dealers to exchange less-liquid securities for Treasury securities for terms of 28

days.” Ben S. Bernanke, Liquidity Provision by the Federal Reserve; see also A

70 ¶ 10. The TSLF, like the TAF, is conducted through a competitive auction

process. (A 95 ¶ 8.)

Because PDCF and TSLF borrowing is associated with accessing

funds from a lender of last resort, such borrowing carries a stigma similar to

15 These programs will remain available to primary dealers until February 1, 2010, or longer, if conditions warrant. See Primary Dealer Credit Facility: Program Terms and Conditions, available at http://www.newyorkfed.org/markets/ pdcf_terms.html; Term Securities Lending Facility: Program Terms and Conditions, available at http://www.newyorkfed.org/markets/tslf_terms.html.

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borrowing from the Discount Window. (A 76 ¶ 21; A 89 ¶ 19.) There is therefore

an “explicit understanding” among the FRBNY and the primary dealers that

information relating to PDCF and TSLF borrowing will not be publicly disclosed.

(A 89 ¶ 18.)

2. The Harm to Financial Institutions From Disclosure of Their Use of Emergency Lending Facilities

The longstanding concern of the Board and financial institutions about

the stigma associated with accessing emergency government lending facilities is

rooted in years of experience. That experience shows that when rumors of a

financial institution’s weakness circulate—rumors that are triggered when, among

other things, an institution turns to a lender of last resort—adverse consequences

follow.16

In August 2007, a major U.K. clearing bank became “the centre of

intense scrutiny” after the market learned that it had used the Bank of England’s

standing facilities. House of Commons Report ¶ 105. Although the clearing

16 This Court may take judicial notice of facts during any point in the proceeding. See Fed. R. Evid. 201(f) (“Judicial notice may be taken at any stage of the proceeding.”); see also Hotel Employees & Rest. Employees Union, Local 100 of New York, N.Y. & Vicinity, AFL-CIO v. City of New York Dep’t of Parks & Recreation, 311 F.3d 534, 540 n.1 (2d Cir. 2002) (“The parties request that we take judicial notice of the facts contained in Edgar B. Young’s comprehensive history of the construction of Lincoln Center. Although the parties make this request for the first time on appeal, ‘[j]udicial notice may be taken at any stage of the proceeding.’”) (quoting Fed. R. Evid. 201(f)).

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bank’s use of those facilities was apparently not related to its liquidity needs,

“investors and the media searched for signs of weakness following the start of the

turmoil in the capital markets,” causing a “sharp fall in the company’s share price.”

Id. ¶¶ 105, 139.

Moreover, in September 2007, U.K. bank Northern Rock plc did

experience a bank run after the BBC reported that Northern Rock had asked for

and received emergency financial support from the Bank of England. Id. ¶¶ 1, 147.

The bank run began on the evening of September 13, following, “in the Chancellor

of the Exchequer’s words, ‘the fairly dramatic news that a fairly well-known bank

had gone to the Bank of England for help’ and the run accelerated the following

day.” Id. ¶ 149. A U.K. Treasury Committee report concluded that the run “was

largely triggered by the announcement of the Bank of England’s support

operation,” demonstrating that the “level of stigmatisation” associated with the

lending facility called its efficacy into doubt. Id. ¶ 213.17

17 Though the Bank of England and Northern Rock planned to formally announce this operation after it had taken place, the BBC—through a leak—reported this event first. House of Commons Report ¶ 147. The Chief Executive of Northern Rock lamented this leak, explaining that, “‘[h]ad the leak not happened and had we been able to announce on the Monday the facility with the Bank of England in a measured fashion, with full communication plans in place, undoubtedly there would have been some concern—a lot of concern—to many of our customers but we think it would have been considerably less than it was in the way that it came about.’” Id. ¶ 148.

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In the United States, large financial institutions recently experienced

runs of a similar sort, confirming that the survival of banks and other financial

institutions can turn on the ephemeral nature of public confidence in those

institutions. During the recent financial crisis, no less than six major U.S. financial

institutions failed or nearly failed following rumors or reports of their financial

weakness.18

Countrywide Financial. In August 2007, depositors rushed to

withdraw funds amid fears over the home-mortgage lender’s financial health. See

James R. Hagerty & Lingling Wei, Countrywide Seeks Deposits to Fund Loans –

Company to Expand Bank Arm in Latest Bid To Combat Credit Crunch, Wall St.

J., Sept. 19, 2007, at A4. At Countrywide branches, depositors reportedly besieged

bank representatives, “demanding to get their money out” in scenes “conjuring

those grainy black-and-white images of Depression-era bank runs.” Sebastian

Mallaby, A Market Run on Rationality, Wash. Post, Aug. 20, 2007, at A15.

18 Financial institutions were not the only ones affected by investor reactions to negative reports. Money-market funds (essentially short-term mutual funds that invest in highly liquid securities) also experienced investor runs during the financial crisis. See Diana B. Henriques, Treasury to Guarantee Money Market Funds, N.Y. Times, Sept. 20, 2008. Specifically, in September 2008, the collapse of prominent money-market fund Reserve Primary Fund “prompted panic in the world of money-market funds,” leading investors to pull more than $200 billion out of such funds within two weeks. Diya Gullapalli, Investing in Funds: A Monthly Analysis—Low Yields Join Credit Worries as Big Issues for Money Funds, Wall St. J., Mar. 2, 2009, at R1.

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Investors, too, discontinued purchasing Countrywide’s commercial paper (i.e.,

short-term bonds), causing the bank to suffer “the bond-market equivalent of a

bank run.” Id.

Bear Stearns. In March 2008, when rumors of Bear Stearns’s

illiquidity surfaced, Bear Stearns’s counterparties “expressed increased concern

regarding maintaining their ordinary course exposure” to the company and “a

significant number of counterparties and lenders [became] unwilling to make

[even] secured funding available to Bear Stearns on customary terms, which

resulted in a sharp deterioration in Bear Stearns’s liquidity position.” (A 512.)

One strategist analogized the counterparty “run” at Bear Stearns to the depositor

run at Northern Rock. See Kate Kelley, Greg Ip & Robin Side l, Fed Races to

Rescue Bear Stearns in Bid to Steady Financial System: Storied Firm Sees Stock

Plunge 47%; J.P. Morgan Steps In, Wall St. J., Mar. 15, 2008, at A1.

IndyMac. In July 2008, the third-largest bank failure in U.S. history

occurred after depositors withdrew 1.3 billion dollars’ worth of funds in 11 days

from IndyMac, one of the largest savings and loan associations in the country. See

Damian Paletta & David Enrich, Crisis Deepens as Big Bank Fails—IndyMac

Seized in Largest Bust in Two Decades, Wall St. J., July 12, 2008, at A1. The

Director of the Office of Thrift Supervision attributed that failure to comments

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made by a Congressman, who, in the words of the OTS Director, gave the bank a

“‘heart attack’” after raising concerns about its solvency. Id.

Lehman Brothers. In September 2008, Lehman Brothers filed for

bankruptcy after concerns over its subprime exposure “spooked” investors and

creditors. (A 496.) The company’s CEO attributed the firm’s collapse to a “‘lack

of confidence’” and a “‘storm of fear enveloping the entire investment-banking

field and our financial institutions generally.’” (Id.) “With [its] stock price in free

fall and the cost of buying protection against Lehman defaulting on its bonds

skyrocketing,” observed one reporter, “it [was] clear that Lehman [was] not

immune to the kind of panic that can put a financial institution, which depends on

confidence, at risk.” Jenny Anderson & Ben White, Wall St.’s Fears on Lehman

Bros. Batter Markets, N.Y. Times, Sept. 10, 2008, at A1.

Washington Mutual. In September 2008, the largest bank failure in

U.S. history occurred after depositors, concerned over reports of the firm’s

subprime exposure, “withdrew $16.7 billion, leaving the bank without the money it

needed to stay in business.” (A 490.) That event made clear that a depositor run

“can destabilize even a large bank.” Binyamin Appelbaum, Investors Flee From

Banking Stocks; National City, Wachovia Plummet, Wash. Post, Sept. 27, 2008, at

D1.

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Wachovia. In September 2008, Wachovia was “forced from

existence,” in part, by “fleeing depositors.” (A 488.) Like Washington Mutual,

the company “was ultimately laid low not by its mortgage losses but by a lack of

cash. The bank basically foundered because people lost confidence in its ability to

survive.” (A 490.) As FDIC chairman Sheila C. Bair observed: “‘As the markets

become more skittish, financial markets are all about confidence[;] even the

strongest institutions can be subject to traditional runs.’” (A 491.)

These recent failures or near-failures evidence a well-documented

phenomenon. Banking history is replete with examples of financial institutions

failing when the public loses confidence in them. In 1984, for instance,

Continental Illinois—the nation’s seventh-largest bank at the time—failed after

rumors circulated about its financial health. See Federal Deposit Insurance

Corporation, History of the Eighties—Lessons for the Future: An Examination of

the Banking Crises of the 1980s and Early 1990s (Dec. 1997), Volume I, at 247

(“Among the factors that caused the run to start and made stopping it difficult,

rumor was prominent.”).19 Those rumors triggered a run on the bank that

continued even after the Comptroller of the Currency stated that it was unaware of

any significant changes in the bank’s operations that would substantiate the

rumors. Id.

19 Available at http://www.fdic.gov/bank/historical/history/235_258.pdf.

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3. Bloomberg’s FOIA Request

On May 21, 2008, Bloomberg reporter Mark Pittman sent a FOIA

request to the Board, asking for eleven categories of documents relating to

securities posted between April 4, 2008 and May 20, 2008 as collateral for the

Discount Window, the TAF, PDCF, and TSLF. (A 50-51.)

The Board produced documents responsive to item 11 of Bloomberg’s

request (which sought records identifying entities supplying pricing information),

but determined that additional documents responsive to Bloomberg’s request—the

“Remaining Term Reports” (the “Reports”) at issue in this appeal—were exempt

from disclosure. These “Reports” were generated daily by the Monetary Affairs

staff using weekly daily “data feeds” the Board received from each FRB “on the

DW, TAF and SCLFs”—data feeds that the FRBs “had obtained and derived . . .

from records of their transactions with borrowing institutions.” (A 38 ¶ 11.) The

Reports contained the following responsive information: (1) the name of the

borrowing institution; (2) the amount of the individual loans; (3) the type of facility

borrowed from (i.e., the Discount Window, TAF, PDCF, or TSLF programs); and

(4) the origination and maturity date of each loan. (A 57-58; A 38-39 ¶ 11.)

The Board concluded that the Reports contained no reasonably

segregable non-exempt information, and, on December 8, 2008, officially withheld

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them on the basis of FOIA Exemptions 4 and 5.20 (By then, Bloomberg had

already filed its complaint in the Southern District of New York.) In so doing, the

Board informed Bloomberg that “the Board and the Federal Reserve Banks publish

and regularly update information on Federal Reserve Bank lending activities.” (A

61.) But in the Board’s “considered judgment,” disclosing confidential

information about individual borrowers was a “dangerous step,” especially in light

of the “unprecedented” economic crisis. (A 63.)

4. The District Court’s August 24 Opinion and Order

On November 7, 2008, Bloomberg filed a complaint in the Southern

District of New York, which it amended on November 25, seeking disclosure of

documents responsive to its FOIA request. (A 2-3; A 9-21.)

The Board and Bloomberg each moved for summary judgment,

submitting supporting declarations. Specifically, the Board submitted 38 pages of

declarations from a senior Board official and two members of the FRBNY

responsible for operational details for the Discount Window, PDCF, and TSLF. In

response, Bloomberg submitted the expert declaration of Sharon Brown-Hruska, a

Vice President in the Securities and Finance Practice of National Economic

Research Associates, who described herself as an “expert in financial markets and

20 Whether the Board properly withheld the Reports under Exemption 5 is not at issue in this appeal.

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their regulation.” (A 119 ¶ 2.) Notably, although Ms. Brown-Hruska served as

Commissioner of the U.S. Commodity Futures Trading Commission (A 119-20

¶ 3), she had not served at the Board, the FRBs, or any other banking agency. She

thus had no firsthand experience with the Discount Window or other emergency

lending facilities—or, indeed, the banking industry.

The Board and Bloomberg also submitted statements of material fact

not in dispute; each challenged, in part, the other party’s account of the material

facts not in dispute. (A 429-30; A 437-38.)

The District Court granted Bloomberg’s motion, denied the Board’s,

and ordered the Board to disclose the Reports within five days. In so doing, it

made three errors.

First, by applying an improperly heightened standard, the District

Court erroneously dismissed the Board’s evidence as “speculat[ive]” or

“[c]onject[ural]” (SPA 41), concluding that the Board failed even to raise “an issue

of fact” on the question of competitive harm. (SPA 40.)

Second, by refusing to follow the First and D.C. Circuits’ guidance, as

well as the holding reached by Judge Hellerstein on nearly identical facts, the

District Court erroneously failed to recognize that Exemption 4 protects the

Board’s ability effectively to administer its emergency lending programs. (SPA

37-38 n.15.)

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Third, by relying on an inapposite district court case from the Western

District of New York, Buffalo Evening News, Inc. v. Small Business

Administration, 666 F. Supp. 467 (W.D.N.Y. 1987), the District Court incorrectly

held that—with the exception of borrower names—the information contained in

the Reports was not obtained from the borrowers. (SPA 35.)

5. The Stay and Intervention Motions

On August 26, the Board moved the District Court to stay its order,

submitting with that motion the declaration of Norman R. Nelson, General Counsel

of the Clearing House. In that declaration, Mr. Nelson explained that the District

Court’s order would impair Clearing House members’ ability to access emergency

funds by greatly increasing the likelihood that customers, counterparties, and other

market participants would draw negative inferences about their financial condition

if they did so. (A 464-65 ¶¶ 3, 5.)

On August 28, the District Court granted the Board’s motion for a

stay pending the outcome of the Board’s emergency stay application to be filed in

this Court. (A 459-60.)

On September 9, 2009, the Clearing House moved to intervene on

behalf of its members, who have a substantial interest in preventing public

disclosure of their confidential information. (A 469-72.) The District Court

granted that motion on September 17, 2009. (A 513.)

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On September 30, 2009, the Board and the Clearing House filed their

respective notices of appeal. (A 521-23.) That same day, the Board moved for an

emergency stay pending the appeal and for an expedited briefing schedule, and on

October 5, the Clearing House filed a memorandum of law in support of the

Board’s motion. By order dated October 6, 2009, this Court granted the Board’s

motion and set an expedited briefing schedule. This briefing followed.

STANDARD OF REVIEW

This Court “review[s] de novo the district court’s grant of summary

judgment in a FOIA case.” Associated Press v. U.S. Dep’t of Defense, 554 F.3d

274, 283 (2d Cir. 2009).

SUMMARY OF ARGUMENT

FOIA Standards. In enacting the Freedom of Information Act

(“FOIA”), Congress recognized that “legitimate governmental and private interests

could be harmed by release of certain types of information.” FBI v. Abramson,

456 U.S. 615, 621 (1982). “Balancing these private and public interests, Congress

enacted nine exemptions to FOIA.” Critical Mass Energy Project v. Nuclear

Regulatory Comm’n, 975 F.2d 871, 872 (D.C. Cir. 1992) (en banc).

One of those exemptions—Exemption 4—protects “trade secrets and

commercial or financial information obtained from a person and privileged or

confidential.” 5 U.S.C. § 552(b)(4). That exemption was “intended for the benefit

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of persons who supply information as well as the agencies which gather it.”

National Parks & Conservation Ass’n v. Morton, 498 F.2d 765, 770 (D.C. Cir.

1974) (“National Parks I”).

When a party asserts that the supplier of the information is likely to

suffer competitive harm from disclosure, “[n]o actual adverse effect on

competition need be shown”; “[t]he court need only exercise its judgment in view

of the nature of the material sought and the competitive circumstances in which

[the supplier] do[es] business, relying at least in part on relevant and credible

opinion testimony.” National Parks & Conservation Ass’n v. Kleppe, 547 F.2d

673, 683 (D.C. Cir. 1976) (“National Parks II”).

Nor must a court “conduct a sophisticated economic analysis of the

likely effects of disclosure.” Pub. Citizen Health Research Group v. FDA, 704

F.2d 1280, 1291 (D.C. Cir. 1983). “Evidence revealing ‘actual competition and

the likelihood of substantial competitive injury’ is sufficient to bring commercial

information within the realm of confidentiality.” Id. (quoting Gulf & W. Indus. v.

U.S., 615 F.2d 527, 530 (D.C. Cir. 1979)) (emphasis added).

The District Court’s Legal Errors. The District Court made three

errors, each of which independently merits reversal or remand.

First, the District Court erroneously held that the Board failed to show

that disclosure of the Reports “will cause the borrowers to suffer imminent

- 29 -

competitive harm from the affirmative use of the disclosed information by their

competitors or to raise an issue of fact on this question.” (SPA 40 (first emphasis

added).) That holding contravenes two settled principles: (1) competitive harm

need only be “likely”—not “imminent” or “certain”—to satisfy Exemption 4, as

held by the D.C. Circuit, whose “formulation of Exemption Four” has been

adopted by this Court, Nadler v. FDIC, 92 F.3d 93, 96 n.2 (2d Cir. 1996); and (2)

competitive harm need not result from direct use of the disclosed information by

competitors, as this Court held in Nadler, 92 F.3d at 97.

The District Court then applied a heightened standard to discount

substantial evidence entitling the Board, not Bloomberg, to summary judgment.

That evidence, reflected in detailed declarations from senior Board and FRB

officials, demonstrated the likely competitive harm to borrowing institutions,

including Clearing House members, from public disclosure of their identities and

borrowings from the Fed Lending Programs. At the very least, this Board evidence

raised issues of material fact concerning the competitive harm likely to result from

the Reports’ disclosure. Reversal is warranted; remand, in the alternative, is

needed.

Second, the District Court incorrectly refused to recognize, as an

additional basis for non-disclosure, the Board’s interest in effectively

administering the Fed Lending Programs—programs critical to stem the current

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financial crisis. In doing so, the District Court failed to follow the First and D.C.

Circuits, which have recognized that FOIA Exemption 4 was intended to protect

the government from having to disclose information that would impair the

“effective execution of its statutory responsibilities.” 9 to 5 Org. for Women Office

Workers v. Bd. of Governors of the Fed. Reserve Sys., 721 F.2d 1, 11 (1st Cir.

1983); see also Critical Mass, 975 F.2d at 879 (noting that prior panel had

“adopted the First Circuit’s conclusion that [Exemption 4] also protects a

governmental interest in administrative efficiency and effectiveness”).

While this Court has not yet had occasion to adopt the program

effectiveness test, this is an ideal case for doing so. The Board submitted

uncontradicted evidence that disclosure would deter institutions from using the Fed

Lending Programs, thereby impairing its ability to inject liquidity into the financial

system. (A 76 ¶¶ 21, 22; A 80-81 ¶¶ 27-29; A 91 ¶ 23; A 101 ¶ 26.) That is an

eventuality that FOIA Exemption 4 was designed to avoid, as Judge Hellerstein

recognized in Fox News, 639 F. Supp. 2d 384.

Third, the District Court erroneously held that—except for borrowers’

names—the Reports did not contain information “obtained from” them. But it is

the borrowers who request a specific loan amount and decide when to ask for or

bid on a loan, thereby setting its duration, or “term.” That the FRBs or the Board

subsequently processed this information does not mean that it was not “obtained

- 31 -

from” the borrowing institutions, as Judge Hellerstein held on nearly identical facts

and as the Third and D.C. Circuits have held in analogous situations. See infra at

49-50.

ARGUMENT

I. THE BOARD ESTABLISHED THAT DISCLOSURE OF THE REPORTS LIKELY WOULD CAUSE SUBSTANTIAL COMPETITIVE HARM TO BORROWERS.

“Exemption Four [of FOIA] applies if a tripartite test is satisfied: (1)

The information for which exemption is sought must be a ‘trade secret[ ]’ or

‘commercial or financial’ in character; (2) it must be ‘obtained from a person’; and

(3) it must be ‘privileged or confidential.’” Nadler, 92 F.3d at 95 (quoting 5

U.S.C. § 552(b)(4)) (internal citations omitted).

This Court has expressly “adopted” National Parks I’s two-pronged

test for determining whether information is “privileged or confidential” under

Exemption 4. Nadler, 92 F.3d at 96 n.2. Under that two-pronged test, information

is “privileged or confidential” if its disclosure “‘is likely to have either of the

following effects: (1) to impair the Government’s ability to obtain necessary

information in the future; or (2) to cause substantial harm to the competitive

position of the person from whom the information was obtained.’” United Techs.

Corp. by Pratt & Whitney v. FAA, 102 F.3d 688, 692 (2d Cir. 1996) (quoting

National Parks I, 498 F.2d at 770) (emphasis added).

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Here, the Board, relying on the second prong of the National Parks

test, submitted persuasive evidence establishing that disclosing information about

the borrowers to Bloomberg likely would cause them substantial competitive harm.

In disregarding this evidence, the District Court improperly held the Board to

higher legal standards than required under FOIA and then improperly applied those

heightened standards.

A. The District Applied the Wrong Legal Standards.

1. Competitive Harm Need Only Be “Likely,” not Certain or Imminent.

The District Court erroneously required the Board to show that

disclosure “will cause the borrowers to suffer imminent competitive harm.” (SPA

40 (emphasis added).) That heightened standard—far from being a slip of the

pen—permeated the District Court’s discussion of competitive harm:

• “The agency must provide evidence that if the requested information is disclosed, competitive harm would be ‘imminent.’” (SPA 38 (emphasis added).)

• “Nor does the Board point to an immediate risk of competitive harm that will result from disclosure of the Remaining Term Reports.” (SPA 41 (emphasis added).)

• “Conjecture, without evidence of imminent harm, simply fails to meet the Board’s burden of showing that Exemption 4 applies.” (SPA 41 (emphasis added).)

For that “imminence” standard, the court cited a lone district court

case, not even from this Circuit, Iglesias v. CIA, 525 F. Supp. 547, 559 (D.D.C.

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1981). (SPA 38.) But Iglesias could not have departed from binding D.C. Circuit

precedent. That precedent was set in National Parks I, whose “formulation of

Exemption Four” has been expressly adopted by this Court. Nadler, 92 F.3d at 96

n.2. On this point, the D.C. Circuit in National Parks I was clear:

The exemption may be invoked for the benefit of the person who has provided commercial or financial information if it can be shown that public disclosure is likely to cause substantial competitive harm to his competitive position.

National Parks I, 498 F.2d at 770 (emphasis added).

Since then, the D.C. Circuit has emphasized repeatedly that the

prospect of “likely”—not “certain” or “imminent”—competitive harm is the

standard under FOIA Exemption 4. See McDonnell Douglas Corp. v. U.S. Dep’t

of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004) (“National Parks I, of

course, does not require the party invoking Exemption 4 to prove disclosure

certainly would cause it substantial competitive harm, but only that disclosure

would ‘likely’ do so.”) (emphasis added); Pub. Citizen, 704 F.2d at 1291 (“[P]arties

opposing disclosure need not ‘show actual competitive harm’; evidence revealing

‘actual competition and the likelihood of substantial competitive injury’ is

sufficient to bring commercial information within the realm of confidentiality.”)

(emphasis added) (quoting Gulf & W. Indus., 615 F.2d at 530); see also James T.

O’Reilly, Federal Information Disclosure § 14:67 (3d ed. 2000) (“A likelihood of

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harm, not a certainty, is required.”) (citing National Parks I, 498 F.2d at 770). The

Tenth Circuit has similarly agreed. See Utah v. U.S. Dep’t of Interior, 256 F.3d

967, 970 (10th Cir. 2001) (“[E]vidence demonstrating the existence of potential

economic harm is sufficient.”) (emphasis in original) (citing Pub. Citizen, 704 F.2d

at 1291).

That standard makes sense. Here, Bloomberg seeks to obtain highly

confidential information about the extent to which individual borrowers have

accessed the Fed Lending Programs. Because the actual disclosure of the

requested information has not yet occurred, the inquiry into competitive harm

necessarily must be prospective. See National Parks II, 547 F.2d at 683 (“No

actual adverse effect on competition need be shown, nor could it be, for the

requested documents have not been released.”); McDonnell Douglas Corp. v. Nat’l

Aeronautics & Space Admin., 180 F.3d 303, 307 (D.C. Cir. 1999) (“McDonnell

Douglas has shown—as much as anyone can show before the event—that it is

likely to suffer substantial competitive harm.”); Vaughn v. Rosen, 484 F.2d 820,

826 (D.C. Cir. 1973) (“An analysis sufficiently detailed [to substantiate the

claimed exemption] would not have to contain factual descriptions that if made

public would compromise the secret nature of the information”).

Because the inquiry into competitive harm must be forward-looking—

i.e., what will be the likely competitive harm from disclosure of the requested

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information, a district court “need only exercise its judgment in view of the nature

of the material sought and the competitive circumstances in which the [parties that

have supplied the requested information] do business, relying at least in part on

relevant and credible opinion testimony.” National Parks II, 547 F.2d at 683. The

court “need not conduct a sophisticated economic analysis of the likely effects of

disclosure.” Pub. Citizen, 704 F.2d at 1291.

Thus, in ordering the Board to produce borrower-by-borrower

information about the use of the Fed Lending Programs during the worst financial

crisis since the Great Depression, the District Court impermissibly set a high

threshold and overrode the expert judgments of experienced Board and FRB

officials about the likely impacts of such disclosures on borrowers.

2. Competitive Harm Need not Result from a Competitor’s “Affirmative Use” of Confidential Information.

The District Court also erroneously ruled that the Board had to show

that the asserted competitive harm “will result from the affirmative use of the

information by competitors of the person from whom the information was

obtained, not merely injuries to that person’s competitive position in the

marketplace or ‘embarrassing publicity attendant upon public revelations.’” (SPA

38-39 (quoting Pub. Citizen, 704 F.2d at 1291 n.30) (emphasis added).)

But this Court, in Nadler, 92 F.3d 93, rejected such a rigid

construction of “competitive harm.” There, plaintiffs—two community

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associations and their Congressman—claimed that the harm resulting from

disclosing detailed commercial and financial terms of a joint-venture agreement

was not “of a type” protected by Exemption 4, because the threatened harm was

“‘political,’” rather than “‘competitive,’” in nature. Id. at 96. This Court

disagreed, holding that the “fact that this harm would result from active hindrance

by the Plaintiffs rather than directly by potential competitors does not affect the

fairness considerations that underlie Exemption Four.” Id. at 97.

This Court had followed the same approach in American Airlines, Inc.

v. National Mediation Board, 588 F.2d 863 (2d Cir. 1978), concluding that

disclosure of membership information, which the union supplied to the National

Mediation Board on a confidential basis, “would adversely affect the union’s

competitive position vis-à-vis both other unions and the employer itself.” Id. at

871 (emphasis added).21

21 Other Circuits have also looked beyond the potential actions of competitors in assessing the likelihood of competitive harm under FOIA Exemption 4. See Nat’l Parks II, 547 F.2d at 684 (observing that, in addition to harm from competitors, “[s]uppliers, contractors, labor unions and creditors, too, could use [the requested] information to bargain for higher prices, wages or interest rates, while the concessioner’s unregulated competitors would not be similarly exposed”); Utah, 256 F.3d at 970 (upholding finding of competitive harm where supporting affidavit, in addition to showing possible misuse by competitors, noted that submitter of lease information “would be in a weaker position at the bargaining table in negotiating any future deals since its potential partners would know the financial and legal details of the [submitter’s] prior business agreements”).

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Thus, the only authority upon which the District Court relied for its

cramped view of competitive harm—that is, the dicta contained in footnote 30 of

Public Citizen, 704 F.2d 1280—did not set a bright-line rule requiring affirmative

competitor misuse. What matters, simply, is the “competitive significance of

whatever information may be contained in the [requested] documents.” Occidental

Petroleum Corp v. SEC, 873 F.2d 325, 341 (D.C. Cir. 1989).

Indeed, the D.C. Circuit has recognized that competitive harm can

result from adverse customer reactions to disclosure. See McDonnell Douglas

Corp., 180 F.3d at 306-07 (crediting McDonnell Douglas’s argument that, in

addition to harm from competitors, release of line-item pricing information “would

permit its commercial customers to bargain down (‘ratchet down’) its prices more

effectively”; “[b]oth of the reasons McDonnell Douglas advanced for claiming its

line item prices were confidential commercial or financial information are

indisputable”) (emphasis added); see also Gen. Elec. Co. v. Dep’t of Air Force, ---

F. Supp. 2d ---, 2009 WL 2749359, at *7 (D.D.C. Aug. 28, 2009) (“Regarding

customer leverage, . . . this circuit has expressly found such leverage to have the

potential to be substantially competitively harmful and therefore a basis for

nondisclosure.”) (citing McDonnell Douglas, 180 F.3d at 305, 307).

As a matter of law, the District Court erred in limiting its

consideration of “competitive harm” under FOIA Exemption 4 to harm from the

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borrowers’ own competitors, and not accounting for the likely impact that

disclosure would have on the borrowing institutions’ overall competitive position

in the market, including with depositors and other customers, which would be

seriously undermined by, among other things, causing depositor runs and

withdrawals of market sources of liquidity. (A 74 ¶ 17; A 90 ¶ 21.)

B. The Board Satisfied Its Burden of Showing Likely Competitive Harm.

The District Court applied the wrong legal standards in concluding

that the Board “essentially speculate[d] on how a borrower might enter a

downward spiral of financial instability if its participation in the Federal Reserve

lending programs were to be disclosed.” (SPA 41 (emphasis in original).) But “no

actual adverse effect on competition need be shown, nor could it be,” National

Parks II, 547 F.2d at 683, because the Board has not disclosed borrower identities.

The Board therefore relied—properly—on “relevant and credible

opinion testimony,” id., concerning the likely effects of disclosure on borrowers.

Indeed, in Exemption 4 cases, courts “can rely solely on government affidavits so

long as the affiants are knowledgeable about the information sought and the

affidavits are detailed enough to allow the court to make an independent

assessment of the government’s claim.” Lion Raisins v. U.S. Dep’t of Agric., 354

F.3d 1072, 1079 (9th Cir. 2004).

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The declarations that the Board submitted, which fully accord with the

actual experience, as well as the concerns of Clearing House members, were based

on personal knowledge, and relied on “expertise in commercial bank regulation

that the courts do not have.” Sec. Indus. Ass’n v. Bd. of Governors of the Fed.

Reserve Sys., 716 F.2d 92, 102 (2d Cir. 1983). Brian Madigan is the current

Director of the Board’s Division of Monetary Affairs, and has been with the Board

since 1983. (A 65 ¶ 1.) His experience with Discount Window lending, and

banks’ historical aversion to the stigma that attaches to it, is direct and extensive.22

(A 66-67 ¶ 4; A 74 ¶ 17.) He was thus ideally qualified to attest to borrowers’

concerns about stigma, and the likely impact of that stigma should their identities

and other details of their borrowing be revealed.23

Mr. Madigan further evidenced borrowers’ concerns about stigma by

stating that, during the banking crisis of the early 1990s, and again during the

global turbulence following the Russian debt default, banks were willing to pay

22 Mr. Madigan was also “actively involved” in the establishment of the TAF and other special credit and liquidity facilities. (A 67 ¶ 4.) And the other declarants, Susan E. McLaughlin and Lorie K. Logan, had personal knowledge of the FRBNY’s Discount Window, PDCF, and TSLF operations. (A 83-84 ¶¶ 1, 2, 4; A 93-94 ¶¶ 1, 2, 4.) 23 Mr. Madigan’s knowledge about and experience with borrower stigma is especially significant given the unique circumstances of Bloomberg’s FOIA request. Individual borrowers could not have substantiated the Board’s evidence because the very act of coming forward would have disclosed what the borrowers seek to keep confidential—that is, their identities.

- 40 -

“very high rates . . . in the private federal funds market rather than borrow at the

discount window.” (A 75 ¶ 19.) He also cited a specific example of a borrowing

institution harmed by rumors concerning its use of the Discount Window: When

rumors circulated in the early 1990s that Citibank might be borrowing from the

Discount Window, runs were sparked at some of its Asian offices. (A 76 ¶ 22.)

Recent examples of institutional failures or near-failures, a

phenomenon called to the District Court’s attention,24 only confirm what the Board

already showed. That phenomenon was evidenced most recently by the run on

Northern Rock after the public learned that it had asked for and received

emergency government support. See supra at 18-19. And, during the current

financial crisis, no less than six major financial institutions failed or nearly failed

due to rumors or reports of their financial weakness: depositors rushed to

withdraw funds from Countrywide Financial, IndyMac, Washington Mutual, and

Wachovia amid fears over their financial health; customers withdrew funds and

counterparties discontinued dealings with Bear Stearns after rumors of its

illiquidity circulated; and Lehman Brothers filed for bankruptcy as investors and

24 The Board’s December 9, 2008 denial letter specifically referenced the “loss of confidence” in and between institutions that had been “seen throughout this crisis.” (A 63.) Ms. McLaughlin likewise referred to what had been “apparent in recent months in the financial markets” when concluding that “rumors and speculation about the health of depository institutions would quickly spiral into market turmoil.” (A 90 ¶ 21.)

- 41 -

creditors lost confidence in the firm. See supra at 19-22. These are but recent

examples of a well-documented phenomenon: Rumors of financial weakness can

devastate a financial institution, as was evident during the 1984 Continental Illinois

bank run. See supra at 22.

In response, Bloomberg cited a handful of instances in which

borrowing institutions disclosed their participation in certain Fed Lending

Programs. But those disclosures differ qualitatively from the information

contained in the Reports, for several important reasons.

First, the disclosures cited by Bloomberg generally occurred in year-

end 10-K releases filed in January, February, or March 2009—not within days of

when financial institutions borrowed from the FRBs, as would occur if the decision

below is affirmed. (A 153; A 355-81; A 387-95.)

Second, those limited disclosures were made on the borrowers’ own

terms—that is, at a moment when the borrowers were able to assess the market’s

likely reaction to the disclosure, and take steps, if necessary, to head off or quickly

dispel unfounded rumors of their financial weakness.

Third, many of the disclosures cited by Bloomberg simply refer to the

general availability and use of certain Fed Lending Programs. (A 153; A 356; A

361; A 375; A 388; A 394.) To the extent institutions disclosed amounts actually

borrowed, they listed those numbers in the aggregate. (A 153; A 366; A 370; A

- 42 -

379.) Colonial Bancgroup, Inc., for example, stated in its 10-K year-end release

that it had “purchased $700 million in Federal Reserve TAF funds.” (A 370.) The

Reports, on the other hand, reflect individual loans borrowed at specific times, and

therefore provide detailed information about borrowing patterns and the context in

which borrowing institutions sought emergency funding.

Fourth, while its evidence addresses the fact of public disclosure,

Bloomberg is largely silent on the impact of public disclosure on the borrowing

institutions. (See, e.g., A 123 ¶ 11; A 153.) Indeed, Bloomberg’s declarant

conceded that a coordinated voluntary disclosure in August 2007 by four of the

largest (and presumably strongest) banks that they borrowed from the Discount

Window, in a bid to lift market confidence, caused “a momentary decline in [stock]

prices on the day of disclosure. . . .” (A 131 ¶ 128 & n.28.) This event certainly

suggests that an unexpected and unsought release of this information could have

more serious and long-term consequences, particularly during this time of market

instability. (See A 75 ¶ 19.)

Nor is the information contained in the Reports “stale.” Bloomberg’s

FOIA request, dated May 21, 2008, sought information up to and including May

20, 2008. (A 50.) The FOIA request did not seek information that was, for

instance, 5 or 10 years old. Indeed, should this Court find Exemption 4

inapplicable on “staleness” grounds (an issue not addressed by the District Court

- 43 -

below, and thus not before this Court), the Board would be required to disclose

similar information in real time for the next such FOIA request it receives if no

other exemption applies. Disclosure here would thus dissuade prospective

borrowers from accessing the Fed Lending Programs in the future, because of the

risk that their identities and extent of their borrowing would be disclosed. Banks

have historically avoided accessing the Discount Window despite the Board’s

policy of not disclosing borrowers’ identities. See supra at 9, 13-15. Many

prospective borrowers likely would turn away from the Fed Lending Programs

altogether, undermining the programs’ objectives, if their identities and details of

their borrowing could be revealed through a FOIA request within days of such

borrowing. See 5 U.S.C. § 552(a)(6)(A)(i) (“Each Agency . . . shall determine

within 20 days . . . after receipt of any [FOIA] request whether to comply with

such request”); 12 C.F.R. § 261.13(e) (“The time for response to requests shall be

20 working days,” subject to certain exceptions).

C. The Board Raised Genuine Issues of Material Fact Regarding the Likelihood of Competitive Harm.

Because the District Court applied an erroneous legal standard to

disregard the Board’s substantial evidence, its judgment should be reversed.

Indeed, in a case involving material withheld under Exemptions 6 and 7(C), this

Court recently reversed a district court’s grant of summary judgment, holding the

requested information exempt from disclosure without remanding for further

- 44 -

proceedings. See Associated Press, 554 F.3d at 279 (“We conclude that the FOIA

privacy exemptions protect [the requested] information from disclosure. We

reverse.”).

The Board’s substantial evidence was plainly sufficient to warrant

summary judgment in its favor. See supra at 38-40. But at the very least, the

Board raised genuine issues of material fact requiring a remand. After all, when

parties cross-move for summary judgment, “the court must evaluate each party’s

motion on its own merits, taking care in each instance to draw all reasonable

inferences against the party whose motion is under consideration.” Hotel

Employees & Rest. Employees Union, 311 F.3d at 543 (internal quotation marks

omitted). And where, as here, the Board raised issues of material fact regarding

the likelihood of competitive harm, see supra at 38-40, summary judgment is

improper. See Sears, Roebuck & Co. v. Gen. Servs. Admin., 553 F.2d 1378, 1382

(D.C. Cir. 1977) (“Where there is a conflict in the affidavits as to what adverse

consequences will flow from the revelation of the facts contained in the documents

sought to be disclosed, then it appears that there is indeed a conflict regarding very

material facts which calls for some type of adversary procedure. . . . Summary

judgment was not appropriate.”); see also Niagara Mohawk Power Corp. v. U.S.

Dep’t of Energy, 169 F.3d 16, 18 (D.D.C. 1999) (vacating summary judgment due

to “genuine issue of material fact on the likelihood of substantial competitive

- 45 -

harm”); In Defense of Animals v. U.S. Dep’t of Agric., 501 F. Supp. 2d 1, 7

(D.D.C. 2007) (declining to grant summary judgment where likelihood of

substantial competitive harm was “hotly contested”).

Assuming this Court does not reverse the District Court’s judgment,

it should, at the least, issue a remand for the District Court properly to resolve the

genuine issues of material fact raised by the Board.25

II. THIS COURT SHOULD ADOPT THE “PROGRAM EFFECTIVENESS” TEST.

A month before the District Court’s decision, Judge Hellerstein

correctly observed that, among other things, disclosure of the Reports to Fox News

“would undermine the Board’s mandate to provide stability to markets, especially

during a financial crisis,” because borrowers would fear being stigmatized by

accepting “publicly disclosed loans.” Fox News, 639 F. Supp. 2d at 402. The

District Court erred in not holding the same.

This Court has not yet adopted the so-called “program effectiveness”

test referenced in the D.C. Circuit’s decision in National Parks I. See Nadler, 92

F.3d at 96 n.2. It should now do so.

25 In the event of a remand, the Clearing House will present additional evidence substantiating the likely competitive harm that would result to its members from disclosure.

- 46 -

The First Circuit, in 9 to 5, 721 F.2d 1, recognized that the legislative

purposes identified in National Parks I radiated beyond a rigid application of the

two-part National Parks I test. Instead, National Parks I meant to give voice to

“Congress’ purpose to protect information which would be particularly helpful to

agency officials in carrying out their mandate.” Id. at 10. The First Circuit

therefore deferred to the Board’s “legitimate governmental interest of efficient

operation,” explaining that the government should not be “disadvantaged by

disclosing information which serves a valuable purpose and is useful for the

effective execution of its statutory responsibilities.” Id. at 11. The D.C. Circuit

has agreed. See Critical Mass, 975 F.2d at 879 (noting that prior panel had

“adopted the First Circuit’s conclusion that [Exemption 4] also protects a

governmental interest in administrative efficiency and effectiveness”).

Other courts, when confronted with government programs analogous

to the Fed Lending Programs at issue here, have similarly applied Exemption 4 to

protect those programs from the harm that could result from disclosing information

confidentially supplied by third parties. See Clarke v. U.S. Dep’t of Treasury, Civ.

No. 84-1873, 1986 WL 1234, at *1, 2 (E.D. Pa. Jan. 28, 1986) (disclosure by

Treasury Department of bondholder data including names of bondholders, coupon

and maturity dates “would harm the national interest because investors would be

less likely to purchase government bonds in the future if they knew the details of

- 47 -

their purchases would be subject to public disclosure.”); Comstock Int’l (U.S.A.),

Inc. v. Export-Import Bank of the U.S., 464 F. Supp. 804, 808 (D.D.C. 1979)

(“disclosure would significantly impair [the Export-Import Bank’s] ability to

promote United States exports” because “potential loan applicants might seek

financing outside the United States because of their unwillingness to subject

themselves to the possible risk of disclosure.”); Judicial Watch, Inc. v. Export-

Import Bank, 108 F. Supp. 2d 19, 30 (D.D.C. 2000) (“There is a risk that foreign

purchasers may seek financing outside of the United States, and thus would

purchase non-U.S. goods if subjected to the risk of disclosure of their confidential

commercial or financial information. This would interfere with the Bank’s ability

to promote U.S. exports”); Africa Fund v. Mosbacher, No. 92 Civ. 289, 1993 WL

183736, at *7 (S.D.N.Y. May 26, 1993) (deferring to uncontradicted declarations

“that explain why disclosure of documents such as those plaintiff seeks would

interfere with the export control system”).

Adopting the rationale of these cases makes full sense here, and would

be consistent with this Court’s observation that agency promises of confidentiality,

though “perhaps not binding upon the courts in their construction of the FOIA,”

are “certainly entitled to the court’s careful consideration.” American Airlines,

588 F.2d at 871. That “careful consideration” is warranted because Clearing

House members and other financial institutions have relied on the Board’s

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longstanding practice not to disclose information about their borrowing, especially

their identities. See supra at 9, 13-15; see also A 73 ¶ 16; A 89 ¶ 18; A 99 ¶ 20.

The Board’s uncontradicted evidence showed that disclosing borrower

names would discourage institutions from accessing the Discount Window and

other lending programs. (A 76 ¶¶ 21, 22; A 80-81 ¶¶ 27-29; A 91 ¶ 23; A 101

¶ 26.) That evidence is confirmed by decades of industry and Board experience

with the Discount Window. See supra at 8-11. If the Board were forced to breach

its longstanding promise of confidentiality, financial institutions would simply turn

away from the Discount Window and other lending programs, defeating the

Board’s statutory objectives and its specific goal of injecting liquidity to counteract

the credit crisis.

For these reasons, in addition to those discussed by the Board, see Br.

of Defendant-Appellant at 35-39, this Court should adopt the “program

effectiveness” test and rule that the Board’s uncontradicted evidence satisfied it.

III. THE DISTRICT COURT ERRED IN FINDING THAT INFORMATION IN THE REPORTS, EXCEPT FOR BORROWERS’ NAMES, WAS NOT “OBTAINED FROM A PERSON.”

The District Court held that—except for borrower names—the Board

had not met its burden to show that the information in the Reports was not

“obtained from a person.” (SPA 36.) The exception invalidated the conclusion

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because, as shown above, the competitive harm likely to result from disclosure of

borrower names alone is sufficient to exempt the entirety of the Reports.26

The District Court then compounded its error reasoning that the

FRBs’27 “generat[ion]” of the remainder of the information contained in the

Reports—that is, “individual loan amounts extended by the FRBs, the types of

FRB lending program borrowed from, and loan origination and maturity dates”—

was “sufficient to vitiate the applicability of Exemption 4 with respect to that

information.” (SPA 34-35.)

The District Court was wrong. On nearly identical facts, Judge

Hellerstein correctly observed that, when interpreting Exemption 4, courts “look

past formalities to ensure that even indirect disclosure does not jeopardize a

person’s privacy.” Fox News, 639 F. Supp. 2d at 398. In doing so, Judge

Hellerstein followed the Third Circuit’s reasoning that Exemption 4 does not cease

to apply simply because the government processes information supplied by an

26 The Board has already shown that loan amounts cannot be disclosed on their own because, for large loans, they would effectively identify (or fuel damaging speculation regarding the identity of) their respective borrowers. (A 77-78 ¶ 24.) See also Br. of Defendant-Appellant at 42-43. 27 The District Court did not rule on whether the FRBs are “persons” within the meaning of the statute, reasoning that the Board “intended to abandon” the argument. (SPA 33 n.12.) Assuming this Court were to reach that issue, the Clearing House joins the Board’s alternative argument that FRBs are “persons” and not “agenc[ies]” within the meaning of the FOIA. See Br. of Defendant-Appellant at 48-51.

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outside party. See OSHA Data/CIH v. U.S. Dep’t of Labor, 220 F.3d 153, 162 n.23

(3d Cir. 2000) (concluding that “a derived figure calculated by the [Department of

Labor]”—i.e., a lost-work-day-injury-and-illness rate—was “‘obtained from a

person’” because it was calculated “from individual components all of which are

obtained from employers”). The D.C. Circuit has similarly observed that

Exemption 4 shields from disclosure government reports “from which information

supplied by [an outside party] could be extrapolated.” Gulf & W. Indus., Inc., 615

F.2d at 530.28

The District Court either misapplied the law or misunderstood the

facts when concluding otherwise.29 The borrowers supply their names and request

a loan. And, as discussed in the Board’s brief, see Br. of Defendant-Appellant at

28 See also Judicial Watch, 108 F. Supp. 2d at 28 (“[D]ocuments prepared by the federal government may be covered by Exemption 4 if they contain summaries or reformulations of information supplied by a source outside the government.”); Clarke, 1986 WL 1234, at *1-2 (concluding that registered bondholder data—which consisted of “names and addresses of all registered, institutional owners” of bonds, as well as the “dollar amount, coupon and maturity date”—are “financial and obtained from persons outside the government”). 29 Buffalo Evening News, 666 F. Supp. 467, the only case cited by the District Court for its conclusion, was decided on an entirely different (and unchallenged) premise: that Exemption 4 did not shield from disclosure the initial act of borrowing from the SBA. Indeed, the SBA in Buffalo Evening News had already disclosed borrower names; it sought only to protect the status of outstanding loans. See id. at 468-69. Thus, the FOIA request in Buffalo Evening News did not “‘implicate’” the kind of “potentially ‘personal’ and sensitive financial information” at issue in this case. Fox News, 639 F. Supp. 2d at 399.

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40-42, the borrowers ask for the loan amount, whether directly or through auction

(subject to an overall auction maximum set by the Board). (A 69 ¶ 8; A 70 ¶ 11; A

87 ¶ 12; A 95 ¶¶ 8-9.) The borrowers determine the origination date of their loans,

either by asking for Discount Window or PDCF credit on a particular date, or by

choosing the date on which they participate in TSLF or TAF auctions. (A 69-70 ¶¶

9-11; A 95 ¶ 7.) Their requests are subject to the upper limits of their pledged

collateral, but the borrower otherwise specifies the loan amount and date, and that

information is not generated by the FRBs. See Br. of Defendant-Appellant at 40-

42.

Accordingly, the District Court erred in concluding that the FRBs’

processing of information supplied by the borrowers meant that the information

was no longer “obtained from” them.

CONCLUSION

For the foregoing reasons, the Clearing House respectfully requests

that this Court reverse the District Court's grant of summary judgment and hold the

Reports exempt from disclosure. In the alternative, the Clearing House asks this

Court to vacate the District Court's judgment and remand for further proceedings

consistent with its decision.

SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 Telephone: (2 12) 558-4000 Facsimile: (212) 558-3588

Counsel of Record for Intervenor- Appellant f ie Clearing House Association L. L. C.

H. Rodgin Cohen Michael M. Wiseman William J. Snipes Patrice A. Rouse Erez J. Davy

Of Counsel

November 6,2009

CERTIFICATE OF COMPLIANCE WITH RULE 32(a)

This brief complies with the type-volume limitation of Fed. R. App. P.

28.l(e)(2) because the brief contains 1 1,963 words, excluding the parts of the brief

exempted by Fed. R. App. P. 32(a)(7)(B)(iii). This brief complies with the

typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements

of Fed. R. App. P. 32(a)(6) because this brief has been prepared in a proportionally

spaced typeface using Microsoft Word 2007 in 14-point Times New Roman font.

Dated: New York, New York November 6,2009

. Erez SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 (212) 558-4000

Attorneys for Intervenor-Appellant The Clearing House Association L. L. C.

CERTIFICATE OF SERVICE

09-4083-cv(L), 09-4097-cv (CON) Bloomberg L.P. v. Board of Governors of The Federal Reserve System

I hereby certify that two copies of this Brief of Intervenor-Appellant The Clearing House Association L.L.C. were sent by Federal Express Priority Overnight Delivery to:

Thomas H. Golden, Esq. Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York 10019 (212) 728-8657 Attorneys for Plaintiff-Appellee Yvonne Facchina Mizusawa, Esq. Board of Governors of the Federal Reserve System 20th and C Streets, N.W. Washington, DC 20551 (202) 452-3436 Attorneys for Defendant-Appellant

I also certify that the original brief and nine copies were also sent By Hand delivery to:

Clerk of Court United States Court of Appeals, Second Circuit

United States Courthouse 500 Pearl Street, 3rd floor

New York, New York 10007 (212) 857-8576

on this 6th day of November 2009.

/s/ Natasha R. Monell Natasha R. Monell, Esq.

ANTI-VIRUS CERTIFICATION

Case Name: Bloomberg L.P. v. Board of Governors of The Federal Reserve

Docket Number: 09-4083-cv(L), 09-4097-cv (CON)

I, Natasha R. Monell, hereby certify that the Appellant's Brief submitted in

PDF form as an e-mail attachment to civilcases@ca2.uscourts.gov in the above

referenced case, was scanned using CA Software Anti-Virus Release 8.3.02 (with

updated virus definition file as of 11/6/2009) and found to be VIRUS FREE.

/s/ Natasha R. MonellNatasha R. Monell, Esq. Record Press, Inc.

Dated: November 6, 2009