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 [email protected] [email protected] 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 [email protected] 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 <[email protected]> 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 [email protected] [email protected] (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 [email protected] [email protected] (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
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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)
- iv -
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)
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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)
- vii -
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
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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
- 48 -
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
- 49 -
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.
- 50 -
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 [email protected] 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
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