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FRANKEL v. SEC

October 20, 1971

Frank FRANKEL et al., Plaintiffs,
v.
SECURITIES AND EXCHANGE COMMISSION et al., Defendants


Lasker, District Judge.


The opinion of the court was delivered by: LASKER

MEMORANDUM

LASKER, District Judge.

 This suit grows out of plaintiffs' efforts to secure documents and records in the possession of the Securities and Exchange Commission ("SEC") for use by plaintiffs in a pending civil action against Occidental Petroleum Corporation and its officers. The papers are in the custody of the SEC as a result of an investigation of Occidental made by it which had been settled by a consent decree enjoining violations of § 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. *fn1"

 Plaintiffs seek, under provisions of the Freedom of Information Act, 5 U.S.C. § 552, to compel the SEC to disclose to them the information secured in the SEC investigation of Occidental. *fn2" The SEC opposes on the ground that the material is exempt from disclosure under three statutory exemptions discussed below.

 Two motions are before the court: Plaintiffs move for an injunction under the Act compelling defendants to disclose. *fn3" Defendants move for summary judgment on the ground that under the seventh exemption of 5 U.S.C. § 552(b) they are entitled to judgment as a matter of law. For the reasons set forth below, the motion for summary judgment is denied and decision on the motion for an injunction is deferred pending examination by a special master of the material in the SEC's files to determine whether or not any documents fall within the exemptions of § 552(b)(4) or (5).

 SUMMARY JUDGMENT AND THE EXEMPTION UNDER § 552(b)(7)

 Section 552(a) requires government agencies to disclose upon request broad categories of information in their files. Section 552(b) lists nine exemptions from the obligation to disclose.

 Section 552(b)(7) reads as follows:

 
"This section does not apply to matters that are --
 
". . . (7) investigatory files compiled for law enforcement purposes except to the extent available by law to a party other than an agency."

 The SEC contends that this provision exempts investigatory files "as a class" (including the Occidental documents) from the requirements of the Freedom of Information Act. The Commission also urges that the "except" clause (within the exemption) must, in the light of its legislative history, be read narrowly to apply only to parties whom a given agency is investigating, and not an outside party such as the plaintiffs here. Defendants admit that if this court finds that § 552(b)(7) does not provide the blanket exemption urged, then their motion for summary judgment must be denied.

 Plaintiffs contend that neither the plain meaning of the exemption's language nor its legislative history supports the SEC position. Further, they argue that, since the investigation was terminated in a consent decree on March 5, 1971, and the SEC has failed to establish that any further investigation will occur, the Commission has not met the burden of demonstrating that exemption (7) is now applicable.

 The courts have divided on the question whether § 552(b)(7) provides a blanket exemption for all investigatory files. Cowles Communications v. Department of Justice, 325 F. Supp. 726 (N.D. Cal. D.C. 1971), held that investigatory files "need not be produced whether [enforcement] proceedings be contemplated or not." However, where, as here, the investigation by the agency has been completed, the exemption of § 552(b)(7) has been held not to apply. *fn4" As the court remarked in Bristol-Myers Co. v. Federal Trade Commission, 138 U.S. App. D.C. 22, 424 F.2d 935, 939 (D.C. Cir. 1970), "the agency cannot, consistent with the broad disclosure mandate of the Act, protect all its files with the label 'investigatory' . . . the District Court must determine whether the prospect of enforcement proceedings is concrete enough to bring into operation the exemption for investigatory files, and if so whether the particular documents sought by the complaint are nevertheless discoverable." *fn5"

 As in Cooney v. Sun Shipbuilding & Drydock Co., 288 F. Supp. 708, 711 (E.D. Pa. 1968), the question is presented "whether files once classified 'investigatory files' may forever after retain that characterization so as to be immune from disclosure under the statute." Here the SEC's investigation has concluded. It is true that the possibility remains that under 15 U.S.C. § 78u(e) the SEC could "transmit" the file to the Attorney General who "may, in his discretion, institute the necessary criminal proceedings." However, the SEC has expressed no intention of transmitting the file, nearly one-half year has passed since the consent decree was entered, and absent some affirmative act by the agency to maintain the file as a ...


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