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INNER CITY PRESS/COMMUNITY ON THE MOVE v. BOARD OF GOV.

July 19, 2005.

INNER CITY PRESS/COMMUNITY ON THE MOVE, Plaintiff,
v.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Defendant.



The opinion of the court was delivered by: DENISE COTE, District Judge

OPINION & ORDER

This Opinion considers defendant's summary judgment motion and plaintiff's cross-motion regarding plaintiff's request under the Freedom of Information Act ("FOIA"), 5 U.S.C. § 522, for a document submitted to the Board of Governors of the Federal Reserve System (the "Board") by Wachovia Corporation ("Wachovia") and SouthTrust Corporation ("SouthTrust") as an exhibit to a merger application. For the reasons described below, both motions are granted in part. Background

  The following facts are undisputed unless otherwise noted. Plaintiff Inner City Press/Community on the Move ("ICP")is a nonprofit organization headquartered in the South Bronx. According to the declaration of its executive director, Matthew Lee ("Lee"), ICP engages in advocacy on issues affecting low-income consumers and communities. Among the organization's areas of concern is subprime lending at high interest rates to people with poor or unestablished credit histories. Subprime lenders include payday lenders, pawn shops, and subprime mortgage lenders. In the past, ICP discovered an instance in which a prominent bank was paying its staff referral fees to send borrowers to an affiliated subprime lender for higher-interest loans, and another in which a subprime lender affiliated with a prominent bank was charging minority customers higher interest rates than other customers with similar credit histories. In both cases, the publicity spurred by ICP's investigations was instrumental in convincing the lenders to change these practices. ICP often submits public comments regarding banks' subprime lending practices to the Board during the notice-and-comment period that follows the submission of a bank merger application.*fn1 ICP claims that its comments have caused at least one bank to commit to stop lending to payday and car title lenders pursuant to its merger with another bank.

  On July 9, 2004, Wachovia and SouthTrust submitted a merger application to the Board (the "Merger Application"). In Wachovia's cover letter of the same date, it requested confidential treatment for certain "Confidential Volumes" that include the disputed exhibit. In a letter of July 19, 2005, Lee made a FOIA request on behalf of ICP seeking the Merger Application and related documents. The following day, the Board released a portion of the Merger Application to ICP but withheld certain documents, including a five-page document entitled "Confidential Exhibit 3: Discussion of Activities Relating to Sub-Prime Lending" ("Exhibit 3"). The released portion of the Merger Application states: "Wachovia has commercial lending relationships with select check cashing companies, pawnshops and payday lenders. In recognition of the higher risk that these businesses present, the Credit Risk policy on lending to them is very restrictive. . . . Please see Confidential Exhibit 3 for information concerning these customers." In its memorandum of law, the Board describes the contents of Exhibit 3 as follows:
(i) the names of nine of Wachovia's commercial customers that make and/or purchase subprime residential mortgage loans; (ii) the specific amounts and some terms of Wachovia's credit facilities to these customers; (iii) descriptions of other banking services Wachovia provides to, or other relationships with, these customers; (iv) financial data on Wachovia's exposure and loan outstandings to commercial customers who engage in subprime lending; and (v) details regarding the due diligence Wachovia performs in evaluating particular lenders' requests for credit facilities.
The Board cited 5 U.S.C. § 552(b)(4), the fourth FOIA exemption ("FOIA Exemption 4"), which pertains to "commercial or financial information obtained from a person and privileged or confidential," id., as the basis for its denial of ICP's request.

  On July 28, 2004, Lee sent another letter to the Board appealing the Board's decision to withhold portions of the Merger Application, including Exhibit 3, and renewing ICP's request for the withheld documents. This request was denied in a letter of August 13, 2004 from Jennifer J. Johnson ("Johnson"), Secretary of the Board. Johnson reiterated that the requested documents were exempt under FOIA Exemption 4. Johnson's letter also stated that no reasonably segregable nonexempt portion of the documents at issue could be provided. ICP filed an administrative appeal on September 17, 2004. The appeal sought only the release of Exhibit 3. On October 6, 2004, ICP's appeal was denied by Susan Schmidt Bies, Governor of the Federal Reserve Board, again on the basis that Exhibit 3 was exempt from disclosure under FOIA Exemption 4. Later that month, the Board approved the Wachovia-South Trust merger.

  Plaintiff filed the complaint in this action on October 21, 2004; it requests declaratory and injunctive relief. On December 15, 2004, the parties made a joint request that a schedule be established for defendant's summary judgment motion and plaintiff's cross-motion. The Board submitted a motion supported by declarations of Elaine Boutilier and Andrew S. Baer ("Baer"), both legal counsel for the Board, and of Michael P. Rizer, senior vice president of Wachovia (the "Rizer Declaration"). Plaintiff's cross-motion was supported by a declaration from Matthew Lee (the "Lee Declaration").

  Discussion

  FOIA requires a federal agency to disclose records in its possession unless they fall under one of nine enumerated and exclusive exemptions. 5 U.S.C. § 552(a)(3)-(b); see also Dep't of the Air Force v. Rose, 425 U.S. 352, 361 (1975). The statutory exemptions "do not obscure the basic policy that disclosure, not secrecy, is the dominant objective of the Act." Dep't of the Interior and Bur. of Indian Affairs v. Klamath Water Users Protective Ass'n, 532 U.S. 1, 8 (2001) (quoting Rose, 425 U.S. at 361). The exemptions are thus to be "given a narrow compass." Id. (quoting U.S. Dep't of Justice v. Tax Analysts, 492 U.S. 136, 151 (1989)); see also Nat'l Council of La Raza v. Dep't of Justice, No. 04-5474-cv, ___ F.3d ___, slip. op. at 2684 (2d Cir. May 31, 2005). A district court has jurisdiction "to enjoin the agency from withholding agency records and to order the production of any agency records improperly withheld from the complainant." 5 U.S.C. § 552(a)(4)(B). The court "shall determine the matter de novo . . . and the burden is on the agency to sustain its action." Id.; see also Fed. Open Market Comm. v. Merrill, 443 U.S. 340, 352 (1979).

  A court cannot grant summary judgment unless all of the submissions taken together "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(c), Fed.R.Civ.P. "In order to prevail on a motion for summary judgment in a FOIA case, the defending agency has the burden of showing that its search was adequate and that any withheld documents fall within an exemption to the FOIA." Carney v. Dep't of Justice, 19 F.3d 807, 812 (2d Cir. 1994). Although the court is entitled to in camera review of disputed documents, see 5 U.S.C. § 552(a)(4)(B), on a summary judgment motion, "[a]ffidavits or declarations . . . giving reasonably detailed explanations why any withheld documents fall within an exemption are sufficient to sustain the agency's burden." Carney, 19 F.3d at 812. FOIA also requires that "[a]ny reasonably segregable portion of a record shall be provided to any person requesting such record after deletion of the portions which are exempt under this subsection." 5 U.S.C. § 552(b).

  FOIA Exemption 4 encompasses "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C. § 552(b)(4). The Second Circuit has articulated a tripartite test for satisfying the requirements of the exemption: "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 v. Fed. Deposit Ins. Corp., 92 F.3d 93, 95 (2d Cir. 1996) (quoting 5 U.S.C. § 552(b)(4)). Plaintiff concedes that Exhibit 3 is commercial or financial in character and was obtained from Wachovia, a corporation that qualifies as a person under the statute, see 5 U.S.C. § 551(2); the sole dispute is thus whether the information contained in the document is "privileged or confidential" under the statute.

  To qualify as "confidential" for purposes of 5 U.S.C. § 552(b)(4), the information "must 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." Nadler, 92 F.3d at 96 (quoting Continental Stock Transfer & Trust Co. v. SEC, 566 F.2d 373, 375 (2d Cir. 1977)). This test is known as the "National Parks" test because it was first articulated in National Parks & Conservation Association v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974). After examining the hearing record for the predecessor of the bill that became FOIA, the National Parks court explained the rationale for Exemption 4 as follows: "encouraging cooperation by those who are not obliged to provide information to the government and . . . protecting the rights of those who must." Id. at 769. In enacting Exemption 4, "Congress intended to exclude the release of material which would customarily not be released to the public by the person from whom it was obtained so long as nondisclosure is justified by the legislative purpose which underlies the exemption." Nadler, 92 F.3d at 96 (citation omitted).

  The Board argues that Exhibit 3 is exempt under both prongs of the National Parks test. The test is disjunctive, so to carry its burden, the Board need only establish that the criteria for one of the two prongs are met.

  1. Impairment of the Agency's Ability to Obtain Necessary Information in the Future

  Under the first prong of the National Parks test, a court must determine whether the disclosure of the information at issue will impair the agency's ability to obtain similar necessary information in the future. National Parks, 498 F.3d at 770. The policy behind this prong is clear: "Unless persons having necessary information can be assured that it will remain confidential, they may decline to cooperate with officials and the ability of the Government to make intelligent, well informed decisions will be impaired." Id. at 767. When submission of information is mandatory, "there is a presumption that the Government's interest is not threatened by disclosure." Critical Mass Energy Project v. Nuclear Regulatory Comm'n, 975 F.2d 871, 878 (D.C. Cir. 1992) (en banc);*fn2 see also National Parks, 498 F.2d at 770 ("Since [persons] are required to provide this . . . information to the government, there is presumably no danger that public disclosure will impair the ability of the Government to obtain this information in the future."). As the Court of Appeals for the D.C. Circuit emphasized in Critical Mass, however, even when the government has the power to compel the production of information, the quality of the information furnished in compliance with the government might suffer if the furnisher of the information believes it may be publicly disclosed. "[W]hen dealing with a FOIA request for information the provider is required to supply, the governmental impact inquiry will focus on the possible effect of disclosure on its quality." Critical Mass, 975 F.2d at 878 (emphasis supplied); see also Africa Fund v. Mosbacher, No. 92 Civ. 289 (JFK), 1993 WL 183736, at *7 (S.D.N.Y. May 26, 1993) ("[C]onfidentiality . . . fosters the provision of full and accurate information."). When ...


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