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Abraham Fructher & Twersky LLP v. U.S. Securities and Exchange Commission

March 28, 2006

ABRAHAM FRUCHTER & TWERSKY LLP, PLAINTIFF,
v.
U.S. SECURITIES AND EXCHANGE COMMISSION, DEFENDANT.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge

OPINION & ORDER

Plaintiff Abraham Fruchter & Twersky LLP ("AF&T") brought this action against the U.S. Securities and Exchange Commission (the "SEC") pursuant to the Freedom of Information Act ("FOIA"), 5 U.S.C. Section 552, to compel disclosure of documents and records relating to the SEC's filing of an amicus brief and proposed amendments to Rules 16b-3(d) and 16b-7, 17 C.F.R. Sections 240.16b-3(d) and 240.16b-7. The SEC now moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Oral argument was held on January 4, 2006. For the reasons set forth below, the SEC's motion is GRANTED.

I. BACKGROUND

AF&T is a law firm that represents plaintiffs in several pending actions seeking disgorgement of short-swing insider trading profits brought pursuant to Section 16(b) of the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. Section 78p(b). Compl. ¶ 3. In one such action, Levy v. Sterling Holdings Co., 314 F.3d 106 (3d Cir. 2002), the Third Circuit narrowly interpreted the scope of exemptions provided by Rules 16b-3(d)*fn1 and 16b-7,*fn2 17 C.F.R. Sections 240.16b-3(d) and 240.16b-7, and issued a decision unfavorable to the corporate defendants Sterling Holding Company and National Semiconductor Corporation. Compl. ¶¶ 3, 5-6. The defendants then lobbied the SEC to seek reversal of the Third Circuit's decision.

Id. ¶ 8. In so doing, the defendants acted through persons who had access and influence at the SEC, including one of their lawyers who had formerly been a member of the SEC staff.

Id. ¶¶ 7-8.

On February 27, 2003, the SEC filed an amicus brief in support of the defendants' petition for rehearing. Id. ¶ 10. After the Third Circuit denied the petition and the Supreme Court denied the defendants' subsequent petition for a writ of certiorari, the case was remanded to the U.S. District Court for the District of Delaware. Id. ¶¶ 11-13. While the case was on remand, the SEC proposed a Rule (the "Proposed Rule") that clarified that the exemptive scope of Rules 16b-3(d) and 16b-7 was broader than the Third Circuit's interpretation in Levy. Id. ¶¶ 13-14.*fn3

On October 28, 2004, AF&T filed this FOIA request to determine the "true nature of what transpired at the SEC" leading up to the promulgation of the Proposed Rule and the decision to file an amicus brief in Levy, and to investigate "influence peddling at an important government agency." 09/29/2005 Pl.'s Mem. of Law in Opp'n to Def.'s Mot. for Summ. J. ("Pl.'s Mem.") at 10. On January 5, 2005, after the SEC failed to produce the requested documents, AF&T filed its Complaint. See Def.'s Local Civil Rule 56.1 Statement of Undisputed Facts ("Def.'s 56.1") ¶ 3; Pl.'s Local Civil Rule 56.1 Statement of Undisputed Facts ("Pl.'s 56.1") ¶ 2. The SEC eventually produced over 1200 pages of documents responsive to AF&T's request but withheld 206 documents.*fn4 See Def.'s 56.1 ¶ 11.

The withheld documents relate both to the promulgation of the Proposed Rule and to the SEC's filing of the amicus brief. See 09/02/2005 Decl. of Celia Winter, FOIA Officer for the SEC ("Winter Decl."), Ex. C to 09/02/2005 Def.'s Mot. for Summ. J., ¶ 2. As to the former, the SEC has withheld: (i) drafts of the Proposed Rule; (ii) internal memoranda discussing the language of the Rule; (iii) internal e-mails; (iv) handwritten notes of an agency attorney; and (v) legal research. See id. ¶¶ 6-8, 11-13, 15, 19-21, 35-48. As to the latter, the SEC has withheld: (i) draft memoranda to the Commission from the Office of the General Counsel;

(ii) legal research generated by the Office of the General Counsel; and (iii) internal e-mails from the Office of the General Counsel. See id. ¶¶ 9-10, 14, 16-18, 22-34. The SEC now moves for summary judgment on the ground that these documents are exempt from disclosure pursuant to FOIA's fifth exemption ("Exemption 5"), 5 U.S.C. 552(b)(5).

II. DISCUSSION

FOIA is intended to "promote honest and open government and to assure the existence of an informed citizenry [in order] to hold the governors accountable to the governed." Nat'l Council of La Raza v. Dep't of Justice, 411 F.3d 350, 355 (2d Cir. 2005) (quoting Grand Cent. P'ship, Inc. v. Cuomo, 166 F.3d 473, 478 (2d Cir. 1999)). To further this goal, FOIA "strongly favors" disclosure and requires federal agencies to make their records available upon request unless the documents fall within certain enumerated exemptions set forth in the Act. See id. Consistent with the intent of FOIA, these exemptions are narrowly construed. See id. at 355-56.

FOIA cases are generally resolved on summary judgment following the proper identification of the documents at issue. See N.Y. Pub. Interest Research Group v. United States EPA, 249 F. Supp. 2d 327, 331 (S.D.N.Y. 2003). "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." Inner City Press/Cmty. on the Move v. Bd. of Governors of the Fed. Reserve Sys., 380 F. Supp. 2d 211, 215 (S.D.N.Y. 2005) (quoting Carney v. Dep't of Justice, 19 F.3d 807, 812 (2d Cir. 1994)). "Affidavits or declarations . . . giving reasonably detailed explanations why any withheld documents fall within an exemption are sufficient to sustain the agency's burden." Id. (quoting Carney, 19 F.3d at 812). The district court makes its determination de novo. See 5 U.S.C. § 552(a)(4)(B) (2005).

Here, the parties dispute whether the documents at issue are protected from disclosure under Exemption 5, which permits an agency to withhold "inter-agency or intra-agency memorandums [sic] or letters which would not be available by law to a party other than an agency in litigation with the agency." 5 U.S.C. ยง 552(b)(5) (1996). Exemption 5 protects materials under the deliberative process privilege, work-product doctrine, and attorney-client privilege. See Nat'l Council of La Raza, 411 F.3d at 356. The SEC has withheld the ...


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