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Fox News Network, LLC v. Board of Governors of the Federal Reserve System

July 30, 2009

FOX NEWS NETWORK, LLC, PLAINTIFF,
v.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, DEFENDANT.



The opinion of the court was delivered by: Alvin K. Hellerstein, U.S.D.J.

OPINION AND ORDER SUBSTANTIALLY GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

In the summer of 2007, responding to a weakening national economy, the Board of Governors of the Federal Reserve System ("the Board") took steps to provide much-needed liquidity to American companies in search of funds. One major step was to authorize the regional Federal Reserve banks to issue loans at terms more favorable than had been their longstanding practice.

Typically, the twelve regional Federal Reserve Banks ("FRBs") used their Discount Window to make overnight loans to eligible depository institutions in their respective districts, as loans of "last resort."*fn1 As a temporary measure in August 2007, the FRBs reduced the rates for money lent through the Discount Window and lengthened the loan terms from overnight to as long as ninety days. When the Board found that liquidity still did not sufficiently improve, it authorized the FRBs, in March 2008, to lend to additional entities, including primary dealers, "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates," 12 U.S.C. § 225a. The amount of money lent through the Discount Windows at the twelve regional FRBs increased dramatically, from an average of approximately $1 million during the week of August 8, 2007, to over $188 billion in the last week of 2008. Pl. Memo 5.

Plaintiff Fox News Network ("Fox") is owner of Fox Business Network, a cable news network. Pursuant to the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552 (2006), Fox seeks disclosure of borrowers' names, loan amounts, and pledged collateral for the loans made under these new programs. Fox argues that because taxpayer dollars are being dispersed to particularly troubled institutions in economically perilous times, via untested and unprecedented methods, the public deserves transparency and the Federal Reserve requires increased oversight.

The Board resists disclosure under FOIA, maintaining that it already voluntarily releases broader, aggregate information regarding these lending facilities and that releasing transaction-level information would jeopardize the success of the facilities. The Board argues that since the public has long regarded the Discount Window as providing mainly "loans of last resort" (along with routine needs by stable banks for short-term funds) publicizing this information would deter borrowers from using the Discount Window, and might induce depositors and investor to make panicky withdrawals from financial institutions that borrowed from a Federal Reserve bank's Discount Window. If the court grants disclosure and those dangers follow, great damage to the national economy would result.

Fox submitted to the Board two requests, pursuant to FOIA. The Board conducted a search, compiled and reviewed the responsive materials, and replied that all the documents that Fox had sought were exempted from required disclosure rules under two exemptions of the Act, Exemptions 4 and 5. 5 U.S.C. 552(b)(4), (5). Both parties move for summary judgment.

I rule that one document, which the Board determined is not a record, is indeed, a record. The Board shall identify this document and either produce it or claim an exemption. In all other respects, I grant the Board's motion and deny Fox's motion, finding that the Board performed an adequate search and that Exemption 4 permits the Board not to disclose the documents that Fox seeks.

I.History of the Federal Reserve

The tension between federal power and states' rights, which so fundamentally shaped our bicameral legislature, the electoral college, the limited jurisdiction of our federal courts, and other aspects of the United States Constitution, also is reflected in the national banking system: whether to focus national monetary policy and power in one or a few national banks, or to rely on the banking systems of each state. Alexander Hamilton, the first Secretary of the Treasury, founded the First Bank of the United States in 1791. The bank was a private company, created to service commercial and private needs, but empowered also to issue a national currency, receive tax payments due to the United States, and monetize and manage the national debt. The wealth it possessed combined with its ties to the federal government led to the bank's rapid growth in national wealth and power. However, the bank was opposed by Thomas Jefferson and his Democratic-Republican party who distrusted centralized federal power and favored state banking systems.*fn2

Congress let the bank's charter lapse twenty years after it was founded. A profusion of state-chartered banks arose to succeed to the functions that the national bank had performed. The state banks, with their powers to lend and to issue currency, created a great spread of wealth, run-away inflation, financial panic, and economic chaos. In 1816, to return the nation to solvency and stability, President James Madison signed into law a Second Bank of the United States with larger capitalization than the First Bank. Denounced by President Andrew Jackson and his Democratic party, the Second Bank suffered the same fate as the first when its charter was allowed to lapse in 1836, and again was succeeded by state banks, easy money, multiple issues of currency, a spread of wealth, inflation that surpassed bounds, and financial chaos, which ushered in the Panic of 1837.*fn3 Again, the nation rescued itself by an increased centralization of banking functions and tighter regulations through the National Banking Act of 1863, and its subsequent amendments in 1864 and 1865, which chartered myriad smaller national banks and created a national currency. This legislation enabled the North to fund and equip the armies that won the Civil War.*fn4 However, these measures were insufficient to establish a truly centralized banking system. Once again, the federal system declined and was eclipsed by the state-chartered banks, leading again to run-away inflation and a succession of financial panics culminating in the Panic of 1907.*fn5

The fluctuations and compromises continue until today between a central national bank, a central bank mediated by partially autonomous regional banks, and numerous state banks. The current system owes its origin to the Federal Reserve Act of 1913 ("FRA"), which capped the federal reform effort that followed the Panic of 1907.*fn6 The FRA, signed into law by Woodrow Wilson, created a number of substantially autonomous regional banks and a federal board of governors, in charge of oversight and federal policy.*fn7 The FRBs were to be "the monetary and fiscal agents of the United States." Fasano v. Fed. Reserve Bank of N.Y., 457 F.3d 274, 277 (3rd Cir. 2006) (quoting First Agric. Nat'l Bank v. State Tax Comm'n, 392 U.S. 339, 356 (1968)).

The FRA provided that three government officials, the Secretaries of Treasury and Agriculture and the Comptroller of the Currency, would select the number of regional districts, draw the district boundaries, and choose the city within each district in which the bank would be located. Controversy surrounded the number of regional banks and the size and reach of the New York branch. Other areas were concerned that a system so firmly rooted in New York City would not be sympathetic or attuned to their local needs, including the financial demands peculiar to the regional manufacturing and agricultural industries. Congress instructed that "the districts shall be apportioned with due regard to the convenience and customary course of business and shall not necessarily be coterminous with any State or States." FRA § 2(1). In the end, by selecting a relatively large number of regions (twelve) each with a federal bank, and by intentionally curbing the power of the New York Federal Reserve branch, the three officials insured that institutions throughout the country might have access to federal funds from a receptive regional lender.*fn8

The 1913 House Currency and Banking Committee Report, issued in conjunction with the Federal Reserve Act and expressing congressional intent, comments that the FRBs are "individually organized and individually controlled, each holding the fluid funds of the region in which it is organized and each ordinarily dependent upon no other part of the country for assistance." H.R. Rep. No. 69 63rd Cong., 1st Sess. 18 (1913). The FRA requires each FRB, through its individual board of directors, to: administer the affairs of said bank fairly and impartially and without discrimination in favor of or against any member bank or banks and may, subject to the provisions of law and the orders of the Board of Governors of the Federal Reserve System, extend to each member bank such discounts, advancements, and accommodations as may be safely and reasonably made with due regard for the claims and demands of other member banks, the maintenance of sound credit conditions, and the accommodation of commerce, industry, and agriculture.

12 U.S.C. § 301. The twelve regional banks are "operating arms of the central banking system," but at the same time substantially independent and autonomous. The Federal Reserve System Purposes and Functions, 6 (9th ed., June 2005).*fn9 They are charged with carrying out "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." Id. Each bank acts "as a depository for the banks in its own district," "a lender to eligible institutions . . . , and a clearing agent for checks." Id. at 6, 11. The FRBs turn all their profits over to the Department of Treasury, id., and they operate, in part, under independent grants of Congressional authority. See, e.g., 12 U.S.C. § 341 (providing the power to sue and be sued, make contracts, appoint officers, hire and fire employees, prescribe by laws). However, they are managed by their own boards of directors, with two-thirds majorities elected by the banks in their regions, and enjoy considerable autonomy with regard to their lending and deposit policies, as long as they are not inconsistent with the general propositions of national policy and oversight.

The Board, in contrast to the FRBs, is a government agency composed of seven members, appointed by the President and confirmed by the Senate, and a staff. 12 U.S.C. § 241. The Board may examine and report upon the FRBs' activities, suspend or remove any FRB officer or director, require the FRBs to write off losses, oversee loans between FRBs, supervise the FRBs, and issue rules and regulations for the FRBs. 12 U.S.C. § 248(a)-(r). The Board "exercises broad responsibility over the nation's payments system . . . and plays a major role in supervision and regulation of the U.S. banking system." See 12 U.S.C. § 248(j). However, the degree of supervision and control by the Board is a function of the personalities at play and any current issues between Congress and local banking interests. All this is done in a tension with local powers and practices exercised by the twelve regional banks and the member banks that they serve.

II.Procedural History

On November 10, 2008, Fox's Vice President Bruce Becker submitted a FOIA request to the Board, pursuant to 5 U.S.C. § 552, seeking "the names of institutions receiving Federal Reserve lending from programs including but not limited to the following: Regular [Open Market Operations ("OMO")]; Single-Tranche OMO Program; Discount Window; Term Discount Window Program; Term Auction Facility; Primary Dealer Credit Facility; Transactional Credit Extensions; ABCP Money Market [Mutual Fund] Liquidity Facility; Securities Lending; Term Securities Lending Facility; Term Securities Lending Facility Options Program; and any other Federal Reserve lending facility not mentioned above," for the time period of August 8, 2007 through November 17, 2008.

On November 18, 2009, Fox's Executive Vice President Kevin Magee filed a second FOIA request before Fox had received any response from the Board. The second request sought records from September and October 2007 that identify the names of the institutions that had received loans under the programs listed in the first FOIA request, as well as the loan amounts and collateral pledged. The second request included an application for expedited processing, under 5 U.S.C. § 552(a)(6)(E)(v)(II).

In response to the two requests, the Board conducted a search of its records and engaged in discussions with its FRBs. The Board located 6,186 pages of agency records responsive to Fox's requests. The information contained in these pages related to the names and loan amounts of Discount Window borrowers and other programs mentioned in the requests. The Board found little information regarding collateral. After reviewing the responsive material, the Board determined that all the documents contained exempt material and no reasonably segregable non-exempt information. The Board denied the requests under Exemptions 4 and 5, and, on February 19, 2009, filed two indices pursuant to Vaughn v. Rosen, 484 F.2d 820 (D.C. Cir. 1973) and supporting declarations. The Board represented that the bulk of the documents Fox sought were records of the FRBs in New York and Boston, and that records of an FRB are not records of the Board, as defined by the Federal Reserve Act, and do not have to be produced by the Board.

On March 27, 2009, the Board moved for summary judgment, arguing that no records have been improperly withheld and that it is entitled to judgment as a matter of law. Fox cross-moved, arguing that (1) the Board conducted an inadequate search, in part because it failed to search FRB records, and (2) no exemptions apply to the records. Alternatively, Fox seeks discovery, asserting that the Board has demonstrated bad faith in conducting the search.

III. Discussion

A. Relevant Law

Congress enacted FOIA "to establish a general philosophy of full agency disclosure unless information is exempted under clearly delineated statutory language." Fed. Open Mkt. Comm. of Fed. Reserve Sys. v. Merrill, 443 U.S. 340, 351-52 (1979) (citing S.Rep. No. 813, 89th Cong., 1st Sess., 3 (1965)). There are nine exclusive exemptions listed in § 552(b). "But these limited exemptions do not obscure the basic policy that disclosure, not secrecy, is the dominant objective of the Act," and each exemption "must be narrowly construed." Dept. of Air Force v. Ross, 425 U.S. 352, 361 (1976).

Summary Judgment is granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986). On a motion for summary judgment in a FOIA case, "the agency must demonstrate beyond material doubt that its search was reasonably calculated to uncover all relevant documents." Nation Magazine v. U.S. Customs Serv., 71 F.3d 885, 890 (D.C. Cir. 1995) (internal quotations and citations omitted). The agency also "must demonstrate that each document that falls within the class requested either has been produced, is unidentifiable, or is wholly exempt from the Act's inspection requirements." Ruotolo v. Dep't of Justice, Tax Div., 53 F.3d 4, 9 (2d Cir. 1995).

The agency will sustain its burden by showing, through "affidavits or declarations, . . . that the agency has conducted a thorough search for responsive documents and has given reasonably detailed explanations why any withheld documents fall within an exemption." Carney v. U.S. Dep't of Justice, 19 F.3d 807, 812 (2d Cir. 1994). The burden of proof rests with the agency on all material issues related to the search's adequacy and the merits of exemptions. 5 U.S.C. § 552(a)(4)(B). Affidavits submitted by an agency are "accorded a presumption of good faith." Carney, 19 F.3d at 812. In a FOIA case, the government agency is not entitled to the deference generally given under the Administrative Procedure Act, and the district court should review the agency's decision de novo. U.S. Dep't of Justice v. Reporters Comm. for Freedom of Press, 489 U.S. 749, 755 (1989).

"Discovery relating to [an] agency's search and the exemptions it claims for withholding records generally is unnecessary if the agency's submissions are adequate on their face," Carney, 19 F.3d at 812, demonstrating "that the withheld information is clearly exempt and contains no segregable, nonexempt portions." Allen v. CIA, 636 F.2d 1287, 1298 (D.C. Cir. 1980), overruled on other grounds by Founding Church of Scientology of Washington D.C., Inc. v. Smith, 721 F.2d 828 (D.C. Cir. 1983). "Where the agency fails to meet that burden, . . . the court may employ a host of procedures that will provide it with sufficient information to make its de novo determination, including . . . discovery by the plaintiff." Id. If the agency satisfies its burden, the plaintiff must then demonstrate the agency's bad faith by "impugn[ing] the agency's affidavits or declarations, or provid[ing] some tangible evidence that an exemption claimed by the agency should not apply or ...


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