Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 1 of 22 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA VERN McKINLEY, Plaintiff, v No, 1:09-cv-01263-ESH FEDERAL DEPOSIT INSURANCE, CORPORATION and BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Defendants. October 30, 2009 MEMORANDUM OF POINTS AND AUTHORITIES | IN SUPPORT OF FDIC’S MOTION FOR SUMMARY JUDGMENT Deputy General Counsel DANIEL H. KURTENBACH Counsel COLLEEN J. BOL Assistant General Counsel | RICHARD J. OSTERMAN {sl Daniel H, Kurtenbach | | D.C. Bar No. 426590 | Federal Deposit Insurance Corporation BARBARA KATRON 3501 Fairfax Drive, Room VS-D7026 Counsel Arlington, VA 22226 D.C. Bar No. 387970 703-562-2465Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 2 of 22 TABLE OF CONTENTS TABLE OF AUTHORITIES. 1. PRELIMINARY STATEMENT. IL FACTUAL AND PROCEDURAL BACKGROUND ws II. ARGUMENT. A. Standard of Review. Under Sunshine Act Exemptions 4, 8, and 9(A)( 1. The Board Minutes Include Confidential Financial Information Properly Withheld Under Sunshine Act Exemption 4, susan 2. The Board Minutes Include Information Contained In Or Related To Financial Institution Examination, Operating, and Condition Reports, Which Was Properly Withheld Under Sunshine Act Exemption 8. 3. The Board Minutes Include Information That, If Disclosed Now, Would Endanger The Stability Of Financial Institutions, And Was Properly Withheld Under Exemption HANI). eee pein 13 C. Material From The Case Memorandum Was Properly Withheld Under FOIA Exemptions 5 and 8... 15 1. The Case Memorandum Is Pre-Decisional And Deliberative, And The Redactions 15 Were Proper Under Exemiption 5. wom 2. The Board Minutes Include Information Contained In Or Related To Financial Institution Examination, Operating, and Condition Reports, Which Was Properly Withheld Under Sunshine Act Exemption 8. .ssessossssv CONCLUSIONCase 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 3 of 22 TABLE OF AUTHORITIES Federal Cases 9105 Organization for Women Office Workers v. Board of Governors of the Fed. Reserve Sys., 721 F.2d 1, 10 (Ist Cir. 1983) ul AG. Becker Ine. v. Board of Governors of Federal Reserve System, 502 F. Supp. 378 (D.C. 1980) 7 Alyeska Pipeline Serv. Co. v. EPA, 856 F.2d 309 (D.C. Cir. 1988) 7 Anderson v. Liberty Lobby, Inc., 477 US. 242 (1986) 7 Berliner, Zisser, Walter & Gallegos, P.C. v. SEC, 962 F. Supp. 1348 (D. Colo. 1997) 2 Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854 (D.C. Cit. 1980) 15 Comstock Int'l (U.S.A,) v. Export-Import Bank of the United States, 464 F. Supp. 804 (DDC. 1979) i Consumers Union of US., Inc. v. Heimann, 598 F.2d 531 (D.C. Cir. 1978) 12,17 Cooper v. First Government Mortg. and Investors Corp., 238 F. Supp. 2d 50 (D.D.C. 2002) 7 Critical Mass Energy Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992) (en banc), cert. denied, 507 U.S. 984 (1993) 10,11 CNA Financial Corp. v. Donovan, 830 F.2d 1132 (D.C. Cir. 1987) 8 Gardels v, CIA, 689 F.24 1100 (D.C. Cir, 1982) 6 Gregory ¥. FDIC, 631 F. 2d 896 (D.C. Cir. 1980) 12,17 Gulf & Western Industries v. United States, 615 F. Supp. 527 (D.C. Cir. 1979) ul Johnson v. Executive Office for U.S. Aitorneys, 310 F.3d 771 (D.C. Cit. 2002) 7 Jordan v. Dept. of Justice, 591 F.2d 753 (D.C. Cir. 1978) 7 Judicial Watch, Inc. v. Exp-Imp. Bank, 108 F. Supp. 2d 19 (D-D.C. 2000) i Lepelletier v. FDIC, 977 P. Supp. 456 (D.D.C. 1997), affa in part, rev'd in part & remanded on other grounds, 164 F.3d 37 (D.C. Cir. 1999) 9 Long v. Dept. of Justice, 450 F. Supp.2d 42 (D.D.C. 2006) 6 Mapother v. DOJ, 3 P.3d 1533 (D.C. Cir. 1993) 15,16 ‘Mermelstein v. SEC, 629 F. Supp. 672 (D.D.C. 1986) 22 Military Audit Project v. Casey, 656 F.2d 724 (D.C. ir. 1981) 7 Montrose Chemical Corp. of California v. Train, 491 F.2d 63 (D.C. Cir, 1974) 15Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 4 of 22 National Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C. Cir. 1974) National Parks and Conservation Ass'n v. Kleppe, $47 F.2d 673 (D.C. Cir. 1976) NLRB v. Sears, Roebuck & Co., 421 U.S. 132 (1975) Petroleum Information Corp. v. U.S. Dept. of Interior, 976 F.2d 1429 (D.C. Cir. 1992) Pickering-George v. Registration Unit, DEA/DOJ, 353 F. Supp. 2d 3 (D.D.C. 2008) Playboy Enterprises, Inc. v. Dept. of Justice, 677 F.2d 931 (D.C. Cir. 1982) Public Citizen Health Research Group v. NIH, 209 F. Supp. 2d 37 (D.D.C. 2002) Public Citizen v. Farm Credit Admin., 938 F. 2d 290 (D.C. Cir. 1991) ‘Schrecker v. U.S. Department of Justice, 14 F. Supp. 2d 111 (D.D.C. 1998) Federal Statutes Freedom of Information Act, 5 U.S.C. § 552 (2006) OPEN Government Act of 2007, Pub, L. No. 110-175, 121 Stat. 2524 Government in the Sunshine Act, 5 U.S.C. § 552b Federal Deposit Insurance Act (FDI Act), 12 U.S.C. § 1823(c)(4(G) 28 U.S.C, § 2201 Federal Rules and Other Documents Fed. R. Civ. P. 56(¢) Memorandum for the Heads of Executive Departments and Agencies,74 Fed. Reg. 4683 (Jan, 21, 2009) ‘Attomey Genetal’s Memorandum for the Heads of Executive Departments and Agencies, http://www justice.gov/ag/foia-memo-mareh2009.pdf (March 19, 2009) 811 i 15,16 16 7 ul 12,17 passim ‘passimCase 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 5 of 22 I. PRELIMINARY STATEMENT Plaintiff Vern McKinley (plaintiff or McKinley), filed this action pursuant to the Freedom of Information Act, 5 U.S.C. § 552 (2006), amended by OPEN Government Act of 2007, Pub. L. No. 110-175, 121 Stat, 2524 (FOIA), Plaintiff alleges that the Federal Deposit Insurance Corporation (FDIC) wrongfilly redacted portions of the minutes from a special ‘meeting of the FDIC Board of Directors (Board) (Board Minutes) that addressed the FDIC's decision regarding the resolution of Wachovia Bank and its affiliates (Wachovia). ‘The Board meeting, held on September 29, 2008 (Board meeting), was closed to the public pursuant to sections (c)(4), (c)(6), (€)(8), (€)(9)(A)Gi) and (c)(9)(B) of the Government in the Sunshine Act, 5 U.S.C. § 552b (Sunshine Act). Also at issue are the FDIC's redactions of a September 29, 2008 recommendation memorandum prepared by FDIC staff to assist the FDIC Board members in their deliberations regarding the resolution of Wachovia (Wachovia Case Memorandum or Case Memorandum). ‘The September 29, 2008 Board meeting -- which occurred in the midst of a well- documented global financial meltdown - is historically significant because the FDIC Board, for the first time, invoked what is known as the “systemic risk exception” of the Federal Deposit Insurance Act (FDI Act), 12 U.S.C. § 1823(¢\4\(G). This provision of the FDI Act permits the Secretary of the Treasury, upon the written recommendation of the FDIC and the Board of Governors of the Federal Reserve System (FRB), and in consultation with the President, to make an emergency determination that the standard “least cost” resolution test ordinarily applied to troubled financial institutions would have serious adverse effects on economic conditions or financial stability. Such a “systemic risk” determination by the Treasury Secretary gives the FDIC extraordinary authority to provide financial assistance and take other action necessary toCase 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 6 of 22 avoid or mitigate such adverse effects. To deal with the plight of Wachovia, the FDIC Board, upon making a systemic risk determination, considered various options and accepted Citigroup Inc.'s (Citigroup’s) proposal to acquire Wachovia with financial assistance from the FDIC." As discussed in greater detail below, the same factors that prompted the FDIC Board to take unprecedented steps in resolving Wachovia continue to plague the economy, particularly the U.S. banking sector? For this reason, the FDIC may not pul icly disclose the full contents of the Board Minutes under the Sunshine Act.’ The FDIC understands that federal agen 8 are strongly encouraged to be as “transparent” as possible in dealing with FOIA requests, particularly in light of the FOIA memorandum issued by President Obama stressing a “presumption of disclosure.” Memorandum for the Heads of Executive Departments and Agencies, 74 Fed. Reg. 4683 (Jan. 21, 2009), FDIC staff sought to disclose as much information as possible in response to plaintiff's FOIA request regarding the Wachovia resolution. The President's guidance expressly notes that the presumption applies “[iJn the face of doubt.” Jd. In this case, there is no doubt that the sensitive information redacted from the Board Minutes should continue to be held in confidence. Further, the Department of Justice’s guidance asks whether an ' Immediately following the approval of Citigroup's proposal to acquire Wachovia with the FDIC's assistance, ‘Wells Fargo presented a new offer and negotiated a merger with Wachovia that required no FDIC assistance, See Press Relea, FDIC Chairman Shela Bair Comments on Agreement to Merge by Well Fargo and Wachovia.” hitp//orw fic govnews/news/press/2008/pr08090,huml (October 3, 2008). The FRB approved the merger. hhnp/furww federalreserve,gov/newsevents/pressiorders/2008 1012a him (October 12, 2008). These subsequent developments were not relevant to plaintiffs FOIA request or administrative appeal, which focused on the FDIC's decision to recommend use of the systemic risk exception to provide open bank assistance, Exh, 1; Exh, 4 at 2-4, * See Statement of Sheila C. Bair, Chairman of the Federal Deposit Insurance Corporation on Examining the State of the Banking Industry before the Subcommittee on Financial stitutions, Committee on Banking, Housing and Urban Affairs, U.S. Senate, Room $38, Dirksen Senate Office Building (October 14, 2009), attached to the Declaration of Christopher J. Spoth. ° Pursuant to subsection (k) of the Sunshine Act, 5 U.S.C. § $52b(k), where a FOIA request is made for “transripts, recordings, or minutes” of closed meetings, the Sunshine Act exemptions apply rether than the FOIA exemptions. ‘Therefore, inthis case, an analysis under the Sunshine Act is required to determine whether the Board Minutes are properly exempt trom disclosure. With respect to the Case Memorandum, FOTA exemptions apply.Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 7 of 22 agency “reasonably foresees that disclosure would hatm an interest protected by one of the statutory exemptions.” Attorney General’s Memorandum for the Heads of Executive Departments and Agencies, http://www.justice.eov/ae/foia-memo-march2009.pdf (March 19, 2009). In this case, as discussed below, important interests protected by Sunshine Act exemptions are at issue. Specifically, the Sunshine Act protects those portions of the Board Minutes that, if disclosed, would significantly endanger the stability of open financial institutions. The Sunshine Act also exempts from disclosure confidential financial information ‘that was obtained primarily through the bank examination process and would, if disclosed, likely cause competitive harm to open financial institutions. Similar FOLA exemptions require the FDIC to protect confidential and privileged portions of the Case Memorandum. The FDIC also recognizes that open government is critically important in the current economic climate of unprecedented government bailouts at taxpayer expense, Nonetheless, these same extraordinary economic circumstances tip the balance against disclosure here, particularly because release of the redacted material poses a real and substantial risk to the stability of open financial institutions. In support of its motion, FDIC submits the Vaughn Index Declaration of Fredrick L. Fisch (Fisch), Supervisory Attorney, FOIA/Privacy Act Group (FOIA Group), Legal Division, FDIC (Fisch Declaration) and asso red exhibits,’ which recount the basic chronology and processing of plaintiff's FOIA request and provides other background information in support of this motion. In further support of its motion, the FDIC provides the Declaration of Christopher J. Spoth (Spoth), Senior Deputy Director, Division of Supervision and Compliance (DSC), FDIC (Spoth Declaration) explaining the background leading up to the proposed resolution of ‘The documents relating to McKinley's FOLA request and administrative appeal and FDIC's responses are attached to this Motion as Exhibits I through &; the Fisch and Spoth Declarations appear at Exhibits 9 and 10.Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 8 of 22 Wachovia and the invocation of the systemic risk exception, a general description of the confidential information in the Case Memorandum, and an account of what occurred at the Board meeting. The declarations bolster the view that no information has been improperly withheld from plaintiff. On the basis of these submissions and for the reasons set forth below, EDIC respectfully submits that there exists no genuine issue of material fact and that FDIC entitled to judgment as a matter of law pursuant to Rule 56 of the Federal Rules of Civil Procedure.* IL. FACTUAL AND PROCEDURAL BACKGROUND ‘The Fisch Declaration (Exh. 9) sets forth a detailed narrative of plaintiff's FOIA request. On November 18, 2008, plaintiff submitted a request under the FOIA to the FDIC, “seeking certain records related to the approval of the Wachovia Bank transaction” as described in an FDIC press release. Fisch Decl. at 10; Exh. 1, 2; Complaint (Dkt. 1) at 4 16; FDIC Answer (Dit. 6) at 416. Following a December 18, 2008 telephone discussion with a Senior FOIA Group Specialist, plaintiff and FDIC staff understood that the Board Minutes would best satisfy McKinley's FOIA request. Fisch Decl. at $3; Complaint (Dkt. 1) at 23; FDIC Answer (Dkt. 6) at 423. Ina January 13, 2009 final response to plaintiff's FOIA request, Fisch explained that the Board meeting had been closed to the public pursuant to exemptions (c)(4), (c)(6), (€)(8), (©@)CAYGI) and (€)(9)(B) of the Sunshine Act and that he had determined that those exemptions continued to apply to the FDIC Board Minutes, which were being iheld in full pursuant to those sections of the Sunshine Act. Fisch Decl. at § 12; Exh. 3; Complaint (Dkt. 1) at ]24; FDIC Answer (Dkt. 6) at { 24. > However, if this Court requires additional assistance in evaluating the merits of the FDIC's postion, the FDIC respectfully requests that this Court issue an order directing that the FDIC produce for in camera inspection, uuntedacted copies of the Wachovia Board Minutes and Case MemorandumCase 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 9 of 22 On January 28, 2009, plaintiff administratively appealed the FDIC's decision denying disclosure of the Board Minutes. Fisch Decl. at § 13; Exh. 4; Complaint (Dkt. 1) at 25; FDIC Answer (Dkt. 6) at $25. On February 17, 2009, the FDIC, upon consideration of plaintiff's appeal and after reviewing material relating to Wachovia that had been publicly released by the FDIC and by the FRB, granted, in part, plaintiff's administrative appeal by providing him with a copy of the Board Minutes that was redacted in part but included the full contents of the Board’s resolution setting forth the terms of Citigroup's acquisition and the FDIC’s assistance. In the February 17, 2009 appeal response, FDIC staff advised plaintiff that the redacted portions of the Board Minutes remained exempt from disclosure pursuant to exemptions (c)(4), (¢)(8) and (ONAN) of the Sunshine Act. Fisch Decl. at $15; Exh. 5; Complaint (Dkt. 1) at 26; FDIC Answer (Dit. 6) at $26. (On July 8, 2009, plaintiff filed this lawsuit against the FDIC and the FRB® secking iudicial review of the FDIC’s decision to redact, in response to his FOIA request, certain formation relating to the resolution of Wachovia, Complaint (Dkt. 1). On August 12, 2009, the FDIC filed an answer to the complaint, denying plaintiff's allegations that it had wrongfully withheld certain information and asserting that Sunshine Act and FOIA exemptions protect from disclosure the redacted information, FDIC Answer (Dkt. 6). After this lawsuit was initiated, on August 28, 2009, FOIA Group staff'emaited to plaintiff (Exh. 7) a redacted copy of the Case Memorandum (Exh. 8) “in further, supplemental response” to plaintiff's original FOIA request of November 18, 2008. Because the Board Minutes state (Exh. 6 at 56,409) that “[dJocuments and materials relevant to the Board's consideration of the foregoing .. . are filed in the jacket of this meeting, and, by reference, are made a part of these minutes,” the FDIC has construed the Case Memorandum redactions also to © Plainif’s claims against the FRB are unrelated to his claims against the FDIC.Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 10 of 22 be at issue in this litigation, even though only the redactions to the Board Minutes were expressly raised in the administrative appeal (Exh. 4 at 1) and in the Complaint (Dkt. 1 at $914, 23-26). On September 9, 2009, plaintiff and defendant FDIC filed a joint status report and proposed briefing schedule that was adopted by this Court in an order issued on September 10, 2009. On September 16, 2009, defendant FDIC filed a motion to sever plaintifP’s claims asserted against it from his claims asserted against FRB. On September 28, 2009, plaintiff filed an ‘opposition to FDIC's motion to sever to which FDIC replied on October 5, 2009. On October 6, 2009, this Court issued an order denying FDIC’s motion, On October 14, 2009, FDIC filed a motion for extension of time to file motion for summary judgment until October 30, 2009 along with a new proposed briefing schedule. The same day, this Court granted FDIC’s motion and adopted the new briefing schedule. Hl, ARGUMENT A. Standard of Review Under FOIA, the court conducts de novo review of the applicability of the exemptions asserted under FOIA, which the agency must prove by a preponderance of the evidence. 5 U.S.C. § 552(a)(4)(B). The FDIC can meet this obligation with affidavits specifying the factual basis for the exemptions. Agency declarations are accorded a presumption of good. faith. Pickering-George v. Registration Unit, DEA/DOJ, 553 F. Supp. 2d 3, 5 (D.D.C. 2008); Long v, Dept. of Justice, 450 F. Supp. 2d 42, 53-54 (D.D.C. 2006). Further, “a court shall accord substantial weight to an affidavit of an agency concerning the agency’s determination as to... subsection (b) [5 U.S.C. § 552(b), matters that are exempt from disclosure under the FOIA” 5 U.S.C. § 552(a)(4)(B); see, e.g., Gardels v. CIA, 689 F.2d 1100, 1104 (D.C. Cir. 1982).Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 11 of 22 ‘Summary judgment may be granted solely on the basis of agency declarations ifthey are clear, specific, and reasonably detailed, if they describe the withheld information in a factual and nonconclusory manner, and if there is no contradictory evidence on the record or evidence, of bad faith. Pickering-George, 553 F. Supp. at 5; Military Audit Project v. Casey, 656 F.2d 724, 738 (D.C. Cir, 1981), Because the Sunshine Act is construed in pari materia with the FOIA (Mermelstein v. SEC, 629 F. Supp. 672, 674 (D.D.C. 1986); Jordan v. Dept. of Justice, 591 F.2d 753, 770 (D.C. Cir. 1978)), this same standard applies to declarations concerning the agency’s determination as to Sunshine Act exemptions when applied pursuant to 5 U.S.C. §.552b(K). See 4.G, Becker Inc. v, Board of Governors of Federal Reserve System, 502 F. Supp. 378, 388 (D.D.C. 1980) (affidavits support application of Sunshine Act exemptions). Summary judgment is appropriate in a FOIA action when the pleadings and declarations show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(¢); Anderson v. Liberty Lobby, Inc., 477 USS. 242 (1986); Alyeska Pipeline Serv. Co. v, EPA, 856 F.2d 309, 313 (D.C. Cir. 1988); Cooper v. First Government Mortg. and Investors Corp., 238 P. Supp. 2d 50, 53 (D.D.C. 2002); Schrecker v. U.S, Department of Justice, 14F. Supp. 2d 111, 115 (D.D.C. 1998).” ‘The Fisch Declaration (Exh. 9) and Spoth Declaration (Exh. 10), together with the records submitted as exhibits to this motion, clearly demonstrate that the FDIC appropriately applied the applicable exemptions to the records requested by McKinley, the redacted material Plaintif?s first cause of action, Complaint (Dit. 1) at 10, references 28 U.S.C. § 2201, and states that McKinley “seeks declaratory judgment that FOIA entitles him tothe Requested Records and thatthe FDIC and Fed should produce those records containing the requested information immediatly.” This misstates the remedy available under the FOIA. See $ US.C. §$52(a\4)(b): see also Pickering George, $53 F. Supp. 24a 4, citing Johnson v Executive Office for US. Attorneys, 310 F.34 771, 777 (D.C. Cit. 2002).Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 12 of 22 ‘was properly withheld pursuant to the Sunshine Act and the FOIA, and the FDIC is therefore entitled to summary judgment on McKinley's claims. B. Material From The September 29, 2008 Board Minutes Was Properly Withheld Under Sunshine Act Exemptions 4, 8, and 9(A)(i). As specifically described in the Fisch Declaration, portions of the minutes of the ‘September 29, 2008 closed meeting of the FDIC Board were redacted as exempt from disclosure under Sunshine Act exemptions 4, 8, and 9(A)(ii (5 U. - § S52b(C)(A), (618), (MAIGID), as applied pursuant to 5 U.S.C. § 552b(k). When evaluating whether the redacted material continues to be properly withheld under the Sunshine Act, itis important to consider, as described more fully in the Spoth Declaration, the economic climate in which the Board meeting ‘was held as well as current financial conditions, especially those affecting the banking sector. 1. The Board Minutes Include Confidential Financial Information Properly Withheld Under Sunshine Act Exemption 4. Exemption 4 of the Sunshine Act is identical to exemption 4 of the FOIA, and has been given similar scope. CNA Financial Corp. v. Donovan, 830 F.2d 1132, 1152 n.146 (D.C. Cir. 1987) (Sunshine Act exemption 4 identical to FOIA exemption 4). As explained in the Fisch Declaration, material contained in the Board Minutes to which exemption 4 applies consists largely of information received by the FDIC in confidential bids and bid negotiations with Wachovia, Citigroup, and Wells Fargo. Fisch Decl. at $¥ 21-23, 25-26, 29, 32. rade secrets and commercial or financial information obtained loged or confidential.” This exemption is intended to protect the interests of both the government (here, the FDIC) and submitters of information (here, four financial institutions). See, e.g., National Parks & Conservation Ass'n v. Morton, 498 F.2d 765, 761-70 (D.C. Cit. 1974) (National Parks) (concluding that the legislative history of the FOIACase 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 13 of 22 ‘firmly supports an inference that [exemption 4] is intended for the benefit of persons who supply information as well as the agencies which collect it"). The exemption covers two broad categories of information in federal agency records: (1) trade secrets; and (2) information that is (a) commercial or financial, (b) obt ied from a person, and (c) privileged or confidential. In this case, the exemption 4 information redacted from the Board Minutes falls into the second category. Exemption 4 applies here if three conditions are met. First, the requested information ‘must be “commercial or financial” information. Courts have little difficulty in regarding information as "commercial or financial" if it relates to business, trade, or financial interests. See, ¢.g., Lepelletier v. FDIC, 977 . Supp. 456, 459 (D.D.C. 1997) (identities of businesses having unclaimed deposits is financial information), aff'd in part, rev'd in part & remanded on other grounds, 164 F.3d 37 (D.C. Cir, 1999). In this case, the information relates to the financial condition, capabilities, and operations of large financial institutions -- Wachovik Citigroup, Wells Fargo, and one additional institution identified as “troubled” during the course of the Board meeting. Fisch Decl, at "20-22, 24-25, 28, 31; Spoth Decl. at 120. There can be no question that the relevant information is “commercial or financial.” ‘Once the first condition for application of exemption 4 is satisfied, the next step is to establish whether the information was obtained from a “person.” The term “person” refers to individuals and to a wide range of entities, including corporations, banks, state governments, agencies of foreign governments, and Native American tribes or nations, who provide information to the government. In this case, the “persons” providing the information were large financial corporations. See, e.g., Lepelletier v. FDIC, 977 F. Supp. at 459 (“The banks from which FDIC obtained the information are “persons” within the meaning of exemption 4.”).Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 14 of 22 ‘The final step in determining whether exemption 4 applies is evaluating whether the information sought is “confidential.” Under the test established in National Parks, commercial or financial matter is “confidential” for purposes of exemption 4 if disclosure of the information is likely to have either of the following effects: (1) to impair the Government's ability to obtain necessary information in the future (the impairment prong); or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained (the competitive harm prong). ‘The D.C. Cireuit Court of Appeals’ decision in Critical Mass Energy Project v. NRC, 975 F.2d 871, 877-80 (D.C. Cir, 1992) (en bane), cert. denied, 507 U.S. 984 (1993) (Critical Mass) limited the application of the National Parks test to those instances “in which a FOIA request is ‘made for financial or commercial information a person was obliged to furnish the Government.” Critical Mass announced a new test for the protection of information that is “voluntaril submitted — such information is now categorically protected, provided the submitter of the information does not “customarily” disclose that type of information to the public. Under Critical Mass, voluntarily provided information is ““confidential’ for the purpose of exemption 4 if itis of a kind that would customarily not be released to the public by the person from whom it was obtained.” 975 F.2d at 879, In this case, the exemption 4 information contained in the Board Minutes is, in large part, information voluntarily provided by Wachovia, Citigroup, and Wells Fargo in making bids and assistance proposals for Wachovia and negotiating with the FDIC. Fisch Deel. at 9124, 25, 28: Spoth Decl. at $f 11, 20. The parties were engaged in bidding and negotiating for acquisition of and assistance to the fourth-largest financial institution in the United States, with hundreds of billions of dollars at stake. Exh. 8 at 8. As is always the case when FDIC Board members andCase 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 15 of 22 staff evaluate confidential information to consider possible resoh ions for a failing institution, the information submitted by potential bidders such as was memorialized in the Wachovia Case Memorandum and reflected in the Board minutes, was kept confidential. Spoth Decl. at $915, 20. Public disclosure of the confidential financial information — which wes submitted voluntarily to the FDIC by prospective acquirers — would reveal to their competitors the bidders’ financial condition, capabilities and other proprietary information such as potential expansion plans. Accordingly, the information voluntarily provided by those institutions is considered “confidential” under the Critical Mass test.* 2. The Board Minutes Include Information Contained In Or Related To Financial Institution Examination, Operating, and Condition Reports, Which Was Properly Withheld Under Sunshine Act Exemption 8. Exemption 8 permits the withholding of information contained in or related to ‘examination, operating, or condition reports prepared by, on behalf of, or for the use of federal banking regulatory agencies, including the FDIC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Office of Thrift Superv ‘The information plaimiff seeks is also confidential under either prong of the National Parks test. Here, the second prong of National Parks is satisfied because disclosure ofthe withheld information would likely cause Substantial “competitive harm" tothe institutions involved in the bidding process as well as to one other institution discussed, in passing, during the Board meeting, To meet the second prong of the National Parks test, i is not necessary to show actual competitive harm; instead “faletal competition and the likelihood of substantial ‘competitive injury is all that need be shown.” Gulf & Western Industries». United States, 615 F. Supp. 527, $30 (DC. Gir, 1979) (citing National Parks and Conservation Ass'n v. Kloppe, 547 F 24 673, 679 (D.C. Cit. 1976)). The institutions diseussed atthe Board meeting are likely to suffer substantial competitive harm if proprietary information of other information revealing thei financial condition is disclosed and becomes availabe to their competitors. Asto the “impairment” prong of the National Parks tes, the D.C. Circuit suggested that “program effectiveness” is a governmental interest that could be served by this exemption” National Parks, 498 F.2d at 770, 1.17; see also Critical Mass, 975 F.2d at 879, Since that time, federal cours, including this one, have, in analyzing exemption 4, recognized the agency interest in program effectiveness and sometimes refer to it asthe “third prong” under National Parks. See, eg., 910 5 Organization for Women Office Workers v. Board of Governors ofthe Fed Reserve Sys., 721 F241, 10 (1* Cir. 1983); Comstock Int'l U.S.A.) v. Expart-lmport Bank of the United States, 464 F. Supp. 804, 808 (D.D.C. 1979); Public Citizen Health Research Group v. NIH, 209 F. Supp. 24 37, 45 (D.D.C. 2002) (alternative holding); Judicial Watch, Inc. v. Exp-Imp. Bank, 108 F. Supp. 24 19, 30 (D.D.C. 2000). The FDIC hhas a specifi, legitimate interest in the effectiveness of its resolution function. See Spoth Decl. at Ff 26, 28, 29. In this case, disclosure of the withheld information would impair the FDIC's ability to cary out it statutory mandate by discouraging prospective acquirers and by undermining depositors’ confidence in the FDIC's resolution functions. rtCase 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 16 of 22 ‘The courts have very broadly construed exemption 8, Thus, the Court of Appeals for the District of Columbia has stated that Congress has provided “absolute protection regardless of the circumstances underlying the regulatory agency's receipt or preparation of examination, operating or condition reports.” Gregory v, FDIC, 631 F.2d 896, 898 (D.C. Cir. 1980). Exemption 8 of the Sunshine Act is identical to exemption 8 of FOIA, and has been given similar scope. Berliner, Zisser, Walter & Gallegos, P.C. v. SEC, 962 F. Supp. 1348, 1352 (D. Colo. 1997) (adopting Sunshine Act definition of financial i tution in interpreting FOIA. exemption 8); Mermelstein v. SEC, 629 P. Supp. at 674 (same). Exemption 8 serves two purposes: (1) to protect the security of financial institutions by withholding from the public reports that contain frank evaluations of a bank’s stability, and (2) to promote cooperation and communication between employees and examiners. Public Citizen v Farm Credit Admin., 938 F. 2d 290, 292-94 (D.C. Cir, 1991), ‘The authority of federal agencies to withhold bank examination reports, and documents related to such reports, is clear. Consumers Union of US., Inc. v. Heimann, 598 F.2d 531 (D.C. Cir. 1978). Thus, the information drawn from such reports and documents and discussed in the Board meeting by staf and members of the Board was properly withheld. In addition, all records that pertain to a bank’s financial condition and operations within the possession of a federal agency that regulates or supervises financial institutions are exempt, regardless of the source of those records, in order to serve the policy of promoting frank cooperation between the bank, its employees and agency officials. Gregory v. FDIC, 631 F.2d at 899. In the circumstances of this case, the cooperation of Citigroup, Wells Fargo, and Wachovia was absolutely required in order to effect the transaction and prevent Wachovia's failure. 2Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 17 of 22 Accordingly, the material redacted from the Board Minutes under exemption 8, as described in the Fisch and Spoth Declarations, is information detived from examination, operating, and condition reports, and is protected from disclosure. Fisch Decl. at § 20-22, 24, 27, 31-32; Spoth Deel. at 21. 3. The Board Minutes Include Information That, If Disclosed Now, Would Endanger The Stability Of Financial Institutions, And Was Properly Withheld Under Exemption 9(A)(Ii). Exemption 9(A)ii) of the Sunshine Act allows an agency to withhold information “the premature disclosure of which Would . .. in the case of an agency which regulates currencies, securities, commodities, or financial institutions, be likely to... significantly endanger the stability of any financial institution.” 5 U.S.C. § 5526(c)(9\(A){i). As noted in the Spoth Declaration, the September 29, 2008 Board meeting was held in the midst of an unprecedented worldwide economic crisis. Among other things, in the three weeks leading up to the meeting, Fannie Mae and Freddie Mac were placed in government conservatorship; Bank of America ‘announced its plan to purchase Merrill Lynch; Lehman Brothers declared bankruptcy; the FRB approved an $85 billion bailout for AIG; the SEC temporarily banned short selling of financial company stocks; and, in the largest bank resolution in history, Washington Mutual Bank, a $300 billion institution, was closed and sold to JP Morgan Chase. Spoth Decl. at § 22, As detailed in the Spoth Declaration, the banking industry remains in turmoil, with more than one hundred bank failures so far this year, more than four hundred institutions on the FDIC’s “problem list,” and increasing pressure on the Deposit Insurance Fund. Spoth Decl. at §4.26-27. The confidence of all participants in the banking sector -- including depositors, investors, businesses, and the financial institutions themselves - is key to the health of the banking industry generally. Spoth Decl. at q¥ 28-29. As difficulties in the industry persist and 13Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 18 of 22 the economy remains unsettled, changes in the confidence level of any stakeholder leads to actions that can impel a troubled institution into default or destabilize a relatively healthy institution. Spoth Decl. at 429. ‘The redacted portions of the Board Minutes contain information detailing factors that the FDIC considered significant in its conclusion that the failure of Wachovia “would have serious adverse effects on economic conditions or financial stability and would create systemic risk to the credit markets,” Exh. 6 at 56,408. These include the analyses of economic researchers, opinions of highly experienced regulatory staff, and frank observations by FDIC Board members. Fisch Decl. at ¥] 20-27, 29-32; Spoth Decl. at §¥ 23-24, 29. Significantly, Citibank and Wells Fargo are open institutions and, in fact, many branches remain open and operating under the name Wachovia. Many of the factors that influenced FDIC sta(?'s recommendations and the Board’s decision regarding the resolution of Wachovia remain pertinent not just to the institutions identified but to many other open banks as well. Under current economic conditions, the scrutiny and speculation attendant to disclosure of opinions and recommendations by officials responsible for overseeing the stability of financial institutions pose a real and present danger of misinterpretation, incorrect analyses, and misguided advice, leading to actions that ‘would destabilize financial institutions. Spoth Decl. at $§ 28-29. After the current crisis has passed, a time may come when disclosure of the FDIC’s analyses, opinions, and discussions will not directly impact financial markets and public perceptions. At this point, however, disclosure of the information redacted from the Board Minutes would be likely to significantly endanger the stability of financial institutions. For this reason, exemption 9(A)(ii) of the Sunshine Act was properly applied. 4Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 19 of 22 C. Material From The Case Memorandum Was Properly Withheld Under FOIA Exemptions 5 and 8. ‘As described in the Declaration of Fredrick L. Fisch, portions of the Case Memorandum ‘were redacted as exempt from disclosure under FOIA exemptions 5 and 8.7 1. The Case Memorandum Is Pre-Decisional And Deliberative, And The Redactions Were Proper Under Exemption 5. FOIA exemption 5 protects "inter-agency or intra-agency memorandums or letters which ‘would not be available by law to a party other than an agency in litigation with the agency." Among the traditional privileges incorporated within exemption 5 is the deliberative process privilege, which applies to documents that reflect deliberations that are part of an intemal agency decision-making process, such as the FDIC Board meeting at issue in this case. NLRB v. Sears, Roebuck & Co., 421 U.S. 132 (1975). The deliberative process privilege protects the free give- and-take that occurs as a decision is being made, such as the expression of opinion and analysis by the FDIC staff and the views of FDIC Directors noted in the Fisch and Spoth Declarations. Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854, 866 (D.C. Cir. 1980); see, e.g, Fisch Decl. at $9 34-41; Spoth Decl. at *¥ 14, 29. “Exemption 5 was intended to protect not simply deliberative material, but also the deliberative process of agencies.” Montrose Chemical C wep. of California v. Train, 491 F.2d 63, 71 (D.C. Cir. 1974). Traditionally, courts have required that in order to invoke the deliberative process privilege, the material in question must be both predecisional and deliberative. See Mapother v. DOJ, 3 F.3d 1533, 1537 (D.C. Cir, 1993), ° Exemption 4is cited in one place in the redacted Case Memorandum, on page 5, together with exemptions 5 and 8. Upon review of the Case Memorandum, it is not clear what information was considered subject to exemption 4 or the specific basis for claiming that exemption. Accordingly, the FDIC relies on exemptions 5 and 8, rather than | ‘exemption 4, for the information redacted on page 5. In addition, on page 12 of the Case Memorandum, FOIA, ‘exemption 6 was invoked as the basis for redactng the telephone numbers of FDIC staff members. Exemption 6 covers “personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.” We continue to rely on exemption 6 for that one small, specific redaction, but do not discuss exemption 6 further. 15Case 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 20 of 22 In this case, there can be little doubt that the information withheld from the Wachovia Case Memorandum constitutes “inter-agency or intra-ageney memorandum or letters” under exemption 5 of the FOIA. ‘The Case Memorandum was prepared by staff offering analyses, opinions, and recommendations. It was prepared prior to, and specifically for use in, Board deliberations on the resolution of Wachovia, preliminary to the Board’s decision on the matter. Spoth Decl. at $] 13-14. Because the Case Memorandum was provided to the Board before deliberations, there ‘no question that the redacted materials are “predecisional.” ‘The remaining inquiry is whether the Case Memorandum is “deliberative” in character. Mapother, 3 F.3d at 1537. ‘The Case Memorandum reveals the factors and considerations recommended to be taken into account by the Board in making its decision on the resolution of Wachovia. See, ¢.g., Sears, 421 U.S. at 150 (Documents deemed deliberative commonly include “advisory opit ions, recommendations, and deliberations comprising part of a process by which governmental decisions and policies are formulated”). “To the extent that predecisional materials, even if “factual’ in form, reflect an agency's preliminary positions or rumins mms about how to exercise discretion on some policy matter, they are protected under Exemption 5.” Petroleum Information Corp. v. U.S. Dept. of Interior, 976 F.24 1429, 1435 (D.C. Cir. 1992). ‘The redacted materials, as described in the Fisch and Spoth Declarations, include economic analysis, opinions and conclusions regarding the consequences of particular courses of action, discussions concerning the views and actions of entities outside the FDIC that impact the FDIC's decision, recommendations by FDIC staff, and the views and thought processes of members of the FDIC Board of Directors. Fisch Decl. at 4{] 34-41; Spoth Decl. at {J 13-14, 17. All of these items clearly fall the deliberative process privilege. Disclosure of these materials would permit inquiry into the mental processes of FDIC staff and officials by revealing whet factorsCase 1:09-cv-01263-ESH Document 17-4 Filed 10/30/2009 Page 21 of 22 they considered significant in reaching a proper decision, Playboy Enterprises, Inc. v. Dept. of Justice, 677 F.2d 931, 936 (D.C. Cir. 1982). Accordingly, this information was properly redacted from the Case Memorandum pursuant to exemption 5. 2 The Board Minutes Include Information Contained In Or Related To Financial Institution Examination, Operating, and Condition Reports, Which Was Properly Withheld Under Sunshine Act Exemption 8. As discussed above with regard to the Board Minutes, exemption 8 permits the withholding of information contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of federal banking regulatory agencies. As detailed in the Fisch and Spoth Declarations, the Case Memorandum includes information from such reports describing the condition of Wachovia -- information that is absolutely protected from disclosure, Gregory v. FDIC, 631 F.2d at 898; Public Citizen v. Farm Credit Admin., 938 F. 2d 290, 292-94 (DC. Cir, 1991); Consumers Union of U.S., Inc. ¥. Heimann, 598 F.2d 531 (D.C. Cit. 1978); Fisch Dect. at § 35, 37, 40; Spoth Decl. at { 16. Therefore, exemption 8 was properly invoked with regard to the material redacted from the Case Memorandum. 7Case 1:09-ov-01263-ESH Document 17-4 Filed 10/30/2009 Page 22 of 22 CONCLUSION For the reasons stated, the FDIC’s motion for summary judgment should be granted. Respectfully submitted, RICHARD J. OSTERMAN Deputy General Counsel COLLEEN J. BOLES Assistant General Counsel BARBARA KATRON Counsel D.C. Bar No. 387970 Js! Daniel H. Kurtenbach DANIEL H. KURTENBACH Counsel D.C. Bar No. 426590 Federal Deposit Insurance Corporation 3901 Fairfax Drive, Room V8-D7026 Arlington, VA 22226 703-562-2465 October 30, 2009 18