main reply brief by defendant board of governors in support of summary judgment (lawsuit #1)

8/9/2019 Main Reply Brief by Defendant Board of Governors in Support of Summary Judgment (Lawsuit #1)

1/47

UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLUMBIA

)VERN McKINLEY, )

)Plaintiff, )

)

v. ) Case. No. 1:09-CV-1263)

FEDERAL DEPOSIT )

INSURANCE ) Judge Ellen S. Huvelle

) (ESH)CORPORATION, )

)and ))

BOARD OF GOVERNORS OF )

THE FEDERAL RESERVE )SYSTEM, )

Defendants. )

)

REPLY BRIEF IN SUPPORT OF SUMMARY JUDGMENT MOTION OF

DEFENDANT BOARD OF GOVERNORS OF THE FEDERAL RESERVE

SYSTEM AND OPPOSITION TO PLAINTIFFS SUMMARY JUDGMENT

MOTION

KATHERINE H. WHEATLEY TONY WEST

DC Bar No. 359037 Assistant Attorney General

Associate General Counsel JOHN R. TYLERJOHN L. KURAY Assistant Branch Director, Federal Programs

Senior Counsel Branch

YVONNE F. MIZUSAWA C. LEE REEVESSenior Counsel Trial Attorney, Department of Justice, Civil

Board of Governors of the Federal Division, Federal Programs Branch

Reserve System 20 Massachusetts Avenue, N.W.20th and C Streets, N.W. Washington, D.C. 20530

Washington D.C. 20551 Tel: (202) 514-4805

(202) 452-3436 Fax: (202) 616-8470

Fax (202) 736-5615 [email protected]

Attorneys for Defendant Board of

Governors of the Federal Reserve System

Case 1:09-cv-01263-ESH Document 33 Filed 04/22/10 Page 1 of 47
mailto:[email protected]:[email protected]:[email protected]


2/47

i

TABLE OF CONTENTS

PRELIMINARY STATEMENT ..................................................................................................1

ARGUMENT ..................................................................................................................................4

I. THE BOARDS EXEMPTION 5 ASSERTIONS ARE PROPER ...............................4

A. The Board Properly Asserted Exemption 5 For All Of The Withheld Material At

Issue ............................................................................................................................4

1. Communications Between the Board And The FRBNY Constitute Intra-Agency Communications ....................................................................................4

2. The Board Properly Withheld Documents Under Exemption 5 Because TheseDocuments Are Predecisional And Deliberative ................................................7

3. The Board Properly Withheld Factual Material That Was ItselfDeliberative .......................................................................................................10

B. The Board Properly Asserted Exemption 5 Over A Draft Affidavit

Prepared By FRBNY Attorneys ...............................................................................13

II. THE BOARDS EXEMPTION 8 ASSERTIONS ARE PROPER ...........................17

III. THE BOARDS EXEMPTION 4 ASSERTIONS ARE PROPER .........................26

A. The Boards Exemption 4 Assertions Were Proper As To MaterialProvided By Firms Outside The Supervisory Context .............................................27B. The Board Has Met Its Exemption 4 Burden Regarding Confidential Commercial

Information The Federal Reserve Received From Supervised Financial

Institutions.................................................................................................................31

IV. PLAINTIFFS OBJECTIONS TO THE BOARDS DECLARATIONS AND

VAUGHNINDEX ARE MERITLESS .......................................................................34

CONCLUSION ........................................................................................................................... 42



3/47

ii

TABLE OF AUTHORITIES

CASES

Africa Fund v. Mosbacher,

1993 U.S. Dist. LEXIS 7044 (S.D.N.Y. May 26, 1993)................................................... 33

Badwar v. U.S. Dept of the Air Force,

829 F.2d 182 (D.C. Cir. 1987) ............................................................................................ 6

Bloomberg, L.P. v. SEC,

357 F. Supp. 2d 156 (D.D.C. 2004) .................................................................................. 22

CNA Fin. Corp. v. Donovan,

830 F.2d 1132 (D.C. Cir. 1987) .......................................................................................... 6

CREW v. U.S. Dept. of Homeland Sec.,514 F. Supp. 2d 36 (D.D.C. 2007) ...................................................................................... 6

Campaign For Responsible Transplantation v. U.S. Food & Drug Admin.,

219 F. Supp. 2d 106 (D.D.C. 2002) .................................................................................. 34

Center for Auto Safety v. Natl. Highway Traffic Safety Admin.,

244 F.3d 144 (D.C. Cir. 2001) .................................................................................... 29, 30

*Consumers Union of U.S., Inc. v. Heimann,

589 F.2d 531 (D.C. Cir. 1978) ...................................................................................passim

*Critical Mass Energy Project v. Nuclear Reg. Commn,

975 F.2d 871 (D.C. Cir. 1992) ...................................................................................passim

Dudman Communications Corp. v. Dept of Air Force,

815 F.2d 1565 (D.C. Cir. 1987) .................................................................................. 10, 12

Elec. Priv. Info. Ctr. v. DHS,

No. 1:04cv1625 (D.D.C.) (Dec. 22, 2006).......................................................................... 9

Gallant v. NLRB,

26 F.3d 168 (D.C. Cir. 1994) ............................................................................................ 36

*Gregory v. Fed. Deposit Ins. Corp.,

631 F.2d 896 (D.C. Cir. 1980) ........................................................................ 21, 23, 24, 25



4/47

iii

Hanson v. U.S. Agency for Intern. Development,

372 F.3d 286 (4th Cir. 2004) ............................................................................................ 15

Hoover v. Dept. of the Interior,

611 F.2d 1132 (5th Cir. 1980) ............................................................................................ 6

Judicial Watch, Inc. v. Export-Import Bank,

108 F. Supp. 2d 19 (D.D.C. 2000) .................................................................................... 33

Judicial Watch v. FDA,

449 F.3d 141 (D.C. Cir. 2006) .......................................................................................... 41

King v. U.S. Dept of Justice,

830 F.2d 210 (D.C. Cir. 1987) .................................................................................... 40, 41

Mead Data Central, Inc. v. U.S. Dept of the Air Force,

566 F.2d 242 (D.C. Cir. 1977) .......................................................................................... 34

Montrose Chem. Corp. of California v. Train,

491 F.2d 63 (D.C. Cir. 1974) ............................................................................................ 12

N. Dartmouth Prop., Inc. v. HUD,

984 F. Supp. 65 (D. Mass. 1997) ........................................................................................ 9

Natl Community Reinvestment Coalition v. Nat'l Credit Union Admin.,

290 F. Supp. 2d 124 (D.D.C. 2003) .................................................................................. 24

*Natl Institute of Military Justice v. U.S. Dept. of Defense,

512 F.3d 677 (D.C. Cir. 2008) ...................................................................................... 6, 13

*Natl Parks and Conservation Association v. Morton,498 F.2d 765 (D.C. Cir. 1974) ...................................................................................passim

Paisley v. CIA,

F.2d 686 (D.C. Cir. 1983) ................................................................................................. 40

*Parker v. Bureau of Land Management,

141 F. Supp. 2d 71 ................................................................................................ 29, 30, 33

People for the American Way v. Natl. Park Service,

503 F. Supp. 2d 284 (D.D.C. 2007) .................................................................................. 36

Public Citizen, Inc. v. Office of Management and Budget,

598 F.3d 865 (D.C. Cir. 2010) ............................................................................................ 8



5/47

iv

Quarles v. Dept of Navy,

893 F.2d 390 (D.C. Cir. 1990) .......................................................................................... 10

Rockwell Intl Corp. v. Dep't of Justice,

235 F.3d 598 (D.C. Cir. 2001) .......................................................................................... 14

Ryan v. DOJ,

617 F.2d 781 (D.C. Cir. 1980) ............................................................................................ 5

Soucie v. David,

448 F.2d 1067 (D.C. Cir. 1971) .......................................................................................... 6

Tax Analysts v. IRS,

410 F.3d 715 (D.C. Cir. 2005) .......................................................................................... 41

Tigue v. U.S. Dept of Justice,

312 F.3d 70 (2d Cir. 2002).................................................................................................. 7

United States v. AT&T Co.,

642 F.2d 1285 (D.C. Cir. 1980) ........................................................................................ 14

United States v. Thompson,

562 F.3d 387 (D.C. Cir. 2009) .......................................................................................... 14

Washington Post v. U.S. Dept of Health and Human Svcs.,

690 F.2d 252 (D.C. Cir. 1982) .......................................................................................... 32

Wolfe v. Dept of Health and Human Services,

839 F.2d 768 (D.C. Cir. 1988) .......................................................................................... 10

Young v. CIA,

972 F.2d 536 (4th Cir. 1992) ............................................................................................ 37

STATUTES5 U.S.C. 551(2) ............................................................................................................................ 5

5 U.S.C. 552(a)(4) ...................................................................................................................... 37

5 U.S.C. 552(b)(4) ..................................................................................................................... 26

12 U.S.C. 1844(c) ...................................................................................................................... 20

12 U.S.C. 248(a) ........................................................................................................................ 20

12 U.S.C. 325 ............................................................................................................................. 20



6/47

1

PRELIMINARY STATEMENT

In this Freedom of Information Act case, Plaintiff Vern McKinley seeks

various documents related to the March 14, 2008 decision by Defendant Board of

Governors of the Federal Reserve System (Board or Federal Reserve)toauthorize the extension of a loan to Bear Stearns & Co. (Bear Stearns) through

JP Morgan Chase & Co. The Board produced various documents, and withheld

others in whole or in part pursuant to pursuant to Exemption(s) 5, 8, and/or 4.

Plaintiff challenges each and every claim of exemption the Board asserts.

The documents withheld consisted largely of e-mails and documents

exchanged between the Board and the Federal Reserve Bank of New York

(FRBNY) in the period of time immediately preceding the Boards March 14,

2008 decision to authorize a loan to Bear Stearns. Regarding Exemption 5,

Plaintiff advances three primary arguments. First, Plaintiff argues that materials

exchanged by or communications between the Board and the FRBNY do not

qualify as inter-agency or intra-agency memoranda because the FRBNY is a

private corporation, not an agency. In so arguing, Plaintiff fails to acknowledge

that the D.C. Circuit has repeatedly construed Exemption 5 to cover advice,

opinions, and recommendations provided to an agency by personnel or entities

outside the agency under the consultant corollary to Exemption 5, which applies



7/47

2

to this case. Second, Plaintiff argues that the Board has improperly withheld

purely factual information, such as the names of financial institutions with

exposure to Bear Stearns and the amount of such exposure. This argument, too, is

mistaken, as it fails to perceive that the very act of the Board (or in certain cases,

the Securities & Exchange Commission) reaching out to request specific financial

information from specific institutions was itself a part of the deliberative process.

Third, Plaintiff argues that certain memoranda could not have been pre-decisional

or deliberative as they were created after the Boards decision on March 14. The

Boards declarations make clear, however, that these documents contained

arguments that were presented to the Board in advance of, and in conjunction with,

its decision to authorize the Temporary Loan, and were only committed to writing

later because of the exigencies of time in the days and hours leading up to the

March 14 Board meeting.

Regarding the Boards Exemption 8 assertions, Plaintiff essentially ignores

both the law and the facts. He addresses none of the Exemption 8 case law the

Board cited that binds this Court, nor does he credit the various declarations

explaining the basis for the Boards Exemption 8 assertions. Instead, he launches

what amounts to a policy attack on the exemption itself, claiming that the Boards

withholding are overbroad and inimical to the policy goals that animate FOIA.



8/47

3

Neither Exemption 8s text, nor caselaw applying Exemption 8, nor the pertinent

legislative history provide any support for Plaintiffs assertion.

The Board also withheld certain confidential commercial information

pursuant to Exemption 4. On this front, the parties dispute is whether the Federal

Reserve has met its burden to show that the withheld information was privileged

or confidential and thus exempt from FOIA. With respect to information

voluntarily provided by firms the Federal Reserve does not supervise, the Federal

Reserve demonstrated that the withheld information was of a kind that would

customarily not be released to the public by the person from whom it was

obtained. Critical Mass Energy Project v. Nuclear Reg. Commn, 975 F.2d 871,

879 (D.C. Cir. 1992). As to material provided on a compulsory basis by financial

institutions the Federal Reserve does supervise, the Board demonstrated that it

could show that disclosure would likely impair the Boards ability to gather such

information in the future. Accordingly, the Board has met its Exemption 4 burden

under the impairment test ofNational Parks and Conservation Association v.

Morton, 498 F.2d 765, 770 (D.C. Cir. 1974).

Finally, although Plaintiff strenuously attempts to identify purported

deficiencies in or inconsistencies between the Boards declarations and Vaughn



9/47

4

index, review of these documents makes clear that the Board has met its burden to

sustain its withholding determinations.

ARGUMENT

I. THE BOARDS EXEMPTION 5 ASSERTIONS ARE PROPER1

A. The Board Properly Asserted Exemption 5 For All Of The

Withheld Material At Issue

1. Communications Between the Board And The FRBNY

Constitute Intra-Agency Communications

In our opening brief (FR Br.), we established that Exemption 5 of FOIA

applies to all of the documents withheld in this case, consisting largely of e-mails

and documents exchanged in the period of time immediately preceding the Federal

Reserve Boards March 14, 2008 decision to authorize a loan to Bear Stearns,

because they discussed data gathered by Board and FRBNY examiners

concerning financial institutions the Board was supervising at that time and these

institutions exposure to Bear Stearns. FR Br. at 14. This information was

gathered for, communicated to, and discussed by Board members and Board and

FRBNY staff in the days leading up to the Boards decision to authorize the

Temporary Loan because it bore on the significant issue of the potential

1Because the Board has asserted Exemption 5 for every document the withholding of which

Plaintiff has challenged, this Court need not reach the Boards alternative Exemption 8 or

Exemption 4 arguments to the extent it sustains the Boards Exemption 5 claims.



10/47

5

consequences of a Bear Stearns bankruptcy on individual financial institutions and

firms and then-fragile financial markets. Id. (quoting Thro Decl., 17). Given

that Plaintiff specifically requested supporting memos or other information that

formed the basis of the Boards conclusions underlying the need for the Temporary

Loan, it is hardly bold that the Board would consider all of this material to be

pre-decisional and deliberative. Cf. Pls. Br. at 28.

Plaintiff responds that materials exchanged by or communications between

the Board and the FRBNY do not qualify as inter-agency or intra-agency

memorandums or letters because the FRBNY is not a government agency, but

instead is a separate and distinct, private corporation. Pls. Br. at 27. However,

the fact that the FRBNY is a person,2

Because Congress apparently did not intend inter-agency or intra-agency

to be rigidly exclusive terms,Ryan v. DOJ, 617 F.2d 781 790 (D.C. Cir. 1980),

the D.C. Circuit has long recognized that Exemption 5 applies to advice, opinions,

and recommendations provided to an agency by personnel or entities outside the

not an agency, does not preclude a

determination that exchanges between the Board and FRBNY qualifies as intra-

agency for Exemption 5 purposes.

2 FOIA generally defines person to include[] an individual, partnership, corporation,

association, or public or private organization other than an agency. 5 U.S.C. 551(2).



11/47

6

agency. The Government may have a special need for the opinions and

recommendations of temporary consultants, and those individuals should be able to

give their judgments freely without fear of publicity. Soucie v. David, 448 F.2d

1067, 1078 n.44 (D.C. Cir. 1971) (holding that report created for agency by

outsider should therefore be treated as an intra-agency memorandum of the

agency which solicited it). Because such expert advice can play[] an integral

function in the governments decisionmaking,Hoover v. Dept. of the Interior,

611 F.2d 1132, 1138 (5th Cir. 1980), it is clearly preferable that [agencies] enlist

the help of outside experts skilled at unraveling their knotty complexities. CNA

Fin. Corp. v. Donovan, 830 F.2d 1132, 1162 (D.C. Cir. 1987). For this reason,

courts in this jurisdiction have repeatedly upheld Exemption 5 assertions generated

by a wide range of outside consultants and experts. See, e.g.,Badwar v. U.S. Dept

of the Air Force, 829 F.2d 182, 184-185 (D.C. Cir. 1987) (upholding Exemption 5

assertion to material furnished by outside contractors); CREW v. U.S. Dept. of

Homeland Sec., 514 F. Supp. 2d 36, 44 (D.D.C. 2007) (documents prepared for

FEMA by contractors protected by Exemption 5);Natl Institute of Military Justice

v. U.S. Dept. of Defense, 512 F.3d 677, 681 (D.C. Cir. 2008) (Exemption 5

extends to documents received from private, nongovernmental parties.).3

3 Other courts have reached the same result. See, e.g., Tigue v. U.S. Dept of Justice, 312 F.3d

These



12/47

7

cases make clear that Plaintiffs proffered interpretation of Exemption 5 is directly

contrary to binding D.C. Circuit precedent, and therefore must be rejected.

Here, the FRBNY acted as a lender in the transaction and provided data and

analysis to the Board to assist in its decision on how best to respond to the rapidly

deteriorating financial situation at Bear Stearns. Stefansson Decl., 8, 12; Thro

Decl., 19.4

2. The Board Properly Withheld Documents Under

Exemption 5 Because These Documents Are Predecisional

And Deliberative

Because the FRBNY was acting as a consultant to the Board in

responding to news of Bear Stearns impending bankruptcy, communications

between the Board and FRBNY staff are intra-agency and protected by

Exemption 5.

Contrary to Plaintiffs argument, Pls. Br. at 30, Exemption 5 does not

require defendant to establish that disclosure would injure the agencys

deliberations. Rather, as Plaintiff concedes, see Pls. Br. at 28, to come within the

deliberative process privilege under Exemption 5, the Board need only show that

the withheld material was predecisional and deliberative. Public Citizen, Inc.

70, 77-78 (2d Cir. 2002), cert. denied, 538 U.S. 1056 (2003) (recognizing that agencies mayrequire assistance from outside consultants in formulating policy .).

4AccordPls. Br. at 3 (describing regional reserve banks, including the FRBNY, as the

operational arm of the nations central banking system).



13/47

8

v. Office of Management and Budget, 598 F.3d 865, 874 (D.C. Cir. 2010). These

standards are easily met here.

First, the materials withheld were unquestionably part of the Boards

deliberative process regarding the Temporary Loan determination. Ms.

Stefanssonwho was present at the meeting at which the Board decided to

authorize the FRBNY to make the Temporary Loanstates that Board members

and staff considered this information in making the decision to authorize the

Temporary Loan to Bear Stearns. Stefansson Decl., 11; see also Thro Decl.,

17-19. Based in part on this information, the Board determined that a sudden,

disorderly failure of Bear Stearns would have had unpredictable, but severe,

consequences on the functioning of financial markets. Id., 10.

The fact that some of the documents were prepared after the Boards

decision does not alter the conclusion that they are pre-decisional. Documents

26, 27, 29, and 34 consist of draft memoranda, and comments on one of them,

created shortly after the March 14 decision that set down on paper the arguments

presented orally by staff to the Board regarding the decision taken. Ms. Thros

declaration explains that the author based these memoranda on his participation in

telephone calls that occurred on the evening of March 13 and the early morning of

March 14, 2008, involving Board and Reserve Bank officials and staff, and which



14/47

9

led to the Boards decision to authorize the Temporary Loan. Thro Decl. 19.

The documents were prepared after the fact because of the extremely compressed

time period in which the Board acted, but they reflected the deliberations that

occurred before that decision. The same is true for Documents 35 and 36, which,

as attested to by Ms. Stefansson, recount and summarize information and

arguments presented to the Board before the decision but which, because of the

exigencies of time, were only set down on paper afterwards. Stefansson Decl.

12. Because these documents recount arguments and information provided to the

Board as part of its deliberations, they are clearly pre-decisional and deliberative

despite the fact that they were created after the decision itself. See Elec. Priv. Info.

Ctr. v. DHS, No. 1:04cv1625 (D.D.C.) (Dec. 22, 2006) (Dkt. # 21) (e-mail

generated after agency decision that recounted deliberations preceding decision

deemed pre-decisional and protected by Exemption 5);N. Dartmouth Prop., Inc. v.

HUD, 984 F. Supp. 65, 68 (D. Mass. 1997) (protecting under Exemption 5

document generated after the agencys decision was made, but which nonetheless

reiterated the agencys pre-decisional deliberations).



15/47

10

3. The Board Properly Withheld Factual Material That Was

Itself Deliberative

The Board noted in its opening brief that material withheld under the

deliberative process privilege includes certain factual material that is itself is

deliberative. See FR Br. at 15 (citing Thro Decl., Ex. F, Item 8) As we showed,

under established D.C. Circuit precedent, factual material falls within the

deliberative process privilege if disclosure would expose an agencys

decisionmaking process in such a way as to discourage candid discussion within

the agency and thereby undermine the agencys ability to perform its functions.

Quarles v.Dept of Navy, 893 F.2d 390, 392 (D.C. Cir. 1990) (quotingDudman

Communications Corp. v.Dept of Air Force, 815 F.2d 1565, 1568 (D.C. Cir.

1987)). The D.C. Circuit has recognized that courts cannot mechanically apply

the fact/opinion test. Instead, we must examine the information requested in light

of the policies and goals that underlie the deliberative process privilege. Wolfe v.

Department of Health and Human Services, 839 F.2d 768, 774 (D.C. Cir. 1988).

Here, to the extent withheld material could be characterized as factual, it

very plainly reveals the Boards decisionmaking process in such a way that would

discourage candid discussions, thereby undermining the Boards ability to perform

its functions. For example, Vaughn index Item 8 describes the Boards



16/47

11

withholding of the identities of two financial firms and one regulated financial

institution . Thro Decl., Ex. F, Item 8). The Board withheld these names

because they reveal[] the identities of institutions that FRS staffconsidered to be

systemically important or whose failure could have systemic consequences to the

financial system . . . . Id. (emphasis added). In other words, there were certain

financial institutions whose failure (possibly prompted by a Bear Stearns

bankruptcy) the Board believed could have ripple effects across the financial

system at large. The possible impact of a Bear Stearns bankruptcy on these

institutions played an important part in the Boards deliberations leading to its

decision to authorize the Temporary Loan, see Stefansson Decl., 8, and revealing

their names would be tantamount to revealing the Boards decision making

process.

Plaintiff argues that the Board simply has not demonstrated that disclosure

of the factual material at issuefinancial statistics, pricing and exposure data, and

the identities of various financial institutionsby itself will reveal any

deliberations or judgment calls by Board officials. Pls. Br. at 29. But this is

precisely what the Board has demonstrated. The work of Board and FRBNY staff

in reaching out and culling certain financial statistics and exposure data, and the

identities of certain financial institutions, for consideration by the Board from the



17/47

12

mass of data available to it is itself deliberative. As the D.C. Circuit has observed,

[t]he work of the assistants in separating the wheat from the chaff is surely just as

much part of the deliberative process as is the later milling by running the grist

through the mind of the administrator. Montrose Chem. Corp. of California v.

Train, 491 F.2d 63, 71 (D.C. Cir. 1974).

Moreover, the deliberative nature of this material is determined by the

content of Plaintiffs FOIA request. Plaintiff did not ask for any statistical

information the Board might happen to have about the exposure of firms to Bear

Stearns, but rather for information detail[ing] the expected contagion that

would result from a Bear Stearns bankruptcy and supporting the Boards

conclusion that the Temporary Loan was necessary to mitigate serious harm to

the economy. Thro Decl., Ex. A (FOIA request quoting minutes of Board

meeting). In other words, Plaintiff asked for supporting materialsfactual or

notunderlying the Boards decision. The D.C. Circuit has held that, where the

requester asked not for particular factual material, but for the draft in which [he]

thought the material could be found, materials that might be factual in another

context are plainly deliberative and protected by Exemption 5. Dudman, supra,

815 F.2d at 1569. Here, the Plaintiff asked for materials supporting the Boards

decision to authorize the Temporary Loan, and cannot now characterize as



18/47


19/47

14

Moreover, the D.C. Circuit has recognized that attorney work product may

be shared with third parties without waiver of the privilege, [s]o long as transferor

and transferee anticipate litigation against a common adversary on the same issue

or issues . United States v. AT&T Co., 642 F.2d 1285, 1299 (D.C. Cir. 1980).

Common interest should not be construed as narrowly limited to co-parties. Id.

Rather, disclosure waives work product privilege only if such disclosure, under

the circumstances, is inconsistent with the maintenance of secrecy from the

disclosing partys adversary. United States v. Thompson, 562 F.3d 387, 393

(D.C. Cir. 2009) (quotingRockwell Intl Corp. v. Dept of Justice, 235 F.3d 598,

605 (D.C. Cir. 2001). Here, where the Board and the FRBNY were working

together in anticipation of litigation against one or both of them relating to their

shared responsibilities, there is no basis to argue that the Board cannot assert the

work product privilege over the FRBNYs draft affidavit. As the Fourth Circuit

has correctly observed in sustaining an attorney work product assertion pursuant to

FOIA Exemption 5:

The government has the same right to undisclosed legal advice in

anticipation of litigation as any private party. And there is nothing in

FOIA that prevents the government from drawing confidential counsel

from the private sector. Allowing disclosure here would impair anagencys ability to prepare effectively for litigation with private

parties and thereby thwart its ability to discharge its functions in the

public interest.



20/47

15

Hanson v. U.S. Agency for Intern. Development, 372 F.3d 286, 294 (4th Cir. 2004).

Plaintiff is therefore incorrect that the Board cannot assert attorney work product

over materials generated by FRBNY attorneys in connection with the Temporary

Loan.

Second, Plaintiff argues that the Board has not met its burden to show that

there was some articulable claim, likely to lead to litigation. Pls. Br. at 31

(quoting Coastal States v. Dept of Energy, 617 F.2d 854, 865 (D.C. Cir. 1980)).

It bears repeating that the Boards decision to authorize extension of the

Temporary Loan to support a non-depository institution marked an extraordinary

departure from its traditional role of lending to banks and facilitating inter-bank

lending. Plaintiff, who acknowledges that the Boards action constituted an

extraordinary exercise of long dormant statutory authority, Pls. Br. at 2;

Compl. 14-15, nonetheless maintains that the Federal Reserve had no reasonable

fear that its actions would likely lead to litigation. In specific part, Plaintiff argues

that it does not seem likely that the shareholders of Bear Stearns, whose

investments would have been rendered completely worthless if the company had

declared bankruptcy on the morning of March 14, 2008, would sue the FRBNY,

much less the Board . . . for authorizing an emergency loan to Bear Stearns. Pls.



21/47

16

Br. at 31-32. However, as non-exempt information provided to the Plaintiff shows,

stockholders of Bear Stearns had filed several lawsuits in March 2008 in the

Delaware Court of Chancery and in the Supreme Court of the State of New York

seeking to enjoin JP Morgan, Chase & Co.s merger with Bear Stearns. (See

Attachment A, Joint Brief in Support of Defendants Motion to Dismiss or Stay

Delaware Actions). Indeed, the brief from the Delaware Chancery litigation

provided to the Plaintiff specifically mentions critical actions by the Federal

Reserve Bank of New York that led to the merger. Id. at 09-0164-000220. As a

result, it was entirely reasonable for the Board to anticipate that it, and/or the

FRBNY, might be drawn into litigation by Bear Stearns shareholders, and to

prepare for the possibility of litigation.

Furthermore, as Ms. Thro stated in her declaration, the Boards concerns

were not limited to lawsuits initiated by Bear Stearns shareholders against the

FRBNY or the Board.5

5 The Board and the FRBNY are frequently third parties to litigation that bears some relation to

the Boards exercise of its statutory authority and responsibilities. The Delaware shareholderlitigation referenced above is one possible example of the Board/FRBNYs involvement in

litigation as a third party. Accordingly, Plaintiff wrongly presumes that the Boards concernswere limited to concerns about lawsuits in which the Board might be a party (i.e., in a lawsuit

filed by Bear Stearns shareholders against the Board or the FRBNY).

The Boards concerns extended more broadly to possible

litigation stemming from the Boards decision to authorize the Temporary Loan.

Thro Decl., 22. These concerns were well grounded: Having decided to exercise



22/47

17

its authority to extend financial assistance to private parties again after 75 years,

the Board reasonably feared that any future decision not to extend financial

assistance to other entities who requested financial assistance would likely

engender litigation.

II. THE BOARDS EXEMPTION 8 ASSERTIONS ARE PROPER

As explained at pages 22-26 of our opening brief, in addition to being

exempt under Exemption 5 (and sometimes 4), the Federal Reserve withheld under

FOIA Exemption 8 thirteen e-mails or tables (or portions thereof) that contained

information furnished to the Board (or SEC) by financial institutions regulated by

those agencies pursuant to their supervisory authority. See Thro Decl., 17-18

and corresponding Vaughn index entries.6

The Board created or obtained these

documents as part of its continuous supervision of institutions it supervised, in

the hectic days and hours during which the Board and its staff strove to assess the

impact of a possible disorderly failure of Bear Stearns. See Stefansson Decl., 4-

5, 15; Thro Decl., 17.7

6 As discussed in FR Br. at 24-25 and the Winter and Danis Declarations, the SEC separately

withheld documents obtained in connection with its supervision and regulation of Bear Stearns.See Thro Decl., Ex. F (Items 10 and 11); Declaration of Michelle A. Danis, 4-5 (Attachment

C).

The Board therefore properly withheld the information

7 As we explained in our opening brief, the Board withheld within these documents under

Exemption 8 the identity of institutions with exposure to Bear Stearns, the amount of such



23/47

18

pursuant to Exemption 8, which is particularly broad and all inclusive.

Consumers Union of U.S., Inc. v. Heimann, 589 F.2d 531, 533 (D.C. Cir. 1978)).

Notably, although Plaintiff challenges the applicability of Exemption 8, he

does not dispute that the Federal Reserve or the SEC obtained the withheld

information from institutions they supervise through the supervisory process.

Plaintiff also does not dispute the Boards characterization of the days and hours

leading up to the Boards decision to issue the Temporary Loan to Bear Stearns.

See Pls. Br. at 5, n.1 (adopting Boards description of events as fast-moving

[and] real-time). Indeed, Plaintiffs own description of the events leading up to

the Temporary Loan confirms the frenetic pace of activity during this time. See id.

at 5-10, 30 (characterizing this time as a frantic scramble for information).

Plaintiff also concedes, as he must, that Exemption 8 was crafted broadly. Id. at

32. See also FR Br. at 22-23 (discussing D.C. Circuit case law interpreting

Exemption 8).

Plaintiff, however, complains that the Federal Reserve summarily

conclude[ed] that Exemption 8 applies. Pls. Br. at 33. But, in so arguing,

Plaintiff simply ignores those portions of our opening brief and the Stefansson and

exposure, and/or the activities these institutions had taken to limit their exposure to Bear

Stearns. FR Br. at 25 (citing Thro Decl., 17; Stefansson Decl., 15).



24/47

19

Thro Declarations setting forth in detail why Exemption 8 applies. See FR Br. at

23-24; Stefansson Decl., 14-15; Thro Decl. 17. As we explained, Federal

Reserve examiners utilizing the Boards supervision authority obtained

information from various LCBOs regarding their exposure to Bear Stearns, in an

effort to gauge possible impact of a Bear Stearns bankruptcy on regulated financial

institutions. FR Br. at 24 (citing Stefansson Decl., 14). In this way, the Federal

Reserve was receiving, in real-time, examination, operating, or condition reports

about individual supervised institutions and what financial significance a Bear

Stearns failure would have for a given institution and financial markets more

generally. See Stefansson Decl., 8 (one of Boards purposes in surveying

supervised institutions was to gauge impact of Bear Stearns bankruptcy on

individual LBCOs and smaller institutions supervised by the Board). The

collective benefit of this information enabled the Federal Reserve to understand on

a broader level the potential implications of a Bear Stearns failure. See id., 8

(Board members and Board staff were concerned about the effects a Bear Stearns

bankruptcy would have on financial markets given the prominent position of Bear

Stearns in those markets.); id., 6-7 (discussing prospect of risk of widespread

insolvencies and severe and protracted damage to the financial system and,

ultimately, to the economy as a whole). Accordingly, Plaintiffs assertion that the



25/47

20

Federal Reserve fails to provide any basis in fact for its Exemption 8 assertions

is demonstrably incorrect. Pls. Br. at 34.

Plaintiff also complains that the Board does not specify the statute or

regulations under which the Board or SEC is authorized to prepare or receive such

reports. Pls. Br. at 33 n.12. The Boards statutory authority to supervise and

regulate certain types of financial institutions is broad and delineated in several

sections of the Federal Reserve Act, the Bank Holding Company Act, and other

statutes.8

8See, e.g., 12 U.S.C. 248(a), 325 (authorizing examinations of state member banks); 12

U.S.C. 1844(c)(1)(A), (c)(2)(A) (authorizing examinations and reports from bank holding

companies).

This authority is not tied to a specific format or frequency of report, as

Plaintiff argues, Pls. Br. at 34, but enables the Board to require such statements

or reports as it may deem necessary . 12 U.S.C. 248(a) (emphasis added). As

shown above, by requiring supervised financial institutions (LCBOs) to provide

information about their exposure to Bear Stearns, the Board was requiring reports

regarding their financial condition and risks they faced in the event of a Bear

Stearns bankruptcy. As described by Ms. Stefansson, Board members and staff

were concerned about the impact a Bear Stearns bankruptcy filing would have on

individual LCBOs and smaller institutions supervised by the Board . [and] in

accordance with well-established supervisory processes surveyed the LCBOs



26/47

21

for purposes of assessing the LCBOs real-time exposures to Bear Stearns.

Stefansson Decl., 8. The Boards receipt of real-time reports from supervised

financial institutionsreflected in the withheld emails and attachmentsfalls well

within the broad protections afforded by Exemption 8. Gregory v. Fed. Deposit

Ins. Corp., 631 F.2d 896, 898 (D.C. Cir. 1980) (Congress looked to the nature and

source of the material and determined to provide absolute protection regardless of

the circumstances underlying the regulatory agencys receiptor preparation of

examination, operating or condition reports) (emphasis added).

In the absence of legal authority, Plaintiff retreats to what amounts to a

policy argument. Plaintiff argues that it appears that the Board is claiming that

any financial information it obtains in its supervisory capacity from or about any

financial institution necessarily constitutes or relates to a report for purposes of

Exemption 8. Pls. Br. at 34. This expansive definition of report, Plaintiff

argues, cannot be what Congress intended. Id. Plaintiff is wrong.

Congress designed Exemption 8 to insure the security and integrity of

financial institutions, for the sensitive details collected by Government agencies

which regulate these institutions, if indiscriminately disclosed, cause great harm.

H.R. Rep., 89th Cong., 2nd Sess., No. 89-1497, at 32 (1966) (emphasis added).

Exemption 8 would be unduly limited if, as Plaintiff urges, the sensitive details



27/47

22

(i.e., non-public financial data) supervised institutions provided to the Federal

Reserve were not protected unless they were contained in or referenced by a

document with the word REPORT stamped at the top. See Pls. Br. at 34 n.14

(suggesting that Exemption 8 does not apply unless the Federal Reserve uses

specific report forms). It is therefore unsurprising that courts in this jurisdiction

have rejected the argument that Exemption 8 does not apply to material that is

factual in nature. SeeBloomberg, L.P. v. SEC, 357 F.Supp.2d 156, 170 (D.D.C.

2004) (rejecting distinction between factual versus analytical or deliberative

material, sustaining withholding of material argued to be simply factual in

nature).

Any doubt that Exemption 8 applies to the information at issue here is put to

rest byHeimann, supra, which concerned a FOIA request for documents

submitted to the Comptrollers Office by national banks concerning the banks

compliance with the Truth-in-Lending Act and any analysis or summary by the

Office of the Comptroller of those documents. 589 F.2d at 532. Although the

request did not seek a specific document labeled Report, and the withheld

materials included documents and answers submitted by regulated banks to the

OCC, see id. at 537 n.10 (Wright, C.J., concurring), as well as the OCCs own

analyses, the D.C. Circuit held the wording of exemption 8 leaves no doubt that



28/47

23

the documents in issue fit precisely and exactly within the statutory definition. Id.

at 533. Not only did the D.C. Circuit nottie Exemption 8 to any specific document

labeled Report, but it held that Exemption 8s broad ambit extends to both

documents and materials submitted by regulated entities and regulators analyses

of those submissions.

Both Exemption 8s text and legislative history support the Federal

Reserves argument that financial information it obtains through the supervisory

process from institutions it supervises is exempt from disclosure under FOIA.

Indeed, the D.C. Circuit has held that it is clear from the legislative history that

Exemption 8 was drawn to protect not simply each individual bank but the

integrity of financial institutions as an industry. Gregory, supra, 631 F.2d 898

(emphasis added). The Bear Stearns situation, where the Board was concerned not

only with contagion to individual institutions but the industry as a whole,

Stefansson Decl., 8, falls squarely within the zone of interests Congress intended

to protect in enacting Exemption 8.

Given that one purpose of Exemption 8 is to safeguard the relationship

between the banks and their supervising agencies,Heimann, 589 F.2d at 534, an



29/47

24

expansive interpretation of Exemption 8 makes sense.9

In the end, Plaintiffs Exemption 8 arguments are most notable for what they

do not say. Plaintiff does not even attempt to explain what Congress intended the

scope of Exemption 8 to be (though he concedes that it is broad), nor does he

explain why an exemption the D.C. Circuit has described as particularly broad

If details of the bank

examinations were made freely available to the public and to banking competitors,

. . . banks would cooperate less than fully with federal authorities. Id. It is

therefore unsurprising that courts in this circuit have repeatedly construed

Exemption 8 so as not to threaten the free exchange of information the exemption

seeks to foster. SeeNatl Community Reinvestment Coalition v. Natl Credit

Union Admin., 290 F.Supp.2d 124, 135-36 (D.D.C. 2003) (observing that one

purpose of Exemption 8 is to to ensure that [banks] continue to cooperate . . .

without fear that their confidential information will be disclosed.) (citing

Heimann, supra, 589 F.2d at 534; Gregory, supra, 631 F.2d at 899 (observing that

Exemption 8 must be construed to ensure frank cooperation between bank

officials regulating entities). Plaintiff does not even attempt to argue otherwise,

nor could he credibly do so.

9Heimann finds firm support in FOIAs legislative history. See S. Rep. No. 89-813 at 45 (1965)

(stating that Exemption 8 is directed specifically to insuring the security of our financial

institutions).



30/47

25

and all inclusive does not apply in this case. Plaintiff does not addresslet

alone distinguishany of the Exemption 8 cases the Federal Reserve cited. For

his part, Plaintiff cites not a single Exemption 8 case. Unsupported by law or

logic, Plaintiff asserts that Exemption 8 is not as broad as the Federal Reserve

would construe it, and somehow concludes from this that the Federal Reserves

Exemption 8 claims should be denied. Either unwilling or unable to articulate

what Congress actually intended regarding Exemption 8, Plaintiffs argument is

essentially that Congress intended some interpretation that results in Plaintiff

getting the documents he wants.

The D.C. Circuit has recognized that in its current form, the meaning of

exemption 8 [is] clear, and therefore Exemption 8s broad, all-inclusive scope

should be applied as written since Congress had intentionally and unambiguously

so contemplated.10

10 Rejecting the argument that an expansive interpretation of Exemption 8 runs counter to the

spirit of FOIA, the D.C. Circuit observed in 1978 that Congress had not amended FOIA in thetwelve years following its enactment. Heimann, 589 F.2d at 535. To the D.C. Circuit, Congressinaction was significant. Id. As Congress has not amended Exemption 8 in the 32 years sinceHeimann, Congress inaction is even more noteworthy today.

Gregory, supra, 631 F.2d at 898 (quotingHeimann, 589 F.2d

at 535). As the D.C. Circuit has found, Congress has left no room for a narrower



31/47

26

interpretation of exemption 8,Heimann, 589 F.2d at 535, and the Federal Reserve

is therefore entitled to the absolute protection Exemption 8 affords. Id. at 533.

III. THE BOARDS EXEMPTION 4 ASSERTIONS ARE PROPER

In the alternative, the Federal Reserve declined to produce the identities of

financial institutions and/or their exposure to Bear Stearns, as well as bid/ask

spreads in select repo markets pursuant to FOIA Exemption 4. The dispute

between the parties over the application of this exemption is narrow. Plaintiff does

not contest that the financial institutions that furnished this information have a

commercial interest in it, nor does he challenge that these institutions qualify as

persons under FOIAs broad definition. See FR Brief at 20; Pls. Br. at 20-26.

Plaintiff argues only that the Federal Reserve has not met its burden to show that

the information was privileged or confidential and thus exempt from FOIA. See

5 U.S.C. 552(b)(4).

The Federal Reserves Exemption 4 burden differs based on whether

information was provided on a compulsory or a voluntary basis. For information

provided on compulsory basis, the Federal Reserve must show either that release of

the information would likely cause substantial harm to the competitive position

of the institution that furnished the information or likely impair the ability to gather

such information in the future,Natl Parks and Conservation Assn v. Morton, 498



32/47

27

F.2d 765, 770 (D.C. Cir. 1974) (footnote omitted) (National Parks I). For

information provided voluntarily, however, the Federal Reserve need only show

that the information provided is of a kind that would customarily not be released

to the public by the person from whom it was obtained. Critical Mass Energy

Project v. Nuclear Reg. Commn, 975 F.2d 871, 879 (D.C. Cir. 1992). FR Br. at

19-20.

A. The Boards Exemption 4 Assertions Were Proper As To

Material Provided By Firms Outside The Supervisory Context

The Federal Reserve is entitled to summary judgment on its Exemption 4

withholdings as to information provided voluntarily to the Board outside of the

supervisory context.11

11

Plaintiff complains that it is not at all clear which information the Board is claiming was

provided voluntarily and which allegedly was provided involuntarily. Pls. Br. at 21. The

distinction, which is evident from the Boards declarations, relates to whether or not the Boardhas supervisory authority over the submitter of the information. As explained in FR Br. at 20-21,

the Board compelled financial entities it regulated to produce data regarding their financial

exposure to Bear Stearns. For this mandatory information, enumerated in Thro Decl., 17 andStefansson Decl., 14 (Items 4, 5, 6, 9, 10, 13, 17, 18, 21, 22, and 24), the Board met its

Exemption 4 burden underNational Parks Iby showing disclosure is likely to impair the

Boards ability to obtain such information in the future. FR Br. at 20-21 (and citations therein).Ms. Stefanssons declaration specifically stated that the information in those enumerated items

identified above was required to be provided by the institutions that provided it. Stefansson

Decl., 15. The Board also stated the self-evident proposition that to the degree th[is]information could be said to be provided voluntarily ., the Board had met the lower burden

of showing the information was exempt under the Critical Mass test. FR Br. at 21.

As the Federal Reserve stated in our opening brief, certain

The Thro Declaration identifies specifically those documents containing information provided to

the Board on a voluntary basis. See Thro Decl. at 20-21 (enumerating Items 7, 14, 15, 20, 30,31, 32, 37A, 37B, and 38 as containing information provided on a voluntary and strictly

confidential basis or pursuant to voluntary contracts with FRBNY). For this information



33/47

28

firms not supervised by the Boardvoluntarily produced to the Board

information regarding their financial exposure to Bear Stearns, Thro Decl., 20,

and two institutions voluntarily provided proprietary information regarding bid/ask

spreads in select repo markets. Id., 21. FR Br. at 22 (emphasis added). In this

regard, Plaintiff inexplicably argues that the Board does not claim that any of

these items are of a kind that would customarily not be released to the public by

the person from whom it was obtained. Pls. Br. at 26. The Thro Declaration

expressly states that these market participants do not customarily disclose this

type of information to the public. See Thro Decl., 20 (explaining Exemption 4

basis for documents 7, 14, 15, 20, 30, 31 and 37A); see also id. at 21 (explaining

that Items 32 and 37B were obtained on a voluntary basis pursuant to contracts that

required the information provided be kept confidential). Citing the Declaration of

Dr. Jean Helwege, Plaintiff argues that haircuts on the repos must be incorporated

voluntarily provided by entities not supervised by the Board , the Board met its burden

under Critical Mass of showing the information would not customarily be released to the public

by the submitters. FR Br. at 22. Item 33 on the Vaughn index also meets the Critical Mass testfor information voluntarily provided to the government, and is described in the Vaughn index,

but not the Thro Declaration. As described in the Vaughn index (and released portions of the

document), Item 33 consists of two paragraphs of an e-mail from an FRBNY attorney to Boardattorneys describ[ing] the method by which FRS staff obtains confidential financial information

from a subset of primary dealers. Thro Decl., Ex. F, Item 33. That information was supplied toFRS staff on a voluntary basis on the condition that the information would be kept

confidential [and the information is] not customarily disclosed to the public by thesubmitter. Id. As noted infra, page 39, Item 12 (for which exemption 4 is not claimed on theVaughn index) was mistakenly listed in 20 of the Thro Declaration.



34/47

29

into the [net asset value] and thus they are already available to the funds

shareholders. Helwege Decl. at 20.12

First, as evidenced by her use of the term customarily available, Dr.

Helwege wrongly conflates the issue of whether the information withheld is

publicly available with whether the information is customarily disclosed,

issues that are entirely distinct. Center for Auto Safety v. Natl. Highway Traffic

Safety Admin., 244 F.3d 144, 151 (D.C. Cir. 2001); Parker v. Bureau of Land

Management, 141F. Supp. 2d 71, 79 (D.D.C. 2001) (Huvelle, J.) (citingAuto

Safety). Plaintiff seeks disclosure of information on the ground that such

information is already publicly available. As the party favoring disclosure,

Plaintiff has the burden of demonstrating that the information sought is identical

to information already publicly available. Parker, 141 F. Supp. 2d at 79 (quoting

Auto Safety, 244 F.3d at 151) (emphasis in original). Plaintiffs argument based on

Consequently, Plaintiff argues, this

information is customarily available to competitors and the public and its release

would not harm shareholders. Id. This argument is flawed for at least two

reasons.

12

In plain English, Dr. Helwege is referring to repurchase agreements (called repos for short)by which financial institutions often fund themselves. Under these agreements, a borrower sels a

security to a lender for case, and simultaneously agrees to buy the same security back at a fixedprice at a fixed later date. The haircut Dr. Helwege refers to is the discount from market value

the buyer of the asset is willing to give in the repo transaction. AccordHelwege Decl. 5-8.



35/47

30

net asset value fails: A funds net asset value reflects the aggregate value of the

funds holdings; it does not reveal the value of each (or any) individual asset. See

http://www.sec.gov/answers/nav.htm (net asset value is a companys total assets

minus its total liabilities). Because Plaintiff has not met his burden to show that

the identical material he seeks is publicly available, Plaintiffs challenge to the

subset of Exemption 4 material provided outside the supervisory context fails.13

Second, and setting aside the public availability/customary disclosure

distinction, Plaintiff incorrectly frames the issue as whether the financial industry

as a whole ordinarily releases this information, rather than whether these specific

financial institutions whose information was withheld disclose such information

customarily. Helwege Decl. at 20. The Court must look at [specific firms]

customary treatment of this information, rather than how the industry as a whole

treats it. Parker, at 141 F. Supp. 2d at 79 (citingAuto Safety, 244 F.3d at 148). It

is therefore irrelevant what other firms customarily disclose; all that matters is that

these market participants do not do so. Thro Decl. at 20 (emphasis added).

14

13

The same is true regarding Item 22. Although Plaintiff has identified a publicly-availabledocument that appears to contain similar information to that described for that item, Pls. Br. at

41, the information is not in fact the same, and as Ms. Stefanssons declaration attests, the Boardobtained the withheld information in Item 22 through the supervisory process and not through

this publicly available source. See Stefansson Decl., 14.

14 In addition to being legally irrelevant, Dr. Helweges assertion is also incorrect. See

Stefansson Decl., 15. (Supervised institutions frequently provide supervisors with detailed,



36/47

31

On this issue, neither Plaintiff nor Dr. Helwege have offered anything to rebut the

Federal Reserves evidence. Accordingly, the Federal Reserves Exemption 4

claim must be sustained as to Items 7, 14, 15, 20, 30-33, 37A, 37B, and 38.

B. The Board Has Met Its Exemption 4 Burden Regarding

Confidential Commercial Information The Federal Reserve

Received From Supervised Financial Institutions

The Federal Reserve withheld, pursuant to Exemption 4, the identities of

financial institutions and/or their exposure to Bear Stearns, as well as bid/ask

spreads in select repo markets. The Federal Reserve can prevail by showing either

that releasing such material (i) would likely impair the Federal Reserves ability to

gather such information in the future; or (ii) would likely cause substantial

competitive harm to the institution whose information was disclosed.Natl Parks

and Conservation Assn v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974).

The Federal Reserve demonstrated that releasing the withheld information

would likely impair the Federal Reserves ability to obtain financial information

going forward from institutions it supervises. As Ms. Stefansson explained in her

declaration:

Supervisors rely on the willingness of supervised institutions to

provide full information in order to assure a robust supervisory

environment, and supervised institutions are willing to provide this

highly sensitive commercial informationincluding [information pertaining to these institutions

financial exposure to Bear Stearns]that they do not customarily disclose to the public.).



37/47

32

information because they know that the supervisors will maintain its

confidentiality. . . . It is likely that institutions would be significantly

less willing to provide bank supervisors, including the Board, with

this type of sensitive commercial information if they believed that the

information would be disclosed to the public. Thus, it is my view that

release of the information contained in the documents identified above

. . . could chill the free flow of information between the institutions

and the Board and Reserve Bank.

Stefansson Decl., 15 (emphasis added). Plaintiff dismisses the Federal Reserves

impairment argument out of hand, cavalierly asserting that if, as the Board asserts,

regulated institutions are required to provide information, then their willingness

to provide the information is irrelevant. Pls. Br. at 23. Plaintiff is mistaken: If

compulsion necessarily precluded impairment,National Parks impairment prong

would be meaningless, an impossible test no one could satisfy.

As the D.C. Circuit has recognized, public disclosure is likely to reduce the

quality and reliability even of information that supervised institutions can be

compelled to produce. SeeCritical Mass, 975 F.2d 878 (When 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.);

Washington Post v. U.S. Dept of Health and Human Svcs., 690 F.2d 252, 269

(D.C. Cir. 1982) (despite the compulsory nature of the disclosure, court cannot

dismiss the possibility that submitters might construe . . .[the] disclosure



38/47

33

requirement narrowly and thus may not disclose all possible conflicts of

interest).15

Disclosure would not merely harm the quality of financial information that

supervised institutions would provide, but in all likelihood also the speed with

which they were willing to provide it. If a supervised institution knew (or even

suspected) that the Federal Reserve might disclose information that would likely be

used by the institutions competitors to its detriment, it is only logical that the firm

would, at a minimum, delay releasing this information to the Federal Reserve for

as long as possible. This delay would unquestionably impair the ability of

supervising institutions such as the Federal Reserve to respond to emergent

financial crises promptly and with the benefit of as much reliable, high-quality

information as possible. See Judicial Watch, Inc. v.Export-Import Bank, 108 F.

Supp. 2d 19, 30 (D.D.C. 2000) ([t]he government has a compelling interest in

Indeed, as this Court has recognized, the ability to compel information

does not somehow render voluntary cooperation unimportant. Parker, 141 F.

Supp. 2d 71, 78 n.6 ([I]n certain circumstances an agency may decline to require

information that it has the authority to compel and instead pursue voluntary

compliance.).

15See also Africa Fund v. Mosbacher, 1993 U.S. Dist. LEXIS 7044 at **21-22 (S.D.N.Y. May

26, 1993) (claims that disclosure could not impair agencys ability to obtain required informationignores the reality that confidentiality, which the government has promised, . . . fosters the

provision of full and accurate information.).



39/47

34

ensuring that the information it receives is of the highest quality and reliability, and

disclosure of potentially sensitive commercial and financial information, even

where submissions of information are mandatory, would jeopardize the Banks

ability to rely on any such information that is submitted.) (emphasis added)

Because the Federal Reserve has carried its burden to show that disclosure would

likely impair the Federal Reserves ability to gather information from financial

institutions, it has met its burden under the impairment prong ofNational Parks I,

its Exemption 4 assertions must be sustained.16

IV. PLAINTIFFS OBJECTIONS TO THE BOARDS DECLARATIONS

AND VAUGHN INDEX ARE MERITLESS

Plaintiff is correct that the Federal Reserve must provide a relatively

detailed justification specifically identifying the reasons why a particular

exemption is relevant and correlating those claims with the particular part of a

withheld document to which they apply. Mead Data Central, Inc. v. U.S. Dept of

the Air Force, 566 F.2d 242, 251 (D.C. Cir. 1977). At the same time, the agency

resisting disclosure obviously need not provide detail that, if released, would

defeat[] the purpose of the exemption. Campaign For Responsible

Transplantation v. U.S. Food & Drug Admin., 219 F.Supp.2d 106, 114 (D.D.C.

16 For Exemption 4 purposes, the Board has elected to rely solely on its impairment justification

for information obtained from financial institutions the Board supervises.



40/47

35

2002). Additionally, there is no set format for an [Vaughn] index. Id. Here,

Plaintiffs complaints notwithstanding, the Boards submissions provide an

adequate basis for the parties and the Court to assess the Boards basis for

withholding, and thus meet the Boards obligations under Vaughn and its progeny.

On February 1, 2010, the Federal Reserve filed a final Vaughn index which,

together with the Federal Reserves declarations, accurately identifies each

document or portion of a document withheld from disclosure on the basis of a

FOIA exemption, describes the documents or portions withheld, and explains the

basis for the claimed exemption. See Thro Decl. 15.17

The final index lists each

of the 190 pages of material wholly or partially withheld by number, bates range,

date, document type, author and recipient, subject, and exemption claimed, and

provides a description of the withheld material and the Federal Reserves basis for

withholding. See Thro Decl., 16 and Ex. F. In some cases, the Federal Reserve

separately describes different types of exempt information appearing on the same

page to provide additional clarity for the Plaintiff and the Court.18

17

TheVaughn

index as filed was revised to address certain matters Plaintiff raised in response toa draft he had been provided in an unsuccessful effort to narrow the issues in this case.

To further

clarify its claims of exemption, the Federal Reserve provided Plaintiff with a

18See Thro Decl., Ex. F (Vaughn index), pp. 6-7 (separately describing material withheld from

different portions of document bates numbered 000008); pp. 17-18 (same for document bates

numbered 0000034); pp. 26-28 (same for document bates numbered 000053).



41/47

36

spreadsheet listing each document on the Vaughn index by document number,

bates range, and exemption claimed. See Thro Decl., Ex. F, FOIA Exemption

Spreadsheet. Additional context is provided by the 168 responsive, non-exempt

pages and 27 partially redacted pages of information provided to the Plaintiff.

Thro Decl., 16.

Thus, the final Vaughn index is accurate and complete, and provides the

reviewing court a reasonable basis to evaluate the [Federal Reserves] claim of

privilege. Gallantv.NLRB, 26 F.3d 168, 173 (D.C. Cir. 1994); accordPeople for

the American Way v.Natl. Park Service, 503 F. Supp. 2d 284, 294 (D.D.C. 2007)

([t]o be adequate, a Vaughn Index must adequately describe each withheld

document or deletion from a released document, and must state the exemption

claimed for each deletion or withheld document, and explain why the exemption is

relevant.) ( internal quotations and citations omitted).

Plaintiffs grievances regarding the Federal Reserves Vaughn index boil

down to two points, neither of which has merit. First, Plaintiff argues the Vaughn

index is inadequate because there are substantial inconsistencies between the

exemptions referenced on the documents provided to the Plaintiff on or around

September 30, 2009 and the final Vaughn index. Pls. Br. at 15. As a result,

Plaintiff argues that claims of exemption referenced on the documents are not



42/47

37

accurate, and Plaintiff and the Court are forced to refer back-and-forth between the

Vaughn index and the documents . Pls. Br. at 16. The differences between the

exemptions listed on the documents provided to the Plaintiff in September 2009

and the final Vaughn index filed in February 2010 are not legally significant. As

Plaintiff concedes, id., the Federal Reserves declarations note that [f]or a small

number of documents, the exemption claimed on the Vaughn index differs from the

exemption listed on the document provided to the plaintiff and the Vaughn index

reflects our final claim of exemption with respect to those documents. Thro

Decl., 15.

Because the FOIA directs district courts to review agency actions de novo, 5

U.S.C. 552(a)(4)(B), an agency is not barred from invoking a particular FOIA

exemption in litigation simply because the exemption was not cited in responding

to the request at the administrative level. Young v. CIA, 972 F.2d 536, 538-39 (4th

Cir. 1992) (an agency does not waive FOIA exemptions by not raising them

during the administrative process). Thus, the Federal Reserve properly made its

final claims of exemption in the Vaughn index filed with the Court, and it is not

bound by its claims of exemption at the administrative level. However, to aid the

Plaintiffs review, the Federal Reserve will provide Plaintiff with a new set of



43/47

38

documents stamped with the exemptions claimed on the final Vaughn index, as the

Plaintiff requests. Pls. Br. at 16.

Second, Plaintiff argues that there are discrepancies between the Vaughn

index and the Federal Reserves declarations that render the Vaughn index

insufficient. Pls. Br. at 17. However, upon comparing the Vaughn index to the

declarations, it is apparent that there are no discrepancies. Rather, the

declarations contain broader descriptions of categories of documents while the

Vaughn index contains more specific information regarding each document or

portion of a document withheld. For example, Plaintiff states that Ms. Thro

describes the various records and information withheld pursuant to Exemption 5,

including Items 7 and 8, as market developments and analyses related to a

potential bankruptcy by Bear Stearns; proposed regulatory responses to the

situation; and arguments and considerations regarding the need for the Temporary

Loan. Pls. Br. at 18 (quoting Thro Decl., 19). Plaintiff argues this is

inconsistent with the Vaughn index entry for item 7, which describes the withheld

information as identities and exposure of several large mutual funds with

exposure to [Bear Stearns], and the Vaughn index entry for Item 8, which

describes withheld information as the identities of two financial firms and one

regulated financial institution. Pls. Br. at 18 (quoting Vaughn index).



44/47

39

There is no inconsistency here. Paragraph 19 of the Thro Declaration

broadly describes some 17 Vaughn index entries as e-mails and attachments

conveying market developments and analyses related to a potential Bear

Stearns bankruptcy and other information. Thro Decl., 19. Among these

market developments was the fact that several large mutual funds (whose names

and amount of exposure were withheld) and two financial firms and one regulated

financial institution (whose names were withheld) had exposure to Bear Stearns or

were considered systemically important by the Board, as described in Vaughn

index Items 7 and 8. The descriptions in the Vaughn index and Thro Declaration

are also supplemented by released portions of the documents, bates numbered

000011-13 (see Attachment B hereto). The only information redacted from these

documents was the names of the mutual funds and institutions and the mutual

funds exposure to Bear Stearns. Thus, Plaintiff can gain background and context

from the documents themselves.19

19

Plaintiff also takes exception to paragraph 20 of the Thro Declaration because it states thatItems 12, 14, and 15 were obtained from market participants on a voluntary and strictly

confidential basis, while the Vaughn index, he argues, does not make clear that this information

was obtained voluntarily under Exemption 4. Pls. Br. at 18. There is no need for thedeclarations and the Vaughn index to repeat each other word for word; the two are meant to be

read together. Moreover, the Vaughn indexs description of Items 14 and 15 as not customarily

released to the public by the submitter makes clear that the Board is claiming Exemption 4under the Critical Mass test for information voluntarily provided to the government. Seesupra,

page 27. Plaintiff is correct that Exemption 4 is not claimed for Item 12 on the Vaughn index,



45/47

40

Plaintiff claims paragraph 13 of the Stefansson Declaration, which lists 14

e-mails and attachments and describes them in general terms, contains similar

deficiencies and inconsistencies. Pls. Br. at 19 (citing Stefansson Decl., 13).

Of the four inconsistencies identified, three (Items 2, 3, and 19) involve

documents in which a limited amount of information is withheld under Exemption

6which Plaintiff is not contesting. Id. The fourth, Item 16, describes 5

sentences redacted from an e-mail on Exemption 5 grounds because they describe

a conversation between the Boards general counsel and a Board staff member

regarding the projected regulatory response to [Bear Stearns] funding position,

and a Board staff members subsequent contact with another federal agency

concerning the situation at [Bear Stearns]. Thro. Decl., Ex. F (Vaughn index),

Item 16. This supplements, but does not contradict, Ms. Stefanssons general

description of this group of e-mails as containing, among other things, information

on the potential impact on institutions of a Bear Stearns bankruptcy .

Stefansson Decl., 13.

The Boards method of supplementing the Vaughn index with additional

information in the declarations and released portions of the documents is perfectly

and that Item was mistakenly included with other Items discussed in paragraph 20 of the Thro

Declaration. Cf. Pls. Br. at 18-19.



46/47

41

proper.20

20

Plaintiff cites King v. U.S. Dept of Justice, 830 F.2d 210, 224 (D.C. Cir. 1987) for the

proposition that a Vaughn index should consist of one document that adequately describes eachwithheld record or deletion . Pls. Br. at 15. The King decision, and Paisley v. CIA,712

F.2d 686, 690 n.12 (D.C. Cir. 1983), quoted in King, describe the contents of a proper Vaughnindex, but do not suggest that a Vaughn index cannot be supplemented by declarations and

released portions of documents. Indeed, in King, the D.C. Circuit recognized in Vaughn, wefirst insisted that agencies tender an index and affidavits as a precondition to review . 830

F.2d at 224 (emphasis added).

The D.C. Circuit focus[es] on the functions of the Vaughn index, not

the length of the document descriptions, as the touchstone of our analysis.

Judicial Watch v. FDA, 449 F. 3d 141, 146 (D.C. Cir. 2006) (citing Tax Analysts v.

IRS, 410 F.3d 715, 719-20 (D.C. Cir. 2005)). An agency may even submit other

measures including affidavits or in camera review in combination with or in lieu

of the Vaughn index to meet its burden. Judicial Watch, supra, 449 F. 3d at 146.

The released portion of each document may satisfy an agencys Vaughn burden

by supplementing the corresponding Vaughn index entries [and] illuminat[ing]

the nature of the redacted material . Id. at 145. Here, the Federal Reserves

final Vaughn index, read together with the declarations and released portions of

documents, easily satisfies its burden under FOIA.



47/47

CONCLUSION

For the foregoing reasons, the Boards motion for summary judgment should

be granted.

Dated: April 22, 2010 Respectfully submitted,

KATHERINE H. WHEATLEY TONY WEST

DC Bar No. 359037 Assistant Attorney General

Associate General Counsel

JOHN L. KURAY /s/ C. Lee Reeves_________________Senior Counsel JOHN R. TYLER

YVONNE F. MIZUSAWA Assistant Branch Director, Federal Programs

Senior Counsel Branch

Board of Governors of the Federal C. LEE REEVES

Reserve System Trial Attorney, Department of Justice, Civil

20th

and C Streets, N.W. Division, Federal Programs Branch

Washington D.C. 20551 20 Massachusetts Avenue, N.W.

(202) 452-3436 Washington, D.C. 20530

Fax (202) 736-5615 Tel: (202) 514-4805

Fax: (202) 616-8470

[email protected]

Attorneys for Defendant Board of

Governors of the Federal Reserve System

mailto:[email protected]:[email protected]:[email protected]