Corporate Governance

Cuban v. SEC [Partial Summary Judgment on FOIA Claims]

By Todd Penner

In Cuban v. SEC, No. 09-0996 (RBW) (D.D.C. Sept. 22, 2010) (a parallel case regarding the insider trading case against Mark Cuban), the court granted in part and denied in part cross motions for summary judgment regarding Freedom of Information Act ('FOIA') claims.

Mark Cuban ('Cuban') submitted two separate FOIA and the Privacy Act requests to the Securities and Exchange Commission ('SEC') covering twenty categories of information. Responding to Cuban's requests over a six month period, the SEC stated it 'possessed no responsive records' relating to some categories, did not have any 'means to conduct a reasonable search' for others, and claimed statutory exemptions for the remaining categories.  Cuban appealed the SEC's responses and challenged the adequacy of its searches as well as the exemptions relied upon. 

First, regarding search adequacy, the court granted summary judgment for Cuban, holding the SEC did not conduct a satisfactory search under FOIA standards.  Agencies receiving FOIA requests must search in good faith for requested documents using methods reasonably expected to produce the desired information.  In addition, agencies must provide 'a reasonably detailed affidavit, setting forth the search terms and type of search performed.'  Here, the SEC produced two employee declarations stating searches were conducted based on an understanding of SEC records and produced nothing.  The court held that both declarations were conclusory and lacked the detail necessary to assess the adequacy of the search. 

Next, the court denied summary judgment for several claims, holding the SEC provided inadequate information to determine the applicability of Exemption 2, Exemption 5, Exemption 6, and Exemption 7(C) and required the SEC to produce redacted versions of the documents withheld under each.

Specifically, Exemption 2 allows withholding information related solely to an agency's internal personnel rules and practices.  5 U.S.C. § 552(b)(2).  The agency must show (1) the predominant purpose of the information is internal use, and (2) 'that the material relates to trivial administrative matters of no genuine public interest.'  Here, the court held the information is not trivial and of genuine public interest because the primary purpose of the SEC is to investigate and prosecute fraud.

Next, the SEC relied upon Exemption 5 to withhold 'inter-agency or intra-agency memorand[a].'  5 U.S.C. § 552(b)(5).  Exemption 5 integrates three civil discovery privileges: (1) the deliberative process privilege; (2) the attorney-client privilege; and (3) the attorney work-product privilege.

Under the deliberative process privilege, only predecisional deliberations are exempt from disclosure.  Here, the SEC asserted the records withheld consisted of internal e-mails and notes reflecting deliberations of whether an employee engaged in misconduct.  While emphasizing the privilege's importance, the court found the SEC's bare declarations did not show the documents were truly and entirely deliberative and therefore, summary judgment was not proper.

The attorney-client privilege requires an agency to show that (1) the information provided to its lawyers was intended to be confidential; and (2) was not disclosed to a third party.  Here, the SEC declarations merely claimed the privilege without specific facts showing the communications were confidential.  The court held that the declarations were too vague to warrant summary judgment. 

An agency can withhold documents as attorney work-product when the 'materials were prepared in anticipation of litigation or for trial.'  Again the court rejected the SEC's conclusory declarations that withheld records are work product without factual support and stated that the SEC's cursory declarations do not warrant summary judgment.    

Exemption 6 authorizes an agency to 'withhold personnel and medical files and similar files, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.'  5 U.S.C. § 552(b)(6).  The SEC maintained that withheld records relate to an employee investigation and potential discipline.  The court also rejected the SEC's minimum declarations and denied summary judgment.

Conversely, the court ruled in favor of the SEC withholding records under Exemption 7(A) so long as the investigation was continuing.  Exemption 7(A) permits an agency to withhold records compiled for ongoing law enforcement if disclosure could harm the enforcement action.  5 U.S.C. § 552(b)(7)(A).  Here, disclosure could reveal information about the investigation that would undermine it.

Finally, Exemption 7(C) authorizes withholding records compiled for law enforcement purposes that if disclosed 'could reasonably be expected to constitute an unwarranted invasion of personal privacy.'  5 U.S.C. § 552(b)(7)(C).  The privacy interest must be weighed against the public's interest in the information.  The SEC maintained the documents in question consist of internal e-mails concerning employment and disciplinary matters.  Here, the SEC failed to provide sufficient information for the court to weigh the privacy interest against the public interest in determining how an agency responds to potential employee misconduct and misuse of government resources.

Finally, the court stated it would consider the merits of any future challenges regarding requests made under the Privacy Act.  The court also denied without prejudice the SEC's request for an additional three years to respond to the remaining three FOIA requests and will conduct a status conference to determine the amount of additional time the SEC has to process the requests.

The primary materials for this case may be found on the DU Corporate Governance website. 

Full post as published by The Race to the Bottom on November 08, 2010 (boomark / email).