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MERRILL v. FEDERAL OPEN MKT. COMM. OF THE FED. RES

March 9, 1976

David R. MERRILL et al., Plaintiffs,
v.
FEDERAL OPEN MARKET COMMITTEE OF the FEDERAL RESERVE SYSTEM, Defendant



The opinion of the court was delivered by: WADDY

 WADDY, District Judge.

 Upon consideration of the cross-motions for summary judgment, the memoranda, affidavits, and exhibits in support of and in opposition to said motions, the respective statements of fact as to which there is no genuine issue, the hearing on said motions, and the entire record herein, the Court makes the following findings of fact and conclusions of law:

 BACKGROUND

 David R. Merrill is a student at Georgetown University Law Center (Law Center) and a member of the Institute for Public Interest Representation (Institute), founded by the Law Center. Victor H. Kramer, who represents Merrill, is a professor at the Law Center and Director of the Institute.

 Plaintiff claims that he has a strong interest in administrative law and the operation of Federal government agencies; that he desires to study the current operations of defendant and the process by which defendant regulates the national money supply through adoption of domestic policy directives, and the extent to which defendant considers current economic and financial factors in the adoption of its domestic policy directives and other policy actions.

 The defendant, Federal Open Market Committee (FOMC, the Committee), consists of the members of the Board of Governors of the Federal Reserve System and five representatives, either presidents or first vice-presidents, of Federal Reserve banks. *fn2" The function of the FOMC as set forth in 12 U.S.C. § 263 is to regulate the open-market operations of Federal Reserve banks. Subsection (b) of that statute provides that:

 
"No Federal Reserve bank shall engage or decline to engage in open-market operations under sections 353 to 359 of this title except in accordance with the direction of and regulations adopted by the Committee. The Committee shall consider, adopt, and transmit to the several Federal Reserve banks, regulations relating to the open-market transactions of such banks."

 Subsection (c) provides that:

 
"The time, character, and volume of all purchases and sales of paper described in sections 353-359 of this title as eligible for open-market operations shall be governed with a view to accommodating commerce and business and with regard to their bearing upon the general credit situation of the country." *fn3"

 To carry out its statutory duties the FOMC has established a "Systems Open Market Account" for the obligations acquired pursuant to authorizations and directives issued by the Committee and held on behalf of all Federal Reserve banks. *fn4" Transactions for the Systems Open Market Account are executed by a Federal Reserve bank selected by the Committee. *fn5"

 The function and effect of open-market operations are described by Robert C. Holland, a member of the Board of Governors of the Federal Reserve System and thus of the defendant, in an affidavit (the allegations of which are undisputed) accompanying the defendant's motion for summary judgment:

 
"4. Open market operations are important because of their prompt and direct influence upon the level of member bank reserves. When the Systems Open Market Account (SOMA) purchases securities in the open market, the payment is ordinarily deposited in the seller's bank and credited to that bank's reserve account in its regional Federal Reserve Bank. This process increases the total volume of bank reserves. Conversely, when the SOMA sells securities, the sales price typically is deducted from the buyer's bank's reserve account, thereby decreasing the volume of reserves held by member banks.
 
"5. Changes in the volume of member bank reserves necessarily influence the ability of member banks to expand loans and investments. Member banks are required to hold a certain amount of reserves behind their deposits in accord with Board's Regulation D, 12 C.F.R. § 204. These banks typically respond to a lowering of reserve requirements or to a supplying of reserves through Open Market purchases by expanding loans and investments and/or selling their newly excess reserves to other member banks which are short of reserves or which need additional reserves in order to take advantage of particular lending and investment opportunities. As a result, deposits, loans and investments for the banking system expand to about the limit permitted by the required reserve ratio.
 
"6. Changes in the availability of member bank reserves influence interest rates on money market instruments, including the Federal funds rate (the rate at which banks are willing to lend or borrow immediately available reserves on an overnight basis), and interest rates in the economy as a whole. Spending and investment by all sectors of the economy and all levels of industry tend to be influenced by the terms and conditions of obtaining credit."

 Although the announced policy of the FOMC is to meet "at least four times each year and more often if deemed necessary" *fn6" the Committee typically meets once a month. The meeting agendas are described in 12 C.F.R. 272.3(e) as, in general, including

 
"approval of minutes of actions and acceptance of memoranda of discussion for previous meetings; reports by the manager and special manager on open market operations since the previous meeting, and ratification by the Committee of such operations; reports by economists on, and Committee discussion of, the economic and financial situation and outlook; Committee discussion of monetary policy and action with respect thereto; and such other matters as may be considered necessary."

 PLAINTIFF'S REQUEST

 On March 7, 1975, Victor Kramer, as Director of the Institute, sent a letter captioned "Freedom of Information Act Request" to the Secretary of the Board of Governors of the Federal Reserve System *fn7" requesting, on behalf of David Merrill, access to the following for purposes of inspection and copying:

 
"(1) Records of policy actions taken by the Federal Open Market Committee at its [meetings] in January 1975 and February 1975, including, but not limited to, instructions to the Manager of the Open Market Account and any other person relating to the purchase and sale of securities and foreign currencies.
 
"(2) Memoranda of discussion at the above meetings."

 Kramer noted that an FOMC regulation stated that the Committee's economic policy directives and related information would not be available to the public for approximately 90 days after their adoption and that this appeared to the Institute to be a violation of the Freedom of Information Act.

 By letter dated March 21, 1975, Arthur L. Broida, secretary to the Federal Open Market Committee, responded to the request. With respect to the records of policy action, Broida stated that the Committee had recently determined to make those records available after 45 days rather than 90 days following the relevant meeting and that those records would then be available to the general public, including Merrill. As to those records no claim was made that they were exempt under the Freedom of Information Act. Regarding the memoranda of discussion, Broida stated the Committee's position that those documents were exempt under exemption (b)(5) of the Freedom of Information Act. Broida further stated that although the Committee felt the memoranda to be exempt, the Committee did release the memoranda after a time delay of approximately five years. Broida listed reasons for the time delay in releasing the memoranda of discussion including: a need for candor at the meeting on the part of the participants; a need to preclude those sophisticated in market analysis and speculators from gaining unfair profits or advantages; prevention, to the extent possible, of any interference with the orderly execution of policies or objectives of other government agencies concerned with economic or fiscal matters; and a need to preclude, to the extent possible, interference with or impairment of ongoing or prospective financial transactions with foreign banks, bankers or countries.

 On March 27, 1975, Kramer wrote to Broida appealing Broida's decision as being in violation of the Freedom of Information Act, inasmuch as no exemptions were claimed for the records of policy action and that under 5 U.S.C. 552(b) and E.P.A. v. Mink, 410 U.S. 73, 93 S. Ct. 827, 35 L. Ed. 2d 119 (1973), segregable factual portions of the memoranda of discussion were non-exempt and were subject to prompt release.

 By letter dated April 23, 1975, Robert C. Holland, member of the Board of Governors of the Federal Reserve System responded. Holland enclosed all of the records of policy action (45 days having elapsed since the meetings involved). He made no claim that the records of policy were exempt under the FOIA, but stated that the delay in disclosure of these records was "founded upon a legislative policy against premature disclosures which would impair the effectiveness of the operations of Government agencies." Holland stated that he affirmed Broida's decision with respect to the memoranda of discussion as being exempt under (b)(5) of the FOIA and that they contained no segregable factual materials subject to the requirements of E.P.A. v. Mink, 410 U.S. 73, 87-93, 93 S. Ct. 827, 836, 35 L. Ed. 2d 119, 132 (1973). Holland further advised that his determination was final agency action and that a complaint for judicial review could be filed.

 The instant complaint was filed on May 8, 1975. Plaintiff seeks a declaratory judgment that defendant has violated the Freedom of Information Act, 5 U.S.C. § 552, by deferring the public availability of its records of policy action for 45 days beyond the date of their adoption and by delaying the public release of segregable factual portions of the memoranda of discussion of its meetings for approximately five years following the relevant meetings.

 THE DOCUMENTS

 a. Records of Policy Action

 At each meeting of the Committee a Domestic Policy Directive is adopted. The Directive is a statement of general monetary policy in the form of guidelines for the manager of the Systems Open Market Account. Less frequently the Committee also adopts amendments to its three other policy instruments: the Authorization for Domestic Open Market Operations, the Foreign Currency Directive and the Authorization for Foreign Currency Operations.

 Following each meeting the Committee's Secretariat drafts a document entitled "Record of Policy Actions." *fn8" The "Record of Policy Actions" consists of the records of the aforementioned policy actions adopted at the meeting, the underlying rationale therefore, and the vote of each member of the Committee thereon. The Secretariat's draft is then distributed to the participants at the meeting for their comments as to rationale, revised, and submitted to the Board of Governors for inclusion in its annual report to Congress. *fn9"

 Pursuant to 12 C.F.R. § 271.5, *fn10" the Committee defers the public availability of all records of its policy actions until approximately 45 days after the meeting at which the actions were adopted. At that time the Domestic Policy Directive is published in the Federal Register and the "Record of Policy Actions" incorporated by reference therein and otherwise released.

 b. Memoranda of Discussion

 The Memoranda of Discussion are minutes of the Committee's meetings. They are drafted after a meeting, circulated to the persons who attended the meeting for comments, revised, and approved at a subsequent Committee meeting.

 The FOMC releases its Memoranda of Discussion to the public after a period of approximately five years following the relevant meeting. However certain portions, mostly relating to the foreign currency area, are deleted from the released Memoranda and never made publicly available.

 FREEDOM OF INFORMATION ACT

 The Freedom of Information Act, 5 U.S.C. § 552, provides, inter alia, that:

 
"(a) Each agency shall make available to the public ...

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