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November 26, 1980


The opinion of the court was delivered by: GREEN


Pending before the Court is the plaintiff's motion for a preliminary and final injunction seeking various forms of relief in order to remedy alleged violations by the defendants of the Government in the Sunshine Act, 5 U.S.C. § 552b (1976) ("Sunshine Act"). The defendants have moved to dismiss the plaintiff's complaint, or, in the alternative, for summary judgment. After plaintiff's motion for a temporary restraining order was denied on August 27, 1980, the parties agreed, with the approval of the Court, to consolidate this proceeding with an action on the merits of this dispute.

 This controversy began in mid-1978, when Bankers Trust initiated a new service to corporations and investors by placing with interested investors several commercial paper issues. In November, 1978, the Board's General Counsel discussed with representatives of Becker and SIA the factual, legal, and policy implications of Bankers Trust's activities. The General Counsel suggested that both parties submit material on the matter, and Becker responded on November 29, 1978, with a detailed petition to the Board outlining its concerns about the actions of Bankers Trust and requesting the Board to make factual findings concerning the sale of commercial paper by state member banks of the Federal Reserve System. On January 31, 1979, Becker submitted a detailed memorandum concerning Bankers Trust's sale of commercial paper and discussing the implications of Bankers Trust's pursuits in the commercial paper field. The petition also requested the Board "to advise Bankers Trust that its current commercial paper marketing activities are inappropriate as a matter of law and policy, and should cease." (Mem. of Pl. to the staff of the Bd. of Govs., Nov. 29, 1978 at 3). During this time, the Board also requested from Bankers Trust various submissions dealing with its sale of commercial paper, and additionally, the SIA submitted materials as a representative of the securities industry.

 On June 28, 1979, the Board's General Counsel concluded that Bankers Trust, and state member banks generally, may sell commercial paper as an agent for the issuer, subject to certain limitations. In letters to Becker and the SIA on June 29, the General Counsel invited both parties to request that he bring the matter to the attention of the Board of Governors. On July 26, 1979, SIA submitted to the Board a formal petition asking review of the entire matter and that the Board order Bankers Trust to cease and desist from all commercial paper activities on behalf of third parties. Becker indicated by letter of August 22, 1979, that it intended to submit a petition to the Board challenging Bankers Trust's activities pending the resolution of its request pursuant to the Freedom of Information Act ("FOIA") for materials in the Board's possession concerning the sale by member banks of commercial paper. The Board granted in part the plaintiff's FOIA request, and on September 7, 1979, plaintiff appealed that part of the Board's decision denying access to certain materials. Subsequently, the Board partially granted and partially denied the appeal; Becker did not seek judicial review of the Board's action.

 The Board intended to address the question presented by the SIA and the Becker petitions on July 14, 1980, but did not reach the matter in that meeting. (Defendant's Reply Memorandum, exhibit E). On July 16, it met to consider the petitions. At the beginning of the meeting, the Board voted to close the meeting to the public pursuant to three exemptions of the Sunshine Act, exemption four for commercial and financial information, 5 U.S.C. § 552b(c)(4), *fn2" exemption eight for reports prepared for the use of an agency responsible for regulating financial institutions, id. at § 552b(c)(8), *fn3" and exemption ten, for meetings which concern an agency's initiation or participation in adjudicatory proceedings, id. at § 552b(c)(10). *fn4" After taking and recording the vote, the Board released at 3:00 p.m. on the same day the record of the vote and a notice of the meeting in the public reading room of the Federal Reserve System.

On August 21, 1980, the plaintiff's counsel protested the closing of the July 16 meeting, and sought opportunity for oral argument at the next meeting in which the Board would consider the Becker and SIA petitions. The next morning, August 22, a member of the Board's staff telephoned Becker's counsel to advise him that the Board would consider his request for an open meeting and that the Board intended that day to take up the matter presented by the Becker and SIA petitions. (Aff. of James H. Schropp in Pl. Motion for Temp. Rest. Order, P 3). The Board met on August 22, voted to close the meeting, and followed the same procedures regarding recordation of the vote and notice of the meeting as occurred on July 16. As an accommodation to Becker, the Board voted to provide a transcript of the discussion of the Bankers Trust matter, subject to appropriate deletions under the exemptions of the Sunshine Act. The Board further informed the plaintiff on August 29 that it would make available minutes of the July 16 meeting, also with appropriate deletions.
This dispute centers around three issues under the Sunshine Act. Becker has alleged that the Board violated the Act in withholding notice of the meetings until 3:00 p.m. on the days of the meetings, in closing the meetings when no exemptions of the Act properly applied, and in deleting heavily the transcripts and minutes when exemptions to the Act do not justify such deletions.
Although Becker asserts initially that the Board is required under normal procedures to give notice of a meeting one week in advance, pursuant to 5 U.S.C. § 552b(e)(1), it also recognizes that the Board may use expedited procedures under the Sunshine Act pursuant to 5 U.S.C. § 552b(d)(4). *fn5" Nonetheless, the plaintiff maintains that the Board frustrated the letter and spirit of the Act because it did not give notice at the "earliest practicable time," as required by § 552b(d)(4) when it provided the public notice that a meeting would take place after the meeting had already occurred. Because the petitions had been pending since 1978, Becker questions the propriety of expedited procedures absent an emergency.

 Plaintiff further contends that the Board has cited no exemption to the Sunshine Act which appropriately governs the particular matter that Becker submitted for discussion and has considered material not required to be discussed by Becker's petition in order to justify closure of the meetings under the Sunshine Act, including unnecessary consideration of confidential commercial information submitted by Bankers Trust, examination of reports prepared by its staff concerning the regulation of financial institutions, and discussion of the pendency of any administrative or legal proceeding against Bankers Trust. Simply put, Becker alleges, its petition merely requested the Board to discuss the general legal and policy questions underlying the sale by commercial banks of third party commercial paper. Even assuming that the Board during portions of the meetings may have considered confidential information, Becker avers that the Board should have opened to the public the portion of the meeting concerned with general legal and policy questions, and then closed the meeting for exempted information. Plaintiff also alleges that because the meetings were not properly closed pursuant to any exemption, the deletions in the minutes and transcripts are illegal as well.

 As to the three exemptions, Becker sets forth its views that numerous material issues of fact remain so as to preclude the grant of defendants' motion for summary judgment. Concerning the applicability of exemption four, plaintiff maintains that the Board must prove that the information submitted by Bankers Trust was in fact confidential, that the Board could not have obtained the material pursuant to compulsory process, and that the material actually related to the Becker petition. As to the appropriateness of claiming the exemption for reports prepared by its staff, exemption eight, plaintiff submits that factual questions remain as to whether the staff reports were relevant to the Becker petition and whether the specific information was the sort that warranted confidentiality. Regarding exemption ten, for adjudicatory proceedings, Becker posits that uncertainties exist concerning whether plaintiff actually requested the initiation of formal agency proceedings, whether the Board properly considered plaintiff's request as for a cease and desist order, and whether the Board did discuss administrative or legal proceedings at either of the meetings.

 The defendants have moved to dismiss the action pursuant to Fed.R.Civ.P. 12(b) (6) for failure to state a claim for which relief can be granted. Alternatively, the Board maintains that no material factual issues remain and that summary judgment in its favor is mandated.

 Defendants argue that Becker cannot prevail on the issue of the notice given for the meeting because the Board's practice is consistent with the dictates of the Sunshine Act. The Board claims that it is entitled to use the expedited procedures available in § 552b(d)(4) because it closes a majority of its meetings pursuant to the exemptions listed in that section. Noting that, under these procedures, the statute nowhere specifies that advance notice of a meeting is required, the Board justifies its practice of waiting until 3:00 p.m. on the day of the meeting to notify the public by claiming that advance notice would trigger speculation in the financial community concerning the entity or matter that is on the Board's agenda for discussion. Thus, the defendants declare that current practice provides notice at the earliest practicable time, consistent with the statute.

 As to the exemptions claimed to warrant closure of the meetings, the Board rests heavily on its argument on exemption ten. It cites portions of Becker's petition that it claims permitted it a reasonable inference that Becker was asking for a cease and desist order against Bankers Trust. *fn6" It is undisputed that the SIA petition requested such an order. The Board declares, accordingly, that the discussion at the meeting of the two petitions, considered together, was clearly exempt from public scrutiny by exemption ten. As to Becker's suggested factual issues, and as to its claim that the general policy aspects of the question could have been segregated from the discussion of the cease and desist order, the Board justifies its refusal to open any portion of the ...

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