The opinion of the court was delivered by: Reggie B. Walton United States District Judge
The Federal Financial Modernization Act, otherwise known as the Gramm-Leach-Bliley Act (the"GLBA" or the "Act"), was enacted by Congress and signed into law in November 1999. The purpose underlying the GLBA is"to enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, insurance companies, and other financial service providers...." H.R. Conf. Rep. No. 106-434, at 245 (1999), reprinted in 1999 U.S.C.C.A.N. 245, 245. Realizing that the adoption of the Act would afford such financial institutions even greater access to consumers' personal financial information, see H.R. Rep. 106-74, pt. 3, at 106-07 (June 15, 1999) ("As a result of the explosion of information available via electronic services such as the Internet, as well as the expansion of financial institutions through affiliations and other means as they seek to provide more and better products to consumers, the privacy of data about personal financial information has become an increasingly significant concern of consumers."), Congress granted broad privacy protections to consumers, giving them the power to choose whether their personal information will be shared by financial institutions.
Title V of the GLBA, 15 U.S.C. §§ 6801-6809, contains a number of privacy provisions and reflects"the policy of Congress that each financial institution has an affirmative and continuing obligation to respect the privacy of its consumers and to protect the security and confidentiality of those consumers' nonpublic personal information[,]" 15 U.S.C. § 6801(a). To implement this policy, Congress required that financial institutions provide consumers,"[a]t the time of establishing a customer relationship... and not less than annually during the continuation of such relationship," a privacy notice detailing their practices with respect to disclosing and protecting nonpublic personal information. See 15 U.S.C. § 6803. In addition, Congress mandated that prior to disclosing any nonpublic personal information, the financial institution must provide a consumer with a nondisclosure or"opt out" option, which if exercised, would prohibit the financial institution from disseminating the consumers' nonpublic personal information to non-affiliated third parties. See 15 U.S.C. § 6802(b). And the Federal Trade Commission ("FTC" or"the Commission") maintains that "[a]ll financial institutions subject to the FTC's jurisdiction – including lawyers – will have to comply with these rules beginning on May 23, 2003."*fn1 Reply Memorandum in Support of Defendant's Motion to Dismiss ("FTC Reply to ABA") at 11 n.10.
Following the passage of the GLBA, and the issuance of related regulations by the FTC, see 16 C.F.R. §§ 313.1-18, the plaintiffs, the New York State Bar Association ("NYSBA") and the American Bar Association ("ABA"), became aware through"report[s] in the professional and trade regulation press" that the FTC had decided that attorneys who were engaged in certain"financial activities" as part of their legal practices would be subject to the GLBA and its privacy provisions.*fn2 New York State Bar Association Complaint ("NYSBA Compl.") ¶ 37; see American Bar Association Complaint ("ABA Compl.") ¶ 18. In response to the FTC's decision, the plaintiffs and numerous other bar associations across the nation sent letters to the FTC formally requesting that the practice of law be exempted from the GLBA's privacy provisions. See NYSBA Compl. ¶¶ 39-41; ABA Compl. ¶ 19. On April 8, 2002, the Director of the FTC's Bureau of Consumer Protection sent a letter to the ABA, which stated:
We have carefully considered your concerns, and recognize the issues you raised regarding the application of the GLB Act to attorneys at law. However, there are significant questions as to the legal authority of the Commission to grant the exemption you request.
As you know, the GLB Act itself states that entities engaged in'financial activities' are subject to the Act. Although the Commission has express authority under the GLB Act to grant exceptions, that authority is limited to providing exceptions to the requirements of Section 502 [, 15 U.S.C. § 6802]. The Act does not provide the Commission with express authority to grant exemptions from the other provisions of the GLB Act, including the initial and annual notice provisions. See GLB Act § 504(b), 15 U.S.C. [§] 6804 (b).*fn3
Memorandum of the American Bar Association in Opposition to the FTC's Motion to Dismiss the Complaint ("ABA Mem."), Exhibit ("Ex.") A; see NYSBA Compl. ¶¶ 45-50. The plaintiffs filed this action shortly after receipt of this letter seeking a judgment declaring that: (1) the FTC's decision that attorneys engaged in the practice of law are covered by the GLBA is in excess of the FTC's statutory authority; (2) the FTC's decision that attorneys engaged in the practice of law are covered by the GLBA is an arbitrary and capricious agency action; and (3) the FTC's refusal to grant attorneys engaged in the practice of law an exemption from the GLBA also constitutes arbitrary and capricious agency action.*fn4 This matter is now before the Court on the defendant's motions to dismiss the plaintiffs' complaints for failure to state claims upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). Upon consideration of the parties' submissions and for the reasons set forth below, the Court will deny the defendant's motions to dismiss the complaints.*fn5
(A) Motion to Dismiss under Rule 12(b)(6)
On a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), this Court must construe the allegations and facts in the complaint in the light most favorable to the plaintiffs and must grant the plaintiffs the benefit of all inferences that can be derived from the alleged facts. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). However, the Court need not accept inferences or conclusory allegations that are unsupported by the facts set forth in the complaint. Kowal, 16 F.3d at 1276. In deciding whether to dismiss a claim under Rule 12(b)(6), the Court can only consider the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint, and matters about which the Court may take judicial notice. EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624-25 (D.C. Cir. 1997).*fn6 The Court will dismiss a claim pursuant to Rule 12(b)(6) only if the defendant can demonstrate"beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley, 355 U.S. at 45-46.
(B) The Plaintiffs' APA Claims
All of the plaintiffs' claims in this case challenge the FTC's interpretation of the GLBA pursuant to the Administrative Procedure Act ("APA"). See NYSBA Compl. ¶ 15; ABA Compl. ¶¶ 29-31. Agency action under the APA can be set aside if it is"arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," 5 U.S.C. § 706(2)(A), or if it is"in excess of statutory jurisdiction, authority, or limitations, or short of statutory right," 5 U.S.C. § 706(2)(C). The plaintiffs bring challenges pursuant to both of these sections of the APA.
(1) The FTC's Interpretation of the GLBA
A challenge to an agency's construction of a statute that it administers is subject to the standard of review articulated in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and the plaintiffs have challenged the FTC's interpretation of the GLBA's applicability to lawyers engaged in the practice of law pursuant to 5 U.S.C. § 706(2)(C) of the APA. Applying the familiar Chevron test, the Court must first determine "whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." 467 U.S. at 842-43. If, however,"the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Id. at 843. And, in making such an assessment,"considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer[.]" Id. at 844. The Chevron Court explained that
the principle of deference to administrative interpretations has been consistently followed by this Court whenever a decision as to the meaning or reach of a statute has involved reconciling conflicting policies, and a full understanding of the force of the statutory policy in the given situation has depended upon more than ordinary knowledge respecting the matters subjected to agency regulations.
Id. (internal quotation omitted). Thus, if the agency's"choice represents a reasonable accommodation of conflicting policies that were committed to the agency's care by the statute, [a court] should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned." Id. at 845.
However, in United States v. Mead Corporation, 533 U.S. 218 (2001), the Supreme Court noted that"[t]he fair measure of deference to an agency administering its own statute has been understood to vary with circumstances[.]" Id. at 228. In this case, the Court is asked to review agency action which is contained in an opinion letter. In Christensen v. Harris County, 529 U.S. 576 (2000), the Court stated that
an interpretation contained in an opinion letter, [is] not one arrived at after, for example, a formal adjudication or notice-and-comment rulemaking [and thus i]nterpretations such as those in opinion letters - - like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law - - do not warrant Chevron-style deference.
Id. at 587 (citations omitted). When reviewing opinion letters,"courts have looked to the degree of the agency's care, its consistency, formality, and relative expertness, and to the persuasiveness of the agency's position." Mead, 533 U.S. at 228 (citations omitted)."The weight [accorded to an administrative] judgment in a particular case will depend upon the thoroughness evident in [the agency's] consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control." Id. (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)) (internal quotation marks omitted). Interpretations that are contained in opinion letters are"'entitled to respect' under the Supreme Court's decision in Skidmore... but only to the extent that those interpretations have the'power to persuade[.]'" Christensen, 529 U.S. at 587 (quoting Skidmore, 323 U.S. at 140).
(2) The FTC's Decision-Making Process and the Rationale Underlying the Action it Took
Additionally, the plaintiffs make two separate challenges to the FTC's decision-making process under Section 706(2)(A) of the APA. The plaintiffs challenge the FTC's interpretation of the GLBA's applicability to attorneys engaged in the practice of law and the FTC's refusal to grant attorneys an exemption from the GLBA as arbitrary and capricious agency actions. In Individual Reference Services Group, Inc. v. FTC, 145 F. Supp. 2d 6 (D.D.C. 2001), aff'd, Trans Union LLC v. FTC, 295 F.3d 42 (D.C. Cir. 2002), another member of this Court, in considering a challenge to FTC regulations implementing the GLBA, stated that"[w]hile challenges under § 706(2)(C) - - which follow the test set forth in Chevron - - are directed primarily at the decision of the agency, § 706(2)(A) actions focus mainly on the decision-making process and rationale behind agency action." 145 F. Supp. 2d at 25 (citing Michigan v. EPA, 213 F.3d 663, 682 (D.C. Cir. 2000), cert. denied sub nom., 532 U.S. 904 (2001)). The Individual Reference Court noted that"[w]hile the standards of review for these types of challenges overlap, they are not identical: an agency's interpretation may survive analysis under Chevron but still be struck down as arbitrary and capricious." 145 F. Supp. 2d at 25 (citing American Petroleum Inst. v. EPA, 216 F.3d 50, 57-58 (D.C. Cir. 2000); Michigan v. EPA, 213 F.3d at 682). The scope of review under the arbitrary and capricious standard
is narrow and a court is not to substitute its judgment for that of the agency. Nevertheless, the agency must examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made. In reviewing that explanation, [a court] must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation of its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.
Motor Vehicle Manufacturer's Ass'n v. State Farm Mutual Ins. Co., 463 U.S. 29, 43 (1983) (internal quotation marks and citations omitted). The State Farm Court noted that a court should "uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned." Id. (quoting Bowman Transp. Inc. v. Arkansas-Best Freight System, 419 U.S. 281, 286 (1974)).
As this Court mentioned above, the GLBA's privacy provisions were enacted to regulate the use of consumers' personal financial information by "financial institutions." See 15 U.S.C. § 6801(a). While the purpose underlying the GLBA may seem straightforward, the construction of the term "financial institution" as used in the Act is not, which is the primary basis for the parties' dispute. The dispute between the parties requires the Court to resolve whether attorneys who are engaged in the practice of law and provide services that are considered by the FTC to be financial in nature qualify as "financial institutions" and are therefore subject to the privacy provisions of the GLBA. In addressing whether the FTC's interpretation of the GLBA's applicability to attorneys is valid, the Court will consider the plaintiffs' APA challenges under both 5 U.S.C. § 706(2)(A) (stating that agency action may be set aside if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law") and 5 U.S.C. § 706(2)(C) (stating that agency action may be set aside if it is "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right").
(A) The Chevron Challenge
Under the well known Chevron test, which is applicable to APA challenges under § 706(2)(C), the Court must first examine "whether Congress has directly spoken to the precise question at issue." Chevron, 467 U.S. at 842-43. The District of Columbia Circuit recently noted that "[i]n this first analytical step, the courts use 'traditional tools of statutory interpretation-text, structure, purpose, and legislative history.'" Citizens Coal Council v. Norton, 330 F.3d 478, 481 (D.C. Cir. 2003) (quoting Pharm. Research & Mfrs. of Am. v. Thompson, 251 F.3d 219, 224 (D.C. Cir. 2001)).
(1) The Plain Language of the GLBA
Because the "first traditional tool of statutory construction focuses on the language of the statute[,]" Bell Atlantic Telephone v. FCC, 131 F.3d 1044, 1047 (D.C. Cir. 1997), this Court will begin its analysis by examining the text of the GLBA. In enacting the GLBA, Congress was clear in the plain language of the statute that the privacy provisions contained in Title V, 15 U.S.C. §§ 6801-6809, only apply to what Congress defined as a "financial institution." The FTC takes the position that if an attorney provides real estate settlement, tax-planning, or taxpreparation services, then the attorney qualifies as a "financial institution" under the GLBA. Defendant's Motion to Dismiss [the NYSBA's Case] for Failure to State a Claim Upon Which Relief Can Be Granted Pursuant to Fed. R. Civ. P. 12(b)(6), Memorandum of Points and Authorities in Support of Defendant's Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be Granted Pursuant to Fed. R. Civ. P. 12(b)(6) ("Def.'s Mem. in NYSBA Case") at 2-3; Defendant's Motion to Dismiss [the ABA's Case] for Failure to State a Claim Upon Which Relief Can Be Granted Pursuant to Fed. R. Civ. P. 12(b)(6), Memorandum of Points and Authorities in Support of Defendant's Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be Granted Pursuant to Fed. R. Civ. P. 12(b)(6) ("Def.'s Mem. in ABA Case") at 2-3. This is the FTC's interpretation because the GLBA's scope extends to institutions that are in the business of engaging in those financial activities listed in the Bank Holding Company Act of 1956 ("BHCA"), 12 U.S.C. § 1843(k), which itself incorporates a Federal Reserve System regulation, 12 C.F.R. § 225.28 ("Regulation Y"), that regulates banking related activities. Def.'s Mem. in NYSBA Case at 8-11; Def.'s Mem. in ABA Case at 7-11.
The FTC's interpretation of the GLBA's applicability to attorneys seems to ignore the plain language of the statute's regulatory scheme. The text of the GLBA defines a "financial institution" as"any institution the business of which is engaging in financial activities as described in section 1843(k) of Title 12."*fn7 15 U.S.C. § 6809(3)(A). Thus, for the GLBA to be applicable to attorneys, the Court must first determine whether an attorney is considered an institution and, if so, whether attorneys are in"the business of... engaging in [the] financial activities [listed] in section 1843(k) of Title 12[?]" Id.
(a) Is an Attorney an Institution?
The GLBA does not contain a definition of the term "institution" and therefore the Court must turn to the common definitions of this term in order to determine whether an attorney can qualify as an institution. An institution is commonly defined as "an established organization or corporation (as a college or university) esp[ecially] of a public character[.]" Merriam-Webster's Collegiate Dictionary 606 (10th ed. 1996); see also Black's Law Dictionary 801 (7th ed. 1999) ("[a]n established organization, esp[ecially] one of a public character...."); Webster's Third New International Dictionary 1171 (1993) ("an established society or corporation: an establishment or foundation esp[ecially] of a public character"). It is clear that attorneys do not fall within these common definitions of what constitutes an"institution." While entities such as Citibank, Inc. and Morgan Stanley Dean Witter & Co. are clearly institutions, the Court is simply unable to conclude on the record now before it that all attorneys who engage in Regulation Y activities fall within the definition of an"institution." Even applying the broadest possible interpretation of the dictionary definitions of "institution," it would be a distortion for the Court to conclude, for example, that unincorporated solo practitioners, or for that matter any solo practitioner, fall under these definitions. And this is the effect of the FTC's interpretation, as nearly half of the practicing bar in this country is comprised of solo practitioners and those in firms of five lawyers or less, see Brief of State and Local Bar Associations as Amici Curiae in Support of Plaintiff ABA's Memorandum in Opposition to the FTC's Motion to Dismiss the Complaint ("State & Local Bar Amici I") at 3, and surely many of these attorneys engage in Regulation Y activities.*fn8
(b) Are Attorneys Engaged in the Business Of Financial Activities as Defined by the GLBA?
As this Court stated above, the GLBA defines a"financial institution" as"any institution the business of which is engaging in financial activities as described in section 1843(k) of Title 12." 15 U.S.C. § 6809(3)(A). Section 1843(k) of Title 12, or the BHCA, regulates the activities of bank holding companies*fn9 and states that
a financial holding company may engage in... and may acquire and retain the shares of any company engaged in any activity, that the [Federal Reserve] Board... determines (by regulation or order)
(A) to be financial in nature or incidental to such financial activity; or
(B) is complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.
12 U.S.C. § 1843(k)(1). The BHCA lists several types of activities that are considered financial in nature, including "any activity that the Board has determined, by order or regulation that is in effect on November 12, 1999, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto...." 12 U.S.C. § 1843(k)(4)(F). And the FTC notes that in Regulation Y, the Board of Governors of the Federal Reserve System ("Federal Reserve Board" or"FRB") includes as financial activities those that"are so closely related to banking or managing or controlling banks as to be a proper incident thereto" the following:"[p]roviding real estate settlement services" and"[p]roviding tax-planning and tax-preparation services to any person." 12 C.F.R. § 225.28(b)(2)(viii), (6)(vi). Accordingly, the FTC concludes that anybody, including attorneys engaged in the practice of law, who provide such services are covered by the GLBA.
In FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000), the Supreme Court stated that"[i]n determining whether Congress has specifically addressed the question at issue [, when conducting a Chevron analysis], a reviewing court should not confine itself to examining a particular statutory provision in isolation. [This is because t]he meaning -- or ambiguity -- of certain words or phrases may only become evident when placed in context." Id. at 132 (citing Brown v. Gardner, 513 U.S. 115, 118 (1994) ("Ambiguity is a creature not of definitional possibilities but of statutory context.")). As set forth below, not only do attorneys appear to fall outside the definition of "institutions" within the meaning of the GLBA, but the practice of law does not appear to be a financial activity within the meaning of the BHCA and Regulation Y.
(i) The Underlying Purpose of the BHCA and Regulation Y
By incorporating the BHCA, and therefore Regulation Y, into its definition of what constitutes a "financial institution," Congress seems to have intended the GLBA to reach financial institutions engaged in both typical banking activities and also their non-banking activities that are "so closely related to banking... as to be properly incident thereto... [,]" 12 C.F.R. § 225.28(a). The BHCA"generally prohibits bank holding companies from owning shares in companies other than banks, [but] allows such ownership where the activities of the non-bank affiliate have been found by the Federal Reserve Board to be'so closely related to banking or managing or controlling banks as to be a proper incident thereto.'" Nat'l Courier Ass'n v. Bd. of Governors of the Fed. Reserve Sys., 516 F.2d 1229, 1232 (D.C. Cir. 1975) (quoting 12 U.S.C. § 1843(c)(8)). In deciding whether an activity is"closely related to banking," the District of Columbia Circuit has noted that"[t]his is a question that asks only whether the activities in question are generally of a kind that Congress, having concluded that'banking and commerce should remain separate,' forbade bank holding companies to engage in, without regard to the merits of such engagement in a particular case." Id. at 1233 (quoting S. Rep. No. 91-1084, at 12 (1970), reprinted in U.S.C.C.A.N. 5519, 5531). The Federal Reserve Board's Regulation Y lists specified activities that"are so closely related to banking... as to be a proper incident thereto, and may be engaged in by a bank holding company or its subsidiary... [,]" and, as mentioned above, includes the activities of"[p]roviding real estate settlement services" and"[p]roviding tax-planning and tax-preparation services to any person." 12 C.F.R. §§ 225.28(b)(2)(viii), (6)(vi). It is important for the Court to examine the context in which these activities were deemed to be"closely related" banking activities in its effort to determine whether the GLBA applies to attorneys engaged in such activities. This contextual analysis comports with Congress' decision to exempt only companies engaged in activities that are"so closely related to banking or managing or controlling banks as to be a proper incident thereto[,]" 12 U.S.C. § 1843(k)(4)(F); Nat'l Courier Ass'n, 516 F.2d at 1232, from the general proscription against holding companies owning shares in companies other than banks.
Regulation Y lists a number of activities related to the"making, acquiring, brokering or servicing [of] loans or other extensions of credit" that are considered closely related banking activities. 12 C.F.R. § 225.28(b)(2). In a 1997 amendment of Regulation Y by the Federal Reserve Board that was made to"improve the competitiveness of bank holding companies by eliminating unnecessary regulatory burden[s] and operating restrictions... [,]" real estate settlement services were included as activities related to the extending of credit. Bank Holding Companies and Change in Bank Control (Regulation Y), 62 Fed. Reg. 9290, 9290, 9305 (Feb. 28, 1997). In a 1990 Order issued pursuant to the BHCA, the FRB recognized that real estate settlement services are"closely related to banking" because bank holding companies and banks have been authorized to provide real estate settlement services, including escrow and distribution services by bank holding companies under land installment sales contracts, the preparation of documentation required to close loans in accordance with federal and state lending requirements, and title insurance activities. Norwest Corp., 76 Fed. Res. Bull. 1058, 1059 (Dec. 1990).
Regulation Y also lists a number of activities related to"[a]cting as [an] investment or financial advisor to any person, including... [p]roviding tax-planning and tax-preparation services to any person." 12 C.F.R. § 225.28(b)(6)(vi). Regulation Y was ...