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United States Commodity Futures Trading Commission v. Whitney

July 25, 2006

UNITED STATES COMMODITY FUTURES TRADING COMMISSION, PLAINTIFF,
v.
MICHAEL WHITNEY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Royce C. Lamberth, United States District Judge

MEMORANDUM OPINION

This matter comes before the Court on a number of motions relating to subpoenas issued to a third party, the McGraw-Hill Companies, Inc. ("McGraw-Hill").

Plaintiff the United States Commodity Futures Trading Commission ("CFTC") filed, on May 8, 2006, a consolidated motion [1] to compel responses to four subpoenas (collectively, the "Subpoenas"). The Subpoenas were issued by this Court in connection with the CFTC's prosecution of four current or former natural gas traders or supervisors, and their alleged roles in a market manipulation scheme in violation of the Commodity Exchange Act, 7 U.S.C. § 1 et seq. (2000) (the "Act"). The CFTC believes that defendants, in an effort to affect market prices for natural gas, reported false price data to Platts, a company that compiles and publishes energy prices which are then relied upon to set prices going forward. As part of its civil prosecution of defendants, the CFTC seeks from Platts a number of documents relating to the data defendants submitted and Platts' subsequent use of it in its publications.

Platts, through its parent company, McGraw-Hill, objects to the Subpoenas on several grounds. In its memorandum in opposition filed on May 26, 2006, it argues, first, that the reporter's privilege applies to protect the information from being disclosed at all. Second, it contends that, even if the public interest exception to the reporter's privilege applies, the Subpoenas must be narrowed to compel disclosure only of those documents that specifically satisfy that exception and to reduce the burden on McGraw-Hill. Third, if it must comply with the subpoenas, it requests in a cross-motion [11], filed May 26, 2006, that a protective order be entered to govern the CFTC's subsequent use and disclosure of the sensitive data. The CFTC disputes each of McGraw-Hill's contentions in its reply [17], filed June 7, 2006; its motion [22], filed on June 19, 2006, to file surreply in support of its initial motion to compel; and its opposition [18], filed June 7, 2006, to McGraw-Hill's cross-motion for a protective order. On June 19, 2006, McGraw-Hill filed an opposition [24] to the CFTC's motion to file a surreply.

Three additional motions are under consideration: first, a motion [9] by McGraw-Hill, filed May 26, 2006, to seal the affidavit of Kelley Doolan, to which the CFTC filed an opposition [16] on June 7, 2006, and McGraw-Hill filed a reply [19] on June 14, 2006; second, McGraw-Hill's motion [20], filed June 14, 2006, to seal the supplemental declaration of Kelley Doolan, to which the CFTC filed no opposition; and third, the CFTC's motion [7], filed May 24, 2006, for a Rule 16 conference, to which McGraw-Hill filed an opposition [8] on May 25, 2006.

Upon a thorough review of the parties' filings, the applicable law, and the entire record herein, this Court finds that McGraw-Hill's motions [9, 10, 20] to seal shall be GRANTED; the CFTC's motion [7] for a conference shall be DENIED; the CFTC's motion [22] to file surreply shall be DENIED; the CFTC's motion [1] to compel shall be GRANTED in part and DENIED in part; and McGraw-Hill's motion [11] for a protective order shall be GRANTED in part and DENIED in part.

BACKGROUND

This is the second such dispute between these parties to be decided by this Court. In CFTC v. The McGraw-Hill Cos., 390 F. Supp. 2d 27 (D.D.C. 2005) (Lamberth, J.), this Court determined that while the reporter's privilege did apply to Platts, it was overcome by the strong public interest in the CFTC's criminal investigation. McGraw-Hill was ordered to comply with the subpoena, as amended by this Court to reduce the burden and reflect the focused needs of the CFTC's investigation.

Much of the factual background of this case is described in McGraw-Hill, 390 F. Supp. 2d at 30-31, and need not be repeated here. Unlike that case, however, this matter involves the Subpoenas issued in connection with four civil prosecutions*fn1 (collectively, the "Civil Actions") filed by the CFTC in four federal district courts around the country. The CFTC characterizes the documents it seeks as falling within three categories that are consistent with the public interest exception to the reporter's privilege. It seeks, first, the trade data submitted by defendants' companies; second, the spreadsheets created by Platts to compile the trade data and on which it generated index prices; and third, Platts' instructions as to what information should be submitted that it provided to companies and traders, including defendants. (Pl.'s Consol. Mem. P. & A. 5.) McGraw-Hill contends that the CFTC's characterization fails to acknowledge that the Subpoenas extend into areas beyond the scope allowed under the limited exception to the reporter's privilege. (McGraw-Hill's Mem. P. & A. Opp'n Mot. Compel 7-8.)

DISCUSSION

I. The CFTC's Motion [1] to Compel*fn2

As this Court noted in McGraw-Hill, the reporter's privilege applies to many of the documents at issue. 390 F. Supp. 2d at 32. Platts' publications involve sufficient editorial judgment to justify protection by the reporter's privilege. Id. As also noted in that case, the privilege, however, is not absolute. Id. (citing Zerilli v. Smith, 656 F.2d 705, 712 (D.C. Cir. 1981)). It can be overcome by a showing that the information goes to the heart of the matters, and that the CFTC has exhausted other sources. Id. at 34 (citing Zerilli, 656 F.2d at 713-14).

This Court previously noted that, in recognition of the relative weighing of the public and private interests, the privilege is more likely to be overcome in criminal than in civil cases. Id. at 32-33. This matter fits squarely within neither category: the Civil Actions are civil prosecutions rather than private civil matters or criminal prosecutions. McGraw-Hill argues that this distinction requires that the motion to compel be denied, or at least that the Subpoenas be narrowed to reflect the difficulty of overcoming the privilege in civil cases. (McGraw-Hill's Mem. P. & A. Opp'n Mot. Compel 28-29.) The CFTC disagrees, however, contending that this Court's previous holding was not limited to investigative actions and as such may properly be extended to cases such as the Civil Actions. (CFTC's Reply Mot. Compel. 5-7.)

As this Court previously noted, the purpose of distinguishing between civil and criminal matters is to reflect the strength of the public interest in abrogating the privilege. McGraw-Hill, 390 F. Supp. 2d at 33. The reason that the privilege typically prevails in a civil matter is because of the lesser public interest in "a private litigant seeking personal redress" as compared to the greater public interest in freedom of the press. Id. at 33. In this matter, however, the Civil Actions initiated by the CFTC reflect a greater public interest insofar as they involve a federal agency seeking to enforce laws designed to protect the public. The balancing test, then, must be undertaken with a "more qualified view of the privilege than would be appropriate in a purely civil case." Id. With these considerations in mind, this Court shall review whether the reporter's privilege is overcome as to each category of documents sought.

B. The Heart of the Matters

Generally,*fn3 the Subpoenas seek documents relating to the transaction data reported by defendants' companies, documents reflecting Platts' use of that data, the instructions provided by Platts to defendants' companies, and documents referencing conversations between Tom Haywood and defendants or others at their companies. These categories of information sought closely track those included in the subpoena enforced, as modified, in the prior case decided by this Court. McGraw-Hill, 390 F. Supp. 2d at 37-38.

To overcome the privilege, the CFTC must demonstrate that the information it seeks goes to the heart of the Civil Actions. See id. at 34 (citing Zerilli, 656 F.2d at 713; citing Carey v. Hume, 492 F.2d 631, 636 (D.C. Cir. 1974)). McGraw-Hill argues that the CFTC's asserted need is merely an assertion that the documents would be relevant in the Civil Actions, and that relevance is insufficient to satisfy this part of the balancing test. (McGraw-Hill's Mem. P. & A. Opp'n Mot. Compel 12-13.) This Court disagrees: as described below, the CFTC has carefully described how the documents are crucial, not merely relevant, to the Civil Actions and as such meets the requirement that the Subpoenas seek documents or information that go to the heart of the matters.

1. Transaction Data

McGraw-Hill makes two primary arguments that the transaction data sought by the Subpoenas is too broad to satisfy the "heart of the matter" requirement, in light of the allegations in the complaints against each defendant. First, it argues that the Subpoenas must be narrowed to reflect only those publications at issue in each defendant's case. The Subpoenas request all submissions made by defendants to two of Platts' publications, Gas Daily and Inside FERC. McGraw-Hill argues that the Subpoenas should be narrowed to reflect the submissions in which the allegedly false reports were made. (McGraw-Hill's Mem. P. & A. Opp'n Mot. Compel 25.) Accordingly, since the complaints against defendants Whitney, Richmond, Bradley and Martin accuse defendants of making false reports only to Gas Daily, McGraw-Hill argues that the Subpoenas in those two matters must be narrowed to exclude submissions those defendants made to Inside FERC. (Id.) The CFTC argues that McGraw-Hill misconstrues the complaints and renews an argument that the parties had already addressed in their negotiations. (CFTC's Reply Mot. Compel 8-9.) By these efforts, the CFTC contends, McGraw-Hill attempts to determine what information the CFTC truly needs, a role the CFTC sees as inappropriate for a third-party recipient of a subpoena. (Id.)

This Court finds that Subpoenas' requests for documents connected to both publications go to the heart of the matters. Each of the complaints expressly state that the allegations are not limited to either publication. Accordingly, this Court finds no merit in McGraw-Hill's contention that the documents sought are so much broader than the allegations that they cannot be viewed as going to the heart of the matters.

McGraw-Hill's second argument that the transaction data does not go to the heart of the matters is that it is not limited to the specific dates and indices on which each Defendant is alleged to have attempted to manipulate prices. (McGraw-Hill's Mem. P. & A. Opp'n Mot. Compel 26-27.) For some defendants, it notes, the CFTC has already identified the suspected dates and indices. (Id.) For the others, McGraw-Hill proposes responding to the Subpoenas with a preliminary, narrower set of ...


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