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Cuban v. Securities and Exchange Commission

September 22, 2010

MARK CUBAN, PLAINTIFF,
v.
SECURITIES AND EXCHANGE COMMISSION, DEFENDANT.



The opinion of the court was delivered by: Reggie B. Walton United States District Judge

MEMORANDUM OPINION

The plaintiff, Mark Cuban, brings this action against the defendant, the Securities and Exchange Commission (the "SEC"), pursuant to the Freedom of Information Act, 5 U.S.C. § 552 (2006) ("FOIA") and the Privacy Act, 5 U.S.C. § 552a (2006), challenging the adequacy of the defendant's searches for responsive records and seeking to compel the release of several records the defendant has completely withheld from disclosure. Complaint ("Compl.") ¶ 1. This matter is currently before the Court on the parties' cross-motions for partial summary judgment pursuant to Federal Rule of Civil Procedure 56 that address their respective positions concerning the reasonableness of the searches the defendant conducted for responsive records and the disclosure of documents made by the defendant to the plaintiff. See Defendant's Motion for Partial Summary Judgment ("Def's. Mot."); Plaintiff's Memorandum of Law in Opposition to Defendant Securities and Exchange Commission's Motion for Partial Summary Judgment and in Support of Plaintiff's Cross-Motion for Summary Judgment ("Pl.'s Mot."). The defendant has processed seventeen of the plaintiff's twenty requests and the summary judgment motions pertain to those seventeen requests. As to the remaining three requests, the defendant seeks thirty-six additional months in order to complete the processing and these requests. See Defendant's Motion to Bifurcate and Stay Proceedings ("Def.'s Mot. to Stay"). The plaintiff opposes the defendant's motion for a thirty-six-month extension and seeks immediate production of all responsive records. See Plaintiff Mark Cuban's Memorandum of Law in Opposition to Defendant Securities and Exchange Commission's Motion to Bifurcate and Stay Proceedings ("Pl.'s Opp'n to Stay"). For the reasons set forth below, the Court must grant in part and deny in part both parties' cross-motions for partial summary judgment and deny without prejudice the motion to bifurcate and stay these proceedings.*fn1 Also, for the reasons set forth below, the parties shall appear before the Court at a hearing at which the Court will determine an appropriate timeline by which the defendant must complete processing the plaintiff's remaining three requests. In addition, if the defendant continues to rely upon Exemption 7(A) as grounds for refusing to produce responsive documents, at that same hearing the defendant shall be prepared to provide representations to the Court regarding the status of the ongoing investigation.*fn2

I. BACKGROUND

On December 19, 2008, the plaintiff, through counsel, requested from the defendant the production of twenty categories of records pursuant to the FOIA and the Privacy Act. The plaintiff submitted this request in two letters. Specifically, in the letter pursuant to the FOIA exclusively, the plaintiff sought thirteen categories of records relating to several businesses and individuals, including several requests for records related to potential internal SEC investigations.*fn3 Def.'s Mem., Ex. 1 (Decl. of Margaret Celia Winter) ("Winter Decl."), Attach. A (Dec. 19, 2008 Letter from David M. Ross to SEC) ("Request Ltr. I") at 1-3. Similarly, in the letter that requested disclosure pursuant to both the FOIA and the Privacy Act, the plaintiff sought seven categories of records related to himself, and various businesses, persons, and potential internal SEC investigations. Id., Ex. 1 (Winter Decl.), Attach. B (Dec. 19, 2008 Letter from David M. Ross to SEC ("Request Ltr. II")) at 1-3. The defendant received both letters on December 23, 2008, and assigned them a single internal tracking number. Id., Ex. 1 (Winter Decl.), Attach. I (June 29, 2009 Letter from Richard M. Humes to David Ross) at 1, n.1.

The defendant initially informed the plaintiff that it possessed no responsive records relating to the first four categories of Request Letter I and the third category of Request Letter II Id., Ex. 1 (Winter Decl.), Attach. C (Jan. 30, 2009 Letter from Mark P. Siford to David Ross) at 1-3. As to categories 7 and 11-13 of Request Letter I, the defendant indicated in its initial January 30, 2009 response that it possessed "no means to conduct a reasonable search for [that] type of information," Id., Ex. 1 (Winter Decl.), Attach. C at 2, and as to category 6 of Request Letter I, the defendant further stated that the only information it had included public records from a judicial proceeding directly available to the plaintiff from the court. Id. As to the remainder of the plaintiff's requests, the defendant stated that it was "consulting with other Commission staff regarding information that may be responsive," and it would "advise [the] plaintiff of [its] findings as soon as [it] receive[d] a response" from its staff. Id., Ex. 1 (Winter Decl.), Attach. C at 3.

A series of letters from the defendant updating the plaintiff as to the progress of its search followed. On February 5, 2009, the defendant advised the plaintiff by letter that it did not have any responsive records related to category 5 of Request Letter I, and that it was withholding records responsive to categories 1, 2, 4 and 5 of Request Letter II under Exemption 7(A). Id., Ex. 1 (Winter Decl.), Attach. D (Feb. 5, 2009 Letter from Mark P. Siford to David Ross) at 1-2. On March 5, 2009, the defendant informed the plaintiff that it was relying on the deliberative process protection of Exemption 5 of the FOIA to withhold records responsive to category 3 of Request Letter II. Id., Ex. 1 (Winter Decl.), Attach. F (Mar. 5, 2009 Letter from Mark Siford to David Ross) at 1-2. In a March 16, 2010 letter, the defendant stated that it was withholding records responsive related to category 6 of Request Letter I because they fell within the law enforcement classification of Exemption 7(A). Id., Ex. 1 (Winter Decl.), Attach. G (Mar. 16, 2009 Letter from Mark Siford to David Ross) at 1-2. On July 2, 2009, the defendant indicated that it was withholding records related to category 9 of Request Letter I under Exemption 6, and records responsive to categories 8 and 10 of Request Letter I and 6-7 of Request Letter II under Exemption 7(A). Id., Ex. 1 (Winter Decl.), Attach. K (July 2, 2009 Letter from Mark P. Siford to David Ross) at 1. In a July 9, 2009 letter, the defendant informed the plaintiff that while it once may have had records relating to categories 1-5 of Request Letter I and category 3 of Request Letter II, any responsive records had not been retained. Id., Ex. 1 (Winter Decl.), Attach. L (July 9, 2009 Letter from Richard M. Humes to David Ross) at 1; see also id., Ex. 1 (Winter Decl.), Attach. I at 3-4. The defendant also indicated in the July 9, 2009 letter that it was the defendant's position that "internal administrative records used to track staff assignments and inquires are not responsive to th[e] request," but even if they were responsive, the defendant was relying on Exemption 2 to withhold these records, as well as Exemptions 6 and 7(C) to withhold the names of any staff or other names contained within those records. Id. On September 17, 2009, the defendant wrote to the plaintiff, referencing a telephone conversation between the parties in which the plaintiff purportedly agreed to redefine the scope of his category 6 request in Request Letter I. Id., Ex. 1 (Winter Decl.), Attach. M (Sept. 17, 2009 Letter from Juanita C. Hernández to Lyle Roberts) at 1. The defendant indicated that due to the narrowing of the scope of that category, some additional records previously located were now unresponsive, but other records located were, in fact, still responsive and would be processed for release. Id. The defendant also suggested that if the plaintiff was willing to narrow the scope of other requests, specifically category 10 of Request Letter I by subject matter and time frame, that it would reduce the burden on the defendant to search for responsive records, and therefore presumably hasten the final response time. Id. On September 22, 2009, the defendant reported that it may have located responsive records related to one of the entities regarding which the plaintiff sought records and sought the plaintiff's permission to incur processing costs to review and redact the records. Pl.'s Mem., Declaration of David M. Ross in Support of Plaintiff's Opposition to Defendant Security and Exchange Commission's Motion for Partial Summary Judgment and in Support of Plaintiff's Cross-Motion for Summary Judgment ("Ross Decl."), Ex. 4 (Sept. 22, 2009 Letter from Mark P. Siford to David M. Ross) at 1.*fn4 Finally, on January 14, 2010, the defendant wrote to the plaintiff to state that it was no longer relying upon Exemption 7(A) as grounds for withholding records responsive to category 10 of Request Letter I and category 1 of Request Letter II. Def.'s Mem., Ex. 1 (Winter Decl.), Attach. N (Jan. 14, 2010 Letter from Mark P. Siford to David Ross) at 2. The defendant also stated that, relying on Exemptions 5, 6, and 7(C), it would be producing only redacted records responsive to category 3 of Request Letter II. Id.

The plaintiff also sent a series of communications to the defendant. In addition to negotiating the scope of categories 6 and 10 of Request Letter I, see Def.'s Reply, Ex. 8 (Supplemental Declaration of Margaret Celia Winter) ("Winter Suppl. Decl."), Attach. B (Sept. 21, 2009 Letter from Lyle Roberts to Juanita C. Hernández) at 1; id., Ex. 8 (Winter Suppl. Decl.), Attach. C (Sept. 25, 2009 Letter from Juanita C. Hernández to Lyle Roberts), the plaintiff administratively appealed the adequacy of the defendant's searches with respect to the categories of records for which the defendant stated that it had no responsive records, as well as the defendant's reliance on Exemption 7(A) to withhold records responsive to categories 1, 2, and 4-6 of Request Letter I, Def.'s Mem., Ex. 1 (Winter Decl.), Attach. E (Feb. 17, 2009 Letter from David Ross to the SEC) at 1-2; id., Ex. 1 (Winter Decl.), Attach. H (Mar. 31, 2009 Letter from David Ross to SEC) at 1-3; Exemption 5 to withhold records responsive to categories 3 of Request Letter II, id., Ex. 1 (Winter Decl.), Attach. H (Mar. 31, 2009 Letter from David Ross to SEC) at 1-3; and the overall failure of the defendant to respond to the plaintiff's request for records pursuant to the Privacy Act, id.; see also Pl.'s Mem., Ross Decl., Ex. 1 (Feb. 19, 2009 Letter from Celia L. Jacoby to David M. Ross), Ex. 2 (Apr. 2, 2009 Letter from SEC to David Ross), & Ex. 3 (Apr. 9, 2009 Letter from Celia L. Jacoby to David M. Ross).

The defendant granted in part and denied in part the plaintiff's administrative appeals. Def.'s Mem., Ex. 1 (Winter Decl.), Attach. I (June 29, 2009 Letter from Richard M. Humes to David Ross) & Attach. J (June 29, 2009 Letter from Richard M. Humes to David Ross). The administrative appeals were denied in regards to the withholding to the investigative and enforcement records that had been withheld pursuant to the Privacy Act. Id., Ex. 1 (Winter Decl.), Attach. I at 2-3 & Attach. J at 2. However, the defendant granted the plaintiff's appeal with respect to the adequacy of the defendant's search for records, finding that while the initial search was reasonable, it ultimately was determined to be incomplete and therefore additional searches would have to be conducted.*fn5 Id., Ex. 1 (Winter Decl.), Attach. I at 3-5 & n.7. In addition, the defendant concluded that the initial searches that it had conducted and its reliance on Exemptions 2, 5, 6, 7(A) and 7(C) to withhold records it had located responsive to those searches were adequate and statutorily compliant.*fn6 Id., Ex. 1 (Winter Decl.), Attach. I at 3-6 & Attach. J at 2-5. The defendant also rejected the plaintiff's position that it needed to produce a Vaughn index as part of the administrative process. Id., Ex. 1 (Winter Decl.), Attach. J at 3.

Meanwhile, as the correspondence between the parties was ongoing, the plaintiff filed this action on May 28, 2009, seeking the immediate production of the records denied to him and maintaining that the defendant's search efforts were inadequate and reliance on the exemptions invoked by the defendant was improper. See generally Compl. The defendant answered the complaint on July 2, 2009, denying the plaintiff's allegations that its search efforts were inadequate and maintaining that its reliance on the identified Exemptions was proper. The filing of the parties' cross-motions for partial summary judgment and the defendant's motion to bifurcate and stay this action as it relates to the categories of the request that the defendant has yet to produce followed.

II. STANDARD OF REVIEW

Under Rule 56, summary judgment is appropriate if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)(2). When ruling on a Rule 56 motion, the Court must view the evidence in the light most favorable to the non-moving party. Holcomb v. Powell, 433 F.3d 889, 895 (D.C. Cir. 2006) (citing Reeves v. Sanderson Plumbing Prods., 530 U.S. 133, 150 (2000)). The Court must therefore draw "all justifiable inferences" in favor of the non-moving party and accept the non-moving party's evidence as true. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The non-moving party, however, cannot rely on "mere allegations or denials," Burke v. Gould, 286 F.3d 513, 517 (D.C. Cir. 2002) (quoting Anderson, 477 U.S. at 248) (internal quotation marks omitted), because "conclusory allegations unsupported by factual data will not create a triable issue of fact," Pub. Citizen Health Research Grp. v. FDA, 185 F.3d 898, 908 (D.C. Cir. 1999) (internal brackets and quotation marks omitted). If the Court concludes that "the nonmoving party has failed to make a sufficient showing on an essential element of [his] case with respect to which [he] has the burden of proof," then the moving party is entitled to summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

A. The Defendant's Search Obligations

An agency that is responding to a FOIA request must make "a good faith effort to conduct a search for the requested records, using methods which can be reasonably expected to produce the information requested." Baker & Hostetler LLP v. U.S. Dep't of Commerce, 473 F.3d 312, 318 (D.C. Cir. 2006) (citation and internal quotation marks omitted); see also Steinberg v. U.S. Dep't of Justice, 23 F.3d 548, 551 (D.C. Cir. 1994) (stating that "[an] agency must demonstrate that it has conducted a search reasonably calculated to uncover all relevant documents") (internal quotation marks omitted). While "an agency cannot limit its search to only one record system if there are others that are likely to turn up the information requested," Campbell v. U.S. Dep't of Justice, 164 F.3d 20, 28 (D.C. Cir. 1998) (internal quotation marks omitted), the search "need not be perfect, only adequate, and adequacy is measured by the reasonableness of the effort in light of the [plaintiff's] specific request," Meeropol v. Meese, 790 F.2d 942, 956 (D.C. Cir. 1986); see also id. at 953 (stating that "[i]t would be unreasonable to expect even the most exhaustive search to uncover every responsive file").

Thus, "[t]here is no requirement that an agency search every record system" in which responsive documents might conceivably be found. Oglesby v. U.S. Dep't of the Army, 920 F.2d 57, 68 (D.C. Cir. 1990). Rather, an agency must demonstrate the adequacy of its search by providing a "reasonably detailed affidavit, setting forth the search terms and type of search performed, and averring that all files likely to contain responsive materials . . . were searched." Id. "Once the agency has shown that its search was reasonable, the burden shifts to [the plaintiff] to rebut [the defendant's] evidence . . . either by contradicting the defendant's account of the search procedure or by raising evidence of the defendant's bad faith." Moore v. Aspin, 916 F. Supp. 32, 35-36 (D.D.C. 1996) (citing Miller v. U.S. Dep't of State, 779 F.2d 1378, 1383- 84 (8th Cir. 1985)). "Agency affidavits are accorded a presumption of good faith, which cannot be rebutted by purely speculative claims about the existence and discoverability of other documents." SafeCard Servs., Inc. v. SEC, 926 F.2d 1197, 1200 (D.C. Cir. 1991) (internal quotation marks omitted).

B. The Defendant's Record Production Obligations

The FOIA requires a federal agency to release all records responsive to a request for production, 5 U.S.C. § 552(a)(3)(A), unless such records falls within one of the well-defined exemption categories listed in § 552(b). The Court is authorized under the FOIA "to enjoin [a federal] agency from withholding agency records or to order the production of any agency records improperly withheld from the complainant." § 552(a)(4)(B); see also Kissinger v. Reporters Comm. for Freedom of the Press, 445 U.S. 136, 139 (1980). When a FOIA requester files a civil action, the agency has the burden of proving that "each document that falls within the class requested either has been produced, is unidentifiable, or is wholly exempt from the Act's inspection requirements." Goland v. CIA, 607 F.2d 339, 352 (D.C. Cir. 1978), cert. denied, 445 U.S. 927 (1980) (internal citation and quotation marks omitted); accord Maydak v. Dep't of Justice, 218 F.3d 760, 764 (D.C. Cir. 2000) (holding that government has the burden of proving each claimed FOIA exemption). The Court may award summary judgment to an agency solely on the basis of information provided in affidavits or declarations when they sufficiently describe "the documents and the justifications for nondisclosure with reasonably specific detail, demonstrate that the information withheld logically falls within the claimed exemption, and are not controverted by either contrary evidence in the record nor by evidence of agency bad faith." Military Audit Project v. Casey, 656 F.2d 724, 738 (D.C. Cir. 1981); see also Vaughn v. Rosen, 484 F.2d 820, 826 (D.C. Cir. 1973), cert. denied, 415 U.S. 977 (1974).

III. LEGAL ANALYSIS

A. Adequacy of the Defendant's Searches for Responsive Records

Initially in its motion, the defendant took the position that the plaintiff had failed to appeal the defendant's responses as to categories 7, 11, 12, and 13 of Request Letter I, and thus by not exhausting the administrative remedies available to him, the plaintiff could not now litigate the defendant's responses regarding those categories. Def.'s Mem. at 6-7. The plaintiff responded that because the defendant never informed him of his right to appeal those categories, his administrative remedies were constructively exhausted. Pl.'s Mem. at 7-9. Regardless of these positions, it appears that before the briefing on the parties' cross-motions was complete, the defendant did, in fact, represent that it conducted a search for records responsive to categories 11, 12, and 13 of Request Letter I, and no responsive records were found. Def.'s Reply at 4-5; id., Ex. 13 (Supplemental Declaration of Noelle L. Frangipane) ("Frangipane Suppl. Decl.") ¶¶ 3-5. As to category 7, which seeks information regarding trades in Copernic securities by any SEC personnel, the defendant maintains that based on the manner in which it maintains its files, a search for responsive records would be overly burdensome and unreasonable because it would involve reviewing each file manually. Def.'s Reply at 4-5; id., Ex. 14 (Declaration of William Lenox) ("Lenox Decl.") ¶ 5.

While the Court does not condone the defendant's delay in conducting these searches, as timely searches might have limited or avoided altogether litigation of the adequacy of these searches, the Court will not focus on whether those searches were untimely now that they have been conducted, but will assess whether they satisfy the defendant's search obligations.*fn7 The defendant's declarations do not convince the Court that it has.

The defendant was obligated to demonstrate the adequacy of its search by providing a "reasonably detailed affidavit, setting forth the search terms and type of search performed, and averring that all files likely to contain responsive materials . . . were searched." Oglesby, 920 F.2d at 68. Instead, the supplemental declaration of Noelle L. Frangipane, who conducted the search of the Office of the Inspector General ("OIG"), merely states that the declarant "conducted a search" by reviewing "indices of investigations" based on familiarity with internal SEC investigations and "determined that the OIG possessed no documents responsive to these requests."*fn8 Def.'s Reply, Ex. 13 (Frangipane Suppl. Decl.) ¶¶ 4-5. This declaration is woefully lacking of the detail necessary for the Court to assess the adequacy of the search; it merely concludes that a search was conducted and it was adequate. While the Court must presume the good faith of the declarant, the Court need not defer to the declarant on the ultimate question of the adequacy of the search.

Nor does the declaration of William Lenox fare any better. This declarant states that based on his familiarity with the SEC's recordkeeping as to the security trading of its employees, which "are not organized or categorized by security," "searching for records potentially responsive to this request would entail performing a page-by-page review of thousands of documents submitted by over 3,800 Commission employees to ascertain which, if any, of these records related to Copernic securities." Def.'s Reply, Ex. 14 (Lenox Decl.) ¶ 5. The declarant states that "it is not possible to perform an electronic search of these records for specific securities," id., and further that it is the SEC's "policy to keep employees' reports of security transactions confidential as they contain information in which employees have a privacy interest, id. ¶ 6. This declaration too is not sufficient as it does not indicate with specificity how the employee files are maintained, how they could be searched, and why an electronic search of the files is not even feasible. The Court does not dispute that searches "impos[ing] an unreasonable burden on [an] agency" need not be compelled, Nation Magazine v. U.S. Customs Serv., 71 F.3d 885, 892 (D.C. Cir. 1995), but it cannot conclude that the plaintiff's search request would pose such an unreasonable burden based on the sparse representations that the defendant has provided.*fn9 The defendant does not actually indicate how its files regarding securities trading by SEC personnel are maintained, indicating simply that the records "are not organized or categories by security, and cannot be searched electronically for specific securities." Def.'s Reply at 4. It must be remembered that an agency's obligation is to make a good faith search using methods reasonably anticipated to produce responsive information, Oglesby, 920 F.2d at 68, even though an agency need not establish that it has searched far and wide to produce "all responsive documents," Nation Magazine, 71 F.3d at 892 n.7 (emphasis in original). Here, the defendant's declarations leave the Court uncertain as to whether another manner of searching for these records could produce the records that the plaintiff seeks. Presumably, as the plaintiff states, Pl.'s Reply at 7, the records have to be searchable in some manner to allow the defendant to utilize them for their own recordkeeping purpose to ensure that abuse and conflicts of interest do not occur. And based on these declarations, the Court is unable to conclude that the defendant made "a good faith effort to conduct a search for the requested records, using methods which can be reasonably expected to produce the information requested." Baker & Hostetler, 473 F.3d at 318 (citation and internal quotation marks omitted). Indeed, whether there are any reasonable search methods the defendant could employ is a complete mystery, as is the manner in which it files can, in fact, be searched. The Court therefore agrees with the plaintiff that the defendant's post-litigation declarations are too conclusory and lack the requisite detail to merit awarding summary judgment to the defendant, and therefore summary judgment must be awarded to the plaintiff as to the adequacy of the defendant's search for records responsive to categories 7, 11, 12, and 13 of Request Letter I. Whether or not the defendant determines that it must re-conduct its search to alleviate the identified inadequacies, the defendant must provide more detail-specific declarations in order for the Court to reassess the adequacy of the defendant's search efforts.

B. The Exemptions Relied Upon by the Defendant for Its Non-Production of Responsive Documents

As indicated, because the FOIA presumes that responsive records are to be disclosed, a government agency relying on a statutory exemption to withhold certain records or portions of records from a requester bears the burden of establishing that its reliance on those exemptions is warranted. Goland, 607 F.2d at 352 (internal citation and quotation marks omitted); accord Maydak, 218 F.3d at 764. This burden is very important because the question for the Court becomes whether the defendant has justified its withholding of records pursuant to the cited exemptions, not whether the plaintiff is entitled to the records or whether the plaintiff can cite a good reason for access to them. Here, the defendant relies upon Exemptions 2, 5, 6, 7(A) and 7(C) to withhold 80 documents withheld in their entity. Def.'s Reply, Ex. 9. Each exemption will be addressed in turn, with an indication of the records in the defendant's Vaughn index to which the exemptions were invoked.

1. Exemption 2

Exemption 2 of the FOIA shields from disclosure information that is "related solely to the internal personnel rules and practices of an agency." 5 U.S.C. ยง 552(b)(2). It applies if the information in question meets two criteria: First, such information must be "used for predominantly internal purposes," Crooker v. Bureau of Alcohol, Tobacco and Firearms, 670 F.2d 1051, 1073 (D.C. Cir. 1981); see also Nat'l Treasury Emps. Union v. U .S. Customs Serv., 802 F.2d 525, 528 (D.C. Cir. 1986); and second, the agency must show either that "disclosure may risk circumvention of agency regulation," or that "the material relates to trivial administrative matters of no genuine public interest," Schwaner v. Dep't of the Air Force, 898 F.2d 793, 794 (D.C. Cir. 1990) (citations and internal quotation marks omitted). "Predominantly internal documents that deal with trivial administrative matters fall under [what is referred to as] the 'low 2' exemption." Schiller v. NLRB, 964 F.2d 1205, 1207 (D.C. Cir. 1992); see also Founding Church of Scientology, Inc. v. Smith, 721 F.2d 828, 830-31 n.4 (D.C. ...


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