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Citizens For Responsibility and Ethics In Washington v. U.S. Securities and Exchange Commission

May 2, 2012


The opinion of the court was delivered by: James E. Boasberg United States District Judge


In the wake of a number of headline-grabbing scandals involving violations of the federal securities laws, Plaintiff Citizens for Responsibility and Ethics in Washington submitted requests under the Freedom of Information Act to the Securities and Exchange Commission seeking documents related to that agency's enforcement efforts. One of these requests, dated September 14, 2011, sought records explaining the agency's reasons for not proceeding with a number of closed preliminary investigations. Before receiving the SEC's response to its FOIA request, CREW brought this suit against the Commission and its Chairman, Mary L. Schapiro, under the Federal Records Act. Plaintiff's Complaint contends that Defendants failed to comply with the FRA through 1) the SEC's improper policy regarding the retention of preliminary investigative materials and 2) its failure to undertake efforts to recover and restore records destroyed pursuant to the policy.

Defendants have now moved to dismiss all claims for lack of justiciability under Fed. R. Civ. P. 12(b)(1) and certain causes of action for failure to state a claim under Rule 12(b)(6). Although CREW has sufficiently alleged injury-in-fact to survive Defendants' standing challenges, its claims attacking the SEC's document-retention policy (Counts I, II, and V) are moot due to the SEC's abandonment of the challenged policy in July 2010 and its subsequent efforts to implement a policy that will comply with the FRA. Plaintiff's remaining counts (III and IV), however, which concern Defendants' failure to take action to recover documents that were unlawfully destroyed, may proceed. The Court, therefore, will grant in part and deny in part Defendants' Motion.


A. The Federal Records Act

The Federal Records Act is a collection of statutes governing the creation, management, and disposal of federal records. 44 U.S.C. §§ 2101 et seq., 3101 et seq., 3301 et seq. The statute was enacted to ensure, inter alia: (1) "efficient and effective records management"; (2) "[a]ccurate and complete documentation of the policies and transactions of the Federal Government"; and (3) "[j]udicious preservation and disposal of records." 44 U.S.C. § 2902; see Armstrong v. Bush, 924 F.2d 282, 285 (D.C. Cir. 1991) (providing background on FRA).

Pursuant to the FRA, heads of federal agencies are required to "make and preserve records containing adequate and proper documentation of the organization, functions, policies, decisions, procedures, and essential transactions of the agency.." 44 U.S.C. § 3101. Each agency head shall also "establish and maintain an active, continuing program for the economical and efficient management of the records of the agency," id. § 3102, and "shall establish safeguards against the removal or loss of records he determines to be necessary and required by regulations of the Archivist [the head of the National Archives and Records Administration]." Id. § 3105.

A series of provisions within the FRA sets forth a structure whereby the Archivist and agency heads are to work together to ensure that documents are not unlawfully destroyed. The Archivist shall notify the head of a Federal agency of any actual, impending, or threatened unlawful removal, defacing, alteration, or destruction of records in the custody of the agency that shall come to his attention, and assist the head of the agency in initiating action through the Attorney General for the recovery of records wrongfully removed and for other redress provided by law.

Id. § 2905(a); see also id. § 3106 (providing that each agency head shall notify Archivist of any unlawful removal or destruction of records and shall initiate, through Attorney General, an action for the recovery of unlawfully destroyed documents). If the agency head does not initiate such an action, the Archivist "shall request the Attorney General to initiate such action, and shall notify the Congress when such a request has been made." Id. § 3106.

B. The Current Action

According to CREW's Complaint, which the Court must presume true for purposes of this Motion, it is being denied "present and future access to important documents that would shed light on the conduct of public officials and the actions and effectiveness of the SEC's Enforcement Division" as a result of the SEC's failure to comply with the FRA. Compl., ¶ 62; see also id., ¶¶ 42, 51, 56, 69. Plaintiff's suit does not seek review of an agency's denial of a particular FOIA request; instead, its claims challenge Defendants' failure to comply with their duties regarding the agency's retention of documents, as set forth in the FRA. The Complaint asserts five causes of action: Count I seeks a declaratory judgment that the document-destruction policy issued and implemented by the SEC violates the FRA; Count II seeks a writ of mandamus compelling Defendants to comply with their non-discretionary duties under the FRA regarding document preservation; Count III seeks a declaratory order compelling Defendants to initiate action to restore destroyed records; Count IV seeks a writ of mandamus compelling Defendants to recover deleted records; and Count V seeks an order compelling Defendants to obtain approval of disposition schedules by the NARA for all enforcement-related federal records.

The specific documents that CREW claims have been unlawfully destroyed involve records relating to the preliminary work that the SEC undertakes prior to the commencement of a formal investigation (including "matters under inquiry (MUIs)," "informal investigations," and "preliminary investigations"). Id., ¶¶ 16-17. Plaintiff alleges that the agency has been destroying these documents pursuant to "a written directive in place at least since 1998 affirmatively mandating the SEC enforcement staff destroy any records created or obtained in connection with closed MUIs." Id., ¶ 22.

CREW, a § 501(c)(3) non-profit corporation, "uses a combination of research, litigation, and advocacy" to advance its mission of "protecting the right of citizens to be informed about the activities of government officials" and "ensuring the integrity of government officials." Id., ¶ 4. In furtherance of this mission, CREW "frequently uses government records made available to it" under FOIA. Id., ¶ 5.

CREW currently has two FOIA requests pending with the SEC, including one request seeking all records explaining or describing in any way the SEC's reasons for not proceeding with any closed preliminary investigations, including but not limited to Matters Under Inquiry ("MUI"), of: Bernard L. Madoff;

Goldman Sachs trading in AIG credit default swaps in 2009; financial fraud at Wells Fargo and Bank of America in 2007 and 2008; and insider trading at Deutsche Bank, Lehman Brothers, and SAC Capital.

Id., ¶ 5; Opp., Exh. B (September 14, 2011, FOIA Request). In support of this request, CREW attached a letter from Robert S. Khuzami, Director of the Division of Enforcement at the SEC. In the letter, Khuzami responds to a series of questions posed by Senator Charles Grassley regarding the SEC Enforcement Division's document-retention policy for "Matters Under Investigation." Opp., Exh. B (Khuzami Letter), Exh. C. The Khuzami letter provides background surrounding the SEC's use of MUIs and how documents related to such preliminary investigations are retained. Id. The letter repeatedly asserts that the prior policy providing for the destruction of such documents was modified in July 2010 with the implementation of new guidance instructing SEC staff "to treat documents generated in closed MUIs in the same manner as documents related to investigations." Id. at 4. In describing the impact of the agency's prior policy regarding these materials, the letter acknowledges that given the old MUI retention guidance, "it is likely that some documents from these closed MUIs were not retained." Id. at 6.

II.Legal Standard

Defendants' Motion invokes the legal standards for dismissal under Rules 12(b)(1) and 12(b)(6). In evaluating a motion to dismiss under Rule 12(b)(1), the Court must "treat the complaint's factual allegations as true . . . and must grant plaintiff 'the benefit of all inferences that can be derived from the facts alleged.'" Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000) (quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979)) (internal citation omitted); see also Jerome Stevens Pharms., Inc. v. FDA, 402 F.3d 1249, 1253 (D.C. Cir. 2005). The Court need not accept as true, however, "a legal conclusion couched as a factual allegation," nor an inference unsupported by the facts set forth in the Complaint. Trudeau v. Fed. Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)) (internal quotation marks omitted).

To survive a motion to dismiss under Rule 12(b)(1), Plaintiff bears the burden of proving that the Court has subject-matter jurisdiction to hear its claims. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992); U.S. Ecology, Inc. v. U.S. Dep't of Interior, 231 F.3d 20, 24 (D.C. Cir. 2000). A court has an "affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority." Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001). For this reason, "'the [p]laintiff's factual allegations in the complaint . . . will bear closer scrutiny in resolving a 12(b)(1) motion' than in resolving a 12(b)(6) motion for failure to state a claim." Id. at 13-14 (quoting 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1350 (2d ed. 1987) (alteration in original)).

Additionally, unlike with a motion to dismiss under Rule 12(b)(6), the Court "may consider materials outside the pleadings in deciding whether to grant a motion to dismiss for lack of jurisdiction." Jerome Stevens, 402 F.3d at 1253; see also Venetian Casino Resort, L.L.C. v. E.E.O.C., 409 F.3d 359, 366 (D.C. Cir. 2005) ("given the present posture of this case - a dismissal under Rule 12(b)(1) on ripeness grounds - the court may consider materials outside the pleadings"); Herbert v. Nat'l Academy of Sciences, 974 F.2d 192, 197 (D.C. Cir. 1992).


In seeking to dismiss Plaintiff's suit, Defendants raise three central arguments. First, Defendants contend that all of Plaintiff's claims are not justiciable. Second, Defendants maintain that, even if they are, Counts III and IV should be dismissed because they improperly ask the Court to compel Defendants to request legal action by the Attorney General. And third, Defendants argue that Plaintiff's counts seeking writs of ...

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