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Calderon v. United States Department of Agriculture

United States District Court, District of Columbia

February 21, 2017



          TANYA S. CHUTKAN, United States District Judge

         Before the court are cross-motions for summary judgment in this case brought under the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552. In response to a 2013 FOIA request by Plaintiff Pablo Calderon for transactional documents relating to the GSM-102 Export Credit Guarantee Program, Defendant U.S. Department of Agriculture (“USDA”) Foreign Agricultural Service (“FAS”) produced over 9, 000 pages of responsive documents. The documents contained significant redactions, which FAS stated were necessary under FOIA Exemptions 4 and 6. These exemptions cover confidential commercial information and personal information, respectively. The parties now cross-move for summary judgment as to the application of those exemptions.

         Upon consideration of the parties' filings and the arguments of counsel at the hearing held on December 14, 2016, the court concludes that Exemptions 4 and 6 apply to some, but not all, of the redacted information. Therefore, as more fully explained below, FAS's Motion is GRANTED IN PART and DENIED IN PART, and Plaintiff's cross-motion is also GRANTED IN PART and DENIED IN PART.

         I. BACKGROUND

         A. USDA-FAS's GSM-102 Program

         This suit involves a FOIA request for certain financial documents submitted to FAS under the agency's Export Credit Guarantee Program (“GSM-102” or the “Program”). As described by the USDA in FAS's briefs, submitted declarations, and Statement of Material Facts, the Program, which is administered by FAS on behalf of the Commodity Credit Corporation (“CCC”), supports the financing of American agricultural commodity exports by guaranteeing the payments owed to U.S. exporters in qualifying transactions made with foreign importers. See 7 C.F.R. § 1493.10(a). Within the GSM-102 Program, agricultural exporters in the U.S. negotiate sales with an importer in an eligible foreign destination that receives financing from a foreign financial institution qualified under the Program. (Second Klusaritz Decl. ¶¶ 25-26 (ECF No. 37-3)). Exporters seek payment guarantees under the Program because the CCC will “pay the Exporter, or the U.S. Financial Institution that may take assignment of the Payment Guarantee, specified amounts of principal and interest in case of default by the Foreign Financial Institution that issued the Letter of Credit for the export sale covered by the Payment Guarantee.” 7 C.F.R. § 1493.10(a); see also 7 C.F.R. § 1493.100 (terms and requirements of payment guarantee).[1]

         To attain a payment guarantee from the CCC, the parties to the transaction must present several key documents. There must be a letter of credit from the foreign financial institution to the importer. 7 C.F.R. § 1493.90(a)(1). The letter of credit must stipulate that the foreign financial institution received “at least one original clean on board bill of lading as a required document, ” unless the exporter is “named as the shipper on the clean on board bill of lading, ” in which case the letter of credit “may stipulate a copy or photocopy of an original clean on board bill of lading.” 7 C.F.R. § 1493.90(a)(1)(i)(A). There must also be a “Firm Export Sales Contract” for an Eligible Export Sale before an exporter can submit an application to the CCC for the payment guarantee. 7 C.F.R. § 1493.70(a). The application for the payment guarantee must include information such as the name and address of the importer, or the “[n]ame and address of the party on whose request the Letter of Credit is issued, if other than the importer, ” the date of sale, a description of the agricultural commodity, the mean quantity, the unit sales price, and various other details. Id.

         After securing a payment guarantee, and within 30 days after exporting the commodity, an exporter must also provide the CCC with an “evidence of export report” which includes the date of export, the exported value, the quantity, a description of the commodity, the unit sales price, and various other information. 7 C.F.R. § 1493.130(a), (b). An exporter may assign the payment guarantee to a U.S. financial institution, and if it does so, it must submit a notice of assignment to the CCC that meets certain requirements. 7 C.F.R. § 1493.120. Lastly, the exporter must obtain and maintain proof that the exported goods entered the country shown on the payment guarantee. 7 C.F.R. § 1493.150. Certain export contracts are not eligible for payment guarantees under the Program, including if the date of export pre-dates the date of the application for the payment guarantee; if the actual date of export is later than the final date to export shown on the payment guarantee; or if the letter of credit from the foreign financial institution is dated more than thirty days after the date of export. 7 C.F.R. § 1493.100(f).

         Thus, the Program involves four primary actors: the exporter, the U.S. financial institution, the foreign financial institution, and the importer. The exporter and importer contract for the sale of agricultural commodities, followed by the importer securing a letter of credit from the foreign financial institution to enable it to pay for the import. The exporter applies for and secures a payment guarantee, then typically assigns the guarantee to a U.S. financial institution. The U.S. bank typically pays the exporter for the sale in exchange for the assignment, and as a result extends a de facto loan to the foreign financial institution, which now owes the debt to the U.S. bank. (See Second Klusaritz Decl. ¶¶ 28-29). These transactions may become far more complicated, however, if ownership of the commodity is transferred several times throughout the export process, meaning the exporter may be different from the shipper, and the importer may be different from the consignee or from another intervening purchaser.

         Plaintiff tells a completely different story, however. According to him, the transactions underlying the specific documents he requested-and indeed most of the guaranteed transactions in the whole Program-do not actually involve the export of physical agricultural commodities, but rather are just “structured trade finance” transactions. In these transactions, exporters or other commodity traders will “recycle” the shipping documents from prior actual exports, meaning that a current financial transaction is supported only by photocopies of a previous actual export. (Pl. Statement of Material Facts (“PSMF”) ¶¶ 16-24 (ECF No. 39-3)). The foreign importer receives a “synthetic” letter of credit from the foreign bank, and the U.S. exporter presents the U.S. bank with a photocopy of an old bill of lading, along with a newly-negotiated commercial invoice between the exporter and importer. (Id.). Plaintiff notes that in many instances the exporter and importer that appear on the commercial invoices supporting these synthetic trades are just related entities or subsidiaries. (Id. ¶ 20). Once the transaction is approved and a program guarantee is attached, the U.S. bank provides the exporter with the amount of money that appeared in the commercial invoice. That exporter then forwards those funds to the foreign bank. (Id. ¶ 21).[2]

         In effect, under the Program as Calderon describes it, U.S. banks are knowingly extending no-strings-attached loans to foreign banks in order to provide those banks with liquid capital, and this financing carries a low interest rate because the CCC guarantees the debt under the GSM-102 Program. (Id.). In exchange for facilitating this transaction, the foreign bank pays the U.S. exporter a fee, which provides the exporters or commodity trading entities with their revenue. (Id.). Plaintiff also describes transactions called “renting trade flows, ” in which agricultural exporters allow others to “rent, ” i.e. photocopy, their old bills of lading and other documents in exchange for a “rental fee.” (Id. ¶ 27). The ability to rent others' bills of lading, rather than needing to recycle one's own, has expanded the number of commodity traders that can participate as “exporters” in these transactions under the Program. (Id. ¶¶ 27-29).

         According to Plaintiff, synthetic letters of credit bear certain hallmarks that indicate that they are used in structured trade finance transactions. These are:

(1) language in the LC indicating that “presentation of documents would be acceptable despite ‘any and all discrepancies'” and that “documents shall be acceptable as presented, ” as opposed to requiring “complying presentations of documents;” [sic] (2) permitting photocopies of bills of lading and not requiring the originals, which are the Consignee's title to the shipped goods and typically are the underlying security in the LC; and (3) the LC was issued after the BLs and after the goods were loaded on board the vessels transporting the goods.

(Pl. Rep. at 9 (citing Fortis Bank (Nederland) N.V. v. Abu Dhabi Islamic Bank, 936 N.Y.S.2d 58, 2010 N.Y. Misc. LEXIS 6658, at *11-12 (N.Y. Sup. Ct. August 25, 2010))). Calderon also requests that the court conduct an in camera review of the transaction documents, which he asserts would confirm that the transactions are synthetic, because “the BL parties (Actual Exporter and Consignee) are different from the LC and commercial invoice parties (GSM Exporter, GSM Importer and Intervening Purchaser).” (Pl. Mem. at 16).

         Defendant FAS does not outright dispute the existence of synthetic transactions in the Program, but instead argues against the need for in camera review on the grounds that “FAS personnel who work daily with the GSM-102 program cannot determine by the face of the responsive records (redacted or unredacted) whether the underlying structure of the transactions were ‘synthetic transactions' that used ‘rental trade flows.'” (Third Klusaritz Decl. ¶ 9 (ECF No. 47-2)). FAS further states that, despite Calderon's characterization, “acceptable” Program transactions can be complex and can involve numerous parties, with arrangements such that parties X and Y may appear on a bill of lading as the shipper and consignee, while parties A and B appear on the guarantee application and commercial invoices as the exporter and importer. (See Id. ¶¶ 9-11). This directly contradicts Calderon's assertion that only synthetic transactions would have different parties on the bill of lading and the guarantee application or commercial invoice.

         Moreover, FAS notes that a letter of credit dated after a bill of lading is not indicative of a synthetic transaction, since this is explicitly allowed under the Program regulations. (Id. ¶ 17 (citing 7 C.F.R. § 1493.100(g)(3))). Finally, FAS concludes by saying, in essence, “so what?”- arguing that even if the transactions were synthetic, the submitters still engaged in competitive transactions and would face the same harms upon disclosure of the redacted information, meaning that any focus on the synthetic nature of transactions is misplaced or irrelevant in this court's Exemption 4 analysis. (See Id. ¶ 15).

         Calderon's knowledge of the Program and any synthetic trading occurring within it come from his years operating Southern Cross Advisors LLC, which in FY 2009 and FY 2010 participated in the Program. (Calderon Decl. ¶ 1). Since 2010, he has not participated in the Program. (Id. ¶ 44). In May 2015, FAS suspended him from participating in any federal government program, including the GSM-102 Program. (Id.). In connection with his participation in the GSM-102 Program and engaging in synthetic trading, Calderon was indicted by a grand jury on February 20, 2015 in the U.S. District Court for the District of Connecticut on twenty-three counts of wire fraud, bank fraud, false statements, money laundering, and conspiracy to commit wire fraud and bank fraud, along with co-defendants Brett Lillemoe and Sarah Zirbes. See Indictment, ECF No. 1 (Feb. 20, 2015) (Case No. 3:15-cr-00025-JCH). He pleaded not guilty on all counts. (Calderon Decl. ¶ 44). After a five-week jury trial, Calderon was convicted on November 9, 2016 of one count of conspiracy and one count of wire fraud. See Jury Verdict Form, ECF No. 324 (Nov. 9, 2016) (Case No. 3:15-cr-00025-JCH). He is scheduled to be sentenced on March 24, 2017. See Order (ECF No. 356) (Feb. 1, 2017) (Case No. 3:15-cr-00025-JCH).

         B. Calderon's FOIA Request and the Present Litigation

         On July 17, 2013, Calderon submitted a FOIA request to FAS seeking specific financial documents that had been submitted to FAS under the GSM-102 Program. (Ex. 1 to Calderon Decl. (ECF No. 39-5 at 16-17)). Specifically, Calderon requested:

• All records related to claims for loss of guarantees covering the defaults of banks in Ukraine, Kazakhstan, and Russia.
• All records related to the guarantees described in the previous bullet point, including but not limited to guarantee applications with amendments, related sales contracts, the guarantees, amended guarantees, evidence of export reports, and assignment notifications.
• All records of annual compliance reviews of all program exporters related to guarantees covering banks in any country in the Eurasia Region or in Russia from FY 2002 to FY 2012.
• All records related to the guarantees described in the previous bullet point, including but not limited to guarantee applications with amendments, related sales contracts, the guarantees, amended guarantees, evidence of export reports, and assignment notifications.

(Id.). Approximately eight months later, after receiving no documents from FAS, Calderon filed this litigation on March 18, 2014. (ECF No. 1).

         In April 2014, FAS identified approximately 9, 000 responsive documents. (See Second Klusaritz Decl. ¶ 12). After determining that some of these records might contain confidential commercial information (“CCI”), as required by Executive Order 12, 600, FAS requested input from six companies and six banks that had submitted the on whether the records contained CCI. (Id. ¶¶ 12-14). FAS received responses from five of the exporters and all six of the banks. (Id. ¶¶ 15-16). Of the exporters, Bunge, Cargill, GDC Trading, and GSTS objected to disclosure, Agritrade did not respond, and Grove Services responded that it had no objection. (Id.). Of the banks, Deutsche Bank and Bank of New York objected on behalf of their clients, and Union Bank of California, Rabobank Nederland, UniCredit Bank, and Cobank did not object. (Id.).

         In October 2014 and January 2015, FAS produced 9, 212 pages of responsive documents in three batches to Calderon. (Id. ¶¶ 17-22, 32). FAS organized these responsive records into three categories: registration files, claim files, and compliance files. The registration files contain “applications for GSM payment guarantees; amendments to GSM payment guarantees; email correspondence relating to those applications; CCC Export Credit Guarantee Program Payment Guarantee Forms (‘Form CCC-627s'); evidence of export reports; internal GSM System delivery summary reports; requests for payment guarantee amendments; and notices of default (if applicable).” (Id. ¶ 33). The claim files contain “CCC payment vouchers, claims calculation worksheets, claims checklists; instrument of subrogation and assignment; claim for loss letters; evidence of export reports; copies of payment schedules; invoices; bills of lading; letters of credit and related SWIFT messages; financing agreements; and CCC Export Credit Guarantee Program Payment Guarantee Forms (‘Form CCC-627s').” (Id. ¶ 34). Finally, the compliance files category includes “validation review checklists, applications for credit guarantees; CCC Export Credit Guarantee Program Payment Guarantee Forms (“Form CCC-627s”); amendments to GSM payment guarantees; evidence of export reports; letters of credit; veterinary certificates; funds transfer documents; contracts with buyers; invoices; bills of lading; certificates of entry; and correspondence.” (Id. ¶ 35).

         Before releasing the responsive documents, FAS made significant redactions. These included “the names, signatures and contact information (including addresses, telephone numbers, and email addresses) of employees of exporters, bank officials, and other private individuals with whom the exporters conducted transactional business.” (Id. ¶ 45). FAS asserts that these redactions were proper under FOIA Exemption 6. FAS additionally made extensive redactions under FOIA Exemption 4 of “unit pricing data, quantity data which, in conjunction with guarantee value, would allow competitors to ascertain unit price information, certain contractual terms, and identities of partners of these companies in their trade transactions (including foreign banks, buyers, shippers, consignees, notify parties, letter of credit parties, forwarders, and intervening purchasers).” (Id. ¶ 57). The Second Klusaritz Declaration lists the types of redacted information, and justifications for each of those redactions, for eight types of registration files (id. ¶ 61(a)-(h)), eleven types of claims files (id. ¶ 62(a)-(k)), and thirteen types of compliance files (id. ¶ 63(a)-(m)).

         In June 2015, both parties filed cross motions for summary judgment as to the appropriateness of these redactions. (ECF Nos. 23, 24). In August 2015, after the court determined that Calderon's reply brief (ECF No. 32) failed to comply with Local Civil Rule 7(h), the court found it in the interest of justice to order new summary judgment briefing. FAS subsequently filed its motion in September 2015 (ECF No. 37), and Plaintiff filed his cross-motion in October 2015 (ECF No. 39). In May 2016, the court additionally required FAS to file a brief notice responding to certain arguments raised by Calderon in his reply brief, and FAS did so in June 2016. The court held oral argument on December 14, 2016.


         Summary judgment is appropriate where the record shows there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Waterhouse v. District of Columbia, 298 F.3d 989, 991 (D.C. Cir. 2002). In determining whether a genuine issue of material fact exists, the court must view all facts in the light most favorable to the non-moving party. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). A fact is material if “a dispute over it might affect the outcome of a suit under governing law; factual disputes that are ‘irrelevant or unnecessary' do not affect the summary judgment determination.” Holcomb v. Powell, 433 F.3d 889, 895 (D.C. Cir. 2006) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). An issue is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. (quoting Anderson, 477 U.S. at 248). The party seeking summary judgment “bears the heavy burden of establishing that the merits of his case are so clear that expedited action is justified.” Taxpayers Watchdog, Inc., v. Stanley, 819 F.2d 294, 297 (D.C. Cir. 1987).

         FOIA cases are typically and appropriately decided on motions for summary judgment. Brayton v. Office of the U.S. Trade Rep., 641 F.3d 521, 527 (D.C. Cir. 2011). Agencies bear the burden of justifying withholding of any records, as FOIA requires the “strong presumption in favor of disclosure.” Dep't of State v. Ray, 502 U.S. 164, 173 (1991). The court therefore analyzes all underlying facts and inferences in the light most favorable to the FOIA requester, even ...

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