Opinion ID: 218449
Heading Depth: 2
Heading Rank: 1

Heading: Inter-Agency or Intra-Agency Memoranda

Text: The Board concedes that the Federal Reserve Banks, including the FRBNY, are not federal agencies and therefore the withheld documents are not inter-agency memoranda. The 9 Because we conclude that Exemption 5 shields from disclosure all of the withheld documents, we do not reach the applicability vel non of Exemption 8, which allows an agency to withhold disclosure of a record “contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions.” 5 U.S.C. § 552(b)(8). 9 Board further concedes that the Reserve Banks are not components of the Board, which concession would appear to disqualify the withheld documents from constituting intraagency memoranda or letters. Under the “consultant corollary” to Exemption 5, however, we interpret “intra-agency” “to include agency records containing comments solicited from nongovernmental parties.” Nat’l Inst. of Military Justice v. U.S. Dep’t of Defense (NIMJ), 512 F.3d 677, 680, 682 (D.C. Cir.), cert. denied, 129 S. Ct. 775 (2008). “When an agency record is submitted by outside consultants as part of the deliberative process, and it was solicited by the agency, we find it entirely reasonable to deem the resulting document to be an ‘intraagency’ memorandum for purposes of determining the applicability of Exemption 5.” Id. at 680 (quoting Ryan v. Dep’t of Justice, 617 F.2d 781, 790 (D.C. Cir. 1980)). Thus we held in NIMJ that the consultant corollary protected opinions and recommendations submitted by non-governmental lawyers to the United States Department of Defense regarding the establishment of military commissions to try suspected terrorists after the September 11, 2001 attacks. Id. at 678-79. McKinley does not dispute the “consultant corollary” but challenges its application to the withheld documents on two grounds. First, in reliance on the holding in Department of Interior v. Klamath Water Users Protective Ass’n, 532 U.S. 1 (2001), he argues the Board failed to demonstrate that the FRBNY’s interest is identical to that of the Board. At issue in Klamath was a FOIA request submitted to the United States Department of the Interior’s Bureau of Indian Affairs (Bureau) seeking disclosure of communications between the Bureau and certain Indian tribes—namely, six documents prepared by Indian tribes at the Bureau’s request and one document prepared by the Bureau, all of which related to the allocation of water rights among competing users/uses. 532 U.S. at 6. The United States Supreme Court held that the requested documents were not protected from disclosure under Exemption 5. The Court noted 10 that in the “typical” case in which a court applies the consultant corollary, “the consultant does not represent an interest of its own, or the interest of any other client, when it advises the agency that hires it.” Id. at 11. “[The consultant’s] only obligations are to truth and its sense of what good judgment calls for, and in those respects the consultant functions just as an employee would be expected to do.” Id. The Indian tribes, by contrast, “necessarily communicate with the Bureau with their own, albeit entirely legitimate, interests in mind.” Id. at 12. Although that “fact alone distinguishes tribal communications from the consultants’ examples recognized by several Courts of Appeals,” the Court explained that the “distinction is even sharper, in that the [Indian] Tribes are self-advocates at the expense of others seeking benefits inadequate to satisfy everyone.” Id. Lest there be any confusion, the Court restated the “dispositive point”: “that the apparent object of the Tribe’s communications is a decision by an agency of the Government to support a claim by the Tribe that is necessarily adverse to the interests of competitors.” Id. at 14. Unlike the Indian tribes, the FRBNY “[did] not represent an interest of its own, or the interest of any other client, when it advise[d] the [Board]” on the Bear Stearns loan. Id. at 11. As McKinley’s counsel acknowledged at oral argument, the FRBNY is an “operating arm” of the Board. Oral Arg. 11:0011:05. McKinley nonetheless claims that the FRBNY represented its own interest in its consultations with the Board regarding Bear Stearns because the FRBNY had an independent statutory duty to “obtain evidence that [Bear Stearns was] unable to secure adequate credit accommodations from other banking institutions” before making the loan. See 12 U.S.C. § 343(A). That the FRBNY had to obtain such evidence before it could approve the loan authorized by the Board does not mean its interest diverged from the Board’s interest, however, and to claim otherwise, we believe, misconstrues the nature of the Federal Reserve System. The Board, together with the Federal 11 Open Market Committee—a body composed of the Board members and five presidents or first vice presidents of the Reserve Banks, 12 U.S.C. § 263—are statutorily mandated to “maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates,” 12 U.S.C. § 225a. See Fasano v. Fed. Reserve Bank of N.Y., 457 F.3d 274, 277-78 (3d Cir. 2006) (“The individual Federal Reserve Banks serve as the foundation for the Federal Reserve System. . . . The individual Federal Reserve Banks carry out the monetary policy . . . formulated [by the Federal Open Market Committee]. The Board . . . loosely oversees the Federal Reserve Banks’ operations.”), cert. denied, 549 U.S. 1115 (2007). Board regulations make clear that “[t]he Federal Reserve System extends credit with due regard to the basic objectives of monetary policy and the maintenance of a sound and orderly financial system.” 12 C.F.R. § 201.1(b). As noted, the Board and Reserve Banks work together “to assist in achieving national economic goals through [the Reserve System’s] influence on the availability and cost of bank reserves, bank credit, and money.” Reuss v. Balles, 584 F.2d 461, 462 (D.C. Cir. 1978). “The key to success of the [Reserve] System is harmonious interaction between and among [its] component parts.” Id. Statutes, regulations and case law make clear, therefore, that the Board and the Reserve Banks share a common goal, namely “the maintenance of a sound and orderly financial system.” 12 C.F.R. § 201.1(b). That the Congress requires both the Board and the relevant Reserve Bank (here, FRBNY) separately to determine that the loan made to Bear Stearns through JP Morgan promotes the maintenance of a sound and orderly financial system does not mean that the Board’s and the FRBNY’s interests diverged in deciding to make the loan. 12 McKinley also claims the Board failed to show it solicited the withheld material from the FRBNY as our precedent requires. See, e.g., NIMJ, 512 F.3d at 680 (“[A]n agency record . . . submitted by outside consultants as part of the deliberative process[] and . . . solicited by the agency [is] an ‘intra-agency’ memorandum for purposes of determining the applicability of Exemption 5.” (emphasis added) (internal quotation marks omitted)); id. at 681, 683; Ryan, 617 F.2d at 790 (withheld records “were generated by an initiative from the Department of Justice, i.e., the questionnaire sent out by the Department to the Senators”). The Stefansson declaration, however, adequately demonstrates that the Board solicited the material from the FRBNY. When news of Bear Stearns’s financial straits reached the Board, it began to focus on the effects of a Bear Stearns bankruptcy on the financial markets and particularly on LCBOs and other organizations supervised by the Board. Stefansson Decl. ¶ 8. The Board acted against a “backdrop” of significant turmoil and uncertainty in the financial markets. Id. ¶ 7. The deterioration of the U.S. housing market late in the summer of 2007 precipitated a sharp rise in uncertainty in financial markets about the value of structured or securitized assets. As demand for these products fell, funding pressures increased for a variety of financial institutions. As uncertainty grew over the magnitude of losses at financial institutions, these institutions became unwilling to lend to each other even against high-quality collateral, asset prices fell, and the availability of borrowing declined significantly. As a result, financial institutions faced severe liquidity pressures. These pressures accelerated rapidly between mid-January and mid-March 2008 . . . . If left unabated, this dynamic posed a risk of widespread insolvencies and severe and protracted damage to the financial system and, ultimately, to the economy as a whole. 13 Id. ¶ 6. The Board thus found itself reacting to what it believed to be an emergency, as evidenced by its decision “to provide temporary emergency financing to Bear Stearns.” Thro Decl. Ex. A (minutes of Board 3/14/08 meeting) (emphasis added). “[A]s part of the Board’s consideration of potential responses to Bear Stearns’ [sic] funding difficulties” and “in accordance with well-established supervisory processes, Board and Reserve Bank staff responsible for LCBO supervision surveyed the LCBOs for purposes of assessing the LCBOs’ real-time exposures to Bear Stearns.” McKinley, 744 F. Supp. 2d at 136 (quoting Stefansson Decl. ¶ 8). The monitoring of LCBOs and advising the Board of their financial condition “is administered at the Federal Reserve Banks.” Stefansson Decl. ¶ 2; see also 12 U.S.C. § 248(a)(1) (Board may “examine at its discretion the accounts, books, and affairs of each Federal reserve bank and of each member bank and . . . require such statements and reports as it may deem necessary”); id. § 325 (Federal Reserve member banks are “subject to examinations made by direction of the [Board] or of the Federal reserve bank by examiners selected or approved by the [Board]”); id. § 483 (“Every Federal reserve bank shall at all times furnish to the [Board] such information as may be demanded concerning the condition of any member bank within the district of the said Federal reserve bank.”). Thus, to aid in its deliberative process, the Board sought information from the FRBNY about the financial condition and exposures of institutions monitored by the FRBNY. The FRBNY did not simply provide the information, unprompted, to the Board. Accordingly, we conclude the withheld material constitutes “intra-agency memorandums or letters” under FOIA Exemption 5. We turn now to the second prong of Exemption 5.