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Bank merger information can stay secret, court says

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  1. Freedom of Information
NEWS MEDIA UPDATE   ·   SECOND CIRCUIT   ·   Freedom of Information   ·   Sep. 18, 2006

NEWS MEDIA UPDATE   ·   SECOND CIRCUIT   ·   Freedom of Information   ·   Sep. 18, 2006

Bank merger information can stay secret, court says

  • By “voluntarily” offering information the government had the power to compel, a bank is exempt from disclosure, an appeals court ruled.

Sep. 18, 2006  ·   Information submitted to the government as part of the bank merger application process need not be revealed under the Freedom of Information Act if the government did not compel the bank to include the information, a federal appellate court ruled last week.

The government’s “mere legal authority to compel the production of information” is not sufficient to make otherwise confidential commercial information subject to disclosure under FOIA, Judge Jane Restani wrote for the U.S. Court of Appeals in New York (2nd Cir.).

The dispute centered on the contents of a 2004 merger application made by Wachovia and SouthTrust banks to the Board of Governors of the Federal Reserve System. The Inner City Press/Community on the Move, a consumer organization that reports on the alleged predatory lending practices of banks, filed a FOIA request with the board seeking access to a document in the application that detailed Wachovia’s relationships with subprime lenders.

Wachovia, after receiving a letter from the board saying the information could be helpful in processing the application, described its dealings with subprime lenders in an exhibit to its merger application and requested the exhibit be treated confidentially.

Though confidential commercial information is typically exempt from release under FOIA, Inner City Press argued that the board’s letter to Wachovia was tantamount to a formal request for the information. Such mandatory disclosures on a merger application would not be considered “confidential” for FOIA purposes. Therefore the question for the court was whether Wachovia had acted voluntarily.

Restani wrote that the Board’s letter to Wachovia was “too amorphous” to be considered a formal demand for information on the bank’s dealings with subprime lenders.

Furthermore, Restani stated, to construe disclosures such as Wachovia’s as non-confidential would impair the government’s ability to obtain information because it would force the government to more frequently undertake a more time-consuming compulsory process of obtaining information. The courts should not interfere with the executive agency’s discretion as to how it exercises its regulatory authority to collect information, Restani wrote.

David Vladeck, a professor at Georgetown University Law Center who argued the case for the Inner City Press, said the government’s power to compel — not whether the power is exercised — should determine what must be disclosed under FOIA. Otherwise, he said, banks have an incentive to withhold information from merger applications until they are informally asked for it.

“What troubles me is that the court has set up an elaborate but easily followed road map to end-run FOIA,” Vladeck said.

Despite its ruling that the bank’s disclosure was voluntary, the appeals court sent the case back to the trial court to rule on another legal issue that could force the government to release the documents anyway.

Inner City Press argued the information in the bank’s filings is contained in other government documents and thus already in the public domain. If Inner City Press can better support that assertion, the appeals court stated, the information would not be considered confidential and should be disclosed.

Vladeck was confident Inner City Press would be able to prove that in the lower court, but he was concerned about the larger impact of the ruling on access to commercial information. He said the court’s determination of what constitutes mandatory disclosure is troubling, especially because the decision comes from an appeals court that encompasses New York, the country’s financial epicenter.

“This is a regrettable anti-FOIA ruling,” Vladeck said.

(Inner City Press/Community on the Move v. Board of Governors of the Federal Reserve System; Media Counsel: David C. Vladeck, Georgetown University Law Center, Washington, D.C.)NW

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