FDIC can keep plans confidential to avoid "competitive harm"

FDIC can keep plans confidential to avoid “competitive harm”

10/23/95

NEW YORK–The Federal Deposit Insurance Company does not have to release information about plans to erect a hotel on property it took over in receivership, a federal District Court in Manhattan ruled in mid-September. The parcel of land, an asset of a failed bank, is highly valued Manhattan waterfront property bordering a historic district.

In a joint venture, the bank had planned to build a 21-story hotel on the parcel. Its entrance would be a converted warehouse which actually exists within the historic district’s boundary. It is owned by the other party in the joint venture.

The judge told the requesters, state representative Jerrold Nadler and community and neighborhood groups who oppose the construction of the hotel, that even though, as a government agency, the FDIC does not have a competitive interest to protect, the harm that could be inflicted against the project by local and community groups is “nonetheless a competitive injury.”

In order to block release, the judge said, the government can use the proprietary exemption to the FOI Act. In the past the exemption has protected information submitted by someone outside the government when release would either cause substantial competitive harm or interfere with an agency’s ability to get voluntarily submitted information in the future.

The court acknowledged that disclosure would not cause the submitter of the information any harm because the bank no longer exists. Because the FDIC can force banks in receivership to hand over records, there is no threat to voluntary submission of records, the court conceded.

But because the FDIC ultimately tries to protect its own interest — maximization of the value of a receivership asset — it “steps into the shoes” of the failed bank, acquiring its rights, the court said, and thereby would suffer “competitive harm” if it had to disclose the development plans.

The court suggested that the proprietary exemption might be expanded to protect more records. For instance, the exemption might be used to protect “program effectiveness,” so long as courts do not allow agencies’ “ritual and unsubstantiated incantations” of “program effectiveness” to wipe out the broad disclosure mandate of the FOI Act, the court said.

Nadler’s district includes substantial waterfront area in Manhattan and he acted on behalf of local community groups including two other organizations which joined the suit. (Nadler v. FDIC; Requesters’ attorney: Jeffrey Buss, New York City)