Federal Open Market Comm. v. Merrill
443 U.S. 340 (1979)

Annotate this Case

U.S. Supreme Court

Federal Open Market Comm. v. Merrill, 443 U.S. 340 (1979)

Federal Open Market Committee of the

Federal Reserve System v. Merrill

No. 77-1387

Argued December 6. 1978

Decided June 2, 1979

443 U.S. 340

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Syllabus

This case presents the question whether the Freedom of Information Act (FOIA) is violated by petitioner's practice, authorized by regulation, 12 CFR § 271.5 (1978), of withholding certain monetary policy directives from the public during the month they are in effect, such directives being published in full in the Federal Register at the end of the month. To implement its authority to conduct open market operations of the Federal Reserve System, petitioner has established a combined investment pool for all Federal Reserve banks, administered by the Account Manager. Petitioner meets approximately once a month to review the overall state of the economy and consider the appropriate course of monetary and open market policy. Its principal conclusions are embodied in a "Domestic Policy Directive," which indicates in general terms whether petitioner wishes to follow an expansionary, deflationary, or unchanged monetary policy in the period ahead, and which includes specific tolerance ranges for the growth in the money supply and for the federal funds rate. The Account Manager is guided by the Domestic Policy Directive in his transactions with dealers who trade in Government securities. A Domestic Policy Directive exists as a document for approximately one month before it appears in the Federal Register, by which time it has been supplanted by a new Directive. Respondent, who had been denied immediate access under the FOIA to certain records of petitioner's policy actions, instituted suit for declaratory and injunctive relief against the operation of 12 CFR § 271.5 and the policy of delayed disclosure. Without expressly considering petitioner's contention that immediate disclosure of Domestic Policy Directives and tolerance ranges would interfere with the conduct of national monetary policy, the District Court entered judgment for respondent, holding, inter alia, that the Directives were "statements of general policy" which, under the FOIA, had to be "currently" published in the Federal Register; that the 1-month delay failed to satisfy the current publication requirement.; and that the Directives could not be withheld under Exemption 5 of the FOIA, which applies to documents that are

"inter-agency or intra-agency memorandums or letters which would not be

Page 443 U. S. 341

available by law to a party . . . in litigation with the agency."

The Court of Appeals affirmed, also expressing no opinion about petitioner's assertion that immediate disclosure of Domestic Policy Directives and tolerance ranges would seriously interfere with the conduct of national monetary policy.

Held:

1. Petitioner's Domestic Policy Directives are "intra-agency memorandums" within the meaning of Exemption 5 of the FOIA. Petitioner is clearly an "agency" as that term is defined in the Administrative Procedure Act, and the Directives are essentially petitioner's written instructions to the Account Manager, a subordinate official of the agency. The instructions are binding only upon the Account Manager, and neither establish rules that govern the adjudication of individual rights nor require particular conduct or forbearance by any member of the public. Pp. 443 U. S. 352-353.

2. Although Exemption 5 does not confer general authority upon an agency, without regard to any privilege enjoyed by the Government in the civil discovery context, to delay disclosure of intra-agency memorandums that would undermine the effectiveness of the agency's policy if released immediately, nevertheless Exemption 5 does incorporate a qualified privilege for confidential commercial information, at least to the extent that this information is generated by the Government itself in the process leading up to awarding a contract. See Fed.Rule Civ.Proc. 26(c) (7). Pp. 443 U. S. 353-360.

3. Although petitioner's Domestic Policy Directives can fairly be described as containing confidential commercial information generated in the process of awarding a contract, it does not necessarily follow that they would be protected against immediate disclosure in the civil discovery process. If the Directives contain sensitive information not otherwise available, and if immediate release of the Directives would significantly harm the Government's monetary functions or commercial interests, then a slight delay in the publication of the Directives, such as that authorized by 12 CFR § 271.5, would be permitted under Exemption 5. Determination of whether, or to what extent, the Directives would in fact be afforded protection in civil discovery must await the development of a proper record on remand. If the District Court concludes that the Directives would be afforded protection, then it should also consider whether the operative portions of the Directives can feasibly be segregated from the purely descriptive materials therein, and the latter made subject to disclosure or publication without delay. See EPA v. Mink,410 U. S. 73, 410 U. S. 91. Pp. 443 U. S. 361-364.

184 U.S.App.D.C. 203, 565 F.2d 778, vacated and remanded.

Page 443 U. S. 342

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, MARSHALL, POWELL, and REHNQUIST, JJ., joined. STEVENS, J., filed a dissenting opinion, in which STEWART, J., joined in part, post, p. 443 U. S. 364.

MR. JUSTICE BLACKMUN delivered the opinion of the Court.

The Federal Open Market Committee has a practice, authorized by regulation, 12 CFR § 271.5 (1978), [Footnote 1] of withholding

Page 443 U. S. 343

certain monetary policy directives from the public during the month they are in effect. At the end of the month, the directives are published in full in the Federal Register. The United States Court of Appeals for the District of Columbia Circuit held that this practice violates the Freedom of Information Act, 5 U.S.C. § 552. 184 U.S.App.D.C. 203, 565 F.2d 778 (1977). We granted certiorari on the strength of the Committee's representations that this ruling could seriously interfere with the implementation of national monetary policy. 436 U.S. 917 (1978).

I

Open market operations -- the purchase and sale of Government securities in the domestic securities market -- are the most important monetary policy instrument of the Federal Reserve System. [Footnote 2] When the Federal Reserve System buys securities in the open market, the payment is ordinarily credited in the reserve account of the seller's bank, increasing the total volume of bank reserves. When the Federal Reserve System sells securities on the open market, the sales price usually is debited in the reserve account of the buyer's bank, decreasing the total volume of reserves. Changes in the volume of bank reserves affect the ability of banks to make loans

Page 443 U. S. 344

and investments. [Footnote 3] This, in turn, has a substantial impact on interest rates and investment activity in the economy as a whole.

The Federal Open Market Committee (FOMC or Committee), petitioner herein, by statute has exclusive control over the open market operations of the entire Federal Reserve System. 12 U.S.C. 263(b). The FOMC [Footnote 4] is charged with conducting open market operations "with a view to accommodating commerce and business and with regard to their bearing upon the general credit situation of the country." § 263(c). To implement this authority, the Committee has established a combined investment pool for all Federal Reserve banks, known as the System Open Market Account. A senior officer of the Federal Reserve Bank of New York is regularly appointed Account Manager of the System Open Market Account.

The FOMC meets approximately once a month to review the overall state of the economy and consider the appropriate course of monetary and open market policy. The Committee's principal conclusions are embodied in a statement called the Domestic Policy Directive. The Directive summarizes the economic and monetary background of the FOMC's deliberations and indicates in general terms whether the Committee wishes to follow an expansionary, deflationary, or unchanged monetary policy in the period ahead. The Committee also attempts to agree on specific tolerance ranges

Page 443 U. S. 345

for the growth in the money supply and for the federal funds rate. [Footnote 5] The recent practice of the Committee has been to include these tolerance ranges in the Domestic Policy Directive. [Footnote 6]

Page 443 U. S. 346

The day-to-day operations of the Account Manager are guided by the Domestic Policy Directive and associated tolerance ranges, and by a daily conference call with the staff and at least one member of the FOMC. Subject to this oversight, the Manager has broad discretion in implementing the Committee's policy. In transacting business for the System Open Market Account, he deals with about 25 dealers who actively trade in United States Government and federal agency securities. Roughly half of these dealers are departments of large commercial banks; the others include large investment firms and smaller firms that specialize in Government securities. These dealers trade primarily for their own account. App. 33. The Federal Reserve Board is required by statute to keep a record of all policy actions taken by the FOMC with respect to open market operations. 12 U.S.C. § 247a. To comply with this requirement, the FOMC secretariat prepares a document during the month after each Committee meeting. This document is called the Record of Policy Actions. It contains a general review of economic and monetary conditions at the time of the meeting, the text of the Domestic Policy Directive, any other policy actions taken by the Committee, the votes on these actions, and the dissenting views, if any. A draft of the Record of Policy Actions is distributed to the participants at the next meeting of the Committee for their comments, and is revised and released for publication in the Federal Register a few days later. 41 Fed.Reg. 22261 (1976). In other words, the Record of Policy Actions is published in the Federal Register almost as soon as it is drafted and approved in final form by the Committee. [Footnote 7] The Domestic

Page 443 U. S. 347

Policy Directive, however, exists as a document for approximately one month before it makes its first public appearance as part of the Record of Policy Actions. Moreover, by the time the Domestic Policy Directive is released as part of the Record of Policy Actions, it has been supplanted by a new Directive, and is no longer the current and effective policy of the FOMC.

II

Respondent, when this action was instituted in May, 1975, was a law student at Georgetown University Law Center, Washington, D.C. App. 8. The complaint alleged that he had "developed a strong interest in administrative law and the operation of agencies of the federal government," and had formed a desire to study "the process by which the FOMC regulates the national money supply through the frequent adoption of domestic policy directives." Ibid.

In pursuit of these professed academic interests, respondent in March, 1975, through counsel, filed a request under the Freedom of Information Act (FOIA) seeking the

"[r]ecords of policy actions taken by the Federal Open Market Committee at its meetings in January, 1975, and February, 1975, including, but not limited to, instructions to the Manager of the Open Market Account and any other person relating to the purchase and sale of securities and foreign currencies."

Id. at 13. [Footnote 8]

Page 443 U. S. 348

The FOMC denied the request, explaining that the Records of Policy Actions, including the Domestic Policy Directive, were available only on a delayed basis under he policy set forth in 12 CFR § 271.5. [Footnote 9] An administrative appeal resulted in release of the requested documents, but only because the withholding period by then had expired. Governor Robert C. Holland of the Federal Reserve Board, on behalf of the Committee, wrote to respondent's counsel that the Committee remained firmly committed to what he described as "a legislative policy against premature disclosures which would impair the effectiveness of the operations of Government agencies." App. 21.

Respondent then instituted this litigation in the United States District Court for the District of Columbia, seeking declaratory and injunctive relief against the operation of 12 CFR § 271.5 and the policy of delayed disclosure. App. 7. The FOMC, in due course, moved for summary judgment and submitted affidavits from Committee members and staff that generally advanced two reasons why immediate disclosure of the Domestic Policy Directives and tolerance ranges would interfere with the FOMC's statutory functions.

First, the Committee argued that immediate release of the

Page 443 U. S. 349

Domestic Policy Directive and tolerance ranges would make it difficult to implement limited or gradual changes in monetary policy. Disclosure of the FOMC's monetary policy objectives would have an immediate "announcement effect," as market participants moved quickly to adjust their holdings of Government securities in anticipation of purchases or sales by the System Open Market Account. This would result in sudden price and interest rate movements, which might be considerably larger than the Committee contemplated and might be beyond the power of the FOMC or the Federal Reserve to control.

Second, the FOMC contended that immediate disclosure of the Directive and tolerance ranges would permit large institutional investors, who would have the means to analyze the information quickly and act rapidly in buying or selling securities, to obtain an unfair advantage over small investors.

Respondent submitted no counter-affidavits to these contentions, since he considered them "irrelevant" to the legal issues presented. Brief for Respondent 33-34, n. 12. The District Court apparently agreed. Without addressing the FOMC's affidavits, or entering any findings about the effect that premature disclosure might have on open market operations, the court granted summary judgment for respondent. 413 F.Supp. 494 (DC 1976). It held, as the FOMC had conceded that the Domestic Policy Directives were "statements of general policy . . . formulated and adopted by the agency" that, under 5 U.S.C. § 552(a)(1)(D), had to be "currently publish[ed] in the Federal Register for the guidance of the public." [Footnote 10] It further concluded that, by waiting until a new

Page 443 U. S. 350

Directive had been promulgated before publishing the preceding one, the FOMC was in violation of the "current publication" requirement. 413 F.Supp. at 505. Finally, the court rejected the Committee's contentions that the Domestic Policy Directives could be withheld under either Exemption 2 of the FOIA, relating to internal personnel rules and practices of an agency, or Exemption 5, relating to inter-agency or intra-agency memorandums or letters which would not be available to a party other than an agency in litigation with an agency. [Footnote 11]

On appeal to the United States Court of Appeals for the District of Columbia Circuit, the FOMC did not contest the ruling that the Domestic Policy Directives were "statements of general policy" that, under § 552(a)(1)(D), had to be "currently publish[ed]" in the Federal Register. Similarly, it did not challenge the conclusion that the 1-month delay failed to satisfy the current publication requirement. Moreover, the Committee abandoned the argument that the Directives were covered by Exemption 2. The Committee, instead, concentrated on the contention that premature disclosure would seriously disrupt the conduct of open market operations, and continued to urge that the policy of delayed disclosure was authorized by Exemption 5.

Page 443 U. S. 351

The Court of Appeals rejected the FOMC's Exemption 5 arguments. It held that the Domestic Policy Directives were not exempt from disclosure under the "executive" privilege attaching to predecisional communications. It also ruled that Exemption 5 was not designed to protect against premature disclosure of otherwise final decisions. Finally, it concluded that there was no other civil discovery privilege that could serve as a basis for holding that the Directives were exempt from disclosure under Exemption 5. Like the District Court, the Court of Appeals expressed no opinion about the FOMC's assertion that immediate disclosure of the Domestic Policy Directives and tolerance ranges would seriously interfere with the conduct of national monetary policy. If the assertion were true, the court suggested, Congress could specifically exempt this material from the prompt disclosure requirement of the FOIA. [Footnote 12] 184 U.S.App.D.C. 203, 565 F.2d 778 (1977).

III

This Court has had frequent occasion to consider the FOIA, [Footnote 13] and it is not necessary to describe its history and background in detail. It suffices to say that the purpose of the FOIA is

"to establish a general philosophy of full agency disclosure unless information is exempted under clearly delineated

Page 443 U. S. 352

statutory language."

S.Rep. No. 813, 89th Cong., 1st Sess., 3 (1965). The Act makes available to any person all agency records, which it divides into three categories: some must be currently published in the Federal Register, 5 U.S.C. § 552(a)(1); others must be "promptly publish[ed]" or made publicly available and indexed, § 552(a)(2); and all others must be promptly furnished on request, § 552(a)(3). It then defines nine specific categories of records to which the Act "does not apply." § 552(b). The district court is given jurisdiction to enjoin an agency from withholding agency records, and to order the production of any agency records improperly withheld. 552(a)(4)(b). The burden in any such proceeding is on the agency to establish that the requested information is exempt. Ibid.

At issue here is Exemption 5 of the FOIA, which provides that the affirmative disclosure provisions do not apply to "inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency." § 552(b)(5). Exemption 5, in other words, applies to documents that (a) are "inter-agency or intra-agency memorandums or letters," and (b) consist of material that "would not be available by law to a party . . . in litigation with the agency."

A

There can be little doubt that the FOMC's Domestic Policy Directives constitute "inter-agency or intra-agency memorandums or letters." FOMC is clearly an "agency" as that term is defined in the Administrative Procedure Act. 5 U.S.C. §§ 551(1), 552(e). And the Domestic Policy Directives are essentially the FOMC's written instructions to the Account Manager, a subordinate official of the agency. These instructions, although possibly of interest to members of the public, are binding only upon the Account Manager. The Directives do not establish rules that govern the adjudication of individual

Page 443 U. S. 353

rights, nor do they require particular conduct or forbearance by any member of the public. They are thus "intra-agency memorandums" within the meaning of Exemption 5.

B

Whether the Domestic Policy Directives "would not be available by law to a party . . . in litigation with the agency" presents a more difficult question. The House Report states that Exemption 5 was intended to allow an agency to withhold intra-agency memoranda which would not "routinely be disclosed to a private party through the discovery process in litigation with the agency. . . ." H.R.Rep. No. 1497, 89th Cong., 2d Sess., 10 (1966). EPA v. Mink,410 U. S. 73, 410 U. S. 86-87 (1973) recognized that one class of intra-agency memoranda shielded by Exemption 5 is agency reports and working papers subject to the "executive" privilege for predecisional deliberations. NLRB v. Sears, Roebuck & Co.,421 U. S. 132 (1975), confirmed this interpretation, and further held that Exemption 5 encompasses materials that constitute a privileged attorney's work product. Id. at 421 U. S. 154-155.

The FOMC does not contend that the Domestic Policy Directives are protected by either the privilege for predecisional communications or the privilege for an attorney's work product. [Footnote 14] Its principal argument, instead, is that Exemption 5 confers general authority upon an agency to delay disclosure of intra-agency memoranda that would undermine the effectiveness of the agency's policy if released immediately. This general authority exists, according to the FOMC, even if the memoranda in question could be routinely discovered by a party in civil litigation with the agency.

We must reject this analysis. First, since the FOMC does not indicate that the asserted authority to defer disclosure of

Page 443 U. S. 354

intra-agency memoranda rests on a privilege enjoyed by the Government in the civil discovery context, its argument is fundamentally at odds with the plain language of the statute. EPA v. Mink, 410 U.S. at 410 U. S. 85-86; NLRB v. Sears, Roebuck & Co., 421 U.S. at 421 U. S. 149. In addition, the Committee's argument proves too much. Such an interpretation of Exemption 5 would appear to allow an agency to withhold any memoranda, even those that contain final opinions and statements of policy, whenever the agency concluded that disclosure would not promote the "efficiency" of its operations or otherwise would not be in the "public interest." This would leave little, if anything, to FOIA's requirement of prompt disclosure, and would run counter to Congress' repeated rejection of any interpretation of the FOIA which would allow an agency to withhold information on the basis of some vague "public interest" standard. H.R.Rep. No. 1497, supra at 5, 9; S.Rep. No. 813, supra at 3, 5, 8; EPA v. Mink, 410 U.S. at 410 U. S. 78-80.

The FOMC argues, in the alternative, that there are several civil discovery privileges, in addition to the privileges for predecisional communications and an attorney's work product, that would allow a district court to delay discovery of documents such as the Domestic Policy Directives until they are no longer operative. The Committee contends that Exemption 5 incorporates each of these privileges, and that it thus shields the Directives from a requirement of immediate disclosure.

Preliminarily, we note that it is not clear that Exemption 5 was intended to incorporate every privilege known to civil discovery. See NLRB v. Robbins Tire Rubber Co.,437 U. S. 214, 437 U. S. 254 n. 12 (1978) (POWELL, J., concurring in part and dissenting in part). There are, to be sure, statements in our cases construing Exemption 5 that imply as much. See, e.g., Renegotiation Board v. Grumman Aircraft Corp.,421 U. S. 168, 421 U. S. 184 (1975) ("Exemption 5 incorporates the privileges which the Government enjoys under the relevant statutory and

Page 443 U. S. 355

case law in the pretrial discovery context"). Heretofore, however, this Court has recognized only two privileges in Exemption 5, and, as NLRB v. Sears, Roebuck & Co., 421 U.S. at 421 U. S. 150-154, emphasized, both these privileges are expressly mentioned in the legislative history of that Exemption. [Footnote 15] Moreover, material that may be subject to some other discovery privilege may also be exempt from disclosure under one of the other eight exemptions of FOIA, particularly Exemptions 1, 4, 6, and 7. [Footnote 16] We hesitate to construe Exemption 5 to incorporate a civil discovery privilege that would substantially duplicate another exemption. Given that Congress specifically recognized that certain discovery privileges were incorporated into Exemption 5, and dealt with other civil discovery privileges in exemptions other than Exemption 5, a claim that a privilege other than executive privilege or the attorney privilege is covered by Exemption 5 must be viewed with caution.

The most plausible of the three privileges asserted by the FOMC [Footnote 17] is based on Fed.Rule Civ.Proc. 26(C)(7), which

Page 443 U. S. 356

provides that a district court, "for good cause shown," may order

"that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way. [Footnote 18]"

The Committee argues that the Domestic Policy Directives constitute "confidential . . . commercial information," at least during the month in which they provide guidance to the Account Manager, and that they therefore would be privileged from civil discovery during this period.

The federal courts have long recognized a qualified evidentiary privilege for trade secrets and other confidential commercial information. See, e.g., E. I du Pont de Nemours Powder Co. v. Masland,244 U. S. 100, 244 U. S. 103 (1917); 8 J. Wigmore, Evidence § 2212, pp. 156-157 (McNaughton rev.1961). The Federal Rules of Civil Procedure provide similar qualified protection for trade secrets and confidential commercial information in the civil discovery context. Federal Rule Civ.Proc. 26(c)(7), which replaced former Rule 30(b) in 1970, was intended in this respect to "reflec[t] existing law." Advisory Committee's Notes on Fed.Rule Civ. Proc. 26, 28 U.S.C.App. p. 444. The Federal Rules, of course, are fully applicable to the United States as a party. See, e.g., United States v. Procter & Gamble Co.,356 U. S. 677, 356 U. S. 681 (1958); 4 J. Moore, Federal Practice

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