Fairholme Funds, Inc. v. United States

In the United States Court of Federal Claims

No. 13-465C

(Filed Under Seal: September 20, 2016)

(Reissued for Publication: October 3, 2016) 1

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FAIRHOLME FUNDS, INC. et al., *

*

Plaintiffs, * Motion to Compel Discovery; RCFC 26(b);

* Presidential Communications Privilege;

v. * Deliberative Process Privilege; Bank

* Examination Privilege; In Camera Review;

THE UNITED STATES, * Vaughn Index

*

Defendant. *

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Charles J. Cooper, Washington, DC, for plaintiffs.

Kenneth M. Dintzer, United States Department of Justice, Washington, DC, for defendant.

OPINION AND ORDER

SWEENEY, Judge

Before the court is plaintiffs’ motion to compel the production of documents currently

being withheld by defendant on the grounds of (1) the presidential communications privilege, (2)

the deliberative process privilege, (3) the bank examination privilege, or (4) a combination

thereof. Following an in camera review of a sample of the disputed documents, and for the

reasons set forth below, the court grants plaintiffs’ motion.

Due to the length of this opinion, the court provides the following table of contents:

I. BACKGROUND .................................................................................................................2

A. Nature of Plaintiffs’ Case.........................................................................................2

B. Procedural History ...................................................................................................3

C. Instant Discovery Dispute .......................................................................................5

II. LEGAL STANDARDS .......................................................................................................6

A. RCFC 26(b)..............................................................................................................6

B. Privileges at Issue ....................................................................................................7

1. Presidential Communications Privilege .......................................................8

2. Deliberative Process Privilege ...................................................................11

1

This reissued Opinion and Order incorporates the agreed-to redactions proposed by the

parties on September 30, 2016. The redactions are indicated with bracketed ellipses (“[. . .]”).

3. Bank Examination Privilege ......................................................................16

III. DISCUSSION ....................................................................................................................20

A. Defendant’s Declarants ..........................................................................................20

1. Mr. Dickerson ............................................................................................20

2. Mr. Pearl ....................................................................................................20

3. Mr. McQuaid..............................................................................................21

B. BlackRock Documents...........................................................................................22

1. Deliberative Process Privilege ...................................................................23

2. Bank Examination Privilege ......................................................................28

C. FHFA Presentation on DTA ..................................................................................28

1. Deliberative Process Privilege ...................................................................29

2. Bank Examination Privilege ......................................................................31

D. Forecasts ................................................................................................................31

1. Deliberative Process Privilege ...................................................................33

2. Bank Examination Privilege ......................................................................35

E. Risk Assessment Memoranda ................................................................................36

F. DeLeo E-mail .........................................................................................................37

G. Housing Finance Reform .......................................................................................40

1. Deliberative Process Privilege ...................................................................44

2. Presidential Communications Privilege .....................................................48

H. Housing Policies ....................................................................................................50

I. PSPA Modifications...............................................................................................55

J. GSE Projections .....................................................................................................63

K. Valuation Reports ..................................................................................................68

L. Estimates for the President’s Budget .....................................................................72

M. Potential Implications of the Terms of the PSPAs.................................................76

N. Other Documents Listed on the Privilege Log ......................................................79

IV. CONCLUSION ..................................................................................................................80

I. BACKGROUND

A. Nature of Plaintiffs’ Case

In 2008, in response to the financial crisis, Congress enacted the Housing and Economic

Recovery Act of 2008 (“HERA”). Thereafter, acting pursuant to its authority under the HERA,

the Federal Housing Finance Agency (“FHFA”) placed the Federal National Mortgage

Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”)

(collectively, the “Enterprises”) into conservatorship. In addition, the United States Department

of the Treasury (“Treasury Department”), also acting pursuant to the HERA, entered into

agreements to purchase securities (“government stock”) from the Enterprises. On August 17,

2012, the FHFA and the Treasury Department announced the “Net Worth Sweep,” implemented

by a “Third Amendment” to the government stock documents. As a result of the Net Worth

Sweep, the dividend due on the government stock rose from 10% to 100% of all current and

future profits. According to plaintiffs, holders of noncumulative preferred stock issued by the

Enterprises, this decision effected a total usurpation of their dividends and eliminated their right

to receive a liquidation preference upon the dissolution, liquidation, or winding up of the

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Enterprises. Plaintiffs therefore claim that their property was taken without just compensation in

violation of the Fifth Amendment to the United States Constitution.

B. Procedural History

Plaintiffs filed their complaint on July 9, 2013. One month later, on August 9, 2013,

defendant filed a motion to stay all proceedings pending the resolution of various other cases—to

include another case before this court, a case pending before the United States Court of Appeals

for the Federal Circuit (“Federal Circuit”), and related cases pending in the United States District

Court for the District of Columbia (“district court”). Alternatively, defendant sought an

extension of time within which to file its answer. The court denied defendant’s motion for a stay

and ordered defendant to file its answer by December 9, 2013.

On October 29, 2013, the court entered an order of consolidation, coordination, and

appointment. First, the court consolidated Cacciapelle v. United States, No. 13-466C, American

European Insurance Co. v. United States, No. 13-496C, and Dennis v. United States, No. 13-

542C, under the Cacciapelle caption and docket number (the “Cacciapelle Consolidated

Action”), and ordered that any class action hereafter filed in or transferred to this court on behalf

of common or preferred shareholders of the Enterprises relating to the August 2012 Third

Amendment or related government actions be consolidated with the Cacciapelle Consolidated

Action. Second, the court ordered that any class action hereafter filed in or transferred to this

court on behalf of common or preferred shareholders of the Enterprises relating to the September

2008 conservatorship or related government actions be consolidated with Washington Federal v.

United States, No. 13-385C. Third, the court ordered the parties to coordinate discovery, motion

practice, case management and scheduling, and other pretrial proceedings, as appropriate, in the

Cacciapelle Consolidated Action, Fisher v. United States, No. 13-608C, Shipmon v. United

States, No. 13-672C, and Washington Federal (collectively, the “Representative Actions”).

Fourth, the court ordered the parties to coordinate discovery, motion practice, case management

and scheduling, and other pretrial proceedings, as appropriate, in Fairholme Funds, Inc. v. United

States, No. 13-465C, and Arrowood Indemnity Co. v. United States, No. 13-698C (collectively,

the “Individual Actions”). Together, the Representative Actions and the Individual Actions were

to be referred to as “the Coordinated Actions.” Finally, the court appointed interim co-lead class

counsel for both the Cacciapelle Consolidated Action and Washington Federal.

On December 9, 2013, in lieu of an answer, defendant filed a motion to dismiss pursuant

to Rules 12(b)(1) and (6) of the Rules of the United States Court of Federal Claims (“RCFC”).

Shortly thereafter, on December 20, 2013, plaintiffs filed a motion for a continuance to permit

jurisdictional discovery under RCFC 56(d). According to plaintiffs, defendant, in its motion to

dismiss, challenged various jurisdictional facts asserted by plaintiffs in their complaint, thereby

necessitating jurisdictional discovery. Alternatively, plaintiffs argued that if the court were to

consider matters outside the pleadings, defendant’s motion to dismiss would be converted into

one for summary judgment, thus necessitating discovery on factual issues beyond those related to

the court’s jurisdiction.

Specifically, plaintiffs sought discovery to refute defendant’s assertions that (1)

plaintiffs’ claims were not yet ripe because whether the Enterprises will be solvent in the future

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and whether the Enterprises will emerge from their conservatorships are both unknown, (2) the

court lacks jurisdiction over the FHFA because the FHFA is not the United States for purposes of

this court’s exercise of jurisdiction under the Tucker Act, and (3) plaintiffs have failed to state a

claim upon which relief can be granted for a Fifth Amendment taking. With regard to the third

assertion, plaintiffs sought discovery relating to the elements of their takings claim, see Penn

Cent. Transp. Co. v. City of N.Y., 438 U.S. 104, 124 (1978), to include information concerning

two of the three Penn Central factors: (1) the extent to which the regulation interfered with the

reasonableness of plaintiffs’ expectations regarding the Enterprises’ future profitability—the

financial health of the Enterprises in 2008 and expectations for their future viability, and (2) the

character of the governmental action—why the government entered into the Third Amendment. 2

On February 3, 2014, the court issued orders in Washington Federal and Fisher, directing

plaintiffs to indicate, by February 19, 2014, whether they, like the Fairholme plaintiffs, intended

to seek jurisdictional discovery. On February 26, 2014, following receipt of the parties’

responses, 3 the court granted plaintiffs’ motion for discovery. Specifically, the court concluded

that discovery regarding (1) the Enterprises’ future profitability, (2) the lifespan of the

conservatorships, and (3) the relationship between the FHFA and the Treasury Department

would enable the parties to resolve factual issues regarding the court’s jurisdiction. The court

further concluded that additional discovery regarding (1) the Enterprises’ future solvency; (2) the

reasonableness of plaintiffs’ expectations regarding the Enterprises’ future profitability; and (3)

the reasons why the government allowed the preexisting capital structure and stockholders to

remain in place, including whether this decision was based on the partial expectation that the

Enterprises would be profitable again in the future, would enable the parties to resolve factual

issues regarding plaintiffs’ ability to state a claim upon which relief could be granted for a Penn

Central regulatory taking.

Several months later, on July 16, 2014, the court granted in part and denied in part

defendant’s motion for a protective order. In that order, the court indicated that jurisdictional

discovery in this case would proceed in phases, beginning with the production of responsive

documents dating from April 1, 2008, through December 31, 2008, and from June 1, 2011,

through August 17, 2012. The court further directed defendant to respond to discovery requests

for nonprivileged information dating from August 18, 2012, through September 30, 2012,

regarding topics other than the future profitability of the Enterprises or whether and when the

conservatorships might end.

While discovery was ongoing, defendant filed, on June 8, 2015, a supplemental motion to

dismiss. Briefing on the motion was subsequently stayed. On July 29, 2015, the court issued an

amended protective order. A second amended protective order was issued on November 9, 2015.

2

The third Penn Central factor is the economic impact of the regulation.

3

Both the Washington Federal plaintiffs and the Fisher plaintiffs indicated that they did

not intend to seek jurisdictional discovery beyond that sought by the Fairholme plaintiffs.

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C. Instant Discovery Dispute

The instant motion to compel discovery became fully ripe on June 10, 2016. First,

plaintiffs complain that defendant’s production in this case has been “haphazard, inconsistent,

and overbroad.” Pls.’ Mot. 4-10. Plaintiffs then cite instances where, for example, (1)

documents have been produced, only to be clawed back; (2) documents have been flagged as

withheld for privilege but then not listed on the privilege log; (3) defendant, after being asked by

plaintiffs to reconsider certain privilege claims, subsequently produced numerous documents—

suggesting to plaintiffs that the original privilege claims were overly broad; and (4) documents

were produced only after plaintiffs indicated that they would be filing a motion to compel. Id.

Plaintiffs also claim that many of defendant’s specific privilege assertions “suffer from

serious deficiencies.” Id. at 2. With respect to the deliberative process privilege, plaintiffs argue

that (1) defendant failed to submit the requisite declaration from the appropriate agency head or

delegate in support of its assertion of the privilege, (2) defendant’s assertion of the privilege with

respect to FHFA documents is inconsistent with its litigation position that the FHFA is not the

United States, (3) there is reason to doubt that all of the withheld documents are in fact

deliberative and predecisional, and (4) the privilege is not absolute and in this case, plaintiffs’

need for the documents outweighs any interest defendant may have in keeping the documents

secret. Id. at 2-3. With respect to the bank examination privilege, plaintiffs argue that the

privilege was improperly asserted as to certain FHFA documents because the Enterprises are not

banks. Id. at 3. Finally, with respect to the presidential communications privilege, plaintiffs

claim that their need for the documents is substantial and that it outweighs defendant’s interest in

keeping the documents secret. Id.

Defendant advances several arguments in its response to plaintiffs’ motion. First,

defendant counters that plaintiffs are unfairly “‘picking the lint’ off the Government’s massive

document production,” and “criticizing actions that demonstrate the Government’s good faith

efforts to work with Fairholme to resolve privilege disputes.” Def.’s Resp. 1-2. Defendant also

contends that it has properly invoked the three claimed privileges and that plaintiffs’ asserted

need for the withheld documents “demonstrates a deep misunderstanding of the law governing

Fairholme’s takings claims.” Id. at 2-3. Defendant argues:

Properly pled takings claims are predicated on authorized actions

of the Government that eliminate or diminish a cognizable

property interest to an extent that requires the Government to pay

just compensation. Thus, takings law does not concern itself with

the subjective motivation issues that Fairholme insists are central

to this case; certainly, those issues are not relevant to the specific

topics of jurisdictional discovery authorized by the Court.

Accordingly, Fairholme cannot lay the foundation necessary to

overcome the deliberative process privilege, the bank examination

privilege, or the presidential communications privilege, and the

Court therefore should deny Fairholme’s motion.

Id. at 3.

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Pursuant to the court’s May 20 and May 25, 2016 orders, defendant submitted to the

court for in camera review hard copies of the documents identified in the Vaughn index attached

as Exhibit 1 to plaintiffs’ motion to compel. See Vaughn v. Rosen, 484 F.2d 820, 827-28 (D.C.

Cir. 1973). In addition, defendant submitted sworn declarations from agency head delegates

with respect to the three privileges claimed—the presidential communications privilege, the

deliberative process privilege, and the bank examination privilege. In their submissions, the

declarants asserted the privileges over nine categories of documents: (1) BlackRock documents,

(2) forecasts, (3) risk assessment memoranda, (4) housing finance reform, (5) housing policies,

(6) preferred stock purchase agreement (“PSPA”) modifications, (7) government sponsored

enterprise (“GSE”) projections, (8) valuation reports, and (9) potential implications of the terms

of the PSPAs; and three individual documents: (1) an FHFA presentation on deferred tax assets

(“DTA”), (2) the DeLeo e-mail, and (3) estimates for the President’s budget.

II. LEGAL STANDARDS

A. RCFC 26(b)

“RCFC 26(b)(1) is the general provision governing the scope of discovery.” Sparton

Corp. v. United States, 77 Fed. Cl. 10, 21 n.14 (2007). It provides:

Unless otherwise limited by court order, the scope of discovery is

as follows: Parties may obtain discovery regarding any

nonprivileged matter that is relevant to any party’s claim or

defense and proportional to the needs of the case, considering the

importance of the issues at stake in the action, the amount in

controversy, the parties’ relative access to relevant information, the

parties’ resources, the importance of the discovery in resolving the

issues, and whether the burden or expense of the proposed

discovery outweighs its likely benefit. Information within this

scope of discovery need not be admissible in evidence to be

discoverable.

RCFC 26(b)(1). RCFC 26(b) mirrors Rule 26(b) of the Federal Rules of Civil Procedure

(“FRCP”). 4 Sys. Fuels, Inc. v. United States, 73 Fed. Cl. 206, 215 (2006). The 1946 amendment

to FRCP 26(b) “ma[de] clear the broad scope of examination,” which included:

not only evidence for use at the trial but also inquiry into matters in

themselves inadmissible as evidence but which will lead to the

discovery of such evidence. The purpose of discovery is to allow a

broad search for facts, . . . or any other matters which may aid a

party in the preparation or presentation of his case.

4

“[T]o the extent permitted by this court’s jurisdiction,” the RCFC “must be consistent

with the Federal Rules of Civil Procedure . . . .” RCFC 83(a); see also Zoltek Corp. v. United

States, 71 Fed. Cl. 160, 167 (2006) (noting that interpretation of a rule of the FRCP “informs the

Court’s analysis” of the corresponding rule of the RCFC).

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FRCP 26 advisory committee’s note to 1946 amendment; see also Int’l Paper Co. v. United

States, 36 Fed. Cl. 313, 317 (1996) (citing RCFC 26 and stating that “we are similarly mindful of

the generally broad scope of discovery in this court”).

When FRCP 26(b)(1) was amended in 2000, the advisory committee “introduced a . . .

note of caution about the provision.” 8 Charles Alan Wright, Arthur R. Miller & Richard L.

Marcus, Federal Practice and Procedure § 2007 (3d ed. 2010). The amendments were “intend[ed

for] the parties and the court [to] focus on the actual claims and defenses involved in the action,”

FRCP 26(b)(1) advisory committee note to 2000 amendment, whereas previously parties “were

entitled to discovery of any information that was not privileged so long as it was relevant to the

‘subject matter involved in the pending action,’” 6 James Wm. Moore et al., Moore’s Federal

Practice ¶ 26.41 (3d ed. 2008) (quoting the 1983 version of FRCP 26(b)(1)). Accordingly, the

2000 amendments “narrowed the scope of party-controlled discovery to matters ‘relevant to any

party’s claim or defense.’” Id. (quoting FRCP 26(b)(1)). While courts would “retain[ ] authority

to order discovery of any matter relevant to the subject matter involved in the action for good

cause,” the amended rule was “designed to involve the court more actively in regulating the

breadth of sweeping or contentious discovery.” FRCP 26(b)(1) advisory committee’s note to

2000 amendment. Under the current standard, courts are advised to focus upon the parties’

specific claims or defenses when determining the scope of discovery. See id. Of course, “[t]his

does not mean that a fact must be alleged in a pleading for a party to be entitled to discovery of

information concerning that fact.” 6 Moore et al., supra, ¶ 26.41. Rather, “the fact must be

germane to a specific claim or defense asserted in the pleadings for information concerning it to

be a proper subject of discovery.” Id.

Finally, a party’s ability to obtain pretrial discovery has additional constraints. RCFC

26(b)(2)(C) authorizes a court to limit “[t]he frequency or extent of discovery otherwise allowed

by these rules” if: (1) the discovery sought is “unreasonably cumulative or duplicative, or can be

obtained from some other source that is more convenient, less burdensome, or less expensive”;

(2) “the party seeking discovery has had ample opportunity to obtain the information by

discovery in the action”; or (3) the proposed discovery is outside the scope permitted by RCFC

26(b)(1).” RCFC 26(b)(2)(C)(i)–(iii). Alternatively, the court may limit discovery in response

to a motion filed pursuant to RCFC 26(c).

B. Privileges at Issue

The “public’s right to know” is a basic tenant of our democracy: “[T]he public . . . has a

right to every man’s evidence.” United States v. Nixon, 418 U.S. 683, 709 (1974). It serves to

protect liberty by holding government officials accountable for their actions and denying them

the ability to exercise power in the absence of accountability. Nevertheless, the public does not

possess an absolute right to access all government information. As a result, various executive

privileges have been recognized. These “exceptions to the demand for every man’s evidence are

not lightly created nor expansively construed, for they are in derogation of the search for truth.”

Id. at 710. Rather, these executive privileges attempt to balance the government’s need to

function smoothly by protecting the free and open exchange of ideas among government officials

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and their subordinates, as well as the government’s need to protect national security, with the

public’s right to monitor governmental actions taken on its behalf.

The motion now before the court implicates two executive privileges: the presidential

communications privilege and the deliberative process privilege. A third privilege, the bank

examination privilege, is also at issue.

1. Presidential Communications Privilege

“The strongest branch of executive privilege consists of what may be termed the

‘Presidential privilege,’ which rests in large part on the constitutional separation of powers,

affords the President of the United States considerable autonomy and confidentiality, and gives

‘recognition to the paramount necessity of protecting the Executive Branch from vexatious

litigation that might distract it from the energetic performance of its constitutional duties.’”

Sikorsky Aircraft Corp. v. United States, 106 Fed. Cl. 571, 575 (2012) (quoting Cheney v. U.S.

Dist. Court for D.C., 542 U.S. 367, 382 (2004)). The privilege is “rooted in the need for

confidentiality to ensure that presidential decisionmaking is of the highest caliber, informed by

honest advice and full knowledge.” In re Sealed Case, 121 F.3d 729, 750 (D.C. Cir. 1997). It is,

of course, this confidentiality that “ensures the expression of candid, objective, and even blunt or

harsh opinions and the comprehensive exploration of all policy alternatives before a presidential

course of action is selected.” Id. (internal quotation marks omitted).

In Dairyland Power Co-op v. United States, 79 Fed. Cl. 659, 662-67 (2007) (“Dairyland

Power II”), the Honorable Edward J. Damich provides a detailed and thorough review of the

cases that discuss the presidential communications privilege. In Dairyland Power II, the

plaintiff, a nuclear utility, sued the United States Department of Energy for the partial breach of a

contract for the disposal of spent nuclear fuel and/or high-level radioactive waste. Id. at 660.

Before the court was the plaintiff’s motion to compel the production of five documents, in

unredacted form, over which the government had claimed the presidential communications

privilege. Id. In its analysis, the court considered three decisions: (1) the United States

Supreme Court’s (“Supreme Court”) decision in Cheney, 542 U.S. at 367, (2) the United States

Court of Claims’ (“Court of Claims”) decision in Sun Oil Co. v. United States, 514 F.2d 1020

(1975), and (3) the United States Court of Appeals for the District of Columbia Circuit’s (“D.C.

Circuit”) decision in In re Sealed Case, 121 F.3d at 729. 5 Dairyland Power II, 79 Fed. Cl. at

663-67.

In Cheney, the plaintiffs—two public interest organizations—filed suit against the

National Energy Policy Development Group (“NEPDG”)—a group comprised of high-level

government officials and nonfederal government employees established by President George W.

Bush to develop a national energy policy—claiming that it failed to comply with the Federal

5

Aside from Sun Oil Co., the only reference to the presidential communications

privilege by the Federal Circuit or its predecessor, the Court of Claims, appears in Marriott Int’l

Resorts, L.P. v. United States, 437 F.3d 1302, 1305 n.3 (Fed. Cir. 2006), wherein the court, in a

footnote, quotes a passage from In re Sealed Case that compares the presidential communications

privilege to the deliberative process privilege and notes that both are executive privileges.

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Advisory Committee Act’s procedural and disclosure requirements. 542 U.S. at 372-73. The

district court, recognizing an inherent separation-of-powers issue, nevertheless allowed the

plaintiffs to conduct limited discovery to ascertain whether the nonfederal government

employees were regular participants at NEPDG meetings, reasoning that if they did not regularly

participate, the court could resolve the issue on statutory grounds. Id. at 375. The D.C. Circuit

denied the government’s subsequent motion for a writ of mandamus to vacate the discovery

order, holding that the government could instead seek relief through invocation of the

presidential communications privilege. Id. at 376-77. In doing so, the D.C. Circuit relied upon

the Supreme Court’s decision in Nixon, wherein the Court held:

We conclude that when the ground for asserting privilege as to

subpoenaed materials sought for use in a criminal trial is based

only on the generalized interest in confidentiality, it cannot prevail

over the fundamental demands of due process of law in the fair

administration of criminal justice. The generalized assertion of

privilege must yield to the demonstrated, specific need for

evidence in a pending criminal trial.

418 U.S. at 713.

On appeal, the Cheney Supreme Court vacated the decision of the D.C. Circuit, finding—

for a host of reasons—that the D.C. Circuit’s reliance on Nixon, a criminal case, was misplaced.

542 U.S. at 383-90. First, the Court stated that a request for information in a civil suit requires a

balancing of the “President’s generalized interest in confidentiality and the need for relevant

evidence in civil litigation,” whereas a request for information in a criminal case requires a

balancing of the President’s generalized interest in confidentiality and “the constitutional need

for relevant evidence in criminal trials.” Id. at 383. Second, the Court noted that the distinction

drawn by the Nixon Court between civil and criminal proceedings was not merely “a matter of

formalism,” and that, as the Court in Nixon recognized, “the need for information in the criminal

context is much weightier because our historic[al] commitment to the rule of law . . . is nowhere

more profoundly manifest than in our view that the twofold aim [of criminal justice] is that guilt

shall not escape or innocence suffer.” Id. at 384 (internal quotation marks omitted). Third, the

Court observed that withholding information from a court presiding over a criminal case would

effectively “hamper another branch’s ability to perform its essential functions,” where

withholding information in the context of civil discovery would not. Id. at 384-85. Fourth, the

Court noted that courts resolving such discovery disputes must consider the burden imposed on

the producing party:

This Court has held, on more than one occasion, that the high

respect that is owed to the office of the Chief Executive . . . is a

matter that should inform the conduct of the entire proceeding,

including the timing and scope of discovery, and that the

Executive’s constitutional responsibilities and status [are] factors

counseling judicial deference and restraint in the conduct of

litigation against it.

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Id. at 385 (citation and internal quotation marks omitted). Fifth, the Court noted that whereas

there was an inherent check on the scope of a criminal subpoena because, pursuant to the Federal

Rules of Criminal Procedure, it must meet standards of relevancy, admissibility, and specificity,

there is no such requirement in the context of a civil discovery request. Id. at 386-87.

Ultimately, the Cheney Supreme Court concluded that while the D.C. Circuit did not abuse its

discretion by failing to issue the writ, it “prematurely terminated its inquiry after the Government

refused to assert privilege and did so without even reaching the weighty separation-of-powers

objections raised in the case, much less exercised its discretion to determine whether the writ is

appropriate under the circumstances.” Id. at 391.

In Sun Oil, the plaintiffs—two oil companies—sought discovery regarding the

government’s decision to deny their application for permission to erect an oil drilling platform

off of the coast of California, pursuant to the terms of their lease. 206 Ct. Cl. at 744-45. In

response to the plaintiffs’ request, former President Nixon, a private citizen, asserted the

presidential communications privilege over four documents created during his tenure as

President. Id. at 745. According to President Nixon:

[A] distinction may be drawn between traditional ‘executive

privilege,’ which could not be asserted by a private person because

it relates to military, State, and national security matters, on the

one hand, and on the other, absolute ‘presidential privilege’ which

may be asserted by a former President as to other documents

generated during his Administration.

Id. at 746. The United States withdrew its initial claim of privilege but supported President

Nixon’s claim of “a presumptive privilege for the confidentiality of presidential communications,

that is fundamental to the operation of Government and inextricably rooted in logic and the

separation of powers under the Constitution, and cannot simply disappear overnight because a

President leaves office.” Id. at 747-48. However, the United States did not claim that the

privilege is “inviolate.” Id. at 748. Instead, the United States noted that the privilege could be

overcome by a showing of need and relevance. Id. After reviewing the documents in camera,

the Court of Claims held that the privilege asserted by former President Nixon, whether termed

an executive or presidential privilege, was not absolute and—without needing to decide whether

the privilege follows a President after he has left the office—that “where a demonstrated need for

documents sought is clearly sufficient, on balance, to override a claim of privilege, the

documents must be produced.” Id. at 750.

Finally, in In re Sealed Case, the issue presented was whether the presidential

communications privilege protected the release of documents pertaining to the White House

Counsel’s investigation into whether Agriculture Secretary Mike Espy had unlawfully accepted

gifts. 121 F.3d at 734-35. Id. Reviewing the district court’s decision to uphold the

government’s assertion of the privilege, the D.C. Circuit ultimately vacated the district court’s

decision and remanded it with an expanded definition of the privilege:

Based on our review of the Nixon cases and the purpose of the

presidential communications privilege, we conclude that this

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privilege extends to cover communications which do not

themselves directly engage the President, provided the

communications are either authored or received in response to a

solicitation by presidential advisers in the course of gathering

information and preparing recommendations on official matters for

presentation to the President. The privilege also extends to

communications authored or solicited and received by those

members of an immediate White House advisor’s staff who have

broad and significant responsibility for investigating and

formulating the advice to be given to the President on a particular

matter. We also hold that in order to overcome a claim of

presidential privilege raised against a grand jury subpoena, it is

necessary to specifically demonstrate why it is likely that evidence

contained in presidential communications is important . . . and why

this evidence is not available from another source.

Id. at 757.

After reviewing and analyzing these three decisions, the court in Dairyland Power II,

concluded that the standard articulated in In re Sealed Case for evaluating the presidential

communications privilege was nevertheless the most appropriate one. See 79 Fed. Cl. at 667

(“[T]his Court concludes that the Sealed Case test comes closest to what the Supreme Court was

concerned about in Cheney.”). This court is persuaded by that conclusion. Thus, it adopts the

presidential communications privilege standard articulated by the D.C. Circuit in In re Sealed

Case, which provides for a shifting burden: if the government establishes that the

communications at issue qualify for the privilege, then the plaintiff must demonstrate why the

evidence is important to its case and unavailable from another source. See 121 F.3d at 757.

2. Deliberative Process Privilege

The deliberative process privilege protects the “decision making processes of government

agencies” and therefore applies to “documents reflecting advisory opinions, recommendations

and deliberations comprising part of a process by which governmental decisions and policies are

formulated.” NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150 (1975) (citations and internal

quotation marks omitted); accord Dep’t of the Interior v. Klamath Water Users Protective Ass’n,

532 U.S. 1, 8 (2001) (“Klamath”). In addition to protecting these internal communications from

disclosure, the privilege “protect[s] against premature disclosure of proposed policies before they

have been finally formulated or adopted; and . . . protect[s] against confusing the issues and

misleading the public by dissemination of documents suggesting reasons and rationales for a

course of action which were not in fact the ultimate reasons for the agency’s action.” Coastal

States Gas Corp. v. Dep’t of Energy, 617 F.2d 854, 866 (D.C. Cir. 1980), quoted in Dairyland

Power Co-op v. United States, 77 Fed. Cl. 330, 336 (2007) (“Dairyland Power I”). Finally, it “is

a creation of federal common law and thus is recognized under [Federal Rule of Evidence]

501.” 6 Sikorsky Aircraft Corp., 106 Fed. Cl. at 576; accord Texaco P.R., Inc. v. Dep’t of

6

Rule 501 of the Federal Rules of Evidence (“FRE”) provides:

-11-

Consumer Affairs, 60 F.3d 867, 883 (1st Cir. 1995) (“Since local law does not supply the rule of

decision [as to the appellant’s claim], federal common law governs our analysis of the wrangling

over privileges.”); Scott v. Bd. of Educ. of E. Orange, 219 F.R.D. 333, 336 (D.N.J. 2004)

(“When a claim is based on federal law, . . . issues relating to privilege are governed by federal

common law.”).

The privilege is not, however, blind to the “countervailing public interest in the

production of evidence needed to establish truth through litigation.” Dairyland Power I, 77 Fed.

Cl. at 336. “In the adversary system of establishing truth by litigation, this [interest] is very

important, for such a system requires development of all relevant facts to produce real justice

through due process.” Cetron Elec. Corp. v. United States, 207 Ct. Cl. 985, 989 (1975).

Nevertheless, the privilege is ultimately based on the “obvious realization that officials will not

communicate candidly among themselves if each remark is a potential item of discovery and

front page news, and its object is to enhance the quality of agency decisions[ ] by protecting open

and frank discussion among those who make them within the Government.” Klamath, 532 U.S.

at 8-9 (citations and internal quotation marks omitted). This is not to say, however, that the

privilege can be used by the government to preclude the disclosure of relevant evidence when the

government’s intent and subjective motivation are the subject of the litigation—in those

instances, the privilege does not apply. See In re Subpoena Duces Tecum Served on Office of

Comptroller of Currency, 156 F.3d 1279, 1279 (D.C. Cir. 1998) (“[T]he government’s

deliberative process privilege does not apply when a cause of action is directed at the

government’s intent. . . . [T]he privilege . . . applies to circumstances where the government

decisionmaking process is ‘collateral’ to a plaintiff’s claim.”); Starr Int’l Co. v. United States,

No. 11-779C, slip op. at 6 (Fed. Cl. Nov. 6, 2013) (“[T]he deliberative process privilege is

unavailable to the Government when a plaintiff’s cause of action is directed at an agency’s

subjective motivation.”); Dunnet Bay Constr. Co. v. Hannig, No. 10-3051, 2012 WL 1599893, at

*3 (C.D. Ill. May 7, 2012) (“The deliberative process privilege, however, does not apply when

the lawsuit puts at issue the intent of the officials making the governmental policy decision. . . .

In such circumstances, the deliberative process privilege must yield to the interests of

determining the governmental agents’ intent.”). But see First Heights Bank, FSB v. United

States, 46 Fed. Cl. 312, 321 (2000) (“Although the court agrees with the D.C. Circuit’s

observation in In re Subpoenas [sic] that assertions of the deliberative process privilege present

unique problems when the Government’s intent is at issue, the court also believes that Federal

Circuit precedent on this question favors continued use of a case-by-case analysis to determine

The common law—as interpreted by United States courts in the

light of reason and experience—governs a claim of privilege

unless any of the following provides otherwise:

• the United States Constitution;

• a federal statute; or

• rules prescribed by the Supreme Court.

But in a civil case, state law governs privilege regarding a claim or

defense for which state law supplies the rule of decision.

-12-

whether or not a plaintiff’s need for particular evidence can overcome the Government’s interest

in maintaining the confidentiality of internal deliberations.”).

In order to assert the deliberative process privilege, the government must first satisfy

three procedural requirements. Dairyland Power I, 77 Fed. Cl. at 336-37. First, the government

must invoke the privilege. Id. While that authority lies with the head of the relevant federal

agency, such authority may also be delegated. Marriott Int’l Resorts, L.P., 437 F.3d at 1308;

accord Sikorsky Aircraft Corp., 106 Fed. Cl. at 577. “The government official to whom

authority is delegated may assert the privilege only after ‘personal consideration’ and review of

the documents at issue.” Sikorsky Aircraft Corp., 106 Fed. Cl. at 577 (quoting Pac. Gas & Elec.

Co. v. United States, 70 Fed. Cl. 128, 134 (2006)). Moreover, the delegation should only be

“made to a subordinate whose expertise makes him or her well suited to the task of determining

whether the privilege is applicable.” Id. Second, the government “must state with particularity

what information is subject to the privilege.” Walsky Constr. Co. v. United States, 20 Cl. Ct.

317, 320 (1990). Finally, the government must justify its invocation of the privilege, Deseret

Mgmt. Corp. v. United States, 76 Fed. Cl. 88, 95 (2007), by providing “precise and certain

reasons for maintaining the confidentiality of the requested document,” Walsky Constr. Co., 20

Cl. Ct. at 320 (internal quotation marks omitted). See also Greenpeace v. Nat’l Marine Fisheries

Serv., 198 F.R.D. 540, 543 (W.D. Wash. 2000) (“Like all evidentiary privileges that derogate a

court’s inherent power to compel the production of relevant evidence, the deliberative process

privilege is narrowly construed.”) quoted in Deseret Mgmt. Corp., 76 Fed. Cl. at 95.

The government must also satisfy two substantive requirements to assert the deliberative

process privilege. Dairyland Power I, 77 Fed. Cl. at 337. Specifically, it must show that each

document is both predecisional and deliberative. Walsky Constr. Co., 20 Cl. Ct. at 320. A

predecisional document is one that “address[es] activities ‘[a]ntecedent to the adoption of an

agency policy.’” Id. (quoting Jordan v. U.S. Dep’t of Justice, 591 F.2d 753, 774 (D.C. Cir.

1978)). In other words, “[a] document is predecisional if it precedes, in temporal sequence, the

decision to which it relates. Accordingly, to approve exemption of a document as predecisional,

a court must be able to pinpoint an agency decision or policy to which the document

contributed.” Senate of the Commonwealth of P.R. v. U.S. Dep’t of Justice, 823 F.2d 574, 582

(D.C. Cir. 1987) (internal quotation marks omitted), quoted in Walsky Constr. Co., 20 Cl. Ct. at

320; accord Abramson v. United States, 39 Fed. Cl. 290, 294-95 (1997); see also NLRB, 421

U.S. at 151 (“Manifestly, the ultimate purpose of [the deliberative process privilege] is to prevent

injury to the quality of agency decisions. The quality of a particular agency decision will clearly

be affected by the communications received by the decisionmaker on the subject of the decision

prior to the time the decision is made. However, it is difficult to see how the quality of a

decision will be affected by communications with respect to the decision occurring after the

decision is finally reached; and therefore equally difficult to see how the quality of the decision

will be affected by forced disclosure of such communications, as long as prior communications

and the ingredients of the decisionmaking process are not disclosed.”); Texaco P.R., Inc., 60

F.3d at 884-85 (“Because the deliberative process privilege is restricted to the intra-

governmental exchange of thoughts that actively contribute to the agency’s decisionmaking

process, factual statements or post-decisional documents explaining or justifying a decision

already made are not shielded.”); cf. Mead Data Cent., Inc. v. U.S. Dep’t of the Air Force, 566

F.2d 242, 257 (D.C. Cir. 1977) (“It would exalt form over substance to exempt documents in

-13-

which staff recommend certain action or offer their opinions on given issues but require

disclosure of documents which only ‘report’ what those recommendations and opinions are.”);

Ford Motor Co. v. United States, 94 Fed. Cl. 211, 223 (2010) (applying the deliberative process

privilege to documents created after the date of the decision because the documents recount

predecisional deliberations). Thus, “[s]ubjective documents which reflect the personal opinion

of the writer, rather than the policy of the agency[,] are considered privileged information

because they are predecisional.” Deseret Mgmt. Corp., 76 Fed. Cl. at 95 (internal quotation

marks omitted).

A deliberative document is one that “address[es] ‘a direct part of the deliberative process

in that it makes recommendations or expresses opinions on legal or policy matters.’” Walsky

Constr. Co., 20 Cl. Ct. at 320 (quoting Vaughn v. Rosen, 523 F.2d 1136, 1143-44 (D.C. Cir.

1975) (“Vaughn II”)); accord Confidential Informant 59-05071 v. United States, 108 Fed. Cl.

121, 132 (2012). In other words, deliberative documents are those that are “a part of the agency

give-and-take of the deliberative process by which the decision itself is made.” Vaughn II, 523

F.2d at 1144, quoted in Walsky Constr. Co., 20 Cl. Ct. at 320. Thus, while confidential intra-

agency advisory opinions may be protected as deliberative documents, Kaiser Aluminum &

Chem. Corp. v. United States, 157 F. Supp. 939, 946 (Ct. Cl. 1958), “factual or investigative

material” is not, “except as necessary to avoid indirect revelation of the decision-making

process,” Scott Paper Co. v. United States, 943 F. Supp. 489, 496 (E.D. Pa. 1996). Accord Lead

Indus. Ass’n v. Occupational Safety & Health Admin., 610 F.2d 70, 85 (2d Cir. 1979) (“If the

factual materials are ‘inextricably intertwined’ with policy making recommendations so that their

disclosure would ‘compromise the confidentiality of deliberative information that is entitled to

protection under [Freedom of Information Act (“FOIA”)] Exemption 5[, which protects from

disclosure inter or intra-agency memoranda or letters that would not be available by law to a

party other than a party in litigation with the agency],’ the factual materials themselves fall

within the exemption.” (quoting EPA v. Mink, 410 U.S. 73, 92 (1973)). Ultimately, when

evaluating a claim of deliberative process privilege, “[t]he test is whether the material is ‘so

candid or personal in nature that public disclosure is likely in the future to stifle honest and frank

communication within the agency.’” Exxon Corp. v. Dep’t of Energy, 91 F.R.D. 26, 43 (N.D.

Tex. 1981) (quoting Coastal States Gas Corp., 617 F.2d at 866).

Finally, the court must balance the parties’ competing interests:

The privilege is a qualified privilege. After the government makes

a sufficient showing of entitlement to the privilege, the court

should balance the competing interests of the parties. Thus, a

claim of executive privilege requires a two-step review by the

court. First, the court must decide whether the communications are

in fact privileged. The government has the burden of showing

privilege at this first step. Second, the court must balance the

parties’ interests. At this second step, the party seeking discovery

-14-

bears the burden of showing that its need for the documents

outweighs the government’s interests. 7

Scott Paper Co., 943 F. Supp. at 496 (footnote added) (citation omitted). This requisite

balancing of competing interests is, in turn, accomplished by the court’s consideration of five

factors: 8

“(i) the relevance of the evidence sought to be protected; (ii) the

availability of other evidence; (iii) the ‘seriousness’ of the

litigation and the issues involved; (iv) the role of the government

in the litigation; and (v) the possibility of future timidity by

government employees who will be forced to recognize that their

secrets are violable.”

In re Subpoena Served Upon the Comptroller of the Currency, 967 F.2d 630, 634 (D.C. Cir.

1992) (“In Re Subpoena”) (quoting In re Franklin Nat’l Bank Sec. Litig., 478 F. Supp. 577, 583

(E.D.N.Y. 1979), quoted in Dairyland Power I, 77 Fed. Cl. at 338. “[T]he deliberative process

privilege is a discretionary one. In deciding how to exercise its discretion, an inquiring court

should consider, among other things, the interests of the litigants, society’s interest in the

accuracy and integrity of factfinding, and the public’s interest in honest, effective government.”

Texaco P.R., Inc., 60 F.3d at 884 (internal quotation marks omitted); accord In re Franklin Nat’l

Bank Sec. Litig., 478 F. Supp. at 582 (noting that “the government’s interest in nondisclosure”

must be weighed against “the interest of the litigants, and ultimately of society, in accurate

judicial fact finding”). Notably, where the disclosure of information is subject to a protective

order, the risk that such disclosure will have a chilling effect on future deliberations by

government employees is diminished. See Dairyland Power I, 77 Fed. Cl. at 339 (“[I]n a

litigation context, where the rules of discovery allow a court ‘to protect a party or person from

annoyance [or] embarrassment’ through a protective order, RCFC 26(c), limited disclosure of

deliberative process documents should be less likely to result in significant harm to policy

debates within an agency.”); accord Pac. Gas & Elec. Co., 70 Fed. Cl. at 142 n.12 (noting that

“any need the government might have for confidentiality . . . is diminished by the fact that the

court has issued a Protective Order in this case stating that ‘[c]onfidential [m]aterial shall be used

by the receiving party solely for the purpose of conducting litigation in the . . . cases pending in

7

In Marriott Int’l Resorts, L.P., the Federal Circuit stated that “a showing of compelling

need can overcome the qualified deliberative process privilege.” 437 F.3d at 1307. One year

later, in Dairyland Power I, the Court of Federal Claims held that “the use of the phrase

‘compelling need’ by the Federal Circuit in Marriott did not elevate the standard for overcoming

the deliberative process privilege.” 77 Fed. Cl. at 338. This court agrees with the holding in

Dairyland Power I and notes further that in Marriott Int’l Resorts, L.P., the Federal Circuit stated

that “a showing of compelling need can overcome the qualified deliberative process privilege,”

437 F.3d at 1307, but did not state that such a showing was required to overcome the privilege.

8

No balancing of competing interests is required where the government has waived the

deliberative process privilege by either previously producing the requested documents or by

previously providing testimony as to the same subject matter covered by the documents. See

Alpha I, L.P. v. United States, 83 Fed. Cl. 279, 290 (2008).

-15-

the United States Court of Federal Claims and not for any business or other purpose

whatsoever.’”).

3. Bank Examination Privilege

The bank examination privilege is a common-law privilege derived “out of the practical

need for openness and honesty between bank examiners and the banks they regulate, and is

intended to protect the integrity of the regulatory process by privileging such communications.”

Wultz v. Bank of China Ltd., 61 F. Supp. 3d 272, 282 (S.D.N.Y. 2013) (internal quotation marks

omitted). Its purpose is to protect “communications between banks and their examiners in order

to preserve absolute candor essential to the effective supervision of banks.” Id. (internal

quotation marks omitted); accord In re Subpoena Served Upon the Comptroller of the Currency,

967 F.2d at 634 (“Bank safety and soundness supervision is an iterative process of comment by

the regulators and response by the bank. The success of the supervision therefore depends vitally

upon the quality of communication between the regulated banking firm and the bank regulatory

agency.”). As with all common-law privileges governed by FRE 501, the bank examination

privilege should be “narrowly construed—extended only as far as needed to effectuate [its]

utilitarian purpose[].” Evergreen Trading, LLC v. United States, 80 Fed. Cl. 122, 127 (2007).

Finally, the bank examination privilege is qualified and may be overcome:

If the documents fall within the privilege, a court can override the

privilege if the requesting party demonstrates good cause. [T]he

privilege may be defeated where necessary to promote the

paramount interest of the Government in having justice done

between litigants, . . . or to shed light on alleged government

malfeasance, . . . or in other circumstances when the public’s

interest in effective government would be furthered by disclosure.

In order to evaluate claims of good cause, courts balance the

competing interests of the party seeking the documents and those

of the government, taking into account factors such as the

following:

1) the relevance of the evidence sought to be protected;

2) the availability of other evidence;

3) the “seriousness” of the litigation and the issues involved;

4) the role of the government in the litigation; and

5) the possibility of future timidity by government employees

who will be forced to recognize that their secrets are violable.

Wultz, 61 F. Supp. 3d at 282 (footnotes and internal quotation marks omitted).

-16-

The Federal Circuit has not had the occasion to address the viability of the bank

examination privilege. 9 However, the privilege—and its application to the FHFA—has been

thoroughly considered by the United States District Court for the Southern District of New York.

In FHFA v. JPMorgan Chase & Co., 978 F. Supp. 2d 267, 273 (S.D.N.Y. 2013), the court

examined “whether the distinctive necessity for candid and informal regulation of the banking

sector—stemming from both practical necessity of day-to-day bank regulation, as well as from

necessity to maintain public confidence in the financial system—which undergirds the bank

examination privilege, applies also to FHFA’s regulation of the [Enterprises],” and concluded

that it did. First, the court noted that both bank regulators and the FHFA are concerned with

“ensuring adequate capitalization and liquid and efficient markets,” and ensuring the stability of

“the U.S. economy and financial system.” Id. at 274. Emphasizing the significance of the

second factor, the court stated: “Given that ‘in 2008 the [Enterprises] financed about 40% of all

American mortgages and owed debt in excess of $5.3 trillion, their failure would [be]

catastrophic for the American economy in a way that, with few exceptions, the failure of a single

bank or credit union would not be.’” Id. (quoting FHFA v. UBS Ams., Inc., 858 F. Supp. 2d

306, 340 (S.D.N.Y. 2012)). Second, the court noted that Congress awarded “FHFA the exact

same powers that bank examiners have[,] . . . codified the common law bank examination

privilege in the [FOIA], and expressly provided that the privilege would apply to FHFA in the

FOIA context.” JPMorgan Chase & Co., 978 F. Supp. 2d at 275 (citation omitted). Third, the

court noted that FRE 501 “requires a court to consider the question of privileges not

mechanically but in the light of reason and experience, with the recognition that the common law

is not immutable but flexible, and by its own principles adapts itself to varying conditions.” Id.

(internal quotation marks omitted). The court added:

To decide this motion on the sole ground that a judge at some point

in the past named this privilege the “bank” examination privilege,

without looking to the principles underlying the privilege and their

application to the facts at hand, would run counter to the standard

enunciated in Rule 501 and in the caselaw.

Id. Finally, the court noted the significance of Congress’s decision to codify the privilege in the

FOIA:

Congress’s explicit extension of the FOIA codified banking

examination privilege to FHFA weighs heavily here. Although a

FOIA exemption does not, on its own, create a civil discovery

privilege, see Chamber of Commerce of U.S. v. Legal Aid Soc’y

of Alameda Cnty., 423 U.S. 1309, 1310 (1975), Congress’s

express inclusion of FHFA within FOIA’s exemption eight

demonstrates that it viewed the considerations animating the

9

To date, the bank examination privilege has been recognized by the D.C. Circuit, see In

re Subpoena Served Upon the Comptroller of the Currency, 967 F.2d at 630, the United States

Court of Appeals for the Sixth Circuit, see In re Bankers Trust Co., 61 F.3d 465 (6th Cir. 1995),

and the United States Court of Appeals for the Tenth Circuit, see Martinez v. Rocky Mountain

Bank, 540 F. App’x 846 (10th Cir. 2013).

-17-

extension of that privilege to bank regulators as applying also to

FHFA in the FOIA context. Notably, the defendants have

proffered no justification to distinguish between the rationales for

granting FHFA the bank examination privilege in the FOIA

context versus the civil discovery context.

Id. at 276.

Not surprisingly, and contrary to defendant’s position, 10 plaintiffs in this case argue that

the bank examination privilege should not apply to the FHFA. First, plaintiffs contend that

“there is good reason to doubt that bank examination truly involves the frank and informal

exchange of views that proponents of the privilege assume.” Pls.’ Mot. 27-28. Second, plaintiffs

contend that it is unlikely “that the availability of such a privilege will succeed in promoting

open and honest communications by bank officers to their regulators if the threat of federal

criminal prosecution has failed to do so.” Id. at 28. Third, plaintiffs contend that

communications between the FHFA and the Enterprises are not covered by the privilege because

the Enterprises are not banks: “They hold no bank charter of any kind, they do not retain

customer deposits, and they do not otherwise conduct banking activities.” Id. at 28-29. Fourth,

plaintiffs contend that other nonbank entities are not protected by the privilege:

“Communications involving insurance companies, broker-dealers, mutual funds, and other

regulated non-bank participants in the financial markets are not covered by the bank examination

privilege, and there is no reason to treat Fannie [Mae] and Freddie [Mac] differently than other

such non-bank entities.” Id. at 29. Fifth, plaintiffs contend that, unlike bank regulators, the

FHFA is required by law to submit to Congress both a general report and a report on

enforcement actions, 11 thereby obviating the need to extend the privilege because “the results of

10

For purposes of claiming the bank examination privilege, defendant argues that the

FHFA is a government entity. See, e.g., Def.’s Reply 16-20 (arguing that the bank examination

privilege protects FHFA documents from disclosure). Simultaneously, for purposes of evading

this court’s jurisdiction, defendant argues that the FHFA is not a government entity. See, e.g.,

Def.’s Mot. to Dismiss 12-16 (arguing that the FHFA, when acting as the Enterprises’

conservator, is not the United States for purposes of the Tucker Act).

11

The general report must include:

(1) a description of the actions taken, and being undertaken, by the

Director to carry out this chapter;

(2) a description of the financial safety and soundness of each

regulated entity, including the results and conclusions of the

annual examinations of the regulated entities conducted under

section 4517(a) of this title;

(3) any recommendations for legislation to enhance the financial

safety and soundness of the regulated entities;

-18-

FHFA’s examinations [are] already in the public domain.” Id. at 30. Finally, plaintiffs contend

that since the Enterprises were placed in conservatorship, the purpose behind the privilege no

longer exists: “With the companies subject to FHFA’s complete control and operating under

management chosen by and avowedly beholden as fiduciaries only to FHFA, the concern that

(4) a description of—

(A) whether the procedures established by each regulated

entity pursuant to section 4012a(b)(3) of Title 42 are

adequate and being complied with, and

(B) the results and conclusions of any examination, as

determined necessary by the Director, to determine the

compliance of the regulated entities with the requirements

of section 4012a(b)(3) of Title 42, which shall include a

description of the methods used to determine compliance

and the types and sources of deficiencies (if any), and

identify any corrective measures that have been taken to

remedy any such deficiencies, except that the information

described in this paragraph shall be included only in each

of the first, third, and fifth annual reports under this

subsection required to be submitted after the expiration of

the 1-year period beginning on September 23, 1994; and

(5) the assessment of the Board or any of its members with respect

to—

(A) the safety and soundness of the regulated entities;

(B) any material deficiencies in the conduct of the

operations of the regulated entities;

(C) the overall operational status of the regulated entities;

and

(D) an evaluation of the performance of the regulated

entities in carrying out their respective missions;

(6) operations, resources, and performance of the Agency; and

(7) such other matters relating to the Agency and the fulfillment of

its mission.

12 U.S.C. § 4521(a) (2012). The report on enforcement actions must include a description of all

the requests, from the previous year, “by the Director to the Attorney General for enforcement

actions,” as well as a description of each request’s disposition. Id. § 4521(b).

-19-

underlies the bank examination privilege—that privately run banks might not be forthcoming

with their regulators—plainly does not apply here.” Id. at 31.

Ultimately, in recognition of the significance of Congress’s explicit decision to codify the

bank examination privilege in the FOIA, the court is persuaded by the reasoning of the United

States District Court for the Southern District of New York in JPMorgan Chase & Co..

Therefore, the court will extend the privilege’s coverage to include communications between the

FHFA and the Enterprises.

Having identified the privileges claimed by defendant, the court must now determine

whether those privileges apply to the documents at issue and, if so, whether plaintiffs have

demonstrated sufficient need to overcome those privileges.

III. DISCUSSION

A. Defendant’s Declarants

In support of its assertion of the presidential communications, deliberative process, and

bank examination privileges, defendant submits sworn declarations from Christopher H.

Dickerson, David R. Pearl, and Nicholas L. McQuaid.

1. Mr. Dickerson

On December 15, 2015, Mr. Dickerson executed a declaration in support of defendant’s

claim of privileges. Def.’s Resp. A58-67. He is Senior Associate Director of the Division of

Enterprise Regulation (“DER”) at the FHFA. Id. at A58. He has worked at the FHFA since its

inception in 2008 and was previously employed by the Office of Federal Housing Enterprise

Oversight, the FHFA’s predecessor, from July 1997 until 2008. Id.

Mr. Dickerson’s authority to assert privileges in this litigation was delegated to him by

FHFA Director Melvin L. Watt. Id. As a result of his position as Senior Associate Director of

the DER, Mr. Dickerson is “generally familiar with this litigation.” Id. He asserts the

deliberative process and bank examination privileges over three categories of documents: (1)

BlackRock documents, (2) forecasts, and (3) risk assessment memoranda; and two individual

documents: (1) the FHFA presentation on DTA and (2) the DeLeo e-mail. Id. at A59-60.

2. Mr. Pearl

On January 20, 2016, Mr. Pearl executed a declaration in support of defendant’s claim of

privileges. Def.’s Resp. A77. He is the Executive Secretary of the Treasury Department. Id. at

A68. In that capacity, he is “responsible for directing the activities and operations of the

Executive Secretariat,” which includes:

ensuring that decisions made by the Secretary and the Deputy

Secretary, among others, are properly implemented and that their

requests receive appropriate responses; ensuring the quality and

-20-

appropriate coordination of materials prepared for these principal

officials in connection with formulating and implementing policy,

including overseeing collecting, maintaining, controlling,

retrieving, and disseminating policy decisions and papers, staff

records, and reports, as well as a wide variety of other

correspondence and documents relevant to the information and

operational needs of principal officials; assisting in identifying

policy problems that require coordination, and coordinating policy

issues across different components of the Department; and

advising principal officials on the best uses of the Department’s

resources.

Id. Additionally, he is responsible for “approving responses to [FOIA] requests directed at

Secretarial documents, a task which requires [him] to evaluate whether responsive records are

covered by various exemptions to FOIA’s disclosure requirements, including the deliberative

process privilege.” Id.

Mr. Pearl’s authority to assert privileges in this litigation was delegated to him by

Treasury Secretary Jacob Lew. Id. In his capacity as Executive Secretary, Mr. Pearl is “aware

of this lawsuit” and has personally reviewed the challenged documents. Id. at 1-2. He asserts

the deliberative process privilege over six categories of documents: (1) housing finance reform,

(2) housing policies, (3) PSPA modifications, (4) GSE projections, (5) valuation reports, and (6)

potential implications of the terms of the PSPAs; and one individual document: estimates for the

President’s budget.

3. Mr. McQuaid

On June 10, 2016, Mr. McQuaid executed a declaration in support of defendant’s claim

of privileges. McQuaid Decl. 4. He is Deputy White House Counsel. Id. at 1. In that capacity,

he is “responsible for, inter alia, providing legal advice to White House staff, including advice on

matters involving the invocation of the presidential communications privilege.” Id.

Mr. McQuaid’s authority to assert privileges in this litigation was delegated to him by the

President. 12 Id. In his capacity as Deputy White House Counsel, Mr. McQuaid is “aware of this

lawsuit” and has personally reviewed the challenged documents. Id. at 1-2. He asserts the

presidential communications privilege over four housing finance reform documents. Id. at 2-3.

The nine categories of documents and three individual documents submitted by defendant

for the court’s in camera review will now be considered in turn. Discussion of each begins with

12

For purposes of the court’s analysis, the court will assume that Mr. McQuaid’s

authority to assert the presidential communications privilege was expressly delegated to him by

the President, although his declaration simply states that he asserts the privilege “[o]n behalf of

the Office of the President.” McQuaid Decl. 4.

-21-

a chart, which reproduces the information contained in defendant’s privilege log. 13 Following

the chart is the court’s analysis of the claimed privileges.

B. BlackRock Documents

Doc. Bates No. From / To / Description of Document / Privilege(s) Asserted

No. Date / CC

1 FHFA C. Dickerson “Document prepared by BlackRock to support

00031960 to D. Pearl on predecisional deliberations and provided to FHFA in

9/7/2008 relation to its regulatory supervision regarding analysis

of Fannie Mae’s loss and capital projections”

Deliberative Process Privilege (“DPP”), Bank

Examination Privilege (“BEP”)

2 FHFA C. Dickerson “Document prepared by BlackRock to support

00031962 to D. Pearl on predecisional deliberations and provided to FHFA in

9/7/2008 relation to its regulatory supervision regarding analysis

of Freddie Mac’s loss and capital projections”

DPP, BEP

3 FHFA C. Dickerson “Presentation by BlackRock to support predecisional

00031964 to D. Pearl on deliberations and provided to FHFA in relation to its

9/7/2008 regulatory supervision regarding analysis of GSE loss

and capital projections”

DPP, BEP

4 FHFA C. Eldarrat to “Presentation prepared by consultant BlackRock

00056237 C. Dickerson, containing predecisional deliberations regarding

N.A. Tagoe, S. analysis of Freddie Mac projected losses and

Smith, J. implications for capital”

Spohn, W.

DeLeo, T. DPP

Clark, and S.

Crisp on

8/27/2008

CC: C.

Eldarrat

According to Mr. Dickerson, the BlackRock documents “contain loss and capital

projections prepared by consultant BlackRock Solutions before the establishment of

conservatorship for purposes of agency decision-making.” Def.’s Resp. A63. He further claims

that the documents “were generated in the course of FHFA’s continuous supervision of the

13

The descriptions of the documents are reproduced verbatim from defendant’s privilege

log and therefore appear in quotation marks.

-22-

Enterprises . . . [and] are inherently predecisional and reflect real-time analyses of the

Enterprises[’] operations.” Id. Finally, he claims that the documents should not be disclosed:

The production of these documents would reduce candor and

inhibit communications by consultants, and thus would adversely

affect the quality of supervision of the GSEs. If employees and

consultants believe that their communications regarding

supervision of the GSEs could become public in the event of

litigation, they are unlikely to feel at liberty to express their candid

opinions.

In particular, the issues addressed in the BlackRock

Documents—projections in September 2008 of Enterprise credit

and capital losses—are the subject of significant public interest and

would likely be the subject of intense publicity and public scrutiny.

Disclosure of that information likely would inhibit the willingness

of consultants to provide advice in the future as part [of] the

agency’s decision making processes. Consultants could reasonably

believe that in a case under intense public scrutiny they could be

held up for ridicule if their recommendations and/or advice was

rejected, especially where the rejection may be in unflattering

terms. Disclosure of such information also could confuse the

public by revealing statements about the financial condition of the

Enterprises that might be misleading when stripped of context.

Further, because the BlackRock Documents reflect the internal

deliberations of FHFA prior to the agency’s adoption of an official

position, disclosure of the views or opinions of consultants could

confuse the public by suggesting rationales for FHFA’s actions

that may or may not have been relied upon as the basis for those

actions.

Id. at A63-64.

Mr. Dickerson asserts the deliberative process privilege as to Documents 1-4 and the

bank examination privilege as to Documents 1-3.

1. Deliberative Process Privilege

a. Procedural Requirements

i. The Authority to Invoke the Privilege Was Properly Delegated to Mr. Dickerson

With respect to Mr. Dickerson’s authority to invoke the deliberative process privilege, the

chain of delegation from FHFA Director Watt to Mr. Dickerson is clear. See supra Section

III.A.1. In addition, Mr. Dickerson’s position as Senior Associate Director of DER and

familiarity with this litigation make him well-suited to the task of determining whether or not the

-23-

deliberative process privilege is applicable to the documents at issue. Id. Thus, the authority to

invoke the deliberative process privilege was properly delegated to Mr. Dickerson.

ii. Defendant Has Identified With Particularity the Documents It Claims Are Privileged

Mr. Dickerson’s declaration, which provides a general description of the BlackRock

documents, coupled with defendant’s privilege log, which (1) identifies the documents by their

Bates numbers, (2) provides the documents’ authors and recipients, (3) provides a description of

the documents, and (4) identifies the specific privileges claimed, allows the court to identify with

particularity the documents at issue.

iii. Defendant Has Provided Precise and Certain Reasons for Maintaining the

Confidentiality of the Documents

Based on Mr. Dickerson’s declaration, which provides precise and certain reasons for

maintaining the confidentiality of the documents at issue, see id. at A63-64, the court can balance

the government’s interest in maintaining that confidentiality with plaintiffs’ evidentiary need for

the documents’ disclosure.

b. Substantive Requirements

i. Defendant Has Shown That the Documents Are Predecisional

Although the Net Worth Sweep was jointly announced by the FHFA and the Treasury

Department on August 17, 2012, the decision to approve the action was made by Treasury

Secretary Timothy F. Geithner on August 16, 2012. See Pls.’ Mot. A178. Thus, documents are

predecisional if they bear a date prior to August 16, 2012. According to the privilege log,

Documents 1-3 were sent by C. Dickerson to D. Pearl on September 7, 2008. Although the

privilege log does not explicitly state that the documents were created on that date, upon its own

examination, the court finds that Documents 1-3 are dated September 7, 2008, and thus are

predecisional.

The privilege log also indicates that Document 4 was sent by C. Eldarrat to C. Dickerson,

N.A. Tagoe, S. Smith, J. Spohn, W. DeLeo, T. Clark, and S. Crisp, with a copy to C. Eldarrat, on

August 27, 2008. Although the privilege log does not explicitly state that the document was

created on that date, upon its own examination, the court finds that Document No. 4 is dated

August 27, 2008, and thus is predecisional.

ii. Defendant Has Not Shown That the Documents Are Deliberative but, for the Purpose of

Providing an Alternative Analysis, the Court Will Proceed as if Defendant Has Made Such

a Showing

In order to determine whether a document is subject to the deliberative process privilege,

the court must be able to discern whether the document reflects the “intra-governmental

exchange of thoughts that actively contribute to the agency’s decisionmaking process,” Texaco

P.R., Inc., 60 F.3d at 884-85. Thus, as to each document, the court must be able to identify the

-24-

affiliations of the individuals on defendant’s privilege log and also discern the document’s

deliberative nature.

In this case, defendant has not met its burden of showing that the documents are

deliberative. 14 First, upon examination of the privilege log and all of the documents submitted

14

Plaintiffs argue that defendant inappropriately claims the deliberative process privilege

as to “a significant number of documents that contain non-deliberative, factual material,” such as

“financial models and other assessments of the [Enterprises’] financial performance.” Pls.’ Mot.

20. Plaintiffs then contend that “numerous cases hold that technical models, data, and

projections of this sort are not deliberative and therefore may not be withheld under the

deliberative process privilege.” Id. at 21 (citing Lahr v. Nat’l Transp. Safety Bd., 453 F. Supp.

2d 1153, 1189 (C.D. Cal. 2006); Reilly v. EPA, 429 F. Supp. 2d 335 (D. Mass. 2006); Carter v.

U.S. Dep’t of Commerce, 186 F. Supp. 2d 1147 (D. Or. 2001)). The three FOIA cases plaintiffs

cite, however, do not stand for that proposition; their reasoning is more nuanced. In Lahr, the

court held that the disclosure of various graphs of simulation data, which may or may not have

been the outcomes of various simulations run by a government agency, would not reveal the

decision-makers’ mental processes under FOIA Exemption 5, which covers the deliberative

process privilege. 453 F. Supp. 2d at 1176, 1189. The court stated that the mere fact that the

graphs might be inconsistent with the agency’s final conclusion does not provide information

about the agency’s decision-making process. Id. Significantly, however, the court did not

conclude that such data could never reveal the deliberative process.

In Reilly, the court held that computer runs—“investigative tools that generate raw data

or empirical evidence used by the [agency] in its rulemaking”—over which a government agency

asserted the deliberative process privilege under FOIA Exemption 5, were neither deliberative

nor part of the deliberative process. 429 F. Supp. 2d at 352-53. It stated that the information

input into the computer run “results from [interagency] research and discussion” and that,

therefore, “[r]elease of the requested [computer] runs would, a fortiori, reveal the inputs and,

consequently, to some extent the agency’s thought process.” Id. at 352. The court added,

however, that “this is true of any investigation by which an agency seeks facts—knowing what

questions are asked or which witnesses are interviewed reveals aspects of what the investigator

deemed important or worthy of consideration,” and that “[i]n a larger sense everything could be

considered deliberative.” Id. Furthermore, the court noted that (1) the agency’s version of the

model, “with its intrinsic assumptions and information,” was already “available for use by the

public”; (2) “the internal workings of [the model were] not in any way deliberative”; and (3) “the

initial modeling runs were” already made public. Id. at 353. Significantly, with respect to the

deliberative nature of the computer inputs, the court concluded that, when the requested runs

were “viewed on the deliberative/fact continuum, . . . the requested [computer] runs fell ‘closer

to fact and would not reveal the agency’s protectable thought processes.’” Id. at 352 (quoting

Assembly of Cal. v. U.S. Dep’t of Commerce, 968 F.2d 916, 922 (9th Cir. 1992) (“Assembly

II”)). Thus, not only did the court describe the measure of a document’s deliberative nature as

residing on a continuum, but the court also did not foreclose the possibility that a document

could be deemed purely or primarily deliberative as opposed to factual.

-25-

for in camera review, which include some individuals’ e-mail domains, the court has identified

N.A. Tagoe as an FHFA employee. However—apart from inferring from the declarations of

Messrs. Dickerson and Pearl, that C. Dickerson is Christopher Dickerson and D. Pearl is David

Pearl, two of defendant’s three declarants—the court cannot identify the affiliations of the

remaining individuals. 15 Second, the documents’ deliberative nature is not apparent on their

face. This is so despite the fact that Mr. Dickerson’s descriptions of each of the documents,

provided above, proclaim their deliberative nature.

In any event, the court notes that even if the documents were clearly deliberative, it

would not affect the court’s ultimate conclusion that, under the balancing test for the deliberative

process privilege, plaintiffs’ evidentiary need for the documents outweighs defendant’s interest

in preventing the documents’ disclosure. Thus, for the purpose of providing an alternative

analysis, the court deems the documents to be deliberative.

Finally, in Carter, the court held that statistically adjusted data from the 2000 census was

not protected deliberative material under FOIA Exemption 5:

The adjusted data was prepared in anticipation of possible public

dissemination, did not contribute to the deliberations which

culminated in the Department’s decision to use unadjusted data,

and contain[ed] factual information which reveals nothing about

the subjective thought processes involved in deciding whether to

release unadjusted or adjusted data. The data sought are numbers.

It may be that a deliberative process led to the methodology which

generated the numbers, but the numbers are the result of the

deliberative process. They are not the process.

186 F. Supp. 2d at 1157. The court did not, however, conclude that numbers could never be

deliberative: “[In Assembly II, t]he Court of Appeals . . . agreed that numbers could sometimes

derive from a complex set of judgments and demonstrate the elasticity of opinions. . . . The

Department takes the position that Assembly II was wrongly decided or distinguishable on the

facts. I find Assembly II both controlling and compelling, and that it is not distinguishable.” Id.

at 1155, 1157. Thus, in the case at bar, rather than accept plaintiffs’ premise that a bright line

distinction should be drawn between documents comprised of graphs and charts as opposed to

documents comprised of prose, this court will focus on the guiding principles set forth in the case

law, which require reviewing courts to examine each document individually in order to segregate

and release factual material when possible, yet protect factual material when necessary to avoid

revealing an agency’s deliberations or deliberative processes. See supra Section II.B.2.

15

Even if the documents were disclosed to third parties—individuals outside those

decision-makers and advisors protected by the privilege—it would not affect the court’s ultimate

conclusion, set forth below, that plaintiffs’ evidentiary need for the documents outweighs

defendant’s interest in preventing the documents’ disclosure.

-26-

c. Balancing Test

Although defendant has not met its burden to demonstrate that the BlackRock documents

are protected by the deliberative process privilege, the court will perform an alternative analysis.

Recognizing that the privilege is qualified, the court will balance plaintiffs’ evidentiary need for

the documents against defendant’s interest in preserving their confidentiality. In order to do so,

the court weighs the five factors described in In re Subpoena.

First, with respect to the relevance of the evidence sought to be protected, the documents

relate to the Enterprises’ future profitability. See supra Section I.B. Document 1, FHFA

00031960, is a two-page document with two captions: “FNM Loss and Capital Projections

Overview” and “FNM Estimated Capital Injection Needed.” It contains loss and capital

projections for Fannie Mae, produced for both base and stress cases. Document 2, FHFA

00031962, is another two-page document with two captions: “FRE Loss and Capital Projections

Overview” and “FRE Estimated Capital Injection Needed.” It contains loss and capital

projections for Freddie Mac, again produced for both base and stress cases. Document 3, FHFA

00031964, is a six-page document captioned “Approach for Agency Loss and Capital

Projections.” It describes the approach taken by BlackRock in calculating the figures contained

in Documents 1-2. Finally, Document 4, FHFA 00056237, is a seven-page document captioned

“Freddie Mac Confidential Capital Review[:] Preliminary Results.” It appears to be a precursor

to the report appearing in Document 2.

Second, with respect to the availability of other evidence, there is no other source of

evidence available to plaintiffs that would similarly inform their understanding of the

Enterprises’ future profitability.

Third, with respect to the seriousness of the litigation and the issues involved, neither

party disputes the importance of the case, both in terms of the damages and equitable relief

sought, as well as in terms of the case’s implication for litigation and “executive and legislative

branch policy repercussions.” Dairyland Power I, 77 Fed. Cl. at 342.

Fourth, with respect to the government’s role in the litigation, because “the Government

is a party to this litigation and is the party that seeks to benefit from the invocation of the

deliberative process privilege,” its assertion of the “privilege must be carefully scrutinized to

ensure that the privilege retains its proper narrow scope.” Id.

Fifth, with respect to the possibility of future timidity by government employees who will

be forced to recognize that their secrets are violable, it is highly unlikely, given the protective

order that is already in place in this case, that any type of disclosure would result in a chilling of

frank policy discussions between government employees.

Thus, with respect to Documents 1-4, plaintiffs’ evidentiary need for the documents

outweighs defendant’s interest in preventing the documents’ disclosure. In other words, the

deliberative process privilege cannot shield the disclosure of the documents in this instance

because evidence relating to the Enterprises’ future profitability implicates both the court’s

-27-

jurisdiction and the merits of the case and therefore is discoverable. The documents must be

disclosed.

2. Bank Examination Privilege

Having determined that the BlackRock documents are subject to the bank examination

privilege, see supra Section II.B.3, but recognizing that the privilege is qualified, the court must

now balance plaintiffs’ evidentiary need for the documents against defendant’s interest in

preserving their confidentiality. To do so, the court weighs the five factors described in Wultz.

Because those factors are identical to the factors used to analyze whether the deliberative process

privilege has been overcome, the court concludes, as it did with respect to the deliberative

process privilege, that plaintiffs’ evidentiary need for the information outweighs defendant’s

interest in maintaining the confidentiality of the documents at issue. Thus, the bank examination

privilege cannot shield the documents’ disclosure.

C. FHFA Presentation on DTA

Doc. Bates No. From / To / Description of Document / Privilege(s) Asserted

No. Date / CC

5 FHFA P. Bjarnason “FHFA presentation containing predecisional

00092209 to N. Satriano deliberations in relation to its regulatory supervision

on 12/16/2008 regarding accounting for deferred tax assets”

DPP, BEP

According to Mr. Dickerson, the next document at issue, the FHFA presentation on DTA,

“contains predecisional and deliberative statements about FHFA’s regulatory supervision of how

to account for the GSEs[’] deferred tax assets.” Def.’s Resp. A64. He further claims that

“[r]eview of GSE accounting policies is part of the supervision process.” Id. Finally, he claims:

Among other things, the redacted portion of the document includes

deliberations over the measurement and treatment of the GSEs[’]

deferred tax assets and evaluates arguments for and against the

realization of these assets, based on information that FHFA

requested and obtained from the GSEs. The redacted portion of

the document reflects opinions of FHFA personnel, including the

Office of the Chief Accountant and Risk Analysis, at a time when

FHFA’s views and opinions were not fully developed and the

issues were still being debated. The preliminary opinions,

recommendations, and deliberations in the document may or may

not have been considered in developing any of the policy positions

that FHFA adopted. The redacted material neither represents a

complete and accurate record of all of the information considered

nor reflects any statement of agency policy or a final decision.

Id.

-28-

Mr. Dickerson asserts the deliberative process and bank examination privileges as to

Document 5.

1. Deliberative Process Privilege

a. Procedural Requirements

i. The Authority to Invoke the Privilege Was Properly Delegated to Mr. Dickerson

As noted above, the authority to invoke the deliberative process privilege was properly

delegated to Mr. Dickerson. See supra Section III.B.1.a.i.

ii. Defendant Has Identified With Particularity the Document It Claims Is Privileged

Mr. Dickerson’s declaration, which provides a description of the FHFA presentation on

DTA, coupled with defendant’s privilege log, which (1) identifies the document by its Bates

number, (2) provides the document’s author and recipient, (3) provides a description of the

document, and (4) identifies the specific privileges claimed, allows the court to identify with

particularity the document at issue.

iii. Defendant Has Not Provided Precise and Certain Reasons for Maintaining the

Confidentiality of the Document but, for the Purpose of Providing an Alternative Analysis,

the Court Will Proceed as if Defendant Has so Provided

In this instance, Mr. Dickerson did not provide precise and certain reasons for

maintaining the confidentiality of the document at issue. Compare supra Section III.C, with

supra Section III.D. However, the court notes that even if Mr. Dickerson had made the requisite

statements, it would not affect the court’s ultimate conclusion that, under the balancing test for

the deliberative process privilege, plaintiffs’ evidentiary need for the document outweighs

defendant’s interest in preventing the document’s disclosure. Thus, the court will, at this stage of

its analysis, proceed as if defendant has met this procedural requirement.

b. Substantive Requirements

i. Defendant Has Shown That the Document Is Predecisional

The decision to approve the Net Worth Sweep was made by Secretary Geithner on

August 16, 2012. See Pls.’ Mot. A178. According to the privilege log, Document 5 was sent by

P. Bjarnason to N. Satriano on December 16, 2008. Although the privilege log does not

explicitly state that the document was created on that date, upon its own examination, the court

finds that Document 5 is dated October 29, 2008, and thus is predecisional.

-29-

ii. Defendant Has Not Shown That the Document Is Deliberative but, for the Purpose of

Providing an Alternative Analysis, the Court Will Proceed as if Defendant Has Made Such

a Showing

In order to determine whether a document is subject to the deliberative process privilege,

the court must be able to discern whether the document reflects the “intra-governmental

exchange of thoughts that actively contribute to the agency’s decisionmaking process,” Texaco

P.R., Inc., 60 F.3d at 884-85. Thus, as to each document, the court must be able to identify the

affiliations of the individuals on defendant’s privilege log and also discern the document’s

deliberative nature.

In this case, defendant has not met its burden of showing that the document is

deliberative. First, upon examination of the privilege log and all of the documents submitted for

in camera review, the court has been unable to identify the affiliation of P. Bjarnason or N.

Satriano. 16 Second, the document’s deliberative nature is not apparent on its face. This is so

despite the fact that Mr. Dickerson’s description of the document, provided above, proclaims its

deliberative nature.

In any event, the court notes that even if the document was clearly deliberative, it would

not affect the court’s ultimate conclusion that, under the balancing test for the deliberative

process privilege, plaintiffs’ evidentiary need for the document outweighs defendant’s interest in

preventing the document’s disclosure. Thus, for the purpose of providing an alternative analysis,

the court deems the document to be deliberative.

c. Balancing Test

Although defendant has not met its burden to demonstrate that the FHFA presentation on

DTA is protected by the deliberative process privilege, the court will perform an alternative

analysis. Recognizing that the privilege is qualified, the court will balance plaintiffs’ evidentiary

need for the document against defendant’s interest in preserving its confidentiality. In order to

do so, the court weighs the five factors described in In re Subpoena.

First, with respect to the relevance of the evidence sought to be protected, Document 5,

FHFA 00092209, relates to the Enterprises’ future profitability. See supra Section I.B. The

partially redacted sixteen-page document was prepared by the FHFA’s Office of the Chief

Accountant and is captioned “Accounting for Income Taxes[:] Deferred Tax Assets.” It is a

series of presentation slides prepared for the purpose of explaining “the accounting concepts

behind deferred tax assets,” describing how the DTA “arise at financial institutions and the

Enterprises in particular,” and assisting in “addressing supervisory questions about deferred tax

assets.”

16

Even if the document was disclosed to third parties—individuals outside those

decision-makers and advisors protected by the privilege—it would not affect the court’s ultimate

conclusion, set forth below, that plaintiffs’ evidentiary need for the document outweighs

defendant’s interest in preventing the document’s disclosure.

-30-

Second, with respect to the availability of other evidence, there is no other source of

evidence available to plaintiffs that would similarly inform their understanding of the

Enterprises’ future profitability.

Third, with respect to the seriousness of the litigation and the issues involved, neither

party disputes the importance of the case, both in terms of the damages and equitable relief

sought, as well as in terms of the case’s implication for litigation and “executive and legislative

branch policy repercussions.” Dairyland Power I, 77 Fed. Cl. at 342.

Fourth, with respect to the government’s role in the litigation, because “the Government

is a party to this litigation and is the party that seeks to benefit from the invocation of the

deliberative process privilege,” its assertion of the “privilege must be carefully scrutinized to

ensure that the privilege retains its proper narrow scope.” Id.

Fifth, with respect to the possibility of future timidity by government employees who will

be forced to recognize that their secrets are violable, it is highly unlikely, given the protective

order that is already in place in this case, that any type of disclosure would result in a chilling of

frank policy discussions between government employees.

Thus, with respect to Document 5, plaintiffs’ evidentiary need for the information

outweighs defendant’s interest in preventing the document’s disclosure. In other words, the

deliberative process privilege cannot shield the disclosure of the document in this instance

because evidence relating to the Enterprises’ future profitability implicates both the court’s

jurisdiction and the merits of the case and therefore is discoverable. The document must be

disclosed.

2. Bank Examination Privilege

Having determined that the FHFA presentation on DTA is subject to the bank

examination privilege, see supra Section II.B.3, but recognizing that the privilege is qualified, the

court must now balance plaintiffs’ evidentiary need for the document against defendant’s interest

in preserving its confidentiality. To do so, the court weighs the five factors described in Wultz.

Because those factors are identical to the factors used to analyze whether the deliberative process

privilege has been overcome, the court concludes, as it did with respect to the deliberative

process privilege, that plaintiffs’ evidentiary need for the information outweighs defendant’s

interest in maintaining the confidentiality of the document at issue. Thus, the bank examination

privilege cannot shield the document’s disclosure.

D. Forecasts

Doc. Bates No. From / To / Description of Document / Privilege(s) Asserted

No. Date / CC

6 FHFA J. Williams to “Presentation of FHFA Forecast Scenarios prepared by

00093706 A. Eberhardt Fannie Mae at FHFA’s request”

on 9/14/2011

DPP, BEP

-31-

CC: N.A.

Tagoe

7 FHFA N.A. Tagoe to “FHFA projection of remaining GSE Treasury

00100594 J. Williams on funding commitment under FHFA stress scenarios

9/16/2011 containing predecisional deliberations”

DPP, BEP

According to Mr. Dickerson, the next group of documents at issue, the forecasts,

“provide analysis of various scenarios using assumptions provided by FHFA.” Def.’s Resp.

A64. He further claims that “[p]eriodically, as part of the examination process, regulators ask

regulated entities to prepare stress tests, which are analyses or simulations designed to determine

the ability of the regulated entity to deal with an economic crisis.” Id. at A64-65. Finally, he

claims that the documents at issue should not be disclosed:

The Forecasts contain predecisional and deliberative statements

about FHFA’s supervision of the Enterprises. The preliminary

opinions, recommendations, and deliberations in these documents

may or may not have been considered in developing any of the

policy positions that FHFA adopted in its capacity as regulator of

the Enterprises. The withheld material neither represents a

complete and accurate record of all of the information considered

nor reflects any statement of agency policy or a final decision.

Id. at A65.

Mr. Dickerson asserts the deliberative process and bank examination privileges as to

Documents 6-7 and provides individual descriptions of the documents. He describes Document

6, FHFA 00093706, as: “[P]rojections run on Fannie Mae’s models at FHFA’s request, using

assumptions or scenarios provided by FHFA. It examines three scenarios provided by FHFA—

Base, Optimistic, and Stress—and analyzes Fannie Mae’s projected income, solvency, and credit

losses under these scenarios.” 17 Id. He then describes Document 7, FHFA 00100594, as “a

17

The cover page to this document provides the following disclaimer:

These projections do not represent expected outcomes. They were

prepared based on key assumptions provided by FHFA, and are

based on numerous assumptions, including assumptions about

Fannie Mae’s operations, loan performance, macroeconomic

conditions, financial market conditions, house prices and

government policy. These projections do not reflect (1) the

judgment of management as to how the specific assumptions

employed might produce other changes in model assumptions or

(2) actions that Fannie Mae might undertake in response to the

economic conditions specified in the scenarios. Actual results

could vary significantly from these projections as a result of actual

-32-

document prepared by FHFA that analyzes both Enterprises’ projected remaining Treasury

funding commitment under scenarios determined by FHFA.” Id.

1. Deliberative Process Privilege

a. Procedural Requirements

i. The Authority to Invoke the Privilege Was Properly Delegated to Mr. Dickerson

As noted above, the authority to invoke the deliberative process privilege was properly

delegated to Mr. Dickerson. See supra Section III.B.1.a.i.

ii. Defendant Has Identified With Particularity the Documents It Claims Are Privileged

Mr. Dickerson’s declaration, which provides a description of the forecasts, coupled with

defendant’s privilege log, which (1) identifies the documents by their Bates numbers, (2)

provides the documents’ authors and recipients, (3) provides a description of the documents, and

(4) identifies the specific privileges claimed, allows the court to identify with particularity the

documents at issue.

iii. Defendant Has Provided Precise and Certain Reasons for Maintaining the

Confidentiality of the Documents

Based on Mr. Dickerson’s declaration, which provides precise and certain reasons for

maintaining the confidentiality of the documents at issue, see id. at A63-64, the court can balance

the government’s interest in maintaining that confidentiality with plaintiffs’ evidentiary need for

the documents’ disclosure.

b. Substantive Requirements

i. Defendant Has Not Shown That All of the Documents Are Predecisional but, for the

Purpose of Providing an Alternative Analysis, the Court Will Proceed as if Defendant Has

Made Such a Showing

The decision to approve the Net Worth Sweep was made by Secretary Geithner on

August 16, 2012. See Pls.’ Mot. A178. According to the privilege log, Document 6 was sent by

J. Williams to A. Eberhardt, with a copy to N.A. Tagoe, on September 14, 2011. Although the

privilege log does not explicitly state that the document was created on that date, upon its own

examination, the court finds that Document 6 is dated September 2011 and thus is predecisional.

outcomes differing from the assumptions used or other factors.

These projections were not subject to the review and controls

typically associated with the preparation of corporate forecasts as

the projections were intended for a different purpose.

Doc. 6, FHFA 00093706 at 1.

-33-

The privilege log also indicates that Document 7 was sent by N.A. Tagoe to J. Williams

on September 16, 2011. The privilege log does not explicitly state that the document was created

on that date, and upon its own examination, the court finds that Document 7 is undated.

Therefore, defendant has not established that Document 7 is predecisional. However, the court

notes that even if the document was clearly predecisional, it would not affect the court’s ultimate

conclusion that, under the balancing test for the deliberative process privilege, plaintiffs’

evidentiary need for the document outweighs defendant’s interest in preventing the document’s

disclosure. Thus, for the purpose of providing an alternative analysis, the court deems all of the

documents to be predecisional.

ii. Defendant Has Not Shown That the Documents Are Deliberative but, for the Purpose of

Providing an Alternative Analysis, the Court Will Proceed as if Defendant Has Made Such

a Showing

In order to determine whether a document is subject to the deliberative process privilege,

the court must be able to discern whether the document reflects the “intra-governmental

exchange of thoughts that actively contribute to the agency’s decisionmaking process,” Texaco

P.R., Inc., 60 F.3d at 884-85. Thus, as to each document, the court must be able to identify the

affiliations of the individuals on defendant’s privilege log and also discern the document’s

deliberative nature.

In this case, defendant has not met its burden of showing that the documents are

deliberative. Upon examination of the privilege log and all of the documents submitted for in

camera review, which include some individuals’ e-mail domains, the court has identified J.

Williams and N.A. Tagoe as FHFA employees, and A. Eberhardt as a Grant Thornton employee.

However, the documents’ deliberative nature is not apparent on their face. This is so despite the

fact that Mr. Dickerson’s descriptions of each of the documents, provided above, proclaim their

deliberative nature.

In any event, the court notes that even if the documents were clearly deliberative, it

would not affect the court’s ultimate conclusion that, under the balancing test for the deliberative

process privilege, plaintiffs’ evidentiary need for the documents outweighs defendant’s interest

in preventing the documents’ disclosure. Thus, for the purpose of providing an alternative

analysis, the court deems the documents to be deliberative.

c. Balancing Test

Although defendant has not met its burden to demonstrate that the forecasts are protected

by the deliberative process privilege, the court will perform an alternative analysis. Recognizing

that the privilege is qualified, the court will balance plaintiffs’ evidentiary need for the

documents against defendant’s interest in preserving their confidentiality. In order to do so, the

court weighs the five factors described in In re Subpoena.

First, with respect to the relevance of the evidence sought to be protected, the documents

relate to the Enterprises’ future profitability and future solvency. See supra Section I.B.

-34-

Document 6, FHFA 00093706, is an unnumbered thirty-page document prepared by Fannie Mae,

at FHFA’s request, captioned “FHFA Forecast Scenarios.” It analyzes Fannie Mae’s projected

income, solvency, and credit losses under base, optimistic, and stress scenarios. Document 7,

FHFA 00100594, is a one-page document captioned “Remaining Treasury Funding

Commitment.” It analyzes both Fannie Mae’s and Freddie Mac’s projected remaining Treasury

Department funding commitment under various scenarios.

Second, with respect to the availability of other evidence, there is no other source of

evidence available to plaintiffs that would similarly inform their understanding of the

Enterprises’ future profitability and future solvency.

Third, with respect to the seriousness of the litigation and the issues involved, neither

party disputes the importance of the case, both in terms of the damages and equitable relief

sought, as well as in terms of the case’s implication for litigation and “executive and legislative

branch policy repercussions.” Dairyland Power I, 77 Fed. Cl. at 342.

Fourth, with respect to the government’s role in the litigation, because “the Government

is a party to this litigation and is the party that seeks to benefit from the invocation of the

deliberative process privilege,” its assertion of the “privilege must be carefully scrutinized to

ensure that the privilege retains its proper narrow scope.” Id.

Fifth, with respect to the possibility of future timidity by government employees who will

be forced to recognize that their secrets are violable, it is highly unlikely, given the protective

order that is already in place in this case, that any type of disclosure would result in a chilling of

frank policy discussions between government employees.

Thus, with respect to Document 6-7, plaintiffs’ evidentiary need for the information

outweighs defendant’s interest in preventing the documents’ disclosure. In other words, the

deliberative process privilege cannot shield the disclosure of the documents in this instance

because evidence relating to the Enterprises’ future profitability and solvency implicates both the

court’s jurisdiction and the merits of the case and therefore is discoverable. The documents must

be disclosed.

2. Bank Examination Privilege

Having determined that the forecasts are subject to the bank examination privilege, see

supra Section II.B.3, but recognizing that the privilege is qualified, the court must now balance

plaintiffs’ evidentiary need for the documents against defendant’s interest in preserving their

confidentiality. To do so, the court weighs the five factors described in Wultz. Because those

factors are identical to the factors used to analyze whether the deliberative process privilege has

been overcome, the court concludes, as it did with respect to the deliberative process privilege,

that plaintiffs’ evidentiary need for the information outweighs defendant’s interest in maintaining

the confidentiality of the documents at issue. Thus, the bank examination privilege cannot shield

the documents’ disclosure.

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E. Risk Assessment Memoranda

Doc. Bates No. From / To / Description of Document / Privilege(s) Asserted

No. Date / CC

8 FHFA J. Williams to “FHFA Risk Assessment Memorandum prepared in

00096631 N.A. Tagoe on connection with FHFA’s regulatory supervision

6/28/2012 regarding Fannie Mae’s 4Q earnings”

CC: P. BEP

Calhoun

9 FHFA J. Williams to “FHFA Risk Assessment Memorandum prepared in

00096634 N.A. Tagoe on connection with FHFA’s regulatory supervision

6/28/2012 regarding the solvency of Fannie Mae”

CC: P. BEP

Calhoun

10 FHFA J. Williams to “FHFA Risk Assessment Memorandum prepared in

00096636 N.A. Tagoe on connection with FHFA’s regulatory supervision

6/28/2012 regarding Freddie Mac’s 4Q earnings”

CC: P. BEP

Calhoun

11 FHFA J. Williams to “FHFA Risk Assessment Memorandum prepared in

00096638 N.A. Tagoe on connection with FHFA’s regulatory supervision

6/28/2012 regarding the solvency of Freddie Mac”

CC: P. BEP

Calhoun

According to Mr. Dickerson, the next group of documents at issue, the risk assessment

memoranda, “were prepared by the Office of Financial Analysis, Modeling, and Simulations” as

“part of the supervisory process to determine the safety and soundness of the GSEs.” Def.’s

Resp. A65. He further claims that the memoranda “contain analyses and opinions regarding the

Enterprises’ outlook for earnings and solvency as of March 31, 2012.” Id.

Mr. Dickerson asserts the bank examination privilege as to Documents 8-11 and provides

individual descriptions of the documents. Specifically, he states that Document 8, FHFA

00096631, “discusses Fannie Mae’s earnings,” id.; Document 9, FHFA 00096634 “discusses

Fannie Mae’s solvency,” id. at A65-66; Document 10, FHFA 00096636, “discusses Freddie

Mac’s earnings,” id. at A66; and Document 11, FHFA 00096638, “discusses Freddie Mac’s

solvency,” id.

Having determined that the risk assessment memoranda are protected by the bank

examination privilege, see supra Section II.B.3, but recognizing that the privilege is qualified, the

court must balance plaintiffs’ evidentiary need for the documents against defendant’s interest in

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preserving their confidentiality. In order to do so, the court weighs the five factors described in

Wultz.

First, with respect to the relevance of the evidence sought to be protected, the documents

relate to the Enterprises’ future profitability and future solvency. See supra Section I.B.

Document 8, FHFA 00096631, is a three-page document prepared by FHFA employees

captioned “Risk Assessment Memorandum.” Document 9, FHFA 00096634, Document 10,

FHFA 00096636, and Document 11, FHFA 00096638, are each two-page documents prepared

by FHFA employees captioned “Risk Assessment Memorandum.” Documents 8 and 10 address

the Enterprises’ earnings and Documents 9 and 11 address the Enterprises’ solvency.

Second, with respect to the availability of other evidence, there is no other source of

evidence available to plaintiffs that would similarly inform their understanding of the

Enterprises’ future profitability and future solvency.

Third, with respect to the seriousness of the litigation and the issues involved, neither

party disputes the importance of the case, both in terms of the damages and equitable relief

sought, as well as in terms of the case’s implication for litigation and “executive and legislative

branch policy repercussions.” Dairyland Power I, 77 Fed. Cl. at 342.

Fourth, with respect to the government’s role in the litigation, because “the Government

is a party to this litigation and is the party that seeks to benefit from the invocation of the

deliberative process privilege,” its assertion of the “privilege must be carefully scrutinized to

ensure that the privilege retains its proper narrow scope.” Id.

Fifth, with respect to the possibility of future timidity by government employees who will

be forced to recognize that their secrets are violable, it is highly unlikely, given the protective

order that is already in place in this case, that any type of disclosure would result in a chilling of

frank policy discussions between government employees.

Thus, with respect to Documents 8-11, plaintiffs’ evidentiary need for the information

outweighs defendant’s interest in preventing the documents’ disclosure. In other words, the bank

examination privilege cannot shield the disclosure of the documents in this instance because

evidence relating to the Enterprises’ future profitability and future solvency implicates both the

court’s jurisdiction and the merits of the case and therefore is discoverable. The documents must

be disclosed.

F. DeLeo E-mail

Doc. Bates No. From / To / Description of Document / Privilege(s) Asserted

No. Date / CC

12 FHFA W. DeLeo to J. “RM: Internal communication among senior FHFA staff

00031520 Lockhart on containing predecisional deliberations regarding

10/29/2008 response to a media story on deferred tax assets of the

GSEs and management delegations by the conservator”

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CC: E. DPP

DeMarco

Also: S.

Mullin, C.

Dickerson, P.

Brereton, C.

Russell, A.

Pollard, and A.

Lakroune

According to Mr. Dickerson, the DeLeo e-mail “contains predecisional and deliberative

statements about how FHFA should respond to a press inquiry about the treatment of deferred

tax assets in October 2008.” Def.’s Resp. A66. He claims that the document at issue should not

be disclosed:

Based on my review of the e-mail, I have determined that the

production of the redacted portions of the Email would inhibit the

frank and honest discussion of policy matters, and thus would

adversely affect the quality of FHFA’s decisions and policies. The

reluctance of FHFA personnel to share their candid opinions, and

the bases for them, would restrict FHFA’s ability to formulate

sound policy and diminish the benefits of future efforts to help

restore confidence in the Enterprises and avoid the systemic risk

that can directly destabilize the national housing finance market.

This concern is particularly acute as redacted portions of the Email

relate to sensitive discussions regarding FHFA’s policies with

respect to the ongoing and future operations of the Enterprises.

Id.

Mr. Dickerson asserts the deliberative process privilege as to Document 12.

1. Procedural Requirements

a. The Authority to Invoke the Privilege Was Properly Delegated to Mr. Dickerson

As noted above, the authority to invoke the deliberative process privilege was properly

delegated to Mr. Dickerson. See supra Section III.B.1.a.i.

b. Defendant Has Identified With Particularity the Document It Claims Is Privileged

Mr. Dickerson’s declaration, which provides a description of the DeLeo e-mail, coupled

with defendant’s privilege log, which (1) identifies the document by its Bates number, (2)

provides the document’s authors and recipients, (3) provides a description of the document, and

(4) identifies the specific privilege claimed, allows the court to identify with particularity the

document at issue.

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c. Defendant Has Provided Precise and Certain Reasons for Maintaining the

Confidentiality of the Document

Based on Mr. Dickerson’s declaration, which provides precise and certain reasons for

maintaining the confidentiality of the document at issue, see Def.’s Resp. A66, the court can

balance the government’s interest in maintaining that confidentiality with plaintiffs’ evidentiary

need for the document’s disclosure.

2. Substantive Requirements

a. Defendant Has Shown That the Document Is Predecisional

The decision to approve the Net Worth Sweep was made by Secretary Geithner on

August 16, 2012. See Pls.’ Mot. A178. According to the privilege log, Document 12 was sent

by W. DeLeo to J. Lockhart, with copies to E. DeMarco, S. Mullin, C. Dickerson, P. Brereton, C.

Russell, A. Pollard, and A. Lakroune, on October 29, 2008. Although the privilege log does not

explicitly state that the document was created on that date, upon its own examination, the court

finds that Document 12 is dated October 29, 2008, and thus is predecisional.

b. Defendant Has Not Shown That the Document Is Deliberative but, for the Purpose of

Providing an Alternative Analysis, the Court Will Proceed as if Defendant Has Made Such

a Showing

In order to determine whether a document is subject to the deliberative process privilege,

the court must be able to discern whether the document reflects the “intra-governmental

exchange of thoughts that actively contribute to the agency’s decisionmaking process,” Texaco

P.R., Inc., 60 F.3d at 884-85. Thus, as to each document, the court must be able to identify the

affiliations of the individuals on defendant’s privilege log and also discern the document’s

deliberative nature.

In this case, defendant has not met its burden of showing that the documents are

deliberative. Upon examination of the privilege log and all of the documents submitted for in

camera review, which include some individuals’ e-mail domains, the court has identified J.

Lockhart and E. DeMarco as FHFA employees. However, the document’s deliberative nature is

not apparent on its face. This is so despite the fact that Mr. Dickerson’s description of the

document, provided above, proclaims its deliberative nature.

In any event, the court notes that even if the document was clearly deliberative, it would

not affect the court’s ultimate conclusion that, under the balancing test for the deliberative

process privilege, plaintiffs’ evidentiary need for the document outweighs defendant’s interest in

preventing the document’s disclosure. Thus, for the purpose of providing an alternative analysis,

the court deems the document to be deliberative.

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3. Balancing Test

Although defendant has not met its burden to demonstrate that the De-Leo e-mail

document is protected by the deliberative process privilege, the court will perform an alternative

analysis. Recognizing that the privilege is qualified, the court will balance plaintiffs’ evidentiary

need for the document against defendant’s interest in preserving its confidentiality. In order to

do so, the court weighs the five factors described in In re Subpoena.

First, with respect to the relevance of the evidence sought to be protected, the document

relates to the Enterprises’ future profitability. See supra Section I.B. Document 12, FHFA

00031520, is a partially redacted unnumbered three-page e-mail chain among FHFA employees

that discusses agency policy with regard to the Enterprises’ accounting practices.

Second, with respect to the availability of other evidence, there is no other source of

evidence available to plaintiffs that would similarly inform their understanding of the

Enterprises’ future profitability.

Third, with respect to the seriousness of the litigation and the issues involved, neither

party disputes the importance of the case, both in terms of the damages and equitable relief

sought, as well as in terms of the case’s implication for litigation and “executive and legislative

branch policy repercussions.” Dairyland Power I, 77 Fed. Cl. at 342.

Fourth, with respect to the government’s role in the litigation, because “the Government

is a party to this litigation and is the party that seeks to benefit from the invocation of the

deliberative process privilege,” its assertion of the “privilege must be carefully scrutinized to

ensure that the privilege retains its proper narrow scope.” Id.

Fifth, with respect to the possibility of future timidity by government employees who will

be forced to recognize that their secrets are violable, it is highly unlikely, given the protective

order that is already in place in this case, that any type of disclosure would result in a chilling of

frank policy discussions between government employees.

Thus, with respect to Document 12, plaintiffs’ evidentiary need for the information

outweighs defendant’s interest in preventing the document’s disclosure. In other words, the

deliberative process privilege cannot shield the disclosure of the document in this instance

because evidence relating to the Enterprises’ future profitability implicates both the court’s

jurisdiction and the merits of the case and therefore is discoverable. The document must be

disclosed.

G. Housing Finance Reform

Doc. Bates No. From / To / Description of Document / Privilege(s) Asserted

No. Date / CC

13 UST J. Foster to S. “Draft memorandum for Secretary containing

00389678 Valverde and predecisional deliberations related to mortgage finance

market reform proposals”

-40-

M. Fikre on

1/31/2012 DPP

14 UST S. Miller to B. “Draft policy paper prepared by Treasury staff

00490551 Mlynarczyk containing predecisional deliberations regarding

and M. housing finance reform”

Stegman on

7/30/2012 DPP

15 UST M. Stegman, “Memorandum reflecting confidential communication

00500982 T. Bowler, J. from senior White House advisors to the President

Parrott, B. regarding housing policy ideas and initiatives”

Deese, M.

Miller, and S. DPP, Presidential Communications Privilege (“PCP”)

Valverde to M.

Stegman, T.

Bowler, J.

Parrott, B.

Deese, M.

Miller, J.

Eberly, and

Exec Sec Staff

on 5/2/2012

CC: M.

Patterson, N.

Wolin, J.

LeCompte, J.

Parrott, M.

Miller, and M.

Stegman

16 UST J. Foster to J. “Draft policy document prepared by Treasury staff

00513480 Foster on containing predecisional deliberations regarding

5/21/2012 housing finance reform”

DPP

17 UST J. Parrott and “Emails reflecting the exchange of information, views,

00515290 J. Foster to J. and advice between Treasury officials and White House

Parrot and J. staff with broad and significant responsibility for

Foster on investigating and formulating advice for consideration

7/29/2011 and direction by the President regarding housing finance

issues”

DPP, PCP

-41-

18 UST B. Hester to “Draft memorandum for Secretary containing

00518402 M. Miller on predecisional deliberations related to policy

2/21/2012 implications of proposed housing finance legislation”

CC: S. Lee and DPP

A. Johnson

19 UST M. Stegman “Memorandum reflecting confidential communication

00521902 on 6/18/2012 from senior White House advisors to the President

regarding housing policy ideas and initiatives”

DPP, PCP

20 UST J. Foster to J. “Draft policy paper containing predecisional

00544897 Foster on deliberations concerning housing finance reform”

6/5/2012

DPP

21 UST G. Sperling, T. “Email reflecting the exchange of information, views,

00550441 Geithner, N. and advice between Treasury officials and senior White

Wolin, and M. House advisors for consideration and direction by the

Miller to T. President regarding housing finance issues”

Geithner, N.

Wolin, M. PCP

Stegman, S.

Gandhi, A.

Gerety, B.

Hester, M.

Miller, C.

Gibson, C.

Amir-Mokri,

and S.

Chisolm on

3/12/2012

CC: B. Deese

This next group of documents concerns housing finance reform. According to Mr. Pearl,

since the financial crisis, the Treasury Department has been working with other agencies and

congressional staff to develop proposals and draft legislation targeted at reforming the housing

finance system. Def.’s Resp. A71. He further claims that the documents at issue should not be

disclosed:

Requiring disclosure of these deliberative materials would have a

chilling effect on Treasury’s housing finance reform work. If

Treasury officials and staff know that their deliberations on

housing finance reform will be disclosed to litigation adversaries,

they are unlikely to feel at liberty to offer their candid opinions and

fully engage in the policy development process. Disclosure of the

-42-

details of this evolving policymaking process would inhibit

Treasury’s ability to engage in ongoing policy deliberations

resulting in a profound negative impact on such deliberations. As

Treasury continues its efforts to help bring about comprehensive

reform of the housing finance system, it is critical that we preserve

the ability to have robust discussions in which we are able to

explore sensitive and important policy decisions from multiple

angles.

Id. at A72.

Mr. Pearl asserts the deliberative process privilege as to Documents 13-20 and provides

individual descriptions of the documents. He describes Document 13, UST 00389678, as:

“Draft of memorandum for Secretary of the Treasury Timothy Geithner prepared by Treasury

officials and staff regarding proposals for housing finance reform. The document articulates

principles to be pursued in working on potential reforms of the mortgage finance system. The

documents reflect predecisional deliberations regarding such reforms.” Id. Mr. Pearl then

describes Document 14, UST 00490551, Document 16, UST 00513480, and Document 20, UST

00544897, as: “Drafts of policy papers prepared by Treasury officials and staff regarding

housing finance reform. The documents contain discussions of a potential comprehensive

housing finance reform plan. The documents reflect predecisional deliberations regarding the

proposed plan.” Id. Next, he describes Document 15, UST 00500982, and Document 19, UST

00521902, as: “Drafts of memoranda for the President regarding housing finance reform.

Treasury officials and staff participated in preparing the draft memoranda. The documents

reflect potential policies to pursue and contain Treasury staff recommendations concerning the

options presented. The documents reflect predecisional deliberations regarding such policies.”

Id. Mr. Pearl then describes Document 17, UST 00515290, as: “Correspondence between

Treasury staff and a White House advisor regarding housing finance reform. The email chain

reflects discussion of potential policies to pursue. The documents reflect predecisional

deliberations regarding such policies.” Id. Finally, Mr. Pearl describes Document 18, UST

00518402, as: “Draft of memorandum for the Secretary prepared by Treasury officials and staff

regarding policy implications of proposed housing finance legislation. The document contains

Treasury staff views on proposed housing finance bills. The documents reflect predecisional

deliberations regarding the proposed legislation.” Id.

Mr. McQuaid asserts the presidential communications privilege as to Documents 15, 17,

19, and 21. McQuaid Decl. 2. Generally, he describes the documents as “draft memoranda and

electronic mail communications that were authored or solicited and received by an immediate

presidential advisor or his staff who had broad and significant responsibility for investigating and

formulating advice to be given to the President with respect to decisionmaking on the subject of

housing reform policy.” Id. He also provides individual descriptions of the documents.

Document 15, UST 00500982, is described as:

a draft memorandum concerning housing policy ideas and

initiatives, which was attached to an email from Brian Deese, the

Deputy Director of the National Economic Council, to various

-43-

senior Treasury staff requesting any final comments from

Treasury, and which was prepared by James Parrott, a senior

advisor to the National Economic Council, and contains input from

Gene Sperling, the Director of the National Economic Council, and

his staff, as well as from various senior housing policy staff at

Treasury.

Id. at 2-3. Document 17, UST 00515290, is described as “portions of an electronic mail

conversation between James Parrott, a senior advisor to the National Economic Council, and

Treasury staff discussing advice regarding White House housing policy reform.” Id. at 3.

Document 19, UST 00521902, is described as “a draft memorandum assigned a file name

including, in part, ‘POTUS_Draft,’ bearing the heading ‘THE WHITE HOUSE,’ and

recommending various near- and long-term housing policy reform initiatives.” Id. Finally,

Document No. 21, UST 00550441, is described as “portions of an email from Gene Sperling, the

Director of the National Economic Council, to Treasury Secretary Timothy Geithner, and

copying Brian Deese, concerning the timing of upcoming housing initiatives.” 18 Id.

1. Deliberative Process Privilege

a. Procedural Requirements

i. The Authority to Invoke the Privilege Was Properly Delegated to Mr. Pearl

With respect to Mr. Pearl’s authority to invoke the deliberative process privilege, the

chain of delegation from Treasury Secretary Lew to Mr. Pearl is clear. See Def.’s Resp. A86. In

addition, Mr. Pearl’s position as Executive Secretary of the Treasury and familiarity with this

litigation make him well-suited to the task of determining whether or not the deliberative process

privilege is applicable to the documents at issue. Thus, the authority to invoke the deliberative

process privilege was properly delegated to Mr. Pearl.

ii. Defendant Has Identified With Particularity the Documents It Claims Are Privileged

Mr. Pearl’s declaration, which provides a description of the housing finance reform

documents, coupled with defendant’s privilege log, which (1) identifies the documents by their

Bates numbers, (2) provides the documents’ authors and recipients, (3) provides a description of

the documents, and (4) identifies the specific privileges claimed, allows the court to identify with

particularity the documents at issue.

18

Apart from being referenced by Mr. McQuaid in his declaration in support of

defendant’s assertion of the presidential communications privilege, Document 21 is not

addressed in defendant’s response to plaintiffs’ motion to compel, save for one reference in a list

of Bates numbers appearing at the bottom of the first of two pages of an October 21, 2015 e-mail

from plaintiffs’ counsel to government counsel. See Def.’s Resp. A6. Because the document

addresses the issue of housing finance reform, the court has placed it in this category.

-44-

iii. Defendant Has Provided Precise and Certain Reasons for Maintaining the

Confidentiality of the Documents

Based on Mr. Pearl’s declaration, which provides precise and certain reasons for

maintaining the confidentiality of the documents at issue, see Def.’s Resp. A72, the court can

balance the government’s interest in maintaining that confidentiality with plaintiffs’ evidentiary

need for the documents’ disclosure.

b. Substantive Requirements

i. Defendant Has Not Shown That All of the Documents Are Predecisional but, for the

Purpose of Providing an Alternative Analysis, the Court Will Proceed as if Defendant Has

Made Such a Showing

The decision to approve the Net Worth Sweep was made by Secretary Geithner on

August 16, 2012. See Pls.’ Mot. A178. According to the privilege log, Document 13 was sent

by J. Foster to S. Valverde and M. Fikre on January 31, 2012. Although the privilege log does

not explicitly state that the document was created on that date, upon its own examination, the

court finds that Document 13 is dated January 25, 2012, and thus is predecisional.

The privilege log also indicates that Document 14 was sent by S. Miller to B. Mlynarczyk

and M. Stegman on July 30, 2012. The privilege log does not explicitly state that the document

was created on that date, and upon its own examination, the court finds that Document 14 is

undated. Therefore, defendant has not established that this document is predecisional. However,

the court notes that even if the document was clearly predecisional, it would not affect the

court’s ultimate conclusion that, under the balancing test for the deliberative process privilege,

plaintiffs’ evidentiary need for the document outweighs defendant’s interest in preventing the

document’s disclosure. Thus, for the purpose of providing an alternative analysis, the court

deems this document to be predecisional.

The privilege log further provides that Document 15 was sent by M. Stegman, T. Bowler,

J. Parrott, B. Deese, M. Miller, and S. Valverde to M. Stegman, T. Bowler, J. Parrott, B. Deese,

M. Miller, J. Eberly, and Executive Secretary Staff, with copies to M. Patterson, N. Wolin, J.

LeCompte, J. Parrott, M. Miller, and M. Stegman, on May 2, 2012. The privilege log does not

explicitly state that the document was created on that date, and upon its own examination, the

court finds that Document 15 is undated. Therefore, defendant has not established that this

document is predecisional. However, the court notes that even if the document was clearly

predecisional, it would not affect the court’s ultimate conclusion that, under the balancing test for

the deliberative process privilege, plaintiffs’ evidentiary need for the document outweighs

defendant’s interest in preventing the document’s disclosure. Thus, for the purpose of providing

an alternative analysis, the court deems this document to be predecisional.

The privilege log next indicates that Document 16 was sent by J. Foster to J. Foster on

May 21, 2012. The privilege log does not explicitly state that the document was created on that

date, and upon its own examination, the court finds that Document 16 is undated. Therefore,

defendant has not established that this document is predecisional. However, the court notes that

-45-

even if the document was clearly predecisional, it would not affect the court’s ultimate

conclusion that, under the balancing test for the deliberative process privilege, plaintiffs’

evidentiary need for the document outweighs defendant’s interest in preventing the document’s

disclosure. Thus, for the purpose of providing an alternative analysis, the court deems this

document to be predecisional.

The privilege log also states that Document 17 was sent by J. Parrott and J. Foster to J.

Parrot and J. Foster on July 29, 2011. Although the privilege log does not explicitly state that the

document was created on that date, upon its own examination, the court finds that Document 17

is dated July 29, 2011, and thus is predecisional.

The privilege log then provides that Document 18 was sent by B. Hester to M. Miller,

with copies to S. Lee and A. Johnson, on February 21, 2012. Although the privilege log does not

explicitly state that the document was created on that date, upon its own examination, the court

finds that Document 18 is dated February 20, 2012, and thus is predecisional.

The privilege log further indicates that Document 19 was sent by M. Stegman on June 18,

2012. Although the privilege log does not explicitly state that the document was created on that

date, upon its own examination, the court finds that Document 19 is dated June 2012, and thus is

predecisional.

Finally, the privilege log states that Document 20 was sent by J. Foster to J. Foster on

June 5, 2012. The privilege log does not explicitly state that the document was created on that

date, and upon its own examination, the court finds that Document 20 is undated. Therefore,

defendant has not established that this document is predecisional. However, the court notes that

even if the document was clearly predecisional, it would not affect the court’s ultimate

conclusion that, under the balancing test for the deliberative process privilege, plaintiffs’

evidentiary need for the document outweighs defendant’s interest in preventing the document’s

disclosure. Thus, for the purpose of providing an alternative analysis, the court deems this

document to be predecisional.

ii. Defendant Has Not Shown That the Documents Are Deliberative but, for the Purpose of

Providing an Alternative Analysis, the Court Will Proceed as if Defendant Has Made Such

a Showing

In order to determine whether a document is subject to the deliberative process privilege,

the court must be able to discern whether the document reflects the “intra-governmental

exchange of thoughts that actively contribute to the agency’s decisionmaking process,” Texaco

P.R., Inc., 60 F.3d at 884-85. Thus, as to each document, the court must be able to identify the

affiliations of the individuals on defendant’s privilege log and also discern the document’s

deliberative nature.

In this case, defendant has not met its burden of showing that the documents are

deliberative. Upon examination of the privilege log and all of the documents submitted for in

camera review, which include some individuals’ e-mail domains, the court has identified the

following individuals as Treasury Department employees: J. Foster, S. Valverde, M. Fikre, S.

-46-

Miller, B. Mlynarczyk, M. Stegman, T. Bowler, M. Miller, J. Eberly, M. Patterson, N. Wolin, J.

LeCompte, and B. Hester. In addition, the court has identified J. Parrott and B. Deese as

employees of the White House Economic Council. However, the documents’ deliberative nature

is not apparent on their face. This is so despite the fact that Mr. Pearl’s descriptions of each of

the documents, provided above, proclaim their deliberative nature.

In any event, the court notes that even if the documents were clearly deliberative, it

would not affect the court’s ultimate conclusion that, under the balancing test for the deliberative

process privilege, plaintiffs’ evidentiary need for the documents outweighs defendant’s interest

in preventing the documents’ disclosure. Thus, for the purpose of providing an alternative

analysis, the court deems the documents to be deliberative.

c. Balancing Test

Although defendant has not met its burden to demonstrate that the housing finance

reform documents are protected by the deliberative process privilege, the court will perform an

alternative analysis. Recognizing that the privilege is qualified, the court will balance plaintiffs’

evidentiary need for the documents against defendant’s interest in preserving their

confidentiality. In order to do so, the court weighs the five factors described in In re Subpoena.

First, with respect to the relevance of the evidence sought to be protected, the documents

relate to various issues regarding which the court has permitted discovery. See supra Section

I.B. Document 13, UST 00389678, is a fifteen-page document prepared by the Treasury

Department captioned “Information Memorandum for Secretary Geithner.” The document, the [.

. .]—it relates to the Enterprises’ future profitability and the reasonableness of plaintiffs’

expectations regarding the Enterprises’ future profitability. Document 14, UST 00490551, is a

fifty-one-page document prepared by the Treasury Department, which [. . .]—it relates to the

Enterprises’ future profitability, the lifespan of the conservatorships, and the reasonableness of

plaintiffs’ expectations regarding the Enterprises’ future profitability. Document 15, UST

00500982, is a nine-page document captioned “GSE Reform.” The document was sent by senior

White House advisors to the President and consists of advice on reforming the Enterprises—it

relates to the Enterprises’ future profitability and the lifespan of the conservatorships. Document

16, UST 00513480, is an unnumbered twelve-page document [. . .] 19 The document was

prepared by a Treasury Department employee, [. . .]—it relates to the Enterprises’ future

profitability and the reasonableness of plaintiffs’ expectations regarding the Enterprises’ future

profitability. Document 17, UST 00515290, is a partially redacted two-page e-mail chain among

Treasury Department and White House employees. [. . .]—it relates to the lifespan of the

conservatorships. Document 18, UST 00518402, is a seven-page document prepared by the

Treasury Department captioned “Information Memorandum for Secretary Geithner.” [. . .]—it

relates to the Enterprises’ future profitability, the lifespan of the conservatorships, and the

reasonableness of plaintiffs’ expectations regarding the Enterprises’ future profitability.

Document 19, UST 00521902, is an unnumbered eleven-page document that is a draft of a

memorandum from the President’s senior economic advisors—it relates to the lifespan of the

conservatorships and the relationship between the FHFA and the Treasury Department.

19

The last page of the document is blank.

-47-

Document 20, UST 00544897, is an unnumbered three-page document that was prepared by a

Treasury Department employee, [. . .]—it relates to the Enterprises’ future profitability and to the

reasonableness of plaintiffs’ expectations regarding the Enterprises’ future profitability.

Second, with respect to the availability of other evidence, there is no other source of

evidence available to plaintiffs that would similarly inform their understanding of the

Enterprises’ future profitability, the reasonableness of plaintiffs’ expectations regarding the

Enterprises’ future profitability, the lifespan of the conservatorships, and the relationship

between the FHFA and the Treasury Department.

Third, with respect to the seriousness of the litigation and the issues involved, neither

party disputes the importance of the case, both in terms of the damages and equitable relief

sought, as well as in terms of the case’s implication for litigation and “executive and legislative

branch policy repercussions.” Dairyland Power I, 77 Fed. Cl. at 342.

Fourth, with respect to the government’s role in the litigation, because “the Government

is a party to this litigation and is the party that seeks to benefit from the invocation of the

deliberative process privilege,” its assertion of the “privilege must be carefully scrutinized to

ensure that the privilege retains its proper narrow scope.” Id.

Fifth, with respect to the possibility of future timidity by government employees who will

be forced to recognize that their secrets are violable, it is highly unlikely, given the protective

order that is already in place in this case, that any type of disclosure would result in a chilling of

frank policy discussions between government employees.

Thus, with respect to Documents 13-20, plaintiffs’ evidentiary need for the information

outweighs defendant’s interest in preventing the documents’ disclosure. In other words, the

deliberative process privilege cannot shield the disclosure of the documents in this instance

because evidence relating to the Enterprises’ future profitability, the reasonableness of plaintiffs’

expectations regarding the Enterprises’ future profitability, the lifespan of the conservatorships,

and the relationship between the FHFA and the Treasury Department implicates both the court’s

jurisdiction and the merits of the case and therefore is discoverable. The documents must be

disclosed.

2. Presidential Communications Privilege

Defendant also asserts the presidential communications privilege with respect to some of

the housing finance reform documents. Document 15, UST 00500982, is a draft memorandum

regarding housing reform policy, which, according to Mr. McQuaid, was attached to an e-mail

from the Deputy Director of the National Economic Council (Brian Deese) to various senior

Treasury Department staff requesting final comments. Mr. McQuaid further states that it was

prepared by a senior advisor to the National Economic Council (James Parrott) with input from

the Director of the National Economic Council (Gene Sperling) and his staff, as well as from

various senior housing policy staff at the Treasury Department. The court cannot independently

verify either the authors or recipients of the draft document.

-48-

The redacted portion of Document 17, UST 00515290, is part of an e-mail exchange

between a senior advisor to the National Economic Council (James Parrott) and a Treasury

Department employee (Jeff Foster). The court cannot ascertain Mr. Foster’s title.

Document 19, UST 00521902, is a draft memorandum captioned “POTUS Draft.” The

document, which discusses housing reform policy, bears the heading “THE WHITE HOUSE.”

According to Mr. McQuaid, the document was sent by the Director of the National Economic

Council (Gene Sperling). The court cannot independently verify that the document was sent, let

alone drafted by, Mr. Sperling.

The redacted portion of Document 21, UST 00550441, is part of an e-mail from the

Director of the National Economic Council (Gene Sperling) to the Treasury Secretary (Timothy

Geithner), with a copy to the Deputy Director of the National Economic Council (Brian Deese).

It is subject to the presidential communications privilege because it consists of a deliberative

communication between three of the President’s senior staff in the course of fulfilling their roles

as advisors on the timing of housing reform.

Defendant has not met its burden of establishing that Documents 15, 17, and 19 are

protected by the presidential communications privilege. However, even if the documents were

clearly protected by the privilege, it would not affect the court’s ultimate conclusion that

plaintiffs have established a need for them. To overcome an assertion of the presidential

communications privilege, a plaintiff must show that the evidence at issue is both important and

unavailable from another source. See In re Sealed Case, 121 F.3d at 757. In this case, that need

is overwhelming, especially with respect to this subset of withheld documents. As noted above,

the gravamen of plaintiffs’ complaint is that their property—the dividends due on their

noncumulative preferred government stock and their right to receive a liquidation upon the

Enterprises’ dissolution, liquidation, or winding up—was taken without just compensation in

violation of the Fifth Amendment to the United States Constitution. These documents are

communications among the President’s senior advisors regarding housing reform policy as it

specifically relates to the Enterprises. Collectively, the documents pertain to all of the relevant

discovery issues: (1) the Enterprises’ future profitability, (2) the lifespan of the

conservatorships, (3) the relationship between the FHFA and the Treasury Department, (4) the

Enterprises’ future solvency, (5) the reasonableness of plaintiffs’ expectations regarding the

Enterprises’ future profitability, and (6) the reasons why the government allowed the preexisting

capital structure and stockholders to remain in place, including whether this decision was based

on the partial expectation that the Enterprises would be profitable again in the future. Because

the evidence addresses both the court’s jurisdiction and the merits of the case, plaintiffs’ need for

it is paramount. In addition, with respect to the availability of other evidence, there is no other

source of evidence available to plaintiffs that would similarly inform their understanding of these

issues. Thus, Documents 15, 17, 19, and 21 must be disclosed.

-49-

H. Housing Policies

Doc. Bates No. From / To / Description of Document / Privilege(s) Asserted

No. Date / CC

22 UST M. Stegman to “Draft speech containing pr

This text is long and has been trimmed here. Open the source document for the complete record.