Petition for Writ of Certiorari — S. A. Ludsin & Co. v. Small Business Administration

Supreme Court, U.S.

FILED

V9YZOSS IN 24198

OFHCE OF THE CLERK

In The

Supreme Court of the Hnited States

a—

October Term, 1997

S.A. LUDSIN & CO.,

Petitioner,

VS.

UNITED STATES SMALL BUSINESS ADMINISTRATION,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Second Circuit

PETITION FOR WRIT OF CERTIORARI

EARL H. NESMER

Counsel of Record

ROBERT J. JOSSEN

SHARI L. STEINBERG

SHEREFF, FRIEDMAN, HOFFMAN

& GOODMAN, LLP

Attorneys for Petitioner

919 Third Avenue

New York, New York, 10022

(212) 758-9500

(800) 274-3321 * (800) 359-6859 Aageta

A DIVISION OF COUNSEL PRESS ervices, inc

i

QUESTIONS PRESENTED

1. Is a government contractor seeking documents pursuant

to the Freedom of Information Act (“FOIA”) in furtherance of

its government contract categorically precluded from receiving a

“public interest” fee waiver by virtue of its status as a “commercial

requester” where: (a) the contract itself is in the public interest;

(b) the benefit to the public in providing the documents outweighs

any commercial interest of the contractor; (c) the documents were

for public dissemination and would have contributed significantly

to the public’s understanding of governmental operations and

activities; and (d) the government acknowledged that it was

planning to make certain of the information requested available

to the public at no charge via the Internet and had previously

made certain information available at no charge?

2. Is the public dissemination of appraisals of real estate

held as loan collateral by the Small Business Administration

(“SBA”) likely to contribute significantly to the public’s

understanding of the SBA’s operations and activities so as to

justify a fee waiver under the FOIA?

3. Although articulating a de novo standard of review, in

granting the SBA summary judgment, did the reviewing court in

effect change the standard of review with undue deference to the

SBA’s fee-waiver determinations, by failing to fully and

independently consider the administrative record below and by

resolving factual disputes in the SBA’s favor?

il

STATEMENT PURSUANT TO RULE 29.6

The caption of the case contains the names of all parties.

Petitioner S.A. LUDSIN & CO., d/b/a S.A. Ludsin & Co.

(“Ludsin”) does not have any parent companies or nonwholly

owned subsidiaries.

lil

TABLE OF CONTENTS

Page

Ck cas bac s cds sebaee eva tes i

Statement Pursuant to Rule 29.6 .................. ii

i ah ces 6 55 tn 0s ave sied vas bnen exe ili

as eos iss ba Kale V6 de 4b cn dwc et iv

See ME GPU MWY gc ccc evecascvcsbecs l

I I IND sos Sc kb ow ete sesivscuans l

Statute and Regulation Involved .................. l

on as CG eke b se eeeaskeees 5

PUMMOOMS TOF CICRRTRS TG WHT... ww cece eens 14

I. This Court Should Settle An Important Question

Of Federal Law Regarding Public Interest Fee

I RO To bons vc esd nccuvenses 14

A. The Disclosure of the Appraisals Was in the

ik chads CR Ks doa a des 16

B. The Disclosure of the Appraisals Was Not

Primarily in Ludsin’s Commercial Interest. 20

Il. The Second Circuit Applied An Unduly

Deferential Standard Of Review To The SBA’s

Fee Waiver Determination. .............0..5. 23

gk eb sa tiwes 27

iv

Contents

Page

TABLE OF CITATIONS

Cases Cited:

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) . 26

Carney v. United States Dep't of Justice, 19 F.3d 807

(F.2d Cir.), cert. denied, 513 U.S. 823 (1994) ..... 17

Celotex Corp. v. Catrett, 477 U.S. 317 5” SA 26

Chevron U.S.A., Inc. v. Natural Resources Defense

Council, Inc., 457 U.S. 837 CPOE a FU sks oar, 21

Department of Air Force v. Rose, 425 U.S. 352 (1976). 24

Ely v. United States Postal Serve., 753 F.2d 163 (D.C.

Cir.), cert. denied, 471 U.S. 1106 (1985) ........ 15, 16

Ettlinger v. FBI, 596 F. Supp. 867 (D. Mass. 1984) .. 18

Eudey v. Central Intelligence Agency, 478 F. Supp. 1175

is ENTE os 96a hee ese es 14, 16

Haitian Centers Councils, Inc. v. Sale, 823 F. Supp. 1028

SUPE OMEN a Ccseueie eau Mone en 21

Larson v. Central Intelligence Agency, 843 F.2d 1481

ere CO, BU ho cri ion ot ek ee i; ae

Contents

Page

McClain v. United States Dep't of Justice, 13 F.3d 220

Soe es CE ors ss 5 x heehee eee 17, 24

McClellan Ecological Seepage Situation v. Carlucci, 835

Pu BAG Ce Ge. SUED oiked doa daecan 16, 17, 24, 25

National Mining Assoc. v. United States Army Corps of

Engineers, Nos. 97-5099, 97-5112, 1998 WL 321064

Das aes GU A RPE 5 53 has kk wc 21

National Treasury Employees Union v. Griffin, 811 F.2d

BO5 Sets Gk SED hc S ri ease ee 21

Pederson v. Resolution Trust Corp., 847 F. Supp. 851

A es SEE ita oan ie ae baw d ur aes 16, 25

Statutes Cited:

Ds Rk oo ho bh a neck iba ee ae l

D Wee OIA oo ono 6 a4 bh a 16

oe UD 6 os hsbc bass Sede 22

7 SS cohow @ SOD 6 6 bo kk x wee Ss, 2% 25, 1623

oe Wipihin. 0S MRE MORD ee ye or 23

ee I gh oe oi Cilekk beware 26

Er Spee NEE Ss ics os od uaa oo kad ca eee 20

a Satie SEE Sp be 4 ec Can ra l

vi

Contents

Page

Other Authorities Cited:

CB Gwe 0 WE bg obs a chee ke ee 3

b> GAs BP bs oboe Ue kkk eee 20

SB eet Ae ee i rr nie a aerrnns 20

ME Sas DRO gb Rae Se Ee ee 6

132 Cong. Rec. H. 9455 (Oct. 8, i |, Beeps 16. 17, 2a. 2

132 Cong. Rec. § 14270 (Sept. 30, 1986) (Sen. Leahy) . 17

Bloomberg Online: The Bloomberg service (visited June

BPG. NUED SARL weeds CRA 6

National Association of Government Guaranteed Lenders,

Inc., SBA Loan Liquidation (1997) ............. 5

SBA, Loan Liquidation and Acquired Property SOP

PRE LEON) vine he hinted ee 7

Uniform Freedom of Information Act Fee Schedule and

Guidelines, 52 Fed. mame. BOOTS CIOGE) eis ic 22

United States General Accounting Office Report to the

Chairman, Committee on Small Business, U.S. Senate

(POE B9BT) | ik ho ee ee 18

‘iam

vil

Contents

Page

U.S. Dep’t of Justice, Office of Information and Privacy,

Freedom of Information Act Guide & Privacy Act 432

NN BETS i bs CWukatcc woe eee 18

U.S. Dep’t of Justice Annual FOIA Report to Congress

1997 (last modified June 2, 1998) ............... 23

APPENDIX

Appendix A — Summary Order Of The United States

Court Of Appeals For The Second Circuit Filed March

Rk RE SER KAA CELA PATE LOK aea eee la

Appendix B — Opinion And Order Of The United States

District Court For The Southern District Of New York

kg TE > GRR aga near ineenu aman ae pee 6a

Appendix C — Letter From Beverly K. Linden, Chief,

Freedom Of Information/Privacy Acts Office To Mr.

Steve Ludsin Dated July 11, 1996 .............. 25a

l

Petitioner Ludsin prays that a writ of certiorari issue to review

the Judgment of the United States Court of Appeals for the Second

Circuit.

OPINIONS AND ORDERS BELOW

The Summary Order of the United States Court of Appeals

for the Second Circuit, dated March 26, 1998, is Appendix

(“App.”) A to this Petition. (App. A at la.) The Opinion and

Order of the United States District Court for the Southern District

of New York (Andrew J. Peck, Magistrate Judge), 96 Civ. 2146,

1997 U.S. Dist. LEXIS 8617 (S.D.N.Y. June 18, 1997) and the

Judgment dated June 20, 1997, are Appendix B to this Petition.

(App. B at 6a.) The Decision of the SBA dated July 11, 1996, is

Appendix C to this Petition. (App. C at 25a.)

STATEMENT OF JURISDICTION

The Summary Order of the United States Court of Appeals

for the Second Circuit for which review is sought was entered on

March 26, 1998. This Court’s jurisdiction rests upon 28 U.S.C.

§ 1254(1).

STATUTE AND REGULATION INVOLVED

5 U.S.C. § 552(a) provides in pertinent part:

(a) Each agency shall make available to the public

information as follows:

* a” *

(3) Except with respect to the records made

available under paragraphs (1) and (2) of this

subsection, each agency, upon any request for

2

records which (A) reasonably describes such records

and (B) is made in accordance with published rules

stating the time, place, fees (if any), and procedures

to be followed, shall make the records promptly

available to any person.

(4)(A)(i) In order to carry out the provisions of

this section, each agency shall promulgate regulations,

pursuant to notice and receipt of public comment,

specifying the schedule of fées applicable to the

processing of requests under this section and

establishing procedures and guidelines for determining

which such fees should be waived or reduced. Such

schedule shall conform to the guidelines which shall

be promulgated, pursuant to notice and receipt of

public comment, by the Director of the Office of

Management and Budget and which shall provide for

a uniform schedule of fees for all agencies.

(ii) Such agency regulations shall provide that --

(1) fees shall be limited to reasonable

standard charges for document search,

duplication, and review, when records are

requested for commercial use;

(II) fees shall be limited to reasonable

standard charges for document duplication

when records are not sought for commercial

use and the request is made by an

educational or noncommercial scientific

institution, whose purpose is scholarly or

scientific research; or a representative of

the news media; and

3

(III) for any request not described in (I)

or (II), fees shall be limited to reasonable

standard charges for document search and

duplication.

(iii) Documents shall be furnished without any

charge or at a charge reduced below the fees

established under clause (ii) if disclosure of the

information is in the public interest because it is

likely to contribute significantly to public

understanding of the operations or activities of

the government and is not primarily in the

commercial interest of the requester.

* * *

(vii) In any action by a requester regarding the

waiver of fees under this section, the court shalli

determine the matter de novo: Provided, That the

court’s review of the matter shall be limited to

the record before the agency.

* * *»

(E) The court may assess against the United States

reasonable attorney fees and other litigation costs

reasonably incurred in any case under this section in

which the complainant has substantially prevailed.

13 C.F.R. § 102.8 provides in pertinent part:

What fees will SBA charge?

(a) Basic fees. (1) For manual record search.

SBA will charge $18 per hour.

4

(2) For computer record searches. SBA will

charge the actual costs.

(3) For review and disclosure determinations.

SBA will charge $18 per hour.

(4) Duplication. SBA will charge 10 cents per

page for photocopy duplication, and the actual cost

of reproduction for other methods.

(5) Certifying records. SBA will charge actual

costs.

(6) For requested special types of delivery other

than first-class mail. SBA may charge the actual cost.

* * *«

(d) Commercial Requester. If you are a

commercial requester you must pay all the basic

fees set forth in paragraph (a) of this section. A

commercial requester is anyone seeking

information for commercial, trade, or profit

interests of the requester or someone he or she is

trying to help.

(e) How does SBA determine what category of

requester I am? The SBA office processing your

request will determine the appropriate category. If you

are not a commercial requester, you must show us

what category of requester you are.

* * *”

(0) Reduction of fees in the public interest. If

SBA determines that disclosure of the information

5

you seek is in the public interest because it is

likely to contribute significantly to public

understanding of the operations or activities of

the government, and that you are not seeking the

information in your own commercial interests,

SBA may waive or reduce the fee.

STATEMENT OF THE CASE

This case arises from the SBA’s arbitrary and capricious

refusal to process Ludsin’s FOIA request unless and until Ludsin

paid a fee of $10,250.

On June 12, 1995, Ludsin entered into a contract with the

SBA to market and sell a portfolio of SBA “Collateral Purchased”

real estate (COLPUR) consisting of 470 properties valued at under

$100 million.' (SA-38.)? This contract resulted from a successful

innovative pilot project initiated by Ludsin with the SBA, which,

according to the SBA, offered the “SBA a unique and aggressive

way to market its acquired assets” (SA-37) and was “both

worthwhile and cost effective.” (SA-37.) Although the SBA had

attempted an internal effort to sell its COLPUR to the public

through its electronic bulletin board system, it sought “a more

aggressive market focus and approach where the sale of SBA’s

COLPUR would be directed toward investors and businesses in

the financial community.” (SA-37.)°

1. COLPUR is collateral purchased by the SBA or acquired by the SBA

through foreclosure. See National Association of Government Guaranteed

Lenders, Inc., SBA Loan Liquidation (1997).

2. SA refers to the Supplemental Appendix of Defendant-Appellee SBA

in the Second Circuit.

3. Ludsin made an unsolicited proposal to the SBA, which led to the

contract. Unsolicited proposals

(Cont'd)

6

Pursuant to the contract, Ludsin was to

provide an automated sales and tracking system for

COLPUR, and the necessary technical and marketing

assistance to maintain and expand the program for

selling SBA’s COLPUR.

(SA-37.). The primary focus of these activities was to “market

and sell SBA COLPUR properties through the Bloomberg

electronic system to a wide pool of potential purchasers

worldwide” (SA-37)*in an effort to “augment any existing sales

efforts planned within SBA.” (SA-37.) Ludsin was to receive a

negotiated commission on the sale of properties, projected to

range between 2% and 6%, with the final determination resting

with the agency. (SA-38.) The cost of the contract to the SBA

(apart from commissions) was not to exceed $50,000 over the

one-year life of the contract (subject to extension by the SBA),

which $50,000 was refundable out of any commissions.

(SA-40.)

(Cont'd)

allow unique and innovative ideas or approaches that have been

developed outside the Government to be made available to

Goverment agencies for use in accomplishment of their missions.

Unsolicited proposals are offered with the intent that the

Government will enter into a contract with the offeror for research

and development or other efforts Supporting the Government

mission. ...

48 C.F.R. § 15.603. (Emphasis added.)

4. The Bloomberg Financial Market is a global distributor of financial

information services, providing news, data, and analysis of the financial markets

and businesses to over 140,000 users in 91 countries. See Bloomberg Online:

The Bloomberg service (visited June 23, | 998) <http://www.bloomberg.com/

products/prod_terminal02.htmI>.

7

By letter dated January 8, 1996, Ludsin made a FOIA request

for various documents and information relating to the properties,

including appraisals and descriptions, “in order to accomplish the

sale of the SBA’s COLPUR real estate portfolio on the Bloomberg

Financial Markets System (‘Bloomberg’).” (SA-30.) As Ludsin

explained,

[t]his nonperforming portfolio can only be marketed if

we have the appraisals or the property descriptions

contained in the original loan documentation. . . [to] be

able to scan that information into the Bloomberg. The

ability to print out this critical information from the

Bloomberg will also provide a due diligence document

for investors on a cost effective basis. . . .

(SA-30.)

At the direction of the SBA, by letter dated January 29, 1996,

Ludsin broke down his January 8 FOIA request into three categories.

(SA-27.) By letter dated February 20, 1996, the SBA expressed its

willingness to provide property descriptions froza the appraisals “to

help sell the COLPUR properties.” (SA-67.) In response, Ludsin

reiterated the need for the full appraisals in order to consummate a

potential transaction, to attract other buyers, and to provide full

information to the potential marketplace. Ludsin further stated that

[s]ince your SOP requires annual appraisals completed

by new appraisers annually, I expect to receive those

x appraisals to scan into the Bloomberg. . . . Anything

less than the full appraisal I would deem to be a denial

of the first part of my FOIA request and I will appeal.

(SA-69.)°

—_—

5. See SBA, Loan Liquidation and Acquired Property SOP 50:51:1, at

234 (1993). The 1993 SOP was effective at all relevant times.

~ = eS P lethi'S AR ey Ue ke te>

8

By letter dated February 22, 1996, Ludsin appealed the

apparent denial of his FOIA request. His appeal stated:

Disclosure of the documents I requested is in the

public interest because it is likely to contribute

significantly to public understanding of the operations

or activities of the government and is not primarily in

my commercial interest. The ability to market the

COLPUR assets and raise revenues through the sale

of the COLPUR assets is in the public interest.

Although I am a commercial entity with a government

contract, the information I requested enhances the

likelihood of a sale and the creation of revenues for

the U.S. Government.

(SA-72.)

On February 26, 1996, the SBA acknowledged Ludsin’s

FOIA appeal, and advised him that

[w]e have contacted the Office of Borrower and

Lender Services concerning the pertinent information.

Upon the completion of our appellate review,

disclosure determinations will be forwarded to you.

(SA-75.) On March 5, 1996, the SBA informed Ludsin that it

deemed appellate review of his FOIA request premature until the

initial processing of his request had been completed and

disclosure determinations made. (SA-77.)

By letter dated March 11, 1996, the SBA acknowledged that

it had previously agreed to provide property descriptions and

app:aisals without charge, “since we agreed that it would be

advantageous to have more information on the Bloomberg,”

(SA-81) and further acknowledged that this information “is

v bin El Sieh AA eo et AO 2.

9

routinely collected by SBA” (SA-82.) However, the SBA now

complained for the first time that providing this material imposed

a “significant burden on Agency staff.” The SBA further informed

Ludsin that it was “suspending any additional use of resources in

providing property descriptions and photographs without charge,”

and that it would not even process his FOIA request unless Ludsin

paid the SBA $10,250 -- the purported cost of providing the

appraisals. (SA-82.)

On March 19, 1996, the SBA again reminded Ludsin that it

viewed his FOIA appeal as “premature” and advised Ludsin that

it was awaiting his response to the fee demand before proceeding

further. (SA-84.) By letter dated March 25, 1996, Ludsin

expressed his willingness to pay the $10,250 “in the interest of

seeing this contract to its successful completion,”

and proposed that this amount be paid out of any commissions

upon a sale of the properties. (SA-86.) That same day, Ludsin,

acting pro se, filed a complaint in the United States District Court

for the Southern District of New York, challenging, inter alia,

the imposition of the $10,250 fee. (SA-2.)

On March 27, 1996, the SBA rejected Ludsin’s proposal

that the $10,250 fee be paid out of commissions, claiming that it

was unauthorized under FOIA or the SBA’s regulations. (SA-

88.) By letter dated March 29, 1996, Ludsin appealed the

imposition of the fee, stating:

The appraisals were sent to me without imposition of

fees, until I filed my 2 formal FOIA requests. Although

the SBA may not deem the full appraisal a requirement

of my contract performance, I was hired to

innovatively market the COLPUR portfolio and the

use of the appraisals to be scanned into the Bloomberg

Financial Markets System creating an outreach to

170,000 users worldwide with a cost effective due

10

diligence document is a requirement of my contract

performance.

(SA-91.)

On April 3, 1996, Ludsin submitted a more detailed

explanation to the SBA as to why the imposition of a fee was

inappropriate.°On April 25, 1996, the SBA suspended Ludsin’s

fee-waiver appeal due to the “intervening lawsuit.” (SA-93.) By

Stipulation and Order dated June 17, 1996, the parties agreed

that the SBA would rule on Ludsin’s fee-waiver appeal. (SA-6.)

On July 11, 1996, the SBA denied Ludsin’s appeal. The SBA

concluded:

In light of the fact that the information which you

seek is not likely to contribute significantly to the

public’s understanding of the operations or activities

of the government (since it pertains exclusively to the

description and value of property), and that such

disclosure will be primarily in your commercial interest

(as is clearly demonstrated by the subject contract

awarded to you), SBA must affirm the original

determination that a waiver of the processing fees in

this matter is not appropriate.

(App. C. at 25a.)

Ludsin was “assured,” however, that upon payment of the

$10,250 fee,

the requested documents will be assembled, and the

requested information will be released to you except

6. Significantly, this memo was excluded from the SBA’s submission of

the administrative record to the district court. See fn. 10 infra.

Dees Ret dbo et 40

11

for those portions related to the properties’ valuation,

which is confidential and privileged under exemptions

4 and 5 of the Act.

(App. C at 26a.)

By Stipulation and Order filed September 30, 1996, following

judicially sponsored settlement efforts, the SBA agreed to provide

to Ludsin, at no charge,

appraisals, in their entirety except for dollar valuation

information (which will be redacted) of the entire

current SBA Collateral Purchased (COLPUR) real

estate portfolio, in the SBA’s possession, by January

2, 1997.

(SA-8.)

However, the SBA failed to comply with its obligations under

the Stipulation and Order (having refused to provide appraisals

with respect to approximately 110 properties). The district court

then set a briefing scheduled for the SBA’s proposed summary

judgment motion. (App. B at 13a-14a, fn. 4.)

On June 18, 1997, the district court granted the SBA’s motion

for summary judgment, finding that Ludsin had failed to satisfy

either prong of 5 U.S.C. § 552(a)(4)(A)(iii), which provides fora

fee waiver upon a determination that the disclosure of the

information requested is

in the public interest because it is likely to contribute

significantly to public understanding of the operations

or activities of the government and is not primarily in

the commercial interest of the requester.

12

Specifically, the district court held that:

The subject matter of Ludsin’s FOIA request,

appraisals of SBA property, does not in any readily

apparent way contribute to the public’s understanding

of the operation or activities of the government.

Further, it is clear from Ludsin’s contract with the

SBA and commercial nature of his request that

Ludsin’s motive is his private financial gain. These

two factors weigh against a fee waiver. Finally,

although placing the appraisals on the Bloomberg

network may allow their wide dissemination, the

appraisals’ subject matter makes this factor irrelevant;

if the subject matter does not concern the operations

or activities of the government, then a wide

dissemination of the material will not contribute to

the public’s understanding of these matters.

In short, while sale of this property would benefit the

public treasury, that commercial interest (of the

government and of Ludsin) is not the “public interest”

understanding of the operation of the government

required for a FOIA fee waiver.

(App. B at 17a-18a.)

The district court further found that Ludsin’s “status as a

‘commercial’ requester is beyond serious dispute.” (App. B at

22a.) While the district court held that there was “some support”

for balancing Ludsin’s commercial interest against the public

benefit, it held that the balance did not favor Ludsin since the

public benefit was “financial, not the public understanding of

government operations that Congress defined as the ‘public

interest’ to be considered in FOIA fee waiver requests.” (App. B

at 23a.)

13

In a Summary Order dated March 26, 1 998, the United States

Court of Appeals for the Second Circuit affirmed, holding that

Ludsin did not meet the first prong of the FOIA fee waiver test:

[Ludsin’s] request for documents was not in the public

interest. For the most part, Ludsin’s submissions to

the SBA merely paraphrased the language of the FOIA

fee waiver provision, and such conclusory statements

do not satisfy the statute. ... His only substantive

claim before the SBA was that disclosure would serve

the “public interest” by creating revenue for the

federal government by facilitating sale of COLPUR

properties. However, FOIA permits fee waivers when

the requested information is likely to contribute to

public understanding of the operations and activities

of government, not when it is likely to increase public

revenue. ...

(App. A at 4a.)

Because the Second Circuit found that Ludsin had failed the

first prong of the FOIA test, it did not consider the second prong

-- whether disclosure was “primarily in the commercial interest

of the requester.” (App. A at 4a.) Ludsin’s other arguments on

appeal were rejected summarily without explanation. (App. A at

4a.)

14

REASONS FOR GRANTING THE WRIT

I.

THIS COURT SHOULD SETTLE AN IMPORTANT

QUESTION OF FEDERAL LAW REGARDING PUBLIC

INTEREST FEE WAIVERS UNDER FOIA.

This case presents two narrow, yet important issues of first

impression under FOIA, each deserving of consideration by the

Supreme Court.

First, does a request for public dissemination of information

contained in appraisal reports about SBA COLPUR property

contribute to the public’s understanding of governmental

operations and activities where the information can be used both

by those actually bidding on properties and those interested in

learning about value of SBA collateralized real estate and its

procedure for obtaining collateral?

Second, is a government contractor who seeks documents

for public dissemination in order to perform a contract that will

benefit the public precluded from receiving a fee waiver pursuant

to 5 U.S.C. § 552(a)(4)(A)(iii) simply because obtaining the

requested documents will necessarily benefit the contractor as

well? Cf. Eudey v. Central Intelligence Agency, 478 F. Supp.

1175, 1176 (D.D.C. 1979) (plaintiff's entitlement to fee waiver

presented “a narrow question but an important one to members

of the public and to government agencies”).

Both the district court and the court of appeals answered

these questions in the negative, despite the fact that the SBA had

already determined that it was in the public interest to liquidate

its COLPUR portfolio, that it was in the public interest to contract

with Ludsin to aggressively market that portfolio and that it was

eR CaS IO tea I Os cat oe

4

:

15

in the public interest to make the appraisals available to the public

free of charge via the Internet. Clearly, it was in the public interest

for the SBA to make these appraisals available to Ludsin without

charge to provide the public with information concerning the

SBA’s asset liquidation program and maximize the SBA’s return

on the sale of its real estate assets. In concluding that it was not,

the Second Circuit misconstrued the FOIA fee waiver provision

in a manner wholly inconsistent with its language and purpose.

The questions presented in this Petition transcend the SBA

and go to the core of the practical operation of FOIA. Indeed,

the narrow reading embraced by the Court of Appeals largely

makes FOIA unavailable as a ready source of information to any

government contractor. In so doing, it also turns upside-down

the appropriate focus of inquiries about the way our government

operates. Thus, the Second Circuit’s order creates an inexplicable

presumption that information can only be of limited value to a

prospective purchaser, rather than of more general interest to the

public at large insofar as it contains revealing information about

the SBA and its collateralization practices and procedures.

A person making a FOIA request is entitled to a waiver or

reduction of fees

if disclosure of the information is in the public interest

because it is likely to contribute significantly to public

understanding of the operations or activities of the

government and is not primarily in the commercial

interest of the requester.

5 U.S.C. § 552(a)(4)(A)(iii). Congress adopted the fee waiver

provisions in 1974 to ensure that “the public would benefit from

any expenditure of public funds for the disclosure of public

records.” Ely v. United States Postal Servs., 753 F.2d 163, 165

(D.C. Cir.) (citing legislative history), cert. denied, 471 U.S. 1106

16

(1985). Congress further intended that the “public interest standard

be liberally construed” and that “fees not be used as an obstacle

to disclosure of requested information,” Eudey, 478 F. Supp. at

1177 (citing legislative history). The fee waiver provisions were

amended in 1986 “to remove the roadblocks and technicalities

which have been used by various Federal agencies to deny waivers

or reductions of fees under the FOIA.” McClellan Ecological

Seepage Situation vy. Carlucci, 835 F.2d 1282, 1284 (9th Cir.

1987) (quoting legislative history); accord Pederson v. Resolution

Trust Corp., 847 F. Supp. 851 (D. Colo. 1994). See also 132

Cong. Rec. H. 9455 (Oct. 8, 1986) (“As with the fee waiver

standard that is superseded, the new fee waiver standard should

be liberally construed in order to encourage full and complete

disclosure of information in the possession of the government

that does not require withholding for a public or private

interest.”)’

A. The Disclosure of the Appraisals Was in the Public

Interest.

In determining whether disclosure is in the “public interest,”

the courts of appeals that have interpreted the 1986 fee waiver

7. Prior to its amendment in 1986, FOIA provided for a fee waiver when

the agency determined that such a waiver was “in the public interest because

furnishing the information can be considered as primarily benefiting the general

public.” 5 U.S.C § 552(a(4)(A)(1985) amended by 5 U.S.C § 552(a)4)(A (iii)

(1986). As the House Report noted in adopting the 1986 amendment:

The deletion of the current language requiring fee waivers only

when “furnishing the information can be considered as primarily

benefit: ..g the general public” is intended to emphasize that a

request can qualify for a fee waiver even if the issue is not of

interest to the public-at-large. Public understanding is enhanced

when information is disclosed to the subset of the public most

interested, concerned, or affected by a particular action or matter.

132 Cong. Rec. H. 9455 (Oct. 8, 1986).

—. en Mean abi

17

provision have considered relevant: (i) the subject matter of the

requests; (ii) the ability of the requester to disseminate the

information; and (iii) the motive for seeking disclosure. See, e.2.,

Carney v. United States Dep't of Justice, 19 F.3d 807 (2d Cir.),

cert. denied, 513 U.S. 823 (1994); McClain v. United States

Dep't of Justice, 13 F.3d 220 (7th Cir. 1993); Larson v. Central

Intelligence Agency, 843 F.2d 1481 (D.C. Cir. 1988); McClellan

Ecological Seepage Situation v. Carlucci, 835 F.2d at 1282. Until

now, no court has considered whether a government contractor

is precluded from receiving a fee waiver where documents are

requested to facilitate performance of the contract.

The Second Circuit neither elaborated upon nor explained

its conclusion that the appraisals Ludsin requested were not “likely

to contribute to public understanding of the operations and

activities of government.” (App. A at 4a.) However, it is difficult

to see how appraisals of the properties contained in the SBA’s

COLPUR portfolio could not shed light on the SBA’s “operations

and activities,” i.e., its liquidation program and lending practices.

See 132 Cong. Rec. § 14270 (Sept. 30, 1986) (Sen. Leahy) (“the

phrase ‘operations and activities of the government’ should be

broadly construed. Agencies deal with private entities on a range

of regulatory, enforcement, procurement and other activities, and

records which cast light on those relationships should be routinely

made available with a waiver. . . .”); accord 132 Cong. Rec. H

9455 (Oct. 8, 1986) (fee waivers must be granted when the

“requester is seeking information on a subject relating to the

manner in which a government agency is carrying out its operations

or the manner in which an agency program affects the public. A

requester is likely to contribute significantly to public

understanding if the information disclosed is new; supports public

oversight of agency operations, including the quality of agency

activities. .. ; or otherwise confirms or clarifies data on past or

present operations of the government.”).

18

Moreover, the determination whether public understanding

will be enhanced is an “objective” one:

agencies are not permitted to make separate value

judgments as to whether any information that would

in fact contribute significantly to public understanding

of government operations or activities is important

enough to be made public.

See U.S. Dep’t of Justice, Office of Information and Privacy,

Freedom of Information Act Guide & Privacy Act 432 (September

1997); see also Ettlinger v. FBI, 596 F. Supp. 867, 875 (D. Mass.

1984).

Indeed, the SBA’s liquidation activities were the subject ofa

December 1991 United States General Accounting Office Report

to the Chairman, Committee on Small Business, U.S. Senate.

The Report was commissioned due to concern about whether

the SBA was “properly managing loan collateral, especially for

those loans in liquidation” and to determine whether the SBA’s

loan liquidation procedures “adequately protect the government’s,

and ultimately the taxpayer’s, financial interests.” Report at 1.

The Report concluded that the

SBA is experiencing substantial losses in liquidating

loans because (1) collateral is insufficient to cover

the costs incurred when loans are liquidated and (2)

SBA does not maximize recoveries on existing loan

collateral.

Id. at2. The GAO made numerous recommendations to the SBA

regarding its management of loan collateral and liquidation

procedures in order to improve its recoveries on defaulted loans.

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19

Consequently, the information requested by Ludsin might

well have been of interest to other financial real estate analysts,

as well as to critics of the SBA who questioned the soundness

and wisdom of its business decisions. Indeed, once the

information was released and put on Bloomberg the potential

audience would have been broad and substantial, far beyond only

those who might seek to bid for the properties.

The public significance of the information requested by Ludsin

was further confirmed by the SBA’s acknowledgments to him

that “it would be advantageous to have more information on the

Bloomberg” (SA-81); that the appraisals are “routinely collected

by SBA” (SA-82); and that “certain of the data which you seek

eventually may be made available by the SBA to the general public

via the Internet at no charge.” (App. C at 26a.) Nonetheless, the

Court of Appeals appears to have concluded, without explanation,

that such interests cannot as a matter of law constitute information

“likely to contribute significantly to the public understanding of

the operations and activities of government.” This ‘s an unduly

narrow and insupportable reading of the statutory words. In fact,

it writes out of FOIA many otherwise permissible uses of such

information.

Finally, contrary to the Second Circuit’s holding, the fact

that disclosure of the appraisals was likely to increase public

revenue by facilitating the sale of COLPUR properties is a factor

that should have militated in favor of granting a fee waiver, not

against it. Not only is it absurd to permit the SBA to charge its

own small business contractor over $10,000 to provide documents

necessary to accomplish the SBA’s goals -- effectively depriving

Ludsin and the public of the documents -- it is inconsistent with

federal policy:

It is the declared policy of the Congress that the

Government should aid, counsel, assist, and protect,

20

insofar as is possible, the interests of small-business

concerns in order to preserve free competitive

enterprise, to insure that a fair proportion of the total

purchases and contracts or subcontracts for property

and services for the Government . . . be placed with

small-business enterprises . . ., and to maintain and

strengthen the over-all economy of the Nation.

15 U.S.C. § 631(a).

Here, Ludsin had displayed the type of imagination and

enterprise that the SBA was supposed to encourage and support.

Its insistence upon a fee, under the circumstances, smacked of

bureaucracy personified and a studied disregard of the statutory

purpose. Thus, the Second Circuit’s summary conclusion that

disclosure of the appraisals was not in the public interest was

contrary to the important policies that are cornerstones of the

FOIA framework.

B. The Disclosure of the Appraisals Was Not Primarily in

Ludsin’s Commercial Interest.

The Second Circuit did not reach the issue whether disclosure

to Ludsin was “primarily in the commercial interest of the

requester,” the second prong of the fee waiver test. Contrary to

the conclusion of the SBA and the district court, it plainly was

not.

SBA regulations define a “commercial requester” as “anyone

seeking information for commercial, trade, or profit interests of

the requester... .” 13 C.F.R. § 102.8(d). The regulations further

provide that the SBA may grant a fee waiver where disclosure is

in the public interest and the requester is “not seeking the

information in [its] own commercial interests.” 13 C.F.R.

§ 102.8(0). To the extent the SBA regulations purport to eliminate

-

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21

the requirement of 5 U.S.C. § 552(a)(4)(A)(iii) that the disclosure

be “primarily” in the commercial interest of the requester, they

are invalid. See, e.g., Chevron U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837 (1984) (court may set aside

administrative regulation “manifestly contrary to the statute”

pursuant to which it was issued); National Mining Assoc. v.

United States Army Corps of Engineers, Nos. 97-5099, 97-5112,

1998 WL 321064, at *11 (D.C. Cir. Jan. 19, 1998) (enjoining the

enforcement of regulation which exceeded the Corps of Engineers’

grant of authority under the Clean Air Act). Haitian Centers

Councils, Inc. v. Sale, 823 F. Supp. 1028 (E.D.N.Y. 1993) (agency

actions that do not fall within the scope of statutory delegation

of authority are ultra vires and must be invalidated by reviewing

courts); see also, e.g., National Treasury Employees Union v.

Griffin, 811 F.2d 644, 648 (D.C. Cir. 1987) (a fee waiver or

reduction must “primarily benefit the public” and “[w]hen

furnishing requested information is likely to provide both public

and private benefits, the agency must determine which benefit is

primary”).

The Office of Management and Budget Guidelines,

promulgated pursuant to FOIA, make clear that in determining

whether disclosure is in the commercial interest of the requester,

the proper emphasis is on the use of the documents, nor the

identity of the user:

As opposed to the other fee categories created by

the amendment, inclusion in the [commercial use

category] is determined not by the identity of the

requester, but the use to which he or she will put the

information obtained. Because “use” is the exclusive

determining criterion, it is possible to envision a

commercial enterprise making a request that is not

for commercial use.

22

Uniform Freedom of Information Act Fee Schedule and Guidelines,

52 Fed. Reg. 10012 (1987); See also 132 Cong. Rec. H 9455 (Oct.

8, 1986) (“Any requester, regardless of its identity or status under

other provisions of the FOIA can qualify for a fee waiver. Even a

commercial requester can qualify for a fee waiver if the standard is

met... .”).

The district court completely overlooked this fundamental

distinction, which the Second Circuit never reached. Had the Court

focused on the statutory language, it seems clear the fee-waiver denial

could not have been justified on this ground.

The fact that Ludsin is a commercial entity and had a pecuniary

interest in performing the contract successfully did not render him

categorically ineligible for a fee waiver. Ludsin sought the appraisals

in order to widely and publicly disseminate them over Bloomberg,’

primarily to accomplish the SBA’s stated objective of aggressively

marketing its COLPUR portfolio. This use was unquestionably in

the public interest, and not primarily in Ludsin’s commercial interest:

The republication or dissemination of government

information by a private concern is in the public interest

just as much as the original distribution by the agency

that prepared the information. The public benefits directly

from broader availability of the information. In addition,

the private dissemination actually saves the government

effort and money that would otherwise be expended in

providing the information to the public. In short,

therefore, dissemination of information to the public is

not intended to be a commercial use under the bill.

132 Cong. Rec. H. 9455 (Oct. 8, 1986).

8. Thus, Ludsin was akin to a representative of the news media, which

may only be charged a reasonable amount for document duplication pursuant to

5 U.S.C. § 552(a)(4)(A)(ii\(1D).

23

Thus, Ludsin’s status as a commercial entity did not mandate

the denial of Ludsin’s fee waiver request. This important matter

of public interest should be settled by this Court to make clear

that agencies may not deny publicly beneficial fee waivers to

government contractors on the basis that the contractor will also

benefit, and to otherwise provide agencies with guidance on the

appropriate standards to be applied in balancing the public’s

interest against any private interest.

THE SECOND CIRCUIT APPLIED AN UNDULY

DEFERENTIAL STANDARD OF REVIEW TO THE SBA’S

FEE WAIVER DETERMINATION.

A second, independent reason why this Court should issue

a writ of certiorari lies in the standard of review applicable in the

courts to FOIA actions. Clarification and precision as to the

applicable standard is a matter of concern to federal jurisprudence,

especially in view of the number of FOIA requests that come

through the federal system annually. In 1997, the Department of

Justice alone received more than 103,000 FOIA requests.°

FOIA provides:

[in] any action by a requester regarding the waiver of

fees . . . , the court shall determine the matter de novo:

Provided, That the court’s review of the matter shall

be limited to the record before the agency.

5 U.S.C. § 552(a)(4)(A)(vii). The purpose of this provision “is

to allow the courts to exercise independent judgment on the issue

9. U.S. Dep’t of Justice, Dep’t of Justice Annual FOLA Report to Congress

— 1997 (last modified June 2, 1998) <http:// www .usdoj.gov/oip/annual_report/

1997/foia.htm>.

24

of whether a requester is entitled to a fee waiver.” 132 Cong.

Rec. H. 9455 (Oct. 8, 1986) (emphasis added). Cf, Department

of Air Force v. Rose, 425 U.S. 352, 379 (1976) (“Congress vested

the courts with the responsibility ultimately to determine ‘de novo’

{disputes over FOIA exemptions] in order to constrain agencies

from withholding nonexempt matters.”).

Although the Second Circuit stated correctly that it was

reviewing the matter de novo, its summary affirmance of the

district court’s grant of summary judgment casts doubt as to

what standard the Court was applying, or what it understood “de

novo” to mean. And, while the Second Circuit at least articulated

the proper standard of review, the Seventh Circuit has held that

an “agency’s finding that a fee waiver does not satisfy the public

interest standard will be upheld unless the finding is arbitrary or

capricious.” McClain v. United States Dep't of Justice, 13 F.3d

at 220-21. Thus, although not the subject of discussion or analysis

in the Second Circuit’s Summary Order, there appears in fact to

be a split in the Circuits on this question.

In light of the “roadblocks and technicalities which have been

used by various Federal agencies to deny waiver or reductions

of fees under the FOIA,” McClellan, 835 F.2d at 1284, the

Supreme Court should confirm the importance of rigorous and

thorough de novo review by courts reviewing the denial of fee

waivers, and dispel any notion that agency fee Waiver decisions

are entitled to a deferential standard of review, as the Seventh

Circuit has held.

The Second Circuit held that

[flor the most part, Ludsin’s submissions to the SBA

merely paraphrased the language of the FOIA fee

waiver provision, and such conclusory statements do

not satisfy the statute.

25

(citing Sloman v. United States Dep't of Justice, 832 F. Supp.

63, 67-68 (S.D.N.Y. 1983)). (App. A at 4a.) As an initial matter,

Ludsin’s submissions were far from conclusory paraphrases of

the statutory language. For example, in addition to the

correspondence between the parties, on April 3, 1996, Ludsin

submitted a six-page memorandum to the SBA outlining in detail

the reasons that the public dissemination of the appraisals on

Bloomberg would be in the public interest, and explaining why

the disclosure was not primarily in Ludsin’s commercial interest."

Even assuming that Ludsin’s fee waiver request was

conclusory in nature (which it was not), unlike the Second Circuit,

Courts of Appeals in other circuits have recognized that an agency

may not infer a lack of public interest when circumstances “clarify

the point of the request.” McClellan, 835 F.2d at 1285. See also

Larson v. Central Intelligence Agency, 843 F.2d at 1483. Relying

or McClellan, the district court in Pederson held that the

Resolution Trust Corp. could not feign ignorance of the specific

reasons for the plaintiffs’ fee waiver request where the RTC

acknowledged its familiarity with the circumstances surrounding

the request: “[I]t is apparent that defendants knew, or should

have known, who plaintiffs were, what they wanted, and why.”

847 F. Supp. at 855 (citation omitted).

Here too, the SBA, as the owner of the COLPUR properties

and a party to the contract, was well aware of the reasons for Ludsin’s

request and the attendant public benefit. Indeed, as discussed above,

the public benefit of making the appraisals available was recognized

by the SBA in determining to make the same information available

on the Internet and in previously making similar information available

to Ludsin. (App. C at 26a.)

10. The SBA inexplicably failed to submit this memorandum as part of the

administrative record and the district court failed to accept Ludsin’s proffer of

this document, among others, in connection with the motion for summary

judgment. The Second Circuit did not address the district court’s failure to

consider this and other documents.

26

In summarily rejecting Ludsin’s claims, it is evident that the

Second Circuit failed to conduct the independent de novo review :

required by the siatute. The Second Circuit did not engage in any

analysis, weighing or balancing of the evidence contained in the

administrative record below. Rather, like the district court, the Second

Circuit appeared to apply a presumption that the SBA was correct

in concluding that the appraisals were not likely to contribute to the

public’s understanding of the SBA’s operations and activities “since

[they] pertain exclusively to the description and value of property.”

Similarly, although the Second Circuit did not reach the issue, the

district court appears to have “rubber-stamped” the SBA’s conclusion

that Ludsin’s private interest outweighed the public’s.

Ata minimum, the administrative record -- including the SBA’s

own admissions -- raised issues of fact concerning the public interest

in the disclosure of the appraisals that should not have been decided

on summary judgment. See Celotex Corp. v. Catrett,477 U.S. 3] 7,

322-23 (1986) (holding that summary judgment is only proper if

there is no genuine issue as to any material fact); Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 242-43 (1986) (“at the summary judgment

Stage the trial judge’s function is not himself to weigh the evidence

and determine the truth of the matter but to determine whether there

is a genuine issue for trial”),

Under the circumstances, the Supreme Court should take the

opportunity to resolve the apparent conflict among the circuits, with

regard to the proper standard, and correct the Second C ircuit’s

action which clearly offends the applicable standard."'

ee,

11. Should Ludsin prevail, reasonable attorney fees and other litigation

costs should be assessed against the SBA. 5 U.S.C. § 552(a)(4)(E).

nea ta cr

27

CONCLUSION

For all of the foregoing reasons, it is respectfully submitted

that the Petition should be granted and a writ of certiorari issued

to the United States Court of Appeals for the Second Circuit.

Respectfully submitted,

EARL H. NESMER

Counsel of Record

ROBERT J. JOSSEN

SHARIL. STEINBERG

SHEREFF, FRIEDMAN, HOFFMAN

& GOODMAN, LLP

Attorneys for Petitioner

919 Third Avenue

New York, New York, 10022

(212) 758-9500