Cuban v. SEC: SEC Moves to Bifurcate and Stay Proceedings in FOIA Suit

In response to Mark Cuban’s  (“Cuban”) Freedom of Information Act (“FOIA”) suit to compel documents from the Securities and Exchange Commission (“SEC”), the SEC filed a motion to partially bifurcate and stay the proceedings (the “Motion”), as well as a motion for partial summary judgment.  This post discusses the motion to stay and bifurcate.  The post discussing the SEC’s summary judgment motion will be written at a later date.

On January 15, 2010, the SEC filed the Motion pertaining to three FOIA requests stated in Cuban’s complaint.  The SEC sought a thirty-six month extension to process the requests in order to avoid disrupting its standard  “First In First Out” (“FIFO”) FOIA processing system, which places FOIA requests into a FIFO track for processing based on the order received.  The Motion relates to 107 boxes of documents that the SEC claimed must be reviewed line by line before they may be turned over to Cuban or withheld and catalogued in a Vaughn Index.  A Vaughn Index is an affidavit identifying withheld record, accompanied with a brief explanation of the relevant FOIA exemption’s application to the record. In support of its argument that courts routinely grant such stays, the SEC cited cases in which courts have granted stays of more than a year.  The SEC requested a 36-month stay in order to prevent “inequitable line jumping” by Cuban disrupting the SEC’s standard FIFO procedure. 

Cuban originally submitted FOIA requests to the SEC for documents and records relating to 20 broad categories of information.  The SEC responded to Cuban’s requests by either producing the requested records or withholding records pursuant to one of nine FOIA exemptions.  The three categories of records named in its motion to bifurcate and stay remain unprocessed, and include records related to (1) internal investigations of alleged unethical instructions to close cases and pursue investigations, allegations of conflict of interest and investigative misconduct, allegations of retaliatory investigations, and allegations of leaking confidential documents to the press; (2) Ian, Irving, or Michael Kott (a Canadian family previously investigated for boiler room schemes and alleged to have had a significant influence on Mamma.com); and (3) requests related to Copernic Inc, (a former Mamma.com subsidiary). 

First, citing case law, the SEC claimed that, generally, courts should grant administrative agencies additional time to complete review of records relating to FOIA requests upon a showing that (1) exceptional circumstances exist; and (2) the agency is exercising due diligence in responding to the requests.  Second, citing case law, the SEC articulated the standard for granting stay in the D.C. Circuit.  An agency must show: (1) that the agency is burdened with an unanticipated number of FOIA requests; (2) that the agency resources are inadequate to process the requests within the time limit set forth by the statute; (3) that the agency exercises “due diligence” in processing FOIA requests; and (4) that the agency shows reasonable progress in reducing its backlog of requests.

The SEC asserted it met the standards to stay FOIA proceedings set forth by the D.C. Circuit.  First, the SEC argues that the number of FOIA requests received by the agency has increased over 300% from 2001 to 2009, averaging 738 requests per month.  This is a much larger volume than originally expected.  Second, the SEC claimed that its 28 employee FOIA staff is inadequate to process the exceptionally high volume of requests received within the statutory period, because in addition to responding to requests for records, it also must handle FOIA litigation.  Third, the SEC argued that it exercised due diligence in processing Cuban’s FOIA requests, because it assigned case numbers to the requests and corresponded with Cuban about the status of the requests.  Finally, the SEC claimed it reduced its backlog of requests by 95 percent since 2006, from 10,400 to 490.  The SEC asserted that this reduction, coupled with a 20 percent reduction in median FOIA request processing time represented “reasonable progress” according to the standards set forth by the D.C. Circuit. According the Motion, FOIA plaintiffs should not be entitled to “jump to the front of the line merely because they filed a lawsuit.”

The SEC moved to bifurcate three categories of information requested by Cuban in his FOIA suit to compel records and stay the proceedings relating to these three requests until the SEC has time to process them according to its standard FIFO track system.  We will post on the ruling on this issue as it is made.