Opinion
108462/08.
Decided January 13, 2009.
Jeffrey T. Golenbock, Esq., Golenbock, Eisenman, Assor, Bell Peskoe, LLP, New York, NY, Attorney for Petitioner.
Christopher J. Hamilton, Esq., Debevoise Plimpton, LLP, New York, NY, Attorney for MBIA.
Hilary R. Kastleman, Esq., Asst. Attorney General, New York, NY, Attorney for Respondent.
In this Article 78 proceeding, petitioner Aurelius Capital Management, LP, challenges the April 16, 2008 decision of respondent Superintendent of the State of New York Insurance Department which denied in part certain appeals requesting the disclosure, pursuant to the Freedom of Information Law (FOIL), of information which MBIA Insurance Corporation had submitted to the Department. The Department opposes the petition, as does MBIA which was granted leave to intervene by prior order of this Court. The Department and MBIA assert that the requested records are exempt from disclosure pursuant to Public Officers Law § 87(2)(d) because they "are trade secrets or are submitted to an agency by a commercial enterprise . . . and which if disclosed would cause substantial injury to the competitive position of the subject enterprise."
Background Facts
MBIA provides financial guarantee insurance, investment management services, and related services to public finance clients such as municipalities and to structured finance clients worldwide. In providing financial guarantee insurance to an issuer of debt securities, MBIA agrees that if the issuer defaults, MBIA will pay the interest and principal on those securities. MBIA's guarantee of payment has the effect of reducing the interest rate on the debt it insures, thereby reducing the cost of capital to the issuer. In exchange for this benefit, the issuer pays fees and premiums to MBIA. MBIA is known as a "monoline" because its business is limited to financial guarantee products and does not include homeowners, automobile, life, or other common insurance products. (See Aff. of A. McKiernan, Managing Director of MBIA ¶ 1-3).
MBIA is a public company listed on the New York Stock Exchange. As such, it makes disclosures through public filings with the Securities and Exchange Commission and on its website. Further, with its headquarters in New York, MBIA is regulated by the State Department of Insurance and must disclose additional information to the Department to satisfy regulatory requirements. However, because certain of that information is commercially sensitive, MBIA routinely submits it to the Department with a claim of exemption from public disclosure under FOIL. (McKiernan Aff, ¶ 4,5).
Aurelius is an investment manager based in New York City. Due to the recent downturn in our economy and the purported downgrading of MBIA's credit rating by the S P, Aurelius contends that it properly requested the disclosure of information to allow it, and the public at large, to assess MBIA's financial strength and its ability to meet its obligations. (Petition, ¶ 12, 18).Much of the information sought by Aurelius was disclosed, and it appears that some records claimed to be exempt are no longer being sought. However, four categories of information are still at issue:
1. the issuer and deal names with respect to the underlying securities insured by MBIA;
2. the original and current subordination points (also known as the "attachment points");
3. the collateral composition of collateralized debt obligations (CDOs) insured by MBIA; and
4. the rating of the underlying collateral of CDOs insured by MBIA
According to Scott Fisher, Senior Counsel to the Department of Insurance, MBIA submitted to the Department two spreadsheets detailing the nearly 3000 transactions that it insures. The spreadsheets contained highly detailed information about the parties involved in each transaction, as well as the financial details of the transactions themselves. The information was submitted with a request of confidentiality under the "trade secret" or "competitive injury" exemption which applies to records that "are trade secrets or are submitted to an agency by a commercial enterprise and which if disclosed would cause substantial injury to the competitive position of the commercial enterprise." POL § 87(2)(d). Upon receiving the FOIL request from Aurelius, the Department's experts reviewed both MBIA's confidentiality request and the FOIL request by Aurelius. At the conclusion of the administrative proceedings, including appeals, the Department concluded that MBIA had properly sought an exemption from disclosure for the above-listed categories of records pursuant to section 87(2)(d).
The Department's reasons for the exemption included a finding that the information at issue was substantially more detailed than that released by MBIA's competitors, such as Ambac. (Scott Aff., ¶ 19 ff.). Further, Ambac's disclosure was limited to selected categories of transactions, whereas Aurelius was seeking information as to all MBIA transactions. In addition, the MBIA spreadsheets in the Department's possession did not lend themselves to selective disclosure of some information with redaction of others. Lastly, the Department's review of websites of various other financial guaranty insurers revealed that none provided complete disclosure along the lines demanded by Aurelius. Based on these facts, the Department determined the exemption applied because disclosure would lead to substantial competitive injury to MBIA and was likely to harm MBIA's relationship with third parties to whom confidentiality had been promised.
Discussion
As the Court of Appeals recently confirmed: "Because the overall purpose of FOIL is to ensure that the public is afforded greater access to governmental records, FOIL exemptions are interpreted narrowly." Markowitz v Serio , 11 NY3d 43 , 51 (2008), citing Matter of Washington Post Co. v. NYS Ins. Dept., 61 NY2d 557 (1984). Further, the burden of proving an exemption is on the party claiming the exemption. Id.
Here, the claimed exemption is "substantial injury to the competitive position of MBIA, the company which submitted the information to the Department of Insurance. The statute itself does not define "competitive injury", but the Court of Appeals has interpreted the phrase on various occasions beginning in or about 1995. Relying on the D.C. Circuit's construction of a similar phrase under the federal Freedom of Information Act, Chief Judge Kaye stated: "[a]ctual competition and the likelihood of substantial injury is all that need be shown." Encore College Bookstores Inc. v Auxiliary Service Corp., et al., 87 NY2d 410, 419 (1995), quoting Gulf W. Indus. v. United States, 645 F2d 527, 530 (DC Cir).
The information at issue in Encore was a list of college textbooks which Barnes Noble had prepared for the campus bookstore at a State University of New York college for purchase by the students enrolled in courses there. Encore was a neighboring private bookstore which sought the list to make the same books available to the students. In granting SUNY's claim of exemption, the Court considered that the desired material had commercial value to its competitors and that the materials were not readily available from other sources at the same minimal costs as FOIL disclosure. 87 NY2d at 420. The Court went on to consider the public policy implications of the exemption: "The reasoning underlying these considerations is consistent with the policy behind subdivision (2)(d) to protect businesses from the deleterious consequences of disclosing confidential commercial information, so as to further the State's economic development efforts and attract business to New York (see, Mem. of State Dept of Economic Dvlpmt, 1990 McKinney's Session Laws at 2412)." The Court concluded that providing the booklist to Encore would lead to a significant decrease in sales at the campus bookstore, thereby placing Barnes Noble at a competitive disadvantage. Accordingly, the exemption applied.
MBIA and the Department have established the same points here. The information at issue has commercial value to Aurelius, whose business is to manage investments. Contrary to Aurelius' claim, the information is not readily available elsewhere; it took Aurelius staff using high level software days to compile from public sources some of the information it was seeking at a far greater cost than applies under FOIL. Further, the Department found after a thorough investigation that neither MBIA, nor comparable companies like Ambac, had publicly disclosed most of the information, making FOIL the only source for the information.
The Department and this Court reject the claim by Aurelius that the claimed competitive injury is too speculative to satisfy MBIA's burden of proof. MBIA established through the McKiernan affidavit that MBIA would be less able to compete for new business if prospective insureds learned that MBIA could not maintain confidentiality with respect to its structured finance transactions. This competitive injury was properly found by the Department to be substantial. See NY State Elec. Gas Corp. v. NYS Energy Planning Board, 221 AD2d 121, 125 (3rd Dep't 1996). Aurelius has failed to distinguish that case or Glen Falls Newspapers Ins. v. Counties of Warren-Washington Indust. Devlpmt Agency, 257 AD2d 948 (3rd Dep't 1999), which held that harm to negotiations constituted competitive injury within the meaning of the FOIL exemption.
The Department also properly concluded that it had no duty to create a record which did not already exist to disclose the information sought by Aurelius in its FOIL request, as the existing spreadsheets contained far more information than that subject to disclosure. See Matter of Data Tree, LLC, v. Romaine , 9 NY3d 454 , 464 (2002), citing POL § 89(3)(a) (agency has no obligation to accommodate a request to compile data in a preferable commercial electronic format when the agency does not maintain the records in such a manner.)
The recent case of Markowitz v. Serio , 11 NY3d 43 (2008), cited by Aurelius, is readily distinguishable from the case at bar. In Markowitz the Brooklyn Borough President sought disclosure pursuant to FOIL of information filed by automobile insurers with the Department of Insurance. Specifically, he sought "for each Kings County zip code, including, by carrier, the number of voluntary [automobile] policies issued, renewed, cancelled (other than for nonpayment of premium) or nonrenewed." The Borough President sought this information to investigate whether the insurers were engaged in "redlining," i.e., an insurer's refusal to issue or renew, or its cancellation of a policy premised exclusively on the geographic location of the risk. 11 NY3d at 47-48. He asserted that the information he sought was available in "Regulation 90 reports" which, according to insurance regulation 11 NYCRR 218.7(d), "shall be public record."
The Department declined to release the Regulation 90 reports as exempt, claiming the disclosure "would cause substantial injury to the competitive position" of insurers. While finding that the above-quoted insurance regulation did not automatically override the FOIL exemption, the Court directed disclosure because the Department and insurers had failed to meet their burden of justifying the exemption under POL § 87(2)(d). The Court explained its conclusion as follows (at p. 51):The evidence suggesting [the insurers] will suffer a competitive disadvantage is theoretical at best. The insurers' key argument is that if they are forced to reveal zip codes of areas where relatively few policies are issued, competitors could use this information to exploit an insurer's geographic weak spot. It has not been shown that zip code data, without more, would necessarily put the insurer at a competitive disadvantage.
In Markowitz, the disclosure was warranted because the information was sought by a public official on an industry-wide basis to investigate a claimed violation of law by insurers. In contrast here, the party seeking disclosure is a single private company that seeks information about private deals made by another private company to aid in its own business. Further, while in Markowitz zip code information alone could not yield substantial competitive gain, here MBIA has established, to the satisfaction of the Department's experts, that disclosure of the information would substantially injure MBIA's competitive position in the marketplace. While there are factors to consider as noted in the cases discussed above, each case presents a unique set of facts and the ultimate determination of competitive injury is fact specific. Thus, the various cases cited by Aurelius in its memorandum of law (at pp 5-6) are not dispositive. The Department of Insurance, utilizing its substantial expertise in the area, determined that the private financial data at issue, of a type which no similar company had revealed, was likely to cause MBIA substantial competitive injury if disclosed. The conclusion was a reasonable one under the circumstances, entitled to judicial deference. See Inner City Press v. Bd of Governors, 380 F. Supp2d 211 (SDNY 2005), aff'd in relevant part 463 F.3d 239 (2nd Cir 2006) (upholding denial of disclosure under FOIA, noting that a financial institution would be unlikely to disclose data such as client lists and loan terms due to risk of competitive harm).
Accordingly, it is hereby
ADJUDGED that the petition is in all respects denied and the proceeding is dismissed. The Clerk shall enter judgment accordingly.
This constitutes the decision and judgment of this Court.