Calderon v. U.S. Dep't of Agric., Case No. 14–cv–0425 (TSC)

• Decision Date: 21 February 2017
• Docket Number: Case No. 14–cv–0425 (TSC)
• Citation: 236 F.Supp.3d 96
• Parties: Pablo CALDERON, Plaintiff, v. U.S. DEPARTMENT OF AGRICULTURE, Foreign Agricultural Service, Defendant.
• Court: U.S. District Court — District of Columbia

236 F.Supp.3d 96

Pablo CALDERON, Plaintiff,

v.U.S. DEPARTMENT OF AGRICULTURE, Foreign Agricultural Service, Defendant.

Case No. 14–cv–0425 (TSC)

United States District Court, District of Columbia.

Signed February 21, 2017

Douglas Bennett Sanders, Baker & McKenzie LLP, Chicago, IL, Steven Michael Chasin, Baker & McKenzie LLP, Washington, DC, for Plaintiff.

John Cuong Truong, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendant.

MEMORANDUM OPINION

TANYA S. CHUTKAN, United States District Judge

Before the court are cross-motions for summary judgment in this case brought under the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552. In response to a 2013 FOIA request by Plaintiff Pablo Calderon for transactional documents relating to the GSM–102 Export Credit Guarantee Program, Defendant U.S. Department of Agriculture ("USDA") Foreign Agricultural Service ("FAS") produced over 9,000 pages of responsive documents. The documents contained significant redactions, which FAS stated were necessary under FOIA Exemptions 4 and 6. These exemptions cover confidential commercial information and personal information, respectively. The parties now cross-move for summary judgment as to the application of those exemptions.

Upon consideration of the parties' filings and the arguments of counsel at the hearing held on December 14, 2016, the court concludes that Exemptions 4 and 6 apply to some, but not all, of the redacted information. Therefore, as more fully explained below, FAS's Motion is GRANTED IN PART and DENIED IN PART, and Plaintiff's cross-motion is also GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

A. USDA–FAS's GSM–102 Program

This suit involves a FOIA request for certain financial documents submitted to FAS under the agency's Export Credit Guarantee Program ("GSM–102" or the "Program"). As described by the USDA in FAS's briefs, submitted declarations, and Statement of Material Facts, the Program, which is administered by FAS on behalf of the Commodity Credit Corporation ("CCC"), supports the financing of American agricultural commodity exports by guaranteeing the payments owed to U.S. exporters in qualifying transactions made with foreign importers. See 7 C.F.R. § 1493.10(a). Within the GSM–102 Program, agricultural exporters in the U.S. negotiate sales with an importer in an eligible foreign destination that receives financing from a foreign financial institution qualified under the Program. (Second Klusaritz Decl. ¶¶ 25–26 (ECF No. 37–3)). Exporters seek payment guarantees under the Program because the CCC will "pay the Exporter, or the U.S. Financial Institution that may take assignment of the Payment Guarantee, specified amounts of principal and interest in case of default by the Foreign Financial Institution that issued the Letter of Credit for the export sale covered by the Payment Guarantee." 7 C.F.R. § 1493.10(a) ; see also 7 C.F.R. § 1493.100 (terms and requirements of payment guarantee).¹

To attain a payment guarantee from the CCC, the parties to the transaction must present several key documents. There must be a letter of credit from the foreign financial institution to the importer. 7 C.F.R. § 1493.90(a)(1). The letter of credit must stipulate that the foreign financial institution received "at least one original clean on board bill of lading as a required document," unless the exporter is "named as the shipper on the clean on board bill of lading," in which case the letter of credit "may stipulate a copy or photocopy of an original clean on board bill of lading." 7 C.F.R. § 1493.90(a)(1)(i)(A). There must also be a "Firm Export Sales Contract" for an Eligible Export Sale before an exporter can submit an application to the CCC for the payment guarantee. 7 C.F.R. § 1493.70(a). The application for the payment guarantee must include information such as the name and address of the importer, or the "[n]ame and address of the party on whose request the Letter of Credit is issued, if other than the importer," the date of sale, a description of the agricultural commodity, the mean quantity, the unit sales price, and various other details. Id.

After securing a payment guarantee, and within 30 days after exporting the commodity, an exporter must also provide the CCC with an "evidence of export report" which includes the date of export, the exported value, the quantity, a description of the commodity, the unit sales price, and various other information. 7 C.F.R. § 1493.130(a), (b). An exporter may assign the payment guarantee to a U.S. financial institution, and if it does so, it must submit a notice of assignment to the CCC that meets certain requirements. 7 C.F.R. § 1493.120. Lastly, the exporter must obtain and maintain proof that the exported goods entered the country shown on the payment guarantee. 7 C.F.R. § 1493.150. Certain export contracts are not eligible for payment guarantees under the Program, including if the date of export pre-dates the date of the application for the payment guarantee; if the actual date of export is later than the final date to export shown on the payment guarantee; or if the letter of credit from the foreign financial institution is dated more than thirty days after the date of export. 7 C.F.R. § 1493.100(f).

Thus, the Program involves four primary actors: the exporter, the U.S. financial institution, the foreign financial institution, and the importer. The exporter and importer contract for the sale of agricultural commodities, followed by the importer securing a letter of credit from the foreign financial institution to enable it to pay for the import. The exporter applies for and secures a payment guarantee, then typically assigns the guarantee to a U.S. financial institution. The U.S. bank typically pays the exporter for the sale in exchange for the assignment, and as a result extends a de facto loan to the foreign financial institution, which now owes the debt to the U.S. bank. (See Second Klusaritz Decl. ¶¶ 28–29). These transactions may become far more complicated, however, if ownership of the commodity is transferred several times throughout the export process, meaning the exporter may be different from the shipper, and the importer may be different from the consignee or from another intervening purchaser.

Plaintiff tells a completely different story, however. According to him, the transactions underlying the specific documents he requested—and indeed most of the guaranteed transactions in the whole Program—do not actually involve the export of physical agricultural commodities, but rather are just "structured trade finance" transactions. In these transactions, exporters or other commodity traders will "recycle" the shipping documents from prior actual exports, meaning that a current financial transaction is supported only by photocopies of a previous actual export. (Pl. Statement of Material Facts ("PSMF") ¶¶ 16–24 (ECF No. 39–3)). The foreign importer receives a "synthetic" letter of credit from the foreign bank, and the U.S. exporter presents the U.S. bank with a photocopy of an old bill of lading, along with a newly-negotiated commercial invoice between the exporter and importer. (Id. ). Plaintiff notes that in many instances the exporter and importer that appear on the commercial invoices supporting these synthetic trades are just related entities or subsidiaries. (Id. ¶ 20). Once the transaction is approved and a program guarantee is attached, the U.S. bank provides the exporter with the amount of money that appeared in the commercial invoice. That exporter then forwards those funds to the foreign bank. (Id. ¶ 21).²

In effect, under the Program as Calderon describes it, U.S. banks are knowingly extending no-strings-attached loans to foreign banks in order to provide those banks with liquid capital, and this financing carries a low interest rate because the CCC guarantees the debt under the GSM–102 Program. (Id. ). In exchange for facilitating this transaction, the foreign bank pays the U.S. exporter a fee, which provides the exporters or commodity trading entities with their revenue. (Id. ). Plaintiff also describes transactions called "renting trade flows," in which agricultural exporters allow others to "rent," i.e. photocopy, their old bills of lading and other documents in exchange for a "rental fee." (Id. ¶ 27). The ability to rent others' bills of lading, rather than needing to recycle one's own, has expanded the number of commodity traders that can participate as "exporters" in these transactions under the Program. (Id. ¶¶ 27–29).

According to Plaintiff, synthetic letters of credit bear certain hallmarks that indicate that they are used in structured trade finance transactions. These are:

(1) language in the LC indicating that "presentation of documents would be acceptable despite ‘any and all discrepancies' " and that "documents shall be acceptable as presented," as opposed to requiring "complying presentations of documents;" [sic] (2) permitting photocopies of bills of lading and not requiring the originals, which are the Consignee's title to the shipped goods and typically are the underlying security in the LC; and (3) the LC was issued after the BLs and after the goods were loaded on board the vessels transporting the goods.

(Pl. Rep. at 9 (citing Fortis Bank (Nederland) N.V. v. Abu Dhabi Islamic Bank , 32 Misc.3d 1232A, 936 N.Y.S.2d 58, 2010 WL 7326395, 2010 N.Y. Misc. LEXIS 6658 (N.Y. Sup. Ct. August 25, 2010) )). Calderon also requests that the court conduct an in camera review of the transaction documents, which he asserts would confirm that the transactions are synthetic, because "the BL parties (Actual Exporter and Consignee) are different from the LC and commercial invoice parties (GSM Exporter, GSM Importer and Intervening Purchaser)." (Pl. Mem. at 16).

Defendant FAS does not outright dispute the existence of synthetic transactions in the Program, but instead argues against the need for in camera review on the grounds that "FAS...