New York State Bar Association v. Federal Trade Commission, Civil Action No. 02-810 (RBW) (D. D.C. 8/11/2003), Civil Action No. 02-810 (RBW).

CourtUnited States District Courts. United States District Court (Columbia)
Writing for the CourtReggie B. Walton
Decision Date11 August 2003
Docket NumberCivil Action No. 02-1883 (RBW).,Civil Action No. 02-810 (RBW).

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Civil Action No. 02-810 (RBW).
Civil Action No. 02-1883 (RBW).
United States District Court, District of Columbia.
August 11, 2003.

REGGIE B. WALTON, District Judge.

I. Background

The Federal Financial Modernization Act, otherwise known as the Gramm-Leach-Bliley Act (the "GLBA" or the "Act"), was enacted by Congress and signed into law in November 1999. The purpose underlying the GLBA is "to enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, insurance companies, and other financial service providers . . . ." H.R. Conf. Rep. No. 106-434, at 245 (1999), reprinted in 1999 U.S.C.C.A.N. 245, 245. Realizing that the adoption of the Act

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would afford such financial institutions even greater access to consumers' personal financial information, see H.R. Rep. 106-74, pt. 3, at 106-07 (June 15, 1999) ("As a result of the explosion of information available via electronic services such as the Internet, as well as the expansion of financial institutions through affiliations and other means as they seek to provide more and better products to consumers, the privacy of data about personal financial information has become an increasingly significant concern of consumers."), Congress granted broad privacy protections to consumers, giving them the power to choose whether their personal information will be shared by financial institutions.

Title V of the GLBA, 15 U.S.C. §§ 6801-6809, contains a number of privacy provisions and reflects "the policy of Congress that each financial institution has an affirmative and continuing obligation to respect the privacy of its consumers and to protect the security and confidentiality of those consumers' nonpublic personal information[,]" 15 U.S.C. § 6801(a). To implement this policy, Congress required that financial institutions provide consumers, "[a]t the time of establishing a customer relationship . . . and not less than annually during the continuation of such relationship," a privacy notice detailing their practices with respect to disclosing and protecting nonpublic personal information. See 15 U.S.C. § 6803. In addition, Congress mandated that prior to disclosing any nonpublic personal information, the financial institution must provide a consumer with a nondisclosure or "opt out" option, which if exercised, would prohibit the financial institution from disseminating the consumers' nonpublic personal information to non-affiliated third parties. See 15 U.S.C. § 6802(b). And the Federal Trade Commission ("FTC" or "the Commission") maintains that "[a]ll financial institutions subject to the FTC's jurisdiction — including lawyers — will have to comply with these rules beginning on

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May 23, 2003."1 Reply Memorandum in Support of Defendant's Motion to Dismiss ("FTC Reply to ABA") at 11 n.10.

Following the passage of the GLBA, and the issuance of related regulations by the FTC, see 16 C.F.R. §§ 313.1-18, the plaintiffs, the New York State Bar Association ("NYSBA") and the American Bar Association ("ABA"), became aware through "report[s] in the professional and trade regulation press" that the FTC had decided that attorneys who were engaged in certain "financial activities" as part of their legal practices would be subject to the GLBA and its privacy provisions.2 New York State Bar Association Complaint ("NYSBA Compl.") ¶ 37; see American Bar Association Complaint ("ABA Compl.") ¶ 18. In response to the FTC's decision, the plaintiffs and numerous other bar associations across the nation sent letters to the FTC formally requesting that the practice of law be exempted from the GLBA's privacy provisions. See NYSBA Compl. ¶¶ 39-41; ABA Compl. ¶ 19. On April 8, 2002, the Director of the FTC's Bureau of Consumer Protection sent a letter to the ABA, which stated:

We have carefully considered your concerns, and recognize the issues you raised regarding the application of the GLB Act to attorneys at law. However, there are significant questions as to the legal authority of the Commission to grant the exemption you request.

As you know, the GLB Act itself states that entities engaged in `financial activities' are subject to the Act. Although the Commission has express authority under the GLB Act to grant exceptions, that authority is limited to providing exceptions to the requirements of Section 502 [, 15 U.S.C. § 6802]. The Act does not provide the Commission with express authority to grant exemptions from the other provisions of the GLB Act, including the initial and annual notice provisions.

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See GLB Act § 504(b), 15 U.S.C. [§] 6804 (b).3

Memorandum of the American Bar Association in Opposition to the FTC's Motion to Dismiss the Complaint ("ABA Mem."), Exhibit ("Ex.") A; see NYSBA Compl. ¶¶ 45-50. The plaintiffs filed this action shortly after receipt of this letter seeking a judgment declaring that: (1) the FTC's decision that attorneys engaged in the practice of law are covered by the GLBA is in excess of the FTC's statutory authority; (2) the FTC's decision that attorneys engaged in the practice of law are covered by the GLBA is an arbitrary and capricious agency action; and (3) the FTC's refusal to grant attorneys engaged in the practice of law an exemption from the GLBA also constitutes arbitrary and capricious agency action.4 This matter is now before the Court on the defendant's motions to dismiss the plaintiffs' complaints for failure to state claims upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). Upon consideration of the parties' submissions and for the reasons set forth below, the Court will deny the defendant's motions to dismiss the complaints.5

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II. Standards of Review

(A) Motion to Dismiss under Rule 12(b)(6)

On a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), this Court must construe the allegations and facts in the complaint in the light most favorable to the plaintiffs and must grant the plaintiffs the benefit of all inferences that can be derived from the alleged facts. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). However, the Court need not accept inferences or conclusory allegations that are unsupported by the facts set forth in the complaint. Kowal, 16 F.3d at 1276. In deciding whether to dismiss a claim under Rule 12(b)(6), the Court can only consider the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint, and matters about which the Court may take judicial notice. EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624-25 (D.C. Cir. 1997).6 The Court will dismiss a claim pursuant to Rule

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12(b)(6) only if the defendant can demonstrate "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley, 355 U.S. at 45-46.

(B) The Plaintiffs' APA Claims

All of the plaintiffs' claims in this case challenge the FTC's interpretation of the GLBA pursuant to the Administrative Procedure Act ("APA"). See NYSBA Compl. ¶ 15; ABA Compl. ¶¶ 29-31. Agency action under the APA can be set aside if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," 5 U.S.C. § 706(2)(A), or if it is "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right," 5 U.S.C. § 706(2)(C). The plaintiffs bring challenges pursuant to both of these sections of the APA.

(1) The FTC's Interpretation of the GLBA

A challenge to an agency's construction of a statute that it administers is subject to the standard of review articulated in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and the plaintiffs have challenged the FTC's interpretation of the GLBA's applicability to lawyers engaged in the practice of law pursuant to 5 U.S.C. § 706(2)(C) of the APA. Applying the familiar Chevron test, the Court must first determine "whether

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Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." 467 U.S. at 842-43. If, however, "the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Id. at 843. And, in making such an assessment, "considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer[.]" Id. at 844. The Chevron Court explained that

the principle of deference to administrative interpretations[] has been consistently followed by this Court whenever a decision as to the meaning or reach of a statute has involved reconciling conflicting policies, and a full understanding of the force of the statutory policy in the given situation has depended upon more than ordinary knowledge respecting the matters subjected to agency regulations.

Id. (internal quotation omitted). Thus, if the agency's "choice represents a reasonable accommodation of conflicting policies that were committed to the agency's care by the statute, [a court] should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned." Id. at 845.

However, in United States v. Mead Corporation, 533 U.S. 218 (2001), the Supreme Court noted that "[t]he fair measure of deference to an agency administering its own statute has been understood to vary with...

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