Stein v. U.S. Sec. & Exch. Comm'n, Civil Action No. 15–1560 (JDB)

• Decision Date: 24 July 2017
• Docket Number: Civil Action No. 15–1560 (JDB)
• Parties: Mitchell J. STEIN, Plaintiff, v. U.S. SECURITIES AND EXCHANGE COMMISSION, Defendant.
• Court: U.S. District Court — District of Columbia

266 F.Supp.3d 326

Mitchell J. STEIN, Plaintiff,

v.U.S. SECURITIES AND EXCHANGE COMMISSION, Defendant.

Civil Action No. 15–1560 (JDB)

United States District Court, District of Columbia.

Signed July 24, 2017

David S. Harris, Law Office of David S. Harris, Miami, FL, for Plaintiff.

William Smith Greig. U.S. Securities and Exchange Commission, Los Angeles Regional Office, Office of Enforcement, Los Angeles, CA, for Defendant.

MEMORANDUM OPINION

JOHN D. BATES, United States District Judge

Before the Court are [10] and [11] cross-motions for summary judgment in this Freedom of Information Act (FOIA) case. Plaintiff Mitchell Stein is the subject of both a criminal and a civil judgment entered against him related to various fraud and securities violations. He seeks records developed in the civil enforcement action brought against him by defendant Securities and Exchange Commission (SEC). For the reasons that follow, Stein's motion will be denied, and the SEC's motion will be granted in part and denied in part.

I. BACKGROUND

In 2011, the SEC filed a civil enforcement action against Heart Tronics, Inc., a medical device manufacturing company, naming Stein and several other individuals and corporate officers associated with the company as co-defendants. See Donnelly Decl. [ECF No. 10–2] ¶ 14; see also Complaint, SEC v. Heart Tronics, Inc., et al., No. 8:11–1962 JVS (ANx) (C.D. Cal.) [ECF No. 1]. Stein was the purported outside counsel to the company, and his wife, Tracey Hampton–Stein, was the majority shareholder. The SEC alleged that Stein and his co-defendants engaged in a series of fraudulent schemes, masterminded by Stein, to drive up the price of Heart Tronics stock, including repeatedly creating false sales orders and including these in Heart Tronics' SEC filings, and issuing false press releases and other public broadcasts. Donnelly Decl. ¶ 14. Meanwhile, Stein continuously directed the sale of his and Hampton–Stein's Heart Tronics stock, netting more than $5.8 million in profit. Id. Stein was convicted in 2013 on charges of securities fraud, mail fraud, wire fraud, conspiracy to commit mail and wire fraud, and conspiracy to obstruct justice. Id. ¶ 16. In 2015, the district court in the Heart Tronics case entered judgment against Stein based on the collateral estoppel effect of his related criminal conviction. See id. ¶ 15; see also Judgment, SEC v. Heart Tronics, Inc. et al., No. 8:11–1962 JVS (ANx) (C.D. Cal.) [ECF No. 277]. His criminal conviction was affirmed in January 2017 by the Eleventh Circuit, although his sentence was vacated and that case remanded to the Southern District of Florida for resentencing. See United States v. Stein, 846 F.3d 1135, 1156 (11th Cir. 2017). His appeal of the judgment entered against him in the Heart Tronics case, which was stayed during the appeal of the criminal case, is still ongoing in the Ninth Circuit. See Gov't Supp. Br. [ECF No. 19] at 2–3; see also Mar. 3, 2017 Clerk Order, SEC v. Heart Tronics, Inc., et al., No. 15–155506 (9th Cir.) [ECF No. 35] (lifting stay).

Stein submitted a FOIA request to the SEC in March 2015, seeking two categories of documents: all documents and information described in the privilege log prepared by the SEC in the Heart Tronics case, and all documents and information relating to the SEC's investigation into individuals named Yossi Keret, Tony Nony/Nonoy, Avi Cohen, Ari Cohen, and Marina Orita. See Compl., [ECF No. 1] Ex. B. Stein was accused of inventing several of the names in the latter category for use in false purchase orders. The SEC responded in June 2015, withholding the privilege log records under FOIA Exemption 7(A), which permits the withholding of records that may interfere with law enforcement activities. See Compl., Ex. D at 1; see also 5 U.S.C. § 552(b)(7)(A). The SEC also asserted that other exemptions may apply, and reserved the right to raise those exemptions when Exemption 7(A) was no longer applicable. Compl., Ex D. at 1. With respect to the second category of documents, the SEC did not discuss these in its response, except to conclude in a footnote that "to the extent the records [Stein was] seeking ... exist" they had either already been made available to Stein in the Heart Tronics litigation, or were included in the privilege log category of documents. Id. at n.1.

Stein filed an administrative appeal of the SEC's decision, insisting that the agency turn over "all of the requested documents," and arguing that Exemption 7(A) did not apply because the civil and criminal actions against him had concluded. Compl., Ex. E at 1–2. The SEC's Office of General Counsel (OGC) responded, concluding that the FOIA officer had correctly withheld the requested records under Exemption 7(A), because claims brought against Stein's co-defendants in the Heart Tronics case were still proceeding, and because Stein had appealed the civil judgment against him to the Ninth Circuit. See Gov't Mot. for Summ. J., Ex. 2 [ECF No. 10–3] at 1–2. Therefore, the OGC concluded that release of the records could still interfere with ongoing enforcement proceedings. Id. at 2.

Stein filed this suit in September 2015, bringing claims under both FOIA and the Privacy Act, 5 U.S.C. § 552a, seeking the production of all records responsive to his request. Both parties have moved for summary judgment.

II. LEGAL STANDARDS

Summary judgment is appropriate where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Evidence is construed in the light most favorable to the non-moving party; however, factual assertions made in the moving party's declarations may be accepted as true unless the opposing party submits affidavits, declarations, or documentary evidence to the contrary. See, e.g., Sample v. Bureau of Prisons, 466 F.3d 1086, 1087 (D.C. Cir. 2006) ; Neal v. Kelly, 963 F.2d 453, 456 (D.C. Cir. 1992).

"FOIA cases typically and appropriately are decided on motions for summary judgment." Georgacarakos v. FBI, 908 F.Supp.2d 176, 180 (D.D.C. 2012) (internal quotation marks omitted) (quoting Defenders of Wildlife v. U.S. Border Patrol, 623 F.Supp.2d 83, 87 (D.D.C. 2009) ). FOIA provides a " ‘statutory right of public access to documents and records’ held by federal agencies." Citizens for Responsibility & Ethics in Wash. (CREW) v. U.S. Dep't of Justice, 602 F.Supp.2d 121, 123 (D.D.C. 2009) (quoting Pratt v. Webster, 673 F.2d 408, 413 (D.C. Cir. 1982) ). As the Supreme Court has explained, FOIA is "a means for citizens to know what their Government is up to." Nat'l Archives & Records Admin. v. Favish, 541 U.S. 157, 171–72, 124 S.Ct. 1570, 158 L.Ed.2d 319 (2004) (internal quotation marks omitted). Thus, FOIA requires federal agencies to make their records available to the public upon request, unless the requested information falls under one of nine statutory exemptions to disclosure. See 5 U.S.C. §§ 552(a) – (b).

District courts review de novo an agency's decision to withhold requested documents under a statutory exemption, and the agency "bears the burden of proving the applicability of claimed exemptions." Am. Civ. Liberties Union (ACLU) v. U.S. Dep't of Defense, 628 F.3d 612, 619 (D.C. Cir. 2011) ; 5 U.S.C. § 552(a)(4)(B). To satisfy its burden, the agency may submit supporting declarations of responsible agency officials and, where necessary, an index of the documents withheld, known as a Vaughn index. See ACLU, 628 F.3d at 619 ; Vaughn v. Rosen, 484 F.2d 820, 827–28 (D.C. Cir. 1973). "If an agency's affidavit describes the justifications for withholding the information with specific detail, demonstrates that the withheld information logically falls within the claimed exemption, and is not contradicted by contrary evidence in the record or by evidence of the agency's bad faith, then summary judgment is warranted on the basis of the affidavit alone." ACLU, 628 F.3d at 619. "Ultimately, an agency's justification for invoking a FOIA exemption is sufficient if it appears ‘logical’ or ‘plausible.’ " Id. (some internal quotation marks omitted) (quoting Larson v. U.S. Dep't of State, 565 F.3d 857, 862 (D.C. Cir. 2009).

III. DISCUSSION

Stein raises three main issues in his motion for summary judgment and in his opposition to the government's motion for summary judgment: he challenges the adequacy of the government's search for responsive records, the agency's withholding determinations, and the agency's segregability determinations. See Stein Mot. for Summ. J. [ECF No. 11] at 10–13, 16–18; Stein Opp'n to Gov't Mot. for Summ. J. (hereinafter "Stein Opp'n") [ECF No. 14] at 5–10. The government argues that Stein failed to exhaust his administrative remedies with respect to the second category of requested documents and with respect to his Privacy Act claims. Furthermore, in addition to claiming that the requested documents are exempt from disclosure under FOIA Exemption 7(A), the government also raises arguments under Exemptions 3, 5, 6, and 7(C). See Gov't Mot for Summ. J. [ECF No. 10–1] at 1–2; 5 U.S.C. §§ 552(b)(3), (5), (6), (7)(C). The Court will address each argument in turn.

A. EXHAUSTION

Before a plaintiff may bring an action under FOIA, he must first exhaust his administrative remedies. See Hidalgo v. FBI, 344 F.3d 1256, 1258–59 (D.C. Cir. 2003) (noting that exhaustion under FOIA is a prudential requirement). Failure to administratively appeal an adverse determination may bar judicial review of a FOIA claim. See Wilson v. U.S. Dep't of Transp., 730 F.Supp.2d 140, 150 (D.D.C. 2010) (citing Hidalgo, 344 F.3d at 1259–60 ). Likewise, Privacy Act claims are subject to an administrative exhaustion requirement—and exhaustion under the Privacy Act is a jurisdictional requirement. See Barouch v. U.S. Dep't of Justice, 962 F.Supp.2d 30, 67 (D.D.C. 2013) (citing cases); see also 5 U.S.C. §§ 552a(d)(1)–(3), (g)(1). "A person seeking judicial review of an agency's handling of his or her ...