U.S. Commodity Futures Trading v. Mcgraw-Hill

• Decision Date: 04 October 2005
• Docket Number: No. 05-235 (RCL).,05-235 (RCL).
• Parties: In the matter of an Application to Enforce Administrative Subpoena of the UNITED STATES COMMODITY FUTURES TRADING COMMISSION, Applicant, v. THE MCGRAW-HILL COMPANIES, INC., Respondent.
• Court: U.S. District Court — District of Columbia

390 F.Supp.2d 27

In the matter of an Application to Enforce Administrative Subpoena of the UNITED STATES COMMODITY FUTURES TRADING COMMISSION, Applicant, v. THE MCGRAW-HILL COMPANIES, INC., Respondent.

No. 05-235 (RCL).

United States District Court, District of Columbia.

October 4, 2005.

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Anthony M. Mansfield, United States Commodity Futures Trading Commission, Washington, DC, for Applicant.

Richard L. Cys, Davis, Wright & Tremaine, LLP, Washington, DC, Carolyn K. Foley, Davis Wright Tremaine LLP, New York, NY, for Respondent.

MEMORANDUM OPINION

LAMBERTH, District Judge.

This matter comes before this Court on Applicant's Motion [1] for an Order Requiring Compliance with Administrative Subpoena,¹ filed June 16, 2005. Applicant ("CFTC") seeks an order from this Court requiring The McGraw-Hill Companies, Inc. ("McGraw-Hill") to comply with an administrative subpoena duces tecum that the CFTC served upon McGraw-Hill on April 15, 2005 (the "Subpoena"). In a Memorandum in Opposition to Applicant's Motion filed July 15, 2005, McGraw-Hill objects to the Subpoena on the grounds that it cannot be compelled to reveal confidential information received in the course of news gathering. Applicant filed a Reply in Support of its Motion on July 19, 2005. Subsequently, on July 27, 2005, McGraw-Hill filed a Surreply in Further Opposition to Applicant's Motion, upon this Court's order granting it leave to do so. Finally, both parties appeared before this Court for oral argument on September 27, 2005 (the "Hearing").

Upon a thorough review of each party's filings, the applicable law and record herein, this Court finds that Applicant's Motion [1] for an Order Requiring Compliance with Administrative Subpoena should be granted, on the terms indicated infra and in the accompanying Order.

I. BACKGROUND

Since late 2003, the CFTC has been investigating an energy marketing company ("Energy Company")² for violations of the Commodities Exchange Act ("CEA"). Applicant's Mot. 2. The CFTC has evidence that Energy Company attempted to affect prices in the natural gas market by, inter alia, reporting false data to Platts, a division of McGraw-Hill. Id. at 3. Platts publishes daily and biweekly indices and price ranges based, in part, on transaction data submitted by participating companies. Respt.'s Mem. Opp'n 4-5. Platts' publications are used by many market participants and traders to set prices for natural gas transactions. Applicant's Mem. 2.

The CFTC's investigation centers on the actions of one or more of Energy Company's traders during a three-year period. The CFTC believes that they reported false transaction data in an effort to manipulate the market price for natural gas during a three-year period. Mansfield Decl. ¶¶ 3, 7, 10-11. After it subpoenaed and deposed Energy Company insiders, the CFTC sought to review Platts' records of Energy Company's submissions, and issued the Subpoena to that end. Namely, the CFTC seeks documents from Platts to identify (and/or confirm) instances of false reports³ and to demonstrate that those reports impacted market prices.

McGraw-Hill objects to the Subpoena on several grounds. Primarily, it argues that Platts, as a news publication, is protected from revealing confidential information received from its sources. Respt.'s Mem. Opp'n 19-23. Even though, as McGraw-Hill concedes, the privilege is qualified, it argues that the CFTC has not made the showing needed to overcome the privilege. Id. at 26-36. Specifically, McGraw-Hill argues, the CFTC has failed to demonstrate that the information is crucial to its investigation or that it has exhausted alternative sources. Id. In the alternative, McGraw-Hill asserts that the Subpoena is overly broad and unduly burdensome. Id. at 36-39.

In response, the CFTC asserts that there is no privilege because Platts is not engaged in traditional news gathering and/or is not disseminating its reports to the public. Applicant's Mem. 10-15; Applicant's Reply 3-7. It further argues that, even if a privilege does exist, it is clearly abrogated by the public interest in law enforcement, the CFTC's need for the information and its exhaustion of other sources. Id. at 7-18.

II. DISCUSSION

A. Reporter's Privilege

The reporter's privilege originates in the First Amendment's guarantee of a free press. The rationale is that forcing journalists to disclose confidential sources will discourage sources from communicating with reporters, thereby disrupting the "free flow of information protected by the First Amendment." Branzburg v. Hayes, 408 U.S. 665, 679, 92 S.Ct. 2646, 33 L.Ed.2d 626 (1972) (noting petitioners' argument that their claims are based on the First Amendment). The general rule in legal actions is to favor broad disclosure. See, e.g., Fed. R. Civ. P. 26(b)(1) (describing the permissible scope of discovery in extremely broad terms); cf. United States v. Bryan, 339 U.S. 323, 331, 70 S.Ct. 724, 94 L.Ed. 884 (1950) (noting the long-recognized public interest in truthseeking). When the constitutional interest of freedom of the press is implicated, however, the reporter may be protected from having to comply with a disclosure request. See, e.g., Zerilli v. Smith, 656 F.2d 705 711 n. 39 (D.C.Cir.1981) ("The Supreme Court explicitly acknowledged the existence of First Amendment protection for news gathering.") (citing Branzburg, 408 U.S. at 681, 92 S.Ct. 2646); Carey v. Hume, 492 F.2d 631, 636 (D.C.Cir.1974) (acknowledging the existence of a qualified reporter's privilege).

As is true for other privileges that exempt a party from the usual discovery rules, the party asserting the privilege bears the burden of showing that it applies in a particular case. Hutira v. Republic of Iran, 211 F.Supp.2d 115, 120 n. 4) (D.D.C.2002) (Lamberth, J.) (citing Shoen v. Shoen, 5 F.3d 1289, 1292 (9th Cir.1993)); Alexander v. FBI, 186 F.R.D. 21, 49 (D.D.C.1998) (Lamberth, J.) (quoting In re Grand Jury Subpoena Dated January 4, 1984, 750 F.2d 223, 224 (2d Cir.1984)). This Circuit has ruled that the privilege applies to civil actions as well as criminal, Zerilli, 656 F.2d at 712, but that, as a qualified privilege, it may be overcome by a compelling interest in disclosure. Whether the privilege prevails in a given case is determined by a balancing test, id., but because of the strong public interest in news reporting, it is unlikely that the privilege would be overcome in the typical civil case. Id.

1. Threshold Requirements

It is self-evident that the reporter's privilege is available only to reporters. The CFTC argues that Platts does not qualify, characterizing the Platts publications as simply providing the results of a mathematical formula rather than engaging in editorial judgments. Applicant's Mem. 10-15; Applicant's Reply 3-7. McGraw-Hill indicated, however, that Platts' predictions of the value of natural gas take into account extra-market factors that might affect supply and demand, such as severe weather or recent legislative activity. Respt.'s Mem. Opp'n 7. As such, Platts engages in journalistic analysis and judgment in addition to simply reporting data.

While the record reflects that Platts may not be involved in what is most commonly considered traditional news gathering, the privilege applies to a broad range of news gatherers. Cf. Branzburg, 408 U.S. at 703-05, 92 S.Ct. 2646 (noting that any attempt to define news or a newsgatherer for purposes of the privilege treads dangerously close to discriminating on the basis of content); 23 Wright Et Al., 23 FED. PRAC. & PROC. EVID. § 5426 (2005) (noting that, under Federal Rule of Evidence 501, "[p]erhaps the most difficult question in formulating the privilege is determining the persons to whom it applies" but that "[t]he weight of authority indicates an extremely broad view of who should be able to claim the privilege").

In light of these considerations, this Court finds that Platts may claim the reporter's privilege. Whether Platts' interest in protecting its confidential sources overcomes the qualified nature of the privilege, however, is another matter. It is to that issue that this Court now turns.

2. Qualified, not absolute, nature of the privilege

News gatherers are not entitled to an absolute privilege. Zerilli, 656 F.2d at 712. The privilege to protect the confidentiality of one's sources or information received therefrom may be abrogated by a strong showing by the party seeking the information. Id. In criminal cases, for example, the strong public interest in law enforcement can readily overcome the privilege. E.g., Branzburg, 408 U.S. at 685, 92 S.Ct. 2646 ("[T]he great weight of authority is that newsmen are not exempt from the normal duty of appearing before a grand jury and answering questions relevant to a criminal investigation."). By contrast, in civil cases, the privilege typically prevails because any interest in overcoming the privilege is by definition a private rather than a public interest. Zerilli, 656 F.2d at 712 (noting that the strong First Amendment interest indicates that "in the ordinary case the civil litigant's interest in disclosure should yield to the journalist's privilege") (emphasis added).

The case before this Court is unusual in comparison to most subpoena disputes: it is neither a criminal action nor a purely civil matter. The CFTC is a federal agency authorized by Congress to investigate violations of law, a posture quite distinct from that of a private litigant seeking personal redress. At the same time, however, since the CFTC is not investigating criminal wrongdoing, its work does not reach the level of public interest afforded to a grand jury investigation.

As noted previously, it is easier to overcome the privilege in criminal cases because the public has such strong a interest in the safety provided by enforcement of criminal laws. Branzburg, 408 U.S. at 685, 92 S.Ct. 2646. In some circumstances, however, a civil...