Recent case of interest regarding the Freedom of Information Act and violations of the Real Estate Settlement Procedures Act:
A recent United States Court of Appeals opinion discusses whether the identity of a person complaining to the Department of Housing and Urban Development (“HUD”) about violations of the Real Estate Settlement Procedures Act (“RESPA”) is protected from disclosure under Exemption 6 of the Freedom of Information Act (“FOIA”). See, Prudential Locations LLC v. U.S. Dept. of Housing and Urban Development, –F.3d.–, No. 09-16995, 2013 WL 5539618 (9TH Cir. Oct. 9, 2013).
Plaintiff, Prudential Locations (“Prudential”), filed a FOIA request with HUD, asking it to disclose the names of individuals who had complained to HUD that Prudential had violated RESPA. RESPA prohibits referral fees for real estate settlement services and HUD is the agency responsible for administering and enforcing RESPA, 12 U.S.C. §§ 2601–2617. HUD initiated two investigations of Prudential when it received communications, sent five years apart, alleging that Prudential gave referral awards in violation of RESPA. More specifically, an individual wrote a letter to HUD alleging that Prudential salespersons got monetary kickbacks for the amount of business that was referred to Wells Fargo Home Mortgage of Hawaii (“Wells Fargo”), a joint venture formed by Wells Fargo Bank and Prudential. In response to the letter, HUD opened an investigation. HUD discovered that Prudential rewarded agents with prizes in return for referring a certain amount of business to Wells Fargo. The prizes included a Mercedes–Benz lease and vacation packages to Thailand and Las Vegas. HUD closed the investigation after entering into a settlement agreement under which Prudential agreed to stop violating RESPA and to pay a penalty of $48,000. A few years later, a second communication was directed to HUD alleging that Prudential was violating RESPA laws again. The individual alleged that Prudential charged an extra fee for an in house transaction coordinator to agents that did not use Wells Fargo. The individual requested that his or her identification be kept private. In response, HUD opened a second investigation, but concluded that the evidence did not substantiate the allegations and closed the investigation.
Prudential made a FOIA request for HUD’s records of the two investigations. Prudential specifically asked HUD to produce information regarding the identity of all parties who provided information to HUD relating to the initiation of both HUD investigations. HUD produced roughly four-hundred pages of responsive documents, but redacted information concerning the identity of the individuals. HUD justified the redactions under Exemption 6 of FOIA. HUD explained that release of this information would constitute an unwarranted invasion of personal privacy outweighing any interest of the general public in reviewing these portions of government documents. Prudential brought suit in federal district court specifically seeking disclosure of the identities of the individuals that contacted HUD about the alleged RESPA violations.
The Court stated that exemption 6 of FOIA allows an agency to withhold personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. When deciding whether an agency has properly withheld records or information under Exemption 6, the Court must address two issues. First, whether the document qualifies under the heading of personnel and medical files and similar files. Second, whether production of the document, or information contained therein, would constitute a clearly unwarranted invasion of personal privacy.
The Court stated that it was skeptical that the communications at hand were sufficiently similar to a personnel or medical file to qualify under Exemption 6. However, because Prudential did not argue this point, this issue was not addressed.
The major underlying factor addressed by the Court was whether disclosure of the individuals’ identities constitutes a clearly unwarranted invasion of personal privacy. To withhold information under Exemption 6, an agency must show that some nontrivial privacy interest is at stake. If there is a nontrivial privacy interest, then the agency must balance the individual’s interest in personal privacy against the public’s interest in disclosure. In the immediate case, HUD argued that it had a publicly announced policy of preserving the confidentiality of individuals who complain to the agency about violators of RESPA. In light of the repeated public pronouncements of HUD’s confidentiality policy, the Court concluded that the individuals that reported the alleged RESPA violations had reasonable expectations that HUD would protect their confidentiality even without a specific request that it do so. Given the circumstances of this case, the Court concluded that the individuals had cognizable personal privacy interests under Exemption 6.
To determine whether releasing the identities of the individuals would constitute a clearly unwarranted invasion of personal privacy courts must balance the interest in personal privacy against the public interest in disclosure. Those individuals that disclosed the RESPA violations could easily have been adversely affected if their identities became known. Given the nature of their communications, they appeared to have inside knowledge of the mortgage industry in Hawaii. HUD promised anonymity to industry insiders who report suspected wrongdoing because of their vulnerability to retaliation such as loss of employment or loss of business. Prudential had mentioned the possibility of a civil lawsuit against the unidentified individuals for their complaints. Prudential went to the expense of filing a federal suit and pursuing an appeal with the sole aim of identifying the individuals. Under these circumstances, the Court concluded that there was a significant risk of harassment, retaliation, stigma, or embarrassment of the individuals if their identities are revealed.
The Court stated that the only relevant public interest in the FOIA balancing analysis is the extent to which disclosure of the information sought would shed light on an agency’s performance of its statutory duties or otherwise let citizens know what their government is up to. The Court stated that revealing the identity of a private individual does not further the public interest unless it casts light on the conduct of the government. The Court determined that nothing in the subject individuals’ allegations, or in the actions of HUD in investigating the allegations of statutory violations, suggested that knowledge of the identities of the individuals would significantly shed light on an agency’s performance of its statutory duties or otherwise let citizens know what their government is up to. Because the individuals had a cognizable personal privacy interests in maintaining their anonymity, and because there was no cognizable public policy interest that would be served by revealing their identities, the Court held that revealing individuals’ identities would constitute a clearly unwarranted invasion of personal privacy under Exemption 6.
In summary, this decision sheds some light on several points of interest. First, influencing brokers and salespersons to refer business to a certain lender through prizes or fees is considered a violation of RESPA. Second, access through FOIA is not a right that is all encompassing, especially when involving the private rights and identities of individuals. Finally, this decision leaves the door open for an argument that protecting the individuals’ identities might not fall under Exemption 6 if argued that the communications in question are not sufficiently similar to a personnel or medical file.
No information in this article is intended to constitute legal advice. For specific legal advice, please contact an attorney.
If you have any questions or would like more information about the Real Estate Settlement Procedures Act or the Freedom of Information Act, please contact Eric Mettenbrink at 713.220.9141 or firstname.lastname@example.org.