Fight Over the Applicability of GLBA Privacy Provisions to Lawyers to Continue

The Gramm-Leach Blilely Act (GLBA) was passed by Congress in November 1999. The Act encourages affiliations between financial institutions that would facilitate the sharing of consumer’s personal information. As a result, the GLBA also contains privacy provisions applicable to “financial institutions” that give consumers the power to decide whether financial institutions can disclose their personal information. The Federal Trade Commission (FTC) issued an Opinion Letter stating that these privacy provisions are applicable to practicing attorneys who engage in certain financial activities. According to the FTC, attorneys who provide real estate settlement, tax-planning, or tax-preparation services are “financial institutions” under the meaning of the GLBA. In response to this decision, the New York State Bar Association (NYSBA) and the American Bar Association (ABA) brought forth an action in the District Court of the District of Columbia alleging that the FTC’s decision should be set aside pursuant to the Administrative Procedure Act (APA). They claimed that the FTC’s action was (1) “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right,” 5 U.S.C. §706(2)(C) and (2) “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” 5 U.S.C. §706(2)(A). The FTC filed a Motion to Dismiss the complaints for failure to state claims upon which relief can be granted under Fed. R. Civ. P. 12(b)(6). Upon examination of the issues, the court held that the plaintiffs’ allegations are of merit and denied the motion to dismiss the claims. With regard to the first allegation that the FTC’s interpretation was outside its statutory authority, the court applied the Chevron test, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778 (1984), and the decision in United States v. Mead Corp., 533 U.S. 218, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001). The Chevron test requires that the court determine whether Congress’s intent regarding the issue in question is clear, and if not, whether the agency’s interpretation “is based on a permissible construction of the statute.” Chevron, 467 U.S. at 842-843, 104 S.Ct. 2778. In applying this test, the court considered both the definition of “financial institution” in common language and the intended meaning of the phrase as used in GLBA. The court also considered whether Congress intended to regulate the activities of lawyers when drafting the act based on the legislative history of the act and Congress’s past behavior. The court held that it appears that Congress did not intend to include lawyers in its definition of “financial institutions” in the GLBA. The court cites (1) Congress’s past reluctance to impose federal regulations on activities already strictly regulated by state statutes; (2) the purpose of the privacy provisions of the GBLA; and (3) Congress’s explicit inclusion of attorneys in past legislation when the scope was intended to cover lawyers as reasons why it does not appear that attorneys were intended to be classified as “financial institutions” in the Act. The Mead decision states that when reviewing Opinion Letters, courts should look at “the degree of the agency’s care, its consistency, formality, and relative expertness, and to the persuasiveness of the agency’s position.” Mead, 533 U.S. at 228, 121 S.Ct. 2164. In applying this standard, the court looked at the record of the FTC’s decision-making process regarding this matter and concluded that there appeared to be a total lack of deliberative process by the FTC when it made the decision in question. Based on these analyses, the court concluded that it could not as a matter of law hold that the FTC’s interpretation that the GLBA privacy provisions applied to lawyers was in accordance with Congress’s intent. With regard to the plaintiff’s second claim that the FTC’s decision was arbitrary and capricious, the court focused on (1) the FTC’s decision-making process and (2) the FTC’s de minimis authority. In examining the FTC’s decision-making process, the court found that there appeared to be a lack of deliberate process when FTC made this decision. The court viewed the FTC’s failure to offer, in the Opinion Letter, any explanation for its decision as a reflection that the decision was made without a reasonable degree of deliberation. The court also noted that the FTC appeared to have failed to consider using its de minimis authority to grant attorneys an exemption from the GBLA privacy provisions. Such an exemption was given to institutions of higher education whose situation was similar to that of lawyers. Based on its analysis, the court concluded that it could not hold as a matter of law that the FTC did not act in an arbitrary and capricious manner. Based on the analyses described above, the court held that the plaintiff’s claims are of merit and denied FTC’s motion to dismiss. N.Y. State Bar Ass’n v. Fed. Trade Comm’n, No. 02-810, 2003 WL 21919841 (D.D.C. Aug. 11, 2003).