In the Matter of Pamela A. Madeiros, Appellant,v.New York State Education Department et al., Respondents.BriefN.Y.September 5, 2017 APL-2016-00073 To be argued by: JEFFREY W. LANG Time requested: 15 minutes Albany County Index No. 6312-13 State of New York Court of Appeals In the Matter of the Application of PAMELA A. MADEIROS, Petitioner-Appellant, -against- NEW YORK STATE DEPARTMENT OF EDUCATION; JOSEPHY CONROY, in his official capacity as Records Access Officer of the New York State Education Department; and JOHN B. KING, Jr., in his official capacity as the Records Access Appeals Officer of the New York State Education Department, Respondents-Respondents. BRIEF FOR RESPONDENTS BARBARA D. UNDERWOOD Solicitor General ANDREW D. BING Deputy Solicitor General JEFFREY W. LANG Assistant Solicitor General of Counsel ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Respondents The Capitol Albany, New York 12224-0341 (518) 776-2027 Dated: September 7, 2016 Reproduced on Recycled Paper i TABLE OF CONTENTS PAGE TABLE OF AUTHORITIES .................................................................... III PRELIMINARY STATEMENT .................................................................. 1 QUESTIONS PRESENTED....................................................................... 3 STATEMENT OF THE CASE ................................................................... 4 A. State and Municipal Reimbursement of Providers of Special Education Services to Preschool Children ................. 4 B. Audits by the State Comptroller Uncover Widespread Fraud and Abuse by Providers ................................................ 7 C. In Response to the State Comptroller’s Findings, the Legislature Bolsters Enforcement ......................................... 10 D. Petitioner’s FOIL Request ..................................................... 14 E. Proceedings Below .................................................................. 15 1. Supreme Court Upholds the Department’s Determinations ............................................................. 19 2. The Appellate Division Affirms .................................... 20 SUMMARY OF ARGUMENT .................................................................. 22 ARGUMENT POINT I THE DEPARTMENT PROPERLY EXEMPTED FROM FOIL DISCLOSURE RECORDS COMPILED FOR LAW ENFORCEMENT PURPOSES WHICH CONTAIN AUDIT TECHNIQUES WHOSE RELEASE WOULD INTERFERE WITH FISCAL AUDITS ................ 24 A. The audit techniques at issue were compiled for law enforcement purposes. ........................................................... 26 ii TABLE OF CONTENTS (cont'd) PAGE POINT I, subpoint A (cont'd) 1. Fiscal audits serve law enforcement purposes. ........... 27 2. Federal cases have shielded audit techniques under the federal law enforcement exemption, which similarly requires that records be compiled for law enforcement purposes. .................................................. 32 B. Release of the audit techniques would interfere with fiscal audits by giving providers inappropriate insight into the path the audits will take. ......................................... 37 POINT II ALTERNATIVELY, THE AUDIT TECHNIQUES ARE EXEMPT AS NON-ROUTINE CRIMINAL INVESTIGATIVE TECHNIQUES ...... 44 POINT III PETITIONER DID NOT SUBSTANTIALLY PREVAIL IN THIS PROCEEDING ............................................................................ 48 CONCLUSION ......................................................................................... 53 iii TABLE OF AUTHORITIES CASES PAGE Acme Bus Corp., Matter of v. County of Suffolk, 136 A.D.3d 896 (2d Dep’t 2016) ...................................................... 49 Aurigemma v. N.Y.S. Dep’t of Taxation and Finance, 128 A.D.3d 1235 (3d Dep’t 2015) .................................................... 46 Bottom, Matter of v. Fischer, 129 A.D.3d 1504 (4th Dep’t 2015) ................................................... 49 Buckner v. Internal Revenue Service, 25 F.Supp.2d 893 (N.D. Ind. 1998) ................................................. 35 Church of Scientology of CA. v. U.S. Dep’t of Army, 611 F.2d 738 (9th Cir. 1979) ........................................................... 37 Church of Scientology of N.Y. v. State of N.Y., 61 A.D.3d 942 (1st Dep’t 1978) ....................................................... 43 City of New York v. BusTop Shelters, 104 Misc.2d 702 (Sup. Ct. N.Y. Co. 1980) ...................................... 31 Cook, Matter of v. Nassau County Police Dep’t, 140 A.D.3d 1059 (2d Dep’t 2016) .................................................... 51 Families for Freedom v. U.S. Customs and Border Protection, 837 F.Supp.2d 287 (S.D.N.Y. 2011) ................................................ 34 Fappiano v. New York City Police Dep’t, 95 N.Y.2d 738 (20010 ...................................................................... 16 Federation of N.Y. State Rifle & Pistols Clubs, Matter of v. New York City Police Dep’t, 72 N.Y.2d 92 (1989) ......................................................................... 26 iv TABLE OF AUTHORITIES (cont’d) CASES (cont’d) PAGE Fink, Matter of v. Lefkowitz, 47 N.Y.2d 567 (1979) ............................................................... passim Fluckman v. U.S. Dep’t of Labor, 2013 WL 6184957 (E.D. VA. Nov. 26, 2013) .................................. 37 Friedland, Matter of v. Maloney, 148 A.D.2d 814 (3d Dep’t 1989) ...................................................... 51 Goldstein v. Internal Revenue Service, 2016 WL 1180157 (D.C. Mar. 25, 2016) ......................................... 34 Grabell, Matter of v. New York City Police Dep’t, 139 A.D.3d 477 (1st Dep’t 2016) ..................................................... 51 Hearst Corp. v. City of Albany, 88 A.D.3d 1130 (3d Dep’t 2011) ................................................. 50,51 Huene v. U.S. Dep’t of Treasury, 2012 WL 3730635 (E.D. Cal. Aug. 24, 2012) .................................. 34 Jaronczyk v. Mangano, 2012 WL 11980342 (Sup. Ct. Nassau Co. June 2, 2012), aff’d 121 A.D.3d 995 (2d Dep’t 2014) ...................................................... 50 John Doe Agency v. John Doe Corp., 493 U.S. 146 (1989) ......................................................................... 36 Kohler-Hausman, Matter of v. New York City Police Dep’t, 133 A.D.3d 437 (1st Dep’t 2015) ..................................................... 49 Mayer Brown LLP v. Internal Revenue Service, 562 F.3d 1190 (D.C. Cir. 2009) ....................................................... 35 v TABLE OF AUTHORITIES (cont’d) CASES (cont’d) PAGE New York Civ. Liberties Union, Matter of v. City of Saratoga Springs, 87 A.D.3d 336 (3d Dep’t 2011) ........................................................ 50 N.Y.S. Defenders Ass’n, Matter of v. N.Y.S. Police, 87 A.D.3d 193 (3d Dep’t 2011) ........................................................ 50 Lesher, Matter of v. Hynes, 19 N.Y.3d 57 (2012) ......................................................................... 32 Powida, Matter of v. City of Albany, 147 A.D.2d 236 (3d Dep’t 1989) ...................................................... 50 Public Employees for Environmental Responsibility v. International Boundary and Water Commission, 740 F.3d 195 (D.C. Cir. 2014) ......................................................... 37 Pride International Realty LLC, Matter of v. Daniels, 4 Misc.3d 1005(A), 2004 N.Y. Slip Op. 50665(U) (Sup. Ct. N.Y. Co. 2004) .................................................................. 31 Shannahan v. Internal Revenue Service, 2009 WL 4051080 (W.D. Wash. Sept. 3, 2009) ........................ 34-35 Small v. Internal Revenue Service, 820 F.Supp. 163 (D.N.J. 1992) ........................................................ 34 State of Minnesota v. Dep’t of Energy, 1983 WL 1155 (D. Minn. Dec. 14, 1982) ......................................... 35 Tax Analysts v. Internal Revenue Service, 284 F.3d 71 (D.C. Cir. 2002) ............................................... 33,34n,47 vi TABLE OF AUTHORITIES (cont’d) FEDERAL STATUTES PAGE 5 U.S.C. § 552 ................................................................................................. 32 § 552(b)(7) ........................................................................................ 33 NEW YORK STATE STATUTES Education Law article 89 ...................................................................................... 1,4,6 § 4410-c ............................................................................................ 12 § 4410-c(1) ........................................................................................ 25 § 4410-c(2)(b) ................................................................................... 12 § 4410-c(2)(e) ............................................................................... 12,29 § 4410(1)(g) ...................................................................................... 4n § 4410(10)(a)(i) ................................................................................... 4 § 4410(11)(a) ...................................................................................... 4 § 4410(11)(b)(i) ................................................................................... 4 § 4410(11)(c)(i) .................................................................... 6,10,27,28 § 4410(11)(c)(ii) ........................................................................... 10,27 Executive Law § 63(12) ............................................................................................. 31 General Business Law §§ 352-353 ........................................................................................ 31 Public Officers Law § 87(2)(e) ........................................................................... 15,26,33,45 § 87(2)(e)(i) ............................................................................... passim § 87(2)(e)(iv) ............................................................................. passim § 89(4)(a) .......................................................................................... 15 § 89(4)(c) ........................................................................................... 48 State Finance Law § 189(1) ............................................................................................. 30 vii TABLE OF AUTHORITIES (cont’d) STATE RULES AND REGULATIONS PAGE 8 N.Y.C.R.R. § 200.8(c)(1) ........................................................................................ 4 § 200.9(a)(25) ..................................................................................... 4 § 200.9(e)(1) ....................................................................................... 5 § 200.9(f)(1) ........................................................................................ 5 § 200.18(b)(2) ................................................................................... 11 § 200.18(b)(3) .............................................................................. 11,43 MISCELLANEOUS Education Department’s Reimbursable Cost Manual, http://www.oms.nysed.gov/rsu/Manuals_Forms/Manuals/RCM /CurrentYear/201617RCMFinalNoIndex.pdf ................................... 6 Memorandum Recommending Approval of S.5568/A.7302 (July 17, 2013), reprinted in Bill Jacket for L. 2013, ch. 545, § 3 ...................................................................... 8,12 The Comptroller’s Final Audit Reports http://www.osc.state.ny.us/audits/auditAgencyList.htm #StateEducationDepartment ........................................................ 13n PRELIMINARY STATEMENT In Matter of Fink v. Lefkowitz, 47 N.Y.2d 567, 573 (1979), this Court observed that the “Freedom of Information Law was not enacted to furnish the safecracker with the combination to the safe.” That venerable principle is threatened in this case, which concerns petitioner’s Freedom of Information Law (“FOIL”) request for audit techniques used to verify the proper reporting of costs by private providers of preschool special education services reimbursed by State funds. No less than in Matter of Fink, release of these techniques to unscrupulous providers would countenance fraud “by enabling miscreants to alter their books and activities to minimize the possibility of being brought to task for criminal activities.” Id. at 572-73. This Court should similarly conclude that these techniques are protected from disclosure. Under article 89 of the Education Law, municipalities reimburse the approved costs of providers within their borders. Respondent Department of Education (the “Department”)1 sets the reimbursement 1 While this case was pending, MaryEllen Elia replaced respondent John B. King, Jr. as the Commissioner and Records Access Appeals Officer of the Department. 2 rates that providers may charge municipalities based on the cost information reported by providers. The Department also reimburses municipalities for more than two-thirds of their expenditures for this program. To safeguard State funds, the Legislature has authorized municipalities to perform fiscal audits of the providers, intended to complement similar audits performed by the State Comptroller. Reacting to widespread fraud and abuse in the industry uncovered by the State Comptroller’s audits, the Legislature twice amended the Education Law in 2013 to strengthen the fiscal audits of these providers. Among other things, the Department was directed to supply municipalities with audit guidelines and standards, and the Department in turn required municipalities to submit their audit plans and audit programs to it for approval based on consistency with the Department’s guidelines. At issue on this appeal is whether the Department may protect from FOIL disclosure specific audit techniques contained in the audit programs submitted to the Department for approval under the foregoing scheme. Because the audit techniques were compiled for law enforcement purposes and because their release would interfere with ongoing and future fiscal audits, the Appellate 3 Division properly held that such techniques were shielded by FOIL’s law enforcement exemption. Alternatively, the audit techniques are exempt as non-routine criminal investigative techniques. QUESTIONS PRESENTED 1. Did the Department properly exempt from FOIL disclosure records compiled for law enforcement purposes which contain audit techniques whose release would interfere with fiscal audits? 2. Alternatively, did the Department properly exempt from FOIL disclosure records containing audit techniques which qualify as non-routine, criminal investigative techniques? 3. Did petitioner fail to substantially prevail as required for an award of attorney’s fees, when although the Department produced documents after petitioner filed suit, it nonetheless persisted in redacting and withholding numerous documents and its decision to do so was upheld by the courts below? 4 STATEMENT OF THE CASE A. State and Municipal Reimbursement of Providers of Special Education Services to Preschool Children Under article 89 of the Education Law, the Legislature has made each “municipality”2 financially responsible for special education services provided to a preschool child with disabilities who resides within its borders. Education Law § 4410(11)(a). The Education Law in turn directs the Department to reimburse the municipality for 69.5% of the provider’s approved costs paid by the municipality. Education Law § 4410(11)(b)(i). Upon the presentation of a voucher by the provider, the municipality must reimburse the provider for its approved costs at least quarterly. Id.; 8 N.Y.C.R.R. § 200.8(c)(1). The reimbursement or “tuition” rate that providers may charge municipalities for approved services or programs is determined annually by the Department. Education Law § 4410(10)(a)(i); see also 8 N.Y.C.R.R. § 200.9(a)(25) (defining “tuition rate”). To set tuition rates, the Department relies on 2 “Municipality” is defined as a county outside New York City or New York City in the case of a county within the City. Education Law § 4410(1)(g). In other words, outside New York City, “municipalities” as defined by the statute are counties. This brief will use the term “municipality” in accordance with its statutory meaning. 5 the cost information contained in annual consolidated financial reports submitted by the providers. 8 N.Y.C.R.R. § 200.9(e)(1). These reports must include financial statements certified by a licensed certified public accountant independent of the provider. Id. Regulations promulgated by the Department set forth the principles according to which tuition rates for special education programs are set, and encompass the costs of program administration, direct care, and the operation and maintenance of instructional facilities. See 8 N.Y.C.R.R. § 200.9(f)(1). At the same time, the Department must adjust the tuition rate so as to disallow, among other things: any reported cost not considered necessary or directly related to the operation of the specific approved special education program; any reported cost that cannot be substantiated on field audit by adequate written documentation; any reported costs incurred by the program as a result of unsound business practices or accounting practices not in accordance with generally accepted accounting principles; costs incurred in less-than-arm’s-length transactions that are determined to be above the actual, documented costs of the owner. 8 N.Y.C.R.R. § 200.9(f)(1). 6 Details specifying which expenses may be charged to municipalities under article 89 of the Education Law are set forth in the Department’s Reimbursable Cost Manual, which is posted to the Department’s website and updated annually.3 Consistent with the Department’s regulations, the July 2016 edition of the manual bars reimbursement for a provider’s entertainment costs, personal expenses, fund raising costs, and gifts, and closely regulates the reimbursement of fringe benefits and employee bonuses. To ensure that providers of special education services to preschool children are only reimbursed for approved costs, the Legislature has authorized each municipality or, in the case of New York City, its board of education, to “perform a fiscal audit of services or programs for which it bears fiscal responsibility in accordance with audit standards established by the commissioner [of the Department], which may include site visitation.” Education Law § 4410(11)(c)(i). As further set forth below, the Department’s Executive Coordinator for Special Education has explained that municipal auditing of providers of special education services to preschool children 3 See http://www.oms.nysed.gov/rsu/Manuals_Forms/Manuals/RCM/ CurrentYear/201617RCMFinalNoIndex.pdf. 7 is important because “SED relies on the information submitted by the preschool providers in their [consolidated financial reports] and financial statements, including the expectation that this information adheres to SED’s requirements of allowable costs for reimbursement.” (Record [“R”] 105.) The purpose of these audits is to “verify that costs are properly reported and that improper costs are not reimbursed.” (R. 105.) B. Audits by the State Comptroller Uncover Widespread Fraud and Abuse by Providers Since 2010, under the authority of the State Finance Law, the Office of the State Comptroller has performed multiple audits of the providers of preschool special education services. (R. 102-103.) Counsel to the Comptroller described the results of these audits in a July 2013 letter supporting legislation to improve industry oversight: OSC audits of providers of publicly funded special education services to preschool children have revealed widespread fraud and abuse, and demonstrate that New York State urgently needs to strengthen the oversight of the more than 300 providers rendering services which annually cost the State $1.3 billion. To date the Comptroller has completed 18 audits of preschool special education providers and has found nearly $20 million in unsupported or inappropriate charges, such as improper use of public monies for personal expenses, excessive salaries and benefit packages for executive personnel, and monies used for vehicles and other 8 expenses of questionable benefit to children served by the programs. The audits have resulted in the arrest of four employees of two providers, two convictions, and restitution of $610,000. One provider was convicted as an entity and fined $25,000. Six additional cases referred to law enforcement are still pending. Memorandum Recommending Approval of S.5568/A.7302 (July 17, 2013), reprinted in Bill Jacket for L. 2013, ch. 545, § 3 at 13. See also R. 103 (listing disallowed costs and criminal referrals resulting from the Comptroller’s audits). In addition to $20 million in disallowed costs and several criminal cases, the Comptroller’s audits led to the referral of “numerous” certified public accountants to the Department’s Office of the Professions for disciplinary investigation. (R. 103.) Some of the rampant fraud and abuse revealed by the Comptroller’s audits was described in a series of articles in the New York Times contained in the Bill Jacket for the legislation to improve industry oversight. For instance, One specialist in the so-called [Special Education Itinerant Teachers, or “SEIT”] program is Important Steps, Inc., of the Bronx, whose billings grew from $1.6 million in 2006-7, its first school year in the program, to $5.7 million a year later. An audit by Mr. DiNapoli’s office of the company’s 2007-8 records found that it had overbilled by hundreds of thousands of dollars that year. The company improperly put in for reimbursement for its corporate income taxes, vehicles, office renovations and other items, auditors found. 9 Id. at 43. The two principals of Important Steps were arraigned on five felony charges, “including grand larceny, tampering with public records and filing false documents.” Id. The same article reported that criminal charges had been brought against the owners of a second company, “Special Education Associates Inc. of Brooklyn, which was one of the city’s busiest SEIT providers this year, with 170 children receiving instruction.” The article detailed that the Comptroller’s audit “found that the company’s owner, Samuel J. Bernstein, paid his wife, Deena, $150,000 a year as his assistant executive director, while she was earning $90,000 a year as a full-time professor of speech, language and hearing sciences at Lehman College of CUNY.” Id. at 44. As a result of the malfeasance exposed by the Comptroller’s audit, “Mr. Bernstein pleaded guilty to defrauding the government, a felony, and was sentenced in December to five years’ probation.” Id. at 44. And the article reported that yet a third company was required to pay back $831,244 in disallowed expenses, noting that the company “charged government $240,000 for salaries for its two co-owners, though they performed little work, auditors said.” Id. at 44. 10 C. In Response to the State Comptroller’s Findings, the Legislature Bolsters Enforcement As a result of the Comptroller’s discovery of widespread fraud and abuse by providers of special education services, the Legislature amended the Education Law twice in 2013 to bolster enforcement and enhance the likelihood that violators will be detected. The first amendment, enacted as part of the 2013-14 budget bill, sought to encourage municipalities to perform fiscal audits of the providers they reimburse by allowing each municipality to retain in full any overpayments it recoups as a result of an audit (rather than remit a portion back to the Department). Education Law § 4410(11)(c)(ii). To improve the effectiveness of these audits, the amended law also required that the Department provide municipalities with guidelines on standards and procedures for fiscal audits. Education Law § 4410(11)(c)(i). In accordance with this provision, the Department developed such guidelines, a copy of which was released to petitioner. (R. 89-100.) To ensure adherence to the Department’s guidelines, the Department enacted regulations requiring that municipalities submit their audit plans and audit programs to the Department for approval 11 based on their consistency with the Department’s guidelines. 8 N.Y.C.R.R. § 200.18(b)(2). The Department’s approval of a municipality’s audit plan and audit program is valid for five years. 8 N.Y.C.R.R. § 200.18(b)(3). At the time of petitioner’s FOIL request in September 2013, the Department had received audit plans and audit programs from two municipalities, New York City and Onondaga County. (R. 105; see R. 47-71 [New York City]; R. 74-80 [Onondaga County]). The Department approved both municipalities’ audit plans and audit programs. Subsequent to petitioner’s FOIL request, the Department additionally received and approved audit plans and audit programs submitted by Suffolk County and Monroe County. The Department is informed that New York City is in the process of conducting two audits; Suffolk County is in the process of conducting an audit; and Monroe County is currently performing three audits. The Legislature amended the Education Law a second time in 2013 to require that, within such funds as are made available, in addition to the municipal audits, the State Comptroller audit every special education service provider for preschool children with 12 disabilities at least once by March 2018. L. 2013, ch. 545, § 3, eff. Dec. 18, 2013, codified at Education Law § 4410-c. The Comptroller’s audits must encompass “examining, auditing and evaluating relevant financial documents and records of providers for the particular years included within the scope of the audit.” Education Law § 4410-c(2)(b). The Comptroller is further directed to “refer any findings of fraud, abuse or other conduct constituting a crime that are uncovered during the course of an audit, as warranted to an appropriate agency or agencies possessing jurisdiction.” Education Law § 4410-c(2)(e). As the Senate Introducer’s Memorandum in support of the bill expanding the Comptroller’s audits explained, its purpose was “to strengthen the oversight of the providers of publicly funded special education services to preschool children, and improve transparency and accountability in the administration of these services.” Bill Jacket for L. 2013, ch. 545, § 3 at 9 (2013). The memorandum noted that audits of these providers by the Comptroller “have revealed widespread fraud and abuse.” Id. It emphasized that provider malfeasance “deprives children with special education needs of the public resources intended for them and threatens the existence of these special education 13 programs.” Id. Among the problems uncovered by the Comptroller’s audits, the memorandum identified “absentee executive directors,” “redundant costs for executive direction,” and “conflicts of interest” whereby “the program provider that performs the assessment of a student with special education needs then places the child with its own program.” Id. We are informed by the Office of the Comptroller that of the approximately 300 providers of special education services to preschool children operating in New York State, the Comptroller has audited 66 providers as of August 4, 2016, and has 29 audits currently in progress.4 We are also advised that audits by the Comptroller of these providers have led to ten arrests and five guilty pleas.5 4 The Comptroller’s final audit reports are available at http://www.osc.state.ny.us/audits/auditAgencyList.htm#StateEducation Department. 5 Information about the Comptroller’s criminal referrals are available at http://osc.state.ny.us/press/releases/june12/062512.htm; http://osc.state.ny.us/press/releases/nov13/110613c.htm; http://osc.state.ny.us/press/releases/june12/062512.htm; http://www.nytimes.com/2012/08/01/nyregion/included-accused-of-bilking- city-of-millions-in-special-education-funds.html. 14 D. Petitioner’s FOIL Request By email dated September 19, 2013, petitioner, an attorney who represents providers of special education programs, requested under FOIL the Department’s guidelines on audit standards and procedures, any audit plans and audit programs submitted to the Department for approval under the Department’s regulations, and any communications between the Department and any municipality relating to the Department’s audit standards and procedures or a municipality’s audit plans and audit programs. (R. 24-25.) On September 14, 2013, the Department acknowledged receipt of petitioner’s request. (R. 26-27.) By letter dated October 16, 2013, the Department denied petitioner’s request “pursuant to Public Officers Law § 87(2)(e)” because if the requested information were released, “it would interfere with investigations of compliance with the provisions of the reimbursable cost manual and the preschool special education rate setting system.” (R.28.) On October 24, 2013, petitioner appealed the denial. (R. 29-34.) The Department did not respond to petitioner’s administrative appeal within 10 business days (i.e., by November 7, 2013), and the 15 Department was accordingly deemed to have constructively denied the appeal. See Public Officers Law § 89(4)(a). E. Proceedings Below On November 18, 2013, petitioner filed this proceeding to challenge the Department’s denial of her FOIL request and obtain attorney’s fees. (R. 16-21.) On January 7, 2014, the Department released 55 pages of documents, which constituted all responsive records. (R. 106, 117.) On January 13, 2014, the Department answered the petition. (R. 40-45, 106.) The Department redacted portions of these documents under the law enforcement exemption,6 see Public Officers Law § 87(2)(e), and provided Supreme Court with unredacted versions of the documents for in camera review. (R. 42.) The redactions concealed portions of (a) New York City’s audit program (R. 46-64), (b) New York City’s “Internal Control Questionnaire” (R. 65-71), and (c) Onondaga County’s audit program (R. 74-80). 6 The Department redacted two of the 55 pages under the inter-agency exemption, however, Supreme Court ruled that the Department had waived its right to rely on this exemption and ordered the two pages released. The Department has turned over unredacted copies of these pages to petitioner, and the two pages are not at issue in this appeal. Redacted versions of the two pages are located in the record at R. 72 and 73. 16 While petitioner’s appeal was pending in the Appellate Division, the Department confirmed that New York City had released to petitioner an unredacted copy of its audit program, which it also posted on its website. Accordingly, petitioner’s appeal is moot as to that document. See Fappiano v. New York City Police Dep’t, 95 N.Y.2d 738, 749 (2001) (dismissing petition as “academic” where FOIL requester had obtained same documents from a different source). Petitioner has waived any argument to the contrary by failing to raise it below or in her brief to this Court. So far as the Department is aware, New York City has not released its “Internal Control Questionnaire,” which remains at issue in this appeal. To summarize, the following redacted pages remain at issue: R. 65-71 (the NYC Internal Control Questionnaire) and R. 76-77 and 79-80 (the redacted pages of Onondaga County’s audit program). By supporting affidavit, Suzanne Bolling, the Department’s Executive Coordinator for Special Education, explained the Department’s assertion of the law enforcement exemption. She stated that the Department “relies on the information submitted by the preschool providers in their CFR [consolidated financial report] and 17 financial statements, including the expectation that this information adheres to SED’s requirements of allowable costs for reimbursement.” (R. 105.) The Department uses this information “to determine the provider’s rate which is paid ultimately by the State and counties.” (R. 105.) These audits play “an integral role in ensuring that only allowed costs are reimbursed and that providers are not masking inappropriate costs and expenses and are, in fact, operating their business in accordance with generally accepted accounting principles.” (R. 105-106.) The portions of the audit programs redacted by the Department concern the “specific methods and procedures the counties will utilize during financial audits[.]” (R. 107.) Release of these methods and procedures would undermine the effectiveness of fiscal audits by giving providers “a roadmap to avoid disclosure of inappropriate costs, which are then paid by the counties and State.” (R. 107-108.) Such a roadmap “would give preschool providers inappropriate insight into the specific protocols and procedures municipal auditors use to examine and investigate a preschool provider’s compliance with fiscal requirements pursuant to the Education Law.” (R. 108). And in “the situation of a 18 provider engaging in fraudulent activity, the provider would be informed how it might conceal these activities from the auditor.” (R. 108). Concerns about possible fraud are especially acute because recent audits conducted by the Comptroller “have revealed frequent abuse by preschool providers.” (R. 107.) More specifically, “the disclosure of key audit tools and tactics, which include the questions auditors would ask when conducting an audit, would help preschool providers evade and circumvent the municipal audit’s questions or examinations of data and documents[.]” (R. 109.) For example, if the audit program identifies specific documents that will be reviewed, the provider “might choose to conceal improper costs in the documents that it is now aware are not subject to review.” (R. 109.) Similarly, if the audit program sets forth a minimum threshold below which expenses will not be reviewed, “the provider might intentionally/strategically keep claims below the threshold to avoid a review.” (R. 109.) As a result, if the Department were compelled to release the audit techniques at issue, “the efforts of municipalities to audit these preschool programs would be seriously compromised.” (R. 108.) This outcome would thwart the intent of the 2013 amendments 19 to the Education Law “to encourage further and more diligent auditing of preschool programs by municipalities.” (R. 110.) 1. Supreme Court Upholds the Department’s Determinations Upon in camera review of the unredacted versions of the documents at issue, Supreme Court (Collins, J.) ordered the release of two pages redacted under the inter-agency exemption, but otherwise upheld the Department’s redactions. Noting that “audits conducted over the last few years have revealed frequent abuses, and in some cases, resulted in referrals for criminal prosecutions,” the Court agreed that “the information redacted is appropriately limited to nonroutine audit techniques and procedures compiled for law enforcement purposes.” (R. 11.) The court concluded that the Department’s redactions address “specific audit processes, techniques and procedures” which “could reveal the path an audit is likely to take, thereby alerting providers to items to which auditors are instructed to pay particular attention or methods utilized in checking the accuracy of the information provided.” (R. 12.) Accordingly, the court ruled that these documents “constitute records compiled for law enforcement purposes which, if disclosed, would interfere with law enforcement investigations.” (R. 12.) 20 2. The Appellate Division Affirms Petitioner appealed. (R. 2-3.) Based on its in camera review of the records, the Appellate Division, Third Department, unanimously affirmed. (R. 135-139.) Addressing the law enforcement exemption’s threshold requirement that the records be compiled for law enforcement purposes, the court found that the records at issue satisfied this requirement because they were prepared “in the wake of audits conducted by the Comptroller that found a pattern of mismanagement, waste and fraud by numerous private providers of preschool special education[.]” (R. 137.) The court noted that the Comptroller’s audits had resulted in criminal investigations and the referral of numerous certified public accountants to the Department for disciplinary proceedings. (R. 137.) And “there is no reason to doubt” that audits conducted under the guidance of the Department “are also aimed at uncovering financial malfeasance.” (R. 137.) Thus, the court concluded, while the audit techniques at issue may not have arisen from a “specific law enforcement investigation,” they were “compiled with law enforcement purposes in mind.” (R. 137.) 21 The court described the documents at issue as outlining “specific methods used by an auditor to examine the financial behavior of preschool special education providers” and concluded that if disclosed, this information “would indeed reveal to unscrupulous providers the path that an audit is likely to take and alert them to items to which investigators are instructed to pay particular attention” (R. 138-139) (quoting Matter of Fink, 47 N.Y.2d at 572-73) (internal quotations and brackets omitted). The court found that these audit techniques were exempt from disclosure under Public Officers Law § 87(2)(e)(i) as records whose disclosure “would enable individuals to frustrate pending or prospective investigations or to use that information to impede a prosecution” (R. 138) (citation omitted). The court also summarily rejected petitioner’s argument that respondents had waived their right to rely on subpart (iv) of the law enforcement exemption concerning the protection of non-routine criminal investigative techniques. The court explained that “under the circumstances of this case,” where respondents had argued that the interference with future investigations would arise precisely from the 22 release of the audit techniques, “no meaningful distinction” can be drawn between subparts (i) and (iv). (R. 137.) Finally, the court affirmed Supreme Court’s determination that petitioner had not “substantially prevailed” because “the vast majority of the challenged redactions were appropriate.” Petitioner was thus not entitled to attorney’s fees. (R. 138.) Petitioner moved for leave to appeal, and this Court granted petitioner’s motion. (R. 133.) SUMMARY OF ARGUMENT The Department properly withheld from FOIL disclosure the audit techniques at issue, and this Court should affirm. The records are exempt under subpart (i) of the law enforcement exemption because they were compiled for law enforcement purposes and their release would interfere with ongoing and future fiscal audits of providers of special education services to preschool children. As a threshold matter, the records were compiled for law enforcement purposes because they contain techniques for use in audits whose purpose is to uncover the fraudulent reporting of reimbursable costs by providers in an industry where such abuse has been rampant. Indeed, such audits are a front- 23 line defense against financial malfeasance. And similar to the situation that this Court addressed in Matter of Fink, the release of the audit techniques at issue would interfere with law enforcement investigations by giving unscrupulous providers insight into the paths that a fiscal audit will take, better allowing them to conceal any improper activity. Alternatively, the audit techniques at issue are exempt as non-routine criminal investigative techniques within the meaning of subpart (iv) of the law enforcement exemption because they are reasonably calculated to uncover information for use in criminal investigations or proceedings, even if this information has other uses. Finally, petitioner did not substantially prevail because the Department persisted in redacting and withholding numerous documents even after petitioner brought this proceeding, and the Department’s redactions were upheld by Supreme Court and the Appellate Division upon in camera review. 24 ARGUMENT POINT I THE DEPARTMENT PROPERLY EXEMPTED FROM FOIL DISCLOSURE RECORDS COMPILED FOR LAW ENFORCEMENT PURPOSES WHICH CONTAIN AUDIT TECHNIQUES WHOSE RELEASE WOULD INTERFERE WITH FISCAL AUDITS The Department properly redacted the subject records7 based on subpart (i) of FOIL’s law enforcement exemption because these records were compiled for law enforcement purposes and contain audit techniques which, if disclosed, would interfere with pending and future fiscal audits by municipalities.8 These audits would be compromised by revealing the specific audit techniques that municipal auditors will use to verify the accuracy and propriety of claimed costs, thereby giving 7 As noted above, the Department turned over R. 72-73 to petitioner in response to Supreme Court’s order, and petitioner independently possesses an unredacted copy of R. 46-64, provided to her by New York City. Thus, these pages are not at issue in this appeal. The remaining pages at issue are R. 65-71, 76-77, and 79-80. We are furnishing this Court in camera with the unredacted copies of all the records submitted in unredacted form to the courts below. 8 Petitioner incorrectly claims (Br. at 28) that the Department “essentially abandoned” its reliance on subpart (i) of the law enforcement exemption before the Appellate Division. The Department’s brief in the Appellate Division argued that both subpart (i) and subpart (iv) were applicable. 25 providers insight into the path that an audit will take and allowing them to better conceal any improper or fraudulent activity. A decision ordering disclosure of the municipalities’ audit techniques could also adversely affect more than the municipal audit techniques at issue here. As explained above, under Education Law § 4410-c(1), the Office of the State Comptroller must audit the expenses reported to the Department by every program provider of preschool special education services in the state, within such funds as are made available for such purpose. The Comptroller is currently conducting 29 such audits, and has a significant number of additional audits to complete. The Comptroller has received FOIL requests for its audit techniques similar to the request at issue here, and has withheld these techniques, most recently based on the Appellate Division’s decision. If this Court were to reject the assertion of the law enforcement exemption by the Department here, its analysis may have implications for the assertion of that exemption by the Comptroller, whose audits have led to $20 million in disallowed costs, referrals of accountants to the Department for disciplinary proceedings, and multiple criminal prosecutions. 26 Although respondents bear the burden of establishing FOIL exemptions and such exemptions are to be narrowly construed, “they must, nonetheless, be given their natural and obvious meaning where such interpretation is consistent with the legislative intent and with the general purpose and manifest policy underlying FOIL.” Matter of Federation of N.Y. State Rifle & Pistol Clubs v. New York City Police Dep’t, 72 N.Y.2d 92, 96 (1989). FOIL’s law enforcement exemption covers records “compiled for law enforcement purposes” which, if disclosed, would either “(i) “interfere with law enforcement investigations or judicial proceedings” or “(iv) reveal criminal investigative techniques or procedures, except routine techniques and procedures” or have other consequences not relevant here. Public Officers Law § 87(2)(e). As demonstrated below, the Department met its burden under subpart (i) of the law enforcement exemption. In Point II, we establish the same with respect to subpart (iv) of the exemption. A. The audit techniques at issue were compiled for law enforcement purposes. As noted above, subpart (i) of the law enforcement requires as a threshold matter that the records be compiled for law enforcement 27 purposes. The records at issue here were compiled for such purposes because they contain audit techniques for use in fiscal audits whose purpose is to uncover fraud and abuse. This conclusion is bolstered by cases decided under the federal analogue to FOIL’s law enforcement exemption, which served as the model for New York’s law enforcement exemption. The federal law enforcement exemption has the same threshold requirement that records be “compiled for law enforcement purposes,” and federal cases have routinely protected audit techniques used by federal agencies under this exemption. 1. Fiscal audits serve law enforcement purposes. The records at issue were created by the municipalities for use in fiscal audits and submitted to the Department as part of each party’s respective statutory responsibility to ensure that publicly-reimbursed providers are properly reporting their approved costs. The law enforcement purpose behind the compilation of the audit techniques arises from the overall statutory scheme, whose intent was to enhance the frequency and effectiveness of fiscal audits of providers in light of a widespread pattern of industry abuse. See Education Law §§ 4410(11)(c)(i), (c)(ii). Contrary to petitioner’s argument (Br. at 20), 28 the fact that the Department guides the conduct of municipal audits but does not itself perform them does not detract from the law enforcement purpose for the compilation of the audit techniques. The Department maintains custody of the municipalities’ audit programs because of its statutory responsibility to establish the audit standards used by municipalities, see Education Law § 4410(11)(c)(i), not because of its “general administrative oversight” (Br. at 20) of municipalities or providers. And the fiscal audits themselves serve at least four law enforcement purposes. First, fiscal audits are the first line of defense against criminal fraud by publicly-reimbursed service providers. Indeed, an audit is often the first step in detecting financial malfeasance that may eventually become the subject of criminal enforcement. Petitioner nonetheless disputes (Br. at 21) that fiscal audits are intended to or capable of uncovering fraud or other financial malfeasance. She argues that the Appellate Division’s conclusion that these audits were intended to uncover fraud “reflects unbridled speculation” and claims that “nothing in the Record” suggests that the audits have such a purpose. Petitioner is mistaken. The Department’s 29 Executive Coordinator for Special Education explained that fiscal audits play “an integral role in ensuring that only allowed costs are reimbursed and that providers are not masking inappropriate costs and expenses[.]” (R. 105-106.) Nor is the concern about provider fraud and abuse in this industry remote or “theoretical” as petitioner repeatedly claims (e.g., Br. at 22). As demonstrated by the Comptroller’s recent audits, which led to $20 million in disallowed costs, ten arrests and five guilty pleas, as well as numerous referrals of accountants for disciplinary proceedings, the industry has been plagued by such problems. Indeed, the Legislature was so concerned about the prevalence of fraud that it amended the Education Law to require the State Comptroller to audit every provider of special education services to preschool children within a five-year period, and in doing so, specifically instructed the Comptroller to refer any findings of fraud, abuse or other conduct constituting a crime uncovered during the course of an audit to the appropriate prosecuting agency. Education Law § 4410-c(2)(e). These Comptroller audits are required in addition to any audits that municipalities may conduct. And fiscal audits by municipalities serve the same law enforcement 30 purpose as the Comptroller’s audits, namely, to ensure that providers are properly reporting their reimbursable costs. See R. 105-106; 109-110. As petitioner notes (Br. at 21), municipalities are not prosecutorial authorities, but must refer any evidence of illegality that they uncover to such authorities for further investigation and proceedings. But the fact that the municipalities must refer findings of fraud and abuse to prosecutors does not deprive the municipal audits of a law enforcement purpose; to the contrary, it confirms that the audits have precisely that purpose, among others. So too the Office of the State Comptroller was performing a law enforcement function when it conducted the audits that led to the arrests and convictions referenced above, even though it could not conduct the prosecutions but instead was required to refer evidence of illegality to prosecutorial authorities for further investigation and prosecution. Second, even if any non-compliance uncovered by a fiscal audit does not rise to the level of a crime, fiscal audits are also the first step in what may evolve into civil enforcement proceedings. See, e.g., State Finance Law § 189(1) (establishing civil liability for any person who 31 knowingly presents or conspires to present “a false or fraudulent claim for payment or approval”); General Business Law §§ 352-353 (authorizing Attorney General to investigate and bring action to enjoin fraudulent practices in the marketing of stocks, bonds and other securities within or from New York State); Executive Law § 63(12) (authorizing Attorney General to seek order enjoining repeated or persistent fraudulent acts). And law enforcement purposes shielded from FOIL by subpart (i) include civil as well as criminal enforcement. See Matter of Pride International Realty LLC v. Daniels, 4 Misc.3d 1005(A), 2004 N.Y. Slip Op 50665(U) (Sup. Ct. N.Y. Co. 2004) (applying law enforcement exemption to a civil investigation); City of New York v. BusTop Shelters, 104 Misc.2d 702, 711 (Sup. Ct. N.Y. Co. 1980) (same). Thus, fiscal audits serve a civil law enforcement purpose. Third, the Department itself has law enforcement authority: it may investigate charges of professional misconduct against accountants, and prosecute and conduct the resulting disciplinary proceedings. See R. 103 (Comptroller referred numerous accountants to Department for disciplinary proceedings as a result of its audits). 32 Fourth, the prospect of periodic fiscal audits acts as a deterrent regardless of whether any criminal or civil charges result from them. In short, fiscal audits serve several law enforcement purposes. 2. Federal cases have shielded audit techniques under the federal law enforcement exemption, which similarly requires that records be compiled for law enforcement purposes. Federal courts have repeatedly protected from disclosure audit techniques used by the IRS and other federal agencies under the federal analogue to FOIL’s law enforcement exemption, which similarly requires that exempt records be compiled for law enforcement purposes. Although petitioner also looks to cases decided under the Freedom of Information Act, 5 U.S.C. § 552 (“FOIA”), for guidance concerning the meaning of “compiled for law enforcement purposes,” she draws the wrong lesson from those cases (Br. at 18-20). The Department agrees that federal cases are instructive because New York’s law enforcement exemption was modeled after FOIA’s law enforcement exemption, see Matter of Lesher v. Hynes, 19 N.Y.3d 57, 67 (2012), but cases decided under FOIA support protection of the audit techniques at issue rather than the disclosure sought by petitioner. 33 Like Public Officers Law § 87(2)(e), FOIA Exemption 7 applies to records or information “compiled for law enforcement purposes” whose disclosure would have any of several consequences, including “(A) could reasonably be expected to interfere with enforcement proceedings” or “(E) would disclose techniques and procedures for law enforcement investigations or prosecutions[.]” 5 U.S.C. § 552(b)(7). Similar to New York’s law enforcement exemption, therefore, Exemption 7 contains a threshold requirement, applicable to all subparts, that exempt records be “compiled for law enforcement purposes.” And contrary to petitioner’s claim (Br. at 18), compilation for law enforcement purposes is not limited to documents compiled in the course of a specific investigation. As the D.C. Circuit explained in upholding the IRS’s assertion of Exemption 7, the “information here at issue does not relate to any ongoing ‘investigation’ by IRS” but rather pertains to “guidelines, techniques and procedures for law enforcement investigations and prosecutions outside of the context of a specific investigation.” Tax Analysts v. Internal Revenue Service, 284 F.3d 71, 77 (D.C. Cir. 2002). A federal agency may seek to protect such techniques 34 under Exemption 7, “even when the materials have not been compiled in the course of a specific investigation.” Id. at 79.9 Consistent with these principles, federal courts have repeatedly concluded that IRS audit techniques such as the discriminant function, or DIF, scores that the IRS assigns to taxpayers to determine the likelihood of their being audited are protected by Exemption 7. As one district court explained, “If the DIF scores were made public, taxpayers could impede the IRS’s investigative standards for determining which taxpayers should be audited,” which disclosure would “allow taxpayers to circumvent the law by developing strategies to avoid audits.” Small v. Internal Revenue Service, 820 F.Supp. 163, 166 (D.N.J. 1992); accord Goldstein v. Internal Revenue Service, 2016 WL 1180157 at *9 (D.C. Mar. 25, 2016); Huene v. U.S. Dep’t of Treasury, 2012 WL 3730635 at *7 (E.D. Cal. Aug. 24, 2012); Shannahan v. Internal Revenue Service, 9 The cases cited by petitioner concerning the meaning of “compiled for law enforcement purposes” (Br. at 18) only stand for the proposition that documents compiled in the course of a specific investigation typically qualify as having been compiled for law enforcement purposes; not that this is a prerequisite. Indeed, the very author of one of the decisions cited by petitioner stated in a subsequent case that a federal agency may block disclosure of investigative techniques, “even when the materials have not been compiled in the course of a specific investigation.” Families for Freedom v. U.S. Customs and Border Protection, 837 F.Supp.2d 287, 294 (S.D.N.Y. 2011) (Scheindlin, J.) (quoting Tax Analysts, 284 F.3d at 77). 35 2009 WL 4051080 at *7 (W.D. Wash. Sept. 3, 2009); Buckner v. Internal Revenue Service, 25 F.Supp.2d 893, 989 (N.D. Ind. 1998) (exempting DIF scores and another IRS investigative technique whose release “could facilitate circumvention of payment of required taxes”); see also Mayer Brown LLP v. Internal Revenue Service, 562 F.3d 1190, 1195 (D.C. Cir. 2009) (IRS settlement guidelines are exempt because “armed with information about which cases the IRS does not like to litigate, the illegal tax shelter can be designed to minimize the chances of litigation or the likelihood of sanctions”). And these courts have protected the IRS’s discriminant function methodology and other techniques from disclosure notwithstanding the fact that the IRS is not a prosecuting agency, but must refer cases to the Department of Justice for prosecution. Federal courts have reached the same conclusion with regard to audit techniques used by other federal agencies. See State of Minnesota v. Dep’t of Energy, 1982 WL 1155 at * 7 (D. Minn. Dec. 14, 1982) (Department of Energy’s audit plan for oil company protected by Exemption 7 because it “details the techniques the DOE planned to use to investigate Standard’s compliance with the price regulations”). 36 Petitioner’s assertion (Br. at 19-20, 27) that the audit techniques here were compiled for “routine monitoring or oversight” as opposed to law enforcement purposes is not only factually incorrect, as established in Point I(a)(1) above, but also cannot be reconciled with the above federal cases. The records of taxpayer discriminant function scores and other audit or investigative techniques used by federal agencies were compiled for the same general purpose as the audit techniques here, namely, to assist the agency to verify compliance with the applicable laws and regulations. Since those audit techniques were compiled for law enforcement purposes, so were the audit techniques at issue here. The cases cited by petitioner (Br. at 19-20) for the notion that “routine monitoring” is not a law enforcement purpose are inapposite. The Supreme Court in John Doe Agency v. John Doe Corp., 493 U.S. 146, 153-55 (1989), only referred to the idea of “routine audits” in passing, and did not suggest that audits aimed at verifying publicly reimbursed costs—like those here—lack a law enforcement purpose. Nor has any federal court adopted such an expansive reading of that case, but on the contrary, federal courts have persisted in allowing the IRS and other agencies to withhold audit techniques regardless of 37 whether they were “re-compiled” as part of a criminal investigation. Church of Scientology of Ca. v. U.S. Dep’t of Army, 611 F.2d 738, 748 (9th Cir. 1979), concerned an internal department review that bore no relation to the enforcement of any law or regulation. And Gluckman v. U.S. Dep’t of Labor, 2013 WL 6184957, at *6 (E.D. Va. Nov. 26, 2013), held that the records there were not compiled for law enforcement purposes because the agency in question lacked an “enforcement mandate,” a requirement squarely rejected by the D.C. Circuit. See Public Employees for Environmental Responsibility v. International Boundary and Water Commission, 740 F.3d 195, 203 (D.C. Cir. 2014) (so long as records were compiled for a law enforcement purpose the “withholding agency need not have statutory law enforcement functions”) (emphasis in original). B. Release of the audit techniques would interfere with fiscal audits by giving providers inappropriate insight into the path the audits will take. The remaining requirement of subsection (i) of the law enforcement exemption (that disclosure would “interfere with law enforcement investigations”) is also satisfied because release of the audit techniques at issue would interfere with ongoing and future fiscal 38 audits by giving providers “a roadmap to avoid disclosure of inappropriate costs, which are then paid by the counties and State.” (R. 107-108.) Disclosure of these audit techniques “would give preschool providers inappropriate insight into the specific protocols and procedures municipal auditors use to examine and investigate a preschool provider’s compliance with fiscal requirements pursuant to the Education Law.” (R. 108.) And in “the situation of a provider engaging in fraudulent activity, the provider would be informed how it might conceal these activities from the auditor.” (R. 108.) At the same time, the disclosure sought by petitioner would thwart the intent of the Legislature’s 2013 amendments to the Education Law to bolster fiscal auditing of the providers in this industry. This Court addressed a similar situation thirty-seven years ago in Matter of Fink, where the petitioner made a FOIL request for an office manual compiled by the Special Prosecutor for nursing homes. 47 N.Y.2d at 569. Among other things, the manual contained “a step-by- step guide to an investigation and audit of a nursing home, including specific illustrations of some of the techniques and procedures which had proven successful in detecting nursing home fraud.” Id. The Special 39 Prosecutor withheld portions of the manual based the law enforcement exemption, claiming that these portions were compiled for law enforcement purposes and, if disclosed, would reveal non-routine criminal investigative techniques or procedures. Id. at 571-72. Just as here, the targeted industry was one where “voluntary compliance with the law has been less than exemplary.” Id. at 573. Matter of Fink turned on whether the withheld audit techniques were “non-routine.” As the Court explained, the reason for exempting non-routine investigative techniques is to ensure that “violators of the law not be apprised of the non-routine procedures by which an agency obtains its information” because FOIL was not meant “to enable persons to use agency records to frustrate pending or threatened investigations[.]” Id. at 572. Investigative techniques are generally considered “non-routine” where their disclosure would “give rise to a substantial likelihood that violators could evade detection by deliberately tailoring their conduct in anticipation of avenues of inquiry to be pursued by agency personnel.” Id. Applying this test, the Court concluded that the audit techniques there were non-routine because their disclosure would allow violators to evade detection by the auditors: 40 Disclosing to unscrupulous nursing home operators the path that an audit is likely to take and alerting them to items to which investigators are instructed to pay particular attention, does not encourage observance of the law. Rather, release of such information actually countenances fraud by enabling miscreants to alter their books and activities to minimize the possibility of being brought to task for criminal activities. In such a case, the procedures contained in an administrative manual are, in a very real sense, compilations of investigative techniques exempt from disclosure. The Freedom of Information Law was not enacted to furnish the safecracker with the combination to the safe. Id. at 572-73. Accordingly, the Court concluded that the Special Prosecutor properly withheld those portions of the manual containing audit techniques because their disclosure “would enable an operator to tailor his activities in such a way as to significantly diminish the likelihood of a successful prosecution.” Id. at 573. This Court should reach the same conclusion here. Petitioner erroneously argues (Br. at 27) that Matter of Fink has no bearing on the Department’s invocation of subpart (i) of the law enforcement exemption because that case was decided under subpart (iv) involving non-routine criminal investigative techniques. But the Court’s reasoning was broader than subpart (iv). Specifically, the Court concluded that the audit techniques were “non-routine” precisely because if disclosed to the target of the audit, their release would 41 compromise current or future audits by revealing the path that the audit will likely follow. The same circumstance is present here, and thus, Matter of Fink supports the Department’s assertion of subpart (i). Petitioner also argues (Br. at 22-24) that subpart (i) is inapplicable because fiscal audits are not law enforcement investigations and because the Department has only demonstrated an “abstract” possibility of future fiscal audits. She is mistaken on both counts. First, fiscal audits are fairly described as a type of civil investigation. An “investigation” is broadly defined as: The activity of trying to find out the truth about something, such as a crime, accident, or historical issue; esp., either an authoritative inquiry into certain facts, as by a legislative committee, or a systematic examination of some intellectual problem or empirical question, as by mathematical treatment or use of the scientific method. Black’s Law Dictionary (10th Ed. 2014.) Fiscal audits fit this definition because they are authoritative, systematic inquiries into the truth of certain facts. The Department’s FOIL response accordingly described the fiscal audits here as “investigations of compliance with the provisions of the reimbursable cost manual and the preschool special education rate setting system.” (R. 28.) Onondaga County’s description 42 of the scope and objectives of its fiscal audits confirms the accuracy of the Department’s use of the term “investigation” in its response: obtaining an understanding of the provider’s internal control structure; verifying the “reasonableness and reliability of information” reported by the provider in its consolidated financial report; determining “whether selected expenses were reported in accordance with applicable laws, regulations and policies;” determining “whether expenditures were ordinary, reasonable and adequately supported and justified as allowable costs under the SED’s Reimbursable Cost Manual;” determining “the accuracy of the reported full time equivalent enrollment and/or units or service used in the calculation of tuition;” verifying that “tuition is billed and the related revenue is reasonably reported for all full time equivalent students as determined by audit.” (R. 74-75.) Petitioner argues (Br. at 23) that fiscal audits cannot be deemed a type of investigation because the Legislature does not use the terms “investigation” and “audit” interchangeably. The Department agrees that the two terms are not interchangeable or synonymous, and it is not surprising the Legislature distinguishes between them. Rather, a fiscal audit is a type of investigation, itself a broader term. And as discussed 43 above, fiscal audits serve law enforcement purposes by ferretting out fraud and other financial malfeasance. Thus, they qualify as “law enforcement investigations.” Second, the Department established that future audits are more than a remote or abstract possibility. To be sure, if there is no ongoing investigation or judicial proceeding and the prospect of one is wholly speculative, an agency cannot show interference with law enforcement investigations or judicial proceedings. See Church of Scientology of N.Y. v. State of N.Y., 61 A.D.3d 942, 943 (1st Dep’t 1978). In this case, however, the prospect of future fiscal audits is not speculative because the statutory program authorizing and encouraging municipal auditing is ongoing. Further, the five-year period for which the audit plans and audit programs at issue have been approved has not yet expired. See 8 N.Y.C.R.R. § 200.18(b)(3). And indeed, several municipal audits are currently underway: the Department is informed that New York City, Suffolk County and Monroe County are all in the process of performing one or more fiscal audits. Contrary to petitioner’s claim (Br. at 22), it is unnecessary to identify the specific providers being audited because the techniques that the Department seeks to protect do not vary by 44 individual provider, but are used in all provider audits within the relevant municipality’s jurisdiction. And, at the State level, the Comptroller has 29 audits ongoing at present, and is required to audit all of the providers. In sum, this Court should reaffirm the principle of Matter of Fink that FOIL was not meant “to furnish the safecracker with the combination to the safe” and uphold the Department’s redactions under subpart (i) of the law enforcement exemption. POINT II ALTERNATIVELY, THE AUDIT TECHNIQUES ARE EXEMPT AS NON-ROUTINE CRIMINAL INVESTIGATIVE TECHNIQUES As an alternative basis to affirm, this Court should find that the audit techniques at issue are exempt under subpart (iv) of the law enforcement exemption as non-routine criminal investigative techniques. As an initial matter, petitioner argues (Br. at 28-29) that the Department waived reliance on subpart (iv) by not raising this subpart in its FOIL response or before Supreme Court. Rejecting petitioner’s waiver argument (R. 137, n. 1), the Appellate Division correctly 45 concluded that under the circumstances of this case, where the rationales for the application of subparts (i) and (iv) overlap, the Department sufficiently preserved its right to rely on subpart (iv) by raising arguments applicable to either subpart. See R. 120-121 (Department citing and discussing Matter of Fink). The Department has consistently maintained that the release of the requested records would interfere with law enforcement investigations precisely because these records represent confidential, non-routine audit techniques. (R. 120-121.) Even if before Supreme Court, the Department cited to Public Officers Law § 87(2)(e) generally without adding a specific cite to subpart (iv), the substance of its arguments adequately preserved the Department’s right to invoke this subpart on appeal. On the merits, the audit techniques here are properly exempt as non-routine criminal investigative techniques. Petitioner does not dispute that these techniques are “non-routine” as that concept was explicated in Matter of Fink, representing “detailed, specialized methods of conducting an investigation into the activities of a specialized industry in which voluntary compliance with the law has been less than exemplary.” 47 N.Y.2d at 573. Instead, she argues 46 (Br. at 27) that the investigative techniques are nonetheless not “criminal” because, unlike the Special Prosecutor’s investigations in Matter of Fink, fiscal audits are not themselves criminal investigations. Although this Court has not taken up the question of what makes a non-routine investigative technique “criminal” as opposed to “civil,” the Court should conclude that the audit techniques here are “criminal” investigative techniques because they are reasonably calculated to uncover information for use in criminal investigations or judicial proceedings, even if that information has other uses. The above test for a “criminal” investigative technique makes better sense of this subpart of the law enforcement exemption than the definition offered by the Third Department in a recent case cited by petitioner (Br. at 26). In Aurigemma v. N.Y.S. Dep’t of Taxation and Finance, 128 A.D.3d 1235, 1237 (3d Dep’t 2015), the Third Department held that a criminal investigative technique is one whose “genesis” lies in “an underlying criminal investigation or prosecution.” The Aurigemma definition of what constitutes a “criminal” investigative technique is overly narrow. Investigative techniques are normally developed for general use rather than to aid in any specific 47 investigation. See Tax Analysts, 284 F.3d at 78 (IRS seeking to protect guidelines, techniques and procedures “outside of the context of a specific investigation”). Thus, an investigative technique’s exempt status under subsection (iv) should depend on its function rather than the context in which it was originally conceived or developed. Nor should the fact that an investigator works for an agency without prosecutorial powers preclude the application of subpart (iv) if the investigative technique at issue otherwise meets the foregoing test. For instance, if the very same fiscal audit techniques used by the auditors here were instead being used by auditors employed by a Special Prosecutor, as in Matter of Fink, the techniques would unquestionably be exempt under subpart (iv). It should make no difference to the confidentiality of the techniques that the auditors here are instead employed by political subdivisions (or in the case of the Comptroller, an agency) charged with investigating compliance with the law, although they lack criminal enforcement authority and must refer cases to others for prosecution. Accordingly, this Court should find that the audit techniques at issue here are protected under subpart (iv) of the law enforcement exemption. 48 POINT III PETITIONER DID NOT SUBSTANTIALLY PREVAIL IN THIS PROCEEDING Petitioner is not eligible for attorney’s fees if she does not prevail on this appeal, as we have explained she should not. FOIL allows an award of attorney’s fees in a court’s discretion only where a requester has first “substantially prevailed.” If the requester has substantially prevailed and the court additionally finds that “the agency had no reasonable basis for denying access” or “the agency failed to respond to a request or appeal within the statutory time,” the court may in its discretion award attorney’s fees. Public Officers Law § 89(4)(c). In this proceeding, Supreme Court, having upheld most of the Department’s redactions, dismissed that portion of the petition seeking attorney’s fees. See R. 12 (finding that the petition is “otherwise dismissed”). The Appellate Division affirmed, finding that a denial of attorney’s fees was required because petitioner did not substantially prevail in this proceeding in that most of the redactions that she challenged were determined to be appropriate. (R. 138.) This Court should affirm the Appellate Division’s conclusion that petitioner did not substantially prevail. Petitioner argues (Br. at 29-35) 49 that she would have substantially prevailed in this proceeding even if this Court were to uphold the Department’s assertions of the law enforcement exemption because the Department did not produce any records until after she brought this proceeding, when it produced the documents with the redactions contained in the record on appeal (R. 46-100). Petitioner thus asks this Court to find that she substantially prevailed no matter what this Court decides on the merits, and to remand the case to Supreme Court for consideration as to whether an award of attorney’s fees is appropriate. (Br. at 35.) This Court should decline petitioner’s invitation. In the cases cited by petitioner (Br. at 31-33), courts determined that FOIL requesters substantially prevailed because the net result of the litigation was that respondent produced all or virtually all of the requested documents – whether under court order or before any court order was issued. See Matter of Acme Bus Corp. v. County of Suffolk, 136 A.D.3d 896, 897 (2d Dep’t 2016) (all records released); Matter of Kohler-Hausman v. New York City Police Dep’t, 133 A.D.3d 437, (1st Dep’t 2015) (all records released); Matter of Bottom v. Fischer, 129 A.D.3d 1604, 1605 (4th Dep’t 2015) (all but one of the documents released); Matter of 50 N.Y.S. Defenders Ass’n v. N.Y.S. Police, 87 A.D.3d 193, 194 (3d Dep’t 2011) (all records released); Matter of New York Civ. Liberties Union v. City of Saratoga Springs, 87 A.D.3d 336, 337 (3d Dep’t 2011) (all records released except for limited redactions overturned by the court); Jaronczyk v. Mangano, 2012 WL 11980342 at *4 (Sup. Ct. Nassau Co. June 2, 2012) (all records released except for limited redactions, some of which were overturned by the court), aff’d, 121 A.D.3d 995 (2d Dep’t 2014); Matter of Powida v. City of Albany, 147 A.D.2d 236, 238 (3d Dep’t 1989) (all records released); Hearst Corp. v. City of Albany, 88 A.D.3d 1130, 1133 (3d Dep’t 2011) (all records ordered released by the court). Here, by contrast, the Department successfully asserted an exemption for a substantial portion of what petitioner requested, redacting all or part of 29 pages out of the total of 55 pages that it turned over. The Department’s redactions on all but two of these pages were upheld by Supreme Court and affirmed on appeal based on in camera review of the documents. (It is irrelevant for this purpose that New York City later voluntarily released some of those pages.) Thus, the legal position of the Department in resisting disclosure was upheld 51 in substantial part. If this Court affirms the decisions below on that point, then so too it should affirm the ruling below on attorney’s fees. In other cases where an agency’s claims of exemption were largely sustained, courts have found that the party did not substantially prevail for the purposes of obtaining attorney’s fees. See Matter of Cook v. Nassau County Police Dep’t, 140 A.D.3d 1059 (2d Dep’t 2016); Matter of Grabell v. New York City Police Dep’t, 139 A.D.3d 477, 479 (1st Dep’t 2016); see also Matter of Friedland v. Maloney, 148 A.D.2d 814, 816 (3d Dep’t 1989) (petitioner did not substantially prevail even though documents released after the proceeding was brought). Consistent with these cases, when the results of this proceeding are viewed in their totality, it cannot be said that petitioner substantially prevailed. But even if petitioner had substantially prevailed, there would be no basis for a discretionary award of attorney’s fees, because the agency had at least a reasonable basis for the exemption that it asserted, and did not engage in the prolonged delays that have warranted awards of attorney’s fees in other FOIL cases. See, e.g., Hearst Corp., 88 A.D.3d at 1133 (“prolonged delay” and “transparent attempt to avoid judicial 52 review” warranted award of attorney’s fees). Accordingly, an award of attorney’s fees in this case would not serve the purposes of FOIL’s fee award provision. Because this case presents no basis for even a discretionary award of attorney’s fees, this Court should affirm the dismissal of this portion of the petition. 53 CONCLUSION This Court should affirm the Appellate Division’s order and judgment. Dated: September 7, 2016 Albany, New York Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Respondents By:__________________________ JEFFREY W. LANG Assistant Solicitor General Office of the Attorney General The Capitol Albany, New York 12224 (518) 776-2027 BARBARA D. UNDERWOOD Solicitor General ANDREW D. BING Deputy Solicitor General JEFFREY W. LANG Assistant Solicitor General of Counsel Reproduced on Recycled Paper
