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FOIA Update: New Leading Case Under Exemption 4

FOIA Update
Vol. XIII, No. 4

New Leading Case Under Exemption 4

A new leading case under Exemption 4, the business-information exemption of the Freedom of Information Act, has been decided by the D.C. Circuit Court of Appeals and has proceeded for possible consideration by the United States Supreme Court.

In an en banc decision, Critical Mass Energy Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992), the D.C. Circuit on August 21 reconsidered its longstanding Exemption 4 precedent of National Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C. Cir. 1974), which had established the basic two-pronged test ("impairment" and "competitive harm") regularly applied to determine the confidentiality of business information under Exemption 4. It reaffirmed the National Parks test, but at the same time articulated a new standard of "categorical" Exemption 4 applicability for "voluntarily" submitted business information that is not "customarily" made available to the public by the business submitter. Under this new standard, the records at issue in the Critical Mass case were held to fall within Exemption 4, even though they might not have satisfied the traditional National Parks test.

The Critical Mass Case

The Critical Mass case arose from a FOIA request made in 1984 to the Nuclear Regulatory Commission (NRC) for a series of reports pertaining to the construction and operation of nuclear facilities. The reports were prepared by the Institute for Nuclear Power Operations (INPO), a consortium of nuclear power plant operators, and were submitted to the NRC by INPO on an entirely voluntary basis. When the NRC denied the FOIA request under Exemption 4, the requester filed what eventually became an exceptionally complicated FOIA case.

Initially, at the district court level, the reports were held to satisfy the "impairment" prong of the National Parks test, on the basis that disclosure would impair "the NRC's ability to acquire" such information. Critical Mass Energy Project v. NRC, 644 F. Supp. 344, 347 (D.D.C. 1986). On appeal, however, a divided panel of the D.C. Circuit reversed that decision and remanded the case for further evidence of exactly how the "quality" of the information contained in the reports would be impaired by disclosure. Critical Mass Energy Project v. NRC, 830 F.2d 278, 286 (D.C. Cir. 1987).

On remand back at the district court level, INPO intervened as a party to the litigation and all parties addressed the impact that disclosure of the reports would have on their quality -- and in turn upon the NRC's operations -- even though the NRC has the authority to compel the submission of such information generally. Again, the district court held the reports to be covered by Exemption 4, this time placing primary emphasis upon their importance to the NRC's regulatory "efficiency and effectiveness." Critical Mass Energy Project v. NRC, 731 F. Supp. 554, 557 (D.D.C. 1990).

Second D.C. Circuit Appeal

The case then went up on appeal for a second time, with the FOIA requester again arguing that the NRC and INPO had failed to produce sufficient evidence to show any "impairment" under National Parks.

The D.C. Circuit panel hearing this second appeal agreed with the requester that the National Parks test remained unsatisfied and it ordered the case remanded once again for the consideration of any further evidence of "impairment" under National Parks. Two of the three panel members, though, wrote a concurring opinion suggesting that the full D.C. Circuit should reconsider the National Parks test itself.

Based upon this, the Solicitor General decided to petition for rehearing en banc in Critical Mass. The D.C. Circuit granted the petition, vacated its panel decision on the second appeal, and announced that as part of the en banc rehearing the full court of appeals would reconsider the National Parks test.

The Critical Mass Decision

In its en banc decision in Critical Mass, the D.C. Circuit reconsidered but did not overturn its National Parks precedent. Applying the principle of "stare decisis," it determined that it should not "set aside" a precedent of such long standing. 975 F.2d at 875. Nevertheless, by a seven-to-four majority, it decided to "reexamine" the National Parks test and to "correct some misunderstandings as to its scope and application." Id.

In reexamining National Parks, the D.C. Circuit looked at both the grounds for its decision in that case and the particular interests protected by Exemption 4. It found a "distinction" in those interests depending upon whether the information in question is submitted to the government "on a voluntary basis." Id. at 878. The government's interest, it found, is in ensuring the "continued availability" of any business information that is voluntarily submitted to it, whereas it is concerned with the "continued reliability" of any information that a business submitter is "required to supply." Id.

The D.C. Circuit found a similar distinction to exist with respect to the commercial interests of a business submitter. Where the submission of information is "compelled" by an agency, it said, the submitter's interest is in avoiding the commercial injury recognized by the "competitive harm" prong of the National Parks test. Id.

By contrast, it concluded, in the case of voluntarily submitted information, the submitter's interest is in "the protection of information that, for whatever reason, 'would customarily not be released to the public by the person from whom it was obtained.'" Id.

After establishing this distinction, the D.C. Circuit also observed that "[t]he Supreme Court has encouraged the development of categorical rules" under the FOIA and it determined that "categorical treatment" is appropriate under Exemption 4. Id. at 879 (citing United States Dep't of Justice v. Reporters Comm. for Freedom of the Press, 489 U.S. 749, 779 (1989).

National Parks Test Confined

Based upon all of this, the D.C. Circuit majority in Critical Mass decided to "reaffirm the National Parks test," but to "confine it to the category of cases to which it was first applied." 975 F.2d at 879, 880. Specifically, it held the National Parks test applicable to only the type of information that, like the information involved in the National Parks case itself, a business submitter is "obliged to furnish" to the government. Id. at 880.

On the other hand, as regards business information submitted to the government voluntarily, the D.C. Circuit declared that such information "categorically" falls within Exemption 4, independently of the National Parks test, "if it is of a kind that the provider would not customarily release to the public." Id.

Applying these new Exemption 4 standards to the records involved in the Critical Mass case, the D.C. Circuit found them entitled to such "categorical" Exemption 4 protection. Id. Accordingly, it vacated both of its earlier decisions in the case and affirmed the lower court judgment.

Certiorari Consideration

It remains to be seen whether the D.C. Circuit's decision in the Critical Mass case will stand as the new leading decision under Exemption 4. The requester filed a certiorari petition with the Supreme Court seeking its review of the decision on December 18. It is expected that the Solicitor General's response to that petition will be filed in mid-February, with a decision by the Court on whether to undertake review most likely to be made during March.

Assuming the D.C. Circuit's decision withstands further review, its new distinction between "voluntary" and "required" submissions is a pivotal one. The Office of Information and Privacy is consulting with the Office of Federal Procurement Policy regarding that distinction's application within the context of the federal procurement process, as well as its interrelation with the Trade Secrets Act and the Federal Acquisition Regulation, and anticipates issuing formal guidance on Critical Mass in the near future.

This issue of FOIA Update contains a cumulative index covering Volumes I through XIII of its publication, from 1979 to date.

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Updated August 13, 2014