Vol. I, No. 2
Business Confidentiality After Chrysler
Although the Supreme Court issued a lengthy decision in April, 1979, on the law surrounding "reverse" FOIA suits (see Chrysler Corp. v. Brown, 441 U.S. 281 (1979)), this decision leaves several crucial issues undecided, making it impossible to provide a comprehensive and certain statement of what the law involved in such "reverse" suits is at present. In June, 1979, the U.S. Department of Justice, after identifying the unresolved issues, set out its position on those issues for the guidance of agencies.
The Office of Information Law and Policy on June 15, 1979, and the Civil Division on June 21, 1979, issued separate papers. The following article summarizes those papers and was prepared by Douglas N. Letter, Appellate Staff, Civil Division, and Daniel Clement, Assistant U.S. Attorney, Office of the U.S. Attorney, Los Angeles, California, in consultation with Douglas S. Wood, Deputy Director, and Robert L. Saloschin, Director, Office of Information Law and Policy.TO RELEASE OR TO WITHHOLD?
Reverse Freedom of Information Act (FOIA) lawsuits arise after a person requests information contained in the records of a government agency which the submitter of that information does not want released. The submitter goes to court to block an anticipated release by the agency. Although the Supreme Court held in Chrysler that there is nothing in FOIA which authorizes a person to file a reverse FOIA suit, the Court held that review by the courts was available under Section 10 of the Administrative Procedure Act, 5 U.S.C. § 702et seq. (1976). Whatever the technical legal basis for such a suit, the popular phrase "reverse FOIA suit" continues in use to describe such legal actions.
Typically, reverse FOIA suits are filed by business corporations to block release of information regarding their own business affairs. These suits have often involved equal employment opportunity information which executive orders require government contractors to file. Requesters seek this information in order to analyze enforcement by the Department of Labor's Office of Federal Contract Compliance of the executive orders requiring equal opportunities for employment with government contractors for minorities and women. The contractors who submit the information have sought to block release of much of this data because they contend that it reveals confidential details concerning their operations and personnel which they wish to keep from their competitors.
The Supreme Court in Chrysler confirmed again that exemptions in the FOIA are permissive rather than mandatory. Therefore, one might conclude that the choice simply rests with an agency whether or not to release exempt data. If material is not within any FOIA exemption, its release is required by the Act. If material is within a FOIA exemption, FOIA would allow the agency either to withhold it or to disregard the exemption and release the material.
However, the issue is not this simple, because there are other statutes and legal principles which govern release of information besides FOIA. Congress recognized this principle when it passed FOIA, as shown by FOIA Exemption 3. This exemption, in essence, provides that certain statutes which prohibit disclosure of information will actually be read into FOIA itself and may control the agency's action.
This interface of laws is where many of the problems arise in reverse FOIA suits.
In view of these perplexing problems, a suggested procedure is set forth below for analyzing and handling FOIA requests for information submitted to the federal government by businesses.Basic Steps for Agency Processing of FOIA Requests for Disclosure of Information Generated by Private Business Sources
Agency attorneys and administrators reviewing FOIA requests for disclosure of information submitted to the government by private business sources ("submitters") should consider the following basic procedures:
STEP ONE: ANALYZE FOIA EXEMPTIONS AND THE TRADE SECRETS ACT
When a FOIA request for information obtained from a submitter is received, the first inquiry concerns FOIA itself. The agency must determine if any FOIA exemption applies to the requested information. Usually in the reverse FOIA context only exemptions 3, 4, and 6 need be examined.
The most likely exemption is Exemption 4, which states that the agency may withhold certain commercial information. This exemption has generally been interpreted chiefly to cover privately generated commercial information whose release is likely to cause substantial competitive harm. The leading case on Exemption 4 is National Parks and Conservation Assn. v. Morton, 498 F.2d 765 (D.C. Cir. 1974). Deciding whether business information fits this description is sometimes not simple, and no easy formula have been developed for the debatable cases. See Chapters IV and IX of "A Short Guide to the Freedom of Information Act" published with the March, 1979, Edition, of the Freedom of Information Case List, for a further discussion of Exemption 4.
The Trade Secrets Act
If requested material is outside Exemption 4, the next question is whether it falls within another statute read into FOIA through Exemption 3. Information submitters have contended that the Trade Secrets Act is an Exemption 3 statute while the Justice Department position is to the contrary.
The submitters of information have brought "reverse" suits to stop agencies from releasing information which they contend falls within the Trade Secrets Act (18 U.S.C. § 1905), a criminal statute. They argue that this act is an "Exemption 3 statute," which would prevent disclosure of any information in the Government's possession which reveals details about their businesses and operations. The Supreme Court expressly left this question, as well as other important questions, undecided in Chrysler. The problem with the Trade Secrets Act is that by its very broad wording, it would cover, if given a literal reading, almost every conceivable piece of commercial information in government hands. For example, the government could not legally disclose that General Motors is in the automobile business.
The Justice Department position is that the Act does not mean what its actual wording might indicate, partly because of the unreasonable conclusions that would follow and partly because the Act was created from three narrowly worded statutes in 1948. Under rules governing the proper interpretation of statutes enacted as part of the revision of the criminal code (Title 18) in 1948, such statutes are only as broad as their predecessor statutes. Defining the precise scope of the Trade Secrets Act has become quite complex, but the Justice Department view is that equal employment opportunity information is not the type of data covered by the Act's predecessors. It would be best for agency counsel to check with the Department of Justice if any other types of documents are involved.
Thus, the Justice Department position is that the Trade Secrets Act is too "oceanic" and ill defined to qualify as an Exemption 3 statute, especially since Congress narrowed Exemption 3 in 1976. In addition, the Trade Secrets Act does not "require" non-disclosure, as one prong of Exemption 3 demands. Instead, the Trade Secrets Act only prohibits disclosures not "authorized by law." If the Justice Department is correct, and thus far most courts have agreed, then the Trade Secrets Act is not to be read into the FOIA through Exemption 3.
On November 30, 1979, the Eighth Circuit Court of Appeals held that the Trade Secrets Act is not a third exemption statute. The court said that the Trade Secrets Act only prohibits disclosures "not authorized by law." The court outlined the sequence of analysis that an agency should follow. See, General Dynamics Corp. v. Marshall, 572 F.2d 1211 (8th Cir. 1978), rev'd and remanded, 441 U.S. 919, on remand, __F.2d.__No. 77-1192 (8th Cir. 1979).
There are numerous other statutes governing disclosure, which are possible Exemption 3 statutes, but they generally apply only to particular agencies. These too must be examined by an agency with such a statute.
Furthermore, agencies should review the records to see if there might be information which would be a "clearly unwarranted invasion of personal privacy." Exemption 6 does not apply if the injury to the individual is counterbalanced by a public interest favoring disclosure. (See Chapter IV of "A Short Guide to the Freedom of Information Act," at pages 11-12.)
If material is outside all FOIA exemptions, FOIA requires release. In such cases the Trade Secrets Act is no problem, because it only prohibits unauthorized disclosures, and FOIA itself provides the necessary authorization.
STEP TWO: GIVE NOTICE TO SUBMITTER
If the agency plans to grant the FOIA request, either because the information is considered non-exempt or because the agency wishes to disclose as a matter of discretion even though the material is considered exempt, it is essential as a matter of fairness and sound practice that the submitter be notified and given an opportunity to file objections and arguments, and to seek prior judicial review to block the disclosure.
FOIA does not require agencies to give notice to submitters that a FOIA request has been received which seeks disclosure of information provided to the government by the submitter. However, many agencies have promulgated administrative regulations requiring that prompt notice be given to submitters when the agency receives FOIA requests seeking disclosure of submitter-generated information. Even those agencies which have not promulgated such regulations should give timely notice to submitters of a FOIA request which may jeopardize the submitter's interests. Such notice should normally contain at least the following:
(1) a detailed description of those documents within the scope of the FOIA request;
(2) the date on which the agency desires to make its determination whether or not to disclose all or portions of the requested information;
(3) a request that the submitter provide the agency with any written objection to disclosure, in the form of a detailed identification of each portion of the requested information which the submitter would have the agency withhold, together with specific explanations of all factors weighing in favor of withholding; and
(4) a request that the submitter provide a sworn statement indicating whether or not any portion of the requested information has, to the knowledge of the submitter, been revealed to any person not employed by the submitter or to any other agency.
STEP THREE: CONSIDER TIME LIMITS
Of course, agency communications with both submitters and requesters in these situations must be conducted with due regard for FOIA's time limits, including negotiated and statutory extensions of these limits. Where necessary seek additional time from the requester within which to respond to the FOIA request.
Since the agency must act on the FOIA request within ten working days, absent "unusual circumstances," the agency should seek from the requester appropriate additional time within which to respond to the FOIA request. (See Chapter VI of "A Short Guide to the Freedom of Information Act," referred to above, and the discussion of time limits in Appendix III-B of the Attorney General's Blue Book on the 1974 FOIA Amendments.)
STEP FOUR: DOCUMENT AGENCY CONSIDERATION
The agency should review applicable administrative regulations and statutes providing for disclosure or withholding of agency records. It should consider whatever objections the submitter may provide the agency. It would also be desirable to give the requester a similar opportunity to comment on the submitter's arguments. The agency should determine whether it desires to exercise, where applicable, discretion to disclose information covered by FOIA exemptions. It should prepare a written agency determination identifying those portions of the requested records which it intends to disclose.
The agency should identify all legal standards in determining whether or not FOIA exemptions apply. In addition the agency should normally articulate reasons for discretionary disclosure. Such a statement is especially important when the agency decides in its discretion to release material considered to be exempt but which the agency decides to release because of other factors--which it should identify--that counterbalance the justification for withholding.
Even if an agency finds that material is outside all FOIA exemptions (including any possible Exemption 3 statutes), and therefore must be released, it should nevertheless make hypothetical findings concerning a discretionary release where a "reverse" suit can be anticipated. In other words, the agency should consider in appropriate situations whether, even if the records were to be deemed exempt, it would nonetheless release them as a matter of discretion for public interest reasons. This action is recommended so that a proposed release may be defended in court as a proper exercise of discretion even if the court later overturns the agency decision regarding the FOIA exemptions.
STEP FIVE: ALLOW SUBMITTER TO SEEK COURT REVIEW
The agency should provide the submitter reasonable opportunity to seek judicial relief prior to actual disclosure as set forth in the written agency decision.
If the agency determines it will release matter over the submitter's objections, the submitter should be given five or ten days notice of the determination, before the records are actually released to the requester, so that the submitter can file a "reverse" suit to obtain a court review of his objections.
STEP SIX. PREPARE CERTIFIED ADMINISTRATIVE RECORD
For litigation the agency needs to prepare a certified administrative record with all correspondence and other necessary documents to assist the Department of Justice in defending agency decisions to disclose privately generated information.
Since the Supreme Court in Chrysler decided that reverse FOIA lawsuits may be brought only pursuant to the Administrative Procedure Act, and that de novo review is "ordinarily not necessary," it is vital for the agency to maintain all documents necessary for the preparation of a certified administrative record which will constitute the sole evidence admissible in any lawsuit challenging the agency's decision to disclose submitter-generated information. At a minimum, copies of the following documents should be included as part of the certified administrative record:
the FOIA request;
the agency's notice to the submitter;
the submitter's objections to disclosure;
any comments by the requester on the submitter's arguments;
the final agency decision; and
the requested records marked to indicate those portions which the agency decided to disclose. (This last item of the administrative record may be filed in court under seal.)
In making all of the above determinations, it is vital to create an adequate administrative record of the agency's work on the request and on the submitter's objections. There has been great difficulty in the past in having agency disclosure decisions affirmed by the courts because the courts have insisted on the agency's ability to document its consideration of the arguments for and against disclosure, and to explain adequately the bases of agency action.
While there is some dispute about the scope of judicial review in a reverse case, the Justice Department has taken the position that courts should not decide reverse FOIA cases by a trial-type procedure, with a fresh "starting from scratch" court decision on the facts and issues that presumably were before the agency. Instead the courts should review agency decisions by the standards of the Administrative Procedure Act solely on the basis of the agency record of its action and should decide only the limited question of whether the agency decision was arbitrary, capricious or otherwise not in accordance with law. To achieve this result, it is necessary that the administrative record supporting the agency's action show that the agency adequately considered all issues and reached a reasonable decision which can withstand judicial scrutiny.
Although building a complete agency record may tax agency resources in the short run, in the long run such a record should conserve agency resources. First, the agency should not later be burdened with establishing how it reached such a decision through requests for discovery, nor should it later have to supply expert witnesses in court. Second, with a complete agency record, the courts will be less likely to use a de novo review standard and will instead apply the normal standard of review of agency actions. Third, such a complete record of agency action should speed the process of judicial review without the delay encountered in the court's remanding to the agency to make a more complete record of its reasons for its actions and its application of the law.DISCRETION TO RELEASE
As noted above, even if material is within a FOIA exemption, it may be released as a matter of discretion, absent some legal prohibition against release outside of FOIA. For example, it would clearly not be an abuse of discretion to release material over the submitter's objections where there is some identifiable public interest in the release that counter-balances the risk of injury to the submitter, such as, a public interest in health, safety, economic welfare, integrity of government, etc. Thus, to make a discretionary release of protectible business information, the agency must balance the interests for and against release.
On the other hand, a discretionary disclosure which violates the Trade Secrets Act would be an abuse of discretion. Hence, before such a discretionary release of commercial data may be made, the agency must either find that the information is not within the scope of the Trade Secrets Act or that disclosure is authorized by law.
If exempt documents are outside statutory prohibitions such as the Trade Secrets Act, a discretionary disclosure may be made, subject to the balancing standard noted above. In general, there is likely to be an identifiable public interest in releasing information to assist citizens in maintaining federally recognized interests, e.g., those involving civil rights, certain health and safety interests, etc., although the interest in release may or may not outweigh the injury to the submitter. If exempt documents fall within the scope of the Trade Secrets Act, or some other statute preventing disclosure, then a release would constitute an abuse of discretion and is prohibited, unless the "authorized by law" provision of the Trade Secrets Act is satisfied because the agency operates under a statute (e.g., 42 U.S.C. § 1306(a)) which either itself authorizes release or meets the "nexus" test enunciated by the Supreme Court in Chrysler. See St. Mary's Hospital, Inc. v. Califano, 462 F. Supp. 315 (S.D. Fla. 1979), aff'd sub nom. St. Mary's Hospital, Inc. v. Harris, 604 F.2d 407 (5th Cir. 1979). See also, St. Joseph's Hospital Health Center v. Blue Cross of Central N.Y., et al., __ F. Supp. __ (N.D.N.Y. 1979) 79-CV-416, decided July 11, 1979; aff'd, __ F.2d __ (2d Cir. 1979), No. 79-6140, decided Nov. 26, 1979. These "nexus" statutes are ones which evidence a Congressional intention to permit an agency to draft disclosure regulations. An agency which has such a "nexus" statute, and which has promulgated a valid regulation under it, may release data in spite of Trade Secrets Act prohibitions, but agency counsel should consult the Justice Department first before making a decision on this ground.SUMMARY
Thus, in handling a FOIA request with "reverse" implications, the agency must find whether the information is within an FOIA exemption; if not, it must be released. Even if it is within an exemption the agency should consider whether a discretionary release should be made in the public interest. If so, the agency should then consider whether such a release is permissible in light of the Trade Secrets Act, other applicable statutes, and all relevant factors.FOIA Legislative Update: Business Records
Concern over agency handling of business information has also been a subject of interest on Capitol Hill. The House of Representatives Government Information and Individual Rights Subcommittee of the Committee on Government Operations held hearings before the Chrysler case was decided. On July 20, 1978, they issued Report No. 95-1382, entitled "Freedom of Information Act Requests for Business Data and Reverse-FOIA Lawsuits." Because of the comprehensiveness of this report, agencies may wish to review it and the subcommittee's suggested procedures.
Additionally, agency personnel may wish to review the proposed new legislative requirements for disputes involving both requesters and submitters in H.R. 5861, a bill introduced on November 9, 1979 by Hon. Richardson Preyer, who chairs the government information subcommittee.Note Concerning Prosecutions Under 18 U.S.C. § 1905, the Trade Secrets Act
After the Supreme Court's 1979 decision in the Chrysler case, the Assistant Attorney General of the Criminal Division issued a new section 9-2.025 of the United States Attorneys Manual. The new section, after noting the confusion about releases under FOIA of material that arguably could fall within the meaning of 18 U.S.C. § 1905, states "it is the policy of the Criminal Division not to prosecute government employees for a violation of 18 U.S.C. § 1905 if the release of information in question were made in a good faith effort to comply with the Freedom of Information Act and the appropriate applicable regulations." Moreover, all U.S. Attorneys are instructed not to initiate an action under 18 U.S.C. § 1905 without prior consultation with the Public Integrity Section of the Criminal Division.
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