FOIA Update: OIP Guidance: Protecting Settlement Negotiations

OIP Guidance

One of the most troubling areas of case law development under the Freedom of Information Act has been the judicial reluctance to permit protection of sensitive "settlement" information generated in connection with ongoing or potential litigation. Government agencies both generate and receive such information whenever they explore the possible settlement of legal claims with opposing parties. There exist strong policy grounds for maintaining the confidentiality of the information exchanged during the settlement negotiation process, but this necessary confidentiality has yet to be recognized under the FOIA by the courts.

Indeed, the few courts to consider the issue to date have rejected the position that the information exchanged between adversaries during settlement negotiations is entitled to distinct protection under the FOIA. In County of Madison v. Department of Justice, 641 F. 2d 1036, 1040-41 (1st Cir. 1981), it was held that settlement proposals submitted to an agency by "past and potential adversaries" must be disclosed for lack of satisfying the "inter-agency or intra-agency" threshold requirement of Exemption 5, 5 U.S.C. § 552(b)(5).See also Norwood v. FAA, 580 F. Supp. 994, 1002-03 (W.D. Tenn. 1984) (following County of Madison) (on motion for clarification and reconsideration).

In two other cases, district court judges have refused to accord settlement documents protection under Exemption 5 because of their additional conclusion that there exists no distinct "settlement negotiations" privilege. In Center for Auto Safety v. Department of Justice, 576 F. Supp. 739, 749 (D.D.C. 1983), it was found that such a privilege had not been established by the courts in the civil discovery context, nor could one be implied directly from the special federal rule of evidence (Rule 408) prohibiting the admissibility at trial of settlement negotiation details. This conclusion was followed in NAACP Legal Defense & Educational Fund v. Department of Justice, 612 F. Supp. 1143, 1146 (D.D.C. 1985).

Yet what each of these adverse decisions failed to consider is that there now does exist a distinct "settlement negotiations" privilege, one that has been specifically recognized in a recent line of cases. In Bottaro v. Hatton Associates, 96 F.R.D. 158, 159-60 (E.D.N.Y. 1982), the details of a settlement were held privileged from discovery in recognition of "the strong public policy of favoring settlements" and the public interest in "insulating the bargaining table from unnecessary intrusions." This "settlement privilege," as recognized in Bottaro, was then applied in a subsequent case, where the details of settlement negotiations between adverse parties were held privileged from discovery "in order to safeguard the policy favoring settlements." Olin Corp. v. Insurance Company of North America, 603 F. Supp. 445, 449-50 (S.D.N.Y. 1985). Cf. Chrysler Corp. v. Fedders Corp., Civil No. 78-Civ-3393, slip op. at 4 (S.D.N.Y. Jan. 11, 1983) (declining to apply privilege, based on incomplete evidence of its applicability to particular documents at issue).

The recognition of this new privilege in these cases, especially in the absence of any civil discovery decision known to reject it, provides the basis for its full incorporation into Exemption 5 of the FOIA. As the Supreme Court has made clear on this point, "[t]he test under Exemption 5 is whether the documents would be 'routinely' or 'normally' disclosed" in civil discovery. FTC v. Grolier, Inc., 462 U.S. 19, 26 (1983). See also United States v. Weber Aircraft Corp., 104 S. Ct. 1488, 1492-94 (1984).

Moreover, protection under the FOIA of inherently sensitive settlement negotiation details is strongly compelled by the longstanding public policy favoring settlement of legal claims. As long ago as the end of the last century, the Supreme Court declared that "settlements of matters in litigation, or in dispute, without recourse to litigation, are generally favored." St. Louis Mining & Milling Co. v. Montana Mining Co., 171 U.S. 650, 656 (1898). More recently, the D.C. Circuit Court of Appeals more expansively observed:  "Voluntary settlement of civil controversies is in high judicial favor. . . . there is everything to be gained by encouraging methodology that facilitates compromise." Autera v. Robinson, 419 F.2d 1197, 1199 (D.C. Cir. 1969).

Indeed, the promotion of the settlement process through protection of the information exchanged during that process was expressly addressed by Justice Brennan in the Grolier case, in which he emphasized that all litigants, including the government, "have an acute interest in keeping private the manner in which they conduct and settle their recurring legal disputes." 462 U.S. at 31 (concurring opinion). Even the First Circuit Court of Appeals in the County of Madison case conceded "the logic and force" of these "sound policy arguments." 641 F.2d at 1040. The fact of the matter is that only with FOIA exemption protection can the settlement process be preserved. Cf. Center for Auto Safety v. Department of Justice, 576 F. Supp. at 748 (agreeing that "predicament" posed by FOIA in this regard warrants remedial attention).

As to the threshold requirement of Exemption 5, only an unduly harsh application of that requirement would exclude privileged settlement documents from the exemption's protection merely because they were exchanged between a government agency and an adverse party outside of the agency. Many courts in comparable contexts have accorded this threshold requirement a "common sense interpretation" in order to "accommodate the realities" of agency functioning where necessary to safeguard valuable policy interests. Ryan v. Department of Justice, 617 F.2d 781, 790 & n.30 (D.C. Cir. 1980); see also FOIA Update, June 1982, at 10. Most dispositive on this point ought to be the Supreme Court's firm language in Weber Aircraft, in which it observed that the "contention that [a requester could] obtain through the FOIA material that is normally privileged would create an anomaly in that the FOIA could be used to supplement civil discovery. . . . We do not think that Congress could have intended that the weighty policies underlying discovery privileges could be so easily circumvented." 104 S. Ct. at 1494. Any rigid, literal application of Exemption 5's threshold to settlement documents would yield the very anomaly that the Supreme Court has expressly recognized could not have been intended by Congress.

Of course, it should not be overlooked that any settlement information submitted to an agency may qualify for protection also under Exemption 4 of the FOIA, 5 U.S.C. § 552(b)(4). Surely most settlement negotiation submissions would easily meet the Exemption 4 requirement of being "commercial or financial" information, especially as the former term has been broadly construed within the context of this exemption. See FOIA Update, Winter 1985, at 3-4; see also Note, Protecting Confidentiality in Mediation, 98 Harv. L. Rev. 441, 451 n.77 (citing H.R. Rep. No. 1497, 89th Cong., 2d Sess. 10 (1966)) (Exemption 4 protects "negotiating positions or requirements in the case of labor-management mediations"). Hence, the very recognition of the information's privileged status would mean automatic protection under Exemption 4. See, e.g., Washington Post Co. v. HHS, 603 F. Supp. 235, 237-39 (D.D.C. 1985) (Exemption 4 protects documents covered by "confidential report" privilege) (appeal pending).

For those settlement documents that are generated within an agency, there also can be found an entirely independent basis for their protection in Exemption 2 of the FOIA, 5 U.S.C. § 552(b)(2), which has been held to protect predominantly internal documents the disclosure of which would risk circumvention of law or regulation. See Crooker v. BATF, 670 F.2d 1051, 1074 (D.C. Cir. 1981) (en banc). As was noted in Crooker, the pertinent legislative history underlying Exemption 2 specifically supports this application:  "[A]n agency may not be required to make available those portions of its staff manuals and instructions which set forth criteria or guidelines for the . . . settlement of cases." Id. at 1079 (quoting H.R. Rep. No. 1497, supra, at 7-8). Surely the circumvention intended to be prevented by Exemption 2 is threatened, as Justice Brennan observed in Grolier, whenever an agency "fac[ing] litigation of a commonly recurring type" is requested to divulge documents revealing "on what terms [those cases] may be settled." 462 U.S. at 31.

Additionally, it should not be forgotten that the types of documents routinely generated during settlement negotiations are those which may well independently qualify for protection under the more traditional privileges already expressly held to be incorporated into the FOIA's exemptions. See, e.g., Cities Service Co. v. FTC, Civil No. 83-812, slip op. at 11-13 (D.D.C. July 19, 1984) (attorney working papers pertaining to settlement negotiations protected under attorney work-product privilege) (appeal pending); Murphy v. TVA, 571 F. Supp. 502, 505-06 (D.D.C. 1983) (documents evaluating possible settlement protected under deliberative process privilege); Fulbright & Jaworski v. Department of the Treasury, 545 F. Supp. 615, 620 (D.D.C. 1982) (documents reflecting details of treaty negotiations protected under deliberative process privilege).

In sum, not only are there extremely powerful policy interests compelling the confidentiality of settlement documents, but there now exists ample legal authority for the accommodation of those interests through exemption protection under the FOIA, which the adverse cases decided to date on this difficult issue simply have failed to recognize. These few cases notwithstanding, agencies should endeavor to protect their interests in sensitive settlement documents on the basis of the exemption positions outlined above and, if these positions are advanced cogently in future cases presenting compelling factual circumstances, the case law ought to develop favorably toward such protection. Indeed, as one court has already phrased it in a comparable context, any other outcome would "seriously undermine[]" the negotiation process and would "defeat the public policy which favors compromise over confrontation." Murphy v. TVA, 571 F. Supp. at 506.

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