Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-94-05157/USCOURTS-caDC-94-05157-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 17, 1995 Decided June 30, 1995

No. 94-5156

MCDONNELL DOUGLAS CORPORATION,

APPELLANT

v.

SHEILA E. WIDNALL,

SECRETARY, DEPARTMENT OF THE AIR FORCE, AND

UNITED STATES AIR FORCE,

APPELLEES

Consolidated with

No. 94-5157

-

Appeals from the United States District Court

for the District of Columbia

(92cv2211 & 94cv0091)

Jerald S. Howe, Jr., argued the cause for appellant. With him on the briefs was Peter L. Wellington.

Michael J. Ryan, Assistant U.S. Attorney, argued the cause for appellees. With him on the brief were

Eric H. Holder, Jr., U.S. Attorney, and R. Craig Lawrence, Assistant U.S. Attorney. Douglas A.

Wickham and John O. Birch, Assistant U.S. Attorneys, entered appearances.

Before: SILBERMAN, HENDERSON and RANDOLPH, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge: McDonnell Douglas appeals from a district court order denying

its request for an injunction to restrain the Air Force from publicly releasing the prices of certain

satellite launch services purchased from McDonnell Douglas. We remand to the district court with

instructions to in turn remand the proceeding to the Air Force.

I.

Under Defense Department acquisition regulations (DFARs) providing for "[p]ublic

[a]nnouncement" of contract awards, Air Force procurement personnel are directed to "[r]eport all

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contractual actions, including modifications, that have a face value, excluding unexercised options,

of more than $5 million." 48 C.F.R. § 205.303(a)(i) (1994) (emphasis added). These reports are

forwarded to the Assistant Secretary of Defense (Public Affairs), id. § 205.303(a)(ii)(A), who

publicizes the information, as well as to "members of Congress in whose state or district the

contractor is located and the work is to be performed," id. § 205.303(a)(iii). In keeping with these

obligations, the Air Force regularlyproposed to announce the costsincurred byit in exercising certain

options under two contracts previously entered into with McDonnell Douglas. The Air Force

considersthe decision to exercise options a "contractual action," and the coststo it of requesting the

additionalservices exceeded the $5 million threshold. Fearing that competitors would find knowledge

ofits pricing practices usefulwhen competing for future launch projects, McDonnellDouglas on two

occasionsinitiated litigation to block the Air Force frommaking price announcements associatedwith

its exercise of options under the two contracts. Both cases are at issue in this appeal.

The first of the two contracts, which the parties refer to as the Delta II contract, was entered

into on November 1, 1991. Under its terms, McDonnell Douglas was to provide the Air Force with

equipment and services for a series of satellite launches, each a complex and costly operation. In

addition to the launch services actually purchased, the Air Force also secured options to buy

additional services from McDonnell Douglas at specified prices. As the basic total price of the

contract (i.e., the total cost not including unexercised options) well exceeded $5 million, DFAR §

205.303(a)(i) obligated the Air Force to make the cost public. The figure released, however,

represented the aggregated charges for all the services undertaken to be performed. The Air Force

did not disclose McDonnell Douglas' pricing policies with regard to each item covered by the

contract, nor did it reveal the terms of the agreement, including the option prices.

A few months later, in early 1992, the Air Force received a request under the Freedom of

Information Act, 5 U.S.C. § 552 (1988), from General Dynamics Corp., one of McDonnell Douglas'

competitorsin providing satellite launch services. Although not directly at issue here, the Air Force's

response to this request bears on its later disputes with McDonnell Douglas. General Dynamics

sought the release of the Delta II contractincluding the specific prices for each item purchased as

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well as all unexercised options. McDonnell Douglas, having been apprised of General Dynamics'

request, objected. It claimed that virtually all the information sought fell within FOIA Exemption 4,

which provides that an agency's disclosure obligations do not extend to requests for "trade secrets

and commercial or financial information obtained from a person and privileged or confidential." Id.

§ 552(b)(4). According to McDonnell Douglas, the line item prices contained in the Delta II contract

were confidential "trade secrets" or "commercial or financial information" and therefore could be

withheld under Exemption 4 pursuant to National Parks & Conservation Ass'n v. Morton, 498 F.2d

765, 770 (D.C. Cir. 1974), since their disclosure would result in competitive injury.

McDonnell Douglas also argued that, apart from Exemption 4, the Trade Secrets Act, 18

U.S.C. § 1905 (1988), prohibited the release of the information sought by General Dynamics. That

statute provides, in relevant part, that:

Whoever, being an officer or employee of the United States or any department or

agency thereof ... publishes, divulges, discloses, or makes known in any manner or to

any extent not authorized by law any information coming to him in the course of his

employment or official duties ... which information concerns or relates to the trade

secrets, processes, operations, style of work, or apparatus, or to the identity,

confidential statistical data, amount or source of any income, profits, losses, or

expenditures of any person ... shall be fined not more than $ 1,000, or imprisoned not

more than one year, or both; and shall be removed from office or employment.

18 U.S.C. § 1905. A criminal statute, the Trade Secrets Act does not furnish a private cause of

action against governmental disclosure, see Chrysler Corp. v. Brown, 441 U.S. 281, 316 (1979)

(citing Cort v. Ash, 422 U.S. 66 (1975)), but it can be relied upon in challenging agency action that

violates its terms as "contrary to law" within the meaning of the Administrative Procedure Act, 5

U.S.C. § 706(2)(A) (1988). Chrysler, 441 U.S. at 318-19.

Although the two provisions relied upon by McDonnell Douglas perform distinct legal

functionsExemption 4 marks the outer boundaries of the government's FOIA privilege by

identifying materials that a person making a FOIA request has no right to force the government to

divulge, whereasthe Trade Secrets Act establishes a private right against unauthorized governmental

publications of confidential informationthey are nevertheless closely related in terms of the

materials to which they each apply. Indeed, we have stated that the scope of the Trade Secrets Act

"is at least co-extensive with that of Exemption 4 of FOIA." CNA Fin. Corp. v. Donovan, 830 F.2d

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1132, 1151 (D.C. Cir. 1987). Consequently, whenever a party succeeds in demonstrating that its

materials fall within Exemption 4, the government is precluded from releasing the information by

virtue of the Trade Secrets Act.

In response to the FOIArequest, the Air Force initiallydetermined, inAugust 1992, thatsome

of the Delta II contract materialsought by General Dynamics was covered by Exemption 4, because

itsrelease would likely harmMcDonnellDouglasin the bidding for another Air Force launch project,

the MLV III program. See National Parks, 498 F.2d at 770. But it did not think that any

competitive injury was likely to result from disclosing the rest of the information. McDonnell

Douglas responded with additional arguments, primarily relying on this court's then-recent

elaborations on the scope of FOIA Exemption 4 in Critical Mass Energy Project v. Nuclear

Regulatory Comm'n, 975 F.2d 871 (D.C. Cir. 1992) (en banc), cert. denied, 113 S. Ct. 1579 (1993).

In Critical Mass, we held that "financial or commercial information provided to the Government on

a voluntary basis is "confidential' for the purposes of Exemption 4 if it is of a kind that would

customarily not be released to the public by the person from whom it was obtained." Id. at 879.

McDonnell Douglas asserted that, in light of Critical Mass, the contract information which the Air

Force had thought itself obliged to disclose under National Parks was now plainly not releasable.

The Air Force had yet to reach a final determination on General Dynamics' FOIA request

when, in an unrelated move, it decided to exercise certain of its options under the Delta II contract.

In keeping with DFAR § 205.303, the Air Force proposed to announce the costs of the options,

which exceeded the regulation's $5 million threshold. McDonnell Douglas opposed the

announcement, and on the day the option was exercised, September 30, 1992, filed suit in the district

court under the APA, initiating the first of the two actions that have occasioned this appeal.

McDonnell Douglas' complaint sought a temporary restraining order and preliminary injunction

against the Air Force's planned release of the exercised option prices on the ground that such a

disclosure would be illegal under the Trade Secrets Act. The court agreed with McDonnell Douglas'

arguments and granted the injunction in an oral decision from the bench. The Air Force filed a

motion for reconsideration.

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1Two of these options were exercised in June 1993. McDonnell Douglas made no objection to

the Air Force's corresponding cost announcement, but it notified the Air Force that it might seek

to block similar announcements in the future. 

While that motion was pending, the Air Force came to a final determination on General

Dynamics' FOIA request. In a decision memorandum dated November 5, 1992, the Air Force

concluded that, in light ofCritical Mass, much ofthe contract information that it had initially thought

itself bound to release actually fell within Exemption 4. In the Air Force's view, however, DFAR §

205.303's provision for announcement of expenditures over $5 million complicated the analysis for

the disclosure of exercised option prices, since the Trade Secrets Act (and, therefore, FOIA

Exemption 4) does not apply to confidential information whose release by the government is

"authorized by law." 18 U.S.C. § 1905. Indeed, with respect to the exercised option prices, the Air

Force appeared in the memorandum to doubt whether the price of materials actually purchased by

the government might reasonably be thought confidential information covered by Exemption 4 in the

first place. The Air Force ultimately concluded, however, that it did not need to resolve this

issuewhich it noted was currently "being litigated with respect to the releasability of the price of

the [exercised Delta II] option"since the district court injunction prohibited the release of the

disputed information in any event.

Several months later, in April 1993, McDonnell Douglas was awarded the contract for the

Air Force's MLV III project as well. Price announcement disputes arising from this agreement

eventually led to the second of the two lawsuits consolidated in this appeal. As with the Delta II

contract, the MLV III contract provided the Air Force with options to purchase future launch

services in addition to those actually committed to under the agreement.1 When the Air Force

decided in December 1993 that it would exercise additional MLV III options in mid-January 1994,

McDonnell Douglas again objected to the proposed accompanying disclosure of the pricing

information on the grounds that release was barred under the Trade Secrets Act. The Air Force at

first proposed to treat the district court'sinjunction in the Delta II case, which wasstillbeing litigated,

as precedent governing the releasability ofthe MLV III options prices(albeit the court's order did not

by its terms bind the Air Force beyond the specific announcement at issue in the case). Ultimately,

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2Although we suppose it is possible that this statement is no longer accurate in light of our

recently more expansive interpretation of the scope of Exemption 4 in Critical Mass, 975 F.2d

879, the Air Force has not argued that we should reconsider our understanding of the relationship

between the two provisions. 

however, the Air Force changed course and informed McDonnell Douglasthat it would be releasing

the information pursuant to DFAR § 205.303. There is no indication in the record of how it came

to its new position. As far as we can tell, the Air Force never undertook to determine whether the

material that McDonnell Douglas sought to keep private was actually covered by the Trade Secrets

Act; apparently, it was enough that DFAR § 205.303 called for disclosing the cost of all significant

contract actions.

After being notified of the Air Force's decision, McDonnell Douglas again sued, this time to

block the release of the MLV III options price information. This action was litigated concurrently

with the motion for reconsideration still pending in the initial lawsuit over the Delta II options.

II.

In both district court proceedings, McDonnell Douglas maintained that the prices of the

exercised options were protected fromdisclosure by the Trade Secrets Act. Its argument relied upon

the statement in CNA Financial Corp. v. Donovan, a "reverse-FOIA" case, that the Trade Secrets

Act was "at least co-extensive" with Exemption 4. 830 F.2d at 1151.2 From this it followed that the

options pricing information would necessarily be protected under the Trade Secrets Act if it could

be shown to fallwithin the scope ofthe exemption. McDonnell Douglas claimed that the option price

information did so because it had been "voluntarily" provided, was marked confidential, and "would

customarily not be released to the public," satisfying the standard set forth in Critical Mass, 975 F.2d

at 879-80. In presenting this argument, McDonnell Douglas relied in part upon the Air Force's prior

position on the applicability of Exemption 4 expressed in the decision memoranda responding to

General Dynamics' FOIA request.

McDonnell Douglas recognized, of course, that whether options pricing information was a

trade secret protected by the Act did not end the case. As noted, the statute allows for the release

of covered information if "authorized by law," 18 U.S.C. § 1905, and the government claimed that

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Defense Department regulations required disclosure. Accordingly, it was also McDonnell Douglas'

positionand it is a subtle and difficult argumentthat, under Chrysler v. Brown, the regulation

pursuant to which the Air Force proposed to release the information could not properlybe considered

a "law" within the meaning ofthe exception. This was so because, in McDonnell Douglas' view, none

of the statutes upon which the Defense Department had arguably relied in promulgating DFAR §

205.303 could be thought to have contemplated an administrative restriction of the rightssecured by

the Trade Secrets Act. See Chrysler, 441 U.S. at 306.

The government, for its part, argued that it was not open to the district court to rule that the

information in question was covered by the Trade Secrets Act (or, what amounts to the same thing,

byExemption 4). In the administrative action under review, the Air Force had simply concluded that

whether or not such information was confidential and therefore protected (at least partly a factual

question), publication was authorized by regulation. It never determined, in other words, whether

Exemption 4 would have allowed it to exclude the exercised options prices from any FOIA release.

The government claimed that the Air Force's actionsin proposing to announce the exercised options

prices had been limited to deciding that the release was "authorized by law" as a consequence of

DFAR § 205.303. Since McDonnell Douglas' suit was one for review of administrative action, it

would be inappropriate, the argument ran, for the court to question whether the exercised option

prices fell within Exemption 4. The court could only decide whether DFAR § 205.303 provided the

sort of "authoriz[ation] by law" required under Chrysler. Moreover, although the Air Force had not

determined whether release could also have been justified on the alternative ground that the

information was not even covered under the Trade Secrets Act, neither had it waived that argument.

Thus, the government asserted, the district court could not enjoin the Air Force from announcing the

information without first allowing it to explore the potential alternative basis for the legality of the

release.

This time the district court reversed its position, holding that the Air Force could announce

the prices of the exercised options. The court reasoned that it did not need to resolve the "vigorously

dispute[d]" issue whether McDonnellDouglas' exercised option prices were "trade secrets," because

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3

Initially, Air Force legal personnel counseled against releasing the prices of the MLV III

options in light of the injunction issued in the Delta II case. No decision was communicated to

McDonnell Douglas, however, which wrote the Air Force seeking assurances that the prices

would not be released when the options were exercised. A later, undated legal memorandum

seems to indicate that the Air Force had decided on announcement and expected to be sued,

because it states that confidential markings on the contract and McDonnell Douglas' proposal

"could complicate the Government's case." Eventually, McDonnell Douglas was notified by

telephone that the Air Force had decided to include the options prices in its announcement. 

it was able to conclude that the Air Force's intended release was "authorized by law" within the

meaning of Chrysler. Since it considered § 205.303 to have been promulgated by the Defense

Department in keeping with the Office of Federal Procurement PolicyAct of 1974, 41 U.S.C. §§ 401

et seq. (1988), it concluded that the regulation met the Chrysler requirement that the agency

regulation relied upon be based upon "some delegation of the requisite legislative authority by

Congress." 441 U.S. at 304. Consistent with this new understanding, the court modified its initial

decision in the Delta II case, and dissolved the injunction.

III.

The government claims here, as it did below, that the issue of coveragewhether the prices

of options that have been exercised are "trade secret" information protected by the Actwas

reserved at the administrative level and cannot be decided by a reviewing court before the Air Force

decidesthe issue for itself. Actually, the issue was not explicitly reserved in the specific actions under

reviewthe determinations to release the exercised option prices in the contract announcements.

Indeed, the Air Force never even stated its reasons for rejecting McDonnell Douglas' arguments.

From the record, it appears that the Air Force simply informed McDonnell Douglas that the prices

of the exercised options would be disclosed in keeping with DFAR § 205.303.3 Only in its FOIA

memorandum did the Air Force indicate that exercised option prices might not be covered by the

Trade Secrets Act. And there, it declined to decide that question, which it thought was being

addressed in court in the first phase of this proceeding.

The government would at this point prefer to litigate on the grounds it relied upon in the

district courtthat § 205.303 authorizes the release of the exercised option prices, whether or not

such information can be considered a "trade secret" within the meaning of § 1905. Yet its arguments

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to this court, although not expressly directed at the issue, implicitly contest trade secrets coverage

of the options pricing information. In claiming (as Chrysler requires) that Congress authorized the

adoption of acquisition regulationsthat callfor public announcements ofsignificant expenditures, the

government does not argue that the Air Force would be justified in releasing any confidential contract

information; rather, it claims only that the Air Force is justified in announcing the sort of information

proposed for release in this casethe amount of appropriated funding expended for a particular

purpose. It is authorized to do so, we are told, because such information, in the government's phrase,

"is normally disclosed to the public." But this argument plainly shades into the ostensibly disclaimed

notion that the prices of exercised options are not proper "trade secrets" at all.

Although the idea that a price charged to the government forspecific goods or services could

be a "trade secret" appears passing strange to us, we agree with the government that it is not open

to us to attempt to decide that issue at this stage. The district court was asked under the APA to

review governmental action (or proposed governmental action) andalthough the record is hardly

clearthe Air Force has never stated its position on McDonnell Douglas' claim that even exercised

option prices are trade secrets. To be sure, the government on appeal contends that its DFAR

regulations override whether or not the exercised option prices fall within that category. But as we

have noted, its authorization argument is intertwined analytically with the coverage issue. Given the

confusing administrative recordperhaps caused by the intersection of the FOIA actions and the

contract announcementsand the interrelationship between the two legal questions, we think the

preferable course isto remand so that we can have one considered and complete statement of the Air

Force's position on McDonnell Douglas' claim. That is not to say that a governmental agency must

adopt a formal adjudication mode, or any part of it, in order to make an administrative decision, nor

that it must decide in any particular order the two questions of coverage and authorization that are

raised by a Trade Secrets Act challenge to governmental disclosure. But this case, in light of the

several decision memoranda and other material made part of the record, as well as the overlapping

of the Air Force's treatment of the two issues, comes to us in an unusual posture, and therefore we

remand to the district court with instructions to remand to the Air Force.

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So ordered.

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