Source: http://www.justice.gov/oip/foia_updates/Vol_I_2/page4.htm
Timestamp: 2013-05-19 17:01:54
Document Index: 345896289

Matched Legal Cases: ['§ 702', '§ 1905', '§ 1306', '§ 1905', '§ 1905', '§ 1905', '§ 1905']

FOIA Update: Policy Discussion: Business Confidentiality After Chrysler
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. § 702 et 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. Exemption Four 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.
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).
Exemption Three 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. Exemption Six 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
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
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. Go to: FOIA Update Home Page