Opinion ID: 677121
Heading Depth: 2
Heading Rank: 1

Heading: The Grant of Summary Judgment in Favor of the DLA

Text: 13 The Freedom of Information Act, 5 U.S.C. Sec. 552, contains nine exemptions to its general policy mandating the broad disclosure of government documents. These nine exemptions are to be narrowly construed by the courts. Church of Scientology of California v. Department of the Army, 611 F.2d 738, 742 (9th Cir.1980) (citing Bristol-Meyers Co. v. FTC, 424 F.2d 935 (D.C.Cir.), cert. denied, 400 U.S. 824, 91 S.Ct. 46, 27 L.Ed.2d 52 (1970)). The DLA relies on Exemption 4, 5 U.S.C. Sec. 552(b)(4), which is available to prevent disclosure of (1) commercial and financial information, (2) obtained from a person or by the government, (3) that is privileged or confidential. 2 See Pacific Architects & Engineers Inc. v. United States Dep't of State, 906 F.2d 1345, 1347 (9th Cir.1990). 14 GC Micro contests the district court's finding as to the third element of Exemption 4--i.e., that the information contained in the requested SF 294's is confidential. 3 Information qualifies as confidential for the purposes of Exemption 4 15 if disclosure is likely to have either of the following effects: (1) to impair the Government's ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained. 16 National Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C.Cir.1974). 4 The district court held that the SF 294's at issue were confidential under the second leg of the National Parks test because disclosure would likely result in lost competitiveness and unfair advantage to other contractors competing with Loral, McDonnell Douglas, and Northrop. Dist.Ct.Order at 2. 17 GC Micro argues that disclosure of the SF 294's would promote the policy, enunciated by Congress in its amendments to the Small Business Act, of increasing small disadvantaged businesses' involvement in government contracts. The DLA responds that the SF 295's, which it has already released, contain all the information necessary to gauge the agency's record in achieving its SDB goals--namely, aggregate SDB subcontracting percentages and dollar amounts. The DLA further argues that the purpose behind GC Micro's request is irrelevant to whether or not information is confidential and subject to Exemption 4. 18 [T]he test for confidentiality is an objective one. National Parks, 498 F.2d at 766-67 (citing Bristol-Myers Co. v. FTC, 424 F.2d at 938; Benson v. GSA, 289 F.Supp. 590, 594 (W.D.Wash.1968), aff'd, 415 F.2d 878 (9th Cir.1969)). For example, whether the information is of a type which would normally be made available to the public, or whether the government has promised to keep the information confidential, is not dispositive under Exemption 4. See Petkas v. Staats, 501 F.2d 887, 889-90 (D.C.Cir.1974); Save the Dolphins v. Department of Commerce, 404 F.Supp. 407 (N.D.Cal.1975). 19 The SBA does not mandate the disclosure of data on SDB subcontracting collected by federal agencies, and therefore the statute is not dispositive in determining whether the information contained in the SF 294's is confidential under FOIA. Nevertheless, disclosure of the SF 294's would enable the public to evaluate the wisdom and efficiency of federal programs and expenditures, as well as an executive agency's compliance with federal law. See Racal-Milgo Government Systems, Inc. v. SBA, 559 F.Supp. 4, 6 (D.D.C.1981). To the extent that releasing the SF 294's does not cause substantial harm to the competitive positions of the federal contractors involved, while encouraging federal contractors in general to set higher SDB subcontracting goals, congressional intent in passing both FOIA and the Small Business Act amendments will have been furthered. Morton v. Mancari, 417 U.S. 535, 550-51, 94 S.Ct. 2474, 2482-83, 41 L.Ed.2d 290 (1974) (when two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective.).
20 An agency seeking to withhold information under an exemption to FOIA has the burden of proving that the information falls under the claimed exemption. Lewis v. IRS, 823 F.2d 375, 378 (9th Cir.1987). Courts have generally required agencies to submit detailed affidavits identifying the documents at issue and explaining why they fall under the claimed exemption. Id.; Landfair v. Department of the Army, 645 F.Supp. 325 (D.D.C.1986). While conclusory and generalized allegations of competitive harm are insufficient to show that requested information is confidential under the second prong of the National Parks test, the parties opposing disclosure need not show actual competitive harm. Public Citizen Health Research Group v. FDA, 704 F.2d 1280, 1290-91 (D.C.Cir.1983); accord Sharyland Water Supply Corp. v. Block, 755 F.2d 397, 399 (5th Cir.), cert. denied, 471 U.S. 1137, 105 S.Ct. 2678, 86 L.Ed.2d 697 (1985). Rather, evidence revealing (1) actual competition and (2) a likelihood of substantial competitive injury is sufficient to bring commercial information under Exemption 4. Id. 21 As part of its motion for summary judgment, the DLA submitted declarations by officers of each of the three corporations involved. See SER, Vol. 2, Tabs 1-3. Each of these declarations states generally that disclosure of the SF 294's, which contain proprietary information not otherwise available to the public, would cause substantial harm to the corporations' competitive positions because it would provide competitors with a roadmap of the corporations' subcontracting plans and strategies. See, e.g., Decl. Jay P. Cooper (SER, Vol. 2, Tab 3). James F. Price, Associate Counsel at Loral Aeronutronic, offers the following illustration of the potential harm to Loral: 22 To illustrate the point, consider that Boxes 12 and 13 [of the SF 294] contain information on subcontracting pricing and Boxes 15 and 16 contain actual purchase order commitments against a particular contract. The analysis of this historical data provides a profile of exactly how Loral Aeronutronic conducts its business with regard to the use of small business in various types of government contracts. 23 SER, Vol. 2, Tab 1 at 3. Similarly, the declaration of William R. Mizer, Socio-Economic Executive for McDonnell Douglas Space Systems Company, concludes that [i]f competitors are permitted to gain knowledge of McDonnell Douglas' overall subcontracting strategy, they could alter their subcontracting strategies to better compete against McDonnell Douglas for future contracts involving hundreds of millions of dollars. SER, Vol. 2, Tab 2 at 3. 24 The declarations submitted by Loral, McDonnell Douglas, and Northrop assert that disclosure of the subcontracting information contained in the SF 294 would allow their competitors to undercut future bids because the percentage of the prime contract subcontracted out to SDB's is one of the factors that the DLA considers in awarding contracts. The three defense contractors argue that their competitors could win contracts away from them by promising the DLA that they would subcontract to a greater percentage of SDB's than the three contractors had in the past. 25 In response, GC Micro notes that the SF 294 does not reveal the subject matter of the prime contract or subcontracts, the number of subcontracts, the items or services subcontracted, how the contractor is subcontracting the work, or the subcontractors' locations or identities. Without more detailed information, GC Micro argues, the figures reported on the SF 294 contain too many fluctuating components to give the defense contractors' competition any advantage. GC Micro cites Pacific Architects & Engineers, Inc. v. United States Dep't of State, 906 F.2d 1345 (9th Cir.1990), in support of its contention that disclosure of the SF 294's would not result in substantial competitive harm. 26 In Pacific Architects & Engineers, a private contractor objected to the government's disclosure of its contract with the State Department, arguing that unit prices listed on the contract constituted confidential information. Pacific Architects & Engineers, 906 F.2d at 1347. We held that the State Department's decision to disclose the contract was not arbitrary and capricious because the agency engaged in adequate factfinding prior to making its decision. Id. at 1348. Specifically, the State Department determined that the unit price rates were not confidential because they were made up of a number of fluctuating variables, and therefore that the disclosed information would not enable competitors to calculate the contractor's profit margin. Id. at 1347; see also Racal-Milgo Government Systems, Inc. v. Small Business Admin., 559 F.Supp. 4, 6 (D.D.C.1981) (disclosure of aggregate pricing information insufficient to evaluate cost efficiency of contract because computer systems vary widely). 27 The DLA correctly notes that the Ninth Circuit never actually reached the merits of the State Department's decision in Pacific Architects & Engineers--it was a reverse FOIA case decided under the deferential review standard of the Administrative Procedure Act, 5 U.S.C. Sec. 706, not FOIA. 906 F.2d at 1347-48. Nevertheless, we agree with the State Department's underlying rationale. Here, despite the rather conclusory statements made by Loral executive James F. Price and the other defense company executives, the DLA has failed to show how analysis of the data listed in the SF 294 would provide competitors with a profile of exactly how a defense contractor conducts its business with regard to the use of SDB's in various types of government contracts. Disclosure of SDB subcontracting amounts reveals little of the factors involved in deriving those numbers, and therefore is unlikely to work a substantial harm on the competitive positions of defense contractors. The data is made up of too many fluctuating variables for competitors to gain any advantage from the disclosure of the SF 294's. 28 In Gulf & Western Industries, Inc. v. United States, 615 F.2d 527, 530 (D.C.Cir.1979), the D.C. Circuit enunciated a standard for determining whether the disclosure of commercial information in the government's possession would likely cause substantial harm to a firm's competitive position. Such information will result in substantial competitive harm if it would allow competitors to estimate, and undercut, [the firm's] bids. Gulf & Western Industries, 615 F.2d at 530. The information that the Gulf & Western Industries court found to be confidential included the firm's profit rate, actual loss data, general and administrative expense rates, projected scrap rates, and learning curve data. Id. at 529. Here, by contrast, data on the percentage and dollar amount of work subcontracted out to SDB's on each defense contract tells competitors nothing of, inter alia, the object of the contract or subcontracts, the unit prices charged by the subcontractors, and the profit or productivity rates of either the contractor or subcontractors. The data at issue therefore would provide little if any help to competitors attempting to estimate and undercut the contractors' bids. Cf. Acumenics Research & Technology v. United States Dep't of Justice, 843 F.2d 800, 807 (4th Cir.1988) (no evidence that direct costs and production rates are standardized throughout industry, thus no likelihood of substantial competitive harm from disclosure of unit price information). 29 While the law does not require the DLA to engage in a sophisticated economic analysis of the substantial competitive harm to its contractors that might result from disclosure, see Public Citizen Health Research Group v. FDA, 704 F.2d 1280 (D.C.Cir.1983), in order to prevail the DLA must meet its burden of showing a potential of substantial competitive harm to its contractors. The DLA has not met this burden. 5 30 We agree with the D.C. Circuit that, in making our determination, we must balance the strong public interest in favor of disclosure against the right of private businesses to protect sensitive information. National Parks & Conservation Ass'n v. Morton, 498 F.2d 765, 768-69 (D.C.Cir.1974). Based on the record in this case, we believe that FOIA's strong presumption in favor of disclosure trumps the contractors' right to privacy. Those seeking to prevent disclosure of certain information under FOIA have the burden of proving that the information is confidential. It is questionable whether the declarations submitted by the three contractors show any potential for competitive harm, let alone substantial harm. Congress did not pass Exemption 4 to protect large corporations from persistent computer salespeople. We hold that the district court clearly erred in granting summary judgment in favor of the DLA. 6 II. DLA Regulations 31 GC Micro also challenges a certain DLA regulation outlining the agency's policies regarding the disclosure of information determined to fall under Exemption 4. It argues that the regulation is unlawful and contrary to the intent and purpose of FOIA. 7 The district court did not address this issue. 32 The DLA recently deleted the regulation in question and therefore this issue is moot. Although GC Micro does not contest the mootness of this issue, it requests the Court to rule on the regulation to guide DLA in properly exercising its future discretion. We, however, are without jurisdiction to address this claim. Lewis v. Continental Bank Corp., 494 U.S. 472, 477, 110 S.Ct. 1249, 1253, 108 L.Ed.2d 400 (1990) (the specific grievance must continue to be present at every stage of the proceedings or else jurisdiction is lost). 8