United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 16, 2009 Decided March 23, 2010
No. 08-5435
UNITED TECHNOLOGIES CORPORATION,
PRATT & WHITNEY DIVISION,
APPELLANT
v.
UNITED STATES DEPARTMENT OF DEFENSE
AND DEFENSE CONTRACT MANAGEMENT AGENCY,
APPELLEES
Consolidated with 08-5436
Appeals from the United States District Court
for the District of Columbia
(No. 1:05-cv-02271)
Patricia A. Millett argued the cause for the appellant.
Robert K. Huffman and Duncan N. Stevens were on brief.
Emmett B. Lewis III entered an appearance.
Kathryn A. Donnelly, Special Assistant United States
Attorney, argued the cause for the appellees. R. Craig
Lawrence, Assistant United States Attorney, was on brief.
Lanny J. Acosta Jr., Special Assistant United States Attorney,
entered an appearance.
2
Before: HENDERSON, ROGERS and BROWN, Circuit Judges.
Opinion for the Court filed by Circuit Judge HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge: Sikorsky
Aircraft Corporation (Sikorsky) and the Pratt and Whitney
Division (Pratt) of United Technologies Corporation appeal the
district court’s grant of summary judgment to the Department of
Defense (Defense or DoD) and the Defense Contract
Management Agency (DCMA)1 in Sikorsky’s and Pratt’s
separate lawsuits to prevent the release of certain DCMA
documents evaluating their respective quality control processes.
Sikorsky and Pratt contend that DCMA’s decision to release the
documents was arbitrary and capricious in that it failed to
properly apply Exemption 4 of the Freedom of Information Act
(FOIA), 5 U.S.C. § 552(b)(4). We agree and remand.
I.
This is a “reverse-FOIA” case. See, e.g., Canadian
Commercial Corp. v. Dep’t of Air Force, 514 F.3d 37, 39 (D.C.
Cir. 2008). In enacting FOIA, the Congress sought to balance
the public’s interest in governmental transparency against
“‘legitimate governmental and private interests [that] could be
harmed by release of certain types of information.’” Critical
Mass Energy Project v. Nuclear Regulatory Comm’n, 975 F.2d
871, 872 (D.C. Cir. 1992) (en banc) (quoting FBI v. Abramson,
456 U.S. 615, 621 (1982)). When an agency determines,
pursuant to a FOIA request, to disclose information gathered
from a non-governmental source, the source may contest the
disclosure as arbitrary and capricious or not in accordance with
law under the Administrative Procedure Act, 5 U.S.C. §§ 702,
1
DCMA is “an agency of the Department of Defense.” Dep’t of
Defense Directive No. 5105.64 (Sept. 27, 2000) (establishing DCMA).
All references to DoD herein refer to DCMA as well.
3
706(2). See CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1133
n.1 (D.C. Cir. 1987).
As relevant here, Exemption 4 excepts confidential
information from FOIA’s scope. See infra Part II. According to
the test we articulated in National Parks & Conservation Ass’n
v. Morton, 498 F.2d 765 (D.C. Cir. 1974), and reaffirmed en
banc in Critical Mass, if a “person”2 is required to provide
information to the United States, the information is confidential
under Exemption 4 only if its “disclosure would be likely either
‘(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.’” Critical Mass, 975 F.2d at 878 (quoting Nat’l
Parks, 498 F.2d at 770).3
A. Sikorsky, Pratt & DCMA
Sikorsky makes helicopters and Pratt makes aircraft
engines. Both companies are wholly owned by United
Technologies Corporation. Both have various foreign and
domestic military and civilian customers and both sell their
products to the United States.
DCMA monitors defense contractors, including Sikorsky
and Pratt, to ensure they satisfy their contractual obligations
when providing services and supplies to the United States. It
keeps a regular presence at Sikorsky’s and Pratt’s facilities. If it
2
“‘[P]erson’ includes an individual, partnership, corporation,
association, or public or private organization other than an agency
. . . .” 5 U.S.C. § 551(2).
3
Alternatively, if a “person” provides information to the United
States voluntarily, the information is confidential if “it is of a kind that
the provider would not customarily release to the public.” Critical
Mass, 975 F.2d at 880.
4
discovers a problem, it notifies the contractor and may issue a
“Corrective Action Request” (CAR) or an audit report to the
contractor to remedy the problem.
1. Sikorsky FOIA Request
In March 2004 a New Haven, Connecticut television
reporter submitted a FOIA request to the regional DCMA office
(DCMA East) for, in pertinent part, all CARs DCMA had issued
to Sikorsky over the past year regarding the Black Hawk
helicopter.4 The Director of DCMA East initially denied the
request, concluding under Exemption 4 their release “will
significantly impair DCMA’s ability to obtain the same quality
of information from Sikorsky and from other Defense
contractors in the future.” Letter from Keith D. Ernst, Director,
DCMA East, to Alan M. Cohn, WTNH-TV (May 7, 2004). The
reporter then appealed the denial within DCMA.5 In response,
the DCMA FOIA Appeal Authority reviewed the documents and
reversed DCMA East’s decision.
DCMA’s Office of General Counsel then notified Sikorsky
by letter that it planned to release the CARs, stating DCMA’s
new position that none of them fell under Exemption 4. Sikorsky
disagreed. Citing National Parks, Sikorsky argued that
4
The reporter also requested Sikorsky’s responses to the CARs
but DCMA ultimately decided not to release them. Those documents
are not part of this appeal.
5
DoD regulations provide, in relevant part, “If the official
designated by the DoD Component to make initial determinations on
requests for records declines to provide a record because the official
considers it exempt under one or more of the exemptions of the FOIA,
that decision may be appealed by the requester, in writing, to a
designated appellate authority.” DoD Regulation 5400.7-R, C5.3.1
(Sept. 1998), available at http://www.dtic.mil/whs/directives/corres/
pdf/540007r.pdf.
5
Exemption 4 applied because the documents’ “release would
likely cause Sikorsky substantial competitive harm” and would
“significantly impair DCMA’s future ability to obtain the same
detail and quality of information from Sikorsky and other DoD
contractors.” Letter from Robert K. Huffman, Miller &
Chevalier, to Richard N. Finnegan, Associate General Counsel,
DCMA, at 3 (Feb. 11, 2005). Specifically, it asserted that the
CARs included “proprietary information regarding Sikorsky’s
manufacturing process and procedures” and that “[r]elease of
this proprietary information would substantially harm Sikorsky’s
competitive position because its competitors would use this
information to their advantage in . . . adjusting their
manufacturing techniques.” Id. at 11 n.4.
Nevertheless, in a letter dated December 1, 2005, the
DCMA FOIA Appeal Authority informed Sikorsky that DCMA
had made a “final agency decision” to release the CARs to the
reporter. Letter from Colonel Jamie L. Adams, DCMA Appeal
Authority, to Robert K. Huffman, Miller & Chevalier, at 5-6
(Dec. 1, 2005). In so doing, it rejected Sikorsky’s “substantial
competitive harm argument,” stating that the asserted harm
“appears to be one of suffering embarrassment in the market
place,” which is an “insufficient” basis on which to prevent
disclosure. Id. at 5. It also rejected Sikorsky’s “impairment”
argument, stating that “the question of impairment is a question
for the agency and not for Sikorsky” and concluding that
“release of the CARs would not impair the Government’s ability
to obtain the same kind of information in the future.” Id. at 3.
2. Pratt FOIA Request
In December 2004 a Hartford, Connecticut newspaper
reporter submitted a FOIA request to DCMA East for (1) a
report of a November 2004 DCMA audit of Pratt’s Middletown,
Connecticut Engine Center; (2) a CAR that resulted from the
audit and (3) any and all other documents regarding the audit.
DCMA East identified documents responsive to the request,
6
including (1) the November 2004 audit report; (2) November
2004 DCMA post-audit briefing of Pratt; (3) a resulting “Level
III” CAR6 issued to Pratt in December 2004; (4) internal DCMA
correspondence about the audit and the Level III CAR and (5)
reports of audits of Pratt that DCMA conducted in July and
September 2004.7 DCMA East notified Pratt of the request and
asked Pratt to flag any documents it believed were exempt from
disclosure. Pratt responded that “most of the information
contained in these documents is exempt from disclosure under
Exemption 4.” Letter from Lester K. Katahara, Associate
Counsel, Pratt & Whitney, to JeanMarie C. Faris, Counsel,
DCMA-Hartford, at 1 (Mar. 24, 2005). Citing National Parks,
it argued that the exemption applied because disclosure would
“likely cause substantial harm to [its] competitive position” and
“would likely impair the ability of DCMA to obtain information
of the same quality, reliability, and detail in the future.” Id. at 3.
It submitted several affidavits supporting its claim to the
Exemption. For example, its Director of Quality Military
Engines attested that “a competitor with similar expertise could
and would use th[e] information to gain insights into the
6
There are four levels of CARs, increasing in seriousness from
Level I to Level IV. DCMA issues a Level III CAR to a contractor’s
“top management to call attention to serious contractual
nonconformity.” DCMA Guidebook, Corrective Action Process 2.1,
available at http://guidebook.dcma.mil/226/226-1/index.cfm.
7
DCMA East determined not to release photographs it took
during the November 2004 audit or Pratt’s documentary responses to
that audit and to the CAR. It decided that Exemption 4 covered the
latter material because Pratt voluntarily made available the
information contained therein and that information was the kind Pratt
would not normally release to the public. See Critical Mass, 975 F.2d
at 880. Similarly, it decided that Pratt was not required to permit
DCMA to take photographs during the audit. See id. The photographs
and Pratt’s responses are not part of this appeal.
7
strengths and weaknesses of P&W’s quality control system as
well as manufacturing techniques and use those insights to
revise and improve its own quality control and manufacturing
systems.” Affidavit of William H. Forthofer ¶ 18 (Mar. 18,
2005) (Forthofer Aff.). It also offered a set of the documents
from which it had redacted the purportedly exempt information.
DCMA East replied to Pratt in October 2005, concluding
that Exemption 4 did not cover the documents except for the
portions DCMA had itself redacted. It stated:
Applying the criteria established in National Parks to
the documents at issue here, we conclude that release
of the documents will not impair the Government’s
ability to obtain from Pratt & Whitney (or any other
contractors) essential information about their quality
systems. With respect to the competitive harm prong of
National Parks, we concluded that, with the exception
of the actual quality system provisions themselves,
[which were redacted,] the release of the documents
would not likely result in substantial competitive harm
to Pratt & Whitney.
Letter from Steven T. Bogusz, Deputy Director, DCMA East, to
Lester K. Katahara, Pratt & Whitney, at 1 (Oct. 12, 2005).
Pratt sought reconsideration, elaborating on the same
arguments it had originally made. But DCMA East did not
budge; it said, “While we agree that National Parks is the
appropriate legal standard of review, we disagree that release of
the documents (as redacted) would significantly impair
DCMA’s ability to obtain necessary quality assurance system
information from P&W and other contractors in the future, a
decision solely within DCMA’s purview.” Letter from Steven T.
Bogusz, Deputy Director, DCMA East, to Robert K. Huffman,
Miller & Chevalier, at 2 (Nov. 21, 2005). In addition, it said:
8
We acknowledge that competition in the propulsion
industry is fierce. However, with the exception of the
information that we have already redacted, we do not
believe that P&W has established the likelihood of
substantial competitive harm flowing from P&W’s
competitor’s [sic] affirmative use of the information
contained in the DCMA documents. At most, we
believe that release of the information could be
embarrassing to P&W. But, embarrassment does not
rise to the level of substantial competitive harm of the
type recognized by the courts.
Id. at 3.
B. District Court Proceedings
In late 2005 Sikorsky and Pratt filed separate suits in the
district court against DoD, each alleging that DCMA’s decision
to release the documents was arbitrary, capricious, and contrary
to law under the APA, 5 U.S.C. § 706(2)(A). They sought
declaratory and injunctive relief preventing the documents’
disclosure. The district court granted summary judgment to DoD
in both cases in September 2008. Although the court found that
the documents’ release would “reveal[] the safety measures and
quality control procedures in Plaintiff’s manufacturing,” it
determined that the documents did not fall under Exemption 4.
Sikorsky Aircraft v. Dep’t of Def., C.A. No. 05-02373, at 12-13
(D.D.C. Sept. 22, 2008) (Sikorsky Order); United Techs. Corp.,
Pratt & Whitney Div. v. Dep’t of Def., C.A. No. 05-02271, at 12-
14 (D.D.C. Sept. 22, 2008) (Pratt Order). According to the court,
the gravamen of both complaints was that disclosure would
cause “embarrassment or negative publicity,” a type of harm not
recognized under Exemption 4. Sikorsky Order at 13; Pratt
Order at 13. The court also held that DCMA’s ability to obtain
9
similar information in the future would not be so impaired as to
render the documents exempt from disclosure. Sikorsky and
Pratt timely appealed.8
II.
“We review the district court’s grant of summary judgment
de novo.” Canadian Commercial, 514 F.3d at 39. When the
district court decision under review itself reviews agency action
under the APA, we, like the district court, will reverse the
agency action only if it is “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” See 5
U.S.C. § 706(2)(A); Canadian Commercial, 514 F.3d at 39. This
“standard is narrow and a court is not to substitute its judgment
for that of the agency. Nevertheless, the agency must examine
the relevant data and articulate a satisfactory explanation for its
action including a ‘rational connection between the facts found
and the choice made.’” Motor Vehicle Mfrs. Ass’n of U.S., Inc.
v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)
(quoting Burlington Truck Lines v. United States, 371 U.S. 156,
168 (1962)). “[W]e do not defer to the agency’s conclusory or
unsupported suppositions.” McDonnell Douglas Corp. v. U.S.
Dep’t of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004).
Exemption 4 covers “trade secrets and commercial or
financial information obtained from a person and privileged or
confidential.” 5 U.S.C. § 552(b)(4). DoD concedes that the
information contained in the documents either is or addresses
“commercial . . . information obtained from a person”; for their
part, Sikorsky and Pratt contend that the information is
“confidential.”9 They “do not contend . . . that the particular
8
We consolidated the appeals sua sponte. Order, United Techs.
Corp. v. Dep’t of Def., No. 08-5435 (D.C. Cir. Mar. 5, 2009).
9
Sikorsky and Pratt also suggest in passing that the documents
contain “trade secrets” under Exemption 4. A trade secret is “a secret,
10
information at issue here was voluntarily provided,” Appellants’
Br. 33 n.10, and thus do not “seek review of th[e] aspect of the
district court’s decision” that “held that disclosure of the
information was mandatory, not voluntary.” Id. at 13 & n.3.
Accordingly, for the documents to be exempt from disclosure,
their release must be likely to cause the contractors “substantial
competitive harm” or “impair the Government’s ability to obtain
necessary information in the future.” Canadian Commercial,
514 F.3d at 39-40 (internal quotations omitted); see Critical
Mass, 975 F.2d at 878; Nat’l Parks, 498 F.2d at 770.
A. Substantial Competitive Harm
To qualify under this prong, an identified harm must
“‘flow[] from the affirmative use of proprietary information by
competitors.’” CNA, 830 F.2d at 1154 (quoting Pub. Citizen
Health Research Group v. FDA, 704 F.2d 1290, 1291 n.30 (D.C.
Cir. 1983)). In reviewing an agency’s determination as to
substantial competitive harm, we recognize that “predictive
judgments are not capable of exact proof,” id. at 1155, and we
generally defer to the agency’s predictive judgments as to “‘the
repercussions of disclosure,’” McDonnell Douglas v. U.S. Dep’t
of the Air Force, 375 F.3d at 1191 n.4 (quoting CNA, 830 F.2d
at 1155). If “a reverse-FOIA movant has made a positive
showing of competitive harm from disclosure,” however, an
agency’s unelaborated contrary conclusion does not suffice. See
Occidental Petroleum Corp. v. SEC, 873 F.2d 325, 341-42 (D.C.
commercially valuable plan, formula, process, or device that is used
for the making, preparing, compounding, or processing of trade
commodities . . . that can be said to be the end product of either
innovation or substantial effort.” Pub. Citizen Health Research Group
v. FDA, 704 F.2d 1280, 1288 (D.C. Cir. 1983). Ultimately Sikorsky
and Pratt label this issue “irrelevant,” Reply Br. 6, because, to prevent
release, they need only establish that the documents contain
“confidential” information.
11
Cir. 1989) (internal quotation omitted) (agency’s conclusory
decision rejecting substantial competitive harm required
remand).
Sikorsky and Pratt maintain that disclosure of the
documents will cause two types of substantial competitive harm.
First, they say that their competitors will use the documents to
discredit them in the eyes of current and potential customers.
They worry especially that their competitors will use the
information and the accompanying negative publicity to
persuade foreign costumers that DoD has found Sikorsky’s and
Pratt’s quality control systems unreliable and, accordingly, their
products’ quality suspect. Because foreign customers are
unfamiliar with DoD’s exacting oversight, they reason, those
customers will overreact to the disclosed information and
Sikorsky’s and Pratt’s reputation will suffer as a result. Contrary
to Sikorsky and Pratt’s contentions, however, Exemption 4 does
not protect against this species of harm. Calling customers’
attention to unfavorable agency evaluations or unfavorable press
does not amount to an “affirmative use of proprietary
information by competitors.” See CNA, 830 F.2d at 1154 &
n.158; Occidental, 873 F.2d at 341 (desire to avoid
embarrassment and reputational damage is irrelevant to
substantial competitive harm determination); Pub. Citizen, 704
F.2d at 1291 n.30 (“injury to competitive position, as might flow
. . . from the embarrassing publicity attendant upon public
revelations” is not substantial competitive harm) (internal
quotation omitted). In other words, Exemption 4 does not guard
against mere embarrassment in the marketplace or reputational
injury and DCMA correctly rejected the contractors’ reliance
thereon.
Second, Sikorsky and Pratt maintain that the documents
contain sensitive proprietary information about their quality
control processes. Pratt’s Director of Quality Military Engines
attested that “a competitor with similar expertise could and
12
would use th[e] information to gain insights into the strengths
and weaknesses of P&W’s quality control system as well as
manufacturing techniques and use those insights to revise and
improve its own quality control and manufacturing systems.”
Forthofer Aff. ¶ 18. Similarly, Sikorsky asserted that
“proprietary information regarding Sikorsky’s manufacturing
process and procedures” is “inextricably intertwined with the
quality control information” included in the CARs and it
asserted that “[r]elease of this proprietary information would
substantially harm Sikorsky’s competitive position because its
competitors would use this information to their advantage in . . .
adjusting their manufacturing techniques.” Letter from Robert
K. Huffman, Miller & Chevalier, to Richard N. Finnegan,
Associate General Counsel, DCMA, at 11 n.4 (Feb. 11, 2005).10
In response, DCMA simply stated that it had redacted all of the
sensitive proprietary information and concluded that disclosure
of the remaining information was not likely to cause the
contractors substantial competitive harm.
We find DCMA’s response insufficient. The documents,
even as redacted by DCMA, appear to reveal details about
Sikorsky’s and Pratt’s proprietary manufacturing and quality
control processes. At the least, they identify and locate particular
parts and equipment and describe the timing and criteria of
internal inspections.11 In other words, the documents describe,
10
Sikorsky and Pratt maintain that, while “the sensitivity of the
information may not be obvious to laypersons,” the information “from
the vantage point of experienced competitors in the business . . .
provide[s] invaluable insights.” Appellants’ Br. 22.
11
During oral argument the Court inquired about portions of the
CARs and November 2004 audit report included in the Sealed
Appendix (SA). [Sealed material redacted.] Both Sikorsky and Pratt
argue that competitors, with their expertise and understanding of
esoteric manufacturing processes, will be able to put together this
13
in part, how the contractors build and inspect helicopters and/or
engines. Once disclosed, competitors could, it appears, use the
information to improve their own manufacturing and quality
control systems, thus making “affirmative use of proprietary
information” against which Exemption 4 is meant to guard.
We believe that DCMA failed to provide a reasoned basis
for its conclusion to the contrary. To be sure, as it repeatedly
stated, mere embarrassment or reputational harm is not
sufficient to trigger Exemption 4. But where, as here, a
contractor pinpoints by letter and affidavit technical information
it believes that its competitors can use in their own operations,
the agency must explain why substantial competitive harm is not
likely to result if the information is disclosed. See, e.g.,
Occidental, 873 F.2d at 341-42. DCMA instead concluded,
without more, that release of the documents will not cause
Sikorsky or Pratt substantial competitive harm. A naked
conclusion, however, is not enough. See McDonnell Douglas v.
U.S. Dep’t of the Air Force, 375 F.3d at 1187 (“[W]e do not
defer to the agency’s conclusory or unsupported suppositions.”);
Occidental, 873 F.2d at 342 (requiring more than “conclusory
statement” regarding substantial competitive harm).
Accordingly, because DCMA’s conclusionary statement is
“unreviewable,” id., we must remand for it to “examine the
relevant data and articulate a satisfactory explanation for its
action,” if it can, “including a ‘rational connection between the
facts found and the choice made.’” Motor Vehicle Mfrs. Ass’n,
463 U.S. at 43 (quoting Burlington, 371 U.S. at 168).
otherwise confidential information and use it to gain a competitive
advantage.
14
B. Impairment
Sikorsky and Pratt also argue that disclosure of the
documents would “likely . . . impair the Government’s ability
to obtain necessary information in the future” and thus run afoul
of the impairment prong of National Parks, 498 F.2d at 770; see
Critical Mass, 975 F.2d at 878. Precedent suggests that it may
be inappropriate to apply this prong in a reverse-FOIA case. See
McDonnell Douglas Corp. v. NASA, 180 F.3d 303, 307 n.2 (D.C.
Cir. 1999) (declining to reach issue but noting “one circuit has
held that a submitter cannot even raise the government’s
interests on behalf of the agency in a reverse FOIA case”)
(citing Hercules, Inc. v. Marsh, 839 F.2d 1027, 1030 (4th Cir.
1988)); see also McDonnell Douglas Corp. v. U.S. Dep’t of the
Air Force, 215 F. Supp. 2d 200, 206 (D.D.C. 2002) (“The
managerial decision about how to best protect the government’s
interests in gathering information simply does not lend itself
easily to judicial review.” (citing Gen. Elec. Co. v. U.S. Nuclear
Regulatory Comm’n, 750 F.2d 1394, 1402 (7th Cir. 1984))),
rev’d on other grounds, 375 F.3d 1182 (D.C. Cir. 2004);
Comdisco, Inc. v. Gen. Servs. Admin., 864 F. Supp. 510, 516
(E.D. Va. 1994) (when agency favors release, “it would be
nonsense to block disclosure under the purported rationale of
protecting government interests”). Because we remand on the
issue of substantial competitive harm, we need not resolve this
issue, see Critical Mass, 975 F.2d at 878, 880 (likelihood of
either substantial competitive harm or impairment precludes
disclosure); Nat’l Parks, 498 F.2d at 770 (same), assuming the
impairment prong’s applicability.
For the foregoing reasons, we reverse the district court’s
grant of summary judgment and remand to the district court with
instructions to remand to DoD for further proceedings consistent
with this opinion.
So ordered.