Charles River Park "A", Inc v. Department of Housing and Urban Development, et al., 73-1930

• Citation: 171 U.S. App. D.C. 286,519 F.2d 935
• Decision Date: 10 March 1975
• Docket Number: No. 73-1930,73-1930
• Parties: Page 935 519 F.2d 935 171 U.S.App.D.C. 286 CHARLES RIVER PARK "A", INC., et al. v. The DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT et al., Appellants. United States Court of Appeals, District of Columbia Circuit
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 935

519 F.2d 935

171 U.S.App.D.C. 286

CHARLES RIVER PARK "A", INC., et al. v. The DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT et al., Appellants.

No. 73-1930.

United States Court of Appeals, District of Columbia Circuit.

Argued Dec. 9, 1974.

Decided March 10, 1975.

As Amended June 17, 1975.

Rehearing Denied Sept. 10, 1975.

Anthony J. Steinmeyer, Atty., Dept. of Justice, with whom Irving Jaffe, Acting Asst. Atty. Gen., Earl J. Silbert, U. S. Atty. and Leonard Schaitman, Atty., Dept. of Justice, were on the brief for appellants. Harold H. Titus, Jr., U. S. Atty. at the time the record was filed and John A. Terry, Asst. U. S. Atty., also entered appearances for appellants.

Arthur I. Cantor, Washington, D. C., for appellees.

Milton A. Smith, Richard Berman, Washington, D. C., Gerard C. Smetana, S. Richard Pincus and Paul J. Cherner, Chicago, Ill., filed a brief on behalf of The Chamber of Commerce of the United States of America urging affirmance.

Before LUMBARD, ^* Senior Circuit Judge for the Second Circuit, and TAMM and ROBINSON, Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge LUMBARD.

LUMBARD, Circuit Judge:

The Department of Housing and Urban Development (HUD) appeals from an order entered April 23, 1973, in the District Court for the District of Columbia, June L. Green, J., which enjoins HUD from disclosing certain financial information submitted to it by appellees to persons other than those in the federal government who had previously received it in the regular course of business. D.C., 360 F.Supp. 212. Because we feel that the record below is inadequate for the determination of the controlling questions, we remand for further proceedings.

Appellees ¹ (collectively referred to as Charles River Park or CRP) operate three multi-family housing projects whose mortgages have been insured by the Federal Housing Administration (FHA), an agency of HUD. Because of FHA's potential financial liability in the event of a default in payments on the mortgage, Congress has given it considerable regulatory authority over the property it insures. See 12 U.S.C. § 1715k. One way in which the FHA exercises this authority is to require that insured mortgagors annually submit detailed financial reports.

This case arose in 1972 when HUD decided to honor a request by Theodore V. Anzalone, Boston's Commissioner of Assessing, for information which would allow him to verify the gross income of the Charles River Park projects. ² Anzalone stated that he needed the information in order to set assessments on the projects for real estate tax purposes. When appellees learned that HUD was about to release the financial reports that they had submitted, they filed suit in the district court asking that HUD be enjoined from releasing the reports.

The district court properly found that it had jurisdiction over this matter. See Administrative Procedure Act, 5 U.S.C. §§ 702, 703, 706(2)(A); Pickus v. United States Board of Parole, 165 U.S.App.D.C. 284, at 287-288, 507 F.2d 1107, 1110-1111 (1974). On the merits, the court found that the financial information involved was "confidential by its very nature" and that "(d) isclosure could clearly harm plaintiffs vis-a-vis their competitors." The court also found that "the information was furnished with the implied understanding that it would remain confidential." The court concluded that the information fell within the confidential financial information exception to the Freedom of Information Act, 5 U.S.C. § 552(b)(4). It therefore held that the Act had no applicability to this action. The court then concluded that 18 U.S.C. § 1905, a criminal statute that penalizes government employees who release trade secrets or financial data submitted to the government, provided CRP with an implied private right of action to have the release of this particular information enjoined. In addition, the court concluded that it would be in abuse of its discretion for HUD to release the information. It thereupon enjoined release of the financial information that CRP had submitted to the FHA.

Two problems are presented by the district court decision. First, in reaching its decision the district court heard no testimony and had no affidavits before it. It apparently based its decision on oral representations made by counsel and on exhibits attached to the motion papers that had been filed. After reviewing this record we conclude that it is insufficient to support the factual determinations made by the trial court. Second, the court did not analyze properly the issues involved in applying the relevant statutory provisions.

I

The record before the district court was not an adequate basis for its findings. The court's statement that this information was confidential by its very nature and that its release could cause competitive harm was completely without evidentiary support. Similarly, there was no evidence concerning an understanding between HUD and CRP that the specific information at issue here was submitted in confidence. Although HUD had never before released this kind of information to nonfederal entities, that fact alone does not establish that the information was submitted in confidence. There was no evidence, for example, that CRP was aware of HUD's prior practices when it submitted the information. Moreover, even if CRP was aware of HUD's prior practices, it might have no claim of an implied promise of confidentiality. While HUD had told a congressional committee in 1972 that it had refused to honor requests for similar information because the requests "involved commercial and financial information or trade secrets furnished in confidence," it stated in the next sentence that it had always weighed the public interest before denying those requests. In this case HUD claims the public interest supports disclosure. Thus, the information might well have been released under HUD's prior practices. These factual questions could not be resolved on the basis of the information before the district court. ³ As subsequent discussion will show, the questions on which the district court made findings may be relevant to the question of whether an injunction should issue. Hence on remand it will be necessary for the district court to hold an evidentiary hearing.

II

Whether or not disclosure is proper, in view of such evidence as is developed at the evidentiary hearing, will also require consideration of the various statutes regulating disclosure of information held by the government. The most important statute in this field is the Freedom of Information Act, 5 U.S.C. § 552, which provides that government agencies shall make identifiable records available to members of the public on request. 5 U.S.C. § 552(a)(3). However, from this requirement there is an exception of matters that are "(4) trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C. § 552(b).

HUD argues that this exemption does not cover the requested information and that disclosure is therefore required by the Act. It contends that the information sought here is not confidential financial information. The district court found that the information was confidential. However, it did not apply the proper tests in reaching that conclusion.

We have recently had occasion to discuss in detail the criteria for determining whether information falls within the fourth exemption. After a review of the legislative history to ascertain the purposes of the exemption, we laid down two tests for determining whether financial information is confidential within the meaning of the FOIA: "(C)ommercial or financial matter is 'confidential' for purposes of the exemption if disclosure of the information 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." National Parks & Conservation Assn. v. Morton, 162 U.S.App.D.C. 223, 498 F.2d 765, 770 (1974). See Petkas v. Staats, 163 U.S.App.D.C. 327, 501 F.2d 887 (1974); Casenote 88 Harv.L.Rev. 470 (1974).

On remand the district court should hear evidence relevant to whether this information is confidential under either of the above tests. If it is not found to be confidential under the FOIA, it must be disclosed on request even if it was submitted in confidence. Petkas v. Staats, supra, at 889. ⁴

Even if it is found that the information is confidential and that disclosure is not required by the Act, it is still necessary to determine whether HUD can release the information. CRP argues that the FOIA should be interpreted as prohibiting agency disclosure of information that falls within one of the Act's exceptions. While the district court rejected this argument, it has been accepted elsewhere. See, e. g., Westinghouse Elec. Corp. v. Schlesinger, Civil Action No. 118-74-A (E.D.Va. April 2, 1974).

The basic purpose of the FOIA is to promote disclosure of information; acceptance of CRP's argument would tend to subvert that purpose. Although the legislative history of the Act does not expressly resolve the question of whether the FOIA can be invoked to stop disclosure of information, at least one leading commentator has no difficulty in concluding that "(t)he Act contains no provision forbidding disclosure. . . . The exemptions protect against required disclosure, not against disclosure." K. Davis, Administrative Law Treatise § 3A.5 (1970 Supp.). His conclusion is supported by the legislative history of the recently enacted amendments to the FOIA which make it clear that the Act is not to be interpreted in any way as a restriction on government disclosure. S.Rep.No.93-854, 93d Cong., 2d Sess. 6 (1974); cf. H.R.Rep.No.93-876, 93d Cong., 2d Sess. (1973), in U.S.Code Cong. & Admin.News, pp. 6267, 6269. ⁵

If we assume that the Freedom of Information...