Merck & Co., Inc. v. Staats

• Decision Date: 10 September 1981
• Docket Number: 79-1438,Nos. 79-1435,s. 79-1435
• Citation: 214 U.S.App.D.C. 418,665 F.2d 1236
• Parties: , 29 Cont.Cas.Fed. (CCH) 81,872 MERCK & CO., INC., Appellant, v. Elmer B. STAATS, Comptroller, et al. MERCK & CO., INC. v. Elmer B. STAATS, Comptroller, et al., Appellants.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1236

665 F.2d 1236

214 U.S.App.D.C. 418, 29 Cont.Cas.Fed. (CCH) 81,872

MERCK & CO., INC., Appellant, v. Elmer B. STAATS, Comptroller, et al.

MERCK & CO., INC. v. Elmer B. STAATS, Comptroller, et al., Appellants.

Nos. 79-1435, 79-1438.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 11, 1980.

Decided Sept. 10, 1981.

Appeals from the United States District Court for the District of Columbia (D.C. Civil No. 74-1447).

Ronald A. Stern, Washington, D. C., with whom Philip A. Lacovara, Washington, D. C., was on the brief for appellant in No. 79-1435 and cross-appellees in No. 79-1438.

Harland F. Leathers, Sp. Asst. to the Asst. Atty. Gen., Washington, D. C., with whom Carl S. Rauh, U. S. Atty. (at the time the brief was filed), Morton Hollander, Atty., Dept. of Justice, Washington, D. C., were on the brief for appellees in No. 79-1435 and cross-appellants in No. 79-1438.

Before TAMM, ROBB and MIKVA, Circuit Judges.

Opinion Per Curiam.

Opinion concurring in part and dissenting in part filed by Circuit Judge MIKVA.

PER CURIAM:

The issue in this case is the scope of the authority of the Comptroller General to examine records of Merck & Company relating to four contracts, negotiated without advertising, for sale of pharmaceutical products to the Department of Defense and the Veterans Administration. The right of the Comptroller to examine records is based on 10 U.S.C. § 2313(b) (1976) and 41 U.S.C. § 254(c) (1976), the latter of which requires that the following language appear in government contracts negotiated without advertising:

(T)he Comptroller General ... shall ... have access to and the right to examine any directly pertinent books, documents, papers, and records of the contractor ... involving transactions related to (this contract)....

Each of the Merck contracts contained such a provision. Relying upon it the Comptroller General requested access to Merck's records directly pertinent to the pricing and cost of items furnished under each Merck contract. Merck denied the request and this litigation followed.

The District Court granted the Comptroller General access to "all books, documents, papers, or records directly pertaining to the pricing and cost of producing the items furnished by plaintiff Merck ..." under the contracts. However, the District Court enjoined the Comptroller from demanding access to "books, documents, papers, or records with respect to research and development, marketing and promotion, distribution, and administration ..." except as included in the prior grant. Both Merck and the government appeal.

On September 16, 1980 Merck filed a conditional petition for a writ of certiorari before judgment. The petition was denied December 8, 1980, 449 U.S. 1038, 101 S.Ct. 618, 66 L.Ed.2d 501 (1980).

This is one of several related cases in various circuits, challenging demands by the Comptroller General to examine the records of pharmaceutical companies pursuant to the access-to-records statutes, 10 U.S.C. § 2313(b) and 41 U.S.C. § 254(c). See Staats v. Bristol Laboratories Division of Bristol-Myers Co., 428 F.Supp. 1388 (S.D.N.Y.1977), 620 F.2d 17 (2d Cir. 1980), aff'd by evenly divided court, --- U.S. ----, 101 S.Ct. 2037, 68 L.Ed.2d 343 (1981); SmithKline Corp. v. Staats, 483 F.Supp. 712 (E.D.Pa.1980), appeal pending No. 80-1464 (3d Cir. Mar. 19, 1980), conditional petition for certiorari before judgment denied December 8, 1980, 449 U.S. 1038, 101 S.Ct. 619, 66 L.Ed.2d 502 (1980); Eli Lilly & Co. v. Staats, 574 F.2d 904 (7th Cir. 1978), cert. denied, 439 U.S. 959, 99 S.Ct. 362, 58 L.Ed.2d 351 (1978); United States v. Abbott Laboratories, 597 F.2d 672 (7th Cir. 1979); Cf. Hewlett-Packard Co. v. United States, 385 F.2d 1013 (9th Cir. 1967), cert. denied, 390 U.S. 988, 88 S.Ct. 1184, 19 L.Ed.2d 1292 (1968).

The scope and meaning of the statutory access-to-records provision have been thoroughly considered in the decisions we have cited. Conflicts in those decisions must be resolved by the Supreme Court, not by us, and we believe that nothing would be gained by a replowing of the field. Accordingly, without more, we affirm the judgment of the District Court filed January 24, 1979, pursuant to the District Court's memorandum opinion filed August 12, 1977.

So ordered.

MIKVA, Circuit Judge, concurring in part and dissenting in part:

The core issue of this case is the right of the government to have access to information pertaining to government contractors. Because it is the government, and because of its size, the role of the federal government as the purchaser of goods and services is hard to square with the free market concept of a willing purchaser doing business with a willing seller. Aware of these difficulties, Congress sought to make the government's role easier by creating the right of access to records of government This litigation ³ poses two questions of statutory interpretation. First, for what purposes may the government exercise its rights under the access-to-records clause? Second, what is the scope of the access provision when it is properly invoked? The district court's opinion, which we now affirm almost casually, holds that the government properly invoked the access clause with regard to the four contracts it entered with Merck & Co., Inc. (Merck) in 1974. Memorandum and Order, Aug. 12, 1977, Joint Appendix (J.A.) at 511. That opinion limited governmental access considerably, however, and held that Merck's data concerning such costs as research, development, marketing, promotion, distribution, and general administration do not come within the scope of the access provision. Id., J.A. at 513. I agree with the first holding, which is supported by precedent and legislative history. I disagree with the second holding, however, which disendows the usefulness of the information that the court allows the government to gain. Such an incongruous result does not comport with the manifest congressional purpose in enacting the access-to-records statutes.

                contractors.  1  I recognize that the access-to-records provision has received thorough consideration in the cases cited by the majority, and that conflicts in those decisions must be resolved by the Supreme Court.  But I also believe that we must fulfill our obligation to provide guidance on this issue until the Supreme Court has spoken, should it decide to do so.  2  I too shall try to avoid "replowing the field," but I cannot agree that the district court paid sufficient heed to the congressional purpose in requiring these access provisions in government contracts negotiated without advertising.  The legislative history establishes that Congress intended to give the Comptroller General exactly the sort of authority he seeks to exert here.  To the extent the district court found to the contrary, it should be reversed
                

I. PROPER APPLICATIONS OF THE ACCESS CLAUSE

At issue here are four fixed-price contracts for the sale of drugs negotiated in 1973 between Merck and the United States Government. Each of the contracts incorporated by reference a standard form access clause:

The Contractor agrees that the Comptroller General of the United States or any of his duly authorized representatives shall, until the expiration of three years after final payment under this contract, have access to and the right to examine any directly pertinent books, documents, papers and records of the Contractor involving transactions related to this contract.

J.A. 24. Under the access-to-records provision, such a clause is required by law to be The legislative history of the access-to-records statutes provides compelling evidence that Congress expected the General Accounting Office (GAO) to use the statutes to improve government procurement methods, and not merely to combat and deter fraud. Every circuit to examine this question has come to this conclusion, as did the lower court here, and Merck's argument to the contrary reopens a question that ought to be considered closed. Nevertheless, because the basic premise of the statutes sheds light on my disagreement with the court below, it may be useful to review Merck's contentions and explain why they lack merit.

                added to all government contracts for more than $10,000 which are negotiated without advertising.  4  It is important to realize at the outset, then, that we interpret a clause in contracts entered freely by Merck, and not the validity of some administrative agency's demand for involuntary access to private business records
                

Merck opposes governmental access to its records under the statutes on three main grounds. The first can be disposed of quickly. Merck claims that the GAO demand for Merck's records was prompted by the prodding of individual Senators who sought this "headline-grabbing" information for their own ends. ⁵ Speculation about Senatorial prodding or GAO's plans to leak confidential information to the media, ⁶ however, is irrelevant if the Comptroller General otherwise has a legitimate purpose for making the demand for access at issue here. ⁷ Our inquiry must focus on whether the Comptroller General's request was within the scope of his authority under the statutes. It is to that question we now turn.

A. The Basis for GAO's Request

Merck argues that GAO has no legitimate claim for access to Merck's records because GAO has not alleged any possibility of fraud, corruption, or the need to audit This contention is not new. ⁹ A variety of sources are said to show that the access provision was intended "solely to provide a method to discover fraudulent activities," ¹⁰ or to serve "as a deterrent to improper conduct by government procurement officers," ¹¹ or to apply only to situations in which there was "reason to suspect fraud or bad faith or illegality." ¹² Merck emphasizes repeatedly that Congress had a "single and limited purpose," which was "to protect the government from fraud and other abuses." Merck Reply Brief at 26; see id. at 4, 14, 28. "...