GC Micro Corp. v. Defense Logistics Agency, 92-16546

• Decision Date: 26 August 1994
• Docket Number: No. 92-16546,92-16546
• Citation: 33 F.3d 1109
• Parties: 39 Cont.Cas.Fed. (CCH) P 76,701 GC MICRO CORPORATION, Plaintiff-Appellant, v. DEFENSE LOGISTICS AGENCY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1109

33 F.3d 1109

39 Cont.Cas.Fed. (CCH) P 76,701

GC MICRO CORPORATION, Plaintiff-Appellant, v.DEFENSE LOGISTICS AGENCY, Defendant-Appellee.

No. 92-16546.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 13, 1994.

Decided Aug. 26, 1994.

Nancy G. Krop, Law Offices of Daniel Robert Bartley, Larkspur, CA, for plaintiff-appellant.

Ann M. O'Regan, Asst. U.S. Atty., San Francisco, CA, for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before: GOODWIN, PREGERSON, and RYMER, Circuit Judges.

GOODWIN, Circuit Judge:

AppellantGC Micro Corporation brought an action under the Freedom of Information Act("FOIA"), 5 U.S.C. Sec. 552(a)(4)(B), challenging appelleeDefense Logistics Agency's ("the DLA") denial of access to certain records that the DLA maintains regarding the utilization of small disadvantaged businesses by federal defense contractors.The district court granted summary judgment in favor of the DLA, finding that the DLA properly withheld records under 5 U.S.C. Sec. 552(b)(4)("FOIA Exemption 4"), which allows the withholding of government documents where disclosure would likely result in substantial competitive injury to private businesses.GC Micro appeals the district court's decision.We have jurisdiction pursuant to 28 U.S.C. Sec. 1291 and we reverse.

BACKGROUND

GC Micro is a small computer software and hardware distributor based in Novato, California.The owner and chief executive officer of GC Micro, Belinda Guadarrama, is a woman of Mexican-American descent.GC Micro therefore qualifies as a "Small Disadvantaged Business"("SDB") within the meaning of the Small Business Act, 15 U.S.C. Secs. 637(a),644(g)--i.e., it is "owned and controlled by [a] socially and economically disadvantaged individual[ ]."

Congress amended the Small Business Act in 1978, mandating that the federal government encourage government contractors to subcontract to SDB's.15 U.S.C. Sec. 637(a)(1)(B).In 1988, Congress directed the federal government to establish annual minimum goals for the participation of SDB's in procurement contracts, providing that not less than five percent of all federal contracts and subcontracts be awarded SDB's.15 U.S.C. Sec. 644(g).Regulations subsequently enacted to implement SDB goals require contractors to file reports so that federal agencies can monitor compliance with SDB goals.Within the Department of Defense, contractors are required to file Standard Forms 294 and 295.See48 C.F.R. Secs. 53.219,19.704(a)(5).

In 1990, GC Micro became interested in the possible noncompliance of defense contractors with SDB subcontracting goals when one contractor, Hercules Aerospace, allegedly refused to subcontract work to GC Micro or any other SDB firm.GC Micro began making FOIA requests to the DLA and other federal agencies for documents filed by various contractors relating to the implementation and attainment of SDB goals.According to GC Micro, the DLA routinely disclosed these documents.

The Small Business Act provides no private right of action to enforce SDB goals.Searcy v. Houston Lighting & Power Co., 907 F.2d 562, 564-65(5th Cir.), cert. denied, 498 U.S. 970, 111 S.Ct. 438, 112 L.Ed.2d 421(1990).However, counsel for GC Micro stated to the district court that knowledge of whether certain contractors are complying with their SDB goals is important to GC Micro because "[i]t's a good selling tool for [CEO Belinda Guadarrama] to go into these contractors, target the ones that aren't meeting [their SDB goals], [and] go in and help them meet their goal."Tr.at 11.

In January 1991, ¹ GC Micro made a written request to the DLA for disclosure of certain documents pertaining to United States Department of Defense contracts with Loral Aerospace, McDonnell Douglas Corporation, and Northrop Corporation.Among the documents that GC Micro requested were (1) the most recent Standard Form ("SF") 295's, and (2) the most recent SF 294's filed by all three corporations.SER, Vol. 2, Tab 4A.The SF 295 is a quarterly summary report of a contractor's compliance with its SDB subcontracting goals.It is a composite record of all contracts that the submitting company has with the federal government.

The SF 294 is a semiannual report of a contractor's progress in implementing its subcontracting plan.A separate SF 294 is prepared for each defense contract that a contractor has with the United States.The SF 294 requires every federal contractor to disclose, inter alia, (1) the estimated subcontract dollars per contract; (2) SDB subcontracting goals, both by percentage and total dollar amounts; (3) the actual dollars spent by the contractor on SDB subcontracts; and (4) the actual percentage of SDB subcontracts on each contract.The SF 294 does not show a breakdown of how the contractor is subcontracting the work, nor does it reveal the subject matter of the prime contract or subcontracts, the number of subcontracts, the items or services subcontracted, or the subcontractors' locations or identities.

In accordance with DLA Regulation 5400.14, the DLA notified Loral, McDonnell Douglas, and Northrop of GC Micro's FOIA request and allowed them an opportunity to object to the disclosure of the requested information.SER, Vol. 2, Tab 4at 3-4.The three corporations made no objection to the disclosure of the SF 295's, but did object to the disclosure of the subcontractor information contained in Blocks 14-18 of the SF 294 (4-81 edition) and Blocks 12-18 of the SF 294 (1-90 revised edition).The corporations stated that this information was confidential and argued that its disclosure would likely cause them substantial competitive harm.SER, Vol. 2, Tab 4B.

In May 1991, the DLA released the relevant SF 295's, but refused to release the SF 294's.GC Micro appealed these denials to the DLA's director, Lieutenant General Charles McClausland.On August 19, 1991, Lieutenant General McClausland issued a final decision upholding the agency's determination.On November 18, 1991, GC Micro filed this action in federal district court seeking: (1) a preliminary and final injunction directing DLA to release the SF 294's to GC Micro; (2) a preliminary and final injunction striking part of a DLA regulation, 32 C.F.R. Sec. 1285.3(e)(3)(1991); and (3)FOIA attorneys' fees and costs.The district court granted the DLA's motion for summary judgment, holding that the information contained in the SF 294's was confidential and therefore fell under FOIA Exemption 4.GC Micro filed a timely notice of appeal on August 27, 1992.

STANDARD OF REVIEW

We must engage in a two-part inquiry in reviewing the district court's FOIA decision.SeeDirksen v. United States Dep't of Health & Human Services, 803 F.2d 1456, 1458(9th Cir.1986)(commenting on the "unusual" standard of review of summary judgments in FOIAcases).First, we determine whether the district court had an adequate factual basis on which to make its decision.Bowen v. FDA, 925 F.2d 1225, 1226-27(9th Cir.1991).If an adequate factual basis was established, we then review the district court's decision that the requested documents were properly exempted for clear error.Id.

The parties do not dispute that the district court had an adequate factual basis for its decision.Nor do the parties dispute the basic facts on appeal.We therefore turn to the question whether the district court's judgment was clearly erroneous.SeeMultnomah County Medical Soc'y v. Scott, 825 F.2d 1410, 1413(9th Cir.1987).

DISCUSSION

I.The Grant of Summary Judgment in Favor of the DLA

A. FOIA Exemption 4

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)(citingBristol-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.²SeePacific Architects & Engineers Inc. v. United States Dep't of State, 906 F.2d 1345, 1347(9th Cir.1990).

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.³Information qualifies as "confidential" for the purposes of Exemption 4

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.

National Parks & Conservation Ass'n v. Morton, 498 F.2d 765(D.C.Cir.1974).⁴The 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.Orderat 2.

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.

"[T]he test for confidentiality is an objective one."National...