Lion Raisins v. U.S. Dept. of Agriculture

• Decision Date: 15 January 2004
• Docket Number: No. 02-16696.,02-16696.
• Parties: LION RAISINS INC., Plaintiff-Appellant, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

354 F.3d 1072

LION RAISINS INC., Plaintiff-Appellant, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant-Appellee.

No. 02-16696.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 2, 2003.

Filed January 15, 2004.

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Brian C. Leighton, Clovis, CA, for the plaintiff-appellant.

Linda M. Anderson, Assistant United States Attorney, Fresno, CA, for the defendant-appellee.

Appeal from the United States District Court for the Eastern District of California; Robert E. Coyle, District Judge, Presiding. D.C. No. CV 02-5064 REC.

Before TASHIMA, THOMAS, and SILVERMAN, Circuit Judges.

TASHIMA, Circuit Judge.

This appeal concerns the United States Department of Agriculture's ("USDA's") denial of three Freedom of Information Act ("FOIA") requests of appellant Lion Raisins ("Lion"). Lion, a large independent handler of California raisins, is the subject of a criminal investigation because the government suspects that Lion falsified documents related to USDA inspections of its raisins. In preparation of its defense, Lion submitted FOIA requests seeking documents related to USDA raisin inspections conducted at Lion's packing facility and the facilities of its competitors, and two internal reports related to the USDA's investigation of Lion. USDA denied Lion's requests pursuant to the "trade secrets" and "law enforcement" exemptions of FOIA. See 5 U.S.C. § 552(b)(4), (7)(A). After exhausting its administrative appeals, Lion brought this action to compel production of the documents pursuant to 5 U.S.C. § 552(a)(4)(B). The district court granted summary judgment to USDA. On appeal, Lion contends that the district court misapplied both the "trade secrets" and "law enforcement" exemptions. Lion also objects to the district court's reliance on in camera review of the government's sealed declaration as the sole factual basis for its "law enforcement" decision. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm in part, reverse in part, and remand.

BACKGROUND

The California raisin industry is highly competitive. At the time this action was commenced, raisin prices were at a 15-year low and the success or failure of contract bids hinged on price differentials of a fraction of a cent per pound. Lion is the largest independent handler of California raisins in the state. Like its competitors, Lion is governed by the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. §§ 601-627, and a "marketing order" promulgated thereunder, 7 C.F.R. §§ 989.1-989.801, that regulate the sale of raisins. The marketing order requires that raisin handlers have their products inspected by USDA once when they are received from producers, and again before they are sold to the consumer. 7 C.F.R. §§ 989.58-989.59. When conducting the required inspections, USDA inspectors periodically take samples from handlers' processing lines and assess the quality of the raisins in various categories, including weight, color, size, sugar content, and moisture. See 7 C.F.R. § 989.159. The inspectors note their observations on "Line Check Sheets" and assign grades to the observed raisins. The original of the Line Check Sheet is retained by USDA and a carbonless copy is left with the handler.¹ Information from the Line Check Sheets is summarized on USDA "Inspection Certificates," which raisin handlers can send to their consumers as an assurance of quality.

On February 20, 1998, the USDA received an anonymous tip that Lion was falsifying its Inspection Certificates. Acting on that tip, Agricultural Marketing Services of USDA ("AMS") initiated an investigation. The AMS investigation revealed that, on at least three occasions between March and December of 1998, Lion representatives forged the signatures of USDA inspectors or recorded false moisture readings on Inspection Certificates. On at least one occasion, Lion allegedly altered the grade assigned to its raisins on an Inspection Certificate from "C" to "B." On May 26, 1999, AMS prepared a report of its findings. On October 19, 2000, the USDA Office of the Inspector General ("OIG") served and executed a search warrant at Lion's packing plant. In the course of that search, agents seized the Lion-retained copies of Line Check Sheets of inspections performed at Lion's packing plant between 1995 and 2000.² OIG prepared a report of its findings. Based on the AMS investigation and the fruits of the OIG raid, USDA suspected that Lion falsified the Lion-retained copies of Line Check Sheets in addition to Inspection Certificates.

On January 12, 2001, USDA suspended Lion from eligibility for government contracts and filed an administrative complaint seeking to "debar" further inspections of Lion's facilities. Lion successfully challenged USDA's suspension order in the district court, and later, in the Court of Federal Claims. The debarment complaint was still pending at the time this appeal was argued. Meanwhile, the United States Attorney for the Eastern District of California initiated a criminal investigation.

On August 20, 2001, Lion submitted FOIA requests seeking copies of all USDA-retained original Line Check Sheets for inspections at its packing plant from 1991 to the present. Although its FOIA request did not so specify, Lion made clear in its briefs and at oral argument that it sought copies of the USDA-retained originals of Line Check Sheets for inspections at its own plants, not the Lion-retained copies that were seized from Lion's packing plant.³ Lion suspected that any discrepancies between the Lion-retained copies of the Line Check Sheets and the USDA-retained originals were the result of USDA's intentional or negligent alteration of the USDA-retained originals. In a separate request, submitted on August 21, 2000, Lion sought the reports prepared by AMS and OIG related to USDA's investigation of Lion.⁴ Both of Lion's requests (for the check sheets and for the investigative reports) were denied pursuant to the "law enforcement" exemption to FOIA, on the basis that releasing the documents would interfere with an ongoing criminal investigation. See 5 U.S.C. § 552(b)(7)(A).

In a third request, submitted on August 29, 2000, Lion sought copies of the USDA-retained originals of Line Check Sheets, from 1996 to the present, for six of its competitors in the California raisin packing industry: Sunmaid Raisins, National Raisin, Enoch Packing, Chooljian Bros., Del Rey Packing, and Victor Packing. Lion sought the Line Check Sheets of its competitors because it believed that USDA inspectors routinely committed fraud when filling out Line Check Sheets, and it wanted to compare the way its competitors' raisins were graded to the way its own raisins were graded. USDA withheld these Line Check Sheets pursuant to the "trade secrets" exemption of FOIA, on the basis that producing them would cause "substantial competitive harm" by allowing Lion to deduce the volume, market share, and marketing strategy of its main competitors. See 5 U.S.C. § 552(b)(4).

Lion administratively appealed the denials of each of its FOIA requests within USDA. Two of Lion's appeals were denied. The third appeal received no response.⁵ Lion then brought this action. Both parties moved for summary judgment. In support of its "trade secrets" withholding, USDA submitted two declarations from David Trykowski, an AMS Senior Compliance Officer. Trykowski's declarations stated that Lion could use the information contained in its competitors' Line Check Sheets to undercut its competitors' bids for raisin contracts, and they discounted the possibility that confidential information from the Line Check sheets could be redacted to eliminate the competitive harm. In support of USDA's "law enforcement" claim, an assistant United States attorney filed a declaration under seal with the district court. Based on the information in the three declarations, including its in camera review of the sealed declaration, the district court granted summary judgment for USDA.

STANDARD OF REVIEW

In reviewing summary judgment in a FOIA case, we employ a two-step test. The first step is to determine whether the district court had an adequate factual basis for its decision. Doyle v. FBI, 722 F.2d 554, 555 (9th Cir.1983); Church of Scientology v. United States Dep't of the Army, 611 F.2d 738, 742 (9th Cir.1979). Whether a particular set of documents gives the court an adequate factual basis for its decision is a question of law that the court reviews de novo. See Wiener v. FBI, 943 F.2d 972, 978 (9th Cir.1991); Binion v. United States Dep't of Justice, 695 F.2d 1189, 1193 (9th Cir.1983).

The second step is to review the district court's decision itself. We have reviewed district court determinations as to whether a FOIA exemption applies using both the "clearly erroneous" and "de novo" standards of review. See TPS, Inc. v. United States Dep't of Def., 330 F.3d 1191, 1194 (9th Cir.2003) ("If an adequate factual basis exists, we variously use de novo review or clear error review."). Where the district court's decision turns mainly on its findings of fact, we apply the "clearly erroneous" standard. See Assembly of Cal. v. United States Dep't of Commerce, 968 F.2d 916, 919 (9th Cir.1992) ("[T]he case hinges on whether disclosure of the requested information would reveal anything about the agency's decisional process. This is a fact-based inquiry where deference to the district court's finding is appropriate."); Church of Scientology, 611 F.2d at 743. Where the parties do not dispute that the district court had an adequate factual basis for its decision, and the decision turns on the district court's interpretation of the law, we review the district court's decision de novo. See Schiffer v. FBI, 78 F.3d 1405, 1409 (9th Cir.1996) ("`Although any factual conclusions that place a document within a stated exemption of FOIA are reviewed under a clearly erroneous standard, the question of whether a...