United Technologies Corp. v. US Dept. of Defense

• Decision Date: 23 March 2010
• Docket Number: No. 08-5435,08-5436.,08-5435
• Citation: 601 F.3d 557
• Parties: UNITED TECHNOLOGIES CORPORATION, Pratt & Whitney Division, Appellant v. UNITED STATES DEPARTMENT OF DEFENSE and Defense Contract Management Agency, Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

601 F.3d 557

UNITED TECHNOLOGIES CORPORATION, Pratt & Whitney Division, Appellant v. UNITED STATES DEPARTMENT OF DEFENSE and Defense Contract Management Agency, Appellees.

Nos. 08-5435, 08-5436.

United States Court of Appeals, District of Columbia Circuit.

Argued November 16, 2009.

Decided March 23, 2010.

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.

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, 102 S.Ct. 2054, 72 L.Ed.2d 376 (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, 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 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 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 "release 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, 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 the 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." 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:

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

...