Appeal from the United States District Court for the District of Columbia (No. 00cv01693)
Before: Ginsburg, Chief Judge, and Edwards and Garland,
The opinion of the court was delivered by: Ginsburg, Chief Judge
Opinion concurring in part and dissenting in part filed by Circuit Judge GARLAND.
McDonnell Douglas, a wholly owned subsidiary of Boeing, appeals from a judgment in favor of the Air Force in this "reverse" Freedom of Information Act case. McDonnell Douglas challenges as arbitrary and capricious and otherwise contrary to law the decision of the Air Force to release to Lockheed Martin Aircraft Center pricing information contained in the contract the Air Force awarded to McDonnell Douglas for the maintenance and repair of KC-10 and KDC-10 aircraft. We affirm the judgment of the district court insofar as it upheld the decision of the Air Force to release the Over and Above Work Contractor Line-items (CLINs); we reverse that judgment insofar as it approved release of option year prices and Vendor Pricing CLINs.
In 1997 the Air Force issued a request for proposals (RFP) to perform maintenance and repair work on its fleet of KC-10 and KDC-10 aircraft. McDonnell Douglas submitted a bid which, in compliance with the requirements of the RFP, contained detailed pricing information both for the base year of the proposed contract and for subsequent years in which the Air Force would have the option to renew the contract. In June 1998 the Air Force awarded the contract to McDonnell Douglas. The contract, which provided for a base year and eight option years, incorporated the pricing information McDonnell Douglas had submitted in its bid.
In July 1998 Lockheed asked the Air Force, pursuant to the FOIA, 5 U.S.C. §§ 551 et seq., for a copy of the contract. The Air Force duly notified McDonnell Douglas of Lockheed's request, and McDonnell Douglas promptly objected.
Although McDonnell Douglas agreed some of the requested information must be disclosed, including the bottom-line price for the base year of the contract, the Company maintained the option year prices and the prices listed in certain of the CLINs came within Exemption 4 of the FOIA, which exempts from disclosure "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C. § 552(b)(4). Exemption 4 does not itself prohibit an agency from disclosing commercial or financial information; it provides only that an agency is not compelled to disclose such information. The Trade Secrets Act, 18 U.S.C. § 1905, however, the scope of which is "at least coextensive with Exemption 4," CNA Financial Corp. v. Donovan, 830 F.2d 1132, 1151 (D.C. Cir. 1987), effectively prohibits an agency from releasing information subject to the exemption. See McDonnell Douglas Corp. v. Widnall, 57 F.3d 1162, 1164 (D.C. Cir. 1995) ("whenever a party succeeds in demonstrating that its materials fall within Exemption 4, the government is precluded from releasing the information by virtue of the Trade Secrets Act").*fn1
Over a period of two years McDonnell Douglas sent the Air Force 11 submissions advancing its argument that option year prices, Vendor Pricing CLINs, and Over and Above Work CLINs are exempt from disclosure. Unpersuaded, the Air Force issued a Final Administrative Decision Letter in June 2000 concluding Exemption 4 was inapplicable and stating it would release the contract pricing information to Lockheed.
McDonnell Douglas then filed in district court a two-count complaint alleging the Final Decision (1) was arbitrary and capricious and contrary to law, in violation of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A), and (2) violated the Trade Secrets Act. Upon cross-motions for summary judgment the district court held the decision of the Air Force to release the option year prices and the disputed CLINs "was not arbitrary or capricious," and hence did not violate the APA. McDonnell Douglas Corp. v. U.S. Dep't of the Air Force, 215 F. Supp. 2d 200, 203 (D.D.C. 2002). The court also granted summary judgment to the Air Force on McDonnell Douglas's claim under the Trade Secrets Act on the ground the Act "does not afford `a private right of action to enjoin disclosure in violation of the statute.' " Id. at 204 n.2 (quoting Chrysler, 441 U.S. at 316-17). McDonnell Douglas now appeals, advancing only its APA claim.
As an initial matter McDonnell Douglas contends the Air Force misapplied the governing legal standard in determining that the option year prices, the Vendor Pricing CLINs, and the Over and Above Work CLINs are not exempt from disclosure pursuant to Exemption 4. McDonnell Douglas also argues the decision of the Air Force to disclose those data was arbitrary and capricious and contrary to law.
We review de novo the district court's grant of summary judgment. See LaCedra v. Executive Office for United States Attorneys, 317 F.3d 345, 347 (D.C. Cir. 2003). In determining whether the decision of the Air Force was arbitrary and capricious, we do not "substitute [our] judgment for that of the agency." Motor Vehicle Mfrs. Ass'n of United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
On the other hand, we do not defer to the agency's conclusory or unsupported suppositions. Id.
B. The National Parks Standard
That McDonnell Douglas was required to provide to the Air Force the option year prices and the information in the CLINs in order to compete for the contract is undisputed. That is no doubt why the parties agree the standard set out in National Parks & Conservation Association v. Morton, 498 F.2d 765 (D.C. Cir. 1974) ( National Parks I ), governs whether the contested information falls within the scope of Exemption 4. In National Parks I, we held financial information is "confidential" and therefore within the scope of Exemption 4 if it is required to be submitted to the Government and if its disclosure is "likely ... to cause substantial harm to the competitive position of the person from whom the information was obtained." Id. at 770.
McDonnell Douglas argues the Air Force misapplied the test of National Parks I because it required McDonnell Douglas to demonstrate "with certainty" release of the contested information would cause the Company substantial competitive harm. Indeed, according to McDonnell Douglas the Final Administrative Decision Letter is "riddled with demands for certainty. " National Parks I, of course, does not require the party invoking Exemption 4 to prove disclosure certainly would cause it substantial competitive harm, but only that disclosure would "likely" do so. See id.; Gulf & W. Indus. v. United States, 615 F.2d 527, 530 (D.C. Cir. 1979).
As we read the Final Administrative Decision Letter, the Air Force did not misinterpret or misapply the test of National Parks I. On the contrary, it expressly concluded "release of the requested information will not likely cause substantial competitive harm to [McDonnell Douglas]." (Emphasis in original). Although the Air Force did not use the word "likely" at every opportunity in the course of its analysis of whether disclosure would cause substantial competitive harm, it is quite clear the agency knew what was required to meet the National Parks I standard and sought to apply that standard accordingly.
McDonnell Douglas seizes upon the Air Force's statement that a competitor could not reverse-engineer the Company's commercially sensitive information "with certainty," but it does not follow that the Air Force required McDonnell Douglas to demonstrate substantial competitive harm would certainly occur. The issues are distinct: even if a competitor could determine the pricing strategy and markups McDonnell Douglas used in bidding for the present contract, the question would remain whether as a result McDonnell Douglas would likely suffer substantial competitive harm, with respect either to the option years in this contract or to future contracts. Therefore, we can not agree with McDonnell Douglas that the Air Force committed a wholesale error in applying the standard laid down in National Parks I, although we disagree with certain of the agency's more particularized conclusions, to which we now turn.
McDonnell Douglas argues release of the option year prices in the contract would likely cause it substantial competitive harm for two reasons. First, McDonnell Douglas anticipates its competitors would use their knowledge of those prices in an effort to convince the Air Force to rebid the contract rather than exercise its option annually to renew it. As the Air Force points out, however, McDonnell Douglas failed to make this argument before the agency. Whether the Final Decision of the Air Force was arbitrary and capricious must be determined solely upon the basis of the arguments and information before the agency at the time. See Walter O. Boswell Mem'l Hosp. v. Heckler, 749 F.2d 788, 792 (D.C. Cir. 1984) ("If a court is to review an agency's action fairly, it should have before it neither more nor less information than did the agency when it made its decision"). McDonnell Douglas's argument that only the agency -- and not the party challenging the agency's decision -- is prohibited from advancing a post hoc argument is simply incorrect. See Military Toxics Project v. EPA, 146 F.3d 948, 957 (D.C. Cir. 1998) (by failing to raise argument to agency appellant forfeited the argument and "may not raise it for the first time upon appeal").
Second, McDonnell Douglas argues disclosure of the option prices in the contract likely will cause it substantial competitive harm because, in the event the Air Force does decide to rebid the contract, its competitors will be able to use that information to underbid it. The Air Force responds with two reasons for which rebidding is unlikely. First, "option years of contracts are usually exercised," and a contract to service military aircraft is "even less susceptible to a new competition on the basis of price than most [contracts]." Second, "under the standards mandated by the [Federal Acquisition Regulations], the option years of the contract will be exercised unless the market changes considerably," in which event McDonnell Douglas would also "necessarily change [its] pricing strategy" and thereby "greatly diminish any potential competitive value" of knowing the option year prices. Now it is McDonnell Douglas's turn to point out that neither of these considerations played any role in the decision here under review: the Air Force never suggested McDonnell Douglas would not likely be harmed because the contract would not likely be rebid. We do not rely upon counsel's post hoc rationale for upholding an agency's action. See Bowen v. American Hosp. Ass'n, 476 U.S. 610, 626-27 (1986); Yukon-Kuskokwim Health Corp. v. NLRB, 234 F.3d 714, 718 (D.C. Cir. 2000).*fn2
The Air Force also suggests three reasons even a rival bidder that did know McDonnell Douglas's option year prices would not know what it would take to underbid McDonnell Douglas. First, the Air Force claims a rival would never know the exact "price to beat" because McDonnell Douglas's nominal option prices are subject to revision pursuant to the Economic Price Adjustment Clause in the contract. As McDonnell Douglas points out, however, the index used to determine the final option price in each option year is identified on the face of the Adjustment Clause and is publicly available. If the option year prices in the contract were released, then it would be a matter of simple arithmetic to calculate the adjusted option year prices. See Greenberg v. FDA, 803 F.2d 1213, 1218 (D.C. Cir. 1986) (combination of allegedly confidential information and publicly available information sufficient evidence of competitive harm to defeat summary judgment motion).
Second, the Air Force contends a rival's price, to be attractive, would have to be lower than McDonnell Douglas's bid by enough to offset the "costs of disrupting operations." This transaction cost argument, however, did not figure in the agency's decision that McDonnell Douglas would not likely be harmed ...