In a ruling that has implications for businesses turning information over to federal agencies, the US Supreme Court has held that commercial or financial information that is treated as private by its owner and provided to the government under an assurance of privacy is exempt from production as “confidential” information under the Freedom of Information Act.
The US Supreme Court interpreted the meaning of an exemption to the disclosure requirements in the Freedom of Information Act (FOIA) on June 24, holding that commercial or financial information that is both customarily and actually treated as private by its owner—and that is provided to the government under an assurance of privacy—is exempt from disclosure under FOIA. This holding has significant implications for all commercial entities that have turned over proprietary information to a US federal agency as part of an investigation or otherwise. Rather than having to prove that the disclosure of information would lead to substantial competitive harm—as required for the last 45 years—now companies need only prove they have kept typically private information from public view, and have only turned such information over to the government with its assurance of privacy. In such cases, the information is “confidential” and therefore exempt from FOIA disclosure.
FOIA establishes an expansive right for the public to access records from executive agencies to hold the government accountable. Limiting that broad right, FOIA includes several broadly worded exceptions whereby the release of certain information may not be compelled under FOIA. One such exemption (Exemption 4) states that “trade secrets and commercial or financial information obtained from a person” that are “privileged or confidential” are protected from mandatory public disclosure. The statute does not define “confidential,” so the question of what “commercial or financial information” is protected from disclosure has resulted in much litigation.
Forty-five years ago in National Parks & Conservation Ass’n v. Morton, the US Court of Appeals for the DC Circuit held that a private company’s information is “confidential,” such that a federal agency may refuse a FOIA request to obtain it, only when its disclosure likely will “impair the Government’s ability to obtain necessary information in the future” or “cause substantial harm to the competitive position” of the private company from which the government obtained the information. Since then, several circuits have adopted similar impairment or substantial harm tests for the FOIA exemption. Of course, these tests limit the information that federal agencies may refuse to turn over in the face of a FOIA request. Even if a business has kept certain information private, an agency still may be compelled to turn over that confidential information if its disclosure would not harm the business, as delineated in these particular tests.
The lack of any definition of “confidential” in the statute, however, has led to continued challenges. Agencies and private parties have argued that the confidentiality exemption should be broader—all private information that qualifies under the dictionary definition of “confidential” should be exempt from FOIA’s disclosure requirements. Thus, if a company has kept its commercial or financial information private, a federal agency should keep that same information private no matter the demonstrated harm to the company or agency. Justice Thomas (joined by the late Justice Scalia) took this position in a dissent from denial of certiorari in 2015.
This term, the Supreme Court took up the question of the proper definition of “confidential” for purposes of this FOIA exemption in Food Marketing Institute v. Argus Leader Media.
Case Background
This case arose when the Argus Leader newspaper in South Dakota requested information from the US Department of Agriculture (USDA) in its investigation of fraud related to purchases by Supplemental Nutrition Assistance Program (SNAP) benefits recipients. The newspaper requested data from the USDA, via a FOIA request, on the use of SNAP debit cards at certain retail grocery stores. The USDA withheld the information under FOIA’s exemption covering confidential financial or commercial information. But the district court and US Court of Appeals for the Eighth Circuit applied the National Parks test and held that the USDA and affected grocers did not prove the disclosure would cause “substantial harm” to competition. Thus, the confidentiality exemption did not apply.
After the district court ordered the USDA to disclose grocers’ information, the USDA decided not to appeal, but the Food Marketing Institute (FMI), a trade association representing grocers, intervened on behalf of the grocers who did not want their proprietary information disclosed and appealed. FMI then petitioned for, and was granted, Supreme Court review after the Eighth Circuit loss. The US solicitor general filed an amicus brief in support of FMI, but the United States is not a party to the Supreme Court case.
Parties’ Arguments
In its briefs, FMI flatly called for the Supreme Court to overturn National Parks and to clarify that “confidential” information includes any information that is not publicly disclosed. In particular, FMI argued that the prevailing circuit court test improperly relies on an expansive view of FOIA’s purpose and legislative history, when the plain text of the statute requires all private information to be protected regardless of the potential for harm to competition.
The Argus Leader newspaper responded that in judicial construction, “confidential” often has been given a more narrow interpretation than its dictionary definition, such as in the context of business torts. “Confidential” has a specific legal meaning, which Argus argued should be tied to the definition of “trade secrets,” which requires some showing of objective harm. Given FOIA’s broad purpose of encouraging disclosure, and given that Congress has amended FOIA since the DC Circuit’s National Parks decision but chose not to clarify the definition of “confidential,” Argus argued the Court should leave the test as is.[1]
The solicitor general’s brief agrees with FMI that information is “confidential” under the statute so long as (1) it is “communicated in confidence” to the US agency (2) on the understanding (based on agency representations) that the agency “would not publicly disclose [the relevant] data.” The argument is based on the plain meaning of “confidential” and that FOIA’s purpose is only to make public the operations of the government, not private companies’ proprietary information. Thus, the solicitor general agreed that the National Parks test should be rejected by the Court.
On June 24, the Supreme Court agreed with FMI and the solicitor general and rejected the test pronounced by National Parks. In a 12-page opinion, Justice Gorsuch writing for the Court held that the plain meaning of “confidential” does not require substantial competitive harm. In holding otherwise, the National Parks court “inappropriately resort[ed] to legislative history before consulting the statute’s text and structure.” Rather, the plain meaning of confidential requires nothing more than the information at issue to be customarily kept private, or closely held, by the person imparting it, and the party receiving the information providing some assurance that they will keep it secret. In fact, that court left open the question of whether private information loses its “confidential character for purposes of Exemption 4” if the government does not make assurances that it will remain private, since the USDA’s regulations do make such assurances. So the answer was clear in this case—the FMI’s information qualified for the exemption from FOIA.
Joining Gorsuch’s textualist opinion overturning National Parks and focusing on the plain meaning of “confidential” are Chief Justice Roberts and Justices Thomas, Alito, Kagan, and Kavanaugh. Dissenting in part, Justice Breyer (joined by Justices Ginsburg and Sotomayor) would have retained some requirement of “genuine harm to an owner’s economic or business interests” in order to invoke the confidentiality exemption. This requirement diverges from the “substantial” harm required by National Parks—so not a single justice actually advocated keeping that test—but it would require some showing of harm based on the purported purposes of FOIA.
But the six-justice majority rejected any harm requirement whatsoever. So long as the commercial information is customarily kept private in the industry, the company actually kept the information at issue private, and the information was given to the government on the express understanding that it would remain private, the confidentiality exemption applies. Not only does this holding square with FOIA’s text, but it also follows FOIA’s purpose (according to the majority), which was to create a “workable balance” between disclosure and other interests, like business confidentiality. And the Court left open whether an agency’s assurance that the information would remain private is truly required in all cases.
This holding has broad application for all businesses that turn any information over to the US government. In particular, the opinion permits federal agencies to refuse to disclose a much broader swath of proprietary commercial and financial information obtained from private companies. No longer may courts require proof that the information, if disclosed, would “cause substantial harm” to the company’s competitive position. Mere confidentiality, plus agency representations that the information will remain confidential, is enough.
While a boon for the privacy of financial and commercial information submitted to the government, the holding also places a greater onus on counsel submitting documents to US agencies to be aware of the agency’s FOIA regulations, and to follow them, to ensure the agency’s confidential treatment of commercial or financial information. For example, when providing information to the Securities and Exchange Commission, Morgan Lewis lawyers routinely request confidential treatment under FOIA for our clients—citing and following that agency’s regulations. Going forward, firms should be sure to cite the agency’s confidentiality regulations and, where possible, obtain representations from the agencies that they will keep the information confidential once it is turned over—as happened in the FMI case. While the Court left open whether such assurances or representations are required to satisfy Exemption 4, it is clear that where they are paired with customarily private information that was actually kept confidential by the company, such assurances are sufficient for the exemption to apply.
Lastly, firms should take care that their proprietary information actually is kept private and confidential. After the Supreme Court’s decision, the next battleground likely will be whether certain financial and commercial information actually was kept confidential, so as to qualify for the FOIA exemption. If it is customarily private information and is actually kept private, then businesses can have more confidence that FOIA’s exemption will apply.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Boston
David C. Boch
Timothy P. Burke
Thomas J. Hennessey
Jason S. Pinney
T. Peter R. Pound
Chicago
Peter K.M. Chan
Houston
William R. Peterson
New York
Ben A. Indek
San Francisco
Thomas M. Peterson
Susan D. Resley
Washington, DC
Ivan P. Harris
Bryan M. Killian
Raechel Keay Kummer
Randall Mark Levine
David B. Salmons
[1] Argus also argued that FMI did not have standing to appeal to the Supreme Court as an intervenor because the USDA had agreed to release the data. Both FMI and the solicitor general opposed, and the government made clear at oral argument that the USDA would not release the information unless compelled to by the Court. The standing challenge ultimately was rejected by the Court.