Case No. VFA-0434, 27 DOE ¶ 80,160

September 2, 1998

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Petitioner: Scripps Institute of Oceanography

Date of Filing: July 31, 1998

Case Number: VFA-0434

On July 31, 1998, the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) received an Appeal filed by the Scripps Institute of Oceanography (Scripps) from a determination issued to it by the Director of the DOE’s Federal Energy Technology Center (hereinafter referred to as “the Director”). The Director issued this determination in response to a request for information that Scripps submitted under the Freedom of Information Act (FOIA), 5 U.S.C § 552, as implemented by the DOE in 10 C.F.R. Part 1004. The Appeal, if granted, would require that the Director release certain documents to Scripps.

The FOIA generally requires that documents held by the federal government be released to the public upon request. However, Congress has provided nine exemptions to the FOIA which set forth the types of information agencies are not required to release. Under the DOE's regulations, a document that is exempt from disclosure under the FOIA shall nonetheless be released to the public whenever the DOE determines that disclosure is not contrary to federal law and is in the public interest. 10 C.F.R. § 1004.1.

I. Background

In its FOIA request, Scripps sought access to all correspondence between Biopraxis Inc., a DOE contractor, and the DOE pertaining to (1) the costs incurred by Scripps in performing subcontracts 96-001 and 96-003, (2) payments made by Biopraxis to Scripps relating to these contracts, (3) the reimbursement of Biopraxis by the DOE for payments made to Scripps, and (4) the termination of subcontracts 96-001 and 96-003 and settlement proposals relating to those terminations.

In her determination, the Director identified as responsive to Scripps’ request all documents contained in the file entitled “General Correspondence - Biopraxis/Scripps Audit Issues.” These documents consist of correspondence between Biopraxis and the DOE

concerning alleged irregularities in Scripps’ billing practices relating to subcontracts 96-001 and 96-003. Upon examination of the documents, the Director found that they are exempt in their entirety from mandatory release pursuant to Exemptions 4 and 7(A) of the FOIA. 5 U.S.C. § 552(b)(4) and (b)(7)(A).

Exemption 4 pertains to trade secrets and privileged or confidential commercial or financial information. With regard to this Exemption, the Director found that the responsive documents were voluntarily submitted by Biopraxis to the DOE, and consisted of commercial or financial information that Biopraxis would not ordinarily make available to the public. Therefore, pursuant to the holding of the D.C. Circuit Court of Appeals in Critical Mass Energy Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992) (Critical Mass), the Director withheld these documents.

Exemption 7(A) protects from mandatory disclosure records or information compiled for law enforcement purposes, but only to the extent that release of the records could reasonably be expected to interfere with law enforcement proceedings. In her determination, the Director concluded that because these documents concern matters that are the subject of pending audits by the Defense Contract Audit Agency and the Department of Health and Human Services, and that release of the information could adversely affect these audits, the documents are protected from mandatory disclosure by Exemption 7(A).

In its appeal, Scripps contests the Director’s application of these Exemptions. With regard to Exemption 4, Scripps argues that as a federal contractor, Biopraxis was required to report any allegedly improper billing by a subcontractor to the DOE. Therefore, Scripps claims, Biopraxis did not submit the responsive documents on a voluntary basis. Moreover, Scripps contends that the documents do not contain commercial or financial information within the meaning of Exemption 4.

Scripps further claims that Exemption 7(A) is inapplicable because the audits are not law enforcement proceedings. Moreover, even if the audits could be characterized as law enforcement proceedings, Scripps states that they have terminated, thereby making it unlikely that release of the documents would interfere in the audit process. Scripps therefore requests that we release the documents in their entirety.

II. Analysis

A. Exemption 4

Exemption 4 permits an agency to withhold from public disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” 5 U.S.C. § 552(b)(4); 10 C.F.R. § 1004.10(b)(4). In interpreting this Exemption, the federal courts have distinguished between documents that are voluntarily submitted to the government, and documents that are provided on a non-voluntary basis. In order to be exempt from mandatory disclosure under Exemption 4, documents containing privileged or confidential commercial or financial information that are supplied to the DOE on a voluntary basis need only be of a type that the submitter would not customarily release to the public. Critical Mass. Documents submitted on a non-voluntary basis, however, must meet a stricter standard of confidentiality in order to be exempt from mandatory disclosure. Such documents are confidential for purposes of Exemption 4 if disclosure of the information is likely to either impair the government’s ability to obtain necessary information in the future or cause substantial harm to the competitive position of the person from whom the information was obtained. National Parks & Conservation Association v. Morton, 498 F 2d. 765, 770 (D.C. Cir. 1974) (National Parks).

Scripps’ initial contention is that the withheld material does not meet the threshold requirement for protection under Exemption 4, i.e., that the documents do not contain commercial or financial information. Scripps argues that because it is a nonprofit organization, information concerning its performance under the subcontracts is not “commercial or financial” within the meaning of Exemption 4. We do not agree. The federal courts have repeatedly stated that the business dealings of nonprofit organizations may be considered “commercial” for Exemption 4 purposes. See, e.g., Critical Mass, 975 F.2d at 880 (reports submitted by nonprofit consortium of nuclear power plants deemed “commercial in nature”); Sharyland Water Supply Corp. v. Block, 755 F.2d 397, 398 (5th Cir. 1985) (reports submitted by nonprofit water supply company deemed “clearly commercial”); American Airlines, Inc. v. National Mediation Board, 588 F.2d 863, 870 (employee “authorization cards” submitted by nonprofit union deemed “commercial”). The documents at issue here are correspondence between the DOE and Biopraxis concerning Scripps’ performance under its subcontracts. They pertain to issues regarding commerce between Scripps and Biopraxis, and are thus clearly “commercial,” as that term is used in Exemption 4.

Scripps’ next contention is that the responsive documents were submitted on a non-voluntary basis, and that the National Parks criteria should therefore apply. Scripps does not, however, specify the regulatory or contractual provision under which Biopraxis was required to submit the documents in question, and we find no such requirement in the Biopraxis contract or in the DOE regulations. 10 C.F.R. Part 200 et seq. We therefore conclude that the documents were submitted on a voluntary basis. Furthermore, we find that Biopraxis does not customarily disclose commercial and financial information of the type contained in these documents to the public. In this regard, we note that most of the documents are captioned “Biopraxis Business Confidential And Proprietary.” Others contain commercially sensitive data concerning Bipraxis’ business dealings with the DOE and with Scripps, or information that could possibly be used against Biopraxis in any legal action filed by Scripps concerning the termination of the subcontracts, or concerning the substance of the communications between Biopraxis and the DOE. We therefore conclude that the Director properly applied Critical Mass in withholding the responsive documents.

However, even if we were to conclude that the documents were submitted on a non-voluntary basis, and that the National Parks criteria were therefore applicable, we would still find that those documents were properly withheld. As we stated previously, such documents are confidential for purposes of Exemption 4 if disclosure of the information is likely to either impair the government’s ability to obtain necessary information in the future or cause substantial harm to the competitive position of the person from whom the information was obtained. Id. at 770. We believe that release of this type of information would make it more difficult for the government to obtain information from contractors regarding alleged inappropriate behavior on the part of their subcontractors. A contractor would have a significant incentive to be less forthcoming to the DOE about its subcontractor concerns if it believed that such information could later be used in a legal action against it by the subcontractor. For these reasons, we find that the Director properly applied Exemption 4 in withholding the responsive documents.

B. Exemption 7(A)

The Director also cited Exemption 7(A) in withholding the responsive documents. This exemption allows an agency to withhold “records or information compiled for law enforcement purposes, but only to the extent that the production of such law enforcement records or information . . . could reasonably be expected to interfere with enforcement proceedings.” 5 U.S.C. § 552(b)(7)(A); 10 C.F.R. § 1004.10(b)(7)(i). We find this Exemption to be inapplicable in this case.

The threshold requirement in any Exemption 7 inquiry is whether the documents are compiled for law enforcement purposes, i.e., as part of or in connection with an agency law enforcement proceeding. See F.B.I. v. Abramson, 456 U.S. 615, 622 (1982); William Payne, 26 DOE ¶ 80,144 (1996) (Payne). An organization withholding material under Exemption 7 must have statutory authority to enforce a violation of a law or regulation within its authority. Church of Scientology v. Department of the Army, 611 F.2d 738, 748 (9th Cir. 1979) (remanding to Naval Investigative Service to show that investigation involved enforcement of statute or regulation within its authority). For example, we have consistently found that the DOE’s Office of the Inspector General (IG) compiles reports for law enforcement purposes within the meaning of Exemption 7. See Richard Levernier, 26 DOE ¶ 80,182 (1997) (“The IG is a classic example of an organization with a clear law enforcement mandate.”); Keci Corporation, 26 DOE ¶ 80,149 (1997); Payne; McKinney. Applying these principles to the matter at hand, we find no indication in the record that the Federal Energy Technology Center has the “requisite law enforcement mandate” to invoke the protection of Exemption 7. See, e.g., Church of Scientology International v. IRS, 995 F.2d 916, 919 (9th Cir. 1993) (law enforcement mandate provided by enforcement provisions of federal tax code). Moreover, even if we were to assume that the Director could invoke Exemption 7(A) on behalf of the Defense Contract Audit Agency and the Department of Health and Human Services auditors, the record is devoid of any indication that these auditors possess any law enforcement mandate or authority. See generally 32 C.F.R. Part 387 and 45 C.F.R. Part 74 (Defense Contract Audit Agency and HHS auditors, respectively, authorized to perform accounting services regarding agency contracts and subcontracts). Without evidence of such a mandate, we cannot conclude that the withheld documents were compiled for law enforcement purposes within the meaning of Exemption 7.

Although we have found this exemption to be inapplicable, the Director properly withheld the responsive documents pursuant to Exemption 4. We will therefore deny Scripps’ appeal.

It Is Therefore Ordered That:

(1) The Appeal filed by Scripps Oceanographic Institute on July 31, 1998 is hereby denied.

(2) This is a final Order of the Department of Energy from which any aggrieved party may seek judicial review pursuant to 5 U.S.C. § 552(a)(4)(B). Judicial review may be sought in the district in which the requester resides or has a principal place of business, or in which the agency records are located, or in the District of Columbia.

George B. Breznay

Director

Office of Hearings and Appeals

DATE: September 2, 1998