William E. Logan, Jr. & Associates, Case No. VFA-0469, January 21, 1999

Case No. VFA-0469, 27 DOE ¶ 80,185

January 21, 1999

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Appellant: William E. Logan, Jr. & Associates

Date of Filing: January 4, 1999

Case Number: VFA-0469

William E. Logan, Jr., of the law firm William E. Logan, Jr., & Associates (Logan), files this Appeal pursuant to the Freedom of Information Act (FOIA), 5 U.S.C. § 552, as implemented by the Department of Energy (the Department) at 10 C.F.R. Part 1004.

Logan sent a FOIA request to the Department’s Strategic Petroleum Reserve Project Management Office (SPR) in New Orleans. In its request, Logan sought material dealing with lease and purchase agreements between Shell Pipeline Corporation and the Department. The agreements concerned the Bayou Choctaw crude oil pipeline and the St. James Terminal.

SPR released redacted copies of the agreements. In its determination letter accompanying the released documents, SPR informed Logan that it had withheld formula rates. With regard to the Bayou Choctaw and St. James Terminal lease agreements, SPR explained that:

The formula rates have been withheld because [they are] exempt from disclosure under the Freedom of Information Act, 5 U.S.C. 552(b)(4). Exemption 4 provides that an agency can withhold such data if it believes release would cause substantial harm to the competitive position of the person from whom the information was obtained or impair the Government’s ability to obtain such information in the future.

Similarly, with regard to the purchase agreement concerning Bayou Choctaw, SPR released a redacted copy, stating that “portions of [the purchase agreement] contain formulas that are exempt from disclosure under the Freedom of Information Act, 5 U.S.C. § 552(b)(4).” SPR did not provide any further explanation of its decision to redact the documents. Logan then filed this Appeal, contending that “the formula rates which have been deleted are not exempt from disclosure under the Freedom of Information Act.”

The FOIA generally requires that agency records held by a covered branch of the Federal Government, and which have not been made public in an authorized manner, be released to the public upon request. 5 U.S.C. § 552(a)(3). However, the FOIA lists nine exemptions that set forth the types of information that an agency may withhold. 5 U.S.C. § 552(b)(1)-(b)(9); 10 C.F.R. § 1004.10(b)(1)-(b)(9).

The exemption asserted in this case by SPR is found at 5 U.S.C. § 552(b)(4) (Exemption 4). Exemption 4 permits an agency to withhold from release “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” Thus, in applying Exemption 4, the withholding office must first determine whether the information either is a trade secret or is commercial or financial information.

If the agency determines the material is a trade secret for the purposes of the FOIA, its analysis is complete and the material may be withheld under Exemption 4. Public Citizen Health Research Group v. Food & Drug Admin., 704 F.2d 1280, 1286, 1288 (D.C. Cir. 1983).

However, if the agency determines the material is commercial or financial information, obtained from a person, and privileged or confidential, there is additional analysis the agency must undertake. First, the agency must decide whether the information was involuntarily or voluntarily submitted. If the information was voluntarily submitted, it may be withheld under Exemption 4 if the submitter would not customarily make such information available to the public. Critical Mass Energy Project v. Nuclear Regulatory Comm’n, 975 F.2d 871, 879 (D.C. Cir. 1992). If it was involuntarily submitted, the information may be withheld under Exemption 4 if disclosure meets either prong of a two-pronged test. Under the first prong, the information may be withheld if disclosure is likely to impair the government’s ability to obtain necessary information in the future. Under the second prong, the information may be withheld if disclosure is likely to cause substantial harm to the competitive position of the person from whom the government obtained the information. National Parks and Conservation Ass’n v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974).

As the descriptions indicate, these three standards are mutually exclusive. For purposes of Exemption 4, either information is voluntarily or involuntarily submitted commercial or financial information, or it is a trade secret.

In addition, once an agency decides to withhold information, both the FOIA and the Department’s regulations require the agency to provide a reasonably specific justification for its withholding. 5 U.S.C. § 552(a)(6), 10 C.F.R. § 1004.7(b)(1); Mead Data Central, Inc. v. Department of the Air Force, 566 F.2d 242 (D.C. Cir. 1977); National Parks & Conservation Ass'n v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976) (Kleppe); Digital City Communications, Inc., 26 DOE ¶ 80,149 at 80,657 (1997); Data Technology Industries, 4 DOE ¶ 80,118 (1979). This allows both the requester and this Office to determine whether the claimed exemption was accurately applied. Tri-State Drilling, Inc., 26 DOE ¶ 80,202 at 80,816 (1997). It also aids the requester in formulating a meaningful appeal and this Office in reviewing that appeal. Wisconsin Project on Nuclear Arms Control, 22 DOE ¶ 80,109 at 80,517 (1992).

Thus, if an agency withholds material under Exemption 4 because its disclosure is likely to cause substantial competitive harm, it must state the reasons for believing such harm will result. Larson Associated, Inc., 25 DOE ¶ 80,204 (1996); Milton L. Loeb, 23 DOE ¶ 80,124 (1993). Conclusory and generalized allegations of substantial competitive harm, on the other hand, are unacceptable and cannot support an agency's decision to withhold requested documents. Public Citizen Health Research Group v. F.D.A., 704 F.2d 1280, 1291 (D.C.Cir. 1983); Kleppe, 547 F.2d at 680 ("conclusory and generalized allegations are indeed unacceptable as a means of sustaining the burden of nondisclosure under the FOIA").

The determination letter issued by SPR does not satisfy either the FOIA or the Department’s regulations. As an initial matter, it does not explicitly state which of the three standards under Exemption 4 SPR applied in its decision to withhold the formula rates. Because the determination letter mentions the substantial competitive harm and impaired ability standards, it appears that SPR categorized the formula rates as involuntarily submitted commercial or financial information. However, SPR did not provide any explanation of how it arrived at this categorization. As a result, we cannot evaluate whether SPR applied the proper standard in withholding the formula rates. Furthermore, the determination letter provides no basis for the assertion that releasing the information would meet either prong of the test for involuntarily submitted commercial or financial information. Consequently, the determination letter does not permit either a meaningful appeal or an appropriate review.

We will therefore remand this matter to SPR to issue a new determination. That determination shall either release the formula rates or provide a new justification for withholding.(1) If SPR continues to withhold the formula rates under Exemption 4, it must explain which Exemption 4 test it is applying. In doing so, it must provide more than a simple restatement of the applicable test. Instead, it should include a statement of the reason for any withholding, and a brief explanation of how the exemption applies to the matter withheld. 10 C.F.R. § 1004.7(b)(1); William H. Payne, 26 DOE ¶ 80,221 at 80,861 (1997); Davis Wright & Jones, 19 DOE ¶ 80,104 at 80,510 (1989). In making its determination, SPR may group similar documents together and provide one justification for each group of documents.

It Is Therefore Ordered That:

(1) The Appeal filed by William E. Logan, Jr. & Associates, OHA Case No. VFA-0469, is hereby granted as specified in Paragraph (2) below.

(2) This matter is hereby remanded to the Strategic Petroleum Reserve Project Management Office, to issue a new determination in accordance with the instructions set forth in the above Decision and Order.

(3) This is a final Order of the Department of Energy from which any aggrieved party may seek judicial review pursuant to the provisions of 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 situated, or in the District of Columbia.

George B. Breznay

Director

Office of Hearings and Appeals

Date: January 21, 1999

(1)*/ In addition, the FOIA requires that "any reasonably segregable portion of a record shall be provided to any person requesting such record after deletion of the portions which are exempt." 5 U.S.C. § 552(b) (1982); Mead Data Central, Inc. v. Air Force, 556 F.2d 242, 259-62 (D.C. Cir. 1977), cert. denied, 436 U.S. 927 (1978); EPA v. Mink, 410 U.S. 73, 89, 91 (1973); Casson, Calligaro & Mutryn, 10 DOE ¶ 80,137 at 80,615 (1983). However, segregation and release of non-exempt material is not necessary where it is "inextricably intertwined" with the exempt material so that release of the non-exempt material would "compromise" the withheld material, or where the amount of non-exempt material is small and so interspersed with exempt material that it would pose "an inordinate burden" to segregate. Lead Indus. Ass'n v. OSHA, 610 F.2d 70, 83-86 (2d Cir. 1979).