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Developments in FOIA Litigation: Measuring the Bounds of Exemption 4 After Argus Leader and the FOIA Improvement Act of 2016

By Victoria Baranetsky and Rachel Brooke

On December 5, Reveal from The Center for Investigative Reporting ("CIR") was successful in challenging the government's withholding of records under Exemption 4 of the Freedom of Information Act ("FOIA"), in the first case after the Supreme Court's decision in Argus Leader to find Exemption 4 did not apply.

In 2018, reporter Will Evans, in the course of his reporting on the lack of diversity in Silicon Valley, requested from the Department of Labor ("DOL") records, called EEO-1 Reports, documenting the overall gender and racial demographics of personnel at large companies. The requested forms are submitted to the DOL in order to ensure compliance with federal anti-discrimination laws, but the agency withheld the records pursuant to FOIA Exemption 4, claiming the records were "commercial or financial information obtained from a person [that is] privileged or confidential." 5 U.S.C. § 552(b)(4). After DOL failed to release the withheld records in response to an administrative appeal, CIR filed suit, but the Supreme Court's decision to grant certiorari for Food Marketing Institute v. Argus Leader ("Argus Leader") resulted in the case being stayed until the resolution of that case.

In June 2019, the Supreme Court decided Argus Leader, which substantially relaxed the standard the government must meet in order to withhold records as "confidential" under Exemption 4. Previously, courts found records to be "confidential" only when their release would cause "substantial competitive harm" to the party from whom they were obtained. Natl. Parks and Conservation Ass'n v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974). Under Argus Leader, the Court eliminated that requirement. In the opinion authored by Justice Gorsuch, the Court decided that information can qualify as confidential as long as it is customarily and actually treated as confidential by its owner, regardless of whether any harm would result from its disclosure.

The Argus Leader decision came in the wake of another important development in FOIA: the FOIA Improvement Act of 2016 ("FIA"), an amendment that created a new and independent hurdle for the government. FIA requires that agencies seeking to withhold documents under a discretionary FOIA exemption show a "foreseeable harm" would result from disclosure, on top of showing that an exemption applies. There has been much uncertainty about how Argus Leader will interact the foreseeable harm standard, as FIA seems to reimport a harm requirement which Argus Leader erased. The confusion over the interaction of the two legal precedents stems in part from the fact that Argus Leader itself did not address FIA, as it concerned a pre-FIA request, and so FIA did not apply.

The answer to this confusion was somewhat resolved in the United States District Court for the Northern District of California's decision in CIR v. Department of Labor. At issue in the case were three questions: first, whether EEO-1 Reports could fairly be described as "commercial;" second, how far "confidential" could be stretched under the expanded Argus Leader standard for confidentiality; and finally, whether the government had met the foreseeable harm standard.

In its opening brief for summary judgment, the government argued that the records were both commercial and confidential, as the records amounted to an organizational chart. The government also argued that foreseeable harm could result, citing to declaration from a company representative that attested that reputational harm could result from disclosure. CIR replied that none of these requirements were met. CIR argued that the records were clearly not commercial as they did not fulfill a business function and were not commercial in nature. Unlike records that disclosed intimate aspects of a business, like sales statistics, research data, or business plans, these records simply ensured compliance with federal law about a nonbusiness-related activity.

Moreover, CIR argued the records were not confidential, even under Argus Leaders' more lenient standard because DOL had released identical records from a prior calendar year to CIR. Also, CIR highlighted to the Court that the much of the data was made public on the companies' websites and was also visible to many employees' within the companies—even the Supreme Court stated it was meaningful that that in Argus Leader, the companies did not "disclose store-level SNAP data or make it publicly available 'in any way' and "[e]ven within a company...only small groups of employees usually have access to it." 139 S. Ct. 2356, 2363 (2019).

District Court Decision

In a decision written by Magistrate Judge Kandis A. Westmore, the Court sided with CIR on all three questions and ordered the DOL to produce the withheld EEO-1 Reports, finding the reports were not commercial in nature, were unlikely to be confidential under Argus Leader, and that the government failed to meet the foreseeable harm standard, making withholding under Exemption 4 inappropriate.

First, Judge Westmore held that the Diversity Reports were not commercial. While acknowledging that "commercial" was defined broadly for the purposes of Exemption 4, Judge Westmore emphasized that not all information submitted by private companies to the government could be deemed commercial in nature. While the government argued that the number of personnel in each of the categories related to a business's commercial enterprise and was thus commercial, Judge Westmore found that this was not enough, noting that the reports did not contain salary information, department staffing levels, or sales figures. This part of the decision might presage that Exemption 4 cases will increasingly be decided on the "commercial" prong of the test, especially as Argus Leader did not discuss this prong and little caselaw exists compared to the confidential prong. In fact, the only other decision deciding Exemption 4 since Argus Leader, in the Northern District of California, Am. Small Bus. League v. U.S. Dep't of Defense, C 18-01979 WHA, 2019 WL 4416613 (N.D. Cal. Sept. 15, 2019), similarly decided to disclose portions of the records under the commercial prong.

Second, while Judge Westmore declined to determine whether the EEO-1 Reports were confidential, she suggested that they were unlikely to be, even under the Argus Leader standard. Judge Westmore observed that the fact that all but one of the objecting companies publish diversity data on their public websites, much of which was duplicative with the EEO-1 data, weighed against characterizing the information as confidential. As such, this data is arguably "actually public" under Argus Leader. This holding provides some guidance on applying the Argus Leader test going forward: even partial disclosure of similar or duplicative information by private companies will make it difficult for the government to successfully argue that the information at issue is actually confidential.

Finally, Judge Westmore held that the DOL had failed to meet the foreseeable harm standard, which calls into question the impact of Argus Leader moving forward. Judge Westmore observed that the government had failed to address this requirement, and instead attempted to use Argus Leader to argue that it need not meet the foreseeable harm standard. The government had argued that, because Argus Leader eliminated the "substantial competitive harm," requiring a "foreseeable harm" showing in Exemption 4 cases would improperly reimpose the "substantial competitive harm" requirement. Judge Westmore disagreed, emphasizing that the foreseeable harm requirement was an independent requirement which must be satisfied even where an exemption otherwise applies.

Prior to Judge Westmore's decision, there was a concern about how far Argus Leader could extend, but the court's decision makes clear that Supreme Court's decision has not transformed Exemption 4 into a catchall provision for any and all information submitted to the government by a private company. While many business records like contracts and business plans may still be withheld, this case imposes some limits on the extent of that ruling. Moreover, it affirms that the "foreseeable harm" standard is an independent hurdle which the government must address, even in Exemption 4 cases.

In an age where key government functions are increasingly performed by private contractors, ensuring the propriety of the government's FOIA withholdings under these standards is more important than ever.

Victoria Baranetsky is general counsel at The Center for Investigative Reporting. Rachel Brooke is a First Amendment fellow with the Center for Investigative Reporting and a 2019 graduate of NYU School of Law.

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