Oh SNAP!: The Battle Over “Food Stamp” Redemption Data That May Radically Reshape FOIA Exemption 4 (Part I)

by Bernard Bell — Thursday, Sept. 6, 2018

On August 29, the Supreme Court ordered recall of the mandate in an Eighth Circuit case, Food Marketing Institute v. Argus Leader Media, 889 F.3d 914 (2018). It issued the Order, available here, in anticipation of a certiorari petition attacking the foundations of well-developed Circuit law defining the scope of Freedom of Information Act (“FOIA”) Exemption 4.  The Exemption allows agencies to withhold “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”  5 U.S.C. §552(b)(4).  The Solicitor General did not take a position on the application. It will be interesting to see whether he supports the petition for certiorari, and, if not, what effect that will have.  This series of posts will discuss what is at stake if the Court grants certiorari.  The case raises interesting questions about textualism and its relationship to long-standing court of appeals precedent.  Ultimately, the data the Food Marketing Institute (“FMI”) wishes the U.S. Department of Agriculture (“USDA”) to withhold will likely be considered outside Exemption 4’s ambit.

Judicial interpretation of FOIA has mirrored the broad evolution in judicial methodology, from a purposive, atextual approach in the 1960’s and 1970’s to the more textualist approached that gained ascendancy in 1980’s and thereafter.  See, Jonathan R. Siegel, The Legacy Of Justice Scalia And His Textualist Ideal, 85 GEO. WASH. L. REV. 857, 870-74 (2017).  Some foundational FOIA doctrines reflect a “practical” interpretation of FOIA at best loosely tied to text.  E.g., Gardels v. CIA, 689 F.2d 1100, 1103 (D.C. Cir. 1982)(“an agency may refuse to confirm or deny the existence of records where to answer the FOIA inquiry would cause harm cognizable under an FOIA exception”); Phillippi v. the Central Intelligence Agency, 655 F.2d 1325, 1330 (D.C. Cir. 1981) (same).  In 3 of the 4 FOIA decisions it has issued since 2000, the Supreme Court has focused on the plain meaning of FOIA’s text.  Department of Interior v. Klamath Water Users Protective Assn, 532 U.S. 1, 12 (2001)(questioning the “consultant’s corollary” under Exemption 5), FCC v. AT&T, 562 U.S. 397 (2011)(corporations cannot assert an interest in personal privacy under Exemption 7(c)), Milner v. Department of the Navy, 562 U.S. 562, 569-76 (2011) (rejecting the “high-2” Exemption).  It has done so even in the face of well-established Circuit precedent it allowed to take root and develop over years.  Klamath questioned one such doctrine; Milner overturned another.

Lower courts have taken note and often follow this textualist trend,  E.g., Sikes v. United States Department of Navy, 896 F.3d 1227, 1234-35 (11th Cir. 2018)(rejecting creation of an exception for duplicate requests, citing Milner and Klamath for its observation that “the Supreme Court has rejected other attempts to insert exemptions into FOIA to address an agency’s good-faith policy concerns”); AquAlliance v. United States Bureau of Reclamation, 856 F.3d 101, 104-105 (D.C. Cir. 2017)(the term “wells” in Exemption 9 included water wells, regardless of contrary indications in the legislative history); American Immigration Lawyers Assn v. Executive Office for Immigration Review, 830 F.3d 667, 670, 676-679 (D.C. Cir. 2016)(portions of documents that include non-responsive information cannot be redacted as no exemptions provide for redactions on such a basis); Shapiro v. DOJ, 153 F. Supp. 3d 253, 273–76 (D.D.C. 2016).

I. Exemption 4

The Supreme Court has never construed Exemption 4 in FOIA’s 52-year history.  See, New Hampshire Right to Life v. Department of Health and Human Services, —U.S. —, 136 S.Ct. 383 (2015)(Thomas, J., dissenting from denial of certiorari).  As one might expect, however, court of appeals precedents abound.  See, Department of Justice, Guide to the Freedom of Information Act 263-358 (2014).  D.C. Circuit precedents have been particularly influential.  Exemption 4 requires that the information an agency seeks to withhold be either a “trade secret” or, alternatively (1) “commercial or financial information,” (2) provided by a person, (3) that is either “privileged or confidential.” 5 U.S.C. §552(b)(4); Brockway v. Dep’t of Air Force, 518 F.2d 1184, 1188 (8th Cir. 1975).  FMI will likely to focus on the meaning of the term “confidential,” as it did in its motion for the recall of the mandate and a stay, Food Marketing Institute v. Argus Leader Media, Application To Recall And Stay Mandate, etc. (Aug 7, 2017).

Dictionary definitions would suggest that a document’s “confidential” nature turns on whether the “owner” of the information is willing to share it broadly.  AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE (1969) (“[d]one or communicated in confidence; told in secret”); BLACK’S LAW DICTIONARY (“[i]ntrusted with the confidence of another or with his secret affairs or purposes; intended to be held in confidence or kept secret”); see, FMI Application to Recall and Stay Mandate at 16.

There is certainly support for such a position in the committee reports accompanying FOIA.  H.R. REP. 89-1497, 89TH CONG., 2D SESS. 31 (May 9, 1966); S. REP. 89-813, 89TH CONG., 1ST SESS. 44 (Oct. 1, 1965). (The page citations are to Committee on Judiciary, Freedom of Information Act Source Book: Legislative Materials, Cases, Articles (1974)(available on Hein Online).)  For example, the House Report explained that the Exemption covers material that “would not customarily be made public by the person from whom it was obtained by the Government.”  It continued: “It would also include information which is given an agency in confidence, since a citizen must be able to confide in his Government[;] [m]oreover, where the Government has obligated itself in good faith not to disclose documents or information which it receives, it should honor that obligation.” H.R. REP. 89-1497 at 31.

Initially, some courts interpreted the term “confidential” consistently with the dictionary definitions and the House Report.  See, e.g., Sterling Drug, Inc. v. FTC, 450 F.2d 698, 709 (D.C. Cir. 1971); M.A. Schapiro & Co. v. SEC, 339 F. Supp. 467, 471 (D.D.C. 1972). For instance, in GSA v. Benson, 289 F. Supp. 590 (W.D. Wash. 1968), a District Judge ruled that this exemption clearly condones withholding information only when it is obtained from a person outside the agency, and that person wishes the information to be kept confidential,” id. at 594 (emphasis added)  The Ninth Circuit upheld that view.  415 F.2d 878, 881 (9th Cir. 1969).

Development of the National Parks/Critical Mass Test

The D.C. Circuit jettisoned that approach in National Parks and Conservation Assn v. Morton, 498 F.2d 765 (D.C. Cir. 1974), in an opinion written by conservative jurist Judge Edward A. Tamm.  The Court noted that FOIA did not define the term “confidential,” id. at 766, and reiterated that the test for confidentiality must be an objective one, id. (citing Bristol-Myers Co. v. FTC, 424 F.2d 935, 938 (D.C. Cir.), cert. denied, 400 U.S. 824 (1970)).  The Court employed a purposive approach — “[w]hether particular information would customarily be disclosed to the public by the person from whom it was obtained is not the only relevant inquiry . . . [a] court must also be satisfied that non-disclosure is justified by the legislative purpose which underlies the exemption.”  Id.  The legislative history revealed the Exemption’s dual goals: maintaining the government’s ability to obtain the information and protecting business entities from competitive harm attendant release of information they had provided to the government.  Accordingly, commercial or financial matter qualified as “confidential” if its disclosure would likely: (1) impair the Government’s ability to obtain necessary information in the future, or (2) cause substantial harm to the competitive position of the person from whom the information was obtained.  Id. at 770.

National Parks came under textualist attack in a concurring opinion in Critical Mass Energy Project v. Nuclear Regulatory Commission, 931 F.2d 939, 947-48 (D.C. Cir. 1991) (Randolph & Williams, JJ., concurring).  Judge Randolph argued that the Circuit should honor the plain meaning of the term “confidential.”  In his view, the proffered defense of the National Parks test was “one of legislative policy[;] [i]t [was] not based on any ambiguity in the language of the statute.”

The D.C. Circuit took up the case en banc and largely reaffirmed National ParksCritical Mass Energy Project v. Nuclear Regulatory Commission, 975 F.2d 871 (D.C. Cir. 1992)(en banc), cert. denied, 507 U.S. 984 (1993).  The en banc majority found insufficient justification for abandoning National Parks, particularly given its “widespread acceptance” by the other circuits,” the lack of any negative congressional reaction, and its workability in practice. Id. at 876-77.  Indeed, the majority noted, Congress had taken cognizance of the case in a subsequent statutes, notably the Government in the Sunshine Act, Pub. L. 94–409, 90 Stat. 1241 (1976).  Critical Mass, 975 F.2d at 876-77 (citing CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1153 n.146 (D.C.Cir.1987)).

The D.C. Circuit announced a new categorical test for the protection of information that is “voluntarily” submitted: such information is categorically protected provided it is not “customarily” disclosed to the public by the submitter.  Id. at 879.  But the “voluntary submission” test was nevertheless “objective,” “the agency invoking Exemption 4 must meet the burden of proving the provider’s custom.”  Id.  The distinction between voluntarily and involuntarily submitted information has some support in the Senate Report, which explained that the Exemption “is necessary to protect the confidentiality of information which is obtained by the Government through questionnaires or other inquiries, but would not customarily be released to the public by the person from whom it was obtained.”  S. REP. 89-813 at 45.

The Supreme Court’s Preeminent Textualists Take up the Call to Review the National Parks/Critical Mass Test

Justices Thomas and Scalia took up the call to consider the National Parks/Critical Mass definition of “confidentiality,” in dissenting from denial of a writ of certiorari in New Hampshire Right to Life v. Department of Health and Human Services.  Justice Thomas, writing for the pair, noted that the Supreme Court’s failure to opine on Exemption 4 had allowed the courts of appeal to interpret the word “confidential” atextually.  N.H. Right to Life, 136 S.Ct. at 383.  Since Critical Mass, every Court of Appeals to consider Exemption 4 had done so by parsing National Parks‘ “nebulous language” about “actual competition” and a “substantial likelihood of competitive harm.” Id.  The effort had produced confusion.  In particular, “[c]ourts cannot seem to agree on what kind of ‘actual competition’ must be shown,” as evidenced by the First and Ninth Circuit’s conflicting approaches to that question.   Nor, he said, could the Circuits consistently define the necessary “substantial likelihood of competitive harm.”

Interestingly, in light of his appeal to textualism, Justice Thomas referenced Federal Open Market Committee v. Merrill, 443 U.S. 340 (1979).  He viewed FOMC as providing government agencies the protection for their own commercial information, under Exemption 5, that Exemption 4’s plain language conferred upon private entities.  He decried the anomaly.  FOMC was hardly paean to textualism; indeed, the FOMC dissenter convincingly argued that the majority’s decision was not only atextual, but a creatively atextual one at that.  Id. at 366 & n.2 (Stevens, J., dissenting)(“nothing in any of the nine exemptions to the Act has any bearing on the present situation”).

FOMC created a privilege to withhold the Open Market Committee’s Domestic Policy Directives before they were executed.  The agency argued for a broad anti-circumvention exemption, like the then-extant high-2 exemption, for its monetary strategy.  Id. at 353.  The Court recognized a quite narrow exemption, based on Rule 26 of the Federal Rules of Civil Procedure. Id at 355-56 (citing Fed. R. Civ. P. 26(c)(7)).  The Federal Rules had been amended in 1970 to allow courts to protect “trade secrets and other confidential commercial information.”  Fed. R. Civ. P. 26 Advisory Committee Notes — 1970 Amendments.  (The provision has since been amended to provide for a protective order “requiring that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way.” Fed. R. Civ. P. 26(c)(1)(G).)

The test used by courts in applying the Federal Rules of Civil Procedure is no less complex, and indeed considerably more complex, than the National Parks/Critical Mass test.  See, e.g., United States v. International Business Machine Corp., 67 F.R.D. 40, 46–47 (S.D.N.Y.1975)(“U.S. v. IBM”)(seven-factor test); Massey Coal Services, Inc. v. Victaulic Co., 249 F.R.D. 477 (S.D. W. Va. 2008).  Moreover, the test incorporates some consideration of competitive harm. U.S. v. IBM, 67 F.R.D. at 46–47 (seven-factor test that includes the value of the information to the business and its competitors); Massey Coal, 249 F.R.D. at 483 (because documents in question lacked “independent economic value by virtue of their possession by Defendants and their non-possession by others who could obtain economic value from their use” they did not contain “confidential commercial information”).

Other Provisions in the United States Code

Use of the term “confidential” in the context of financial and commercial information is not unique to FOIA Exemption 4.  The Federal Rules of Civil Procedure added a provision using the term “confidential commercial information” in 1970 (four years after FOIA) in authorizing the federal courts to issue protective orders in the context of discovery.  Numerous statutes include the words “confidential” and “privileged” in connection with commercial and financial data.  A search for provisions of the U.S. Code that contain “privileged” and “confidential” in the Office of Law Revision, United States Code database yielded 79 results.

For example, 51 U.S.C. §20131 allows the NASA Administrator to provide “appropriate protections” for a trade secret or commercial or financial information that is privileged or confidential under the meaning of section 552(b)(4) of Title 5” if the information had been obtained from a non-Federal party participating in certain agreements. The Administrator can do so for a five-year period.  Section 40119 of Title 49, in authorizing pursuit of research initiatives in air transportation security, provides that “[n]otwithstanding section 552 of title 5 . . . the Secretary of Transportation shall prescribe regulations prohibiting disclosure of information obtained or developed in ensuring security . . . if [he] decides disclosing the information would—“(B) reveal a trade secret or privileged or confidential commercial or financial information.”  Section 14123(b)(2) of Title 49 provides that in determining the matters to be covered by mandatory annual reports, the Secretary shall consider “the need to preserve confidential business information and trade secrets and prevent competitive harm.” Indeed, some of those statutes were enacted after FOIA’s enactment and reference FOIA in using the term “privileged or confidential.”  E.g., 51 U.S.C. §20131; 15 U.S.C. § 45b(b)(3)(A).

II.  The Argus Leader Saga

By 2012, the Food Stamp program, which began in 1964 and was later renamed the Supplemental Nutrition Act Program, had grown such that it cost over $78 billion and provided nutritional assistance to over 46 million people.  Argus Media Leader v. U.S. Department of Agriculture, 740 F.3d 1172, 1173-74 (8th Cir. 2014).  In the program’s first 25 years, beneficiaries presented stamps to food retailers in payment for foodstuffs.  Between 1988 and 2004, the program converted from food stamps to electronic benefit transaction cards, enabling SNAP beneficiaries to use such cards to purchases groceries.  U.S. Department of Agriculture, A Short History of SNAP (Nov. 28, 2017); Argus Media Leader, 740 F.3d at 1174.  A third-party processor debits the beneficiary’s account and credits the retailer’s. The processors then send transaction data to the USDA, which compiles each retailer’s aggregated data.

On February 1, 2011, the Argus Leader, a Sioux Fall, South Dakota newspaper, sought information regarding SNAP redemptions for each store participating in the program between fiscal years 2005 and 2010.  Id. at 1174.  USDA objected on the basis of exemptions 3 and 4.  Argus Leader Media v. USDA, 740 F.3d 1172 (8th Cir. 2014). Exemption 3 permits agencies to withhold documents “specifically exempted from disclosure by statute.”  5 U.S.C. §552(b)(3).  USDA’s Exemption 3 claim was based on 7 U.S.C. § 2018(c).

Section 2018(c) provides that “[r]egulations issued pursuant to this chapter shall require an applicant retail food store . . . to submit information, which may include relevant income and sales tax filing documents, which will permit a determination to be made as to whether such applicant qualifies, or continues to qualify, for approval . . .”  (Emphasis added.)  It also provides that by “[r]egulations issued pursuant to this chapter shall provide for safeguards which limit the use or disclosure of information obtained under the authority granted by this subsection to purposes directly connected with administration and enforcement of the provisions of this chapter or the regulations issued pursuant to this chapter.”  Id.; see, The Food Stamp Act of 1964, Pub. L. 88-525, 78 Stat. 703, §8(b).  (This language has remained unchanged since 1964, even though several exceptions have been tacked on over the years).

The Eighth Circuit held that because the aggregate “redemption” data is submitted by third party-processors, not the retail outlet, the data fell outside section 2018(c).  It made no difference that the information “could have been obtained” from the retailer, only the manner in which it had actually been obtained.  Id.  Moreover, such aggregate data is not used to determine whether a given retailer “qualifies” or “continues to qualify” as a program participant, yet a second reason the data fell outside 2018(c).   Id. at 1176.  Acknowledging the literal nature of its interpretation, the Court noted that FOIA exemptions are to be interpreted narrowly, citing Milner. Id.

Thus, the irony is that the Eighth Circuit’s arguably overly-literal textualist approach, in reliance on Milner, made resolution of the case impossible under Exemption 3, requiring the courts to address the Exemption 4 issue.

On remand, the District Court held a trial regarding USDA’s invocation of Exemption 4.  Argus Leader Media v. United States Department of Agriculture, 224 F.Supp.3d 827 (D.S.D. 2016). The testimony focused on the magnitude of the competitive harm that would flow from release of the aggregate data.  Id. at 830-31.  Judge Schreier found that the grocery industry was characterized by “actual,” and indeed even “fierce,” competition.  Id. at 833.  However, she concluded, “any potential competitive harm from the release of the requested SNAP data is speculative at best.”  Id. at 834.  She acknowledged the testimony of several experienced retail grocers that disclosure of individual store redemption data could enable competitors to target a store’s customers.  Id. at 833-34.  But Judge Schreier also credited expert testimony from the Argus Leader’s witnesses that market participants already use a variety of publicly available information about competing grocers, including a store’s location, layout, pricing, product selection, and customer traffic to make decisions. Id. at 834.  Thus, she concluded, disclosure of the aggregate redemption data would only nominally affect competition. Id.

In a brief opinion, the Eighth Circuit affirmed.  Food Marketing Institute v. Argus Leader Media, 889 F.3d 914 (2018).  In doing so, it observed:

The USDA’s evidence showed only that more accurate information would allow grocery retailers to make better business decisions. If that were enough to invoke Exemption 4, commercial data would be exempt from disclosure any time it might prove useful in a competitive marketplace. A likelihood of commercial usefulness—without more—is not the same as a likelihood of substantial competitive harm.

Id. at 916-17.

But the resolution of the Exemption 3 issue below suggests a hurdle FMI must overcome in its effort to prevail based on a textualist approach to Exemption 4.   Third-party processors, not grocers, provide the aggregate redemption data at issue.  Thus grocers’ customary practices are irrelevant; the third-party processors’ customary practice are critical.  But the record may be silent on this point — no third-party processor appears to have intervened to prevent disclosure of the aggregate data.  Do they customarily withhold store-level aggregate redemption data?  There appears to be no evidence of any agreement between retailers and these third parties regarding such data’s confidentiality.

III.  Future Posts in this Series

Future posts will discuss several issues.  One will discuss why the aggregate data should not be viewed as confidential information even if the Critical Mass test is jettisoned.  Another will consider whether the doctrine of stare decisis should incline the court toward upholding the National Parks/Critical Mass test, i.e., should textualism outweigh stare decisis?  A third will discuss a new challenge retail grocers are making for requiring USDA to withhold information, Texas Retailers Association v. U.S. Department of Agriculture, Dkt No. 18 Civ. 659 (W.D. Tex. Aug. 8, 2018).

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