USDOL/OALJ Law Library: Settlement & FOIA Exemption 4: Sample Determination Letter

Settlement & FOIA Exemption 4:
Sample Determination Letter

January 18, 1995

Bill Lane
Reporter
West Valley View
310 N. Dysart Road
Suite B
Avondale, AZ 85323

Dear Mr. Lane:

This letter serves to notify you that this Office has determined that Exemption Four to the Freedom of Information Act (FOIA), 5 U.S.C. § 552(b)(4), prevents disclosure of the terms of the settlement in Irick v. Arizona Public Service Co., 95-ERA-2. Thus, an unredacted copy of the transcript you requested will not be released. The reasons for this determination are stated below.

Introduction

Settlements of complaints filed under the employee protection provision of the Energy Reorganization Act are required to be submitted to the Secretary of Labor for review and approval before the complaint is dismissed. This procedure is contrary to the general rule that parties to a civil lawsuit may dismiss a case by stipulation without further judicial involvement; it is based on statutory language indicating that the Secretary must "enter into" any settlement agreement.[1] Thus, in effect, the Secretary of Labor is a party to the settlement.[2]

Exemption Four

Exemption Four[3] offers protection from disclosure for "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C. § 552(b)(4). In essence, this exemption protects those who are required to submit commercial or financial information to the government from the competitive disadvantages that could result from disclosure.[4]

In applying Exemption Four, the first element to consider is whether the information requested is commercial or financial information. The terms "commercial" and "financial" are to be given their "ordinary meanings."[5] The amount paid by a corporation to settle a lawsuit is financial information. Other details of the settlement terms constitute commercial information in the sense that the settlement of a lawsuit brought against a business by an employee relates to the business' commercial activities.[6] Thus, we conclude that the terms of the settlement agreement in the instant case are commercial or financial information.

The second requirement for protection under Exemption Four is that the information was obtained "from a person." A corporation fits within the statute's definition of "person,"[7] and therefore the second requirement for protection under Exemption Four is satisfied.

The final requirement of Exemption Four is that the information be privileged or confidential. It has not been contended that the information at issue is privileged. In National Parks & Conservation Association v. orton, [8] the Court of Appeals for the District of Columbia Circuit held that commercial or financial information is "... 'confidential' for purposes of the exemption if disclosure of the information is likely ... to cause substantial harm to the competitive position of the person from whom the information was obtained."[9] This part of the test stated in National Parks is used when the commercial or financial information is not voluntarily submitted.[10] As noted above, the submission of the terms of a settlement of an ERA whistleblower complaint to the Department of Labor is not voluntary.

In the instant case, the complainant and the respondent informed the administrative law judge at the hearing that they intended to include a confidentiality provision in the settlement agreement, and that they were requesting predisclosure notification in the event of a FOIA request. Arizona Public Service takes the position that disclosure of the dollar amount of the settlement in this case would cause substantial competitive harm to it in any subsequent settlement negotiations. Undoubtedly, a person armed with a benchmark of what his or her adversary in a lawsuit was willing to settle for in the past places the adversary at a competitive disadvantage in a settlement negotiation. Thus, Arizona Public Service has established all three elements of the National Parks test.

This Office recognizes that there may be other policy factors that could have been considered under a balancing test such as that used for Exemption Six.[11] The National Parks test, however, does not appear to leave any room to inject competing policy considerations into the analysis. oreover, the Justice Department's Office of Information and Policy states in its Freedom of Information Act Guide & Privacy Act Overview that Exemption Four is not generally susceptible to a discretionary FOIA disclosure by the agency.[12] Thus, although factors such as the public's interest in determining whether the Department of Labor is adequately reviewing ERA whistleblower settlements and the policy of strongly supporting the settlement of cases,[13] might appear to be relevant, existing case law does not appear to permit these interests to be considered under Exemption Four.

Summary and Notice of Appeal Rights

Exemption Four to the FOIA prohibits the Department from disclosing the terms of this settlement in an ERA whistleblower complaint where the respondent requested predisclosure notification. You may appeal the denial of your FOIA request to the Solicitor of Labor under the procedures stated in 29 C.F.R. § 70.22. An appeal must include a written statement of the grounds for appeal, including any supporting statements or arguments, and copies of the initial request and the response of this Office. It must be addressed to the Solicitor of Labor, Department of Labor, 200 Constitution Ave., NW, Washington, D.C. 20210. Both the envelope and the letter of appeal itself must be clearly marked "Freedom of Information Act Appeal."

Sincerely,

John M. Vittone
Deputy Chief Judge

JMV/vg/trs

cc: Gary L. Irick
Donald Peder Johnsen, Esquire
David O'Neill, Acting Director, Office of Administrative Appeals
Thomas J. Saporito
Hon. Joel R. Williams, Administrative Law Judge

FOOTNOTES

[1] This involvement by the government in what normally would be a settlement of a private dispute is based on the Secretary's obligation to ensure that the agreement is not against the public interest. See McCoy v. Utah Power, 94-CAA-1, 6 (Sec'y Mar. 22, 1994), in which the Secretary stated:

The Department does not simply provide a forum for private parties to litigate their private employment discrimination suits. Protected whistleblowing may expose not just private harms, but health and safety hazards to public, and the Secretary represents the public interest in keeping channels of information open by assuring that settlements adequately protect whistleblowers.

McCoy , 94-CAA-1, 6, Slip op. at 2-3.

[2] See Macktal v. Secretary of Labor, 923 F.2d 1150 (5th Cir. 1991), indicating that the Secretary's approval of a settlement completes consent of all three parties -- the respondent, the complainant and the Secretary -- as required by the statute.

[3] All of the reported cases involving whether a settlement agreement in which the government was a party is exempt from disclosure under the FOIA involve exemptions other than those raised by Arizona Public Service Co. Most of the reported cases involve whether the government can use Exemption Five to refuse to disclose documents in its custody relating to a settlement agreement. See, e.g., County of Madison, N.Y. v. U.S. Dept. of Justice, 641 F.2d 1036 (1st Cir. 1981). The only mention of Exemption Four in this context in a reported case indicates that the Exemption might be applicable, although the court hinted that there might be a problem in categorizing settlement documents as commercial or financial information. County of Madison, 641 F.2d at 1042. Generally, the courts decline to permit the agency to invoke Exemption Five in regard to settlements.

[4] United States Department of Justice, Office of Information and Privacy, Freedom of Information Act Guide and Privacy Act Overview 94 (September 1993 ed.).

[5] Public Citizen Health Research Group v. FDA, 704 F.2d 1280, 1290 (D.C. Cir. 1983) (citing Washington Post Co. v. HHS, 690 F.2d 252, 266 (D.C. Cir. 1982)).

[6] Compare Burroughs Corp. v. Brown, 501 F. Supp. 375 (E.D. Va. 1980), affd, 654 F.2d 294 (4th Cir. 1981) (information that could lead to loss of employee morale or permit competitors to assess relative efficiencies in workforce protected under Exemption Four).

[7] Comstock Int'l., Inc. v. Export-Import Bank, 464 F. Supp. 804, 806 (D.D.C. 1979).

[8] National Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C. Cir. 1974).

[9] Id. at 770.

[10] See Critical Mass Energy Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992)(en banc).

[11] See United States Dept. of Justice v. Reporters Committee for Freedom of the Press, 489 U.S. 749 (1989); Department of the Air Force v. Rose, 425 U.S. 352, 372 (1976).

[12] United States Department of Justice, Office of Information and Privacy, Freedom of Information Act Guide and Privacy Act Overview 282 (September 1993 ed.).

[13] The Department has a policy of supporting alternative dispute resolution. See Alternative Dispute Resolution Interim Policy, 57 Fed. Reg. 7292 (1992).