[Federal Register Volume 68, Number 140 (Tuesday, July 22, 2003)]
[Notices]
[Pages 43376-43378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18545]


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LEGAL SERVICES CORPORATION


Freedom of Information Policy--Grant Application Materials and 
Exemption 4

AGENCY: Legal Services Corporation.

ACTION: Notice of policy change.

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SUMMARY: The Legal Services Corporation (LSC) is subject to the Freedom 
of Information Act (FOIA). Under FOIA and LSC regulations, a requested 
record may be withheld from disclosure if, inter alia, the record 
contains trade secrets or commercial or financial information obtained 
from a person and is privileged or confidential. In the past, LSC 
policy has been to routinely withhold application materials submitted 
to LSC as part of the competitive bidding process from public 
disclosure pursuant to this exemption. For the reasons set forth below, 
LSC has decided that documents submitted by applicants as part of grant 
applications (the Proposal Narrative (parts 1 & 2) on original grant 
applications and the Application Narrative (parts A & B) for grant 
renewal applications) are generally not entitled to protection from 
disclosure in response to FOIA requests

[[Page 43377]]

after grants have been awarded for a given application period.

EFFECTIVE DATE: This policy became effective on July 9, 2003.

FOR FURTHER INFORMATION CONTACT: Dawn M. Browning, Assistant General 
Counsel, Office of Legal Affairs, Legal Services Corporation, 3333 K 
Street, NW., Washington, DC 20007-3522; 202/295-1626 (phone); 202/337-
6519 (fax); [email protected].

SUPPLEMENTARY INFORMATION: The Legal Services Corporation (LSC) is not 
a ``department, agency, or instrumentality of the Federal Government.'' 
42 U.S.C. 2996(d). LSC is, however, by the terms of its organic 
legislation, subject to the Freedom of Information Act (FOIA). Id. LSC 
has issued regulations \1\ governing its basic FOIA procedures. See 45 
CFR part 1602.
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    \1\ LSC is authorized by Congress to issue regulations as 
necessary to carry out its mission. See 42 U.S.C. 2996(e). Since LSC 
is not a Federal agency, however, LSC is not subject to the 
requirements of the Administrative Procedures Act, which governs the 
rulemaking activities of Federal agencies. Rather, LSC is required 
to ``afford notice and reasonable opportunity for comment to 
interested parties prior to issuing rules, regulations, and 
guidelines, and it shall publish in the Federal Register at least 30 
days prior to their effective date all its rules, regulations, 
guidelines and instructions.'' 42 U.S.C. 2999(g).
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    Under FOIA and LSC regulations, a requested record may be withheld 
from disclosure if, inter alia, the record contains trade secrets or 
commercial or financial information obtained from a person and is 
privileged or confidential. See 5 U.S.C. 552(b)(4); 45 CFR 
1602.9(a)(3). In the past, LSC policy has been to routinely withhold 
grant application materials submitted in connection with the 
competitive bidding process pursuant to this exemption. For the reasons 
set forth below, LSC has decided that documents submitted by applicants 
as part of grant applications (the Proposal Narrative (parts 1 & 2) on 
original grant applications and the Application Narrative (parts A & B) 
for grant renewal applications) are generally not entitled to 
protection from disclosure in response to FOIA requests after grants 
have been awarded for a given application period. LSC will continue to 
review each request for this information on a case by case basis to 
ascertain whether there is anything extraordinary in a given narrative 
which merits withholding and will continue to provide persons and 
organizations whose applications have been requested opportunity to 
seek protection from disclosure of some or all of the documents 
requested upon an individualized showing of competitive harm. However, 
LSC's general policy will be to release this information.
    It should be noted that, since this policy change is not a ``rule, 
regulation, guideline or instruction,'' LSC is not required by law to 
publish this policy notice or seek public comment. LSC is choosing to 
publish this interpretive policy statement in the Federal Register (and 
has also posted it on the LSC website at http:;www.lsc.gov) in 
furtherance of LSC's interest in and policy of conducting its business 
in a fair and open manner.\2\ LSC invites interested parties to submit 
written comments on this matter.
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    \2\ LSC originally published a notice regarding this change in 
policy on April 17, 2001 (66 FR 19798) and invited the public to 
comment prior to effectuation of the change. LSC received one 
comment opposing the change. The commenter expressed concern that 
disclosure of the proposal narrative after the close of competition 
will cause competitive harm by allowing persons to, essentially, 
copy a successful grant application for later LSC competitions or 
other grants. For the reasons discussed above, however, LSC believes 
that the type of information found in the grant narratives does not 
rise to the level of detail or specificity required by the Exemption 
4 case law, such that it is not legally defensible under the FOIA 
case law for LSC to maintain a presumption against disclosure of 
proposal narratives. To guard against harm in specific cases, 
however, as discussed above, LSC will continue to make Exemption 4 
determinations related to proposal narratives on a case-by-case 
basis, allowing submitters the opportunity to explain why their 
respective proposal narratives should not be released in response to 
a FOIA request. In fact, the submitter's rights process has recently 
been formally codified into the Corporation's FOIA regulations. See 
68 FR 7433 (Feb. 14, 2003).
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    Exemption 4 of FOIA is codified at 5 U.S.C. 552(b)(4) and provides 
that the requirement for disclosure of most public documents ``does not 
apply to matters that are * * * trade secrets and commercial or 
financial information obtained from a person and privileged or 
confidential.'' According to FOIA case law, documents submitted to LSC 
for competitive bidding qualify as ``commercial or financial 
information obtained from a person.'' \3\ With that threshold met, the 
relevant analysis upon receipt of a request for competitive grant 
application documents is whether the information sought is ``privileged 
or confidential.''
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    \3\ The Court of Appeals for D.C. has held that ``commercial'' 
and ``financial'' should be given their ``ordinary meanings.'' 
Public Citizen Health Research Group v. FDA, 704, F.2d 1280, 1290 
(DC Cir. 1983) (citing Washington Post Co. v. HHS, 690 F.2d 252, 266 
(D.C. Cir. 1982)). Examples of documents which have been accepted as 
``commercial or financial information'' include business sales 
statistics; research data; technical designs; customer and supplier 
lists; profit and loss data; overhead and operating costs; and 
information on financial conditions. See Landfair v. United States 
Dep't of the Army, 645 F. Supp. 325, 327 (D.D.C. 1986). The term 
``person'' has been interpreted to include a wide range of entities, 
including private organizations such as grantees. See e.g. Nadler v. 
FDIC, 92 F.3d 93, 95 (2d Cir. 1996) (term 'person' includes ``an 
individual, partnership, corporation, association, or public or 
private organization other than an agency.'' )
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    In evaluating Exemption 4 cases, the D.C. Circuit Court has 
established two tests for determining whether documents are 
``privileged or confidential,'' identifying one test as applicable to 
documents which are submitted to the relevant agency pursuant to a 
requirement, and another test for documents which are voluntarily 
submitted to the relevant agency.\4\ Although ``required information'' 
and ``voluntary information'' were never explicitly defined in the 
cases which articulated these tests, the Department of Justice (DOJ) 
has concluded that a submitter's voluntary participation in an 
activity--such as seeking a government contract or applying for a grant 
or loan--does not govern whether any submission made in connection with 
that activity is ``voluntary.'' DOJ has recommended that in examining 
the nature of a submitter's participation in an activity, agencies 
should focus on whether submission of the relevant information was 
required of those who chose to participate.
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    \4\ See National Parks & Conservation Ass'n v. Morton, 498 F.2d 
765 (D.C. Cir. 1974) (articulating test which is now applied to 
documents submitted pursuant to a requirement), and Critical Mass 
Energy Project v. NRC, 975 F.2d 871, 879 (D.C. Cir. 1992) (creating 
new test to be applied to documents submitted voluntarily).
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    Pursuant to the DOJ guidelines and other federal case law, 
including federal case law from the District of Columbia,\5\ it is 
clear that the information submitted to LSC by applicants for 
competitive LSC grants would be considered ``required'' information, 
because recipients' receipt of grants is contingent upon the provision 
of the relevant information to LSC. Consequently, a determination of 
whether this information is ``privileged or confidential'' would 
involve the analysis for ``required information'' which was first 
articulated in the case of National Parks & Conservation Ass'n v. 
Morton, 498 F.2d 765 (D.C. Cir. 1974), and reiterated in the case of 
Critical Mass Energy Project v. NRC, 975 F.2d 871, 879 (D.C. Cir. 
1992). According to this test, ``commercial or financial

[[Page 43378]]

matter is `confidential' for purposes of Exemption 4 if disclosure of 
the information is likely to have either of the following effects: (1) 
To impair the Government's ability to obtain necessary information in 
the future; or (2) to cause substantial harm to the competitive 
process.''
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    \5\ See, e.g. Martin Marietta Corp. v. Dalton, 974, F. Supp. 37, 
39 (D.D.C. 1997); McDonnell Douglas Corp. v. NASA, 981 F. Supp. 12, 
15 (D.D.C. 1997); McDonnell Douglas Corp. v. NASA, 895 F. Supp. 319, 
325-26 (D.D.C. 1995); Chemical Waste Management Inc. v. Leary, 1995 
WL 115894 (D.D.C. Feb. 28, 1995); TRIFID Corp. v. National Imagery & 
Mapping Agency, 10 F. Supp. 2d 1087, 1098-1101 (E.D. Mo. 1998); and 
Source One Management v. U.S. Dept. of Interior, No. 92-Z-2101, 
transcript at 6 (D. Colo. Nov. 10, 1993) (all holding that 
information submitted in application for government contract was 
``required'' information).
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    Because of the large amount of money LSC distributes and the 
substantial reliance of many programs on LSC funds for continuation, it 
is unlikely that the release of the narratives of applicants in 
response to FOIA requests will impair LSC's ability to receive 
applications in the future.\6\ Therefore, the next step of the analysis 
is whether the release of this information would ``cause substantial 
harm to the competitive process.''
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    \6\ Courts have generally given substantial deference to agency 
determinations about whether such disclosures would impair the 
relevant agency's ability to receive applications in the future, 
noting that (1) Agencies have an incentive not to release 
information which will impair their ability to receive future 
applications, and (2) government contracting involves millions of 
dollars and the release of application information is unlikely to 
dissuade all potential applicants. See e.g. Martin Marietta Corp. v. 
Dalton, 974 F. Supp. 37, 39-40 (D.D.C. 1997); McDonnell Douglas 
Corp. v. NASA, 981 F. Supp. 12, 15 (1997); C.C. Distributors v. 
Kinzinger, 1995 WL 405445, *4 (D.D.C. 1995); McDonnell Douglas Corp. 
v. NASA, 895 F. Supp. 319 (1995); and Racal-Milgo Gov't Systems, 
Inc. v. Small Business Admin., 559 F. Supp. 4, 6 (D.D.C. 1981).
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    In the case of National Parks and Conservation Ass'n v. Kleepe, 547 
F.2d 673 (1973), the U.S. Court of Appeals for the DC Circuit 
articulated general examples of situations that might constitute 
``substantial competitive harm.'' One such example would be a situation 
in which information disclosed pursuant to FOIA would be useful to a 
competitor in devising means to improve its competitive position at the 
expense of the business whose information was being released.\7\ The 
court noted that in this circumstance, such disclosure would reveal 
that business' secrets without providing it with similar access to the 
books and records of its competitor.\8\ ``This competitive disadvantage 
is fundamentally unfair and would be likely to cause harm to the 
(business) basic position.'' \9\ The court went on to state that:

``the likelihood of substantial harm to (the applicant's) 
competitive positions * * * (is) virtually axiomatic * * * (where) 
disclosure would provide competitors with valuable insights into the 
operational strengths and weaknesses of (an applicant), while the 
(competitors) could continue in the customary manner of `playing 
their cards close to their chest.' ''\10\
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    \7\ National Parks and Conservation Ass'n v. Kleepe, 547 F.2d 
673, 678, note 18 (1973).
    \8\ Id.
    \9\ Id.
    \10\ Id. at page 684.

    Because LSC only intends to release information provided in the 
narrative of the applications after grants have been awarded for a 
given application period, LSC does not believe the release will cause 
``substantial competitive harm'' to applicants as defined above in most 
cases.
    Although federal courts have identified the disclosure of various 
types of documents to constitute ``substantial competitive harm,'' the 
LSC application narratives which LSC proposes to release do not reach 
the level of detail and specificity of the kinds of documents for which 
release has been held to constitute this harm. The documents which have 
been identified by courts as properly cognizable under the competitive 
harm prong of the National Parks test include: Detailed financial 
information such as an organization's assets, liabilities, and net 
worth; a company's actual costs, break-even calculations, profits and 
profit rates; data describing an organization's workforce which would 
reveal labor expenses, profit margins and competitive vulnerability; a 
company's selling prices, purchase activity and freight charges; a 
company's purchase records, including prices paid for advertising; 
technical and commercial data; information constituting the ``bread and 
butter'' of a manufacturing company; currently unannounced and future 
products, proprietary technical information, pricing strategy and 
subcontractor information; raw research data used to support a 
pharmaceutical drug's safety and effectiveness information regarding an 
unapproved application to market the drug in a different manner, and 
sales and distribution data of a drug manufacturer; and technical 
proposals which are submitted, or could be used, in conjunction with 
offers on government contracts.\11\
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    \11\ Freedom of Information Act Guide & Privacy Act Overview, 
U.S. Department of Justice Office of Information and Privacy, May 
2000 Edition, pages 208-09.
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    Based on the foregoing analysis, LSC no longer considers it 
appropriate under FOIA to routinely withhold the information contained 
in the Proposal Narrative or Application Narrative of LSC competitive 
grant applications once the grant decisions for a given application 
period have been made. While, as noted above, LSC will continue to 
review each request for such documents on a case by case basis and will 
continue to provide persons and organizations whose applications have 
been requested the opportunity to seek protection from disclosure some 
or all of the documents requested, LSC anticipates that it will release 
this information in most cases.
    LSC reserves the right to further amend this policy in the future, 
as appropriate.

Victor M. Fortuno,
General Counsel and Vice President for Legal Affairs.
[FR Doc. 03-18545 Filed 7-21-03; 8:45 am]
BILLING CODE 7050-01-P