The opinion of the court was delivered by: John D. Bates United States District Judge
Plaintiffs Canadian Commercial Corp. ("CCC") and Orenda Aerospace Corp. ("Orenda") (collectively "plaintiffs") filed this "reverse FOIA" action on July 14, 2004, seeking to enjoin defendant Department of the Air Force ("defendant" or "Air Force") from releasing to a competitor, Sabreliner Corporation ("Sabreliner"), certain financial data submitted by plaintiffs in connection with a bid for a contract to provide J85 turbojet engine repair and maintenance services. Plaintiffs challenge defendant's administrative decision to release the information in response to Sabreliner's request under the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552, as a violation of the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2)(A), (C). Specifically, plaintiffs submit that the information sought by Sabreliner is exempt from disclosure under 5 U.S.C. § 552(b)(4) ("Exemption 4") and McDonnell Douglas v. Air Force, 375 F.3d 1182 (D.C. Cir. 2004) ("McDonnell Douglas"), and that it constitutes trade secrets under the Trade Secrets Act ("TSA"), 18 U.S.C. § 1905, the disclosure of which is not "authorized by law." The parties have filed cross-motions for summary judgment. For the reasons that follow, the Court will grant plaintiffs' motion in part and deny it in part, and will grand defendant's motion in part and deny it in part.
On January 16, 2002, the Air Force issued a solicitation for the performance of maintenance and repair work on J85 turbojet engines ("solicitation"). Admin. Rec. Exh. 15. Plaintiff Orenda submitted a proposal through plaintiff CCC, in accordance with the Federal Acquisition Regulations ("FAR"). Pl.'s Stmt. at 2 ¶ 2. The solicitation stated that responders were "requested" to submit certain pricing information, and that a failure to do so could result in the proposal's disqualification. See Admin. Rec. Exh. 28 at § 1.0. By law, the government is required to consider price when it decides which proposal to accept. See Admin. Rec. Exh. 14 at 8 (citing FAR §§ 15.304(c)(1), 15.101). Plaintiffs' proposal contained detailed pricing information for the base year of the contract in addition to five subsequent option years. Plaintiffs submitted a formal offer on March 4, 2002. See Admin. Rec. Exh. 5 at 1. At this time, Sabreliner also submitted an offer in response to the solicitation, Pl.'s Stmt. at 2 ¶ 3, but the Air Force awarded the contract to plaintiffs on May 7, 2002, see Admin. Rec. Exh. 15.
Although the contract is between CCC and the Air Force, CCC contracted its duties to Orenda, such that Orenda performs the actual labor. Pl.'s Stmt. at 2 n.1. The contract has a base term of three years and four option years, over which time plaintiffs agreed to repair, overhaul, and modify J85 turbojet engines. Admin. Rec. Exh. 15; Pl.'s Stmt. at 2-3 ¶ 4. The contract expressly incorporated the pricing information (for both the base term and the subsequent option years) by reference to Orenda's original proposal. Admin. Rec. Exh. 15. Plaintiff Orenda began performing under the terms of the contract, and continues to do so today (the contract expires in 2008). Pl.'s Stmt. at 2 ¶ 5.
Sabreliner contested the contract award before the General Accountability Office ("GAO") and sought to gain access to plaintiffs' detailed pricing information. Pl.'s Stmt. at 3 ¶ 6. During the bid protest, Sabreliner's attorneys were permitted to review the information, but Sabreliner itself was screened from it. Id. Ultimately, Sabreliner's protest of the contract award was unsuccessful. Id. On September 12, 2003, Sabreliner filed a FOIA request with the Air Force. Admin. Rec. Exh. 1. The FOIA request sought release of the contract and all orders and modifications to it. Id. The Air Force notified plaintiffs of Sabreliner's request, asking them to review all of the pricing information and stated subcontracting goals attached to the contract in order to determine whether Sabreliner's request sought protected trade secret, commercial, or financial information. Admin. Rec. Exh. 2. Plaintiffs were directed to identify any particular information that they sought to protect from disclosure, and to provide evidentiary support and detailed analysis to assist the Air Force in determining whether the information came within any FOIA exemptions. Id. In response, Orenda submitted three documents -- an opposition letter dated November 13, 2003, Admin. Rec. Exh. 7 at 2-12; a clarification letter dated December 3, 2003, Admin. Rec. Exh. 9 at 2-3; and a supplemental letter dated January 23, 2004, Admin. Rec. Exh. 9 at 8-11. Together, Orenda submits that those filings proffered "several layers of clear and robust arguments against disclosing its information to [Sabreliner]." Pl.'s Stmt. at 15 ¶ 30.
I. Orenda's First Submission: Opposition Letter of November 13, 2003
In its initial opposition, Orenda sought to protect four categories of cost and pricing information from disclosure: (1) "[a]ll line-item price and price-related information under [the current contract]"; (2) "[a]ll line-item price and price-related information contained in every option year Exhibit (Exhibits A to E)"; (3) "[a]ll Fixed Hourly Labor Rates for Over and Above Prices"; and (4) "[a]ll cost, price, and price-related information contained in Orenda's Subcontracting Plan." Pl.'s Stmt. at 9 ¶ 20. In order to provide guidance and clarity for the Air Force, Orenda appended redacted materials to its opposition letter, and stated that it found "no legal authorization for disclosure of such information . . . [which] is expressly prohibited by federal law." Pl.'s Stmt. at 9-10 ¶ 21. A redacted copy of the contract was also attached, in order to show the Air Force which pricing information was allegedly exempt. Id; see also Admin. Rec. Exh. 7. In a nutshell, Orenda claimed that the line-item unit and other pricing information was protected by the TSA, could be withheld from disclosure pursuant to Exemption 4 of FOIA, and was not authorized for release by FAR or any other provision of law. Admin. Rec. Exh. 7 at 2.
Orenda argued that although §§ 15.503 and 15.506 authorize the general disclosure of unit price information, both provisions protect that information if it is "confidential, trade secret, or otherwise exempt under Exemption 4 [of FOIA]." Id. According to Orenda, the information at issue qualifies as confidential, trade secret, and exempt under Exemption 4, which allows the government to withhold information in response to a FOIA request if it is "commercial or financial" and "privileged or confidential." Admin. Rec. Exh. 7 at 3. Orenda claimed that the information was privileged and confidential because it was submitted voluntarily -- defendant's solicitation did not require the information -- and Orenda continuously represented the sensitive and confidential nature of the information, informing the Air Force that only certain persons were authorized to review the information and including a confidentiality footer on the cover page of the submission. Pl.'s Stmt. at 15-16 ¶¶ 30-31; 5-6 ¶ 14. Because the information is of a type that "would not customarily be released to the public by the person from whom it was obtained," see Pl.'s Stmt. at 15-16 ¶ 30, Orenda continued, Exemption 4 justified its nondisclosure.
In the alternative, Orenda argued that even if the submission was involuntary, the information would still be privileged and confidential because its release was likely to seriously impair the Air Force's ability to obtain necessary information in the future. Pl.'s Stmt. at 6 ¶ 15. Specifically, disclosing this type of information would allegedly deter competitors from bidding on future solicitations, which would compromise the quality of goods and services performed --as well as the integrity and fairness of the bidding process -- by undermining the government's "fundamental policy of open competition." Pl.'s Stmt. at 6-7 ¶¶ 16-17; 15-17 ¶¶ 29, 31-33. Additionally, Orenda anticipated that its competitive advantage would be substantially undermined by the release of the information because Sabreliner -- and other companies with whom Orenda competes on the open market -- would be able to reverse-engineer Orenda's pricing formulae, ascertain its pricing strategy, "raid its subcontractor portfolio," and undercut its future bids. Pl.'s Stmt. at 7-8 ¶ 18; 15-17 ¶¶ 31-33. Because the TSA protects proprietary information that comes within the ambit of Exemption 4, Orenda further asserted that the Air Force was actually prohibited by law from disclosing this information to Sabreliner. Pl.'s Stmt. at 9 ¶ 19.
II. Orenda's Second Submission Clarification Letter of December 3, 2003*fn1
The Air Force then asked Orenda on November 24, 2003 to clarify the scope and application of its objections. Within two weeks, Orenda submitted the December 3, 2003 "opposition clarification" letter. Admin. Rec. Exh. 8. This time, Orenda described the material it sought to protect as "commercially sensitive information," Pl.'s Stmt. at 10 ¶ 22, which specifically means all cost and pricing figures, including, but not limited to, all current and projected line-item prices, all fixed hourly labor rates for its over and above prices, all pricing and price-related information contained in its subcontracting plan, and all other information contained in any relevant document that could be used to derive this cost and pricing information.
Admin. Rec. Exh. 9 at 1-2. Orenda concluded by referring the Air Force to the redacted versions of Exhibits A - E, and including redacted versions of the contract modifications that contained commercially sensitive material. Id.
III. Orenda's Third Submission Supplement of January 23, 2004
On January 23, 2004, Orenda sent a third letter to further supplement the initial opposition and subsequent clarification. See Pl.'s Stmt. at 11 ¶ 24; Admin. Rec. Exh. 9, Orenda Opp'n Suppl., at 1-2. The supplement focused on Orenda's previous contentions that the release of the pricing information would cause substantial competitive harm, would damage the Air Force's future efforts, and would endanger the integrity of the procurement system. See Pl.'s Stmt. at 11 ¶ 24; Admin. Rec. Exh. 9, Orenda Opp'n Suppl., at 1-2. A memorandum from John Bayley, Orenda's Director of Operations, was appended to this supplemental submission ("Bayley Memorandum"). Pl.'s Stmt. at 11 ¶ 25; Admin. Rec. Exh. 9, Orenda Opp'n Suppl., at 1-2. The purpose of the Bayley Memorandum was to explain and detail, by way of example, the process through which Sabreliner, with knowledge of the information that is the subject of the FOIA request, might reverse-engineer Orenda's costs and prices. Pl.'s Stmt. at 11 ¶ 25; Admin. Rec. Exh. 9, Orenda Opp'n Suppl., at 2.
Specifically, the Bayley Memorandum claimed that once Sabreliner received the information at issue, it could calculate three key components of Orenda's confidential pricing strategy -- its fully-burdened labor rate, its material mark-up, and its pricing for J85 engine repair services (which, according to Orenda, is unique in the industry). Pl.'s Stmt. at 11 -14 ¶¶ 25-27; Admin. Rec. Exh. 9, Orenda Opp'n Suppl., at 1-3. The Bayley Memorandum asserted that the slightest disclosure of its pricing and cost information would enable Sabreliner (and possibly other companies with whom Orenda competes for contracts on the open market) to wreak devastation upon its competitive position with respect to both current and future contracts. Pl.'s Stmt. at 14-15 ¶ 28; Admin. Rec. Exh. 9, Orenda Opp'n Suppl., at 3-4.
The supplemental submission also noted that Mr. Paul D. Ford, the former Chief of the Tactical/Trainer/Specialty Engine Branch OC-ALC/LPEA for the Air Force, had retired and joined a subsidiary of Sabreliner. Pl.'s Stmt. at 15 ¶ 29; Admin. Rec. Exh. 9, Orenda Opp'n Suppl., at 3-4. Orenda informed the Air Force that in his current capacity, Mr. Ford was responsible for the direct oversight of J85 program managers and that he also acted as an advisor to the source-selection team with respect to the very contract that the Air Force awarded to Orenda. Pl.'s Stmt. at 15 ¶ 29; Admin. Rec. Exh. 9, Orenda Opp'n Suppl., at 3-4. Orenda also represented that Mr. Ford had probably seen its pricing information while in the government, and opined that, based upon Mr. Ford's understanding of the dynamics of the industry, any further exposure to its cost and pricing information would enable him to deduce Orenda's labor costs, material charges, and key pricing strategies. Pl.'s Stmt. at 15 ¶ 29; Admin. Rec. Exh. 9, Orenda Opp'n Suppl., at 3-4.
IV. The First Air Force Decision Letter
On July 1, 2004, the Air Force informed plaintiffs that it intended to release the requested information to Sabreliner. Admin. Rec. Exh. 10 at ¶ 1. The four-page decision letter first stated, without any analysis or rationale, that Orenda was required to submit the information with its proposal. Id. at ¶ 2. The information was, in the Air Force's view, therefore subject to the more stringent test for involuntarily-submitted information, which requires that disclosure of the information be shown to pose a likelihood of either: (1) impairment to the government's ability to obtain necessary information in the future, or (2) substantial harm to Orenda's competitive position. Id. As to the first possibility, the Air Force dismissed plaintiffs' arguments solely by relying upon its "experience in government contracting" -- no analysis was provided, and defendant never described that expertise. Id.
On the likelihood of substantial competitive harm aspect, the Air Force stated that to "undercut" or "ratchet down" Orenda's prices effectively, competing firms would have to "predict Orenda's proposed price on future transactions with some degree of precision." Id. at ¶ 2(a). The Air Force again relied upon its "experience in government contracting," stating that this experience led it to believe that past and present prices are imprecise predictors of future prices because variables like "economic uncertainty, changes in technology, work requirement, productivity and bargaining power all frustrate attempts to accurately predict prices over time." Id. Hence, in the Air Force's view, "the likelihood of competitive harm due to undercutting or ratcheting down is not substantial." Id. (emphasis added). Moreover, the Air Force claimed that even if some undercutting or ratcheting-down were to occur, the harms would be mitigated because "price is just one of many factors considered." Id. Orenda's fear that a competitor could submit an unsolicited proposal in an attempt to persuade the government not to exercise the option year provisions was unfounded, the Air Force continued, for two reasons: (1) FAR §§ 2.101 and 15.6 place certain restrictions on the submission of "'new and innovative' idea[s]" to the government; and (2) FAR §§ 17.207(d) and (e) do not permit the government to rely on price alone when "other factors," including the government's need to continue operations and the significant transaction costs associated with disrupting engine repair operations, are to be considered. Id.
With respect to Orenda's argument that competitors could "reverse-engineer" cost and pricing strategies, and thereby "peer into its financial structure," id. at ¶ 2(b), the Air Force concluded that the examples in the Bayley Memorandum did not adequately illustrate how this could be done. To begin with, the example regarding calculation of Orenda's fully-burdened labor rate was "presumptive," in the Air Force's view, because it assumed that the number of hours required to perform the work was a known variable. Id. at ¶ (2)(b)(1). In the Air Force's words, [t]wo separate repair contractors may use different approaches to arrive at significantly different hours to repair [the same] item. A multitude of factors, such as risk assessment, production capacity, repair methods, skill mix and level of employee experience, to name a few, could result in significant differences in the number of hours. Even for this 'simple' case that uses small numbers, a scant one half hour increase in the number of hours estimated to repair [the item], even when a unit price of the repair is known, results in the fully burdened labor rate being more than eight dollars . . . lower.
Id. Hence, the Air Force concluded that Orenda's example actually illustrated that "a competitor using the 'divined' burdened labor rate would be unlikely to harm the competitive position of Orenda, potentially resulting in just the opposite," and noted that the potential for difference would be even larger when other factors, including type and sophistication of the equipment involved, were properly introduced into the assessment. Id. Moreover, the Air Force continued, the potential for uncertainty is exacerbated when one takes account of the fact that one contractor might determine that an item simply needs to be repaired, while another might decide that it needs to be overhauled, requiring more labor and material input. Id. Hence, the Air Force concluded that it "would be virtually impossible for a competing contractor to ascertain the number of hours for the more complex, high volume [items] on this contract. The likelihood of competitive harm to Orenda is [therefore] not substantial." Id.
The Air Force found that a second example selected from the Bayley Memorandum (focusing on the ability of a competitor to calculate Orenda's material mark-up) suffered from the same types of deficiencies: it assumed that the number of hours and the fully-burdened labor rate were a known and reliable figures; it"fail[ed] to address other variables, such as quantity discounts and bargaining power;" and it ignored the more complex [items] requiring more complex and costly material." Id. at ¶ 2 (b)(2). According to the Air Force, Orenda also "provid[ed] no discussion or example of how a competitor could ascertain sensitive cost or pricing information, such as G[eneral] & A[dministrative expense] or profit rates from the unit prices." Id. at ¶ 2(b)(3). The discussion closed with a repetition of the previously-stated conclusion that "the likelihood of competitive harm is not substantial" because: (1) "[t]here are simply too many unascertainable variables to allow competitors to predict Orenda's future pricing and strategies based on release of these unit prices;" and (2) "the effect of undercutting or ratcheting down would be diluted" as a result of the fact that "price is just one of many factors considered." Id. at ¶ 2(b)(4).
Finally, the Air Force dismissed Orenda's argument regarding its unique pricing strategy on the basis that "Orenda has not shown [its] approach is unique . . . nor can [it] show any evidence or example to support [the] claim . . . that 'this is not the pricing structure employed by our competitors in J85 engine and maintenance work.'" Id. at ¶ 2(c). Moreover, the Air Force asserted that Orenda "has not shown a competitor could deduce . . . Orenda's approach by simply reviewing Orenda's unit prices . . . [the] argument is speculative and inadequately supports [the alleged] conclusion." Id. Defendant also disposed of Orenda's fears regarding Mr. Ford, stating that, notwithstanding Orenda's contentions, there was "no reason to believe this employee accessed Orenda's sensitive cost and pricing information. Even if he did, release of these contract unit prices would not broaden the scope of his understanding of Orenda's sensitive cost and pricing information." Id. at ¶ 2(d).
Plaintiffs filed this reverse-FOIA action following their receipt of the Air Force's first decision letter. Shortly thereafter, McDonnell Douglas, 375 F.3d 1182 (D.C. Cir. 2004), was decided by the D.C. Circuit; it is a reverse-FOIA case with similar facts, in which the Air Force relied on many of the same arguments that it employs here. The government sought rehearing en banc in that case, and the parties in this case considered the outcome of McDonnell Douglas to be "influential," Joint Mot. Amend Sched. Order, dkt. no. 16, at 1, or even "pivotal," Joint Mot. Stay, dkt. no. 17, at 1. The Air Force represented that based on the outcome in McDonnell Douglas, it might reconsider its July 1, 2004 decision to release the disputed information to Sabreliner. Joint Mot. Amend Sched. Order, dkt. no. 16, at 1. Accordingly, the parties jointly moved this court for a stay pending a decision from the D.C. Circuit regarding whether McDonnell Douglas would be reheard en banc. See Joint Mot. Stay, dkt. no. 17, at 1-2. The Court granted the parties' request. See Minute Order (Oct. 14, 2004); see also Minute Entry (Sep. 13, 2004); Minute Order (Dec. 14, 2004). Ultimately, the case was stayed through June 2005 to allow the government to determine whether to seek certiorari from the Supreme Court. See Minute Order (Apr. 19, 2005); see also Def.'s Status Report, ...