The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge
This matter is before the Court on the parties' cross-motions for summary judgment. Plaintiff Taylor Energy Co. LLC ("Taylor") brought this action under the Administrative Procedures Act ("APA"), 5 U.S.C. §§ 701-706, for judicial review of the May 18 and August 6, 2009 decisions by the Minerals Management Service of the Department of the Interior (collectively, "MMS" or "the agency") to release financial information contained in (1) a trust agreement between plaintiff and MMS which provided for plaintiff's funding of efforts to decommission an offshore oil and gas production facility and (2) requests for trust disbursements that plaintiff had submitted. Plaintiff argues that this financial information is protected from disclosure under Exemption 4 of the Freedom of Information Act, 5 U.S.C. § 552(b)(4), as well as the Trade Secrets Act, 18 U.S.C. § 1905, and that defendants' proposed release of the information violates the APA because it is arbitrary and capricious and contrary to law. For the reasons explained herein, the Court agrees and the agency's decisions will be vacated, plaintiff's cross-motion for summary judgment will be granted in part, defendant's motion for summary judgment will be denied, and the case will be remanded to the agency for supplementation of the record and further consideration of the issues in light of this Memorandum Opinion.
From 1984 to 1994, pursuant to an MMS lease, BP Exploration and Production, Inc. ("BP") conducted offshore oil and gas production activities in the Gulf of Mexico at Mississippi Canyon Block 20 on the federal Outer Continental Shelf ("MC 20"), including the installation of a platform and the drilling of a number of wells. (Administrative Record ("AR") 69.) In April 1994, BP assigned the MC 20 lease to plaintiff Taylor (AR 69), which continued oil and gas operations. Production ceased in September 2004 when Hurricane Ivan struck the Gulf, causing a massive mudslide that toppled the MC 20 platform and buried 28 oil and gas wells in approximately 100 feet of mud and sediment. (Am. Compl. ¶ 21.) As MC 20's lessee and operator, Taylor was required by MMS regulations to undertake certain decommissioning activities (id.), such as the plugging and abandoning of oil and gas wells to prevent future hydrocarbon discharges. See generally 30 C.F.R. §§ 250.1700-250.1752. According to William Pecue, Taylor's Senior Vice President of Operations (see AR 346-48 ("Pecue Aff.")), the expertise required to undertake decommissioning did not exist at that time "because a relief well project of this complexity and magnitude had never been attempted in the history of the oil and gas industry." (Pecue Aff. ¶ 5.) As a result, Taylor invested millions of dollars to fund research and testing, as well as to enter subcontracts for technical expertise, in order "to develop unique techniques, tools, and methods" specifically for the MC 20 project. (Id. ¶¶ 4, 9.)
To establish a secure source of funds to carry out its decommissioning obligations, Taylor and MMS negotiated an agreement under which plaintiff would establish and fund a trust for the benefit of MMS ("the Trust"), with a major financial institution serving as trustee. (AR 134; see AR 24-47 ("Trust Agreement").) The Trust Agreement provided that Taylor must submit for approval a proposed "work plan" for the completion of its obligations. (AR 26, 37.) The Trust Agreement also provided that upon notice from MMS to the trustee, Taylor may receive disbursements upon satisfying various benchmarks referenced in Schedule A to the Trust Agreement, which also sets forth the estimated work costs for meeting those benchmarks. (AR 33; see AR 44-45 (Schedule A).) Taylor and MMS also negotiated an "Agreement to Provide Additional Bond" (see AR 14-23 ("Bond Agreement")), whereby Taylor would pay into the Trust the proceeds from the sale of "substantially all of [its] Gulf of Mexico assets, including oil, gas[,] and mineral leases . . . ." (AR 14.) The Trust and Bond Agreements were both executed on March 19, 2008.
Due to BP's prior activities at MC 20, it had also accrued decommissioning obligations under MMS regulations. See 30 C.F.R. § 250.1702. In June 2008, MMS and BP executed a separate agreement that apparently contemplated the possibility of Taylor's inability to satisfy its obligations. (AR 68; see AR 69-71 ("BP-MMS Agreement").) Under the BP-MMS Agreement, if MMS requires BP to undertake decommissioning activities, then BP would be eligible for disbursements from the Trust even though it was not a party to the Trust Agreement. (See AR 69-70.) The agency also agreed to give BP advance notice of trust disbursements to Taylor, as well as the right to review Taylor's work plan, trust disbursement requests, and related documents "except to the extent these documents are exempt from disclosure under the Freedom of Information Act . . . ." (AR 70.) By its terms, the BP-MMS Agreement was made retroactive to March 19, 2008, the same day that MMS executed the Trust Agreement. (AR 69.)*fn1
In May 2008, Taylor submitted to MMS its proposed work plan for decommissioning activities, characterizing the documents as "confidential proprietary and commercial information . . . ." (AR 55.) In November, Taylor and MMS executed an agreement governing how Taylor could request trust disbursements ("the Disbursement Agreement"). (See AR 134-41.) Pursuant to the Disbursement Agreement, Taylor first requested trust disbursements by letters dated November 24 and December 1. (See AR 403-05, 406-15.)
On December 19, 2008, Taylor responded by email to an agency request to clarify which of Taylor's documents related to MC 20 could be released as "publicly available." (AR 300.) In relevant part, Taylor's email explained that the Trust Agreement was not and should not become publicly available. (Id.) The email also explained that MMS could release the Disbursement Agreement and the disbursement request letters "with appropriate standard FOIA redactions," but that the request letters' supporting documentation should not be released because it contained confidential "pricing information." (Id.) By letter dated January 20, 2009, Taylor made a third disbursement request. (See AR 416-22.)
On February 2, 2009, the agency requested that Taylor identify the "specific passages" of the disbursement request letters to be exempted from disclosure, as well as "the FOIA rationale for withholding that information." (AR 332.) The agency also requested that Taylor explain its grounds under FOIA for not releasing the Trust Agreement. (Id.) On March 11, Taylor responded that the Trust Agreement and its disbursement request letters could be released with redactions of financial information protected under FOIA Exemption 4, including the specific dollar values of the initial trust deposit, work costs, and disbursement requests. (AR 336, 341; see AR 361-84, 403-04, 406-07, 416-17.) The letter was accompanied by an affidavit by Pecue (see generally Pecue Aff.) and "incorporate[d] by reference" Taylor's prior responses to the agency (AR 336), which had offered detailed arguments that Taylor would suffer competitive harm from the release of "confidential commercial information." (See, e.g.,AR 122-25.) The letter also voiced concern that MMS was seeking to disclose these documents to BP pursuant to the BP-MMS Agreement as opposed to a FOIA request. (AR 337.) Thereafter, on April 6 and May 4, Taylor submitted two more disbursement requests. (See AR 424-28, 429-30.)
On May 18, 2009, the agency issued a final decision ("the May Decision") regarding the first four of Taylor's disbursement request letters but not the fifth letter of May 4. (AR 469; see AR 472-79.) The decision asserted that Taylor's prior letter "provide[d] no discernable basis" for the proposed redactions, "other than to identify [the redacted material] as financial information." (AR 469.) Although the decision did not state that there was actually a FOIA request for the letters, it stated that as a result of Taylor's failure to comply with FOIA regulation 43 C.F.R. § 2.23(e), the agency would release the letters to BP in full after 10 business days (i.e., on June 3) in order "to fulfill its obligations under" the BP-MSM agreement. (See AR 467, 469-70.)
The May Decision also discussed the Trust Agreement, but it did not issue a final decision. The agency stated that MMS had received a formal FOIA request for the document, but it did not identify the requester (AR 468); Taylor later learned that that it was Platts Oilgram News ("Platts"). (See AR 294-95, 298.) The May Decision further stated that MMS would "consider [plaintiff's] claims of confidentiality" if submitted by June 2 (AR 470), along with "a specific and detailed discussion" of "[w]hether the Government required the information in question to be submitted, and if so, how substantial harm would likely result from release . . . .'" (AR 468 (quoting 43 C.F.R. § 2.23(e)(1)(i)).)
Subsequently, Taylor informed the agency that it would sue to prevent the release of the cover letters. On May 29, 2009, the agency agreed that if Taylor sued before June 3, it would refrain from releasing the letters pending a court decision. (AR 481-82.)
By letter dated June 2, 2009, Taylor presented the agency with, inter alia, the requested confidentiality analysis of the proposed redactions of dollar values from the Trust Agreement. (See AR 486-87.) Plaintiff argued that "the information that MMS seeks to disclose reflects Taylor's pure costs for conducting decommissioning and associated work in satisfaction of its own obligations at MC Block 20," and that "Taylor is presently engaged in the business of marketing and providing" decommissioning services based on the unique expertise it was acquiring through its MC 20 work. (AR 486.) However, Taylor argued, the fact that it had already agreed to release the Trust Agreement's descriptions of decommissioning operations meant that the release of Taylor's costs for that work would enable competitors and customers to learn about its "cost structure and operations," which would in turn allow competitors to "undercut Taylor's market prices" and "encourag[e] customers to 'ratchet down' the prices Taylor will seek for its services." (AR 487.) Taylor cited a number of legal authorities for its position that "'information that competitors could use to derive a firm's profit margin constitutes serious competitive harm.'" (Id. (quoting Public Citizen Health Research Group v. Nat'l Inst. of Health, 209 F. Supp. 2d 37, 48-49 (D.D.C. 2002)).)*fn2
Taylor's June 2 letter also argued that in light of the May Decision's reservation of judgment as to the Trust Agreement, it was "incongruous" for the decision to have made a final determination regarding the disbursement request letters. (AR 488.) Taylor contended that its arguments for redacting the dollar figures in the Trust Agreement were equally applicable to the dollar values in those letters, and therefore the agency's ongoing consideration of those arguments as to the Trust Agreement "warrant[ed] . . . reassessment" of the decision to release the letters. (AR 488-89.) Taylor further objected to the agency's insistence on disclosing the letters despite (1) the absence of any FOIA request, (2) BP's assurances ...