NCSC contends that it has a compelling need for the documents in order to establish whether DOL "followed established principles" in the instant case and to demonstrate that DOL "has violated such principles, has applied them incorrectly to NCSC, or simply has failed to consider them at all." NCSC indicates that discovery could proceed in a two tier process, with file documents first being searched, followed by records center documents.
DOL's reply reiterated the arguments made, relying upon an Order issued by Administrative Law Judge Ellin O'Shea in a JTP (Job Training Partership Act) case in which a protective order was issued. DOL also argued that, while the chronological files are centrally located, the case files are not, and enormous amounts of staff time would be required to determine the existence and location of potentially responsive files, even before the review function could be undertaken. DOL argues that the documents already provided are an adequate substitute for the largely irrelevant files that would have to be searched. DOL argues that the discovery requested would amount to an undue burden.
In reviewing the arguments of the parties, it appears that a middle ground may be able to be reached. In this regard, at least some of the documents to be searched are centrally located including chronological files and some case files. I do not find there to be undue burden for these files to be searched. Thus, I will order DOL to search the centrally located files, including individual open case files, retained closed files (i.e., those that are centrally located and have not yet been sent to the records center), and chronological files. Although there might have been a basis for limiting the search of the chronological files to a period of less than the full ten-year period, I find that the search should go back ten years (to the extent that the documents are available in the central location) because the subject audits relate to plan years 1992 through 1995. I further find that because the disallowed costs are substantial, amounting to millions of dollars, and a significant portion of the disallowed costs concern the matters that are the subject of the discovery requests (specifically, royalty income and stand-in costs), there is a justification of some burden being placed on DOL under the specific circumstances concerned here. As NCSC has failed to show that the centrally located records are not representative, I find no compelling need for the retrieval of closed files from the records
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center or files from other locations, however. In the interest of administrative judicial economy, the search should be confined to centrally located documents and should include documents addressing "royalties" as well as those relating to "in kind contributions" or "stand in costs." Although the search may be conducted by personnel who are not attorneys, the documents located should be reviewed by the DOL attorneys to determine responsiveness and possible claims of privilege, and responsive documents should be produced or listed with the specific privilege claimed.
Lost Documents
In its motion to compel, Complainant NCSC asserts that DOL claimed that certain workpapers were "lost" and argues that DOL should be required to provide pertinent identifying information for the missing documents as well as state its policy for the retention and destruction of documents. In response, DOL indicates that it was initially unable to locate four responsive documents from auditors' work papers, despite a diligent search, and that a subsequent search turned up one of the four documents but indicated that a fifth was also missing. DOL disputes that any of these records were destroyed pursuant to an organized destruction policy. Based upon the facts outlined by counsel as an officer of this tribunal, I find that DOL has conducted a good faith effort to locate the missing documents and nothing more is required of it.
Relevancy Objections
Complainant NCSC asserts that DOL has refused to produce certain documents, including workpapers, of the Office of Inspector General (OIG) and Myint & Bunta, CPAs "relating to, regarding, or referring to the audit of the SCSEP program administered by NCSC for FYs 1992-1995" or "prepared reviewed, consulted or relied upon by any official or employee of the OIG or Myint & Buntua, CPAs prior to issuing the Final Audit Report" (as requested by document request numbers 3 and 4) on the ground that the documents are irrelevant or privileged. These documents are listed in paragraphs 9 and 13 of the Declaration of Patricia A. Dalton attached to DOL's response. Ms. Dalton asserts in paragraph 16 at page 12:
. . . On the most basic level, I do not believe that the documents sought [appearing in an administrative file and in a binder of "Task Orders and Modifications", including Task Order No. J-9-G-5-00013-114, as set forth at paragraphs 9 and 13 of her declaration] are relevant to the instant proceeding. Complainant's initial request was extremely broad, including all documents referring to the Audit, or prepared prior to the Final Report being issued. As a result, the responsive documents are quite voluminous. These documents represent a record of the OIG's contractual relationship with Myint & Buntua and contain information on all the services performed by the CPA firm during the pendency of the task order, including other projects not covered by this appeal. To my knowledge, NCSC has not demonstrated the relevance and necessity of the vast array of information it is seeking here, nor how its production could lead to the discovery of relevant evidence. Specifically, they have not shown how these documents are at all relevant to the findings and recommendations in the OIG's Final Report.
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Similarly, in its response at page 23, DOL states that the materials document the business dealings between the OIG and the CPA firm concerning the NCSC audit but also "include Myint & Buntua's internal hourly rate information for the contract, as well as information pertaining to other audit work performed by Myint & Buntua for the OIG during the pendency of this task order." DOL argues in its response at page 24 that the documents were produced based upon the broad language of the requests but that they "pertain' to the Audit only in the tangential sense that they reflect the underlying contractual arrangements and business transactions that facilitated the OIG's ability to perform the Audit" not because they pertained to the findings and recommendations of the OIG's final report. I find that the assertion of irrelevance here is meritless for the categories of documents described, as by their terms, they relate to the specific Audit that is the subject of this action. As NCSC has asserted (at page 14 of its motion to compel), documents relating to other audits could be redacted from the produced documents. Privileged information could also be redacted. Moreover, even if the documents concerned here are inadmissible, I am unable to determine that they may not lead to the discovery of admissible evidence. As stated above, my general practice is to deny objections based on relevancy unless a privilege is also asserted or other factors, such as burdensomeness or improper purpose, are involved.
DOL has also objected to requests number 1 through 4 of the second production requests as over-broad, seeking proprietary and irrelevant information, and privileged. These objections will be addressed in the context of the pertinent privileges claimed.
Privilege Objections
In addition to relevancy, the other objections to production of the documents listed in DOL's first production request responses to requests 3 and 4 and second production request responses to requests 1 through 4 are based upon the deliberative process and attorney work product privileges; it is also claimed that the information sought in the second production request is proprietary. In DOL's response and Ms. Dalton's Declaration, an additional privilege [the trade secrets privilege] based upon Rule 26(c)(7) of the Federal Rules of Civil Procedure ["F.R.C.P."] [relating to protective orders] and 18 U.S.C. § 1905 [relating to criminal penalties for disclosure] has been asserted. The assertion of the attorney client privilege, initially made for three documents, has been withdrawn (see DOL's response at pages 22 to 23) and two documents have been provided. For the third document, only the deliberative process privilege is now being asserted. The various privileges will be discussed below.
Trade Secrets Privilege
Although not discussed until its reply brief, NCSC asserts that the trade secrets privilege has been improperly raised. In its discovery responses, DOL objected to the pertinent discovery requests as seeking proprietary information. The specific documents are listed in the Dalton declaration at paragraphs 9 and 13. In response to NCSC's motion to compel, DOL asserts that the task order materials included confidential business information (such as contract pricing data and hourly rates) which is protected from disclosure under F.R.C.P. Rule 26(c)(7). That section authorizes protective orders requiring "that a trade secret or other
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confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way." Second, DOL argues that the information concerned here would be covered by Exemption 4 of the Freedom of Information Act (relating to "trade secrets and commercial or financial information obtained from a person and privileged or confidential"), thus making its disclosure optional. Third, DOL argues that an agency may not disclose information falling within exemption 4 by virtue of the Trade Secrets Act, 18 U.S.C. § 1905 (which prohibits federal employees from disclosing such matters as trade secrets and operations, confidential statistical information, and certain categories of financial information.) The accompanying Declaration of Patricia A. Dalton states at paragraph16, on page 13:
. . . [T]hese documents contain confidential proprietary information relating to the OIG's contractual relationship with Myint & Buntua. Specifically, they contain confidential information used by Myint & Buntua to conduct its business and to compete for contracts, including the hourly rates charged for the services of its employees. Myint & Buntua maintains this information for internal use only and does not disclose it to the public. Similarly, it is the practice of the OIG to withhold this type of proprietary information in response to Freedom of Information Act Requests.
This type of information is protected from disclosure by Rule 26(c)(7) of the Federal Rules of Civil Procedure and, through analogy, by Exemption 4 of the Freedom of Information Act, both of which seek to protect information used in one's business that can be used to obtain an advantage over competitors. At a minimum, disclosure of these details would be detrimental to Myint & Buntua's ability to compete for federal contracts. Moreover, I understand that the government is prohibited by 18 U.S.C. § 1905 from disclosing any trade secret or related information acquired in the course of its official duties, in this case the OIG's audit of NCSC.
In its reply, at pages 17 to 21, NCSC asserts that the concept of "trade secrets" is one that has been narrowly interpreted by the courts as including "a secret, commercially valuable plan, formula, process, or device that is used to make, prepare, compound or process trade commodities and can be said to be the end product of either innovation or substantial effort" and that "[c]ourts have held that this definition of trade secrets specifically excludes pricing information" (citing AT & T Info. Systems, Inc. v. General Services Admin., 627 F.Supp. 1396, 1401 n. 9 (D.D.C. 1986), rev'd on other grounds, 810 F.2d 1233 (D.C.Cir. 1997) (quoting Public Citizen Health Research Group v. FDA, 704 F.2d 1280, 1288 (D.C. Cir. 1983)). With respect to FOIA exemption 4, NCSC asserts that DOL has not shown the likelihood of substantial competitive injury but has merely make conclusory statements to that
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effect, which are inadequate under the AT & T case. NCSC also cites Brownstein Zeidman & Schomer v. Dept. of the Air Force, 781 F.Supp. 31 (D.D.C. 1991), which rejected the argument of unfair competition under exemption 4 based upon release of unit prices allowing competitors to calculate profit margins. Next, NCSC asserts that the Trade Secrets Act does not bar release of the requested information because its release would not be barred by exemption 4 and because the task order was prepared by DOL, not Myint & Buntua.
In response, in its reply brief, DOL argues that Myint & Buntua information was submitted on a voluntary basis and is internal information that is strictly controlled by the company to prevent disclosure to the public, citing Critical Mass Energy Project v. NRC, 975 F.2d 871, 879 (D.C. Cir. 1992) (en banc) cert. den. 507 US 984 (1993).
After having reviewed the arguments of both parties and pertinent authority, I find that the best approach would be to require the task orders and other responsive documents to be produced with information constituting confidential financial information redacted, with the exception of the total amount paid to the auditors. In this regard, the allegation that "these documents reflect the details of the OIG's contractual relationship with Myint & Buntua, a CPA firm, during the pendency of the task order" is insufficient to establish a privilege, as such information is discoverable, but there may be a privilege for "confidential business details, as well as information concerning other projects performed by the firm" (see Dalton Declaration at paragraph 9). Although NCSC has made an initial showing of a need to review the documents, it has not established a need to review the financial information for which disclosure is being resisted, with one exception: NCSC has asserted, in its reply brief at page 5 to 6, that it wishes to show "that the audit at issue was not an ordinary audit but one that was politically motivated by showing that hundreds of thousands of dollars were paid to the auditors to conduct the audit in the instant matter." Thus, regardless of whether the privilege strictly applies, there is no need for information that Myint & Buntua may wish to have protected concerning its hourly rates and similar financial information to be disclosed, and there is also no need for DOL to produce invoices and purchase orders, except for the limited purpose of showing the amount that DOL paid for the audit. DOL should provide documents from which that information may be derived, redacted as appropriate. Moreover, information concerning the manner in which Myint & Buntua is expected to conduct its audits as well as particulars concerning its audit of NCSC would be pertinent and nonproprietary and should therefore be provided. I will rely upon counsel for DOL as officers of the court to make appropriate disclosure of redacted responsive documents, as outlined above. Alternatively, if the documents do not lend themselves to redaction under the above criteria, DOL may submit the documents to me for in camera review.
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Deliberative Process Privilege
The main privilege claimed by DOL is the deliberative process privilege. In fact, the Declaration by Patricia A. Dalton, Acting Inspector General of DOL, specifically lists 24 documents or groups of documents for which DOL is relying upon the deliberative process privilege to prevent disclosure. In the responses themselves, the deliberative process privilege is cited as an objection in response to requests for production numbers 3 and 4 of the First Request for Production of Documents and numbers 1 through 4 of the Second Request for Production of Documents. Essentially the privilege is claimed with respect to documents and workpapers from the Inspector General's office and Myint & Buntua as well as to memoranda relating to the Audit.
The "deliberative process privilege" prevents the disclosure of documents which reflect "advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated." Martin v. New York City Transit Authority, 148 F.R.D. 56, 59 (E.D.N.Y. 1993) citing NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150 (1975). The deliberative process privilege, along with the work product privilege, fall within the purview of Exemption 5 of the Freedom of Information Act. Dept. of Interior v. Klamath Water Users Protective Assn., 121 S.Ct. 1060 (2001). "The purpose of the [deliberative process] privilege is to encourage frank discussion of ideas and policies." New York City Transit at 59. The privilege must be properly invoked by the head of the agency or a high level subordinate to whom the authority to assert the privilege has been delegated together with guidelines on its use. Id. See also Vaughn v. Rosen (Vaughn I), 484 F.2d 820, 826-28 (D.C. Cir. 1973), cert denied, 446 U.S. 937 (1980). A proper delegation requires that guidelines be in place to provide the requisite standards by which DOL should be able to determine whether to invoke the privilege, and a delegation which is vague or amorphous permits inconsistent assertions of the deliberative process privilege. New York City Transit at 60. To be covered by the deliberative process privilege, the document requested must be "predecisional" (i.e., prepared before a policy was adopted or decision made) and "deliberative" (i.e., reflective of the give and take of the consultative process). Ashley v. US Department of Labor, 589 F. Supp. 901, 907 (D.D.C. 1983). To the extent that pre-decisional materials, even if factual in form, reflect an agency's preliminary positions or ruminations about how to exercise discretion on some policy, they are protected under Exemption 5. See also Hamilton Securities Group, Inc. v. HUD, 106 F.Supp.2d 23 (D.DC 2000). The burden of proof is on the Department with respect to each document or portion thereof, and reasonably segregable factual material must be provided. Ashley at 905-06, 910. See also Wayland v. NLRB, 627 F. Supp. 1473 (M.D. Tenn. 1986) (witness statements not shown to be inextricably intertwined with deliberative material even though choice of facts reported or questions asked reflected reporter's viewpoint). A decision on the applicability of the privilege should generally be made on the basis of specific, clear, and detailed agency affidavits rather than based upon an in camera review. Ashley at 905-06. It is a matter of concern where the affidavit of the high level subordinate suggests that the decision to assert the privilege was not made by agency policymakers in consideration of the agency's interest in deliberative confidentiality but as a matter of litigation strategy. See New York City Transit at 61, citing Resolution Trust Corp. v. Diamond, 137 F.R.D. 634, 641 (N.D.N.Y. 1991). However, there are some documents which, by virtue of their nature and the description provided by counsel, are clearly protected from disclosure by the deliberative process privilege, whether or not it has been properly asserted. See New York City Transit at 60 n. 3.
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In its motion to compel at pages 14 to 16, NCSC makes several arguments against invocation of the deliberative process privilege. First, NCSC argues that the privilege was not properly asserted because it was not made by the actual agency head and there is no indication that it was properly delegated (although this assertion was made before the Declaration of Patricia A. Dalton was submitted.) Second, NCSC argues that the materials involved cannot satisfy the required criteria of being "both pre-decisional, i.e., antecedent to the adoption of agency policy, and deliberative in that they make recommendations or express opinions on legal or policy matters." In this regard, NCSC argues that the privilege applies to agency policymaking and "the give-and-take of the consultative process" and it does not apply to workpapers prepared during an audit or other materials related to accounting or encompassing legal conclusions.
In its response (at pages 11 to 21), DOL asserts that the privilege was properly invoked by DOL, as evidenced by the declaration from the Acting Inspector General (Patricia Dalton). DOL cites a recent case by Administrative Law Judge Stuart Levin finding that the privilege was properly invoked by Acting Inspector General Dalton based upon her personal review and description of the covered documents accompanied by a statement as to the need for confidentiality.4 DOL further argues that the documents at issue are both deliberative and pre-decisional, as they "reflect the efforts of OIG staff to frame the issues raised by the information gathered for the audit, and to provide assistance during the post-audit process leading up to the Final Determination," and further argues that allowing disclosure of such advice would result in personnel being "less candid in framing their preliminary conclusions, making recommendations, and providing post-audit advice." DOL argues that by virtue of the final audit report, NCSC has the means by which to develop an independent analysis. Thus, DOL argues that the balancing of interests favors protecting the privileged documents from disclosure, because substantial harm to the audit process (as well as the grant officer's decisionmaking process) would result from their disclosure but no harm would result from nondisclosure.
NCSC's reply reiterates that the privilege has not been properly invoked, noting that the assertion of privilege was made by the (Acting) Inspector General and not by the "head of the department", which would be the Secretary of Labor, and there was no written delegation of authority. NCSC further notes that the defendant (respondent) here is the Department of Labor, that the final determination was issued by the DOL Grant Officer and not the Inspector General, and that the OIG did not make any decision or determination, nor did they have jurisdiction to do so. Further, NCSC asserts that even if the privilege were properly asserted, it is not applicable to some of the documents, which were issued after the OIG's Final Determination was issued on February 5, 1999, or to the purely factual material appearing in the documents, which DOL has not shown to be inextricably connected to the deliberative material. NCSC suggests in camera review. NCSC attaches an appendix ("Appendix A") which specifically addresses the applicability of the privilege to each individual document or group of documents for which it is claimed.
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DOL's reply (at pages 7 to 11) asserts that there was no need for delegation to Acting Inspector General Dalton as she had control over the Office of Inspector General's documents in her capacity of acting head of OIG. DOL cites Landry v. FDIC, 204 F.3d 1125, 1135 (D.C.Cir. 2000), in which a regional division head was allowed to assert the deliberative process privilege. DOL further argues that the term "head of the department" should be expansively interpreted so as to include the OIG, which operates as an independent and objective unit with the Inspector General functioning as an independent agency head. Also, at page 12, DOL asserts that the OIG's final audit report is not the final agency action, which is issued by the DOL Grant Officer, so that OIG documents issued after the final audit report should also be protected. Further, at page 13 of the reply, DOL asserts that even factual information within the withheld documents should be exempt from disclosure, as it is inextricably intertwined with the recommendations and it is impossible to reasonably segregate the factual information from these documents, some of which are short and "would be rendered nonsensical' by segregation of any purely factual information."
In its surreply, NCSC disputes DOL's assertions and points to the contradiction in DOL considering the Acting Inspector General to be the pertinent agency head while at the same time asserting that the agency action is not final until the DOL Grant Officer has issued a final determination. NCSC also asserts (at page 4 of its surreply) that even if the privilege had been properly asserted by the Secretary of Labor, the OIG Final Report could still be considered final agency action, because the DOL Grant Officer adopted all of the recommendations made in the final report for his final determination, and therefore many of the documents DOL seeks to withhold are in fact not pre-decisional. NCSC argues that the description of the documents is vague and that in camera review of the disputed documents would be appropriate.
After having reviewed the arguments of the parties and the authority cited, I find that it was proper for the Acting Inspector General to assert the deliberative process privilege for those documents which were OIG documents, except as noted below. I further find that the documents issued by the OIG after the date of the final agency action by OIG (the February 15, 1999 final audit report) are not pre-decisional with respect to that entity but may be deemed pre-decisional with respect to the final agency action (of March 2, 2000) by the Department of Labor (which I understand to be the final determination by the Grant Officer.) In this regard, there were obviously further intra-agency discussions reflecting the give-and-take process contemplated by the deliberative process privilege prior to the final Department of Labor action. I have considered requiring that the privilege be asserted by the Secretary of Labor or her delegatee for documents issued after February 15, 1999, when the OIG issued its final determination. However, I have decided that since the documents have arisen from the IG's office, a declaration by the Acting IG should be sufficient. Any documents issued after the DOL's final decision (of March 2, 2000) may not be deemed pre-decisional and are not covered by the privilege. No such documents are referenced in the privilege log or declaration. For those documents deemed to be privileged that contain factual matter, the documents should be produced with the privileged material redacted, unless it is inextricably intertwined. (Examples would be the statement, "The cost was disallowed because of fact (a)" in the body of a document, as contrasted with a listing of facts or computations found in an appendix or a
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separate section of the document. The factual matter in the above statement is inextricably intertwined with the privileged material while the factual matter in the appendix or separate section is reasonably segregable.) I will rely upon counsel, as officers of the court, to determine the validity of the assertion that the privileged material and factual matter are inextricably intertwined. Alternatively, if the documents do not lend themselves to redaction under these general guidelines, DOL may submit the documents to me for in camera review.
Several of the documents for which the deliberative process privilege is being asserted were prepared by auditors for Myint & Buntua and not by government employees, although they were addressed to government officials. Recently, in its March 5, 2001 decision in Dept. of Interior v. Klamath Water Users Protective Assn., 121 S.Ct. 1060 (2001), the Supreme Court declined to resolve the issue of whether FOIA exemption 5, which pertains to inter-agency or intra-agency memoranda, is broad enough to reach documents authored by independent contractors acting as consultants. However, the Supreme Court noted that some lower courts had found that the exemption (and the deliberative process privilege contained therein) extends to communications to Government agencies from outside consultants, in situations where the consultant does not represent an interest of his own or another client when it advises the agency that hired it. In such cases, the Supreme Court noted, the consultant functions just as an employee would be expected to do. Id. The auditor's reports and memoranda concerned here fit within that description, as comparable functions could have been performed internally and utilized in the same manner. See generally Hamilton Securities Group, Inc. v. HUD, 106 F.Supp.2d 23 (D.DC) aff'd No. 00-5331 (D.C. Cir. Feb. 21, 2000) (finding draft audit reports by government auditors to fall within the purview of the deliberative process privilege). Thus, I have found such documents to be protected by the deliberative process privilege when they would have been protected if they had been prepared by comparable government personnel.
In reviewing the privilege log and the Declaration of Patricia A. Dalton, I note that a number of documents for which a privilege is asserted have attachments. Although the identity of the attachments may be privileged, the attachment of a nonprivileged document to one that is privileged does not make the attachment privileged if it is not otherwise protected from disclosure by a privilege.
Turning to the specific documents for which a privilege has been asserted, based upon the paragraphs in Acting IG Dalton's declaration, I find as follows:
