452 F.3d 892 | D.C. Cir. | 2006
Lead Opinion
Concurring opinion filed by Circuit Judge ROGERS.
Hector Barretto, Administrator of the Small Business Administration (SBA), seeks interlocutory review of a district court order allowing the principals and employees of Diamond Ventures LLC (Diamond Ventures) access to applications submitted to the SBA in connection with the SBA’s Small Business Investment Company (SBIC) program. The district court granted access via a protective order issued pursuant to Federal Rule of Civil Procedure 26 in Diamond Ventures’ lawsuit against the SBA. For the following reasons, we grant the SBA’s interlocutory appeal, reverse the district court’s order and remand for further proceedings.
I.
Under the SBA’s SBIC program, see 15 U.S.C. §§ 681 et seq., a successful applicant is granted a license to operate as an SBIC, a small venture capital resource for small businesses.
Pursuing discovery, Diamond Ventures sought production of all MAQs submitted by other SBIC applicants to the SBA. The SBA offered Diamond Ventures’ counsel access to all of the more than 300 SBIC applications it has on file but opposed disclosure of the applications to Diamond Ventures’ principals and employees on the grounds that each SBIC applicant has an expectation of privacy regarding its own MAQ and that the SBA’s policy is to treat the information contained therein as confidential. The parties could not agree on a protective order and eventually filed simultaneous motions for a protective order under Federal Rule of Civil Procedure 26(c)(7).
On January 18, 2005 the district court by minute order denied the SBA’s motion, JA 127 (Denial Order), and one week later granted Diamond Ventures’ motion, entering a protective order that allowed Diamond Ventures’ principals and employees access to the MAQs. JA 128 (Protective Order). The SBA filed a motion for reconsideration. On April 18, 2005, the district court denied the SBA’s motion, stating that it “was not persuaded ... that the information [in the MAQs] is confidential, or, as Defendant claims, that the applicants have an expectation of privacy in the information they submit.” Apr. 17, 2005 Reconsideration Order at 2, JA 175 (Reconsideration Order). The Reconsideration Order noted that Diamond Ventures argued “persuasively[ ] that it would be cost prohibitive for it to hire independent experts merely to review the documents. Instead, it must rely on its principals’ expertise to assist counsel in determining what competitive information is relevant and necessary to the claims.” Id. The SBA appeals the three orders and in the alternative petitions for a writ of mandamus preventing release of the information. See Appellant’s Br. 16-17.
II.
A. Jurisdiction
In Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), the United States Supreme Court set forth the “collateral order” doctrine authorizing the interlocutory appeal of an order so long as the order “[1] conclusively determined] the disputed question, [2] resolved] an important issue completely separate from the merits of the action, and [3][is] effectively unreviewable on appeal from a final judgment.” Will v. Hallock, — U.S. -, -— , 126 S.Ct. 952, 957, 163 L.Ed.2d 836 (2006) (quotations omitted). The doctrine is “stringently]” applied so as not to “overpower the substantial finality interests” of 28 U.S.C. § 1291.
Using the Philip Morris test, we believe the privacy and competitive interests of the SBIC applicants that “would potentially go unprotected without immediate appellate review” overcome the interest in finality. As the SBA points out, the MAQ contains information of the type “routinely protected” under the Trade Secrets Act, see Appellant’s Reply Br. 7 (citing 18 U.S.C. § 1905), and under Exemption 4 of section 552 of the Freedom of Information Act,
An SBIC applicant relies on the notice, along with other assurances given by the SBA,
B. The Merits
As noted, the district court has wide discretion in managing discovery. Medical Records, 381 F.3d at 1215 (“ ‘Rule 26 vests the trial judge with broad discretion to tailor discovery narrowly,’ “ and “ ‘it is appropriate for the court, in exercising its discretion ..., to undertake some substantive balancing of interests .... ’ ”) (quoting Crawford-El v. Britton, 523 U.S. 574, 598, 118 S.Ct. 1584, 140 L.Ed.2d 759 (1998) (alterations in Medical Records) and Laxalt v. McClatchy, 809 F.2d 885, 890 (D.C.Cir.1987)); 8 Wright and Miller, Federal Practice and Procedure § 2043 (2d ed.1987) (determining “reasonable protective measures ... to minimize the effect on the party making the disclosure” of confidential information within trial court’s discretion). We review the district court’s discovery ruling for abuse of discretion. Medical Records, 381 F.3d at 1211. With respect to a protective order issued pursuant to Rule 26(c)(7), the district court is to undertake “an individualized balancing of the many interests that may be present in a particular case.” Id. (quotation omitted); see In re Sealed Case, 856 F.2d 268, 271 (D.C.Cir.1988) (remanding discovery order because district court did not “show engagement in this essential balancing process”).
The SBA argues that the district court made three mistakes of fact that led it to improperly weigh the competing interests. First, the district court stated it “was not persuaded ... that the information” in the MAQ “[was] confidential or, as Defendant claims, that the applicants have an expectation of privacy in the information they submit.” Reconsideration Order at 2, JA 175. Second, it was not convinced that “disclosure of the MAQ information to competitive bidders could be harmful to applicants and chill the bidding process” inasmuch as “there is no competitive advantage because SBICs do not compete with each other for funding.” Id. Third, the district court found that Diamond Ventures’ lawyers had to rely on its principals’ expertise to assist them in determining what MAQ information was relevant to the discrimination claim because it would be too costly for Diamond Ventures to hire an outside expert.
On the other side of the scale, the district court overvalued Diamond Ventures’ purported need for an expert to review the MAQs in order to support its discrimination claim.
For the foregoing reasons, we conclude that the district court abused its discretion in ordering that the MAQs of all other applicants for SBIC licensure be disclosed to Diamond Ventures’ principals and employees. Accordingly, we vacate Part 3(a)(ii) of the Protective Order entered on January 25, 2005 and remand for further proceedings. The SBA’s challenges to the Denial Order and the Reconsideration Order and its petition for mandamus relief are dismissed as moot.
So ordered.
. Unless otherwise noted the facts are taken from the parties' submissions below. See Def's Memo, in Support of Mot. for Prot. Order, JA 6; Plaintiff's Mem. re: Def’s Mot. for Prot. Order, JA 65.
. Peek originally brought the claim pro se on behalf of himself and Diamond Ventures. Diamond Ventures later retained counsel and filed an amended complaint with itself as the only plaintiff. See Diamond Ventures v. Bar-retto, No. 03-1449, 2nd Am. Compl., R. Doc. 47.
.Rule 26(c)(7) provides that a party may move "that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a designated way.” Under the rule "[t]he court may enter an order restricting disclosure of trade secrets and confidential research, development, or commercial informa
. Diamond Ventures' proposed management included, in addition to Peek, Dileep Rao and Milton Marbarosh. The SBA's proposed protective order sought to deny any Diamond Ventures principal or employee access to the MAQs. Diamond Ventures argues before us that Peek “is the only member of the management team whose access to the disputed documents is necessary to plaintiffs' ability to prosecute this action at a feasible cost.” Ap-pellee's Br. 2 n. 1.
. 28 U.S.C. § 1291 provides that courts of appeals "shall have jurisdiction of appeals from all final decisions of the district courts of the United States.” A decision is "final” under section 1291 if it "leaves nothing for the court to do but execute the judgment.” Pigford v. Veneman, 369 F.3d 545, 547 (D.C.Cir.2004) (quoting Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 89 L.Ed. 911 (1945)).
. FOIA's Exemption 4 exempts from disclosure "trade secrets and commercial or financial information obtained from a person and privileged or confidential.” 5 U.S.C. § 552(b)(4).
. We note, however, that if MAQ information were protected under the Trade Secrets Act, it nonetheless could be discoverable. See Fed. R.Civ.P. 26(c)(7); supra note 3 (court "may enter an order restricting disclosure of trade secrets,” fashioning "any order it sees fit”); Grumman Aerospace Corp. v. Titanium Metals Corp., 91 F.R.D. 84, 90 (E.D.N.Y.1981)(“Nor does the Trade Secrets Act ... provide any basis for preventing disclosure. Disclosure pursuant to the discovery rules is disclosure 'authorized by law,' which the terms of the Act permit.”). Any protection provided by statute would still be relevant to the balancing of interests required under Rule 26. See Medical Records, 381 F.3d at 1215-16 ("[I]n determining which interests to weigh in the Rule 26 balance, courts look to statutory confidentiality provisions, even if they do not create enforceable privileges.”).
. See Dennin Decl. ¶¶ 4-5, JA 57-58 (“I have had numerous opportunities to receive feedback from SBICs regarding their objections to the disclosure, either through SBA’s response to a FOIA request or in civil litigation, of confidential and proprietary business information they submit to SBA, including [MAQ information].... SBA has never disclosed confidential business information contained in MAQs ... absent an appropriate protective order.”).
. The district court also concluded that to the extent the SBA feared public disclosure of the MAQ data, that fear was negated by the stipulation in the Protective Order that "protected material shall be used solely for the purposes of this litigation." Protective Order ¶ 3(a) at 2, JA 129; Reconsideration Order at 2, JA 175. The SBA maintains that once Diamond Ventures' principals have information regarding the business operations and strategies of other SBIC applicants, they cannot be reasonably expected to refrain from using the infor
.A former SBA General Counsel declared that in his experience representing over 100 SBIC applicants, applicants "have an expectation that SBA will withhold [MAQ] materials from disclosure” and to allow Diamond Ventures' principals access to the MAQs would result in "disclosure to a direct competitor of confidential and. proprietary Applicant data of the sort that [SBIC] Applicants and SBA have presumed for decades to be protected from discovery and from disclosure by Exemption 4 of FOIA.” Declaration of Michael K. Wyatt, JA 150-51.
. Diamond Ventures' claim that Peek can substitute for an outside "expert” is somewhat dubious given that he has failed in four attempts to obtain an SBIC license. See Letter from Jeffrey D. Pierson, SBA Associate Administrator for Investment, to C. Earl Peek, Managing Partner, Diamond Ventures (Feb. 25, 2003), JA 182.
. The MAQ itself does not ask for information regarding race. Diamond Ventures’s counsel proposes to review photographs submitted with the MAQ and related documents which "normally include photographs of the key members of the proposed management team” in order to determine the race of MAQ applicants. Pl.’s Mem. re: Def.’s Mot. for Prot. Order at 5, JA 65.
Concurrence Opinion
I would limit the scope of our jurisdiction and merits holdings in the following manner:
I.
The court holds that it has jurisdiction under the collateral order doctrine, see Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), over an interlocutory challenge to a protective order allowing discovery of third-party applications submitted to the Small Business Administration (“SBA”) with the promise of “confidentiality] to the extent permitted by law.” However, there is no need to suggest that one’s party’s unilateral assertion of a compromised “trade secret” or “privacy interest” would suffice to meet the “importance” prong of the collateral order doctrine. See Digital Equip, v. Desktop Direct, Inc., 511 U.S. 863, 879, 114 S.Ct. 1992, 128 L.Ed.2d 842 (1994); United States v. Philip Morris Inc., 314 F.3d 612, 617-19 (D.C.Cir.2003). Such liberality would not make for a “narrow” exception to the finality rule, see Digital Equip., 511 U.S. at 868, 114 S.Ct. 1992, and could open the way for intermediate appellate review of all manner of discovery disputes.
The Fourth Circuit in MDK, Inc. v. Mike’s Train House, Inc., 27 F.3d 116 (4th Cir.1994), rejected collateral order review of the “trade secret” — type dispute on the basis of its concern about the difficulty of cabining the notion of a trade secret:
The dangers of a trade secrets exception to the nonappealability of discovery orders should be apparent. A judicially created exception to nonappealability for categories of sensitive information is the quintessential slippery slope.
Mike’s Train House, 27 F.3d at 120. I share this concern, but conclude that it is answered in this instance because the Trade Secrets Act, 18 U.S.C. § 1905 (2000),
The SBA described, through three declarations, the sensitive nature of the commercial information contained in the application for licensing (known as the Management Assessment Questionnaire, or “MAQ”). As the court acknowledges, Op. at 897-98, the MAQs contain information that the SBA describes as of the type “routinely protected” under the Trade Secrets Act, 18 U.S.C. § 1905, and under Exemption 4 (regarding trade secrets and commercial or financial information) of the Freedom of Information Act (“FOIA”), 5 U.S.C § 552(b)(4) (2000). Although Diamond Ventures disputes the sensitivity of some information requested by the MAQs, it admits the MAQs “are likely to contain financial information of the kind whose disclosures is prohibited by the Trade Secrets Act if such disclosure is not ‘authorized by law.’ ” Appel-lee’s Br. at 3-M. Given that venture capital firms may compete one with another for private funding, the disclosure of information of the sort requested by the MAQ could “cause substantial harm to the competitive position of the person from whom the information was obtained,” McDonnell Douglas Corp. v. Dep’t of the Air Force, 375 F.3d 1182, 1187 (D.C.Cir.2004) (citing Nat’l Parks & Conservation Ass’n v. Morton, 498 F.2d 765, 770 (D.C.Cir.1974)), and thus would fall within the protections of the Trade Secrets Act, which by its plain letter prohibits release by the SBA of information on the “source of any income, profits, losses, or expenditures of any person [e.g., the applicants who submit MAQs], firm, ... or association,” 18 U.S.C. § 1905. Further, the SBA submitted declarations from current and former SBA officials stating that the SBA has successfully invoked FOIA Exemption 4 to protect MAQ information from disclosure.
Consequently, although the protection afforded by the Trade Secrets Act is not an evidentiary privilege, as was the case in the interlocutory appeals In re Sealed Case (Medical Records), 381 F.3d 1205, 1210 (D.C.Cir.2004), and Philip Morris, 314 F.3d at 617-18, the protections in this instance are similar to the statutory bar in In re England, 375 F.3d 1169, 1176 (D.C.Cir.2004). The statutory protections and the institutional interests inform the
II.
Turning to the merits, it suffices to hold that the district court abused its discretion by failing to consider the legally relevant factors. See generally Kickapoo Tribe in Kan. v. Babbitt, 43 F.3d 1491, 1497 (D.C.Cir.1995). As the court concludes, Op. at 898-900, the district court failed both to address the SBA’s promise of confidentiality to third-party applicants and to consider the fact that third-party applicants compete with each other in the market for venture capital funding; additionally, the district court considered the legally irrelevant factor of Diamond Venture’s inability to hire an expert’ In light of these errors, it is apparent the district court failed to balance the legally relevant factors. See Sealed Case (Medical Records), 381 F.3d at 1217; In re Sealed Case, 856 F.2d 268, 272 (D.C.Cir.1988); cf. LaSalle Extension Univ. v. FTC, 627 F.2d 481, 484 (D.C.Cir.1980). The SBA does not challenge the protective order, with its use limitation, insofar as it allows counsel for Diamond Ventures to review the MAQs; it challenges only the provision allowing principals of Diamond Ventures to review the MAQs. Op. at 898 n. 9. This court is not well-positioned to conclude that the district court “overvalued Diamond Ventures’ purported need for an expert to review the MAQs,” Op. at 899, and particularly that we may be “confident” that any illegal redlining that might be revealed by the MAQs and SBA’s approval patterns may be apparent to “counsel without an expert’s assistance,” id. at 899. Such conclusions run counter to the district court’s findings, which are predicated upon its greater familiarity with the litigation, and are unnecessary, because they are not germane to the question of whether the district court balanced the relevant factors.
. The Trade Secrets Act prohibits, in relevant respects, employees of the federal government
18 U.S.C. § 1905.
. See Decl. of Margaret Theresa Dennin, Chief Administrative Officer for SBA Investment Division, ¶ 5 (“SBA has never disclosed confidential business information contained in MAQs in response to a FOIA request ... absent an appropriate protective order"); Decl. of Michael K. Wyatt, former SBA General Counsel, ¶ 5 ("SBA takes the position and advises Applicants that their [MAQ] submissions fall within FOIA Exemption 4”); Op. at 896-97.