Argus Leader Media v. United States Department of Agriculture
Filing
127
MEMORANDUM OPINION AND ORDER Signed by U.S. District Judge Karen E. Schreier on 11/30/16. (SLW)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
ARGUS LEADER MEDIA,
d/b/a Argus Leader
4:11-CV-04121-KES
Plaintiff,
MEMORANDUM OPINION
AND ORDER
vs.
UNITED STATES DEPARTMENT OF
AGRICULTURE,
Defendant.
Plaintiff, Argus Leader Media, brings this Freedom of Information Act
(FOIA) suit against defendant, United States Department of Agriculture (USDA).
Argus seeks data on the Supplemental Nutrition Assistance Program (SNAP),
formerly known as the Food Stamp Program. The USDA opposes releasing the
data based on FOIA Exemption 4, arguing that such disclosure would cause
substantial competitive harm to grocery stores participating in SNAP. This
court disagrees and holds that disclosure of the requested data will not cause
substantial competitive harm to SNAP retailers. The data should be disclosed
under FOIA.
BACKGROUND
The USDA administers SNAP through the Food and Nutrition Service, an
agency within the USDA. The purpose of SNAP is to give children and needy
families access to food and nutrition education. When SNAP households
redeem their benefits, the transaction looks like a customer using a debit card.
The SNAP household pays for its groceries by swiping a benefits card and
entering a PIN number. A third-party processor verifies that the SNAP account
has available benefits and then approves or denies the transaction. If the
transaction is approved, the third-party processor then transfers money from
the SNAP household’s account to the retailer’s bank and sends the redemption
data to the Food and Nutrition Service.
Argus, in 2011, made a FOIA request to the Food and Nutrition Service.
Argus sought a variety of SNAP data—including yearly spending totals at
individual retail locations. About two weeks later, the Food and Nutrition
Service provided some of the requested information and withheld the remainder
citing FOIA Exemptions 3 and 4. Argus then filed an administrative appeal.
Before the USDA formally denied the appeal, Argus filed this action.
The USDA, in 2012, filed its first motion for summary judgment. This
court granted the USDA’s motion and held that Exemption 3 of FOIA applied to
the undisclosed data. The Eighth Circuit Court of Appeals reversed and
remanded the case. In 2015, the USDA filed its second motion for summary
judgment, arguing FOIA Exemptions 4 and 6 applied to the requested data.
This court denied the motion and scheduled the case for a bench trial. Before
trial, the USDA withdrew its Exemption 6 argument, and the parties stipulated
that the only issue remaining for the court to decide was whether Exemption 4
applied to yearly SNAP revenues for individual stores.
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The bench trial began on May 24, 2016. A number of Food and Nutrition
Service employees testified about the collection of SNAP data. Witnesses also
testified about the potential harm in disclosing the requested data, including
the USDA’s witness Joey Hays. Hays is the President and Owner of Dyer Foods
Incorporated, a supermarket chain that started in Dyer, Tennessee and has
expanded to 13 locations. Hays has spent 35 years in the grocery business.
Hays testified that individual store SNAP sales data is not public information
and that release of the data would cause competitive harm to his business
because competitors could use the information against him. On cross
examination, however, Hays admitted that releasing the SNAP data would not
give competitors a store’s total profits. Hays also admitted that much of a
store’s business is already visible to the public such as product selection and
price. Hays further testified that Wal-Mart has already saturated his market,
even without the requested SNAP information.
Andrew Johnstone, Associate General Counsel for Sears Holdings
Management Corporation, also testified for the USDA. Johnstone echoed Hays’s
comments that the grocery business is especially competitive because the profit
margins are low. Johnstone testified that if the requested SNAP data was
disclosed it would help competitors take away business from Kmart stores.
Finally, Johnstone noted the potential stigma that might result from publishing
SNAP data. Specifically, Johnstone was concerned that landlords would not
renew their lease agreements if the data showed that KMart stores had high
SNAP sales. On cross examination, Johnstone testified that store data is
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already publically available to market researchers. Such data includes a store’s
location, products, and pricing. Johnstone also testified that if the SNAP
information was released, it would be released regarding all SNAP retailers.
Peter Larkin, President and CEO of the National Grocers Association,
testified that profit margins in the grocery industry are roughly 1% before tax.
He also testified that a 2014 study found profit margins to be $0.0091 on every
dollar. Thus, grocery stores must have a high sales volume to make a profit.
Larkin also testified that individual store SNAP data is not available currently
to the public, and Larkin reasoned that injecting new sales information into the
public domain could impact stores because competitors could target high
dollar SNAP locations and build new stores in that area. On cross examination,
Larkin admitted that a number of factors play a role in a customer’s decision to
shop at a grocery store such as better produce, convenient location, unique
products, or better customer service. Larkin also testified that disclosing SNAP
data would not be the same as disclosing a store’s profits or net sales.
Gwen Forman, Senior Vice President of Marketing at Cumberland Farms,
theorized that SNAP data is valuable because it confirms whether or not a
store’s practices are successful. Although the public sees a store’s advertising
and customer outreach, a competitor cannot confirm whether the store’s
strategy is effective. Releasing SNAP data—Forman argues—allows competitors
to gauge whether a store’s marketing strategy is effective. On cross
examination, Forman admitted that a number of other factors also determine
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whether a store is ultimately successful at a given location. SNAP data alone
will not determine a store’s future plans or business strategy.
Argus’s first witness was Dr. Richard Volpe, an Assistant Professor in the
Agribusiness Department at California Polytechnic State University. Dr. Volpe
testified that a variety of store data is already public. For example, a store’s
prices, level of activity, layout, and assortment of products are visible to anyone
visiting the store. This data is already being collected and is available to
retailers. Dr. Volpe also addressed concerns about benchmarking, the practice
of analyzing a store’s sales over a period of years. Dr. Volpe explained a
benchmarking analysis of SNAP data has limited value because a store’s
increased SNAP revenue may be attributable to a number of factors such as
increased prices, change in customer demographics, or increased number of
SNAP customers. Because additional data is necessary to determine the reason
for increased SNAP sales, the release of individual store SNAP data would not
cause competitive harm.
Argus’s next witness was Dr. Ryan Sougstad, Associate Professor of
Business Administration at Augustana University. Dr. Sougstad testified about
how companies use data to come to decisions. Dr. Sougstad testified that
individual retailer SNAP data would not likely play a significant role in helping
businesses decide where to locate stores. On cross examination, Dr. Sougstad
admitted that he was unable to determine to what degree stores would be less
profitable if the requested SNAP data was released, but he believed any
economic harm would be marginal.
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The USDA’s one rebuttal witness, Bruce Kondracki, Vice President of
Market Insights and Consumer Research at Dakota Worldwide Corporation,
testified about market analysis in the food industry. Kondracki explained that
grocery stores use model forecasts to determine where to add locations and
that releasing SNAP data could improve the accuracy of these models.
Kondracki also testified that the addition of new stores does not necessarily
mean customers quit frequenting their current store, but customers may spend
less money at their current store.
LEGAL STANDARD
“ ‘Congress intended FOIA to permit access to official information long
shielded unnecessarily from public view.’ ” Hulstein v. Drug Enf’t Admin., 671
F.3d 690, 694 (8th Cir. 2012) (quoting Milner v. Dep’t of Navy, 562 U.S. 562,
565 (2011)). “FOIA generally mandates broad disclosure of government
records.” Cent. Platte Nat. Res. Dist. v. U.S. Dep’t of Agric., 643 F.3d 1142, 1146
(8th Cir. 2011) (citations omitted). FOIA requires that an agency offer records
upon request unless they are the sort of records protected by one of the nine
exemptions under the Act. Milner, 562 U.S. at 565. The exemptions “are to be
narrowly construed to ensure that disclosure, rather than secrecy, remains the
primary objective of the Act.” Mo. Coal. for Env’t Found. v. U.S. Army Corps of
Eng’rs, 542 F.3d 1204, 1208 (8th Cir. 2008) (citations omitted). The district
court engages in a de novo review of an agency’s decision to deny a request for
information under FOIA, and the burden is upon the agency to show that the
specific exemption applies. 5 U.S.C. § 552(a)(4)(B); In re Dep’t of Justice, 999
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F.2d 1302, 1305 (8th Cir. 1993). “The government bears the burden of proving
by a preponderance of the evidence that a withheld document falls within one
of the exemptions.” Enviro Tech Int’l, Inc. v. U.S. EPA, 371 F.3d 370, 374 (7th
Cir. 2004) (citing § 552(a)(4)(B)). This court has made all of its factual
determinations by a preponderance of the evidence.
DISCUSSION
The exemption at issue here is FOIA Exemption 4. The Eighth Circuit
Court of Appeals has explained that “[t]he plain language of [Exemption 4]
exempts only (1) trade secrets and (2) information which is (a) commercial or
financial, (b) obtained from a person, and (c) privileged or confidential.”
Brockway v. Dep’t of Air Force, 518 F.2d 1184, 1188 (8th Cir. 1975) (internal
quotation omitted). Neither party has argued that the requested SNAP data is a
trade secret, so the issue before the court is whether the requested FOIA
information is (1) commercial or financial; (2) obtained from a person; and (3)
privileged or confidential. The parties have stipulated that the information is
commercial or financial, so only the remaining two elements are discussed
below.
A.
The SNAP information is obtained from a person.
The Supreme Court has explained that information is “obtained from a
person” if the “information [is] obtained outside the Government.” Fed. Open
Market Comm. of Fed. Reserve Sys. v. Merrill, 443 U.S. 340, 360 (1979). In FCC
v. AT&T, 562 U.S. 397, 408-09 (2011), the Supreme Court held a corporation
was a person under Exemption 4 analysis. Argus asserts that because SNAP is
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a government program, the requested SNAP data is obtained from inside the
government. The government is giving SNAP benefits to qualifying households,
and the government then tracks where the SNAP households are spending
their benefits. Argus contends that the government is essentially keeping track
of its own spending. Thus, Argus’s position is that all of the redemption data is
generated and collected by the government and that the SNAP data is obtained
from the government.
The Eighth Circuit Court of Appeals has already held that Exemption 3
does not apply to this case. In that opinion, the Eighth Circuit held that the
requested information is “ ‘obtained’ from third-party payment processors, not
from individual retailers.” Docket 44 at 6 (citations omitted). This conclusion is
supported by the testimony from the Food and Nutrition Service employees.
Neither party disputes that it is the third-party processor who verifies whether
the SNAP household has available SNAP benefits and that the third-party
processor submits the redemption data to the Food and Nutrition Service.
Based on the Eighth Circuit’s ruling and the testimony at trial, this court finds
that the requested information is obtained from a person, namely the
third-party processors who facilitate the SNAP transactions.
B.
The SNAP information is not privileged or confidential.
Information is confidential 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 position of the person from whom the information was
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obtained.” Contract Freighters, Inc. v. Sec'y of U.S. Dep't of Transp., 260 F.3d
858, 861 (8th Cir. 2001) (quoting Nat’l Parks & Conservation Ass’n v. Morton,
498 F.2d 765, 770 (D.C. Cir. 1974)).1 This test, which the Eighth Circuit Court
of Appeals adopted from the District of Columbia Court of Appeals, is
commonly known as the National Parks test and “has been widely recognized
and applied by the circuit courts when construing Exemption 4.” Id. Because
the parties agree that prong 1 of the National Parks test is inapplicable, only
prong 2 is addressed. Docket 61 at 19-20.
The Eighth Circuit Court of Appeals has not articulated the showing
necessary for a party to prove that release of information would cause
substantial harm under prong 2. But the District of Columbia Circuit has
found that prong 2 competitive harm may be established if there is evidence of
“actual competition and the likelihood of substantial competitive injury . . . .”
Pub. Citizen Health Research Grp. v. Food & Drug Admin., 704 F.2d 1280, 1291
(D.C. Cir. 1983) (internal quotation omitted).2 Competitive harm is limited to
“harm flowing from the use of proprietary information by competitors.
Competitive harm should not be taken to mean simply any injury to
Another test is used if the person or entity submitting information is acting
voluntarily. That test is inapplicable here, however, because SNAP retailers are
required to disclose EBT data if they want to be compensated. See Martin
Marietta Corp. v. Dalton, 974 F. Supp. 37 (D.D.C. 1997) (holding a bid to do
government work is not voluntary under Exemption 4 because the bid must be
submitted in order to win the contract); see also Defendant’s Memorandum in
Support of Motion for Summary Judgment, Docket 61 at 19 (stating “[T]he
agency’s position is that the information here is required to be submitted.”)
2 See also Sharkey v. Food & Drug Admin., 250 Fed. Appx. 284, 288 (11th Cir.
2007).
1
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competitive position, as might flow from customer or employee disgruntlement
or from the embarrassing publicity attendant upon public revelations . . . .” Id.
n. 30. When assessing the potential for competitive harm, a court may consider
the nature of the material sought, the competitive circumstances surrounding
the disclosure, and credible opinion testimony. Nat’l Parks & Conservation
Ass’n v. Kleppe, 547 F.2d 673, 683 (D.C. Cir. 1976). Although a party opposing
disclosure “need not ‘show actual competitive harm,’ ” conclusory and
generalized allegations—standing alone—are not sufficient. Food & Drug
Admin., 704 F.2d at 1291.
1.
Actual competition
Competition in the grocery business is fierce. This conclusion is
supported by the testimony of Joey Hays, Andrew Johnstone, Peter Larkin,
Gwen Forman, and Bruce Kondracki. Johnstone noted that competition in the
grocery business has increased with the entrance of new competitors, and
Larkin provided testimony that the profit margins in the grocery industry are at
$0.0091 on every dollar spent. Kondracki also explained competition is not
measured solely in terms of lost customers, but in lost dollars to other stores.
Kondracki testified the entrance of a new store into an existing market can
cause a significant loss in business. Based on this testimony, the court finds
that the grocery industry has actual competition.
2.
Likelihood of substantial competitive harm
The competitive harms alleged by the USDA fall into two main categories:
(1) harms arising from competitors using SNAP data to lure away customers
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from other businesses and (2) harms arising from the potential stigma
associated with being a high volume SNAP retailer. Forman’s testimony
encapsulated the retailers’ overarching concerns of the former. Forman
explained how competitors could use SNAP data to choose the locations of new
stores, evaluate an existing store’s overall success, and ultimately cut into
another store’s profits. Hays, Johnstone, Larkin, and Kondracki all gave
testimony supporting this conclusion that disclosure of individual store
redemption data could cause competitive harm because competitors in the
grocery business could use the information to target an existing store’s
customers.
This analysis, however, is incomplete. Competitors in the grocery
industry already use a variety of publicly available information to make
decisions. This information includes a store’s location, layout, pricing, product
selection, and customer traffic. Dr. Volpe and Dr. Sougstad both noted that
while SNAP information may provide some insight into a store’s overall
financial health, the data is a small piece in a much larger picture—disclosure
would have a nominal effect on competition in the grocery industry.
Kondracki’s models of consumer behavior appear to support this point.
Kondracki testified that the current market models can reach correlations of .9
or .99. This appears to indicate that while SNAP data may be beneficial, it
would not add significant insights into the grocery industry. This conclusion is
further supported by the testimony of Hays. Hays testified that competitors
such as Wal Mart have already saturated the market where he competes. Wal
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Mart took these actions without the requested SNAP data. This court concludes
that any potential competitive harm from the release of the requested SNAP
data is speculative at best.
The second concern the USDA voiced to releasing SNAP data was the
potential stigma SNAP households and SNAP retailers might face. As noted
above, this type of harm is not relevant in an Exemption 4 analysis because it
is not a harm caused by a competitor. Even if stigma was relevant, the USDA’s
evidence on potential stigma was not sufficient to meet its burden. Although
Johnstone testified that high SNAP sales revenue might affect a landlord’s
decision to rent its commercial space to a retailer, it seems unlikely that a
landlord would be unaware of its tenant’s customer base. Johnstone also did
not provide any evidence of the likelihood of this contingency occurring. At
best, Johnstone’s claims are speculative. Furthermore, the remaining
witnesses did not explain how high or low SNAP sales would harm their stores.
For example, although a high volume of SNAP sales might encourage a
competitor to enter that geographical market, an equally compelling conclusion
is that the competitor may decide to stay away from that market. Another
equally compelling conclusion is that SNAP sales will have no or little effect on
a store’s decision to expand into new sites. This is because a variety of factors
influence a store’s decision to open a new location including: cost of real estate,
location of real estate, the business’s long-term financial plan and goals, and
other factors. This court finds that the competitive harms associated with
stigma are also speculative.
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The USDA, in its post-trial reply brief, cited three cases to support its
claim that releasing the requested SNAP data would cause competitive harm.
Each case, however, is distinguishable from the present litigation because the
plaintiffs in the other cases asked for data that would give greater insights into
the company’s workings. In Kleppe, 547 F.2d at 379-80, plaintiffs sought
information about company assets, liabilities, net worth, balance sheet
information, future and existing projects, and operating capacity. In Public
Citizen Health Research Group, 209 F. Supp. 2d at 40-41, plaintiffs requested
the negotiated royalty rates between private researchers and the government.
Finally, in Sharkey v. Food & Drug Administration, 250 Fed. Appx. 284, 288290 (11th Cir. 2007), plaintiffs sought information that would result in the
disclosure of domestic market share and sales volume. Here, the requested
SNAP data does not provide the same insights into store profitability. SNAP
sales are merely a part of the store’s total revenue. SNAP data does not disclose
a store’s profit margins, net income, or net worth. SNAP data also does not
disclose how a company bids on government contracts or negotiates with the
federal government. In essence, SNAP data is merely a bill from the retailer to
the government. As the USDA acknowledges, this type of data is regularly
disclosed, and disclosure is consistent with FOIA’s underlying purpose. Docket
125 at 5-6. Because of the speculative nature of the USDA’s claims and FOIA’s
preference for transparency and disclosure, this court finds that the release of
SNAP data will not likely cause substantial competitive harm to SNAP stores.
The data should be disclosed.
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CONCLUSION
The USDA has failed to meet its burden to show that Argus’s FOIA
request falls within Exemption 4 because the USDA did not prove that release
of the requested data was confidential. Specifically, USDA did not show that
release of the requested information would cause substantial competitive harm
if it was disclosed. Thus, it is
ORDERED that judgment will be entered in favor of Argus and against
USDA in accordance with this memorandum opinion and order.
DATED this 30th day of November, 2016.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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