dissenting:

I agree with much of what Judge Trott has said, and I particularly agree that LSC’s right of access to grantee records is limited by the requirement that the requested access be for the purpose of insuring compliance with the LSC Act and the conditions of the grant. I also concur in the conclusion that LSC’s contract with MCLAS is subject to an implied covenant of good faith and fair dealing. With respect to the requirement of “reasonableness and necessity,” I agree that the district court erred in giving binding effect to LSC’s internal documents. I also agree that miscellaneous post-enactment committee reports or statements of legislators cannot be used to read such a requirement into the LSC Act.

In my view, however, these latter errors are harmless, because general principles of administrative law require us to assume that Congress intended LSC’s statutory access to documents to be constrained by requirements of reasonableness. Congress provided that LSC was “authorized to prescribe the keeping of records with respect to funds provided by grant or contract and shall have access to such records at all reasonable times for the purpose of insuring compliance with the grant or contract or the terms and conditions upon which financial assistance was provided.” 42 U.S.C. § 2996g(b) (emphasis added). As the majority opinion recognizes, this provision does not grant access to all records for all purposes; it grants access to the prescribed records for a specified purpose.

Faced with an analogous grant of inspection authority to the Interstate Commerce Commission, the Supreme Court long ago held that the Commission could not inspect a railroad’s correspondence. United States v. Louisville & Nashville R.R., 236 U.S. 318 , 35 S.Ct. 363 , 59 L.Ed. 598 (1915). Even though Congress subsequently broadened the statute to grant the Commission access to “all documents, papers, and correspondence ... kept or required to be kept by carriers ...,” Transportation Act of 1920 Pub.L. No. 66-152, 41 Stat., 456, 493 (1920), the District of Columbia Circuit held that the Commission was nevertheless limited to inspection of materials in which the “need for information” for the statutory enforcement purpose “was evident.” Burlington Northern, Inc. v. ICC, 462 F.2d 280, 288 (D.C.Cir.1972).

We, too, have applied a “reasonableness” requirement to the ICC, borrowing the standard applied to Internal Revenue Service summonses, which requires a showing:

United States v. Southern Pacific Transp. Co., 691 F.2d 883, 885 (9th Cir.1982) (quoting United States v. Powell, 379 U.S. 48, 57-58 , 85 S.Ct. 248, 254-55 , 13 L.Ed.2d 112 (1964)). See also Midwest Growers Co-Op. Corp. v. Kirkemo, 533 F.2d 455 , 461 (9th Cir.1976) (“the Commission in exercising its statutory power to inspect is limited by the same standards of reasonableness applicable to other administrative agencies”). Similarly, in construing a broad inspection .authority under the Federal Aviation Act, the Seventh Circuit summarized:

CAB v. United Airlines, Inc., 542 F.2d 394, 399 (7th Cir.1976).

The majority holds, however, that because LSC is not a governmental agency, these principles of administrative law do not apply. I cannot agree. It is true that Congress has provided that “[ejxcept as otherwise specifically provided in this sub-chapter, officers and employees of the Corporation shall not be considered officers or employees, and the Corporation shall not *1560 be considered a department, agency, or instrumentality, of the Federal Government.” 42 U.S.C. § 2996d(e)(l). Although this disclaimer has undeniable effects, it does not necessarily deprive everything LSC does of all attributes of federal action. LSC is a most unusual “private” organization. Its Board of Directors is appointed by the President with the advice and consent of the Senate, and no more than six directors may be of the same political party. 42 U.S.C. § 2996c(a). Its officers and employees may not be compensated in excess of the federal Executive Schedule. § 2996d(d). It is subject to the Freedom of Information Act and the federal open meetings provisions. Id. at (g); 42 U.S.C. § 2996c(g). LSC’s officers and employees are considered officers and employees of the Federal Government for purposes of workers’ compensation, civil service retirement, and life and health insurance benefits. 42 U.S.C. § 2996d(f). LSC is authorized to issue regulations, which must be published in the Federal Register. 42 U.S.C. § 2996g(e). In light of all of these governmental characteristics with which Congress has endowed LSC, it is not sensible to read the disclaimer of section 2996d(e) as evincing an intention that LSC never be treated as if it were governmental, no matter what the situation.

In fact, our court has addressed the congressional disclaimer and has nevertheless treated LSC as a governmental agency. In Spokane County Legal Services v. Legal Services Corp., 614 F.2d 662 (9th Cir.1980), we were presented with an action by a local provider whose program had been terminated by LSC. The provider sought judicial review of LSC’s decision, alleging that it was arbitrary and capricious. We recognized that Congress’ disclaimer removed LSC from the Administrative Procedure Act, but we nevertheless subjected LSC’s decision to review:

Id. at 669. Since we held LSC’s termination decision in Spokane to the standard of rationality established for judicial review prior to the APA, it is quite appropriate to hold its inspection authority to the standards of reasonableness similarly evolved prior to the APA.

I do not see any significance in the distinction of Spokane offered by the majority opinion — that in Spokane LSC was not acting as a party to a consensual relationship but as a sovereign distributor of largesse. To my mind, the relationship in Spokane between LSC as grantor and the local grantee was as consensual as the one involved here. In Spokane, LSC sought unilaterally to terminate that relationship; here, LSC unilaterally seeks access to personnel files with a threat of unilateral termination of the grant to back up its demand. I see no difference in principle or effect between the two instances. Nor do I accept the suggestion that the government in its funding of agencies providing services to the indigent should be freed from the requirements of reasonableness that constrain the government when it regulates railroads. The facts of this case show that there is ample potential for oppression in the grantor-grantee relationship.

As I have stated, the reasonableness requirement for inspection of documents stems from the statutory purpose for which such inspection is authorized. See, e.g., United States v. Southern Pacific Transp. Co., 691 F.2d 883, 885 (9th Cir.1982). By the same compulsion, I would read a reasonableness requirement into the inspection clause of the contract between LSC and Multnomah County Legal Aid Service, Inc. The contractual clause in question, which requires Multnomah to give LSC access to “all” documents in Multno-mah’s control except those subject to attorney-client privilege, is part of a clause requiring Multnomah to cooperate with *1561 LSC’s compliance and monitoring activities. The purpose for which Multnomah promises access to documents is apparent; it is the same purpose for which the statute gives LSC access to records — to insure compliance with the proper conditions of the grant. The contractual right of access is therefore no broader than the statutory right of access. And a contractual promise to deliver “all” records is no more free from limitation than were the statutory directions that the ICC and the CAB have access to “all” records. See Burlington Northern, 462 F.2d at 287 ; United Airlines, 542 F.2d at 399-400 .

I would therefore hold that LSC’s right, statutory or contractual, to inspect the personnel files held by Multnomah is subject to the requirement that the demand for the files be reasonable and relevant to the purpose of ensuring compliance with Multno-mah’s grant conditions. In determining reasonableness, the district court was entitled to take into account the fact that inspection of personnel files implicates the privacy interests of the employees in question.

The district court found that LSC’s officers had originally been unable to say why they needed the personnel files, and that its work plan had only referred to personnel files in connection with their aid in assessing staff evaluations and grievances. The district court found, however, that Multno-mah’s personnel files contained neither grievances nor evaluations. The court found that LSC had only belatedly asserted the interests of detecting discrimination and ferreting out sloppy personnel practices, and that “[e]very piece of information LSC claims to need is available elsewhere.” Moreover, the district court explicitly credited the statement of James Benny Jones that Anthony Gomes, manager of LSC’s monitoring division, “wanted to scrutinize [Multnomah] in light of Savage’s perceived liberalism.” Although the district court also referred to other, more questionable evidence of improper purpose, the above findings, which were supported by evidence in the record and were not clearly erroneous, clearly support the district court’s determination that LSC’s demand for access to the personnel files in issue was unreasonable. I would therefore affirm the judgment.