When federal agencies and private companies share information with each other, legal barriers can sometimes prevent the public from ever ­knowing about the communication. A case on appeal in Richmond, Va., tests the boundaries of government secrecy.

The dispute in the U.S. Court of Appeals for the Fourth Circuit pits the U.S. Army against contractor American Management Services LLC, doing business as Pinnacle, a real estate management company whose portfolio includes military housing, apartment buildings and retail complexes.

Pinnacle’s attorneys in the Washington office of Greenberg Traurig contend that a rival government contractor, Clark Realty Capital, conducted a behind-the-scenes campaign to convince the Army to boot Pinnacle from 50-year property management deals for soldier housing in Virginia and Georgia. Pinnacle wants to find out what Clark revealed to the Army.

Pinnacle unsuccessfully urged a federal trial judge in Alexandria, Va., to force the Army, represented by the U.S. Attorney’s Office for the Eastern District of Virginia, to disclose the communication Clark presented in May 2010. The appellate court is now weighing whether the documents that Clark’s lawyers at Kirkland & Ellis prepared should remain confidential under the federal public records law.

“How can information about Pinnacle be confidential from Pinnacle? That makes no sense,” Greenberg Traurig litigation partner C. Allen Foster told a Fourth Circuit panel at a hearing October 23. “At some point these exemptions really do have to be interpreted in the light of common sense.”

At issue in the case is whether Clark and the Army had a “common interest agreement”—a legal doctrine that allows parties to keep information secret from another group under the umbrella of mutual legal interests.

Clark, Pinnacle and the Army created various corporate entities to provide housing for soldiers and their families. Clark is now suing Pinnacle in Georgia state court over allegations of fraud and mismanagement. The company sought consent from the Army before bringing the suit against Pinnacle.

Foster argued in the Fourth Circuit that Clark and the Army never had an agreement in the first place, voiding any reliance on the common interest shield. He called Clark a self-interested party that acted “under the cover of secrecy” to get the Army to approve the company’s request to sue Pinnacle—a move that would enrich Clark. “This is nothing but lobbying,” Foster said in the appeals court.

Clark, represented in the state case by the Columbus, Ga., firm Buchanan & Land, is not a party in the records dispute in Virginia. (Jerry Buchanan, a lawyer for Clark, did not return a message seeking comment.)

Pinnacle’s lawyers are challenging a ruling from January in the U.S. District Court for the Eastern District of Virginia. The public should know the truth behind Clark’s allegations, a trial judge said, but a Freedom of Information Act suit isn’t the appropriate path to determine the merits of the claims.

“Pinnacle is correct that there is a public interest in what evidence Clark has against Pinnacle and whether Pinnacle committed the alleged wrongdoing, but that public interest is already served and vindicated in the Georgia state action,” U.S. District Judge T.S. Ellis III said in his decision.

The public interest in the federal case, Ellis said, “is ensuring that entities like Clark continue to provide high-quality, confidential materials to the Army in the future” so that the Army is alerted to potential wrongdoing and able to make “well-informed decisions.”

Julie Ann Edelstein, an assistant U.S. attorney in Alexandria, disputed the notion that Clark and the Army acted improperly to keep documents away from Pinnacle’s lawyers.

“This isn’t a case about a lobbyist,” Edelstein said in the Fourth Circuit. “This is a case where the Army has undertaken a business partnership.”

Allowing Pinnacle to review information that Clark handed over to the Army, Edelstein argued, would make it less likely that another company, in the future, would be as forthcoming with allegations of wrongdoing. A lower-quality submission, Edelstein said, will hurt the government.

Foster said in court papers that a ruling in favor of the Army “would allow private entities to submit with impunity anything to the government, whether true or false, with the comfort of” an unbreakable barrier to public disclosure.

The appellate panel—Chief Judge William Traxler Jr. heard the case with judges James Wynn Jr. and Stephanie Thacker—didn’t immediately rule after the 45-minute hearing.

Wynn questioned why the Army’s business interest with Clark—even without a specified agreement—isn’t enough to establish a common interest between the two groups. “Intuitively, why couldn’t two parties have a common interest without having agreed upon it?” Wynn asked. “Why couldn’t it exist as a matter of fact?”

Mike Scarcella can be contacted at mscarcella@alm.com.