Request By:
Ms. Karen W. Harris
Pikeville City Clerk
260 Hamble Boulevard
P.O. Box 1228
Pikeville, Kentucky 41502-1228
Opinion
Opinion By: Chris Gorman, Attorney General; Amye B. Majors, Assistant Attorney General
On behalf of his client, Keith Hughes, Mr. Irwin H. Cutler, Jr., has appealed to the Attorney General, pursuant to KRS 61.880(2), your partial denial of Mr. Hughes' January 14, 1992, request to inspect certain documents in the custody of the City of Pikeville. Those documents are identified, generally, as the audits, receipts, and operating statements of Pikeville United Methodist Hospital of Kentucky, Inc., a non-profit private corporation which is the sublessee of a hospital facility located in Pikeville, title to which is reposed in the Pikeville Kentucky Public Hospital Corporation, which in turn, leases the facility to the City of Pikeville. Specifically, Mr. Hughes requested access to:
1) Statement of operating income and expenses;
2) Statement showing an analysis of each fund, outstanding deposits, withdrawals, and beginning and ending balances;
3) General balance sheet;
4) Statement showing the schedule of rates charged for each class of hospital service, gross revenues received, and the number of patients served;
5) List of names and titles of principal officers of the corporation, the city, and the sublessee;
6) A general comment concerning any events or circumstances which possibly might affect the financial statement of the hospital project.
Mr. Hughes' request mirrors the language of Section 15 of the contract, lease, and option agreement between the City of Pikeville and the Public Hospital Corporation, with the exception of two categories of documents not relevant there, which requires that a copy of these documents be filed in the office of the City Clerk.
You responded to Mr. Hughes' request in a letter dated January 17, 1992, advising him that although it was your belief that the requested documents were exempt from public inspection pursuant to KRS 61.878(1)(a), you would contact a representative of the Hospital to determine whether it was willing to waive its privacy rights. Since the requested records are those of a private corporation, which relate to activities, programs and operations not funded by the city, you questioned whether they were "public records, " within the meaning of KRS 61.870(2). You did, however, release the names of the principal officers of the Public Hospital Corporation and the City of Pikeville Board of Commissioners. In addition, you directed him to the Secretary of State for access to the names of the officers of Pikeville United Methodist Hospital of Kentucky, Inc.
In a separate letter issued on the same date, Pikeville City Attorney Russell H. Davis, Jr., advised Ms. Pamela T. Robinette, and attorney representing the Hospital, that although the requested records must be kept on file by the City, and made available to the Board of Trustees and bondholders on demand, he believed that the City could properly withhold them under authority of KRS 61.878(1)(a) and (b). He noted, however, that the Hospital "could waive . . . [its right of] confidentiality if they deemed it in their best interest."
On January 24, 1992, Ms. Robinette responded to Mr. Davis' letter, stating:
Please be advised that it is the position of the Hospital that disclosure of the audit, and related information specified in items 1, 2, 3, 4 and 6 of the Union's request would amount to an invasion of personal privacy within the meeting [sic] of KRS 61.878(1)(a), both as to individuals in the employment of the Hospital and as to the Hospital generally.
Citing OAG 90-13, Ms. Robinette first noted that the Attorney General has previously recognized that a corporation is a "person" within the meaning of the personal privacy exemption codified at KRS 61.878(1)(a), and is entitled to the protections afforded by that provision. She objected to the release of information pertaining to the personal compensation of individuals employed by the Hospital, information pertaining to the operation of the Hospital, including revenues and expenses itemized on a departmental basis, and other "proprietary information." Observing that the information is released to the City under the terms of the sublease agreement (and section 15 of the contract, lease, and option) for the limited purpose of allowing inspection "by or on behalf of any holder of outstanding [b]onds or coupons," she concluded:
[T]he information contained in the audit clearly illustrates in financial terms the operational structure of the Hospital, as well as services and functions offered by the Hospital where it had been successful in generating revenues and operating surpluses for the Hospital. We believe that general access by the Hospital's competitors to such sensitive data could have an adverse impact on the business of the Hospital, which in turn could affect the Hospital's ability to meet its obligations under the Sublease Agreement with the City of Pikeville.
On January 24, 1992, you formally denied Mr. Hughes' request relying on KRS 61.878(1)(a) and (b), you noted that disclosure of the requested documents "would amount to an invasion of the corporation's personal privacy and the personal privacy of individuals who are associated with the Hospital." In addition, it was your position that because the records contained sensitive and confidential information, their release would have an adverse affect upon the business of the Hospital.
In a subsequent letter to this Office, dated February 20, 1992, Mr. Davis attempted to provide us "with certain background information not evident from the fact of the correspondence which has already been provided, or which is furnished herewith." He explained that the hospital facility was constructed by the City of Pikeville in the late 1960's and early 1970's, and financed through the issuance of revenue bonds to the United States Department of Housing and Urban Development and the United States Department of Commerce, Economic Development Administration. As noted above, title to the hospital is in the Pikeville Kentucky Public Hospital Corporation, an agency of the City of Pikeville, which leases the facility to the City. The City, in turn, subleases the facility to Pikeville United Methodist Hospital of Kentucky, Inc. Continuing, Mr. Davis observes:
Pursuant to the terms of the sublease agreement, the Hospital has the right to operate and manage the facility, and to 'supervise the operations of all of the departments thereof.' The City, however, retains general institutional control over the hospital as required by KRS Chapter 58.
The Sublease is, in essence, a management contract, and is annually renewable through the year 2009 when the bonds are scheduled for retirement. The Hospital pays an annual rental of $ 179,085 for the right to operate the facility, which is the amount necessary for bond amortization. The Sublease is terminable by the City at any annual renewal date, or at any other time under a variety of circumstances which would amount to the Hospital's breach of obligation under the sublease.
Mr. Davis emphasizes that the City does not provide any funding for the operation of the hospital facility, and that the City's general operating funds do not derive any income from the Hospital's revenue.
Mr. Cutler asks that we review your partial denial of his client's request to determine if the City of Pikeville's actions were consistent with the Open Records Act. For the reasons set forth below, we conclude that you properly denied that portion of Mr. Cutler's request pertaining to audits, receipts, and operating statements.
OPINION OF THE ATTORNEY GENERAL
We begin with an analysis of KRS 61.870(2). That statute defines a "public record" as:
[A]ll books, papers, maps, photographs, cards, tapes, discs, diskettes, recordings or other documentary materials regardless of physical form or characteristics, which are prepared, owned, used, in the possession of or retained by a public agency . 'Public record' shall not include any records owned by a private person or corporation that are not related to functions, activities, programs or operations funded by state or local authority.
(Emphasis added.) This Office has previously recognized that records of a private entity or agent that are in the possession of, or retained by, a public agency must be treated as public records, and that they are, in general, subject to inspection. OAG 89-7; OAG 91-15. We are, therefore, not persuaded by the City's argument that the records to which Mr. Hughes requested access are not public records. Because the records are kept on file in the City Clerk's office under the terms of the lease agreements, and are possessed and retained by that public agency, they must be considered public records for purposes of the Open Records Act.
Nevertheless, it is the opinion of this Office that Mr. Hughes' request was properly denied under authority of KRS 61.878(1)(b). That provision authorizes the nondisclosure of:
Records confidentially disclosed to an agency and compiled and maintained for scientific research, in conjunction with an application for a loan, the regulation of commercial enterprise, including mineral exploration records, unpatented, secret commercially valuable plans, appliances, formulae, or processes, which are used for the making, preparing, compounding, treating, or processing of articles or materials which are trade commodities obtains from a person and which are generally recognized as confidential, or for the grant or review of a license to do business and if openly disclosed would perit an unfair advantage to competitor of the subject enterprise. This exemption shall not, however, apply to records the disclosure or publication of which is directed by another statute.
To successfully raise this exception, an agency must establish that the requested records: (1) were confidentially disclosed to it; (2) for one of the four purposes delineated in the statute, e.g., regulation of a commercial enterprise; and (3) that release of the records would permit an unfair advantage to competitors of the subject enterprise. The City of Pikeville has sustained its burden of proving that the records withheld satisfy this three part test.
Although Section 15 of the contract, lease, and option agreement between the City and the Public Hosptial corporation requires that a copy of the annual audit and supporting documents be filed in the office of the city clerk, those documents are, by the express terms of the agreement, released by the Hospital for the limited purpose of allowing inspection by, or on behalf of, holders of outstanding bonds or coupons. In OAG 91-105, we held that an agency had failed to establish that a private corporation's business records were confidentially disclosed to it where the requester submitted proof that those records had been released on several previous occasions, including newspaper articles containing information derived from those records. In a conversation with the undersigned on March 27, 1992, you confirmed that the only persons who are permitted access to the audit and supporting documents are city officials and bonholders or their representatives. The records are thus submitted to he city clerk with the expectation that they will remain confidential, satisfying the first part of the three part test mandated by KRS 61.878(1)(b).
We also find that your response satisfies the second part of the three part test, which requires that the confidential records be disclosed for one of four purposes set forth in the statute, specifically, that the records were disclosed to the City for regulation of a commercial enterprise. In his supplemental letter to this Office, Mr. Davis explains that pursuant to Chapter 58 of the Kentucky Revised Statutes, the City "retains general institutional control over the Hospital." Although the Hospital has the authority to operate and manage the facility, the City exercises continuing organizational and supervisory control over the hospital corporation per KRS 58.180. Disclosure of the Hospital's records is thus necessary to facilitate supervisory control and regulation.
With respect to the third requirement of KRS 61.878(2)(b), i.e., that release of the records would permit an advantage to competitiors of the subject enterprise, we find that you, along with Ms. Robinette and Mr. Davis, have adequately documented the likelihood that the hospital will be competitively disadvantaged by disclosure of the audits, receipts, and operating statements. At p. 2 of her letter to the City Attorney, Ms. Robinette observes:
[T]he audit contains detailed and specific information regarding the business and operations of the Hospital, including revenues and expenses itemized on a departmental basis. It also contains detailed information regarding departmental wages, salaries and expenses, the cost of obtaining outside and contract services for various departments, and similar proprietary information.
You confirmed this position in your January 24, 1992, letter of denial to Mr. Hughes, noting that the Hospital objected to release of the requested records "based upon the sensitive and confidential financial information contained therin, and the adverse affect upon the business of the Hospital which could potentially result from disclosure. " Having thus satisfied each of the three part test articulated in KRS 61.878(1)(b), we conclude that you properly withheld the requested records pursuant to KRS 61.878(1)(b).
Whether the records are exempt under KRS 61.878(1)(a) is a question which this Office declines to address because it is not necessary. See ,
City of Louisville v. Courier-Journal, Ky.App., 637 S.W.2d 658, 659 (1982) (declining to address certain issues because inspection of records was properly denied pursuant to other provisions of the Open Records Law).
As required by statute, a copy of this opinion will be sent to the requesting party, Mr. Irwin H. Cutler, Jr., who has the right to challenge it in the appropriate circuit court pursuan to KRS 61.880(5).