Opinion
Opinion By: Albert B. Chandler III, Attorney General; Amye L. Bensenhaver, Assistant Attorney General
Open Records Decision
The question presented in this appeal is whether the Franklin Electric Plant Board violated the Open Records Act in its disposition of Eric E. Breisach's requests to inspect various records pertaining to "the Board's plans to build or operate a fiber optic communications system or cable system within the City of Franklin." For the reasons that follow, and upon the authorities cited, we conclude that the Board's reliance on KRS 61.878(1)(c)1. in denying, in part, Mr. Breisach access to minutes of its September and October 1997 regular meetings, and in denying, in full, Mr. Breisach access to financial projections relating to the system, was misplaced. However, until such time as the Board finally decides whether to expand its services to include broadband telecommunications, we believe that the consultant's report prepared on its behalf enjoys protection under KRS 61.878(1)(j). 1
Between September, 2000, and March, 2001, Mr. Breisach and his colleagues in the law firm of Fleischman and Walsh, L.L.P., submitted a series of requests to the Franklin Electric Plant Board seeking access to records relating to "the operation or ownership of a broadband network, cable television system, or communications system . . . ." The majority of these requests was denied on the basis of the nonexistence of the records sought. 2 Mr. Breisach does not contest the disposition of these requests. Instead, he focuses on the Board's refusal to furnish him with unredacted copies of minutes of its regular meetings, and redacted or unredacted copies of financial projections relating to the expansion of its services, on the basis of KRS 61.878(1)(c)1. Relying on 97-ORD-66, Mr. Breisach maintains that the cited exemption "protects records of 'private entities which, by virtue of involvement in public affairs, must disclose confidential or proprietary records to a public agency; ' [and is] inapplicable to records 'generated' by or for a public agency that the agency deems confidential. "
In a supplemental response directed to this office following commencement of Mr. Breisach's appeal, Larry K. Musick, Superintendent of the Franklin Electric Plant Board, elaborated on the Board's position. He explained:
Should the Franklin Electric Plant Board decide to provide telecommunications services (such as cable TV and/or interest service) to its customers, it would be in direct competition with Tel-Media Company of Franklin, Ltd. 3
The information which has been withheld from disclosure is confidential or proprietary and if openly disclosed would permit an unfair commercial advantage to Tele-Media Company of Franklin, Ltd., as well as any other telecommunications provider for such services. Further, at this stage, all such information is preliminary in nature. The information which has not been disclosed is exempt under KRS 61.878(1)(c)1 and/or KRS 61.878(1)(i) and (j). In Marina Management Services, Inc. v. Cabinet for Tourism, Ky., 906 S.W.2d 318 (1995), the exemption was held to apply in a similar situation where the public agency itself was in competition with others. 4 See also Hoy v. Kentucky Industrial Revitalization Authority, Ky., 907 S.W.2d 766 (1995).
No final decision has been made by the Franklin Electric Plant Board concerning whether to expand its services into these areas and the records which have not been disclosed are therefore preliminary only and exempt are under 61.878(1)(i) and (j).
Shortly thereafter, Mr. Musick responded to a series of questions posed by this office under authority of KRS 61.880(2)(c). 5 Our questions, and Mr. Musick's responses, are summarized below:
1. What measures were taken to insure the confidentiality of the disputed records, or parts of records, from the date of their submission to the present?
The disputed financial projections and board minutes have been kept in the office of the undersigned, and in a locked safe. The disputed board minutes have not been disseminated to the general public, nor to anyone outside the office of the Franklin Electric Plant Board, other than the attorney for the board. The financial projections have not been furnished or provided to anyone other than board members and the attorney for the board. Information in the financial projections was disclosed to board members in a board meeting, but no hard copies of the financial projections have been distributed to board members.
2. On what basis do you assert that the disputed records, or parts of records, are "generally recognized as confidential or proprietary" ?
The disputed board minutes contain financial information concerning the inner workings of the Franklin Electric Plant Board in the telecommunications areas, as well as customer identity information. The financial projections also disclose the inner works of the Franklin Electric Plant Board in that the information contains projections as to potential customers, revenue, and expenses, as well as financial analysis of viability.
The financial projections were provided by an outside consultant at the expense of the Franklin Electric Plant Board. The Franklin Electric Plant Board deems that it may be necessary or desirable to expand into the telecommunications field or area in order to enhance its ability to provide efficient and economical electric service to its customers. In general, telecommunications capability is a coming necessity in efficient and service friendly electric power delivery. 6
3. Please describe, in general terms, how disclosure of the disputed records, or parts of records, will permit an unfair commercial advantage to competitors of the entity that disclosed them: who submitted them; what information do they contain; how could they be utilized by a competitor?
Tele-Media Company of Franklin, Ltd is a primary competitor of the Franklin Electric Plant Board in the telecommunications field. The financial information in the subject board minutes and the financial projections would be of value to any competitor in this field or area. For example, information as to projected revenue and expenses or service rates could be utilized by a competitor so as to make it difficult or impossible for the Franklin Electric Plant Board to enter or expand into the market. Aside from this financial advantage, the information could be used by a competitor in an advance publicity campaign to impede entry into the market.
Pursuant to KRS 61.880(2)(c), Mr. Musick furnished this office with copies of the records in dispute.
Our analysis of these records confirms Mr. Breisach's position that the Board's reliance on KRS 61.878(1)(c)1. was misplaced. That exception authorizes nondisclosure of:
Records confidentially disclosed to an agency or required by an agency to be disclosed to it, generally recognized as confidential or proprietary, which if openly disclosed would permit an unfair commercial advantage to competitors of the entity that disclosed the records[.]
This office has consistently recognized that in order to qualify for exclusion under KRS 61.878(1)(c)1., public records must be:
1) confidentially disclosed to an agency or required by an agency to be disclosed to it;
2) generally recognized as confidential or proprietary; and
3) of such a character that disclosure would permit an unfair commercial advantage to competitors of the entity that disclosed them.
See, e.g., 96-ORD-135; 97-ORD-66; 97-ORD-132. On at least two occasions, the Kentucky Supreme Court has analyzed this provision, concluding that the public agencies, which had invoked it on behalf of a private entity, met their statutory burden of proof. In Marina Management Services, Inc. v. Cabinet for Tourism, above, the Court held that records containing financial information of privately owned marina operators were exempt from disclosure. The Court reasoned that disclosure would provide an unfair advantage to competitors by allowing them to ascertain the economic status of the marina operators. At page 319 of that opinion, the Court observed:
The records submitted to the Parks Department include information on asset values, notes payable, rental amounts on houseboats, related party transactions, profit margins, net earnings, and capital income. These are records of privately owned marina operators, disclosure of which would unfairly advantage competing operators. The most obvious disadvantage may be the ability to ascertain the economic status of the entities without the hurdles systematically associated with acquisition of such information about privately owned organizations. Further, the facts on the record indicate that the audit statements were disclosed confidentially to Tourism and the Auditors Office. On these facts alone, the exemption clearly applies.
Thus, the Parks Department adduced sufficient proof to support invocation of the exemption.
Similarly, in Hoy v. Kentucky Industrial Revitalization Authority, above, the Court found:
The financial information required to be submitted by GE in its application to KIRA detailed the company's business and revitalization project. Under administrative regulations adopted by KIRA, such information included a financial history of the corporation, projected cost of the project, the specific amount and timing of capital investment, copies of financial statements and a detailed description of the company's productivity, efficiency and financial stability. . . . It does not take a degree in finance to recognize that such information concerning the inner workings of a corporation is "generally recognized as confidential or proprietary" and falls within the wording of KRS 61.878(1)(c)(2).
Again, the public agency from which access to confidentially disclosed records of a private corporation was sought established that those records were generally recognized as confidential or proprietary.
These cases, along with the cited open records decisions, demonstrate that the burden of proving that the records withheld qualify for exclusion under KRS 61.878(1)(c)1. rests with the public agency. That exception, as noted above, "is aimed at protecting records of private entities which, by virtue of involvement in public affairs, must disclose confidential or proprietary records to a public agency, if disclosure of those records would place the private entities at a competitive disadvantage." 97-ORD-66, p. 10 (emphasis added). It is, in general, inapplicable to records generated by or for a public agency. "The exemptions protection simply does not extend to the agency's own records," such as minutes of the agency's public meetings. Id. Nor, we would hasten to note, does its protection extend to a consultant's report prepared for the agency at agency expense. The Franklin Electric Plant Board had not established that disclosure of the meeting minutes or financial projections "would permit an unfair commercial advantage to competitors of the entity that disclosed the records."
In the case of financial projections, the "entity that disclosed the records" is the outside consultant, a sister electric plant board. No claim is made that the sister plant board would be competitively disadvantaged by disclosure, and none could be made since the financial projections relate to the Franklin Electric Plant Board. 7 In the case of minutes of regular meetings, such records are not "confidentially disclosed to an agency or required by an agency to be disclosed to it" nor are they "generally recognized as confidential or propriety." The fact that comments were ill-advisedly made in the course of an open, public meeting that placed the Board at a risk of competitive harm is not enough to bring minutes reflecting those comments within the scope of KRS 61.878(1)(c)1. Bearing in mind that "the exceptions provided for by KRS 61.878 . . . shall be strictly construed," we find that the Franklin Electric Plant Board improperly relied on this exemption. KRS 61.871.
Moreover, with respect to minutes of an open meeting of a public agency, KRS 61.835 places an affirmative duty on the agency to make those minutes "open to public inspection at reasonable times no later than immediately following the next meeting of the body." No claim is made that these comments were made in a properly conducted closed session, and no statutory basis exists for denying access to all or any part of the minutes of an open, public meeting. We believe that the Board erred in refusing to disclose the minutes in their entirety, and is obligated to immediately furnish Mr. Breisach with unredacted copies of those minutes.
The same cannot be said for financial projections prepared by an outside consultant on the issue of expansion of existing services before a final decision on this issue has been made. It is the opinion of this office that 00-ORD-139 disposes of this question, and a copy of that decision is attached hereto and incorporated by reference. In 00-ORD-139, the Attorney General was asked to review a sanitation district's denial of a request for a copy of an outside consultant's report dealing with possible rate increases. We affirmed the district's denial of the request on the basis of KRS 61.878(1)(j), 8 pending a final decision on rate increases and a finding that the consultant's report was adopted by the agency as part of that decision. At pages seven through nine, we engaged in a lengthy analysis of the referenced exemptions, summarizing opinions of this office from the earliest days of the Open Records Law to the present, and concluded that KRS 61.878(1)(j):
authorizes nondisclosure of preliminary recommendations or preliminary memoranda in which opinions are expressed or policies formulated or recommended until they are [adopted by the agency as part of its final action], 9 notwithstanding the fact that they are prepared for the agency by outside agencies or private consultants.
00-ORD-139, p. 9.
Moreover, in 00-ORD-139 this office expressly declined to engage in a balancing of interest analysis in the context of any exemption other than KRS 61.878(1)(a), which, by virtue of the "clearly unwarranted" language, 10 compels such an analysis. Both Mr. Breisach and the Board urge this office to consider the public's interest in these records. Mr. Breisach postulates the public's interest in monitoring the expenditure of "captive ratepayers' funds." The Board, on the other hand, postulates the public's interest in competition, which "insures fair rates . . . and promotes quality of service." Both believe that the interest they postulate is superior to any competing interest. With reference to the balancing of interest analysis, in 00-ORD-139 we observed:
[T]he Court of Appeals applied a balancing of interests analysis to a denial based on KRS 61.878(1)(j) in Courier-Journal v. Jones, Ky., 895 S.W.2d 6 (1995) . . . . [T]his analysis is a double-edged sword. Thus, in Jones the court concluded that the public interest in disclosure was clearly outweighed by the Governor's interest in the nondisclosure of his appointment calendar. Assuming as we must, based on the Jones decision, that the balancing of interest analysis, originally developed in the context of appeals arising under the privacy exception, can be extended to appeals arising under the preliminary documents exceptions, we leave such "subtle interpretations" of KRS 61.878(1)(j) to the courts, the legislature having clearly established that with respect to certain records, the public's right to know is subservient to the need for governmental confidentiality. OAG 80-54, p. 3.
00-ORD-139, p. 10, 11. Accordingly, we do not consider the arguments advanced by either party relative to a balancing of interest.
Having reviewed the financial projections report prepared by a sister agency on behalf of the Franklin Electric Plant Board, we conclude that it falls squarely within the parameters of KRS 61.878(1)(j). The report contains broad opinion and conjecture based on an analysis of projected data, formulates policy, and makes recommendations relative to the expansion of services. We find that the report enjoys the protection of KRS 61.878(1)(j) until such time as a final decision is made on this issue, including a decision not to expand services. When the Board finally acts, or decides not to act, we believe that the report will forfeit its preliminary characterization to the extent that it is adopted as part of that final action.
A party aggrieved by this decision may appeal it by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882. Pursuant to KRS 61.880(3), the Attorney General should be notified of any action in circuit court, but should not be named as a party in that action or in any subsequent proceeding.
Footnotes
Footnotes
1 Mr. Breisach objects to the Franklin Electric Plant Board's delayed invocation of KRS 61.878(1)(i) and (j) as additional bases for denying him access to the requested records. He notes that the Board did not invoke those exemptions in the original responses to his open records requests, and that this represents an attempt "to backfill their position . . . ." While we agree that an agency response provided under authority of 40 KAR 1:030 Section 2 "should be viewed as an opportunity to supplement, and not to supplant, its original denial," the Attorney General has indicated that he will "consider those supplemental responses, which correct misstatements or misunderstandings that appear in, or arise from, the complainant's letter of appeal, or which offer additional support for the agency's original denial". 96-ORD-193, note 2, page 3.
2 Although we will not belabor the issue, each of the Board's responses was procedurally deficient insofar as they were not issued within three days of receipt as required by KRS 61.880(1). We remind the Board that these procedural requirements "are not mere formalities, but are an essential part of the prompt and orderly processing of an open records request." 93-ORD-125, p. 5.
3 Mr. Breisach represents Tele-Media Company of Franklin, Ltd., but, as he correctly notes, an agency's decision whether to release or withhold documents does not turn on the identity of the person making the request or the purpose for which it is made. Citing Zink v. Commonwealth, Ky. App., 902 S.W.2d 825, 828 (1994).
4 Our reading of Marina Management, above, does not support the Board's interpretation that "the public agency itself was in competition with others." The entity whose financial records were deemed exempt under KRS 61.878(1)(c)1. was instead a private marina operator under a license agreement with the Cabinet for Tourism.
5 KRS 61.880(2)(c) authorizes the Attorney General to "request additional documentation from the agency for substantiation . . . . [including] a copy of the records involved . . . ."
6 Citing Hoy v. Kentucky Industrial Revitalization Authority, Ky., 907 S.W.2d 766 (1995).
7 We note that 98-ORD-132 is factually distinguishable from the instant appeal insofar as the public entities from which the consultant's report was sought had entered into an alliance with a private entity to operate broadband telecommunications networks in various municipalities, and the report was privately funded and subject to a contractual agreement that it was to be treated as a "confidential and proprietary document owned by [the private entity] ."
8 KRS 61.878(1)(j) authorizes public agencies to withhold:
Preliminary recommendations, and preliminary memoranda in which opinions are expressed or policies formulated or recommended.
9 See 01-ORD-83 for the most recent examination of the question of when a preliminary memorandum forfeits its preliminary characterization.
10 KRS 61.878(1)(a) thus authorizes public agencies to withhold:
Public records containing information of a personal nature where the public disclosure thereof would constitute a clearly unwarranted invasion of personal privacy[.]