Opinion
Opinion By: Andy Beshear, Attorney General; Gordon Slone, Assistant Attorney General
Open Records Decision
The issue presented in this appeal is whether the Hardin County Fiscal Court ("Fiscal Court") violated the Open Records Act in its disposition of Ben Sheroan's open records request for a letter of intent between the Fiscal Court and Baptist Healthcare System. For the reasons stated below, we find that the Fiscal Court did not violate the Act.
Hardin Memorial Health (HMH) is a 300-bed county-owned regional hospital located in Elizabethtown, Hardin County, Kentucky. The members of the Hardin County Fiscal Court serve as the Board of Trustees of HMH ("Board"), and the County Judge Executive serves as the Chairman of the Board. In early 2016, the Board began exploring options, as explained by the Fiscal Court, "to better position HMH to serve the healthcare needs of Hardin County and the surrounding region." HMH issued Requests for Proposals to "several large non-profit and for-profit health systems" and Baptist Healthcare System, Inc. d/b/a Baptist Health, a Kentucky non-profit corporation ("BHS") was a recipient of a Request for Proposal. The Board selected the proposal submitted by BHS and held a public vote to authorize the negotiation and execution of a non-binding letter of intent ("LOI") with BHS. On October 23, 2017, the Board and BHS executed a confidential LOI outlining potential terms to be further negotiated.
On November 7, 2017, Ben Sheroan, editor, The News-Enterprise , a newspaper serving Elizabethtown and Hardin County, made a request to the Hardin County Judge/Executive for a "full and complete copy of the letter of intent entered into by HMH and Baptist Health." Harry Berry, Hardin County Judge/Executive, denied the request by letter dated November 10, 2017, and cited KRS 61.878(1)(c)1. as the statutory basis for denying the request. He further explained that the LOI "is a nonbinding document that lays out the preliminary parameters for the negotiation of the anticipated agreement ? If any other prospective partner became privy to the terms of the current proposed deal, that entity would have a negotiating advantage in any future negotiations with HMH."
Mr. Sheroan appealed that denial to this Office by letter dated November 20, 2017. On December 22, 2017, this Office requested to review the LOI, as well as the "confidentiality and non-disclosure agreement" between HMH and BHS, and the RFP issued to BHS. The request was for an in camera review under the authority of KRS 61.880(2)(c) and 40 KAR 1:030, Section 3, and those records were provided on January 18, 2018.
Confidential disclosures under KRS 61.878(1)(c)1 .
KRS 61.871 provides "that the basic policy of KRS 61.870 to 61.884 is that free and open examination of public records is in the public interest and the exceptions provided for by KRS 61.878 or otherwise provided by law shall be strictly construed ? ," and KRS 61.880(2)(c) states that the "burden of proof in sustaining the action [denying the open records request]" is on the agency. In its responses regarding the request, the appeal, and our request for documentation, the Fiscal Court has primarily relied upon KRS 61.878(1)(c)1. which allows agencies to withhold:
[R]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[.]
We have construed this as a three-prong test, such that in order to qualify for exclusion under KRS 61.878(1)(c)1., a public record 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 open disclosure would permit an unfair commercial advantage to competitors of the disclosing entity.
See 05-ORD-155.
Pursuant to KRS 61.880(2)(c) and 40 KAR 1:030, Section 3, this Office is precluded from disclosing the contents of the LOI in other than broad generalities. However, our in camera review indicates that the LOI contains financial, administrative, operational and other details of a potential transaction between HMH and Baptist Health. The LOI incorporates a Confidentiality Agreement executed by the two parties that was also disclosed to this Office. That Confidentiality Agreement, again in broad terms, requires disclosure between the parties of confidential and proprietary information for evaluation, but prohibits the disclosure of confidential information to "unauthorized persons," or, generally, any disclosure without the prior written consent of the other party. The Confidentiality Agreement also describes the relief available to a party should a breach of confidentially exchanged information occur. Our review and analysis of the LOI and Confidentiality Agreement confirm that they satisfy the first two prongs of the three-prong test described in 05-ORD-155.
With respect to the third prong of the "commercial advantage" test, the Fiscal Court asserted that, should there be a disclosure of confidential information "other healthcare systems participating in this process with HMH would be privy to the offer of BHS and would have an unfair commercial advantage in any future negotiations probably to the detriment of the people of Hardin County. In addition, all other competitors to BHS would gain an unfair commercial advantage in the market." The Fiscal Court did not identify who those other competitors were; however, the information included in the LOI, which we have generally described as "financial, administrative, operational and other details," is clearly of the type that a competitor would be able to evaluate for the purpose of gaining a commercial advantage to the detriment of BHS. The Fiscal Court explained that it "engaged consultants and legal counsel with experience in this area to advise it. In late 2016, HMH issued a request for proposal ('RFP') to several large non-profit and for-profit health systems. ? The vetting process was highly competitive, and under the terms of each agreement, HMH was prohibited from even acknowledging whether any given health system was involved in the RFP process." We are satisfied that there were other competitors to BHS who would benefit from the disclosure of the LOI.
"[I]f it is established that a document is confidential or proprietary, and that disclosure to competitors would give them substantially more than a trivial unfair advantage, the document should be protected from disclosure. " Southeastern United Medigroup, Inc. v. Hughes, 952 S.W.2d 195, 199 (Ky. 1997) (abrogated in part on other grounds by Hoskins v. Maricle, 150 S.W.3d 1 (Ky. 2004)). 17-ORD-002, p. 7. We find that the Fiscal Court has met its burden of showing that the LOI was confidentially disclosed to BHS, that the contents of the LOI are of the type generally recognized as confidential or proprietary, and that their disclosure would permit an unfair advantage to competitors. Accordingly, the Fiscal Court properly relied on KRS 61.878(1)(c)1. in withholding the LOI requested by Mr. Sheroan. See 17-ORD-002 (Frankfort Plant Board established that contract terms were confidentially disclosed information properly redacted from power purchase agreement under KRS 61.878(1)(c)1.).
In its response to this appeal, the Fiscal Court also argued that the LOI is exempt from disclosure pursuant to KRS 61.878(1)(i), which allows the nondisclosure of: "Preliminary drafts, notes, correspondence with private individuals, other than correspondence which is intended to give notice of final action of a public agency [.]" Specifically, the Fiscal Court cited to OAG 91-021 for the proposition that a letter of intent is not a final agreement and qualifies as a preliminary record under KRS 61.878(1)(i). In that opinion, a letter of intent between Scott Paper and Owensboro-Daviess County did not represent final agency action and the incentive package contained in it was subject to change until a final agreement was reached; the LOI was deemed preliminary and exempt. The Fiscal Court has asserted that the LOI in this controversy is similar to the LOI in OAG 91-021. "Baptist and HMH are currently negotiating the final agreement and that final agreement will be made publicly available prior to its review and approval at a publicly held meeting of the Trustees of HMH."
In 00-ORD-168, the Attorney General held that KRS 61.878(1)(i) , insofar as it extends protection to "correspondence to private individuals," is "generally reserved for that narrow category of public records that reflects letters exchanged by private citizens and public agencies or officials under conditions in which the candor of the correspondents depends on assurances of confidentiality. " Id. , p. 2; 04-ORD-125. The LOI, under the terms of its attendant Confidentiality Agreement, falls within the parameters of this exception. See 17-ORD-271 (Campbell County Fiscal Court properly withheld records containing preliminary recommendations and opinions under KRS 61.878(1)(i) and (j) as the Fiscal Court had not yet taken any final action) ; and 12-ORD-213 (Letters of intent to lease office space from a public agency were preliminary to negotiation of an actual lease). Compare 17-ORD-156 (Louisville Metro Government improperly withheld requests for mayoral proclamations under KRS 61.878(1)(i) and (j) as LMG was expected to rely on the requests to take action). Because the Fiscal Court has not taken any final action regarding the LOI, and is not expected to do so on the basis of the LOI, the LOI retains its preliminary character and can be properly withheld under KRS 61.878(1)(i).
We conclude that the Fiscal Court properly withheld the LOI under both KRS 61.878(1)(c)1. and KRS 61.878(1)(i).
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 shall be notified of any action in circuit court, but shall not be named as a party in that action or in any subsequent proceeding.