Opinion
Opinion By: Andy Beshear,Attorney General;James M. Herrick,Assistant Attorney General
Summary : Finance and Administration Cabinet procedurally violated Open Records Act by its untimely response, and substantively violated the Act to the extent it did not meet its burden to sustain redaction of confidentially disclosed material under KRS 61.878(1)(c)1. Such material is only exempt where it is generally recognized as confidential or proprietary and its disclosure would permit an unfair commercial advantage to competitors.
Open Records Decision
The question presented in this appeal is whether the Finance and Administration Cabinet ("Finance" ) violated the Open Records Act in partially denying a January 7, 2019, request by Alfred Miller of The Courier-Journal for copies of "all requests for information or requests for proposal for a state-owned broadband network as well as any responses to those requests." For the reasons stated below, we find that Finance procedurally violated the Act by its untimely response, and substantively violated the Act in part, as it has not shown that a portion of the material withheld under KRS 61.878(1)(c)1. is generally recognized as confidential and proprietary and that its disclosure would permit an unfair commercial advantage to competitors.
Mr. Miller originally made his request to the Kentucky Communications Network Authority, which forwarded the request to Finance on January 10, 2019, as Finance was the agency maintaining the records. On January 15, 2019, Finance stated that the records were "not available at this time" because staff would "need to retrieve said records, review them and redact or withhold any documents that are exempt pursuant to KRS 61.878." Finance further stated that it would "update [Mr. Miller] on the progress on this request on February 1, 2019." The final disposition of the request occurred on February 4, 2019.
KRS 61.880(1) requires a public agency to make its disposition of a request for public records within three days, excluding weekends and legal holidays. KRS 61.872(5) allows for an exception when the records are "in active use, in storage or not otherwise available," on condition that "a detailed explanation of the cause is given for further delay," as well as "the place, time, and earliest date on which the public record will be available for inspection." We have consistently interpreted the "earliest date" provision as requiring a "date certain" by which records will be available. 01-ORD-38 (emphasis omitted); 17-ORD-101.
The need to redact records to separate exempt material pursuant to KRS 61.878(4) is an ordinary part of fulfilling an open records request. This does not render the records "unavailable" and does not, in and of itself, constitute a reason for additional delay. 14-ORD-047; 12-ORD-227. Therefore, Finance failed to give a detailed explanation of any legitimate cause for further delay under KRS 61.872(5). Furthermore, Finance failed to give a date certain by which it would produce the records. Accordingly, we find that Finance procedurally violated the Open Records Act in responding to this request.
In its final response on February 4, 2019, Finance declared that "[p]ursuant to KRS 61.878(1)(c)(1), the responses have been redacted due to their confidential or proprietary nature as identified by the vendor." Finance specified that it had withheld 416 pages of a response from AT&T to RFP 12*0533; 1,332 pages of a response from Macquarie Infrastructure Developments LLC ("Macquarie") to RFP 15*0003; 337 pages of a response from Pinpoint Services, Inc. ("Pinpoint") to RFP 15*0003; and 55 pages of a response from Zayo Group, LLC ("Zayo") to RFP 15*0003. On April 8, 2019, The Courier-Journal initiated this appeal, arguing that "[s]urely not all of the 2,140 pages represent an 'unfair commercial advantage to competitors' of these companies" and that "[t]he public has a right to know more about what options were available to the state when it selected a partner for its state-owned broadband network. "
After receiving notice of the appeal, Finance contacted the vendors to ascertain their current positions on the confidential or proprietary nature of the disputed material. Pinpoint and Zayo did not respond, nor was Finance able to confirm their receipt of its e-mails. AT&T responded "that it no longer considered its records confidential or proprietary, " and therefore Finance released those records to Mr. Miller. Macquarie, the successful bidder on RFP 15*0003, agreed to release a redacted version of its "Technical Proposal," but continued to assert the confidential and proprietary nature of its entire "Cost Proposal." As to the records ultimately released to Mr. Miller, we find this appeal moot.
KRS 61.878(1)(c)1. excludes from the obligation of public disclosure:
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.
Bearing in mind that the public agency bears the burden of proof in sustaining the denial under KRS 61.880(2)(c), we must consider the information in the record as to whether the material in question (1) has been confidentially disclosed to Finance, (2) is generally recognized as confidential or proprietary, and (3) would permit competitors an unfair commercial advantage if disclosed. 17-ORD-002.
Records confidentially disclosed to an agency
Finance states that the withheld material "had been marked by the vendors as confidential or proprietary" when they made their responses to the request for proposals. Furthermore, the record shows that Macquarie and its assignee, KentuckyWired Operations Company, LLC (collectively, "Macquarie"), entered into a "Master Agreement" with the Commonwealth of Kentucky, a portion of which provided that the Commonwealth should "not disclose records identified and prominently marked as such ? as proprietary or constituting trade secrets, including without limitation the Models, or any information related thereto, in response to a request made pursuant to the Open Records Act as such records are exempt under KRS 61.872(1)(c) [ sic ]." While such an agreement cannot conclusively determine the applicability of KRS 61.878(1)(c)1., we find that Finance has sufficiently established the first prong of that provision as to Macquarie, Pinpoint, and Zayo; namely, that all of the disputed records were "confidentially disclosed to an agency."
It remains to be determined whether the records withheld by Finance are "generally recognized as confidential or proprietary" and of such a nature that their disclosure "would permit an unfair commercial advantage to competitors. " We begin by surveying the relevant cases interpreting KRS 61.878(1)(c).
Matters generally recognized as confidential or proprietary
In
Hoy v. Kentucky Indus. Revitalization Authority, 907 S.W.2d 766, 768 (Ky. 1995), the Supreme Court of Kentucky considered the applicability of KRS 61.878(1)(c)2. 1 to required disclosures of "a financial history of [a] 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." The Court concluded: "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' ." Id. Therefore, the Court found that those categories of information met the second prong of the exemption.
Unfair commercial advantage to competitors
"[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)). In
Marina Management Service, Inc. v. Cabinet for Tourism, 906 S.W.3d 318, 319 (Ky. 1995), the Court applied KRS 61.878(1)(c)1. to "information on asset values, notes payable, rental amounts ..., related party transactions, profit margins, net earnings, and capital income" of a private corporation. In finding that the information would permit an unfair commercial advantage to competitors, the Court reasoned: "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." Id. Thus, those types of information met the third prong of KRS 61.878(1)(c)1.
Specific matters found exempt in prior decisions
The decisions of this office have likewise "recognized that records relating to private financial affairs can be exempted" under KRS 61.878(1)(c). 01-ORD-143. Materials we have specifically found to be subject to the exemption have included "trade secrets, investment strategies, economic status, or business structures," 17-ORD-198 ( see also 16-ORD-273), as well as "the method for determining [a] contract price" and "business risks assumed." 17-ORD-002.
We have recognized an exempt status for "corporate assets of a non-financial nature that have required the expenditure of time and money to develop and concern the inner workings of [a] private entity. " 10-ORD-001. These "assets" in 10-ORD-001 included the plan of operation of a proposed health care facility, a unique patient identification system, the provider's chain of command, the roles of proposed staff members, the proposed fee schedule, drawings of the facility, and records relating to internal procedures. Id. This general category would include "trade secrets. " 07-ORD-166.
In the specific context of requests for proposals, we have recognized a private entity's "costing and pricing strategy" as exempt under KRS 61.878(1)(c) 1., as distinguished from "end bid prices," which must be disclosed. 92-ORD-1134 (quoting OAG 89-44).
The existence of a highly competitive market is often a relevant factor in favor of nondisclosure under KRS 61.878(1)(c). 17-ORD-002; 12-ORD-076; 09-ORD-031; 08-ORD-083.
Redactions from Macquarie's submission
Counsel for Macquarie has submitted a response to this appeal, in which it explains its rationale for the redactions from its submission in response to the RFP. Macquarie states that it "operate[s] in a limited and competitive market" and "the release of the Technical Proposal which discusses how to finance and implement the Project" of constructing a statewide broadband network "would clearly permit [Macquarie's] competitors to obtain an unfair commercial advantage. " Furthermore, generating the Cost Proposal required "a large amount of time and ? significant expenses," and Macquarie "drew upon ? its extensive experience in the industry to ensure the materials were correct"; thus, it argues that it would be unfair to allow competitors to obtain the information "for their own advantage" without the same time, effort, or expense.
Macquarie further argues that disclosure would unfairly enable competitors to use "the released records for a guide" for making a similar proposal. With regard to the second prong of KRS 61.878(1)(c)1., Macquarie asserts that "[t]he records are generally recognized as confidential and proprietary because a private corporation does not share information regarding its financial modeling freely." Lastly, Macquarie states that the records withheld are similar to the "fee schedules for physicians, hospital contracts, and cost containing savings" found exempt under KRS 61.878(1)(c)1. in Southeastern United Medigroup, Inc. v. Hughes and should therefore be equally exempt.
We have reviewed Macquarie's Cost Proposal in camera and find that it consists of private financial material we have previously found exempt under KRS 61.878(1)(c), such as "costing and pricing strategy" and "business risks assumed." Consistent with 92-ORD-1134 and 17-ORD-002, therefore, we find the Cost Proposal to be exempt under KRS 61.878(1)(c). 2 The financial statements of Macquarie and its affiliates, partners, or contractors, attached to its Technical Proposal, are also exempt under the standard in Hoy, 907 S.W.2d at 768.
Guided by the principles articulated in prior decisions and judicial opinions, we now evaluate Macquarie's specific redactions from the Technical Proposal itself. We regard the following redactions as proper under KRS 61.878(1)(c)1., as the information would generally be regarded as confidential or proprietary and its disclosure would permit an unfair commercial advantage to competitors:
Business and revenue model summary: This concerns private financial matters and therefore was properly redacted under existing precedent.
Equal Employment Opportunity Forms: These contain proprietary information about the workforces of Macquarie's partners and contractors, which could represent more than a trivial commercial advantage to competitors. The statements regarding two entities that do not meet the definition of "employer" under KRS 344.030(2), however, do not contain such information; therefore, those should have been disclosed.
Vendor Background and Project Resources: From this section, Macquarie redacted certain dollar figures and a description of its business model. This is information about the internal workings of a private business and properly subject to redaction. Macquarie further redacted detailed information about Macquarie, its partners and contractors, and the proposed project. This includes financial information and descriptions of the internal organizational structures of corporations, as well as the organizational structure of projects, and consists of corporate knowledge that represents a cultivated asset of Macquarie. Therefore, we affirm the redactions from this section.
Résumés of project leaders and Relevant Experience section: These sections also represent non-financial assets constituting the fruit of "expenditure of time and money," 10-ORD-001, and may reasonably be considered proprietary and confidential, inasmuch as they reveal the inner workings of a corporation and provide information about assets that is not readily accessible to other participants in a competitive market.
Financial Viability/Network Financing & Sustainability Plan: These sections are concerned with matters such as financial statements, assets and liabilities, equity, capital, credit ratings, insurance coverage, financial models, transaction structure, capital costs, and revenue sources. These are clearly within the scope of the financial information the courts have repeatedly recognized as exempt under KRS 61.878(1)(c).
Technical Plans: This section describes Macquarie's architectural plan, network design, and equipment, which may properly be considered proprietary information. 10-ORD-001.
Shared Services Plan: This concerns such matters as Macquarie's cost reduction plan, and constitutes confidential financial information.
Project Implementation Plan: This deals with proprietary information such as project design, structure, and procurement.
Network & Business Continuity Plan/Network Security Plan/Operation Support Plan/Service Level Assurance: These sections consist of proprietary information regarding the proposed implementation of Macquarie's plan and were properly withheld.
Value Added Services: This section concerns Macquarie's financial and business modeling and was properly withheld as internal corporate information.
The following redactions from the Technical Proposal are not adequately supported by precedent and the information in the record:
Table of contents: We find no basis in precedent or in Macquarie's written argument for withholding the table of contents.
Transmittal letter: We find no basis for withholding this item. It consists of a checklist stating that Macquarie has provided all the required materials and meets all the requirements of the RFP; lists Macquarie's partners and subcontractors, the names of which Macquarie has already disclosed; and states that Macquarie understands certain terms of the RFP.
Forms and addendums: This section includes Kentucky Tax Registration Applications for Macquarie and its partners and contractors, which may properly be regarded as confidential. The other items, however, do not contain any obviously confidential or proprietary information: (1) the instructions for the Tax Registration Application, which is a publicly available form; (2) a declaration as to whether the entities have been conclusively found to have violated any Kentucky statute within the last five years; (3) "Registration by a Foreign Entity" forms for the Kentucky Secretary of State and "Business Registration Summary"; (4) a "Required Affidavit for Bidders, Offerors and Contractors" which merely pledges compliance with statutes; and (5) a "Solicitation Page" which contains very little substantive information. Therefore, we find that only the Kentucky Tax Registration Applications were confidential or proprietary in this section.
RFP Addendums: This page merely appears to summarize and acknowledge some amendments to the RFP and does not include any obviously sensitive information. We therefore find that it was improperly redacted.
Accordingly, we affirm the redactions to Macquarie's submission except as set forth above.
Submissions by Pinpoint and Zayo
Pinpoint and Zayo, which Finance has attempted to contact regarding this matter, have neither responded nor submitted any explanation of their positions. In an attempt to evaluate the merits of Finance's denial of the Pinpoint and Zayo records, we have requested a copy for in camera review pursuant to KRS 61.880(2)(c) and 40 KAR 1:030, Section 3. We note that Pinpoint's submission consists of (1) a detailed Cost Proposal; (2) a Technical Proposal, including appendices of audited financial reports and a "Financially Responsible Partner Letter of Support"; and (3) a "Cost Proposal Form" including a "Communication Anchors Worksheet" showing addresses and projected costs. Zayo's submission consists of (1) a Financial Proposal, similarly specifying projected costs for various locations; and (2) a Technical Proposal, which includes a section on "Financial Viability" with hyperlinks to Zayo's financial reports.
Applying the same principles to the submissions from Pinpoint and Zayo, we find the financial reports and other records relating to "costing and pricing strategy," transaction structures, or other financial matters to be exempt under KRS 61.878(1)(c)1., including the whole of Pinpoint's Cost Proposal and Zayo's Financial Proposal and "Financial Viability" section, except insofar as they may include "end bid prices." 92-ORD-1134.
As with Macquarie, to the extent Pinpoint and Zayo's submissions detail the internal corporate structure, inner workings, or business model of a private entity, this is information generally recognized as confidential or proprietary, which would permit an unfair commercial advantage to competitors, and therefore exempt under existing precedent. Furthermore, details of the proposed implementation of the project represent the result of specialized knowledge in a competitive market and the fruit of the labor, time, and expense of Pinpoint and Zayo. Accordingly, Finance may redact such information from the Technical Proposals on the basis of the same standards we have articulated in regard to Macquarie.
The types of items we have specifically identified as non-exempt in Macquarie's submission, of course, are equally non-exempt in the cases of Pinpoint and Zayo. Further, any information in the Pinpoint and Zayo submissions analogous to the material disclosed by Macquarie, or information not otherwise treated herein, is not exempt under KRS 61.878(1)(c)1., since neither Finance nor any private entity has made an argument for exemption to meet its burden under KRS 61.880(2)(c).
Conclusion
We conclude that Finance committed a procedural violation of the Open Records Act by making an untimely disposition of Mr. Miller's request. As to the material we have found non-exempt under KRS 61.878(1)(c)1., Finance committed a substantive violation of the Act. With regard to the remaining material withheld by Macquarie, we find no substantive violation. The material in the Pinpoint and Zayo submissions is non-exempt, except to the extent that we have found analogous information exempt as to the Macquarie submission.
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.
Footnotes
Footnotes
1 KRS 61.878(1)(c)2. contains the identical language, "generally recognized as confidential or proprietary," that appears in KRS 61.878(1)(c)1.
2 If any figure in the Cost Proposal represents the "end bid price," however, that figure must be disclosed. 92-ORD-1134.