NY.gov Portal State Agency Listing

 

FOIL-AO-13086

 

December 26, 2001

The staff of the Committee on Open Government is authorized to issue advisory opinions. The ensuing staff advisory opinion is based solely upon the facts presented in your correspondence.

Dear

I have received your letter of November 29 and the correspondence attached to it. You have sought an advisory opinion concerning the propriety of a denial of access to records by the Long Island Power Authority ("LIPA"). The records sought involve those "related to any agreement or contract entered into between LIPA and KeySpan regarding LIPA's promise to purchase output or megawatts from the proposed Spagnoli Road Energy Center."

In response to your appeal following a constructive denial of your request, LIPA's appeals officer cited §87(2)(d) of the Freedom of Information Law as the basis for withholding portions of records that contain "commercially sensitive, trade secret information." Specifically, he wrote that:

"The redacted information consists of rate, cost, financial, and other key commercial terms concerning a Letter of Intent and Project Term Sheet for a power purchase agreement between LIPA and KeySpan, and its disclosure would cause substantial injury to the competitive position of both parties. In this regard, the purchase and sale of wholesale electric power in New York State is highly competitive and release of the information would seriously jeopardize LIPA's ability to negotiate effectively with other electric suppliers in order to obtain the lowest possible rates (and most favorable terms) for the benefit of LIPA and its electric customers. Release of the information also would seriously injure KeySpan because its competitors would then have detailed knowledge of the rate, cost, financial, and other key commercial terms that KeySpan was willing to agree to and they could use such information to KeySpan's disadvantage in competing against KeySpan in the future. Further, to my knowledge, competitors could not otherwise obtain this information. For these reasons, nondisclosure of the information under Section 87(2)(d) of the FOIL is appropriate."

It is your view that LIPA's redaction of "all rate, cost, financial and key commercial terms concerning a Letter of Intent and Project Term Sheet" is "restrictive", and you added that although LIPA is "a public agency....it strikes us that its FOIL response was designed to protect the interests of KeySpan, a private corporation, rather than the interests of the public in securing full disclosure of terms of a contract entered into by a public authority."

In this regard, I offer the following comments.

First, while I am unfamiliar with the records that were disclosed in response to your request, others were withheld in great measure or perhaps in their entirety. It appears, too, that the response might not have adequately addressed your request in terms of scope of the request. As I interpret the request, it encompasses records "related to" the agreement between LIPA and KeySpan, and not only those to which the appeal specifically and directly referred. If the agreement serves as the culmination of negotiations, communications between the parties, the preparation of documentation by LIPA staff in the nature of analyses, estimates and the like, it would seem that the volume of material falling within the scope of the request would be more extensive than the response suggests.

Second and perhaps most importantly, the Freedom of Information Law is based upon a presumption of access. Stated differently, all records of an agency are available, except to the extent that records or portions thereof fall within one or more grounds for denial appearing in §87(2)(a) through (i) of the Law. It is emphasized that the introductory language of §87(2) refers to the authority to withhold "records or portions thereof" that fall within the scope of the exceptions that follow. In my view, the phrase quoted in the preceding sentence evidences a recognition on the part of the Legislature that a single record or report, for example, might include portions that are available under the statute, as well as portions that might justifiably be withheld. That being so, I believe that it also imposes an obligation on an agency to review records sought, in their entirety, to determine which portions, if any, might properly be withheld or deleted prior to disclosing the remainder.

The Court of Appeals expressed its general view of the intent of the Freedom of Information Law in Gould v. New York City Police Department [89 NY2d 267 (1996)], stating that:

"To ensure maximum access to government records, the 'exemptions are to be narrowly construed, with the burden resting on the agency to demonstrate that the requested material indeed qualifies for exemption' (Matter of Hanig v. State of New York Dept. of Motor Vehicles, 79 N.Y.2d 106, 109, 580 N.Y.S.2d 715, 588 N.E.2d 750 see, Public Officers Law § 89[4][b]). As this Court has stated, '[o]nly where the material requested falls squarely within the ambit of one of these statutory exemptions may disclosure be withheld' (Matter of Fink v. Lefkowitz, 47 N.Y.2d, 567, 571, 419 N.Y.S.2d 467, 393 N.E.2d 463)" (id., 275).

Just as significant, the Court in Gould repeatedly specified that a categorical denial of access to records is inconsistent with the requirements of the Freedom of Information Law. In that case, the Department contended that DD5's could be withheld in their entirety on the ground that they fall within the exception regarding intra-agency materials, §87(2)(g). The Court, however, wrote that: "Petitioners contend that because the complaint follow-up reports contain factual data, the exemption does not justify complete nondisclosure of the reports. We agree" (id., 276), and stated as a general principle that "blanket exemptions for particular types of documents are inimical to FOIL's policy of open government" (id., 275). The Court also offered guidance to agencies and lower courts in determining rights of access and referred to several decisions it had previously rendered, stating that:

"...to invoke one of the exemptions of section 87(2), the agency must articulate 'particularized and specific justification' for not disclosing requested documents (Matter of Fink vl. Lefkowitz, supra, 47 N.Y.2d, at 571, 419 N.Y.S.2d 467, 393 N.E.2d 463). If the court is unable to determine whether withheld documents fall entirely within the scope of the asserted exemption, it should conduct an in camera inspection of representative documents and order disclosure of all nonexempt, appropriately redacted material (see, Matter of Xerox Corp. v. Town of Webster, 65 N.Y.2d 131, 133, 490 N.Y.S. 2d, 488, 480 N.E.2d 74; Matter of Farbman & Sons v. New York City Health & Hosps. Corp., supra, 62 N.Y.2d, at 83, 476 N.Y.S.2d 69, 464 N.E.2d 437)" (id.).

In the context of your request, insofar as records have been withheld in their entirety, the determination would, in my view, be inconsistent with the language of the law and judicial interpretations. I am not suggesting that the records sought must be disclosed in full. Rather, based on the direction given by the Court of Appeals in several decisions, the records must be reviewed by that agency for the purpose of identifying those portions of the records that might fall within the scope of one or more of the grounds for denial of access. As the Court stated later in the decision: "Indeed, the Police Department is entitled to withhold complaint follow-up reports, or specific portions thereof... as long as the requisite particularized showing is made" (id., 277; emphasis added).

Third, the basis for denial cited by LIPA, §87(2)(d) permits an agency to withhold records that:

"are trade secrets or are submitted to an agency by a commercial enterprise or derived from information obtained from a commercial enterprise and which if disclosed would cause a substantial injury to the competitive position of the subject enterprise."

While LIPA, a public authority, is, as you suggested, a "public agency", it is my understanding that it functions in some respects as competing entity in a competitive marketplace. In this regard, I note that there is case law indicating that when a governmental entity performs functions essentially commercial in nature in competition with private, profit making entities, it may withhold records pursuant to §87(2)(d) in appropriate circumstances (Syracuse & Oswego Motor Lines, Inc. v. Frank, Sup. Ct., Onondaga Cty., October 15, 1985). In this instance, insofar as LIPA is engaged in competition with private firms engaged in the same area of commercial activity, I believe that §87(2)(d) might be cited as a basis for a denial of access to records that it has prepared in appropriate circumstances. In short, I believe that §87(2)(d) potentially serves as ground for a denial of access with respect to records prepared by LIPA, as well as those received from KeySpan.

The question under §87(2)(d) involves the extent, if any, to which disclosure would "cause substantial injury to the competitive position" of a commercial entity. The concept and parameters of what might constitute a "trade secret" were discussed in Kewanee Oil Co. v. Bicron Corp., which was decided by the United States Supreme Court in 1973 (416 (U.S. 470). Central to the issue was a definition of "trade secret" upon which reliance is often based. Specifically, the Court cited the Restatement of Torts, section 757, comment b (1939), which states that:

"[a] trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers" (id. at 474, 475).

In its review of the definition, the court stated that "[T]he subject of a trade secret must be secret, and must not be of public knowledge or of a general knowledge in the trade or business" (id.). The phrase "trade secret" is more extensively defined in 104 NY Jur 2d 234 to mean:

"...a formula, process, device or compilation of information used in one's business which confers a competitive advantage over those in similar businesses who do not know it or use it. A trade secret, like any other secret, is something known to only one or a few and kept from the general public, and not susceptible to general knowledge. Six factors are to be considered in determining whether a trade secret exists: (1) the extent to which the information is known outside the business; (2) the extent to which it is known by a business' employees and others involved in the business; (3) the extent of measures taken by a business to guard the secrecy of the information; (4) the value of the information to a business and to its competitors; (5) the amount of effort or money expended by a business in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. If there has been a voluntary disclosure by the plaintiff, or if the facts pertaining to the matter are a subject of general knowledge in the trade, then any property right has evaporated."

In my view, the nature of record, the area of commerce in which a commercial entity is involved and the presence of the conditions described above that must be found to characterize records as trade secrets would be the factors used to determine the extent to which disclosure would "cause substantial injury to the competitive position" of a commercial enterprise. Therefore, the proper assertion of §87(2)(d) would be dependent upon the facts and, again, the effect of disclosure upon the competitive position of the entity to which the records relate.

Also relevant to the analysis is a decision rendered by the Court of Appeals, which, for the first time, considered the phrase "substantial competitive injury" in Encore College Bookstores, Inc. v. Auxiliary Service Corporation of the State University of New York at Farmingdale [87 NY2d 410(1995)]. In that decision, the Court reviewed the legislative history of the Freedom of Information Law as it pertains to §87(2)(d), and due to the analogous nature of equivalent exception in the federal Freedom of Information Act (5 U.S.C. §552), it relied in part upon federal judicial precedent.

In its discussion of the issue, the Court stated that:

"FOIL fails to define substantial competitive injury. Nor has this Court previously interpreted the statutory phrase. FOIA, however, contains a similar exemption for 'commercial or financial information obtained from a person and privileged or confidential' (see, 5 USC § 552[b][4])...

"As established in Worthington Compressors v Costle (662 F2d 45, 51 [DC Cir]), whether 'substantial competitive harm' exists for purposes of FOIA's exemption for commercial information turns on the commercial value of the requested information to competitors and the cost of acquiring it through other means. Because the submitting business can suffer competitive harm only if the desired material has commercial value to its competitors, courts must consider how valuable the information will be to the competing business, as well as the resultant damage to the submitting enterprise. Where FOIA disclosure is the sole means by which competitors can obtain the requested information, the inquiry ends here.

"Where, however, the material is available from other sources at little or no cost, its disclosure is unlikely to cause competitive damage to the submitting commercial enterprise. On the other hand, as explained in Worthington:

Because competition in business turns on the relative costs and opportunities faced by members of the same industry, there is a potential windfall for competitors to whom valuable information is released under FOIA. If those competitors are charged only minimal FOIA retrieval costs for the information, rather than the considerable costs of private reproduction, they may be getting quite a bargain. Such bargains could easily have competitive consequences not contemplated as part of FOIA's principal aim of promoting openness in government (id., 419-420)."

From my perspective, it is likely that the records in question may have some value to competitors, but whether every aspect of every record that has been withheld would, if disclosed, cause substantial injury to the competitive position of LIPA or KeySpan is questionable, and that is the standard that must be met to justify a denial of access. Further, in many instances, it is not the terms of an agreement which if disclosed would be damaging to a commercial enterprise; rather it is often the data that is used in reaching the agreement, such as computer models, economic projections and similar technical analyses that would be most valuable to competitors and, therefore, most damaging if disclosed.

In sum, in consideration of the nature of the request and LIPA's determination, it appears that the denial of access may have been overbroad.

I hope that I have been of assistance.

Sincerely,

Robert J. Freeman
Executive Director

RJF:tt

cc: Seth D. Hulkower