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May 11, 1999

 

Ms. Jackie Faville
Chairperson
Save Our Services
115 East State Street
Gloversville, NY 12078

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

Dear Ms. Faville:

I have received your letter of April 14 concerning a request by your organization, Save
Our Services-Gloversville, for records relating to an application by the Nathan Littauer Hospital
for bonds from the Fulton County Industrial Development Agency (IDA) to construct a new
outpatient surgery center. Although much of the application was disclosed, various schedules
containing financial information were withheld in their entirety.

It is your view that the documentation in question is "important for the community, to
help [you] evaluate whether the hospital should receive bonds and/or Mortgage Recording Tax
Exemptions for their new expansion project", and because the decision by the IDA will affect all
Fulton County taxpayers. You also contended that "the IDA has erred by simply granting
Nathan Littauer a blanket exemption from disclosure of this financial information."

From my perspective, it is likely that the "blanket exemption" to which you referred is
inconsistent with the language of the Freedom of Information Law and its judicial interpretation.
In this regard, I offer the following comments.

First, 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, the state's highest court, most recently expressed its general view
of the intent of the Freedom of Information Law in Gould v. New York City Police Department
[87 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 Police Department contended that complaint follow up reports could be withheld in
their entirety on the ground that they fall within the exception regarding intra-agency materials,
§87(2)(g), an exception separate from those cited in response to your request. 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.).

Second, as I understand the matter, the only exception that would be pertinent is
§87(2)(d), and the extent to which it would serve as a valid basis for denial is questionable. That
provision permits an agency to withhold records or portions thereof 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 substantial injury to the competitive position of the subject enterprise..."

In my opinion, 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."

From my perspective, 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.

Relevant to the analysis is a decision rendered by the Court of Appeals, which, for the
first time, considered the phrase "substantial competitive injury" [(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]). Commercial information, moreover, is 'confidential' if it would impair the
government's ability to obtain necessary information in the future or cause 'substantial harm to
the competitive position' of the person from whom the information was obtained...

"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).

The Court also observed that the reasoning underlying these considerations is consistent
with the policy behind §87(2)(d) to protect businesses from the deleterious consequences of
disclosing confidential commercial information so as to further the state's economic development
efforts and attract business to New York (id.). In applying those considerations to Encore's
request, the Court concluded that the submitting enterprise was not required to establish actual
competitive harm; rather, it was required, in the words of Gulf and Western Industries v. United
States, 615 F.2d 527, 530 (D.C. Cir., 1979) to show "actual competition and the likelihood of
substantial competitive injury" (id., at 421).

In the context of your inquiry, impairment of the government's ability to acquire the
records at issue or similar materials in the future should not, in my opinion, be a consideration;
the entity is seeking a benefit from government. Similarly, attracting a business or industry to
the County does not appear to be pertinent, for the funding involves the expansion of an existing
facility. It is also likely that substantial amounts of financial information relating to the Hospital
are maintained by and accessible from the State Department of Health. Insofar as the financial
information sought is duplicative of or analogous to that sought, §87(2)(d) would be
inapplicable. Further and perhaps most importantly, the characterization of the documentation as
financial information would not alone be adequate to justify a denial of access. Only to the
extent that disclosure would "cause substantial injury" to the Hospital's competitive position
would a denial of access be appropriate.

I hope that I have been of assistance.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:jm

cc: Fulton County Industrial Development Agency
J. Paul Kolodziej