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July 14, 2000

FOIL-AO-12208

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, unless otherwise indicated.

Dear

As you are aware, I have received your letter of May 30 and a variety of materials
relating to it. At issue are requests made under the Freedom of Information Law for copies of
the "Agreement of Lease between the State of New York, acting by and through the New
York State Department of Transportation, and SWF Airport Acquisition, Inc." involving the
Stewart International Airport in Orange County. The tenant, SWF Airport Acquisition, Inc.
("SWF") prepared a memorandum expressing the belief that certain aspects of the Lease
should be withheld pursuant to §87(2)(d) of the Freedom of Information Law. You have
sought an opinion concerning "whether any or all of the Lease should be protected from
disclosure under FOIL."

Because I am not involved in the privatization of airports, I have sought guidance and
information from those experienced in the process. Consequently, the matter will be
considered in light of the contentions offered by SWF through its attorney, the language of
the Freedom of Information Law and its judicial construction, as well as information
obtained from the Federal Aviation Administration ("FAA") and others.

By way of background, as a general matter, 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. As suggested in the materials, the only ground
of denial of significance is §87(2)(d), which 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..."

Therefore, 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
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]). 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 consideration of the foregoing and the contentions offered by Ms. Joanne Feil, the
attorney for SWF, it is unlikely in my view that the Agreement could be withheld, absent a
more substantial demonstration of damage to its competitive position with respect to
particular elements of the Agreement. As Ms. Feil indicated, in demonstrating the likelihood
of substantial competitive injury, there must be an evidentiary showing of "specific factual
support and not...mere conclusory allegations." From my perspective, that kind of
demonstration has not been and cannot be made in as extensive a fashion as Ms. Feil has
suggested.

In this regard, first, contracts, leases and similar agreements between government
agencies and commercial entities are typically public, whether they are concluded through
public bidding, requests for proposals or through negotiations. Disclosure of those kinds of
instruments is critical to the understanding of the operation of government and as a means of
ensuring accountability. Public access to those records enables taxpayers to ascertain
whether tax dollars are being used optimally and in the public interest. In an early decision
rendered under the Freedom of Information Law, it was determined that a bid accepted by an
agency was accessible, despite the objections of the successful bidder, and that, in view of the
existence and thrust of that statute, "the successful bidder had no reasonable expectation of
not having its bid open to the public" [Contracting Plumbers Cooperative Restoration Corp.
v. Ameruso, 430 NYS2d 196, 198 (1989)]. While this situation is different from that
considered in Contracting Plumbers, I believe that the principle is the same: that a person or
entity that contracts with the government can have no reasonable of expectation of privacy or
that the result of a successful bid or negotiation can be shielded from public scrutiny.

I note that Ms. Feil wrote that "SWF invested a great deal of time to learn how to
properly lease and operate an airport in the United States." As a foreign corporation, it is
possible that SWF had to overcome more obstacles and expend more time and effort than
American firms to learn to do so and to develop knowledge regarding the array of laws, rules
and regulations, both federal and state, pertinent to its goal of operating an airport. It is
possible, too, that SWF generally functions in a nation, Great Britain, that has not yet enacted
a general statute that provides the public with rights of access to government records, and
that, therefore, secrecy, or in this context, an absence of public rights of access to those
records, is the general rule with which it is familiar. In my view, its relative lack of
knowledge or experience concerning the operation of airports in the United States, or
similarly, the lack of experience in dealing with governments that routinely disclose records,
should not have a bearing upon rights of access to the Agreement. That such a record might
be withheld in another jurisdiction due to the absence of a statute that confers rights of access
to government records should be of no moment.

Second, because I am not an expert regarding the industry, I contacted the FAA to
confer with an authority on the privatization of airports, Mr. Kevin Willis, a Program Analyst
for that agency who has possession of the documentation at issue and has been involved in
the FAA's decision making process pertaining to the Agreement. Mr. Willis indicated that
other agreements involving the private management of public airports are "customarily
disclosed." He added that many aspects of the Agreement are "standard" in the industry.
That being so, it would appear that crucial aspects of the tests for sustaining the assertion of
§87(2)(d) could not be met.

In a related vein, Mr. Willis informed me that the application filed with the FAA by
SWF is accessible to the public and that several portions of the Agreement for which SWF
seeks confidentiality consist of information reflected in the application. In my opinion, any
aspect of the Agreement that is accessible to the public through another document would be
equally available; very simply, it would not be secret.

I also spoke with Mr. Ken Cushine, a consultant with international experience in
airport privatization who, as you know, served as advisor and consultant for the Department
of Transportation and the Empire State Development Corporation through the entirety of the
process culminating in the Agreement. Mr. Cushine expressed general concurrence with Mr.
Willis's views, stating that the Agreement is not unique in terms of its features, scope or
financial structure, and that he considered the process to be analogous to that typically
pertinent to a real estate transaction. Having been involved in or familiar with airport
privatization in Bolivia, Melbourne and Cancun and being currently involved in the
privatization of airports in Puerto Rico and Niagara Falls, he contended that there is nothing
in the Agreement that would give an advantage to competitors if disclosed to them. Mr.
Cushine noted that he was informed by the Niagara Frontier Transportation Authority
("NFTA"), for which he is currently serving as a consultant in its privatization negotiations,
that the Authority intends to disclose its agreement upon signature by the parties, prior to
approval of the Agreement by the FAA. As such, it appears that the NFTA does not
anticipate any deleterious effects associated with disclosure of its agreement.

You indicated, and the Agreement in §13.01 specifies that a Capital Improvement
Plan (a "CIP") must be filed with the FAA and that it is accessible to the public. The CIP is
intended to be implemented over a period of five years, and new CIP's are to be prepared
through the life of the Agreement. As I understand its content, the CIP is a detailed
explanation in both financial and programmatic terms of SWF's plans for the airport and
describes critical elements of the operation of the airport applicable to an extended period of
time. Since the CIP must be made public, its disclosure effectively diminishes the ability of
the Department of Transportation (DOT) to justify a denial of access to the Agreement under
§87(2)(d). Stated differently, the more that is publicly known about the operation of the
airport, the less likely is the capacity to justifiably withhold the Agreement or portions
thereof.

Third, several of the contentions offered by Ms. Feil cannot, in my view, be accepted
or justified.

She wrote, for example, that "actual competition is apparent." Having discussed the
matter with you and others, I believe that competition is conjectural or perhaps possible, but
that at this juncture, it is neither "actual" nor "apparent." Ms. Feil also stated that it has been
"reported" that "two other airports in close proximity to the Airport are currently being
actively considered for privatization." The possibility of the privatization of those airports,
which you and Mr. Willis identified as JFK and LaGuardia, cannot in my view be equated
with "actual competition." Any such development would likely come to fruition only after
the passage of a significant period of time.

More importantly, even as an outsider, it is clear that there are myriad distinctions
that can made between Stewart Airport and entities of the size and scale of JFK or
LaGuardia. Issues involving the cost of real estate and labor, ground and air traffic,
financing, general economic conditions, incentives, environmental concerns and many others
pertaining to Stewart would likely be largely irrelevant when considering the privatization of
larger facilities or those located in other states. In like manner, those aspects of the
Agreement that are unique to Stewart, due, for example, to the ecology of the area and the
application of provisions of the Environmental Conservation Law and the regulations of the
State Department of Environmental Conservation, would be little or no relevance or value to
others in a different context or in consideration of a different location.

In discussing the issue with Mr. Cushine, he confirmed that any unusual or unique
elements of the Agreement would be particular to Stewart and simply would not applicable to
or useful in negotiations involving other airports. He specified that, in his view, there are no
"innovative" features of the Agreement that would be useful to others considering
privatization elsewhere. That being so, I do not believe that a claim could be made that
disclosure would "cause substantial injury" to SWF's competitive position.

Ms. Feil wrote that many aspects of the Agreement "were the result of trading point
for point", that disclosure of the lease to others would enable them to "be able to distinguish
between items that are and are not negotiable" and that in future negotiations "SWF would be
required to negotiate from a previously negotiated document and faced with the constant
response of ‘you gave it then, so we want you to give it now' or ‘you did not get it then, so
you are not getting it now.'" While it may be so that elements of the Agreement were the
result of "trading point for point", disclosure of the Agreement itself in no way indicates what
was "traded", or the "points" that were offered or rejected by either party. Nothing in the
Agreement identifies those portions that were the result of compromise, minimal negotiation,
or extensive negotiation, or which may involve requirements imposed by federal or state law.
How a recipient of the Agreement could conclude that certain items, in the words of Ms. Feil,
"are or are not negotiable" is beyond my understanding, for disclosure of the Agreement
merely indicates the result of negotiations; it would not indicate the nature of the
negotiations or the extent to which particular aspects of the Agreement were negotiated.
Further, as suggested earlier, elements of the Agreement unique to Stewart may have no
relevance to negotiations carried on by competitors or SWF.

In short, the Agreement, in my opinion, is analogous to other negotiated contracts,
and those contracts are typically and routinely disclosed, and for the reasons expressed above,
particularly those shared by experts, it does not appear that the Department could meet its
burden of proving that there is "actual competition and the likelihood of substantial
competitive injury" (Encore, supra,421); on the contrary, it appears that the Agreement must
be disclosed.

I emphasize that the courts have consistently interpreted the Freedom of Information
Law in a manner that fosters maximum access. As stated by the Court of Appeals more than
twenty years ago:

"To be sure, the balance is presumptively struck in favor of
disclosure, but in eight specific, narrowly constructed instances
where the governmental agency convincingly demonstrates its
need, disclosure will not be ordered (Public Officers Law,
section 87, subd 2). Thus, the agency does not have carte
blanche to withhold any information it pleases. Rather, it is
required to articulate particularized and specific justification
and, if necessary, submit the requested materials to the courts
for in camera inspection, to exempt its records from disclosure
(see Church of Scientology of N.Y. v. State of New York, 46
NY 2d 906, 908). Only where the material requested falls
squarely within the ambit of one of these statutory exemptions
may disclosure be withheld" [Fink v. Lefkowitz, 47 NY 2d
567, 571 (1979)]."

In another decision rendered by the Court of Appeals, it was held that:

"Exemptions are to be narrowly construed to provide maximum
access, and the agency seeking to prevent disclosure carries the
burden of demonstrating that the requested material falls
squarely within a FOIL exemption by articulating a
particularized and specific justification for denying access"
[Capital Newspapers v. Burns, 67 NY 2d 562, 566 (1986); see
also, Farbman & Sons v. New York City, 62 NY 2d 75, 80
(1984); and Fink v. Lefkowitz, 47 NY 2d 567, 571 (1979)].

Moreover, in the same decision, in a statement regarding the intent and utility of the Freedom
of Information Law, it was found that:

"The Freedom of Information Law expresses this State's strong
commitment to open government and public accountability and
imposes a broad standard of disclosure upon the State and its
agencies (see, Matter of Farbman & Sons v New York City
Health and Hosps. Corp., 62 NY 2d 75, 79). The statute,
enacted in furtherance of the public's vested and inherent 'right
to know', affords all citizens the means to obtain information
concerning the day-to-day functioning of State and local
government thus providing the electorate with sufficient
information 'to make intelligent, informed choices with respect
to both the direction and scope of governmental activities' and
with an effective tool for exposing waste, negligence and abuse
on the part of government officers" (id., 565-566).

Lastly, the Freedom of Information Law is permissive. Although an agency may
withhold records in accordance with the grounds for denial appearing in §87(2), the Court of
Appeals in the decision cited above held that the agency is not obliged to do so and may
choose to disclose, stating that:

"...while an agency is permitted to restrict access to those
records falling within the statutory exemptions, the language of
the exemption provision contains permissible rather than
mandatory language, and it is within the agency's discretion to
disclose such records...if it so chooses" (id., 567).

The only situations in which an agency cannot disclose would involve those instances in
which a statute other than the Freedom of Information Law prohibits disclosure, and I know
of none that would apply in this instance. The same principle would be applicable under the
federal Freedom of Information Act (5 USC §552). While a federal agency may withhold
records in accordance with the grounds for denial, it has discretionary authority to disclose.

Based on judicial decisions involving exceptions to rights of access in both the state
and federal freedom of information statutes, the record at issue would not be "specifically
exempted from disclosure by...statute pursuant to §87(2)(a) of the New York Freedom of
Information Law or pursuant to its counterpart in the federal Act, the "(b)(3)" exception.
Both the Court of Appeals and federal courts in construing access statutes have determined
that the characterization of records as "confidential" or "exempted from disclosure by
statute" must be based on statutory language that specifically confers or requires
confidentiality. As stated by the Court of Appeals:

"Although we have never held that a State statute must
expressly state it is intended to establish a FOIL exemption, we
have required a showing of clear legislative intent to establish
and preserve that confidentiality which one resisting disclosure
claims as protection" [Capital Newspapers v. Burns, 67 NY2d
562, 567 (1986)].

Similarly, in construing the "(b)(3)" exception to rights of access in the federal Act, it
has been found that:

"Exemption 3 excludes from its coverage only matters that are:

specifically exempted from disclosure by statute
(other than section 552b of this title), provided
that such statute (A) requires that the matters be
withheld from the public in such a manner as to
leave no discretion on the issue, or (B)
establishes particular criteria for withholding or
refers to particular types of matters to be
withheld.

"5 U.S.C. § 552(b)(3) (1982) (emphasis added). Records
sought to be withheld under authority of another statute thus
escape the release requirements of FOIA if – and only if – that
statute meets the requirements of Exemption 3, including the
threshold requirement that it specifically exempt matters from
disclosure. The Supreme Court has equated ‘specifically' with
‘explicitly.' Baldridge v. Shapiro, 455 U.S. 345, 355, 102 S.
Ct. 1103, 1109, 71 L.Ed.2d 199 (1982). ‘[O]nly explicitly non-
disclosure statutes that evidence a congressional determination
that certain materials ought to be kept in confidence will be
sufficient to qualify under the exemption.' Irons & Sears v.
Dann, 606 F.2d 1215, 1220 (D.C.Cir.1979) (emphasis added).
In other words, a statute that is claimed to qualify as an
Exemption 3 withholding statute must, on its face, exempt
matters from disclosure"[Reporters Committee for Freedom of
the Press v. U.S. Department of Justice, 816 F.2d 730, 735
(1987); modified on other grounds,831 F.2d 1184 (1987);
reversed on other grounds, 489 U.S. 789 (1989); see also
British Airports Authority v. C.A.B., D.C.D.C.1982, 531
F.Supp. 408; Inglesias v. Central Intelligence Agency,
D.C.D.C.1981, 525 F.Supp, 547; Hunt v. Commodity Futures
Trading Commission, D.C.D.C.1979, 484 F.Supp. 47; Florida
Medical Ass'n, Inc. v. Department of Health, Ed. & Welfare,
D.C.Fla.1979, 479 F.Supp. 1291].

In short, to be "exempted from disclosure by statute", both state and federal courts have
determined that a statute must leave no discretion to an agency: it must withhold such
records. From my perspective, there is no state statute that would prohibit disclosure of the
Agreement.

I hope that I have been of assistance. If you would like to discuss the matter, please
feel free to contact me.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:jm

cc: Joanne Feil
Kevin Willis
John Dearstyne
Ken Cushine