August 26, 2008
FROM: Robert J. Freeman, Executive Director
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.
I have received your letter and the materials relating to it. In your capacity as a member of the Town of Montgomery Planning Board, you have raised a series of questions concerning a confidentiality agreement (“the Agreement”) between the Town and several entities comprising the “Taylor Group”, which has sought changes in the Town’s zoning law to facilitate the approval and construction of a new facility.
Section 1 of the Agreement refers to information or materials provided to the Town during the course of the Town’s review of the project and Taylor’s assertion that they may “contain trade secrets, confidential, sensitive or proprietary information or any other information over which the courts recognize protection” and which may be designated as “Confidential Information.” Section 2 refers to information that “should be excepted from public disclosure under applicable Disclosure Laws, including without limitation NY Pub. Off. §89(5) and 6 NYCRR §616.7(a)(4)...” Section 6 requires that the Taylor Group may request and the Town agrees to return to Taylor “any documents reflecting Confidential Information and any copies made thereof that the recipient of said information may have made...”
You added that “the vast majority of information that Planning Board members who have signed the confidentiality agreement have been allowed to view is freely available on the internet and through third party sources...” However, you wrote that the Town Attorney said, in your words, that “it was impractical to determine what information was confidential and what was not, therefore it was all categorized as confidential” That being so, “the attorney for the town has started with the presumption of confidentiality, and prevented all information from reaching the public’s scrutiny.” Further, you indicate that the Agreement “has repeatedly been used as justification for holding all Town Board discussions about the project in question during Executive Session.”
From my perspective, the Agreement and the means by which it has been implemented are contrary to law in several respects. In this regard, I offer the following comments.
First, the Agreement in my opinion is void and unenforceable insofar as it is inconsistent with statutes, such as the Freedom of Information Law. According to judicial decisions, an agency may not render records deniable or confidential by means of an agreement or contract, unless there is a basis for so doing pursuant to one or more of the grounds for denial appearing in the Freedom of Information Law. The first ground for denial in the Freedom of Information Law, §87 (2)(a), refers to records that may be characterized as confidential and enables an agency to withhold records that “are specifically exempted from disclosure by state or federal statute.” A statute, based upon judicial interpretations of the Freedom of Information Law, is an act of the State Legislature or Congress [see Sheehan v. City of Syracuse, 521 NYS 2d 207 (1987)].
The Court of Appeals, the state’s highest court, has held that a request for or a guarantee of confidentiality is all but meaningless; unless one or more of the grounds for denial appearing in the Freedom of Information Law may appropriately be asserted, the record sought must be made available. In Washington Post v. Insurance Department [61 NY2d 557 (1984)], the controversy involved a claim of confidentiality with respect to records prepared by corporate boards furnished voluntarily to a state agency. The Court also concluded that “just as promises of confidentiality by the Department do not affect the status of documents as records, neither do they affect the applicability of any exemption” (id., 567).
Second, assuming that you have described it accurately, the Town Attorney’s suggestion that all of the records at issue be presumptively considered confidential is contrary to the judicial interpretation of the Freedom of Information Law. As indicated earlier, the Freedom of Information Law is based upon a presumption of access. 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[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 that to which reference is made in the materials. 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 v. 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 short, based on the direction given by the Court of Appeals in several decisions, when records are requested, they must be reviewed 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.
Third, the reference in the Agreement to §89(5) of the Public Officers Law is erroneous. That provision is part of the Freedom of Information Law, and it applies only to only to records submitted a state agency, and for purposes of determining its scope, §87(4)(b) indicates that a “state agency” means “only a state department, board, bureau, division, council or office and any public corporation the majority of whose members are appointed by the governor.” The Town clearly is not a state agency. When §89(5) applies, it enables a commercial entity, at the time that it submits records to a state agency, to identify those records or portions of records that it considers to be deniable under §87(2)(d), the so-called “trade secret” exception to rights of access. If the agency agrees with such a claim, it must keep the records confidential. If a request is made for those records, a procedure is initiated that involves notice to the commercial entity and an opportunity to explain its reasons for claiming that the exception may be asserted. None of that procedural protection is required or authorized in this instance, for, again, §89(5) does not apply to a unit of local government.
Similarly, the reference in the Agreement to 6 NYCRR §616 is misplaced. That provision is a section of the regulations promulgated by the Department of Environmental Conservation and its records. Moreover, it has been found that agencies’ regulations are not equivalent to statutes for purposes of §87 (2)(a) of the Freedom of Information Law [see Zuckerman v. NYS Board of Parole, 385 NYS 2d 811, 53 AD 2d 405 (1976); Morris v. Martin, Chairman of the State Board of Equalization and Assessment, 440 NYS 2d 365, 82 AD 2d 965, reversed 55 NY 2d 1026 (1982) ]. Therefore, insofar as an agency’s regulations render records or portions of records deniable in a manner inconsistent with the Freedom of Information Law or some other statute, those regulations would, in my opinion, be invalid. Regulations cannot operate, in my view, in a manner that provides fewer rights of access than those granted by the Freedom of Information Law.
Fourth, once records come into the possession of the Town, I believe that they are Town records that must be retained in accordance with the retention schedules promulgated pursuant to §57.25 of the Arts and Cultural Affairs Law. Those schedules require that records be retained for particular periods of time, and until the minimum retention period is reached, I do not believe that the Town may return records to Taylor, notwithstanding the terms of the Agreement.
Next, the ability of the Town to withhold the records at issue is limited. The key exception in the context of the matter 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."
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.
Perhaps most 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]). 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...
...[A]s 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).
Insofar as materials are accessible on the internet or from other public sources, I do not believe that §87(2)(d) may validly be asserted. Other records may be withheld under that provision only to the extent that it can be demonstrated that the exception was properly applied. In the context of a challenge to a denial of access in a judicial proceeding brought under the Freedom of Information Law, the agency denying access, the Town, must meet the burden of proving to the court that disclosure would indeed cause substantial injury to Taylor’s competitive position (see Markovitz v. Serio, ___ NY3d ___, June 26, 2008).
Lastly, the grounds for withholding records under the Freedom of Information Law and the grounds for entry into executive session under the Open Meetings Law are not necessarily consistent with one another. There are often instances in which a discussion held by public body, such as a town board or a planning board, must be conducted open to the public, because there is no basis for conducting an executive session, even though records that are the subject of the discussion might be deniable under the Freedom of Information Law, and vice versa.
Like the Freedom of Information Law, the Open Meetings Law is based on a presumption of openness. Meetings of public bodies must be conducted in public, except to the extent that an executive session may properly be convened in accordance with §105(1). Paragraphs (a) through (h) of that provision specify and limit the grounds for entry into executive session. It is unlikely in my view that any of the grounds for entry into executive session would apply with respect to much of the discussion relating to the project. I note that §108(3) exempts matters made confidential by state or federal law from the coverage of the Open Meetings Law. For reasons described earlier, I do not believe that the confidentiality agreement is valid or enforceable or, therefore, that discussions relating to the project would be exempt from the requirements of the Open Meetings Law.
I hope that I have been of assistance.
cc: Town Board