January 8, 2015
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.
This is in response to your request for an advisory opinion regarding application of the Freedom of Information Law to records requested from Empire State Development Corporation. Specifically, the request was for a copy of the Memorandum of the Understanding between the NYS Urban Development Corporation (d/b/a Empire State Development, “ESD”), the Hudson River Park Trust (“HRPT”), and Atlas Capitol Group (“Atlas”), co-owner of the St. John’s Building at 550 Washington Street (“the MOU”), that was signed by representatives of ESD, HRPT and Atlas.
ESD initially denied the request in whole based on two exceptions that permit an agency to deny access to records or portions thereof that would, if disclosed, impair present or imminent contract awards (§87[c]) or are trade secrets and which if disclosed would cause substantial injury to the competitive position of the submitting entity (§87[d]). On appeal, ESD disclosed a redacted version of the MOU based on the same exceptions. Attached is correspondence received from ESD subsequent to your request for this advisory opinion.
Based on our review of the materials submitted, it is our opinion that more if not all of the MOU is required to be disclosed.
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 (l) of the Law.
The first provision upon which ESD relied to deny access, §87(2)(c), permits an agency to deny access to records to the extent that disclosure "would impair present or imminent contract awards..." The key word in that provision in our opinion is "impair", and the question under that provision involves whether or the extent to which disclosure would "impair" the contracting process by diminishing the ability of the government to reach an optimal agreement on behalf of the taxpayers.
As we understand its application, §87(2)(c) generally encompasses situations in which an agency or a party to negotiations maintains records that have not been made available to others. For example, if an agency seeking bids or proposals has received a number of bids, but the deadline for their submission has not been reached, premature disclosure of those bids to another possible submitter might provide that person or firm with an unfair advantage vis a vis those who already submitted bids. Further, disclosure of the identities of bidders or the number of bidders might enable another potential bidder to tailor a bid in a manner that provides him with an unfair advantage in the bidding process. In such a situation, harm or "impairment" would likely be the result, and the records could justifiably be denied.
In a decision rendered nearly thirty-five years ago, however, it was held that after the deadline for submission of bids or proposals has been reached and a contract has been awarded, "the successful bidder had no reasonable expectation of not having its bid open to the public" (Contracting Plumbers Cooperative Restoration Corp. v. Ameruso, 105 Misc. 2d 951, 430 NYS 2d 196, 198 ). Conversely, the Court of Appeals sustained the assertion of §87(2)(c) in Murray v. Troy Urban Renewal Agency, (453 NYS2d 400, 56 NY2d 888 ), in which the issue pertained to real property transactions where appraisals in possession of an agency were requested prior to the consummation of a transaction. Because premature disclosure would have enabled the public to know the prices the agency sought, thereby potentially precluding the agency from receiving optimal prices, the agency's denial was upheld.
In this case, the MOU has been executed by all of the parties. As stated in Contracting Plumbers, supra, and confirmed in a case involving a request for a copy of a successful proposal following an award, “Once the contract was awarded...the terms of [the] RFP response could no longer be competitively sensitive” (Cross-Sound Ferry v. Department of Transportation, 219 AD2d 346, 634 NYS2d 575, 577 ). When an agreement was reached and an award determined, the records that you requested would be required to be made available to the public; in our opinion, no longer would disclosure in any way “impair” the ability of the ESD to reach a fair and optimal understanding on behalf of the public.
ESD has taken a different approach with respect to this exception relying on Murray, supra, and FOIL-AO-18737, contending that that disclosure of the MOU would encourage “other current or potential parties to the ongoing negotiations” to more aggressively negotiate
with the state. We know of no case law that would support protection against such attenuated risks. Murray, supra, involved access to an appraisal report that was not shared with the buyer until after the sale of the property was finalized. FOIL-AO-18737 involved access to material amendments to a collective bargaining agreement that were approved at a school board meeting (we advised there would be no basis to withhold). In this case, it is our understanding that ESD seeks to protect portions of a fully executed MOU from “potential sources of lending support” who “could pressure the parties to accept funding terms on par with those the parties previously contemplated, or even withdraw their support altogether.” To the best of our knowledge, neither the courts nor this office has interpreted §87(2)(c) to protect an agency’s ability to negotiate future agreements that may flow from a fully executed agreement or the fee that an agency is paid.
ESD relies on § 87(2)(d), commonly known as the trade secret exception, with logic that protects against harms that are, in our opinion, similarly attenuated. Section 87(2)(d), 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 our 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.
As ESD points out, 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, (639 NYS2d 990, 87 NY2d 410 ). 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...” (Id., 419-420).
In its appeal response, ESD contended that disclosure of material contract terms would cause injury to the competitive position of the “Negotiating Firm”, who we can only presume is Atlas. If competing property owners or developers were privy to the essential economic components, ESD posited, they could underbid Atlas’ future negotiations on public development projects. More recently, ESD contended that disclosure would enable competing commercial property developers to propose better terms to the state, putting Atlas at a competitive disadvantage, and because material terms of the agreement are not available from any other source, they warrant protection under the trade secret exception.
As ESD noted, the legislative intent of §87(2)(d) is to further the state’s economic development efforts and attract business to New York (Encore, at 420, quoting 1990 NY Session Laws Legislative Mem. p.2441.); however, in our opinion, if material terms of an MOU are permitted to be kept secret, the effect could be that business is discouraged. If commercial property developers are not permitted to know material economic terms of agreements with the state, how then could they hope to compete in the future. In our opinion, disclosure would encourage healthy competition.
If the contention offered by ESD is sustained, no contract between a government and a private company would ever be disclosed. Moreover, disclosure is often beneficial to the government and tax payers, for it encloses firms in the same or similar areas of commerce to offer the government more competitive arrangements, thereby lowering costs.
Finally, we are not persuaded by ESD’s claim that it would be seriously disadvantaged in negotiating future real estate or economic development projects if it is forced to disclose, in its words, the “non-final, pre-closing material business terms that are tentatively negotiated with private firms. Indeed, ESD’s real estate development and loans & grants programs would be jeopardized if ESD were forced to disclose the details of its preliminary negotiations with developers or recipients of ESD financial incentives.” There is no question that the MOU is fully executed. The request clearly pertains only to those terms that have been agreed to by the signatories.
Lastly, it is reiterated that the courts, and particularly the Court of Appeals, have clearly confirmed that in order to meet the burden of proof in denying access to records, agencies must provide “persuasive evidence” that disclosure would cause the harm envisioned by an exception to rights of access, specifically, §87(2)(d), rather than a “speculative conclusion that disclosure might potentially cause harm” (Markowitz v. Serio, 11 NY3d 43, 51, 862 NYS2d 833 ).
In sum, based on our understanding of the matter, the MOU should be disclosed, for we believe that the statute does not permit an agency to protect against speculative harms to future agreements that would likely flow from this agreement, and that ESD has not demonstrated that disclosure of material terms would, in fact, cause substantial injury to the competitive position of a commercial enterprise.
In an effort to encourage ESD to reconsider its determination, a copy of this opinion will be forwarded to Associate Counsel.
Camille S. Jobin-Davis