By: Brad Young*
A pair of cases recently decided by the Texas Supreme Court help clarify the extent to which a private party forfeits its right to protect private business information when it contracts with a governmental entity. The short answer: the Texas Public Information Act should not deter qualified businesses from contracting with cities for fear that doing so will give the public access to closely held trade secrets.
Airplanes and Ground Leases
In the first case, Boeing Co. v. Paxton, No. 12-1007, 2015 WL 3854264 (Tex. June 19, 2015), the Boeing Company had entered a lease agreement with the Port Authority of San Antonio for a facility to service heavy-lift military aircraft at the former Kelly Air Base. The Port Authority received a public information request for a copy of the lease, which Boeing argued included protected trade secret information such as the percentage used to calculate Boeing’s share of facility maintenance costs, the dollar figure for the insurance limits that Boeing agreed to carry, and the percentage used to calculate Boeing’s penalty for early termination. Boeing asserted the trade secret exception to disclosure under section 552.110 of the PIA and the exception under section 552.104 for “information that, if released, would give advantage to a competitor or bidder.”
The Attorney General, the trial court, and the court of appeals all ruled against Boeing and ordered the Port Authority to release the lease to the requestor. But in a notable decision, the Supreme Court reversed under section 552.104, holding that Boeing had adequately established that release of the information could give Boeing’s competitor’s an advantage. The decision is notable because the Attorney General has long taken the position that only the government can assert the 552.104 exception – not the private vendor. Both the majority and the dissent in Boeing disagreed, holding that nothing on the face of the statute limits the exception to the government’s competitive interests. (Although the dissent agreed that a private party can raise the 552.104 exception, it did not believe that Boeing had established that the exception applied).
Landfills, Solid Waste, and Competition
On the same day that the Supreme Court released its opinion in Boeing, the Court denied the petition for review in Waste Management of Texas, Inc. v. Abbott, 406 S.W.3d 626 (Tex. App.—Eastland 2013, pet. denied). In that case, Waste Management had entered into a written agreement with Williamson County to operate a county-owned landfill. Under the terms of the agreement, Waste Management had the ability to negotiate contracts with third parties for disposal of waste in the landfill. The county was not a party to those contracts, and the amount of money that Waste Management was obligated to pay the county for the right to operate the landfill was not contingent on the negotiated third-party disposal rates. The contract included a confidentiality clause that provided that Waste Management had the ability to designate certain documents related to the operation of the landfill as “confidential business records.”
The county received a public information request from one of Waste Management’s competitors for all of the “sequentially-numbered tickets” generated at the landfill on a specific date. Each time a customer disposed of waste at the landfill, Waste Management would issue a ticket that included information relating to the disposal, including the name of the customer, the volume of waste, and, in some cases, the pricing structure that the customer had negotiated with Waste Management for disposal at the landfill. The county did not maintain or receive the waste tickets that Waste Management generated. However, pursuant to the landfill operation agreement, the county had the right to request those tickets, generally for audit purposes. On the date that this case went to trial, the only time that the county ever had requested the tickets was in response to the public information request that formed the basis of the lawsuit. Waste Management immediately notified the county that it considered those tickets to be “confidential business records” within the meaning of the contract.
The county asked the Attorney General for an open records determination but took no position on whether the requested information was excepted from public disclosure. Waste Management, however, argued both to the Attorney General and to the district court that the information on the tickets was protected as a trade secret under section 552.110 of the PIA because release would reveal the pricing terms of Waste Management’s private contracts with its third-party customers. Waste Management presented testimony at trial that the withheld pricing information was the “life blood” of its business at the landfill and that Waste Management went to great effort and expense to keep the information confidential.
Both the Attorney General and the trial court disagreed and ordered the county to release the information. But the court of appeals reversed, holding that Waste Management had conclusively established that the requested information was excepted from disclosure as a trade secret under section 552.110. On June 19, 2015, the Texas Supreme Court denied the Attorney General’s petition for review.
Application to Cities
So why do these two opinions matter to cities? In both cases, the Attorney General took the position that the private vendors had waived their rights to protect their proprietary business information in exchange for lucrative government contracts. That position creates a disincentive for private companies to share important information with city clients during the contract negotiation process – or worse, to contract with cities at all.
The Texas Supreme Court was having none of it. As Justice Guzman wrote in another recent PIA decision, “There is little to support the view that open-records laws were envisioned as tools to pry open the sensitive records of private entities or to function as a private discovery tool.” Greater Houston Partnership v. Paxton, No. 13-0745, 2015 WL 3978138 (Tex. June 26, 2015).
Takeaways for city attorneys from these decisions include:
1. When negotiating contracts, include appropriate safeguards to protect confidentiality. The fact that the county’s contract with Waste Management included an applicable confidentiality clause was not dispositive, but it was one of the factors that the court of appeals considered when it determined that Waste Management had not waived its trade secret protection.
2. Coordinate with your vendors to protect confidential information. One of the challenges in the Boeing case was that there was some evidence that the Port Authority had provided some information in the lease to the media. The court of appeals cited that as one of the facts that led it to the conclusion that any trade secret protections had been waived.
3. It’s ok to let the vendor do the heavy lifting. Although the city has an obligation under the PIA to notify a third party when it receives a public information request that may implicate the third party’s proprietary interests, the third party whose business interests are at stake will be motivated to do everything it can to protect its information. That’s what happened in Waste Management. Although the county certainly cooperated with the vendor, Waste Management was in the unique position to explain to the court why the requested information constituted a trade secret and what steps it had taken to protect that information.
*Brad Young is a partner at Bickerstaff Heath Delgado Acosta, LLP, and represented Waste Management of Texas, Inc. in the litigation discussed here.