The opinion of the court was delivered by: Feinberg, A.J.S.C.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE
Plaintiffs, Communication Workers of America, AFL-CIO ("CWA") and New Jersey Education Association ("NJEA") ("plaintiffs") seek to compel disclosure of investment agreements and side letters under the Open Public Records Act ("OPRA") and the common law right of access. The defendants are John McCormac, Treasurer of the State of New Jersey, and Barbara O'Hare, manager of the Government Records Access Unit ("defendants"). Defendants denied the request for disclosure on the grounds that: (1) the documents contain trade secret and proprietary commercial or financial information exempt from disclosure under N.J.S.A. 47:1A-1.1; (2) the documents contain information which, if disclosed, would give an advantage to competitors or bidders and, therefore, are exempt from disclosure under N.J.S.A. 47:1A-1.1; and (3) the public need for confidentiality outweighs the plaintiffs' interest in disclosure under the common law.
The nine documents include agreements of limited partnership (collectively, the "Partnership Agreements") for each of the five partnerships: (1) Blackstone Capital Partners, V, L.P.; (2) Blackstone Capital Partners, V-S, L.P.; (3) Oak Hill Capital Partners, II, L.P.; (4) Quadrangle Capital Partners, II, L.P.; and (5) Warburg Pincus Private Equity, IX, L.P. (collectively, the "Funds") and four letter agreements (collectively, the "Side Letters)" between Common Pension Fund E (the common trust fund through which the New Jersey Division of Investment ("DOI") invests pension fund assets in alternative investments) and the Funds and/or the respective general partners of the Funds. N.J.S.A. 52:18A-89; N.J.A.C. 17:16-69, 71, 90, 100.
CWA is the exclusive collective negotiations agent for approximately 50,000 public employees throughout New Jersey, a majority of whom are members of the Public Employees' Retirement System ("PERS"). NJEA is a labor organization that represents the professional and economic interests of approximately 175,000 active and 18,835 retired employees of school districts and provides assistance and support to the majority of representatives of school employees in New Jersey. Nearly all of its members or retirees receive pensions from the Teachers' Pension and Annuity Fund ("TPAF"). The PERS and TPAF, along with three other New Jersey State pension funds, hold approximately $79 billion in pension system assets that the DOI manages in various investment vehicles. N.J.A.C. 17:16-69.1.
Historically, employees of the DOI invested these monies in variable return securities and public fixed-income, i.e., stocks and bonds. However, following the lead of other states investing with and benefiting from partnerships with private equity firms, New Jersey adopted an Alternative Investments Program ("AIP"). N.J.S.A. 52:18A-89. Under the AIP, the Common Pension Fund E was created. The Common Pension Fund E contains the commingled assets of five New Jersey pension funds: (1) the Police and Firemen's Retirement System; (2) the PERS; (3) the State Police Retirement System; (4) the TPAF; and (5) the Judicial Retirement System of New Jersey. The AIP authorizes the DOI to invest a portion of the Common Pension Fund E in alternative investment classes including private equity, real assets and absolute return strategies. N.J.S.A. 52:18A-59; N.J.A.C. 17:16-69, -71, -90, -100.
The AIP authorizes DOI to become a limited partner in a private equity fund for which a general partner, who is not an employee of the State, makes the day-to-day investment decisions. Furthermore, the Federal Securities and Exchange Commission ("SEC") exempts private equity funds from the disclosure requirements of the Securities Act of 1933. 17 C.F.R. § 230.506. Specifically, Rule 506 only requires private equity funds to provide identifying information, the number of investors, the dollar amount of securities sold, the expenses of issuance, and a general statement of the intended use of the proceeds. This exemption promotes the policy of allowing a small number of sophisticated investors to pursue investments without revealing their strategies to the public. The State, through its Common Pension Fund E, is considered one such sophisticated investor.
Currently, the State is a limited partner of a number of partnerships with private equity firms as general partners. To create each limited partnership, a general partner negotiates with the State to draft a partnership agreement. According to William Clark, the Director of the DOI, each agreement "sets forth the name of the fund and the name of its general partner and/or investment advisor." The agreements give the purpose and duration for each fund. They detail the investment strategies of the general partners and establish boundaries for what types of investments may be made and how much the general partner may invest in each. They set forth how long the general partner may hold a particular investment and outline contingency plans for disruptions to the ordinary management of the fund. The agreements also set forth an accounting convention, how to allocate profits and losses of a fund, and how to address tax issues. Finally, they establish the fees for managing the fund and what happens in case a partner violates the terms of the agreement.
Once the general partner drafts the partnership agreement for a particular fund, the general partner and the State must negotiate a supplemental agreement to address the peculiar needs of the State. Specifically, the so-called "side letter agreement" gives the State a seat on the advisory board, acknowledges the State's status as a tax-exempt entity, sets out additional notice and reporting requirements, establishes limitations on indemnity and liability and incorporates provisions regarding the State Investment Council's ("SIC") Policy Concerning Political Contributions and Prohibitions on Investment Management Business.*fn1 The side letter agreement also notes plaintiffs' pending appellate litigation challenging the legality of the regulations authorizing the AIP, Communications Workers of America v. McCormac, Docket No. A-5198-04T1.
In addition, the partnership agreements and the side letter agreements establish the confidentiality of a particular fund, allowing only three employees of the DOI and its Director to have access to the entirety of the agreements. According to Clark, these confidentiality terms allow the SIC, now a thirteen-member body that includes two union representatives, to obtain "a summary of the material terms of the State's investment in each fund, including the name and type of the fund, the size and geographic focus of the fund, a general description of the fund's investment strategy, the term of the fund and the investment period, the amount of the State's commitment, and the management fee paid to the fund."
On June 21, 2005, CWA submitted requests pursuant to OPRA and the common law right of access for all contracts and proposed contracts the DOI or the Department of Treasury had with the private equity funds. On June 23, 2005, NJEA submitted an identical request. The requests were assigned reference numbers C15543 and C15802, respectively.*fn2
Between June 23, 2005, and October 12, 2005, the parties engaged in a series of correspondence. As part of these communications, the defendants requested additional time to respond to the requests and requested a special service fee of $15,803.78 for the production of the documents.*fn3 Specifically, the State estimated a time period of approximately 500 hours of staff time to produce the 36,000 pages of documents responsive to the OPRA requests. In response, plaintiffs requested a breakdown of the charges, challenged the special service fee as excessive, and objected to the time frame to produce some of the documents.
By letter dated October 12, 2005, the State provided a Vaughn index. See Vaughn v. Rosen, 484 F.2d 820, 826-28 (D.C. Cir. 1973), cert. denied, 415 U.S. 977 (1974). While the Vaughn index identified thirteen documents, the State represented that nine were exempt from disclosure for the following reason:
Applicable Exemptions: Trade secret and proprietary commercial or financial information; information which, if disclosed, would give an advantage to competitors or bidders; and the public need for confidentiality outweighs the interest in disclosure. N.J.S.A. 47:1A-1.1; N.J.S.A. 47:1A-8.
The nine documents withheld are:
(1) December 12, 2004, Amended and Restated Agreement of Limited Partnership of Oak Hill Capital Partners II, L.P. (OHCP II);
(2) March 17, 2005, Amended and Restated Limited Partnership Agreement of Quadrangle Capital Partners II, LP (QCP II);
(3) June 15, 2005, Amended and Restated Agreement of Limited Partnership of Warburg Pincus Private Equity IX, L.P. (WPPE IX);
(4) July 15, 2005, Letter agreement between Common Pension Fund E and OHCP II;
(5) August 2, 2005, Letter agreement between Common Pension Fund E and Warburg Pincus IX, LLC;
(6) August 8, 2005, Letter agreement between Common Pension Fund E and Quadrangle GP Investors II, LP;
(7) October 14, 2005, Amended and Restated Agreement of Limited Partnership of BCP V;
(8) October 14, 2005, Amended and Restated Agreement of Limited Partnership of BCP V-S, L.P; and
(9) October 14, 2005, Letter agreement between Common Pension Fund E and BCP V.*fn4
On December 5, 2005, plaintiffs filed a three-count complaint. The complaint asserts: (1) no exemptions apply to the June 21, 2005, and June 23, 2005, requests; (2) the special service fee charged by defendants is excessive, unreasonable and in violation of OPRA; and (3) the denial violates the common law right of access to government records. The prayer for relief requests: (1) release of the records identified in the June 21, 2005, and June 23, 2005, record requests; (2) an award of attorney fees; and (3) any such other relief the court deems just and equitable.
On January 30, 2006, the State filed an answer, denying the allegations and asserting numerous affirmative defenses. On February 16, 2006, the private equity firms filed a motion to intervene. R. 4:33-1. Unopposed, the motion was granted on March 17, 2006, and an answer was filed on March 31, 2006.*fn5
On June 23, 2006, the court conducted a case management conference, established a briefing schedule, and entered an order to permit discovery. The scheduling order was modified on a number of occasions due to the related matter before the Appellate Division, Communications Workers of America v. McCormac, Docket No. A-5198-04T1. After establishing a final briefing schedule, the court scheduled oral arguments for June 22, 2007.
On May 11, 2007, the court entered an order for production, under seal, of the nine documents and for an in camera review. Defendants provided these documents on May 22, 2007. On June 18, 2007, the court entered a consent order for answers each defendant intervenor provided to interrogatories that were designated as confidential. The protective order: (1) permitted plaintiffs to utilize the answers in any briefs and at oral argument; (2) prohibited anyone from accessing the answers other than plaintiffs' counsel and associated attorneys, employees of plaintiffs' counsel of record and other designated non-party experts; (3) prohibited any private equity firms from accessing the answers of another private equity firm without approval from the court; (4) ordered the private equity firms to justify their designations of confidentiality in any answer; (5) required plaintiffs to file under seal any briefs using answers deemed confidential and to notify defendants and the court, one day in advance and on the day of oral argument, respectively, whether any answers designated confidential would be used at oral argument; (6) permitted any party to apply to continue, modify or vacate the order consistently with the final judgment in this action; and (7) allowed plaintiffs to reserve the right to submit an application to seek additional discovery.
On October 11, 2007, in writing, defendants acknowledged the request by the court to review each agreement, for possible redaction, and to provide a more detailed Vaughn index. After several requests to extend the time to complete the aforementioned tasks, defendants submitted the redacted documents and a new Vaughn index on December 27, 2007. Subsequently, the court set oral argument for February 26, 2008. The parties filed supplemental briefs on March 4, 2008.
The court must address two issues: (1) whether defendants properly denied access to the partnership and side letter agreements under OPRA because they constitute (a) proprietary commercial or financial information, (b) trade secrets or (c) information, which, if disclosed, would give an advantage to competitors; and (2) assuming the partnership agreements and side agreements are exempt under OPRA, whether plaintiffs are entitled to access under the common law. The court will also discuss the application of the redaction language in OPRA as it applies to documents not considered government records and deemed confidential.
1. OPEN PUBLIC RECORDS ACT("OPRA")
OPRA provides that "government records shall be readily accessible for inspection, copying, or examination by the citizens of this State, with certain exceptions . . . . " N.J.S.A. 47:1A-1. Moreover, public policy requires courts to construe narrowly OPRA's limitations on the right to access government records. Ibid.; Times of Trenton Publ'g Corp. v. Lafayette Yard Cmty. Dev. Corp., 183 N.J. 519, 535 (2005); Libertarian Party of Cent. New Jersey v. Murphy, 384 N.J. Super. 136, 139 (App. Div. 2006).
OPRA defines a government record as: any paper, written or printed book, document, drawing, map, plan, photograph, microfilm, data processed or image processed document, information stored or maintained electronically or by sound-recording or in a similar device, or any copy thereof, that has been made, maintained or kept on file . . . or that has been received in the course of his or its official business . . . . [N.J.S.A. 47:1A-1.1.]
OPRA narrows this general definition by naming classes of records that do not qualify as government records under OPRA. These include: trade secrets and proprietary commercial or financial information obtained from any source. For the purposes of this paragraph, trade secrets shall include data processing software obtained by a public body under a licensing agreement which prohibits its disclosure; information which, if disclosed, would give an advantage to competitors or bidders; [Ibid.]
When an agency invokes exemptions such as the ones above and denies a citizen access to requested records, "the custodian shall indicate the specific basis therefor on the request form and promptly return it to the requestor." N.J.S.A. 47:1A-5(g). OPRA further provides that "[a] person who is denied access to a government record by the custodian of the record, at the option of the requestor, may . . . institute a proceeding to challenge the custodian's decision by filing an action in Superior Court." N.J.S.A. 47:1A-6. During the proceeding, the records custodian bears the burden to show that OPRA authorizes nondisclosure of the requested records. Finally, if defendants fail to justify denying the record, the court shall order that plaintiff have access and award a reasonable attorney's fee. Ibid.
A. PROPRIETARY COMMERCIAL OR FINANCIAL INFORMATION
Defendants submit the disputed documents contain proprietary commercial or financial information. OPRA provides that:
[a] government record shall not include the following information which is deemed to be confidential . . . trade secrets and proprietary commercial or financial information obtained from any source. For the purposes of this paragraph, trade secrets shall include data processing software obtained by a public body under a licensing agreement which prohibits its disclosure . . . . [N.J.S.A. 47:1A-1.1.]
Before addressing whether defendants properly invoked this exemption, the parties have raised a preliminary question of statutory interpretation: what records did the drafters of OPRA intend to protect under this exemption; or, what qualifies as proprietary commercial or financial information? Neither of these terms is defined in OPRA and there are no reported decisions, in New Jersey, interpreting the exemption.
Courts interpret words in a statute according to their plain meaning. White v. Mattera, 175 N.J. 158, 165 (2003); Town of Morristown v. Women's Club of Morristown, 124 N.J. 605, 610 (1991); Kimmelman v. Henckels & McCoy, Inc., 108 N.J. 123, 128 (1987). Plain meaning has been defined as the "ordinary and well-understood" meanings. Great Atl. & Pac. Tea Co. v. Borough of Point Pleasant, 137 N.J. 136, 143 (1994).
As a result, applying the plain meaning of the statute, defendants argue "proprietary commercial and financial information from any source" is not a government record under OPRA even if the documents are in the possession of a public agency. Under OPRA's predecessor, the Right to Know Law, proprietary commercial and financial information was not exempt from disclosure. In HIP of New Jersey, Inc. v. Dep't of Banking and Ins., 309 N.J. Super. 538 (App. Div. 1997), the court applied the Right to Know Law to certain proprietary commercial and financial information, and ordered disclosure. To override that decision, the Legislature amended New Jersey's freedom of information act to explicitly contain an exemption for proprietary commercial or financial information.
Plaintiffs argue the partnership agreements and side letters lost their proprietary status upon disclosure to the State for the purposes of negotiating and entering the agreement. This argument is not persuasive. If adopted, the consequence would be that all government contracts would be subject to disclosure under OPRA, even when the parties have gone to great lengths to ensure the confidentiality of the information.
Most importantly, defendants represent that the partnership agreements and side agreements are developed by the Funds, the Funds do not disclose them to the general public and the documents contain proprietary commercial or financial information. Here, defendants have provided the court with briefs, affidavits, Vaughn indices and the subject documents.
Plaintiffs submit this approach is too broad and frustrates the purpose of OPRA inasmuch as N.J.S.A. 47:1A-1 provides that "any limitations on the right of access . . . shall be construed in favor of the public's right of access . . . " Plaintiffs argue the proper scope of the exemption is contained in the Freedom of Information Act (FOIA) protecting "trade secrets and commercial or financial information obtained from a person and privileged or confidential . . . " 5 U.S.C. 552(b)(4).
Generally, federal case law tests whether a record meets exemption (b)(4) according to three elements. In Nat'l Parks & Conservation Assoc. v. Morton, 498 F.2d 765 (D.C. Cir. 1974), the court considered disclosure of records pertaining to concessions operated within national parks to determine whether these records were "(a) commercial or financial, (b) obtained from a person, and (c) privileged or confidential." Id. at 766. The parties agreed that the records met elements (a) and (b) of the exemption but contested their characterization as "'confidential' within the meaning of the exemption." Ibid.
A federal court, applying the FOIA standard considers whether requested records are: (a) proprietary; (b) commercial or financial; and (c) confidential for the purpose of the FOIA. This three-step analysis does not apply in New Jersey. In New Jersey, by contrast, the plain language of OPRA identifies only two of those elements: (a) proprietary and (b) commercial or financial. When the party denying access proves those elements, the record is "deemed to be confidential for the purposes of [OPRA]." N.J.S.A. 47:1A-1.1. Manifestly, under OPRA, confidentiality attaches as a consequence of a record being proprietary and commercial or financial; in other jurisdictions, confidentiality is a precondition, along with proprietary and commercial or financial, for non-disclosure. This significant difference in terminology and phrasing signals no legislative intent to add a confidentiality requirement to OPRA for proprietary commercial or financial information.
Moreover, given the volume of case law interpreting "confidentiality" in the FOIA, the court assumes the Legislature understood the standards under the FOIA and the decision to omit the term "confidential" as a requirement for nondisclosure was deliberate. As confidentiality is not a precondition for non-disclosure under OPRA for proprietary commercial or financial information, the National Parks test does not apply. Cf. Ayers v. Dauchert, 130 N.J. Super. 522, 529 (App. Div. 1974) (presuming that if the Legislature changes long-existing, judicially-construed language in its own statutes, it rejects those judicial constructions). Thus, the proper application of the exemption asks whether the records are (a) proprietary (b) commercial or financial information (c) obtained from any source.
Plaintiffs argue this test will exempt more records from disclosure than the Legislature intended. However, [W]hen interpreting a statute, our overriding goal must be to determine the Legislature's intent. As a general rule, the Court must first look to the plain language of the statute. If that language is clear on its face, the sole function of the court is to enforce it according to its terms. [White, supra, 175 N.J. at 165.]
OPRA excludes from the definition of government record all "proprietary commercial and financial information and "deems" all such information to be confidential. N.J.S.A. 47:1A-1. As noted heretofore, the Legislature is presumed to be aware of the federal statute, and it chose not to adopt the federal statutory language.
In any event, the federal courts exempt private commercial information from disclosure under the FOIA if the disclosure would impair the government's ability to obtain such information in the future, or disclosure will cause substantial harm to the competitive position of the person from whom the information was obtained. Nat'l Parks, supra, 498 F.2d at 770.
Because experience demonstrates that private equity funds will not accept investment from government investors if their confidential information becomes subject to compelled public disclosure, such disclosure will impair the ability of the State to enter investment agreements with private equity funds by diminishing the number that will accept the State's business. Whether or not the FOIA is used as a guide to interpret OPRA, the investment agreements are exempt from disclosure in New Jersey and under the FOIA, Exemption 4, as well.
The District of Columbia, which created the test, held that when a private party voluntarily provides commercial information, the information is exempt from disclosure under 5 U.S.C. Section 552(b)(4) if the private party who submitted it would not ordinarily disclose it to the public. See Critical Mass Energy Project v. Nuclear Regulatory Comm'n, 975 F.2d 879-80 (D.C. Cir. 1992) (en banc).
The Critical Mass exception is consistent with the National Parks test. If the information has been provided voluntarily, and if the entity has proved it would not ordinarily release the information to the public, then compelled release means that the private entity will stop providing the information voluntarily. This lack of cooperation will, as National Parks put it, "impair" the ability of the government to obtain information. Whether or not the National Parks test is read into OPRA, the evidence in this case, with respect to the industry, demonstrates that the investment agreements are not subject to disclosure.
The sole function of the court is to enforce a statute according to its terms. The court rejects the notion by the plaintiffs that the plain language of OPRA created an overly broad exemption. That argument in essence invites the court to judicially redraft the legislation to correct and alter the plain language of the statute. Redrafting legislation is a job for the legislative branch, not the judiciary.
While courts have the authority to appoint an independent expert or special master to provide assistance, and the court initially considered this possibility, upon further review, the court is satisfied that option is not warranted. R. 4:41-1. In this case, the parties have filed lengthy briefs and certifications, and appeared for oral argument. Furthermore, the court has, in camera, reviewed the documents. On this record and, given the summary and expedited nature of these proceedings, the court is satisfied the record contains sufficient facts and information, applying the plain meaning of the terms to the appropriate legal standards, to decide the case without the assistance of a third-party professional.
The American Heritage Dictionary of the English Language provides the following definitions: Proprietary: "1. Of, relating to, or suggestive of a proprietor or to proprietors as a group: had proprietary rights; behaved with a proprietary air in his friend's house. 2. Exclusively owned; private: a proprietary hospital. 3. Owned by a private individual or corporation under a trademark or patent: a proprietary drug." The American Heritage Dictionary of the English Language 1453 (3d ed. 1996). Clearly, from this definition, proprietary denotes something privately owned and not communally shared.
Commercial information, according to its plain meaning is information that "relate[s] to commerce," id. at 380, and "financial" information is information "of, relating to, or involving finance, finances, or financiers," id. at 682.
Commerce means "an interchange of goods or commodities . . . ; trade; business." Dictionary.com, Unabridged, http://dictionary.reference.com/browse/commerce (last visited Dec. 14, 2010). "Finance" means "the management of money, banking, investments and credit." The American Heritage Dictionary of the English Language, supra, at 682. In sum, information is commercial if it is or relates to trade or business, and information is financial if it is or relates to the management of money, banking, investments and credit.
Additionally, in LaMorte Burns & Co. v. Walter, 167 N.J. 285, 299-301 (2001), the Court suggested a three-part test to determine whether certain information constitutes proprietary commercial or financial information: (1) a party has expended its resources developing the information; (2) the information is not generally disclosed to the public; and (3) if the information is disclosed, it is disclosed for a limited purpose with a provision for confidentiality.
The Director of DOI and representatives of defendant intervenors have provided certifications. The certifications, coupled with the in camera inspection of the records, amply establish that the agreements consist of proprietary and commercial or financial information.
With regard to the partnership and side letter agreements between the State and defendant intervenor Blackstone, Kenneth C. Whitney, Blackstone's Senior Managing Director, asserts the proprietary nature of Blackstone's investment agreements:
(1) The provisions of the Investment Agreements embody approximately 18 years of experience by Blackstone in the ...