Department of Public Welfare v. Eiseman
Commonwealth Court of Pennsylvania
Nos. 1935 C.D.2012, 1949 C.D.2012, 1950 C.D.2012
February 19, 2014
The Commonwealth Court ruled that records containing rates paid by the Department of Public Welfare to managed care organizations were subject to disclosure under the Right to Know Law, as they were financial records to which the full list of RTKL exceptions do not apply.
However, the court ruled that records containing rates paid by the MCOs to its subcontractors were protected by the confidential proprietary information and trade secret exception of the RTKL.
Background
James Eiseman of the Public Interest Law Center of Philadelphia submitted a Right to Know Law request to the Department of Public Welfare (“DPW”) seeking records related to rates paid by the DPW to managed care organizations (“MCOs”) and, in turn, the rates MCOs pay to subcontractors for dental services.
DPW denied the request on the advice of the MCOs, claiming the requested records were exempt under the Trade Secrets Act and the RTKL exception that protects confidential proprietary information and trade secrets.
Eiseman appealed to the Office of Open Records.
After allowing the MCOs to participate in the hearing and provide testimony, the OOR determined that the records were not exempt under the RTKL and ordered disclosure.
DPW appealed the Final Determination to the Commonwealth Court.
Commonwealth Court Decision
As the records at issue in this case were kept by the MCOs for the purposes of fulfilling a governmental function for the DPW, the court began by stating their assumption that all records were in the possession of the DPW. This eliminated the need for a third-party records analysis.
The court first considered the records related to the rates DPW paid to the MCOs. After review of these records, the court determined that they were “financial records” under the RTKL, as they were contracts “dealing with the receipt or disbursement of funds by an agency.”
Under the RTKL, financial records are subject to redaction under only narrow exceptions – not the full list of exceptions that protect non-financial records under the RTKL.
The exception protecting confidential proprietary information and trade secrets is not an exception that applies to financial records. As such, these records were not exempt under the RTKL.
The court then determined that the DPW did not prove the records were trade secrets under the provisions Trade Secrets Act. As a result, the court ruled that the records related to the rates DPW paid to the MCOs were subject to disclosure.
The court then addressed the records related to rates paid by MCOs to its subcontractors.
The court determined that these records were not financial records under the RTKL because they were not related to funds distributed “by an agency.”
The court reasoned that once funds are distributed by the agency, they lose their public nature. Therefore, the funds paid by the MCOs were no longer public funds. Because the records were not financial records, the full list of RTKL could apply.
The court then analyzed the records under the confidential proprietary information and trade secrets exception of the RTKL.
To be protected by the confidential proprietary information and trade secret exception, a record must be “confidential or financial information received by an agency (1) which is privileged or confidential; and (2) the disclosure of which would cause substantial harm to the competitive position of the person that submitted the information.”
The court held that the first prong of the test was met by the MCOs, as they had confidentiality provisions in their contracts, had employees take confidentiality training, and guard copies of contracts containing rates.
The court held that the second prong of the test was also met using the testimony of an MCO officer. The testimony explained the competitive nature of the market, and how the rates represent a significant investment by the company that determined their negotiating position in the market.
As such, the court ruled that the records of rates paid by MCOs to subcontractors qualified for this exemption. No analysis of the Trade Secrets Act was necessary.
As such, the court upheld the OOR’s Final Determination in regard to the rates paid by DPW to MCOs. However, the court reversed the OOR’s Final Determination with respect to the rates paid by MCOs to subcontractors.