Opinion
Opinion By: Jack Conway, Attorney General; Amye L. Bensenhaver, Assistant Attorney General
Open Records Decision
As a threshold matter, we address UMC's argument that the Office of the Attorney General "lacks the statutory authority under the Act to determine whether a private entity, like UMC, is a public agency. " This contention ignores the plain language of KRS 61.880(2)(a), which mandates that the Attorney General shall review the complaining party's "written request and copy of the written response denying inspection" and issue "a written decision stating whether the agency violated provisions of KRS 61.870 to 61.884." Since the earliest days of the Open Records Act, our review has included resolution of the threshold issue of public or non-public agency status. 1 The Attorney General clearly has the authority to review any denial regardless of the grounds for denial, and pursuant to KRS 61.880(5)(b), his decisions have the force and effect of law if not timely appealed. 2
Second, we address the existence of an ostensibly conflicting open records decision: 06-ORD-210. Based on the facts and figures presented in 06-ORD-210, the Attorney General concluded that UMC was not a public agency. That decision, however, focused on whether UMC was a public agency under KRS 61.870(1)(h) 3, an inquiry that focused on whether UMC derived at least twenty-five percent of the funds expended by it in the Commonwealth from state or local authority funds. The decision did not, however, analyze whether UMC was a public agency under KRS 61.870(1)(j), 4 which clarifies that an entity controlled by a public agency is itself a public agency. It is this issue we resolve today in favor of Mr. Sharp's position that UMC was established and created, and is controlled, by the University of Louisville. To the extent that 06-ORD-210 supports the contrary inference, it is overruled. Similarly, this decision makes no conclusion as to whether UMC currently meets the twenty-five percent requirement found in KRS 61.870(1)(h).
Having resolved those matters, we turn to the questions presented in this open records appeal. First, we consider whether UMC is a public agency as defined in KRS 61.870(1)(a) through (k). The answer to this question is "yes." UMC is a public agency pursuant to KRS 61.870(1)(j) because it is an "agency which is 'established, created, and controlled' by a public agency as defined in the statute." University of Louisville Foundation, Inc. v. Cape Publications, Inc., 2003 WL 22748265 at p. 5 (Ky. App.). See also, Cape Publications, Inc. v. University of Louisville, 260 S.W.3d 818 at 822-823 (Ky. 2008). A detailed analysis follows. Having so concluded, we must decide whether UMC properly relied on KRS 61.878(1)(c)(1) in denying William E. Sharp's August 3, 2011, request for records relating to the merger between the University of Louisville Hospital, Catholic Healthcare Initiatives, and Jewish/St. Mary's Hospital System. The answer to this question is "no." UMC failed to meet its statutorily assigned burden of proving 5 that the requested records were "confidentially disclosed to an agency or required by an agency to be disclosed to it, generally recognized as confidential or proprietary, which if disclosed would permit an unfair commercial advantage to competitors of the entity that disclosed the records." 6 Absent proof supporting its claim that the requested records are protected from disclosure by KRS 61.878(1)(c)(1), we conclude that UMC's reliance on that exception was misplaced.
We will not recite Mr. Sharp's and UMC's arguments. We have carefully considered their arguments and find that Mr. Sharp's arguments that UMC is a public agency as defined in KRS 61.870(1)(j) are persuasive. His arguments are not, as UMC characterizes them, "based on unsubstantiated information and bare assertion," but are grounded in specific citation to UMC's corporate filings and related documentation. Conversely, UMC does not expressly refute his arguments but maintains that these citations do not support the conclusion that it was established and created, and is controlled, by the University of Louisville. We find UMC's arguments unpersuasive, consistent with our decisions in 11-ORD-054 and 11-ORD-151. In 11-ORD-054, we determined that University Physicians Associates is a public agency for open records purposes, within the meaning of KRS 61.870(1)(j), because it was established and created, and is controlled, by the University of Louisville School of Medicine. Similarly, in 11-ORD-151, we determined that Owensboro Medical Health Systems, Inc. is an agency which is established, created, and controlled by the City of Owensboro and Daviess County Fiscal Court, pursuant to KRS 61.870(1)(j).
UMC was established and created in June 1995 "to operate and maintain the hospital affiliated with the University of Louisville School of Medicine, and to provide medical care for the people who are in need of those, or related, medical services." 7 Although officials of the University of Louisville did not affix their signatures to the June 1995 Articles of Incorporation, UMC acknowledges that it was created "so as to have a vehicle to compete for the opportunity to enter into an affiliation agreement and lease agreement with the University and the Commonwealth of Kentucky to operate the University of Louisville Hospital." Thus, UMC was established and created "in anticipation" 8 of the University's issuance of a Request for Proposals for the operation and management of University Hospital and the renegotiation of its management contract. In October 1995, the University awarded the management contract for University Hospital to UMC. As in 11-ORD-054 and 11-ORD-151, "the causal connection" between the filing of UMC's Articles of Incorporation in June 1995 and the execution of the management contract between UMC and the University of Louisville in October 1995 "is as clear and direct as the causal relationship between the University of Louisville Foundation and the University of Louisville recognized in University of Louisville Foundation, Inc. v. Cape Publications, Inc. , above." 11-ORD-151, p. 6. The University has, in its own words, "partnered" with UMC since its inception. 9
Also as in 11-ORD-151, UMC's Articles of Incorporation and bylaws assign operation of the hospital to UMC, but control of the hospital remains in the University's hands by virtue of its strong presence on UMC's Board of Directors and the powers reserved to it under its Affiliation Agreement with UMC as amended in July 2007. Coincident with the amendment of this Affiliation Agreement, the University credited the University president with achieving the goal of "sole[] U of L management" of "[t]he Board of Directors of University Hospital." 10 UMC's Board of Directors consists of seventeen voting members and is chaired by the president of the University or his designee. 11 Unlike the other Board members, the chair may not be removed by a majority vote. 12 Section 4.02(a) of the bylaws authorizes the chair to appoint four to seven additional University directors who must include the dean of the University's Medical School, the University's Executive Vice President for Health Affairs, the chair of one of the Medical School's clinical departments, and a member of the University's Board of Trustees. Although the remaining Board members are "community" members, nominated by the Board's nominating committee and voted on by the Board, the nominating committee is chaired by the president of the University or his designee and consists of an additional University member and two community members who are appointed by the chair. 13 The University therefore exercises broad control over all appointments to the Board through its president, or his designee. Not only is he authorized to appoint up to half of UMC's Board members; he significantly influences, if not controls, appointment of the remaining members through his role as chair of the nominating committee. Additionally, he cannot be removed. UMC's statement that "University affiliated individuals are outnumbered by community representatives and cannot make decisions on behalf of UMC" is not accurate. The nominating process and structure of the UMC Board give the University immense control over Board membership.
We also disagree with UMC's assertion that its "role in managing the Hospital in accordance with contractual obligations does not amount to control by the University . . . ." Under the terms of the Affiliation Agreement, UMC agrees:
. that University Hospital will "serve as the principal adult teaching hospital of [the] University and shall be available for teaching, research, and clinical care programs of the University Schools of Medicine, Dentistry, Nursing and Public Health plus residency programs and other programs mandated by state law"; 14
. that it will obtain University approval before implementing new programs 15 or withdrawing any training program; 16
. that the Dean of the University's School of Medicine, or his designee, will serve as Chief of the Hospital's medical staff ; 17 and
. that it will obtain prior University approval for "all agreements between any member or members of the faculty and UMC or any Affiliate or party acting on UMC's behalf including network participation agreements, clinical practice agreements, or insurance, provider, or capitation products". 18
The Affiliation Agreement also requires UMC to manage University Hospital without charging the University a management fee and to remit all "surplus cash flow arising throughout the term of this Agreement" to the University. 19 The contractually mandated financial distributions between the two entities further underscore the significant organizational interconnectivity.
The flow of surplus cash from UMC to the University imports an agency relationship analogous to that identified in University of Louisville Foundation, Inc. v. Cape Publications, Inc., supra. In University of Louisville Foundation, Inc. , the court recognized:
The University receives money from the state through the 'Bucks for Brains' program under KRS 164.791(1) [sic] . . . . The University receives its money from this program through its agent, the Foundation. If the Foundation were not the University's agent, it could not legally receive the 'Bucks for Brains' money.
University of Louisville Foundation, Inc. at 6. On this basis, the court concluded that the Foundation and the University acted "as one and the same" in the "Bucks for Brains" program as well as in "soliciting contributions." Id. at 6-7. According to the Affiliation Agreement, UMC must reinvest surplus funds into the operation of the hospital, or remit surplus funds resulting from the management/operation of the hospital to the University of Louisville. 20 This financial arrangement is important because of UMC's status as a non-profit, tax exempt 501(c)(3) organization. UMC cannot, without violating its fiduciary duty to confer benefits in conformity with its purpose, make a distribution to the University of Louisville unless the University is part of UMC. 21 Just as the University of Louisville Foundation could not receive "Bucks for Brains" money and contributions unless it was acting "as one and the same" with the University, so UMC cannot distribute surplus cash flow to the University unless it acts "as one and the same" with the University.
UMC and the University "acting as one and the same amounts to 'control.'" Id. at 7. Having determined that UMC was established and created "to operate and maintain the hospital affiliated with the University of Louisville School of Medicine," and that it is controlled by the University of Louisville, we conclude that UMC is a public agency as defined in KRS 61.870(1)(j). Its argument that it is not a public agency as defined in KRS 61.870(1)(a) through (k) and consequent refusal to honor Mr. Sharp's request therefore constituted a violation of the Open Records Act. Its alternative argument based on KRS 61.878(1)(c)(1) 22 is unsupported. Absent proof that the requested records were confidentially disclosed, are generally recognized as confidential or proprietary, and that their disclosure would permit an unfair commercial advantage to competitors, we cannot affirm its denial of his request.
A party aggrieved by this decision may appeal it by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882. Pursuant to KRS 61.880(3), the Attorney General should be notified of any action in circuit court, but should not be named as a party in that action or in any subsequent proceeding.
Distributed to:
William E. SharpTom Halbleib
Footnotes
Footnotes
1 See, e.g., OAG 76-648 and OAG 76-663.
2 KRS 61.880(5)(b) states:
If an appeal is not filed within the thirty (30) day time limit, the Attorney General's decision shall have the force and effect of law and shall be enforceable in the Circuit Court of the county where the public agency has its principal place of business or the Circuit Court of the county where the public record is maintained.
3 Pursuant toKRS 61.870(1)(h), public agency means:
(h) Any body which derives at least twenty-five percent (25%) of its funds expended by it in the Commonwealth of Kentucky from state or local authority funds.
4 Pursuant toKRS 61.870(1)(j), public agency means:
(j) Any board, commission, committee, subcommittee, ad hoc committee, advisory committee, council, or agency except for a committee of a hospital medical staff, established, created, and controlled by a public agency as defined in paragraph (a), (b), (c), (d), (e), (f), (g), (h), (i), or (k) of this subsection.
5 KRS 61.880(2)(c) states:
On the day that the Attorney General renders his decision, he shall mail a copy to the agency and a copy to the person who requested the record in question. The burden of proof in sustaining the action shall rest with the agency, and the Attorney General may request additional documentation from the agency for substantiation. The Attorney General may also request a copy of the records involved but they shall not be disclosed. (Emphasis added)
6 KRS 61.878(1)(c)(1), removes from application of the Open Records Act, "records confidentially disclosed to an agency or required by an agency to be disclosed to it, generally recognized as confidential or proprietary, which if openly disclosed would permit an unfair commercial advantage to competitors of the entity that disclosed the records."
7 Articles of Incorporation of University Medical Center, Inc., Article 2A.[1].
8 See University of Louisville Foundation, Inc. , at p. 1.
9 University Hospital: History. http://www.woflhealthcareorg/AboutUs/History/tabid/358/ Default.aspx.
10 Minutes of the Regular Meeting of the Board of Trustees of the University of Louisville, July 12, 2007. http://louisville.edu/president/trustees/minutes/2007/minutes%207%2012%…
11 UMC Bylaws (as amended January 2008), at 4.01 and 4.02(a).
12 UMC Bylaws 4.04.
13 Bylaws 6.01(B); 6.03.
14 Affiliation Agreement 5.1.1
15 Affiliation Agreement 7.1
16 Affiliation Agreement 5.2
17 Affiliation Agreement 8.2
18 Affiliation Agreement 22
19 Affiliation Agreement 11.2 and 11.4
20 Affiliation Agreement 11.1, 11.3, 11.4
21 KRS 273.237 provides in pertinent part, "? A corporation may pay compensation in a reasonable amount to its members, directors, or officers for services rendered, may confer benefits upon its members in conformity with its purposes...."
22 KRS 61.878(1)(c)(1), removes from application of the Open Records Act, "records confidentially disclosed to an agency or required by an agency to be disclosed to it, generally recognized as confidential or proprietary, which if openly disclosed would permit an unfair commercial advantage to competitors of the entity that disclosed the records."