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Commonwealth v. The Courier-Journal, Inc.

Court of Appeals of Kentucky

May 17, 2019

COMMONWEALTH OF KENTUCKY, CABINET FOR ECONOMIC DEVELOPMENT APPELLANT
v.
THE COURIER-JOURNAL, INC. APPELLEE

          APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE PHILLIP J. SHEPHERD, JUDGE ACTION NO. 17-CI-01137

          BRIEFS AND ORAL ARGUMENT FOR APPELLANT: Jessica A. Burke Frankfort, Kentucky

          BRIEF FOR AMICUS CURIAE, BRAIDY INDUSTRIES, INC.: Timothy J. Eifler Stephen A. Sherman Louisville, Kentucky

          BRIEF FOR APPELLEE: Jon L. Fleischaker Michael P. Abate Cassie Chambers Armstrong Louisville, Kentucky

          ORAL ARGUMENT FOR APPELLEE: Jon L. Fleischaker Louisville, Kentucky

          BEFORE: JONES, KRAMER, AND MAZE, JUDGES.

          OPINION

          KRAMER, JUDGE:

         The Commonwealth of Kentucky, Cabinet for Economic Development (Cabinet) appeals a decision of the Franklin Circuit Court in favor of The Courier-Journal, Inc., in a dispute relating to Kentucky's Open Records Act (ORA). For the reasons set forth below, we affirm in part and reverse in part.

         FACTUAL AND PROCEDURAL HISTORY

         The relevant facts of this case are undisputed. During the 2017 legislative session, the General Assembly passed HB 482, as altered by a Senate Committee Substitute. HB 482 reopened the Executive Branch budget to allow for either (a) $15 million in bond funding for the Kentucky Economic Development Finance Authority ("KEDFA") Loan Pool, or (b) $15 million from the General Fund Surplus Account or Budget Reserve Trust Fund. HB 482 required the funds to be used "for the sole purpose of facilitating a private sector investment of no less than $1, 000, 000, 000 in one or more locations in the Commonwealth." The bill also required the funds to be used on "programs administered by" KEDFA.

         On April 26, 2017, Governor Matt Bevin and entrepreneur Craig T. Bouchard announced that a company recently formed and incorporated in Delaware, Braidy Industries, Inc., would build a $1.3 billion aluminum plant in Greenup County. The official press release from the Cabinet for Economic Development ("Cabinet") stated that the decision appeared to have been made after KEDFA held a special meeting on the same day to approve $10 million in tax incentives through the Kentucky Business Investment Program.

         A day after the announcement, at its regular meeting on April 27, 2017, KEDFA authorized the transfer of the $15 million in bond funds from the High-Tech Investment Pool to the Kentucky Economic Development Partnership ("KEDP"). KEDP serves as the governing body of the Cabinet pursuant to KRS[1]154.10-030(1)[2] and approves "economic development programs and projects" pursuant to KRS 154.10-030(4).

         On the same date, KEDP authorized a $15 million capital contribution into Commonwealth Seed Capital, LLC ("CSC"). The contribution came with the requirement that it be used to facilitate an investment in Kentucky of at least $1 billion. CSC approved the investment of the $15 million to purchase direct equity in Braidy, which resulted in the issuance of stock in Braidy to CSC. This investment resulted in CSC's 20% ownership of Braidy.

         In short, $15 million in public funds were used to purchase a 20% ownership stake in a private company.

         On June 30, 2017, a reporter for the Courier-Journal, Tom Loftus, submitted an ORA request to the Cabinet. As an aside, much of the difficulty in this case arises from the Cabinet's understanding of what Loftus was requesting; throughout the litigation below and its appellate brief, the Cabinet has referred to it in vague, general terms as "Braidy's shareholder information," "documents containing shareholder information," or "all documents submitted to the Cabinet by Braidy Industries and containing information about the shareholders of Braidy Industries." To be clear, however, the information Loftus sought on behalf of the Courier-Journal was extremely specific. In the relevant part of his June 30, 2017 email to the Cabinet, he requested:

[C]opies of any and all documents that list the stockholders or investors in Braidy Industries, Inc., a corporation organized in Kentucky on June 1, 2017 and with its principal office at 1544 Winchester Ave., Ashland, Ky., 42202.
This request seeks all documents the cabinet has received that show the names of stockholders/investors in Braidy Industries, Inc., including any original list plus any subsequent lists that may reflect additions or changes in the names of those investors.

         In other words, the Courier-Journal, through Loftus, only requested documents in the Cabinet's possession that indicated the names of Braidy's stockholders or investors. If the documentation included other information, the Courier-Journal left the door open for the Cabinet to redact it.

         In response to the request, the Cabinet produced two KEDFA board reports, which identified Bouchard and CSC as possessing a "20% or more" ownership in Braidy. But, the Cabinet refused to produce anything more than that, explaining in relevant part as follows:

The attached board reports are made available for your inspection as the contents of those reports were presented during publicly held meetings of [KEDFA]. The identity of other stockholders or investors in Braidy Industries, Inc. are not subject to inspection under the Open Records Act for the reasons discussed below.
KRS 61.878(1)(a) exempts from inspection records containing "information of a personal nature where the public disclosure [would] constitute a clearly unwarranted invasion of privacy [sic]." The privacy right of a private stockholder or investor not to be publicly identified as having an ownership interest in a private enterprise is substantial and disclosure of the stockholder or investor would constitute a clearly unwarranted invasion of privacy.
KRS 61.878(1)(i) exempts from disclosure records including "[p]reliminary drafts, notes, correspondence with private individuals, other than correspondence which is intended to give notice of final action of a public agency" and (1)(j) exempts inspection of "[p]reliminary recommendations, and preliminary memoranda in which opinions are expressed or policies formulated or recommended[.]" The names of prospective stockholders or investors in Braidy Industries, Inc. were made known during the course of the Partnerships' [sic] evaluation, analysis and determination whether to commit the above referenced public funds to facilitate economic development. Because the identity of the prospective stockholders or investors are contained in preliminary materials relevant to the Partnerships' [sic] determination as to a particular course of action, the materials containing the names of the prospective stockholders or investors are exempt from disclosure. See also: Baker v. Jones, 199 S.W.3d 749 (Ky. App. 2006).
KRS 61.878(1)(c)1. exempts from inspection records confidentially disclosed to the cabinet, which are considered confidential or proprietary if disclosure would permit an unfair commercial advantage to the competitors of the parties subjected to the disclosure. As private investors in a private business enterprise, the identities of the stockholders and investors in Braidy Industries, Inc. are confidential and disclosure of their names would permit an unfair advantage to their competitors. The manner in which competitors might gain an unfair advantage are too varied and multiplicitous to describe. However, it might include for example, allowing the competitor to acquire an understanding to some degree of the potential financial and resource commitment of the prospective stockholders or investors which might expose their vulnerabilities elsewhere; or, it may allow the competitor to develop a perspective of the stockholders['] or investors['] potential future investments or business strategies bearing on related endeavors.
Braidy Industries, Inc.'s application for economic development incentives, including supporting documentation, correspondence, records or writings, is not included. These records are exempt from inspection pursuant to KRS 61.878(1)(c)2.b., which expressly exempts applications for incentive programs and tax credits contained in KRS Chapter 154. See also Hoy v. Indus. Revitalization Auth., 907 S.W.2d 766, 768 (Ky. [1995]).

         Dissatisfied with the Cabinet's refusal to identify all of Braidy's shareholders, the Courier-Journal then appealed to the Attorney General for a determination of whether the exemptions asserted by the Cabinet applied. Upon review, the Attorney General found they did not apply and that the Cabinet had consequently violated the ORA. See Ky. Op. Atty. Gen. 17-ORD-198, 2017 WL 4585280. The Attorney General's reasoning is set forth below in the context of our analysis.

         Subsequently, the Cabinet filed an original action in Franklin Circuit Court contesting the Attorney General's decision, reasserting the same arguments it had previously raised before the Attorney General. Additionally, Braidy was given leave as amicus curiae to file a brief in support of the Cabinet's position.

         Shortly thereafter, on or about December 25, 2017, Braidy authorized a press release purporting to disclose all of its shareholders' identities. Notwithstanding, the Cabinet did not abandon its position that the identities of Braidy's shareholders remained confidential and outside the scope of the ORA.

         The parties filed cross-motions for summary judgment. And, in a March 29, 2018 order, the circuit court likewise determined the Cabinet had violated the ORA, ultimately rejecting the Cabinet's arguments for largely the same reasons given by the Attorney General and directing the Cabinet to produce any documentation responsive to the Courier-Journal's request for in camera review.

         In response to the circuit court's directive, the Cabinet produced a total of sixteen unredacted documents, but with a caveat; in its "notice of production," it stated:

In order to comply with the Order of this Court, these documents have been produced for in camera review in their entirety and have not been redacted. However, as the [Courier-Journal] has contested only the exempting of the identities of shareholders from disclosure, there is no disagreement before this Court as to the propriety of the exemption of other information contained in these documents from disclosure pursuant to the Open Records Act. Accordingly, should this Court find that these documents must be disclosed to [the Courier-Journal] to the extent that these documents contain the identities of shareholders, the [Cabinet] respectfully requests that the Court allow the [Cabinet] to produce properly redacted documents and that these documents, produced without redaction for the purpose of allowing review by the Court, remain under seal.

         After reviewing what the Cabinet produced, the circuit court concluded in a July 5, 2018 order that the breadth of the Cabinet's documentation reflected Braidy's press release had, in fact, divulged all of its shareholders' identities. Nevertheless, it appears the circuit court determined that the Courier-Journal was entitled to four of the documents in unredacted form unless the Cabinet sought injunctive relief - in which case the documents would remain under seal. The documents in question consisted of: (1) a May 4, 2017 Voting Agreement; (2) a May 4, 2017 Stock Purchase Agreement; (3) a May 4, 2017 Investor's Rights Agreement; and (4) an April 13, 2017 Letter of Intent Regarding Investment of $15 Million Dollars (addressed to several of Braidy's shareholders). As to why the Courier-Journal was entitled to these documents, the circuit court explained in relevant part:

[T]he Court finds that the four (4) corporate documents at issue contain information required to be made public by virtue of the Commonwealth's investment of $15 million tax dollars in the operation of this business. Under the Open Records Act, the public has a right to know the terms and conditions of the agreements which govern the investment and use of tax dollars.
In addition, . . . the Court is required to balance the equities and to consider the public interest. See Maupin v. Stansbury, 575 S.W.2d 695, 699 (Ky. App. 1978). Here, the documents at issue do not appear to implicate substantial privacy interests of these or other investors. On the other hand, the investment of public funds is clearly a matter of importance to the public. The documents at issue (primarily the various operating agreements) provide important information on the operation of Braidy, a company that received $15 million dollars in taxpayer funds from Commonwealth Seed Capital, LLC in exchange for direct equity in the corporation. Under the controlling authority of Lawson v. Office of Attorney General, 415 S.W.3d 59 (Ky. 2013), "the possibility of a limited amount of purely personal information does not justify the blanket non-disclosure of a record with substantial public import." Id. at 71.

         In other words, the circuit court appears to have determined sua sponte that the Courier-Journal was entitled to documents in the Cabinet's possession which, in their current unredacted form, indicated "the terms and conditions of the agreements which govern the investment and use of tax dollars" relative to Braidy, and "important information on the operation of Braidy" - more than just the names of Braidy's shareholders. The circuit court also assessed the Cabinet with statutory penalties for willfully violating the ORA and required it to pay the Courier-Journal's attorney's fees.

         This appeal followed. Contemporaneously, the Cabinet moved for emergency relief to stay enforcement of the circuit court's orders of March 29, 2018, and July 5, 2018; and its motion was ultimately granted pending final disposition of this matter.

         STANDARD OF REVIEW

         In City of Fort Thomas v. Cincinnati Enquirer, 406 S.W.3d 842 (Ky. 2013), the Kentucky Supreme Court set out the process for review of an Open Records Act request.

To begin, it is helpful to observe that when an agency denies an ORA request, the requester has two ways to challenge the denial. He or she may, under KRS 61.882, file an original action in the Circuit Court seeking injunctive and/or other appropriate relief. Alternatively, under KRS 61.880, he or she may, as was done in this case, ask the Attorney General to review the matter. Once the Attorney General renders a decision either party then has thirty days within which to bring an action pursuant to KRS 61.882(3) in the Circuit Court. Although the statutes refer to this second type of Circuit Court proceeding as an "appeal" of the Attorney General's decision, it is an "appeal" only in the sense that if a Circuit Court action is not filed within the thirty-day limitations period, the Attorney General's decision becomes binding on the parties and enforceable in court. Otherwise, this second sort of Circuit Court proceeding is an original action just like the first sort. The Circuit Court does not review and is not in any sense bound by the Attorney General's decision, nor is it limited to the "record" offered to the Attorney General. The agency, rather, bears the burden of proof, and what it must prove is that any decision to withhold responsive records was justified under the Act. Its proof may and often will include an outline, catalogue, or index of responsive records and an affidavit by a qualified person describing the contents of withheld records and ...

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