FEINBERG, A.J.S.C.
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 out-weighs
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
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.
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.
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.
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, 94 S.Ct. 1564, 39 L.Ed.2d 873 (1974). While the Vaughn index identified thirteen documents, the State represented that nine were exempt from disclosure for the following reason:
The nine documents withheld are:
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.
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
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 of (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.
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, 874 A.2d 1064 (2005); Libertarian Party of Cent. New Jersey v. Murphy, 384 N.J.Super. 136, 139, 894 A.2d 72 (App.Div.2006).
OPRA narrows this general definition by naming classes of records that do not qualify as government records under OPRA. These include:
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.
Defendants submit the disputed documents contain proprietary commercial or financial information. OPRA provides that:
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, 814 A.2d 627 (2003); Town of Morristown v. Woman's Club of Morristown, 124 N.J. 605, 610, 592 A.2d 216 (1991); Kimmelman v. Henkels & McCoy, Inc., 108 N.J. 123, 128, 527 A.2d 1368 (1987). Plain meaning has been defined as the "ordinary and well-understood" meanings. Great All & Pac. Tea Co. v. Borough of Point Pleasant, 137 N.J. 136, 143, 644 A.2d 598 (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.
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 nondisclosure under OPRA for proprietary commercial or financial information, the National Parks
Plaintiffs argue this test will exempt more records from disclosure than the Legislature intended. However,
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 871, 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.
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. Walters, 167 N.J. 285, 299-301, 770 A.2d 1158 (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:
In his certification, Whitney also includes the trade, investing and commercial and financial matters in the agreements:
Taken as a whole, these assertions establish that the partnership and side letter agreements with Blackstone are the proprietary commercial or financial information of Blackstone.
With regard to the partnership and side letter agreements between the State and defendant intervenor Warburg Pincus, W. Bowman Cutter, Managing Director, asserts the proprietary nature of the partnership and letter agreements:
In his certification, Cutter also describes the trade, investing and other commercial and financial matters in the agreements:
These representations establish that the partnership and side letter agreements are the proprietary commercial or financial information of Warburg Pincus.
With regard to the partnership and side letter agreements between the State and defendant intervenor Oak Hill Capital Partners, Gregg Rubin, General Counsel of Oak Hill Capital Partners II, L.P., asserts the proprietary nature of the partnership and letter agreements:
In his certification, Rubin also describes how the agreements include trade, investing and other commercial and financial matters:
Once again, these statements demonstrate that the partnership and side letter agreements with Oak Hill Capital Partners are the proprietary commercial or financial information of Oak Hill Capital Partners.
With regard to the partnership and side letter agreements between the State and defendant intervenor Quadrangle Group, Peter Ezersky, managing principal of Quadrangle Group LLC, asserts the proprietary nature of the partnership and letter agreements:
Furthermore, in his certification, Ezersky establishes the manner in which the agreements describe trade, investing and other commercial and financial matters:
Viewed together, these assertions from the certifications establish that the partnership and side letter agreements with Quadrangle are the proprietary commercial or financial information of Quadrangle.
Finally, with regard to the partnership and side letter agreements in general, William Clark, Director of the DOI, asserts the proprietary nature of the partnership and letter agreements:
Clark also identifies how the agreements describe trade, investing and other commercial and financial matters:
Against this backdrop, the cumulative representations set forth above, coupled with the in camera review, establish that
The court agrees with defendants that the records in their entirety are proprietary commercial and financial records.
Clearly, defendants have established the documents are exempt as proprietary commercial or financial information. Therefore, resolution of whether the documents are trade secrets is not required. However, for completeness, the court will address whether the government has shown that any information improperly denied as proprietary commercial and financial information was properly denied as trade secrets. N.J.S.A. 47:1A-1.1
Defendants argue the court should apply the trade secrets test set forth in Hammock v. Hoffman-LaRoche, Inc., 142 N.J. 356, 384, 662 A.2d 546 (1995). While Hammock addressed the right of public access to judicial records and materials filed with the court in civil litigation, the Court delineated the test for determining trade secrets. As noted in Hammock, a trade secret consists of "any formula, pattern, device or compilation of information which is used in one's business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it," Restatement of Torts § 757, comment b (1971), or "any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford a potential economic advantage over others." Restatement (Third), Unfair Competition § 39 (Tentative Draft No. 4, 1993); Hammock, supra, 142 N.J. at 383-84, 662 A.2d 546; Platinum Management, Inc. v. Dahms, 285 N.J.Super. 274, 296, 666 A.2d 1028 (Law Div.1995); Trump's Castle Assoc. v. Tallone, 275 N.J.Super. 159, 162, 645 A.2d 1207 (App.Div.1994). A trade secret can consist of "aspects of business operations such as pricing and marketing techniques." Trump's Castle Assoc., supra, 275 N.J.Super. at 162, 645 A.2d 1207.
In evaluating whether confidential business information is recognized as a trade secret, a court must consider six factors:
Plaintiffs argue the Hammock test is overly broad and, if applied, would frustrate the legislative policy in OPRA to construe the limitations on disclosure narrowly. Instead, plaintiffs propose the application of the test formulated in Public Citizen Health Research Group v. FDA, 704 F.2d 1280 (D.C.Cir.1983). In that case, the court held for the purposes of
The court agrees with defendants. The court is required to apply the definition of trade secrets in New Jersey that has consistently been used in the past. The phrase "trade secret" is one of art and "[t]echnical words and phrases, and words and phrases having a special or accepted meaning in the law, shall be construed in accordance with such technical or special and accepted meaning." N.J.S.A. 1:1-1. When the Legislature uses terms with a technical or special meaning, it is presumed that it intends to use the meaning the courts have applied in the past. See Johnson v. Scaccetti 192 N.J. 256, 276, 927 A.2d 1269 (2007); Brewer v. Porch, 53 N.J. 167, 174, 249 A.2d 388 (1969) ("[There] is [an] assumption that the Legislature is thoroughly conversant with its own legislation and the judicial construction of its statutes."). See also In re Lead Paint Litig., 191 N.J. 405, 430, 924 A.2d 484 (2007)(finding the Legislature used "public nuisance" in its "strict historical sense"); Trinity Church v. Lawson-Bell, 394 N.J.Super. 159, 175, 925 A.2d 720 (App.Div.2007)(finding "substantial completion" in statute of repose used in the sense understood in the construction industry); Zorba Contractors, Inc. v. Housing Autk, City of Newark, 362 N.J.Super. 124, 137-38, 827 A.2d 313 (App.Div.2003)(finding "legal relief used in technical sense to imply right to jury trial).
Therefore, whether the partnership agreements and letter agreements were properly withheld under the trade secrets exemption depends on the extent to which those records fall within the factors enumerated in Hammock.
Concerning the first factor, the extent to which the information is known outside of the owner's business, defendants assert the agreements are not publicly disclosed. To support this, defendants represent: (1) only the general partner, the limited partners, prospective partners and others with a need to know have access to the agreements; (2) parties provided access must sign a confidentiality agreement; (3) the agreements are not filed publicly with the Secretary of State in Delaware or an other government office or agency; and (4) the agreements are not subject to the SEC's disclosure laws. As to the side letters, these are disclosed to no one other than the general partner of the fund and a very limited number of DOI employees. Furthermore, the side letters are only available to the specific investor who is a party to the side letter and to a limited number of other partners who have negotiated access to such documents.
The second factor, the extent to which it is known by employees and others involved in the owner's business, defendants argue the employees, agents and attorneys of each fund's general partner only know the terms of the agreements on a need to know basis and then only subject to a confidentiality agreement. Moreover, as for the State, only three employees, in addition to the Director and the Deputy Director of the DOI, have access to the Partnership Agreements and Side Agreements which are kept in a locked filing cabinet.
With respect to the third factor, the measures taken to safeguard the secrecy of the purported trade secret, defendants note the agreements are not filed with the Attorney General, the State of Delaware
The fourth factor addresses the value of the information to the owner and to his competitors. To support the value of the agreements to their owners and to competitors, defendants argue: (1) each agreement outlines the organizational structures and investment strategies of a particular fund; (2) if released a competitor could use this information to undermine an investment strategy; and (3) if the terms were disclosed, there would be a number of free-riding fund managers that would adopt the once confidential strategy.
The fifth factor relates to the amount of effort or money expended by the owner in developing the information. Defendants assert the parties have expended significant resources to craft the terms and conditions of the agreements. This includes: (1) the expertise required from multiple parties, the general partner, attorneys, tax specialists and other consultants to create the agreements; and (2) the considerable time spent to negotiate the terms and finalize the agreements.
Finally, defendants assert the information contained in the agreements is not easily acquired or duplicated by others inasmuch as the parties to the agreements are required to execute confidentiality agreements to hold the terms and conditions in strict confidence. Moreover, defendants argue, given the amount of time and expertise required to produce these highly complex and specialized documents, the agreements are not the type of document that is easily duplicated.
Plaintiffs argue defendants have not identified, with the required degree of specificity, what parts of the agreements constitute trade secrets. As a result, plaintiffs seek the release of portions of the agreements that do not meet the trade secret exemption.
However, given the paper record, which includes certifications of the Director of the DOI and managers of the private equity funds, coupled with the court's review of the documents, the court is satisfied that the documents meet the six-part test.
The final issue under OPRA is whether defendants can withhold, under the competitive advantage exemption, any information in the records illegitimately denied under either the proprietary commercial or financial information exemption or trade secrets exemption. OPRA deems confidential "information which, if disclosed, would give an advantage to competitors or bidders." N.J.S.A. 47:1A-1.1. The parties have not raised an issue of statutory interpretation with regard to this exemption, and presumably seek its application according to its plain meaning.
Defendants allege that, based on terms embedded within the agreements, their disclosure would give a threefold advantage to competitors: (1) it would permit other private equity funds to free ride on the effort, monies and experience of the private equity funds in developing the terms of an agreement; (2) it would allow investors competing with the private equity funds to purchase desirable investments to know the extent of the private equity funds' resources and the limits of their investment strategy; and (3) it would reveal the bargain the private equity firms offer to their investors and undermine efforts to attract new investors.
The reasons offered for withholding documents must be specific. Indeed, "[c]ourts will `simply no longer accept conclusory and generalized allegations of exemptions but will require a relatively detailed analysis in manageable segments.'" Loigman v. Kimmelman, 102 N.J. 98, 110, 505 A.2d 958 (1986) (quoting Vaughn v. Rosen, 484 F.2d 820, 826 (1973)). However, the court is satisfied that the claims of confidentiality are sufficient, under the competitive advantage exemption, to support nondisclosure.
The partnership agreements and the side letter agreements differ significantly from one another. Each is a unique blend of variables: the amount of debt each fund may carry, what fees the general partner takes from a fund's profits, the limits on the general partner's powers, how a withdrawing partner redeems their investment, how the fund distributes gains, and various other matters. These blends are the product of years of experience, and disclosure of the agreements would give a real, not speculative advantage to competitors who could simply piggyback on the experience of the private equity firms.
Moreover, the agreements detail a fund's limitations on buying and selling investments. Any competitor knowing when a fund's strategy would induce it to buy or sell would enjoy an advantage over the fund. Defendants point to a situation where, by reviewing a fund's partnership agreement, a competitor could learn when a fund would be liquidating an investment. As the time for liquidation neared, a competitor could gain an advantage by offering an artificially low price. Also, defendants explain how disclosure of the agreements would reveal the bargains that each fund strikes with their investors. Competitors who become aware of these bargains through disclosure of the agreements have the information necessary to undercut the bargain that a private equity fund offers to an investor. Pulling away investors from a fund in this manner would advantage a competitor.
Importantly, many of the organizational structures developed by the Funds in order to achieve success in the highly competitive field of private equity investing are embedded in the Partnership Agreements drafted, developed and negotiated by the Funds.
First, the court has examined the documents in camera to verify and authenticate representations made by counsel in briefs filed with the court and representations in certifications submitted by William Clark, DOI, and senior managers of the private equity funds. Second, having undertaken this laborious review, the court is satisfied when a document falls within one of the statutory exemptions, redaction is not required.
As noted heretofore, OPRA defines a government record as:
Importantly, the last sentence of the paragraph that defines "government record" provides: "The terms shall not include inter-agency or intra-agency advisory, consultative, or deliberative material." Ibid. Applied to documents considered government records, the court has an obligation to review documents in camera and, when appropriate, redact inter-agency, or intra-agency advisory consultative or deliberative material. In re the Liquidation of Integrity Ins. Co., 165 N.J. 75, 754 A.2d 1177 (2000). Significantly, this redaction methodology applies to documents already determined to be government records and not to documents considered government records and "deemed to be confidential." N.J.S.A. 47:1A-1.1.
The common law right of access to public records requires the court to balance the public interest in non-disclosure against the private interest in securing access to the information. Keddie v. Rutgers State Univ., 148 N.J. 36, 51, 689 A.2d 702 (1997); Home News, Inc. v. Dept. of Health, 144 N.J. 446, 454, 677 A.2d 195 (1996). To secure access, three requirements must be met: "1) the records must be common law public documents; 2) the person seeking access must establish an interest in the subject matter of the material; and 3) the citizen's right to access must be balanced against the State's interest in preventing disclosure." No. Jersey Media Group Inc. v. New Jersey Dept. of Personnel, 389 N.J.Super. 527, 538, 913 A.2d 853 (Law Div.2006) (quoting Keddie, supra, 148 N.J. at 50, 689 A.2d 702).
It is undisputed that plaintiffs have standing and that the records are common law records. Clearly, the agreements are filed with the State and have been created pursuant to the State's alternative investment policy. The issue, then, is whether that interest, which confers standing, outweighs the public's interest in keeping the agreements confidential. Where a public agency asserts a claim of confidentiality:
The court may consider a non-exhaustive set of factors when balancing interests in confidentiality versus disclosure, which include:
Defendants argue there is a significant public interest in maintaining the confidentiality of the agreements. First, if disclosed, the State represents, based on industry practice and experience, the State will lose private equity firms as investing partners. Consequently, the public will lose its opportunity to invest in alternative investments, which have been known to improve the anticipated rate of return relative to market risk. The public interest in the AIP has been reiterated and confirmed by the enactment of L.2007, c. 103 Section 51, which expressly allows the investment of funds by the SIC into externally managed investments.
Second, disclosure of the partnership and side-letter agreements will compromise the public's bargaining power when negotiating future alternative investment agreements with prospective partners. The DOI has a fiduciary duty to seek the best bargain for investors in the pension plan. N.J.S.A. 52:18A-166. If the agreements were disclosed, a prospective partner of the State in the alternative investment program would know the contours of previous bargains and refuse to agree to anything less favorable to it and more favorable to investors. Clearly, that would harm the State's fiduciary interest.
Plaintiffs characterize their interest as a desire to secure a better understanding of how the State is investing employees' pensions under the alternative investment program. Finally, plaintiffs argue: (1) without oversight the union is unable meet its obligation to its members; (2) the public will lose confidence in the pension system; and (3) defendants' claims are too speculative
The court concludes the balance of interests weighs in favor of defendants. First, the court rejects the notion that the allegations of harm articulated by defendants are simply too vague and without merit. Defendants' arguments and certifications contain detailed, concrete and plausible explanations of the adverse consequences likely resulting from access to the agreements under the common law.
Second, plaintiffs' position that access to the agreements is necessary to satisfy their interest in understanding investment strategies is undermined by the fact that that interest is largely satisfied by information already accessible by law. N.J.S.A. 52:18A-83(a)(4)-(5) grants one seat on the SIC to plaintiff NJEA and one seat to plaintiff CWA. In turn, N.J.S.A. 52:18A-91 grants the SIC substantial oversight of the investments. According to the certification of William Clark, Director of DOI, the SIC has access to 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. Thus, plaintiffs already have access to material terms of the State's investment in the funds including specific details of the fund's organizational structure and its investment strategies and parameters.
Importantly, the representatives of CWA and NJEA on the SIC will have the same access as the other members. They will not only be able to "understand how the State is managing the pension plan" on behalf of their members, they will be part of that management. Therefore, the issue of transparency has been resolved by statute. Not only does N.J.S.A. § 52:18A-91 provide the unions a direct voice in management of the system's investments, it also: (1) provides what reports the SIC is to make public; (2) requires external investment managers to report in detail on any political contributions; (3) requires an annual public hearing at which time members of the public may comment on the SIC's investment activities. N.J.S.A. 52:18A-91(b) through (d) (2007). That is the compromise that allows the AIP to go forward unimpeded while giving representatives of the State's employees a direct voice in the oversight of the program.
Moreover, the AIP program safeguards against conflicts of interest to enhance transparency and bolster public confidence. First, N.J.S.A. 52:18A-83(b) provides that: "[n]o member of the State Investment Council shall hold any office, position or employment in any political party nor shall any such member benefit directly or indirectly from any transaction made by the Director of the Division of Investment provided for herein." Second, N.J.S.A. 52:18A-91(d) provides that: "[a]n external manager shall be required to file a certification before being retained, and annually thereafter, that discloses the political contributions made, during the 12 months preceding the certification, by the manager or the manager's firm, or a political committee in which the manager or firm was active." These two provisions help ensure that investments benefit the interests of investors and not the interests of the pension fund's managers.
Plaintiffs' position that access to the agreements is necessary to protect the interest of their union members and employees is further undermined by other statutorily guaranteed safeguards. First, N.J.S.A. 52:18A-91(b) requires the SIC to report at least once a year "to the Governor, the Legislature, and the State Treasurer
These provisions further enhance the public's confidence in, and the transparency of, the alternative investment program. Altogether, the above provisions represent the balance the legislature has established between plaintiffs' interest in oversight of the program and defendants' interest in keeping certain sensitive information confidential. The court hesitates to upset this balance through judicial fiat.
Moreover, plaintiffs, as members of the SIC, already are privy to information they claim to need to better understand the State's alternative investments. As Director Clark has certified:
Clearly, plaintiffs' substantial access to the files of the DOI, including the partnership agreements, satisfies their interest to gain information regarding the AIP.
Past experience in other states demonstrates that judicial interference with this balance can seriously compromise an alternative investment program. The State of California holds one of the largest public pension funds in the United States with reported assets for 2005 exceeding $450 billion. Desiring to increase the rate of return on those assets, California's Legislature authorized a program similar to New Jersey's AIP. After implementing the program, the State received and denied requests from the Coalition of the University Employees and the California First Amendment Coalition for disclosure of the partnership agreements that created California's alternative investments. The two parties filed separate complaints based on California's freedom of information law. The plaintiffs won their case. And the court ordered the disclosure of the agreements. See The Regents of the University of California Alternative Investments as of September 30, 2007, http://www.ucop. edu/treasurer/invinfo/pe_irr_907.pdf (last visited Dec. 14, 2010) ("on July 24, 2003, the Alameda County Superior Court ruled in the Coalition of University Employees, et at. v. The Regents of the University of California . . . order[ing] The Regents to disclose fund-level internal rates of return under the California Public Records Act. . . [including] fund-level performance information for the most recent period available."); see also Ann Grimes, CalPERS is Sued to Disclose Fees it Pays to Firms,
Subsequently, the most desirable, high-performing alternative investment funds refused to take on the State as a limited partner. Despite the benefit of taking on a partner with over $450 billion of assets, the funds' directors preferred to maintain the confidentiality of their investment agreements. To remedy the consequences of the court's decision in favor of disclosure, California's Legislature amended the CPRA to lure back the high-performing funds as partners. The amendments strike a delicate balance between a requesting party's interest in disclosure and the public's interest in keeping aspects of an alternative investment confidential. Under the changes, the name, address and vintage year of each alternative investment fund; how many public dollars are committed to an alternative investment fund over its lifespan; the total public dollars committed to all alternative investment funds; the yearly amount of cash distributions that the public pension fund receives from any alternative investment fund; the year-to-year amount of assets that the public fund has committed in a given alternative investment fund; certain measures of a fund's performance; the amount that the public fund pays in fees to the managers of the alternate investment fund; and the amount of profit the public fund receives from its investment, are disclosed. See California Public Records Act ("CPRA"), 2005 Cal. ALS 258; see also Cal. Gov.Code § 6254.26 (as amended in 2005 (SB 439)) (effective January 1, 2006).
Due diligence material; financial statements of the alternative investment fund; materials from meetings regarding the alternative investment fund; portfolio positions in which the alternative funds invest; capital call and distribution notices; and significantly, alternative investment agreements and all related documents, remain confidential. 2005 Cal. ALS 258 § 2.
California's experience supports defendants' position that court-ordered disclosure of the agreements would likely compromise the State's ability to take advantage of these lucrative investment vehicles. Moreover, experience in other states further bolsters defendants' position. For example, in Texas and Michigan, the Legislatures amended the statutes regarding pension funds for the respective State Universities to classify as confidential, information regarding the funds' portfolio and performance, which had previously been ordered disclosed to the public. See e.g., 2005 Mi. ALS 225 § 5 (as amended in 2005 (2005 Mi. HB 5047)). New Jersey need not repeat these mistakes through court-ordered disclosures of the requested records.
In conclusion, a balancing of the competing interests shows the public interest in confidentiality weighing more heavily, especially in light of other states' experiences with court-ordered disclosure, and plaintiffs do not have a common law right of access to the partnership or side letter agreements.
An in camera review by this court of all of the agreements establishes that the terms of the agreements are complex, and the practice in the industry is to maintain these as confidential and to not accept investments from entities that will not agree to do so or cannot honor such agreements. Moreover, each agreement contains investment strategies, investment parameters for fee structures and partners' rights that may differ markedly from Fund to Fund.
For the reasons set forth in this opinion, the complaint is dismissed as it relates to the nine documents. None of the parties addressed the imposition of a special fee in the briefs filed with the court or during oral argument. Therefore, this court lacks sufficient information to decide this issue.
Accordingly, the court will leave the record open for two weeks to provide the parties the opportunity to address the special fee issue. Absent any further filings with the court, the case will be dismissed in its entirety.
