Texas Supreme Court ruling helps bar the door to public release of company records

By Dug Begley
Houston Chronicle
Originally published May 3, 2016

A Texas Supreme Court decision last year that one open records advocate said “blew a hole in the Texas Public Information Act” has been used in the past few months to shield records ranging from Uber’s driver information in Houston to how much singer Enrique Iglesias was paid for a McAllen Christmas concert.

The 7-1 decision, in the Boeing v. Paxton case, was issued on June 19. In it, the justices decided businesses can assert in Texas that information they turn over to a government agency that could give competitors an advantage can be withheld from public review. Lowering the standard for claiming a competitive advantage worries public access advocates and some lawmakers because of its potential for abuse. Companies can claim a long list of details they provide to public agencies are secret because they could give someone in their industry a leg up.

“We are just now starting to see the effects of it and it does widely expand this claim of competitive advantage,” said Kelley Shannon, executive director of the Freedom of Information Foundation of Texas.

In the Houston area, Uber has used the ruling as a key lever to keep information about its operations in the city secret. The ride-hailing company, which connects willing drivers and interested riders via smartphone, has fought efforts to make the number of its drivers and financial data that’s submitted to the city outside public review.

In addition to watching the courts and attorney general’s office, Shannon said the foundation and others are looking at a possible intervention next year in the Texas Legislature for some of the open records issues the Boeing ruling has created.

This case has its roots in 2005 when Boeing objected to public disclosure regarding a bid to lease property at the Port of San Antonio. The airplane builder argued making the bid publicly available put it at a competitive disadvantage, because adversaries could examine the bid to see Boeing’s pricing strategy.

In upholding Boeing’s right to keep the information secret, the state’s high court lowered the standard for making a competitive advantage claim, something the Attorney General’s Office – tasked with defending public records challenges – opposed, saying the company didn’t sufficiently show enough proof that releasing the information would give a competitor an advantage.

The court disagreed, restructuring what is and is not publicly available based on the company’s claim that it could give a competitor an edge.

“The test… is whether knowing another bidder’s overhead costs would be an advantage, not whether it would be a decisive advantage,” the majority of justices wrote in their opinion.

Dissenting Justice Jeffrey Boyd agreed with the attorney general’s office, saying Boeing didn’t do enough to prove a business advantage if the information went public.

“The court opened the floodgates on this one,” said Austin lawyer Bill Cobb, a former state deputy attorney general under now-Gov. Greg Abbott. “Open government people realize there are some things business should protect, but there is clear direction and standard on what you have to do to prove that. (The Boeing decision) blew a hole in the Texas Public Information Act.”

Previously, Cobb and others said, corporate information that was obviously proprietary was protected, but companies wishing to keep other information secret relied on government agencies to determine what was and was not available, and faced a higher standard for proving something would provide a competitive advantage. That would have allowed release of certain things, such as speaking fees and even health department records that could – under the new standard – be off-limits.

Application of the Boeing decision in public records requests started to occur in late 2015.

One of the most divisive public records battles statewide is occurring in McAllen, where a number of media companies have challenged the city’s right to keep private the details of its contract with Iglesias, who performed Dec. 5 prior to the city’s annual holiday parade.

On March 10, the attorney general’s office, citing the city’s use of Boeing to bolster its case to keep the contract information private, agreed McAllen didn’t have to disclose the details. Iglesias’ management, Creative Artists Agency, also opposed releasing the contract details.

The issue and lack of releasing the contract details drew the attention of Rep. Terry Canales, D-Edinburg. Curtis Smith, Canales’ chief of staff, said the office is considering options for legislation in the 2017 legislative session. The question is whether to deal with the narrow issue of city contracts for entertainment, or other fears of how broadly the Boeing ruling can be used to shield information from public view.

“We think it is a big issue and we see the concerns it really raised for freedom of information in Texas,” Smith said.

For example, in Houston, a number of requests for information related to how many licenses the city has issued to drivers for transportation companies such as Uber – including requests made by the Chronicle – were denied, citing the Boeing ruling. In April, three cases were settled by the attorney general’s office related to what Uber turns over to Houston officials.

“I don’t blame the AG’s office quite honestly,” Cobb said. “It is a large new exception, and they are just applying it.”

The likely outcome, Cobb said, is subsequent legal challenges will eventually circle back to the state Supreme Court, and find a balance.

“It is built into the system and will correct itself,” he said, noting there are clearly some limits to what information companies have to make publicly available. “I think the government can know what is in Coke’s secret formula, but if Pepsi submits a public records request that would be a competitive advantage.”

Not all claims companies make using the Boeing precedent have prevailed, however. Chesapeake Energy fought to keep its settlement with the Fort Worth school district secret, citing Boeing. The information, related to a $1 million settlement with the school district over natural gas royalties, would allow other people who have sued the company to compare settlement details, the company claimed.

The attorney general’s office said last month the Boeing case did not apply to Chespeake’s claim because they didn’t detail how a competitor would gain an advantage.

Just as Coke’s formula and KFC’s 11 herbs and spices it uses making its chicken are company secrets, Uber closely guards any details of its inner workings, citing the incredibly competitive nature of the burgeoning ride-hailing industry. In Texas, that has meant even public details of the company’s entry have been off-limits. Houston, which regulates the company and requires fingerprint-based background checks of its drivers, is barred by a court injunction from saying how many licenses it has issued to drivers. Identities of the individual drivers who are contractors with Uber are also off-limits.

In applying the Boeing case, lawyers for the company said knowing how many licenses Houston has issued would allow someone to “reverse engineer” how many drivers Uber could have by subtracting how many their competitors reported. In Houston, Uber has two competitors, in addition to local cab companies that also have apps for customers to book rides.

The assumption, held by city officials and rivals, is Uber far exceeds its competitors in terms of the number of the drivers locally because many of them work part time. In its only public release of a broad number, required as part of an investigative matter and listed on the company’s transparency report available online, Uber reported 14,000 drivers were affected when an undisclosed six-month period of the company’s operations in the Houston region since November 2014 were examined. The number, however, reflects only a total number of drivers that completed a single trip, and doesn’t reflect current operations.

Houston caps cabs at 2,505 permits, and the number of limos and shuttles in the city is relatively small. The city has no limit on the number of Uber drivers allowed.

Uber, meanwhile, continues to balk at city regulations requiring fingerprint background checks. Last month, Uber sent a letter to Houston officials that said without changes the company would cease operations in Houston. Part of the reason, officials said, was the requirement for a driver’s fingerprint was affecting operations.

“The prior Houston City Council’s decision to adopt … regulations that are vastly different than the rules introduced in other cities and states is greatly hindering our ability to improve transportation like we’ve seen in other cities,” said Sarfraz Maredia, general manager for Uber in Houston, in a letter to council members.

In a rebuke, Mayor Sylvester Turner chastised Uber for saying its business was hurting and then preventing the city from releasing the data that shows just how successfully it has been in Houston.

“They are forcing us to be quiet, and then release the letter and say they are being hurt by the regulatory requirements,” Turner said.