Private companies performing government work should be subject to open records law

From the Fall 2002 issue of The News Media & The Law, page 33.

By Gil Shochat

With Memphis temperatures in the 90s, 22-month-old Darnecia Slater and two-year-old Brandon Mann had little chance of survival after being forgotten in two separate vans by day-care workers charged with supervising them. Mann’s body temperature measured 106.9 that day. Both children died of hyperthermia.

Yet when a Commercial Appeal reporter wanted to investigate the business dealings of the family services company that sent Mann and Slater to their day-care facilities, he was stonewalled by the organization that claimed it was not bound by public records laws even though it was hired by the state.

The child care facilities that were supposed to tend to Brandon and Darnecia were closed two days after their deaths. State officials called the centers “a danger to children” and labeled the toddlers “victims of noncompliance with the state’s child care standards.”

After years of legal battle, in a unanimous Sept. 5 decision, the Tennessee Supreme Court ruled that the private companies which perform functions once done by the state, must open their books and expose them to the light of public scrutiny.

Marc Perrusquia, a reporter with The (Memphis) Commercial Appeal, who had been investigating Cherokee Children and Family Services for more than three years, said he won a big battle with this decision.

“My investigations snowballed after the two children died in the day-care accidents,” Perrusquia said.

Memphis’ day-care system was a national model until the 1990s, when simultaneous changes to the state’s welfare and day-care programs led to a system plagued with problems.

Cherokee, a private company, was hired by the state to help poor families find subsidized child care.

“We looked into and investigated allegations that Cherokee was sending children to day cares owned by people who sat on the CCFS board and to day-care centers owned by state senator John Ford,” Perrusquia said. “We wanted to know how Cherokee was spending the millions of dollars that were being funneled to it by the state.”

Perrusquia wanted to find out what was behind a child care system that allowed two children to die of hyperthermia on that hot July day.

“As Cherokee seemed to enjoy extensive political support we also wanted to know who they were aligned with politically, and see if any money was being handed out to politicians,” he added.

Perrusquia continued to report on the alleged financial and political misdealings of Cherokee, but when he and The Commercial Appeal tried to get access to Cherokee’s internal financial records, they hit a wall.

The company claimed that it was not subject to Tennessee’s Public Records Act, even though 99 percent of Cherokee’s revenues came from the state and it performed a service that was previously performed by the government.

In its Sept. 5 decision, the Tennessee Supreme Court sided with The Commercial Appeal and Perrusquia’s right to access Cherokee’s financial records.

The court applied a “functional equivalency” approach to the case. It held “the public’s fundamental right to scrutinize the performance of public services and the expenditure of public funds should not be subverted by government or by a private entity merely because public duties have been delegated to an independent contractor.”

In his decision, Justice Adolpho Birch said: “When a private entity’s relationship with the government is so extensive that the entity serves as the functional equivalent of a governmental agency, the accountability created by public oversight should be preserved.”

The court held that companies’ records must be kept public depending on the extent that an entity performs a governmental function, the level of government funding it receives, the government’s control over the company and whether the government created the company through the legislature.

In recent years, governments at all levels have increased the privatization of public services. Prisons, road construction, job training and garbage collection are just a handful of services that governments around the country have handed over to private companies.

As governments continue to have difficult financial times, they increasingly contract out their services to private companies as a cost saving measure.

The entities running these services repeatedly claim that they are not subject to government open records laws because they are not government bodies.

According to one report by The Hartford Courant, “reporters in Newton County, Texas, said the new private managers of county jails had issued a new rule: ‘No media contact with our prisoners.'” In Florida, private veterinarians tried to keep rabies vaccination records private.

State courts have ruled in often divergent ways on this issue, but most states back access, according to a 2000 study by the Florida State University Law Review and more recent court decisions.

Of the 34 states that have dealt with this issue either judicially or legislatively, more than 20 have opted for an approach that favors access to records held by private companies while 11 have adopted a more restrictive attitude.

North Carolina, Oregon, Kansas and Florida have used approaches similar to Tennessee’s “functional equivalency.”

Florida’s courts have made interesting decisions in allowing public access to private companies’ records. In one case, the Florida Supreme Court listed nine factors it would examine when deciding whether a private corporation is “acting on behalf of any public agency” under that state’s public records law. (News and Sun-Sentinel Co. v. Schwab, Twitty and Hander Architectural Group, Inc.)

The extent of government regulation, whether a government function is performed and for whose benefit the private entity is functioning are just some of the factors the court examined.

The Tennessee Supreme Court chose to ignore the various restrictive approaches in favor of the access-friendly functional equivalency, suggesting that this approach has become more influential.

Reinforcing the trend towards greater openness, California recently passed a law defining “local agency” whose records are subject to public access law as not just non-profit but private corporations that were created by the legislature as well.

Other states, including Ohio, New York, Georgia, California, Louisiana and Kentucky, have adopted standards that focus more on whether a private company performs a public function, rather than the specific characteristics of the private company.

In an Ohio decision, the Ohio Supreme Court said a private consulting company hired by the city of Cincinnati to choose a safety director, had to release the names of job candidates. Even though the company declared the list a trade secret, the court held that, if a company carries out a public function, its records are subject to release. (State ex rel. Gannett Satellite Info. Network v. Shirey)

Despite the fact that the majority of states have adopted a fairly liberal approach to openness of state records, 11 states still restrict access to information held by private state contractors. Courts in Arkansas, Michigan, Texas, North Dakota, Indiana and South Carolina have said that documents held by private companies will be subject to open records laws only if these companies receive sufficient public funds from the government.

This has meant that in some states, companies that receive a small amount of revenue from services rendered to the state will be forced to open their books. In other states, companies must receive a majority of their funding from the government to be subject to freedom of information laws.

Courts in other states, such as Pennsylvania and New Jersey, have held that private companies need to reveal their records only if they were formed under a state statute or in some way determined by the state to be subject to open access laws.

“We are thrilled by this unanimous Supreme Court decision that is so access-friendly,” said Lucian Pera, attorney for The Commercial Appeal.

“If you earn money from the government, it has a right to know how you spent that money in performing that government function. But once you’ve earned this money, the government has no right to trace how you spend it. If you want to spend it to support the KKK, it should be nobody’s business but your own,” said Allan Wade, Cherokee’s attorney.

Wade said he plans to appeal the decision to the U.S. Supreme Court.

In the meantime, Perrusquia has been poring over the boxes of records from Cherokee that he fought for years to see, to the point that he jokingly admits: “I’ve been neglecting my family.”

He promises a series of stories in coming weeks about Cherokee’s finances and political connections based on his newly acquired documents.

But Perrusquia warns that even though the Supreme Court decision was “revolutionary, it will take time to change the culture. It won’t happen overnight.”