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Private Entity Subject to Public Records Act Only If ‘Functional Equivalent’ of Public Agency

2005-1505. State ex rel. Oriana House, Inc. v. Montgomery, 2006-Ohio-4854.
Franklin App. Nos. 04AP-492 and 04AP-504, 2005-Ohio-3377. Judgment reversed.
Pfeifer, Lundberg Stratton, O'Donnell and Lanzinger, JJ., concur.
Moyer, C.J., Resnick and O'Connor, JJ., dissent.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2006/2006-Ohio-4854.pdf

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(Oct. 4, 2006) The Supreme Court of Ohio ruled today that private entities are not subject to provisions of the Ohio Public Records Act (R.C. 149.43) absent a showing by clear and convincing evidence that the private entity is the “functional equivalent” of a public office. The Court's 4-3 decision, written by Justice Paul E. Pfeifer, set forth a four-part test to determine whether a private entity is the functional equivalent of a public office, and applied that test to determine that Oriana House, a private, non-profit corporation that operates Summit County's community-based corrections program, is not subject to R.C. 149.43.

Today's ruling reversed a decision of the 10th District Court of Appeals in which that court had granted a writ of mandamus requested by the state auditor compelling Oriana House to provide access to certain corporate documents, including personnel files and financial records that were sought by the auditor under the public records act.

Since 1981, Ohio counties with populations of more than 200,000 have been authorized by the legislature to establish “community-based correctional facilities” (CBCFs) and operate correctional programs that give local courts criminal sentencing alternatives other than confining offenders in a state prison or county jail. (e.g., “halfway houses” and job-training programs for discharged prisoners, local treatment facilities for non-violent offenders with substance abuse problems, etc.).

Participating counties obtain funding for these programs from the state through grants administered by the Ohio Department of Rehabilitation and Corrections (ODRC). In Summit County, the local judicial corrections board allocates all of the county's annual ODRC grant money to fund a contract with Oriana House, which manages the day-to-day operations of the Summit County CBCF and all of the county's community based correction programs.

In the course of auditing the Summit County CBCF program, State Auditor Betty Montgomery's office indicated its intention to also perform a “special audit” of Oriana House. In connection with that audit, Montgomery indicated her intent to investigate transactions between Oriana House and two of its wholly owned subsidiaries, Correctional Health Services and Oriana Services, and to audit personnel records and financial activities of Oriana House employees including CEO James Lawrence.

Oriana House refused to allow the auditor to access certain corporate documents and financial data, including personnel and fiscal records of Lawrence and other Oriana House employees, or to examine corporate records of Oriana's subsidiary companies that are not parties to the CBCF contract. The auditor's office subsequently issued administrative subpoenas demanding production of the disputed records, and also sought a writ of mandamus from the 10th District Court of Appeals ordering Oriana House to provide copies of the documents under the state public records act. Oriana House responded by seeking a court injunction quashing the subpoenas, and by opposing the auditor's mandamus action on the basis that the disputed documents are not subject to mandatory disclosure under the public records act because Oriana House is not a “public office.”

The court of appeals granted the auditor a writ of mandamus ordering Oriana House to comply with her demands to examine company financial records and personnel files. The 10th District agreed with the auditor's arguments that the operation of correctional facilities and programs is a “traditional governmental function,” and that even though Oriana House is a private contractor, the funds it used to operate the Summit County CBCF were “public funds” Based on those findings, the 10th District held that Oriana House is a “public office” as that term is defined in the public records act, and therefore must disclose financial records and other documents sought by the auditor under R.C. 149.43. Oriana House exercised its right to appeal the 10th District's ruling to the Supreme Court.

In today's majority opinion, Justice Pfeifer noted that, in the absence of a precise legislative definition of what constitutes a public agency or public office for purposes of public records acts, other states and federal courts have adopted a “functional equivalency test” for determining when a private contractor that performs a governmental function and is supported by tax dollars functions as a public office and therefore falls under the disclosure requirements of public records acts.

Noting that this Court applied several criteria included in other states' functional-equivalency tests when it decided State ex rel. Fox v. Cuyahoga Cty. Hospital System in 1988, Justice Pfeifer wrote that “Until today, we have not expressly adopted a functional-equivalency test to determine whether an entity is a public institution and thus a public office subject to R.C. 149.43. But we have considered factors similar to the factors in the functional-equivalency test in making the determination. Because the functional-equivalency test is consistent with the persuasive authority from federal and state courts and comports with the test that this court created in Fox, we adopt it. Thus, we hold that in determining whether a private entity is a public institution under R.C. 149.011(A) and thus a public office for purposes of the Public Records Act, R.C. 149.43, a court shall apply the functional-equivalency test,” wrote Justice Pfeifer.

Under this test, Pfeifer wrote, “the court must analyze all pertinent factors, including (1) whether the entity performs a governmental function, (2) the level of government funding, (3) the extent of government involvement or regulation, and (4) whether the entity was created by the government or to avoid the requirements of the Public Records Act. We further hold that the functional-equivalency analysis begins with the presumption that private entities are not subject to the Public Records Act absent a showing by clear and convincing evidence that the private entity is the functional equivalent of a public office.”

In applying the test elements to State Auditor Montgomery's demands for disclosure by Oriana House, the majority found that administration of correctional programs was an “historically governmental function” and that Summit County's application of 100 percent of its annual ODRC grants to Oriana House constituted “significant government funding,” meeting the first two prongs of the functional equivalency test. In assessing the other two criteria however, Justice Pfeifer wrote that there was “no evidence here that any government entity controls the day-to-day operations of Oriana House,” and that “nothing in the record indicates that Oriana House, which was incorporated prior to the creation of CBCFs, was created as the alter ego of a governmental agency to avoid the requirements of the Public Records Act.”

Even construing R.C. 149.43 liberally in favor of broad access to records, Justice Pfeifer noted that two of the elements of the functional-equivalency test were “fully in favor” of Oriana House, and wrote: “(W)e conclude that there is not clear and convincing evidence that Oriana House is a public institution and thus a public office subject to the Public Records Act. … It ought to be difficult for someone to compel a private entity to adhere to the dictates of the Public Records Act, which was designed by the General Assembly to allow public scrutiny of public offices, not of all entities that receive funds that at one time were controlled by the government.”

The majority opinion was joined by Justices Evelyn Lundberg Stratton, Terrence O'Donnell and Judith Ann Lanzinger.

Chief Justice Thomas J. Moyer entered a dissenting opinion that was joined by Justices Alice Robie Resnick and Maureen O'Connor. The Chief Justice indicated that he did not disagree with the majority's fashioning of a functional-equivalency test to determine when private entities function as government agencies, but said the majority had failed to provide litigants and courts with any guidance “as to the appropriate balancing of the different factors,” and wrote that he “strongly disagree(d)” with the majority's conclusion that application of the test criteria required reversal of the court of appeals judgment.

With regard to the third prong of the test, addressing governmental control, Moyer wrote that the lack of control exerted over Oriana House by the Summit County Judicial Corrections Board meant that “Oriana House essentially acted as the Summit County CBCF.” He pointed out that Oriana House president Lawrence served simultaneously as CEO of a private “contractor” providing services to the county and as director of the county's community-based corrections facility board, in which role he prepared and signed the county's state grant applications and subsequently passed on those grant funds through contracts with his own company.

Similarly, the Chief Justice noted that while Oriana House was a private entity not created as or by a government agency, he would assign little or no weight to that test factor because the “private entity” in question received virtually all of its revenues from government sources, and was formed for the express purpose of providing corrections services that are unquestionably a governmental function. He concluded that, “(i)f we balance the four factors of the functional-equivalency test, the evidence establishes that Oriana House is a public institution and, thus, is subject to the Public Records Act. … given our duty to resolve any doubts regarding the public status of an entity so as to find it subject to R.C. 149.43, Oriana House acts as the functional equivalent of a public office.”

Orla E. Collier III, 614.223.9300, for Oriana House, Inc.

Mark Landes, 614.221.2121, for the Auditor of State.