State ex rel. The Plain Dealer v. Ohio Dept. of Ins.

• Decision Date: 05 December 1997
• Docket Number: No. 96-2247,96-2247
• Citation: 80 Ohio St.3d 513,687 N.E.2d 661
• Parties: The STATE ex rel. THE PLAIN DEALER et al. v. OHIO DEPT. OF INSURANCE et al.
• Court: Ohio Supreme Court

Page 513

80 Ohio St.3d 513

687 N.E.2d 661

The STATE ex rel. THE PLAIN DEALER et al. v. OHIO DEPT. OF INSURANCE et al.

No. 96-2247.

Supreme Court of Ohio.

Submitted May 20, 1997.

Decided Dec. 5, 1997.

R.C. 3901.321 requires the Ohio Department of Insurance ("Department") to conduct a review of any proposed transaction by which a domestic insurer is purchased by a company not domiciled in Ohio. Pursuant to the statute, the Department may request documents from both companies to ascertain their respective financial conditions. Additionally, the Department must conduct a public hearing under R.C. 3901.321(F)(1) as part of the review process prior to approving any merger or other acquisition of control of a domestic insurer. There are no provisions in this statute for confidentiality of documents submitted as part of this process. Documents obtained during the review are made available to the public to allow policyholders of the company being purchased the opportunity to challenge transactions that could adversely affect their policies.

Under another section of the Ohio Revised Code, R.C. 3901.07, the Department is empowered to conduct an "examination," at least triennially, of all insurance companies authorized to do business in Ohio. These examinations monitor the economic health of Ohio insurers, as well as identify potential problems, in order that the Department can work with insurers to correct them. The requirement for a triennial examination has no relation to the review procedure required by R.C. 3901.321. Written requests for documents and documents submitted by the insurers in accordance with this process are known as "work papers" and are protected from public disclosure under R.C. 3901.48.

In March 1996, Blue Cross/Blue Shield of Ohio ("Blue Cross") announced a sale of a large portion of its assets to Columbia/HCA Health Care Corporation ("Columbia"), a Tennessee corporation. On April 10, 1996, representatives of Blue Cross and officials of the Department met to discuss the pending transaction. During that meeting, Blue Cross and Department officials discussed the potential public availability of documents that might be submitted to the Department, pursuant to the Public Records Act of Ohio, R.C. 149.43. At least one Department official indicated at that meeting that public disclosure of documents was a strong possibility, and that "[t]he Department should disclose as many documents as possible to the public * * * including, initially, the disclosure memoranda."

On May 9, 1996, pursuant to administrative regulations of the Department and R.C. 3901.321, Integrated Health Corporation ("Integrated"), a wholly owned subsidiary of Columbia, filed a Form A with the Department. The Form A is filed as part of the review process under R.C. 3901.321 by which the Department determines whether to approve the transaction. It is a statement by the acquiring insurer containing information relating to the acquisition of the domestic insurer. It contains information about the acquiring insurer, including its name, background, information about individuals associated with the insurer, and the insurer's future plans with regard to the acquisition. Form A also discusses the method of acquisition, including the voting securities to be acquired as part of the transaction and their ownership.

Integrated's filing also included a copy of the principal purchase agreement between Columbia and Blue Cross. Many of the terms of the principal agreement are conditioned upon compliance with, limited by, or defined by reference to the Disclosure Memoranda ("Memoranda") of Columbia and Blue Cross. The Memoranda, which are documents containing financial, organizational, regulatory, contractual, and other information of both companies, were not filed as part of the Form A. Department officials concede that any review of the proposed sale could not be completed without the Memoranda.

During this process, the Department determined that the size and complexity of this transaction warranted an examination of Blue Cross under R.C. 3901.07. Although Blue Cross was not scheduled for an examination until later in the year, the Department considered the results of an examination to be a key factor in conducting the review of the proposed purchase of Blue Cross by Columbia. Accordingly, personnel from the Department, separate from those conducting the review pursuant to R.C. 3901.321, began an examination pursuant to R.C. 3901.07. This unusual simultaneous review and examination process came to be known as the "dual-track." As documents from Blue Cross arrived at the Department, Department officials would determine the "track" on which each document could best be used. This process resulted in documents being classified by the track on which they were directed rather than the process for which they were originally requested.

While conducting an investigation of this transaction, a reporter for the relator, The Plain Dealer, informed the Department that the Memoranda were not in the Form A file. The Department then sent three letters to Blue Cross between June 27, 1996 and August 22, 1996, requesting information to supplement the Form A filing. The first letter, dated June 27, 1996, requested that various information, including the Disclosure Memorandum of Blue Cross, be submitted to supplement the Form A filing. This letter discussed the public nature of any documents submitted and stated that Blue Cross could possibly obtain confidentiality for any documents submitted by requesting confidentiality and providing a legal basis therefor. Blue Cross was further directed to submit redacted and unredacted copies of each document for which confidential treatment was requested. The letter expressly reserved to the Department the right to determine the confidentiality of any document submitted by stating, "Each request for confidential treatment will be evaluated and a determination will be made as to whether any is excepted from public disclosure separately. If any document or part of a document is found not to meet an exception it will be made part of the Department's public files and handled accordingly."

The second letter, dated July 1, 1996, requested further information regarding the Form A filing. This letter requested minutes of board of trustees' meetings, documents relating to the noncompetition agreements filed as part of the proposed transaction, and other items related to the transaction. This letter did not indicate whether the material submitted pursuant to its request would be considered by the Department as confidential.

The final letter, dated August 22, 1996, discussed the responses of Blue Cross to the first two letters. The letter first commented that the Department had not yet received copies of the Memoranda in complete form, indicating that the submission by Blue Cross of indexes of the Memoranda in a response dated August 12, 1996 was inadequate. For the first time in any of the letters, the Department indicated that the Memoranda would be treated as confidential work papers under R.C. 3901.48, pursuant to the examination of Blue Cross under R.C. 3901.07. The Department made this determination even though the Memoranda were originally requested because they were needed to complete the Form A filing as part of the review process under R.C. 3901.321, for which there are no statutory provisions authorizing the Department to grant confidential status to documents filed pursuant to a review. In making this decision, the Department deviated from its practice of receiving the requested documents and then determining their confidential status, as stated in its June 27, 1996 letter and as subsequently followed in its response to Blue Cross on July 23, 1996 that certain documents received on July 15, 1996 would not be granted confidential status pursuant to R.C. 3901.48.

Despite the practice of the Department to treat all correspondence related to any ongoing examination under R.C. 3901.07 as confidential work papers pursuant to R.C. 3901.48, and therefore never to make any of that correspondence public, the Department placed the August 22, 1996 letter, along with all previous letters, in the public file consistent with its treatment of correspondence relating to a review under R.C. 3901.321.

The second part of the August 22, 1996 letter discussed the previous responses of Blue Cross to the earlier two letters. This portion of the letter discussed claims by Blue Cross that its responses were confidential because the material contained within those responses constituted trade secrets. The Department has no formalized regulations for determining the legitimacy of a trade secret claim. Rather, its stated practice is to allow insurers to claim that documents contain trade secrets, and at least one Department official indicated that the Department generally accepted an insurer's claim of trade secret status.

In this part of the August 22, 1996 letter, the Department did not accept the claims of trade secret protection as to the letters of Blue Cross dated July 15, July 19, July 30, and July 31, 1996. However, the Department did state that it would accord trade secret status, pursuant to R.C. 1333.51, to the attachments to the letters of Blue Cross dated July 30 and July 31, 1996 and for the entire response of Blue Cross dated August 12, 1996. The Department therefore kept those documents confidential. The attachments to the July 30 letter contained correspondence regarding the principal agreement, correspondence about and drafts of consulting and noncompetition agreements to be executed with various Blue Cross officials, pro forma balance sheets of Blue Cross, and income statements of Blue Cross. Attached to the July 31 letter were additional drafts of the consulting and noncompetition agreements, biographical information on board members, and an audit report. The August 12, 1996 response of Blue Cross enclosed indexes...