RECORDS IN UNIVERSITY FUNDRAISING: PUBLIC OR PRIVATE?

By Brent R. Appel

Brent R. Appel is a member of the Des Moines, Iowa, law firm of Wandro, Baer, Appel, and Casper, P.C.

In Gannon v. Board of Regents, No. 131/03–1658, 2005 WL 263892 (Iowa Feb. 4, 2005), the Iowa Supreme Court weighed in on the issue of whether records held by a private fundraising foundation that raised funds for Iowa State University were subject to disclosure under Iowa’s Public Records Act. The district court held that the records were not subject to disclosure. A unanimous Iowa Supreme Court reversed, holding that because the foundation exercised governmental functions, the Iowa public records law required disclosure of the records. The purpose of this article is to explore the contours of the Iowa Supreme Court’s holding and its implications for public records litigation.

Factual Background

The lawsuit grew out of a controversy concerning the gift of a farm to Iowa State University (ISU) in 1995 by Marie Powers. According to the Des Moines Register, Powers asked that the land be preserved in memory of her husband who had long-standing ties to the school. After Powers death, however, the farm was sold and proceeds were used to fund various campus projects. The sale of the farm provoked considerable campus controversy and led to an admission by the president of ISU that the matter had been mishandled. The president further announced a university-wide review of endowment accounts, which led to further disclosures that $209,939 from the operation of a 285-acre farm donated to the school by Jessie Coles had been misspent over ten years. These revelations prompted the open records lawsuit. See Frank Santiago, Misuse of Gifts Prompted Lawsuit to Open Records, DES MOINES REG., Feb. 28, 2005, at 4A.

In Gannon, the plaintiffs challenged a refusal by the Iowa State University Foundation (“the Foundation”) to produce a wide variety of documents that plaintiffs claimed were “public records” under the Iowa Freedom of Information Act. See IOWA CODE ch. 22 (2005). As stated in the most recent Articles of Incorporation, the purpose of the Foundation was “to promote the welfare of ISU faculty, students, and alumni and to identify, cultivate, and solicit donors for the exclusive benefit of ISU.” See Gannon, 2005 WL 263892, at *2. The Foundation would “accept, hold, administer, invest, and disperse for educational and scientific purposes gifts, grants, bequests, and devises . . . exclusively for the benefit of [ISU].” Id. Upon dissolution, the Foundation’s assets were to be transferred to an organization whose objects and purposes are the same as its own. Id.

The Foundation’s Board of Directors was divided into four classes. The first class consisted of three members, the president of ISU and two other members affiliated with ISU. The Board of Directors delegated the responsibility of whether to accept gifts to a Gift Acceptance Committee. One member of the committee was an ISU faculty representative chosen in consultation with the ISU Faculty Senate. The Foundation required that gifts of “significant risk” (e.g., gifts of real property) be documented with a “written understanding” between the donor, the Foundation, and ISU before the Foundation would accept them. See id. at *3.

Historically, the Foundation was staffed with ISU employees and located on the ISU campus. See id. In October 2001, however, it appeared that the relationship was altered so that ISU would ”lease” its employees to the Foundation until the Foundation could arrange its own financial compensation package for them. Id. At the time of the litigation, the Foundation employed eighty-five full-time employees and 150 part-time employees. Id.

In 2002, ISU and the Foundation executed a service agreement. According to the terms of the agreement, ISU desired to engage the expertise of the Foundation related to fundraising, development, accounting, and investment management as a independent contractor. In 2002, ISU paid the Foundation $750,000 annually for the services. See id.

The Foundation managed two types of funds. The first type involved funds donated to ISU that ISU then transferred to the Foundation, while the second category consisted of funds donated directly to the Foundation for ISU’s benefit. The Foundation invested the funds according to established policy. As of 2002, the Foundation retained $234 million in private endowment funds. In the years 2001 to 2002, the Foundation provided $38.9 million to ISU in support of university operations. See id.

The Foundation and the university engaged in considerable exchange of information. The president of the Foundation is required to report each year to ISU detailing past and contemplated activities to be performed on ISU’s behalf. ISU, in turn, made available to the Foundation information, including private data files on graduates, students, employees, and retirees of the university. See id. at *4.

The petitioners in Gannon sought disclosure of financial records of the Iowa State University Foundation that raised funds for Iowa State University. The petitioner’s list of requested items was extensive, including, for a seven-year time period: (1) all the Foundation’s tax returns, (2) its audited financial statements, (3) reports of the Foundation’s activities submitted to the Board of Regents, (4) its chart of financial accounts, (5) unaudited trial balances, (6) a register containing the abstract of investments of endowed and non-endowed funds committed to the Foundation’s custody by the Board of Regents or its delegates, (7) documentation relating to the acceptance and administration of trusts submitted to the Foundation by the board, (8) documents showing the distribution of funds to ISU or its affiliates, (9) a listing of all contributions to the Foundation in excess of $25,000 together with documentation on the restrictions on contributions, (10) a list of all perquisites provided to ISU employees paid for with Foundation funds, (11) minutes of all meetings of the Foundation’s Board of Directors and Board of Governors, “including reports. . . . containing budgets, identification of uses of funds derived from Foundation funds for [ISU] projects and activities and investment results,” and (12) all correspondence related to the use of funds controlled by the ISU Foundation. See id. at *1, note 2.

Legal Analysis

Beginning in the 1960s, nearly all states enacted sunshine or public records statutes designed to make the conduct of government business more transparent. A recurring issue in public records litigation has been to what extent records in the hands of private parties may, nonetheless, be subject to disclosure under public records statutes.

For records in the hands of ostensibly private foundations that are engaged in fundraising for a public university, the case law has over time tended to favor disclosure under applicable state public record statutes. See generally S. Geevarghese, Looking Behind the Foundation Veil: University Foundations and Open Records Laws, 25 J. L. & EDUC. 219 (1996). Cases from Kentucky and West Virginia in 1980 and 1989 held that documents in the hands of private fundraising foundations were not subject to disclosure. See Courier-Journal & Louisville Times Co. v. University of Louisville Bd. of Trustees, 596 S.W.2d 374, 379 (Ky. Ct. App. 1980); 4-H Road Community Ass’n v. West Virginia University Found., 388 S.E.2d 308 (W. Va. 1989). More recent cases, however, have tended to favor disclosure. See Geevarghese, supra; Weston v. Carolina Research and Dev. Found., 401 S.E.2d 161 (La. Ct. App. 1991); Frankfort Publishing Co. v. Kentucky State University Found., 834 S.W.2d 681 (Ky. 1992); State ex rel. Toledo Blade Co. v. University of Toledo Found., 602 N.E.2d 1159 (Ohio 1992).

In cases that hold that the documents in the hand of fundraising foundations are public records, the analysis is usually either that the private foundations are “public bodies” under the applicable public records acts or are performing “public functions” that subject documents in their custody and control to disclosure. The Iowa Freedom of Information Act expressly provides that “a government body shall not prevent the examination or copying of a public record by contracting with a nongovernment body to perform any of its duties or functions.” See IOWA CODE § 22.2(2).

In Gannon, the court held that the Foundation was performing a public function. See Gannon, 2005 WL 263892, at *8. The Iowa Supreme Court found that the public functions of ISU are not narrowly defined by explicit statutory grants of authority. Instead, the Iowa Supreme Court held that activities that “advance the institutional goals” of an institution amount to public functions. Id. The court noted that “[s]uccessful fundraising and management is a very important, if not vital, function of the modern university and an integral part of its continuing viability.” Id. The court held that such vital functions could not be delegated to a private foundation to escape application of the Iowa Freedom of Information Act.

In construing the provision of Iowa law prohibiting the contracting of public functions to nongovernmental bodies to prevent examination of records, the Iowa Supreme Court rejected the position advanced by the Foundation that a showing of subjective intent to evade disclosure was required before disclosure could be ordered by the courts. See id. at *9. According to the court, a requirement of finding “subjective intent” would be unworkable and would result in unreasonable or absurd consequences. Id. at *10. Although stopping short of declaring that all records in the hands of nongovernmental bodies that exercise governmental duties or functions are subject to disclosure, the court noted that in this case, “there is an elaborate contractual arrangement between the government body and a private organization, through which the private organization and government enjoy a highly interwoven and symbiotic relationship.” Id. at *9.

The Gannon court left open the possibility that ISU might be able to demonstrate that some of the requested documents could be protected as “confidential” under specific exceptions to the Iowa Freedom of Information Act. See id. at *1. For example, under Iowa law, there are several dozen categories of documents that are exempt from disclosure. See IOWA CODE ch. 22.7. In addition, a government body may seek to restrain examination of otherwise public records by showing that examination would clearly not be in the public interest and that examination would cause substantial and irreparable harm to a person or persons. See IOWA CODE § 22.8. In Iowa, as elsewhere, however, the party seeking to invoke the exception carries the burden of proof. The case law from other states suggests that attempts to shield foundation records from disclosure based upon specific exemptions to public records statutes may be an uphill proposition. See, e.g., Toledo Blade, 602 N.E.2d at 1159 (rejecting application of trade secret and privacy exceptions to names of donors).

The Iowa Supreme Court also sought to distinguish the case from cases in which a government agency enters into a contract with a private entity but there is no ongoing symbiotic relationship. For instance, in KMEG Television, Inc. v. Iowa State Board of Regents, 440 N.W.2d 382 (Iowa 1989), the Iowa Supreme Court held that when the University of Iowa sold its rights to broadcast athletic events for a fixed sum to a private contractor and the university had no continuing relationship or interest, records in the hands of the private contractor were not subject to disclosure. Yet, it will remain to be seen what effect the Gannon decision will have on privatization cases in which the public entity maintains an ongoing interest in the performance of the contract or when the underlying mission is closer to the core function of a government entity. See Craig D. Feiser, Protecting the Public’s Right to Know: The Debate over Privatization and Access to Government Information Under State Law, 27 FLA. ST. U. L. REV. 825 (2000).

Conclusion

Gannon v. Board of Regents is the latest judicial pronouncement regarding the applicability of state public records acts to private foundations that raise funds for public universities. Although the outcome in any particular case will depend upon the specific language of state statutes and upon the facts before the court as noted by previous commentators, the result in Gannon demonstrates a growing judicial reluctance to allow the activities of private fundraising foundations that benefit public institutions to escape public scrutiny.