A state appellate court today (Dec. 19) overturned a lower court ruling that would have required the University of California to "make an objectively reasonable effort" to obtain and then turn over to the Reuters news agency confidential financial documents from two venture capital firms.
The Court of Appeal ruling, which reversed a judgment by the Alameda County Superior Court, was a complete vindication of the university's position. UC argued that Reuters' request went far beyond the scope of the California Public Records Act by attempting to reach through the university to obtain confidential documents held by the private equity firms Sequoia Capital and Kleiner Perkins Caulfield & Byers. The university holds a number of investments with these firms dating back several decades.

The appellate court said the firms' information — which the university has never seen or used — was not "public records" under the law, which does not require state agencies to obtain information they have not otherwise prepared, owned, used or retained.

"The university believes in, and vigorously upholds, the public's right to know as defined by the California Public Records Act," said UC General Counsel Charles Robinson. "We believe today's decision by the Court of Appeal is the correct one. It will allow our investment professionals to make and monitor private equity investments without intrusion from third parties seeking confidential and sensitive information for their own commercial ends."

The university had argued that if the lower court ruling were allowed to stand it would have established a precedent that would have placed an impossible burden and expense on public agencies.

Following a 2003 court decision ordering the university to disclose individual fund-level performance data already in its possession, Sequoia and Kleiner Perkins decided to allow UC to invest in their funds on the condition that it not receive individual fund-level performance information. The university concluded that continued investment in these funds was to its benefit and that it could adequately monitor the investment based on other available information.

In the Reuters case, the trial court had ordered the university to "make an objectively reasonable effort to obtain" the confidential information from the funds, reasoning that it might have "constructive possession" of the information. "Constructive possession" is a legal term used mostly in criminal cases dealing with drugs or other contraband. It is not found in the California Public Records Act.

The Court of Appeal rejected the trial court's reasoning, holding that the CPRA has a clear definition of "public records" that does not include the concept of "constructive possession."

The decision aligns California's CPRA with the federal Freedom of Information Act, which likewise does not include the concept of constructive possession.

The Court of Appeal expressed no criticism of the current reporting protocol used by Sequoia and Kleiner Perkins, noting that "the Regents obtains detailed information with respect to each fund's portfolio companies and other information, which is exempt from disclosure" under the CPRA.

Both firms, as well as many others in UC's private equity portfolio, have proven extremely profitable to the university. They have provided the university's endowment and retirement funds — along with the students, faculty, employees and retirees who rely so heavily on those funds — with tremendous growth over the years.