BACKGROUND

Plaintiff/Counterdefendant Andy Russo, Jr. states that he has been involved in the architectural metal construction industry for 34 years. Mr. Russo formed Andy Russo Jr., Inc., an Ohio corporation, in 1993. In late 2005/early 2006, Mr. Russo decided to enter the Las Vegas, Nevada construction market. He registered Andy Russo Jr., Inc. to conduct business in Nevada and obtained a Nevada contractor's license. Mr. Russo thereafter formed Sierra Metals, Inc., a Nevada corporation, in February 2007. In May 2007, Defendant/Counterclaimant Joseph Lopez, whom Mr. Russo apparently knew from Ohio, purchased a half interest in Sierra Metals, Inc. According to Russo, it was initially understood that Russo and Lopez would each own 50% of Sierra Metals, Inc. Russo and Lopez subsequently agreed that Lopez would own 51% and Russo would own 49% of Sierra Metals, Inc. to take advantage of Lopez's status as a minority contractor. Russo and Lopez also formed Sierra Construction Services, Inc., a Nevada corporation, for the sole purpose of working on union projects.

In August 2008, Sierra Metals, Inc. opened a shop and office in Mentor, Ohio. Mr. Russo was in charge of the Las Vegas office and Mr. Lopez was in charge of the Mentor, Ohio office. In March 2009, Russo and Lopez executed written “Operating Policies and Procedures” that had been proposed by Lopez. One of the procedures provided that neither Russo nor Lopez could make expenditures in excess of $5,000 without the other's approval. The business relationship between Russo and Lopez deteriorated in 2009. Russo contends that the relationship became strained due to Lopez's attempt to tie Russo to the “Operating Policies and Procedures” that Lopez himself did not obey. Russo cites a number of alleged examples of Lopez's non-compliance with the requirement that he obtain Russo's authorization for expenditures above $5,000. Russo also contends that Lopez took full credit for the creation and success of Sierra Metals, Inc. in various trade magazine articles without even mentioning Russo. Russo also alleges that Lopez wrongfully refused to allow Russo to compensate himself and other Las Vegas employees for overtime work on the City Center project in Las Vegas, while, at the same time, Lopez used Sierra Metals, Inc. funds to pay for vacation travel by Lopez and his wife.

On his side, Lopez contends that by 2009 Russo's mismanagement of the Las Vegas office had helped place Sierra Metals, Inc. in financial straights. In October 2009, Lopez loaned Sierra Metals, Inc. $300,000 through his Ohio corporation, New Era Builders, Inc. The loan was supposed to be repaid within 30 days, but was never repaid. Lopez also states that he became concerned about Russo's mismanagement of the Las Vegas office and his failure to comply with the “Operating Policies and Procedures.” This included Russo's attempt to pay himself $153,900 for a “Labor Reimbursement” without authorization. Lopez states that he tried to persuade Russo to hire a chief financial officer to manage the company's finances and institute better financial controls, but that Russo refused to relinquish control over the Las Vegas office. Lopez also contends that Russo compounded the financial problems of Sierra Metals, Inc. by directing it to make payments to his own company, Andy Russo Jr., Inc., instead of paying vendors with older invoices.

*2 The parties' dissatisfaction with each other prompted them to begin negotiations in early 2010 to terminate their business relationship and divide their interests in Sierra Metals, Inc. and Sierra Construction Services, Inc. Although the parties exchanged draft agreements, they were unable to arrive at a final written agreement. Russo contends, however, that the parties acted upon the common elements of their proposals and began conducting separate businesses in Nevada and Ohio. Russo formed Sierra Metals-Southwest, Inc., a Nevada corporation, which operates out of the same Las Vegas location as Sierra Metals, Inc. Lopez formed an Ohio corporation, Sierra Metals, Inc. USA which took over the business conducted by Sierra Metals, Inc. through the Mentor, Ohio office.

Russo contends that pursuant to the “agreement” that arose from the parties' negotiations and conduct, he treated the Las Vegas, Nevada office of Sierra Metals Inc., in conjunction with Sierra Metals-Southwest, as his own business and withdrew $100,000 from Sierra Metals, Inc.'s Las Vegas bank account in September 2010. Amended Complaint (#45), ¶ 33. Russo alleges that Lopez wrongfully withdrew $150,000 from the same account a few days later on September 25, 2010. Russo also contends that Lopez has failed and refused to pay for expenses of Sierra Metals, Inc. for which he is equally responsible and has otherwise improperly utilized corporate monies, assets and resources for his own benefit and/or for the benefit of Sierra Metals, Inc. USA. Id. ¶¶ 34-36.

Lopez contends that there was never an agreement between he and Russo to dissolve Sierra Metals, Inc. and Sierra Metals Construction, Inc. and divide their assets. See Amended Counterclaim (#39). He alleges that Russo misappropriated funds that were received by Sierra Metals, Inc. for work it performed on the City Center project–in particular by withdrawing the $100,000 from Sierra Metal, Inc.'s Las Vegas, Nevada bank account in September 2010 and apparently using it for Russo's own benefit or for the benefit of Sierra Metals-Southwest. Lopez states that he withdrew the $150,000 from Sierra Metals, Inc.'s Las Vegas bank account and deposited in the bank account of New Era Builders, Inc. for safekeeping until the parties' respective rights can be determined. Lopez further alleges that Russo misappropriated other assets of Sierra Metals, Inc., including accounts, inventory, equipment and the services of employees on the payroll of Sierra Metals, Inc. Russo counters these allegations by contending that if there was no agreement dividing the assets of Sierra Metals, Inc., then Lopez has also misappropriated the assets of Sierra Metals, Inc. in his possession or control for the benefit of Sierra Metals, Inc. USA, or his other companies.

In sum, Russo and Lopez have been conducting separate architectural metal construction businesses since approximately mid-to-late 2010. Mr. Russo's business is based in Las Vegas, Nevada and Mr. Lopez's business is based in Mentor, Ohio. Although these companies have not competed for the same business on a regular or frequent basis, Lopez's company, Sierra Metals, Inc. USA, did bid on a construction project in Pahrump, Nevada on which Russo's company, Sierra Metals-Southwest, also bid. It is possible that the parties may compete for the same jobs or projects in the future. In the meantime, the Court will have to determine the parties' respective rights to the assets of Sierra Metals, Inc. and Sierra Metals Construction, Inc., including the corporate assets that the parties have allegedly taken or used in their separate businesses since mid-to-late 2010.

The Court previously granted Defendant/Counterclaimant Lopez's motion to compel Russo to produce documents or electronically stored information relating to the alleged transfer and location of assets belonging to Sierra Metals, Inc. or Sierra Metals Construction, Inc. As part of the order, the Court directed Russo to produce for inspection Sierra Metals-Southwest, Inc.'s electronic Quickbooks bookkeeping file which will potentially allow Lopez to determine what assets allegedly belonging to Sierra Metals, Inc. have been transferred to Sierra Metals-Southwest, Inc. or Mr. Russo. See Minutes of Proceeding (#37), August 30, 2011. Russo originally objected to production of the Quickbooks file and other documents on the grounds that they contain trade secrets or confidential business information, including client lists, bid preparation documents and pricing information. During the August 30th hearing, the Court directed the parties to submit a proposed protective order containing procedures for the protection of confidential, proprietary information. Id.

*3 During a follow-up status hearing on October 4, 2011, the parties informed the Court that they were unable to agree on Russo's proposal that highly confidential documents or information may be produced subject to an “attorney's eyes only” designation. Minutes of Proceedings (#49). The Court held that the protective order may contain an “attorney's eyes only” provision which limits the disclosure of certain information to the parties' attorneys or outside experts or consultants. The Court stated that if the designation is disputed, then the producing party will have the burden of demonstrating that the designated information is entitled to this higher level of protection. The “attorney's eyes only” designation would remain in effect until the Court decided its validity. Id. The parties thereafter submitted a proposed protective order in accordance with the Court's direction. See Stipulated Protective Order (#51) (approved on October 6, 2011).

Russo thereafter produced an electronic copy of Sierra Metals-Southwest, Inc.'s Quickbooks file which he designated in its entirety as “attorney's eyes only.” Russo also designated a limited number of other documents as “attorney's eyes only.” Russo concedes that only a portion of the information contained in the Quickbooks file is entitled to “attorney's eyes only” protection. He states, however, that highly confidential information, such as pricing information, cannot be deleted from the electronic copy of the Quickbooks file without distorting the other information in the program. Lopez does not dispute this assertion. Russo does not object to Lopez's counsel printing out and providing Lopez with copies of information from the Quickbooks file upon Russo's agreement that it does not constitute confidential, competitive information. The court can also order that such information be disclosed to Lopez. Russo also argues that most, if not all, of the records relevant to the issues in this case have already been produced to Lopez without the “attorney's eyes only” designation and therefore Lopez does not need personal access to the electronic Quickbooks file. Lopez argues that the electronic Quickbooks file should not be designated as “attorney's eyes only” because only a small portion of the information contained therein is arguably entitled to such protection. He contends the “attorney's eyes only” designation of the entire Quickbooks file defeats or unreasonably impedes his ability to expeditiously and inexpensively locate and trace assets that rightfully belong to Sierra Metals, Inc.

DISCUSSION

The fruits of pre-trial discovery are presumptively public. Rule 26(c) of the Federal Rules of Civil Procedure authorizes the district court to override this presumption where good caused is shown. Nutratech, Inc. v. Syntech (SSPF) International, Inc., 242 F.R.D. 552, 554 (C.D. Cal. 2007), citing San Jose Mercury News, Inc. v. U.S. Dist. Ct., 187 F.3d 1096, 1103 (9th Cir. 1999). The court may enter an order that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way. Rule 26(c)(1)(G). The party seeking a protective order must make a clear showing of a particular need for the order. In the case of trade secrets, the moving party must show (a) that the information is a trade secret or other confidential research, development or commercial information and (b) that its disclosure would be harmful to the party's interest in the property. The burden then shifts to the party seeking discovery to show that the information is relevant to a party's claims or defenses or the subject matter of the lawsuit and necessary to prepare the case for trial. Nutratech, 242 F.R.D. at 554-5. See also National Academy of Recording Arts & Sciences, Inc. v. On Point Events, LP., 256 F.R.D. 678, 681-2 (C.D. Cal. 2009), citing In re Remington Arms Company, Inc., 952 F.2d 1029, 1032 (8th Cir. 1991).

*4 “Where trade secrets or other confidential commercial information is involved, the court will balance the risk of disclosure to competitors against the risk that a protective order will impair prosecution or defense of the claims.” Nutratech, 242 F.R.D. at 555, citing Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1470 (9th Cir. 1992). As Nutratech further notes, courts commonly issue protective orders restricting access to highly sensitive competitive information to the requesting party's counsel and outside experts. Such limitations are imposed where the disclosure of the information to the party's direct competitor could result in competitive harm to the disclosing party. Layne Christensen Co. v. The Purolite Co., 271 F.R.D. 240, 246 (D. Kan. 2010) states that the “attorney's eyes only” designation is “usually reserved for more sensitive information, such as trade secret information, future product plans, competitive pricing, customer lists or competitive business financial information.” See also Netquote, Inc. v. Byrd, 2007 WL 2438947, *3-4 (D. Colo. 2007) and Safe Flight Instrument Corp. v. Sundstrand Data Control Inc., 682 F.Supp. 20, 22 (D. Del. 1988).

1. “Attorney's Eyes Only” Designation of Plaintiff's Electronic Quickbooks File.

Russo states that Sierra Metals-Southwest's Quickbooks file contains (1) contact information of all of its clients and vendors, (2) information regarding the pricing which Sierra Metals-Southwest has negotiated with its vendors, (3) information regarding Sierra Metals-Southwest's bids to its customers, and (4) other unit pricing information on how much Sierra Metals-Southwest can charge for its products. Russo argues that if Lopez had access to this information, he could potentially underbid Russo and Sierra Metals-Southwest on any job. Motion (#64), pp. 15-16. Russo argues that the entire electronic Quickbooks file should be designated “attorney's eyes only” because of the access it provides to the foregoing confidential information.

Given the prior relationship of the parties up through early-mid 2010, the Court questioned whether Russo's business information is truly a secret from Lopez. Russo's counsel responded that the economic landscape of the construction business has changed since early 2010 and that Russo's methods of operation and business contacts are significantly different from what they were when he and Lopez were in business together in Sierra Metals, Inc. While the Court is not completely persuaded by this argument, it does not rule out that Russo has developed business methods or contacts that he is legitimately entitled to keep confidential from potential competitors, including Lopez.

Lopez argues that full access to the electronic Quickbooks file is important because he “needs to have the electronic ability to sort through the data in the software program and obtain more information about a particular entry by ‘clicking’ on the data point when necessary.” Opposition (#74), p. 9. Lopez's Nevada counsel indicated at the hearing that he lacks the technical or business expertise to make adequate use of the Quickbooks program.[1] Lopez also wants to avoid the expense of employing outside experts or consultants when it is possible for Lopez or his employees, “who have intimate knowledge and insight of the specific jobs, projects, employees, invoices, finances and transactions at issue” to expeditiously search the Quickbooks file for relevant information. Id.

In support of his arguments, Lopez attached a copy of the Quickbooks Basics Guide which explains the operation of the program, including what data can be stored in the file and the manner in which it is organized and accessible. Opposition (#74), Exhibit 4. A brief review of this Guide, however, also supports Russo's argument that Lopez could use the Quickbooks program to access confidential information about Sierra Metals-Southwest's bids, customers and vendors. The Guide, for example, states that the “Customer Center” page “is a lens into all your customer information. Without having to sift through multiple screens, you can view a list of all your customers and see pertinent information for each of them.” Exhibit 4, p. 6. The Guide states that the user can readily obtain information about customer transactions, including payment terms, estimates, sales orders, invoices, credit memos, and refunds, etc. Similar information that can also be obtained about the user's vendors.

*5 The Quickbooks file would, in fact, permit Lopez to obtain a fairly complete picture of Sierra Metals-Southwest's business and financial condition as of the date the electronic copy was made. Russo represents that the electronic copy is current up through August 2011. Therefore, while access to the electronic Quickbooks file will be useful to Lopez in determining whether Russo misappropriated assets belonging to Sierra Metals, Inc., it could also be used to gain a competitive business advantage over Russo.

The “attorney's eyes only” designation does not deprive Lopez of the ability to obtain relevant information needed to prepare his case. Pursuant to the Protective Order, the electronic Quickbooks file can be fully accessed by Lopez's attorneys and their staffs, and may be disclosed to outside consultants or experts if, in the attorney's good faith judgment, such disclosure is necessary to the prosecution or defense of the case. Stipulated Protective Order (#51), ¶ 3, p. 7. Mr. Lopez or his employees are also not precluded from advising counsel or outside experts on what types of information to search for, although counsel and outside experts are not permitted to share the results of their searches with Lopez or his employees, absent agreement by Russo or further court order.

The “attorney's eyes only” designation may make it more expensive or burdensome for Defendant/Counterdefendant to obtain relevant information than it would be if Lopez had direct access to the electronic Quickbooks file. Lopez's interest in expeditious and inexpensive discovery must, however, be balanced against Russo's interest in protecting his confidential business information. As Lopez's Opposition makes clear, the Quickbooks software program is a fairly powerful search tool for examining a company's business records, including the generation of specialized reports concerning various aspects of its operations. Defendant/Counterdefendant's attorneys and outside experts, should he retain any, have access to that program to obtain information relevant to their client's claims and defenses. They also have the ability to provide relevant information obtained through that search to Lopez either by stipulation or court order. The burden imposed on Lopez is therefore not undue and the balance is properly struck by maintaining the “attorney's eyes only” designation for the electronic Quickbooks file.

2. Plaintiff's “Attorney's Eyes Only” Designation As to Certain Documents.

Plaintiff also placed the “attorney's eyes only” designation on six sets of bid and payment documents for contracts that were bid or contracted by Russo under the “Sierra Metals” or Sierra Metals, Inc. name. The contracts were all allegedly bid after June 2010, by which time Russo alleges the parties were operating as separate businesses. See Motion (#64), Exhibit 1, Russo Declaration, ¶¶ 79-84. Lopez argues that because the contracts were made in the name of “Sierra Metals” or Sierra Metals, Inc., they are the property of that corporation in which he still owns a fifty-one percent interest. The Court will ultimately have to decide this issue at trial. It does not have to be decided in this discovery motion. Lopez's counsel has the documents and can use them to argue that the subject contracts and their proceeds are the property of Sierra Metals, Inc. There is no harm in maintaining the “attorney's eyes only” designation as to these documents until the foregoing issues are resolved.

CONCLUSION

Plaintiff/Counterdefendant Russo has met his burden of showing that the “attorney's eyes only” designation should be maintained in regard to the electronic copy of Sierra Metals-Southwest Quickbooks file and the specific documents regarding bids or contracts that were made and entered into after June, 2010. Accordingly,

*6 IT IS HEREBY ORDERED that Plaintiff/Counterdefendant's Motion to Maintain Attorneys Eyes Only Designation (#64) is granted.

Defendant/Counterclaimant's Ohio counsel are members of Baker & Hostetler LLP, which is a large national/international law firm. It is reasonable to infer that this law firm employs attorneys, paralegals or other personnel who have the requisite know-how to use the Quickbooks program.