New London Tobacco Mkt., Inc. v. Ky. Fuel Corp.
New London Tobacco Mkt., Inc. v. Ky. Fuel Corp.
2017 WL 11779421 (E.D. Ky. 2017)
April 12, 2017
Ingram, Hanly A., United States Magistrate Judge
Summary
The Court granted the Motion to Modify Protective Order in part, modifying the existing protective order to provide procedural clarity as to sealing. The Court also denied the request for continued sealing, without prejudice, to resubmission of a motion to seal addressing the authority described in Shane Group, Inc. v. Blue Cross Blue Shield of Michigan. The parties were given one more chance to weigh in on the important and competing interests concerning all of the currently sealed documents.
Additional Decisions
NEW LONDON TOBACCO MARKET, INC., and FIVEMILE ENERGY, LLC, Plaintiffs,
v.
KENTUCKY FUEL CORPORATION and JAMES C. JUSTICE COMPANIES, INC., Defendants
v.
KENTUCKY FUEL CORPORATION and JAMES C. JUSTICE COMPANIES, INC., Defendants
No. 6:12-CV-91-GFVT-HAI
United States District Court, E.D. Kentucky
Filed: April 12, 2017
Ingram, Hanly A., United States Magistrate Judge
ORDER
*1 The Court considers Defendants' Motion to Modify Protective Order. D.E. 317. The motion seeks an order modifying the existing protective order (D.E. 124) so as to bring certain tax returns and other financial information within its purview as “Confidential Information” and to allow for certain documents, currently filed under seal at Docket Entries 265, 269, 271, and 273, to remain under seal. The motion is fully ripe. Having fully considered the matter, the motion is granted, in part, so as to modify the existing protective order. However, continued sealing is governed by a far different standard than that addressed in the briefs, and the Court desires further input from the parties on that matter. As a corollary, the existing protective order will be modified, going forward, so as to provide procedural clarity as to sealing. Thus, the request for continued sealing will be denied, without prejudice, to resubmission of a motion to seal addressing the authority described below. The provisional seal of Docket Entries 265, 269, 271, and 273 will remain in place as an interim measure.
The parties have previously agreed to detailed procedures concerning information produced in this case and designated as confidential, which procedures were memorialized in a Protective Order Concerning Confidentiality of Discovery Materials. D.E. 124. Defendants eventually produced hundreds of pages of tax returns and financial statements with a “confidential” designation. Plaintiffs challenged that designation, but treated the documents and information in accordance with the procedures of the Protective Order, including filing them under seal at Docket Entries 265, 269, 271, and 273. Later, however, Plaintiffs moved for the Court to determine the confidentiality of those documents, contending that they were not confidential and should not remain sealed. The Court agreed that the documents were not properly designated as confidential under the Protective Order, but, recognizing their sensitive nature, gave Defendants leave to move for an order modifying the Protective Order and allowing the documents to remain sealed, which they did. D.E. 311.
As stated in that order, the tax returns and financial statements plainly contain sensitive financial information. Indeed, Plaintiffs previously agreed with the “general proposition that tax returns contain sensitive information that often can be appropriately subject to a protective order.” D.E. 280 at 1. The pending motion includes a supporting affidavit from Mr. Stephen Ball, Vice President of Kentucky Fuel Corporation and James C. Justice Companies, who states that, because of their corporate structure and pass-through tax treatment, the disclosure of the tax and financial information at issue would reveal the private financial picture of non-party shareholders and affect their business affairs, that the financial information includes confidential tax information of many entities that are not parties to the case, and that the disclosure of the information could interfere with an ongoing audit. D.E. 317-2.
*2 Plaintiffs primarily argue that the discovery of the tax returns and financial information was, at bottom, an effort to mislead them and the Court about Defendants' discovery efforts in this case. They contend that confidential treatment and sealing should not be allowed so as to further Defendants' fraudulent intent. They also argue that disclosure of the information would not interfere with the ongoing audit because the IRS already has any returns that were actually filed and the public has an interest in these proceedings.
Federal Rule of Civil Procedure 26(c)(1)(G) allows a court, for good cause, to enter a protective order concerning “commercial information.” The movant for a protective order bears the burden to establish good cause. Nix v. Sword, 11 F. App'x 498, 500 (6th Cir. 2001). Such a rule “confers broad discretion on the trial court to decide when a protective order is appropriate and what degree of protection is required.” Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984). The Court finds that, as a matter of discovery between the parties, the general principle agreed to by the Plaintiffs has been sufficiently tied by Mr. Ball's affidavit to the tax returns and other financial information in this case so as to establish good cause. The Court agrees that unfettered disclosure of the information at issue could result in sufficient harm to call for the protective steps that the parties previously agreed upon and memorialized in the Protective Order.
Although secrecy may be acceptable during discovery, the competing interests dramatically change once the materials at issue enter the judicial record. The Sixth Circuit has recently devoted a great deal of attention to those competing interests and instructed the undersigned to do the same whenever considering whether to seal judicial records. In Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, 825 F.3d 299 (6th Cir. 2016), the court set forth the analysis to be undertaken.
By way of background, there is a stark difference between so-called “protective orders” entered pursuant to the discovery provisions of Federal Rule of Civil Procedure 26, on the one hand, and orders to seal court records, on the other. Discovery concerns the parties' exchange of information that might or might not be relevant to their case. “Secrecy is fine at the discovery stage, before the material enters the judicial record.” Baxter Int'l, Inc. v. Abbott Labs., 297 F.3d 544, 545 (7th Cir. 2002). Thus, a district court may enter a protective order limiting the use or disclosure of discovery materials upon a mere showing of “good cause[.]” Fed. R. Civ. P. 26(c)(1). These orders are often blanket in nature, and allow the parties to determine in the first instance whether particular materials fall within the order's protection. The district court entered several such orders here.
“At the adjudication stage, however, very different considerations apply.” Joy v. North, 692 F.2d 880, 893 (2d Cir. 1982). The line between these two stages, discovery and adjudicative, is crossed when the parties place material in the court record. Baxter, 297 F.3d at 545. Unlike information merely exchanged between the parties, “[t]he public has a strong interest in obtaining the information contained in the court record.” Brown & Williamson Tobacco Corp. v. F.T.C., 710 F.2d 1165, 1180 (6th Cir. 1983). That interest rests on several grounds. Sometimes, the public's interest is focused primarily upon the litigation's result—whether a right does or does not exist, or a statute is or is not constitutional. In other cases—including “antitrust” cases, id. at 1179—the public's interest is focused not only on the result, but also on the conduct giving rise to the case. In those cases, “secrecy insulates the participants, masking impropriety, obscuring incompetence, and concealing corruption.” Id. And in any of these cases, the public is entitled to assess for itself the merits of judicial decisions. Thus, “[t]he public has an interest in ascertaining what evidence and records the District Court and this Court have relied upon in reaching our decisions.” Id. at 1181; see also, e.g., Baxter, 297 F.3d at 546.
*3 The courts have long recognized, therefore, a “strong presumption in favor of openness” as to court records. Brown & Williamson, 710 F.2d at 1179. The burden of overcoming that presumption is borne by the party that seeks to seal them. In re Cendant Corp., 260 F.3d 183, 194 (3d Cir. 2001). The burden is a heavy one: “Only the most compelling reasons can justify non-disclosure of judicial records.” In re Knoxville News–Sentinel Co., 723 F.2d 470, 476 (6th Cir. 1983). Moreover, the greater the public interest in the litigation's subject matter, the greater the showing necessary to overcome the presumption of access. See Brown & Williamson, 710 F.2d at 1179. For example, in class actions—where by definition “some members of the public are also parties to the [case]”—the standards for denying public access to the record “should be applied ... with particular strictness.” Cendant, 260 F.3d at 194. And even where a party can show a compelling reason why certain documents or portions thereof should be sealed, the seal itself must be narrowly tailored to serve that reason. See, e.g., Press–Enter. Co. v. Superior Court of California, Riverside Cnty., 464 U.S. 501, 509-11, 104 S.Ct. 819, 78 L.Ed.2d 629 (1984). The proponent of sealing therefore must “analyze in detail, document by document, the propriety of secrecy, providing reasons and legal citations.” Baxter, 297 F.3d at 548.
In like fashion, a district court that chooses to seal court records must set forth specific findings and conclusions “which justify nondisclosure to the public.” Brown & Williamson, 710 F.2d at 1176. That is true even if neither party objects to the motion to seal, as apparently neither did in Brown & Williamson. (There, our court “reach[ed] the question” of the district court's seal “on our own motion.” Id.) As our decision there illustrates, a court's obligation to explain the basis for sealing court records is independent of whether anyone objects to it. And a court's failure to set forth those reasons—as to why the interests in support of nondisclosure are compelling, why the interests supporting access are less so, and why the seal itself is no broader than necessary—is itself grounds to vacate an order to seal. Id.; see also United States v. Kravetz, 706 F.3d 47, 60 (1st Cir. 2013) (“Appellate courts have on several occasions emphasized that upon entering orders which inhibit the flow of information between courts and the public, district courts should articulate on the record their reasons for doing so”); SEC v. Van Waeyenberghe, 990 F.2d 845, 849 (5th Cir. 1993) (reversing because “[w]e find no evidence in the record that the district court balanced the competing interests prior to sealing the final order”).
Shane Group, 825 F.3d at 305-06. See also Rudd Equip. v. John Deere Const. & Forestry, 834 F.3d 589, 593-94 (6th Cir. 2016); Beauchamp v. Federal Home Loan Mtg. Corp., 658 F. App'x 202, 207-08 (6th Cir. 2016).
The pending motion does not address all of these competing interests. Plaintiffs' response addresses some components of the public interest analysis, but not within the framework described above. To be clear, the Court has reviewed each and every document within the filings at Docket Entries 265, 269, 271, and 273. Some plainly should not be sealed, such as letters between counsel in this case, transmittal emails, affidavits that appear to have no confidential information, and even a copy of an electronically available court decision. But, the parties should be afforded one more chance to weigh in on the important and competing interests discussed in Shane Group concerning all of the currently sealed documents.
Additionally, the existing Protective Order does not sufficiently account for these competing interests. The Court believes that modifying that Protective Order going forward is the best way to provide clarity as to how the parties are to proceed.
For the foregoing reasons, IT IS HEREBY ORDERED that:
(1) Defendants' Motion to Modify Protective Order (D.E. 317) is GRANTED, IN PART, AND DENIED, IN PART;
*4 (2) Paragraph 2.a.i. of the existing Protective Order (D.E. 124) is HEREBY MODIFIED by adding a sentence at the conclusion of that existing paragraph stating “Defendants may designate as ‘CONFIDENTIAL’ documents or information that, in good faith, they believe to include confidential proprietary financial and tax information.”
(2) Paragraph 3 of the existing Protective Order (D.E. 124) is HEREBY STRICKEN and REPLACED with the following: “The parties SHALL follow Joint Local Rule of Civil Procedure 5.7 whenever seeking to file a sealed document. Despite the existence of this Protective Order, a party seeking to file a sealed document must electronically file a motion for leave to seal.”
(3) To the extent the motion requests continued sealing of Docket Entries 265, 269, 271, and 273, that requested relief is DENIED. However, Defendants are granted leave to file, on or before May 12, 2017, a motion to allow the documents within Docket Numbers 265, 269, 271, and 273 to remain filed under seal. This motion SHALL address the authority described above and be supported with sufficient evidence to support any factual contention. The motion SHALL analyze in detail, document by document, the propriety of secrecy, providing reasons and legal citations. Any response to the motion SHALL include corresponding precision. The Court may, following a ruling on the motion, require the parties to tender redacted versions of the documents at issue, including any motion or memoranda, suitable for filing in the public record.
IT IS FURTHER ORDERED that, if Defendants do not file a motion as described in the paragraph above on or before May 12, 2017, Docket Entries 265, 269, 271, and 273 SHALL be unsealed by the Clerk on May 13, 2017.
The Court enters this Order on a non-dispositive pretrial matter pursuant to 28 U.S.C. § 636(b)(1)(A) and Federal Rule of Civil Procedure 72(a). Any objection to this Order SHALL be asserted in accordance with Rule 72(a) of the Federal Rules of Civil Procedure and 28 U.S.C. § 636(b)(1). Failure to make a timely objection consistent with the statute and rule may, and normally will, result in waiver of further appeal to or review by the District Court and Court of Appeals. See United States v. Walters, 638 F.2d 947, 950 (6th Cir. 1981).
This the 12th day of April, 2017.
Signed By: