- "The Best of Disinfectants": Sunshine and Other Developments Relevant to Agreed Protective Orders in Today's Economy
- July 10, 2009
- Law Firm: - Office
In many practical respects, the Agreed Protective Order that governs whether and to what extent information exchanged during discovery is kept confidential is the most important Order entered by a Judge presiding over a complex piece of litigation. An Agreed Protective Order tailored to the specific circumstances presented by the litigation, while not dispositive of any substantive issues, can simultaneously insulate corporate clients from future litigation arising out of similar facts, protect valuable trade secrets subject to discovery during litigation, and avoid future discovery skirmishes collateral to the ultimate issues to be decided. A generic one-size-fits-all Agreed Protective Order, on the other hand, can leave a corporate litigant and the valuable commercial information that gives it a competitive advantage in its respective marketplace vulnerable to a number of different attacks.
The challenging economic environment facing all corporate litigants right now makes Agreed Protective Orders more important than ever. Specifically, the current economic climate and the resulting public financing of what we all hope is a turnaround has resulted in a renewed emphasis on transparency within government and the corporations being helped through these difficult times.
The current recession is unique from other recent economic downturns because of the extent to which the federal government has stepped in to prop up market participants and, indeed, markets themselves. From domestic automobile manufacturers to financial services companies, corporate litigants have been infused with government money to such an extent that the government has a degree of control over their operations. With this financial assistance and, indeed, even during the recent presidential election before the large-scale bailouts were orchestrated, has come a more concerted, if not entirely new, emphasis on transparency both in the federal government and in the boardrooms it is now helping through these difficult times. The implications of this unprecedented market participation by the federal government will continue to be felt for the foreseeable future. One such implication of this renewed interest in transparency is likely to be seen in the Agreed Protective Orders that Judges allow and, perhaps more difficult to predict, the modifications urged by third parties like citizen watchdog groups to existing Agreed Protective Orders.
This paper will discuss some of the issues that must be considered while negotiating an Agreed Protective Order, with particular emphasis on considerations that the current economic climate makes more important.
II. Fed. R. Civ. P. 26(c)
The Federal Rules of Civil Procedure provide trial court judges with a substantial amount of discretion in determining whether, and to what extent, to protect information exchanged during the course of discovery in civil litigation. Fed. R. Civ. P. 26(c) states in relevant part:
Protective Orders. Upon motion by a party or by the person from whom discovery is sought, accompanied by a certification that the movant has in good faith conferred or attempted to confer with other affected parties in an effort to resolve the dispute without court action, and for good cause shown, the court in which the action is pending or alternatively, on matters relating to a deposition, the court in the district where the deposition is to be taken may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including one or more of the following:
(1) that the disclosure or discovery not be had;
(2) that the disclosure or discovery may be had only on specified terms and conditions, including a designation of the time or place;
(3) that the discovery may be had only by a method of discovery other than that selected by the party seeking discovery;
(4) that certain matters not be inquired into, or that the scope of the disclosure or discovery be limited to certain matters;
(5) that discovery be conducted with no one present except persons designated by the court;
(6) that a deposition, after being sealed, be opened only by order of the court;
(7) that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a designated way; and
(8) that the parties simultaneously file specified documents or information enclosed in sealed envelopes to be opened as directed by the court.
The lynchpin in the analysis is, of course, the two-word phrase, “good cause.” Despite the countless number of protective orders entered by courts – both agreed and contested – the United States Supreme Court has never weighed in on what, exactly, “good cause” means in the context of Rule 26(c). All manner of lower courts and commentators have variously defined “good cause” in their respective attempts to give guidance to litigants. The Sedona Conference, for example, has a Working Group on Protective Orders, Confidentiality & Public Access (WG2) that issued a set of best practices addressing, among other things, protective orders in March 2007 1. After recognizing that the privacy and confidentiality interests of parties must be balanced against the public interest in information of legitimate public concern, these best practices interpreted “good cause” as follows:
Therefore, given that the public shares the parties’ interest in a judicial system that can efficiently resolve disputes, the good cause standard generally should be considered to be satisfied if the parties can articulate a legitimate and particularized need for privacy or confidentiality, in those instances where the protective order will apply only to the disclosure of information exchanged during discovery.
Id. at 7 (emphasis supplied) (citing Pansy v. Borough of Stroudsburg, 23 F.3d 772, 786 (3d Cir. 1994)). By incorporating a “public interest” consideration into the “good cause” analysis, this articulation, like many others provided by courts and commentators alike, makes it possible for government, and indeed even the public itself, to attempt to influence the terms of Agreed Protective Orders entered into by private litigants.
As discussed below, one way third parties can attempt to influence Agreed Protective Orders is to move to intervene in litigation directly, opposing the entry of Agreed Protective Orders or seeking modifications in Agreed Protective Orders already in place. Third parties have always attempted to gain access to discovery made confidential by agreement of the parties, but the publicly-financed attempt at economic recovery arguably gives a sturdier foundation for that intervention.
While the increased justification for such direct intervention would presumably be limited to litigation involving corporate litigants receiving the benefits of government financing, another, more widely applicable attack on Agreed Protective Orders could come as a result of state and federal legislation that seeks to increase the transparency of litigation in which the public has an interest. A few states like Florida and Texas already have so-called “Sunshine in Litigation” laws, and given the enormous stake the public now has in the financial health of so many private companies through the various financing assistance provided by the federal government, it is reasonable to believe that other states will soon follow suit. Indeed, a federal “Sunshine in Litigation” law was recently introduced in the U.S. Senate by Senator Kohl of Wisconsin. Senator Kohl has on many previous occasions introduced similar legislation without success, but the current economic climate and the accompanying demand for transparency in the public and private entities at the heart of the economic crisis could provide the momentum necessary for its passage.
III. Traditional Intervention by Third Parties
Traditionally, “permissive intervention [pursuant to Fed. R. Civ. P. 24(b)] is the proper method for a nonparty to seek a modification of a protective order.” AT&T Corp. v. Sprint Corp., 407 F.3d 560, 562 (2d Cir. 2005) (citing Martindell v. Int’l Tel. & Tel. Corp., 594 F.2d 291, 293-94 (2d Cir. 1979)). The decision to permit intervention pursuant to Fed. R. Civ. P. 24(b) is “wholly discretionary with the trial court.” U.S. Postal Serv. v. Brennan, 579 F.2d 188, 191 (2d Cir. 1978). Courts that have addressed a third party’s request to intervene solely for the purpose of gaining access to discovery materials have interpreted Rule 24(b)’s requirements very broadly. See, e.g., In re: Linerboard Antitrust Litig., 333 F.Supp.2d 333, 339 (E.D. Pa. 2004).
Assuming a third party is permitted to intervene to seek modification of an Agreed Protective Order, that third party must still demonstrate that modification of the Agreed Protective Order is warranted. The standard for making this determination varies from circuit to circuit. In the Second Circuit, for example, there is a presumption against modification and a court will not modify an Agreed Protective Order “absent a showing of improvidence in the grant of the order or some extraordinary circumstance or compelling need.” S.E.C. v. TheStreet.com, 273 F.3d 222, 229 (2d Cir. 2001) (quoting Martindell, supra, at 296). Other circuits have adopted a less strict standard than that of the Second Circuit, instead adopting a presumption in favor of access if the intervening third party is involved in collateral litigation. See, e.g., United Nuclear Corp. v. Cranford Ins. Co., 905 F.2d 1424, 1428 (10th Cir. 1990); Pansy, supra, 23 F.3d at 789-90 (3d Cir. 1994); Public Citizen v. Liggett Group, Inc., 858 F.2d 775, 791 (1st Cir. 1988).
Even under the stricter Second Circuit standard from Martindell, however, the party opposing modification must demonstrate reliance on the permanent nature of the Agreed Protective Order in order to prevail. TheStreet.com, supra, at 230. Many factors go into a court’s analysis of whether a party’s reliance on the permanent nature of the Agreed Protective Order, resulting in a flexible approach to modification. Id.
One factor that traditionally weighed against modification urged by a third party has been a bald assertion that the public should have access to the discovery materials. TheStreet.com, 273 F.3d at 233. That is, if an intervening third party such as a member of the public or a citizens watchdog group sought access to discovery materials, the modification generally would be resisted “[i]n the absence of a compelling need for the public to access sealed documents[.]” In re: EPDM Antitrust Litig., 2009 U.S. Dist. LEXIS 5591, at *50-*51 (D. Conn. 2009). The basis for this traditional presumption against public access to discovery materials has been based upon the Supreme Court’s holding in Seattle Times Co. v. Rhinehart, 467 U.S. 20 (1984). In Rhinehart, the Court upheld the constitutionality of protective orders limiting access to court documents, finding that a contrary conclusion would impose an “unwarranted restriction on the duty and discretion of a trial court to oversee the discovery process.” Id. at 31.
Despite this general reluctance on the part of courts to grant access for access’s sake, actions in which public entities are parties have been treated differently historically. Where public entities – and therefore public funds – are implicated, there is an increased expectation of transparency in legal proceedings. See, e.g., State ex rel. Sun Newspapers v. Westlake Bd. Of Ed., 601 N.E.2d 173 (Ohio Ct. App. 1991) (prohibiting a confidentiality agreement involving public records); Detroit Free Press, Inc. v. City of Detroit, 744 N.W.2d 667 (Mich. 2008). The current economic climate and the public financing of economic stimulus projects could lead to an increased demand for transparency in the operations, including the litigation, of entities receiving public assistance.
Indeed, even before the recent bailouts, some practitioners anecdotally noted an increasing hostility toward Agreed Protective Orders. See Jack E. Pace III, Testing the Security Blanket: An Analysis of Recent Challenges to Stipulated Blanket Protective Orders, 19 Antitrust ABA 46 (Summer 2005). Mr. Pace cited two examples of trial courts using the discretion afforded by Fed. R. Civ. P. 26(c) to reject Agreed Protective Orders. Id. at 47 (citing Bahk Do Moo Duk Kwan Federation, Inc. v. Tank Soo Do Moo Do Kuan Ass’n, Inc., 2004 WL 1472797 (E.D. Pa. 2004); Bryan v. Eichenwald, 191 F.R.D. 650 (D. Kan. 2000)). In Eichenwald, the court went so far as to conclude that the Agreed Protective Order should be rejected because the public has an interest “in everything that occurs in [a] case, whether at trial or during the discovery stage of litigation.” Id. at 562.
That third parties often seek the modification of Agreed Protective Orders in the name of the public interest is, of course, nothing new. See, e.g., Public Citizen v. Liggett Group, Inc., 858 F.2d 775 (1st Cir. 1998) (seeking modification of protective order applying to documents produced in tobacco litigation because of public health concerns); Zenith Radio Corp. v. Matsushita Elec. Indus. Co., 529 F.Supp. 866 (E.D. Pa. 1981) (seeking disclosure of discovery materials because of public importance of litigation’s subject matter). What is new because of today’s economic climate, however, is the increased scrutiny and interest the public has in the operations of private litigants. In light of the recent federal bailouts and the resulting financial stake the public has in the economy and its market participants, this trend toward transparency during discovery is likely to continue. Courts today may seize upon what once seemed like benign remarks about the need for transparency in cases involving public entities to justify the rejection of Agreed Protective Orders in cases involving wholly private litigants. For example, a court’s rationale for rejecting an Agreed Protective Order in a case involving the United States as a party more than twenty years ago could take on a completely different meaning in today’s economic climate:
[There exists] the absolute necessity of allowing the light of public scrutiny to shine brightly upon government agencies, the courts, and the judicial process, so that the citizenry may be fully informed.
United States v. Gonzalez, 927 F.Supp. 768, 784 (D. Del. 1996).
Nearly 100 years ago, Justice Brandeis commented that “[s]unshine is said to be the best of disinfectants.” Louis D. Brandeis, Other People’s Money 92 (1914). Given the public’s perception that government and corporate entities need disinfecting because of the significant public financing of their operations, there is no question that efforts to let the sun shine on those operations, including the litigation that those entities participate in, will continue in full force. And as discussed below, this effort to shed light on what has traditionally been the largely private exercise of pretrial discovery will likely include increased efforts by the state and federal legislative branches of government to increase transparency of those operations.
IV. Sunshine in Litigation Laws
As discussed above, third parties have always sought access to discovery materials exchanged between private litigants in the name of the public interest. A relatively new phenomenon that compliments these individualized efforts at increasing transparency in litigation is the codification of laws that severely limit the availability of Agreed Protective Orders. Below is a description of some of the efforts states have made at increasing transparency in their court systems and recent, albeit unsuccessful to this point, efforts to do the same at the federal level. Because of the unique landscape that has resulted from the current economic crisis and the federal government’s response to it, it is reasonable to conclude that these efforts at legislating away the right to keep discovery materials confidential through Agreed Protective Orders will increase because of public demands for increased transparency in the functioning of the markets that taxpayers are being asked to shore up.
A. State Efforts
Despite the Supreme Court’s conclusion in Rhinehart that Agreed Protective Orders are constitutionally permissible, several states have endeavored to limit their use. A handful of states have enacted so-called “Sunshine in Litigation” laws, and several others have considered doing so over the years. These laws have universally been justified by the interest the public has in gaining access to information that affects public health or safety. While these laws purport to protect trade secret information that litigants exchange during the course of discovery, the language of the statutes is often susceptible to a broad interpretation that could lead to the wholesale denial of Agreed Protective Orders. The risk of such a broad interpretation is heightened because of the current economic climate, so all practitioners should be aware of these Sunshine in Litigation laws that have been enacted or proposed.
While the specifics of state Sunshine in Litigation laws vary from state to state, the majority of them are grounded in the public’s interest in access to information about public hazards. One commentator has summarized the various approaches as follows:
“Different jurisdictions have taken varied approaches, often depending on the particular secrecy mechanism addressed, but their thrust is usually to require greater judicial scrutiny rather than to ban secrecy altogether.” Some common examples include: declaring a presumption of openness for all court records in the jurisdiction; limiting circumstances in which protective orders may be entered; requiring a showing of good cause before approving secrecy, with the burden on the secrecy proponent; requiring public hearings before orders are granted; allowing intervention by interested nonparties; and specifying certain matters that may not be kept secret.
Ashley A. Kutz, Rethinking the “Good Cause” Requirement: A New Federal Approach to Granting Protective Orders Under F.R.C.P. 26(c), 42 Val. U.L. Rev. 291, 317 n. 96 (Fall 2007) (citing James E. Rooks, Jr., Let the Sun Shine In: “Sunshine” Laws to Not “Chill” Settlements, Say Advocates of Open Courts, 39 Trial 18, 21 (June 2003)).
To their credit, most states that have enacted these Sunshine in Litigation laws have expressly exempted trade secrets from their purview. Florida’s statute, for example, is often cited as being an innovative approach to prohibiting Agreed Protective Orders that conceal public hazards. See Fla. Stat. § 69.081 (2005). The Florida law prohibits courts from entering an Agreed Protective Order:
which has the purpose or effect of concealing a public hazard or any information concerning a public hazard, nor shall the court enter an order or judgment which has the purpose or effect of concealing any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard.
Id. The Florida statute provides protection to trade secrets “which are not pertinent to public hazards,” but this qualifier, in turn, begs the question, “what about trade secrets that are ‘pertinent’ to so-called ‘public hazards’?” Another question-begging aspect of the Florida law is how a court should determine what information “may be useful to the public” in guarding against public hazards. Very few of these particulars have been litigated in Florida, or elsewhere for that matter, but the Florida statute has been upheld as being constitutional. See Goodyear Tire & Rubber Co. v. Jones, 929 So.2d 1081, 1086 (Fla. Ct. App. 2005).
Texas, Washington and Louisiana Sunshine in Litigation laws similarly attempt to protect trade secrets from disclosure in varying degrees. See Tex. R. Civ. P. 76a(2)(c); Wash. Rev. Code Ann. § 4.24.611(3); La. Code Civ. Proc. Ann. Art. 1426 (A)(7). Only Arkansas’ Sunshine in Litigation law contains no protection for a litigant’s trade secrets. Ark. Code Ann. § 16-55-122.
Finally, Virginia’s Sunshine in Litigation law permits litigants to enter into Agreed Protective Orders, but seeks to find a middle ground between secrecy and full public access by permitting the parties to share information received during litigation with other parties in similar litigation. Va. Code Ann. § 8.01-420.01.
Regardless of their exceptions or their precise language, all of these statutes are susceptible to interpretation by trial court judges who have a large degree in discretion in applying them. See, e.g., Wash. Rev. Code Ann. § 4.24.611(1)(b) (refusing confidentiality protections for “alleged” hazards). Even outside the realm of personal injury or toxic torts suit, the potential effect of these statutes require detailed consideration.
B. Federal Proposal
Beginning in 1993, Senator Herb Kohl (D-Wis.) has on several occasions introduced a federal Sunshine in Litigation Act for consideration by Congress. While the Bill has never been enacted into law, Sen. Kohl seems committed to its passage, having introduced it in several sessions of Congress since 1993. Indeed, on March 5, 2009, Sen. Kohl introduced S. 537, entitled “The Sunshine in Litigation Act of 2009.” Senator Lindsey Graham (R-SC) is a co-sponsor of the current measure, which largely mirrors Sen. Kohl’s past efforts.
S. 537 pertains to both Agreed Protective Orders and orders approving settlement agreements entered by federal courts. The Bill prohibits the entry of such orders in the absence of findings of fact by the judge that (1) the order would not restrict disclosure of information “which is relevant to the protection of public health or safety” or (2) the public interest in disclosure is outweighed by “a specific and substantial interest in maintaining the confidentiality of the information” sought to be protected. Id., Sec. 2(a)(1). In either event, the findings of fact must also include a conclusion that “the requested protective order is no broader than necessary to protect the privacy interest asserted.” Id. In addition to these findings required at the time of the entry of an Agreed Protective Order, S. 537 requires a court to make the same findings at the conclusion of the litigation in order for the confidentiality protections afforded during the course of litigation to continue. Id. at Sec. 2(a)(2).
Like its state counterparts, S. 537 leaves much to be desired in the realm of clarity. For example, a trial court judge would be asked to make a finding of fact that information protected from disclosure is not “relevant to the protection of public health or safety.” Far from limiting the discretion trial court judges have in determining “good cause” under the existing Fed. R. Civ. P. 26(c), S. 537, if enacted, would give trial court judges even more discretion, likely resulting in even more variance in the way Agreed Protective Orders are treated. In addition, S. 537 makes no mention of trade secrets, presumably making that inquiry a part of the balancing that the court must undertake in determining whether the public’s interest in access is outweighed by any “specific and substantial interest in maintaining confidentiality” of the discovery materials.
Last year, when Rep. Robert Wexler (D-Fl.) introduced a similar Sunshine in Litigation Act of 2008 as H.B. 5884, the bill was referred to the House Judiciary Committee, and a hearing was held before its Subcommittee on Commercial and Administrative Law. Testimony both in support of and in opposition to the Bill was given, but the Bill never made it out of Committee. This year’s S. 537 has followed a similar path to date, having been referred to the House Judiciary Committee with hearings having been held. Because of the recency of S. 537’s introduction, however, it is too early to tell whether the Bill will advance in either chamber.
As noted throughout this material, the current economic climate will no doubt influence whether and to what extent the reforms proposed by S. 537 are made law. Given this climate, the federal government’s response to it and the possibility that Congress will feel inclined to respond to public demands for increased transparency in the operational aspects of private companies, it is entirely reasonable that S. 537 could become law and confront all of us in our practice of law. Even if S. 537 is not enacted, however, the state laws cited above and S. 537 could serve as the basis for further state legislature action in response to the publicly funded bailout of various private companies.
The recent economic crisis has affected all of us in significant ways. Whether directly or indirectly, we are all witnesses to a recession of epic proportions and a government response to that crisis that is unprecedented. The effects of the economic crisis and the response to it will be felt for many years. While we hope that the financial aspects of the response will be successful and that our financial markets will again return to efficiency, we also must hope that the response to the crisis will not have any unintended effects. Agreed Protective Orders play a vital role in the civil litigation system and protect significant interests of litigants and non-litigants alike. As such, we should endeavor to retain their protections to whatever extent we can.
1 The Sedona Guidelines: Best Practices Addressing Protective Orders, Confidentiality & Public Access in Civil Cases (March 2007), available at http://www.thesedonaconference.org/ dltForm?did=3_07WG2.pdf.