Herzfeld & Rubin, P.C.- Publications

Products Liability *Privacy Interests and Confidentiality Orders* By Michael Hoenig - New York Law Journal - December 10, 2007	Print article

Some litigants think that for the relatively nominal cost of a case commencement filing fee, say $350 or so, they can simply conduct expansive discovery under extremely generous disclosure rules and then freely disseminate the most private, confidential, personal, embarrassing or commercially sensitive information they may acquire during discovery.

Further, certain nonlitigants, such as news or entertainment media, public interest groups or self-styled advocates for various causes urge that, once a lawsuit has been filed, they have some unbridled, hallowed right of "public access" to any and all pretrial discovery materials, however private the disclosed information might be. Indeed, sometimes lawsuits are filed precisely to obtain private information and expose it.

Such arguments often are cloaked within a righteous mantle of a purported "public right to know" along with shibboleths proclaiming that such intrusions serve free speech and the public good by helping to expose deception, unsafe products or practices and other misconduct.

But if such so-called "public" interests in curiosity and suspicion trump a person's rights to privacy, then why bother with the nominal formality of waiting for a case filing fee in order to pounce? Just make everyone's life an open book so that the hunger for information which is normally to be found behind closed doors can easily be appeased. To but state the proposition shows the absurdity of extremist tendencies. Commencement of litigation, even were the filing fee thousands of dollars instead of a pittance, simply is not a free-wheeling passport to examine and disseminate the innermost, intimate, confidential information of a litigant, however "relevant" one structures the quest to be. That is true whether the party (or nonparty witness) giving disclosure is an individual, group or corporation.

Indeed, it is not unlikely that even the zealots, who may preach loudest in favor of unrestricted public access to the fruits of other persons' discovery, would protest among the loudest were their own innermost confidences to be salaciously presented in the next morning's tabloids or talk shows. It is OK if they inflict the damage upon others, quite another thing if it happens to them, their organizations or their loved ones. In truth, most of us do not want our privacy to be invaded and, if a lawsuit is to become, forcibly, the unpleasant medium of such intrusions, we certainly do not want or expect the details that were disclosed under oath in private discovery proceedings to be shared willy-nilly among the so-called "public." Then, why should the shrill few be allowed to lead the overwhelming majority of us by the nose?

Discovery Private

Although there indeed are strong rationales for public access to proceedings conducted in court, such as trials or open hearings, these reasons are inapposite when it comes to out-of-court, privately held discovery sessions.

We must not confuse public access to the courts with public access to essentially private information disgorged in response to generous discovery fashioned in order to help lawyers prepare for trial in court. The essence of the debate is well-reflected in the legal literature, including several incisive articles by Professor Richard L. Marcus, who serves as a special reporter of the Judicial Conference's Advisory Committee on Civil Rules.¹ As Professor Marcus makes clear, the threat to privacy has now been exacerbated exponentially by the digital revolution and electronic discovery.²

Even private corporate information regarding subjects over which some lawyers routinely may salivate, such as numbers of deaths and injuries during use of a product, property damage claims, consumer complaints, warranty claims, field reports and the like, is rightly considered confidential. This is well-reflected in the Final Rule on "Confidential Business Information" just issued by the National Highway Traffic Safety Administration (NHTSA), the federal agency charged with regulating automobile safety standards, defect investigations and recall campaigns.³ The rule exempts from the Freedom of Information Act early warning data submitted by manufacturers to NHTSA regarding certain accident, injury, complaint and warranty information because it is recognized that such information is not necessarily indicative of defect trends, is of great value to a manufacturer's competitors, provides extremely valuable windows into competitive customer satisfaction and quality levels and would enable one company to use the experience of another to select optimal designs, production processes, pricing strategies and the like.

As copiously documented in NHTSA's Final Rule and in the professional literature, the confidential and commercial value of consumer complaint data is well-recognized. Manufacturers vigorously compete and expend substantial amounts of research money on consumer satisfaction and quality in the market. The same is true about warranty claims data, a particularly sensitive subject from a competitive standpoint. The information also can be misused. For example, a manufacturer may be overly generous in remediating warranty claims to satisfy its customer base. Yet, in doing that, it may encourage, collect or log more claims than are justified. By recording the greater number of claims, however, some will argue this is evidence of a reliability "problem" when, in truth, it is not. Allowing free dissemination, misuse or misinterpretation of the confidential data, on the other hand, could chill a manufacturer into abandoning an overly generous approach to warranty adjustments which may be better for the consumer in the long run. The professional literature also shows that warranty data are commercially valuable to competitors and can be used in myriad ways. The same is true for a company's field reports.

Such data are compiled at great effort and expense, maintained restrictively and withheld from one's competitors. They are truly valuable confidential business data, recognized as such by state-of-the-art business practices and now, in turn, by a federal safety agency.

Yet, for the price of $350 or so, some litigant, attorney or public advocacy group with an agenda will urge that what has cost millions to develop and maintain confidentially can be published at will because it may have been asked for and produced in litigation. In effect, the mere ability to file a lawsuit and conduct broad discovery should, they say, trump norms of maintaining business secrets at great expense, allow bypass of the confidentiality rule of a federal agency and evade the fundamental right of privacy any person or business has in its own proprietary information. The courts should not tolerate or assist such abuse.

Protective Order

Such tensions are not new. In the late 1970s and early 1980s, widespread complaints of mounting abuses and intrusiveness, coupled with a massive boom in "complex" litigation, exposed serious problems with the uniquely generous discovery system and prompted criticism at the highest judicial and executive levels.⁴

Although reasonable discovery can promote a full and fair examination of the relevant facts before trial, "misdirected and unbridled discovery can become an engine of harassment" and a tool with which to "coerce unfair and uncalled for involuntary settlements."⁵ To check abuse, the Supreme Court admonished in 1979 that the "relevance" requirement "should be firmly applied" and that courts "should not neglect their power to restrict discovery" in order to protect against "annoyance, embarrassment, oppression, or undue burden or expense."⁶

One of the principal and flexible mechanisms given courts to prevent or minimize discovery abuse is the "protective order" device exemplified by Federal Civil Procedure Rule 26(c).⁷ This authorizes the court, in response to a motion showing "good cause" for relief, to issue "any order which justice requires" that protects a party or person from "annoyance, embarrassment, oppression, or undue burden or expense." The mere mention of these harmful consequences is the rule's acknowledgement of the great tension caused by the potential for intrusiveness.

Rule 26(c) catalogues a nonexclusive list of eight kinds of orders a court might fashion. One of the most meaningful where business or commercial entities are sued is number (7) providing that a court may order "a trade secret or other confidential research, development or commercial information not be revealed or be revealed only in a designated way."

This provision is broadly worded. Although it is commonly referred to as the "trade secret" type of protective order, the rule's clear intent is to cover not only so-called "trade secrets" in the formal sense but also sweeping classes of other confidential and proprietary documents and information.

The quoted words in Rule 26(c)(7) are obviously written in a "series" form meaning that, from the standpoint of statutory construction, the enumerated categories are of equal dignity when it comes to protection. There is no basis, as some occasionally have intimated, that only "trade secrets" are the intended items of protection. Or that "trade secrets" are a more justified subject of protection than, for example, "confidential commercial information." Similarly, Rule 26(c) broadly sets forth in a "series" form the threats potentially requiring protection: "annoyance, embarrassment, oppression, or undue burden or expense." There is no hierarchy here of protection objectives. "Annoyance" or "embarrassment," upon a showing of so-called "good cause," is as sufficient a basis for a protective order as "undue expense," for example.⁸

Protective orders preserving the "confidentiality" of produced documents or information serve particularly valuable purposes. This is recognized, for example, in the Manual for Complex Litigation⁹ which, although intended primarily for use in complex civil litigation in federal courts, is nevertheless instructive in state courts and in routine federal civil litigation. The manual recites that trade secrets or other confidentiality objections to discovery are typically handled by entry of a protective order incorporating the terms suggested or agreed to by the parties. Counsel receiving confidential materials are generally forbidden from making disclosures other than at trial or in preparing for trial or settlement. Those to whom disclosure is made, says the manual, are usually required to agree in writing to abide by the terms of the order limiting further disclosure. In the case of voluminous materials, the manual counsels use of so-called "umbrella" protective orders, carefully drafted to suit the circumstances of the case, as a device to greatly expedite the flow of discovery material while affording protection against unwarranted disclosures. Indeed, the manual sets out a "Sample Confidentiality Order" embodying many protective provisions.¹⁰

Privacy Rights

Rule 26(c)'s "good cause" requirement ought not be imposed as some form of onerous restriction operating as a barrier to obtaining protective relief. That approach is contraindicated by the significant remedial purposes of protective orders, the policy interests in granting them, and the broad language employed in Rule 26(c).

The very nature of "confidential" or "secret" information, by definition, means that it has been preserved in the private domain. A movant seeking nondissemination frequently cannot show the precise economic harm that might result from disclosure to the public or to competitors because there is often no "track record" of such harm. After all, the material has been maintained on a "confidential" basis. In such cases, a formalistic, punctilious showing ought not be required. Specific examples or "articulated reasoning" of potential competitive harms is sufficient. Recognition, for example, of the factors identified by the NHTSA in its Final Rule on "Confidential Business Information" should be sufficient as they are well-established business norms. A rule of reason has to prevail. Otherwise, the "good cause" requirement will gobble up the rule itself.¹¹

Skillful and creative use of protective orders can take the harsh edges off what is otherwise a statutorily licensed invasion of privacy rights and forced disclosure of confidential and proprietary information. Protective order practice therefore, is one of the primary threads in the rich tapestry woven by federal discovery rules 26 through 37 and their state counterparts. Courts should frequently issue such orders in recognition of the salutary purposes they serve and in order not to unravel the tapestry woven by the discovery rules taken as a whole. Moreover, the dramatic 1984 Supreme Court decision in Seattle Times clearly revitalized "privacy rights" and clarified that "access" to pretrial discovery even by a party, let alone by third persons, is merely a matter of "legislative grace" and not one of constitutional right.¹²

In Seattle Times Co. v. Rhinehart,¹³ the Court held that parties to civil litigation do not have a First Amendment right to disseminate, in advance of trial, information they gain through the pretrial discovery process. The Court reasoned as follows. The liberal discovery rules often allow "extensive intrusion into the affairs of both litigants and third parties." Noncompliance is enforceable by contempt powers. A "free speech" approach to disseminating discovery materials, however, imposes "an unwarranted restriction on the duty and discretion of a trial court to oversee the discovery process."¹⁴ While there may be a "public interest in knowing more" about the party, it did not follow that litigants have "an unrestrained right to disseminate information that has been obtained through pretrial discovery."

More importantly, "a litigant has no First Amendment right of access to information made available only for purposes of trying his suit."¹⁵ Moreover, "pretrial depositions and interrogatories are not public components of a civil trial."¹⁶ They were not generally open to the public at common law and are conducted in private as a matter of modern practice. Also, much of the disclosed information may be unrelated, or only tangentially related, to the underlying cause of action. Therefore, discovery restraints and confidentiality orders "are not a restriction on a traditionally public source of information."¹⁷

The Court also confirmed that liberal discovery is provided for the sole purpose of assisting in the preparation and trial or the settlement of litigated disputes. Because of such liberality, it is necessary for the trial court to have authority to issue protective orders. The Court indicated that it was "clear from experience" that pretrial discovery "has a significant potential for abuse."¹⁸ Such abuses do not only involve expense and delay. Discovery also may "seriously implicate privacy interests of litigants and third parties." Disclosed information "could be damaging to reputation and privacy." The government has a "substantial interest in preventing this sort of abuse of its processes." Prevention of such abuses is "sufficient justification" for the authorization of protective orders.¹⁹

The Seattle Times opinion is not merely a constitutional ruling. The Court justifies protective order relief when the information sought to be protected against dissemination involves a litigant's affairs in which there is a "recognizable privacy interest." Repeated references to rights of privacy abound.²⁰ This strong legal standard of "privacy" is not expressly mentioned in Federal Rule of Civil Procedure 26(c) (or its state counterparts). The rule refers only to protection from "annoyance, embarrassment, oppression or undue burden or expense." Yet, the Court in Seattle Times made it absolutely clear that "privacy" interests are included. In the words of the Court, "[A]lthough the Rule contains no specific reference to privacy or to other rights or interests that may be implicated, such matters are implicit in the broad purpose and language of the Rule."²¹

Conclusion

Thus, those who would place proprietary, private or confidential information on the low end of the totem pole as far as protective relief is concerned are wrong. A company's business, proprietary or confidential interest in its design, testing, financial, research and engineering records, or its warranty or complaint data, for example, is a legitimate basis for seeking nondissemination orders. Information that is routinely protected from competitors and against theft, unfair tactics, industrial espionage and the like, at great expense, should not be circulated freely simply because pretrial discovery has been utilized.

Nor is anything less than a trade secret disqualified from protection, as some have argued. Seattle Times effectively exposes the fallacy of such thinking. First, the Court speaks in general terms of "privacy interests." That term of art obviously is not limited strictly to "trade secrets." Second, the "right to privacy" is deemed implicit within the broad purposes of protective relief under Rule 26(c). Third, the express protection available under Rule 26(c) from "annoyance," "embarrassment" or "undue burden or expense" sufficiently covers confidential or proprietary business data even when it is not formally a "trade secret." Confidential business data nearly always will satisfy some of these criteria to some extent. Thus, while liberal discovery rules may allow the interrogating party broad statutory access in a given case, the dissemination of such materials to others elsewhere clearly is subject to control.

The flexible device that harmonizes the demanding party's need for access with the producing party's competing right to privacy is the protective order. Courts especially should use this mechanism vigorously to limit potential assaults on privacy now greatly magnified in the electronic discovery era.

Michael Hoenig is a member of Herzfeld & Rubin.

Endnote:
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1. See R.L. Marcus, "Secrecy in Litigation: A Modest Proposal: Recognizing (At Last) That the Federal Rules Do Not Declare That Discovery Is Presumptively Public," 81 Chicago-Kent L. Rev. 331 (2006); R.L. Marcus, "The Discovery Confidentiality Controversy," 1991 U. Ill. L. Rev. 457 (1991); R.L. Marcus, "Myth and Reality in Protective Order Litigation," 69 Cornell L. Rev. 1 (1983); S.N. Subrin, "Discovery in Global Perspective: Are We Nuts?," 52 DePaul L. Rev. 299 (2002); H.W. Erichson, "Court-Ordered Confidentiality in Discovery," 81 Chicago-Kent L. Rev. 357 (2006); S. Moskowitz, "Discovering Discovery: Non-Party Access to Pretrial Information in the Federal Courts 1938-2006," 78 U. Colo. L. Rev. 817 (2007); A.R. Miller, "Confidentiality, Protective Orders, and Public Access to the Courts," 105 Harv. L. Rev. 427 (1991); M. Hoenig, "Protective Confidentiality Orders," New York Law Journal, March 5, 1990, p. 3, 13 J. Prods. Liab. 85 (1991).

2. R.L. Marcus, Id., 81 Chicago-Kent L. Rev. at 342-344.

3. Fr. Doc. E7-20368 (Oct. 19, 2007). The early warning requirement was promulgated earlier in accordance with the Transportation Recall Enhancement Accountability and Documentation Act of 2000 calling for increased vigilance by the Agency of safety problems.

4. See M. Pollack, "Discovery - Its Abuse and Correction," 80 F.R.D. 219, (1979) (citing statements by Chief Justice Warren Burger that "misuse of pretrial procedures means that 'the case must be tried twice'"; and by Attorney General Griffin Bell that the "average litigant is overdiscovered, overinterrogated, and overdeposed." See also Marcus, "Myth and Reality in Protective Order Litigation," 69 Cornell L. Rev. 1, 6 (1983) (citing statements by Justices of the Supreme Court).

5. M. Pollack, supra n. 4, 80 F.R.D. at 222.

6. Herbert v. Lando, 441 U.S. 153, 177 (1979) (citing Federal Rule 26(b)(1) that the material sought in discovery be "relevant" and Rule 26(c) on protective orders; "With this authority at hand, judges should not hesitate to exercise appropriate control over the discovery process.")

7. Rule 26(c) provides that for good cause shown, the court may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.

8. See Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1114-15 and n. 10 (3d Cir. 1986) (Rule 26(c) protects against "broad range of troubles" and not only harm to a party's competitive position).

9. The Manual for Complex Litigation, §11.432, "Limited Disclosure/Protective Orders," pp. 64-69 (4th ed.).

10. See Id., §40.27, "Confidentiality Order," pp. 752-753.

11. Professor Erichson counsels that only a "light showing" of good cause should be necessary. Erichson, supra n. 1, 81 Chicago-Kent L. Rev. 357 (2006).

12. Seattle Times Co. v. Rhinehart, 467 U.S. 20 (1984).

13. 467 U.S. 20 (1984).

14. Id. at 31.

15. Id. at 32. (Emphasis added).

16. Id.

17. Id.

18. Id. at 34 and n. 20.

19. Id. at 35-36.

20. Id. at 35-36 (information "if publicly released could be damaging to reputation or privacy"; discovery abuses may seriously implicate "privacy interests of litigants and third parties.").

21. Id. at 35 n. 21.