Opinion
Civ. No. 00-3605 (DRD).
December 9, 2003
Peter S. Pearlman, Esq., COHN LIFLAND PEARLMAN HERRMANN KNOPF LLP, Saddle Brook, NJ, Liaison Counsel, William S. Lerach, Esq., Arthur C. Leahy, Esq., Kathleen A. Herkenhoff, Esq., A. Rick Atwood, Jr., Esq., Tricia L. McCormick, Esq., Matthew P. Siben, Esq., Shaun Khojayan, Esq., MILBERG, WEISS, BERSHAD, HYNES LERACH, LLP, San Diego, CA.
Sandra Stein, Esq., MILBERG, WEISS, BERSHAD, HYNES LERACH, LLP, Philadelphia, PA, Lead Counsel for Plaintiffs.
John J. Francis, Jr., Esq., DRINKER, BIDDLE REATH, LLP, Florham Park, New Jersey.
Yosef J. Riemer, Esq., Scott R. Samay, Esq., Daniella T. Mayer, Esq., KIRKLAND ELLIS, New York, New York, Counsel for Honeywell International, Inc.
OPINION
Defendant Honeywell International, Inc. ("Honeywell") has appealed three decisions of Magistrate Judge Susan D. Wigenton relating to the designation as confidential of certain documents it has produced in discovery in this action. In an order dated August 27, 2003 (the "Dedesignation Order"), Judge Wigenton determined that Honeywell had not shown the requisite good cause for the confidentiality designation of 39 documents, and she ordered that the designation be stricken from those documents; in an order dated September 29, 2003 (the "Redesignation Order"), Judge Wigenton ordered Honeywell to provide Plaintiffs within 20 days of the date of the order with a revised list of documents designated confidential; finally, in an order dated October 1, 2003, she rejected Honeywell's request that the operative protective order be modified to provide that documents produced in discovery could not be used for any purposes outside this litigation. Judge Wigenton's determination that the 39 documents at issue were not properly classified as confidential was not clearly erroneous or contrary to law; and accordingly the August 27, 2003 Order dedesignating those documents will be affirmed. Because Honeywell's request for a restriction on the use of documents produced in discovery was in essence a request for a form of confidential treatment for all those documents, and because such confidential treatment is available only on a showing of good cause, the October 1, 2003 Order denying Honeywell's request for an amendment to the protective order will also be affirmed. However, because the record as it stands does not support a finding that Honeywell's confidentiality designations were made in bad faith, Judge Wigenton's September 29, 2003 Order compelling Honeywell to provide a revised list of documents designated confidential will be reversed.
Plaintiffs have also requested that sanctions be imposed on Honeywell for misuse of the confidentiality designation and (under Fed.R.Civ.P. 11) for certain supposed misrepresentations in its briefing on this appeal. The request for sanctions arising from conduct in discovery should have been directed in the first instance to the Magistrate; the request for Rule 11 sanctions is without merit. Accordingly, the requests for sanctions will be denied.
BACKGROUND
On July, 2, 2002, Magistrate Judge Hedges entered a protective order (the "Protective Order") governing discovery in this action. The Protective Order provides,
The "CONFIDENTIAL" designation hereunder shall be used consistent with the current legitimate business or privacy interests of the parties hereto or other persons or entities producing documents. The designation of any document or information as "CONFIDENTIAL" pursuant to the terms of this Order shall constitute the verification of counsel of record of the designating party that at least one them has reviewed the document's compliance with the criteria of this Order and the designation is, in the good faith judgment of counsel, consistent with terms of this Order.
Honeywell has produced a large number of documents designated confidential. In accordance with the procedures outlined in the Protective Order, Plaintiffs challenged the designation of several of those documents, including the 39 at issue on this appeal. Honeywell refused to remove the confidentiality designation from those 39, and Plaintiffs (again following the procedures set forth in the Protective Order) then moved for an order requiring dedesignation. The Protective Order provides that when such a motion is made, the producing party has the burden of establishing that the designated information is actually confidential within the meaning of the Protective Order. In connection with the motion to strike the designation, Plaintiffs also requested that Honeywell be ordered to provide a revised list of documents designated confidential. This request was apparently based on the view that Honeywell's original designations had not been made in good faith; and Plaintiffs provided numerous examples of clearly non-confidential documents that had improperly been designated as confidential. In support of its contention that the documents at issue were properly designated, Honeywell submitted an affidavit of John J. Tus, Vice President and Controller for Honeywell.
Plaintiffs provided certifications containing some 46 that they asserted were improperly designated. In briefing this appeal (in response to Honeywell's presentation of certain documents not designated confidential), Plaintiffs have submitted a list of more than 60 documents that they assert are so clearly non-confidential as to indicate bad faith on Honeywell's part.
Tus at first provided an affidavit that Judge Wigenton found insufficiently detailed. In response to her request, he provided his "Supplemental Affidavit," which was ultimately the critical document purporting to provide a basis for the disputed confidentiality designations. References to the "Tus Affidavit" are to this latter document.
On August 27, 2003, Judge Wigenton issued the Dedesignation Order granting Plaintiffs' motion to strike the designation of the disputed documents as confidential. Honeywell requested a stay of the Dedesignation Order and an amendment to the Protective Order to the effect that documents produced in discovery could not be used for purposes outside the litigation.
In the Redesignation Order dated September 29, 2003, Judge Wigenton ordered, "Pursuant to the Court's Order dated August 27, 2003, Defendant Honeywell must provide to Plaintiffs a revised list of documents that Defendant Honeywell deems in good faith to be confidential within 20 days of the date of this Order."
In an order dated October 1, 2003, Judge Wigenton denied Honeywell's request for an amendment to the Protective Order.
DISCUSSION
I. Standard of Review
A district court reviewing a magistrate judge's order on a non-dispositive motion may modify or vacate the order only if the ruling was "clearly erroneous or contrary to law." 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(a); Loc. R. 72.1(c)(1); see Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1113 n. 5 (3d Cir. 1986). "A finding is clearly erroneous `when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" Dome Petroleum Ltd. v. Employers Mut. Liab. Ins. Co., 131 F.R.D. 63, 65 (D.N.J. 1990) (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). A ruling is contrary to law if the magistrate judge has misinterpreted or misapplied applicable law. Gunter v. Ridgewood Energy Corp., 32 F. Supp. 2d 162, 164 (D.N.J. 1998).
II. The August 27, 2003 Dedesignation Order
Under Fed.R.Civ.P. 26(c)(7), a court may enter a protective order "that a trade secret, confidential research, development, or commercial information not be revealed or be revealed in a designated way." A party is entitled to a protective order if it shows good cause for the protection. See Pansy v. Borough of Stroudsburg, 23 F.3d 772, 786 (3d Cir. 1994). "Good cause is established on a showing that a disclosure will work a clearly defined and serious injury to the party seeking closure." Id. at 786. A party can satisfy the good cause requirement by showing that the public disclosure of business information would put it at a competitive disadvantage. See, e.g., Bonin v. World Umpire Ass'n, 204 F.R.D. 67, 69-71 (E.D. Pa. 2001); Zenith Radio Corp. v. Matshushita Elec. Indus. Co., Ltd., 529 F. Supp. 866, 890 (E.D. Pa. 1981).
Judge Wigenton's determination that none of the grounds advanced by Honeywell for the challenged designations amounted to good cause was certainly not clearly erroneous. Honeywell divides the documents at issue into four (partially overlapping) categories: "documents containing confidential financial information concerning Honeywell's individual businesses; (2) documents that reflect Honeywell's evaluation of business opportunities; (3) documents memorializing confidential discussions at Honeywell officers' meetings; and (4) documents containing confidential and proprietary information concerning Honeywell's supplier relationships." Honeywell contends that the dissemination of the documents in question would place it at a competitive disadvantage. For example, it argues that such dissemination would provide information on the profit margins of Honeywell's individual businesses and thereby permit suppliers, customers, and competitors to put price pressure on the more profitable among them. With respect to documents memorializing discussions among its officers, Honeywell contends that disclosure would adversely affect the company by chilling such discussions in the future. Contrary to Honeywell's view, there is ample support in the record for a determination that the documents at issue are too far out of date and/or insufficiently specific to have any substantial adverse competitive effect on the company. As for the supposed chilling effect of the disclosure of internal discussions, that does not provide a basis for confidentiality where the substance of the discussions at issue does not.
Given the types of information that Honeywell seeks to protect, the age of the challenged documents provides a substantial justification for Judge Wigenton's determination that disclosure would not result in any serious competitive disadvantage to Honeywell, see In re Agent Orange Product Liability Litigation, 104 F.R.D. 559, 575 (E.D.N.Y. 1985) ("An important factor in determining whether disclosure will cause competitive harm is whether the information that the party seeks to protect is current or stale."), aff'd, 821 F.2d 139 (2d Cir. 1987); and the fact that few if any of the documents reveal information on specific products (as opposed to businesses or product lines) represents an additional factor favoring affirmance. None of the documents is dated later than 2000. Specifically with respect to Honeywell's price pressure arguments, it is by no means clear that any customer, supplier, or competitor could reliably infer current profit margins from these documents and use that knowledge to put price pressure on Honeywell. This is not to say that documents three years old, or even older, could never contain information warranting protection as confidential. In some cases the record may indicate that old documents contain information that is still accurate and useful. See, e.g., Encyclopedia Brown Productions, Ltd. v. Home Box Office, Inc., 26 F. Supp. 2d 606, 614 (S.D.N.Y. 1998) (sealing documents several years old where there was "specific testimony that, for example, the cost and profit structures of the defendants, the volume of subscribership and the strategies employed . . . [had] not significantly changed"). But here Honeywell has provided no specific or persuasive indication that any information contained in the challenged documents reflects the current state of any Honeywell operations. The Tus Affidavit contains only a very broad and conclusory assertion that the documents remain sensitive because they are a source of "valuable insights" into the current state of Honeywell's operations. It is by no means clear that any of the challenged documents present information at a level of detail that would ever have been useful to a competitor, supplier, or customer. But even if it were possible to infer sufficiently detailed information from some of the documents, no one competing or doing business with Honeywell now could safely assume that the information is still accurate.
Honeywell has advanced the argument that even if current margins cannot be inferred form the documents at issue, the disclosure of information on old margins would by itself place Honeywell at a serious disadvantage in negotiations with current customers and suppliers. Honeywell suggests that its relationships with customers and suppliers could be damaged if they learn that certain products or businesses were more profitable than they previously believed. There is also presumably a chance that disclosure of old margins will raise a presumption, which Honeywell may feel obliged to rebut, that current margins are similar to those disclosed. The possibility that those negotiating with Honeywell might try to make some use of the information at issue cannot be completely discounted. Nevertheless, Judge Wigenton did not clearly err in determining such use would not ultimately result in the sort of serious injury that would justify the confidentiality designation of the challenged documents.
The age of the documents diminishes their usefulness most clearly to the extent that they might be used as sources for specific figures on Honeywell operations, but it is also an important consideration weighing against Honeywell's argument that some documents are confidential because they reflect the methods employed in the assessment of business opportunities or in dealings with suppliers. The extent to which the documents actually reveal any distinctive method or practice in either area is debatable; but even if they do, there is no assurance that any such method or practice is currently in use in the same form.
The documents that supposedly reveal Honeywell's methods of assessing business opportunities are for the most part simple lists of possible courses of action or presentations of factors and figures relating to an area of business. It is not clear that these documents exemplify any method that might be employed in other evaluations. Similarly, the documents Honeywell says reveal its methods of dealing with suppliers merely recount two specific measures taken to address specific problems; it is not evident when, if at all, similar steps might have been or would be taken with other suppliers.
Time is also a factor, though not the only one, operating against Honeywell's contention that disclosure might embarrass Honeywell and damage its relationships with suppliers by revealing action taken to address previous supplier problems. A supplier affected by the action at the time would obviously be aware of it in any event; and it is not clear that Honeywell's relationship with any other suppliers would be adversely affected by the disclosure now of actions taken with respect to other suppliers years ago.
Although Honeywell refers to embarrassment, its argument for confidentiality does not really appear to rest on embarrassment in itself. Rather, Honeywell implies that embarrassment would result in a substantial injury to its business. The record would not support a confidentiality argument based on embarrassment alone with respect to any of the challenged documents. Cf. Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1121 (3d Cir. 1986) (noting that "an applicant for a protective order whose chief concern is embarrassment must demonstrate that the embarrassment will be particularly serious" and noting that for a business to obtain protection on an embarrassment theory, it would "have to show with some specificity that the embarrassment resulting from dissemination of the information would cause a significant harm to its competitive and financial position").
Finally, Honeywell's suggestion that a document reflecting communications at officers meetings must be kept confidential because of the supposed chilling effect that disclosure would have on similar discussions is without merit. To the extent that Honeywell argues that all communications connected to officers' meetings are per se confidential, its argument would call for confidential treatment for even the most innocuous communications as long as they took place in or in connection with an officers' meeting. Such an extraordinary expansion of the concept of good cause is not warranted. Any chilling effect that officers might feel from the prospect that their conversations might be disclosed in discovery is adequately relieved by the particularized application of the good cause standard to the substance of such conversations: there is no need to protect all communications between officers; it is sufficient to protect those the disclosure of which actually poses a risk of harm.
Among the 39 challenged documents, there is only one (Exhibit 38 to the Tus Affidavit) that Honeywell seeks to keep confidential on the grounds that it reflects "candid" discussions at an officers' meeting.
Turning then to the content of the document at issue, there was no clear error in Judge Wigenton's determination that disclosure would not be sufficiently injurious to Honeywell. The document is a single unattributed page — a simple table headed "Consistently Facing Significant Gaps" that shows gaps (apparently between targets and performance) in net income and free cash flow for the last quarter of 1999 and the first three of 2000. At the bottom of the table are the words "Not Sustainable!" It does not appear, nor does Honeywell seem to argue, that disclosure of the figures themselves could injure the company: the actual performance of the company for the periods involved is by now a matter of historical record. Honeywell suggests instead that confidential treatment is warranted because of the "candid" and "critical" evaluation expressed in the document and because officers will hesitate to express such evaluations if they think their opinions might ultimately be disclosed. Certainly one can conceive of circumstances where such a chilling effect would occur. A company officer might very well hesitate in expressing unfavorable opinions of his or her company's prospects or performance if he or she thought that those opinions might be disclosed within a short period of time, while the issues involved were still live; he or she might also hesitate if the opinions revealed sensitive information. But such circumstances are not presented here, and it is by no means clear that an officer would be deterred from making frank evaluations about the general performance of the company by the knowledge that those observations might be subject to disclosure some three years later.
It should be noted that perhaps the most powerful chilling factor affecting such opinions is the fear that they may be used against the company in litigation. But that factor has no bearing on the confidentiality analysis because the designation of a document as confidential does not prevent a plaintiff (like Plaintiffs here) from gaining access to the document in discovery and using it in support of a case against the company.
III. The October 1, 2003 Denial of the Request for an Amendment to the Protective Order
Judge Wigenton's rejection of the proposed amendment to the protective order was not clearly erroneous or contrary to law. In requesting the proposed amendment, which would have barred any use of documents obtained through discovery for any purpose outside the litigation, Honeywell effectively sought a variety of confidential treatment, albeit limited, not just for the challenged documents (and other documents that it had designated confidential), but for all the documents it has produced or may produce. Honeywell has made no showing that would justify confidential treatment on such a broad scale, offering only its suspicion that Plaintiffs may use documents for an improper or unlawful purpose. That suspicion is not a sound basis for the expanded protective order that Honeywell seeks. If a document is not worthy of protection as confidential (either because Honeywell decides not to designated it confidential or because the Court, on Plaintiffs' motion, finds that it is not) then there is no basis for limiting the otherwise lawful disclosure of its contents. Indeed, Honeywell's proposed restriction would actually permit public disclosure (for example, in subsequent submissions to the court) of documents not classed as confidential. If disclosure by such means does not present a sufficient risk of harm to justify confidential treatment, it follows that disclosure by other means would not either, and there is no adequate basis for limiting Plaintiffs' lawful use of the documents.
Honeywell suggests that a protective order discussed inLeucadia, Inc. v. Applied Extrusion Technologies, Inc., 998 F.2d 157 (3d Cir. 1993), contained a provision similar to the one it seeks in this case. But the opinion in Leucadia indicates that the use restriction in the operative protective order applied only to confidential information, not necessarily to all documents produced in the case. Id. at 159.
IV. The September 29, 2003 Redesignation Order
In its briefing on this appeal, Honeywell assumes that Judge Wigenton's Redesignation Order requires it to produce a new list of confidentiality designations by conducting a complete new review of all the documents it has produced. Given that the Redesignation Order calls for a new list to be provided within 20 days, it seems almost inconceivable that this could have been Judge Wigenton's intention. It seems more likely that she sought to require Honeywell to revise its designations of some subset of documents (presumably those resembling the documents that were the subject of the Dedesignation Order), in light of the standards applied in the Opinion accompanying the Dedesignation Order. (It must be noted however that Plaintiffs did request, in their briefing on the dedesignation issue, that Honeywell "review its production" (presumably all of it) and generate a new list; and in support of its motion to strike the designation of the 39 challenged documents, Plaintiffs noted, and provided examples, of manifestly public documents marked confidential by Honeywell, suggesting that Honeywell generally used the designation in bad faith in its entire production. The Redesignation Order could simply be read to have granted the relief Plaintiffs apparently sought.)
No matter how the Redesignation Order is construed, however, its issuance was not warranted by the record. As Honeywell notes, given the procedures outlined in the Protective Order, the only legitimate basis for ordering Honeywell to conduct a corrective review of its production (or of some subset of that production), would be a finding that its confidentiality designations were not made in good faith — either for the whole production or for that portion of the production reached by the order. (Under the Protective Order, Honeywell's initial obligation is only to make designations in good faith, and it is up to Plaintiffs to seek to strike the confidentiality designation of documents they believe unworthy of it.) Judge Wigenton did not expressly make a finding of bad faith; and even if such a finding could be inferred, it would not be supported by the record. Honeywell's designation of the 39 challenged documents as confidential could not reasonably be viewed as evincing bad faith. These documents are all apparently internal records and communications, and a colorable argument could be made that at least a large part of the information they contain is legitimately confidential. Honeywell's designation of some patently non-confidential documents as confidential provides the basis for a more persuasive indictment of Honeywell's good faith. But even these erroneously designated documents, representing as they do only a minuscule fraction of the volume produced, do not provide a sufficient basis for an inference that Honeywell used the confidentiality designation in bad faith in other documents throughout the production. Plaintiffs might reasonably seek, and Judge Wigenton might award, sanctions based on bad faith designation of specific documents. But there is no adequate basis for a finding that the entire production (or any substantial portion of it) was designated in bad faith. Accordingly, the Redesignation Order must be reversed.
Even counting documents referenced for the first time in connection with this appeal, Plaintiffs have specifically identified only about 100 assertedly misdesignated documents. It is undisputed that the Honeywell production contains several hundred thousand pages of material. Plaintiffs assert in their briefs that all or nearly all of the documents in the production are marked confidential. But even if that uncertified assertion were legitimately part of the factual record, it would not by itself support a finding of bad faith: although it may seem unlikely that so many documents could be legitimately confidential, the record as its stands does not show that a good faith confidentiality argument cannot be made for nearly all of the produced documents.
V. Sanctions
In their briefing on this appeal, Plaintiffs argue that sanctions should be imposed on Honeywell for bad faith use of the confidentiality designation. But because this request for sanctions is based on conduct in discovery it must in the first instance be addressed to the Magistrate; accordingly, the request will be denied without prejudice.
Plaintiffs also contend that certain assertions by Honeywell in its briefs on appeal violate Fed.R.Civ.P. 11. There is however no indication that the assertions at issue were the sort of clear misrepresentations that might be sanctionable. Plaintiffs challenge the following statements:
1. Honeywell's assertion that it has reviewed its document production in good faith and sought to designate documents as confidential in accordance with the terms of the Protective Order;
2. statements that counsel for Honeywell reviewed each document to determine whether it met the criteria for confidentiality;
3. the statement that Honeywell inadvertently misdesignated three transcripts of investor conference calls and agreed to remove the designations when they were brought to its attention — along with the assertion that "isolated occurrences" of misdesignations do not show bad faith.
Although Plaintiffs might fairly argue that some of the glaringly erroneous designations they cite indicate bad faith, it is certainly not sanctionable for Honeywell to suggest that they do not and to offer innocent explanations. Nor does the record clearly show that Honeywell's obvious errors were not isolated occurrences. Plaintiffs suggest that by referring to the three transcripts of conference calls, Honeywell implies that these three documents were the only clearly public documents that were marked confidential. But Honeywell's discussion of the transcripts does not purport to include a complete account of misdesignated documents.
CONCLUSION
For the reasons stated above, Judge Wigenton's August 27, 2003 Dedesignation Order will be affirmed; her September 29, 2003 Redesignation Order will be reversed; and her October 1, 2003 Order rejecting Honeywell's proposed revision of the Protective Order will be affirmed. Plaintiffs' request for sanctions arising from Honeywell's conduct in discovery will be denied (without prejudice to its renewal before the Magistrate); Plaintiffs' request for sanctions under Rule 11 will be denied. An appropriate order will be entered.