Opinion
Cause No. IP 01-0051-C H/K
October 30, 2001
ENTRY ON PLAINTIFF'S MOTION TO COMPEL
Plaintiff Kobelco Metal Powder of America, Inc. ("Kobelco") uses a high volume of natural gas in its metal powder business. Kobelco has sued defendant The Energy Cooperative, Inc. ("TEC") for breach of a long-term supply contract for natural gas. Kobelco entered into the contract with Cinergy Resources, Inc. The contract specified a price through June 2001. Kobelco alleges that Cinergy Resources then assigned the contract to TEC.
After a sharp rise in natural gas prices, TEC informed Kobelco in October 2000 that it would no longer be supplying gas pursuant to the terms of the agreement with Cinergy Resources. Kobelco apparently had to cover its gas needs by purchasing gas at higher market prices, leading to this lawsuit. TEC's principal defense is that natural gas shortages and the sharp rise in natural gas prices allowed it to invoke the force majeure provision of the contract to excuse its failure to perform.
The case is currently before the court on Kobelco's motion to compel discovery from TEC. At issue are Kobelco's first requests for production, first requests for admissions, and first set of interrogatories. Kobelco requested production of documents and other discovery regarding TEC's gas contracts and the force majeure defense, efforts to alter other gas supply contracts, other litigation, and other relevant matters.
TEC served formal written responses to the discovery but insisted that Kobelco sign a confidentiality agreement before any (or at least many) documents were actually produced. Kobelco's attorney replied that any such order or agreement would need to comply with the Seventh Circuit's decision in Citizens First National Bank v. Cincinnati Insurance Co., 178 F.3d 943 (7th Cir. 1999), which warns against overly broad confidentiality orders in litigation.
TEC's attorney eventually forwarded to Kobelco's attorneys a draft agreement that would have allowed either party to designate any information as "confidential," thus triggering special treatment of the documents and information derived from them. Kobelco's counsel responded (correctly) that the draft did not come close to satisfying the standards of Citizens First National Bank. After more delay, TEC's counsel invited Kobelco's counsel to draft a suitable order. Kobelco's attorneys declined the invitation. The attorneys reached a stalemate, and Kobelco filed its motion to compel.
As explained below, Kobelco's motion is granted except with respect to one request for production, and TEC shall produce all responsive and non-privileged documents and information no later than 21 days from the date of this entry. Pursuant to Rule 37(a)(4)(A) of the Federal Rules of Civil Procedure, the court will also award Kobelco its reasonable attorneys' fees and expenses incurred in pursuing the motion.
I. Compliance with Local Rule 37.1
TEC contends at the outset that the motion to compel should be denied because Kobelco failed to comply with this court's Local Rule 37.1 before filing the motion. Local Rule 37.1 requires an attorney filing a discovery motion to file a separate statement showing that the attorney made a reasonable effort to reach agreement with opposing counsel, and reciting the date, time, place, and participants in a conference, or circumstances showing that the opponent refused or delayed such a conference.
No conference occurred in this case. Nevertheless, the correspondence and telephone calls from Kobelco's attorney gave TEC's counsel ample notice of the problem and of Kobelco's intention to file the motion to compel if no agreement were reached. At this point, the briefing on the motion has been completed, and there is no hint of possible agreement between the parties. To deny the motion to compel without prejudice, and to require a conference and further briefing, would be futile and expensive. The court finds substantial compliance with the terms and purposes of Local Rule 37.1. See Fed.R.Civ.P. 1.
Kobelco asserted in its reply brief that TEC's counsel said in a telephone conference that TEC had no intention of changing its position and that it would be best for the court to decide the issue.
II. Confidentiality Issues
The principal dispute between the parties is over the terms of a protective order. TEC has proposed an order or agreement that would allow either party to designate any information produced in discovery as "confidential." Kobelco contends such an order fails to pass muster under applicable Seventh Circuit law.
In Citizens First National Bank v. Cincinnati Insurance Co., 178 F.3d 943 (7th Cir. 1999), the Seventh Circuit disapproved a confidentiality order that had been issued by a district court after agreement of the parties. The appellate court explained that the public has an interest in knowing what goes on in the public courts, and that portions of the record could be sealed only if the trial court made a thoughtful and factually supportable finding of good cause for such confidentiality. See 178 F.3d at 946.
The court in this case could not make any such finding regarding any information that TEC contends must be kept confidential. On this record, there simply is no good cause for any protective order. The problem is not soluble by more artful drafting of an agreed order. The only categories of information TEC has identified as deserving "confidential" treatment are the terms of TEC's contracts for sales of natural gas to third parties, including the price and quantity terms. Def. Br. at 7. TEC asserts these matters are trade secrets.
Indiana courts have recognized that customer information such as contract terms may qualify as a trade secret, but such trade secret protection requires the party seeking the protection to show that the information is in fact secret, that it is the subject of reasonable measures to keep it secret, and that it is valuable because it is kept secret. See Ind. Code § 24-2-3-2 (defining trade secret); Ackerman v. Kimball International, Inc., 634 N.E.2d 778, 783-84 (Ind.App. 1994), adopted in part and vacated in part on other grounds, 652 N.E.2d 507 (Ind. 1995); see also Economation, Inc. v. Automated Conveyor Sys., Inc., 694 F. Supp. 553, 556 (S.D.Ind. 1988) (finding that price quotations were not cognizable trade secrets and not entitled to protection where the price quotation information was provided to customers and thus readily ascertainable before the salesmen left the company's employment to work for a competitor); Bridgestone/Firestone, Inc. v. Lockhart, 5 F. Supp.2d 667, 681 (S.D.Ind. 1998) ("information about customers, cost, and pricing is among the most fragile and ephemeral types of trade secrets").
In a case decided under Illinois law, the Seventh Circuit detailed some of the factors that may affect whether such customer information can be protected as a trade secret:
Second, Judge Kocoras correctly found that the customer lists and information, the display books, and price lists were not trade secrets, and thus not confidential information, under Illinois law. Given the evidence that (1) all Lawson's sales force and customers had access to the information; (2) much of the information served to supplement data compiled by the salesperson for his or her own use; (3) the information could be acquired by other means such as phone calls or visits to customers or suppliers whose names could be found in the yellow pages; (4) the information became outdated rapidly; and (5) no formal confidential arrangements were made, this case is indistinguishable from a well-established line of cases in Illinois denying protection where the information is not kept under "lock and key."
Lawson Products, Inc. v. Avnet, Inc., 782 F.2d 1429, 1441 (7th Cir. 1986). Illinois and Indiana have both adopted the uniform trade secrets act, so this decision provides useful guidance for courts in Indiana.
Against this backdrop of trade secret law, TEC has not made a colorable showing that any information it seeks to protect could qualify as a trade secret. TEC has not actually moved for a protective order, nor has TEC offered any foundation that would support a finding that any of this information would actually qualify as a trade secret.
There is no suggestion, for example, that TEC swears its customers to secrecy about the terms of their natural gas contracts. There is no evidence about any internal measures that TEC itself uses to ensure that such information is kept confidential. There is no evidence that customers are hard to identify in this field or that customers tend to keep such terms confidential. Because the product in question is a commodity that experiences rapid price changes, there is no indication that a competitor who learned the terms of a TEC gas supply contract signed six months ago, or even one month ago, would gain any actual commercial advantage. Kobelco itself is not a competitor, of course, and there is no evidence that the terms of such contracts are kept confidential in the trade.
TEC has cited Covey Oil Co. v. Continental Oil Co., 340 F.2d 993, 999 (10th Cir. 1965), and GTE Products Corp. v. Gee, 112 F.R.D. 169, 171 (D.Mass. 1986), to support its claim for trade secret protection. In Covey Oil the Tenth Circuit affirmed a district court order denying a motion to quash but allowing non-party competitors of the parties to restrict disclosure of competitive gasoline contract information only to attorneys and outside experts. In GTE Products, the district court issued a protective order imposing similar restrictions on customer lists and prices. Neither opinion addressed the factual showing supporting the claims that the information needed to be kept secret, but neither opinion purported to announce a per se rule that terms of commercial contracts are trade secrets that must be kept confidential in the discovery and pretrial motion process. Because TEC has made no factual showing to support its conclusory assertions of trade secret protection, it is not entitled to that protection here.
Notwithstanding these silences in the record, TEC contends it was not required to comply with the terms of Citizens First National Bank because it was drafting only "a private confidentiality agreement" rather than a protective order that would be issued by the court. The argument is without merit.
First, the confidentiality agreement that TEC drafted and submitted to Kobelco expressly governs (or purports to govern) the submission of "confidential" information to the court. It states that "the materials filed with the Court shall be submitted in a sealed envelope marked confidential pursuant to the Court [sic] and shall be sealed by the Clerk." Pl. Ex. I, paragraphs 8 9 (emphasis added). The draft even purports to provide for continued court jurisdiction to enforce this supposedly "private confidentiality agreement" after final termination of this action.
Citizens First National Bank plainly applies to such agreements that purport to restrict the submission of information to a court and the handling of such information in the court, both at trial and before trial. See 178 F.3d at 944-45 (public has an interest in what goes on at all stages of a judicial proceeding). It has long been clear that the presumptive right of public access to court records is not limited to trial records but also includes records of potentially dispositive pretrial motions. See In re Continental Illinois Securities Litigation, 732 F.2d 1302, 1309 (7th Cir. 1984) (affirming district court order granting media access to previously sealed motion papers); accord, In re Associated Press, 162 F.3d 503, 510 (7th Cir. 1998) (vacating district court order sealing pretrial materials where no showing and finding of good cause had been made). TEC's proposed agreement attempted to seal just such pretrial records.
These aspects of TEC's proposed agreement undermine its effort to rely on In re Bridgestone/Firestone, Inc., 198 F.R.D. 654, 657 (S.D.Ind. 2001), where Judge Barker held that intervening news services did not have a right of direct access to documents exchanged in discovery between the parties pursuant to agreement, but not yet filed in the court. Judge Barker pointed out, however, that the court does have a role in protecting public access when "one of the parties has petitioned the Court to act with regard to the confidentiality of documents." Id. at 658. A party cannot avoid that scrutiny by artful drafting that omits the judge's approval and signature from an agreement that still purports to govern the content and handling of documents filed with the court.
Finally, of course, although the parties may agree that information they exchange will be kept confidential before it is filed with the court, a party may not be required to reach such an agreement, especially one that would restrict its ability to submit relevant matters to the court. Kobelco never agreed here. If TEC felt it needed protection, it could have moved for a protective order, though on this record it would have been denied. For these reasons, Kobelco is entitled to discovery without any restrictions on its use of supposedly confidential information.
III. Relevance and Overbreadth Issues
TEC also argues that several specific discovery requests are overly broad, and Kobelco has proposed in reply some limitations to several of them. Interrogatory Number 6 seeks information about all lawsuits filed against TEC from January 1998 to the present. The scope of this interrogatory shall be limited to suits for breach of contract involving sales or purchases of gas, and TEC must respond to this interrogatory as so limited.
Request for Production Number 3 seeks all documents relating to lawsuits against or by TEC filed from January 2000 to the present. The scope of this request shall also be limited to suits for breach of contract involving sales or purchases of gas, and TEC must produce responsive non-privileged documents as so limited.
Request for Production Number 4 seeks documents "regarding any suggestion, proposal, intention, or action to discontinue or alter the term or terms of a sales contract or agreement relating to the sale or supply of natural gas during the period January 2000 to the present." TEC asserts this request is unduly burdensome because it covers 20,000 separate contracts. Kobelco responds that documents on this subject go to the heart of TEC's force majeure defense. The court agrees with Kobelco as to the relevance of such documents and will order production within 21 days.
If TEC finds it impossible to comply in that time frame and comes to the court with evidence showing that it has made a serious, energetic, and good-faith effort — an effort that has looked in the most likely places first and has generated substantial production — but that it still has come up short, the court may consider some modification as to the scope of this request. Any such determinations are likely to be better-informed with more specific information about the efforts TEC has made, the records it has kept, and the other evidence relevant to its force majeure defense.
Request for Production Number 6 seeks all documents that "identify, propose, refer to, relate to, mention, discuss, create, or describe The Energy Cooperative II, Inc. or any other corporation, association, company, or entity of any sort that uses the words 'Energy Cooperative' in its moniker." TEC contends this is overly broad, so broad as to include literally every piece of TEC stationery because it refers to or mentions TEC itself in the letterhead. Kobelco has responded by attempting to recast the request as asking for documents "that explain the relationship between the TEC entities." That is not what the request said, nor is it readily susceptible to that narrowed construction. The motion to compel is denied with respect to this overly broad request.
IV. Expenses and Sanctions
Kobelco requests an award of its attorneys' fees and expenses incurred in making this motion to compel. Such an award is proper under Rule 37(a)(4)(A) of the Federal Rules of Civil Procedure unless the court were to find that Kobelco filed its motion without making a good faith effort to obtain the discovery without court action, that TEC's position was substantially justified, or that other circumstances would make an award unjust. Such an award is proper here.
On the principal issue in dispute, the issue of confidentiality, TEC's position was not substantially justified.
First, on the law, TEC's approach to Citizens First National Bank is internally inconsistent and simply untenable, as explained above. TEC cannot avoid the requirements by calling its proposed document a "private confidentiality agreement" when it purports to restrict the use of information in the litigation and even purports to impose obligations on the court, including the clerk of the court.
Second, TEC proposed an order or agreement even broader than the one rejected in Citizens First National Bank. TEC's proposed order or agreement contained no definition or limitation on what information might be deemed confidential. The proposed agreement was "a virtual carte blanche to either party to seal whatever portions of the record the party wanted to seal," see 178 F.3d at 944, and would have gone even further than the order in Citizens First National Bank.
Third, TEC failed to take the basic step of seeking a protective order. Instead, it chose to take an untenable position and waited for months, effectively forcing Kobelco to file the motion to compel.
Fourth, on the facts, TEC relied solely on conclusory assertions that some of its information is confidential or trade secrets. TEC failed to make even a colorable showing that any of the information — let alone all the information — it has been holding hostage might qualify as legitimate trade secrets.
The record here also establishes a good faith effort by Kobelco to obtain the discovery without court action. TEC refused to provide the discovery unless Kobelco signed an untenable confidentiality agreement. TEC's draft was so far off the legal mark, and its assertions of a need for confidentiality were so unsupported, that the court finds Kobelco's refusal to propose its own draft was eminently reasonable under the circumstances.
Finally, there are no other circumstances here that would make an award unjust. Kobelco's success on the motion has been nearly complete, and it is entitled to an award of reasonable attorneys' fees and expenses incurred in making the motion to compel.
Conclusion
Defendant The Energy Cooperative, Inc. is hereby ORDERED to produce all responsive non-privileged documents and other information responsive to Kobelco's pending discovery requests no later than 21 days from the date of this entry, except that defendant need not respond further to Request for Production Number 6.
TEC is entitled to be heard on the amount of the award of fees and expenses. The court will hold a hearing on the subject on Tuesday, November 20, 2001, at 9:00 a.m. in Room 344, U.S. Courthouse, Indianapolis, Indiana. In the hope of avoiding litigation over the amount, the court estimates on a preliminary basis, based on its review of the materials submitted and its familiarity with the legal market in Indianapolis, that an award on the order of $3,000 is likely to be reasonable, though a final award after a hearing could be higher or lower. If TEC pays Kobelco $3,000 (or such other amount as the parties may agree upon) no later than November 15, 2001, the hearing will be cancelled.
So ordered.