Opinion
No. X05 CV08 4013452S
July 13, 2011
MEMORANDUM OF DECISION ON PLAINTIFFS' MOTION CHALLENGING DEFENDANTS' DESIGNATION OF CONFIDENTIALITY (#310)
In many high stakes commercial litigation cases, discovery disputes are a fact of life. This case is no exception. The underlying allegations stem from some large trades and correspondingly large monetary losses by the plaintiff hedge funds in privately placed investment vehicles, securities known generically as collateralized debt obligations (CDOs). The transactions at issue were negotiated and closed with the sellers, the UBS defendants, over a several month period in 2007, relatively late in the run up to the full blown crisis in the subprime mortgage markets in October of 2007. In the aftermath of downgrades in the investment ratings of certain collateral tied to those CDOs, and in reliance upon the terms of what the UBS defendants contend are the documents governing the specific terms of the securities, each of the CDOs at issue sold by UBS and held by the plaintiffs were declared worthless. Large sums of money are at stake, and the plaintiff hedge funds want their money back from UBS.
What is now before the court is a relatively straightforward discovery dispute over the issuance of several commissions. It is a discovery dispute that also implicates a party's designation of a document as confidential, and the Practice Book provisions on sealing. By way of background, the plaintiffs previously filed motions pursuant to General Statutes § 52-148c and Practice Book § 13-28 for the issuance of commissions seeking authority for the plaintiffs to conduct certain discovery depositions out of state. UBS filed an objection to the motions, and in the plaintiffs' response to that objection, they included as an attachment an email produced by the defendants pursuant to discovery. This email has been previously designated by UBS as confidential. Counsel for UBS describes the email as follows, "The email is correspondence from a senior employee at UBS to a limited number of other UBS employees, sent in August 2007 — in the midst of the collapsing market for subprime securities. The email discusses UBS's internal strategy for responding to the rapidly deteriorating market conditions. It discusses UBS's trading ideas, as well as the strategic objectives behind such trades. It also contains repeated references to interactions between UBS and its legal counsel regarding formulation of a legal and business strategy to respond to evolving market conditions. Moreover, the email describes in detail UBS's various business relationships with other financial institutions and market participants, including UBS's internal assessments of such entities and strategies for negotiating with them. Some of these business relationships are ongoing." (Def. brief, #317, pp. 3-4.)
Notwithstanding that the UBS defendants may not have initially invoked the terms of the Protective Order upon their first disclosure of this email to the plaintiffs, the court finds that UBS's invocation here was not untimely.
The email was disclosed to the plaintiffs by UBS under a protective order, an order specifically requested of the court by both the plaintiffs and the defendants. The order incorporates the terms of a confidentiality agreement reached between the parties themselves. Each side understood that this confidentiality agreement would govern their discovery. It is also important to note that this agreement is mutual and binding, and was reached after arms length negotiations by capable counsel. The plaintiffs themselves have invoked its terms, and have also designated certain documents as confidential in their disclosures to UBS on prior occasions pursuant to the discovery process. Those documents reflect the hedge funds' strategic analysis of and responses to the subprime market crisis. Because the plaintiffs chose to attach the UBS email to a court filing as an exhibit to its response, and now challenge the defendants' designation of confidentiality, the plaintiffs seek an order from the court allowing them to file publicly at this time a document it received privately.
The court reviewed the email in question, and previously held a hearing pursuant to the Practice Book. On April 5, 2011, the court issued an order (#297.86) granting the sealing of the exhibit, ruling as follows:
Pursuant to Practice Book § 11-20A, the Court finds that a Motion to File Records Under Seal was filed in this case by the plaintiffs pursuant to Practice Book § 7-4B. The motion was accompanied by an appropriate memorandum of law to justify the sealing. The materials at issue have been lodged with the Court pursuant to Practice Book § 7-4C. The motion was duly calendared pursuant to Practice Book § 11-20A(e) so as to give the public notice of the time and place of the hearing, and to afford the public an opportunity to be heard on the motion. The Court notes that no public participation was sought in connection with the hearing of this motion.
Having applied a balancing test which weighs the rights and the interests of the litigants and the interests of the public, the Court finds that the underlying documents as to which sealing is sought contain commercially sensitive, confidential business and/or proprietary information of the defendants. The Court further finds that the parties' interest in maintaining the confidentiality of this information at this time overrides the public's possible interest in viewing it, in that the business interests of the defendants might be harmed or compromised by the disclosure of this information. Moreover, the proposed order is no broader than necessary to preserve the parties' interest. The document is not to be sealed in its entirety, but rather, merely consists of certain redacted exhibits which contain the particulars of the information sought to be protected. The essentials of the document and its intended purposes may readily be gleaned from the redacted version available to the public.
For the foregoing reasons, the Motion to File Records under Seal is GRANTED until such further order of the court. The court is prepared to reconsider this issue if the plaintiffs so move in the future. (Emphasis in original.)
By now challenging the designation of confidentiality, the plaintiffs have in effect moved to reconsider. However, it is important to note that this email has not yet been offered at trial or an evidentiary hearing. As the protective order itself states, "The use at trial or an evidentiary hearing of documents, information and materials designated as Confidential Materials shall not be governed by this Order." (Emphasis in original; ¶ 5.) There is much information publicly marked into evidence and revealed in the actual trial of a case, or that may be properly introduced in an evidentiary hearing, like the hearing previously held in connection with the plaintiffs' application for a prejudgment remedy. However, in a commercial litigation case with an agreed upon Protective Order in effect as here, such information must be viewed as but the public tip of a proverbial iceberg. In other words, any information publicly disclosed is often but a small percentage of a database of far more extensive non-public information that has been gathered and exchanged between counsel for the parties via the civil discovery process. Months, if not years, of discovery have been conducted by both sides here in anticipation of the trial, currently scheduled for later this year.
The record will show that the court did not hesitate to allow properly authenticated and relevant emails to be admitted at that hearing.
The discovery process as it is commonly practiced in complex litigation cases must be recognized for what it really is. "[M]odern discovery is a preliminary evidence-finding process in which policy favors the broadest possible disclosure so that all admissible evidence may be found and set aside for eventual use in the truth-finding process of trial. The discovery process, which is intended to be largely self-enforcing, would be greatly impeded if every document a party might produce was ipso facto open to public inspection. Records now freely disclosed under protective orders, often entered by stipulation, would require laborious collateral litigation to establish grounds for a sealing order. This would impose a substantial new burden on parties as well as on the courts, all in derogation of a process that is largely a modern invention and has never been conceived as open to the public. Moreover, since discovered materials are not court records until filed in court in connection with a motion or trial, it is unclear how a right of public access would be effectuated." H.B. Fuller Co. v. Doe, 151 Cal.App.4th 879, 893, 60 Cal.Rptr.3d 501 (2007). While it is true that this email has been filed in connection with a motion, that is only one prong of the test. There is another element that must be satisfied. Necessity is not only the mother of invention, it is also the mother of public disclosure, in terms of granting public access on a discovery motion.
In its brief challenging the designation of confidentiality by UBS, the plaintiffs argue, "If the logic of UBS's opposition were enforced by the court here, then all internal corporate documents would be confidential as a matter of law — courts would be required to keep them secret from the public, denying them access to the courts in violation of the First and Fourteenth Amendments to the United States Constitution." (Reply brief, p. 1.) One would think that such sweeping claims of constitutional magnitude would be worthy of further elaboration and support, but the plaintiffs offer none. No matter how hard it tries, the court cannot on its own supply it. In fact, the court finds support in the case of United States v. El-Sayegh, 131 F.3d 158 (D.C. Cir. 1997), a case that recognized the public's right of access to judicial records, but defined those judicial records to be, "materials on which a court relies in determining the litigants' substantive rights." (Internal quotation marks omitted.) Id., 162. The Court does not need to rely on the actual UBS email itself to determine the litigants' substantive rights in this pre-trial discovery skirmish over whether certain commissions for depositions should issue here.
The court is certainly not ruling that all internal corporate documents are confidential as a matter of law, as the plaintiffs argue. Nor is the court enforcing "the logic of UBS's opposition." Rather, the court is recognizing why the plaintiffs attempted to place the UBS email on the public record and where the case is at procedurally, cognizant of the terms of the confidentiality agreement the plaintiffs themselves willingly entered into. Perhaps most important of all, "access to the courts" is not denied by this discovery ruling — to the contrary, it is the very reason why this case is headed for trial in a matter of months. At the time of any public trial, the protective order will not apply, but this is the private, non-public discovery phase the parties are still operating in. A confidentiality agreement was found necessary by both parties to adopt to govern their conduct of the discovery process, and the email itself has been found unnecessary for this court to adjudicate the issuance of a commission. As to the commissions themselves, the plaintiffs themselves stated, "The request[s] are for six short records depositions regarding relevant documents from a discrete time frame. That's it. This will presumably take about a day's work for all six." (Plaintiffs' Brief# 299, p. 3.)
At a hearing on the case management order held after the hearing on this motion, counsel for the plaintiffs indicated that they were no longer seeking to possibly attach this email to an amended complaint. "in order to strengthen its claims against UBS," as argued in their brief filed in connection with their motion challenging UBS's designation of confidentiality.
A different set of standards apply at trial, and those standards will be rigorously enforced, with their obvious preference for openness. The court is fully cognizant that Practice Book § 11-20A embodies a presumption that documents filed with the court shall be available to the public. However, the Judicial Branch's case management system Edison reflects that there have been over 250 filings in this case to date, and this is simply a plaintiffs' motion for an out of a state commission, a minor discovery matter that neither warrants nor is conducive to a full blown evidentiary battle of admissibility pre-trial. The court finds that this issue of commissions to take depositions could have been readily adjudicated by the court and resolved without the plaintiffs appending this confidential document disclosure. As the Second Circuit once noted, "Discovery involves the use of compulsory process to facilitate orderly preparation for trial, not to educate or titillate the public." Joy v. North, 692 F.2d 880, 893 (2d Cir. 1982), cert. denied sub nom, Citytrust v. Joy, 460 U.S. 1051, 103 S.Ct. 1498, 75 L.Ed.2d 930 (1983). The Pursuit plaintiffs are no doubt anxious to present their proof, but the court of public opinion must await the proper functioning of the court of law. The same goes for whatever secrets Pursuit itself has disclosed to the UBS defendants, but wishes to preserve as confidential at this time.
Joy v. North has since been superseded on other grounds by General Statutes § 33-724.
The case is not yet exposed for trial. That is not this stage of the proceedings, and neither the plaintiffs nor the defendants can dictate those terms. The code of evidence and the Practice Book are more persuasive to the court than the arguments of counsel for either side. When it comes to discovery disputes, Practice Book § 11-20A, the provision relied upon by the plaintiff, is only applicable here if the court found that the material, the actual UBS email itself, was truly necessary to the court's job of adjudicating the specific dispute before it. This is because, "[Practice Book] § 11-20A codifies the common-law presumption of public access to judicial documents, meaning any document filed with the court that the court could reasonably rely on in support of its adjudicatory function." Rosado v. Bridgeport Roman Catholic Diocese Corp., 292 Conn. 1, 30, 970 A.2d 656, cert. denied sub. nom, Bridgeport Roman Catholic Diocese Corp. v. New York Times Co., 130 S.Ct. 500, 175 L.Ed.2d 348 (2009). Plaintiffs are apparently eager to claim that their choice to attach the UBS email as an exhibit to their filing turns it ipso facto into a "judicial document." It is the court's ultimate determination as to what constitutes a judicial document, and the court finds that the actual email itself is simply not necessary to discharge its adjudicatory function over this minor discovery dispute.
One should not infer a judicial penchant for secrecy from this decision. To the contrary, the court also heartily endorses the principle that, "It is desirable that the trial of causes should take place under the public eye, not because the controversies of one citizen with another are of public concern, but because it is of the highest moment that those who administer justice should always act under the sense of public responsibility, and that every citizen should be able to satisfy himself with his own eyes as to the mode in which a public duty is performed." (Internal quotation marks omitted.) Kirk v. Commonwealth, 459 Mass. 67, 69, 944 N.E.2d 135 (2011). In Kirk, the Massachusetts Supreme Judicial Court recently took the opportunity to reiterate those enduring words of public access to the courts, words so ably articulated by Justice Oliver Wendell Holmes during his tenure on that same bench over a century ago.
The trial of this cause itself shall most assuredly take place under the public eye, but this is a relatively narrow pre-trial discovery dispute, and this ruling should not be construed as any attempt by this court to hinder the public airing at trial of the business dealings of either side, or the circumstances surrounding changes in any credit ratings which impacted the terms of these CDOs, or the securities transactions at issue. Those adjudications are for time of trial. The court also understands that it is improper to seal information simply because one of the parties involved wishes that it do so. No doubt dozens, if not hundreds, of emails will come into evidence as full exhibits at the time of trial. These are emails authored by both sides, emails that will pass the twin tests of relevancy and materiality. They will be admitted in due course. The admissibility of this email as evidence at trial is not at issue here.
Using motion practice as a means of piecemeal public disclosure of certain documents cannot be squared with the confidentiality both sides agreed upon during the discovery process. To say there is no basis to unseal the email at this time compels the court to elaborate on its prior use of the italics around that phase, as it did in issuing its first decision. Discovery rules no more govern admissibility at trial, than trial rules govern the process of pretrial discovery. Apples cannot be turned into oranges by the force of argument. Having found that the email itself is not necessary to an adjudication of the discovery dispute before it, the court does not need to rule on the admissibility or disclosure of the email at this time. Litigation "involves discovery which may never result in admissible evidence but which is nonetheless now permitted because it may lead to admissible evidence." MRMC, Inc. v. Landreth Engineering, Superior Court, judicial district of Ansonia-Milford, Docket No. CV 98 062516 (June 15, 1998, Flynn, J.). That case also involved a proposed protective order, and Judge Flynn commented on confidential information being, "put into the public domain as a result of discovery disputes requiring motions." Id.
If there was a genuine need for the plaintiffs to attach the document, this email, in order that the court might properly adjudicate their motion for a commission, the court's ruling here would be very different. It was unnecessary, so if the plaintiffs did not wish to be bound by a confidentiality agreement in their discovery, they should not have signed it. If the court had needed to reasonably rely on the actual email to adjudicate this motion for a commission, the common-law presumption of public access to judicial documents would be much stronger and far more compelling than it is under these circumstances, and also under the holding of the Supreme Court in Rosado, supra. By the agreement it negotiated, the plaintiffs themselves have also designated much information generated by their own hedge fund operations and disclosed to UBS as proprietary and confidential as well.
Perhaps this ruling will only serve to heighten any possible public interest in the specific contents of this UBS email. The same goes for any other evidence now in the possession of both parties, and gleaned from various depositions and their discovery motions, and currently designated by the other side as confidential. When it is eventually offered and introduced into evidence at the proper time, it will be the subject of testimony at trial. Disclosure and the issue of admissibility at trial, however, are quite different from the current circumstance facing this court. Adjudication at trial is by necessity a de novo review at that time. "At the adjudication stage . . . very different considerations apply. An adjudication is a formal act of government, the basis of which should, absent exceptional circumstances, be subject to public scrutiny." Joy v. North, supra, 692 F.2d 893.
Having found the actual UBS email itself to be unnecessary for this court to adjudicate the specific discovery dispute now before it, the court stops there. "This is a sufficient ground for deciding this case, and the cardinal principle of judicial restraint — if it is not necessary to decide more, it is necessary not to decide more — counsels us to go no further." PDK Laboratories Inc. v. DEA, 362 F.3d 786, 799 (D.C. Cir. 2004) (Roberts, J., concurring). Especially as applied to these circumstances, the court subscribes to this maxim of judicial restraint. If the actual email itself is unnecessary for the court to adjudicate the plaintiff's motion for commissions, it follows that public disclosure of the email's contents at this time is bound by the terms of the confidentiality agreement the plaintiffs agreed to and incorporated into the Protective Order. This decision marks the second time this court has used the phrase "at this time" in italics with respect to this UBS email, and for the reasons more fully articulated here. Discovery is not trial, and the court sustains the defendants' objection to the plaintiffs' challenge to their designation of confidentiality, until such time as the email is offered into evidence at trial.
Justice Roberts is currently the Chief Justice of the United States.
IT IS SO ORDERED,