Free Speech

"The Question Is Whether Delta [Airlines] Can Bring the Court a Dispute to Adjudicate in Secret"

"The answer to that question is clear."

|The Volokh Conspiracy |

From Judge Gregory H. Woods' decision Friday in Delta Air Lines, Inc. v. Bombardier, Inc., 2020 WL 2614704 (S.D.N.Y.):

One distinguishing facet of the American legal system is its commitment to public access to the trial process. This legacy of "open justice" is as old as America itself. Delta Air Lines, Inc. … has chosen to bring its breach of contract claim in one of these open, federal courts, but asks that all of the details of the contract at issue remain sealed. Because Delta has not overcome the strong presumption to public access that attaches to its complaint, its motion to seal is DENIED….

Delta has failed to meet its burden of proof that its complaint should be sealed…. [T]he presumption of public access to the information Delta seeks to shield from the public has extraordinarily substantial weight. Any decision that the Court makes in this matter will necessarily touch on its interpretation of the contract at issue and its terms—including the specific language that Plaintiff has requested be redacted. Delta recognizes that fact. Indeed, in its own words, the details of the "unique and multi-faceted pricing structure" in the purchasing contract "is integral to Delta's claims."

The Court cannot reach a decision regarding a contract's interpretation without examining the contract; Delta cannot expect the Court to decide the principle issue in its case in secret. The presumption of public access to the structure and operation of the disputed contractual provisions at issue in this case is therefore extremely high. The weight of the presumption is arguably less with respect to the few references to the approximate amount at issue in the dispute that Delta proposes to shelter….

[The test for when a document may be sealed] requires that the Court consider the countervailing interests that weigh against public disclosure. The motion to seal is surprisingly lacking in particularity, despite the Court's invitation to submit supplemental briefing in support of the application. Regardless, Delta relies primarily on two countervailing interests: 1) the fact that disclosure would cause both Delta and Bombardier, Inc. ("Bombardier") competitive harm, and 2) an unqualified confidentiality provision in the purchasing contract at issue forbidding either party from disclosing its terms or conditions.

First, the Court acknowledges that courts "routinely permit parties to redact sensitive financial information" from public filings. But Delta has provided the Court with only a single affidavit from the Head of Legal Services at Bombardier, reiterating that the terms and conditions of this contract are heavily negotiated and must remain confidential lest the parties "be at a decided disadvantage in negotiation transactions with other purchasers."

Although this argument is compelling, it does not override the extraordinary substantial weight this Court accords to the presumption of public access given the centrality of nearly all the proposed redactions to the parties' dispute. And there is no support for Delta's conclusory assertions that all of the proposed redactions—even those seeking to conceal generic references to the amount of money at stake in this litigation—are necessary to avoid causing either party competitive harm. Many of the redactions are broad, non-specific references to general terms in the contract. And the references to the dollar amounts involved in the dispute are only generic references to their order of magnitude.

Second, though Delta asserts that "[t]he Purchase Agreement contains an unqualified confidentiality provision forbidding either party from disclosing the terms or conditions of the Agreement," the mere "existence of a confidentiality agreement covering judicial documents is insufficient to overcome the First Amendment presumption of access." Courts in this district have long held that bargained-for confidentiality does not overcome the presumption of access to judicial documents.

And the text of the clause itself provides that the agreement "is confidential between the parties … except … as may be required by any statute, court or administrative order or decree or governmental ruling or regulation of any applicable jurisdiction …." In other words, while the agreement might prohibit the parties from disclosing its terms, contrary legal obligations, including the presumption of public access, can qualify that prohibition. If the Court was to read the agreement as contracting away or rebutting the presumption of public access, "then it would not only eviscerate an express exception to that prohibition, but also sanction a loophole under which contracting parties could insert confidentiality clauses in their agreements in order to thwart the common law right of public access to judicial documents that is said to predate the Constitution."

Delta argues that the Court can adjudicate the contractual provisions in dispute in this case without disclosing them to the public because it is not required to disclose that information in its public filings with the Securities and Exchange Commission. As Delta put it, "[t]he same considerations that exempt contract prices from public disclosure to the investing public also support confidential treatment of this lawsuit. The general public's interest in monitoring civil litigation dockets should be no greater than the investing public's interest in knowing the details of multi-billion dollar transactions."

Of course, Delta offers no legal citation in support of this airy statement. Instead, this position seems to reflect the personal opinion of the company or its counsel. Id. ("The general public's interest … should be …." (emphasis added)). This take suggests a fundamental misunderstanding of the nature of the presumption of public access to judicial documents in federal litigation—a doctrine with longer pedigree than the federal securities laws, and one with Constitutional import.

The question here is not whether Delta is required to disclose this information to the investing public regardless of whether or not it wants to do so—the question is whether Delta can bring the Court a dispute to adjudicate in secret. The answer to that question is clear: "The act of bringing suit in a United States District Court is inherently a public act. It invokes the Court's jurisdiction and asks that a constitutional officer, an Article III judge whose compensation is paid by the public, preside over a case or controversy in a public courthouse." …

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  1. I think the problem with this opinion is that there is a real legal concept of trade secrets, things a business has not just a right but arguably a duty to keep from the public if it wishes to retain intellectual property. Trade secrets have traditionally been exempt from disclosure.

    Of course, not everything is a trade secret. But the opinion didn’t ask Delta to establish with more than its bare word or a broad-sweeping confidentiality agreement that the material it wanted redacted Involved genuine trade secrets. It simply ignored and didn’t address the concept entirely, acting as if there were no existing established legal framework and it had liberty to evaluate Delta’s interests based on first principles alone.

    I think this is unreasonable. Businesses have settled expectations that established law will be followed. If a court is going to abolish the law of trade secrets and act as if only general First Amendment principles apply, it should at least discuss it first.

    1. By way of example, I don’t think a federal court could require the Coca Cola company to disclose the secret formula for Coke or KFC to disclose the herbs and spices in its recipe as a condition for a court adjudicating a dispute wirh e.g. a supplier.

      Perhaps the law of trade secrets protecting these things is unconstitutional under a broad interpretation of First Amendment public access principles. But if so, a court needs at the very least to hold hearings, listen to briefs and arguments on the question, and make a ruling on the issue before acting.

      I think public access law is largely a common law doctrine. Although trade secrets are also a common law property, I think there is more involved than just changing the common law. Abolishing an entire category of property, or conditioning its continued possession on never being able to go to court for a dispute over it, strikes me as also having significant Due Process implications.

      1. “By way of example, I don’t think a federal court could require the Coca Cola company to disclose the secret formula for Coke or KFC to disclose the herbs and spices in its recipe as a condition for a court adjudicating a dispute wirh e.g. a supplier.”

        That’s a different situation. The recipes in question wouldn’t be inherently part of the case.

        On the other hand, I think the court could order such disclosure if it was a contract dispute with the supplier and for some bizarre reason the “secret” recipe was written into the contract.

      2. First, it is very hard to claim that a contract term is a trade secret. Trade secrets are pieces of secret information internal to an organization. If you don’t take care to keep the information confidential (such as with confidentiality agreements and limiting which employees see the information), it can lose its protection.

        By definition, a contract term is something shared with someone else. That makes it hard to say that the information is truly a trade secret. Even if you have a confidentiality provision, that’s a whole other organization that knows the information. That’s why Coke and KFC would never put the actual recipe in a contract.

        Second, the court did give Delta a chance to address this. But Delta couldn’t articulate how disclosure of the information would cause it competitive harm. (“And there is no support for Delta’s conclusory assertions that all of the proposed redactions—even those seeking to conceal generic references to the amount of money at stake in this litigation—are necessary to avoid causing either party competitive harm.”)

        Litigants always want to keep their information secret. But the presumption is that the information is to be made public. Delta doesn’t get a pass just because it is a big company spending big dollars. If it couldn’t articulate how why it should be different than any other filing, then they should get over it like every other litigant facing that situation.

        1. But if the real question in dispute is about whether the contract actually contains any genuine secrets, then the provocative title — “the question is whether Delta can bring the Court a dispute to adjudicate in secret” — wouldn’t be true. It’s wouldn’t be the real question at all.

          My point is that under existing law, Delta CAN get a court to adjudicate a secret, if it’s a genuine secret.

          1. But if the secret is included in a contact then is it still a secret? I don’t think so.

            1. It could be. For instance, how much employees are paid can be confidential.

              But the thing is, if a breach of a confidential provision forms the basis of the action, it doesn’t stay secret. So if an employee sues for underpayment and alleges his salary, the Complaint doesn’t stay sealed.

      3. The only secrets here are the contracts, not some secret formula. Besides, I doubt those “secret” actually are secret; any competitor who actually wanted to reproduce the taste of Coca-Cola or KFC chicken could do so mighty quickly, but what’s the point? Unless you could beat them significantly on price, you’d just be an imitation of no importance.

        I worked at an electronics company. We routinely bought our competitors’ products for analysis. I am sure they bought ours. There was never anything revolutionary or ground breaking. The competition was in figuring out what the market wanted, not in dazzling new ways of implementing it.

        These “secret” contracts are probably pretty boring. I bet their competitors already know everything in them in general, and I doubt the details really matter. Just like politicians like to compete on new ways to waste taxpayer money to distinguish themselves, business executives like to think they are unique and have special skills.

      4. But Delta had to know going in to the process that they would have to prove that public access to the trial process was not in the govt’s interest – and also very narrowly look for the exceptions.

        Delta ignored all that and went straight for blanket removal.

        There’s no way they can win this – and they have to know that.

        Delta is not some mom-n-pop company.

  2. the principle issue in its case

    Ouch. Perhaps Judge Woods should consider a slightly more principaled set of standards for his law clerks.

  3. What happens when a trade secret is at the heart of the suit? Here’s a hypothetical: the Mars Beverage Company operates in the Mars Colony, a location in which Coca-Cola has no presence. MBC wishes to produce and distribute Coca-Cola on Mars. Due to the great distance (we will set this before 2063 when warp drive will have been invented) and difficulties of transportation, purchasing Coca-Cola, or even coke syrup, from the Coca-Cola company is not workable. MBC needs to manufacture Coca-Cola on Mars. MBC and Coca-Cola therefore enter into a licensing agreement in which Coca-Cola provides the secret formula in return for royalties.

    When MBC begins production on Mars, the Mars colonists say that the product does not taste like real terran Coca-Cola. MBC sues Coca-Cola for fraud and breach of contract, claiming that Coca-Cola did not provide it with the true secret formula.

    How is the court to decide this case without forcing Coca-Cola to disclose to it the true formula and comparing it to what MBC received?

  4. I’m not even going to charge for this, not even for the giant companies out there with access to tons of smart lawyers.

    Here we go:

    Try confidential arbitration next time.

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