Thursday, December 20, 2007
C.A.: Rules on Sealing Documents Do Not Apply to ‘Raw’ Discovery
By KENNETH OFGANG, Staff Writer
Constitutional limits on the sealing of court documents do not apply to discovery materials that are made part of a court file but are not admitted at trial or otherwise used to decide substantive issues, the Sixth District Court of Appeal ruled yesterday.
Exhibits attached to a complaint constituted “raw discovery” not subject to a presumption of openness under the First Amendment as explained by the California Supreme Court in NBC Subsidiary (KNBC-TV), Inc. v. Superior Court (1999) 20 Cal.4th 1178, Justice Wendy Clark Duffy wrote for the court.
The ruling sends the matter back to the Santa Clara Superior Court, where Judge James P. Kleinberg had granted a motion by The Recorder, a San Francisco legal newspaper, and other media organizations to unseal exhibits in consolidated suits seeking damages from several former executives of Mercury Interactive Corp.
The plaintiffs are Mercury shareholders who brought derivative suits to recover damages resulting from the alleged backdating of stock options. After the judge ordered the plaintiffs to file a new, consolidated complaint, they did so under seal.
The media organizations, having learned of the complaint, moved to unseal it. The defendants meanwhile, demurred to the complaint, arguing that because the plaintiffs’ shares had been acquired by Hewlett-Packard Company as part of a November 2006 merger, they no longer had standing to sue on Mercury’s behalf.
Kleinberg eventually ordered the complaint unsealed. The demurrer was sustained and the underlying action was dismissed.
The defendants appealed the unsealing order, arguing that the sealed records rules set forth in NBC Subsidiary and later codified as rules of court did not apply to the 17 exhibits, which were produced as discovery materials prior to the filing of the consolidated complaint and designated confidential pursuant to a protective order. The plaintiffs, they contended, could not turn confidential discovery materials into public records merely by attaching them to a complaint.
Under NBC Subsidiary, court records are presumptively open to the public, and, if filed under seal, must be unsealed absent a showing, following notice and a hearing, that there is an interest in secrecy that overrides the public interest in disclosure.
‘Openness’ Presumption Inapplicable
Duffy, writing for the Court of Appeal, agreed that the presumption of openness did not apply to the exhibits, which were not considered by the trial judge in ruling on the demurrers, and that Kleinberg therefore applied an erroneous legal standard in ordering the exhibits unsealed.
The media organizations’ argument that the mere filing of the exhibits with the court made them a potential “basis for adjudication” and thus subject to the sealing rules tilts too far in favor of disclosure, Duffy concluded.
“Having carefully reviewed NBC Subsidiary and the authorities cited therein, we reject the media’s interpretation of the circumstances under which filed discovery becomes ‘a basis for adjudication’ such that there is a First Amendment right of access to it,” she wrote. “ Discovery is not automatically submitted ‘as a basis for adjudication’—and thus does not perforce become accessible to the public—simply by virtue of it becoming a part of the court file.”
Such broad access, Duffy explained, is unnecessary to achieve the objectives of public access according to NBC Subsidiary—promoting confidence in the fairness of judicial proceedings, increasing confidence in the process, and enhancing the “truthfinding function of the proceeding.”
Full public access to civil discovery, the justice declared, is not supported by “historical tradition” or by legislation, and would retard rather than advance the judicial process.
“Were we to find a presumed right of access to any discovery material filed with the court—irrespective of whether it has been previously designated confidential pursuant to a protective order, or has been submitted in connection with trial or a dispositive motion—we would invite myriad discovery skirmishes wherever a party is faced with producing material in discovery that it considers confidential,” she wrote.
Karl Olson of San Francisco’s Levy Ram & Olson, who argued the case for The Recorder on appeal, said the result was disappointing but he had not yet had a chance to talk to his client about whether to seek review in the Supreme Court.
“It’s unfortunate,” he said of the opinion, “because the rule has been pretty bright- line before.”
“I think that this decision is going to smudge that bright line I think that it is going to lead to more fights about getting court documents....think that the NBC Subsidiary case is very clear and very proactive. I think that the construction of it that this court gives sort of takes a step back from its proactive tone.”
But Jared Kopel of Wilson Sonsini Goodrich & Rosati, who represents former Mercury executive Kenneth Klein and argued that the exhibits should remain sealed, said the ruling was narrow and represented a rare California appellate ruling in favor of secrecy.
He emphasized that “the documents were never used at all in connection with the litigation.” Given “the language...context...and policy implications” of the sealing rules, Kopel said, “I believe the Supreme Court would come to the same conclusion” that the Court of Appeal panel did.
Copyright 2007, Metropolitan News Company