Plaintiff Manhattan Telecommunications Corp. (Manhattan) brought suit in the Delaware Court of Chancery against defendant Granite Telecommunications (Granite) and asserted defamation and tortious interference claims. Manhattan alleged Granite contacted customers to suggest doubt about Manhattan's financial condition and ability to continue providing services due to economic effects of the coronavirus pandemic, which harmed Manhattan's reputation and caused declines in Manhattan’s business.
Manhattan's complaint, filed under seal, contained general descriptions and reproduced specific statements made by Granite that Manhattan claimed were defamatory, and stated the reasons why Manhattan believes the statements caused harm. When Manhattan filed a public version of the complaint, as required under Court of Chancery Rule 5.1, the defamatory statements were redacted. Manhattan also filed a motion to expedite under seal and redacted similar information from the public version of the motion.
UCLA Law Professor Eugene Volokh filed a notice with the Court of Chancery that challenged the confidential treatment of Manhattan’s complaint, exhibits, and its motion to expedite. Manhattan opposed Professor Volokh’s challenge and moved for continued confidential treatment of its filings. In support of continued confidential treatment, Manhattan argued the presumption of public access is overcome because public access to defamatory statements would cause irreparable harm. Manhattan relied on the Court of Chancery’s prior decision in CapStack Nashville 3, LLC v. MACC Venture Partners, LLC, C.A. No. 2018-0552-SG (Del. Ch. Aug. 16, 2018) in support of continued confidential treatment. Manhattan also argued that Professor Volokh’s interest in the information is not sufficiently compelling to outweigh potential harm to Manhattan and that the court's previous grant of Manhattan’s motion for confidential treatment supported continued confidential treatment. In opposing Manhattan’s motion, Professor Volokh noted that he frequently writes on First Amendment issues, including those involving libel law attempts to obtain potentially overbroad injunctions in libel cases, and that Manhattan’s filing of an unredacted motion to remand a related action in the District of Delaware undermines Manhattan’s purported need of confidentiality.
The Court of Chancery denied Manhattan’s motion for continued confidential treatment, holding (i) Manhattan failed to demonstrate any particularized harm that outweighed public interest in the redacted information, (ii) absence of the redacted information diminished the public’s ability to understand the nature of the action, and (iii) Manhattan’s reliance on CapStack and rulings on prior unopposed motions was misplaced. The court discussed legal standards applicable when considering a motion for continued confidential treatment of court filings in response to an objection to confidential treatment under court of Chancery Rule 5.1, noting that court filings are presumptively public and a party seeking confidential treatment bears the burden of showing harm from disclosure that outweighs the public right of access:
[Court of Chancery Rule 5.1], in essence, codifies the “powerful presumption of public access” to court proceedings and records. The rule also recognizes, however, that the presumption of public access is not absolute, and that, in certain circumstances, litigants are entitled to confidentiality. The touchstone for the exception to access is “good cause.” Good cause exists if the party seeking confidential treatment can demonstrate that “the public interest in access to court proceedings is outweighed by the harm that public disclosure of sensitive, non-public information would cause.”
By design, the burden of demonstrating good cause is exacting, recognizing that “[t]hose who decide to litigate in a public forum . . . must do so in a manner consistent with the right of the public to follow and monitor the proceedings and the result of [the] dispute.” Notably, the previous rule, Rule 5(g), was revised “in part because too much information was being deemed confidential, including information which did not fall within any recognized exception to the public's right of access and was not truly sensitive or confidential in nature.”
In this regard, our courts appreciate that public access to the courts and their business is “fundamental to a democratic state and necessary in the long run so that the public can judge the product of the courts in a given case.” And the public cannot “judge the product of the courts in a given case”if the information being withheld is necessary for understanding “the nature of the dispute” or the court's bases for a decision.
The burden for overcoming the presumption of public access always falls on the party seeking to “obtain or maintain Confidential Treatment.” And that party must show more than mere “potential for collateral economic consequences.”
“Instead, the harm must be particularized.” In other words, “[t]he conclusory assertion that a company faces an unsubstantiated risk of economic disadvantage” is not enough. Nor is potential embarrassment or the fact that the information has not previously been disclosed.
The Court of Chancery emphasized that Manhattan failed to demonstrate particularized harm from public disclosure that would outweigh the public’s right of access where the harm alleged would be present in any defamation case, and noted even the risk of some economic harm to Manhattan from disclosure would not outweigh the presumptive public right of access:
The harm [Manhattan] alleges will be inflicted upon it in the absence of confidentiality protections is too broad to meet the requirements of [Court of Chancery Rule 5.1] . . . [T]o show an interest in confidentiality that outweighs the public's right of access, [Manhattan] must do more than make “[g]eneric statements of harm.” The showing must be particularized; in other words, [Manhattan] “must point to specific information like trade secrets or competitively sensitive pricing information” that is not in the public mix and, if disclosed, will cause clearly identified harm.
[Manhattan] claims to meet this burden by alleging “harm beyond its reputation, including but not limited to direct harm to its business relationships with current and potential customers.” But [Manhattan] Complaint and Motion rest on unsubstantiated claims of generic harm . . .
. . . The examples of potential harm [Manhattan] offers in support of the Motion are even less concrete. [Manhattan] asserts that “[i]f this Court were to discontinue the confidential treatment of the pleadings that contain [Granite’s] defamatory statements, it would effectively thwart [Manhattan’s] efforts to prevent further irreparable harm.”
These potential harms fail to meet the stringent particularization standard. In fact, it is difficult to imagine a defamation case, at least in a commercial setting, where these same concerns would not always be present. [Manhattan] tries to avoid this reality by claiming its harm is unique because disclosure “would effectively nullify [Manhattan’s] efforts to prove it was and is being harmed.” Not so. If [Granite] had made these statements in a public setting, [Manhattan] would still be able to sue for defamation just the same. While the nature of the harm may differ depending on if a defamatory statement is made in private or public, a defamation or libel suit would still be viable in either context.
Stepping back from [Manhattan’s] arguments, it is evident from a comparison to the examples in Rule 5.1 that potentially defamatory statements, per se, are not the kind of information the drafters of Rule 5.1 intended to protect. The five examples in Rule 5.1 include: “trade secrets; sensitive proprietary information; sensitive financial, business, or personnel information; sensitive personal information such as medical records; and personally identifying information such as social security numbers, financial account numbers, and the names of minor children.” Each of these enumerated categories is discrete and reflects information that is not, or at least should not be, of interest to the general public in the quest to understand the dispute before the court or the bases for the court's decisions. While I do not dispute there is some risk of economic harm to [plaintiff] if the redacted information is made public, allowing such information to remain redacted “merely because its disclosure could cause the parties economic harm” would turn the presumption of public access on its head and frustrate the purpose of Rule 5.1.
The court further explained that continued confidential treatment of information Manhattan redacted from its filings would preclude the public from understanding the nature of the dispute, and the Court expressed skepticism that it could write a comprehensible opinion resolving the issues presented without disclosing the information Manhattan sought to treat as confidential:
The public maintains a strong interest in access to the content of the alleged defamatory statements. If the information currently redacted remains so, the public will have no means to understand the dispute [plaintiff] has asked the Court to adjudicate. This conflicts with the public's right to “monitor the proceedings and result[s]” -- a right, again, that “has been characterized as fundamental to a democratic state.” In other words, when “the supposedly-confidential information represents the nature of the dispute itself -- the interest of the public in accessing this information outweighs the economic harm to the parties that disclosure may cause.” That is the case here.
While [Manhattan] and [the objector] debate the legitimacy of [the objector's] planned use for this information, nothing in our law obligates [objector] to prove why he seeks access to information filed in a Delaware court, much less that his purpose is somehow “proper.” Instead, [Manhattan] is obligated to prove that good cause exists to deny [the objector] access to the information he seeks as a member of the public. That information -- the gravamen of the case -- cannot be discerned from the redacted Complaint, which, at best, notifies the public that [Granite] made some unknown defamatory statements that [Manhattan] now asserts are defamatory for some unknown reason(s). This is hardly adequate to enable the public “to follow and monitor the proceedings and the result of [the] dispute.”
Not only would it be impossible for a member of the public to understand what is going on in this case based on the pleadings, “it is difficult to envision a judicial opinion in this matter that could maintain the confidentiality of all the designated material and yet be comprehensible to the reading public.” In its Complaint, [Manhattan] asks this Court to determine whether [Granite] committed defamation, tortious interference with prospective economic advantage, tortious interference with contractual relations, trade libel and deceptive trade practices. When this Court is called upon to determine the merits of these claims in trial or motion practice, the Court will not be able to render and deliver a comprehensible decision without reference to the currently redacted information.
The court rejected Manhattan’s reliance on CapStack, which denied a motion for entry of a temporary restraining order enjoining future defamation. The court found the determination in CapStack was irrelevant to the question of whether Manhattan demonstrated harm that outweighed the public right of access to court filings. The court, among other things, a finding that facts underlying a defamation claim could be withheld from disclosure in court documents would “eviscerate the presumption of public access” to court filings:
Under [Manhattan’s] reading of CapStack, the factual gravamen of a defamation complaint could never be disclosed to the public in a court document if that information was not previously disclosed, regardless of whether access to the particular statements would cause particularized harm, because disclosure would potentially foreclose a showing of irreparable harm. That reading would eviscerate the presumption of public access, ignore our [Court of Chancery Rule 5.1] jurisprudence requiring a showing of good cause to rebut the presumption, and conflict with the general rule that the mere fact information is “previously undisclosed” is not enough to justify confidential treatment. CapStack has no bearing here.
Key takeaways
- Although not absolute, Delaware courts recognize a powerful presumption of public access to court proceedings and records.
- The burden for overcoming the presumption of public access always falls on the party seeking to obtain or maintain confidential treatment.
- Confidential treatment of court filings and records should only be afforded where the party seeking confidential treatment can demonstrate particularized harm that outweighed public interest in the redacted information.
- The mere fact information is “previously undisclosed” is not enough to justify confidential treatment under Delaware law.
Client Alert 2020-604
