Under the Commercial Division Rules, a court may seal court records “upon a written finding of good cause.”[1] So, what led Justice Robert R. Reed to deny two unopposed motions to seal in a recent decision in the New York Commercial Division? Lack of specificity.

In Cortlandt St Recovery Corp v Bonderman, Plaintiffs Cortlandt Street Recovery Corp. (“Cortlandt”), and Wilmington Trust Company (“WTC”) sought the enforcement of a €268,000,000 judgment. Defendants, a series of firms, funds, partners, and individual members of private equity fund groups, moved to dismiss. In opposing Defendants’ motion, Plaintiffs redacted certain portions of its memorandum of law and used placeholder pages for over 60 documents and deposition transcripts filed as exhibits (“Exhibits”) on New York State Courts Electronic Filing System (“NYSCEF”) because the documents purportedly contained private, confidential financial information, and certain business and proprietary information.

WTC then moved to seal the Exhibits.[2] Defendants cross-moved, similarly seeking to seal six deposition transcripts attached as Exhibits to Plaintiffs’ opposition. Neither party opposed the other’s motion. Nevertheless, Justice Reed explained “the court is required to make its own inquiry to determine whether sealing is warranted.”

Many of the Exhibits WTC and Defendants sought to seal included reports prepared by Plaintiffs’ experts and transcripts of the deposition of those experts. However, in its moving brief, other than generally claiming that the Exhibits “cited to, relied on or disclosed ‘Confidential Information’” as defined by a confidentiality agreement entered into by the parties, WTC offered little, to no additional information as to the particular documents, and what portions of those documents were deemed sensitive and confidential.

The court denied WTC’s motion on the grounds that WTC’s assertions were vague and conclusory, and thus, “insufficient to meet a movant’s burden to demonstrate compelling circumstances to justify restricting public access.”  In commercial matters, the movant must demonstrate that the material it seeks to seal contains trade secrets, confidential business information, or proprietary information and that disclosure could be harmful to a party.[3] Specifically, the court found that WTC failed to address any particular document or transcript, or explain how or why public disclosure might cause potential harm. For example, concerning an Exhibit containing an expert’s opinion as to the alter ego status of certain entities, the Court found that WTC failed to indicate “what in the report requires sealing or why.” Similarly, WTC failed to address why certain Exhibits concerning foreign law and financial instruments from 2006 would need protection “so many years later.”

In their cross-motion, Defendants argued generally, that certain Exhibits contained confidential information concerning “business operations and internal practices and procedures” in which the public had no discernible interest in. The court denied Defendants’ cross-motion on the grounds it suffered similar conclusory infirmities as WTC’s motion. For example, certain deposition transcripts Defendants’ sought to seal involved transactions occurring prior to 2007 or other dated material and comments about general industry knowledge. The court found that Defendants did not sufficiently demonstrate what specific information was: (1) proprietary; (2) maintained in a confidential manner over the years; or (3) would lead to an unearned advantage for competitors if disclosed.

While Justice Reed denied WTC and Defendants’ motions in their entirety, he did so without prejudice, giving the parties an opportunity to make another motion to seal (which motion would concisely and specifically addresses each exhibit the party seeks to have sealed and/or redacted).

UPSHOT

Although the Commercial Division Rules permit the sealing of court records, motions to seal will not be granted based on conclusory or vague assertions of confidentiality. When asking the court to seal records, be ready to describe, with specificity, which documents need to be sealed and why.

[1] 22 NYCRR § 216.1(a).

[2] Prior to the Court’s decision, WTC reviewed the Exhibits further and eventually filed many, but not all, of the previously withheld Exhibits on NYSCEF.

[3] Vergara v Mission Capital Advisors, LLC, 187 AD3d 495, 496 (1st Dept 2020); Mancheski v Gabelli Group Capital Partners, 39 AD3d 499, 502 (2d Dept 2007).

Commercial leases are not all boilerplate.  The nature and sophistication of the business or industry of the tenant can lead to lease terms, addenda, riders and exhibits that are complicated and in some cases contain what the parties believe to be sensitive or confidential information not for public consumption.  When a dispute arises between the landlord and tenant that lands in court, are these lease terms and conditions something the parties can shield from the public?  What if both agree the terms should be sealed from the public?

In New York, Judiciary Law § 4 makes clear that judicial proceedings “shall be public.”  That statutory mandate is grounded in the public’s First Amendment right of access to court records, Danco Laboratories, Ltd. v. Chemical Works of Gedeon Richter, Ltd.  In civil cases, Uniform Rules for Trial Courts, section 216.1, empowers the courts to seal documents, but only upon a showing of “good cause.”  A good resource for the standard applied and the mechanics of sealing in both civil and criminal proceedings is found in a guidance memo issued by the Office of Court Administration.   Indeed, earlier this year, we wrote about a decision rendered by Justice Andrea Masley in a breach of contract case where she sealed certain documents, finding good cause existed.  In that case, the motion to seal was opposed.

Now, six months later,  in an unrelated case Coresite 32 Ave. of the Americas LLC v. 32 Sixth Ave. Co. LLC, she was faced with yet another application to seal.  This time, however, the motion was unopposed.  Should that matter?  Not at all — the court must still make findings of good cause, and the application must be supported by an affidavit explaining why sealing is justified.

The case involved a dispute between a landlord and its tenant, CoreSite, which is a high-performance data center.  Notwithstanding that the parties agreed which terms and conditions of the lease should be filed under seal, the court, as it had to, engaged in the analysis of whether good cause existed.  So, what exactly did the court consider persuasive to show good cause to seal?  Recognizing that courts have sealed records in business disputes where trade secrets were involved or when disclosure could pose a threat to a competitive advantage, that’s precisely what was found here.  CoreSite’s competitive advantage would be threatened if the financial terms were not sealed.  CoreSite’s competitors could use the information contained in the financial provisions of the lease to undermine CoreSite.  In addition, the Court made a specific finding that building safety and security could be compromised by disclosure of equipment, access pints, floor plans and locations.

The takeaway?  Consider what you’re filing when it comes to business records and whether such a 216.1 application should be made.  Good cause can exist to seal beyond the classic “trade secrets”.  And even if all sides agree that sealing is warranted, a detailed showing must be made to the court as to “why” to overcome the presumption of public access to court records.

 

To the uninitiated litigant, filing documents containing private, potentially embarrassing information under seal might seem like it should be easy and straightforward, especially if the opposing party has agreed to treat the document (or information contained therein) as confidential. In fact, however, New York courts typically will only grant motions to seal in narrow circumstances involving specific types of potential economic injury.

A recent Commercial Division case in the Supreme Court, New York County (2019 NY Slip Op 30880[U]), is illustrative. There, plaintiff New Penn Financial, LLC commenced an action for breach of contract and mutual mistake against defendant 360 Mortgage Group LLC, alleging that 360 Mortgage had provided erroneous calculations in connection with New Penn’s purchase of certain mortgage servicing rights from 360 Mortgage.  360 mortgage moved to dismiss. In connection with this motion, several of the parties’ filings contained confidential information, which both parties moved pursuant to 22 NYCRR § 216.1 to seal from public viewing.

In support of its motion to seal, New Penn argued, among other things, that the mortgage servicing rights purchase agreements (MSRPAs) at issue contained confidentiality provisions intended to keep the negotiated terms of the transactions secret from competitors and potential future transactional counterparties. 360 Mortgage opposed the motion to seal, arguing, among other things, that the MSRPAs allowed confidential information to be disclosed in connection with a legal proceeding arising from the transaction.

The court (Masley, J.) paid short shrift to the parties’ otherwise thorough and thoughtful arguments concerning the interpretation and scope of the MSRPA’s confidentiality provisions, holding the MSRPAs “not relevant with respect to the court’s analysis on this motion to redact.” The court focused instead on whether the movants had met their burden of demonstrating “compelling circumstances to justify restricting public access to the documents,” under the standard set by the Appellate Division, First Department, in Mosallem v Berenson (76 AD3d 345, 348-49). The court described this standard:

The movant must demonstrate good cause to seal records under Rule § 216.1 by submitting “an affidavit from a person with knowledge explaining why the file or certain documents should be sealed.” (Grande Prairie Energy LLC v Alstom Power, Inc., 2004 NY Slip Op 51156 [U], *2 [Sup Ct, NY County 2004]). Good cause must “rest on a sound basis or legitimate need to take judicial action” (Danco Labs. v Chemical Works, 274 AD2d 1, 9 [1st Dept 2000]). Agreements to seal are insufficient as such agreements do not establish “good cause” (MBIA Ins. Corp. v Countrywide Home Loans, Inc., 2012 NY Slip Op 33147[U], * 9 [Sup Ct, NY County 2012]).

Applying these principles, the court found “good cause” to redact information that could “threaten a business’s competitive advantage,” such as the MSRPAs’ economic deal terms, which were subject to and resulted from extensive negotiations between the parties. The court found that disclosure of certain of the MSRPAs’ provisions, “may well threaten New Penn and its parent corporation’s competitive advantage in the mortgage services industry to the extent that they continue to make such purchases,” and that “New Penn has an interest in keeping its financial arrangement private and there is no showing of relevant public interest.” The court further found good cause to redact personal identifying information of the borrowers associated with the mortgages, so as to prevent fraud and identity theft.

Though the court found “good cause” to seal in this case, other decisions emphasize New York’s policy of keeping judicial proceedings open to the public. Notably, for instance, “the mere fact that embarrassing allegations may be made” against a party has been held insufficient to warrant sealing (see In re Hofmann, 284 AD2d 92, 93-94 [1st Dept 2001] [“Confidentiality is clearly the exception, not the rule . . .”]).

Finally, anyone interested in the procedure for e-filing documents under seal in Supreme Court, New York County, may find helpful guidance in Section K of the court’s Protocol on Courthouse Procedures for Electronically Filed Cases.

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Over the past year or so, we have made a point of highlighting in the “Check the Rules” series on this blog periodic updates to the individual practice rules of certain Commercial Division Justices, including Justice Eileen Bransten in New York County (twice, in fact), Justices Marguerite A. Grays and Leonard Livote in Queens County, and Justice Sylvia G. Ash in Kings County.

Continuing with this theme of local-rule vigilance, Commercial Division practitioners should take note some recent changes to the individual practice rules of Manhattan Commercial Division Justice O. Peter Sherwood.

Justice Sherwood’s Practices for Part 49, which were revised as of this month, provide some notable additions (and omissions) from his prior rules, which dated back to May 2014 before most of the Commercial Division Advisory Council’s new-rule proposals and amendments were adopted and implemented.

Be Prepared, Be Authorized. Justice Sherwood opens his practice rules with an express and emphatic reminder to attorneys practicing in his Part of the requirements under Rule 1 of the Commercial Division Rules that “counsel . . . must be fully familiar with the case . . . and fully authorized to enter into agreements, both substantive and procedural, on behalf of their clients.” In other words, appearing in Part 49 is no “cattle-call.” Attorneys should have factual command of their cases, as well as the requisite authority to bind their clients.

Separate and Describe Your Exhibits. Justice Sherwood now requires attorneys practicing in his Part who wish to annex exhibits to their correspondence or motion papers to separately e-file their exhibits and designate them with a “descriptive title.” In other words, a simple designation of “Exhibit A” won’t cut it. Attorneys must provide a description (e.g. “Operating Agreement, dated as of September 20, 2018”) so that adversaries and court personnel viewing the docket or other notice of filing can immediately understand what has been filed.

Get Advance Permission to Adjourn Appearances. Justice Sherwood now requires that requests for adjournment be submitted a full two business days in advance of the scheduled appearance. Justice Sherwood conferences his cases on Tuesdays, so that means attorneys must get their requests for adjournment in by no later than Thursday of the prior week.

Check Your E-Mail. Justice Sherwood’s new rules provide that the court may choose to communicate with counsel via e-mail “regarding scheduling matters or to make certain inquiries.” Note, however, that this line of communication only goes one way. It does not mean that attorneys practicing in Part 49 may “initiate communication with the court via email” or “use e-mail to make arguments.”

Complete Party Discovery Before Bothering Non-Parties. Justice Sherwood “strongly encourages” attorneys practicing in his Part to “attempt to confine their requests to parties to the action and resort to third-party disclosure only when it reasonably appears that the information being sought is otherwise unavailable.” Justice Sherwood also requires that all non-party subpoenas be “simultaneously served” on all parties, and that all documents and information produced in response be exchanged among all parties within five days of receipt.

Follow Instructions When Seeking to File Under Seal. Justice Sherwood’s updated practice rules provide specific instructions concerning the filing of documents under seal:

  • Applications to file under seal must be made by Order to Show Cause, which must be preceded by a meet-and-confer regarding the documents proposed for seal.
  • Motions will be considered in light of the limitations imposed under applicable case law, and the movant must propose redactions “as opposed to wholesale sealing.”
  • Any document proposed for seal must be filed in its original, un-redacted form as an exhibit, with the proposed redacted version filed “as a subset of that exhibit.”
  • All motions must be accompanied by a joint index of the documents proposed for seal, including the basis for sealing and any objection thereto.

Finally, as for notable omissions, Justice Sherwood appears to have dispensed with his former requirement – which, as far as I’m aware, was entirely unique to his Part – that  motion submissions also be provided to the court “in .rtf format on a computer disk.”

**Nota Bene** – Attention Kings County Commercial Division practitioners: How much is your case worth? The general practice rules for the Kings County Commercial Division also were updated this month to double the monetary threshold from $75,000 to $150,000.

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You’re a commercial litigator in New York. You’ve just been brought in on a case pending in the Commercial Division before a particular Commercial Division judge.  Or maybe you’ve just received an administrative bounce to a Commercial Division RJI Addendum, assigning your case to a particular Commercial Division judge sitting in the county where you recently filed motion papers or requested a preliminary conference. What’s the first thing you do?  You check the rules, of course.

Obviously, that begins with familiarizing (or re-familiarizing as the case may be) yourself with the Commercial Division Rules – particularly Rules 7 through 24, which supersede the Uniform Civil Rules with respect to conferencing your case and engaging in motion practice.

Know the Rules

But you also should look to see whether the particular Commercial Division judge assigned to your case has individual practice rules – which rules, in turn, often supersede or otherwise modify the Commercial Division Rules. Those Commercial Division judges that have individual practice rules update their rules with some regularity, so you also should make a point of checking them periodically.

As a recent example, Manhattan Commercial Division Justice Eileen Bransten, whose practice rules begin with the general principle of application noted above – namely, that “the Commercial [Division] Rules govern all cases before Justice Bransten unless modified or changed below” – updated her rules in March of this year. Some of the more notable updates to Justice Bransten’s “Practices in Part 3” are as follows:

  • Correspondence with the Court:       All letters to Justice Bransten, including pre-motion conference letters under Commercial Division Rule 24, in addition to being e-filed on the NYSCEF system, must be “hand delivered” to her Part Clerk and must conform to the font requirements of “Times New Roman, Size 12.”
  • Court conferences: Justice Bransten’s updated practice rules link to forms for the New Revised Preliminary Conference Stipulation and Order, as well as the New Compliance Conference Stipulation and Order, both of which are required for conferences held in Part 3.
  • Filing under seal: Justice Bransten’s updated practice rules provide for extensive direction concerning the filing of documents under seal:
    • Applications to file under seal must be made by Order to Show Cause;
    • Parties must meet and confer regarding the documents proposed for sealing before making a motion to file under seal;
    • Motions to file under seal will be considered in light of the limitations imposed on sealing as dictated by recent case law; moving parties must propose document redactions “as opposed to the wholesaling sealing of documents”;
    • Any document proposed for sealing must be filed in its original, un-redacted form as an exhibit to the motion, with the proposed redacted version of the document filed “as a subset of that exhibit”;
    • All motions to file under seal must be accompanied by a jointly-created index of the documents proposed for sealing, to include the basis for the proposed sealing and any objection thereto.
  • Motion practice in general:
    • Justice Bransten requires a courtesy (hard) copy of all e-filed motion papers;
    • If a party wishes to submit a deposition/hearing transcript or an arbitration award as an exhibit to a motion, the document must be submitted in its entirety as opposed to excerpts;
    • When submitting a Statement of Material Facts under Commercial Division Rule 19-a in support of a motion for summary judgment, a party must provide specific “references to appropriate documentation” establishing that the facts are undisputed; the party opposing the motion must “first repeat the movant’s claimed undisputed facts followed by its response,” which also must provide “reference to appropriate documentation.”
    • Consistent with her prior rulings on the topic (see e.g. ZV NY, Inc. v Moskowitz 44 Misc 3d 1225[A] [Sup Ct, NY County 2014), attorney affirmations in which counsel present arguments of law – sometimes referred to as “memo-affs” or “brief-adavits” or “brief-irmations” – “will not be considered by the Court.”
  • Trial practice:
    • Justice Bransten will not give parties a trial date unless and until they have attempted some form of ADR, whether privately or through the Commercial Division’s ADR Program.
    • All pre-trial submissions (briefs, witness and exhibit lists, and motions in limine, etc.) must be “both e-filed and hand delivered to the Part in hard copy.”