October 16, 2013
Morris James LLP
Delaware Business Court Insider

Stipulated protective orders are common in the Court of Chancery. Pursuant to these protective orders, parties will designate many of the documents they produce as confidential. Court filings that refer to confidential information are then filed under seal by the parties and subsequently filed as public versions with the confidential information redacted. Court of Chancery Rule 5.1 governs how parties file confidential materials in the court. While Rule 5.1 sets forth how parties file confidential information in the Court of Chancery, it does not address how court opinions containing confidential information are handled. The court recently addressed this issue in eCommerce Industries v. MWA Intelligence, C.A. No. 7471-VCP (Del. Ch. Oct. 4, 2013).

ECommerce arose from a December 2007 exclusive marketing, license and distribution agreement between plaintiffs OMD Corp. and La Crosse Management Systems Inc. and defendant MWA Intelligence Inc. The agreement provided that the parties could not disclose confidential information, which was defined to include the agreement, of the other party without the prior written consent of the other party. The agreement also contained noncompete provisions. Issues arose between the parties and those issues worsened after plaintiff eCommerce Industries Inc. (ECI), the parent of OMD and La Crosse, acquired plaintiff Digital Gateway Inc. (DGI), a competitor of ECI and MWA.

On April 12, 2012, MWA sued ECI, OMD, La Crosse, DGI and another company in California state court, alleging inter alia breaches of the agreement and the implied covenant of good faith and fair dealing. Despite the confidentiality provision in the agreement, MWA quoted extensively from the agreement in its complaint and attached a copy of the agreement as an exhibit. MWA did not file the complaint under seal. On April 26, 2012, OMD and La Crosse sent MWA written notices terminating the agreement based on MWA's breach of the confidentiality provision. ECI, OMD, La Crosse and the other plaintiffs filed a complaint in the Court of Chancery on April 30, 2012. The plaintiffs sought a declaratory judgment that they had properly terminated the agreement and injunctive relief to enforce the confidentiality provision of the agreement. MWA then asserted counterclaims similar to the ones it initially brought in California.

After trial, the court issued a 136-page opinion September 30 — this opinion is the source of the facts set forth above — in eCommerce Industries v. MWA Intelligence, C.A. No. 7471-VCP (Del. Ch. Sept. 30, 2013). The court found in favor of the plaintiffs on their claim that MWA had violated the confidentiality provision in the agreement by filing it publicly in California and by indirectly causing the complaint and agreement to be sent to an industry media source. The court found in favor of MWA on some of its counterclaims and awarded MWA approximately $230,000 in damages. In reaching these conclusions, the court carefully analyzed numerous provisions of the agreement.

The plaintiffs requested redaction of information in the September 30 opinion relating to high-level financial terms of a 2011 business acquisition and the terms of the agreement. They claimed they would suffer real and continuing competitive harm if the entire opinion was publicly available. In considering the plaintiffs' request for redaction of the September 30 opinion, the court noted that Rule 5.1 reflects a "general principle of public access" that "applies to all civil proceedings litigated before the Court of Chancery." The court emphasized that redaction of documents filed by the parties implicates the public interest less significantly than redaction of a court opinion. Thus, the court held that redaction of a court opinion requires the requesting party to make a stronger showing than required under Rule 5.1. A requesting party must show that its private interest in confidentiality outweighs the public's interest in unrestricted access to the court's rulings. Core business or trade-secret information could meet this standard. While agreeing that the plaintiffs had a significant interest in keeping certain information secret, the court found that this interest did not outweigh the substantial public interest in having access to the complete and unredacted opinion of the court. The court believed this was especially true because many of the proposed redactions were relevant to the reasoning of the September 30 opinion. Accordingly, the court denied the plaintiffs' request for redaction of the September 30 opinion.

This decision reflects how seriously the Court of Chancery takes the public's right of access to court proceedings. The court is particularly concerned about restricting the public's access to the opinions of the court. Practitioners must remember to explain to their clients that while they can take steps to protect clients' confidential information during litigation proceedings, there are limitations on what they can do. If litigation reaches the stage of a written decision by the court, parties must keep in mind that they may no longer have the ability to restrict the public's access to sensitive or competitive information.

Katherine J. Neikirk is senior counsel at Morris James in Wilmington and a member of its corporate and fiduciary litigation group. Her practice focuses on corporate, alternative entity and commercial litigation.

Delaware Business Court Insider  l  October 16, 2013