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What's Behind the Chancery Court's New Rule 5.1

Articles & Publications

January 23, 2013
Morris James LLP
Delaware Business Court Insider

On January 1, Court of Chancery Rule 5.1 became effective, replacing the now-deleted Rule 5(g). The adoption of Rule 5.1 represents a fundamental change to most aspects of the handling of confidential filings in the Court of Chancery. As with any rule, the drafters attempted to craft the rule to account for almost all situations, cognizant of the fact that application of the rule likely would reveal unintended consequences that would need to be addressed in the future. Until the court has sufficient information to determine whether any amendments are necessary, an understanding of the purpose behind certain of the changes in the handling of confidential filings may help bridge any unintended gaps. While the factors listed below are by no means exhaustive, the key tenets behind Rule 5.1 should provide some guidance in uncertain situations.

The first major change is in the definition of when "good cause" exists to show that information is subject to protection from public disclosure. Like Rule 5(g), Rule 5.1 starts with the premise that everything filed with or provided to the court will be part of the public record. Unlike Rule 5(g), however, Rule 5.1(b)(2) contains a definition of when "good cause" exists to exempt information from public disclosure. While Rule 5.1(b)(2) speaks for itself, the key to understanding its purpose is the inclusion of the modifier "sensitive" before each of the defined categories. Thus, financial or business information will not satisfy the definition merely because it has not been disclosed publicly before — it must also be sensitive in that the public disclosure of the information will cause a significant personal or competitive harm. The court intends that this more strict definition will require more information to be made publicly available than under current practice.

While the definition of "good cause" may change the amount of information that is disclosed publicly in filings with the court, Rule 5.1 is not intended to affect the discovery process, particularly the designation of certain information as confidential for purposes of a confidentiality order governing discovery. The court has been very clear that Rule 5.1 applies only when parties make a filing with the court and does not affect the designation of information as confidential for purposes of discovery. The court well understands the benefits to parties of designating information as confidential for purposes of discovery, and Rule 5.1 is not intended to interfere with that practice.

Another major change from prior practice is in the obligation to prepare redacted versions of documents filed confidentially. Under a strict reading of Rule 5(g), only a brief or letter filed under seal would need to have a redacted version filed in three days. The party filing a confidential document containing another party's confidential information would provide only a notice of the filing to the party that designated the confidential information in the brief or letter. Then, when the redacted brief was filed, each party who had redacted information had to file a certification that good cause existed for the information to be redacted. In practice, the application of Rule 5(g) led to a number of problems: disagreements over what should and should not be redacted; inconsistent application of the rule to documents other than letters or briefs; and, most troubling to the court, delays in filing the redacted versions for public inspection.

Rule 5.1 was drafted to eliminate the first two problems and improve on or eliminate the last one. Under Rule 5.1, the party making the confidential filing has the obligation to prepare the proposed redacted version of the document and send it to all persons who may have designated information as confidential by 3 p.m. the day after the filing, except in the case of complaints for which this must be done on the date of filing. The court was aware that imposing this requirement for some of the voluminous appendices, transmittal affidavits and other documentary exhibits submitted in conjunction with the filing likely would impose a substantial burden on law firms and their staffs, so those documents do not need to have redacted versions prepared like this. The other parties then have until 3 p.m. on the fifth day after the filing to provide their proposed redactions. The party that made the original filing then compiles the redactions and files the redacted copy.

After hearing about the new process, the question most often asked about this process is: What? I didn't designate any of this as confidential. Why do I have to propose redactions to someone else's stuff?

First, because the definition of "good cause" has been narrowed substantially, the type of information subject to redaction should be both small and readily apparent. Proposing redactions in the first instance, regardless of the designating party, should not be difficult and will help to get the process moving forward. Second, while the party preparing the initial redactions has a good-faith obligation to review the document and propose redactions, there is no penalty for missing something. The other party has five days (or three in the case of complaints) to propose its own redactions. Even if the parties do not agree whether something should be redacted, that dispute should not be addressed before filing the redacted version. The obligation in Rule 5(g) of the party filing the redacted version to certify that good cause existed to redact the information caused many unnecessary disputes. Rule 5.1 eliminates this obligation. Under Rule 5.1, the preparation of the redacted version for public inspection is more of an administrative procedure where no person filing the redacted version is obligated to defend any redactions therein simply because he or she performed the mechanical act of filing it. The obligation to defend the redactions occurs later, only if someone challenges the redactions.

The next question often asked is: What documents do I have to redact? Rule 5.1 is now clear that the obligation to file a redacted version will apply to all documents unless specifically exempted by Rule 5.1. In the short time that the rule has been in effect, the Register in Chancery has been very clear that only documents filed as "Exhibit" or "Appendix" will be considered exempt from the rule. In practice, any affidavit, whether a transmittal affidavit or substantive one, will be subject to the obligation to file a redacted version, whereas the exhibits to either affidavit will be exempt, provided that they are filed as exhibits in the File and Serve system.

Finally, parties should expect strict enforcement of the deadlines to file redacted versions. Too often, the parties failed to comply with the obligation to file a redacted version, only doing so when prompted by the Register in Chancery after an inquiry from the public or the press. The court has made it very clear to the Register in Chancery that the deadlines to file redacted versions must be enforced strictly. No longer should anyone expect a call or email from the Register in Chancery reminding him or her of the obligation to file a redacted version.

The goal of all these changes to the process — narrowing the definition of the information that meets the good-cause standard, requiring the filing party to prepare a redacted version, making the filing of a redacted version a mechanical process, clarifying the documents subject to the requirement and strictly enforcing the deadlines to file — is to increase information available to the public. This goal should be kept in mind when formulating any approach to a situation in which the rule does not provide an express answer.

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