California Court of Appeals, First District, First Division
November 13, 2014
OVERSTOCK.COM, INC. et al., Plaintiffs and Appellants,
THE GOLDMAN SACHS GROUP, INC. et al., Defendants and Respondents THE ECONOMIST NEWSPAPER et al., Interveners and Appellants. OVERSTOCK.COM INC. et al., Plaintiffs and Respondents,
MERRILL LYNCH, PIERCE FENNER & SMITH INC. et al., Defendants and Appellants; THE ECONOMIST NEWSPAPER et al., Interveners and Respondents.
[CERTIFIED FOR PARTIAL PUBLICATION[*]]
Trial Court: San Francisco County and City Superior Court No. CGC07460147 The Honorable John E. Munter
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Lubin, Olson, Niewiadomski, Theodore A. Griffinger, Jr., and Jonathan Edward Sommer for Plaintiffs and Appellants.
O'Melveny & Myers, Matthew David Powers, Andrew J. Frackman, and Abby F. Rudzin for Defendants and Appellants Merrill Lynch, Pierce Fenner & Smith, Inc.
Morgan, Lewis & Bockius and Joseph Edward Floren for Defendants and Respondents The Goldman Sachs Group, Inc.
Ram, Olson, Cereghino & Kopczynski and Karl Olson for Interveners and Appellants The Economist Newspaper.
In this consolidated appeal, we address two “sealing” orders. The first granted motions by defendants to seal documents submitted in connection with plaintiffs’ efforts to file a fifth amended complaint. The second denied, in substantial part, motions by defendants to seal documents submitted in connection with defense motions for summary judgment. The second order overlapped the first, since the materials underlying the proffered amended pleading resurfaced in opposition to the summary judgment motions. Accordingly, the second sealing order is the trial court’s final call as to the propriety of sealing these discovery materials, and the parties have ultimately focused on this order, as do we.
We affirm most of the trial court’s sealing decisions. But there are key exceptions, a principal one being thousands of pages of documentation plaintiffs submitted to the court, but which they never cited and which were irrelevant to the issues raised by the summary judgment motions. Under the plain terms of the protective order in place, these irrelevant materials never should have burdened the trial court or this court. Nor should they have been subjected to analysis under the sealing rules, since irrelevant materials have no bearing on the trial court’s adjudicatory function and, thus, are not within the ambit of the public’s right of access to court records. Rather, these discovery materials should have been struck from the record and remained confidential pursuant to the provisions of the protective order. As for the materials that were relevant to the summary judgment proceedings, some contain confidential financial information of third parties and should have been sealed under the sealed records rules.
On our way to reaching these conclusions, we address several issues pertaining to sealing orders that have remained unsettled, including the reach of California Rules of Court, rules 2.550 and 2.551, and media participation in sealing hearings. We also discuss tools available to the trial courts to deal with abusive litigation tactics impacting the handling of sealing issues. Indeed, we are appalled at the burden the parties foisted on the trial court here and view this case as a companion to the decision of our brethren in Nazir v. United Airlines, Inc. (2009)178 Cal.App.4th 243, 289-290 [100 Cal.Rptr.3d 296], decrying unnecessary and oppressive summary judgment tactics.
Plaintiffs are Overstock.Com, Inc., an online retailer, and several of its investors. In their Fourth Amended Complaint, plaintiffs alleged defendants, Merrill Lynch, Pierce Fenner & Smith Inc. and Merrill Lynch Professional Clearing Corp. (collectively Merrill) and Goldman Sachs & Co. and Goldman Sachs Execution & Clearing L. P. (collectively Goldman), intentionally depressed the price of Overstock stock by effecting “naked short sales”-that is, sales of shares the brokerage houses and their clients never actually owned or borrowed. This practice, plaintiffs claimed, artificially increased the supply and short sales of the stock, while decreasing its value. Plaintiffs alleged this conduct violated Corporations Code sections 25400 and 25500, Business and Professions Code sections 17200 and 17500, and New Jersey’s RICO statute (N.J. Rev. Stat. § 2C:41-2.c, d.).
A. The Protective Order
The parties’ discovery demands were extensive, and in May 2008, pursuant to a stipulation, the trial court issued a protective order. The order allowed the parties to designate certain produced materials as “Protected Material, ” and to further classify this material as either “Confidential” or “Highly Confidential.” Paragraph 13 of the order specified: “If a party seeks to file Protected Material, the party must seek to do so under seal pursuant to California Rules of Court 2.550 and 2.551.” Paragraph 14 required the parties to “endeavor in good faith to restrict their... submissions to Confidential Information... reasonably necessary for the Court[’s deliberations].”
Two years later, in June 2010, the trial court entered a second protective order to “modif[y] and extend the [May 30, 2008]” order to confidential information pertaining to third parties. The parties acknowledged in this order that information identifying specific client transactions “may be protected by rights of privacy or other confidentiality rights.” “[T]o avoid undue delay, burden, and expense in document production, ” the parties also agreed to “produce documents containing information of Third Parties without redaction of such information.” We refer to both orders, collectively, as the protective order.
B. The Proposed Fifth Amended Complaint and Related Motions to Seal
In February 2011, defendants successfully demurred to the New Jersey RICO cause of action in the Fourth Amended Complaint. The trial court
allowed plaintiffs to propose a Fifth Amended Complaint with a reworked RICO claim, stating if they did so, the court would order an expedited briefing and hearing schedule. In May, plaintiffs submitted a proposed new pleading. The publicly filed document was heavily redacted; an un-redacted version was conditionally lodged under seal.
Defendants opposed allowing the Fifth Amended Complaint on three grounds: a California court should not apply New Jersey RICO law; plaintiffs had not, in any event, stated a claim under that law; and granting leave to amend so late in the case would prejudice defendants. The publicly filed opposition papers were redacted; un-redacted versions were conditionally lodged under seal. Plaintiffs then submitted papers in support of their proposed pleading, and defendants thereafter submitted reply papers. Again, the publicly filed documents were redacted; un-redacted versions were conditionally lodged under seal.
In connection with these substantive filings, defendants made ten separate motions to seal. Plaintiffs opposed five of the motions, including two motions to seal certain allegations of the proposed Fifth Amended Complaint based on discovery materials designated “Confidential” or “Highly Confidential” under the parties’ protective order. Plaintiffs contended the allegations did not reveal trade secrets or implicate significant privacy interests. The media also filed, without court permission, opposition to the sealing motions, including requesting the court to unveil the “88 paragraphs of the proposed Fifth Amended Complaint” defendants wished to seal in whole or in part.
After a lengthy hearing, the trial court ruled from the bench and denied leave to file the proposed Fifth Amended Complaint on two grounds: (1) granting leave to add a new, complex RICO claim would prejudice defendants on the eve of trial; and (2) the RICO claim “would be futile because the facts as alleged... do not warrant the application of New Jersey RICO [law] to this case under California choice-of-law principles.”
Two days later, on August 3, 2011, the court issued a written order granting the motions to seal. It first determined the sealed records rules applied, and then made the express findings required under the rules and ordered the clerk to file, under seal, the un-redacted materials that had been conditionally lodged with the court. The court also ruled the media had not sought to intervene in conformance with Code of Civil Procedure section 387 or under
rule 2.551 and therefore denied intervention and struck the media’s memorandum opposing sealing. The court noted, however, it had allowed the media to participate in the hearing. Plaintiffs and the media appealed (appeal No. A133487).
C. The Summary Judgment Motions and Related Motions to Seal
The following month, defendants moved for summary judgment on the remainder of plaintiffs’ causes of action (under Corporations Code, §§ 25400, 25500 and Business and Professions Code sections 17200 and 17500) on multiple grounds.
Plaintiffs’ opposition would eventually fill 38 banker’s boxes and included thousands of pages of discovery materials that had been designated “Confidential” or “Highly Confidential” pursuant to the protective order. The materials were ostensibly proffered to show defendants knowingly employed a strategy of naked short sales to devalue Overstock, and did so in California. The trial court, at the parties’ urging, approved lodging all of these confidential materials conditionally under seal and deferring disposition of any sealing motions until after it ruled on the summary judgment motions.
The trial court heard three days of argument on evidentiary objections to the materials filed in connection with the summary judgment motions and a full day of argument on the merits of the motions. In an order dated January 10, 2012, the trial court granted the motions. As to the Corporations Code claim, the court ruled only conduct in California was actionable and plaintiffs “failed to raise [any] triable issue of material fact supportive of a finding that any act by any defendant foundational to liability, causation, or damages occurred in California.” The court declined to reach any of the other grounds for judgment defendants had urged in connection with this claim. As to the Business and Professions Code claim, the court noted plaintiffs sought only injunctive relief and ruled such relief was unavailable since defendants had ceased the complained-of conduct as of 2008, and it was not likely to recur given new Securities and Exchange Commission rules prohibiting it. Again, the court did not consider other grounds urged by defendants. The court issued a final, comprehensive order on April 11, 2012, setting forth, as required by Code of Civil Procedure section 437c, subdivision (g), “the evidence proffered in support of, and if applicable in opposition to, the motion which indicates that no triable issue exists.”
Shortly after the initial summary judgment order in January, Merrill and Goldman each filed a motion to seal copious amounts of the materials
plaintiffs had submitted in opposition to the summary judgment motions. Plaintiffs opposed both motions. The media also sought, and was granted leave, to intervene in opposition to the motions.
After a lengthy hearing, the trial court largely denied the motions by written order filed March 6, 2012. The court again determined the sealed records rules applied. It also concluded the rules applied to all of the discovery materials submitted in connection with the summary judgment motions, not just those materials related to the limited grounds on which the court ultimately ruled. The court next concluded, as to a significant number of the materials, defendants’ declarations were “conclusory” and “unpersuasive, ” and lacked the “specific facts” necessary to support sealing. The court additionally concluded plaintiffs had “persuasively show[n]” many of the documents no longer had sufficient indicia of confidentiality to warrant sealing. In sum, “[g]iven (1) that this case was filed in February 2007, more than five years ago, (2) that most, if not all, of the transactions reflected in the documents are at least four years old, (3) that many of the allegedly confidential business practices and trading strategies are outdated due to changes in federal law, and (4) that much of the material at issue was publicly disclosed at the January 5, 2012 hearing on the motions for summary judgment, ” the trial court observed, “defendants’ failure to present specific facts to justify sealing the documents at issue is understandable.”
Still, the trial court ordered a significant number of the discovery materials sealed. These generally fell into three categories: (1) documents “laced with identifying information about hundreds of thousands of financial transactions of third parties who have no connection to this litigation”; (2) non-public regulatory documents having no direct connection to this action, the sealing of which plaintiffs did not oppose; and (3) approximately 200 exhibits plaintiffs submitted, but never cited.
While the March 2012 sealing order did not expressly revisit the 2011 order, when the trial court and parties discussed sealing the summary judgment materials at a December 8, 2011, case management conference, they agreed to a “holistic hearing that would apply not only to the [summary judgment sealing motions], but also would involve reconsideration of the court’s previous sealing rulings.” As the court observed, the “overlap is inseparable.” At a later case management conference, on December 23, 2011, the court reiterated it was “prepared holistically to consider these sealing issues with respect to past and present and future motions at the same time” and again noted “the information that is sought to be sealed in the currently pending motions overlaps largely with the previous rulings.” This holistic,
evolving view of the propriety of sealing was well taken. (See In re Marriage of Nicholas (2010) 186 Cal.App.4th 1566, 1569 [113 Cal.Rptr.3d 629] ["well-established constitutional, case, and statutory authority subject[s] sealing orders to continuing review and modification by the trial judge”].)
Merrill and Goldman filed notices of appeal to the extent the March 2012 order denied their motions to seal and allowed the media to intervene (appeal No. A135180), and we subsequently ordered the appeals consolidated. As we noted at the outset, the parties have focused on the 2012 order.
A. Background: Access to Records in Civil Cases
1. Common Law Right of Access
Nearly all jurisdictions, including California, have long recognized a common law right of access to public documents, including court records. (See Nixon v. Warner Communications, Inc. (1978) 435 U.S. 589, 597 [55 L.Ed.2d 570, 98 S.Ct. 1306] (Nixon) [it “is clear that the courts of this country recognize a general right to inspect and copy public records and documents”]; IDT Corp. v. eBay, Inc. (8th Cir. 2013) 709 F.3d 1220, 1222 (IDT Corp.) [noting most federal circuits have embraced a common law right of access to court records]; Craemer v. Superior Court (1968) 265 Cal.App.2d 216, 220, fn.3 [71 Cal.Rptr. 193] ["right of a citizen to inspect public writings has its origin in the common law”].)
This common law right is effectuated through a presumption of access. (See Nixon, supra, 435 U.S. at p. 602 [“on respondents’ side is the presumption-however gauged-in favor of public access to judicial records”].) As articulated by California’s courts, this presumption means court records are “open to the public unless they are specifically exempted from disclosure by statute or are protected by the court itself due to the necessity of confidentiality.” (McGuire v. Superior Court (1993) 12 Cal.App.4th 1685, 1687 [16 Cal.Rptr.2d 726]; accord, Estate of Hearst (1977) 67 Cal.App.3d 777, 782-783 [136 Cal.Rptr. 821].)
The weight accorded to the common law presumption of access depends, in any particular case, on the “role of the material at issue in the exercise of... judicial power and the resultant value of such information to those monitoring the... courts. Generally, the information will fall somewhere on a continuum from matters that directly affect an adjudication to matters that come within a court’s purview solely to insure their irrelevance.” (Lugosch v. Pyramid Co. of Onondaga (2d Cir. 2006) 435 F.3d 110, 119 (Lugosch).) Accordingly, when evaluating whether records should be sealed under the common law, courts engage in a balancing analysis, weighing the presumption of access against a variety of competing interests. (See H.B. Fuller Co. v. Doe (2007) 151 Cal.App.4th 879, 894 [60 Cal.Rptr.3d 501] [weighing harm of disclosing confidential information against any countervailing considerations].)
As a practical matter, this has meant documents subject to a protective order often remain outside public purview on a “good cause” showing akin to that which supported issuance of the protective order in the first place. (See Phillips v. General Motors Corp. (9th Cir. 2002) 307 F.3d 1206, 1213 [“When a court grants a protective order for information produced during discovery, it already has determined that ‘good cause’ exists to protect this information from being disclosed to the public by balancing the needs for discovery against the need for confidentiality.”]; Chicago Tribune Co. v. Bridgestone/Firestone, Inc. (11th Cir. 2001) 263 F.3d 1304, 1313 [“the Press’s common-law right to the Firestone documents filed in connection with the motion for summary judgment may be resolved by the [Federal Rules of Civil Procedure, r]ule 26 good cause balancing test”]; Mercury, supra, 158 Cal.App.4th at pp. 107–108 [concluding discovery material was not protected by constitutional right of access and remanding for determination of whether documents should remain confidential under protective order].)
2. First Amendment Right of Access
More recently, many jurisdictions, including California, have recognized a constitutional right of access to certain court documents grounded in the First Amendment. (NBC Subsidiary (KNBC-TV), Inc. v. Superior Court (1999) 20 Cal.4th 1178, 1208, fn. 25" [86 Cal.Rptr.2d 778, 980 P.2d 337] (NBC Subsidiary).)NBC Subsidiary addressed the outright closure of court proceedings and concluded the trial court infringed on First Amendment rights by barring the media from the courtroom in the absence of explicit findings of an overriding interest that was likely to be prejudiced and could not be protected by less restrictive means. (NBC Subsidiary, supra, 20 Cal.4th at pp. 1222–1223.) However, the Supreme Court additionally observed, in what is now an
oft-cited footnote, that: “Numerous reviewing courts likewise have found a First Amendment right of access to civil litigation documents filed in court as a basis for adjudication. (See Brown & Williamson Tobacco Corp. v. F.T.C. (6th Cir. 1983) 710 F.2d 1165, 1179 (Brown & Williamson) [documents filed in civil litigation; ‘[i]n either the civil or criminal courtroom, secrecy insulates the participants, masking impropriety, obscuring incompetence, and concealing corruption’]; Rushford v. New Yorker Magazine, Inc. (4th Cir. 1988) 846 F.2d 249 (Rushford) [summary judgment pleadings]; Matter of Continental Illinois Securities Litigation (7th Cir. 1984) 732 F.2d 1302 (Continental Illinois Securities) [records related to ‘hybrid summary judgment motion’]; cf. Grove Fresh Distributors, Inc. v. Everfresh Juice Co. (7th Cir. 1994) 24 F.3d 893 [assuming both a First Amendment and a common law right of access to civil litigation documents].)” (NBC Subsidiary, supra, 20 Cal.4th at p. 1208, fn. 25.)
Since NBC Subsidiary, the California courts of appeal have regularly employed a constitutional analysis in resolving disputes over public access to court documents. (E.g., In re Marriage of Nicholas, supra, 186 Cal.App.4th at p. 1575 [sealing orders implicate public’s right of access under the 1st Amend.]; Savaglio v. Wal-Mart Stores, Inc. (2007) 149 Cal.App.4th 588, 596 [57 Cal.Rptr.3d 215] (Savaglio) [public has First Amendment right to access civil litigation documents filed in court and used at trial or submitted as basis for adjudication].)
Not all documents submitted or filed by the parties, however, fall within the ambit of the constitutional right of access. NBC Subsidiary hastened to add the courts have held “the First Amendment does not compel public access to discovery materials that are neither used at trial nor submitted as a basis for adjudication.” (NBC Subsidiary, supra, 20 Cal.4th at p. 1208 fn. 25; see Mercury, supra, 158 Cal.App.4th at p. 84 [“our high court enunciated a rule under which a certain class of court-filed documents is subject to a presumption of a First Amendment right of public access”].)
Thus, “different levels of protection may attach to the various records and documents involved in [a given] case, ” depending on whether access is predicated on the First Amendment or the common law. (Stone v. University of Maryland Medical System Corp. (4th Cir. 1988) 855 F.2d 178, 180; see United States v. McVeigh (10th Cir. 1997) 119 F.3d 806, 812 [“[B]oth the common law and
First Amendment standards ultimately involve a balancing test, and the First Amendment right of access receives more protection than the common law right. Thus, if we find the district court orders satisfy the First Amendment standard, as we do, we will necessarily find that the orders satisfy the common law standard as well.”]; Mercury, supra, 158 Cal.App.4th at pp. 91, 106–107 [First Amendment applies to a “narrower class of filed documents, ” while “good cause” Civil Discovery Act standard applies to discovery materials not subject to sealed records rules].)
3. The Sealed Records Rules
In response to NBC Subsidiary, the Judicial Council promulgated “the sealed records rules, ” rules 2.550, 2.551. (Mercury, supra, 158 Cal.App.4th at p. 84.) The rules expressly implement the First Amendment principles espoused in NBC Subsidiary and establish a presumption that “court records... be open” unless the law requires confidentiality. (Rule 2.550(c); see Advisory Com. com., rule 2.550; In re Marriage of Nicholas, supra, 186 Cal.App.4th at p. 1575.)
The rules “apply to records sealed or proposed to be sealed by court order” (rule 2.550(a)(1)) and, more specifically, to “discovery materials that are used at trial or submitted as a basis for adjudication of matters other than discovery motions or proceedings.” (Rule 2.550(a)(3).) The rules are inapplicable to “discovery motions and records filed or lodged in connection with discovery motions or proceedings.” (Ibid.) Nor do they apply “to records that are required to be kept confidential by law.” (Rule 2.550(a)(2).)
a. Sealing Records
“[S]ubject to certain exceptions... a court ‘record must not be filed under seal without a court order.’ (Rule 2.551(a).) Further, a ‘court must not permit a record to be filed under seal based solely on the agreement or stipulation of the parties.’ (Rule 2.551(a).)” (Mercury, supra, 158 Cal.App.4th at p. 84.)
“A party requesting that a record be filed under seal must file a motion or an application for an order sealing the record. The motion or application must be accompanied by a memorandum and a declaration containing facts sufficient to justify the sealing.” (Rule 2.551(b)(1).) In so doing, the moving party must lodge with the court the record for which the
sealing order is sought. The court holds the record “conditionally under seal” until it rules on the motion or application. (Rule 2.551(b)(4).)
Often a party will want to file documents obtained during discovery that an adversary or third party has designated as confidential pursuant to a protective order. (See rule 2.551(b)(3).) In such a case, the party seeking to file the confidential documents must lodge them with the court in unredacted form, as well as lodge, in unredacted form, any pleadings, motions, memoranda or other court documents disclosing their contents. (Rules 2.551(b)(3)(A)(i), (d).) The party must also publicly file redacted copies of the documents and other court materials. (Rule 2.551(b)(3)(A)(ii).) In addition, the party must give written notice to whomever produced the confidential documents that the lodged, unredacted documents “will be placed in the public court file unless that party files a timely motion or application to seal the records under this rule.” (Rule 2.551(b)(3)(A)(iii).) If the producing party is properly served with notice and fails to request sealing within 10 days, or fails to request an extension of time to seek sealing, “the clerk must promptly... place the [unredacted documents] in the public file.” (Rule 2.551(b)(3)(B).)
The court may order a record sealed only upon making express findings that: “(1) There exists an overriding interest that overcomes the right of public access to the record; [¶] (2) The overriding interest supports sealing the record; [¶] (3) A substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; [¶] (4) The proposed sealing is narrowly tailored; and [¶] (5) No less restrictive means exist to achieve the overriding interest.” (Rule 2.550(d).) In its order, the court must identify the facts supporting its issuance. (Rule 2.550(e)(1)(A); Mercury, supra, 158 Cal.App.4th at p. 84.) The findings themselves, however, may be set forth in fairly cursory terms. (See, e.g., McGuan v. Endovascular Technologies, Inc. (2010) 182 Cal.App.4th 974, 988 [106 Cal.Rptr.3d 277].) If the trial court fails to make the required findings, the order is deficient and cannot support sealing. (See Providian, 96 Cal.App.4th at pp. 301–302.)
“If the court denies the motion or application to seal, the clerk must return the lodged record to the submitting party and must not place it in the case file
unless that party notifies the clerk in writing within 10 days after the order denying the motion or application that the record is to be filed.” (Rule 2.551(b)(6).)
b. Unsealing Records
The sealing rules also allow a party, members of the public, or even the court on its own initiative, to seek the unsealing of documents under seal. (Rule 2.551(h)(2).) “Notice of any motion, application, or petition to unseal must be filed and served on all parties in the case.” (Ibid.) “The motion, application, or petition and any opposition, reply, and supporting documents must be filed in a public redacted version and a sealed complete version if necessary” if such documentation reveals the content of the sealed documents. (Ibid.)
While the court must consider the same criteria pertinent to a motion to seal when ruling on a request to unseal (rule 2.551(h)(4)), an order to unseal-as well as an order denying sealing-does not require express factual findings by the trial court. (Providian, supra, 96 Cal.App.4th at p. 302.) The order must specify, however, whether the records are unsealed in whole or in part. (Rule 2.551(h)(5).)
c. Media’s Involvement
The sealed records rules expressly permit the public, which includes members of the press, to seek the unsealing of court records. (Rule 2.551(h)(2).) Rule 2.551 “provides procedural flexibility to third parties seeking to unseal court records, including”-in addition to noticed proceedings in the trial court-“the vehicle of initiating an original proceeding in the reviewing court by way of a petition for writ of mandate to compel the lower court to unseal records that were improperly sealed.” (Savaglio, supra, 149 Cal.App.4th at pp. 601–603.) Rule 2.551(h)(2), thus, reflects the Judicial Council’s implementation of NBC Subsidiary’s admonition that “ ‘representatives of the press and general public “must be given an opportunity to be heard on the question of their exclusion.” ’ ” (NBC Subsidiary, supra, 20 Cal.4th at p. 1217, fn. 36.)
Here the media asserts, as it has in other cases, that it also has a right to participate in proceedings to seal court records and further contends it is entitled to do so as an intervenor. And some cases have noted in passing the media was allowed to intervene to oppose a motion to seal.
(E.g., In re Marriage of Burkle (2006)135 Cal.App.4th 1045, 1050 [37 Cal.Rptr.3d 805] (Burkle); Fagan v. Superior Court (2003) 111 Cal.App.4th 607, 611 [4 Cal.Rptr.3d 239].)
However, after examining the nature and parameters of intervention, Savaglio concluded it was not the proper procedure for media participation, even in connection with the unsealing of court records. (Savaglio, supra, 149 Cal.App.4th at p. 602.) The newspaper seeking leave to intervene in that case “mistakenly equate[d] intervention with pursuing a motion to seal. They are not the same. The right to intervene, whether conditional or unconditional, is the right to become a party to pending litigation. As applied to matters of law, ‘to intervene’ means ‘ “[t]o interpose in a lawsuit so as to become a party to it.” ’ (Estate of Ghio (1910) 157 Cal. 552, 559-560 [108 P. 516].) In civil law intervention is ‘ “[t]he act by which a third party becomes a party in a suit pending between other persons.” ’ (Id. at p. 560.) By allowing a member of the public to file a motion to unseal records, rule 2.551(h) provides a mechanism for third parties to correct overbroad or unsubstantiated sealing orders, but it does not transform that member of the public into a party to the lawsuit.” (Savaglio, at pp. 602–603.)
We agree with Savaglio that intervention pursuant to Code of Civil Procedure section 387 is not a means by which non-parties can participate in proceedings to seal or unseal court records. This does not mean, however, media participation in proceedings to seal court records is improper, even though the sealing rules provide for participation only in proceedings to unseal court records. The courts have ample authority to allow media participation as amicus curiae. (See, e.g., In re Marriage Cases (2008) 43 Cal.4th 757, 791 -792, fn. 10 [76 Cal.Rptr.3d 683, 183 P.3d 384] [superior courts retain “broad discretion over the conduct of pending litigation” and have “the authority to determine the manner and extent of... entities’ participation as amici curiae that would be of most assistance to the court”]; Cromer v. Superior Court (1980) 109 Cal.App.3d 728, 731 [167 Cal.Rptr. 671] [court “aided by briefs of amici curiae representing interests of the news media and the public generally”]; Apple Inc. v. Samsung Electronics Co., Ltd. (Fed. Cir. 2013) 727 F.3d 1214, 1220 (Apple) [trial court denied motion to intervene on sealing issues, but both it and appellate court granted media leave to appear as amici curiae].)
Here, the trial court rejected the media’s attempt to intervene in connection with the sealing motions pertaining to plaintiffs’ effort to file a Fifth Amended Complaint on the ground the media had not properly applied to intervene, but granted applications to intervene in connection with the sealing motions pertaining to defendants’ summary judgment motions. Allowing the media to intervene in connection with the second round of sealing motions was, for the
reasons we have explained, improper. For the same reason, there is no merit to the media’s claim the court erred in not allowing them to intervene in connection with the first round of sealing motions filed in connection with the proposed Fifth Amended Complaint. As to the initial motions, however, the media were essentially allowed to participate as amici curiae, and they were not entitled to any other status.
B. Standard of Review
1. If Common Law Right of Access Applies
When the common law right of access applies, appellate courts generally employ the abuse of discretion standard in reviewing sealing orders. (E.g., Nixon, supra, 435 U.S. at p. 599; Ameziane v. Obama (D.C. Cir. 2012) 403 U.S. App.D.C. 19 [699 F.3d 488, 494] [“we review a district court’s decision to seal or unseal documents, or to issue or refuse to issue a protective order, for abuse of discretion” but “review de novo any errors of law upon which the court relied in exercising its discretion”]; Media General Operations, Inc. v. Buchanan (4th Cir. 2005) 417 F.3d 424, 429 [“Common law rights provide the press and the public with less access than First Amendment rights, ” and decision to seal or grant access to warrant papers “ ‘is committed to the sound discretion of the judicial officer who issued the warrant’ ” and “reviewed for abuse of discretion.”].)
2. If the Sealed Records Rules Apply (Constitutional Right of Access)
When the constitutionally-based sealed records rules apply, the California courts have taken varying approaches to the standard of review.
In Providian, one of the early watershed cases applying the sealed records rules, the court reviewed an order unsealing documents, which it characterized as the “functional equivalent” of an order denying sealing. (Providian, supra, 96 Cal.App.4th at p. 302.) The court nevertheless addressed the standard of review both for orders sealing and unsealing records. (Id. at pp. 299–303.) Noting that an order sealing records is proper “only if [the trial court] expressly finds facts that establish” the five findings required by rule 2.550(d)(1)–(5), Providian concluded the first task in reviewing an order to seal is to “examine the express findings of fact required by [the] rule... to determine if they are supported by substantial evidence.” (Providian, at p. 302.) Next, because the language of the rule is permissive (the “court may order that a record be filed under seal” if the factual requisites are met (rule 2.550(d)), the appellate court must ask “whether, in light of and on the basis of [the] findings, the trial court abused its discretion in ordering a record
sealed.” (Providian, at p. 302.) As for an order to unseal, which differs from an order to seal because the trial court need not make express findings, Providian concluded the reviewing court examines the record for substantial evidence supporting the trial court’s implied findings that the requirements for sealing are not met. (Id. at pp. 301–303.)
However, in People v. Jackson (2005) 128 Cal.App.4th 1009, 1019–1020 [27 Cal.Rptr.3d 596] (Jackson), the court took a different approach as to orders sealing court records, pointing out Providian actually dealt with an order unsealing records. Jackson concluded an order sealing records is subject to “independent review” because it implicates First Amendment rights. (Jackson, at p. 1020; see also United States v. Doe (2d Cir. 2009) 356 Fed.Appx. 488, 489 [distinguishing between orders sealing and unsealing records; “where, as here, we review a district court decision denying sealing, the decision presents no First Amendment concerns, and we will affirm unless the district court ‘based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence’ ”].) As to orders unsealing court records, the court considered Providian’s standard of review discussion “arguably persuasive.” (Jackson, at p. 1020.)
In Oiye, the court declined to follow Jackson’s view on the standard of review applicable to orders sealing court records and adopted the approach laid out in Providian, stating it would “ ‘review the trial court’s decision to order the documents sealed under the abuse of discretion standard, and any factual determinations made in connection with that decision will be upheld if they are supported by substantial evidence.’ ” (Oiye, supra, 211 Cal.App.4th at p. 1067.) Oiye distinguished Jackson as involving an uncontested record. (Oiye, at p. 1067.) We do not agree Jackson employed independent review
because the record was uncontradicted. Rather, it seems apparent the court did so because the sealed records rules are grounded on the First Amendment right of access.
We need not, however, resolve whether Providian or Jackson most accurately sets forth the standard of review for orders sealing court records. Although the trial court’s first order granted defendants’ motions to seal, its second order, embracing the same discovery materials, largely denied defendants’ motions to seal, and only defendants have appealed from that order. Accordingly, the ultimate record status of the discovery materials at issue here is subject to review in the context of an order denying sealing. In this context, the courts have consistently employed the approach articulated in Providian. We therefore review de novo whether the sealed records rules apply to a given set of discovery materials (a question of law). And when they do, we determine whether substantial evidence supports the trial court’s express or implied findings that the requirements for sealing are not met. (Providian, supra, 96 Cal.App.4th at pp. 301–303.)
C. Applicability of the Sealed Records Rules to the Documents at Issue
The sealed records rules apply, as we have discussed, to “discovery materials that are used at trial or submitted as a basis for adjudication of matters other than discovery motions or proceedings.” (Rule 2.550(a)(3); see NBC Subsidiary, supra, 20 Cal.4th at p. 1208, fn. 25.) While the first category of materials, discovery materials “used at trial, ” might be relatively straightforward, the second category, discovery materials “submitted as a basis for adjudication, ” is not. Defendants contend the latter category embraces only materials relevant to the ground or grounds on which a trial court ultimately rules. Plaintiffs maintain it includes all discovery materials submitted to a court in support of and in opposition to a pending motion. We conclude the broader view is correct-with the important caveat irrelevant discovery materials or materials as to which evidentiary objections are sustained, are not “submitted as a basis for adjudication” and thus are not within the ambit of the constitutional right of access and, concomitantly, not subject to the sealed records rules.
1. Discovery Materials “Submitted as a Basis for Adjudication”
Defendants base their narrow reading of the phrase “submitted as a basis for adjudication” on Mercury. The issue in that case was whether exhibits to a complaint (obtained through discovery and subject to a protective order) were subject to the sealed records rules and properly ordered unsealed by the trial court. (Mercury, supra, 158 Cal.App.4th at pp. 68, 103.) After the defendants
successfully demurred to the complaint solely on standing grounds, the media successfully urged that the complaint and exhibits be unsealed. (Id. at p. 71.) The Court of Appeal reversed, concluding the exhibits had not been submitted as a basis for adjudication and therefore were not subject to the sealed records rules. Accordingly, the materials should have remained sealed pending further proceedings to determine whether they were properly classified as confidential under the protective order. (Id. at pp. 105–108.)
Mercury posited two plausible meanings of the phrase “submitted as a basis for adjudication.” (Mercury, supra, 158 Cal.App.4th at pp. 89–90.) Under a broad interpretation, “the right of access would apply to any discovery material filed with the court, with the sole exception under rule 2.550(a)(3) of documents filed in connection with discovery motions or proceedings. Public access would be inherent in the mere filing of the discovery material because the placing of the document in the court file would make it potentially something that would be used ‘as a basis for adjudication.’ ” (Id. at p. 89, fn. omitted.) Under a narrower view, discovery material would be “subject to public access (and therefore governed by the rules) when... filed with the court and... used in some manner by the court ‘as a basis for adjudication’ of a material controversy.” (Id. at pp. 89–90, italics added; see Rosado v. Bridgeport Roman Catholic Diocesan Corp. (2009) 292 Conn. 1, 38–40 [970 A.2d 656] (Rosado) [postulating three views: a narrow approach that presumes access only to documents relevant to adjudication of a litigant’s “substantive rights," a middling approach that presumes access to all documents relevant to a court’s adjudicatory function, and a broad approach that presumes access to all documents filed in connection with a pending matter].)
Mercury rejected the broader interpretation, stating “[i]t cannot be said that public access to any court-filed civil discovery documents-regardless of their relevance to the issues in the case, the circumstances of their filing, or the extent of their use in the proceedings-promotes” the objective of public access. (Mercury, supra, 158 Cal.App.4th at pp. 96–97.) “Public access to a discovery document that is not considered or relied on by the court in adjudicating any substantive controversy does nothing to (1) establish the fairness of the proceedings, (2) increase public confidence in the judicial process, (3) provide useful scrutiny of the performance of judicial functions, or (4) improve the quality of the truth-finding process.” (Ibid.)
Thus, while recognizing “the importance of a complaint in framing the claims and issues presented in civil litigation, ” Mercury “disagree[d] that any material attached to it-such as the discovery material designated confidential pursuant to a duly entered protective order here-necessarily is ‘submitted as a basis for adjudication.’ The pleadings, including complaints, are not typically evidentiary matters that are submitted to a jury in adjudicating a controversy.” (Mercury, supra, 158 Cal.App.4th at p. 103.) The demurrer only addressed the threshold question of standing and “in no sense dealt with the underlying factual claims of stock options backdating alleged in the Complaint or concerned the exhibits appended to that pleading.” (Id. at p. 104.) The court observed, however, “there may exist instances in which an attachment to a complaint to which a demurrer is interposed may constitute a document submitted as a basis for adjudication and thereby fall within the presumption of public access discussed in NBC Subsidiary. For instance, a challenged complaint in which a contract is attached and in which the demurrer concerns the viability of the contract would probably pose such a case.” (Id. at fn. 34.)
Defendants maintain Mercury sets forth a bright-line standard: confidential discovery material merely filed (or, more accurately, lodged) with the court, but not actually “considered or relied on” by the court in connection with the basis on which it rules, is not “submitted as a basis for adjudication” and, thus, is not subject to the sealed records rules. We do not agree Mercury can or should be boiled down to such a limited view.
Mercury involved the unsealing of exhibits to a complaint, challenged at the outset on a single, threshold procedural ground. While the complaint identified the claims to be tried, neither its substantive allegations, nor its exhibits, had been submitted to the court as a basis for adjudicating the merits of the case. Given these circumstances, Mercury’s discussion of the scope of the sealed records rules is on solid ground. However, the court was not confronted with, nor did it discuss, any other context, including discovery materials submitted in connection with a summary judgment motion seeking judgment on multiple, alternative grounds. Accordingly, Mercury does not answer the issue presented here.
We therefore turn to the language of the sealed records rules. Rule 2.550 applies to “discovery materials that are used at trial or submitted as a basis for adjudication of matters other than discovery motions or proceedings.” (Rule 2.550(a)(3), italics & underscoring added.) The plain language thus distinguishes between documents that are “used” at trial and documents that are “submitted” as a basis for adjudication of pretrial motions. Had the drafters intended to limit the applicability of the sealed records rules to only discovery materials “used by the court” in its ultimate disposition of substantive pretrial motions, they could have, and undoubtedly would have, said so.
But they did not. Further, both the words “used” and “submitted, ” in context, most reasonably refer to the parties’ conduct-that is, “used at trial” by the parties and “submitted as a basis for adjudication” by the parties. These words do not reasonably refer to the trial court’s conduct, deciding on which ground, of several, to base its decision. In short, defendants’ proffered construction of “discovery materials that are used at trial or submitted as a basis for adjudication” would require us to effectively delete the word “submitted” from the rule and insert in its place the phrase “by the court, ” an exercise in redrafting we decline to undertake. (See Providian, supra, 96 Cal.App.4th at p. 302 [“it is not our function to rewrite the rules”].)
As we have discussed, the language of rule 2.550 derives directly from NBC Subsidiary’s footnote 25, which states “the First Amendment does not compel public access to discovery materials that are neither used at trial nor submitted as a basis for adjudication.” (NBC Subsidiary, supra, 20 Cal.4th at pp. 1208–1209, fn. 25.) The Supreme Court cited several cases in support of this proposition; none suggests the constitutional right of access to court records is limited to discovery materials relevant to the ground or grounds on which a court ultimately rules. (E.g., Rushford v. New Yorker Magazine, Inc., supra, 846 F.2d at p. 253 [“the more rigorous First Amendment standard should also apply to documents filed in connection with a summary judgment motion in a civil case" (italics added)].)
Additionally, we must heed the mandate of article I, section 3, subdivision (b)(1), of the California Constitution, which provides: “The people have the right of access to information concerning the conduct of the people’s business, and therefore, the meetings of public bodies and the writings of public officials and agencies shall be open to public scrutiny.” (Ibid.) Subdivision (b)(2) expressly states, “[a] statute, court rule, or other authority, including those in effect on the effective date of this subdivision, shall be broadly construed if it furthers the people’s right of access, and narrowly construed if it limits the right of access.” (Cal. Const., art. I, § 3, subd. (b)(2).) Thus, unless we discern a clear requirement otherwise, we must interpret the sealed records rules broadly to further the public’s right of access. (See Sierra Club v. Superior Court (2013) 57 Cal.4th 157, 166 [158 Cal.Rptr.3d 639, 302 P.3d 1026] [citing the constitutional provision and noting “our usual approach to statutory construction is supplemented by a rule of interpretation that is specific to the issue before us”]; Savaglio, supra, 149 Cal.App.4th at p. 600 [“Lest there be any question, Proposition 59 requires us to broadly construe a statute or court rule ‘if it furthers the people’s right of access.’ ”].)
Finally, defendants’ narrow construction would necessarily mean sealing decisions would be made after-the-fact-that is, after the trial court issues its
substantive ruling-because only then would the ground or grounds on which the court rules be known. This, in turn, would mean that until the court rules, documents would remain lodged and out of the purview of the public, and the public would necessarily have a constricted opportunity to observe the judicial process as it unfolded.
The plain language of the sealed records rules indicates, however, the drafters did not envision an inherently delayed resolution of sealing issues. The rules provide that upon notice by a party seeking to use confidential discovery materials, a party opposing disclosure must, within 10 days, file a motion or application to seal or obtain an extension of time to do so. (Rule 2.551(b)(3)(B).) Thus, the rules provide for prompt disposition of sealing issues in the first instance, while providing the flexibility to delay motions to seal through the granting of an extension. Given the short timeframe that governs absent an extension, we cannot read other language, and specifically the phrase “submitted as a basis for adjudication, ” in a way that necessarily delays the resolution of sealing issues until after a trial court rules on the merits.
Indeed, the courts have expressed concern about delayed rulings on sealing issues. (See Mercury, supra, 158 Cal.App.4th at p. 92 [approving of Seventh Circuit case stating “ ‘access should be immediate and contemporaneous’ ”]; Savaglio, supra, 149 Cal.App.4th at p. 601 [“any reading of rules 2.550 and 2.551 that encourages an open-ended time frame for filing a motion to seal records long after the underlying substantive matter has been decided would defeat the purpose of the rules”]; see also Lugosch, supra, 435 F.3d at p. 121 [concluding district court erred when it postponed sealing decision “until it had ruled on the underlying summary judgment motion”].)
We recognize some courts have adopted the view defendants urge-that the right of access pertains only to discovery materials relevant to the ground or grounds on which a court actually rules. (E.g., In re Policy Management Systems Corp. (4th Cir. 1995) 67 F.3d 296 [documents filed in connection with motion to dismiss “did not play any role in the district court’s adjudication of the motion” and court “did not convert the motion into a motion for summary judgment, and thus excluded the documents from consideration”]; Verona v. U.S. Bancorp (E.D. N.C., Mar. 29, 2011, No. 7:09-CV-057-BR) 2011 WL 1252935, pp. *1, *21 [“Although these documents were filed in support of the motions for summary judgment and reviewed by the court, the court did not rely upon them in reaching its decision. Accordingly, the court will not presume a public right of access to the documents and will allow the motion to seal.”].) However, these courts did not engage in an extensive analysis of the issue. Nor were they required to heed our Supreme Court’s discussion in NBC Subsidiary’s footnote 25,
bound by the language of the sealed records rules, or bound by article I, section 3, subdivision (b)(1) of the California Constitution.
We therefore reject the narrow definition of the phrase “submitted as a basis for adjudication” defendants urge and conclude it embraces discovery materials submitted in support of and in opposition to substantive pretrial motions, regardless of the ground on which the trial court ultimately rules.
2. Irrelevant Materials Are Not “Submitted As a Basis for Adjudication”
This does not mean the mere act of submitting discovery materials in support of or in opposition to a pretrial motion imbues the materials with constitutional import, triggering the sealed records rules. As every court to consider the question has observed, the right of access applies only to discovery materials that are relevant to the matters before the trial court. (See Mercury, supra, 158 Cal.App.4th at p. 96 [access to irrelevant documents does not promote goals of public access]; see also United States v. Kravetz (1st Cir. 2013) 706 F.3d 47, 59, fn. 9 [no presumptive access to “an irrelevant document, that neither was nor should have been relied on”]; Apple, supra, 727 F.3d at pp. 1222–1223 [“evidence which a trial court rules inadmissible-either as irrelevant or inappropriate-seems particularly unnecessary to the public’s understanding of the court’s judgment”]; E.E.O.C. v. Dial Corp. (N.D.Ill., Nov. 29, 2000, No. 99 C 3356) 2000 WL 33912746 *1, *1 [“public has no interest in gaining access to information that has failed to pass the threshold tests of relevance and admissibility”].)
3. Curbing Abusive Litigation Tactics Impacting Sealing Proceedings
We are compelled at this juncture to address the negative impact abusive litigation practices have on sealing issues, a problem that is heightened, we acknowledge, by a broad reading of the phrase “discovery materials... submitted as a basis for adjudication.” (Rule 2.550(a); see Rosado, supra, 970 A.2d at p. 683 [broad presumptive access to documents “creates the potential for parties to harass others by attaching private material with little to no relevance to the issues to underlying motions, thus rendering that material public”].)
The problem is two-fold-parties that fail to exercise any discipline as to the confidential documents with which they inundate the courts, and parties that indiscriminately insist every document satisfies the rigorous requirements of the sealed records rules. This case exemplifies both.
Plaintiffs submitted a veritable mountain of confidential materials in opposition to defendants’ motions for summary judgment. Entire documents were submitted, when only a page or two were identified as containing matter relevant to the issues. Multiple documents were submitted to support a claim, when one would have sufficed. No mention at all was made of
hundreds of the exhibits. Inundating the trial court with this deluge of confidential materials was brute litigation overkill. (See Nazir v. United Airlines, Inc., supra, 178 Cal.App.4th at pp. 289–290.)
While defendants’ umbrage at plaintiffs’ shock and awe document strategy was understandable, their motions to seal were, in turn, breathtaking in scope.
The courts need not, and should not, put up with this kind of abuse. Every protective order should include language obligating the parties to be as sparing as possible in their use of protected materials. Paragraph 14 of the protective order in this case specifically required the parties to “endeavor in good faith to restrict their... submissions to Confidential Information... reasonably necessary for the Court[’s]” deliberations. Courts should not hesitate to enforce such provisions through sanctions for egregious violations. (Code Civ. Proc., § 128.5 [sanctions available for “bad-faith actions or tactics that are frivolous”]; see, e.g., Wallis v. PHL Associates, Inc. (2008) 168 Cal.App.4th 882, 900 [86 Cal.Rptr.3d 297] [affirming sanctions for violation of protective order]; see also Reid v. Google, Inc. (2010) 50 Cal.4th 512, 532 [113 Cal.Rptr.3d 327, 235 P.3d 988] [in making evidentiary objections to summary judgment materials, litigants should focus on objections “that really count” rather than swamping the trial court with hundreds of stock objections; “[o]therwise, they may face informal reprimands or formal sanctions for engaging in abusive practices”].)
Motions to strike can also be of utility. The court in Mercury observed, for example, that because the exhibits to the complaint appeared “to have been entirely unnecessary to the pleading, ” the “sealing controversy could have been avoided by either a stipulation or an order amending the Complaint to strike the exhibits.” (Mercury, supra, 158 Cal.App.4th at p. 104, fn. 35.) In fact, “the attached exhibits, as well as the quotes and references to them in the body of the Complaint, could have been stricken by the court either upon a motion by defendant or on its own motion. [Citations.]” (Ibid.; see Oiye, supra, 211 Cal.App.4th at p. 1070 [courts “have inherent authority to strike scandalous and abusive statements in pleadings”].) Even where materials are not connected with a pleading (making a statutory motion to strike under Code Civ. Proc, §§ 435 and 436 unavailable), “[t]he court’s files and records are... subject to the court’s control.” (Oiye, at p. 1070; see Nazir v. United Airlines, Inc., supra, 178 Cal.App.4th at p. 290 [urging courts to use their inherent power to deal with unduly burdensome evidentiary materials and objections in connection with summary judgment motions]; Reeves v. Safeway Stores, Inc. (2004) 121 Cal.App.4th 95, 106 [16 Cal.Rptr.3d 717] [trial courts “have the inherent power to strike proposed ‘undisputed facts’ that fail to comply with the statutory requirements and that are formulated so as to impede rather than aid an orderly determination whether the case presents
triable material issues of fact”]; Warner v. Warner (1955) 135 Cal.App.2d 302, 303 [287 P.2d 174] [affirming striking and sealing of scurrilous affidavit].)
Thus, when a party submits a tsunami of discovery materials subject to a protective order, the trial court should welcome a well-honed motion to strike to winnow down the material to that which is relevant to the contentions advocated by the proffering party. The public’s right of access to court records exists only as to such materials. It does not extend to irrelevant materials submitted to the court out of laziness in reviewing and editing evidentiary submissions, or worse, out of a desire to overwhelm and harass an opponent. (See discussion & cases cited, ante, at p. 497; Roman Catholic Diocese of Lexington v. Noble (Ky. 2002) 92 S.W.3d 724, 733 [“there is nothing to indicate that the public and the press historically have had access to sham, immaterial, impertinent, redundant or scandalous material that is without ‘legal effect;’” in fact, “allowing access to such material serves a negative rather than a positive role”].)
Here, the trial court could have stricken thousands of pages of the confidential discovery materials plaintiffs submitted but never referenced in their opposing papers (or during the hearing on the motions). Had it done so, these irrelevant materials would have effectively been removed from the court’s file, eliminating the need to address any sealing issues as to these materials. (See Mercury, supra, 158 Cal.App.4th at p. 104.)
Finally, on the other side of the equation, the trial courts can, and should, view overly inclusive sealing efforts with a jaundiced eye, and impose sanctions as appropriate. (See Providian, supra, 96 Cal.App.4th at p. 309 [“In light of defendants’ history of defining confidential material as broadly as possible, it would not be improper for the trial court to view their latest effort with considerable skepticism and conclude that the scope of their proposed record sealing was neither ‘narrowly tailored’ nor the least restrictive means to protect any interest against disclosure”]; Williams v. U.S. Bank Nat. Assn. (E.D. Cal. 2013) 290 F.R.D. 600, 606, fn. 9, italics omitted [threatening sanctions when “defendant made no effort at all to seal only those portions of the substantive exhibits that it actually wanted to protect as confidential”]; Young v. Actions Semiconductor Co., Ltd., supra, 2007 WL 2177028 at p. *6 [“Should either party again file a motion to seal which is inadequate or overbroad... the court may impose sanctions.”].)
D. Evidentiary Requirements for Sealing [*]
E. The 2012 Sealing Order: Discovery Materials Submitted in Opposition to the Summary Judgment Motions
1. Overview of the Parties’ Evidentiary Showing
Goldman submitted declarations by two individuals in support of its sealing motion-Joseph Floren, its litigation attorney, and Beverly Dunphy, a vice president in its Global Compliance Department. Floren’s declaration included a chart, Exhibit A, of which the first 11 pages discussed the bases for sealing by category (e.g., “The Strategies of the Hedging Strategies Group Are Non-Public and Represent Trade Secrets of Goldman Sachs, ” “Client Information and Communications”). The remaining 143 pages, in chart form, identified each exhibit at issue as to Goldman and referenced the claimed bases for sealing discussed in the first 11 pages, as well as identified additional bases, such as irrelevancy. Dunphy averred the importance of safeguarding various confidences of the firm and its clients, and outlined procedures for keeping client information from leaving the firm and from spreading broadly within it. She also stated the materials “identified in Exhibit A to the Floren Declaration... include confidential client and firm proprietary information and related communications, which are confidential for the reasons detailed therein.” She supplied a supplemental declaration discussing policies and procedures still in use at Goldman and reflected in plaintiffs’ opposition exhibits.
Merrill similarly submitted declarations by two individuals-Flora Vigo, its litigation attorney, and Peter Melz, a Managing Director at the Merrill entities and President and Chief Operating Officer of Merrill Lynch Professional Clearing Corporation (Merrill Pro.). The pivotal component of Vigo’s declaration, like that of Floren’s declaration, was a chart, Exhibit A, setting forth, for each exhibit at issue, the claimed basis for sealing. Melz, in turn, stated Merrill considers its internal policies and procedures to be proprietary confidential information. “Safeguarding the confidentiality” of its client business plans and financial transactions “is critically important” and a competitive advantage to the firm. The firm implements safeguards and ethical codes meant to keep this information from leaving Merrill and even from being widely disseminated within the firm. Melz also asserted the materials “[a]s described in detail in the chart attached as Exhibit A to the Vigo Declaration... reflect competitively sensitive information concerning [Merrill’s]
business, processes, procedures, systems, plans, strategies, clients, and transactions... not intended to be known to [Merrill’s] competitors, is subject to reasonable efforts to maintain its confidentiality, and has actual or potential competitive value.” In addition, Melz supplied a supplemental declaration clarifying the materials he reviewed, and a second supplemental declaration related to the confidentiality of Merrill’s policies and procedures.
Plaintiffs maintain defendants’ declarations are lacking in specifics and most of the information defendants want sealed is already in the public domain or lacks indicia of protectable information. They also submitted an opposing declaration by Michael Manzino, a former employee of Morgan Stanley with over 20 years of Wall Street and securities lending experience. At Morgan Stanley, Manzino worked for almost 14 years at the securities lending desk, eventually becoming an executive director and the desk’s second in command. His responsibilities included ensuring “an adequate supply of stock to support short selling by Morgan Stanley clients, ” and he developed “experience in all facets of the securities lending business.” The security lending desks at Morgan Stanley, Merrill and Goldman were direct competitors. Manzino opined some of the information defendants sought to seal was stale and of no present economic value, including: information concerning opportunities for profitable shorting of stocks from 2005 to 2006; trading strategies employed by two former clients of defendants-Scott Arenstein and Steven Hazan-disclosed in public sanctions orders issued by the Securities and Exchange Commission (SEC) and several exchanges; strategies related to naked short selling as part of “conversions” and strategies for “failing trades” that were no longer possible in light of 2008 changes to a federal securities regulation (called Regulation SHO); and compliance policies from 2005 to 2006 that were outdated because of significant changes in the regulatory environment. He also opined the identities of employees within securities lending desks at clearing firms such as defendants were well known and not confidential. In addition, plaintiffs provided the trial court with a number of publicly available documents to show the extent to which information contained in their opposition papers was already in the public domain.
2. The Discovery Materials at Issue [*]
d. Documents Containing Client Financial Information
Goldman and Merrill contend numerous exhibits should have been sealed because they contain confidential client financial information, such as trades, positions, and account data.
The right to privacy under article I, section 1 of the California Constitution “ extends to one’s confidential financial affairs” (Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d 652, 656 [125 Cal.Rptr. 553, 542 P.2d 977].) This right embraces confidential financial information in “whatever form it takes, whether that form be tax returns, checks, statements, or other account information.” (Fortunato v. Superior Court (2003) 114 Cal.App.4th 475, 481 [8 Cal.Rptr.3d 82], italics omitted (Fortunato).) Thus, in Valley Bank, the Supreme Court held that before a bank discloses customer financial information in civil discovery proceedings, it “must take reasonable steps to notify its customer of the pendency and nature of the proceedings and to afford the customer a fair opportunity to assert his interests by objecting to disclosure, by seeking an appropriate protective order, or by instituting other legal proceedings to limit the scope or nature of the matters sought to be discovered.” (Valley Bank, supra, 15 Cal.3d at p. 658; see Fortunato, supra, 114 Cal.App.4th at pp. 480–481 [protective order should have issued as to tax returns submitted to bank as part of loan application].) A financial institution, “as custodian of... relevant documents, ” has “standing to assert the privacy interests of its customers in the identifying information they” provide. (Pioneer Electronics (USA), Inc. v. Superior Court (2007) 40 Cal.4th 360, 368 [53 Cal.Rptr.3d 513, 150 P.3d 198]; see Gov. Code, § 7461, subd. (b) [regulating state-run investigations of customers of banks, savings associations, trust companies, industrial loan companies, and credit unions, and recognizing the “confidential relationships between [such] financial institutions and their customers are built on trust and must be preserved and protected"]; see also Gov. Code, § 7465, subd. (a).)
Valley Bank made only passing reference to the sealing of financial information as a tool to protect privacy interests, and the case pre-dates NBC Subsidiary and the sealed records rules. Thus, the question in the context of sealing is whether the state recognized privacy interest in financial information overrides the federal constitutional right of access to court records. This is necessarily a balancing inquiry, dependent on the facts and circumstances of the particular case. (See NBC Subsidiary, supra, 20 Cal.4th at pp. 1201, 1206; rule 2.550(d).)
Two Court of Appeal opinions have considered the sealing of financial information under the NBC Subsidiary rubric. In Burkle, supra, 135 Cal.App.4th at page 1045, the court considered the validity of Family Code section 2024.6, which required, at the request of either party, the sealing of any pleading in a divorce case listing information about the financial assets and liabilities of the parties and providing the location or identifying information about such assets and liabilities. (Burkle, at pp. 1052–1070.) Focusing on the Legislature’s stated finding the statute was necessary to protect parties from identify theft and other economic crimes, the court concluded the statute was not narrowly tailored to achieve that compelling objective. (Id. at pp. 1069–1070.) The court drew a distinction, for example, between highly sensitive identifying information, such as account and social security numbers or asset locations, that can facilitate criminal activity, and more general information, such as the mere existence and stated value of an asset or liability, which does not create such a risk but which was nevertheless subject to mandatory sealing under the statute. (Id. at pp. 1065–1066.) As to the latter sort of information, the court concluded mandatory sealing at the request of a party was at odds with the statute’s stated purpose and with the analysis required to support sealing under NBC Subsidiary, and so invalidated the statute. (Id. at pp. 1066, 1070.)
In Universal City Studios, Inc. v. Superior Court (2003) 110 Cal.App.4th 1273, 1275 [2 Cal.Rptr.3d 484], the appellate court addressed the petitioner’s motion to seal two groups of documents in the appellate court record, a settlement agreement (id. at p. 1283) and papers related to a motion to dismiss (id. at p. 1284). As to the settlement agreement, the financial information in that document had been redacted, and the petitioner failed to present any evidence it would be damaged by the disclosure of the document in that form. (Id. at pp. 1283–1284.) Turning to the motion to dismiss papers, the petitioner similarly failed to justify sealing the lion’s share of them. (Id. at pp. 1284–1285.) As to “20 pages of financial and accounting data” within those papers, however, the court concluded the petitioner had made a sufficient showing. (Id. at pp. 1285–1286.) These pages contained the “proceeds in different markets for 25 different films” and the petitioner submitted
a “fact-specific” declaration by its controller and senior vice-president that disclosure of this data would cause “competitive harm” to the petitioner in “negotiations with competitors and customers.” (Ibid.) Even though the court “ordinarily would order sealing” given the facts, it ultimately denied sealing because the financial data had already been loosed into the public domain in another case. (Id. at p. 1286.)
Here, defendants made a showing of injury from the disclosure of client financial information at least as strong as that made in Universal City Studios. Melz, a Managing Director of Merrill entities and President and COO of Merrill Pro, stated “safeguarding the confidentiality of client information is critically important to Merrill Lynch, and Merrill Lynch has several policies in place to protect” information such as “clients’ identities, trading activity, trading or business strategies or plans, account information, policies, procedures, practices, ... and their confidential communications.” Merrill considers client information to be “proprietary and confidential.” This policy is expressed in the firm’s written Code of Ethics, confidentiality training is required for all employees, and Merrill has procedures-such as “systematic information barriers”-so information is shared only on a “need to know” basis. Dunphy, a Vice President of Goldman’s Global Compliance Department, similarly stated Goldman derives a competitive advantage and reputational benefit from its “strong commitment to confidentiality” with respect to client identities and trade data. “Protecting the confidentiality of client information, ” stated Dunphy, “is a matter of fundamental importance” and also a matter of SEC regulations. Numerous written policy documents implement protection of client data and breaches would be “unthinkable.” We also observe that, unlike Universal City Studios and Burkle, the confidential financial information at issue here is that of third parties.
Thus, the confidential financial information in question in this case implicates significant privacy interests. Plaintiffs, in fact, acknowledged in the protective order that client transaction data “may be protected by rights of privacy or other confidentiality rights” and agreed not to contact any third party disclosed in produced documents without consent. The parties thus agreed to forego redactions “to avoid undue delay, burden, and expense in document production.” Relying on this stipulation, defendants produced “millions of pages” “in unredacted form.”
During the sealing proceedings, plaintiffs argued clients who had been sanctioned for their trading behavior, including Arenstein and Hazan, had no remaining privacy interest. They conceded, however, “to the extent any
remaining customer information exists in the documents Defendants seek to seal, any privacy concerns could easily be addressed through simple redaction of any such information.” Thus, “if an email string... makes mention of unrelated client confidential information, that portion of the email could be redacted.” On appeal, plaintiffs reiterate redaction would have been the “simple solution” and do not suggest anything would be lost in terms of the public’s understanding of the summary judgment proceedings if information linking individuals to their private financial data (other than that already publicly known) were redacted. Nevertheless, they claim defendants failed to preserve the right to redact by seeking the sealing of entire exhibits. Not so. Goldman and Merrill made sufficient offers to redact the documents and, at the hearing on their sealing motions, made clear an “all-or-nothing” approach “is absolutely not our position.” Thus, this is not a case like Providian, in which the party seeking to seal documents “actually opposed redacting when the subject was raised, ” “spurned” a more nuanced approach, and led the trial court to ignore the issue of redactions-conduct which lead the appellate court to conclude the option to redact had been waived. (Providian, supra, 96 Cal.App.4th at p. 309.) We also question whether waiver of redaction predicated solely on a financial institution’s conduct could ever be appropriate where third party confidential financial information is at issue.
With this background, we turn to the exhibits assertedly containing confidential client financial information, and for ease of discussion, have grouped like exhibits. We conclude the trial court should have ordered much of this confidential third party financial information sealed-largely because it was irrelevant to plaintiffs’ summary judgment opposition.
i) Documents Not Cited and Lengthy Documents of Which Only Scant Portions Were Cited
Exhibits 48 and 139 to the Sommer Declaration.
These exhibits consist, respectively, of a client account statement and an e-mail with an attachment. In the trial court, defendants objected to these exhibits as uncited and irrelevant. Further, Goldman, in Floren’s Exhibit A, asserted Exhibit 48 had no relation to Overstock. Plaintiffs, as best we can glean from the record, made no response to these relevance issues in the trial court, and they have made no response on appeal. Moreover, our review of the record confirms plaintiffs made no specific mention of either exhibit in their summary judgment opposition. Accordingly, these exhibits were irrelevant and should have been struck and either removed from the record or seeded for good cause. (See Apple, supra, 727 F.3d at pp. 1226–1228.)
Exhibits 25 and 86 to the Cirangle Declaration.
These exhibits each consist of a cover page followed by a lengthy report containing information
about the trades of one or more clients. In their summary judgment opposition, plaintiffs cited and quoted only from the cover pages, and did not cite to or make any mention of the contents of the reports. The trial court correctly refused to order the cover pages sealed since they reveal no client confidential financial information. However, the rest of pages were irrelevant and should have been struck and either removed from the record or sealed for good cause. (See Apple, supra, 727 F.3d at pp. 1226–1228.)
ii) Document With No Client-Identifying Information
Exhibit 164 to the Cirangle Declaration.
This exhibit is a 17-page spreadsheet reporting “trade information” pertaining to Overstock shares. Merrill contends it contains “client account numbers and short stock positions.” However, the spreadsheet was discussed at the summary judgment hearing, without objection, and it is clear it does not represent the trades of any one client. Rather, it references a particular Merrill account that sweeps in, but does not identify, multiple Merrill clients. Accordingly, the exhibit does not contain client identifiable confidential financial information, and the trial court correctly refused to order it sealed.
iii) Documents Concerning Publicly Known Clients
As we have observed, Scott Arenstein and Steven Hazan have been publicly identified in connection with defendants, and their trading methods-naked short selling, flex options, conversions-were discussed numerous times during the leave to amend and summary judgment hearings. Even the parties’ public, redacted trial court briefing connects these clients and their trading activities to defendants. Additionally, the SEC and other regulatory entities discussed Arenstein’s and Hazan’s trading methods in detail in lengthy orders sanctioning these clients for these trading practices. Manzino thus stated in his opposing declaration “there is no economic value to Merrill Lynch or Goldman Sachs in any emails and other communications involving [these clients] that I reviewed.”
Exhibits 4 and 18 to the Sommer Declaration, and Exhibit 4 to the Cirangle Declaration.
Exhibit 4 to the Sommer Declaration is a one-page Goldman e-mail chain concerning a supposed “market maker” client of both defendants, Arenstein, and a trading strategy already publicly associated with him. Exhibit 18 is a two-page Goldman e-mail chain, also discussing Arenstein and his publicly known trading strategies. Exhibit 4 to the Cirangle Declaration is a one-page Merrill email discussing Arenstein and his interest in opening an account with Merrill. In light of the public disclosures concerning Arenstein and the Manzino declaration, the trial court’s refusal to seal these exhibits is amply supported. Indeed, defendants’ continued requests to seal them obdurately ignores the realities of the state of public record.
Exhibits 8, 15 and 16 to the Sommer Declaration and Exhibit 88 to the Cirangle Declaration.
Exhibits 8, 15 and 16 also refer to Arenstein and Hazan and the rudiments of their now-publicly known trading strategies. For the reasons we have just discussed, the trial court’s refusal to seal these documents is supported by substantial evidence.
Exhibit 46 to the Sommer Declaration.
This exhibit is an e-mail string that references Arenstein’s Merrill Lynch account numbers, the size of a wire sent into that account, and his net liquidity. Although much information about Arenstein is publicly known, this financial information is not. Nor did plaintiffs cite to it. Instead, they cited to other parts of the e-mail. Accordingly, this financial information was irrelevant and should have been ordered struck and either removed from the record or sealed (by redaction if appropriate) for good cause. (See Apple, supra, 727 F.3d at pp. 1226–1228.)
This exhibit additionally discloses Arenstein’s overall short position and leverage in January 2005, which plaintiffs did mention in their opposition papers. They claim these numbers relate to whether defendants were merely following customer instructions on certain Overstock related trades, or acting willfully. The trade numbers, themselves, have no demonstrable relation to Overstock trades, particularly, or to the issue of “instruction following, ” and were therefore irrelevant and should have been struck and either removed from the record or sealed (by redaction if appropriate) for good cause. (See Apple, supra, 727 F.3d at pp. 1226–1228.) The leverage ratio, however, does appear to have some colorable connection to defendants’ knowledge. That 2005 figure also reflects the already-known trading strategy of Arenstein, and the trial court properly refused to order this information sealed.
Exhibit 8 to the Cirangle Declaration.
This is a two-part document. Part two is Merrill’s new client form for Arenstein, which divulges his opening balance, estimated annual revenue, stock and option volumes, total combined equity, and affiliations with other financial firms. Again, while considerable information about Arenstein is publicly known, the items just listed are not. Nor did this information have any relevance to the summary judgment proceedings. Accordingly, this irrelevant information should have been struck and either removed from the record or sealed (by redaction if appropriate) for good cause. On the other hand, Arenstein’s identity, trading strategies and use of certain computer software were discussed at the summary judgment hearing, where this document was explicitly referenced. Accordingly, the trial court correctly refused to order this information sealed. As for the first part of the exhibit—e-mails that identify numerous new clients and accounts-plaintiffs made no mention of it at all. Accordingly, this part of the exhibit was also irrelevant and should have been struck and either removed from the record or sealed (by redaction if appropriate) for good cause. (See Apple, supra, 727 F.3d at pp. 1226–1228.)
Exhibit 88 to the Cirangle Declaration.
This exhibit is a transcript of a telephone conversation between Arenstein and Merrill, wherein a Merrill employee tells Arenstein he needs to take action to meet Regulation SHO requirements. On the whole, the transcript simply shows Arenstein’s publicly known trading strategy in action, and the trial court properly refused to seal this information.
Exhibit 161 to the Cirangle Declaration.
This exhibit is a lengthy spreadsheet showing trades in Overstock by Arenstein and Hazan. At the summary judgment hearing, the salient features of the spreadsheet with respect to Hazan were discussed, namely that he had a short position of 2, 500 shares on August 2, 2005, 415, 000 shares on August 15, 2005, 515, 000 shares a day later, and stayed over six figures in shares for a year, occasionally topping a million shares. Accordingly, this can no longer be considered confidential financial information, and the trial court correctly refused to order it sealed. Given that such information as to Hazan was not treated as confidential, we see no reason why the court should have treated the same information as to Arenstein any differently, particularly given all the other publicly disclosed information about Arenstein’s trading. Accordingly, the trial court also correctly refused to order this information sealed.
Exhibits 59, 105, 106, 137 and 233 to 236 to the Sommer Declaration.
These exhibits all contain information about short sales and related “buy ins” or settlement obligations of numerous clients, including Arenstein and Hazan. The documents mention stock names, quantities, and prices. Some, such as Exhibits 105 and 106, concern trades in Overstock. Many of the documents are voluminous and recount many trades. Although the SEC sanctions orders reveal the overall scope of some clients’ short selling practices by noting total profits gained (in the millions of dollars) and explaining the per-share profit the clients derived (in one example, $1.40 per share), the orders do not reveal the stocks in which the clients traded or the amount of trading in any one stock. Outside of the sanctions orders, only one security, Overststock stock, has been publicly linked to just two clients, Arenstein and Hazan. (Gullo, Goldman, Merrill E-Mails Show Naked Shorting, Filing Says, Bloomberg (May 16, 2012), available at http://www.bloomberg.com/news/2012-05-15/goldman-merrill-e-mails-show-naked-shorting-filing-says.html> [as of Nov. 13, 2014] ["fails to deliver in Overstock shares correspond to market-makers Scott Arenstein and Steven Hazan, Overstock’s lawyers said in the filing”].)
To the extent these exhibits concern Arenstein, Hazen and Overstock, the trial court properly refused to seal this information, given the extent of the public information about Arenstein’s and Hazan’s trading. However, other third party identifying information was of scant, if any, relevance to plaintiffs’ summary judgment opposition, and the public’s understanding of the
adjudicative process is not enhanced by the disclosure of this confidential financial information. Accordingly, client identifying information (other than as to Arenstein and Hazan) in these exhibits should have been sealed (by redaction if appropriate) under the sealed records rules.
iv) Documents With Irrelevant Client-Identifying Information
Exhibit 140 to the Sommer Declaration.
This exhibit is a lengthy spreadsheet reporting details about numerous client trades. Plaintiffs cited to the exhibit to demonstrate the great volume of “fails to deliver” and also to highlight certain trades. Thus, portions of the exhibit were relevant to their summary judgment opposition. However, the client-identifying information in the exhibit was irrelevant and should have been struck and either removed from the record or sealed (by redaction if appropriate) for good cause. (See Apple, supra, 727 F.3d at pp. 1226–1228.)
Exhibit 150 to the Sommer Declaration.
This exhibit lists five Goldman clients and their short positions in Overstock. Plaintiffs cited to this exhibit, but only to show the fees charged by Goldman. Accordingly, the client-identifying information in the exhibit was irrelevant and should have been struck and either removed from the record or sealed (by redaction if appropriate) for good cause. (See Apple, supra, 727 F.3d at pp. 1226–1228.)
Exhibit 166 to the Sommer Declaration.
Plaintiffs cited to this exhibit, an e-mail chain, to show that one Goldman client, who had been sanctioned for unlawful short selling, did not became a paying client. The particular identity of the client, however, was irrelevant to plaintiffs’ point, as were the short positions listed. Accordingly, the client-identifying information in the exhibit was irrelevant and should have been struck and either removed from the record or sealed (by redaction if appropriate) for good cause. (See Apple, supra, 727 F.3d at pp. 1226–1228.)
v) Other Documents Containing Client Financial Information
Defendants once again string cite to other exhibits they contend should have been sealed, but provide no separate analysis. Given the significance
of the privacy interest at stake, and the fact we have concluded, as to the exhibits defendants have separately discussed, much of the information was irrelevant to plaintiffs’ summary judgment opposition and therefore should have been struck or sealed for good cause, we are persuaded defendants have shown a sufficiently erroneous approach prejudicing third parties, requiring reversal and remand for further consideration of these exhibits.
Again, the parties may not simply dump these discovery materials back into the lap of the trial court. On remand, they are to proceed as follows: (a) review each of the string cited exhibits in light of our discussion above of exhibits containing third party confidential financial information; (b) reach agreement to the extent possible as to (1) those exhibits (or pages thereof) that were irrelevant to plaintiffs’ summary judgment opposition (e.g., not cited by plaintiffs, or having no bearing on the point in connection with which the exhibits were cited by plaintiffs) and which therefore should have been struck and either removed from the record or sealed for good cause, and (2) those exhibits (or pages thereof) that were relevant and contain confidential third party financial information (i.e., information not already in the public domain) and as to which a sealing determination must be made under the sealed records rules; and (c) return to the trial court on further motions to seal that are focused and limited according.
e. Other Lengthy and Almost Entirely Irrelevant Documents [*]
The August 3, 2011, sealing order challenged in appeal No. A133487 and the March 6, 2012, sealing order challenged in appeal No. A135180 are
affirmed in part and reversed in part as specified herein, and limited remands are ordered for further proceedings consistent with this opinion. The parties are to bear their own costs on appeal.
Margulies, Acting P. J., and Dondero, J., concurred.