California Court of Appeals, First District, First Division
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.
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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 ...