From Judge Gail Weilheimer (E.D. Pa.) Thursday in Cultivatr, Inc. v. Peterson; the analysis strikes me as quite correct:
Cultivatr, Inc. and Sproutr, LLC … ask this Court to seal portions of the transcript of a bench trial held before the Court, claiming that publication will do harm to their business interests. Because this Court finds that they have not made a showing strong enough to outweigh the public interest in open proceedings, the Motion is denied….
This matter was commenced by Counterclaim Defendants Cultivatr and Sproutr as declaratory judgment Plaintiffs, with Nora Peterson filing a breach of contract counterclaim. The dispute centered around a verbal promise made by Cultivatr’s principals to Ms. Peterson to grant equity in Cultivatr in exchange for Ms. Peterson’s agreeing to join Sproutr as an executive. After a three-day bench trial, this Court issued findings of fact and conclusions of law, ultimately holding that Cultivatr indeed breached an enforceable verbal agreement when it failed to provide Ms. Peterson with the shares it owed her….
[T]he Cultivatr Parties ask this Court to seal portions of the bench trial transcript which deal with an investment into Sproutr made by a third party (the “Investor”). The Cultivatr Parties ask this Court to redact every mention of the name of the third party…. [T]he Cultivatr Parties also seek to redact large swaths of testimony and argument which discusses the investment, and particularly: (1) the amount of money invested; (2) the percentage of Sproutr acquired; and (3) the different options explored for treating the money as a matter of accounting….
This information was not merely contextual to the matter at trial, nor was it inconsequential or collateral. To the contrary, this Court found this investment was a motivating factor in the decisions by the principals of Cultivatr to welch on their promise to deliver equity to Nora Peterson…. “At base, this Court concludes that this is a case where [Cultivatr’s Principal], perhaps a bit overeager and bit inexperienced, rushed in and made a firm offer which was giving up more than she appreciated at the time. When a later investment made that offer much more expensive to live up to, she had buyer’s remorse and wishes she had included all sorts of bells and whistles that she did not.” … Further, the amount and nature of the investment provided the Court with the best available evidence from which it could make a reasonable calculation of the value of the shares which went undelivered at the time they reneged on their promise….
[T]he right to attend civil trials is protected by the First Amendment, and while the right is not absolute, “as a First Amendment right it is to be accorded the due process protection that other fundamental rights enjoy.” … Even the agreement of the parties does not bind our courts; indeed courts can deny sealing sua sponte or on motion of a third party….
Enforcement sua sponte makes good sense. It is certainly true that our system of justice relies heavily on the adversarial system to present important issues to the Court. But sometimes, where the issue involves the interest of the public or of the Court itself, the interests of the adversarial party may not align strongly enough with those other interests to reliably ensure the issue will be zealously litigated, or even litigated at all.
Indeed, the Court’s extensive experience with litigation has shown time and again that parties often “go along to get along” when it comes to confidentiality. Where that party does not particularly care about the publicity of a given case, it is often easier to just accept confidentiality designations than to spend their own money challenging them. Similarly, where a party knows they need certain sensitive documents to prove their case, they often will simply agree to a confidentiality designation to take the path of least resistance. These are entirely reasonable litigation decisions from a private party seeking to vindicate its own private interests. But given the powerful societal interest in the openness of our courthouses, it does create a gap which courts must diligently maintain….
The Cultivatr Parties … argue that the terms of the Investor’s investment are not public and not intended for public view. But that cannot carry the day. Many an embarrassing series of text messages or damaging private admission regularly are aired out in our courtrooms. In fact, that is largely what a courtroom is for. The fact that there was an intention that the nature of this investment be kept a secret does not mean that it gets to stay that way once implicated in federal litigation.
Next the Cultivatr Parties argue that the confidentiality agreement between them and the Investor supports sealing the transcript. But the private contractual relationship between Sproutr and the Investor does nothing to bind the court, and Ms. Peterson’s agreement to honor it is similarly without impact. There may well be collateral consequences to Sproutr as a result of these documents becoming relevant in this litigation. But that is a consideration to weigh before (not after) committing to a course of conduct likely to lead to litigation.
Notably, it was the Cultivatr Parties themselves who commenced this litigation as a declaratory action. Regardless of the outcome of this case, Cultivatr and Sproutr, in electing not to give Ms. Peterson the shares, put themselves on a set of tracks aimed squarely at litigation. The disclosure of information related to equity in the companies is a natural consequence of that decision, which should have been weighed at that time, or at various points in settlement discussions. They cannot now unilaterally impose the terms and conditions of their contract with the Investor upon the public.
The Cultivatr Parties next argue, with no factual support, that disclosure of this information could permit others to take advantage of them or the Investor. Given that there is no factual information presented by the Cultivatr Parties that this is so, the Court could reject that out of hand. But, addressing the merits, this does not strike the court as particularly credible. This involves a completed transaction from more than two years ago. How the terms of an investment agreement could possibly cause Sproutr or the Investor to lose customers is mystifying. At any rate, it is surely the sort of vague and non-specific argument that this Court is precluded from assigning weight under In re Avandia [the key Third Circuit precedent], and therefore this Court disregards it….
Any business in America would rather not have their internal documents out in the public. But that does not mean that litigants have a right to hide them from the public once they are implicated in court proceedings. It takes something more than the desire for secrecy to exclude information from the docket. A party seeking to seal needs articulated facts with specific examples. The Cultivatr Parties do not come close….
To the extent this ruling seems harsh, this Court will address three further points which are worth noting here. The first is that we are here, in Court, because the Cultivatr Parties filed a lawsuit. While the standard is not different for plaintiffs and defendants, the Cultivatr Parties can hardly claim to be surprised to find that documents related to equity ownership in Sproutr have come to public view in litigation over an equity dispute with a former employee.
More importantly, however, as Ms. Peterson observed in her opposition, the Cultivatr Parties publicly filed, as an attachment to their Complaint, the name of the Investor they seek to seal and the exact amount of that investment. So, too, does the Court refer to the Investor, the amount of the investment, and the discussions regarding the accounting consequences of that investment repeatedly in its Findings of Fact and Conclusions of Law. There has been no motion to seal those filings…. [T]he identity of the Investor has been no secret to any diligent court watcher since the very first filing in this case.
Finally, the Court is sympathetic to the possibility that the Cultivatr Parties may rather not have tried the case at all, had they known the Investor’s name would be made public. If that were the case, however, they could have gotten this determination before trial and strategized accordingly. They could have moved before trial to seal the courtroom, but they did not, or made some other pretrial motion as to maintaining confidentiality designations for trial purposes.
For the same reasons articulated here, this Court would, in all likelihood, have denied the motion. But at least the Cultivatr Parties would have had the lay of the land, and understand what proceeding to trial meant. But they did not, and are left with the consequences of the string of choices which brought them to this point….
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