United States: Don't Assume A Strong Discovery Protective Order Means Your Client's Confidential Information Will Not End Up In The Public Record

The scenario is pretty common.  A company is served with a subpoena duces tecum in a lawsuit to which it isn't a party.  Among the categories of documents requested are some that clearly include information the non-party deems confidential.  But, the non-party or its counsel checks with the counsel of record in the case and determines that the parties already have negotiated, and the court has entered, a discovery protective order. The order, among other things, provides that any documents produced by parties or non-parties that are marked "Confidential" must be filed under seal.  Assuming there are no other bases for objection, the non-party produces documents, marks many "Confidential" pursuant to the protective order, and goes about its business, taking comfort in the belief that its confidential information is protected and will not make its way into the public court record.  All is good, right?  Think again.

With the Sixth Circuit's recent emphasis on public access to court records, including reversing orders filing documents under seal, parties and third parties can no longer rely on broad discovery protective orders that require documents designated confidential to be sealed when filed with the court.  Rather, as discussed in our prior two blogs on this subject ( here and here), the Sixth Circuit requires that (1) a party or non-party wanting documents filed under seal must meet a substantial burden of justifying the filing and (2) the district court must conduct a detailed analysis before permitting filings under seal.

In Shane Group, Inc. v. BlueCross Blue Shield of Michigan, 825 F.3d 299 (6th Cir. 2016), the Sixth Circuit found that each and every document filed under seal in the district court was sealed improperly. This finding included documents from more than 100 third parties provided pursuant to subpoena and subject to the protective order entered by the district court. The appellate court noted that the third parties were not on notice to object to the unsealing of the records and directed the district court to deal with any potential objections on remand.

The Sixth Circuit did provide some guidance for protection of third party documents, however. First, the court found that third party "financial and negotiation information" in this case was not properly sealed. The lawsuit was an antitrust case, and the information sought—related to the allegedly anticompetitive contracts—involved a practice outlawed by the Michigan legislature after the lawsuit was filed. As such, the information was not legitimate "financial and negotiation information" that could be properly sealed.

Second, the Sixth Circuit noted that district courts may seal information subject to statutory or regulatory interests, such as bank records or patient information; keep in mind that the facts of Shane Group potentially involved information subject to HIPAA protection. The court there did not determine whether the patient information was subject to HIPAA. Nevertheless, courts can and should seal information subject to statutory or regulatory protections.

Similarly, the court in Shane Group noted that trade secrets could be sealed by trial courts. However, the court clarified that only "legitimate" trade secrets are subject to this protection and stated that "the particulars of years-ago negotiations are unlikely to amount to a trade secret."

Most importantly, Shane Group puts the burden on the third parties or parties seeking protection to determine, on a document-by-document, line-by-line basis, that information should be sealed. While it may be possible to obtain a categorical determination that some documents should be sealed, such as HIPAA-protected information or certain bank records or trade secrets, anyone providing discovery in federal court should be aware that, after Shane Group, this is the exception, not the rule.

Third parties are particularly vulnerable after Shane Groupand should carefully consider raising more aggressive objections to subpoenas on the front end, pursuant to Rule 45. Limiting the information that a third party must produce, on a good faith basis and in accordance with the rules, will reduce the third party's potential exposure should the information be filed publicly. Third parties – and parties – may also consider adding a mechanism to their form protective orders that would require conditional filing under seal, with notice to the third party. Of course, this is a somewhat onerous burden in cases where many confidential documents may be filed with a motion for summary judgment, for example. However, it is one potential solution that provides third parties with an opportunity to be heard on confidential documents. In any event, a company that receives a subpoena duces tecum should understand that its confidential documents may be less protected than the protective order suggests.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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