Court Rules That The Public’s Right To Know Outweighs A Litigant’s Desire to Seal the Pleadings

• Posted on: Aug 21 2019

There is a broad presumption that the public is entitled to access to judicial proceedings and court records. Mosallem v. Berenson, 76 A.D.3d 345, 348 (1st Dept. 2010); Mancheski v. Gabelli Grp. Capital Partners, 39 A.D.3d 499, 501 (2d Dept. 2007); Gryphon Dom. VI, LLC v. APP Intl. Fin. Co., B.V., 28 A.D.3d 322, 324 (1st Dept. 2006); Danco Labs. v. Chemical Works of Gedeon Richter, 274 A.D.2d 1, 6 (1st Dept. 2000). New York has “long recognized that civil actions and proceedings should be open to the public in order to ensure that they are conducted efficiently, honestly, and fairly.” Matter of Brownstone, 191 A.D.2d 167, 168 (1st Dept. 1993). For this reason, Section 4 of the Judiciary Law requires that, with certain exceptions, “[t]he sittings of every court within this state shall be public, and every citizen may freely attend the same.” Likewise, Sections 255 and 255-b of the Judiciary Law mandate that court records and docket books be available to the public. Mosallem, 76 A.D.3d at 348.

“The right of access to court proceedings and records also is firmly grounded in the common law.” Mosallem, 76 A.D.3d at 348, quoting Gryphon Dom., 28 A.D.3d at 324 (internal quotation marks and citations omitted). This right of access also derives from the constitutional “presumption, arising from the First and Sixth Amendments, as applied to the states by the Fourteenth Amendment, that both the public and the press are generally entitled to have access to court proceedings.” Id. at 348-49 (citations omitted).

Despite the broad presumption of public access, the courts have made it clear that the right to such access is not absolute.  Mosallem, 76 A.D.3d at 349, citing Danco Labs., 274 A.D.2d at 6. Indeed, public inspection of court records has been limited by numerous statutes, e.g., Family Court records (Family Ct. Act § 166), records in matrimonial actions (Domestic Relations Law § 235), sealed records in criminal cases (CPL 160.50), adoption proceeding records (Domestic Relations Law § 114) and proceedings seeking disclosure of HIV-related information (Public Health Law § 2785(3)).

In addition to the statutory exceptions to public access, a court is empowered to seal court records pursuant to Section 216.1(a) of the Uniform Rules for Trial Courts (22 N.Y.C.R.R. 216.1 (a)). That rule states that

[e]xcept where otherwise provided by statute or rule, a court shall not enter an order in any action or proceeding sealing the court records, whether in whole or in part, except upon a written finding of good cause, which shall specify the grounds thereof. In determining whether good cause has been shown, the court shall consider the interests of the public as well as of the parties.

Although the rule does not define the term “good cause”, “a sealing order should clearly be predicated upon a sound basis or legitimate need to take judicial action.” Gryphon Dom., 28 A.D.3d at 325. “A finding of ‘good cause’ presupposes that public access to the documents at issue will likely result in harm to a compelling interest of the movant.” Mancheski, 39 A.D.3d at 502. However, since there is no “absolute” definition, good cause, in essence, “boils down to” the Court’s discretion (id., quoting Coopersmith v. Gold, 156 Misc. 2d 594, 606 (Sup. Ct., Rockland County 1992)), which is to be exercised on “a case-by-case” basis. Id., citing Matter of Twentieth Century Fox Film Corp., 190 A.D.2d 483, 485-486 (1st Dept. 1993).

Notably, merely because the parties mark documents “confidential” or “private” does not make them so. Eusini v. Pioneer Elecs. (USA), Inc., 29 A.D.3d 623, 626 (2d Dept. 2006). In fact, courts routinely hold that an agreement by the parties to seal is not a substitute for establishing “good cause.” MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 2012 N.Y. Slip Op. 33147(U), at * 9 (Sup. Ct., N.Y. County 2012. For this reason, the moving party must demonstrate good cause for a confidentiality request. Grande Prairie Energy LLC v. Alstom Power, Inc., 2004 N.Y. Slip Op. 51156 [U], at *2 (Sup. Ct., N.Y. County 2004). And, because “[c]onfidentiality is … the exception, not the rule” (Matter of Hofmann, 284 A.D.2d at 93-94), courts are reluctant to seal court records (Mosallem, 76 A.D.3d at 349), even where both sides to the litigation have asked for such relief. Gryphon Dom., 28 A.D.3d at 324.

So, what constitutes good cause? Protection of a company’s business advantage, trade secrets and other forms of confidential information are often cited as reasons that satisfy the “good cause” standard. “Sealing, however, is not appropriate merely to protect the advantage that one side might have over the other in negotiating an agreement in a commercial dispute between sophisticated business entities.” Gryphon Dom., 28 A.D.3d at 326.

Recently, Justice Andrea Masley of the Supreme Court, New York County, Commercial Division, addressed the foregoing principles in Prager Metis CPAS, LLC v. Castellanos, 2019 N.Y. Slip Op. 32417(U) (Sup. Ct., N.Y. County Aug. 12, 2019) (here), wherein she denied a motion to seal judicial records because the public’s right to know outweighed any claim of confidentiality.

Prager Metis CPAS, LLC v. Castellanos

Background

In 2015, plaintiff, Prager Metis CPAS, LLC (“Prager” or the “Firm”), sued Alicea Castellanos, a former employee of the firm, and International Wealth Tax Advisors, LLC (“IWTA”), the accounting firm that she formed upon her departure from Prager. The Firm claimed that Castellanos breached her employment agreement, her fiduciary duty, and misappropriated confidential information, among other things, when she left Prager.

On May 9, 2018, the parties discontinued the action. Although the complaint and answer had been open to the public’s view for the last four years, Castellanos and IWTA moved to redact the pleadings because they allegedly contained “scandalous” information. According to defendants, these public filings “unfairly tarnish[ed] the[ir] reputation.” Slip Op. at *2. Prager took no position on the motion “despite asserting that all factual allegations in [its] pleadings were made in good faith under New York law.” Id. At oral argument, the Court provided defendants with an opportunity to submit redactions for the Court’s consideration. Id.

The Court’s Decision

The Court denied the motion, declining to permit the redactions to the pleadings proposed by the defendants.

The Court found that defendants failed to demonstrate “compelling circumstances to justify restricting the public’s access to [the subject] pleadings.” Slip Op. at *3. Justice Masley explained that the strength of the argument to seal the subject pleadings was undermined by the delay in seeking such relief: “Defendants waited approximately four years to redact this public information, calling into question whether there is truly ‘a sound basis or legitimate need to take judicial action.’” Id., quoting Danco Labs., 274 A.D.2d at 9.

The Court also rejected the alleged harm to reputation as a basis upon which to grant the motion, noting that “‘neither the potential for embarrassment or damage to reputation … constitutes good cause to seal court records.’”  Id., quoting Mosallem, 76 A.D.3d at 351. “Indeed,” said the Court, “the portions sought to be redacted are nothing more than dramatically phrased allegations.” Id. at *4.

Finally, the Court rejected the notion that the subject pleadings were “tantamount to the kind of threat to a business’s competitive advantage that warrants judicial action.” Id. “Indeed,” concluded the Court, “the pleadings do not reveal trade secrets, financial arrangements, or other information of that sort.” Id.

Takeaway

Prager Metis underscores the heavy burden the movant seeking to seal information from the public bears. To be sure, the four-year delay in seeking the relief did not help. But Prager Metis shows that damage to reputation, embarrassment, or the general desire for privacy are insufficient reasons to conceal judicial pleadings and papers from public view. More is needed, such as a threat to a business’s competitive advantage or the revelation of trade secrets, financial information and/or similar forms of confidential information. None of the foregoing bases were present in Prager Metis.

Tagged with: Business Litigation, Commercial Litigation, Filing Under Seal, Public Right To Know