The Presumption That Papers and Pleading Filed in Court are Public and The Circumstances in Which They May Be Sealed or Redacted

• Posted on: Jul 19 2023

By: Jeffrey M. Haber

Most litigants think that financial documents, such as tax returns, are confidential. The same is true with regard to trade secrets and other proprietary business information. While those sentiments are most often true, as discussed below, litigants are, nevertheless, often surprised to learn that there are well-developed rules governing the protection of such information from public view. 

“Under New York law, there is a broad presumption that the public is entitled to access to judicial proceedings and court records.”¹ The public’s right to access is, however, not absolute.² Under certain circumstances, “public inspection of court records has been limited by numerus statutes.”³ One of those statutes is Section 216.1(a) of the Uniform Rules for New York State Trial Courts, which empowers courts to seal documents upon a written finding of good cause. 

“[T]he determination of whether access to such records is appropriate is best left to the sound discretion of the trial court[.]”⁴“Although the term ‘good cause’ is not defined, ‘a sealing order should clearly be predicated upon a sound basis or legitimate need to take judicial action.”’⁵ The party seeking to seal court records must demonstrate compelling circumstances to justify restricted public access.⁶ The fact that the parties have a confidentiality agreement or otherwise stipulate to sealing is not sufficient by itself to warrant sealing or redaction of specific documents.⁷ The Court has an independent obligation to determine whether sealing is appropriate.⁸ 

In making the determination, courts consider “the interests of the public as well as of the parties.”⁹ As one court observed, a finding of good cause “boils down to … the prudent exercise of the court’s discretion.”¹⁰ “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 and that no alternative to sealing can adequately protect the threatened interest.”¹¹ Notably, “mere curiosity” is not a sufficient public interest for denying a motion to seal.¹²

So, when will the courts permit documents to be sealed or redacted? Generally, “when trade secrets are involved or when disclosure of information contained in [the] documents ‘could threaten a business’s competitive advantage.’”¹³ Similarly, courts have found that a party’s privacy interest in tax returns and other personal financial information warrants protection from public disclosure.¹⁴ 

To the extent the information sought to be protected from disclosure concerns third parties, courts have found that “[t]here [is] a compelling interest in sealing” such information “since disclosure could impinge on the privacy rights of third parties who clearly are not litigants herein.”¹⁵ 

Finally, courts require those seeking to seal or redact information narrowly tailor their application in order to outweigh the public’s right to access.¹⁶ When the moving party does so, their application is “more likely to be permitted than sealing of an entire document or court file.”¹⁷ 

The foregoing principles were recently examined in Jaffrey v. Scaminaci, 2023 N.Y. Slip Op. 32297(U) (Sup. Ct., N.Y. County July 6, 2023) (here), Youge Venture Capital LLP v. Xueyuan Han, 2023 N.Y. Slip Op 32299(U) (Sup. Ct., N.Y. County July 6, 2023) (here), and Meshechok v. Corporate Solutions Group I, LLC, 2023 N.Y. Slip Op. 32301(U) (Sup. Ct., N.Y. County July 6, 2023) (here).

In Jaffray, nonparties Melody Capital Partners, L.P. and Melody Capital Partners GP, LLC (collectively, “Melody”) moved to seal certain exhibits and memoranda of law submitted in connection with defendant’s motion to dismiss because they contained confidential or proprietary information. In particular, Melody claimed that the identities and investment activities of certain investors, i.e., limited partnerships (“Investor Information”), in private investment funds managed by Melody should be redacted. Melody claimed, inter alia, that it was contractually obligated, under various agreements to prevent unnecessary disclosure of the Investor Information and that the parties’ interest in protecting the Investor Information outweighed the public’s right to access court records because the Investor Information was not relevant to the underlying dispute between the parties, and because the investors in Melody were simply “bystanders” to the action.¹⁸

The motion court granted the motions, finding that Melody “demonstrated good cause to narrowly redact the identities of the investors, their activities, and their representatives,”¹⁹ and that “disclosure of the Investor Information would be in breach of the confidentiality provisions of certain agreements … to keep information like the Investor Information confidential.”²⁰

In Youge Venture Capital, the parties sought to seal certain documents because they contained personally identifying information and sensitive, non-public financial information of defendant as well as nonparties. The motion court granted defendants’ motion and granted in part plaintiffs’ motion.

In Meshechok, defendants moved to seal tax information, confidential business information and information that, if revealed, would give competitors a competitive advantage. In particular, defendants maintained that the tax information was private and confidential because it concerned the “amount of corporate distributions, company finances (including income, expenses, assets, investments, and liabilities), and [the] amount of personal distributions and expenses for both parties and nonparties.”²¹ Defendants also claimed that license agreements, if disclosed, would reveal their “approach and structure of certain licensing arrangements related to their business activities.”²² Defendants further sought to redact the advice from counsel relating to the company’s organizational structure and information regarding the processes used to protect the company’s trade secret.²³ Finally, defendants sought to redact information disclosing fee structures, operational and organizational structures, and details regarding allocation of income.²⁴

The motion court granted defendants’ motions, holding that they met their burden of showing good cause to shield the materials from the public.²⁵ The motion court also found that defendants’ proposed redactions were “narrowly tailored.”²⁶

Footnotes

1. Mosallem v. Berenson, 76 A.D.3d 345, 348 (1st Dept. 2010) (citations omitted).
2. IDW Grp., LLC v. Levine Ins. Risk Mgt. Servs., Inc., 40 Misc. 3d 368, 381 (Sup. Ct., N.Y. County Apr. 12, 2013) (citations omitted).
3. Mosallem, 76 A.D.3d at 349.
4. Matter of Crain Commc’ns v. Hughes, 135 A.D.2d 351, 351 (1st Dept. 1987), aff’d, 74 N.Y.2d 626 (1989).
5. Gryphon Domestic VI, LLC v. APP Int’l Fin. Co., B.V., 28 A.D.3d 322, 325 (1st Dept. 2006).
6. Maxim, Inc. v. Feifer, 145 A.D.3d 516, 517 (1st Dept. 2016).
7. Id. at 518; Gryphon Domestic VI, 28 A.D.3d at 324.
8. Maxim, 145 A.D.3d at 518.
9. Id.
10. Applehead Pictures LLC v. Perelman, 80 A.D.3d 181, 191 (1st Dept. 2010) (citation omitted).
11. Mancheski v. Gabelli Grp. Capital Partners, 39 A.D.3d 499, 502-503 (2d Dept. 2007) (citations omitted).
12. Dawson v. White & Case, 184 A.D.2d 246, 247 (1st Dept. 1992).
13. Natixis Real Est. Capital Tr. 2007-HE2 v. Natixis Real Est. Capital, Inc., 77 Misc. 3d 1224(A), 180 N.Y.S.3d 525 (Table) at *1 (Sup. Ct., N.Y. County 2023) (quoting Mosallem, 76 A.D.3d at 345, 348-49); Mancheski, 39 A.D.3d at 503; SeealsoDawson, 184 A.D.2d at 247; Hindlin v. Prescription Songs LLC, 2020 N.Y. Slip Op. 32583(U), at *3 (Sup. Ct., N.Y. County 2020) (permitting redactions in documents containing “various financial and business terms” when “disclosure could threaten [the party]’s competitive advantage in the market”) (citation omitted).
14. D’Amour v. Ohrenstein & Brown, LLP, 2007 WL 4126386, at *21 (Sup. Ct., N.Y. County Aug. 13, 2007) (sealing all files in connection with a motion to dismiss a partnership dispute, when the parties’ financial information, including its tax returns, financial statements and reports, and firm agreements and memoranda, were non-public and confidential); Fruhling v. Westreich, 2022 WL 314046, at *1 (Sup. Ct., N.Y. County Feb. 2, 2022), aff’d, 88 A.D.3d 567 (1st Dept. 2011); State v. Bayrock Grp. LLC, 2017 WL 748826, at *2 (Sup. Ct., N.Y. County Feb. 27, 2017); Feffer v. Goodkind, Wechsler, Labaton & Rudoff, 152 Misc. 2d 812, 816 (Sup. Ct., N.Y. County 1991) (noting “minimal” public interest in law firm’s “internal finances”).
15. Mancheski, 39 A.D.3d at 502 (2d Dept. 2007); Catalyst Investors III, L.P. v. The We Co., 2022 WL 1516276, at *2 (Sup. Ct., N.Y. County May 13, 2022).
16. Danco Labs., Ltd v. Chemical Works of Gedeon Richter, Ltd., 274 A.D.2d 1, 6 (1st Dept. 2000).
17. See Danco Labs., Ltd. v. Chemical Works of Gedeon Richter, Ltd., 274 A.D.2d 1, 6 (1st Dept. 2000).
18. Slip Op. at *3-*5.
19. Id. at *6 (citations omitted).
20. Id. at *5 (citations omitted).
21. Slip Op. at *3.
22. Id.
23. Id. at *5.
24. Id.
25. Id. (citation omitted).
26. Id. (citations omitted).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.