Delaware Supreme Court strikes (light) blow for open access

June 3, 2014

Remember the hullabaloo in the last couple of years over Delaware’s plan to permit corporations to resolve their disputes in secret arbitration before Chancery Court judges? It was quite an idea, giving businesses the opportunity to present their arguments to the most experienced corporate jurists in the land without the inconvenience of public exposure. Unfortunately for its proponents, the secret arbitration regime didn’t take the U.S. Constitution into quite enough account. The plan was shot down by the 3rd U.S. Circuit Court of Appeals, which found that under the “logic and experience” test for public access, the Delaware scheme ran afoul of the First Amendment. In March, the U.S. Supreme Court declined to review the 3rd Circuit decision, which meant that corporations no longer have the right to arbitrate in secret in Chancery Court.

And after a ruling Monday by the Delaware Supreme Court, businesses shouldn’t count on litigating in secret, either. Justices Randy Holland, Carolyn Berger, Jack Jacobs and Henry Ridgely and Superior Court Judge Richard Cooch (sitting in for recused Chief Justice Leo Strine) dismissed an interlocutory appeal by Al Jazeera of an order requiring it to file a mostly unredacted version of its 2013 complaint against AT&T. The state Supreme Court didn’t explain why it abruptly tossed an appeal that was already briefed and argued before it. But the dismissal leaves intact Vice-Chancellor Sam Glasscock‘s Al Jazeera opinion as Delaware’s operative precedent on confidentiality designations — and Glasscock pays considerable deference to open access.

“When sensitive information that the parties wish to keep confidential directly impacts the public’s basic knowledge of particular court proceedings,” Glasscock wrote, “the interest of the public in accessing this information outweighs the economic harm to the parties that disclosure may cause.” (Hat tip on the Supreme Court order to Kyle Wagner Compton of The Chancery Daily.)

Glasscock was the first judge to interpret a 2013 change in Delaware’s rules governing the sealing of documents in Chancery Court. According to his Al Jazeera decision, the new provision was specifically intended to restrict corporations from designating filings or portions of filings as confidential. The Al Jazeera case — a contract dispute with AT&T over AT&T’s supposedly wrongful termination of their agreement after Al Jazeera expanded its news operations — was an extreme example of oversealing. Al Jazeera proposed extensive redactions, AT&T added its own, and by the time the two of them were finished blacking out blocks of the original complaint, outsiders could hardly even figure out what the case was about.

Five reporters (including Compton of The Chancery Daily) and Bloomberg News challenged the confidentiality designations. Al Jazeera’s lawyers at DLA Piper defended the broad-brush redactions, as did AT&T’s counsel from Morris, Nichols, Arsht & Tunnell and Gibson, Dunn & Crutcher. (Bloomberg was originally represented by Andre Bouchard; when he was selected as the new Chancellor, Joel Friedlander of Friedlander & Gorris took over. The individual reporters had David Finger of Finger & Slanina, who previously represented the public interest group that killed Delaware’s secret arbitrations.) Last October, Glasscock issued his opinion, which said that Al Jazeera and AT&T are only permitted to redact sensitive and proprietary business information, such as their number of subscribers and the fees those customers pay. He rejected arguments that redactions may be based on undefined collateral consequences of disclosure, and ordered Al Jazeera to file publicly a complaint with minimal blackouts.

“The parties in this matter seek the benefits of litigating in a public court,” Glasscock wrote, in words that reminded me of the 4th Circuit’s recent decision in the “Company Doe” case. “Consequently, they have assumed accompanying responsibilities, including the need to disclose previously non-public information in order to satisfy the public’s right of access to court documents. That obligation extends to information necessary to understand the nature of the dispute they litigate, including information that could have unfavorable economic or reputational consequences, such as a weakened negotiating position or public embarrassment.”

AT&T elected not to pursue an appeal, but Al Jazeera obtained Vice-Chancellor Glasscock’s leave to ask the Supreme Court to review his order. Al Jazeera actually filed both an interlocutory appeal and a direct appeal under the collateral order doctrine. Last November, the Supreme Court agreed to take the case. (Technically, it accepted the interlocutory appeal and dismissed the direct appeal.)

In its briefing to the Supreme Court, Al Jazeera and DLA Piper argued that Glasscock had interpreted the new rule too narrowly, with potentially dire consequences for Delaware courts. “(Glasscock’s) decision essentially tells business parties that they must be willing to suffer serious economic loss from disclosure of confidential business information in order to enforce their contractual rights in Delaware,” the brief said. “If the Court of Chancery’s ruling remains intact, future contracting parties will avoid selecting Delaware as a dispute resolution forum.” Bloomberg and the individual reporters rejected that argument in their brief: “Al Jazeera makes no effort to establish that any court in any other jurisdiction subject to the First Amendment of the United States Constitution would resolve the unsealing issue differently than did the Court of Chancery in this case.”

There was no indication at the lively oral arguments on April 23 that the justices were having second thoughts about the appeal, and their order Monday said merely that the appeal was “accepted improvidently.” Perhaps the Supreme Court wants to see how other Chancery Court judges interpret the new rule before it offers definitive guidance. Until then, companies litigating in Delaware should expect to explain why their proposed redactions fit Vice-Chancellor Glasscock’s definition of propriety and sensitive information.

Al Jazeera, meanwhile, has one last chance to shield its original complaint from public view. After the Supreme Court dismissed its appeal, Glasscock issued an order inviting briefs on why the minimally redacted complaint shouldn’t be published. Al Jazeera and AT&T have already informed the court that they’re finalizing a settlement and intend jointly to dismiss the case very shortly. It seems likely that Al Jazeera and DLA will argue against disclosing the details of a case that’s been settled and dismissed, but reporters’ counsel Friedlander said at oral arguments that his clients will push to see the original complaint even in those circumstances.

Al Jazeera counsel Andrew Deutsch of DLA told me that his side hasn’t yet decided how it will respond to Glasscock’s order. Reporters’ counsel Finger and AT&T lawyer Kenneth Nachbar of Morris Nichols declined to comment.

For more of my posts, please go to WestlawNext Practitioner Insights

Follow me on Twitter

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see