March 29, 2019 / 8:51 PM / 7 months ago

6th Circuit stands up against oversealing of corporate documents

(Reuters) - If you want to understand how corporations are able to keep potentially damaging information under wraps even when internal documents emerge in litigation, you should read an unpublished opinion issued Thursday by the 6th U.S. Circuit Court of Appeals in Kondash v. Kia Motors, a class action alleging that Kia’s panoramic sunroofs are defective and dangerous.

The 6th Circuit majority, as I’ll explain, ended up ruling that Kia cannot shield certain documents – including internal reports about shattered sunroofs, communications with government regulators and some warranty information – as trade secrets. Class counsel from the Gibbs Law Group advocated for that result at the 6th Circuit. But the real force behind disclosure of the Kia documents was the trial judge overseeing the class action, U.S. District Judge Susan Dlott of Cincinnati. Judge Dlott refused to accept standard procedures and insisted upon upholding the public interest in opening court records, especially in a case involving public safety.

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An important caveat: Kia, which is represented by O’Melveny & Myers, denies that its sunroofs are defective and that they are a risk to public safety. Kia counsel Carlos Lazatin and Jason Orr did not respond to an email requesting comment.

The document disclosure fight began when Gibbs filed a motion to certify a statewide class of Ohio Kia owners. As in just about every case against a corporate defendant, plaintiffs lawyers had been litigating under a protective order that shielded Kia’s internal documents – tens of thousands of pages of information that Kia described in its 6th Circuit brief as “the proverbial family jewels.” In accordance with the protective order, Gibbs moved to file its class certification brief, and all of the accompanying exhibits, under seal.

There’s nothing unusual about that. It happens all the time, said David Stein of Gibbs, who led the 6th Circuit case for the class. “When we do discovery in class actions, we see all kinds of information of public interest,” Stein said. “Unfortunately, a lot of the time, we can’t share it.” The issue, as Stein explained, is that plaintiffs’ lawyers represent their clients, not the public interest. You might argue that in a class action, when plaintiffs’ lawyers are supposed to be looking out for absent class members, they ought to be pushing to reveal corporate secrets. But in the Kia case, a class hadn’t yet been certified. It’s possible, Stein said, that his firm might eventually have argued for the disclosure of some of Kia’s documents, either in connection with the class certification motion or after the class was approved.

In any event, Judge Dlott took that decision out of the hands of Kia and the class. She denied the plaintiff’s motion to file the class certification brief and exhibits under seal, prompting Kia to file an emergency motion for reconsideration. The judge ordered a hearing. Kia’s director of consumer affairs and warranty operations provided live testimony on why Kia considered many of the plaintiffs’ exhibits to contain proprietary trade secrets.

The hearing failed to sway Judge Dlott. Kia quoted one telling exchange in its 6th Circuit brief. Its witness said Kia would be harmed if competitors learned which cars the company used as benchmarks to test and improve Kia cars. The judge asked skeptically whether the witness was actually arguing that Kia’s rivals don’t already know they are competing. When the witness said yes, that “any internal documents that provide benchmarking, segmentation, comparison of specifications and design or evaluation or anything is absolutely confidential and proprietary to us,” the judge told Kia’s lawyers, “I absolutely do not agree with the witness’s last statement.”

Judge Dlott ordered the two sides to get together to figure out which documents should be sealed. They agreed that many could be publicly released and others could be narrowly redacted. The class – and the judge – conceded that Kia’s technical and engineering documents are proprietary. But the two sides failed to reach an agreement on about 35 documents, sending the dispute to the judge.

In a relatively brief opinion in February 2018, Judge Dlott held that most of the disputed documents were not trade secrets and that their disclosure served the public’s interest. Her decision covered, among other categories, records of Kia’s internal investigation of shattered sunroofs and projections of future problems, analyses of how ceramic paint affects sunroof glass, communications with the National Highway Traffic Safety Administration and certain warranty data.

“Kia has not demonstrated that the reports and investigation materials are trade secrets,” the judge wrote. “Furthermore, the documents’ contents are of great public interest, particularly to drivers concerned about their safety and class members interested in their legal claims.”

On appeal, Kia contended that Judge Dlott botched the inquiry by looking first at whether there’s a public interest in disclosure. She should first have decided whether the documents contained trade secrets, Kia said. And because, according to Kia, the material was proprietary, the inquiry should have ended right there.

“The district court here analyzed whether Kia’s trade secrets should be sealed — and indeed, whether they constituted trade secrets at all — based on their ‘relevance’ to the case and the ‘public’s interest’ in seeing them,” Kia told the 6th Circuit. “This is a gross misapplication of this court’s precedents with far-reaching implications for business entities litigating in this circuit.”

In Thursday’s opinion, the 6th Circuit acknowledged that Judge Dlott’s analysis of whether the documents contained trade secrets was “sparse.” But the majority – Judge Bernice Donald and U.S. District Judge William Bertelsman of Covington, Kentucky, sitting by designation – said the judge adequately analyzed the content of documents under Ohio law.

More importantly, at least in my mind, the court confirmed its commitment to the public’s interest in corporate documents produced in litigation. “The presumption in favor of public access is strong when public safety is implicated,” Judge Donald wrote, citing 1983 6th Circuit precedent in See Brown & Williamson Tobacco Corp. v. FTC (710 F.2d 1165). And that’s all the more true, the majority said, in class actions that affect people beyond those named in the case. In fact, Judge Donald wrote, the 6th Circuit has already held, in 2016’s Shane Group v. Blue Cross (825 F.3d 299), that the bar for sealing documents should be especially high in class actions.

So according to the majority, it was entirely proper for Judge Dlott to take the public’s interest in the documents into account. “It was a necessary step in the analysis,” Judge Donald wrote. “While the existence of a trade secret will generally satisfy a party’s burden of showing a compelling reason for sealing documents, even if a trade secret does not exist, a court may still find a compelling reason exists; further, even if a district court finds that a trade secret exists, it must still determine whether public interest outweighs the moving party’s interests in protecting their trade secret.”

Even the dissent from Judge Richard Griffin does not dispute that trial judges should give weight to the public interest in corporate documents or even that the Kia documents should have been unsealed. Judge Griffin said Judge Dlott’s analysis of Kia’s trade secret assertions was too perfunctory and that she didn’t delineate clearly enough between the two prongs of the unsealing inquiry.

Class lawyer Stein told me he gives credit to Judge Dlott for making Kia justify shielding its documents. Many judges avoid creating a stir over sealed documents, especially when plaintiffs haven’t asked for disclosure. This judge did.

“She was incredibly proactive and really zeroed in on the issue,” Stein said. “It kind of makes you wonder how many corporate scandals didn’t happen because of protective orders.”

About the Author

Reporting by Alison Frankel

The views expressed in this article are not those of Reuters News.

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