Covering lawsuits involving businesses in the civil court system

A reporter covering a company’s legal battles will encounter different access obstacles than he or she would while reporting on a criminal case. While many courts have held that the public has a First Amendment-based right of access to civil proceedings and records, parties will often seek to close proceedings or seal records on the basis that they would reveal trade secrets or confidential business information. Details of civil settlements are also frequently sealed.

Discovery

During discovery — the phase before a trial when each side has a chance to get information and evidence from the other — either party may ask the court to issue a protective order restricting the release of the information. For a judge to agree to that in federal court, a party must show “good cause” that the release would be harmful.

Closure orders

Often, when businesses sue or are sued, the dominant concern is the disclosure of trade secrets or other confidential business information. The federal court rules specifically provide for orders “that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a designated way.” State court rules are generally modeled on those of federal courts.

At trial, when this type of information is entered as evidence or discussed in an open court proceeding, the parties can ask that the record be sealed or the hearing be closed. The standard for doing so places the burden on the party seeking confidentiality to show why the First Amendment or common law presumption of access to the information should be overcome.

Trade secrets are protected because they are considered property rights whose value is rooted in the information not being widely shared. For example, the formula for Coca-Cola is one of the most famously protected trade secrets. These are given a significant weight when balanced against the First Amendment right of public access. Level 3 Comm. v Limelight Networks, 611 F.Supp.2d 572 (E.D. Va. 2009).

Courts also consider whether the testimony or documents relate to any government or political questions or controversies. When they do, the balance will tilt in favor of access, but where they don’t the trade secrets will likely be protectedConfidential business information, a broader category of information that trade secrets fits within, can also be protected by a court. The party seeking protection will have to show “how the disclosure would inflict harm on the business and establish that the harm is sufficient to justify withholding court records from public examination.” Thompson v. Thompson, 2008 WL 902092 (Conn. Sup. Ct. 2008); H.B. Fuller Co. v. Doe, 151 (Cal.App. 2007); Wilson v. American Motors Corp., 759 F.2d 1568 (11th Cir.1985). Thus, courts require that the party point to each specific statement that would harm a business interest and articulate exactly the harm that will be caused, rather than just making a generalized statement.

Common lawsuits

Closure issues can come up in any type of litigation, but they are especially likely to arise in shareholder derivative suits. Such a suit is brought by shareholders on behalf of a corporation when they have questions about the management or direction the board is taking the company. The suit will be against a third party; often an employee of the corporation who the shareholders contend has not fulfilled legal duties.

These suits are also often class actions brought on behalf of all shareholders. Most of the litigation will generally surround the certification of a class under federal court rules. Once the class is certified, the defendants will often settle as certification is typically seen as the biggest hurdle in the case. Once a case is certified, it is unlikely the defendants will be able to win at trial.

Another common type of corporate case, particularly in a recession or economic downturn, is a suit to enforce a merger or acquisition agreement. When a corporate party refuses to close a deal, it is common for the other party to sue to enforce an agreement. Such suits will generally occur against a backdrop of intense, ongoing negotiations between the parties over the terms of the agreement. Common arguments for refusing to close are that the conditions of the merger or purchase agreement have not been met, that the lenders funding the purchase have backed out, and that going forward would essentially bankrupt a company.

Reporter’s tip: Don’t forget to be skeptical of information in a party’s own court filings and of what a law firm says. They’re always advocating for their client’s side. Be sure to check assertions in a plaintiff’s complaint against a defendant’s answer, or if unavailable, ask for comment.