The opinion of the court was delivered by: BRIEANT
This discovery dispute presents unusual circumstances. Plaintiff Reliance Insurance Company ("Reliance"), as its name implies, is engaged directly and through its subsidiaries, in underwriting casualty, property and life insurance in many states and abroad. Most of its common stock (96.9%) is owned by Reliance Financial Services Corporation, the common stock of which in turn is wholly owned by Reliance Group Incorporated, a corporation whose securities are publicly traded.
The corporate defendant (hereinafter "Barron's") is the proprietor of a well known financial magazine published weekly in New York City. The individual defendant, Dr. Abraham J. Briloff ("Briloff") holds the Emanuel Saxe Chair of Distinguished Professor of Accountancy at Baruch College of the City University of New York. In addition to teaching and lecturing in the field of accounting, Briloff has also published widely on this subject, writing articles on financial and accounting matters directed to nontechnical readers, including members of the investing public. He may be regarded, for our purposes, as a journalist or reporter.
By its complaint filed September 11, 1976, plaintiff seeks damages and punitive damages ($27,000,000.00), pleading eight separately stated claims against either or all defendants.
Viewed most favorably to plaintiff, the complaint alleges that Briloff wrote, and Barron's published, in its July 19, 1976 issue, the article attached to the complaint entitled "Whose 'Deep Pocket'? At Reliance Group, the Slogan is 'Dig We Must'." The article was published at a time when plaintiff had filed a preliminary registration statement for sale to the public of two million shares of a proposed new Series A cumulative preferred stock issue.
In the article, defendants purported to expose certain "creative accounting" concepts being employed by Reliance, and charged improprieties, as well as bad business judgment and breach of fiduciary duty, leading to the decision to market the proposed Series A issue. Placed under this spotlight the desirability of the proposed issue declined, causing Reliance to increase the dividend yield to the extent of $7.5 million over the life of this stock issue in order to make it marketable.
Reliance charges, in its complaint, that Briloff and Barron's violated § 10(b) of the Securities Exchange Act of 1934, as well as Rule 10b-5 promulgated thereunder, and the laws of the State of New York relating to libel and defamation, negligence and intentional tort.
In its answer, Dow Jones, publisher of Barron's, denied plaintiff's allegations and pleaded six affirmative defenses, as well as two partial defenses. These defenses included truth, fair comment and First Amendment rights. Briloff's answer is to the same effect, pleading eleven affirmative defenses and two partial affirmative defenses.
Subject matter jurisdiction is premised on § 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq., and diversity of citizenship.
To complete their pre-trial discovery, defendants have demanded production of a substantial number of plaintiff's internal corporate documents and records. These undoubtedly will bear on the intent and the good faith of plaintiff's management in offering the proposed stock issue, or may lead to relevant evidence in support of defendants' claims of truth and fair comment.
At a pre-trial conference held on February 1, 1977, plaintiff's counsel expressed willingness to disclose the materials requested by defendants, but asked for the customary pre-trial stipulation and order of confidentiality, limiting pre-trial use of such material to matters pertaining to this action. Plaintiff specifically requested that no other uses be made of non-public information obtained pursuant to these discovery proceedings. Several days later, defendants declined to so stipulate.
Plaintiff's desire for secrecy will never, of course, be completely satisfied. The trial of this case will be public, although only relevant evidence will be admissible. The difficulty lies in the nature of pre-trial discovery which requires the disclosure of material which may be neither relevant nor admissible at trial, since it may lead to the discovery of relevant evidence. See Rule 26(b), F.R.Civ.P.
Since the parties were unable, although requested by the Court, to stipulate to an order of confidentiality, plaintiff sought a protective order pursuant to Rule 26(c)(7), F.R.Civ.P. which would limit the use by defendants' attorneys of "(all) non-public information and documents ascertained and produced by plaintiff pursuant to discovery, including deposition testimony, answers to interrogatories, and documents produced...." The order sought would forbid defendants' attorneys from disclosing "to any person other than such attorneys" the information and documents so described, but would allow disclosure of "financial information to parties, representatives of the parties and experts as necessary for purposes of this action...." Finally, the requested order would prohibit "defendants and their employees and agents" from using any such information and documents "in any publication, address, lecture or other medium of public dissemination, except as such information is a matter of ...