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Standard Investment Chartered, Inc. v. National Association of Securities Dealers

September 26, 2007

STANDARD INVESTMENT CHARTERED, INC., PLAINTIFF
v.
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Shirley Wohl Kram, U.S.D.J.

OPINION

Defendants National Association of Securities Dealers, Inc. ("NASD")*fn1 and NYSE Group, Inc. ("NYSE"), on behalf of themselves and several individual defendants, seek a protective order preventing plaintiff Standard Investment Chartered, Inc. ("Standard") from disclosing documents that Standard has acquired during expedited discovery. For the reasons that follow, the Court desires additional briefing on the motion.

I.BACKGROUND

The procedural posture of this case is somewhat complex. The relevant facts are as follows: On March 8, 2007, Standard, a member of the NASD, filed a class action complaint challenging the then-pending regulatory consolidation of the NASD and the NYSE (the "Consolidation"). Standard alleged that the Consolidation would disenfranchise certain NASD members, and that the defendants failed to comply with Delaware state law while soliciting support for the Consolidation. Against the defendants' wishes, Standard was granted limited expedited discovery in aid of an anticipated motion to preliminarily enjoin the Consolidation. See Standard Inv. Chartered, Inc. v. Nat'l Ass'n of Sec. Dealers ("Standard I"), 07 Cv. 2014 (SWK), 2007 WL 1121734 (S.D.N.Y. Apr. 11, 2007). Shortly thereafter, however, the Court dismissed Standard's complaint for failure to exhaust administrative remedies before the Securities and Exchange Commission ("SEC"). See Standard Inv. Chartered, Inc. v. Nat'l Ass'n of Sec. Dealers ("Standard II"), 07 Cv. 2014 (SWK), 2007 WL 1296712 (S.D.N.Y. May 2, 2007).

After the dismissal, the Court directed that "[a]ny party seeking continued protection of documents (or any references to the content of such documents) filed, or sought to be filed, as part of this litigation shall move for a protective order . . . ." See 07 Cv. 2014 (SWK), Dkt. No. 83 (the "May 16 Order"). Defendant NASD made a timely motion for such an order. Standard then filed a motion for reconsideration of the Court's Opinion dismissing its claims. The Court denied Standard's motion for reconsideration on July 13. See Standard Inv. Chartered, Inc. v. Nat'l Ass'n of Sec. Dealers ("Standard III"), 07 Cv. 2014 (SWK), 2007 WL 2049730 (S.D.N.Y. July 13, 2007).*fn2 The parties now seek the resolution of NASD's protective order motion.*fn3

II. DISCUSSION

A. Rule 26(c)'s "Good Cause" Requirement and the Common Law Presumption of a Public Access

The defendants seek a protective order pursuant to Federal Rule of Civil Procedure 26(c), which provides that, "[u]pon motion by a party or by the person from whom discovery is sought, . . . and for good cause shown, the court . . . may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense . . . ." Although the Court has already dismissed Standard's claims, the Court retains jurisdiction to "dispose of material in its files as it thinks appropriate." Gambale v. Deutsche Bank AG, 377 F.3d 133, 139 (2d Cir. 2004); see also id. at 141 ("The court's supervisory power does not disappear because jurisdiction over the relevant controversy has been lost.").

Courts do not generally grant protective orders without a strong showing of "good cause." Wyatt v. Kaplan, 686 F.2d 276, 283 (5th Cir. 1982). The burden of establishing good cause lies with the party seeking the protective order. 8 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2035 (1970) ("Wright & Miller"); Gambale, 377 F.3d at 142 (quoting In re "Agent Orange" Prod. Liab. Litig., 821 F.2d 139, 145 (2d Cir. 1987)).

Rule 26(c)'s "good cause" analysis is informed by the common law presumption of public access. The Second Circuit has explained this principle as follows:

The presumption of access is based on the need for federal courts, although independent--indeed, particularly because they are independent--to have a measure of accountability and for the public to have confidence in the administration of justice. . . . Although courts have a number of internal checks, . . . professional and public monitoring is an essential feature of democratic control. . . . Such monitoring is not possible without access to testimony and documents that are used in the performance of Article III functions.

United States v. Amodeo, 71 F.3d 1044, 1048 (2d Cir. 1995) ("Amodeo II").

There is a strong presumption of public access to "judicial documents," or "items filed with the court that are relevant to the performance of the judicial function and useful in the judicial process." See In re Terrorist Attacks on September 11, 2001, 454 F. Supp. 2d 220, 222 (S.D.N.Y. 2006) (quoting SEC v. The Street.com, 273 F.3d 222, 231 (2d Cir. 2001) (internal quotation marks omitted)). "Accordingly, a party seeking a protective order sealing trial, other court hearings, or motions and accompanying exhibits filed with the court must satisfy a more demanding standard of good cause." In re Terrorist Attacks, 454 F. Supp. 2d at 222-23.

Nevertheless, the Second Circuit has also noted that "an abundance of statements and documents generated in federal litigation actually have little or no bearing on the exercise of Article III judicial power. . . . Unlimited access to every item turned up in the course of litigation would be unthinkable." Id. The Second Circuit has indicated, therefore, that courts deciding protective order motions must locate documents on "a continuum from matters that directly affect an adjudication to matters that come within a court's purview solely to insure their irrelevance." Id. at 1049:

Where testimony or documents play only a negligible role in the performance of Article III duties, the weight of the presumption is low and amounts to little more than a prediction of public access absent a countervailing reason. Documents that play no role in the performance of Article III functions, such as those passed between the parties in discovery, lie entirely beyond the presumption's reach, and stand on a different footing than a motion filed by a party seeking an action by the court, or, indeed, than any other document which is presented to the court to invoke its powers or affect its decisions.

Id. at 1050 (internal quotation marks, citations, and alterations omitted).

Recently, the Second Circuit has enumerated the steps that a district court must take when deciding whether to issue a protective order. See Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110, 119-20 (2d Cir. 2006). First, a court must determine whether "the documents are indeed 'judicial documents.'" Id. at 119. If the documents are not judicial, then there is no presumption of public access, and the movant need only make a baseline showing of good cause in order to justify the imposition of a protective order. If, on the other hand, the court determines that the documents are judicial in nature, it must next determine the weight of the presumption of access by reference to the "continuum" described in Amodeo II. See id. (quoting Amodeo II, 71 F.3d at 1049). "Finally, after determining the weight of the presumption of access, the court must 'balance competing considerations against it.'" Id. (quoting Amodeo II, 71 F.3d at 1050).

B. Application of the Lugosch Framework to the Documents at Issue

1. Classification of the Documents at Issue as Judicial or "Non-judicial"

Much of the dispute in the instant case involves whether a presumption of public access should attach to the documents obtained by Standard during its limited expedited discovery. More specifically, the parties disagree as to whether those documents are judicial in nature. There are two categories of documents at issue in this case: (1) those that NASD provided to Standard during discovery but that Standard did not file with the Court ("the unfiled documents"), and (2) those that Standard filed (or, with respect to some documents, moved to file) in support of its opposition to NASD's motion to dismiss and its own motion for reconsideration ("the filed documents"). Standard claims that the filed documents are by nature judicial because they were submitted to the Court with various motions. (See Standard's Opp'n 5-6; Standard's Surreply 9-10.) With regard to the unfiled documents, Standard argues that NASD members "have a right to know the content of these documents, and given the public nature of NASD's self-regulatory obligations to its own members and to the public at large, it stands to reason that the public has a great and substantial interest [in disclosure] as well." (Standard's Opp'n 17.) In contrast, NASD contends that (1) there is evidence that Standard intends to publicize the documents for purposes other than the present litigation (see NASD's Mot. 5); (2) Standard only obtained the documents because it claimed that expedited discovery was necessary to aid in the preparation of a preliminary injunction motion--a motion that was never filed (see NASD's Mot. 6-7); (3) the unfiled documents are not judicial because they were never submitted to the Court (see NASD's Reply 5-6); and (4) the filed documents are not judicial because they are irrelevant to the Court's adjudication of both NASD's motion to dismiss and Standard's motion for reconsideration (see NASD's Mot. 8-10).

Of NASD's numerous arguments, only the last two are relevant at the first step of the Lugosch analysis. The Second Circuit has held that the motive of the party seeking access to, or disclosure of, documents is irrelevant to the question of whether and how strong a public right of access exists with respect to those documents. See Lugosch, 435 F.3d at 123. Additionally, although Standard's long-promised preliminary injunction motion--the impetus for the grant of expedited discovery--is now an impossibility, NASD cites no authority in support of its argument that this change in circumstances requires the return of all discovery documents. Although "[c]courts are endowed with broad discretion to tailor protective orders to the circumstances of a particular litigation," In re Zyprexa Injunction, 474 F. Supp. 2d 385, 414 (E.D.N.Y. 2007), in light of the key role that public access plays in enabling the public to monitor the Judiciary, the Court declines to rely on the impossibility of Standard's motion for a preliminary injunction in determining whether a public right of access exists.

i. The Unfiled Documents

The Court agrees with NASD that the unfiled documents do not qualify as judicial. The Amodeo II Court stated unequivocally that "[d]ocuments that play no role in the performance of Article III functions, such as those passed between the parties in discovery, lie entirely beyond the presumption's reach . . . ." 71 F.3d at 1050. Standard acknowledges that many of the discovery documents were never filed but argues that the documents should nonetheless qualify as judicial based on the public's "great and substantial interest" in "NASD's self-regulatory obligations," which "warrants imposing the same burden on NASD to justify keeping such documents confidential as Rule 26 contemplates." (Standard's Opp'n 17.) At the first Lugosch step, however, the Court is only focused on what role the documents played in the underlying ...


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