Earlier this year, the Court of Chancery enacted Rule 5.1, which raised the bar in terms of what information could remain confidential before the Court. Pursuant to sub-section (b) of the rule, “good cause” is required for information to remain confidential. According to the rule, “good cause … shall exist only if the public interest in access to Court proceedings is outweighed by the harm that public disclosure of sensitive, non-public information would cause.” Court of Chancery Rule 5.1(b)(2). To view a previous post summarizing Rule 5.1, click here.
Through Rule 5.1, the Court has provided examples of categories that may qualify as confidential information, such as “trade secrets, sensitive proprietary information; sensitive financial, business, or personnel information; sensitive personal information such as medical records; and personally identifying information such as social security numbers, financial account numbers, and the names of minor children.” Court of Chancery Rule 5.1(b)(2).
Recent Interpretation of “Good Cause” Under Rule 5.1
Recently, the Court adjudicated a dispute between two litigants which impacts upon this very rule: whether certain information contained in pleadings met the heightened standard under Rule 5.1 which would warrant designating such information as confidential. This issue was squarely addressed by Vice Chancellor Laster in the case of Horres v. Chick-fil-A, C.A. No. 5530-VCL (Del. Ch. Mar. 27, 2013).
In this case, Chick-fil-A terminated its franchise agreement with an individual named Joseph A. Horres, Jr., who was an operator of a franchise in Camden, Delaware, as a result of allegations of misconduct. Horres responded by filing suit alleging bad faith and failure to provide adequate notice of the termination, along with filing a temporary restraining order against the injunction.
Chick-fil-A opposed the temporary retaining order and filed an affidavit and exhibits in support of its position. The Affidavit described allegations of sexual harassment that certain employees had made against Horres. The exhibits consisted of (i) the franchise agreement and related documentation and (ii) the letter terminating the franchise agreement. Chick-fil-A then moved to maintain the confidentiality of the affidavit and exhibits thereto.
Chick-fil-A argued that that the affidavit contains confidential information that, if disclosed, will cause harm to alleged victims and witnesses, and Chick-fil-A itself. The Affidavit describes allegations of sexual harassment that were made against Horres and Chick-fil-A’s response to the allegations, along with the names of individuals making such allegations, and witnesses.
The Court denied Chick-fil-A’s motion to maintain the confidentiality of the affidavit and exhibits, with the exception that the names of the victims and witnesses could remain confidential. The Court found that other than the names, nothing else rose to the level of sensitive information warranting continued confidential treatment of the pleadings. The Court further noted that while it may be “embarrassing” for Chick-fil-A to have one of its franchises identified as the location of misconduct, “that type of embarrassment will not suffice for continued Confidential Treatment.”
Moreover, the Court rejected Chick-fil-A’s request to maintain the confidentiality of the exhibits to the affidavit. The exhibits consisted of a franchise agreement and termination letter. Chick-fil-A argued that they contained “proprietary information that is not readily available to the general public.” The Court disagreed that they should remain confidential, stating: “[t]hat information is nonpublic does not automatically make it sensitive or entitle it to Confidential Treatment.”
This case is noteworthy in that it constitutes one of the earliest decisions to analyze the heightened “good cause” requirement set forth in Rule 5.1 for the designation of confidential information. As a result of this decision, parties appearing before the Court should not automatically assume that pleadings will remain confidential simply because they contain “embarrassing” or “nonpublic” information, and should proceed cautiously in terms of filing pleadings and exhibits with the Court that they would prefer not to be exposed to public scrutiny.