Phoenix Process Equipment Co. v. Capital Equipment & Trading Corporation et al
Filing
407
MEMORANDUM OPINION AND ORDER signed by Magistrate Judge Regina S. Edwards on 8/15/22; granting in part 245 Motion for Protective Order: Phoenix has seven (7) days to file an appropriate proposed protective order for the Courts consideration and entry. cc: Counsel(DJT)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
CIVIL ACTION NO. 3:16-CV-00024-CHB
PHOENIX PROCESS
EQUIPMENT COMPANY
PLAINTIFF
VS.
CAPITAL EQUIPMENT &
TRADING CORPORATION, et al.
DEFENDANTS
MEMORANDUM OPINION AND ORDER
Before the Court is Phoenix Process Equipment Corporation’s (“Phoenix”) Motion for
Protective Order. (DN 245). Defendants Capital Equipment & Trading Corporation, et al.
(“Defendants”) have responded in opposition. (DN 252). Phoenix has replied. (DN 254). The
District Judge referred Phoenix’s Motion to the undersigned United States Magistrate Judge
pursuant to 28 U.S.C. § 636(b)(1)(A). (DN 4; DN 117).
I. Background
The parties in this trade secret litigation have been fighting over the issues in Phoenix’s
Motion for Protective Order for several years. Put simply, Phoenix has repeatedly attempted to
avoid disclosure of certain financial documents, trade secrets, and other allegedly proprietary
information requested by Defendants and now seeks to designate these categories of documents as
“Outside Counsel’s Eyes Only.”
Jumping back to April of 2018, the parties entered into a Confidentiality Agreement and
Agreed Protective Order. (DN 183-1). The Agreement specifically covered documents produced
in discovery and concluded with a provision of “Further Protection,” stating: “[n]othing in this
Confidentiality Agreement an Agreed Protective Order precludes any party from seeking and
obtaining from the Court a further protective order for any documents or information that the party
believes may not be sufficiently protected by this or other protective orders.” (Id. at PageID #
2788).
Almost two years after executing their Confidentiality Agreement, Phoenix and
Defendants clashed over whether Phoenix should be required to produce financial documents
relevant to its alleged damages and mitigation thereof. One category of these documents
Defendants sought was “Phoenix’s source financial records/information (not after the fact
compilations made for the purpose of this lawsuit) regarding past sales for Phoenix by any of the
Defendants, including documents regarding the cost of sales and costs of goods sold and selling,
general and administrative expenses.” (DN 185, at p. 18).
In an Opinion resolving dueling motions to compel filed by the parties, the Court
determined “[i]f Phoenix has not produced these underlying financial records, including for
transactions between Phoenix and its vendors, which are relevant here, it must do so.” (DN 207,
at PageID # 4136-38). In the same discovery Opinion, the Court addressed several categories of
evidence Phoenix objected to as irrelevant. These included:
(1) documents displaying information regarding belt filter presses sent to third
parties and communications between third parties in which such material was
transmitted; (2) copies of brochures, catalogues, videos, or other documents
referring or relating to the design of Phoenix’s belt filter presses and parts that were
distributed or furnished to customers or potential customers at trade shows; (3)
drawings, photos, and documents referenced on specific document pages produced
by Phoenix that were in English and subsequently translated in Russian; and (4)
confidentiality agreements between Phoenix and customers/potential customers at
the time Phoenix sent such customers budgetary proposals for the potential sale of
belt filter presses.
The Court determined “[h]ow Phoenix maintained the trade secrets and confidential
information at issue in this case following Defendants’ alleged misappropriation is relevant to
Phoenix’s unjust enrichment damages.” (DN 207, at PageID # 4149). Explaining “[i]f other entities
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or individuals also misused Phoenix’s trade secrets, it could conceivably affect the benefit
Defendants actually derived from their alleged misappropriation[,]” the Court indicated Phoenix
must supplement its production “to the extent the categories identified above relate to Phoenix’s
maintaining of trade secrets at issue in this litigation.” (Id.). On April 19, 2021, Phoenix filed a
Notice of Compliance with the Court’s March 18, 2021 Order, indicating it supplemented Bates
labeled documents “Phoenix 3718 – Phoenix 3825” and supplemented and amended responses to
Defendants’ First Set of Requests for Production of Documents. (DN 216).
Despite Phoenix’s purported compliance, Defendants filed a status report on July 27, 2021,
conveying Phoenix had failed to produce the underlying financial records for its previously
produced report on past sales. (DN 227, at PageID # 4255-56). Phoenix’s own status report
explained it produced all financial records in its possession relevant to Defendants’ requests but
redacted portions of the financial documents that are irrelevant to its past sales report. (DN 299, at
p. 20). Eventually, after a telephonic conference, a Zoom hearing, and additional argument, the
Court issued an Order on September 22, 2021, concluding:
A party cannot unilaterally redact documents produced in discovery based upon a
claim of irrelevance. See, e.g., Am. Municipal Power, Inc v. Voith Hydro, Inc., No.
2:17-cv-708, 2020 WL 5014914, at *4 n.3 (S.D. Ohio Aug. 25, 2020) (collecting
cases). And, regardless, the Court has already determined the underlying financial
records are relevant to the claims in this case. Phoenix’s arguments against
relevance, accordingly, directly contravene the Court’s Order. Moreover, the terms
of the parties’ confidentiality agreement in the litigation should cover any concern
with the confidential nature of the underlying financial records. Phoenix, therefore,
is ordered to comply with the Court’s March 19, 2021 Order and provide
unredacted copies of the underlying financial records previously produced and
produce any additional underlying financial records, as outlined at DN 207, at pages
41-43 being withheld based on relevance.
(DN 236, at PageID # 4681-82).
Following the Court’s Order, Phoenix produced close to 500 pages of documents (Phoenix
Bates labeled 04558 – 05052) under an “Outside Counsel’s Eyes Only” designation. (See DN 2453
3). Several days later, Phoenix filed the instant Motion for Protective Order, essentially requesting
the Court ratify its designation of “Outside Counsel’s Eyes Only” on its recent production. (DN
245). Phoenix maintains disclosure of the confidential, proprietary and trade secret information in
these documents would cause serious injury. Asserting again that much of the information in the
documents is not relevant to the claims and defenses of the lawsuit, Phoenix requests the Court
enter a broader protective order than the one previously agreed to by the parties.
II. Legal Standard
Under Federal Rule of Civil Procedure 26, trial courts have broad discretion to grant or
deny protective orders. Proctor & Gamble Co. v. Banker’s Trust Co., 78 F.3d 219, 227 (6th Cir.
1996). “The court may, for good cause, issue an order to protect a party or person from annoyance,
embarrassment, oppression, or undue burden or expense, including . . . requiring a trade secret or
other confidential research, development, or commercial information not be revealed or be
revealed only in a specific way . . .” Fed. R. Civ. P. 26(c)(1)(G). Good cause exists when the
moving party “articulate[s] specific facts showing ‘clearly defined and serious injury’ resulting
from the discovery sought . . .” Nix v. Sword, 11 F. App’x 498, 500 (6th Cir. 2001) (quoting
Avirgan v. Hull, 118 F.R.D. 252, 254 (D.D.C. 1987)). To overcome the basic policy in favor of
broad discovery, the moving party has a heavy burden of demonstrating substantial justification
for withholding information from the public. See Proctor & Gamble, 78 F.3d at 227; Meyer
Goldberg, Inc. of Lorain v. Fisher Foods, Inc., 823 F.3d 159, 162 (6th Cir. 1987) (“As a general
proposition, pretrial discovery must take place in the public unless compelling reasons exist for
denying public access to the proceedings.”).
The “mere presence” of trade secrets does not entitle a disclosing party to a protective
order. Stout v. Remetronix, Inc., 298 F.R.D. 531, 534-35 (S.D. Ohio, 2014) (citation omitted); see
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also Acuity Brands Lighting, Inc. v. Bickley, No. 5:13-CV-00366-DLB-REW, 2015 WL 12976102,
at *4 (E.D. Ky. Sept. 4, 2015). Courts evaluate six factors in determining whether trade secrets or
other confidential information needs protection:
(1) the extent to which the information is known outside of [the] business;
(2) the extent to which it is known by employees and others involved in [the]
business;
(3) the extent of measures taken . . . to guard the secrecy of the information;
(4) the value of the information to [the business] to [its] competitors;
(5) the amount of effort or money expended . . . in developing the information; and
(6) the ease or difficulty with which the information could be properly acquired or
duplicated by others.
Vignes-Starr v. Lowe’s Home Centers, LLC, 544 F. Supp. 3d 774, 776 (W.D. Ky. 2021) (quoting
Williams v. Baptist Healthcare Sys., No. 3:16-CV-00236-CRS, 2018 WL 989546, at *2 (W.D. Ky.
Feb. 20, 2018) (add’l citations omitted)).
An Attorneys’ Eyes Only (“AEO”) designation, which generally limits review of
documents to the parties’ attorneys and experts, is considered “the most restrictive (and thus least
often justified) tier of discovery.” Specialty Auto Parts USA, Inc. v. Holley Performance Products,
Inc., No. 1:17-CV-00147-JRW-LLK, 2020 WL 1914817, at *8 (W.D. Ky. Apr. 20, 2020) (quoting
Acuity Brands Lighting, 2015 WL 12976102, at *4) (add’l citations omitted). To show an AEO
designation is warranted in a “business context,” the disclosing party must provide “specific
demonstrations of fact, supported where possible by affidavits and concrete examples.” Id.
(quoting Ohio Harness Horseman’s Assoc., Inc. v. Northfield Park Assoc., LLC, No. 5:16CV1780,
2016 WL 8608459, at *3 (N.D. Ohio Nov. 30, 2016) (quoting Penn, LLC v. Prosper Bus. Dev.
Corp., No. 2:10-cv-0993, 2012 WL 5948363, at *4 (S.D. Ohio Nov. 28, 2012))). Typically, AEO
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designations are only permitted “when especially sensitive information is at issue or the
information is to be provided to a competitor.” Ohio Harness, 2016 WL 8608459, at *3 (quoting
Westbrook v. Charlie Sciara & Son Produce Co., Inc., No. 07-2657 Ma/P, 2008 WL 839745, at
*4 (W.D. Tenn. Mar. 27, 2008)) (internal quotations omitted).
III. Analysis
A. Is Phoenix’s Motion for Protective Order Procedurally Appropriate?
Defendants assert Phoenix should have objected to the Court’s March 19, 2021 and
September 22, 2021 Orders within fourteen days of their entry pursuant to Local Rule 72.2. (DN
252, at PageID # 5792-93). Because the Court has already considered, overruled, and rejected
Phoenix’s arguments, Defendants maintain the Court need not consider the merits of Phoenix’s
present Motion. (Id.). Phoenix’s Reply highlights how Defendants have failed to cite any rule or
case law requiring it to object to the Court’s Orders rather than filing a separate motion for
protective order. (DN 254, at PageID # 5962-63). Though frustrated that Phoenix’s Motion for
Protective Order essentially constitutes its third attempt at preventing disclosure of the contested
categories of documents, the Court prefers resolution of this matter on the merits. Phoenix’s
allegations of likely concrete harm stemming from disclosure, especially its new arguments as to
its “Outside Counsel’s Eyes Only” designation, validates further evaluation.
B. Has Phoenix Met the Requirements for Entry of a Protective Order Permitting OutsideCounsel’s-Eyes-Only Designations?
Phoenix requests two categories of documents be subject to Outside-Counsel’s-Eyes-Only
(“OCEO”) designations pursuant to a protective order. The first are the financial records Phoenix’s
CEO Gary Drake relied on while answering Defendants’ interrogatories regarding the independent
economic value of Phoenix’s trade secrets. Phoenix originally produced redacted versions of these
financial records, omitting information Mr. Drake did not use to answer Defendants’ discovery
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requests. The redacted information, Phoenix explains, includes sales and costs numbers associated
with Phoenix’s other markets (municipal markets, aggregates, industrial materials, etc.), sales
numbers for spare parts on equipment other than belt filter presses, and operating expenses.
Phoenix asserts the redacted information is not relevant to any claim or defense in this lawsuit.
The second category for which Phoenix claims protection is documents Phoenix sent to
third parties relating to the sale of belt filter presses at issue in this litigation. Phoenix identifies
over 400 pages of purchase orders, proposals, drawings, contracts, and operations and maintenance
manuals associated with its sale of belt filter presses to customers around the world. These
documents, Phoenix explains, contain an abundance of “confidential, proprietary, and trade secret
information” bearing no relevance to the claims and defenses in this lawsuit. More specifically,
Phoenix details customer identities, customer contact information, customer agent information,
exact pricing used for equipment and services, drawings and other documents showing process
and design information specific to each customer’s project that would be damaging in Defendants’
hands as a direct competitor.
i. Are the categories of documents in Phoenix’s proposed protective order clearly defined?
Defendants oppose Phoenix’s OCEO designations on several grounds. First, Defendants
allege Phoenix’s OBEC designation is overly broad in that Phoenix failed to limit this designation
to specific categories of documents. (DN 252, at PageID # 5795). Relying on the Eastern District
of Kentucky’s decision in Acuity Brands Lighting Inc. v. Bickley, Defendants assert that Phoenix’s
designation of an entire production of documents as Attorneys’ Eyes Only is “improper, plainly
unwarranted and violated the implicit duty of good faith under Rule 26 . . . .” (Id. at PageID # 5796
(citing 2015 WL 12976102, at *2)). Defendants reference “sample pages” from Phoenix’s
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production they believe demonstrate the impropriety of Phoenix’s extremely restrictive
designations. (Id.).
The facts in Acuity Brands Lighting are readily distinguishable from the circumstances
here. In that case the defendants produced approximately 90,000 pages of documents during
discovery, all designated as Attorney’s Eyes Only. Acuity Brands Lighting, 2015 WL 12976102,
at *1. The court concluded the defendants “fundamentally misapprehended” the high standard of
proper AEO designations by classifying 100% of their discovery as AEO. Id. at *2. Finding the
defendants’ indiscriminate, blanket designation to be improper, the court ordered the parties to
cooperate to review and properly designate defendants’ production. Id. at *3-4.
Phoenix’s designation of 400-500 documents as “Outside Counsel’s Eyes Only,” while still
substantial, was only one portion of Phoenix’s complete discovery production. Phoenix’s
production specifically responded to the Court’s March 18, 2021 directive. Beyond this limited
production, Phoenix produced countless other documents in discovery without such restrictive
designations. Phoenix’s limited designation is not comparable to the bad faith defendants in Acuity
Brands Lighting exhibited by designating all documents produced during discovery as AEO.
Nor does the Court find Phoenix improperly failed to limit its OBEC designations to
specific categories of documents. This District has rejected proposed protective orders where the
categories are “so vague and broad that almost any document or piece of information could
arguably fall within its ambit.” Holley, 2020 WL 1914817, at *4 (discussing Maker’s Mark
Distiller, Inc. v. Spalding Grp., Inc., No. 3:19-CV-00014-GNS-LLK, 2020 WL 201054, at *2-3
(W.D. Ky. Jan. 13, 2020)). Here, Phoenix and Defendants agree that Phoenix’s production includes
the following categories of documents:
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(1) [U]nredacted copies of certain financial records relied upon in answering
Defendants’ Interrogatories requesting the independent economic value of
Phoenix’s trade secrets.”
(2) “[O]ver 400 pages of purchase orders, proposals, drawings, contracts, and
operations and maintenance manuals associated with the sale of belt filter presses .
. . “ and
(3) “[I]nformation and communications sent to third parties relating to all Phoenix’s
belt filter press sales . . . .”
Again, because Phoenix identified these limited categories of documents pursuant to the Court’s
directives, the Court finds they are sufficiently specific.
As for Defendants’ claim that sample documents from Phoenix’s production demonstrate
an OCEO designation is not warranted, the Court is not persuaded. These sample documents
include Phoenix’s customer names, agent names, and contact information for customers, which
Phoenix believes Defendants could use to target Phoenix customers and expand their directly
competitive business outside of Defendants’ Territory. Finding Phoenix has adequately identified
the categories of information for which it seeks protection, the Court next determines whether
good cause and likely concrete harm from disclosure exist for entry of a protective order.
ii. Is Phoenix’s proposed protective order supported by good cause?
Phoenix submits an Affidavit from its CEO Gary Drake addressing the six factors identified
by this District in Holley and Vignes-Starr for evaluating whether trade secrets or other
confidential information deserves protection. (DN 245-4). Defendants object to Drake’s Affidavit
as inadmissible evidence. Drake’s Affidavit, Defendants aver, contains numerous “improper
conclusory statements lacking a proper foundation, and legal conclusions . . . .” (DN 252, at PageID
# 5806-07). In reply, Phoenix states Mr. Drake’s affidavit includes facts within his personal
knowledge of the money Phoenix spent developing trade secrets, financial data and information
systems, and customer goodwill over the years. (DN 254, at PageID # 5960-61).
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Upon review of Mr. Drake’s affidavit, the Court finds all but one of the statements
challenged by Defendants to be appropriate and admissible. The Court will not consider Mr.
Drake’s assertion that:
Defendants have already taken the trade secrets and pricing information provided
by Phoenix under a confidentiality agreement and misused it to assist Elemet to
build copies of Phoenix machines and hold them in the marketplace as Phoenix
equipment. This has significantly damaged Phoenix’s ability to compete in the
marketplace as evidenced by the significant reduction of Phoenix’s sales of
equipment and spare parts in the territory since 2014. Thus, Defendants have
already sought to unfairly compete with Phoenix by misusing Phoenix’s trade
secrets and confidential pricing information.
(DN 245-4, at ¶ 12). Because Mr. Drake’s statements essentially restate Phoenix’s claims in this
lawsuit, which have yet to be proven, reliance on these legal conclusions would be inappropriate.
Having concluded the remainder of Mr. Drake’s affidavit may be appropriately considered,
the Court moves to the first factor - the extent to which the designated information is known outside
of Phoenix’s business. Mr. Drake testified Phoenix is a privately held company that does not
publish the information it currently seeks to protect, including financial information, customer
lists, contact information, pricing information, trade secrets, or proprietary design and process
information relating to its belt filter press technology. (DN 245-4, at ¶ 4). And Mr. Drake noted all
Phoenix employees are bound by confidentiality, non-disclosure, and non-competition agreements
as a condition of their employment. (Id. at ¶ 10). Because the trade secrets, confidential
information, and financial information is not widely, if at all, known outside of Phoenix, the first
factor weighs in favor of protection. See, Holley, 2020 WL 1914817, at *5.
As to factor two, the extent to which the information is known by Phoenix’s employees
and others involved in the business, Mr. Drake testified Phoenix limits employee access to
information and, as noted above, all employees are bound by confidentiality, non-disclosure, and
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non-competition agreements as a condition of their employment. (Id. at ¶ 10). As to the specific
categories of documents, Mr. Drake explains:
“Phoenix’s internal financial statements are only disclosed to Phoenix’s President/CEO,
Chief Financial Officer, General Manager/Senior Vice-President of Sales and Marketing,
Phoenix’s three shareholders, and Phoenix’s certified public accountant. Information on
internal product sales and market metrics . . . are only disclosed to the President/CEO,
CFO, GM/Sr. VP of Sales and Marketing.” (Id. at ¶ 6-7).
“Phoenix’s confidential customer and sales information, sales contracts and purchase
orders, and pricing information are only disclosed to Phoenix staff to the degree necessary
to perform their jobs. For example, Phoenix’s engineers would not typically have access to
financial or pricing information, while employees working in financial, or marketing
departments would not have access to Phoenix’s trade secrets relating to its belt filter press
technology or engineering design information.” (Id. at ¶ 8).
This testimony clearly demonstrates access to the disputed information is limited, even among its
employees, which weighs in Phoenix’s favor.
The information from factor two instructs the analysis for factor three. It is clear from Mr.
Drake’s above testimony that Phoenix takes significant measures to keep its information secure.
He elaborates that documents relating to trade secrets and confidential business and financial
information are stored on its computer network, which is password protected and requires
individual logins by each employee. (Id. at ¶ 9). The network, Mr. Drake explains, cannot be
accessed remotely by VPN and can only be accessed from Phoenix’s offices. (Id. at ¶ 10). As for
third parties in receipt of trade secret and proprietary information, Mr. Drake says Phoenix requires
they “agree to maintain the confidentiality of the information and agree not to disclose that
information to third parties.” (Id. at ¶ 11).
Defendants respond that before filing Mr. Drake’s affidavit, Phoenix had never disclosed
its alleged computer network and computer system purportedly restricting employees and others
from accessing certain records. (DN 252, at PageID # 5797). Mr. Drake’s assertions, Defendants
emphasize, are contradicted by earlier testimony from Phoenix’s office manager, Betty Roberts11
Fox, indicating every department has its own policies, that she had no knowledge of a written or
verbal policy for handling confidential or proprietary documents, and that she did not know any
policies or procedures for restricting employees’ access to confidential information or for sharing
such information with those not employed at Phoenix. (Id.). Defendants further rely on testimony
from Matt Fenzel, Phoenix’s International Sales Manager, that he could not recall policies relating
to Phoenix’s employees’ access to confidential or proprietary material or for sharing such material
with outside sales representatives. (Id. at PageID # 5797-98). If Phoenix truly had internal
procedures for restricting access to these records, Defendants suggest Phoenix’s Office Manager
and International Sales Manager would have confirmed their existence. (Id. at PageID # 5798).
Phoenix submits Defendants’ finding only four documents not containing a confidentiality
provision of approximately 500 produced supports the great effort Phoenix exerts to protect its
confidential and trade secret information. (DN 254, at PageID # 5968). Phoenix also represents it
relies on “multiple forms and layers of protection,” so that if a confidentially provision is not in a
transmittal document, other documents contain limited use language or other prohibitions
regarding the misuse of confidential information. (Id. at PageID # 5968-69). Though admitting
Mr. Drake’s affidavit does not establish “policies and procedures” for protecting the disputed
information, Phoenix distinguishes that his description of the concrete and actual steps Phoenix
engages for protection suffices. (Id.).
While it is somewhat questionable that neither Phoenix’s Office Manager nor International
Sales Manager previously articulated information regarding Phoenix’s computer network or
policies for distributing confidential/proprietary information to third parties, this discrepancy does
not render Mr. Drake’s testimony false or unsupported. In the deposition excerpts provided by
Defendants, Mr. Fenzel and Ms. Roberts-Fox did not testify that no policies or procedures for
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accessing confidential/proprietary information existed, but rather that they were not aware of them
or could not recall them. (See DN 252-12, at PageID # 5843-44; DN 252-13, at PageID # 5853).
And the fact that nearly every document in Phoenix’s disputed production included some form of
confidentiality
provision
supports
Mr.
Drake’s
testimony
regarding
distribution
of
confidential/proprietary information to third parties. Though more neutral than the previous two
factors, the third factor still counsels slightly in Phoenix’s favor.
Fourth, the Court considers the value of the information to Phoenix and to its competitors.
Mr. Drake testified if Phoenix’s competitors, here Defendants, had access to its customer
information and needs, Defendants could target those customers, knowing prices from past
dealings with Phoenix, and unfairly compete with Phoenix on price. (DN 245-4, at ¶ 12). If
Phoenix were to provide information Phoenix provided to third parties, including sales, marketing,
design, and process information, Mr. Drake testified Defendants could also unfairly compete with
Phoenix in other markets. (Id.). Mr. Drake also emphasized the additional insight these documents
would provide to Defendants as to Phoenix’s products, processes, applications, evaluations, and
technology. (Id.).
Defendants maintain Phoenix’s allegations of harm are vague, conclusory, and insufficient
to satisfy Phoenix’s heightened burden. (DN 252, at PageID # 5802-03). Defendants further
contend Phoenix has already produced financial records similar to those it seeks to restrict here
during the litigation. (Id. at PageID # 5801-02). Likewise, Defendants cite to excerpts from
manuals and general arrangements drawings, allegedly identical to those designated as OCEO, that
Phoenix earlier produced without any confidential designation. (Id.).
Holley is instructive in evaluating this factor. There, the court found the defendant’s CEO’s
affidavit “demonstrates that the documents and information sought to be protected are confidential
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in nature and [] specifically addresses how a competitor could use the different categories of
documents and information to create a competitive advantage over [defendant].” 2020 WL
1914817, at *7. The alleged harm, the court continued, was not attenuated because “a direct
competitor would receive the information and documents at issue and that disclosure would likely
hurt the [disclosing party].” Id. Both in Holley and AWP, Inc. v. Safe Zone Services, LLC, courts
in this District have reasoned that once a party gains access to its competitors’ sensitive financial
information or trade secrets, it cannot unlearn such information and it would be naïve to believe
the information “would not, to some degree, inform the party’s own business decisions whether
intentional or not.” Id. at *9; AWP, No. 3:19-CV-00734-CRS-CHL, 2021 WL 2654121, at *4
(W.D. Ky. June 28, 2021).
Mr. Drake’s Affidavit specifically addresses how Defendants could use the different
categories of documents and information to create a competitive advantage over Phoenix –
Defendants would likely target Phoenix’s customers, identify market gaps, move into markets
outside of their Territory, and tailor their pricing to undercut Phoenix. Phoenix’s allegations of
harm are not vague, conclusory, or attenuated. Like in Holley and AWP, this Court cannot see how
Defendants’ future business decisions would not be impacted by receipt of the disputed
information here. And disclosure of trade secrets and financial figures not relevant to this litigation
would be extremely prejudicial to Phoenix. Factor four, accordingly, weighs in favor of protection.
As for the fifth factor, the amount of money Phoenix expended in developing the
information it seeks to protect, Mr. Drake estimates Phoenix has spent over five million dollars
developing the trade secrets at issue in the litigation. (DN 245-4, at ¶ 13). Mr. Drake indicated
Phoenix spends “a significant amount of money each year” developing relationships with new and
existing customers. (Id.). This includes goodwill, advertising, trade shows, visits to potential and
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existing customers. (Id.). Money is also spent on contracts with sales representatives to market
Phoenix products and investing to develop financial and data information systems for tracking,
improving, and supporting its business. (Id.). These efforts, Mr. Drake explains, have developed
Phoenix’s reputation as an experienced provider for over thirty-six years. (Id.). Based on these
representations, Phoenix has expended a significant amount on the information it seeks to protect,
which favors Phoenix’s position.
The sixth factor requires evaluation of the ease or difficulty with which the information
could be properly acquired or duplicated by others. As discussed in considering factors one, two,
and three, Mr. Drake’s Affidavit demonstrates the efforts Phoenix has taken to conceal, secure,
and protect its confidential and proprietary information. Accordingly, it would be difficult for
others to acquire or duplicate such information. This final factor supports protection.
Because each factor weighs in Phoenix’s favor, it has established good cause for entry of
a protective order as to the three categories of documents produced.
iii. Has Phoenix met the heightened standard for OCEO designations?
The remaining inquiry, then, is whether Phoenix has proven the heightened requirement
for OCEO designations. Courts utilize a balancing test under these circumstances, weighing “the
needs of the party seeking the information against the potential harm resulting from disclosure.”
Holley, 2020 WL 1914817, at *9 (quoting Nash-Finch Co. & Super Food Servs., Inc. v. Casey’s
Foods, Inc., 6:15-cv-00086-GVT, 2016 WL 737903, at *2 (E.D. Ky. Feb. 23, 2016)) (add’l citation
omitted).
Defendants take issue with Phoenix’s OCEO designations because this would limit review
and evaluation of the disputed records to only Defendants’ counsel of record in the case. Such
designation is even more restrictive than the AEO designations in Holley and other cases, which
15
permits review of documents to the parties’ attorneys and experts. (DN 252, at PageID # 5793).
Defendants claim its experts should also be permitted to review the disputed documents to prepare
proper defenses to counter Phoenix’s trade secret claims and requested monetary damages in the
lawsuit. (Id. at PageID # 5794). Phoenix’s OCEO designation, according to Defendants, does not
strike the right balance between Defendants’ right to the evidence and Phoenix’s alleged need for
protection. (Id. at PageID # 5794-95). Defendants maintain the parties’ existing Agreed
Confidentiality and Protective Order offers sufficient protection.
While recognizing the extreme restriction in OCEO designations, Phoenix argues it is
appropriate and necessary here because none of the disputed information is relevant to the claims
and defenses in this case. (DN 254, at PageID # 5964). Phoenix explains the trade secrets and
proprietary information at issue relate only to Phoenix’s dealings outside of Defendants’ Territory
and, while similar documents were produced in discovery, they are not identical. As for the
financial documents, Phoenix reiterates their irrelevance and explains the previously redacted
information related only to Phoenix’s other categories of business and markets. None of this
information, Phoenix concludes, could assist Defendants in challenging Phoenix’s lost profits and
profit margins in its coal equipment business. (Id. at PageID # 5964-65). Phoenix also explains an
AEO designation will not offer adequate protection here because of Defendants’ inconsistencies
in identifying in-house counsel. (DN 245, at PageID # 5449). Specifically, Phoenix cites to
Defendants’ identifying Maxim Luchachev as Coralina’s executive manager initially but later
identifying him as an attorney.1 (Id.).
On balance, the Court finds the potential harm to Phoenix outweighs Defendants’ need for
the information, which warrants Phoenix’s OCEO designation. The Court agrees with Phoenix that
1
Defendants’ Response did not challenge Phoenix’s representations regarding Maxim Luchachev’s roles at
Coralina.
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the disputed documents bear little to no relevancy to the claims and defenses in the litigation and,
accordingly, Defendants’ experts do not need access.2 The same goes for Defendants’ in-house
attorneys that have been inconsistently identified. Because the Court finds Phoenix has made these
designations in good faith as to three limited categories of documents, the Court find an additional
protective order is necessary. Phoenix’s Proposed Protective Order (DN 245-6), however, is
deficient. This proposed protective order does not identify the three categories of documents for
which protection is warranted and does not include any type of sealing provision. Phoenix,
therefore, will have seven days to refile an appropriate proposed protective order.
ORDER
For the foregoing reasons, IT IS THEREFORE ORDERED that Phoenix’s Motion for
Protective Order (DN 245) is GRANTED in part. Phoenix has seven (7) days to file an
appropriate proposed protective order for the Court’s consideration and entry.
August 15, 2022
Copies:
Counsel of Record
2
Though the Court has previously indicated the disputed documents were relevant to the litigation, the Court finds
upon further review any relevance is so minimal it cannot possibly outweigh the concrete harm Phoenix faces if
disclosure is ordered. The Court’s earlier rulings indicated that documents relating to Phoenix’s worldwide belt filter
press sales were relevant so Defendants could assess the steps Phoenix took to protect its confidential information
and whether other third-parties could have also misused Phoenix’s confidential information and trade secrets.
Defense counsel can, and appears to already have, assessed the production for confidentiality provisions even under
an OCEO designation.
17
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