Selling Source, LLC v. Red River Ventures, LLC et al

Filing 192

ORDER that the parties Joint Motion to Seal and/or Redact Portions of Record 186 is granted. The parties shall file redacted versions of the filings at issue in the record, in accordance with the Courts directions, within 14 days of this order. Once the redacted versions have been filed, the Court will order the original filings to be sealed. Signed by Magistrate Judge George Foley, Jr on 4/29/11. (Copies have been distributed pursuant to the NEF - ECS)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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SELLING SOURCE, LLC,

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Plaintiff,
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vs.
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RED RIVER VENTURES, LLC, et al.,
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Defendants.
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__________________________________________)

Case No. 2:09-cv-01491-JCM-GWF
ORDER
Motion to Seal (#186)

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This matter is before the Court on the parties’ Joint Motion to Seal and/or Redact Portions
of Record (#186), filed on December 9, 2010.

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DISCUSSION

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The parties request that the Court seal significant portions of the record in this action,

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arguing that the material at issue contains confidential personal, proprietary and/or trade secret

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information. (#186).

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I.

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Request to Seal Non-Dispositive Documents and Exhibits
In the Ninth Circuit, “[i]t is well-established that the fruits of pretrial discovery are, in the

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absence of a court order to the contrary, presumptively public.” San Jose Mercury News v. United

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States District Court, 187 F.3d 1096, 1103 (9th Cir.1999). Non-dispositive documents and exhibits

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may be sealed, however, by the Court if the party shows “good cause” for limiting access. Phillips

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v. General Motors, 307 F.3d 1206, 1210, 1213 (9th Cir. 2002) (finding that Fed.R.Civ.P. 26(c)

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authorizes a district court to override the presumption of public access where “good cause” is

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shown). For good cause to exist, the party seeking protection bears the burden of showing that

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specific prejudice or harm will result if the materials are not filed under seal. See Beckman Indus.,

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Inc. v. International Ins. Co., 966 F.2d 470, 476 (9th Cir. 1992) (holding that “broad allegations of

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harm, unsubstantiated by specific examples or articulated reasoning, do not satisfy the Rule 26(c)

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test”); see also San Jose Mercury News, Inc., 187 F.3d at 1102 (holding that to gain a protective

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order the party must make “particularized showing of good cause with respect to any individual

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document”). “If a court finds particularized harm will result from disclosure of information to the

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public, then it balances the public and private interests” to decide whether the information should

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be filed under seal. Id. at 1211 (citing Glenmede Trust Co. v. Thompson, 56 F.3d 476, 483 (3d Cir.

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1995)).

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A.

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The parties request that portions of several non-dispositive filings be redacted because they

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Trade Secret Materials

contain information related to Selling Source’s propriety business operations and trade secrets.

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(#186). It is well-settled that the court has the authority to shield proprietary information related to

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the ongoing operations of a business from public review. Fed.R.Civ.P. 26(c)(1)(G) anticipates that

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the court may require that “a trade secret or other confidential research, development, or

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commercial information not be revealed or be revealed only in a specified way.” See also

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Carpenter v. U.S., 484 U.S. 19, 26, 108 S.Ct. 316 (1987) (holding that “[c]onfidential information

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acquired or compiled by a corporation in the course and conduct of its business is a species of

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property to which the corporation has the exclusive right and benefit”).

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The parties are requesting that the Court seal material that includes trade secrets and

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proprietary business information in the following non-dispositive filings: Complaint (#1); AO 120

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Report (#4); Motion to Compel and Appoint Computer Forensics Expert (#86); Answer and

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Counterclaims (#94); Motion for Order to Show Cause (#129); Opposition to Motion to Show

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Cause (#134); Reply in Support of Motion for Order to Show Cause (#140); Transcript of Hearing

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on Motion for Order to Show Cause (#152); Motion to Quash Subpoena (#165); Opposition to

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Motion to Quash Subpoena (#172); Order on Motion to Quash (#174); and Defendants’ Motion to

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Compel Discovery Responses (#177). As the material at issue is included in non-dispositive filings,

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the Court will apply the “good cause” standard in examining whether the filings should be sealed.

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The Court finds that most of the material consists of detailed information regarding the

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parties’ business operations, customer agreements, corporate structure, the details of Selling

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Source’s customer base and how the company works with and licenses products to its customers
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and measures it takes to protect its intellectual property. Based on the content of this material, the

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parties’ interest in protecting their trade secrets and proprietary business practices outweighs the

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general public interest in public filings. Accordingly, the Court finds the parties have demonstrated

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that a particularized harm would result from public disclosure of the following materials and that

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there is good cause to redact the following documents in order to prevent infringement upon the

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parties’ trade secrets:

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1.

Complaint (#1), ¶¶ 25-26, 31-34, 37-39 (discusses Selling Source’s business

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practices, business model and the agreements between the company and its

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customers);

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2.

License Agreement, Exhibit A to Complaint (#1-1) (includes substantial discussion

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of proprietary commercial practices and the structure of Selling Source’s agreements

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with clients);

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3.

Complaint, Exhibit A to AO 120 Report (#4-1), ¶¶ 25-26, 31-34 and 37-39 (includes

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details about Selling Source’s business practices, business model and the

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agreements between the company and its customers);

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4.

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Answer and Counterclaims (#94), ¶¶ 16-33, 37-50, 57-62, and 86-87 (discusses
significant aspects of the parties’ business practices and business models);

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Exhibits 1-14 to Answer and Counterclaims (#94-1, 94-2) (includes agreements and

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contracts detailing the parties’ commercial practices and arrangements with specific

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customers);

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6.

Mem. of Points and Auth. In Support of Ex Parte Motion to Compel and Appoint

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Computer Forensics Expert (#86), pp. 4 n.4 and 5:17-6:14 (discusses Selling

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Source’s business practices and arrangements with specific customers);

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Mem. of Points and Auth. In Support of Motion for Order to Show Cause (#129-1),

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pp. 1:18-2:21, 8:1-12:21 (discusses commercial practices and security measures

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used by Selling Source);

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Carl Michael Lane Deposition Transcript (#129-3), pp. 19:17-20:2, 21:2-6, 21:1923 (discusses Selling Source’s corporate structure and purchase agreement details);
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9.

Soeren Poulsen Declaration (#129-6), ¶¶ 5-11 and Exhibits attached to Poulsen

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Declaration (#129-7) (includes details of security measures taken by Selling Source

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related to commercial operations);

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10.

Stephen Gudelj Declaration (#129-4), ¶¶ 4-12 and Exhibits attached to Gudelj

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Declaration (#129-5) (includes details of security measures taken by Selling Source

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related to commercial operations);

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Opposition to Motion to Show Cause (#134), pp. 2:26-27, 3:1-8, 9:22-10:19, 12:19-

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13:3, 13:12-19, 14:1-4 (includes specific information about Selling Source’s

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finances, relationship with customers, specific commercial operations and security

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measures);
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Transcript of TRO Hearing, attached as Exhibit 2 to the Chad R. Fuller Declaration

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(#135 at 4-32) (significant parts of the transcript discuss Selling Source’s corporate

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structure, business practices, agreements with customers, financial condition and

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profit strategy);

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13.

Carl Michael Lane Deposition Transcript, attached as Exhibit 3 to Chad R. Fuller

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Declaration (#135 at 34-49) (discusses Selling Source’s corporate structure and

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purchase agreement details);

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14.

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Declaration of Travis Rodack (#138), ¶¶ 2-8 (discusses the details of security
measures taken by Selling Source related to commercial operations);

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Reply in Support of Motion for Order to Show Cause (#140), p. 9:3-23 (discusses

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the details of security measures taken by Selling Source related to commercial

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operations);

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16.

Declaration of Natalie Dempsey, attached to Reply in Support of Motion for Order

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to Show Cause (#140-2, 140-3), ¶¶ 1-6 (discusses security procedures taken by

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Selling Source related to commercial operations);

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Declaration of Jeff O’Hare, attached to Reply in Support of Motion for Order to

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Show Cause (#140-4, 140-5), ¶¶ 1-6 (discusses security procedures taken by Selling

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Source related to commercial operations);
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Transcript of Hearing on Motion for Order to Show Cause (#152) (includes

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discussion of Selling Source’s finances, relationship with customers, specific

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commercial operations and security measures);

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Motion to Quash Subpoena (#165) and Errata to Motion to Quash (#166) (includes

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details related to attorney-client communications that the Court previously found

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should be sealed (See #174));

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20.

Opposition to Motion to Quash Subpoena (#172) (includes details related to

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proprietary commercial operations and confidential attorney-client communications

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and should remain under seal (See #174));

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Order on Motion to Quash (#174) (includes discussion of attorney-client

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communications and details of business operations, which the Court placed under

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seal at the time of the order); and

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22.

Discovery responses attached as Exhibit A and D to Defendants’ Motion to Compel

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Discovery Responses (#177-1, 177-4) (responses include details related to

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proprietary commercial operations, agreements with customers and financial

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condition).

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The Court will seal the documents discussed above upon the parties’ filing of redacted
versions.

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While the parties have demonstrated good cause to seal sections of the documents discussed

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above, the parties have failed to meet their burden to show good cause to seal other portions within

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the Answer and Counterclaims (#94). The parties request that the Court seal ¶¶ 65 and 71 of

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Defendants’ Counterclaims (#94) and argue that these paragraphs discuss relationships between

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non-party individuals and entities. The Court finds that the allegations do not satisfy the good

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cause standard for the Court to seal or redact. The allegations contained in ¶¶ 65 and 71 do not

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relate to the parties’ proprietary commercial practices and do not disclose the trade secrets of either

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party. The statements at issue involve accusations that Plaintiff made false accusations to third

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parties that Defendants had misappropriated data or misappropriated trade secrets. (#94 at 23-24).

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As these statements are contained in Defendants’ Answer and Counterclaims (#94), they amount to
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broad allegations of harm of the kind that regularly appear in complaints. The accusations, briefly

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stated in a counterclaim, are unsubstantiated by specific examples or articulated reasoning. As a

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result, the allegations contained in ¶¶ 65 and 71 do not satisfy the Rule 26(c) test as there has been

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no showing that specific harm will result from their disclosure. See Beckman Indus., Inc., 966 F.2d

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at 476 (holding that “broad allegations of harm, unsubstantiated by specific examples or articulated

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reasoning, do not satisfy the Rule 26(c) test”). Indeed, the Ninth Circuit has held that“[t]he mere

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fact that the production of records may lead to a litigant’s embarrassment, incrimination, or

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exposure to further litigation will not, without more, compel the court to seal its records.”

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Kamakana v. City and County of Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006) (affirming District

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Court’s decision not to seal records that might, among other things, cast police officers in a false

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light).

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B.

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In addition to the request to seal non-dispositive filings due to the inclusion of trade secrets,

Materials Containing Inaccurate Allegations

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the parties also request that p. 5 ln 16 in Selling Source’s Emergency Motion to Compel

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Defendants to Appear for Deposition (#180) be sealed as it contains factual inaccuracies. (#186 at

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17). The statement at issue concerns the allegation of theft of proprietary information from Selling

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Source, but also indicates that a non-party to this action was involved. The parties agree that this

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allegation is factually inaccurate. As the false allegation could cast the non-party in a false light or

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be used inappropriately in a libelous fashion, the Court finds that particularized harm will result

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from disclosure of information to the public and that there is good cause to redact the statement at

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issue. Therefore, the Court will seal this portion of Selling Source’s Emergency Motion to

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Compel Defendants to Appear for Deposition (#180) upon the parties’ filing of a redacted version.

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II.

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Request to Seal Dispositive Documents and Exhibits
Where a petitioner seeks to seal documents or exhibits that are dispositive in nature, the

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petitioner must meet the higher standard of showing “compelling reasons” for the documents to be

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sealed. Pintos v. Pac. Creditors Ass’n, 565 F.3d 1106, 1115 n. 4 (9th Cir. 2009); Kamakana v. City

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and County of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006). The Court applies the higher

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“compelling reasons” standard to dispositive motions, rather than the “good cause” standard,
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because “the resolution of a dispute on the merits, whether by trial or summary judgment, is at the

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heart of the interest in ensuring the ‘public’s understanding of the judicial process and of significant

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public events.” Dish Network L.L.C. v. Sonicview USA, Inc., 2009 WL 2224596, *6 (S.D.Cal. July

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23 ,2009) (citing Kamakana, 447 F.3d at 1179).

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The Ninth Circuit has not ruled on the question of whether a motion for preliminary

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injunction constitutes a dispositive motion for purposes of sealing court records. See Dish Network

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L.L.C. v. Sonicview USA, Inc., 2009 WL 2224596, *6 (S.D.Cal. July 23, 2009). District court

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decisions within the Ninth Circuit are divided on this question. See Dish Network L.L.C. v.

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Sonicview USA, Inc., 2009 WL 2224596, *6-7 (S.D.Cal., July 23, 2009); White v. Sabatino, 2007

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WL 2750604, *2 (D.Hawai‘I, Sept. 17, 2007); In re Nat’l Sec. Agency Telecomm, Records Litig.,

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2007 WL 549854 *3-4 (N.D.Cal. Feb.20, 2007). In In re Nat’l Sec. Agency Telecomm, Records

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Litig., the court held that a preliminary injunction motion should not be considered a dispositive

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motion for purposes of sealing court records. 2007 WL 549854, *3. The court examined the Ninth

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Circuit’s underlying rationale in imposing a heightened standard for sealing dispositive motions

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and stated “the resolution of a dispute on the merits, whether by trial or summary judgment, is at

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the heart of the interest in ensuring the ‘public’s understanding of the judicial process and of

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significant public events.’” Id. (quoting Kamakana, 447 F3d at 1179). By contrast, “the public’s

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interest in non-dispositive motions is comparatively modest because ‘those documents are often

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unrelated, or only tangentially related, to the underlying cause of action.’” Id. Based on this

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language, the court drew a distinction between a motion that determines the “resolution of a dispute

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on the merits” and a motion that merely raises “consideration” of the merits. 2007 WL 549854, *3.

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As a result, the court held that a “preliminary injunction motion is not dispositive because, unlike a

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motion for summary adjudication, it neither resolves a case on the merits nor serves as a substitute

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for trial”. Id. at *4.

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In Dish Network L.L.C. v. Sonicview USA, Inc., however, the district court held that an

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order on a motion for temporary restraining order (“TRO”) was dispositive for purposes of sealing

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court records. 2009 WL 2224596 at *6. Like In re Nat’l Sec. Agency Telecomm, Records Litig.,

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the court based its holding on the Ninth Circuit’s underlying rationale that “the resolution of a
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dispute on the merits, whether by trial or summary judgment, is at the heart of the interest in

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ensuring the ‘public’s understanding of the judicial process and of significant public events.’” Id.

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(citing Kamakana, 447 F.3d at 1179). In Dish Network L.L.C., however, the court decided that an

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order on a motion for TRO should be dispositive for purposes of sealing court records because it

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“directly addresses the merits of the action and seeks injunctive relief before trial.” Id. The court

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determined that the dispositive/non-dispositive question did not turn on whether the request for

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injunctive relief resolved the dispute on the merits, but whether it discussed the merits of the case

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because the Ninth Circuit was concerned that the public should generally have access to court

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records to increase understanding of the judicial process. See 2009 WL 2224596 at *6 (citing

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Kamakana, 447 F.3d at 1179). In addition, the court noted that “motions for injunctive relief are

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recognized as dispositive in other contexts.” Id. (citing 28 U.S.C. § 636(b)(1), which specifically

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prohibits magistrate judges from hearing and determining requests for injunctive relief as they do

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not have jurisdiction).

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This Court finds the reasoning in Dish Network L.L.C. v. Sonicview USA, Inc. persuasive.

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In creating,the “compelling reasons” standard, the Ninth Circuit stressed the “strong presumption of

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access to judicial records” and the value to public understanding of the judicial process gained from

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general access to court records. Kamakana, 447 F.3d at 1179; see also Nixon, 435 U.S. at 597 &

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n.7 (noting historic recognition of “general right to inspect and copy public records and documents,

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including judicial records and documents”). Requests for injunctive relief and filings opposing

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injunctive relief involve significant discussion of the merits of the case and provide the public an

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insight into how the court evaluates the merits of the action. The Court finds that requests for

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preliminary injunctive relief should be treated as dispositive motions for purposes of sealing court

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records. The parties must therefore show “compelling reasons” to seal materials included in or

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attached to a motion for preliminary injunction.

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To meet the compelling reasons standard, the moving party “must overcome a strong

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presumption of access by showing that compelling reasons supported by specific factual findings

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outweigh the general history of access and the public policies favoring disclosure.” Dish Network

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L.L.C. v. Sonicview USA, Inc., 2009 WL 2224596, *7 (S.D.Cal. July 23, 2009) (citing Pintos, 565
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F.3d at 1116); see also Kamakana, 447 F.3d at 1179-80. “Under the ‘compelling reasons’

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standard, a district court must weigh relevant factors, base its decision on a compelling reason, and

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articulate a factual basis for its ruling without relying on hypothesis or conjecture.” Dish Network

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L.L.C., 2009 WL 2224596 at *7 (citing Pintos, 565 F.3d at 1116). “Relevant factors include the

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public interest in understanding the judicial process and whether disclosure of the material could

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result in improper use of the material for scandalous or libelous purposes or infringement upon

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trade secrets.” Id.

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The parties have requested, through joint stipulation, that the Court seal or redact numerous
pleadings, documents and exhibits that request injunctive relief or argue the merits of whether
injunctive relief should be provided.

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A.

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The parties request that portions of several dispositive filings be redacted as they contain

Trade Secret Materials

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information related to the parties’ propriety business operations and trade secrets. (#186). In

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evaluating this request the court must determine whether disclosure of the material reasonably

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could result in infringement upon a party’s trade secrets. Dish Network L.L.C., 2009 WL 2224596

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at *7 (citing Pintos, 565 F.3d at 1116). Where the material includes information about proprietary

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business operations, a company’s business model or agreements with clients, there are compelling

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reasons to seal the material because possible infringement of trade secrets outweighs the general

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public interest in understanding the judicial process.

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The parties are requesting that the Court seal material that includes trade secrets and

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proprietary business information in the following non-dispositive filings: Memorandum of Points

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and Authorities in Support of the Motion for TRO (#12); Defendants’ Limited Opp. to Ex Parte

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Motion for Temporary Restraining Order and Order to Show Cause (#33-34); Defendants’ Opp.

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To Order to Show Cause on Preliminary Injunction (#62); Reply in Support of TRO Motion (#89);

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and Transcript of TRO Hearing (#103). The parties assert that these documents contain

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information about to the parties’ propriety business operations. (#186). The Court finds that most

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of the material consists of detailed information regarding Selling Source’s business operations,

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customer agreements, corporate structure, the details of Selling Source’s customer base and how
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the company works with and licenses products to its customers and measures it takes to protect its

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intellectual property. The Court finds that the public’s interest in understanding the judicial process

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is outweighed by the possibility that disclosure of these materials could reasonably result in

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infringement of the trade secrets of Selling Source, Red River and their customers. See Dish

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Network L.L.C., 2009 WL 2224596 at *7. Accordingly, the parties have demonstrated that a

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particularized harm would result from public disclosure and finds there are compelling reasons to

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redact the following documents in order to prevent infringement of the parties’ trade secrets:

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1.

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pp. 4:2-23; 4:26; 6:22-25; 8:4-9; 11:12-15 and 11:22-24 (discussing Selling

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Source’s proprietary business operations and customer base);
2.

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3.

Decl. of Stephen Gudelj (#14), ¶¶ 4 and 13 (detailing Selling Source’s security
measures and operations);

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Decl. of James Lassart (#13), ¶¶ 2 and 4(stating detailed information about Selling
Source’s business operations and business model);

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Memorandum of Points and Authorities in Support of the Motion for TRO (#12),

Decl. of Alton Irby (#15), ¶¶ 4, 8-12 and 16-21 (contains proprietary information
regarding Selling Source’s business operations and customer base)

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Master Services Agreement (attached as Ex. A to #15, at 9-19) and License

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Agreement (attached as Ex. A to #15, at 21-30) (contains significant discussion of

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Selling Source’s proprietary business practices and agreements with customers);

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6.

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Source’s forensic investigation methods and security practices);
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Decl. of Jeff O’Hare (#16), ¶¶ 3-4 and 7-8 (contains information about the Selling

Decl. of Soeren Poulsen (#17), ¶¶ 4-11 (details Selling Source’s forensic
investigation methods and security measures);

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Defendants’ Limited Opp. to Ex Parte Motion for Temporary Restraining Order and

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Order to Show Cause (#33-34), p. 5:25-27 (reveals specific details about Selling

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Source’s proprietary business operations);

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Defendants’ Opp. To Order to Show Cause on Preliminary Injunction (#62),1

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pp. 1:8-2:5, 2:18-25, 3:7-11, 3:21-5:18, 5:20-6:26, 7:1-11:15, 12:11-15, 12:24-13:6,

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13:14-16, 14:3-11, 14:13-15:15, 15:26-16:2, 16:6-25, 17:9-16, 17:25-27, 18:5-8,

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23:16-24, 24:27-25:6, 25:16-26:12, 29:16-30:11, 32:25-33:2, 33:27-34:2 (detailing

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Selling Source’s corporate structure, business practices, agreements with customers,

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financial condition and profit strategy);

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10.

Decl. Of Carl Michael Lane (#63), ¶¶ 6-44, 46, 48, 50-55, 58-62, 67 (details Red

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River and Selling Source’s commercial operations, financial condition, proprietary

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software and business practices);

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Exhibits attached to Decl. of Curtis Pope (#64-1, 64-2, 64-3, 64-4, 64-5, 64-6)

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(contains numerous contracts detailing Selling Source’s business operations, method

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of working with customers, instructions for access to company networks and

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financial information);

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12.

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Complaint attached as exhibit 32 to Decl. of Roger Croteau (#65 at 4-44) (contains
discussion of business practices of Selling Source and its customers);

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13.

Reply in Support of TRO Motion (#89), pp. 2:14-3:4, 4:14-6:4, 6:27-7:4, 8:3-8, 8:13-

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15, 9:6-9, 10:9-13, 11:1-12:12 and 15:11-15 (detailing Selling Source’s corporate

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structure, business practices, agreements with customers, financial condition and

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profit strategy); and

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...

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...

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...

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...

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...

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The parties additionally argue that the same portions of Defendants’ Opp. To Order to Show
Cause on Preliminary Injunction (#62) should be sealed because they contain factually incorrect
allegations. (#186 at 10). Because the Court has found compelling reasons to seal this material because
it contains trade secret information, the Court will not address the factual inaccuracies argument.
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14.

Transcript of TRO Hearing (#103)2 (significant parts of the transcript discuss

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Selling Source’s corporate structure, business practices, agreements with customers,

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financial condition and profit strategy).

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The Court will seal the filings discussed above upon the parties’ filing of redacted versions.

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B.

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In addition to the request to seal dispositive filings due to the inclusion of trade secrets, the

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parties also request that several dispositive filings be redacted or sealed because they contains false

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allegations that might improperly be used for libelous purposes. (#186). The Ninth Circuit has

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stated that the possibility that material could be used for scandalous or libelous purposes is a factor

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the court should weigh in determining whether the parties have shown compelling reasons to seal a

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dispositive filing. Dish Network L.L.C., 2009 WL 2224596 at *7 (citing Pintos, 565 F.3d at 1116).

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Where the material at issue includes admittedly false allegations that could realistically be used for

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libelous purposes, there are compelling reasons to seal the material. Accordingly, the Court finds

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the parties have demonstrated that a particularized harm would result from public disclosure and

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finds there are compelling reasons to redact the following documents in order to prevent the

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material from being used for scandalous or libelous purposes:

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1.

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Materials Containing Inaccurate Allegations

Decl. of Alton Irby (#15), ¶¶ 4, 8-12 and 16-21 (contains factually incorrect material
about the confidential relationships between Selling Source and its customers); and

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2.

Defendants’ Limited Opp. to Ex Parte Motion for Temporary Restraining Order and

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Order to Show Cause (#33-34), pp. 5:18-6:2 and 6:25-26 (contains factually

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incorrect material about the confidential relationships between Selling Source and a

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specific client related to the proprietary information theft allegations).

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The Court will seal the filings discussed above upon the parties’ filing of redacted versions.
Accordingly,

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The parties additionally argue that the transcript of the TRO hearing (#103) should be sealed
because it contains factually incorrect allegations. (#186 at 13). Because the Court has found
compelling reasons to seal this material because it contains trade secret information, the Court will not
address the factual inaccuracies argument.
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IT IS HEREBY ORDERED that the parties’ Joint Motion to Seal and/or Redact Portions
of Record (#186) is granted as stated above.
IT IS HEREBY FURTHER ORDERED that the parties shall file redacted versions of the

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filings at issue in the record, in accordance with the Court’s directions as laid out above, within

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fourteen (14) days of this order. Once the redacted versions have been filed, the Court will order

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the originial filings to be sealed.

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DATED this 29th day of April, 2011.

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______________________________________
GEORGE FOLEY, JR.
U.S. MAGISTRATE JUDGE

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24
25
26
27
28
13