Tropical Sails Corp. v. Yext, Inc.

Filing 77

OPINION AND ORDER. For the reasons in this Opinion and Order, the Court GRANTS in part and DENIES in part Yext's motion to seal. Yext has met its burden for continued sealing of the documents relating to marketing and business development activi ties. It is directed to file those 19 documents under seal. The remaining three documents-(1) Exhibit 4 to Tropical Sails's motion for class certification; (2) Exhibit B to the Declaration of Max Shaw in support of Yext's Opposition to Trop ical Sails's motion for class certification; and (3) Exhibit 5 to Tropical Sail's opposition to Yext's motion for summary judgment-shall be filed on ECF in the same manner as all other public documents. The Court cautions the parties t hat it may revisit this decision following the resolution of the parties' motions because "it is impossible to determine what material the Court will rely upon in its decisions, and it is probable that information relied upon will be subjec t to a heightened presumption of access." Mark, 2015 WL 7288641, at *3. SO ORDERED. re: 75 LETTER MOTION to Seal Document addressed to Judge John F. Keenan from Gavin J. Rooney dated 3/25/16. Document filed by Yext, Inc. (Signed by Judge John F. Keenan on 4/12/2016) (rjm)

Case 1:09-md-02013-PAC Document 57

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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TROPICAL SAILS CORP.,
:
UNITED STATES DISTRICT COURT :
Plaintiff,
SOUTHERN DISTRICT OF NEW YORK :
:
-----------------------------------------------------------x
In -againstre FANNIE MAE 2008 SECURITIES :
:
:
LITIGATION
:
YEXT, INC.,
:
:
:
:
Defendant.
:
-----------------------------------------------------------x
------------------------------ X

Filed 09/30/10 Page 1 of 45
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 04/12/2016
No. 14 Civ. 7582
08 Civ. & ORDER
OPINION 7831 (PAC)
09 MD 2013 (PAC)
OPINION & ORDER

APPEARANCES
FOR PLAINTIFF TROPICAL SAILS CORP.
HONORABLE PAUL A. CROTTY, United States District Judge:
David Slade, Esq.
James Allen Carney, Esq.
Joseph Henry Bates, III, Esq.
BACKGROUND1
CARNEY BOWMAN CARNEY & WILLIAMS, PLLC
The early years of this decade saw a boom in home financing which was fueled, among
Thomas M. Mullaney, Esq.
LAW OFFICES OF THOMAS M. MULLANEY
other things, by low interest rates and lax credit conditions. New lending instruments, such as
FOR DEFENDANT YEXT, INC.
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
Gavin J. Rooney, Esq.
LOWENSTEIN SANDLER LLP
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
JOHN F. KEENAN, United States District Judge:
assumption that the market would continue to rise and that refinancing options would always be
Before the Court is Defendant Yext, Inc.’s (“Yext”) motion
available in the future. Lending discipline was lacking in the system. Mortgage originators did
to seal certain documents submitted in connection with both its
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
motion for summary judgment and Plaintiff Tropical Sails Corp.’s
originators sold their loans into the secondary mortgage market, often as securitized packages
(“Tropical Sails”) motion for class certification. Tropical
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
Sails consents to the requested sealing. (Mem. of Law in Support
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
of Mot. to Seal 1 [hereinafter “Mem.”] (filed Mar. 29, 2016),
and home prices began to fall. In light of the changing housing market, banks modified their
ECF No. 75.) For the reasons below, the Court GRANTS in part
lending practices and became unwilling to refinance home mortgages without refinancing.
and DENIES in part Yext’s motion to seal.
1

Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.

1
1

I.

Background

The Court assumes familiarity with the facts as set forth
in its May 18, 2015 Opinion & Order. See Tropical Sails Corp. v.
Yext, Inc., No. 14 Civ. 7582, 2015 WL 2359098 (S.D.N.Y. May 18,
2015).

Briefly summarized for the instant motion, Yext is an

online advertising company that assists businesses in monitoring
their business listings with web directories. Id. at *1.

In

order to accomplish this, Yext sells subscriptions to its
PowerListings service, which purports to assist businesses in
identifying and correcting errors in their business listings on
web directories. Id.

Tropical Sails is a small business

involved in the travel cruise ship industry that purchased a
subscription to Yext’s PowerListings service. Id.

Tropical

Sails brings suit against Yext for itself and others similarly
situated alleging that Yext fraudulently induced it and others
to purchase Yext’s PowerListings service and that Yext has been
unjustly enriched by Tropical Sails’s and others’ purchase of
Yext’s PowerListings service. Id. at *5-7.
II.

Procedural History

Tropical Sails commenced this action by class action
complaint on September 18, 2014. Id. at *2.

In addition to its

causes of action for fraudulent inducement and unjust
enrichment, Tropical Sails alleged claims for violations of New
York General Business Law sections 349 and 350, which this Court
2

dismissed on May 18, 2015, for failure to state a claim under
Federal Rule of Civil Procedure 12(b)(6). Id. at *3-5.
Tropical Sails moved for class certification pursuant to
Federal Rule of Civil Procedure 23(a) and (b)(3) on December 15,
2015.

On January 22, 2016, Yext moved for summary judgment

pursuant to Federal Rule of Procedure 56.

Both motions were

fully briefed on March 11, 2016.
III.
A.

Discussion

Legal Standard

Federal Rule of Civil Procedure 26(c) “confers broad
discretion on the trial court to decide when a protective order
is appropriate and what degree of protection is required.” In re
Parmalat Secs. Litig., 258 F.R.D. 236, 242 (S.D.N.Y. 2009)
(quoting In re Zyprexa Injunction, 474 F. Supp. 2d 385, 415
(E.D.N.Y. 2007)).

Rule 26(c) guides the court’s discretion by

requiring that a protective order issue only upon a finding of
good cause. Id. at 242-43.

The proponent of the protective

order bears the burden of demonstrating good cause for closure.
Id. at 243.

This burden “is significantly enhanced with respect

to ‘judicial documents,’” because a common law presumption of,
and a qualified First Amendment right to, access attaches to
judicial documents. Standard Inv. Chartered, Inc. v. FINRA, 347
F. App’x 615, 615 (2d Cir. 2009) (summary order); accord Lugosch

3

v. Pyramid Co. of Onondaga, 435 F.3d 110, 119-120 (2d Cir.
2006).
To determine whether sealing is appropriate under the
common law presumption of access, the court applies a three-step
balancing test.

At the first step, the Court must determine

whether the documents that the proponent of the protective order
seeks to protect are “judicial documents.” Lugosch, 435 F.3d at
119.

If so, the document carries a common law presumption of

access, and the second step requires the Court to assign a
weight to that presumption along “a continuum from matters that
directly affect an adjudication to matters that come within a
court’s purview solely to insure their irrelevance.” Id.
(quoting United States v. Amodeo (“Amodeo II”), 71 F.3d 1044,
1049 (2d Cir. 1995)).

At the third and final step, the Court

considers any competing factors that counterbalance the weight
of the presumption, including the privacy interests of the
proponent. Id. at 120.
To determine whether the qualified First Amendment right of
access applies to written documents submitted to a court, the
Second Circuit uses two methods.

One method, the so-called

“experience and logic” approach, requires the court to determine
“whether the documents ‘have historically been open to the press
and general public’ and whether ‘public access plays a
significant positive role in the functioning of the particular
4

process in question.’” Id. (quoting Hartford Courant Co. v.
Pellegrino, 380 F.3d 83, 91 (2d Cir. 2004)).

The other method

requires the court to determine the degree that the judicial
documents “derived from or [are] a necessary corollary of the
capacity to attend relevant proceedings.” Id. (alteration in
original) (quoting Hartford Courant Co., 380 F.3d at 93).

This

determination tracks the first step of the Lugosch balancing
test.

Under the experience and logic method, the common law

presumption of access to judicial documents generally supports a
finding that the documents were historically open to the public.
Id.

Similarly, under the second method, when the parties submit

judicial documents in connection with public judicial
proceedings that themselves implicate the right of access, a
qualified First Amendment right of access extends to such
documents. Hartford Courant Co., 380 F.3d at 93.
If a qualified First Amendment right of access exists, the
Court then considers whether the proponent of sealing can
demonstrate that “higher values” outweigh that right. Lugosch,
435 F.3d at 124.

This determination tracks the third step of

the Lugosch balancing test’s consideration of “countervailing
factors.”

The First Amendment framework, however, is “more

stringent” and “sealing of the documents may be justified only
with specific, on-the-record findings that sealing is necessary

5

to preserve the higher values and only if the sealing is
narrowly tailored to achieve that aim.” Id.
B.

Application

Yext moves to seal 22 of 65 exhibits appended to the
motions (or just over one-third of the total). (Mem. 1.)
classifies these exhibits in two categories.

Yext

The first category

of documents are those reflecting “its confidential marketing
and business development activities.” (Decl. of Gavin J. Rooney
¶ 6 [hereinafter “Rooney Decl.”] (filed Mar. 29, 2016), ECF No.
76.)

Counsel for Yext explains that these documents include

Yext’s sales training manuals, internal marketing strategies,
company marketing plans, and internal emails discussing
marketing tests. (Id.)

The second category of documents are

those reflecting “its confidential sales statistics.” (Id. ¶ 7.)
Counsel for Yext explains that these documents describe Yext’s
otherwise private revenue figures. (Id.)
1.

Both Categories of Documents Are Judicial Documents

All of the documents Yext seeks to seal were submitted in
support or in opposition to either a motion for summary judgment
or a motion for class certification.

Documents submitted in

connection with a motion for summary judgment are judicial
documents as a matter of law. Lugosch, 435 F.3d at 121.

This is

so because summary judgment is the formal governmental act of
adjudication, “which should, absent exceptional circumstances,
6

be subject to public scrutiny.” Id. (quoting Joy v. North, 692
F.2d 880, 893 (2d Cir. 1982)).

Seven of the 22 exhibits Yext

seeks to file under seal were appended to Tropical Sails’s
opposition to Yext’s motion for summary judgment. (See Rooney
Decl. ¶ 9(C).)

These seven exhibits are judicial documents.

Class certification, by contrast, is not an adjudication.
See Adjudication, BLACK’S LAW DICTIONARY (10th ed. 2014) (defining
adjudication as “[t]he legal process of resolving a dispute; the
process of judicially deciding a case”). But see Mark v. Gawker
Media LLC, No. 13 Civ. 4347(AJN), 2015 WL 7288641, at *2
(S.D.N.Y. Nov. 16, 2015) (“Given that class certification is an
adjudication, the Court further finds that the documents
submitted in connection with Plaintiffs’ Motion for Class
Certification are ‘judicial documents.’”).

Class certification

is, however, a determination by the Court whether a plaintiff’s
suit meets the specified criteria in Federal Rule of Civil
Procedure 23. See Shady Grove Orthopedic Assocs., P.A. v.
Allstate Ins. Co., 559 U.S. 393, 398-99 (2010).

This

determination involves more than a review of the complaint. See
Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 131 S.Ct. 2241,
2551 (2011) (“Rule 23 does not set forth a mere pleading
standard.

A party seeking class certification must

affirmatively demonstrate his compliance with the Rule—that is,
he must be prepared to prove that there are in fact sufficiently
7

numerous parties, common questions of law or fact, etc.”).
Indeed, the class certification determination requires a
“rigorous analysis” that “generally involves considerations that
are enmeshed with the factual and legal issues comprising the
plaintiff’s cause of action” and, to accomplish such an
analysis, “it may be necessary for the court to probe behind the
pleadings before coming to rest on the certification question.”
Id. at 2551-52 (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S.
147, 160 (1982)).

The exhibits supporting a motion for, or

opposition to, class certification would certainly be relevant
to the judicial function and useful to the judicial process in
probing behind the pleadings to determine whether the
plaintiff’s suit meets the special criteria set forth in Rule 23
for class certification.

Accordingly, the 15 exhibits filed in

support of a motion for class certification are judicial
documents.
2.

The More Stringent First Amendment Framework Applies

As judicial documents, the exhibits that Tropical Sails and
Yext rely upon to support or oppose their motions for class
certification and summary judgment give rise to a qualified
First Amendment right of access to these documents.
Under the experience and logic test, the mere status of
these documents as judicial documents suggests that these
documents have historically been open to the public. See
8

Hartford Courant Co., 380 F.3d at 92.

Moreover, logic confirms

that public access to written documents submitted in connection
with pretrial motions is important “both for understanding the
[judicial] system in general and its workings in a particular
case.” Id. at 95 (quoting Richmond Newspapers, Inc. v. Virginia,
448 U.S. 555, 572 (1980)).

This is so because the Court will

rely (or the parties believe the Court should rely) on the
supporting documents to determine whether Rule 23’s criteria are
met and whether any genuine dispute as to any material fact
exists under Rule 56. See Lugosch, 435 F.3d at 123 (“If the
rationale behind access is to allow the public an opportunity to
assess the correctness of the judge’s decision . . . documents
that the judge should have considered or relied upon, but did
not, are just as deserving of disclosure as those that actually
entered into the judge’s decision.” (alteration in original)
(quoting In re Coordinated Pretrial Proceedings in Petroleum
Prods. Antitrust Litig., 101 F.R.D. 34, 43 (C.D. Cal. 1984))).
Similarly, under the second approach, oral arguments
relating either to a motion for class certification or summary
judgment are judicial proceedings that implicate the right of
access and this right of access necessarily extends to the
written documents submitted in connection therewith. Lugosch,
435 F.3d at 124; In re N.Y. Times Co., 828 F.2d 110, 114 (2d
Cir. 1987).
9

Accordingly, because there is a qualified First Amendment
right of access to the exhibits filed in connection with
Tropical Sails’s motion for class certification and Yext’s
motion for summary judgment, the more stringent First Amendment
framework applies and the public’s constitutional right of
access may be overcome only by specific, on-the-record findings
that closure is essential to protect higher values and narrowly
tailored to achieve that aim. Lugosch, 435 F.3d at 124.
3. Closure Is Essential to Protect Higher Values for the
Marketing and Business Development Documents But Not for the
Sales Statistics Documents
Yext bears the burden of demonstrating what higher values
overcome the presumption of public access and justify sealing.
See DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 826 (2d
Cir. 1997).

To meet this burden, Yext “must make a particular

and specific demonstration of fact showing that disclosure would
result in an injury sufficiently serious to warrant protection;
broad allegations of harm unsubstantiated by specific examples
or articulated reasoning fail to satisfy the test.” In re
Parmalat, 258 F.R.D. at 244.

Yext has met this burden for the

category of documents relating to marketing and business
development, but not for the category of documents relating to
sales statistics.
Rule 26(c)(1)(G) directs that, upon good cause, a court may
issue a protective order “requiring that a trade secret or other
10

confidential research, development, or commercial information
not be revealed or be revealed only in a specified way.” FED. R.
CIV. P. 26(c)(1)(G).

“Internal documents and unpublished drafts

that contain non-public strategies and financial information
constitute ‘confidential commercial information’ under Federal
Rule 26(c)(1)(G) . . . .” New York v. Actavis, PLC, No. 14 Civ.
7473, 2014 WL 5353774, at *3 (S.D.N.Y. Oct. 21, 2014); accord
Vesta Corset Co. v. Carmen Founds., Inc., No. 97 Civ. 5139, 1999
WL 13257, at *2 (S.D.N.Y. Jan. 13, 1999) (“Pricing and marketing
information are widely held to be ‘confidential business
information’ that may be subject to a protective order.”).
Counsel for Yext describes the documents relating to
marketing and business development activities as sales training
materials, internal marketing strategies, company marketing
plans, and internal emails regarding marketing tests. (Rooney
Decl. ¶ 6.)

He identifies specific harm that Yext will suffer

if these materials are disclosed to be the exposure to its
competitors of Yext’s market predictions and intelligence,
product comparisons, and strategy. (Id.)

This competitive

injury is sufficiently serious to warrant protection under Rule
26. See Louis Vuitton Malletier S.A. v. Sunny Merch. Corp., 97
F. Supp. 3d 485, 511 (S.D.N.Y. 2015) (granting motion to redact
documents containing advertising expenditures and plans,
merchandising strategies, policies, and sales); GoSMiLE, Inc. v.
11

Dr. Johnathan Levine, D.M.D. P.C., 769 F. Supp. 2d 630, 649-50
(S.D.N.Y. 2011) (granting motion to seal “highly proprietary
material concerning the defendants’ marketing strategies,
product development, costs and budgeting”).
By contrast, counsel for Yext describes the documents
relating to sales statistics by reference to one exhibit that
“provides a chart setting forth the monthly sales statistics for
PowerListings during the putative class period.” (Rooney Decl.
¶ 7.)

He claims that “[t]his information relates to Yext’s

revenues (which information would not otherwise be publicly
available).” (Id.)

However, “implicit in the notion of

‘confidential business information’ is something beyond the mere
fact that the particular datum has not previously been made
available to the public.” Salomon Smith Barney, Inc. v. HBO &
Co., 98 Civ. 8721(LAK), 2001 WL 225040, at *3 (S.D.N.Y. Mar. 7,
2001).

Therefore, the simple fact that Yext’s revenue

information has not previously been disclosed is not enough to
warrant protection. 1

1

The Court notes that Yext’s claim that information relating to
its revenues “would not otherwise be publicly available” is, at
the very least, perplexing in light of such industry articles
claiming that “Yext . . . is announcing $88.8 million in revenue
for its fiscal 2016 year” and “Yext this morning announced that
it has raised $50 million in Series F funding.” See Katie Roof,
Yext Sees $88.8 Million Revenue, 48% Growth for Location Data,
TECHCRUNCH (Mar. 10, 2016), http://techcrunch.com/2016/03/10/yextsees-88-8-million-revenue-48-growth-for-location-data/; Dan
Primack, Yext Raises $50 Million at $525 Million Valuation,
12

A legitimate privacy interest certainly exists in the
financial documents of a privately held company. See Amodeo II,
71 F.3d at 1051 (“Financial records of a wholly owned business
. . . will weigh more heavily against access than conduct
affecting a substantial portion of the public.”); accord Louis
Vuitton, 97 F. Supp. 3d at 511 (permitting redactions of
confidential business information for a closed business).

Here,

however, counsel makes only the broad allegation of general harm
that “[p]ublic disclosure . . . would raise a substantial risk
of harm to Yext since competitors would have access to Yext’s
confidential sales information.” (Rooney Decl. ¶ 7.)

Counsel

fails to provide either specific examples how, or articulated
reasons why, such access would harm Yext.

Absent such a

showing, Yext has not met its burden and the qualified First
Amendment right to access outweighs Yext’s privacy interest in
the sales statistics documents.
4.

No Less Restrictive Alternative to Sealing Exists Here

Finally, even when the proponent establishes that higher
values exist to overcome the right of access, the Court must
determine whether the proposed method of protecting those values
is narrowly tailored to achieve that aim. Lugosch, 435 F.3d at
124.

FORTUNE (June 4, 2014, 10:07 AM), http://fortune.com/2014/06/04/
yext-raises-50-million-at-525-million-valuation/.
13

The Court has reviewed the 19 documents relating to
marketing and business development activities that Yext seeks to
Sealing is narrowly tailored here because the documents

seal.

contain only marketing and business development information.
Conclusion

Yext has met its burden for continued sealing of the
documents relating to marketing and business development
activities.
seal.

It is directed to file those 19 documents under

The remaining three documents-(1) Exhibit 4 to Tropical

Sails's motion for class certification;

(2) Exhibit B to the

Declaration of Max Shaw in support of Yext's Opposition to
Tropical Sails's motion for class certification; and (3) Exhibit
5 to Tropical Sail's opposition to Yext's motion for summary

judgment-shall be filed on ECF in the same manner as all other
public documents.

The Court cautions the parties that it may

revisit this decision following the resolution of the parties'
motions because "it is impossible to determine what material the
Court will rely upon in its decisions, and it is probable that
information relied upon will be subject to a heightened
presumption of access." Mark, 2015 WL 7288641, at *3.
SO ORDERED.
Dated:

New York, New York
April 12, 2016

~~John F. Keenan l_
Tzc;:_UM/1
v

United States District Judge
14