Want to File Under Seal? Here’s the Deal
April 15, 2019
To the uninitiated litigant, filing documents containing private, potentially embarrassing information under seal might seem like it should be easy and straightforward, especially if the opposing party has agreed to treat the document (or information contained therein) as confidential. In fact, however, New York courts typically will only grant motions to seal in narrow circumstances involving specific types of potential economic injury.
A recent Commercial Division case in the Supreme Court, New York County (2019 NY Slip Op 30880[U]), is illustrative. There, plaintiff New Penn Financial, LLC commenced an action for breach of contract and mutual mistake against defendant 360 Mortgage Group LLC, alleging that 360 Mortgage had provided erroneous calculations in connection with New Penn’s purchase of certain mortgage servicing rights from 360 Mortgage. 360 mortgage moved to dismiss. In connection with this motion, several of the parties’ filings contained confidential information, which both parties moved pursuant to 22 NYCRR § 216.1 to seal from public viewing.
In support of its motion to seal, New Penn argued, among other things, that the mortgage servicing rights purchase agreements (MSRPAs) at issue contained confidentiality provisions intended to keep the negotiated terms of the transactions secret from competitors and potential future transactional counterparties. 360 Mortgage opposed the motion to seal, arguing, among other things, that the MSRPAs allowed confidential information to be disclosed in connection with a legal proceeding arising from the transaction.
The court (Masley, J.) paid short shrift to the parties’ otherwise thorough and thoughtful arguments concerning the interpretation and scope of the MSRPA’s confidentiality provisions, holding the MSRPAs “not relevant with respect to the court’s analysis on this motion to redact.” The court focused instead on whether the movants had met their burden of demonstrating “compelling circumstances to justify restricting public access to the documents,” under the standard set by the Appellate Division, First Department, in Mosallem v Berenson (76 AD3d 345, 348-49). The court described this standard:
The movant must demonstrate good cause to seal records under Rule § 216.1 by submitting “an affidavit from a person with knowledge explaining why the file or certain documents should be sealed.” (Grande Prairie Energy LLC v Alstom Power, Inc., 2004 NY Slip Op 51156 [U], *2 [Sup Ct, NY County 2004]). Good cause must “rest on a sound basis or legitimate need to take judicial action” (Danco Labs. v Chemical Works, 274 AD2d 1, 9 [1st Dept 2000]). Agreements to seal are insufficient as such agreements do not establish “good cause” (MBIA Ins. Corp. v Countrywide Home Loans, Inc., 2012 NY Slip Op 33147[U], * 9 [Sup Ct, NY County 2012]).
Applying these principles, the court found “good cause” to redact information that could “threaten a business’s competitive advantage,” such as the MSRPAs’ economic deal terms, which were subject to and resulted from extensive negotiations between the parties. The court found that disclosure of certain of the MSRPAs’ provisions, “may well threaten New Penn and its parent corporation’s competitive advantage in the mortgage services industry to the extent that they continue to make such purchases,” and that “New Penn has an interest in keeping its financial arrangement private and there is no showing of relevant public interest.” The court further found good cause to redact personal identifying information of the borrowers associated with the mortgages, so as to prevent fraud and identity theft.
Though the court found “good cause” to seal in this case, other decisions emphasize New York’s policy of keeping judicial proceedings open to the public. Notably, for instance, “the mere fact that embarrassing allegations may be made” against a party has been held insufficient to warrant sealing (see In re Hofmann, 284 AD2d 92, 93-94 [1st Dept 2001] [“Confidentiality is clearly the exception, not the rule . . .”]).
Finally, anyone interested in the procedure for e-filing documents under seal in Supreme Court, New York County, may find helpful guidance in Section K of the court’s Protocol on Courthouse Procedures for Electronically Filed Cases.
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