Opinion
15-CV-8681 (GBD) (BCM)
03-28-2016
CLOSED JOINT STOCK COMPANY "CTC NETWORK," et al., Plaintiffs, v. ACTAVA TV, INC., Defendant.
MEMORANDUM AND ORDER REGARDING PROTECTIVE ORDER
BARBARA MOSES, United States Magistrate Judge.
The Court has received and reviewed defendant's letter-motion dated March 18, 2016 (Dkt. No. 48), seeking entry of a protective order to govern the production of confidential financial information during post-default discovery, plaintiffs' response dated March 21, 2016 (Dkt. No. 49), opposing the protective order request and seeking leave to file a motion to compel defendant to produce additional information, and defendant's reply dated March 23, 2016 (Dkt. No. 51). In addition, the parties participated in a telephonic discovery conference on March 24, 2016, with respect to all issues raised in their letters. For the reasons that follow, the Court will issue a protective order, albeit in a form somewhat different from that submitted by defendant. Plaintiffs may file a letter-motion, in accordance with Local Civil Rule 6.1(a), to compel additional document production by defendant.
Background
Plaintiffs are closed joint stock companies, organized under the laws of the Russian Federation, engaged in the production and broadcast of Russian television channels and programs. Defendant Actava TV, Inc. (Actava) is a Delaware corporation, headquartered in New York, streaming "over internet protocol television" to paying subscribers in New York and elsewhere via its website, www.actava.tv. Plaintiffs' complaint, filed on November 4, 2015, alleges that Actava pirated plaintiffs' channels and programs and streamed them to its own customers, for profit, without benefit of a license or any other authorization from plaintiffs. Compl. (Dkt. No. 1) ¶¶ 6, 69. The complaint asserts claims for trademark infringement and false advertising under § 43 of the Lanham Act, 15 U.S.C. § 1125; trademark tarnishment; copyright infringement in violation of § 106 of the Copyright Act, 17 U.S.C. § 106; secondary copyright infringement; unauthorized publication or use of communications in violation of 47 U.S.C. § 605(a); deceptive business acts and practices in violation of N.Y. Gen. Bus. L. § 349; and unfair competition; and seeks both damages and equitable relief.
Plaintiffs did not move for any temporary restraining order or preliminary injunction. Instead, on December 16, 2015 - after Actava failed to answer or otherwise respond to the complaint - plaintiffs obtained a clerk's certificate of default (Dkt. No. 12), and on December 31, 2015, they moved for (1) a default judgment as to liability; (2) a permanent injunction; (3) damages discovery; and (4) restraining order and asset freeze injunction pending inquest. (Dkt. No. 13.) On January 12, 2016, the Hon. George B. Daniels issued an Order (Dkt. No. 20) granting plaintiffs' motion in part. The January 12 Order decreed that plaintiffs have judgment against Actava; permanently restrained and enjoined Actava from "broadcasting, rebroadcasting, or otherwise transmitting Plaintiffs' broadcasts via any medium," or engaging in other infringing activities; and referred the matter to this Court for an inquest on damages. Judge Daniels did not authorize plaintiffs to conduct discovery, and did not issue any asset freeze injunction.
On January 20, 2016, this Court issued a Scheduling Order regarding the damages inquest (Dkt. No. 22), directing plaintiffs to submit their proposed findings of fact and conclusions of law, with supporting materials, no later than March 4, 2016. Thereafter, Actava appeared through counsel and moved by order to show cause to vacate the default, explaining that it never received the summons and complaint, which were served via the New York Secretary of State. Defendant submitted a declaration from its President, Rouslan Tsoutiev, stating in substance that Actava moved its New York offices in 2011 and was not aware that it had inadvertently failed to update its address for service of process with the Secretary of State. Tsoutiev Decl. (Dkt. No. 27) ¶¶ 5-8. Tsoutiev explained that Actava learned of this action only after the permanent injunction was entered, and only because plaintiffs mailed a copy of that injunction to Actava's web host, Network Solutions, along with a letter stating that Network Solutions was "required by court order to freeze the website www.actava.tv ('Website') so it cannot be transferred." Id. ¶ 15 & Ex. 7. Tsoutiev also represented that Actava promptly ceased streaming plaintiffs' programming after becoming aware of the injunction. Id. ¶ 11. On February 16, 2016, Judge Daniels issued the Order to Show Cause (Dkt. No. 24) and referred the motion to vacate the default to this Court.
The injunction issued by Judge Daniels did not require Network Solutions to freeze defendant's website. As noted above, plaintiffs requested an asset freeze injunction but did not obtain that relief. On March 7, 2016, without conceding that their letter to Network Solutions was improper when sent, plaintiffs' counsel represented in open court that plaintiffs had no intention of sending out any additional letters to Actava's web host, credit card providers, or other service providers, without advance notice to Actava itself or to the Court. Mar. 7, 2016 Tr. (Dkt. No. 46) at 23, 25.
Beginning at least as early as February 3, 2016, plaintiffs began serving discovery requests, including a Rule 34 document request to Actava itself and Rule 45 subpoenas to non-parties, including Actava's credit card processors. See Def.'s Ltr. dated Feb. 18, 2016 (Dkt. No. 32), Ex. A. Plaintiffs did so without any court order authorizing discovery. On February 18, 2016, defendant requested an adjournment of the damages inquest and a stay of discovery pending the outcome of its motion to vacate the default. Id. On February 19, 2016, this Court issued a Scheduling Order (Dkt. No. 33) extending plaintiffs' time to file their proposed findings of fact and conclusions of law with respect to the damages inquest to April 15, 2016, and setting a separate briefing schedule for the motion to vacate the default. However, the Court declined to stay "pending discovery requests and subpoenas served in connection with the damages inquest." On March 8, 2016, this Court issued an Order (Dkt. No. 45) denying plaintiffs' renewed request to expedite their damages discovery. In addition, this Court declined to entertain plaintiffs' renewed application for an asset freeze injunction, which did not appear to be within the scope of the present reference.
The March 8 Order also memorialized "plaintiffs' representation, during the March 7 conference, that they will not send any further correspondence to defendant's third-party service providers without first providing reasonable advance notice to plaintiffs of the planned communication or obtaining a further order from the Court."
Defendant's responses to plaintiffs' document requests were due on March 4, 2016. The following Monday, March 7, plaintiffs advised the Court that defendant's responses were insufficient, and defendant advised the Court that it would seek a protective order before turning over "financial discovery." Mar. 7, 2016 Tr. at 16, 33. Thereafter, defendant made several attempts to negotiate a protective order with plaintiffs, no avail. Plaintiffs would not agree to any "blanket" confidentiality order, offering instead that if Actava could show that "a particular document warrants confidential treatment," plaintiffs would "consider the request" and might enter into a "targeted" agreement to protect it. Def.'s Ltr. dated Mar. 18, 2016, Ex. C. Actava, for its part, has produced only a few pages in response to plaintiffs' discovery requests. It contends that the remainder of its proposed production, which includes documents "concerning its subscriber base, revenues, and tax payments," id. at 2, is too confidential to produce without restrictions on its use and dissemination. For the same reason, defendant has delayed scheduling Tsoutiev's deposition pursuant to Fed. R. Civ. P. 30(b)(6).
Actava's proposed protective order (Dkt. No. 48, Ex. A) would allow any party to designate as "confidential" any discovery material that "contains confidential and/or proprietary commercial information that is not generally available to the public," and as to which "a reasonable basis exists for limiting dissemination . . . under the standards of Fed. R. Civ. P. 26." Material so designated would be subject to various restrictions on its use and dissemination, but could still be shown to and used by the parties, their counsel, their experts, and their service providers (including translators) for purposes of this litigation. If the opposing party objected to a claim of confidentiality, the parties would be required to meet and confer prior to bringing the dispute to the Court for resolution.
In its letter-motion, defendant argues that a protective order is "necessary and proper" to safeguard its "sensitive financial documents" from misuse. Def.'s Ltr. dated Mar. 18, 2016, at 1. Defendant also provides some additional detail concerning the nature of the documents at issue, such as "tax returns" and "internal accounting information," including "detailed breakdowns of Actava's revenues and expenses, including overhead, payroll, and cost of goods sold." Id. at 3. Since Actava is a privately-held company, none of this information is publicly available.
Since plaintiffs have not yet filed their planned motion to compel, the Court is not in a position to determine whether any additional non-public financial information is likely to be produced in this action. There was some discussion, during the March 24, 2016 conference, concerning plaintiffs' desire to obtain "verifiable sources of revenue," such as monthly statements from Actava's credit card processors, which could be used to corroborate the figures in Actava's own financial statements. It was not clear, however, whether these documents are within the scope of any pending request, and if so whether they will be produced voluntarily or will be addressed in plaintiffs' planned motion.
Plaintiffs, for their part, continue to object to the entry of any "blanket" confidentiality order, arguing that defendant has not shown any need for one and suggesting that unspecified redactions could meet any legitimate confidentiality concerns. Pls.' Ltr. dated Mar. 21, 2016, at 1. Plaintiffs also complain that defendant's "unwillingness to produce information as to . . . how it acquired and disseminated Plaintiffs' encrypted signals continues to cause irreparable harm further establishing why Plaintiffs cannot agree to Actava's demand for a blanket confidentiality order." Id. at 3.
This point appears to be a non sequitur. Information concerning how defendant "acquired and disseminated Plaintiffs' encrypted signal" could potentially be discoverable if the parties were litigating the merits of plaintiffs' claims. But they are not. Unless and until defendant's motion to vacate the default is granted, the only issue in dispute, and therefore the only subject of discovery, is the quantum of plaintiffs' damages. Indeed, it would be error for this Court to require evidentiary proof of liability for purposes of the damages inquest. Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981) ("[T]he court should have accepted as true all of the factual allegations of the complaint, except those relating to damages."). Defendant's failure to produce discovery to which plaintiffs are not entitled simply does not bear on whether other discovery, to which plaintiffs are entitled, qualifies for a protective order.
Discussion
Fed. R. Civ. P. 26(c)(1)(G) permits a district court, for good cause shown, to issue an order requiring that a "trade secret or other confidential research, development or commercial information not be revealed or be revealed only in a specified way." While nonpublic financial or commercial information can (and frequently does) qualify for protection under the rule, plaintiffs are correct that such protection is not automatic. The party seeking a protective order "must also show good cause for restricting dissemination on the ground that it would be harmed by its disclosure." 8A Charles Alan Wright, Arthur Miller, and Richard L. Marcus, Federal Practice and Procedure § 2043 (3d ed. 2010). The showing of harm may not be couched in generalities; the party resisting unfettered disclosure must demonstrate a "clearly defined" and "specific" injury which is "serious" or "significant." See John Wiley & Sons, Inc. v. Book Dog Books, LLC, 298 F.R.D. 184, 186-87 (S.D.N.Y. March 26, 2014) (collecting cases).
This does not mean, however, that the producing party must obtain its opponent's agreement, in advance, on each document as to which it contends that confidential treatment is warranted. Certain categories of information and documents are "presumptively confidential," including tax returns. Johnson & Johnson Consumer Cos., Inc. v. Aini, 2008 WL 4470160, at *1 (E.D.N.Y. Oct. 2, 2008); McMenamin v. Kingson, 1999 WL 47199, at *3 (S.D.N.Y. Feb. 2, 1999). Where tax returns are produced in discovery, protective orders are the norm, not the exception. See, e.g., Securities and Exchange Comm'n v. Garber, 2014 WL 407079, at *1 (S.D.N.Y. Jan. 30, 2014) (weighing the parties' competing protective orders after ordering the disclosure of tax returns); Smith v. Bader, 83 F.R.D. 437, 439 (S.D.N.Y. 1979) (ordering plaintiffs to produce their tax returns subject to an attorneys-eyes-only confidentiality stipulation). Similarly, detailed financial information concerning a privately held business, not previously disclosed to the public, will in most cases warrant confidential treatment. "Internal documents . . . that contain non-public strategies and financial information constitute 'confidential commercial information' under Federal Rule 26(c)(1)(g), particularly where the disclosing company is engaged in a highly competitive industry and deliberately has shielded such information from its competitors." N.Y. v. Actavis, PLC, 2014 WL 5353774, at *3 (S.D.N.Y. Oct. 21, 2014). Where the materials to be produced include a mix of protectable and non-protectable documents, the initial determination as to what is and is not "confidential" is ordinarily made by the producing party, which must review its documents and make a good-faith determination as to which of them meet the standards of Rule 26(c)(1)(G). See, e.g., Houbigant, Inc. v. Dev. Specialists, Inc., 2003 WL 21688243, at *4 (S.D.N.Y. July 21, 2003).
A number of judges in the Southern District of New York have incorporated this principle into their model protective orders, which authorize the parties to designate as confidential any previously non-disclosed financial information. See, e.g., Model Protective Order (Gardephe, J.) ¶ 2(a), available at http://nysd.uscourts.gov/judge/Gardephe; Form of Protective Order (Woods, J.) ¶ 2(a), available at http://nysd.uscourts.gov/judge/Woods; Model Protective Order (Rakoff, J.) ¶ 2(a), available at http://nysd.uscourts.gov/judge/Rakoff; Model Protective Order 1 (Forrest, J.),¶ 2(a), available at http://nysd.uscourts.gov/judge/Forrest.
Once a party has made the necessary showing that at least some of its documents warrant confidential treatment, "the trial court has 'broad discretion . . . to decide when a protective order is appropriate and what degree of protection is required.'" Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984). See also Galella v. Onassis, 487 F.2d 986, 997 (2d Cir. 1973) ("The grant and nature of a protective order is singularly within the discretion of the district court."). In exercising that discretion, the court seeks to balance the interests of both the discovering party and the party from whom the discovery is sought, Mitchell v. Fishbein, 227 F.R.D. 239, 245 (S.D.N.Y. 2005), without losing sight of the purpose of the federal rules, which is to "secure the just, speedy, and inexpensive determination" of the case. Fed. R. Civ. P. 1.
In this case, the documents to be produced include Actava's federal income tax returns. During the March 24, 2016 discovery conference before the Court, plaintiffs' counsel conceded that the tax returns warrant confidential treatment. In addition, "detailed breakdowns" of Actava's revenues and expenses, including "overhead, payroll, and cost of goods sold," are properly afforded some protection against the risk that the company's competitors or suppliers could use that data to their own commercial advantage. Defendant has made at least a threshold showing, therefore, that a protective order is warranted.
It is not clear why this concession came so late. Actava told plaintiffs at least as early as March 9, 2016, that it was prepared to produce its tax returns "on a confidential basis." Def.'s Ltr. dated March 18, 2016, Ex. C (March 9, 2016 email from defendant's counsel to plaintiffs' counsel). Plaintiffs continued to insist, however, that they would not sign a protective order because, in their view, defendant had not established any need for confidentiality. Id. (March 17, 2016 email from plaintiffs' counsel to defendant's counsel).
According to plaintiffs, Actava has no protectable competitive interests because all or substantially all of its programming - not just the portion produced by plaintiffs - was unlawfully pirated from legitimate producers. The Court notes that some of the plaintiffs in this action are also plaintiffs in a recently-filed related action, Joint Stock Company Channel One Russia Worldwide, et al. v. Infomir LLC, et al., No. 16-CV-01318 (S.D.N.Y.), in which they and other Russian television producers make such allegations against a variety of U.S.-based entities, including Actava, offering Russian-language programming to their subscribers for a fee. The Court cannot, however, assume the truth of the allegations made in Joint Stock Company Channel One Russia Worldwide for purposes of determining whether a protective order should issue in this case.
The form of order that defendant has proposed - which appears to be based on one or more of the model protective orders in use in this district - permits the producing party to make an initial confidentiality designation at the time of production, subject to challenge if that designation is not warranted. This structure is both familiar and sensible, especially where, as here, the parties are engaged in fast-paced discovery designed to meet a briefing deadline, and the full extent of the necessary production remains fluid. Although the proposed order places some limits on the use and dissemination of confidential information, it does not contain any attorneys-eyes-only provision, and therefore would not significantly burden plaintiffs' ability to prepare for the inquest. It does prohibit recipients from using confidential information for any purpose other than the prosecution or defense of this action (including any appeal). Thus, Actava's non-public financial information could not be used for any business or commercial purpose, nor shared with plaintiffs or potential plaintiffs in other cases. This structure appropriately balances plaintiffs' desire for prompt production of relevant financial information for litigation purposes with defendant's desire to protect such information, to the extent possible, from competitive misuse.
Plaintiffs' counsel have made it clear that they hope to share the non-public financial information they receive from Actava "with other victims of infringement" (presumably including counsel's clients in Joint Stock Company Channel One Russia Worldwide), both to "calculate fair settlements or offsets" and more generally to "coordinate anti-infringement activities." Pls.' Ltr. dated Mar. 21, 2016, at 2. While the federal rules do not automatically prohibit the use of information obtained in one case to pursue (or initiate) another case, it has long been recognized that the purpose of discovery "is to enable the parties to prepare for trial with respect to their own bona fide existing claims, not to determine whether third parties have similar claims." Crabtree v. Hayden, Stone, Inc., 43 F.R.D. 281, 283 (S.D.N.Y. 1967). An order limiting the use of discovery to the litigation in which it is produced "is particularly appropriate when the material at issue is private," Duling v. Gristede's Operating Corp., 266 F.R.D. 66, 77 (S.D.N.Y. 2010), which, by definition, will be true of any material entitled to "confidential" status under the proposed protective order. Indeed, the use of Actava's nonpublic financial information for the purposes described by plaintiffs' counsel would necessarily entail its disclosure to persons and entities who are not before this Court (and may not even be subject to its jurisdiction). It would then become difficult if not impossible to enforce any other terms of the protective order. It is presumably for this reason that the model protective orders referenced above also contain provisions explicitly prohibiting the use of confidential documents or information for any purpose other than the prosecution or defense of "this action." See Model Protective Order (Gardephe, J.) ¶ 14; Form of Protective Order (Woods, J.) ¶ 13.
Defendant's proposed order requires certain modifications, however, to ensure that it is does not permit over-designations, does not unnecessarily burden plaintiffs, and is enforceable. Paragraph 2, as written, permits a party to designate as "confidential" any discovery material that it "deems" to contain "confidential and/or propriety commercial information that is not generally available to the public." This is too broad. A party should only be permitted to designate those portions of such material that it believes, in good faith, to consist of:
a. previously non-disclosed financial information;
b. previously non-disclosed material relating to ownership or control of a non-public company;
c. previously non-disclosed business plans, product-development, or marketing plans;
d. any information of a personal or intimate nature regarding any individual; or
e. any other category of information given confidential status by this Court.
Paragraph 7, as written, would require the parties to obtain signed non-disclosure agreements from all "outside vendors or service providers," such as copying services, as well as from stenographers at deposition. This requirement would place an unnecessary burden on counsel. Stenographers and copying services need not execute non-disclosure agreements. Translators and document-management consultants, however, should not work with "confidential" documents until they have signed such agreements.
Paragraph 9, as written, fails to specify which party has the burden of persuasion in the event of a dispute as to whether a document has been properly designated "confidential." The burden remains with the proponent of confidentiality.
For these reasons, it is hereby ORDERED as follows:
1. Defendant shall serve on plaintiffs, and submit for the Court's review, a proposed form of protective order incorporating the modifications discussed above.
2. So as not to delay damages-related discovery in the interim, defendant shall promptly produce all otherwise-discoverable documents, identifying those as to which defendant intends to claim confidentiality by stamping or affixing the label "confidential" to each page that contains confidential information meeting the standard set forth above. Pending the Court's entry of a more detailed protective order, such documents, and the information they contain, are to be used only for purposes of this action and may be disclosed only to: the parties to this action, the parties' insurers, counsel to the insurers, counsel to the parties retained specifically for this action, including counsel's clerical and paralegal personnel, the Court, and any author or addressee of a "confidential" document during the course of such author or addressee's deposition.
3. Plaintiffs shall file their motion to compel no later than April 1, 2016. Unless the parties agree otherwise, the briefing schedule shall be as set forth in Local Civil Rule 6.1(a). In lieu of formal motion papers, plaintiffs shall submit a letter-motion no longer than five pages (not including attachments). Defendant's response must also be in the form of a letter no longer than five pages; any reply letter must be no longer than three pages (in each case not including attachments). Plaintiffs must attach copies of the specific discovery requests at issue, and defendant's responses, to their moving letter. All parties must comply with this Court's Individual Practices regarding courtesy copies. Dated: New York, New York
March 28, 2016
SO ORDERED.
/s/ _________
BARBARA MOSES
United States Magistrate Judge Copies to:
All counsel (via ECF)