Opinion
01 Civ. 7388 (LTS) (GWG).
July 21, 2003.
OPINION AND ORDER
Non-party Deloitte Touche LLP ("Deloitte") moves for a protective order to accord confidential treatment to documents responsive to a subpoena issued by plaintiffs Houbigant, Inc., and Etablissement Houbigant, Inc. (collectively "Houbigant"). Defendants Development Specialists, Inc., William A. Brandt, Jr., and David H. Tolly (collectively the "DSI Defendants") oppose the motion on a number of grounds. For the reasons stated below, Deloitte's motion is granted in part and denied in part.
I. BACKGROUND
On or about October 23, 2002, Houbigant served a subpoena on Deloitte. See Declaration of Mara Leventhal in Support of the DSI Defendants' Opposition to Deloitte Touche LLP's Motion for Designation of Documents as Confidential, filed June 19, 2003 (Docket #97) ("Leventhal Decl."), ¶ 2. The subpoena sought documents pertaining to audits conducted by Deloitte of a company called Renaissance Cosmetics, Inc. ("RCI"). Id., ¶ 3. RCI, which filed for bankruptcy in 1999, is not a party to this action. Id., ¶ 4. However, a third-party defendant in this case, John R. Jackson, is RCI's sole representative. Id., ¶ 14.
Deloitte initially refused to produce any documents pursuant to the subpoena for a number of reasons. See Letter from Matthew S. Stewart to Mary Flynn, dated November 6, 2002 (reproduced in Leventhal Decl. Ex. 2), at 1-4. Deloitte eventually abandoned its overall objections, however, and agreed to produce responsive documents as long as they were subject to a confidentiality order. See Letter from Matthew S. Stewart to Gregory F. Polk, dated February 14, 2003 (reproduced in Leventhal Decl. Ex. 3). The Court had previously entered a confidentiality order in this matter. See Stipulation and Order Governing Confidential Material, filed January 9, 2003 (Docket #73) ("Confidentiality Order"). Under the Confidentiality Order, any party to this action may designate materials as confidential if the materials constitute a trade secret under New York law. Id., ¶ 2. Any other party may apply to the Court to challenge this designation. Id., ¶ 11.
On May 21, 2003, this Court held a conference regarding Deloitte's application to treat its production as confidential. At the conference, the Court made clear that the Confidentiality Order would cover the production of third-party materials. See Transcript of Civil Cause for Conference, filed May 29, 2003 (Docket #84) ("Tr."), at 5. The Court also expanded the definition of confidential material to include any information protected by Fed.R.Civ.P. 26(c)(7). Tr. 9-10. Finally, the Court stated that where an entire group of documents was properly designated as confidential, a non-party would be permitted to shift to the requesting party the burden of actually stamping each page of the group of documents "confidential." Tr. 10.
While the Confidentiality Order contemplates that a party protesting a confidentiality designation may make an application to the Court to remove such a designation, the Court on May 21 gave permission to Deloitte to make a motion for a protective order. Tr. 15-17. That motion was filed on June 4, 2003. See Notice of Motion, filed June 4, 2003 (Docket #87).
II. APPLICABLE LAW
Fed.R.Civ.P. 26(c) provides, "[u]pon motion by a party or the person from whom discovery is sought . . . for good cause shown, the court in which the action is pending . . . may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense." The rule also specifically allows the issuance of a protective order to require that "a trade secret or other commercial research, development, or commercial information not be revealed or be revealed only in a designated way." Fed.R.Civ.P. 26(c)(7).
A party seeking a protective order bears the burden of showing that the information it seeks to protect is confidential. See Bank of New York v. Meridien BIAO Bank Tanzania Ltd., 171 F.R.D. 135, 143 (S.D.N.Y. 1997). In addition, the moving party "has the burden of demonstrating that good cause exists for the issuance of the order." Wilcock v. Equidev Capital L.L.C., 2001 WL 913957, at *1 (S.D.N.Y. Aug. 14, 2001) (citing In re Agent Orange Prod. Liab. Litig., 821 F.2d 139, 145 (2d Cir. 1987)). The moving party must establish that good cause exists by making a "particular and specific demonstration of fact, as distinguished from stereotyped and conclusory statements."Application of Akron Beacon Journal, 1995 WL 234710, at *10 (S.D.N.Y. Apr. 20, 1995) (quotation marks and citations omitted). Merely because materials are treated as confidential by a party does not mean they are automatically entitled to be subject to a protective order. See Bank of New York, 171 F.R.D. at 144. Instead,
whether [the materials] merit protection in any particular case depends upon: "(1) the extent to which information is known outside the business; (2) the extent to which information is known to those inside the business; (3) the measures taken to guard the secrecy of the information; and (4) the value of the information to the business and its competitors."Id. (quoting Sullivan Mktg., Inc. v. Valassis Communications, Inc., 1994 WL 177795, at *2 (S.D.N.Y. May 5, 1994)) (citation omitted).
III. DISCUSSION
Deloitte has described some of the materials at issue and provided some sample documents for in camera review. Deloitte has met its burden of demonstrating that any documents revealing its auditing procedures are confidential and should be protected. This includes materials such as check lists and audit forms that outline audit methodology. Deloitte has established procedures to keep such audit materials confidential by requiring employees not to reveal the contents of these materials outside the firm and requiring all employees to return these materials upon leaving the firm. See Affidavit of Rudolph J. Santoro in Support [sic] Deloitte Touche LLP's Motion for Confidential Treatment of Proposed Production, dated June 4, 2003 ("Santoro Aff."), ¶ 3. It has not been contested that if the materials were to come into the hands of Deloitte's competitors the firm would potentially suffer at least a short term "competitive disadvantage." Id.; accord id., ¶ 5 (stating Deloitte would suffer "competitive injury . . . if [its materials were] disclosed to competitors"). While Deloitte has not shown the extent to which such information is known outside of Deloitte, its existing showing is sufficient to accord protection to the documents revealing Deloitte's auditing procedures or methodology under Fed.R.Civ.P. 26(c)(7).
Notably, other courts have also held that information pertaining to accounting firms' audit procedures can constitute confidential information within the meaning of Fed.R.Civ.P. 26(c)(7). See In re Mid Am. Waste Sys., Inc. Sec. Litig., 1997 WL 1045729, at *2 (N.J. Dec. 10, 1997) ("Courts have characterized internal audit manuals as being trade secrets and thus confidential information") (citing cases); Gohler v. Wood, 162 F.R.D. 691, 693-96 (Utah 1995) (finding an existing protective order covered audit practice manuals);Master Palletizer Sys., Inc. v. T.S. Ragsdale Co. Inc., 123 F.R.D. 351, 352 (Colo. 1988) ("accountant's audit procedures have been held to be `trade secrets' under Fed.R.Civ.P. 26(c)(7)") (citation omitted); see also Peat, Marwick, Mitchell Co. v. Creditor's Comm. of Northeast Dairy Co-op. Fed'n, Inc., 65 B.R. 886, 888-89 (N.D.N.Y. 1986) (protecting audit documents that did not contain specific information regarding the company that had been audited).
While Deloitte has shown that some of the documents fall within this category, its submission does not fully explain what sort of documents are contained therein (if any) that do not provide information on audit procedures or methodology. Instead, Deloitte argues it should not be required to designate specifically which materials are confidential because it is "generally" required to maintain all materials relating to its client — in this case RCI — as confidential. Memorandum in Support of Deloitte Touche LLP's Motion for Designation of Documents as Confidential Pursuant to Federal Rules of Civil Procedure 26 and 45, filed June 4, 2003 (Docket #88) ("Deloitte Mem."), at 7. However, as the DSI Defendants point out, Deloitte has refused to contact any representative of RCI to determine whether it objects to disclosure. See Leventhal Decl., ¶ 17. More significantly, RCI's sole representative, John R. Jackson, is a third-party defendant in this case, see id., ¶ 14, and has raised no objection to the disclosure of these materials. Given the latter circumstance, RCI has been provided sufficient notice of the planned production and, in the absence of objection on its part, RCI cannot be said to have any interest in maintaining the confidentiality of these documents.
Although Deloitte admits that some of the documents at issue "do not reveal proprietary information," Deloitte Mem. at 7, it appears to argue that it should be permitted to designate the entire production as confidential simply so that it will not be put to the burden of determining which specific documents within its production are properly treated as confidential. See id. at 8. The Court rejects this argument. Deloitte's production apparently consists of five boxes of documents. See Leventhal Decl., ¶ 15. Because Deloitte is a large accounting firm, the Court does not find that it is an undue burden to examine five boxes of documents to determine which can properly be afforded protection under Rule 26(b)(7).
Conclusion
Under the Confidentiality Order, as modified, Deloitte is entitled to designate as confidential those documents that reveal commercial information protectible under Fed.R.Civ.P. 26(c)(7). See Confidentiality Order, ¶ 2; Tr. 9-10. As discussed above, documents that reveal Deloitte's auditing procedures and methodology may properly be designated as confidential. However, Deloitte may not simply designate its entire production — which Deloitte admits contains materials that are not protectible under Fed.R.Civ.P. 26(c)(7) — as confidential. Deloitte may only designate documents within its production as confidential after making a good faith determination that there is a legitimate basis for a confidentiality designation. Deloitte is directed to follow the terms of the existing Confidentiality Order. If any party objects to any of Deloitte's designations, it may make an application to the Court pursuant to paragraph 11 of the Confidentiality Order and in conformity with this Court's Individual Practices. See http://www.nysd.uscourts.gov/Individual_Practices/Gorenstein.pdf
SO ORDERED.