Opinion
No. 98-3217
January 6, 2000
ORDER
This cause is before the Court on Plaintiff's Motion for Protective Order (d/e 31-1) and To Compel Answers to Interrogatories (d/e 31-2).
I. Background
The parties in this litigation were members of a joint venture formed to market whey to customers to be used as liquid feed for livestock. The arrangement in the joint venture was that Southwest Whey, Inc., would obtain sources of whey form dairies, Nutrition 101 would develop the market for the whey, and both would arrange transportation of the whey.
Amidst allegations of contract breach by each party, the joint venture was terminated in September of 1993. Since that time, however, the parties have continued to do business in the whey industry as competitors. The current motions arose during the course of discovery in the breach of contract and other claims raised by each party in this case.
A. Motion for Protective Order
The Court notes that Plaintiff's memorandum of law is 20 pages. Local Rule 7.1(B)(2) limits memoranda to either 15 pages, or under 7000 words with a certification of compliance. There is no certification attached. Accordingly, the Court finds that Plaintiff has violated Rule 7.1, and directs Plaintiff to comply with the rule in all future memoranda.
The discovery information which has been requested from each party is very broad, and includes information regarding past and current business practices. The parties agree that disclosing some of the information-e.g., information regarding suppliers, customers, and transporters-has the potential to be used to the competitive disadvantage of the other. Although they have agreed to have the Court issue a protective order, they disagree with regard to whether the proposed protective order should include the following statement: "[A]ll confidential discovery material and the information contained herein or derived therefrom may be used solely for the purposes of this action and may not be used for any other purpose, including, without limitation, any competitive purpose." Southwest seeks the inclusion of such a sentence and Nutrition 101 and Ross Peter seeks to exclude such a sentence from the stipulated protective order.
II. Discussion
A. Standard for Protective Order
Fed.R.Civ.P. 26(c) states in relevant part:
[T]he court . . . may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including one or more of the following:
. . .
(7) that a trade secret or other confidential research, development or commercial information not be revealed or be revealed only in a designated way[.]
Under Fed.R.Civ.P. 26(c), the Court has the power to issue a protective order only upon a showing of "good cause." Even if the parties agree that a protective order should be entered, they still have "the burden of showing that good cause exists for issuance of that order. "It is equally apparent that the obverse also is true, i.e., if good cause is not shown, the discovery materials in question should not receive judicial protection. . . ." Jepson, Inc. v. Makita Electric Works, Ltd., 30 F.3d 854, 858 (7th Cir. 1994) (citations omitted). In deciding whether to issue a stipulated protective order, the district court must independently determine if "good cause" exists. See id.
Plaintiff has submitted an affidavit of Jack Muse, its president, to show that the materials requested by Defendants are confidential. Some of the requested materials include financial records, sales reports, reports relating to suppliers, contract arrangements. Muse swears that if this information is disclosed to Plaintiff's competitors, Plaintiff would be put at a competitive disadvantage because Plaintiff's competitors could approach his suppliers, transporters and customers and out bid Plaintiff.
Based on this evidence, the Court finds that the information sought are trade secrets, e.g., Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., 784 F.2d 1325, 1345 (7th Cir. 1986) (pricing information), and that there is good cause to enter a protective order to prevent disclosure of the confidential information.
Defendants agree that a protective order should be entered, but disagree as to the scope of the proposed order submitted by Plaintiff.
However, the parties disagree as to the content of the stipulated protective order. Specifically, the parties dispute whether the Court should include a sentence which would limit the use of the disclosed information to this litigation only. Defendants have dubbed this as an "anti-competition" clause.
There are two versions of this sentence proposed to the Court. First, in Exhibit A attached to Plaintiff's memoranda, the clause is included in paragraph 2 of the stipulated protective order. That sentence states "[c]onfidential documents or information shall be used by the parties solely for the purposes of litigation and not for competitive or regulatory purposes." The second version appears in Exhibit E: "This Order shall in no way inhibit or limit the parties from engaging in competition with each other with regard to dairies, farmers or other business entities, but all confidential discovery material and the information contained therein or derived from may be used solely for the purpose of this action and may not be used for any other purpose, including, without limitation, any competitive purpose." Defendants argue that this phrase would be a "restraint on trade" and "certainly would not withstand an analysis under Federal Anti-Trust Laws." This argument, for obvious reasons, is without merit.
According to the written communications between the parties and Defendant's Response to the Motion, Defendants object to the sentence because they believe it is meant to stifle competition and perpetuate litigation between the parties. Defendants argue that the protective order should be narrowly drawn to prevent disclosure of confidential information to parties unrelated to the litigation.
Defendants' first argument is that the text of Rule 26(c)(7) does not support Plaintiff's position that an "anti-competition" provision should be included in the protective order. While it is true that the text of the Rule allows the Court to control how and whom the information can be disclosed, it does not expressly provide the Court with the ability to enter an order which dictates or controls the use of such confidential information. However, the Court finds that the authority to control how the information used is necessary to effectively further the goal behind Fed.R.Civ.P. 26(c). The rule was designed to balance the privacy interest of litigants against public disclosure. See e.g., Citizens First Nat'l Bank of Princeton v. Cincinnati Ins. Co., 51 F.3d 943, 944-45 (7th Cir. 1999); American Tel. Tel. Co. v. Grady, 594 F.2d 594, 596 (7th Cir. 1978); Oklahoma Hosp. Ass'n v. Oklahoma Pub. Co, 748 F.2d 1421, 1424 (10th Cir. 1984). Limiting use of certain discovery materials appear to be a logical extension for the Court to fully protect the privacy interest of a litigant. As such, Congress gave the courts the power to order disclosure "in a designated way," Fed.R.Civ.P. 26(c)(7), and to order that discovery be had "only on specified terms and conditions," Fed.R.Civ.P. 26(c)(2). The Court finds that a broad reading of this language allows the Court to dictate and control use of disclosed information. Therefore, the Court rejects Defendants' first argument and will address the issue raised in this motion.
The Court is unaware of a single case which has directly addressed the issue of whether the Court can control use of information under the Rule.
Initially, it is important to note that there are two evils which the parties are seeking to protect against: the disclosure of confidential information to outside parties (especially to competitors), and the use of such information to the disadvantage of the parties. The Court can effectively prevent disclosure of confidential information to outside parties by limiting the disclosure to the litigants in this case. As noted before, the Court finds that there is good cause to limit disclosure only to the parties involved in this suit.
A complicating factor in this case is that the Southwest and Nutrition are competitors in the same market. Thus, even allowing disclosure of confidential business information to the other litigant would somewhat put each party at a competitive disadvantage to each other, if the confidential information can be used to further the respective parties' business. Accordingly, the Court finds that limiting the use of the confidential information disclosed only to purposes related to this litigation is necessary to protect the competitive advantage of each party.
The Court is mindful of Defendants' argument that the inclusion of the abovementioned sentence may result in either additional litigation between the parties, or the complete elimination of competition between Southwest and Nutrition. The Court finds this argument to be speculative at best. With regard to whether this protective order would cause additional litigation between the parties-presumably to litigate whether each party violated the protective order-the Court finds the District Court's contempt power and protections afforded in Rule 11 sufficient to deter frivolous allegations of a violation. Moreover, the Court finds that even the exclusion of the provision as suggested by the Defendants, would do nothing to negate the alleged "litigiousness" of Plaintiff. With respect to the killing of competition, the Court seriously doubts if it is possible for both parties to avoid competing with each other since they are in the same industry.
Accordingly, Plaintiff's Motion for Protective Order is allowed. Parties are to submit a clean copy of the proposed protective order by January 18, 2000.
III. Motion to Compel Answers to Interrogatories
During the course of discovery, Southwest served upon Nutrition, and Nutrition answered, the following interrogatories:
INTERROGATORY NO. 2. During the life of the joint venture agreement from May of 1989 to September 16, 1993 state the name and addresses of all customers to whom Nutrition 101 and Ross Peter sold liquid feed that was not whey sold pursuant to the joint venture, and the quantity and type of liquid feed sold.
ANSWER: Objection. Irrelevant, immaterial, not calculated to lead to admissible evidence. The Joint Venture Agreement did not restrict Nutrition 101 from marketing other liquid feeds.
INTERROGATORY NO. 3. During the life of the joint venture agreement from May of 1989 to September 16, 1993 state the names and addressed of all customers to whom Nutrition 101 and Ross Peter sold dry feed, and the quantity and type of dry feed sold.
ANSWER: Objection. Irrelevant, immaterial, not calculated to lead to admissible evidence.
INTERROGATORY NO. 14. After September 16, 1993, state the name and address of all dairies Nutrition 101 and Ross Peter contacted to enter into agreements for the marketing of whey, and the names and addresses of all dairies that Nutrition 101 and Ross Peter entered into a contract with for marketing of whey.
ANSWER: Objection. Irrelevant, immaterial, not calculated to lead to admissible evidence. Southwest Whey terminated the Joint Venture Agreement on September 16, 1993. The information sought is proprietary and confidential because Southwest Whey is currently a business competitor of Nutrition 101.
Southwest seeks to compel answers to these interrogatories.
Plaintiff also seeks Defendants to answer interrogatories 2, 3 and 14, as recited supra. In sum, Interrogatories 2 and 3 seek names and addresses of customers of liquid and dry feed that Defendants sold to during the duration of the joint venture, and Interrogatory 14 seeks names of all dairies with whom Defendants contacted in order to enter into a contract to market whey.
With respect to No. 2, Defendants argue that the information is irrelevant to any issues in this case. Specifically, they argue that under the Joint Venture agreement, Defendants were allowed to pursue marketing of other products besides whey. Hence, they argue, that evidence is unrelated to Plaintiff's claim of breach of the joint venture. The Court disagrees.
First, under the terms of the Joint Venture, Nutrition was obligated to provide a market for the sale of whey. And, as joint venturers, Nutrition was obligated to carry out the interest of the joint venture with the utmost loyalty-fiduciary duty-and not put its own interests in favor of the joint venture's. See Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928) (Cardozo, C.J.); see also, Newton v. Aitken, 633 N.E.2d 213, 218 (Ill.App. 1994) ("Under Illinois law, a fiduciary relationship exists between partners and joint venturers, thereby requiring them to act with good faith and loyalty toward one another.");GCM, Inc. v. Kentucky Central Life Ins. Co., 947 P.2d 143, 150 (N.M. 1997). Thus, even if the Joint Venture agreement did not expressly prohibit marketing of other products, marketing other products, instead of whey on behalf of the joint venture, could be a breach of fiduciary duty imposed on Defendants as a result of the contract. The evidence sought is relevant to Plaintiff's Count I.
Accordingly, Defendants are ordered to answer interrogatory number 2.
With respect to No. 3, Defendants state that they sold the dry feed business in 1995 and the information sought in this interrogatory is covered by a confidentiality agreement with the purchaser. However, in the written correspondence between the parties, Defendants do not mention the confidentiality agreement. Had Defendants mentioned the confidentiality agreement sooner, as required by Fed.R.Civ.P. 26(c)(5), Plaintiff could have withdrawn, or reworded the request in order to not violate the agreement, or to assess the applicability of the agreement. Moreover, Defendants do not attach a copy of the confidentiality agreement in order for the Court to examine its scope.
To that extent, the Court finds that Defendants have not participated in discovery in good faith, and directs Defendants to closely read and comply with all discovery rules in the future.
As noted previously, the Court finds the information sought in interrogatory number 3 to be relevant. Thus, the Court orders Defendants to answer interrogatory number 3.
Lastly, with regard to No. 14, Defendants argue that the information sought in this interrogatory, which relate to customers of Nutrition after the termination of the joint venture, is proprietary, and irrelevant. Moreover, they argue that since Plaintiff has alleged in good faith belief (as required by Rule 11) that Defendants interfered with dairies, it already has names and addresses of dairies that have changed relationships with Plaintiff. However, Defendants are willing to provide the names of the dairies Nutrition contacted after September 16, 1993 that were formerly suppliers to the joint venture, but no others.
With regard to the proprietary argument, the Court finds that this argument is mooted by the protective order that will be entered in this case. Next, the Court does find that the names of the dairies contacted after the termination of the joint venture to be relevant to Plaintiff's claim of interference with prospective advantage. Also, even if Plaintiff may have some of the names of dairies, the complaint, as alleged, states that Defendants interfered with Plaintiff's business prospects. See Complaint, ¶ 31. Thus, names of other dairies contacted by Defendants after September 16, 1993 is also relevant to this suit.
Accordingly, the Court orders Defendants to fully comply with the discovery request as stated in Interrogatory 14.
Wherefore, Plaintiff's Motion for Protective Order (d/e 31-1) is allowed. Parties are to submit a clean copy of the proposed protective order by January 18, 2000. Plaintiff's Motion to Compel Answers to interrogatories (d/e 31-2) is allowed. Defendants directed to comply with the requests as stated in the Interrogatories on or before January 28, 2000.
The Court sua sponte extends the fact discovery deadline to March 15, 2000.