Sec. and Exch. Comm'n v. TheStreet.Com

Citation273 F.3d 222
Decision Date01 August 2000
Docket NumberINTERVENOR-PLAINTIFF-APPELLEE,THIRD-PARTY,Docket No. 01-6078,DEFENDANT-APPELLANT
Parties(2nd Cir. 2001) SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, NEW YORK STOCK EXCHANGE, INC.,, v. THESTREET.COM,, RICHARD A. GRASSO, EDWARD A. KWALWASSER, BRIAN M. MCNAMARA, AND ROBERT J. MCSWEENEY,DEFENDANTS, OAKFORD CORPORATION, EDWARD J. MUEGER, INC., MFS SECURITIES CORP., OAKFORD SECURITIES, INC., D'ALESSIO SECURITIES, INC., WILLIAM KILLEEN, THOMAS W. BOCK, THOMAS J. CAVALLINO, EDWARD J. MUEGER, MARK R. SAVARESE, JOHN J. SAVARESE, AND JOHN R. D'ALESSIO, DEFENDANTS, BLOOMBERG L.P. AMICUS CURIAE
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Appeal from an order of the United States District Court for the Southern District of New York (Jed S. Rakoff, Judge) granting intervenor-plaintiff-appellee TheStreet.com, an on-line business news service, access to certain portions of two deposition transcripts that had previously been sealed by the District Court. The Court of Appeals here considers the appropriate standard to be applied by a court in deciding whether to modify or vacate a protective order it has entered in a civil lawsuit In the particular circumstances presented here, the order of the District Court is affirmed.

Debra M. Torres (Harvey L. Pitt, Daniel E. Loeb, on the brief), Jay Majors, Laura Sulem, Counsel, Fried, Frank, Harris, Shriver & Jacobson, New York, Ny, for Third-Party Defendant-Appellant New York Stock Exchange, Inc.

Robert L. Raskopf, White & Case Llp, New York, Ny, for Intervenor-Plaintiff-Appellee TheStreet.Com.

Richard L. Klein, Thomas H. Golden, Charles J. Glasser, Jr., Willkie Farr & Gallagher, New York, Ny, for Amicus Curiae Bloomberg L.P.

Before: Cabranes, F.I. Parker, and Sotomayor, Circuit Judges.

Jose A. Cabranes, Circuit Judge

We consider here the appropriate standard to be applied by a court in deciding whether to modify or vacate a protective order it has entered in a civil lawsuit.

Third-party defendant-appellant New York Stock Exchange, Inc. ("NYSE") appeals from an order filed on April 11, 2001 by the United States District Court for the Southern District of New York (Jed S. Rakoff, Judge) granting the motion of intervenor-plaintiff-appellee TheStreet.com ("TSC"), an on-line business news service, to obtain access to certain portions of two deposition transcripts that had previously been sealed by the District Court. On appeal, NYSE argues that the Court erred by modifying its previously-entered protective order. For the reasons stated below, we affirm the order.

I.

In 1998, federal authorities arrested, and a grand jury in the Southern District of New York indicted, ten stock brokers and brokerage officials for sharing profits on the trading floor of the NYSE, in violation of 15 U.S.C. §§ 78k & 78ff. In February 1998, while the criminal charges were still pending, the Securities and Exchange Commission ("SEC") filed a civil complaint pursuant to 15 U.S.C. § 78k(a) against the same defendants based on the illegal trading scheme that was the subject of the criminal charges. In the summer of 1998, the Court dismissed the SEC complaint without prejudice pending resolution of the criminal charges brought against those defendants and others. In March 2000, after the criminal charges against one of the brokers, defendant John D'Alessio, were dropped, and the remaining defendants pleaded guilty to the charges against them, the SEC revived its parallel civil complaint against D'Alessio and his company, D'Alessio Securities Inc. (collectively, "D'Alessio"). The SEC alleged that D'Alessio had engaged in illegal trading activities from 1993 to 1998, in violation of federal securities laws.

D'Alessio responded by filing an answer and a third-party complaint against the NYSE, in which he contended that the NYSE and four of its officers-Richard A. Grasso, Edward A. Kwalwasser, Robert J. McSweeney, and Brian McNamara (collectively, the "Officers")-were aware of, and encouraged, illegal trading activities on the exchange floor.

The SEC moved to strike ten of D'Alessio's thirteen affirmative defenses. The NYSE and the Officers moved to dismiss the entire third- party complaint. By two orders dated September 29, 2000, the District Court granted both motions. The District Court concluded that the NYSE and its employees had absolute immunity from claims arising from their performance of regulatory activities. Because D'Alessio's third-party complaint was based on such activities, the District Court dismissed that complaint. The Court also granted the SEC's motion to strike certain of the affirmative defenses pursuant to Federal Rule of Civil Procedure 12(f).1 D'Alessio continued to assert defenses in the SEC's civil action, contending that the claim was barred by the statute of limitations, failed to state a claim upon which relief can be granted, and failed to allege fraud with the requisite particularity.

On October 24, 2000, the District Court entered a Protective Order Governing Discovery ("October 2000 Order") to which the NYSE, the Officers, and D'Alessio (but not the SEC) had stipulated. Under the October 2000 Order, each party had the right to designate material as "confidential information" if it believed in good faith that the material should be so classified. Pursuant to the terms of the October 2000 Order, "[d]ocuments or other materials containing confidential information shall not be filed with the Court except when required by Court rules or in connection with motions or other matters pending before the Court." The District Court noted, however, that it was "unlikely to afford confidential treatment to any discovery material otherwise covered by this order that is received in evidence at trial."

By November and early December 2000, Kwalwasser and William R. Johnston (another NYSE official) had provided deposition testimony at the demand of D'Alessio, who claimed that he needed their testimony to establish his remaining affirmative defenses in the SEC litigation. Believing that portions of these depositions contained sensitive information, the NYSE marked certain sections as confidential ("Confidential Testimony").

At some point in December 2000, the NYSE learned that a partially confidential deposition of Grasso, one of the Officers, including references to the Confidential Testimony of Kwalwasser and Johnston, had been disclosed to the press. The NYSE then moved "for enforcement of the October 24 Order or, in the alternative, for prospective relief in the form of an order under Federal Rule of Civil Procedure 26(c), ordering the future protection of the Confidential Testimony."2

On January 4, 2001, the District Court considered the motion, after closing the courtroom.3 The District Court first considered whether the Confidential Testimony was covered by the October 2000 Order:

I need to hear from you... why the [October 2000 Order] applies at all, given the fact that [at] the deposition... at least two parties who [were] not signatories to the protective order [were present]... [I]t would seem on its face... that [the SEC and MFS Securities'] presence waive any claim of confidentiality that might otherwise attach.

The Court then "tentatively [held] that there was no violation of the [October 2000] protective order." Next, the Court found that the Confidential Testimony contained sensitive information, and it indicated that it would issue a written protective order precluding disclosure of the Confidential Testimony. Accordingly, on January 24, 2001, the Court entered a protective order ("January 2001 Order") pursuant to Federal Rule of Civil Procedure 26(c) ("Rule 26(c)"), sealing the Confidential Testimony. The Court anticipated a trial date of early March or April 2001, but no date had been set as of January 4, 2001.

On March 14, 2001, TSC moved to intervene under Federal Rules of Civil Procedure 24(a) and 24(b) to gain access to the sealed Confidential Testimony.4 TSC argued that the public had a strong interest in having access to the Confidential Testimony because, in TSC's view, it related to the interaction between the SEC and the NYSE, two quasi-governmental agencies. After oral argument on April 10, 2001, the District Court granted the motion to intervene and ordered the Confidential Testimony unsealed:

[N]ot withstanding the strong arguments made by counsel for the [NYSE] and counsel for the SEC and the court's own prior finding of good cause, I think there is a new balance that must be drawn now and that warrants the unsealing of those portions of the depositions that this court previously sealed.

In making this ruling, the District Court noted that "I don't think it is accurate to say that the interests of the intervenor were meaningfully represented at that hearing where I made my previous finding of good cause...." In light of TSC's arguments, the District Court held that there was a strong public interest in the information contained in the Confidential Testimony. Although the Court stated that disclosure of the Confidential Testimony would probably result in "some needless reputational harm," it concluded that "there [was] a specific nonconclusory [sic] relevant interest that the media might have in those depositions relating to the interaction of the SEC and the [NYSE] that outweigh[ed] [that] possible reputational harm." Accordingly, the Court ordered the Confidential Testimony unsealed and disclosed to TSC.5 However, the Court stayed its order to afford the NYSE an opportunity to appeal. On April 16, 2001, the Court entered a Stipulation and Order maintaining the status quo pending appeal of the Court's order to unseal the Confidential Testimony.

The NYSE appeals the District Court's order unsealing the Confidential Testimony. It argues that the District Court erred as a matter of law in unsealing the Confidential Testimony because (1) the...

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