CUTSFORTH, INC. v. LEMM LIQUIDATING COMPANY, LLC

• Court: District Court, W.D. Pennsylvania
• Decided: February 18, 2020
• Docket: 2:17-cv-01025
• Status: Unknown

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA CUTSFORTH, INC., ) ) Plaintiff, ) Civil Action No. 17-1025 ) v. ) Judge Cathy Bissoon ) LEMM LIQUIDATING ) COMPANY, LLC, et al., ) ) Defendants. ) MEMORANDUM ORDER I. Background On November 16, 2019, this Court issued an Order to Show Cause (Doc. 593) to the Parties to show cause as to why materials previously sealed or redacted in this matter should not be unsealed or un-redacted pursuant to the Third Circuit’s ruling in In re Avandia Marketing Sales Practices & Products Liability Litigation, 924 F.3d 662, 670-73 (3d. Cir. 2019). The Parties filed a Joint Response to Order to Show Cause (Doc. 596, “Response”) on December 13, 2019. In the Response, Defendants state that there is no longer a need for any materials filed under seal or redacted to remain under seal or remain redacted. Plaintiff, however, argues that certain materials, identified in Exhibit A attached to the Response, should remain under seal or redacted. Specifically, Plaintiff states that these materials relate to its confidential financial or customer information, such as costs, pricing, revenues, and profitability related to one of its products. Response at 2. Plaintiff argues that “public disclosure of this information would cause substantial harm to [its] competitive position in the marketplace, including harm to its negotiating position with customers and its positioning with respect to competitors.” Id. According to Plaintiff, this harm can rebut the presumption of public access to judicial materials and the First Amendment right of access to civil trial materials, discussed in Avandia. Id. II. Applicable Standards

Based on Avandia, this Court must articulate “compelling, countervailing interests to be protected” and “make specific findings on the record concerning the effects of disclosure” and “provide an opportunity for interested third parties to be heard” in order to overcome the common law right of access. 924 F.3d at 672-73 (internal quotations and citations omitted). Further, while the Third Circuit in Avandia declined to extend the First Amendment right of public access to summary judgment records when the common law right of access is sufficient, it noted that if a district court determined that any documents should remain sealed under the right of public access, that court must then consider whether the First Amendment right attaches. Id. at 673, 680. Neither party disputes that the documents in question constitute judicial records and are

subject to the common law of access. In determining whether the First Amendment right attaches, a court must use a two-prong test: (1)whether the place and process have historically been open to the press; and (2)whether public access plays a significant positive role in the functioning of the particular process in question. Id. at 673 (internal quotations and citations omitted). The Court agrees with Plaintiff’s briefing that the First Amendment right attaches here, and that the redactions it requests must also survive the First Amendment right of public access, if the Court finds that the redactions must be protected from the common law right of access.

2 The Court finds that Plaintiff’s requests for redactions are compelling enough to overcome the common law right of public access.1 Plaintiff has asked for specific data related to product pricing (such as price differentials, average selling price and discounts), profit margins, costs of manufacturing, number of units sold and customer lists to be redacted, as such

information is not disclosed to the public by Plaintiff, and disclosure of these specific pieces of information would materially harm Plaintiff’s negotiating position in the marketplace. This, the Court finds, is a “compelling, countervailing interest[] to be protected.” Avandia, 924 F.3d at 672. As the Court has found that Plaintiff’s requests for redactions meets the standard to remain sealed under the common law right of access, the Court must now determine whether the information should remain sealed under the First Amendment right of access. When the First Amendment right attaches, “[a]ny restriction on the right of public access is evaluated under strict scrutiny” and a party may only rebut the presumption in favor of access by “demonstrat[ing] an overriding interest [in excluding the public] based on findings that closure is essential to preserve higher values and is narrowly tailored to serve that interest.” Id.

The party seeking to seal the information, in this case Plaintiff, “bears the burden of showing that the material is the kind of information that courts will protect and that there is good cause for the order to issue.” Publicker Indus., Inc. v. Cohen, 733 F.2d 1059, 1071 (3d Cir. 1984). In this Circuit, “an interest in safeguarding a trade secret may overcome a presumption of openness.” Publicker, 733 F.2d at 1073. While Plaintiff does not characterize the information that it seeks to redact as trade secrets, that does not limit the Court’s ability to consider whether that may be the appropriate method by which to analyze Plaintiff’s information.

1 The Court makes its specific findings in the chart that follows in Section III of this Order. 3 The Court finds the reasoning in another case in this District cited by Plaintiff to be informative in determining what constitutes a trade secret or may overcome the presumption of the First Amendment right of access. In Cole’s Wexford Hotel, Inc. v. Highmark, Inc., the Special Master found that disclosure of a party’s customer lists would cause the company to

suffer “irreparable harm” sufficient to override any compelling public interest in the materials. 2019 WL 7606242, at *25 (W.D. Pa. Dec. 19, 2019) adopted by and modified by 2020 WL 337522 (W.D. Pa. Jan. 21, 2020) (adopting the Special Master’s recommendation in full, subject to the insertion of two sentences to a portion of the recommendation unrelated to sealing). As in Cole’s Wexford, the Court finds here that disclosure of Plaintiff’s customer’s list would “materially harm [its] competitive position in the marketplace” by providing its competitors with a list “to compete with or to contact for potential competition.” Response at Ex. A, p. 12. The Court next addresses Plaintiff’s redaction request as to information related to the pricing of its product, which include the following: the price differential between its product and Defendant’s product, the average selling price of its product, pricing discounts on the product,

cost of manufacturing the product, other revenue or profit information on the product and number of sales of the product.2 The Court again finds the analysis in Cole’s Wexford informative. There, the Special Master found that data such as claims data constituted trade secrets.3 Claims data, in that context, meant details about pricing and rates for services for each

2 The Court notes that, after careful review of each of Plaintiff’s proposed redactions, that the type of information requested can be categorized in this way and thus can receive the same type of analysis, although the actual numbers may differ. As noted in Footnote 1, this is detailed in the attached chart. 3 Pennsylvania Uniform Trade Secrets Act, 12 Pa. C.S.A. §§ 5302 defines trade secrets as: Information, including a formula, drawing, pattern, compilation including a customer list, program, device, method, technique or process that: 4 of one of the party’s payors. Cole’s Wexford, 2019 WL 7606242, at *26. The party requesting sealing noted that it used this data in negotiations in contracts and that it would be “severely prejudice[d]” if the information were made publicly available, as its competitors could use that data to “extract a better deal and increased rates from payors” and also that its insurance

company payors could use that information to negotiate lower rates in their contracts. Id. The Special Master also found that negotiated reimbursement rates are highly negotiated and confidential and are individualized from customer to customer, making them the type of confidential commercial information that courts protect. Id. at 26-28. As a result, disclosure of these rates would cause serious injury, inflicting a significant threat to each company’s negotiating abilities. Similarly, Plaintiff argues that it does not public disclose pricing information on its product, and that it sells its product at different rates to different customers and customer groups. See, e.g., Response at Ex. A, p. 6. Further, disclosure of the number of units sold or the price differential between Plaintiff’s product and Defendant’s product would enable competitors to

discover the average price sold. Id. at 7, 9. Plaintiff argues that disclosure of this information would harm its negotiating position in the marketplace with its customers and also give its competitors an advantage when seeking to sell their products to Plaintiff’s customers. Id. Plaintiff also argues that it does not publicly disclose information about manufacturing costs, as

(1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 5 that would provide competitors insight into its profit margins, which would again harm Plaintiff’s negotiating position in the market and provide its competitors with an unfair advantage. Id. at 10-11. The Court finds that this information derives independent economic value from not being

generally known by others who can obtain economic value from its disclosure, and is subject to efforts that are reasonable under the circumstances to maintain its secrecy. Plaintiff has shown that this information is the type of information that courts seek to protect, demonstrated its overriding interest in excluding the public from this information because of the potential harm it may suffer and narrowly tailored its objections by seeking only to redact or seal the specific information that would cause the harm. As the Court has found that the requested redactions constitute confidential information that courts seek to protect, such as trade secrets, they may be safeguarded against the First Amendment right of access. III. Specific Findings The Court makes an individualized analysis of each proposed redaction or seal request as

follows:

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6 THE COURT’S FINDINGS ON CUTSFORTH’S CONFIDENTIALITY DESIGNATIONS

Request Docket Description Confidential Materials Rationale for Continued Sealing No. No. 1 232 Defendants’ Price differential between The specific references to the price Memo re Motion EASYchange and FC-101 (p.1, differential between Plaintiff’s product for Summary 13, 14); average selling price of and Defendant’s product are Judgment of No EASYchange (p. 13) confidential information of the type that Lost Profits courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. The specific number provided by Plaintiff’s expert on the average selling price may be redacted because the average selling price can be considered a trade secret under the relevant statutory authority in Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. 7 2 273, Exhibit W Cutsforth Strategic Selling price and units sold of The specific number provided on the Sales/Marketing Plan EASYchange (p. 15) average selling price may be redacted because the average selling price can be considered a trade secret under the relevant statutory authority in Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific number provided on the units sold may be redacted because that can be used to calculate the average selling price of Plaintiff’s product, which can be considered a trade secret, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. 8 3 277, Exhibit Y Excerpts of Expert Average selling price, profit The specific number provided on the Report of Elizabeth margin of EASYchange (p. average selling price may be redacted Dean Regarding 39) because the average selling price can Damages be considered a trade secret under the relevant statutory authority in Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific number provided on the profit margin may be redacted because that can be used to calculate the average selling price of Plaintiff’s product, which can be considered a trade secret, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. 9 4 327 Cutsforth Memo in Selling price and average The specific numbers provided on the Opposition to price of EASYchange, price average selling price or selling price Defendants’ Motion differential between FC-101 for different categories of sales may for Summary and EASYchange (p. 16) be redacted because the average Judgment of No Lost selling price can be considered a Profits trade secret under the relevant statutory authority in Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific references to the price differential between Plaintiff’s product and Defendant’s product are confidential information of the type that courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. 10 5 339, Exhibit 12 Excerpts of Expert Cutsforth’s pricing discounts The specific numbers provided on the Report of Elizabeth and average EASYchange average selling price and pricing Dean Regarding price (p. 31); Cutsforth profit discounts may be redacted because Damages margin on brush sales and they can be considered trade secrets installation fees (p. 32); under the relevant statutory authority pricing/revenue/profit tables in Pennsylvania, as the information for EASYchange (schedules has independent economic value 2-3) from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific references to Plaintiff’s profit margin, pricing, revenue, and profit are confidential information courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. 11 6 343, Exhibit 14 Cutsforth Cost information of The specific references to EASYchange EASYchange holder and parts Plaintiff’s costs are confidential manufacturing quote information of the type that courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. 7 344, Exhibit 15 Cutsforth customer list List of customers, pricing, and Plaintiff’s customer list is the type and sales data net value details of confidential information of the type that courts seek to protect, and Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. 8 N/A Defendants’ Memo re Price differential between The specific references to the price Motion for Summary EASYchange and FC-101 differential between Plaintiff’s Judgment of No Lost (p.1, 11, 12); average selling product and Defendant’s product Profits price of EASYchange (p. 11) are confidential information of the type that courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. The specific numbers provided on the average selling price may be redacted because the average selling price can 12 be considered a trade secret under the relevant statutory authority in Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed.

9 N/A Defendants’ SOF re Average EASYchange selling The specific numbers provided on the Motion for Summary price (¶ 47) average selling price may be redacted Judgment of No Lost because the average selling price can Profits be considered a trade secret under the relevant statutory authority in Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed.

13 10 N/A Cutsforth Memo in Selling price and average The specific numbers provided on the Opposition to price of EASYchange, price average selling price or selling price Defendants’ Motion differential between FC-101 may be redacted because the average for Summary and EASYchange (p. 18) selling price can be considered a Judgment of No Lost trade secret under the relevant Profits statutory authority in Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific references to the price differential between Plaintiff’s product and Defendant’s product are confidential information of the type that courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. 14 11 N/A Cutsforth SOF in Average EASYchange The specific numbers provided on the Opposition to selling price (¶ 47) average selling price may be redacted Defendants’ Motion because the average selling price can for Summary be considered a trade secret under the Judgment of No Lost relevant statutory authority in Profits Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed.

12 N/A Defendants’ Daubert Price differential between The specific references to the price Motion re Elizabeth EASYchange and FC-101 differential between Plaintiff’s Dean (p. 3, 4, 5); average selling product and Defendant’s product are price of EASYchange (p. 3) confidential information of the type that courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure.

The specific numbers provided on the average selling price may be redacted because the average selling price can be considered a trade secret under the relevant statutory authority in Pennsylvania, as the information has independent economic value from not 15 being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed 13 N/A Exhibit W to Selling price and units sold of The specific number provided on the Defendants’ Lost EASYchange (p. 15) average selling price may be redacted Profits Summary because the average selling price can Judgment Motion - be considered a trade secret under the Cutsforth Strategic relevant statutory authority in Sales/Marketing Plan Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific number provided on the units sold may be redacted because that can be used to calculate the average selling price of Plaintiff’s product, which can be considered a trade secret, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. 16 14 N/A Exhibit Y to Average selling price, profit The specific numbers provided on the Defendants’ Lost margin of EASYchange (p. average selling price may be redacted Profits Summary 39) because the average selling price can Judgment Motion - be considered a trade secret under the Excerpts of Expert relevant statutory authority in Report of Elizabeth Pennsylvania, as the information has Dean Regarding independent economic value from not Damages being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific references to Plaintiff’s profit margin are confidential information courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. 17 15 N/A Exhibit 2 to Price differential between The specific references to the price Cutsforth’s Motion EASYchange and FC-101 and differential between Plaintiff’s to Exclude – average selling price (p. 5, 39, product and Defendant’s product are Expert Report of 41, Figure 5, Figure 11); confidential information of the type Carl Degen on Cutsforth profit margin that courts seek to protect, and that Damages information (p. 42, 43, 44) Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. The specific numbers provided on the average selling price may be redacted because the average selling price can be considered a trade secret under the relevant statutory authority in Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific references to Plaintiff’s profit margin are confidential information courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. 18 16 N/A Exhibit A to Cutsforth’s pricing discounts The specific numbers provided on the Defendants’ and average EASYchange average selling price and pricing Daubert Motion re price (p. 31); Cutsforth profit discounts may be redacted because Elizabeth margin on brush sales and they can be considered trade secrets Dean – Excerpts of installation fees, and costing under the relevant statutory authority Expert Report of information (p. 32-34) in Pennsylvania, as the information Elizabeth Dean has independent economic value Regarding from not being generally known and Damages is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific references to Plaintiff’s profit margin and fees and costs are confidential information courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. 19 17 N/A Exhibit 1 to Cutsforth’s pricing discounts The specific numbers provided on the Cutsforth’s Opposition and average EASYchange average selling price and pricing to Defendants’ Lost price (p. 31, 39, 42, 47); discounts may be redacted because Profits Summary Cutsforth profit margin on they can be considered trade secrets Judgment Motion – brush sales and installation under the relevant statutory authority Expert Report of fees (p. 32-34, 39, 41, 47); in Pennsylvania, as the information Elizabeth Dean pricing/revenue/profit tables has independent economic value Regarding Damages for EASYchange (schedules from not being generally known and 2-3) is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. The specific references to Plaintiff’s profit margin, pricing, revenue, and profit are confidential information courts seek to protect, and that Plaintiff has demonstrated that it would suffer specific harm to its negotiation position in the marketplace from its disclosure. 20 18 587 Sealed Summary EASYchange average sales The specific numbers provided on the Judgment Order price (p. 24) average selling price may be redacted because they can be considered trade secrets under the relevant statutory authority in Pennsylvania, as the information has independent economic value from not being generally known and is subject to efforts reasonable under the circumstances to maintain its secrecy, making it the type of information that courts are likely to protect and causing harm to Plaintiff if disclosed. [The rest of this page is intentionally left blank]

21 IV. Order The Court finds that Plaintiff has shown good cause as to why the proposed redactions should remain under seal. Plaintiff shall file redacted versions of the relevant documents pursuant to the Court’s findings by February 25, 2020. Consistent with the foregoing, all of

Defendants’ materials previously filed under seal or with redactions will no longer be sealed or redacted. IT IS SO ORDERED. February 18, 2020 s\Cathy Bissoon Cathy Bissoon United States District Judge cc (via ECF email notification): All Counsel of Record