SUPERIOR COURT OF THE STATE OF DELAWARE PAUL R. WALLACE NEW CASTLE COUNTY COURTHOUSE JUDGE 500 N. KING STREET, SUITE 10400 WILMINGTON, DELAWARE 19801 (302) 255-0660
Date Submitted: May 19, 2022 Date Decided: June 6, 2022
Theodore A. Kittila, Esq. Eric M. George, Esq. James G. MacMillan, III, Esq. Kim S. Zeldin, Esq. HALLORAN FARKS + KITTILA LLP BROWNE GEORGE ROSS LLP Wilmington, Delaware Los Angeles, California
Robert K. Beste, Esq. Marvin S. Putnam, Esq. Jason Z. Miller, Esq. Jessica Stebbins Bina, Esq. Smith, Katzenstein & Jenkins LLP R. Peter Durning, Jr., Esq. Wilmington, Delaware LATHAM & WATKINS LLP Los Angeles, California
RE: Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. No19C-11-092
Dear Counsel:
This Letter Order addresses the Defendants’ Exceptions to the Special
Master’s May 6, 2022 Ruling on Surf’s Up Motion to Maintain Highly Confidential
Designations (D.I. 210). For the reasons explained below, the Exceptions are
OVERRULED and the Special Master’s Ruling is ADOPTED. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 2 of 17 I. FACTUAL AND PROCEDURAL BACKGROUND
A. THE CONFIDENTIALITY ORDER
After the Special Discovery Master entered this case in March 2021,1 the
parties stipulated to a Confidentiality Order in April 2021.2
The Confidentiality Order allows a Producing Party to designate any
Discovery Material as “Confidential” if such party in good faith believes that such
Discovery Material contains non-public, confidential, proprietary, or commercially
sensitive information and that good cause exists for confidential treatment. “Good
cause” for confidential treatment exists only if the public interest in access to Court
proceedings is outweighed by the harm that public disclosure of sensitive, non-
public information would cause.
Alternatively, any Producing Party may designate any Discovery Material as
“Highly Confidential” if such party in good faith reasonably believes that disclosure
of the Discovery Material other than as permitted pursuant to Paragraph 6 of the
Order is substantially likely to cause injury to the Producing Party and that
designation of such Discovery Material as Confidential Discovery Material would
1 D.I. 88; see also Order of Reference to Special Discovery Master (D.I. 96); Entry of Appearance of Michael A. Weidinger (D.I. 120). 2 Confidentiality Order (D.I. 127). Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 3 of 17 be insufficient to protect the interests of the Producing Party. Paragraph 6 provided
the limited classes of individuals to whom Highly Confidential Discovery Material
may be disclosed. In effect, Highly Confidential functions as an “attorneys’ eyes
only” designation, precluding disclosure to the parties’ principals and limiting it to
counsel (including in-house counsel) and those working with such counsel on the
case, among others necessary for the normal prosecution of litigation.
Finally, the Order provided that Superior Court Civil Rule 5(g) shall govern
all challenges to a Party’s designation of documents or information as Confidential
or Highly Confidential. Under Civil Rule 5(g), good cause must be shown to
maintain documents under seal.3
B. CURRENT DISCOVERY DISPUTE
On March 11, 2022, Defendants Virgin Fest, LLC, VFLA Eventco, LLC, and
KSD Ownco, LLC challenged “plaintiffs’ and counterclaim defendants’ designation
of any and all documents as highly confidential under the Court’s April 21, 2021
confidentiality order.”4 In response, Plaintiffs and Counterclaim Defendants
(collectively, Surf’s Up”) filed a Motion to Maintain Highly Confidential
3 See Del. Super. Ct. Civ. R. 5(g). 4 Challenge to Designation of Documents as Highly Confidential (D.I. 199). Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 4 of 17 Designations on March 22, 2022.5 The Special Master heard argument on April 8,
2022.6
On May 6, 2022, the Special Master issued a written decision resolving the
Motion.7 As background, the Special Master explained that Surf’s Up had
previously sought to redact the names of its investors from documents it produced
to Virgin Fest, which the Special Master rejected in favor of allowing Surf’s Up to
designate the material as it saw fit in good faith in accordance with the
Confidentiality Order—a ruling the Court upheld over Surf’s Up’s objections.8 With
exceptions described as inadvertent mistakes due to the large volume of production,
Surf’s Up designated documents disclosing the identity of its investors as Highly
Confidential. Virgin Fest’s challenge sought to re-classify the documents as
Confidential, which would allow them to be shared generally within the Virgin Fest
organization including its “directors, officers, employees, general partners, and
limited partners of the Parties, or any subsidiary or affiliate thereof.”9
5 Pls.’ Mot. to Maintain Highly Confidential Designations (D.I. 200). 6 Special Master Ruling on Pls.’ Mot. to Maintain Highly Confidential Designations at 1 (D.I. 209) (hereinafter, the “Special Master’s Ruling”). 7 Id. 8 See id. at 2 (citing Surf’s Up Legacy Partners LLC v. Virgin Fest, LLC, 2021 WL 5049459 (Del. Super. Nov. 1, 2021)). 9 Id. at 2–3. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 5 of 17 The Special Master summarized the parties’ contentions. Surf’s Up argued it
needed to maintain the Highly Confidential designation because it reasonably
believed Virgin Fest’s management “would interfere with or usurp Surf’s Up
relationship with its investors.”10 Too, Surf’s Up blamed Virgin Fest for stirring up
other litigation against it that had been filed by its investors where Virgin Fest had
knowledge of the identities of certain of those investors.11 Conversely, Virgin Fest
argued that Surf’s Up failed to meet its burden to demonstrate that disclosure would
be “substantially likely to cause injury” and that a “Confidential” designation would
be sufficient.12
The Special Master determined that, in order for Surf’s Up to establish good
cause under Civil Rule 5(g), “the Court must be satisfied that a substantial likelihood
exists that injury may occur and that Confidential designations are insufficient.”13
In determining whether Surf’s Up met its burden, the Special Master explained he
did not credit Surf’s Up claim that Virgin Fest “allegedly stirred up and will continue
to stir up other litigation by other investors against Surf’s Up if Virgin Fest gains
10 Id. at 3. 11 Id. at 4. 12 Id. 13 See id. at 5. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 6 of 17 access to the investor list.”14 Still, the Special Master held Surf’s Up met its burden
of showing good cause and granted Surf’s Up motion:
[I]t is undoubtedly the case that the identity of investors or investor lists of the type designated Highly Confidential by Surf’s Up is the proper subject of confidential treatment under the Confidentiality Order. Moreover, Virgin Fest is a potential competitor for investors in the businesses in which it and its principals and Surf’s Up engage. There has already been a history of accusations of poaching of investors among the parties’ principals. Surf’s Up concern is not unfounded, but arises in a hotly contested matter with fraud accusations running both ways and demonstrable animus flowing. Once the investor names are known, there is no going back. I am convinced that Highly Confidential designations are warranted. The result would be different if the investor lists belonged to the Surf’s Up entities. The Surf’s Up entities are defunct and therefore not in competition for the investors’ funds and will not be harmed by any interference with the investor relations that might result from the disclosure widely within Virgin Fest. But, when questioned at the hearing on the subject, counsel advised the lists “belong to Mr. Gordon and Mr. Wolkov. They are their individual lists”. To protect their interest in the confidentiality of their private investor lists, Surf’s Up may maintain the current designation.15
Furthermore, the Special Master rejected Virgin Fest’s suggestion that “the use
restriction within the Confidentiality Order is sufficient because it precludes use
outside the litigation that Surf’s Up is worried about, poaching and interfering with
investor relations, even for documents designated only ‘Confidential.’”16
14 Id. at 5–6. 15 Id. at 6–7 (internal citations omitted). 16 See id. 8–9. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 7 of 17 Virgin Fest filed its Exceptions to the Special Master’s May 6th Ruling.17 And
Surf’s Up has now filed its opposition.18
II. STANDARD OF REVIEW
A Special Master’s Report is subject to de novo review by this Court.19
III. ANALYSIS
After careful de novo review of the Special Master’s Ruling, the Court adopts
it in whole.
The first issue is the standard to be applied in reviewing Virgin Fest’s
challenge to the Highly Confidential designation and Surf’s Up Motion. The
Confidentiality Order allows Producing Party to designate any Discovery Material
as Highly Confidential if such party in good faith reasonably believes that disclosure
of the Discovery Material is substantially likely to cause injury to the Producing
Party and that designation of such Discovery Material as Confidential would be
insufficient to protect the interests of the Producing Party. All challenges to a party’s
designation of documents or information as Confidential or Highly Confidential are
governed by Civil Rule 5(g); that rule provides that good cause must be shown for
17 Virgin Fest’s Exceptions to the Special Master’s May 6, 2022 Ruling (D.I. 210). 18 Pls.’ Answering Br. in Opp. to Virgin Fest’s Exceptions (D.I. 215). 19 Del. Super. Ct. Civ. R. 122(c). Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 8 of 17 the Court to order filings or documents be maintained under seal. From the
Confidentiality Order and Civil Rule 5(g), the Special Master correctly distilled the
applicable standard: Surf’s Up must show good cause to maintain the designation of
its investors’ identities as Highly Confidential, and to show good cause, Surf’s Up
must show that disclosure of the investors’ identities is substantially likely to cause
injury to Surf’s Up and that designating their identities as Confidential would be
insufficient to protect Surf’s Up’s interests.20
As support for its Motion, Surf’s Up submitted declarations of counterclaim
defendants Bryan Gordon and Seth Wolkov (collectively, “Declarants”) under
10 Del. C. § 3927.21 Mr. Gordon and Mr. Wolkov are Surf’s Up former CEO and
20 Surf’s Up maintains that it can meet its good cause burden simply by having a good faith reasonable belief that disclosure is substantially likely to cause injury and that Confidential designations are insufficient. See Special Master’s Ruling at 4–5; Pls.’ Answering Br. in Opp. to Virgin Fest’s Exceptions at 2 n.2. The Special Master correctly rejected Surf’s Up position. This Court has recently had occasion to review the “fundamental right [of United States’ citizens] . . . to an open court system,” a principle that “translates into a presumption that the press and public have a common law right of access to judicial proceedings and court records.” See Optical Air Data Sys., LLC v. L-3 Commc’ns Corp., 2020 WL 710264, at *1 (Del. Super. Ct. Feb. 7, 2020) (internal citations omitted). “One manifestation of the common law right of access is Superior Court Civil Rule 5(g),” under which the “default position” is public accessibility of filed documents. See id. (internal citations omitted). In light of these principles, it would not be appropriate to seal court documents based solely on one party’s belief that such a seal is necessary, even if the party holds that belief in good faith. “[T]hat good faith belief, although critical, will not carry the day alone without convincing the Court such reasonable belief is well-founded and the information requires Highly Confidential designations.” See Special Master’s Ruling at 5. 21 See Pls.’ Mot. to Maintain Highly Confidential Designations, Exs. A & B. Because the declarations are substantively identical, the Court will hereafter cite only to Exhibit A—Mr. Gordon’s declaration. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 9 of 17 President, respectively. Declarants explained that they serve “dozens of private
investors, mostly high-net-worth individuals and family offices.”22 Many of these
investors “guard their privacy carefully—this is proprietary information.”23
Declarants say their “livelihood is dependent on those relationships” and the
relationships will “likely” be lost if their contact information is compromised.24
Declarants also claim that disclosure of this information to Virgin Fest would violate
their subscription agreements with their investors, exposing Declarants to litigation
from investors that would harm Declarants financially and reputationally.25
Declarants averred that the investors’ identities are “known to very few people
and were not even disclosed to KAABOO’s board, including then-board member
Jason Felts, who represented Virgin Fest”—Declarants’ “competitor”26—“and who
also served as KAABOO’s Chief Marketing Officer.”27 Virgin Fest, now under the
control of Jason Felts and his business partner Mark Hagle, “wants very badly to
know the identities of Surf’s Up’s investors so that it can drive a wedge into those
22 See id., Ex. A at ¶ 2. 23 Id., Ex. A at ¶ 6. 24 See id., Ex. A at ¶ 7. 25 Id., Ex. A at ¶ 9. 26 Id., Ex. A at ¶ 6. 27 Id., Ex. A at ¶ 11. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 10 of 17 relationship.”28 Declarants explain there is a “history” of bad blood between
themselves and Felts, who “has accused [them] of poaching one of Virgin Fest’s
potential investors, William Hutchinson, and his company, Dunhill Partners.”29
“After Hutchinson made an investment in the KAABOO Texas festival directly
rather than into Virgin Fest, Felts cried foul, accusing us of ‘circumventing’ Virgin
Fest’s relationship with Dunhill Partners.”30
The Court finds that Surf’s Up has met its burden of showing good cause to
maintain the Highly Confidential designation for the identity of its private
investors.31
First, Surf’s Up has established that disclosure of the investors’ identities is
substantially likely to cause injury to Declarants. Declarants have sworn under the
penalties of perjury that their livelihoods depend on the long-standing relationships
of trust and confidence they maintain with their investors and that those relationships
would be lost if the investors’ identities were disclosed. Indeed, disclosure to Virgin
Fest is particularly likely to cause them substantial harm. Declarants not only
28 Id., Ex. A at ¶ 12. 29 Id., Ex. A at ¶ 13. 30 Id. at ¶ 13. 31 It appears undisputed that the investors’ identities constitute “non-public, confidential, proprietary, or commercially sensitive information”—a prerequisite for any confidential treatment under the Confidentiality Order. See Confidentiality Order at 2. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 11 of 17 compete with Virgin Fest for the same class of investors, but also have a clear history
of personal animosity with certain principals of Virgin Fest. The Special Master
correctly noted that a different result may obtain if the investor lists belonged to the
Surf’s Up entities themselves, which are defunct, not in competition for the
investors’ funds, and unlikely to suffer any meaningful injury if the investor lists
were disclosed widely with Virgin Fest.32 But the investor lists belong to Mr.
Gordon and Mr. Wolkov personally, both of whom continue to serve the investors
and stand to suffer substantial harm if their identities were widely disclosed within
Virgin Fest.
Second, Surf’s Up established that designating the investors’ identities as
Confidential would be insufficient to protect its interests. A Confidential
designation would allow their identities to be disclosed generally within Virgin Fest,
including among the principals discussed previously. And as the Special Master
correctly noted, “[o]nce the investor names are known, there is no going back.”33
Underscoring the need for Highly Confidential treatment is the fact that the
investors’ identities weren’t ever disclosed to KAABOO’s board—even before the
relationship between Surf’s Up and Virgin Fest soured, Declarants were doing their
32 See Special Master’s Ruling at 7. 33 Id. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 12 of 17 utmost to maintain confidentiality. Designating the information as Highly
Confidential—“attorneys’ eyes only”—is therefore appropriate under the specific
facts of this dispute.
Virgin Fest objects that “Surf’s Up speculation that Virgin Fest’s principals
might interfere with its relationship with those investors does not establish that
release of the investor identities to Virgin Fest is ‘substantially likely to cause
harm.’”34 Virgin Fest goes further: “Surf’s Up offered no facts showing a substantial
likelihood of injury.”35 Not so.
Surf’s Up submitted particularized facts regarding Declarants’ confidential
relationship with their investors and the reasons why general disclosure to Virgin
Fest is particularly likely to damage those relationships. To be sure, Surf’s Up
warnings of future harm involve an element of speculation. But all averments of
future harm, by necessity, do. Under these facts, Surf’s Up has said enough.
Virgin Fest claims the Court has already made a “finding” that Surf’s Up can
offer only “unsupported speculation,” pointing to the Court’s Letter Order from
November 2021.36 Virgin Fest goes a bit too far here. In its November 2021
34 Virgin Fest’s Exceptions at 2. 35 Id. 36 See id. at 2–3 (citing Surf’s Up, 2021 WL 5049459 at *3). Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 13 of 17 decision, the Court rejected Surf’s Up request that it be allowed to redact completely
the names and identifying information of its investors in documents it agreed to
produce to Virgin Fest. The Court explained that the “alleged harm that Gordon and
Wolkov will suffer should the identities of the investors be revealed to the public”
was “no reason to withhold discoverable information” from Virgin Fest under
Delaware’s rules of discovery.37 The appropriate solution to Surf’s Up concerns was
not to withhold the information altogether, but rather for Surf’s Up to “avail itself to
the protections of the Confidentiality Order”38—an Order that was “Surf’s Up’s
idea” in the first instance.39 Thus, the Court ruled only that Surf’s Up’s allegations
of future harm were not grounds to bar Virgin Fest from discovering their identities.
Whether Surf’s Up’s allegations are sufficient to warrant protection of the now-
produced discovery under the Confidentiality Order is a different question. The
Court expressly said as much when it invited Virgin Fest to “challenge Surf’s Up’s
designation [under the Confidentiality Order] if Virgin Fest believes it lacks
merit.”40
37 See id. at 2. 38 See id. at 3. 39 Id. 40 Id. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 14 of 17 Similarly, Virgin Fest claims Surf’s Up offers mere speculation to support its
claim that a Confidential designation would be insufficient. According to Virgin
Fest, a Confidential designation would address Surf’s Up concerns because it would
require Virgin Fest to use the information “solely for purposes of this Litigation . . .
and not for any other purpose.”41 In response to this argument, the Special Master
correctly noted that the parties stipulated to a two-tier Confidentiality Order and
“Virgin Fest therefore did not object to the additional burdens that Highly
Confidential designations might impose when it agreed to such a form of order.”42
In other words, even if initially resisted, the parties came to recognize that discovery
may require the production of information of such sensitivity that the only means of
safeguarding it would be to prevent certain individuals from viewing it altogether.
“[I]f the use limitation protection that is contained in a single-tier order were always
sufficient, then parties and the Court would never enter two-tier stipulations or
orders in the first place. Surf’s Up has limited its Highly Confidential designations
to a single, narrow category of information—the identity of its private investors and
it has shown good cause to maintain the use of such designations.”43 Simply put,
41 See Virgin Fest’s Exceptions at 4–5 (citing Confidentiality Order at 10). 42 See Special Master’s Ruling at 8–9. 43 Id. at 9. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 15 of 17 Mr. Gordon and Mr. Wolkov will not be required to make their most sensitive
proprietary information available to their competitors in the context of a “hotly
contested matter with fraud accusations running both ways and demonstrable animus
flowing.”44
Finally, Virgin Fest warns that adopting the Special Master’s decision “will
cause more work for the Court in the form of unnecessary litigation and discovery
disputes.”45 As if needed at this point, Virgin Fest reminds the Court that it has
“consistently objected and maintained that no information is worthy of [Highly
Confidential] designations.”46 Although Virgin Fest “agreed to a two-tiered
approach because it was free to challenge any Highly Confidential designations,”
the Special Master’s Ruling effectively “used that agreement against Virgin Fest.”47
According to Virgin Fest, “accept[ing] the Special Master’s use of an agreement to
a two-tiered order against a party who loudly and strenuously objected to any Highly
Confidential designations and a second tier in the order . . . would be encouraging,
44 Id. at 6. 45 Virgin Fest’s Exceptions at 7. 46 Id. at 8. 47 Id. at 8–9 (citing Special Master’s Ruling at 9 (“Here, however, the parties stipulated to the use of a two-tier form order to protect Highly Confidential information. Virgin Fest therefore did not object to the additional burdens that Highly Confidential designations might impose when it agreed to such a form of order.”)). Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 16 of 17 and likely forcing, litigants to always dispute the type of confidentiality that is
appropriate for a case from the outset, causing undue burden to the Court.”48
Not if the parties—and their counsel—are reasonable from the outset.
Neither the Special Master in the first instance, nor the Court, has or will used
Virgin Fest’s agreement against it. But both are applying the framework the parties
together (even, if begrudgingly) constructed.
Virgin Fest has always known that Surf’s Up’s primary reason for seeking a
two-tier Confidentiality Order was its belief “that the identity of [Surf’s Up’s]
investors requires a second tier.”49 Virgin Fest told Surf’s Up it did not believe a
two-tier Confidentiality Order would be “necessary or appropriate.”50 Nevertheless,
Virgin Fest agreed to “put as much of this aside as possible and move forward.”51
True, Virgin Fest did acquiesce to a two-tier Confidentiality Order with the warning
to Surf’s Up that it “anticipate[d] challenging any designations of material as highly
confidential.” So Virgin Fest’s was well aware that the Court could find agree
particular discovery material warrants that very designation both parties—for each’s
own reasons—decided to put on the table.
48 Id. at 9. 49 Virgin Fest’s Answering Br. in Response to Surf’s Up’s Exceptions, Ex. C at 2 (D.I. 158). 50 Id. 51 Id. Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al. C.A. No. N19C-11-092 June 4, 2022 Page 17 of 17 And even without such agreement, if left to the Court’s own device, the two-
tiers would have been imposed as there is good cause under the specific facts
presented here for such treatment. Thus, the Court hopes the parties will use the
procedures devised here reasonably. The Court is confident that future parties will
not be dissuaded from engaging such where it makes sense in their cases.
IV. CONCLUSION
For the foregoing reasons, the Court agrees with the Special Master, and
ADOPTS the Special Master’s Ruling on Surf’s Up Motion to Maintain Highly
Confidential Designations. And, therefore, the Court DENIES Virgin Fest’s
Exceptions to the Special Master’s Ruling.
IT IS SO ORDERED.
Paul R. Wallace, Judge
Original to Prothonotary
cc: All Counsel via File and Serve